The Waiting Game: When, Why, and How to File with CFIUS in a New Era of Investment Scrutiny
The other day I spoke to a colleague at the U.S. Department of the Treasury who works in the Office of Investment Security and said, “I heard CFIUS filings were going to break last year’s record total.” He just laughed. He said the OIS received one hundred and seventy-some filings in 2016, the most they had ever received in a year.
This year, only in November, they were over two 225 submissions!
Of course, all of this was just talk and should not be relied on for statistical analysis. But it gives you a good idea of the flood of CFIUS filings that the Committee is now tasked with reviewing. While my contact was sanguine on the possibility of adding some new folks soon to his office soon, he noted that the OIS staff – whom he called the best of the best – has not yet been increased to meet the surge in demand.
So what does this mean for your inbound investment into the United States? We explore that question and provide a few tips below. In addition to a present snapshot of CFIUS, we have a look at the future of CFIUS as a proposed Senate bill aims to increase scrutiny on foreign investment.
Why does it matter to me?
The Committee on Foreign Investment in the United States has the power to review, investigate, halt, or even unwind a completed transaction.
Let that sink in . . . Right? I mean, right?! You could have gone through all the strain and stress of negotiating and closing a transaction and the U.S. Government could come along and simply UN-do the deal you just did.
That is the reason that U.S. companies and foreign investors around the world pay close attention to whether they need to file notice with CFIUS and any hints at what might result from that filing. We have covered a basics and the workings of CFIUS here and here, so we will skip right to the things you should know about timing.
Filing, Timing, and Managing Expectations
Anyone who knows Mergers & Acquisitions knows that deals are almost always done in a pressure cooker. Every step of the job is due yesterday and the next step has already started. My deal partners are some of the world’s best, but they drive the timing on their deals by cracking heads (particularly of the trade compliance partners who support them on CFIUS).
So it is best to manage expectations from the outset.
We have seen two points where the CFIUS filing process is beginning to burst at the seams: (1) the review of a draft notice submission and (2) the decision to pursue a 45-day investigation.
Draft notice review. The CFIUS regulations recommend that a draft notice be submitted at least five business days before the filing of a voluntary notice. However, the regulation does not place any requirement on OIS to return its comments on the draft notice within that time. In past years, when a party submitted a mostly complete draft notice, that party could expect to have comment from OIS within about five business days. This year we have seen draft notice reviews lasting 10, 20, and even 25 days.
Under the regs, nothing prevents a party from submitting a final notice to CFIUS without having received comments on the draft notice. However, the 30-day clock on a formal review of the final notice will not begin until OIS determines that the submission is complete. Therefore, a party that that doesn’t submit a draft risks trading delay for delay. We have found it is best to prepare all parties for the possibility of an extended preliminary review. Then it is a matter of striking the right balance between helpful contact with the regulators and pestering your case agent.
Additional Investigation. Under the regulations, an investigation in addition to the thirty day review is required when a transaction’s threat to U.S. national security or critical infrastructure has not been mitigated, where the transaction involves control by a foreign government, or where a lead agency and CFIUS agree that an investigation shall be undertaken. That last qualification leaves the Committee some room to maneuver. We have seen some reviews go to investigation because we understand the Committee staff have simply not had the time to complete a review in the allotted 30-day window. We recommend thorough preparation and careful expectations management. Plant the seed with stakeholders that a 45-day investigation is a possibility and be as clear and thorough as possible in the formal notification to make the review process smooth for the regulators.
We expect to learn more about the developments over at CFIUS, particularly when their 2016 report to Congress is released (likely in early 2018). We will, continue to report here as soon as events warrant.
 We would be glad to discuss the timing of each step in the CFIUS process. But here we strive for brevity – our constant pursuit and rare achievement.
 Yes, we understand that reporting second-hand gossip is not journalism. Fortunately, we do not hold ourselves out as journalists. We are merely observers reporting what we have observed with all due caveats.