International Trade Practice - President Signs CFIUS Legislation
U.S. companies involved in cross-border transactions involving foreign direct investment should continue to carefully consider the need to file a CFIUS notification regarding any potential transaction.
The major political firestorm in early 2006 ended quietly on July 26, 2007, when President
Bush signed into law H.R. 556, the “National Security Foreign Investment Reform and Strengthened Transparency Act of 2007.” While coming to a quiet close, this new law makes significant changes to
the manner in which the United States will scrutinize foreign direct investment in United States’ companies.
While the new law increases the oversight role of the Congress, the final text is remarkable in that it essentially codifies existing Committee on Foreign Investment in the United States (CFIUS) practice and removed political aspects
of earlier versions of the legislation. Nevertheless, certain amendments are significant. The list of factors which must be considered by CFIUS during any review has been expanded and includes
consideration of any national security impact on U.S. critical infrastructure (including energy assets) and on U.S. critical information technology. In addition, the amendments codify the use of mitigation agreements
to address any national security concerns and provide authority for monitoring and enforcement of such agreements. While undergoing a CFIUS review provides a “safe harbor” when approved, the amended
statutory language does clarify that CFIUS may re-open any transaction previously reviewed if it is learned that false or misleading material information was submitted or if a party materially breaches a mitigation agreement.
Both industry and government officials have stated that this new CFIUS law strikes the proper balance between protecting national security interests and encouraging foreign investment. The new law, however, places
a much greater focus on transactions which may threaten critical infrastructure and continues to provide the President with broad latitude in defining “national security.” Thus, U.S. corporations
and their foreign suitors should proceed cautiously and consider filing notice of any significant proposed acquisition, merger, or takeover.
Key provisions of the new law are listed below.
For a section-by-section summary of the new law, please contact one of the persons listed below.
Administrative Changes to CFIUS Process
Even without reform legislation, in the immediate aftermath of the DP World transaction the Bush administration undertook an internal review and implemented changes to the
CFIUS process. The result has been a more cautious approach to reviews and, in 2006, there was a drastic increase in the number of CFIUS filings being made by companies.
Troutman Sanders Experience
Troutman Sanders attorneys have been involved in complex foreign acquisitions and have successfully navigated transactions through the CFIUS process. Our relationships
with officials involved in the CFIUS process give us a unique understanding of this complex review. Our contacts throughout both the legislative and executive branches have also allowed our clients access to key officials to fully
discuss a transaction and ensure that our clients’ interests are addressed. Our attorneys have been successful in overcoming initial concerns regarding transactions, resulting in little to no restrictions
being placed on completed acquisitions.
Key Provisions of the New Law
In addition to providing a statutory basis for CFIUS (historically it operated by executive order), the National Security Foreign Investment Reform and Strengthened Transparency Act
of 2007 implements the following new provisions to the Committee’s structure and operations:
- Creates a new Assistant Secretary at the Department of Treasury with CFIUS-related duties.
- Requires an increased focus on any acquisition, merger, or takeover that may involve critical infrastructure.
- Designates a lead agency to supervise the process if the transaction falls into its area of jurisdiction.
- Formalizes the role of the National Intelligence Director in the process.
- Mandates a second-stage 45-day investigation of proposed acquisitions by state-owned foreign companies. Also, for any transaction, allows for second-stage and more detailed investigation if the Treasury Department recommends and the rest of the panel agrees to such a need.
- Continues the time period for the process – 30 days for a review; 45 days for an investigation; and, 15 days for the President to make a final decision.
- Formalizes allowing the President to suspend or prohibit any transaction that threatens national security.
- Requires the tracking of any withdrawn transactions to prevent potential risks that have been identified.
- Establishes Congressional reporting requirements – notification at the conclusion of any 30-day review and a report after the completion of every second-stage investigation; and, Congress can request a classified briefing on any transaction.
Background
The debate over foreign investment in the United States, national security risks, and the proper role of government oversight and control resulted from Dubai Ports World’s acquisition of operations
at six U.S. port terminals in 2006. DP World is controlled by the United Arab Emirates, and Congressional and public outcry over the transaction quickly ensued. The CFIUS, an interagency committee
created by executive order, approved this acquisition, but the matter quickly turned into a political issue because of perceived security concerns. DP World eventually agreed to divest itself of the six port terminal
operations, but the political debate continued and criticism built over the manner in which the government reviews and approves foreign investment in the United States.
Although both the House and Senate passed CFIUS reform legislation in 2006, significant differences between the chambers’ versions caused the legislation to die at the end of the 109
th Congress. During the 110
th session of Congress, both chambers again introduced reform legislation and debated the matter, but at a less politically heated level.
The House unanimously passed its version of CFIUS reform legislation (H.R. 556) on February 28, 2007. The Senate lagged in taking up the issue but in May introduced its version (S. 1610) which tracked many key
provisions of H.R. 556. Senator Dodd acknowledged that the committee used the House bill as a “baseline” given that numerous business groups had voiced support for that bill’s less restrictive
provisions. This support was significant as these same business groups had strongly opposed last year’s Senate CFIUS bill, which they argued would have politicized the process by requiring Congressional
notification before any final determination.
On June 29, the Senate substituted its own language (i.e., S. 1610) into H.R. 556 and passed the measure by unanimous consent. On July 11, 2007, the House agreed to the Senate version and passed the bill
by a vote of 370-45. The business community, including the Business Roundtable and U.S. Chamber of Commerce, commented favorably on the final bill stating that it “will protect our national security and
American jobs while restoring certainty to the CFIUS process.”
For additional information on the CFIUS process, please contact:
Charles A. Hunnicutt, Esq. 202-274-2957 charles.hunnicutt@troutmansanders.com
C. Jonathan Benner, Esq. 202-274-2880 jonathan.benner@troutmansanders.com
Patricia N. Snyder, Esq. 202-274-2899 patricia.snyder@troutmansanders.com
Scott E. Diamond 202-274-2969 scott.diamond@troutmansanders.com