The Custom-House

Administration debates best rules for FDI security reviews

The Administration is still tied up in an internal debate over an executive order to implement changes to the way we look at the security implications of foreign investments, reports Bill Gertz of the Washington Times: Justice, DHS 'still object' to CFIUS order (Dec 6).  Changes are required under a new law passed earlier this year, but there are different ways to make them.

Debate over how to implement the CFIUS reforms

Bill Gertz of the Washington Times reported this week on apparently intense debates within the Administration over how to implement the new legislation to reform the CFIUS process for national security vetting on foreign direct investment: Foreign business gets a Bush assist (Nov 6). 

The CFIUS process refers to the review process conducted by the inter-agency Committee on Foreign Investment in the United States.

A second story discussed Capital Hill reaction to the first story: Security review changes panned (Bill Gertz, Nov 7).

Gertz reports that a draft executive order implementing the new Foreign Investment and National Security Act (FINSA) gives a great deal of authority to the Treasury, and that other key agencies - Defense, Homeland Security, and Justice - represented on the CFIUS have circulated a joint memorandum indicating that the draft doesn't give their agencies a sufficiently large role in the revised process. 

Gertz has evidently been leaked the draft executive order and the memorandum.  His story provides some, but not many, details from these.  The leakers chose a reporter and a paper that appear to have a strong economic nationalist bent (so the title of the story is "Foreign business gets a Bush assist" and the tenor of the story is strongly sympathetic to the security elements in the new legislation, and skeptical of Treasury's motives).

I don't know much about the reporting conventions for leaks.  The article cites an anonymous national security official involved in the debate as a source and notes that Justice and Homeland Security officials referred questions to the White House.  Does that suggest the leak is at Defense?

The WT didn't post copies of the draft executive order or the memorandum along with the story.

Editorial revisions Nov 10.

The New CFIUS: More Scrutiny of More Sectors and Transactions

This year's reforms to the CFIUS process (the process the U.S. uses to review foreign investments for their security implications) extend reviews to new industry sectors and new types of transactions, and increase both the level of scrutiny and the number of scrutinizing partners - conclude George Foote and Joshua Zive of Bracewell and Giuliani: United States: The Foreign Investment And National Security Act Of 2007: Improved Transparency And Slower Deal Making (October 30):

CFIUS Reform Isn't Done Yet, We've Still Got the Rulemaking

George Grammas of Squire, Sanders & Dempsey reviews the recent legislation reforming the process by which the U.S. reviews foreign investments for their national security implications: United States: New Law Enhances Scrutiny of Foreign Acquisitions of US Critical Infrastructure (October 24, 2007).

The Germans Want Their Own CFIUS

Germany is developing its own version of the U.S. process that vets foreign direct investment for national security concerns: Germany plans for own Cfius deal watchdog (Bertrand Benoit, Tony Barber, and George Parker , Financial Times, Sept 27).  But the Germans want to skip some of the bells and whistles:

CFIUS and Antitrust

Neal R. Stoll and Shepard Goldfein discuss the importance of coordination between the antitrust and CFIUS teams - particularly in light of the recent reform of the CFIUS process (the process the U.S. uses to vet foreign direct investment for national security implications) in this year's Foreign Investment and National Security Act (FINSA):  Post-FINSA Coordination of Antitrust, CFIUS Practitioners  (New York Law Journal, September 19, 2007):

Antitrust practitioners involved in international mergers and acquisitions might want to take note of this development. FINSA increases the likelihood of CFIUS scrutiny of transactions with national security implications. Thus, antitrust attorneys should be aware of the logistical implications of a CFIUS review or investigation, such as the effect on timing, "best efforts" and other provisions in the merger agreement. More generally, however, a transaction's antitrust team may wish to coordinate its efforts with the CFIUS team on an ongoing basis. Indeed, the argument that a transaction has minimal impact on national security is often bolstered by the proposition that the parties lack market power. Thus, a joint effort by the antitrust and CFIUS teams in exploring market-related issues makes sense for reasons of both efficiency and tactics.

Here's a longer extract:

Lay the groundwork for your CFIUS filing carefully!

Edward Rubinoff and Henry Terhune of Akin Gump Strauss Hauer & Feld LLP, weigh in on the impacts of the new CFIUS legislation: New CFIUS Reform Act Presents Challenges To Foreign Investment In The United States (The Metropolitan Corporate Counsel, Sept 2007). 

CFIUS, of course, stands for the Committee on Foreign Investment in the United States.  This is the process by which foreign direct investment (FDI) is vetted for security concerns.

This note has a very short and frank explanation of the ways firms can exploit CFIUS to avoid unwanted competition - highlighted in the excerpt below.  These authors fully expect that the new law will expand the opportunities for people interested in issues other than national security to exploit the CFIUS process to derail FDI they don't like:

More CFIUS Reform Appraisals

Attorneys dealing with the U.S. process of vetting foreign direct investments for security concerns have been busy explaining what the recent Congressional reforms mean for this process (the CFIUS process, named for the Committee on Foreign Investment in the United States, which does the vetting). 

Carl A. Valenstein, Josh Mecham, Rebecca S. Hartley and Natasha Christensen of Thelen, Reid, Brown Raysman & Steiner have a relatively pessimistic take: United States: Amendments To Exon-Florio Process Made By The Foreign Investment And National Security Act Of 2007 May Have A Chilling Effect On Foreign Investment In The United States (August 23). 

This is a nice article with useful background to the reform, a reasonably detailed description of the changes, and a short concluding analysis.  While many believe the reforms will lead to less politicization of the process, these authors do not:

Finally, because of the enhanced reporting by CFIUS to Congress and, notwithstanding the confidentiality safeguards, the Exon-Florio review process is likely to become more politicized and any foreign investor engaged in a transaction involving critical infrastructure or technology should be prepared in advance not only with a legal but a governmental relations strategy.

Noel J. Francisco and Bevin M.B. Newman of Jones and Day provide a brief description of the changes with no analysis: United States: Congress Reforms CFIUS Review Process (August 22).

There have been other assessments.  Click on the "CFIUS" link in the topics list in the right column for more links.

Another upbeat appraisal of this year's CFIUS reform

David Marchick and David Fagan think this year's reform of the process by which foreign direct investment is vetted for national security issues (done through Treasury's Committee on Foreign Investment in the US, so the "CFIUS" process) was done well: Rational security (TheLawyer.com, August 20).  The authors - attorneys at Covington and Burlington - provide a brief but useful analysis of each of the major revisions. In sum:

Review of CFIUS Process Changes

Christopher Wall, of Pillsbury, Winthrop, Shaw and Pittman, explains the changes in the CFIUS process: United States: Congress Approves CFIUS Reform Legislation Clearing The Way For Less Political Foreign Investment Reviews (July 25). 

This is a very helpful review of the changes and their implications.  The bottom line for foreign investors: