Could CFIUS block a foreign investment in autonomous vehicles?
Sooner or later, the powerful regulatory committee will face a decision on a significant foreign investment in the US autonomous vehicles sector. They could veto it.
Originally published on Back\Line in March 2018. With the site’s demise in late 2018, I’m republishing it here, because it’s still relevant.
Earlier this month, technology markets witnessed the rare spectacle of the US government directly vetoing a major technology acquisition. The $117 billion hostile takeover of US-based semiconductor manufacturer Qualcomm by Singapore-based Broadcom was ordered stopped on the basis that the deal “threatens to impair the national security of the United States”.
While many headlines focused on the fact that the veto came from the pen of President Donald Trump — possibly reflecting his general antipathy to global trade — the truth is more complicated. Before the Presidential veto, the deal was under review by the Committee on Foreign Investment in the United States (CFIUS), a poorly understood but immensely powerful regulatory body of the US government that is empowered to block any foreign acquisition of US companies on the grounds of national security.
CFIUS had earlier ordered that Qualcomm postpone a shareholder meeting at which the board was likely to be taken over by Broadcom. It then recommended that the President block the deal. Since the acquisition would have impacted the future of standards and technology for 5G wireless systems, with implications for military communications, it’s clear why the Committee had concerns about national security impacts.
What CFIUS might mean for autonomous vehicles
All this raises the question: Could autonomous vehicles be next? After all, investment in the autonomous vehicles sector is exploding, totaling at least $80 billion. Many of the announced investments and partnerships cross national borders, such as Toyota’s acquisition of Jaybridge Robotics, Samsung’s acquisition of Harman, and Intel’s acquisition of Mobileye.
Also, a number of non-U.S. companies are launching major funds that are targeting autonomous vehicles and AI more broadly, including Baidu’s $1.5 billion “Apollo Fund” and SoftBank’s “Vision Fund” (which is now the majority shareholder in Uber and owns a substantial amount of Nvidia).
There are two ways that autonomous vehicles might fall under CFIUS’ broad “national security” jurisdiction. The first is that this jurisdiction includes homeland security, and there have been growing concerns about the potential of autonomous vehicles for terrorism — for example, a cyber-hacker who took control of an autonomous vehicle could potentially crash it into any number of targets.
The second is based on the idea that some “critical technologies” provide economic advantages that are so great they can impact national security, and the U.S. must protect its dominance in them. In its March 5 letter to Broadcom, CFIUS noted the importance of technical standards-setting in 5G wireless communications, and the important of U.S. leadership in key standards-setting bodies (presumably supporting U.S. technical dominance). As autonomous vehicle technology matures, many technical standards will be developed, and presumably CFIUS would like to see U.S. leadership in those standard-setting bodies as well.
It stands to reason that many foreign companies and funds will be interested in acquisitions in the US autonomous vehicle sector. We’ve already seen one closely related example, when China-based NavInfo and Tencent, and Singapore sovereign wealth fund GIC Pte attempted to buy a minority stake in mapping company HERE, and then dropped their bid after CFIUS appeared to signal it wouldn’t grant approval. Bigger deals may be on the horizon. So what should industry stakeholders know about the process?
How CFIUS reviews covered transactions
For a deal to be reviewed by CFIUS, it must be a “covered transaction”, which essentially means that a foreign company or person would gain control over a U.S. business. By itself, this isn’t necessarily a problem: the Committee can conclude through an informal initial review that there are no concerns. Failing this, it can launch a formal 30-day review, which in turn can trigger a more intensive 45-day “investigation”. If national security concerns are not resolved by this point, the Committee can send a recommendation to the President, who must announce a decision within 15 days.
For the President to veto the deal, there must be a finding that (a) a foreign person (or company) exercising control over a US business “might take action that threatens to impair the national security” of the US, and that (b) no other laws are appropriate and adequate to prevent this.
Another wrinkle is the fact that if the acquirer is or is controlled by a foreign government — such as a sovereign wealth fund — a formal investigation is mandatory. As sovereign wealth funds around the world increasingly pursue tech companies, it’s not hard to believe that autonomous vehicle companies are very much in their sights.
The membership of CFIUS was codified in The Foreign Investment and National Security Act of 2007 (FINSA). Chaired by the Secretary of the Treasury, the voting members the Secretaries of Commerce, Defense, Energy, Homeland Security, Justice, and State; the U.S. trade representative, and the Director of the Office of Science and Technology Policy. Several other federal offices are also involved, with the Director of National Intelligence and Secretary of Labor serving as non-voting members.
A growing role for CFIUS?
In CY 2015 (the last year for which data are available), CFIUS reviewed 143 transactions and proceeded to investigate 66 of them, with the largest share coming from China, Canada and the UK. This reflects a longer-term upward trend in the number of transactions reviewed since 2009.
In addition to this long-term trend, the Trump Administration has signaled its intention to be more aggressive about foreign acquisition of US technology. The 2017 National Security Strategy explicitly highlights self-driving cars as a critical emerging technology, and commits to strengthening CFIUS under the section titled “Promote and Protect the U.S. National Security Innovation Base”.
Congress has also expressed interest in pushing CFIUS to be more aggressive on blocking deals. The Foreign Investment Risk Review Modernization Act (FIRRMA), introduced last year by Senate Majority Whip John Cornyn with bipartisan support, would make several changes to the CFIUS process, including lowering the threshold from “control of” to merely a non-passive investment in a U.S. “critical technology company” or “critical infrastructure company” by a foreign person. It would also potentially expand CFIUS jurisdiction to certain joint ventures or licensing agreements between US businesses and foreign entities.
It’s not hard to imagine a scenario in the near future in which a sovereign wealth fund or other investment vehicle seeks to acquire a US autonomous vehicle company, or an important supplier (such as processors or lidar). If any one of the members of CFIUS has concerns that this poses a risk to national security — in its broadest definition — we could see the deal vetoed by the White House.
Less than a year ago there was speculation that CFIUS might be so badly understaffed in the new Administration it would barely be able to function. This month we’ve seen a very clear indication that it’s functioning robustly. As it appears set to play a growing role in US economic and foreign policy, sooner or later it could collide head-on with the booming autonomous vehicles industry.
