CFIUS HAS NEW TEETH: FOREIGN INVESTMENT INTO THE US UNDER NEW LEVEL OF SCRUTINY

In light of recent changes to the CFIUS regulatory regime, it is imperative that legal counsel to parties involved in transactions where foreign persons may be acquiring equity interests in US businesses pay careful attention to whether a CFIUS notification filing may be required

In late September of 2019, the Committee on Foreign Investment in the United States (“CFIUS”) published proposed rules (the “Proposed Rules”) seeking to implement the provisions of the Foreign Investment Risk Review Modernization Act of 2018 (“Act”), a new piece of US legislation which expands the scope of CFIUS’ coverage to include certain non-controlling investments in US businesses that implicate certain “critical technologies”. The Proposed Rules significantly expand the definition of what constitutes a covered investment under the Act and clarify certain limitations imposed with respect to investments in real estate. The Proposed Rules are subject to public comment but are slated to be finalized by February of 2020.

Pre-Act

Prior to the enactment of the Act, the US Defense Production Act of 1950 empowered the President of the United States, acting through CFIUS, to retain the authority to review mergers, acquisitions, and takeovers by or with any foreign person which could result in foreign control of any person or entity engaged in matters relating to national security or certain critical industries or infrastructure of the US.

The status quo prior to the Act was such that parties to a M&A deal with a relevant nexus to the US could voluntarily file with CFIUS if there was a reason to believe that the transaction could convey control of the US business to a foreign investor and could implicate US national security concerns. This voluntary filing structure remained in place notwithstanding CFIUS’ baseline right to initiate its own review, at any time, of transactions which it independently deemed to be questionable from a US national security perspective.

The Act