July 25, 2022
By: Chris Griner, Shannon Reaves, Tom Firestone, Christopher R. Brewster, Gregory Jaeger, Andrew J. Astuno, Erin Bruce Iacobucci
A few weeks back, the Committee on Foreign Investment in the United States (“CFIUS”) hosted its first-ever conference for practitioners, providing a rare opportunity for open discussion of trends and developments affecting CFIUS.
The first panel – Overview and Best Practices for Undergoing CFIUS Review – featured comments from senior Treasury officials who acknowledged that – once the decision has been made to file for CFIUS review – investors and targets still have multiple factors to weigh and analyze when deciding whether to file a shortened Declaration instead of a full Joint Voluntary Notice (“JVN”). That decision and analysis, especially in light of the consequences of CFIUS requesting that the parties file a JVN, is generally recognized as “an art, not a science.”
The Lesson: We believe Declarations can be extraordinarily effective in expediting reviews. At the same time, we also believe a JVN is prudent for any transactions involving investors from countries of concern or where a petition is expected to present novel or complex issues. In such situations, the petition is unlikely to be resolved on a Declaration – and the Declaration will only serve to prolong the review. In our recent experience, CFIUS is taking an increasingly hard look at the ownership structure of limited partnerships (even those acquiring non-controlling stakes in a target).
The second panel – How Does CFIUS Adapt to an Evolving National Security Landscape? – featured comments from members of several key agency stakeholders, including the Department of Defense, the Department of Homeland Security, and the Department of Commerce. Panelists confirmed that CFIUS has the power to, and occasionally does, re-negotiate mitigation measures to ensure that the agreements reflect the evolving national security risk environment.
The Lesson: We strongly believe that the operational personnel of the U.S. business should be consulted in the negotiation of mitigation measures – at the outset, and in conjunction with any renegotiation. In the rush to closing, acquirers may consent to mitigation measures that can prove costly in the long run. The unintended consequences of mitigation may drive up costs and create inefficiencies. For this reason, it is smart to anticipate mitigation, assess its implications with operational personnel – and be prepared to answer government mitigation proposals with alternative and less costly measures that can achieve the same ends.
For the same reasons, it is important for companies to stay abreast of the Committee’s evolving national security priorities. Companies need to stay ahead of the curve – and, in appropriate cases, may want to take a proactive approach with CFIUS to avoid being blindsided when the Committee decides to revisit mitigation orders. When and if CFIUS decides that mitigation needs to be enhanced, it is important to be prepared.
The third panel – Key Concerns With Respect to Data – featured CFIUS representatives from agencies and stakeholders charged with protecting the sensitive personal data (“SPD”) of citizens that is collected or maintained by U.S. businesses. These speakers noted that cases involving SPD issues are a growing percentage of mitigated cases, and CFIUS remains concerned with how a business intends to conduct its data collection practices following the covered transaction.
The Lesson: Any transaction involving SPD should be analyzed not only from the perspective of current access to SPD, but also how access and data collection practices may or will change after the transaction. The parties should expect these issues to be thoroughly explored in the review. They should anticipate questions – and they should have answers at the ready. In particular, the CFIUS panel confirmed that genetic and medical data are now deemed to be high risk, in addition to the financial and geolocation data (by way of example) that most parties are accustomed to dealing with in the context of SPD. It is important to note that these concerns can arise in transactions outside of the traditional defense sector.
The final panel – CFIUS Engagement With International Counterparts – made clear that CFIUS remains dedicated to sharing its expertise and perspectives on investment screening with allies of the United States. In turn, CFIUS is gathering intelligence on foreign acquirers through robust communication with agencies conducting investment reviews in allied countries.
The Lesson: Information is going to be shared between governments, and investors need to be transparent – especially about past transgressions that may affect a review. Increasingly, we expect geopolitical concerns to color CFIUS reviews, especially where the transactions implicate countries of concern.
Meanwhile, the Consolidated Appropriations Act (P.L. 177-103) provides $559 million to the Commerce Department’s (“Commerce”) International Trade Administration (“ITA”), a fraction less than the Administration’s request. The Administration asked for $2.9 million to fund 12 new staff positions in the ITA’s “Industry and Analysis” unit – which, among other things, helps design and implement trade and investment promotion programs. It is also the key liaison to CFIUS, and the 12 staff positions are intended to support CFIUS reviews.
The Lesson: Here’s what we think investors and targets should expect from 12 new positions at ITA:
The “takeaway” from all of these recent events is summed up in two words: “Be Prepared.” Parties should do their homework before filing Declarations, approach mitigation proposals with caution (and with Plan B firmly in hand), stay on top of new developments, assess the impact of a transaction on data protections – and be prepared, always, to answer key questions about the transaction that may be posed by government reviewers – during and after the review.
July 25, 2022
By: Chris Griner, Shannon Reaves, Tom Firestone, Christopher R. Brewster, Gregory Jaeger, Andrew J. Astuno, Erin Bruce Iacobucci
A few weeks back, the Committee on Foreign Investment in the United States (“CFIUS”) hosted its first-ever conference for practitioners, providing a rare opportunity for open discussion of trends and developments affecting CFIUS.
The first panel – Overview and Best Practices for Undergoing CFIUS Review – featured comments from senior Treasury officials who acknowledged that – once the decision has been made to file for CFIUS review – investors and targets still have multiple factors to weigh and analyze when deciding whether to file a shortened Declaration instead of a full Joint Voluntary Notice (“JVN”). That decision and analysis, especially in light of the consequences of CFIUS requesting that the parties file a JVN, is generally recognized as “an art, not a science.”
The Lesson: We believe Declarations can be extraordinarily effective in expediting reviews. At the same time, we also believe a JVN is prudent for any transactions involving investors from countries of concern or where a petition is expected to present novel or complex issues. In such situations, the petition is unlikely to be resolved on a Declaration – and the Declaration will only serve to prolong the review. In our recent experience, CFIUS is taking an increasingly hard look at the ownership structure of limited partnerships (even those acquiring non-controlling stakes in a target).
The second panel – How Does CFIUS Adapt to an Evolving National Security Landscape? – featured comments from members of several key agency stakeholders, including the Department of Defense, the Department of Homeland Security, and the Department of Commerce. Panelists confirmed that CFIUS has the power to, and occasionally does, re-negotiate mitigation measures to ensure that the agreements reflect the evolving national security risk environment.
The Lesson: We strongly believe that the operational personnel of the U.S. business should be consulted in the negotiation of mitigation measures – at the outset, and in conjunction with any renegotiation. In the rush to closing, acquirers may consent to mitigation measures that can prove costly in the long run. The unintended consequences of mitigation may drive up costs and create inefficiencies. For this reason, it is smart to anticipate mitigation, assess its implications with operational personnel – and be prepared to answer government mitigation proposals with alternative and less costly measures that can achieve the same ends.
For the same reasons, it is important for companies to stay abreast of the Committee’s evolving national security priorities. Companies need to stay ahead of the curve – and, in appropriate cases, may want to take a proactive approach with CFIUS to avoid being blindsided when the Committee decides to revisit mitigation orders. When and if CFIUS decides that mitigation needs to be enhanced, it is important to be prepared.
The third panel – Key Concerns With Respect to Data – featured CFIUS representatives from agencies and stakeholders charged with protecting the sensitive personal data (“SPD”) of citizens that is collected or maintained by U.S. businesses. These speakers noted that cases involving SPD issues are a growing percentage of mitigated cases, and CFIUS remains concerned with how a business intends to conduct its data collection practices following the covered transaction.
The Lesson: Any transaction involving SPD should be analyzed not only from the perspective of current access to SPD, but also how access and data collection practices may or will change after the transaction. The parties should expect these issues to be thoroughly explored in the review. They should anticipate questions – and they should have answers at the ready. In particular, the CFIUS panel confirmed that genetic and medical data are now deemed to be high risk, in addition to the financial and geolocation data (by way of example) that most parties are accustomed to dealing with in the context of SPD. It is important to note that these concerns can arise in transactions outside of the traditional defense sector.
The final panel – CFIUS Engagement With International Counterparts – made clear that CFIUS remains dedicated to sharing its expertise and perspectives on investment screening with allies of the United States. In turn, CFIUS is gathering intelligence on foreign acquirers through robust communication with agencies conducting investment reviews in allied countries.
The Lesson: Information is going to be shared between governments, and investors need to be transparent – especially about past transgressions that may affect a review. Increasingly, we expect geopolitical concerns to color CFIUS reviews, especially where the transactions implicate countries of concern.
Meanwhile, the Consolidated Appropriations Act (P.L. 177-103) provides $559 million to the Commerce Department’s (“Commerce”) International Trade Administration (“ITA”), a fraction less than the Administration’s request. The Administration asked for $2.9 million to fund 12 new staff positions in the ITA’s “Industry and Analysis” unit – which, among other things, helps design and implement trade and investment promotion programs. It is also the key liaison to CFIUS, and the 12 staff positions are intended to support CFIUS reviews.
The Lesson: Here’s what we think investors and targets should expect from 12 new positions at ITA:
The “takeaway” from all of these recent events is summed up in two words: “Be Prepared.” Parties should do their homework before filing Declarations, approach mitigation proposals with caution (and with Plan B firmly in hand), stay on top of new developments, assess the impact of a transaction on data protections – and be prepared, always, to answer key questions about the transaction that may be posed by government reviewers – during and after the review.
