G. Christopher Griner, Farhad Jalinous, and Christopher Brewster of Kaye Scholer describe the changes in the way U.S. security reviews of foreign investments are done following passage of last year's Foreign Investment and National Security Act (FINSA) and this year's executive order on the process: Soapbox: Mitigating circumstances (The Deal.com, April 16, 2008):
Agencies are asking more probing questions, and the executive order has given individual agencies more ability to influence the process:
...While almost all cases are concluded within the 30-day statutory time frame for initial reviews, we find that CFIUS [the interagency Committee on Foreign Investment in the U.S. - Ben] agencies "post-Finsa" ask more questions -- and that the questions are more probing. Where national security risks are identified, 30-day reviews may be followed by a 45-day investigation. The executive order expands on the authority provided in Finsa to CFIUS member agencies for triggering investigations by providing that formal investigations must be undertaken if any member of CFIUS "believes that the transaction threatens to impair the national security of the United States and that the threat has not been mitigated." This greatly strengthens the power of any one agency to force an investigation -- and highlights the importance of mitigation agreements.
The FINSA and the executive order tightened up mitigation authority:
Finsa gave statutory recognition to mitigation agreements -- formal pledges by the buyers to establish safeguards against perceived national security risks.... Finsa now requires the lead agency to monitor and enforce mitigation agreements. Under the order, CFIUS is authorized to "impose conditions" to mitigate national security, giving the green light to "take it or leave it" conditions when agreements cannot be reached.
The executive order also clarified the way mitigation agreements interact with existing law and other agency missions:
The order provides that mitigation agreements -- with rare exception -- may not require compliance with existing laws. This seemingly odd self-restraint may reflect the view that commitments to abide by existing law are of little value, since the parties are merely agreeing to do what they are required to do anyway. Nevertheless, tying mitigation agreements to commitments to follow "existing provisions of law" also means deals can be undone by infractions unrelated to national security concerns. The CFIUS process was never intended to be used in this way. The order thus makes clear that mitigation agreements may be used only where existing authorities, on their own, provide inadequate protection to the national security.
The order also provides that CFIUS reviews may not be used to obtain or reward concessions under other laws. While agencies may conduct inquiries with the parties to a transaction in the independent exercise of their authority (e.g., antitrust reviews), the order states that an agency may not condition its decisions in such matters on its willingness to use -- or not use -- its CFIUS authority to block or clear a transaction. Therefore, government investigations may not be held hostage to CFIUS approval, nor may CFIUS approval be used to force concessions on unrelated matters. The line gets blurry, however, when agency inquiries implicate national security. Indeed, where classified programs are involved, CFIUS clearance will likely require mitigation.
Comments