California International Law Journal
"CFIUS Reviews are a Reality for More and More Cross-Border Transactions"
Recent news reports indicate that in-bound foreign investment in the United States is “soaring to new heights” in 2016, with more than 280 cross-border deals by early March, well ahead of the pace in 2014 and 2015.
Most of these foreign acquisitions will not implicate national security. Nevertheless, cross-border transactions will increasingly fall under the scrutiny of the multi-agency Committee on Foreign Investment in the United States (“CFIUS” or the “Committee”), which is charged with assessing the impact of foreign investment on U.S. national security. Following CFIUS review, the President can block a transaction that the President finds a threat to U.S. national security. CFIUS reports 147 filings for FY2014, continuing a generally upward trend since the financial crisis of 2007-2009.
Although none of these transactions was blocked by the President (only two have been blocked in history), twelve were withdrawn after filing. Transactions may be withdrawn for many reasons (one of the twelve was refiled in 2015), but it is fair to say that the majority of these transactions were likely withdrawn because they either could not pass CFIUS scrutiny, or because the parties refused to accede to the terms that CFIUS would require to clear the deal.
Ostensibly voluntary, filing for CFIUS review is effectively mandatory for transactions involving U.S. companies that hold security clearances, as well as for transactions that implicate national security, whether the target performs classified work or not. This is because CFIUS has the right to review a transaction whether or not filed, and can do so in perpetuity if the transaction has not been reviewed and cleared – even after closing. Transactions not only can be blocked by the President, they can be unwound, and the divestment of sensitive assets may be the price of clearing a deal. Accordingly, it is not at all uncommon for lenders to insist that a transaction be filed for CFIUS review to remove the prospect of CFIUS upending it after closing.