Heightened U.S. sensitivity to the potential national security ramifications of sales, mergers or other transactions with foreign parties is a significant potential complication for cross-border deals. Since the mid-1970s, The Committee on Foreign Investment in the U.S. (CFIUS) has been empowered to investigate, mitigate and even block sales to or mergers with foreign owners. The Foreign Investment Risk Review Modernization Act (FIRRMA), a bill currently in Congress, would broadly expand CFIUS’ jurisdiction to include a wider range of transactions.
FIRRMA expands CFIUS oversight to include non-passive, minority position investments in critical technology or infrastructure; joint ventures involving technology transfers to a foreign entity; and real estate investments near military or other national security facilities. FIRMMA also includes a provision about acquisition of early-stage technologies by unspecified “countries of special concern” that pose a significant national security threat. FIRMMA would nearly double the list of national security factors for the CFIUS to consider in its risk reviews and lengthen the review period. As a result, companies considering deals with foreign entities could face and should prepare for a significant CFIUS compliance burden.
11 national security issues CFIUS considers
How CFIUS compliance works
- Domestic production needed for projected national defense requirements
- The capability and capacity of domestic industries to meet national defense requirements, including the availability of human resources, products, technology, materials and other supplies and services
- The control of domestic industries and commercial activity by foreign citizens as it affects the capability and capacity of the United States to meet the requirements of national security
- The potential effects of the proposed or pending transaction on sales of military goods, equipment or technology
- The potential effects of the proposed or pending transaction on U.S. international technological leadership in areas affecting U.S. national security
- The potential national security-related effects on U.S. critical infrastructure, including major energy assets
- The potential national security-related effects on U.S. critical technologies
- Whether the covered transaction is a foreign government-controlled transaction, as determined under subsection (b)(1)(B)
- As appropriate, and particularly with respect to transactions requiring an investigation under subsection (b)(1)(B), a review of the current assessment of: the adherence of the subject country to nonproliferation control regimes; the relationship of such country with the U.S., specifically on its record on cooperating in counter-terrorism efforts; and the potential for transshipment or diversion of technologies with military applications
- The long-term projection of U.S. requirements for sources of energy and other critical resources and material
- Such other factors as the President or the Committee may determine to be appropriate, generally or in connection with a specific review or investigation
CFIUS is chaired by the Secretary of the Treasury. Voting members include Cabinet-level heads of the Departments of Commerce, Defense, Homeland Security, Justice, State and Energy; the U.S. Trade Representative; and the head of the White House Office of Science and Technology. If CFIUS determines a deal places U.S. interests are at risk, it can add a mitigation agreement or other conditions to the deal or refer to the deal to the President, who has authority to block the transaction. Voluntary deal withdrawals and Presidential actions have increased significantly under the Trump administration.
Each party to a transaction involving a U.S. company and foreign entity makes a voluntary filing of notice. CFIUS has the authority to compel a filing if it determines that a transaction poses a potential risk to national security. The process generally ranges from 30-90 days and includes:
- An initial 30-day review following CFIUS’ receipt of the notice
- An investigation period of up to 45 days for transactions requiring additional investigation after the 30-day review
- A 15-day period for presidential review if CFIUS refers a transaction to the President for a decision on whether to suspend or prohibit it
The foreign company must sign a National Security Agreement (NSA) which describes what they can and can’t do, and CFIUS must approve the NSA.
To comply, deal participants must demonstrate readiness, have a monitor and provide an annual monitoring report in compliance with the provisions of the NSA. NSA compliance is a complex, far reaching effort. Necessary steps and areas where companies often need help include:
CFIUS preparation is vital
- Developing policies and procedures aligned to each provision in the NSA
- Developing a risk and control matrix to support the policies and procedures developed and related evidence to support that the controls are operating
- Identifying appropriate process and control owners and working with them to design the control structure and documentation
- Ensuring sufficient evidence to support that controls are effective and in adherence with the NSA
- Training process and control owners on the policies and procedures, controls and evidence to support adherence with the NSA
- Monitoring all policies, procedures and controls to ensure ongoing adherence with the NSA
- Identifying and remediating any deficiencies in the design of policies, procedures, controls or documentation or that it is operating effectively
If you are considering a transaction subject to CFIUS review, getting ahead of CFIUS requirements is essential. Grant Thornton understands both CFIUS and proposed FIRRMA requirements, is approved to work with and report to CFIUS. We can assist both foreign acquirers and U.S. companies. Preparation will pave the way for a smooth process, if handled proactively.
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