What is CFIUS? The Basics

  • The Committee on Foreign Investment in the United States
  • CFIUS reviews deals in which a foreign person will obtain control over a US trade or business,  so-called “covered transactions.”
  • CFIUS’s review focuses on the national security implications of the transaction.
  • Parties to covered transactions may inform CFIUS of the deal by filing a notice containing the details of the purchase, including information about the acquirer and the business being acquired.  Such filings are voluntary.  However, CFIUS can initiate its own review (or request that the parties file a notice) if it believes a deal raises national security considerations.
  • CFIUS approval provides a “safe harbor,” meaning the deal may go forward without risk of prohibition or being unwound.

What is CFIUS? The Process

Four stages

  • Pre-filing: preparation of notice and preliminary consultations with CFIUS staff
  • Initial review: 30 days after notice is submitted and accepted by CFIUS
  • Extended investigation, if necessary: additional 45 days following initial review period
  • If the deal is not approved by CFIUS after an investigation, then a presidential decision is required.  The President may unwind deals that have closed. 

What is CFIUS? “Control”

  • “Control” is very broadly defined in CFIUS regulations. 
  • The power to determine, direct, take, reach or cause decisions regarding the operations of a US trade or business suggests control.  This includes control over the following matters:
    • The sale or lease of the entity’s assets
    • The reorganization, merger or dissolution of the entity
    • Changes to the business’s product lines, operations or research and development activities
    • The issuance of debt or equity, major expenditures and investments, dividend payments and approval of the entity’s operating budget
    • The appointment or dismissal of officers and senior managers
    • The entry into or termination of significant contracts
  • Control can be obtained through the ownership of a majority or dominant minority voting interest, board representation, proxy voting, formal or informal arrangements to act in concert or other means that confer direct or indirect control over the entity.
  • Certain minority shareholder protections do not confer control of an entity, including the power to:
    • Prevent the sale of all or substantially all of the entity’s assets
    • Prevent changes to the entity’s organizational documents
    • Prevent the entity from entering into contracts with, or guaranteeing the obligations of, majority investors
    • Purchase an additional interest in the entity to prevent dilution of the investor’s pro rata interest in the entity
    • Prevent the change of existing legal rights or preferences of minority investor’s particular class of stock

What is CFIUS? National Security

  • CFIUS national security concerns mostly fall into two categories:
    • The type of business being acquired.  Examples of national security factors: the business deals with critical infrastructure, including major entity assets, national defense/security or critical technologies.
    • The identity of the acquirer, including an affiliation with or control by a foreign government.
  • Recent CFIUS cases suggest proximity to sensitive US government installations or critical infrastructure is an important national security factor.
  • State-owned entities are subject to increased scrutiny.  Generally, a 45-day investigation is mandatory if the acquirer is controlled by a foreign government.