Pulling the plug

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Last week, for the first time, the US government outlined how it would evaluate sanctions for foreign corporations that violate agreements designed to defend American national security.

To acquire a US company, foreign firms must sign an agreement with the Committee on Foreign Investment in the United States, a coalition of government agencies. The committee, known as CFIUS, has the authority to assess penalties, some of which are very substantial, on firms that violate these agreements.

The new instructions provide insight into the committee’s decision-making process, which holds tremendous authority over foreign transactions. In recent years, CFIUS has compelled a Chinese business to sell the dating app Grindr and a second Chinese company to sell an American hotel management software manufacturer. The committee is negotiating a deal with the popular video app TikTok to address concerns about its Chinese ownership.

According to the new rules, the committee may consider harsher punishments where a foreign company’s violation of an agreement poses a significant threat to national security. CFIUS would also assess whether the committee learned of a foreign company’s inability to comply with a deal on time. According to the new, non-binding principles, consideration would also be given to whether a company’s failures were purposeful or careless.

President Biden has endeavoured to restrict the influence of China and other rivals on American businesses and consumers. Legislators and growing worried that China might leverage its closeness to key computer chip manufacturers in Asia to influence the supply of a gadget that is integral to a large variety of items, including home appliances and autos. Many are also concerned that Chinese-owned applications such as TikTok and WeChat may give over user data to Beijing under Chinese legislation.

This month, the Biden administration announced regulations prohibiting Americans from doing business with Chinese semiconductor manufacturers. Biden issued an executive order last month instructing CFIUS to rigorously examine whether business agreements involving foreign corporations, particularly those from China, might compromise Americans’ personal information.

The latest instructions do not reference any particular foreign nation.

Paul Rosen, assistant secretary for investment security at the Treasury Department, which administers CFIUS, said in a statement that most foreign corporations adhered to their national security agreements. Nevertheless, he said, “those who violate CFIUS mitigation agreements or other legal duties would be held responsible.”

According to reports sent to Congress, the committee has been active in recent years, analyzing hundreds of business acquisition files in 2021. In several of these instances, the committee decided to accept a transaction only if the foreign corporation promised to take steps to alleviate its concerns.

In his remarks, Rosen said that the rules provided a “clear message” that compliance with government agreements was “not optional.”

Under federal law, the government may impose fines on firms that break their committee agreements. The sanctions may be substantial, ranging up to the actual value of the transaction in issue.

The rules also openly describe how corporations may contest a government penalty, giving insight into how the committee monitors non-compliance. According to the document, the government receives information about potential violations from “across the US government, publicly accessible information, third-party service providers (e.g., auditors and monitors), tips, and transaction participants.”

Ibrahim Sajid Malick
Ibrahim Sajid Malickhttp://narratives.com.pk
Editor, Narratives. Technologist, social entrepreneur & digital anthropologist.

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