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Richard Sofield Weighs In on Potential Effects of Treasury’s Interim CFIUS Rules
Richard C. Sofield, partner in Wiley Rein’s National Security Practice, was quoted extensively by The Deal in an October 17 article regarding the risks for venture capitalists (VCs) who may be impacted by the U.S. Department of the Treasury’s interim rules implementing parts of the recently expanded Committee on Foreign Investment in the United States (CFIUS) laws.
VCs and tech startups are said to be at increased risk of facing regulatory delay and possible fines when the interim rules take effect November 10; they need to be careful because some non-controlling investments previously exempt from CFIUS now fall under its jurisdiction, The Deal noted. The interim rules address national security concerns regarding foreign investment in U.S. “critical technologies,” including aircraft engines, guided missiles, and semiconductors, according to the article.
“Startups are looking for funding and they’re generally not as plugged-in about Washington,” said Mr. Sofield, former director of the Foreign Investment Review Staff at the U.S. Department of Justice (DOJ). Startups also tend to lack export compliance programs that could advise them of the rules’ consequences, he added.
“These are the types of businesses that would be ripe for venture capital but not in a position to necessarily determine whether or not these new regulations would apply to them,” explained Mr. Sofield. “Even a very small amount of investment can trigger CFIUS review if these other pre-conditions are met.”
VCs also may not be aware that the interim rules are not limited to investment from China or other countries that may pose national security risks, according to The Deal.
For VCs and startups, there will be a high learning curve and the education process is ongoing, the article noted. “It’s a very detailed, fact-specific analysis to see if your investment falls within these new regulations, and the hammer is big,” said Mr. Sofield.
The full article can be found here (subscription required).