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Foreign Investment in the United States: Don’t Let CFIUS Unwind Your Deal!

It’s a quiet Friday afternoon edging uneventfully toward the end of the day when a client calls:  they’re interested in acquiring a U.S.-based widget maker.  After your internal conflict check clears, reality hits – what do you do now? 

Whether your client is a foreign (non-U.S.) business targeting a U.S.-based company, or the U.S. target of a foreign purchaser, your deal may have Committee on Foreign Investment in the United States (CFIUS) implications.  

CFIUS is an often overlooked component of international M&A practice that involves a U.S. government review of the national security implications of foreign direct investment in the United States.  From contractual relationships between subsidiary companies to the proximity of a potential target’s physical assets to U.S. military installations, proposed investments and transactions involving U.S. entities can be a potential minefield of CFIUS implications. 

Things to consider:

  • Voluntary Filing:  Filing a notice of transaction with CFIUS is a voluntary process.  However, CFIUS has broad powers to mitigate potential risks to national security, up to and including the ability to unwind a transaction where it poses a threat to national security.  Absent notification and corresponding approval, this power to unwind never expires.

  • “Control” is Key: CFIUS jurisdiction can be invoked by even a minority investment in a U.S. company.  The Committee looks at a number of factors in determining whether a foreign company has “control” over a U.S. company, including the ability to sell assets or reorganize, the ability to hire or fire employees, and control over U.S.-based facilities. 

  • Government Contracts, Security Clearances, and Export Control: Does your company or the target company have contracts with governmental entities?  Does the target produce export controlled goods?  Does your target hold a facility clearance or do its employees hold security clearances? 

  • Governmental Applications:  Does the target produce technology or products used in governmental applications?  Keep in mind component manufacturers could still trigger national security concerns. 

  • Consider Your Surroundings:  The target facilities’ proximity to a U.S. military installation or critical infrastructure site could raise CFIUS’ interest.   

  • Review Period:  The initial CFIUS review period is 30 days.  Many proposed transactions can be cleared during this initial review period without additional investigation or mitigation steps.    

  • Safe Harbor Letter:  Gaining CFIUS approval for a proposed transaction means CFIUS cannot come back and retroactively impose mitigation steps or worse, unwind an already consummated deal. 

CFIUS’ History and Jurisdiction:

CFIUS in an inter-agency committee – comprised of members from the Departments of Treasury, Justice, Homeland Security, Commerce, Defense, State and Energy, and Offices of the U.S. Trade Representative and Science & Technology Policy.  Various other governmental entities “observe” the CFIUS process and participate as necessary. 

While there are a number of U.S. government entities that review and regulate foreign investment in the United States, CFIUS has the broadest mandate over foreign acquisitions of U.S. companies. 

The Committee’s mandate is broad and it is charged with reviewing all “covered transactions”  - defined as “a transaction which, irrespective of the actual arrangements for control provided in the terms of the transaction, results or could result in control of a U.S. business by a foreign person.”  In reviewing a transaction, CFIUS reviews the transaction’s impact on the “national security” (an undefined term).

Companies have the option to file a notification of their proposed transaction for CFIUS approval.  CFIUS, after reviewing a notice of the proposed transaction, will either:  

  • approve the transaction;

  • engage in an investigation of the proposed transaction;

  • require measures to mitigate the effects of foreign control; or

  • recommend to the President that the transaction be blocked or unwound. 

 Because the President’s final decision on a transaction is final, companies with transactions that are potentially covered by CFIUS should seek experienced CFIUS guidance. 

© 2018 Dinsmore & Shohl LLP. All rights reserved.


About this Author

Harvey Jay Cohen, Domestic Foreign Transactions Attorney, Dinsmore Shohl law

Harvey Cohen is a long-standing, accomplished corporate attorney, uniquely focused on helping clients win by practically, pro-actively and efficiently assisting with their domestic and foreign transactions. With years of studies and dealings abroad, Harvey applies his global experience to address cross-border strategies and complex issues in tandem with client product or service needs, specific industry situations, as well as "must haves" and "must avoids" before crafting any solution or agreement. 

Harvey is known for asking the hard, practical...

David J. Lavan, Dinsmore, Corporate Litigation Attorney, SEC Registration

David is a partner in the Corporate Department who focuses his practice on all aspects of SEC registration, reporting and compliance. He routinely advises clients on public and private offerings of debt and equity, disclosure matters, corporate governance and accounting issues. As a former government bond broker, David provides clients with unique insights into the financial marketplace, counseling them on transactional and regulatory matters, as well as litigation. He represents both public and private companies, as well as independent board and committee members, investment banks, private equity funds and other financial institutions. David previously served as Special Counsel in the Division of Corporation Finance in the U.S. Securities and Exchange Commission.     

Andrew Kirkner, Dinsmore Law Firm, Administrative Litigation Attorney

Andrew is a member of the Corporate Department focusing in the areas of government relations and civil and administrative litigation. Andrew is a registered lobbyist with experience representing property and casualty insurance and Medicaid managed care clients before the West Virginia Legislature. He has drafted legislation and amendments, lobbied, and testified before committees of the Legislature on behalf of the firm’s clients. Andrew also maintains a litigation practice before West Virginia’s trial courts and administrative agencies. He has worked on cases involving...