Last week, the White House issued a National Security Presidential Memorandum (“NSPM”) intended to address current national security threats while preserving an open environment for international investment.

Key Takeaways: The NSPM outlines further restrictions on investment and M&A activity from foreign adversaries while proposing more favorable treatment for U.S. allies and those firms who distance themselves from these adversaries—in particular, the People’s Republic of China (“PRC”). Going forward, investors and other transaction parties should be aware of three key takeaways from the NSPM: 

• Further Restrictions on Chinese Investment in the U.S. The NSPM outlines further restrictions on investments (both inbound and outbound) from U.S. adversaries, continuing the policies of Trump 1.0 and the Biden Administration, with a few added wrinkles—namely, explicitly restricting Chinese investment in several key sectors and industries, including technology, critical infrastructure, and healthcare;
• New “Fast Track” Process for U.S. Allies. Contemplating a “Fast Track” process for key U.S. allies and recognizing the increasing burdens posed on these allies by the mitigation agreement framework typically relied on by the Committee on Foreign Investment in the United States (“CFIUS”); and
• No Greenfield Exception. The NSPM proposes eliminating the “greenfield” exception long relied on by startups and new ventures to bypass CFIUS review for investments in new businesses.

Critically, the NSPM itself does not adopt any regulations or propose a timeline for doing so; we expect CFIUS to potentially initiate a new rulemaking process to implement these objectives in the near term.

Specific Changes to Current CFIUS Framework: The NSPM articulates a multi-pronged approach to foster foreign investment in the United States:

• Contours of the New “Fast Track” Process. The NSPM calls for an expedited “fast-track” process, using objective standards to facilitate more investment from allied countries and partner sources in U.S. businesses involved with advanced technology and other important sectors. Several key questions remain. For example, it is unclear how this “Fast Track” would align with the “Excepted Investor” framework for Five Eyes nations, which currently requires entities to satisfy an exhaustive list of criteria—unless CFIUS were to consider some kind of carve-out or preclearance process for these investments. Moreover, it’s possible CFIUS requires transaction parties seeking to utilize this Fast Track process to demonstrate no commercial relationships with U.S. adversaries—something that may be difficult for investment funds with global operations.
• Mitigation Agreement Streamlining. The NSPM calls for simplified mitigation agreements that provide clear, actionable steps for compliance, reducing the bureaucratic burden on investors and transaction parties. Although investors from U.S. allies are often frustrated by the breadth and duration of current mitigation agreements, it is not clear if the implementation of the NSPM would provide concrete relief: it is possible a new approach could take the form of simply preventing investors from maintaining relationships with U.S. adversaries (as noted above) and/or outright prohibiting these investments. 
• Passive Investments. The NSPM continues to encourage truly passive foreign investments (e.g., those investments that do not include certain governance or key information rights), although these investments could attract scrutiny if from foreign adversaries.

Restrictions on Adversarial Investments: The NSPM also outlines several measures to safeguard U.S. national security from investments from key U.S. adversaries:

• Restrictions Governing U.S. Companies and Investors. The Secretary of the Treasury, in consultation with the heads of other executive departments as deemed necessary, is directed to establish new rules to prevent U.S. companies and investors from investing in industries that advance the PRC’s national Military-Civil Fusion strategy and prevent PRC-affiliated persons from buying up critical American businesses and assets. As part of the broader review, the Trump Administration (“Administration”) will consider applying restrictions on certain outbound investment types—including private equity, venture capital, greenfield investments, corporate expansions, and investments in publicly traded securities—in the PRC, especially in high technology sectors such as semiconductors, artificial intelligence, and biotechnology.
• Further Review of Real Estate Transactions. The Administration plans to further utilize CFIUS to safeguard specific critical American assets, including strategic technology and infrastructure, as well as farmland and real estate near sensitive government facilities, from investment by foreign adversaries. 
• No Greenfield Exception. The Administration is also committed to strengthening CFIUS authority over “greenfield” investments to restrict foreign adversary access to domestic sensitive technologies, including artificial intelligence. Transaction parties should be aware that eliminating this exception would significantly expand CFIUS’ jurisdiction and expose many more transactions to CFIUS review—including angel and early-stage startup investments.