The CFIUS Review Process and Foreign investments
Washington is a town that is filled with secrets – some interesting and others not so interesting. I grew up and have practiced law in Washington, DC. all of my career. Nothing really surprises me in Washington, DC.
With the globalization of the economy, a little known process for reviewing proposed foreign investments in the United States is quickly rising in importance.
CFIUS (“The Committee on Foreign Investment in the United States) is an interagency committee responsible for reviewing foreign acquisition of (and investment in) US companies to ensure that the transaction would not threaten US national security. There is no legal requirement to notify CFIUS but CFIUS has the ability to review any transaction before or after closing to make a determination whether the transaction threatens national security. As a result, many companies are voluntarily disclosing the transaction to CFIUS in advance of closing.
In 2012, CFIUS significantly increased the number of transactions it reviewed. Under CFIUS regulations, companies that choose to notify CFIUS must go through an initial thirty-day screening. If any national security issues are identified, companies may have to undergo a second thirty-day period of review.
Nearly half of all filed transactions under go a second-30 day period. Several parties withdrew their notices as a result of unfavorable CFIUS reviews. Some parties revised the proposed transaction and refilled their notices.
An example of a prohibited transaction was a Chinese company’s attempted acquisition of four wind farms in the United States which overlapped with United States Navy airspace. President Obama prohibited the transaction and required the Chinese company to divest the wind project companies.
It is rare for a President to reject a foreign investment. Usually the parties will abandon a deal or modify the deal to address national security concerns. In 2012, 20 percent of the CFIUS notices were withdrawn, typically after a second-stage investigation begins.
On the other hand, CFIUS eventually cleared a transaction in which CNOOC, the Chinese state-owned oil company, purchased Nexen, a Canadian company that had exploration and production operations in the Gulf of Mexico. CNOOC had to refile and address CFIUS national security concerns relating to oil production and proximity to a Naval Air station.
The vast majority of CFIUS filings in 2012 related to Chinese acquiring entities. UK investors were second and India was third. CFIUS cleared a Chinese company’s acquisition of Smithfield Foods, a US pork processor.
A number of transactions are revised and then approved by CFIUS after mitigation measures are put in place.
As more foreign companies acquire interests in US companies, the CFIUS process will become a more important part of the government approval process.