CFIUS can have a significant impact on US investments, so you should probably be concerned. Dealing with CFIUS can delay, complicate, and even ruin the entire deal, and failure to make the required submissions can result in substantial penalties.
But what is CFIUS? CFIUS stands for “Committee on Foreign Investment in the United States.” Established almost 50 years ago as an interagency commission, it is chaired by the US Treasury Department and reports directly to the President. The commission is empowered to recommend that the president block or restrict certain foreign investments in U.S. companies if it determines that the transaction poses a national security risk. This is a very broad force.
Further demonstrating the administration’s growing intent to protect the United States by regulating foreign investment it deems harmful to U.S. national security interests, CFIUS launched a new series of enforcement and Penalty guidelines announced. The new guidelines make it clear that CFIUS will significantly increase its enforcement efforts and will pursue parties who fail to file mandatory declarations and those who make material misrepresentations or omissions in their submissions to CFIUS. Additionally, under the new guidelines, for the first time, CFIUS encourages parties who may have been involved in conduct that constitutes a violation of the CFIUS Rules to self-disclose a potential violation. Such self-disclosure is considered a mitigating factor when CFIUS considers appropriate penalties for violations.
Under the regulations, failure to file a mandatory return with CFIUS carries civil penalties of up to $250,000 or the total transaction value, whichever is greater.
A total of 164 declarations were made to CFIUS in 2021, according to the 2021 CFIUS Annual Report to Congress. Of these, 47 declarations were subject to mandatory filing requirements. In addition, 272 written trade notices were filed with his CFIUS that same year that were more detailed than the Declaration. CFIUS has since conducted 130 investigations into these 272 notices. Based on data provided in annual reports over the past few years, Chinese investments have received the most attention from his CFIUS, but at least 20 notices filed by Israeli entities during 2019 Transactions around the world are under scrutiny, including And in 2021.
CFIUS notices and declarations are generally not made public, but sometimes when CFIUS blocks a transaction, it can make big news. In recent years, TikTok has found himself in the sights of his CFIUS. In 2020, CFIUS ordered TikTok’s Chinese parent company, ByteDance, to sell him from TikTok, a decision that was later suspended. However, the ongoing CFIUS investigation into TikTok is believed to be ongoing.
A notable example of CFIUS actively exercising its broad powers to prohibit the acquisition of U.S. businesses by foreigners is the March 2020 issue of the Sold to Chinese Company Acquisition of StayNTouch, Inc. It was an executive order demanding US hotel software company. The Executive Order was issued 18 months after the closing of the acquisition in September 2018. This is because the United States had “credible evidence” that the deal could “undermine the national security of the United States,” even though it did not provide a detailed account of such evidence.
When CFIUS was first created, its jurisdiction was limited to investigating transactions involving the acquisition of U.S. businesses by foreign companies. It did not regulate non-controlling investments in US companies. Nor was he obligated to provide notice to CFIUS prior to closing the transaction. Rather, the whole process was spontaneous.
This all changed in 2018 with the passage of a new law, the Foreign Investment Risk Review Modernization Act (FIRRMA), which significantly expanded the scope of transactions under CFIUS jurisdiction. Subsequent regulations established the current framework in which CFIUS currently operates.
Under the latest set of regulations, CFIUS may now review uncontrolled transactions involving foreign investments in U.S. companies that (i) produce, design, test, manufacture, manufacture, or develop significant technology; I have. (ii) operate, service, or manufacture critical infrastructure; or (iii) maintain or collect sensitive personal data of U.S. citizens.
Further, in addition to the voluntary notice regime that previously existed, the new rule implemented a regime that requires a party to make a compulsory declaration to CFIUS under two circumstances: There is a great deal of interest in US businesses dealing with critical infrastructure, collection of sensitive personal data, or critical technology. (ii) if a foreign person or entity invests in a U.S. business that manufactures significant technology and such transactions could control the U.S. business, or the technology is not disclosed to foreign investors; Decisions regarding the use, development, acquisition, or release of material technology where it may give you constant access to information, a seat on the board of directors, or involvement.
As concerns grow within the United States about the potential loss of technological superiority, the U.S. government will do all it can to protect its national interest in maintaining its leadership role in technology and will use all tools at its disposal. declared free to use. Progress and innovation on the global stage. That’s why, in September of this year, President Biden told his CFIUS to consider additional national security factors when reviewing covered transactions, keeping the foreign investment review process responsive to evolving national security conditions. issued an executive order directing it to do so.
Specifically, the President’s executive order directs CFIUS to consider and prioritize the following set of factors when considering a covered transaction: (2) transactions for U.S. technological leadership in areas impacting U.S. national security, such as microelectronics, artificial intelligence, biotechnology and biomanufacturing, quantum computing, advanced clean energy, and climate adaptation technologies; impact. (3) industry investment trends that may affect the impact of a particular transaction on U.S. national security; (4) cybersecurity risks that could compromise national security; Risk to Sensitive Data of US Persons.
Transactions on a case-by-case basis by analyzing various parameters of the transaction and parties to determine if a mandatory declaration requirement exists or if voluntary declaration or notification to CFIUS is desirable. is recommended to consider.
Written by Oded Kadosh, Partner and Chair of the US Corporate and Licensing Practices Group at Pearl Cohen Law Firm, and Guy Milhalter, Partner of the Corporate Group.
