Insights: The Corporate & Securities Law Advisor: Does Your Foreign Investment Transaction Need A CFIUS Review?
Washington, D.C., partners John Burke and Elliot Feldman co-authored an article, "Does Your Foreign Investment Transaction Need A CFIUS Review?," for the June edition of Insights: The Corporate & Securities Law Advisor.
According to Burke and Feldman: "The Foreign Investment and National Security Act of 2007 (FINSA) substantially enhances U.S. Government scrutiny of foreign investment, which previously took place pursuant to the Exon-Florio provision of the Omnibus Trade and Competitiveness Act of 1988. It is now more important than ever for persons involved in transactions in which a foreign-owned entity will acquire a substantial stake in a U.S. company to consider early on whether the deal should be notified voluntarily to the Committee on Foreign Investment in the United States (CFIUS) for pre-clearance."
The authors continue, "Under FINSA, the President may order the divestment of a foreigner's controlling interest in U.S. assets should he determine that such control threatens U.S. 'national security.' FINSA authorizes CFIUS to self-initiate an investigation as to whether any 'covered transaction' threatens U.S. national security at any time. CFIUS has begun inquiring into transactions consummated without pre-clearance on an institutionalized suspicion that failure to seek CFIUS review may involve an attempt to avoid national security scrutiny. When the parties to a transaction submit it to CFIUS for pre-clearance, however, CFIUS' approval provides a safe harbor, preventing the President from undoing the deal. Consequently, companies should consider seeking a CFIUS review whenever the U.S. business to be acquired plays any role in U.S. national security, defined broadly."
According to the authors, "covered transactions" are broadly defined and that "control" is the critical factor in determining whether a transaction is a "covered transaction." The article also states that the statute "does not define 'national security,' thus giving the President broad discretion to define it on a case-by-case basis."
Burke and Feldman conclude by describing the CFIUS pre-clearance process stating that the "most important consideration for success in a CFIUS review is an understanding in advance of the institutional and other concerns of the CFIUS member agencies, and creative thinking about how to demonstrate that those concerns are not threatened, or to mitigate them."