What jurisdictional thresholds trigger a review or application of the law? Is filing mandatory?
Filing is currently mandatory for critical technology transactions covered by the Pilot Programme. Proposed regulations specifying critical technology, critical infrastructure and personal data transactions subject to a mandatory filing requirement have been released and will be revised and implemented by mid-February 2020. Otherwise, CFIUS filings of any transaction within CFIUS’s jurisdiction are voluntary, but CFIUS may initiate a review in the absence of a voluntary filing, either before or after closing. Because of the risk of post-closing review resulting in mandatory remedies or divestiture, it is prudent for parties to seek CFIUS clearance for any transaction that meets the jurisdictional requirements and is likely to raise national security concerns.National interest clearance
What is the procedure for obtaining national interest clearance of transactions and other investments? Are there any filing fees? Is filing mandatory?
Parties file a joint notice to CFIUS detailing the material terms of the transaction. US targets must also submit information about their business and, in particular, any US government contracts. Foreign investors must provide information about their parents and their parents’ directors, officers and significant shareholders. There is no standard form for the filing; however, the CFIUS regulations specify the information that must be included in the filing. Throughout the review process, CFIUS may require the disclosure of additional information from the parties, even on issues that are not covered in the regulations. Interim regulations specify the information that parties must submit to CFIUS for Pilot Programme covered transactions.
If the parties do not voluntarily file a notification, CFIUS or one of its member agencies may initiate a review of a transaction. Typically, the parties are asked to, and do, file a notification, but CFIUS has subpoena authority if necessary. There are currently no filing fees required. FIRRMA permits CFIUS to impose filing fees of up to the amount of the lesser of 1 per cent of the value of the transaction or US$300,000 (adjusted annually for inflation), and final regulations are expected to include a filing fee. CFIUS has yet to release a proposal for such fees.
Filing is currently only mandatory for critical technology transactions covered by the Pilot Programme. The Proposed Regulations contemplate expanding mandatory filings to cover investments where a foreign government acquires a ‘substantial interest’ in certain US businesses involving critical technology, critical infrastructure and sensitive personal data of US persons.
Which party is responsible for securing approval?
Generally, the US target and the acquiring entity must make CFIUS filings jointly, and any applicable mandatory filing obligations fall on both parties. Parties to the transaction are required to submit all information called for by the regulations, and CFIUS may reject notices if the parties do not fully comply with these regulatory requirements or if they do not respond promptly to follow-up inquiries from CFIUS. In addition, both filing parties must have a senior official certify that the submitted information is complete and accurate in all material respects to the best of his or her knowledge.
A single party may file a notice in cases such as hostile takeovers, but CFIUS tends to seek information from both parties, even in these cases.Review process
How long does the review process take? What factors determine the timelines for clearance? Are there any exemptions, or any expedited or ‘fast-track’ options?
CFIUS regulations call for the Committee to review draft filings and provide comments on or accept a notice within two weeks where the parties stipulate CFIUS has jurisdiction to review the transaction, but this target is not binding and is often missed. In any event, the formal timeline does not start until CFIUS accepts a filing, the timing of which it views as discretionary. CFIUS then has 45 days for its initial review. At the end of this period, CFIUS will either clear the transaction or initiate a second-stage investigation lasting an additional 45 days, with one 15-day extension possible. Transactions involving foreign-government-controlled entities and transactions that would result in a foreign person controlling critical technology, critical infrastructure or sensitive personal data face heightened scrutiny and a default presumption of a second stage of review. At the conclusion of the investigation, CFIUS will issue a letter clearing the transaction or refer the transaction (with or without a recommendation) to the President, who then has 15 days to rule on the transaction. The President typically accepts CFIUS’s recommendations.
In practice, the clearance process takes longer than the statutory timeline. CFIUS often delays acceptance of the formal filing. At the end of the process, CFIUS has often pressured parties to ‘voluntarily’ withdraw and resubmit notices in complex cases, which restarts the statutory clock at the initial 45-day review.
Transactions subject to mandatory filing under the Pilot Programme for critical technologies may submit a short-form declaration. The Proposed Regulations would make short-form declarations available to all notifiable transactions. Once a declaration is received, CFIUS is required to either (i) clear the transaction; (ii) request a full notice; (iii) inform the parties that CFIUS cannot conclude review based on the submitted declaration (which neither prevents closing nor precludes CFIUS from opening a full investigation at a later time); or (iv) initiate a unilateral review within 30 days. Although a CFIUS filing generally is not suspensive, a short-form declaration must be submitted at least 45 days prior to closing.
Must the review be completed before the parties can close the transaction? What are the penalties or other consequences if the parties implement the transaction before clearance is obtained?
Parties generally may close a transaction, at the buyer’s risk, before obtaining CFIUS clearance. However, the President retains the power to block or unwind a covered transaction unless or until it is cleared by CFIUS. CFIUS discourages parties from closing over a pending review and has the power to prohibit it (though that power is rarely exercised and closing during review happens with some frequency).
A transaction subject to mandatory filing under the Pilot Programme must file the short-form declaration (or, in the alternative, a full filing) at least 45 days prior to closing. Failure to file can result in a civil monetary penalty of up to the value of the transaction. The Proposed Regulations would permit such penalties for failure to file any transaction subject to a mandatory filing requirement.Involvement of authorities
Can formal or informal guidance from the authorities be obtained prior to a filing being made? Do the authorities expect pre-filing dialogue or meetings?
CFIUS regulations formalised the submission of a pre-filing draft notice to CFIUS. However, it is generally difficult to get meaningful feedback pre-filing. In some cases, it is possible to engage with the agencies most likely to be concerned with a transaction in advance of the formal CFIUS process.
When are government relations, public affairs, lobbying or other specialists made use of to support the review of a transaction by the authorities? Are there any other lawful informal procedures to facilitate or expedite clearance?
Typically, the clearance process is handled by specialist legal advisers of the parties. Other advisers may assist depending on the nature of the businesses involved (such as industry analysts for transactions involving sensitive technology). Public affairs specialists and lobbyists may in some cases be involved in a CFIUS clearance effort where an investment or acquisition is controversial or has attracted the interest of lawmakers. Parties may also consider contacting any US government customers of the target US business to address concerns before making a formal filing. In difficult cases, parties may want to contact members of Congress who are likely to be concerned. However, these public efforts have no direct role in the process, and their main purpose is to dampen political pressure that the CFIUS agencies may perceive.
What post-closing or retroactive powers do the authorities have to review, challenge or unwind a transaction that was not otherwise subject to pre-merger review?
The President retains the power to block or unwind any transaction within CFIUS’s jurisdiction that threatens to impair US national security and has not received CFIUS clearance. CFIUS retains authority to rescind an earlier approval and reopen a review where any transaction party fails to conform to a material term of a mitigation agreement or condition and the Committee finds that no other enforcement mechanisms exist. As demonstrated by the Grindr example discussed in question 23, CFIUS has recently dedicated increased resources to reviewing transactions within its core areas of concern that were not notified to CFIUS. CFIUS may also reopen a review if material misrepresentations were made.