The Committee on Foreign Investment in the United States (CFIUS), an inter-agency committee headed by the Department of the Treasury, is authorized to review mergers, acquisitions or takeovers that could result in a U.S. business being owned or controlled by a foreign person or company. Once a little-known committee, CFIUS has become more widely recognized in the past decade amid growing concern over foreign investment in the United States and any resulting potential national security concerns. In fact, in September 2017, President Trump took the rare step of blocking a transaction: the proposed acquisition of Lattice Semiconductor Corporation by Canyon Bridge Capital Partners LLC, a subsidiary of Chinese state-owned China Venture Capital Fund Corporation Limited. Such a move indicates that the involved parties were unable to allay the national security concerns of CFIUS’s agency members. It further highlights the president’s “America First” outlook and the likelihood that CFIUS reviews will become more common and stringent under the current administration.
The recently released CFIUS 2015 Annual Report to Congress indicates the following trends:
- In 2015, 143 transactions were reviewed by CFIUS, continuing the upward trend since 2009, when 65 notices were filed. Further, it is believed that filings increased again in 2016, and that 2017 will be a record year with over 200 filings.
- In 2015, 42 percent of reviews were conducted for industries in the Manufacturing Sector; 32 percent in the Finance, Information, and Services Sector; 18 percent in the Mining, Utilities, and Construction Sector; and 8 percent in the Wholesale Trade, Retail Trade, and Transportation Sector.
- For the fourth consecutive year, China led foreign countries in the number of CFIUS reviews, with 29 conducted in 2015. Over the three-year period from 2013 to 2015, Chinese investment in U.S. companies underwent 74 CFIUS reviews; the next closest country was Canada with 49 reviews, followed by the United Kingdom with 47 reviews.
- While the majority of reviews conclude with approval by CFIUS, in 2015 the parties to 11 transactions had to agree to and adopt mitigation measures to address foreign ownership concerns and to remove any national security risks. This included establishing specific security protocols, notifying customers of foreign ownership, assuring the U.S. government of continued supply of goods or services and, in at least one instance, excluding sensitive assets from the transaction.
- Finally, the annual report must highlight any “perceived adverse effects” of transactions reviewed by CFIUS, and the 2015 report for the first time indicates there could be national security concerns regarding potential acquisitions of U.S. companies that hold “substantial pools of potentially sensitive data about U.S. persons and businesses that … could be in any number of sectors, including, for example, the insurance sectors, health services, and technology services.”
While not stated in the report, the statistics reveal that in 2015, there was an increase in the length of time a transaction remained active and under review before CFIUS. By law, CFIUS must complete reviews within 90 days; however, historically, most transaction reviews have been concluded within the initial 30-day review period. The 2015 data indicate that nearly half of the 143 transactions went into the more formal 45-day investigation period. With continued pressure from Congress over the national security implications of foreign investment in certain segments of the U.S. economy, and calls for further reforms and updates to the relevant CFIUS statutes and regulations, longer review periods are likely to become common.