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'Tis the season to wonder, what will 2018 bring? We may
speculate on things like a private company making a moon landing or
a peace accord with North Korea. We may be certain of things like
well-intentioned gym memberships and a host of new-you
products.
Somewhere between speculation and certainty we find the U.S.
Government's scrutiny of foreign direct investment in the
United States. The recently proposed Committee on Foreign
Investment in the United States (CFIUS) reform introduced in
Congress sheds some light on the future of CFIUS reviews.
Congress Proposes CFIUS Reform
As contemplated in our March 2017
CFIUS blog, CFIUS reviews of acquisitions by foreign parties
give the Trump administration the ideal means to make good on his
campaign stance as tough on China. As discussed in our most recent
CFIUS update, CFIUS is has seen a surge in the number of
foreign investments submitted for review. That wave of submissions
is resulting in taxing CFIUS's resources. For those reasons, we
expect that proposed CFIUS reform, backed by bipartisan support,
may result in significant changes to the function and practice of
CFIUS reviews.
Proposed CFIUS Reform Highlights
The key highlights of the proposed bill, titled the Foreign
Investment Risk Review Modernization Act (FIRRMA), are as
follows:
Expand CFIUS jurisdiction. The bill would
expand CFIUS jurisdiction to cover more transactions. FIRRMA would
include the following transactions for CFIUS review:
Joint ventures involving technology transfers to a foreign
entity;
Minority position investments;
Real estate transactions near military bases or other sensitive
national security facilities; and
Other types of arrangements designed to evade or circumvent
CFIUS review.
Target countries for review. The bill would
instruct CFIUS to consider transactions from any "country of
special concern." Country of special concern is defined in no
certain terms as "a country that poses a significant threat to
the national security interests of the United States."
Although not mentioned by name, it does not stretch the imagination
to envision that provision applied regularly to China.
Add 9 factors for CFIUS analysis. The bill
would add nine new national security factors for CFIUS to consider
in its review. Those factors include the above-mentioned country of
special concern as well as factors relating to:
Market share;
Cost to the U.S. Government;
Facilitation of criminal or fraudulent activity;
Technological advantage;
Cybersecurity;
Foreign investor's compliance with law;
Security of personal data; and
Security of other sensitive information.
Increase the review period. The bill would
extend the initial transaction review period from 30 to 45 days and
allow for a 30-day extension at the request of a federal agency for
"extraordinary circumstances." The proposed changes could
result in an initial review reaching 75 days and a total CFIUS
review of up to 120 days.
Expand presidential authority. The bill would
expand presidential authority by explicitly authorizing the
President to "take any additional action the President
considers appropriate to address the risk to the national
security."
Add CFIUS mitigation tools. The bill would
give the CFIUS agency new authority to suspend transactions, impose
conditions pending review, and implement mitigation agreements even
where the transaction has been abandoned.
Authorize exemptions. The bill would authorize
CFIUS to exempt certain transactions from review in order to reduce
the burden on CFIUS' resources.
Introduce a new lighter filing. The bill would
add "light filings" to CFIUS for certain types of
transactions.
How To Prepare for CFIUS Reform
The proposed CFIUS reforms present higher hurdles for foreign
investors. Those hurdles include the expansion of CFIUS
jurisdiction with a catchall built in for transactions designed to
avoid CFIUS review, targeting countries for review, adding analysis
factors, increasing the review period, expanding presidential
authority, and adding mitigation tools including some even where
the transaction has been abandoned. For those reasons, non-U.S.
companies and individuals will likely require more planning and
preparation to successfully make investments in the United States.
Accordingly, the best placed non-U.S. companies will be those that
work with experts to navigate the CFIUS requirements. Certain
proposed CFIUS tools, including the exemptions and lighter filing,
may enable outside counsel or a consultant to reduce the burden of
a review on a non-U.S. investor. As the reform effort develops. we
will provide updates on any new developments
here on our blog.
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.
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International Trade Developments (Video)
