CFIUS

Author: Keith Martin Publication | December 2017

CFIUS may be given authority to review more inbound foreign investment into the United States and to charge filing fees for doing so.

Bills introduced in early November in the US Senate and House would make reporting of some proposed foreign investments in US companies or projects mandatory. Until now, all such reporting has been voluntary, but CFIUS has authority to unwind transactions after the fact that were not submitted for review.

CFIUS stands for the Committee on Foreign Investment in the United States, an interagency committee of 16 federal agencies, headed by the Treasury Department, that reviews potential foreign acquisitions for national security implications.

Review normally takes 30 days, but there has been a backlog this year. Transactions that raise potential issues move into an investigation phase that takes another 45 days.

CFIUS reports annually to Congress. The most recent report was for 2015. During the period 2009 through 2015, 40% of filings moved into an investigation phase and 7% of proposed deals were withdrawn. The top three countries of origin for companies making filings in 2015 were China, Canada and the United Kingdom. (For a summary of the most recent report, see “CFIUS” in the October 2017 NewsWire.)

CFIUS cannot block acquisitions directly, but makes recommendations to the US President.

In the 27 years since CFIUS was established, four deals have been formally blocked, including one by Trump and two by Obama of Chinese acquisitions of US companies.

The Senate Banking Committee held a hearing in September on potential reforms. Senior members of the Trump cabinet, including the Treasury, Defense and Commerce secretaries and the attorney general are said to favor giving CFIUS broader jurisdiction over inbound US investments.

CFIUS has power currently only to review acquisitions that give a foreign person control over a US business.

The bills would add to the list any purchase or lease of a site near a US military base or other sensitive US government facility and any active — as opposed to passive — investment in a “United States critical technology company” or “United States critical infrastructure company.” CFIUS would also be given authority to review any joint ventures, including outside the United States, between a foreign person and US critical technology company.

A US company is considered a critical infrastructure company if it owns or operates, or primarily provides services to another company that owns or operates, assets that are “so vital to the United States that the incapacity or destruction of such systems or assets would have a debilitating impact on national security.”

Passive investments are okay. To be passive, the investor cannot have a seat or observer rights on the board or any involvement in substantive decision making about a project other than through voting of its shares. It cannot have access to any technical information about the project or business that is not public.

CFIUS would have the option to draw up a “white list” of countries that are not the focus of the latest expansion in review authority. These would basically be countries with which the US has mutual defense pacts.

The bills would give CFIUS more time to review submissions. The initial review period would be 45 days rather than 30 days, and CFIUS could add another 30 days in “extraordinary circumstances.”

The bills would create a new process where short-form notices, called “declarations,” could be submitted containing high-level information about a transaction. Submission of such a declaration would be mandatory in any covered transaction where the foreign person will have at least a 25% voting interest in the target company and the foreign person is owned at least 25% by a foreign government. Some foreign utilities engaged in renewable energy development in the United States are government owned.

CFIUS could make filings mandatory in other situations.

Mandatory declarations would have to be submitted at least 45 days before a transaction closes. If a full filing is made instead in situations where a filing is required, then it would have to be received by CFIUS at least 90 days before closing.

The bills would give CFIUS the authority to collect filing fees for processing submissions. The fees could not exceed 1% of the transaction value or, if less, $300,000. The $300,000 will be adjusted for inflation.

The bills are S. 2098 in the Senate and H.R. 4311 in the House. The Senate sponsors are John Cornyn (R-Texas), the number two Republican in the Senate, Dianne Feinstein (D-California), a former chairman of the Senate Intelligence Committee, and Richard Burr (R-North Carolina), the current committee chairman.


Contacts

Keith Martin

Keith Martin

Washington, DC