A little-noticed provision of new law, relating to the treatment of filings with the Committee on Foreign Investment in the United States ("CFIUS") during a U.S. federal government shutdown, has suddenly taken on significance. We have previously written about the major changes to the CFIUS process with the passage on August 13, 2018, of the Foreign Investment Risk Review Modernization Act of 2018 ("FIRRMA") and the recent establishment of the Pilot Program involving critical technologies.1
It will be a number of months before implementation of some of the more transformative regulations required by FIRRMA; however, a provision of FIRRMA is currently in force requiring that all deadlines for declarations and transactions under review or investigation for filings made or accepted post-FIRRMA are tolled in the event of an appropriations lapse. For example, it is likely that if a transaction was in its 15th day of review immediately prior to the shutdown, once the government reopens, the CFIUS review would begin its 16th day of reviewing the transaction — even if a month or more has passed during the interim. This also applies to the time CFIUS has to review a declaration. All other CFIUS activities, including mitigation negotiations, CFIUS comments on draft notices and CFIUS "acceptance" of notices, are suspended. It is advisable to continue submitting new notices and declarations to CFIUS when able: Once the shutdown ends, it is likely that these submissions will be reviewed in the order they are received.
According to the U.S. Department of the Treasury's Lapse of Appropriations Plan, CFIUS will perform "caretaker functions" for (i) cases initiated prior to the enactment of FIRRMA and (ii) CFIUS-related national security exigencies.2 Prior to FIRRMA, as a legal matter, the timelines for reviews and investigations could not be tolled. As a result, the 30-day and 45-day "clocks" continued to tick even though the federal government was not able to do its work. Upon the conclusion of the 30-day review, the case automatically rolled into the 45-day investigation during a shutdown. Upon the conclusion of the 45-day investigation, if the federal government was still closed, CFIUS typically did not conclude action on the filings and the parties were asked to withdraw and refile in order to start the review again. It is likely that treatment of pre-FIRRMA cases will follow this approach.
As of this writing, it is not clear when the shutdown might end — and Treasury (and certain other CFIUS agencies) remain thinly staffed. In this climate of uncertainty, parties should assess the effects of these developments on deals in the pipeline, including the likelihood that, once the federal government is open, processing of notices and declarations will be delayed. Most likely, the time required for CFIUS to "accept" new notices and start processing declarations will be affected. Also, a greater number of cases could be pushed into investigation, once the shutdown ends, as a result of residual delays. Parties should be aware that building in more time for regulatory review (and, potentially, paths for waiving CFIUS conditions precedent to closing) in existing and new agreements will be important. Experienced outside counsel will be critical to assessing any additional CFIUS risk that may be posed to deals by the partial federal government shutdown.
1 See Stroock Commentary, Oct. 10, 2018, "No Safe Harbor for Declarations", available at: https://www.stroock.com/publications/no-safe-harbor-for-declarations; Stroock Special Bulletin, Oct. 10, 2018, "Treasury Pilot Program Requires CFIUS Declarations for All Qualifying Investments", available at: https://www.stroock.com/publications/treasury-pilot-program-requires-cfius-declarations-for-all-qualifying-investments; Stroock Commentary, Nov. 8, 2018, "Who's Your New Neighbor? New Statute May Subject Foreign Buyers and Tenants to CFIUS Review", available at: https://www.stroock.com/publications/who-new-neighbor-statute-may-subject-foreign-buyers-tenants-stroock-cfius-commentary; and Stroock Commentary, Dec. 4, 2018, "New Rules for New Deals: What you Need to Know About the CFIUS Pilot Program", available at: https://www.stroock.com/publications/new-rules-new-deals-what-you-need-know-cfius-pilot-program.
2 Although CFIUS has not explained what these "caretaker functions" are, for the pre-FIRRMA cases, they are likely to involve certain administrative functions such as notifying parties about the end of review/investigation periods as the clock continues to tick on these cases.
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