Barbara P. Alonso writes:
The Committee on Foreign Investment in the United States (CFIUS), an inter-agency committee led by the U.S. Treasury Department that reviews foreign direct investment transactions, is likely to be applied in a more stringent manner by the Trump Administration. Members of Congress and of the Trump administration have advocated for enhanced CFIUS reviews of transactions that involve the change of control of U.S. companies (or foreign companies with U.S. assets) to foreign interests.
Since its creation in 1988, CFIUS reviews have remained voluntary in nature. Parties to M&A/private equity cross-border transactions, however, go through the time and expense of seeking CFIUS review because a transaction that is not reviewed may be subject to divestment or similar actions. In most cases, parties receive a “no action” determination within 30 days of filing, and in some cases, the Committee undertakes an additional 45-day review which sometimes results in the Committee proposing additional deal terms to address concerns raised during the review process.
Recently, however, CFIUS has blocked several deals. For example, in December 2016, the Obama administration blocked the purchase by a Chinese investment fund of a German semiconductor supplier which had U.S. assets.
Current options under consideration for expanding CFIUS review include enlarging the “scope” of CFIUS to include an economic test; expanding the definition of what constitutes a “national security” issue by adding such critical infrastructure assets such as telecommunication, water and energy assets; and adding a retroactivity element to potentially unwind previous “no action” positions.
In the current environment, transactions that involve the transfer of ownership to a foreign party, even when a foreign company is selling U.S. assets to another foreign company, should be weighing carefully whether a voluntary CFIUS filing would be prudent.
Barbara P. Alonso is a partner in the firm’s Corporate Department, resident in its Miami office. This piece is slated to appear in an upcoming edition of the American Bar Association’s Business Law Today.