RISK MANAGEMENT
What You Should Know About CFIUS
November 24, 2009
Karen Dickinson and Matt Vogel

CFIUS, the Committee on Foreign Investment in the United States, is composed of representatives from federal agencies such as the Department of Defense, Department of State and Department of Homeland Security, and has the authority to review transactions involving foreign buyers when the transactions potentially affect U.S. national security. Regulations enacted in December 2008 under the Foreign Investment & National Security Act of 2007 (“FINSA”) have broadened the scope of transactions that fall under the authority of CFIUS. Covered transactions now include both acquisitions of control by foreign-controlled entities of U.S. businesses that are involved with products or services related to national security and those related to critical infrastructure of the United States.

Filing a CFIUS notice

Filing a notice for review by CFIUS is voluntary and does not involve payment of any filing fee. There are two benefits of filing to an acquiring party. First, voluntarily filing avoids the appearance of impropriety, if the federal government would be likely to investigate a transaction. Second, if a filing is not made and CFIUS later determines that the transaction adversely affects national security or critical infrastructure, the transaction may be unwound even after the transaction has closed and entities or assets have been mixed together.

Filing a notice with CFIUS may also be necessary to reduce future risk. For example, particularly aggressive competitors may use political muscle to request that Congress urge CFIUS to open its own investigation following the closing of the transaction.

All parties to the transaction jointly file a single CFIUS notice. This includes submitting a draft of the voluntary notice approximately one week before the filing is expected to be made. CFIUS uses this pre-filing draft submission to understand the business that is being acquired, and the acquiring party. The pre-filing also provides an opportunity for CFIUS staff to request modifications to the filing and can help avoid frustrating delays in the CFIUS review process. Information that is filed with CFIUS is strictly confidential, including protection from Freedom of Information Act requests. However, disclosure occurring as part of an administrative or judicial action and disclosure to Congress is permitted.

Once a submission has been made, the parties observe a 30-day waiting period. The vast majority of transactions are cleared after the 30-day waiting period, when CFIUS certifies to Congress that there are no unresolved issues relating to national security or critical infrastructure arising because of the transaction.

If CFIUS opts to investigate the transaction further, the parties must observe an additional 45-day waiting period while CFIUS conducts a comprehensive investigation. Based on this analysis, the President must make a final, unreviewable determination within 15 days. It is exceedingly rare that the President would ever review a transaction. If a transaction is not cleared during the initial waiting period, the committee typically asks the parties to consent to a modified form of the transaction (e.g., one involving a partial divestiture of certain assets or businesses) rather than requesting presidential review.

The CFIUS notice must include a description of the transaction and the parties involved, the identities of any parent companies of the acquiring party, the closing date of the transaction, cash and any other consideration involved, and the names of all financial institutions involved in the transaction. The acquiring foreign party must provide background information about itself and its parents, as well as their executives, directors, owners and affiliates, along with information about the acquiring party’s intentions with respect to the business that it is acquiring.

Information required from the acquired U.S. entity includes a description of the business and product lines being acquired, estimated U.S. market share for those product lines, lists of written or informal agreements relating to products or services supplied to the U.S. government and a description of technology having potential military application, whether offensive or defensive.

Karen Dickinson and Matt Vogel are attorneys with Quarles & Brady.
Contact CFIUS here.

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