CFIUS, Economic Sanctions, And China Export Controls In 2021

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CFIUS, Economic Sanctions, And China Export Controls In 2021
<a href="https://pixabay.com/users/mohamed_hassan/">mohamed_hassan</a> / Pixabay

A look back to 2020 and a look ahead to 2021 regarding CFIUS, Economic Sanctions, and Export Controls from Lawrence Ward.

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Q3 2020 hedge fund letters, conferences and more

Lawrence Ward is a partner at the international law firm Dorsey & Whitney (and head of its Seattle office) in international business focusing on U.S. national security law, CFIUS, and international trade compliance law and licensing. He's looked at the landscape for 2021 and of it says:

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CFIUS

"The last year has seen sweeping changes at CFIUS. In February, CFIUS implemented its real estate regulations and also made filings mandatory for certain investment transactions in so-called TID U.S. Businesses (businesses involved in critical technologies, critical infrastructure, or sensitive personal data). These changes were implemented as a result of FIRRMA, which passed the U.S. Congress in August 2018. In addition, CFIUS established a new Office of Monitoring and Enforcement (Monitoring & Enforcement) that is tasked with, among other things, monitoring transactions that were not notified to CFIUS.

Although CFIUS has always monitored such transactions, throughout 2020, Monitoring & Enforcement made outreach in dozens of non-notified transactions for more information about those transactions. Over the last year, CFIUS also continued to make waves with Chinese investment by ordering divestiture of ByteDance's interest in TikTok," Ward says.

"It is important to note that FIRRMA passed with overwhelming bipartisan support and so there is every indication that the incoming Biden Administration will be supportive of the recent CFIUS regulatory changes and the importance of Monitoring & Enforcement. One shift that CFIUS and M&A practitioners saw this year is a focus on U.S. export controls. CFIUS has now linked its mandatory critical technology filings to U.S. export control considerations. Accordingly, U.S. companies that had never considered export controls in the past were required this past year to think through export control considerations before accepting foreign investment. Undoubtedly, that focus will continue as a compliance challenge for U.S. companies in the coming year.

Over the last year, there have been reports that U.S. companies have lost out on foreign investment because those U.S. companies did not understand their export control obligations. Foreign investors in the new year will continue to be savvy on these new requirements and may be hesitant to invest in U.S. companies that have not squarely addressed export controls compliance. With funding coming in part from the newly imposed filing fee in connection with voluntary CFIUS filings, Monitoring & Enforcement will almost certainly continue zealous outreach to companies with non-notified transactions. We also expect that the U.S. Government will continue its laser focus on certain investments in U.S. companies by Chinese investors, particularly those with clear ties to the Chinese Government," Ward says.

Economic Sanctions

"President Trump walked the United States away from the JCPOA and, in doing so, damaged the U.S. relationship with the other signatories to that agreement and with Iran. With that said, we are likely to see a measured approach by the Biden Administration as to Iran. It is unlikely that the Biden Administration will immediately return to the Iran deal. Nevertheless, President-Elect Biden likely will try to resurrect some elements of the JCPOA. In particular, the aerospace industry, which has been particularly hard-hit by COVID-19, may find relief again if the Biden Administration were to loosen its licensing policy for exports of aircraft parts and components to Iran," Ward says.

"In the run-up to the 2020 election, President Trump made some sweeping changes as to U.S.-Cuban foreign policy. President-Elect Biden has made clear that he believes the Trump Administration's Cuban policy changes have caused harm on Cubans and their families. It is almost certain that the Biden Administration will seek to restore various of the OFAC Cuban travel licenses revoked by the Trump Administration. Additionally, the Biden Administration may find ways to allow telecom and tech companies to do work in Cuba," Ward says.

"Over the last year, the Trump Administration took an increasingly hostile approach as to Hong Kong and has slowly ratcheted up sanctions against powerful individuals in Hong Kongâ's Government. With that said, there has largely been bipartisan support of these sanctions. It is unlikely that the Biden Administration will make any sweeping changes as to Hong Kong in the near term but if the Biden Administration seeks to cool tensions with Beijing, then some loosening as to Hong Kong may take effect," Ward says.

Export Controls

"It's been two years since the Commerce Department initially announced its efforts to examine emerging technologies for export control purposes. During the last year, we've seen some minor additions. However, it is widely anticipated that more sweeping emerging technologies controls will come in the next year. Companies in the biotech, nanotech, AI/ML spaces may see the biggest impact of such controls since these companies have largely operated without major export controls in the past. Additionally, given the linkage between export controls and CFIUS, any new emerging technology controls will also impact foreign investment in such companies," Ward says.

"The Trump Administration also used export controls as a way to sanction Chinese companies like Huawei. Again, those sanctions have tended to have significant bipartisan support. It's therefore unlikely to imagine that the Biden Administration will immediately ease sanctions on such Chinese companies. However, it is equally unlikely to imagine that the so-called U.S./China trade war will be quite as intense under the Biden Administration," Ward says.

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Jacob Wolinsky is the founder of ValueWalk.com, a popular value investing and hedge fund focused investment website. Jacob worked as an equity analyst first at a micro-cap focused private equity firm, followed by a stint at a smid cap focused research shop. Jacob lives with his wife and four kids in Passaic NJ. - Email: jacob(at)valuewalk.com - Twitter username: JacobWolinsky - Full Disclosure: I do not purchase any equities anymore to avoid even the appearance of a conflict of interest and because at times I may receive grey areas of insider information. I have a few existing holdings from years ago, but I have sold off most of the equities and now only purchase mutual funds and some ETFs. I also own a few grams of Gold and Silver

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