Last fall, Morgan Lewis partner Giovanna Cinelli, leader of the firm’s international trade and national security practice, was elevated to Visiting Fellow of George Mason University’s National Security Institute (NSI). A former Naval Reserve intelligence officer, Cinelli was involved in the first CFIUS matters filed under the 1988 Exon-Florio Amendments and has been a leading lawyer in the field ever since. She recently spoke about her new research role and her work as an attorney.
What kind of research will you be doing at the National Security Institute?
I expect to continue my research into the national security implications of export controls, foreign direct investment and the changing geostrategic environment between the United States and China. I currently have in process several articles regarding the impact of a US outbound investment regime, the potential to transfer export control responsibility from the Department of Commerce to the Department of State, and the potential for a new foreign direct investment regime, the Commission on Foreign Investment and National Security (CFINS), which could replace the current structure, an interagency committee called the Committee on Foreign Investment in the United States (CFIUS).
How would you characterize the evolution of its role in the global economy over the last two decades?
CFIUS has played a key role in reviewing select cross-border investments over the last 20 years. The Committee, however, has not had a significant impact, in my view, on US national security since its remit, prior to 2018, was focused on certain types of transactions and involved a voluntary filing process only. In 2018, Congress attempted to expand CFIUS’ role, authorizing it to review not only acquisitions, mergers and other control type transactions, but minority investments as well. However, the statute and the subsequent Treasury Department regulations were narrowly tailored to eliminate a number of potentially impactful transactions from CFIUS review – for example, greenfield activity, certain encryption related transactions, and certain minority investments that did not involve critical technologies or access to nonpublic technical information. This approach resulted in the opportunity for investors to legitimately structure transactions to eliminate or limit CFIUS’ jurisdiction.
As such, CFIUS’ impact is framed by the transactions it sees, rather than the ones it does not see. Given that, on average, the parties participate in about 20,000 to 40,000 cross-border investments in the US, CFIUS’ review of between 100 and 250 transactions a year reflects its impact. Some have commented that CFIUS is an impediment to investment, but that it would be difficult to support that conclusion given the investment numbers and CFIUS’ investment reviews. It is important to note, however, that the 2018 legislation, the Foreign Investment Risk Review Modernization Act of 2018 (FIRRMA), resulted in an outward-facing engagement between the US and other countries that has resulted in the establishment or enhancement of over 20 foreign direct investment regimes in other countries. This outreach and the establishment of non-US cross-border investment reviews have enhanced the US and other countries’ ability to track and identify transactions among jurisdictions that could raise issues. These multi-jurisdictional review processes, coupled with CFIUS’ authority to reach out to parties who failed to file a CFIUS notice and request a filing, enhance the potential for CFIUS to identify national security issues among a broader range of investment activity.
What would you change about ifs enforcement if you had the power?
In 2022, CFIUS published penalty and enforcement guidance, confirming the authority it has had as a Committee since 1988 to penalize parties who breached mitigation agreements with the Committee or submitted statements or made material omissions to the Committee. Under FIRRMA, with the addition of a mandatory filing requirement in certain circumstances, Congress and the Treasury regulations added penalties for a failure to file a mandatory CFIUS notice. Although FIRRMA is now four years old, we have yet to see a public determination imposing a penalty under the mandatory filing requirement. We have seen two published penalty determinations for breaches of mitigation agreements, although Treasury (as the staff chair of CFIUS) has not published any information about the industry, the transaction, or the details of the breach.
Thus, these two decisions provide little information to investors on what may be of concern to the Committee. Within this framework, if I could change some aspect of enforcement, I would focus on transparency – providing the investment community details about the types of transactions that are of interest or concern to CFIUS and the breaches that raise sufficient issues that penalties are needed. Up until 2008, CFIUS’ annual reports used to publish the names, industries, and countries of parties who submitted CFIUS filings. This information helped US companies understand whether investments from non-US parties could raise questions for CFIUS or whether a filing would be beneficial. Today, however, under the cloak of confidentiality, the CFIUS annual report provides little detail of relevance to an investor. Statistics regarding the number of filings, from which countries and in which self-designated industries is deceptive since the concept of national security has changed. Transactions involving biotechnology could raise national security concerns as well as those involving defense related technology. But investors may be unfamiliar with the issues that relate to the national security concerns within the biotech world.
What drew you to this kind of work?
After my appellate court clerkship, I had the honor of working with Harvey Sherzer, a well-known and highly experienced attorney in the national security world – especially export controls and government contracts. I was fortunate that he took the time to provide me the opportunity to work on a number of matters in these areas for defense, aerospace, and intelligence related companies. At the same time, I was a Naval Reserve Intelligence Officer and had the opportunity to see the relevance of the legal work that I handled with Harvey on the day-to-day operational areas of the defense world. I found this fascinating, interesting and impactful. So I decided to devote my legal career to the national security space – adding CFIUS to the mix as well as export controls, and government contracts.
Who are some of the people or books that have shaped your thinking about international affairs?
As I mentioned, Harvey Sherzer encouraged me to specialize in the national security field and was important to my development as an attorney. At the same time, my appellate judge, Judge Philip Nichols, encouraged me to see no limits to what I could do, whether in the practice of law or in my personal life. Among his many “words of wisdom,” he told me – “Nil satis nisi optimum” (Nothing but the best is good enough). This has been one of several guiding principles in my legal career and I share it with others who look for satisfaction and success in their professions. And although I could share the advice in English, the Latin sounds more impactful.
How did you end up becoming a Naval Reserve Intelligence officer? What kind of work did you do?
I ended up being appointed a Special Duty Intelligence Officer in the US Naval Reserve as a 1635 designator based on my graduate school work. I had two weeks of training at Pensacola’s Air Facility and was then assigned to the Navy Command Center at the Pentagon. It was exciting and interesting work which made me feel that I was contributing on a more relevant level. Initially I handled intelligence analyses in the Med and with the former Soviet Union submarine fleet (I am dating myself by the reference to the Soviet Union). I moved eventually to a broader national security remit once the Soviet Union disbanded and handled intel analyses across a spectrum of issues.
What issues or problems do you anticipate keeping you busy in 2023?
I expect that some of the key issues we saw in 2022 will continue in 2023 – sanctions, export controls and updates to foreign direct investment. Whether Russia or China, the US and Europe have found sanctions to be a soft power tool that can be used without the need for boots on the ground. This allows governments to encourage changes in other parties’ behavior without the risk to personnel. I expect sanctions questions to continue, whether related to divestments or restructuring, or managing new sanctions against unexpected parties.
I also see export controls taking a front and center role. Last Congress (the 117th), legislation was introduced to potentially transfer export control jurisdiction from the Department of Commerce to the Department of State. Although that bill did not get passed, I consider it important that the issue was raised and that several members of Congress proposed a legislative change. I also expect to see questions regarding licensing policy, engagements with sanctioned parties (such as Entity List organizations), and enforcement will likely increase. On the foreign direct investment side, we may see some serious consideration of changing the CFIUS structure – from an inter-agency Committee to a commission comparable to the SEC or the FCC. Although it’s unlikely that such significant changes could occur in one Congressional term, the debate will likely create a number of questions regarding CFIUS’ jurisdiction, the transactions of interest, and the potential for transaction denials.