Restricting Foreign Investment in Silicon Valley: How to Deal with New National Security Review Rules
On September 17th we met at Sony Interactive Entertainment’s San Mateo Studio to hear about the updated restrictions on foreign investment into US firms, known as the Foreign Investment Risk Review Modernization Act of 2018 (FIRRMA). Co-hosted with Pegasus Tech Ventures, we were joined by four speakers: Rick Sofield, Peter Shields, Allison Baum, and Anis Uzzaman. They gave an overview of the changes to the regulatory policy and afterwards took questions from the audience as a panel.
Allison Baum, Principal of Trinity Venture, began the discussion by stepping back to survey the cultural and political trends that exist as the impetus for FIRRMA. She acknowledged the protectionist bent in these changes that tighten reporting rules for non-domestic investors and their potential business partners. Notably, Allison referenced when the Committee on Foreign Investment in the United States (CFIUS) forced Beijing Kunlun Tech to divest from Grindr earlier this year.
She was followed by Rick Sofield, General Partner of Wiley Rein and former Director of Foreign Investment Review Staff, which oversees the Department of Justice’s role in CFIUS. From his experience in government service he gave insights to the behavior and perspective of the inter-agency process. For instance, while few potential investors have received ultimate refusal from the President, quite often companies withdraw their application once they are informed of the Committee’s intent to make a referral. He highlighted how under the new rules companies bear the obligation to file for approval before carrying out any covered transaction.
The presentations ended with a panel joined by Peter Shields, Managing Partner of Wiley Rein, and moderated by Anis Uzzaman of Pegasus Tech Ventures. While everyone was eager to ply the minds of the guests, who in turn gave frank answers, of course there is always a need to hire when seeking actionable legal advice. A key takeaway is that, as a national security-focused committee, CFIUS will expand and contract its activity based on its perception of threats. This depends not only on the character of any potential investor but its connections to other businesses, a point of concern for Japanese firms that must navigate between both US and Chinese markets.