The Committee on Foreign Investment in the United States (CFIUS) recently reported its 2013 activities, confirming the continuation of its heightened review and investigation of certain foreign direct investments in U.S. businesses.
CFIUS, a panel of high-level Washington bureaucrats, was described in a prior post. CFIUS reviews and investigates mergers and acquisitions that could result in foreign control of entities engaged in interstate commerce in the United States and determines (or recommends to the U.S. president) whether to disallow or block transactions when there is credible evidence that they threaten national security, which was covered in a prior post.
The recent report reflects the continuation of five macro-trends in the CFIUS process:
Parties continue to provide CFIUS with relatively large numbers of voluntary notices of direct foreign investments in U.S. businesses. In 2013, 97 such notices were provided. Although this was slightly less than the number of 2012 notices, it should be noted that the quantity of transactions reported to government agencies generally declined in 2013 compared with 2012.
CFIUS continues investigate more than one-third of the transactions noticed. In 2013, 47 percent of the 97 noticed transactions proceeded to investigation (including five cases that proceeded to investigation during the U.S. government shutdown). This rate of investigation is slightly greater than in recent years.
Asian countries – and particularly China – increasingly continued to be the subject of CFIUS proceedings. In 2013, 46 of the noticed transactions involved investors from Asian countries, with Chinese investors alone accounting for 21 transactions. This represents a 10 percent increase over the prior year’s notices involving Asian countries.
The manufacturing sector, which includes the computer and electronics products subsector, continues to account for a plurality (36 percent) of the noticed transactions. This is not surprising since this sector encompasses the semiconductor, software, chemicals, and aerospace subsectors that are more likely to raise potential national security concerns.
CFIUS continues to propose and obtain remedial measures, or “mitigation,” for transactions that CFIUS determines may pose potential national security concerns. CFIUS obtained mitigation for 11 of the 97 noticed transactions in 2013. (Another eight notices were withdrawn.) These measures included, for example: Limiting the persons authorized to access certain information; imposing guidelines and terms for handling existing and future U.S. government business; establishing committees; agreeing to notify the U.S. government regarding future business decisions; and establishing mechanisms to ensure compliance with remedial measures.
The macro-trends disclosed in the recent CFIUS report – continued review and investigation of transactions, particularly those involving Asian investors or manufacturing sectors – further confirm that careful consideration of CFIUS, and involvement of counsel early in the process, should continue to be on the to-do list for all cross-border transactions.