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David Fagan

David Fagan co-chairs the firm’s top ranked practices on cross-border investment and national security matters, including reviews conducted by the Committee on Foreign Investment in the United States (CFIUS), and data privacy and cybersecurity.

David has been recognized by Chambers USA and Chambers Global for his leading expertise on bet-the-company CFIUS matters and has received multiple accolades for his work in this area, including twice being named Dealmaker of the Year by The American Lawyer. Clients laud him for “[seeing] far more matters than many other lawyers,” his “incredible insight,” and “know[ing] how to structure deals to facilitate regulatory reviews” (Chambers USA).

David’s practice covers representations of both foreign and domestic companies before CFIUS and related national security regulators. The representations encompass matters in which the principal assets are in the United States, as well as those in which there is a smaller U.S. nexus but where solving for the CFIUS issues—including through proactive mitigation and carve-outs—is a critical path for the transaction. David has handled transactions for clients across every sector subject to CFIUS review, including some of the most sensitive and complex matters that have set the template for CFIUS compliance and security agreements in their respective industries. He is also routinely called upon to rescue transactions that have run into challenges in CFIUS, and to negotiate solutions with the U.S. government that protect national security interests, while preserving shareholder and U.S. business interests.

Reflecting his work on U.S.-China investment issues and his experience on complex U.S. national security matters intersecting with China, David is regularly engaged by the world’s leading multi-national companies across a range of industries to advise on strategic legal projects, including supply chain matters, related to their positioning in the emerging competition between the U.S. and China, as well as on emerging legal issues such as outbound investment restrictions and regulations governing information and communications technologies and services (ICTS). David also has testified before a congressional commission regarding U.S. national security, trade, and investment matters with China.

In addition, in the foreign investment and national security area, David is known for his work on matters requiring the mitigation of foreign ownership, control or influence (FOCI) under applicable national industrial security regulations, including for many of the world’s leading aerospace and defense companies and private equity firms, as well as telecommunications transactions that undergo a public safety, law enforcement, and national security review by the group of agencies known as “Team Telecom.”

In his cybersecurity practice, David has counseled companies on responding to some of the most sophisticated documented cyber-based attacks on their networks and information, including the largest documented infrastructure attacks, as well as data security incidents involving millions of affected consumers. He has been engaged by boards of directors of Fortune 500 companies to counsel them on cyber risk and to lead investigations into cyber attacks, and he has responded to investigations and enforcement actions from the Federal Trade Commission (FTC) and state attorneys general. David has also helped clients respond to ransomware attacks, insider theft, vendor breaches, hacktivists, state-sponsored attacks affecting personal data and trade secrets, and criminal organization attacks directed at stealing personal data, among other matters.

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Introduction

On December 27, 2024, the U.S. Department of Justice (“DOJ”) issued the Final Rule implementing President Biden’s February 28, 2024 Executive Order on “Preventing Access to Americans’ Bulk Sensitive Personal Data and United States Government-Related Data by Countries of Concern” (the “EO”). The Final Rule solidifies a new national security regulatory regime focused on protecting bulk U.S. sensitive personal data and government-related data from countries of concern, including the People’s Republic of China (“PRC” or “China”), and represents the latest step in the U.S. government’s whole-of-government effort to “de-risk” with respect to China. The Final Rule marks the first time that U.S. persons will be categorically prohibited from engaging in certain transactions that may result in foreign access to bulk U.S. sensitive personal data and government-related data. It also provides that certain other transactions will be “restricted,” meaning they are prohibited unless the U.S. business first implements a range of security requirements, which in some cases will be onerous or costly. The Final Rule accordingly could have wide-ranging implications for U.S. companies across various industries. The Final Rule takes effect 90 days after publication in the Federal Register, which is set for January 8, 2025, although certain compliance requirements will not take effect until 270 days following publication.

In parallel with the release of the Final Rule, on January 3, 2025, the U.S. Cybersecurity and Infrastructure Security Agency (“CISA”), which is part of the U.S. Department of Homeland Security (“DHS”), released the final security requirements (the “Security Requirements”). The Security Requirements set forth the measures that U.S. persons must satisfy in order to engage in restricted transactions, and are incorporated by reference into the Final Rule.

Importantly, as we discussed in our analysis of the Advance Notice of Proposed Rulemaking (“ANPRM”) and our analysis of the Notice of Proposed Rulemaking (“NPRM”), the Final Rule is a national security regulation designed to address identified risks to U.S. national security—not a privacy regulation designed to protect privacy or other individual interests. Consequently, while the Final Rule regulates transactions involving personal data, many of the concepts and definitions diverge materially from those in existing privacy regimes. The Final Rule stems from the U.S. government’s increasing unwillingness to tolerate foreign adversary access to U.S. personal data. As DOJ explained in the preamble to the Final Rule, “[t]his rule will prevent . . . foreign adversaries from legally obtaining [bulk U.S. sensitive personal data or government-related data] through commercial transactions with U.S. persons, thereby stemming data flows and directly addressing the national security risks identified in the [EO].” DOJ cited examples such as (1) the ability of journalists to track the movements of U.S. President Joe Biden, U.S. Vice President Kamala Harris, and now President-Elect Donald Trump through their bodyguards’ use of a fitness app; and (2) the ability to track U.S. government personnel movement through the purchase of location information and digital advertising data—that demonstrate the U.S. national security risks associated with foreign adversary access to commercially available data. Finally, DOJ made a particular point of explaining that certain data that is anonymized or depersonalized presents U.S. national security risks, especially with respect to the ability of adversaries to use “bulk human genomic data[] to enhance military capabilities that include facilitating the development of bioweapons.”Continue Reading Department of Justice Issues Final Rule to Implement Bulk U.S. Sensitive Personal Data and Government-Related Data Executive Order

May 23, 2023, Covington Alert

The U.S. Department of the Treasury (“Treasury”), in its capacity as chair of the Committee on Foreign Investment in the United States (“CFIUS” or the “Committee”), recently posted two new frequently asked questions (“FAQs”) to CFIUS’s website that have important implications for parties planning transactions subject to the Committee’s jurisdiction.

First, CFIUS confirmed its recent practice of requiring detailed information on all direct or indirect foreign ownership involved in a transaction, including disclosure of all limited partners (or “LPs”) of an investment fund, without regard to any pre-existing agreements between the fund sponsor and investor regarding disclosure.

Second, CFIUS offered guidance regarding the meaning of “completion date” for purposes of when a mandatory filing must be submitted for a multi-stage transaction. The guidance could have broad implications, especially for some venture financing transactions, as it introduces uncertainty regarding the ability of investors to use a staged transaction to acquire an initial, passive equity interest prior to submitting a mandatory CFIUS filing with respect to a subsequent acquisition of control or certain non-passive rights. The new guidance seems at odds with language that appears in the preamble to the regulations implementing the Foreign Investment Risk Review Modernization Act of 2018 (“FIRRMA”), and the practice of transaction parties for the last several years. CFIUS did not provide any explanation for this change, which raises questions as to why the Committee has issued the guidance now.

Each of these developments is discussed in more detail below.

1. CFIUS may require detailed information regarding all foreign persons involved directly or indirectly in a transaction, including limited partners in an investment fund.

Treasury published the following FAQ on May 11:

Does CFIUS require information on all foreign persons, such as limited partners in an investment fund, that would hold an interest in a U.S. business, whether directly or indirectly, as part of the transaction?Continue Reading CFIUS Issues Guidance On Disclosure of Information About Limited Partner Investors and Application of Mandatory Filing Rules to Multi-stage Transactions

On March 21, 2023, the Department of Commerce (“Commerce”) published a Notice of Proposed Rulemaking (the “Commerce Proposed Rule”) to implement certain provisions of the CHIPS and Science Act of 2022 (“CHIPS Act”) that place restrictions on certain activities of businesses receiving federal funding pursuant to the CHIPS Act (“Commerce…

Continue Reading National Security Update – Departments of Commerce and Treasury Release Notice of Proposed Rulemaking Regarding CHIPS “Guardrails”

On the heels of Russia’s invasion of Ukraine, pandemic-induced supply chain disruptions, and U.S.-China tensions over Taiwan, 2022 accelerated a sweeping effort within the U.S. government to make national security considerations—especially with respect to China—a key feature of new and existing regulatory processes. This trend toward broader national security regulation, designed to help maintain U.S. strategic advantage, has support from both Republicans and Democrats, including from the Biden Administration. National Security Advisor Jake Sullivan’s remarks in September 2022 capture the tone shift in Washington: “…[W]e have to revisit the longstanding premise of maintaining ‘relative’ advantages over competitors in certain key technologies…That is not the strategic environment we are in today…[w]e must maintain as large of a lead as possible.”

This environment produced important legislative and regulatory developments in 2022, including the CHIPS and Science Act (Covington alert), first-ever Enforcement and Penalty Guidelines promulgated by the Committee on Foreign Investment in the United States (“CFIUS” or the “Committee”) (Covington alert), President Biden’s Executive Order on CFIUS (Covington alert), new restrictions under U.S. export control authorities targeting China (Covington alert), and proposals for a new regime to review outbound investments by U.S. businesses (Covington alert). The common thread among these developments is the U.S. government’s continuing appetite to use both existing and new regulatory authorities to address identified national security risks, especially where perceived risks relate to China.

With a Republican majority in the U.S. House of Representatives riding the tailwinds of this bipartisan consensus, 2023 is looking like a pivotal moment for national security regulation—expanding beyond the use of traditional authorities such as trade controls and CFIUS, into additional regulatory domains touching upon data, communications, antitrust, and possibly more. In parallel, the U.S. focus on national security continues to gain purchase abroad, with foreign direct investment (“FDI”) regimes maturing in tandem with CFIUS, and outbound investment screening gaining traction, for example, in the European Union (“EU”). It is crucial for businesses to be aware of these developments and to approach U.S. regulatory processes with a sensitivity towards the shifting national security undercurrents described in greater detail below.Continue Reading Will 2023 Be an Inflection Point in National Security Regulation?

It has been publicly reported that discussions are underway within the Trump Administration for a coordinated interagency initiative to remove key industrial supply chain dependencies from overseas, especially China, and redouble efforts to secure such supply chains in the United States. While this initiative proceeds alongside ongoing efforts to secure…
Continue Reading Frequently Asked Questions and Answers Regarding the Trump Administration’s Push to Secure Supply Chains in the United States/New Interagency Effort Aimed at Expanding Sectors, Measures

As the Senate approaches the end of its debate on the National Defense Authorization Act for Fiscal Year 2019, provisions of the bill regarding access to and review of information technology code deserve close attention.  These sections, if enacted, would significantly impact Department of Defense contractors and also would affect

…
Continue Reading Senate Armed Services Committee Proposes Expansive but Unclear Software Review Provisions

On February 15, 2018, House Foreign Affairs Committee Chairman Ed Royce (R-CA) introduced bipartisan legislation—the Export Control Reform Act of 2018 (“ECRA”)⸺to modernize U.S. export control regulation of commercial and dual-use items. The bill is co-sponsored by the committee’s ranking Democratic member, Eliot Engel (D-NY). The proposed legislation seeks to establish a permanent statutory basis for export control of commercial, dual-use, and less sensitive defense items.

Introducing the ECRA, Chairman Royce emphasized that the need for export control reform is dictated by aggressive Chinese government policies that have increasingly forced U.S. companies to hand over sensitive technology as a cost of doing business in China. In response, the ECRA establishes a framework to protect critical and emerging U.S. technology and know-how. The same issue also has been taken up through the Foreign Investment Risk Review Modernization Act (“FIRRMA”), a bipartisan effort to control outbound technology transfers (among other issues) through the expansion of the authority and operation of the Committee on Foreign Investment in the United States (“CFIUS”). It remains to be seen whether Congress will proceed with the ECRA or FIRRMA, or potentially combine the two efforts.

Key Aspects of the Export Control Reform Act

If enacted as introduced, the potential impact of the ECRA on export controls would be far- reaching:

  • The ECRA on its face would significantly expand U.S. jurisdiction to regulate the transfer abroad by U.S. and foreign persons of commodities, software, or technology regardless of any U.S. content.
  • The ECRA would for the first time apply U.S. deemed export controls to transfers of controlled technology to U.S. companies unless they are majority-owned by U.S. natural persons.
  • The ECRA would establish control over release of technology that includes information at any stage of its creation, such as “foundational information” and “know-how,” in order to protect emerging technology and sensitive intellectual property. To that extent, the bill would require the president to establish an interagency process to identify emerging technologies that are not identified in any U.S. or multilateral control list, but nonetheless could be essential to U.S. national security.

Continue Reading Export Control Reform Act Introduced in Congress

Senate Judiciary Chairman Patrick J. Leahy introduced a new version of the Uniting and Strengthening America by Fulfilling Rights and Ensuring Effective Discipline Over Monitoring Act of 2014 (the “USA FREEDOM Act” or “Act”) in the Senate on Tuesday, more than two months House of Representatives passed a version of…

Continue Reading New Version of USA Freedom Act Introduced

On July 28, 2014, the U.S. House of Representatives (“House”) passed three cybersecurity bills, the National Cybersecurity and Critical Infrastructure Protection Act of 2014 (H.R. 3696) (“NCCIP Act”), the Critical Infrastructure Research and Development Advancement Act (H.R. 2952) (“CIRDA Act”), and the Homeland Security Cybersecurity Boots-on-the-Ground Act (H.R. 3107) (“Boots-on-the-Ground…

Continue Reading House of Representatives Passes Three Cybersecurity Bills

On July 14, the U.S. Court of Appeals for the District of Columbia Circuit decided Ralls Corporation v. Committee on Foreign Investment in the United States — the first ruling by a federal circuit court on a CFIUS case.  Ralls, a U.S. company owned by two Chinese nationals, sued CFIUS…

Continue Reading DC Circuit Calls for More Transparency in CFIUS Process