Shearman And Sterling

CFIUS, US Dept of Treasury building, Committee on Foreign Investment in the United States

April 22, 2021

Proposed Extension of CFIUS Jurisdiction to Foreign Gifts to US Colleges and Universities

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PROPOSED EXTENSION OF CFIUS JURISDICTION TO FOREIGN GIFTS TO US COLLEGES AND UNIVERSITIES

The Senate Foreign Relations Committee this week approved legislation that would authorize and require the Committee on Foreign Investment in the United States to review the national security implications of foreign gifts to U.S. public and private colleges and universities, as well as foreign contracts with such institutions. The proposed extension of CFIUS jurisdiction is part of the Strategic Competition Act of 2021, comprehensive legislation designed to promote a policy of strategic competition with China through investment in new technologies and economic and technology partnerships with allies, especially in the Indo-Pacific region. It is also a signal that the U.S. Congress is actively considering CFIUS as an important tool in both foreign and domestic policy making.

This proposal, which was approved on a bipartisan 21–1 vote, would extend CFIUS jurisdiction to cover any foreign gift or combination of gifts of $1 million or more by a foreign person to a U.S. college or university, when the gift “relates to research, development, or production of critical technologies and provides the foreign person potential access to any material nonpublic technical information” held by the academic institution. It would also apply when the gift comes with certain conditions, such as establishment of a research program, grants and scholarships or assignment of certain employees. The provisions would apply to foreign gifts of money or property made to accredited higher education institutions that receive federal financial assistance. Similar provisions would apply to foreign contracts with such colleges and universities.

The bill also instructs CFIUS to issue regulations making a review mandatory when the above components are in place. It also would add as a CFIUS member the Secretary of Education, which does not currently sit on CFIUS, when the committee is considering a transaction involving an institution of higher education. The proposal instructs the Administration to report to Congress annually on whether foreign governments are directing espionage activities at U.S. higher education institutions with the goal of “obtaining research and development methods or secrets related to critical technologies.” The proposal would also add the Secretary of the Treasury, as the chairperson of CFIUS, to existing requirements that colleges and universities report gifts from or contracts with foreign sources of $250,000 or greater to the Secretary of Education. Finally, the bill directs CFIUS to conduct a pilot program to assess methods for implementing review of the transaction described above.

This proposal is designed to add another layer to protections already in place to protect U.S. know-how from being undermined. While gifts to colleges and universities are not currently subject to CFIUS jurisdiction, those institutions must follow U.S. export control laws with respect to any U.S.-origin technology developed or utilized as part of its research and development. With certain exceptions, foreign persons working or attending school in the United States may not be given access to such technology without an export license, if one is required for exports to that person’s country of nationality. U.S. universities have been charged with violations of U.S. export controls laws for unlawfully releasing controlled technology to foreign persons in the United States, something that is called a deemed export, and have faced fines and, in some cases, prison sentences. The U.S. General Accounting Office in 2020, citing the risk that foreign students may “export sensitive knowledge that they gain to their home countries,” recommended that the State Department and Commerce Department, which administer U.S. export control laws, “in consultation with university representatives, provide additional or revise existing guidance and outreach to address university-specific export control issues to further support universities’ understanding and compliance.”

The extension of jurisdiction to cover foreign gifts to universities would open a new chapter for CFIUS, but the Congressional focus on critical technologies is a long-standing one. Less than three years ago, Congress approved the Foreign Investment Risk Review Modernization Act of 2018, which overhauled the CFIUS rules and for the first time made certain CFIUS filings mandatory, including certain foreign investments in U.S. critical technologies companies. The regulations implementing that law were only finalized last September.

The CFIUS components of the Strategic Competition Act of 2021 have a long road to becoming law. Any such changes would likely have to go through the Senate Committee on Banking, Housing and Urban Affairs, which has primary jurisdiction over matters involving CFIUS, and would also have to be approved by the full Senate and the House of Representatives. Nevertheless, CFIUS as a means of protecting U.S. national security remains a topic of keen congressional interest. Senator Pat Toomey (R-Pennsylvania), the ranking member of the Senate Banking, Housing and Urban Affairs Committee, has expressed concerns of his own regarding the role CFIUS plays in safeguarding U.S. technology. He recently joined the ranking members of the Senate Finance Committee and Senate Judiciary Committee in a request for a briefing on the steps that the Biden administration is taking to prevent foreign actors from evading CFIUS. “We remain concerned about foreign governments … potentially taking actions to evade CFIUS reviews in an attempt to undermine U.S. superiority in leading edge technologies, the CFIUS process, the rules of export controls and trade, and, as a result, our country’s national security,” they wrote in a letter addressed to Treasury Secretary Janet Yellen. The senators requested a classified briefing by Treasury and its relevant intelligence community and law enforcement no later than May 1, 2021.

Shearman & Sterling will track this and other issues as they develop and periodically report on their progress.

Special thanks to Lisa Raisner, Head of Government Relations, who co-authored this publication.

Authors and Contributors

John M. Beahn

Partner

Committee on Foreign Investment in the United States (CFIUS)

+1 202 508 8122

+1 202 508 8122

Washington DC

Robert S. LaRussa

Counsel

Committee on Foreign Investment in the United States (CFIUS)

+1 202 508 8180

+1 202 508 8180

Washington DC