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By Jacob Rund
Cross-border dealmaking will continue mostly unhindered despite proposed fees for U.S. national security reviews of foreign investments, a key part of legislation meant to bolster the process, trade and transaction attorneys said.
Congress is weighing proposals to expand the purview of the Committee on Foreign Investment in the U.S. (CFIUS), which looks at foreign investment deals to assess national security threats.
The legislation also would allow the multiagency task force to charge filing fees for the first time in its 30-year history. But that won’t hinder most deals, and one version would cap the fees at $300,000, a sliver of most deals.
“I don’t think it really has much of an impact on a deal, go or no-go,” David Levine, who advises clients on international trade and related regulatory issues at McDermott Will & Emery, told Bloomberg Law.
CFIUS has become a hot topic among policy makers, in part because of the Trump administration’s enhanced scrutiny of certain foreign transactions and concerns that China is going after U.S. intellectual property through deals with American firms. Officials from numerous finance and defense-related government agencies comprise this Treasury Department-led panel.
Two bipartisan bills, one in the House and one in the Senate, would establish a fee-driven fund within Treasury to support CFIUS’s review efforts. The House on June 26 passed its version ( H.R. 5841) by a 400-2 vote. The Senate advanced its CFIUS expansion proposal as part of the National Defense Authorization Act, which passed 85-10 on June 18.
Throughout the discussion about the legislation, former CFIUS officials and deal attorneys repeatedly said the committee needs more money to handle its increased caseload of ever more complex transactions.
The Senate bill ( S. 2098) would let CFIUS determine the amount of its filing fee, while the House’s legislation would set the fee at the lesser of $300,000 or 1 percent of a transaction’s total value. Both bills instruct CFIUS to “periodically” review and adjust the amount of fees for covered transactions. Lawmakers say the fees will help increase the speed of the CFIUS process, which is a positive outcome for dealmakers, said Nate Bolin, a partner at Drinker Biddle & Reath LLP, who advises companies on national security, international trade law, and regulatory compliance.
“It’s going to provide an additional set of resources for the committee” to keep up a steady workflow in the face of increased review requests, he told Bloomberg Law.
Some companies might “initially see a fee as a negative,” he added, but the costs of a delayed review process are likely to “outweigh the cost of any fee.”
U.S. antitrust enforcers charge a fee for pre-merger notifications under the Hart-Scott-Rodino Act. The HSR Act requires companies engaged in deals valued at $16.9 million or more, the baseline filing threshold for 2018, to submit data about the transaction to the Justice Department and the Federal Trade Commission.
Companies aren’t required to file notifications of their pending deals with CFIUS, but they are often advised to do so because the panel can unwind the merger at any time if it views the transaction as damaging to national security.
The filing fees in the House bill are comparable to the HSR amounts. The highest HSR filing fee is $280,000 for deals at or above $843.9 million. “In the grand scheme of deals,” the CFIUS fee structure proposed in the House bill “isn’t much of a consideration” for most companies, Levine said.
“If it’s a smaller deal and $300,000 is a meaningful amount relative to the total package, then maybe it would have an impact,” he said.
Levine said he’s often asked whether CFIUS charges a fee because “people who are familiar with the HSR process always assume, ‘well, CFIUS must charge something too, right?’”
And when they hear that there’s no fee, “there’s a little bit of a sigh of relief,” he said.
One attorney who represents companies before CFIUS said “filing fees could affect smaller companies” — like startups in their second or third rounds of financing — that are considering whether to make a voluntary CFIUS notification. He declined to be identified because of the sensitivity of pending deals.
“I could see that it would act as a deterrent for certain [smaller] companies” to voluntarily file with the panel if they are concerned about costs and the possibility that a review delays the closing of their deal, the attorney told Bloomberg Law.
Moving forward, Bolin said parties to a transaction are “most likely” to just build filing fees into the total cost of the deal.
The House and Senate will need to confer to develop a final version of the CFIUS legislation and iron out any differences between their two approaches, including filing fees. The issue was a sticking point in the House, which led to a last-minute discussion in the committee room before it approved the bill — an indication that House conferees might insist on keeping the $300,000 cap.
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