The Custom-House

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):

Vodafone, Verizon, and the CFIUS

U.K.'s Vodafone, the largest mobile phone operator in the world, is trying to think through what it wants to do with its stake in U.S. Verizon Wireless, and with its relationship to its U.S. partner Verizon Communications.  Vodafone owns 45% of Verizon Wireless, and Verizon Communications owns 55%.  Does Vodafone want to sell its 45%, sit tight... or buy Verizon Communications. 

Since Vodafone is a foreign company, its purchase of Verizon Communications would raise national security issues that would be vetted through the interagency Committee on Foreign Investmetns in the United States (CFIUS).  For details on the CFIUS process, see the U.S. Treasury site, Committee on Foreign Investments in the United States (CFIUS). 

The first article below the fold discusses the Vodafone-Verizon relationship, the second looks at some of the potential CFIUS issues:

How Well Will the New CFIUS Process Work?

Harold Furchtgott-Roth, once an FCC commissioner, and now a consultant and New York Sun columnist, raises some issues (Blocking Foreign Investment, July 16):

New CRS Report on the Recent CFIUS Legislation

Congress has passed legislation to reform the process the U.S. uses to review FDI proposals for national security concerns.  Now it's in front of the President. 

The Congressional Research Service (CRS) has updated its description of the legislation.  Exon-Florio Foreign Investment Provision: Comparison of H.R. 556 and S. 1610. (July 13, 2007) walks through each of its major elements, comparing the text of the House and the Senate bills.  The Senate version is somewhat different from the version that originated in the House, and is the version that was ultimately adopted.   Reports at the time indicated that the changes were minor.

CFIUS Reform Passes House, Goes to Bush

The House passed the CFIUS reform legislation today: House sends foriegn investment overhaul to Bush (Kevin Drawbaugh (Reuters via Washington Post, July 11)

No CFIUS Reform Today?

News stories yesterday suggested that the House was poised to pass the Senate version of the CFIUS reform bill today (House may vote on CFIUS reform tomorrow, Ben Muse, July 9). 

However, I haven't seen any news stories about passage this evening.  The only item I've found so far is this, from UPI: Hunter Fights NSFIRSTA Bill Changes (Jul 10):

House may vote on CFIUS reform tomorrow

Stephanie Kirchgaessner reports: Congress set to reform takeover panel (Financial Times, July 9):

Lawmakers will on Tuesday seek to end lingering questions about US openness to foreign investment with a bill they say will both strengthen the national security vetting process and protect deals from being politicised.

The expected passage by the House of Representatives of the bill, which tweaks the Committee on Foreign Investment in the US (Cfius), the interagency panel that investigates deals on national security grounds, comes more than a year after a congressional furore scuppered a bid by state-owned Dubai Ports World from taking over five US port terminals.

The reform increases the transparency of the process to Congress, and may reduce attempts to exploit the process for competitive purposes or political mileage:

While Mr Frank [Barney Frank, Chairman of the House Financial Services Committee - Ben] acknowledged that it was possible that transactions by non-US companies could still create controversy on Capitol Hill, he expected that the new law, which enhances communication between the executive branch agency and relevant members of Congress, created a better procedure for the interagency panel to handle potential problems....

Nancy McLernon, senior vice president of the Organisation for International Investment, which lobbies on behalf of US subsidiaries of foreign companies, said the bill would take the process out of the “shroud of secrecy”.

“When a controversial deal comes along, there ... won’t be those calls to change the system, because there is a better understanding and a formalised mechanism to inform members of Congress.”

The result may be a more attractive U.S. environment for foreign investors:

“This is reality. It says you can invest in America with some degree of security,” Mr Frank told the Financial Times.

Increasing international interest in restricting FDI

Deborah Solomon reports that a number of countries are increasing legal and bureaucratic obstacles to foreign direct investment (FDI) [Wave of Protectionism Gains Force. U.S. Frets as Nations From China to Canada Curb Foreign Investment, WSJ, July 6] . 

She notes that while there hasn't been a disruption of FDI yet (and in fact it appears to have been growing in 2005 and 2006),

Senate passes CFIUS reform

The Senate passed its version of legislation to reform the process the U.S. uses to review the security implications of foreign direct investments.  The House passed similar legislation earlier this year.  These reviews are centered in the inter-agency Committee on Foreign Investment in the U.S. (CFIUS).

Here's the story in the Congressional Quarterly: Senate Votes to Overhaul Security Reviews of Foreign Investments (June 29):

The Senate passed the bill (HR 556) after substituting the text of its own version (S 1610) — essentially the measure approved May 16 by the Banking, Housing and Urban Affairs Committee, plus a technical amendment.

It is not clear that a formal House-Senate conference will be necessary, given the the similarities between the two versions and the strong bipartisan support the legislation commands....

The Senate bill has broader congressional reporting requirements than the House version and also focuses more on threats to critical infrastructure than its House counterpart.

Graham and Marchick, US National Security and Foreign Direct Investment (readable online) provide the background to this issue.  I posted on the House bill earlier this year: CFIUS Reform: We Might Get Lucky (February 19); House passes CFIUS reform legislation (March 1).

A German CFIUS?

Bertrand Benoit in Berlin and Mark Schieritz Berlin looks to vet foreign fund deals  (Financial Times, June 25):

The German government is looking at setting up an agency to vet acquisitions by state-controlled foreign funds amid rising concern about the financial might of China, Russia and oil-producing countries.

Government officials told the Financial Times the finance ministry, economics ministry and chancellery were investigating whether foreign state-owned funds posed a national security risk. Officials are particularly anxious about any threat to take over German banks.

Should this be the case, Berlin could create a German equivalent of the US Committee on Foreign Investment, known as Cfius, the inter-agency panel that can recommend the US president block foreign direct investments it deems a threat to national security....