SAN FRANCISCO - It’s going to become even harder for foreigners to invest in the United States. Minority stakes in firms with sensitive information on Americans may soon be subject to national security reviews under rules proposed on Tuesday. It’s a sensible acknowledgement that data has value, but one that comes with a cost. Casting the net that wide will put a chill on inbound deals, and not just from China.

The Committee on Foreign Investment in the United States already enjoys enormous discretion in blocking mergers, and now it’s getting even more. Any non-U.S. company acquiring a non-controlling interest that provides access to private technical information, a board seat or decision-making powers is eligible for scrutiny by the panel, where the target company is involved in critical technologies, infrastructure and data.

User data has already tripped up other deals, particularly when the buyer comes from China. This year, CFIUS forced China-based iCarbonX, which is backed by gaming giant Tencent , to sell its majority stake in PatientsLikeMe, which helps connect people with similar health issues. The Chinese ownership of dating app Grindr also fell under CFIUS scrutiny while Ant Financial scrapped plans in 2018 to acquire MoneyGram International.

A tweak to the rules that gives CFIUS jurisdiction over any deal in which the target has sensitive data on a million or more Americans gives it oversight of deals in many sectors. Financial, location and health information could draw scrutiny, along with genetics. It could also strain existing friendships. Japanese fund SoftBank has so far managed to clear CFIUS reviews, though it has required compromises. In the future, it may be harder to pass muster given the data collected by many of its portfolio companies, in addition to the critical technologies developed by some of them.

The Treasury, which oversees CFIUS, says America is still open for business. That rings a bit hollow. More power to CFIUS, and more discretion over when to use it, may effectively give President Donald Trump an enhanced way to extract concessions over trade or security with other nations. Chinese investment in the United States has already fallen by 90% from 2016 to 2018, according to the Rhodium Group. Other financial allies may tread a similar path.

CONTEXT NEWS

- The U.S. Department of the Treasury on Sept. 17 proposed regulations that would potentially subject more foreign investments into U.S. companies to national security reviews. The Committee on Foreign Investment in the United States would gain the power to assess minority investments as well as changes of control.

- The proposed rules apply to critical technologies and infrastructure, along with deals that involve sensitive personal data, which includes businesses that collect or maintain data on at least one million individuals. The public comment period ends on Oct. 17 and final rules will take effect no later than Feb. 13, 2020.

(Editing by John Foley and Leigh Anderson)

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