CFIUS Reform

Doyle, Barlow & Mazard PLLC

On July, 25 President Bush signed a bill that will reinforce the review process of foreign acquisitions in the United States, and secure an open environment for foreign investment that is critical to the U.S. economy. The final law does not alter the review period of the first and second stages of the process, and the Committee on Foreign Investment in the United States (“CFIUS”) is now allowed to impose fines or, in the most severe cases, reopen reviews for material noncompliance with a mitigation agreement. Under the new law, CFIUS is required to provide Congress with detailed reports after the completion of investigations and reviews, and to consider an expanded list of factors in its national security review. These factors include the risk of technology transfer to a country that is a threat to the United States and the risks associated with foreign investment in critical infrastructure. These are just some of the most significant changes made to the process.
In March, the House unanimously passed a relatively lenient CFIUS bill and the Senate adopted a similar version last month. The legislation is nearly identical to the one the Senate Banking Committee approved in May, and, unlike last year, the Senate bill did not impose controversial restrictions on foreign deals. Therefore, confrontation with the House was avoided. The Senate bill does not require CFIUS to rank countries according to their relationship with the United States, and the likelihood they would divert military technologies to America’s adversaries. The House passed the Senate’s legislation so the two chambers avoided holding a conference committee session on the measure and sent it straight to President Bush.

Many business groups are pleased with the reform of the CFIUS review process, and their anxieties that the reform discouraged foreign investment have been put to rest. These business groups include the Financial Services Forum, the Business Roundtable, the Organization for International Investment, and the U.S. Chamber of Commerce.

In February 2007, the House passed H.R. 556 in order to restart the process. CFIUS came under fire by lawmakers in 2006 after it approved DP World’s attempt to take over operations of six major U.S. ports. Afterwards the Senate proposed a bill that made the CFIUS review process more meticulous and extensive. This measure quickly died due to strong opposition from the business community.

There is currently a four step process taken by the committee when reviewing a potential acquisition. First, the companies that are involved voluntarily notify CFIUS. This procedure is then followed by a thirty day review period to either authorize the transaction or determine that it is a threat to national security. Most acquisitions are approved at this point, but if it is found that national security is indeed threatened, CFIUS conducts a forty-five day investigation to determine whether the transaction requires a recommendation from the President for action.

The House bill incorporated many of the Senates’ conditions in an attempt to compromise on restrictions that aim to improve the national security of foreign acquisitions. In conjunction, the bills tighten the “Byrd Amendment” provision which requires additional scrutiny of some acquisitions by foreign government owned entities, mandate decision making by Senate-confirmed officers, mandate regular reporting to Congress and enhanced oversight, but do not require Congress to review or approve transactions in advance, expand the scope of the process to include transactions involving critical infrastructure, require the Director of National Intelligence to participate in the process by providing intelligence information, require monitoring of proposed transactions that are withdrawn from the CFIUS process, nor maintain a strict schedule for the CFIUS process review and investigation.

Camelia C. Mazard

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