Recent news reports indicate that in-bound foreign investment in
the United States is "soaring to new heights" in 2016,
with more than 280 cross-border deals by early March, well ahead of
the pace in 2014 and 2015.
Most of these foreign acquisitions will not implicate national
security. Nevertheless, cross-border transactions will increasingly
fall under the scrutiny of the multi-agency Committee on Foreign
Investment in the United States ("CFIUS" or the
"Committee"), which is charged with assessing the impact
of foreign investment on U.S. national security. Following
CFIUS review, the President can block a transaction that the
President finds a threat to U.S. national security.
CFIUS reports 147 filings for FY2014, continuing a generally
upward trend since the financial crisis of 2007-2009.
Although none of these transactions was blocked by the President
(only two have been blocked in history), twelve were withdrawn
after filing. Transactions may be withdrawn for many reasons
(one of the twelve was refiled in 2015), but it is fair to
say that the majority of these transactions were likely withdrawn
because they either could not pass CFIUS scrutiny, or because the
parties refused to accede to the terms that CFIUS would require to
clear the deal.
Ostensibly voluntary, filing for CFIUS review is effectively
mandatory for transactions involving U.S. companies that hold
security clearances, as well as for transactions that implicate
national security, whether the target performs classified work or
not. This is because CFIUS has the right to review a transaction
whether or not filed, and can do so in perpetuity if the
transaction has not been reviewed and cleared – even after
closing. Transactions not only can be blocked by the
President, they can be unwound, and the divestment of sensitive
assets may be the price of clearing a deal. Accordingly, it
is not at all uncommon for lenders to insist that a transaction be
filed for CFIUS review to remove the prospect of CFIUS
upending it after closing.
Originally published by California International Law Journal; Summer 2016
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.
