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How identifying emerging technologies in the export controls context impacts national security reviews of investments by foreign persons in U.S. critical technology companies
The U.S. Department of Commerce’s Bureau of Industry and Security (BIS) published an advanced notice of proposed rulemaking (ANPRM) on November 19, 2018 seeking public comment on the criteria for identifying and classifying emerging technologies based on their national security impacts. BIS identified 14 broad, representative emerging technology categories for consideration described in the chart below.
Following an interagency review of public comments to the ANPRM, BIS anticipates proposing rules for new export controls on these, and potentially other emerging technologies. After the rules are in place, U.S. companies doing business in these emerging technology areas may face significant restrictions on exporting their products to foreign countries as well as on sharing products with foreign nationals in the U.S., so-called “deemed exports.” While the ANPRM does not explicitly address foreign investment, investments by foreign persons in businesses working with these emerging technologies could result in mandatory national security reviews by the Committee on Foreign Investment in the United States (CFIUS) as a result of ongoing U.S. government efforts to integrate CFIUS and export controls regulatory regimes.
|14 Representative Emerging Technology Categories Published in the ANPRM|
|Artificial intelligence and machine learning||Additive manufacturing|
|Position, navigation and timing technology||Robotics|
|Microprocessor technology||Brain-computer interfaces (BCI)|
|Advanced computing technology||Hypersonics|
|Data analytics technology||Advanced materials|
|Quantum information and sensing technology||Advanced surveillance technologies|
Integrating CFIUS and Export Controls
Such recent integration efforts began with the passage of both the Export Control Reform Act (ECRA) of 2018 and the Foreign Investment Risk Review Modernization Act (FIRRMA) of 2018 which, among other things, expands the jurisdiction of CFIUS to review non-controlling investments by foreign persons in U.S. critical technology companies. . FIRRMA’s definition of critical technologies specifically includes emerging technologies controlled under ECRA. The ANPRM is the first step towards identifying those specific emerging technologies.
Why Does the ANPRM Matter to You?
The regulations resulting from ECRA affect the interests of private fund advisers, foreign investors and U.S. technology companies seeking foreign capital. This is because in-progress and upcoming investments with foreign persons in U.S. critical technology companies may be subject to CFIUS review. Because emerging technologies controlled under ECRA are a subset of critical technologies under FIRRMA, how they are identified and classified is important to you. As such, you may wish to submit a public comment on the ANPRM if you have pending or anticipated investments with foreign persons in U.S. critical technology companies. The deadline for comments is December 19, 2018 as stipulated in the ANPRM.
Planning for the Future
The ANPRM is another step towards a more expansive foreign investment review in the U.S. and a reminder that the regulatory process implementing the guidelines of FIRRMA and ECRA is underway. While the specifics of those regulations are not yet known, private fund advisers, foreign investors and U.S. technology companies seeking foreign capital can prepare for the impact of the regulations today. Kroll’s recent publication, Private Fund Adviser Alert: National Security Reviews of Investments by Foreign Persons in Sensitive U.S. Industries—What You Must Know, offers three concise steps to identify your CFIUS risks and to help you comply with FIRRMA.