Dear Foreign Investors Interested in U.S. Companies: Are You a Spy?


There recently have been multiple proposed mergers that would create industry titans, including the $4.83 billion deal for Verizon Communications Inc. to acquire Yahoo! Inc. and the $86 billion deal for AT&T Inc. to buy Time Warner Inc. In many proposed business deals, there are national security considerations for the U.S.—what if the proposed merger results in control of U.S. businesses by a foreign entity that may raise national security concerns? 

Bloomberg BNA Senior Legal Editor Jimmy H. Koo recently sat down with Stephen Heifetz, a partner in Steptoe & Johnson’s Washington, DC office, to discuss security and privacy issues raised by foreign investment reviews by the Committee on Foreign Investment in the U.S. (CFIUS).

According to Heifetz, CFIUS is a multi-agency US government committee, chartered by statute to conduct national security reviews of foreign investments into the U.S. The Treasury Department chairs the committee and its members include the Departments of Homeland Security, Justice, Defense, Commerce, State and Energy, among others, Heifetz said. 

“If CFIUS cannot clear a deal, then it will recommend that the President block it, or if the deal has been consummated already then CFIUS will recommend that the President issue a divestment order to unwind the transaction,” Heifetz said.

CFIUS reviews national security very broadly and “virtually any business that involves the storage or processing or conveyance of significant amounts of information could be viewed by CFIUS as relevant to national security, especially for telecom and data storage/transmission entities that are key to US critical infrastructure integrity,” Heifetz told Koo. In every case, the committee considers three primary factors: (1) the “threat,” meaning the intent and capabilities of the foreign acquirer; (2) the “vulnerability,” meaning the nature of the assets and whether they could be exploited to the detriment of US security; and (3) the consequences in the event of a successful exploitation, he said. 

For cybersecurity companies, the committee’s investigation often revolves around espionage—whether a foreign investor may make espionage against the U.S. easier, Heifetz said.

Heifetz predicted that in 2017, there will be continued foreign investments in information and communications technology companies, specifically social media companies. He also said that there are early indications that the Trump administration may want CFIUS reviews to include trade reciprocity issues and include analysis of economic security issues, which are more protectionist than narrowly-tailored national security issues.

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