The Committee on Foreign Investment in the United States (CFIUS) has its origins in the Foreign Investment and National Security Act (FINSA) of 2007. CFIUS is an interagency committee with the authority to review certain transactions involving foreign investment in the United States and certain real estate transactions by foreign persons and to determine the impact of those transactions on U.S. national security.
FINSA is an act that aims to ensure national security while promoting foreign investment and job creation and retention, reforms the process for reviewing the national security impacts of such investments, establishes the Committee on Foreign Investment in the United States, and has other purposes. FINSA focuses solely on national security concerns arising from mergers, acquisitions, and takeovers that could result in foreign control of U.S. companies, and not on broader policy interests.
FINSA was amended in 2018 by the Foreign Investment Risk Review Modernization Act (FIRRMA). FIRRMA expands CFIUS jurisdiction to address growing national security concerns about foreign countries’ use of certain investment structures that were previously outside CFIUS jurisdiction. Additionally, FIRRMA modernizes the CFIUS process to better enable speedy and effective review of covered transactions.
Use of sovereign wealth funds in international diplomacy
The world’s sovereign wealth funds have quietly and subtly used their economic power to advance their own economic, political and military interests on the international stage.
Dubai Investment Company, one of the two SWFs of the United Arab Emirates (UAE), is using DP World, which it acquired in 2006, to expand its political and military influence in the sensitive Persian Gulf. DP World bought a 30-year lease from the breakaway Somaliland Republic on the Red Sea port of Berbera, with an automatic 10-year extension. Berbera Port easily controls the Bab el-Mandeb Strait, through which 30 million barrels of oil pass every day. Somaliland Republic is a breakaway state from Somalia. The UAE military has set up a naval base at the port as well as training the Somaliland military. The UAE has just purchased the latest weapons from the US, including F-35s, and the UAE’s military position is currently unshakable.
China’s SWF (China Investment Fund), with assets of about $1 trillion, is also involved in the construction of a high-speed railway in Laos, with investments amounting to half of the country’s annual GDP. This type of lending, which is considered predatory lending, is an attempt to trap a sovereign nation in debt to China and undermine its support in the international community.
This is just the latest move by SWFs to use their financial muscle to increase their country’s influence in international affairs.
Sovereign wealth fund investing in Commonwealth Fusion System
While foreign investment in new technology businesses in the United States is not new, three of Commonwealth Fusion Systems’ major investors are sovereign wealth funds (SWFs). SWFs are state-owned funds, and some have been used by nation states on the international stage to advance their national security interests.
Temasek is a Singapore SWF. Temasek recently led a consortium of investors in raising $82 million for Commonwealth Fusion Systems. At this time, it is unclear how much of the $82 million recently infused into Commonwealth Fusion Systems is being contributed by Temasek.
The first major investor in Commonwealth Fusion Systems was ENI with $50 million. Italian SWF CDP Equity holds 25.96 shares in ENI. Together with the Italian Ministry of Economy and Finance’s 4.37% stake in ENI, Italy is ENI’s largest shareholder with just over 30% of the company’s shares. An interesting shareholder in ENI is Norges Bank, which holds 1.537% of ENI’s shares. Norges Bank is the bank that manages the Norwegian Government Pension Fund, the world’s largest SWF. The Norwegian Government Pension Fund has two parts: Government Pension Fund Global (GPFG) and Government Pension Fund of Norway (GPFN).
Equinor is Norway’s state-owned energy company, with GPFG holding 3% and the Norwegian government holding 73%. Equinor is part of a recent $82 million investment in Commonwealth Fusion Systems.
Commonwealth Fusion Systems
In September 2016, surprising progress in the development of three-ion fuel by the Massachusetts Institute of Technology (MIT) Plasma Science and Fusion Center (PSFC) demonstrated the first ever net energy output in a fusion reactor called a tokamak, spinning off Commonwealth Fusion Systems (CFS), a privately held LLC with over $200 million in investment, the majority of which has come from foreign companies.
In September 2016, the MIT Planetary Science and Fusion Center (PSFC) used 3-ion fuel for the first time in the Alcator-C Mod tokamak. This groundbreaking experiment combined helium-3 (He-3), deuterium, and hydrogen. Radio frequencies were used to ignite the He-3, which in turn ignited the deuterium and hydrogen. By focusing the radio frequencies on the He-3 portion of the 3-ion fuel, the resulting energy output achieved megaelectronvolts of energy output.
This was the final experiment on the Alcator-C Mod tokamak. It produced ten times the energy output previously recorded, using only two ion fuels. The experiment was so exciting that researchers operating the Joint European Torus (JET) in Oxfordshire, UK, repeated the experiment, achieving the same amount of energy output as the original experiment, performed at MIT’s PSFC.
“These high-energy ranges are in the same range as activated fusion products,” said MIT fusion research scientist John C. Wright. “Being able to produce such high-energy ions in a deactivated device, without having to do a ton of fusion, is useful because it allows us to study how ions with energies comparable to fusion reaction products behave and how well they can be contained.”
Using a new innovative chemistry called YBCO applied to superconducting magnets, Commonwealth Fusion Systems hopes to have SPARC in production by 2025. SPARC will simply demonstrate that Commonwealth Fusion Systems has the capability to manufacture fusion tokamaks that can be used to generate electricity. If successful (and there is no reason to think they won’t), Commonwealth Fusion Systems would rapidly dominate the U.S. electricity production market.
The cost of electricity generation from a fusion tokamak would significantly reduce the cost of electricity consumption for businesses and homes. In 2019, the retail value of electricity sold in the United States was $401.7 billion. If Commonwealth Fusion Systems’ tokamak were utilized, the retail value of electricity would be approximately $40 billion, all other things being equal (this is an estimate based on the Solow-Swan theorem). This would have a positive externality effect on the US economy, generating approximately $360 billion in additional consumption and investment. Taking into account the multiplier effect, the US money supply could theoretically increase to $3.6 trillion per year.
A free market approach to fundraising
Rather than relying on government research grants, PSFC decided that a commercial approach was the best way to further develop a practical fusion tokamak, so MIT spun off Commonwealth Fusion Systems. ENI invested $50 million and became Commonwealth Fusion Systems’ first lead investor. Commonwealth Fusion Systems has other investors, including Breakthrough Energy Ventures, led by Bill Gates and Jeff Bezos. However, the three SWFs mentioned above appear to be the primary investors in Commonwealth Fusion Systems.
When asked about the SWF investment, Lindsay Daly, public affairs manager for Commonwealth Fusion Systems, responded via email:
We will now answer your question. As I stated earlier, for confidentiality reasons, we cannot comment on the individual shareholdings of our investors. However, we can assure you that we are fully aware of the law applicable to our company, including the FIRRMA implementing regulations promulgated by CFIUS. In addition, our regulatory advisors and the regulatory advisors of several of our investors have each conducted thorough analyses of the application of the CFIUS regulations and reporting requirements to our company and the investors’ investments, and believe that we are in full compliance with the requirements applicable to our investments..
The relevant portions of FIRRMA that apply to CFIUS’s oversight of “significant” private equity in U.S.-based companies are as follows:
Most notably with respect to private equity, FIRRMA modifies the definition of a “covered transaction” and expands CFIUS jurisdiction. CFIUS now has the authority to intervene in “mergers, acquisitions, or takeovers that may result in foreign control.” Prior to the enactment of FIRRMA, CFIUS expanded the definition of control based on a set of regulatory elements to include minority foreign investments that have the power to make, direct, or determine significant matters affecting a company. Under this standard, control may be achieved through majority or controlling minority voting power, board representation, proxy voting, special shares, or other arrangements.
The phrase “…or the voting power of a controlling minority shareholder…” suggests that the investments in Commonwealth Fusion Systems by three SWFs controlled by three different foreign countries are clearly controlling minority investments in Commonwealth Fusion Systems and should therefore be subject to active CFIUS scrutiny.
Commonwealth Fusion Systems has achieved nuclear fusion in a laboratory environment, and the results are being tested around the world. The question now is not whether fusion is possible, but how to translate the results of the 2016 experiment into a functioning tokamak.
The SWFs investing in the Commonwealth Fusion system are currently friendly to the US, but Lord Palmerston once said:
“We have no allies, no permanent enemies. Our interests are eternal and permanent, and it is our duty to pursue them.”
