Treasury aims to preempt foreign investment risks to national security

Terry Gerton The Committee on Foreign Investment in the United States, or CFIUS, just updated its website. Normally an updated website is not big news, but there are newsy bits here. And so I want to go through some of them with you. In my experience, CFIUS is sort of shrouded in mystery, but the focus of the website is on more transparency. Why does it seem like that is so important right now?

Chris Pilkerton You’re right. Oftentimes, updates to a website for the federal government are not something that are newsworthy. But we really think this is, in large part because while national security will always be the North Star and the mission of CFIUS, the secretary and the president are very focused on ensuring that we are engaging with the public and ensuring that they understand the process as much as possible. So you’ve talked about this idea of CFIUS being shrouded in secrecy. The reality is we’re trying to demystify CFIUS. Now, there are components of it that will certainly remain in that so-called black box because of the work that we do with the intelligence community to ensure that we are securing our national security concerns. But this is big news for us because the website itself, and I would say probably the biggest thing, is when companies are coming to look to do transactions in the United States, to make investments — as opposed to immediately going out and getting counsel and conducting a large, timely filing that could certainly be, you know, very expensive — we want to be able to identify issues and connect them with a case officer. So there is a pre-filing consultation link that allows them to put some information about the transaction, anonymized if need be. And once again, as you know, CFIUS is confidential, all the information associated with it. So this information coming to the website would be confidential. What that does is it immediately gets them to a case officer who can review that information and then set up a follow-up call with the idea being, let’s talk through the transaction before it happens. And that’s incredibly important in the work that we do, because if someone has a transaction where there would be CFIUS jurisdiction and they end up closing the transaction, sometimes it’s hard to reopen that transaction if CFIUS needs to come in and present some mitigation options from a national security perspective.

Terry Gerton How have your case officers seen the quality of the information that they received change since you opened this portal?

Chris Pilkerton So it’s relatively new, but we’ve gotten a lot of outreach. And obviously we work with a lot of different counsel and people. You know, for good reason we’ll work with counsel to put that information in because if it’s more comprehensive, obviously we can give more feedback. But I will tell you that we’re seeing entrepreneurs who aren’t represented, present some information and share that with us. And there’s a couple of really important things about that. One, this idea of talking more about CFIUS from a customer service perspective serves the American people well because folks who, for no nefarious reason, may not inform us of their transactions; now we know about the transactions and they know about potential concerns. So that’s a big part of it. But I will also say that because we’re seeing historic levels of investment — as you might imagine, we’re see massive investment in the technology space. So, one of the programs that we’ve developed, and this is discussed on the website, is something called the Investment Security Technology Initiative. And the program is essentially working not just with all the subject matter experts throughout the U.S. government, but working with universities, working with corporate R&D, to see where pre-commercialized tech is going. And we’re not looking at anything proprietary there, we’re looking at any particular cases. What we want to know is, from a CFIUS perspective, can we be looking around corners to identify a risk that may be coming for all kinds of new things? So whether it’s quantum, whether it supercomputing, whether its hypersonics or biotech, are there ideas and concepts that are being discussed in the academic or in the R&D world? Well, we can be a part of those conversations to ensure that those companies, once they come through CFIUS, have the ability to grow, prosper and create jobs.

Terry Gerton Chris Pilkerton is the assistant secretary for investment security at the U.S. Treasury Department. One of the other features of the new website is the risk matrix. How does that help the public in general understand the risks that you all are looking at, and how are you measuring and assessing them?

Chris Pilkerton So it goes back to the point that you made earlier that when people have engaged with CFIUS in the past, they haven’t necessarily known what is CFIUS looking at, right? We know that CFIUS supports national security, but what does that actually mean? So going back to the concept of customer service, what we wanted to do is help put the public in the mind of a CFIUS case officer. So the risks that are on there, this is the first time this has ever happened, identify some of the more common risks that we see in program. But it’s not just the risks themselves; it’s also the applicable mitigation that we might want to work with the stakeholders on to be able to mitigate those risks. So things around, you know, privacy data and things that obviously potentially could compromise the American people or present some kind of national security issue — we want to be able to work with those parties in advance. And so it really is about kind of beginning that dialog. Because it’s not just about, like I said before, this historic investment in the United States, but it’s what those investments actually do for the economic development and the larger economy. I travel the country where we have companies that have come through the CFIUS process. And when I meet with them, inevitably, at the table are also the local economic development officials. Because there’s a number of programs and vendors that have been identified that are domestic companies that are able to support those CFIUS companies that come through. So we’re working closely with the Department of War and the Small Business Administration because we want to help identify those vendors so that these CFIUS companies really have the option to utilize a very large swath of incredibly talented domestic vendors.

Terry Gerton So I’m a foreign vendor, I’ve put my early information in, I’ve gotten in touch with my case officer, I know what risks you’re looking at, but now I have no idea what happened to my application, right? It’s gone into the bureaucratic black box. The new website offers a little more clarity there as well. Tell us how you’re helping people kind of know where they are in the process.

Chris Pilkerton So obviously you have the touch points with the case officer. There’s a variety of different stages in the CFIUS process, but from a statutory perspective, at its longest, there’s a 90-day statutory framework. And what we’ve also done for the first time is create something called Operation Shot Clock. So as you know, CFIUS is made up of nine different agencies. So you’ve got a lot of folks that have different inputs, different ideas, different concerns around national security. And part of my job is to coordinate all of that to ensure that we present a sort of timely and predictable process for the folks that are applying. So Operation Shot Clock basically says we have to pick particular days within that 90-day calendar, so to speak, that if we don’t have the information that we need from agencies, it immediately escalates. So it goes from the staff level to the director level to my level and ultimately up to the secretary as well. And the reason that’s important, and all of the secretaries who make up the committee have committed to this, the reason it’s important is to try to give that level of certainty and predictability. Because we certainly appreciate that a lot of people submit forms to the federal government and just get on their knees and hope and pray they’re going to hear back. We don’t want to be part of that process.

Terry Gerton A lot of companies only interact with CFIUS periodically, maybe even only once. As you’re putting more of this information out there on the web and folks are having a chance to consider it in advance, what makes a successful CFIUS application? What should companies be thinking about if they’re going down this road?

Chris Pilkerton So it’s a great point that you make. Because we do see what I’ll call, you know, one-off companies coming through, but we also do see companies that are coming back time and time again. And as part of that, we’re creating something called the Known Investor Program. When you think about a CFIUS transaction, you’ve got the parties that are making the transaction and then you’ve gotten the actual details of the transaction itself. And in that 90-day period, we have to focus on both of those. What this program will allow us to do is sort of do essentially a super-due diligence on companies that may be coming through the process more than once, so that we can focus our concerns around the risk, around the transaction itself. But as far as the applications go, as I mentioned in the pre-filing consultation, you can put as much or as little information as you want. We have a standard that we don’t start an application until we have all the information. So I think the advice that I would give is to be as comprehensive as you can — once again, CFIUS has confidentiality associated with this, that’s in statute — but also give sort of what your larger framework is going to be. Why are you doing this? Because it’s helpful to understand that. So for example, you may have someone that’s interested in coming in and making an investment in some kind of artificial intelligence company, but then they also may be interested down the road in getting involved in some sort of energy platform. So it’s important for us to kind of understand comprehensive approach that this company may want, and to the point that we were just talking about, if they’re going to come through again and again, it helps us better understand who that company is, what they’re about and who’s sort of across all the different stakeholders.

Terry Gerton And as we said earlier, the website is fairly new, but are you seeing the impact in the way you expected as you watched the early filings come in?

Chris Pilkerton We absolutely are. I think CFIUS is probably one of the least-known acronyms in all of D.C. nomenclature. And we’re doing our best to try to get it out there more — that’s part of this conversation. But I have talked to a number of folks that engage in our process, the legal bar around CFIUS is relatively small, and I’ve had conversations with a number the lawyers, but also the companies, saying this is just incredibly helpful. Being able to understand what you need is something that will allow us, when we’re putting our package together and sharing information with you, we just didn’t know exactly what you needed before. Now we’re hoping to make sure that people better understand it.