United States: CFIUS: Evolution Yields To Revolution

Last Updated: February 21 2018
Article by Laura Fraedrich, Paul V. Lettow, D. Grayson Yeargin, Chase D. Kaniecki and Sara L. Rafferty

Most Read Contributor in United States, September 2019


CFIUS is an interagency committee of the U.S. government that has the authority to review so-called "covered transactions"— i.e., transactions by or with any foreign person that could result in control of a U.S. business by a foreign person. Thus, CFIUS has jurisdiction over the acquisition of a U.S.-based company by a foreign person and the acquisition of a non-U.S.-based company by a foreign person if the non-U.S.-based company has operations in the United States that constitute a U.S. business. Although CFIUS has been in existence since a 1975 Executive Order, CFIUS was formally established in statute more than a decade ago in connection with enactment of the Foreign Investment and National Security Act of 2007 ("FINSA"), which amended section 721 of Defense Production Act of 1950.

As a practical matter, CFIUS is most interested when a transaction within its jurisdiction raises national security concerns. Such concerns may be raised in a variety of ways, such as if:

(i) the U.S. business operates in an industry considered to be part of the critical infrastructure of the United States; (ii) the U.S. business manufactures or sells sensitive or export-controlled products or possesses sensitive technology; (iii) the U.S. business is a sole source provider or has contracts with the U.S. government; (iv) the U.S. business engages in classified work and maintains either personnel or facility security clearances; (v) the U.S. business possesses sensitive personally identifiable information; or (vi) the U.S. business's facilities are located in close proximity to sensitive military facilities. CFIUS may impose and enforce agreements or conditions to mitigate any national security concerns raised by transactions reviewed by CFIUS.

The CFIUS process is a joint, voluntary process that parties to the transaction initiate based on the perceived risk that the President of the United States might require divestment post-closing if there are non-mitigated national security concerns associated with the transaction. CFIUS monitors public information regarding foreign investment in the United States to identify investments that were not notified to CFIUS but that CFIUS believes could raise national security concerns. The risk of not submitting a notice to CFIUS is that CFIUS could, following closing, request that the parties submit a notice and review the transaction, which could result in the President requiring that the buyer divest itself of the U.S. business.


In December 2016, President Obama blocked a Chinese investment firm from acquiring the U.S. business of Aixtron, a German manufacturer of semiconductor equipment. That development augured an evolution in CFIUS policy and practice throughout 2017 that consolidated and magnified trends from previous years. In 2017, that evolution resulted in:

  • A Significant Increase in the Number of Notices. CFIUS initiated 238 reviews during 2017, compared to 172 during 2016. This unprecedented number of reviews could have been due, in part, to transaction parties' perception of increased CFIUS risk under the Trump Administration.
  • Longer Review Periods. During 2017, CFIUS took significantly longer to start its statutorily mandated review timeline following submission of draft pre-file notices. Moreover, CFIUS asked more and different questions during the prefiling stage and the formal review period.
  • More Investigations. The number of transactions subjected to the additional 45-day investigation period (following the initial 30-day review period) increased during 2017, with approximately 70 percent of the transactions entering the investigation phase, compared to 46 percent of notices reviewed in 2015 and 2016.
  • Increase in the Number of Withdrawals and Refilings. Notices were withdrawn and refiled with CFIUS approximately 35 times during 2017, compared to 12 times in 2014, 13 in 2015, and 27 in 2016. Refiling restarts the statutory clock and provides CFIUS with additional time to review a transaction or for the parties to negotiate mitigation measures. If the investigation period ends without clearance and the parties decide not to withdraw and refile the notice, they have two options: (i) withdraw the notice and abandon the transaction; or (ii) force CFIUS to send the transaction to the President for a decision. In the latter case, CFIUS typically would prepare a memorandum to the President recommending that the transaction be blocked.
  • More Blocked and Abandoned Transactions. During 2017, President Trump blocked another Chinese investment in the U.S. semiconductor industry. In addition, more transactions notified to CFIUS were abandoned due to the inability to mitigate national security concerns associated with the transactions. Although information regarding transactions notified to CFIUS often is not made public, we believe at least 18 transactions were abandoned during 2017, compared to five in 2015 and 12 in 2016. Parties abandoned transactions due to a variety of U.S. government concerns, including proximity to sensitive U.S. government facilities, access to sensitive personal information, and the transfer of sensitive know-how.
  • Heightened Scrutiny of Chinese Investments. Certain kinds of Chinese investments in the United States faced an uphill battle at CFIUS during 2017. A number of Chinese investments were abandoned or experienced challenges obtaining CFIUS clearance. CFIUS appears to be focused primarily on: (i) investments involving Chinese state-owned or -controlled investors; (ii) Chinese investments in industries or assets that the U.S. government believes are sensitive, such as investments that allow Chinese investors to have access to the U.S. financial system, sensitive personal information, or certain U.S. technology, including technology that could advance the Chinese semiconductor industry, even if the technology would not require a license for export to China; and (iii) ensuring that Chinese investments do not disrupt the U.S. government supply chain and do not result in Chinese ownership or control of assets located in close proximity to sensitive U.S. government facilities or other areas of strategic importance to the U.S. government. There was no categorical ban or block on Chinese transactions, however: during 2017, Chinese investments in less-sensitive industries or assets received CFIUS clearance.
  • More Mitigation. During 2017, CFIUS imposed mitigation measures more often. CFIUS imposed mitigation in approximately 20 percent of the transactions it reviewed during 2017, an increase from the previous year's total of approximately 10 percent of transactions.


Those evolutionary trends from 2017 are likely to continue. In parallel, FIRRMA, if enacted, would revolutionize CFIUS law

and practice. FIRRMA, with bipartisan and bicameral support in Congress and the backing of key Trump Administration officials, stands a good chance to become law in 2018. Enactment of FIRRMA would, in turn, result in the promulgation of implementing regulations in ensuing years.

Current Framework and FIRRMA

A decade has passed since the enactment of FINSA and the promulgation of its implementing regulations. Many in Congress and in the administration argue that technological and other changes have rendered the current CFIUS framework insufficient to address the complexity of the global economy and U.S. national security interests, particularly in light of increased investment from China. Senate Majority Whip John Cornyn (R-TX), who introduced FIRRMA in the Senate, has stated that the "context for this legislation is about China."

FIRRMA seeks to modernize and strengthen the CFIUS process "to more effectively guard against the risk to the national security of the United States posed by certain types of foreign investment." The relevant Senate and House committees have held multiple hearings regarding CFIUS in recent months, with several taking place in January 2018. Members from both parties and in both chambers have focused on FIRRMA as the legislative means of addressing concerns with the U.S. government's ability to protect against national security threats resulting from foreign investment. Administration officials had discussed what became FIRRMA with its drafters, and in recent months FIRRMA has increasingly received the explicit support of senior officials from the Departments of the Treasury, Defense, and other departments and agencies.

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