CFIUS Reform and the Savvy Foreign Firm

What do the recent changes in the U.S. process for security reviews of foreign investments mean for foreign firms? 

Here's what the trade lawyers say (CFIUS and Latin American Firms, Latin Business Chronicle, July 23; for a refresher on the existing process, go to the Treasury's web site: Committee on Foreign Investment in the United States):

Mélida Hodgson, Counsel in the International Department at Miller & Chevalier:

• ...some transactions—those involving foreign government-controlled entities, and critical infrastructure and energy assets—... will likely receive greater scrutiny than in past years. (And, arguably, foreign government-controlled transactions should have been receiving greater scrutiny under previously existing legislation.)
• The legislation... imposes a number of burdensome reporting and certification requirements on agencies involved in the process. Some of these existed before the enhancement, but were not complied with.
• ...more prominent roles for the director of national intelligence and the Department of Homeland Security will likely mean that transactions involving infrastructure and any issues that could implicate terrorism fears will be subject to more intense scrutiny.
• What this means for Latin American companies is essentially the same as for other companies—for the near future, companies should file with CFIUS unless they are certain that their transactions in no way implicate US national security (and if they are a government-controlled entity, they must file)....
• More relevant for Latin American companies may be the legislation's requirement that CFIUS consider a country's cooperation in counterterrorism efforts. This creates room for Western Hemisphere politics to enter the process.

Ron Oleynik, Partner at Holland & Knight LLP:

• The new legislation codifies existing practice and does relatively little damage to the open foreign investment environment of the United States.
• The real change has come over the last year and a half through CFIUS practice, not through this legislation.
• The law preserves the 30-day initial review and the 45-day investigation periods. However, it gives CFIUS the right to re-examine an approved transaction where the committee finds that the parties submitted false or misleading information, or omitted material facts.
• ...in an attempt to provide greater oversight, Congress demanded to be notified of each transaction, but only after CFIUS has concluded its review.
• The key issue is the strategic nature of the investment target.
• Latin American investors need to be conscious of the fact that, post 9/11 and DP World, the US government has raised the level of scrutiny of foreign investment in the United States.

Simeon Kriesberg, Partner at Mayer, Brown, Rowe & Maw LLP:

• The legislation codifies developments that have been taking place administratively over the last few years, particularly in the wake of the Dubai Ports controversy....
• ...CFIUS has already incorporated in the review process certain elements of the legislation, such as the threat assessment by the director of national intelligence, the more comprehensive reporting to Congress, and the more active involvement of political appointees from the CFIUS agencies.
• Some of the elements of the legislation are new, such as the designation of a lead agency for each review, and it will be interesting to see how that will affect the dynamic and outcome of future CFIUS reviews.
• I think the new law will result in more frequent extensions of the review process into the investigation stage, and it will reinforce CFIUS' increasing scrutiny of acquisitions outside of the defense sector.
• Latin American investors looking to make acquisitions in US energy, infrastructure, telecommunications, or technology sectors need to view the Exon-Florio process as a potential regulatory hurdle, just as antitrust reviews and industry-specific regulatory reviews often are.  The consideration of whether to make an Exon-Florio filing and how to navigate the CFIUS process successfully now has to be part of the strategic planning for Latin American investments in broad sectors of the US economy.