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New Bill Brings Scrutiny to Foreign Donations and Contracts in U.S. Higher Education



Under the proposed U.S. Innovation and Competition Act that just passed the U.S. Senate with bipartisan support and is headed to the House, the Committee on Foreign Investment in the United States (CFIUS) would be given the power to review and potentially block or reverse foreign contracts and large donations involving U.S. higher education institutions.

If the bill becomes law, considering CFIUS risk would be a must for all universities considering significant donations or contracts involving foreign parties. CFIUS must already be considered, including by universities, whenever a foreign investment is made in the U.S., but the new proposed law specifically targets university donations and contracts.

The basis for CFIUS’s existing authority to review foreign investments is national security. The new bill would add to foreign investment review gifts to or contracts with higher education institutions in excess of $1,000,000 when those gifts or contracts (a) are conditional or restricted in a way that essentially “establishes control” by the foreign party, or (b) involve a foreign party gaining nonpublic technical information on “critical technologies.” Critical technologies is an evolving group of technologies that CFIUS considers may have some military application for foreign powers, even if military application has nothing to do with how the U.S. person or entity is using or developing the technology. What it means to “establish control” and other key mechanics of CFIUS’s expanded power would be defined by rulemaking if the bill passes.

CFIUS is particularly concerned with China, as well as other nations with fraught relations with the U.S., but the new law would apply to qualifying foreign gifts or contracts from any country. Accordingly, the bill could impose a substantial compliance burden on higher education institutions, including pre-donation or pre-contract mandatory filings with CFIUS under some circumstances. CFIUS has the power to condition or block transactions, and failure to file when required could result in significant penalties. If the donation or contract has already been made, CFIUS could reverse it.

Even if CFIUS’s authority is not expanded, counsel for higher education institutions should still be aware of existing CFIUS risks in any transaction involving a foreign investment, particularly where a foreign government (including state-owned universities), advanced technology, or collection of sensitive personal data on a large scale is involved. Whenever a foreign party is involved in an investment in the U.S., we advise obtaining CFIUS advice. It may be that the transaction poses no risk and no further action is required, or it may be that a mandatory or voluntary CFIUS filing should be made before proceeding. We will continue to monitor the potential expansion of CFIUS to cover foreign donations and contracts and advise further as the proposed Act is considered.

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