Guidance On CFIUS Review Of Foreign Investment In The United States

The Committee on Foreign Investment in the United States (CFIUS) is charged with identifying and addressing any national security risk posed by foreign investments in U.S. businesses. On December 8, 2008, the Treasury department, which chairs CFIUS, published guidance¹ that may assist parties as they consider whether to file a voluntary notice with CFIUS to review their transaction.²

The guidance, mandated by the Foreign Investment and National Security Act of 2007 (FINSA), describes the types of transactions that CFIUS has reviewed and that have presented "national security considerations." FINSA provides an illustrative list of factors for CFIUS to consider when it conducts reviews. CFIUS also analyzes each transaction to identify any national security considerations arising from the transaction. These considerations include facts and circumstances that are relevant in determining whether a transaction threatens to impair U.S. national security – that is, whether the transaction poses a "national security risk."

The mere presence of a national security consideration does not mean there is a national security risk. This type of risk is a function of (i) the interaction between threat and vulnerability, and (ii) the potential consequences of that interaction for U.S. national security. CFIUS conducts its risk assessment on the basis of information provided by the parties, public sources and government sources, including a classified National Security Threat Assessment that the Director of National Intelligence prepares for CFIUS.

The national security considerations regarding the transactions that CFIUS has reviewed to date related to (i) the nature of the U.S. business to be acquired, or (ii) the nature of the foreign acquiror, or both.

Nature of the U.S. Business

CFIUS has determined that transactions involving the following types of U.S. businesses have presented national security considerations:

• Businesses that provide products and services, directly or indirectly, to agencies of the U.S. government and state and local authorities, including
  
  

• Businesses that have operations or produce or supply products or services whose security may have implications for U.S. national security – for example, businesses involving cryptography, data protection, Internet security and network intrusion detection, as well as semiconductors and other equipment with both commercial and military applications.
  
  
• Businesses engaged in various stages of the energy sector, from exploiting and transporting natural resources (e.g., by pipeline) to converting these resources to power and the providing power to U.S. government and civilian customers.
  
  
• Businesses that affect the nation's transportation system, including maritime shipping, port terminal operations and aviation maintenance, repair and overhaul.
  
  
• Businesses that could significantly and directly affect the U.S. financial system.
  
  
• Businesses that control critical infrastructure, including major energy assets.
  
  
• Businesses engaged in the research and development, production or sale of technology, goods, software or services that are subject to U.S. export controls.
  
  

Nature of the Foreign Acquiror

When reviewing transactions, CFIUS considers the factors listed in FINSA regarding the identity of a foreign acquiror, including the record of the foreign acquiror's country concerning national security–related matters; the track record and intentions of the foreign acquiror regarding actions that could impair U.S. national security; and whether a transaction is foreign government–controlled.

If a transaction is controlled by a foreign government, CFIUS considers the following, among all other relevant facts and circumstances:

• the extent to which the basic investment management policies of the investor require investment decisions to be based solely on commercial grounds;
  
  
• the degree to which, in practice, the investor's management and investment decisions are exercised independently from the controlling government, including whether governance structures are in place to ensure independence;
  
  
• the degree of transparency and disclosure of the purpose, investment objectives, institutional arrangements and financial information of the investor; and
  
  
• the degree to which the investor complies with applicable regulatory and disclosure requirements of the countries in which they invest.
  
  

Going Forward

The guidance includes a cautionary note that it should not be interpreted to suggest that the U.S. government in any way discourages foreign investment or the types of transactions described in the guidance. Rather, the guidance is intended to serve as a tool for assessing whether a notice of a transaction should be filed with CFIUS. Interested persons are encouraged to review the unclassified version of the annual report that CFIUS is required to submit to Congress for additional information regarding the types of transactions that CFIUS has reviewed.

Footnotes

^{1.http://edocket.access.gpo.gov/2008/pdf/E8-28791.pdf.}

^{2.For further background information, please see Torys' earlier M&A bulletin at http://www.torys.com/Publications/Documents/Publication%20PDFs/MA%202008-10.pdf.}

The content of this article does not constitute legal advice and should not be relied on in that way. Specific advice should be sought about your specific circumstances.