Scrutiny of high-profile foreign direct investment in the United States is on the rise. Recent activity such as the Chinese government's $3 billion stake in Blackstone's IPO, Saudi Basic Industries Corporation's purchase of GE's plastics business and Middle East petrodollars chasing investments such as the Dubai International Financial Centre's new stake in Deutsche Bank is fueling the desire of the U.S. Congress to strengthen review of foreign investments.
Given the public relations and transactional complications that can arise from the Exon-Florio laws and the Committee on Foreign Investment in the United States ("CFIUS") review process, those involved with international acquisitions of U.S. businesses, entities, and properties need to carefully monitor changes to the CFIUS process that are expected to be enacted by Congress in the near future.
Recent Congressional Actions and Outlook for Final Legislation
It appears that reform to the CFIUS review process will be one of the first items dealt with by the U.S. Senate in June.
In late February, the U.S. House of Representatives passed H.R. 556, a bill that would substantially change the way that the federal government assesses national security threats posed by foreign investments. On May 16th, the Senate Banking, Housing and Urban Affairs Committee approved H.R. 556 with very few changes to the legislation.
The full Senate is expected to take up the CFIUS legislation in June, and most expect it to pass rather easily. Final enactment of the bill could come quickly, because unless more changes are made to the bill on the floor of the Senate it is possible that the legislation could be presented to the President for signature without a lengthy conference process between the House and Senate.
Given the likelihood that H.R. 556 will become law, it is important for those involved in international transactions to familiarize themselves with the ways that H.R. 556 would change the CFIUS process.
Summary of Potential Changes to the CFIUS Process
A summary of the House version of H.R. 556 follows. While H.R. 556 includes a wide range of provisions, the following components of the legislation are likely of most interest to those involved in international transactions. The legislation:
- Defines various terms in law relating to the operation of CFIUS and foreign investments, such as: covered transaction (any merger, acquisition, or takeover by or with a foreign person that could result in foreign control of any person engaged in U.S. interstate commerce), foreign government-controlled transaction (a covered transaction involving a foreign government or entity controlled by a foreign government), and national security (construed to include homeland security and its application to critical infrastructure);
- Requires CFIUS to conduct an investigation of the relevant transaction, if it is determined that a covered transaction is foreign government-controlled;
- Authorizes the President or any CFIUS member to initiate a review of any covered transaction (including transactions that have previously been reviewed, under certain circumstances) andrequires a review to be completed within 30 days of receipt of the written notice;
- Requires the President, acting through CFIUS, to conduct an investigation of the effects of a transaction on the national security of the U.S. if during a covered transaction review it is determined that:
- (a) the transaction threatens to impair the national security of the U.S. and the threat has not been mitigated prior to completion of the review (or if the transaction is foreign-government-controlled);
- (b) a roll-call vote within CFIUS on a covered transaction results in at least one vote by a CFIUS member against approving the transaction; or
- (c) the National Intelligence Director identifies "particularly complex intelligence concerns that could threaten to impair the national security of the U.S." and CFIUS members were not able to agree upon satisfactory measures to mitigate those threats;
- Requires that the above investigation to be completed within 45 days, with certain exceptions and requirements;
- Requires that a covered transaction may not be approved (i.e., review or investigation treated as final or complete) until the review/investigation report and findings are approved by a majority of CFIUS members in a roll-call vote and are signed by the Secretary of the Treasury, Homeland Security, and Commerce Departments; the President, as well as the CFIUS Chair and Vice-Chair would have to sign the findings and report regarding any foreign government-controlled transaction for which a roll-call vote yields at least one CFIUS member against approval;
- Prevents a covered transaction involving a person of a country that has repeatedly provided support for international terrorism (or the government of such country) from being approved;
- Allows CFIUS to negotiate, enter into or impose, and enforce any agreement or condition with any party to a covered transaction in order to mitigate any threat to national security;
- Clarifies that parties to a covered transaction must certify that the information they file with CFIUS is complete and correct;
- Makes the provisions of the legislation effective 90 days after enactment.
The version recently sent to the Senate floor, however, includes broader congressional reporting requirements than the House version, requiring notification at the close of standard 30-day reviews in addition to reports on cases sent to second-stage investigations. It also focuses more on threats to critical infrastructure than its House counterpart.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.