The recent presidential campaign was notable for the debate concerning whether interaction with foreign entities benefitted the U.S. While trade deficits and offshoring of U.S. jobs grabbed headlines, there has been growing attention to the acquisition of U.S. companies by foreign entities. Although the U.S. has traditionally welcomed foreign investment, going back as far as 1975[i] the U.S. has monitored such activity and over time has developed a process that evaluates certain aspects of foreign investment. The Committee on Foreign Investment in the United States (“CFIUS” or “the Committee”) has evolved through statutes, regulations, and executive orders, [ii] into an influential body, tasked with advising the president concerning foreign investment, and possessing the authority to recommend that the president block a specific transaction. 

The Committee is an inter-agency body comprised of nine members from the federal executive branch, two ex officio members, and other members as appointed by the president.  Chaired by the U.S. Department of the Treasury, CFIUS reviews for national security concerns transactions in which a foreign entity acquires control of a U.S. business.

“National security” is not defined for purposes of the CFIUS review.  The statute, however, does provide guidance concerning the issues to be considered in determining whether a transaction threatens U.S. national security.  The assessment naturally includes national defense concerns, but also include areas of economic security such as “critical infrastructure”[iii] and energy security.  

Then-Candidate now-President Trump has expressed concerns over U.S. trade relations, and has commented on trade with China.  In its annual report to Congress, the Committee included data showing that the greatest number of covered transactions for the three-year period involved China,[iv] with Chinese investment focused on manufacturing more than any sector.  The combination of Chinese economic activity in the United States and U.S. manufacturing could attract significant attention from this Administration.

The president has myriad ways to influence the CFIUS process to address the Administration’s objectives.[v]  The CFIUS process itself contemplates direct action by the president at the end of the process,[vi] in the rare instance that a transaction has continued through the process and then been referred to the president.[vii]  In deciding whether to block a transaction, the president could consider several factors, including the overall economic and strategic relations with the foreign country at issue and reciprocity with respect to U.S. investment.  Accordingly, the president’s authority to block transactions may be a useful tool of foreign policy.

Presidential appointments present a more immediate opportunity for presidential influence.  The Committee is an inter-agency body comprised of members of the executive branch and although Committee staff, who are federal employees, perform much of the work, the president’s appointees will guide the process.  This could be significant particularly with respect to decisions that are escalated as well as to the shape and scope of mitigation measures intended to resolve national security concerns. 

The president also may alter the make up the Committee.  For example, the president may add an agency for purposes of a specific review.  The president also, by executive order, may designate other agencies to the Committee, thereby expanding the review to include the designated agency’s portfolio.  In either case, the president thus indicates that the added agency has a pertinent perspective not otherwise represented.

Further, the dynamics among the executive branch stakeholders may shape foreign investment policy.  The relationship between agencies and the White House may influence CFIUS operations.  Moreover, the tension between the U.S. economic policy, which traditionally welcomes foreign investment, and national security, which may be more cautious with respect to foreign actors, may shift depending on the relative strength of the relevant agencies.

The CFIUS landscape in the current administration is unclear and signals are mixed.  Although fast approaching the 100-day mark, key political appointment positions remain unfilled.  The president’s critical comments on foreign trade on the campaign trail would seem at odds with his past as a businessman.  The Committee cleared[viii] the acquisition by Sibanye, a South African entity with significant Chinese investors, of Colorado-based Stillwater Mining, the sole U.S. miner of platinum and palladium.  At the same time, the review of the proposed sale of Lattice Semiconductor to Canyon Bridge Capital Partners, a firm with Chinese investors, has been extended.  The notification was withdrawn and resubmitted to CFIUS after the 75-day review period expired without a decision, thus restarting the clock.[ix]

Prudent potential parties to foreign investment in United States, therefore, must prepare for a wide scope of eventualities.  When looking for national security concerns, take a broad view of transactions.  National security concerns can emerge from a variety of unexpected circumstances, and the circumstances can shift depending upon the approach favored by those performing the analysis. Consider CFIUS concerns early in the process, when first evaluating a business opportunity.  Where there is a question as to whether the transaction is a covered transaction with national security concerns, submitting a formal notification and going through the CFIUS process is the only way to obtain safe harbor.  The time, expense and scope of information that may be requested in the CFIUS review may be burdensome and may delay the transaction and even ultimately alter the overall advisability of the deal.  However, the time and expense of the due diligence more than outweighs the potential costs should a concluded transaction be subject to post-closing review or unwinding.