Alert > General Corporate / Telecommunications, Media and Technology / Financial Restructuring
Congress Approves Reforms to the Committee on Foreign Investment in the United States
On July 11, 2007, the U.S. House of Representatives passed legislation that seeks to strengthen the Committee on Foreign Investment in the United States (CFIUS), an inter-agency group that reviews foreign acquisitions of U.S. companies. The legislation was passed by voice vote by the Senate in June, and was signed into law by President Bush. The changes are designed to ensure that U.S. national security is not threatened by foreign investment while seeking to maintain the U.S. open investment market. In practical terms, the legislation will increase the number of transactions reviewed by CFIUS and will subject certain transactions, especially those involving “critical infrastructure” and acquisitions by foreign government-controlled companies, to additional scrutiny.
The legislation comes in the wake of the proposed acquisition by Dubai Ports World (DPW) of operational rights at six U.S. ports and the attempt by China National Offshore Oil Corporation (CNOOC) to buy U.S. oil company Unocal. Both deals were derailed by political and public pressure, and CFIUS was severely criticized for its alleged failure to safeguard U.S. national security. As a result, Congress decided to tighten CFIUS’s procedures. At the same time, the U.S. business community warned against an overreaction that would deter foreign investment in the U.S. and make it harder for U.S. companies to invest abroad.
The new legislation expands the jurisdiction of CFIUS and makes its procedures more transparent, particularly to Congress. Most significantly, it expands the concept of national security to include “homeland security” and “critical infrastructure” and presumptively requires CFIUS to conduct full investigations of transactions that affect critical infrastructure and acquisitions involving foreign government-controlled companies. As a result of these changes, as well as the requirement to notify Congress at the conclusion of a review and to prepare summary reports, transactions involving sectors that historically have not been scrutinized by CFIUS are likely to be reviewed more closely by CFIUS and by Congress.
In addition, the role of “mitigation agreements,” which have long been used by CFIUS to resolve national security concerns, is formalized. The expanded use of these agreements is potentially troubling as they have been used to impose requirements that exceed existing regulations and can discriminate against foreign investors.
The law also makes changes to CFIUS’s procedures. The Director of National Intelligence (DNI) and the Secretary of Labor will become non-voting members of CFIUS. The law mandates that the DNI analyze proposed transactions to ensure that intelligence implications are considered by CFIUS. CFIUS also will be required to designate a lead agency for each transaction. The lead agency will be the primary contact for the parties, will lead CFIUS’s review of the transaction, and will negotiate any needed mitigation measures. The current discretion enjoyed by the CFIUS professional staff will be limited.
The legislation was generally supported by U.S. business groups, including the Business Roundtable, the U.S. Chamber of Commerce and the Organization for International Investment. These groups viewed the law as an acceptable compromise between the goals of ensuring national security while encouraging foreign investment in the U.S. Business groups also hope that increased transparency will de-politicize the CFIUS process and avoid debacles like the DPW and CNOOC deals.
The full effects of the new law will be seen in its implementation. It is likely, however, that more transactions will be reviewed by CFIUS and that those involving foreign government ownership and critical infrastructure will be more closely scrutinized. Mitigation agreements likely will become more common. As under present law, however, we expect that most transactions will be approved promptly.
Non-U.S. investors contemplating acquisitions in the U.S. should evaluate any potential security implications of their transactions early in the diligence process. Bingham has assisted numerous clients in assessing such matters, as well as in preparing CFIUS filings, negotiating mitigation agreements, and anticipating and dealing with potential Congressional interest. We would be pleased to discuss these issues with you in greater detail or to advise you on your next transaction.
For more information, please contact the following lawyers:
Timothy B. DeSieno, Partner
tim.desieno@bingham.com +1 212.705.7426
Suzanne E. Spaulding, Principal, Bingham Consulting Group LLC
suzanne.spaulding@bingham.com +1 202.373.6673
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© 2007 Bingham McCutchen LLP
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