The Committee on Foreign Investment in the United States (CFIUS) has proven in recent weeks that it is an increasingly powerful force that foreign investors and U.S. businesses alike ignore at their peril. While many paid attention to CFIUS’s critical technologies pilot program implemented last November, these parallel and unprecedented developments demonstrate that CFIUS is aggressively investigating transactions not submitted under its voluntary review regime, and imposing and enforcing agreements to mitigate national security concerns.
In the past two weeks alone, reports have emerged that CFIUS has:
Background: The New Reality of the “Modernized” CFIUS
CFIUS is an interagency committee of the U.S. government that reviews foreign acquisitions of or investments in U.S. businesses to ensure that any national security concerns are adequately addressed. Outside of the mandatory reporting requirements of the recently implemented critical technologies pilot program, the CFIUS process is voluntary. In other words, parties to a transaction within CFIUS’s jurisdiction have the option of notifying CFIUS and seeking clearance.
CFIUS clearance immunizes a transaction from future U.S. government scrutiny on national security grounds. Conversely, if the parties do not submit a voluntary notice on their own, CFIUS may request that they do so and has the authority to investigate the transaction unilaterally if necessary. In the most extreme cases, CFIUS can recommend that the president issue an executive order forcing the parties to unwind the transaction after closing. As demonstrated by the three divestitures noted above, however, a presidential order is usually not necessary to reach the same result — merely the threat of a recommendation to the president can be sufficient to convince the foreign investor to relinquish its stake in the U.S. business.
FIRRMA bolstered CFIUS’s authorities and resources, and enhanced its focus on key national security concerns, such as cybersecurity and foreign exploitation of personally identifiable information and other sensitive data of U.S. citizens. In response to concerns raised by Congress that too many transactions were eluding CFIUS’s review, FIRRMA directed CFIUS to establish a process to identify and report on transactions not voluntarily notified to CFIUS, but for which information is “reasonably available.” CFIUS was also directed to outline additional resources needed to better identify such non-notified transactions. As context for the three recent divestments, CFIUS has historically had the authority to investigate non-notified transactions, but such cases resulting in post-closing divestments have been relatively infrequent, in part because of CFIUS’s limited resources to find and pursue them.
FIRRMA also includes provisions relating to the enforcement of agreements entered into between CFIUS member agencies and the transaction parties to mitigate national security concerns CFIUS identified during its review. FIRRMA mandates that CFIUS consider, before entering into such a mitigation agreement, whether the agreement will enable effective monitoring and enforcement of its terms. CFIUS can now also impose civil penalties for any breach of a mitigation agreement, whether or not the violation was intentional or grossly negligent, as required under the prior standard for such penalties.