INSIGHT: Where CFIUS Reform Stands Now

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Mario Mancuso Lucille Hague

By Mario Mancuso and Lucille Hague

As Washington swelters in the summer heat, Members of Congress have been hard at work progressing legislation to reform the Committee on Foreign Investment in the United States (“CFIUS”). Since its introduction in November 2017, the Foreign Investment Risk Review Modernization Act (“FIRRMA”) has been the subject of no fewer than seven Congressional hearings. Today, it enjoys White House support and broad bipartisan support in the U.S. Congress. Absent a major policy shift, its near-term passage—likely in August—now seems virtually inevitable.

Recent Legislative Developments

Congress has made significant progress in refining FIRRMA since its initial introduction in November 2017, including removing certain provisions that would have given CFIUS jurisdiction to review certain non-U.S. joint ventures and licensing arrangements.

In June, the House and Senate passed their respective versions of FIRRMA with overwhelming bipartisan support:

  •  On June 26, 2018, the House passed its draft of FIRRMA as a standalone bill by a vote of 400–2.
  •  The Senate attached its version of FIRRMA to the National Defense Authorization Act for Fiscal Year 2019 (the “NDAA”), which passed by a vote of 85–10 on June 18, 2018.
The legislation will now be considered by a conference committee of both chambers, which will work to reconcile the differences in the two drafts. After production of the final reconciled legislation, each chamber will need to vote on the bill. FIRRMA’s supporters have stated that they hope to have the signed into law by President Trump by August 2018.

While some differences remain in the versions passed by the House and Senate, the bills are conceptually aligned and point to the establishment of a stronger, more far-reaching, and well-resourced CFIUS apparatus.

Key Potential Impacts of FIRRMA

Here are six key potential impacts that FIRRMA would have on the CFIUS process, and some remaining important differences between the House and Senate bills.

More Transactions Will Be Subject to CFIUS’ Jurisdiction as “Covered Transactions.” Both versions of FIRRMA expand CFIUS’ authority to review different types of transactions that are currently outside of its jurisdictional ambit.

  •  The House version of FIRRMA empowers CFIUS to review “sensitive transactions involving countries of special concern,” if an investor from such a country would gain access to sensitive personal data of U.S. citizens or influence over substantive decision-making regarding the use, development, acquisition, or release of sensitive personal data of U.S. citizens or “critical technologies.” There is no de minimis threshold under which an investment would be excluded from CFIUS’ jurisdiction. The bill provides that the list of “countries of special concern” would be comprised of those countries subject to an arms embargo and countries subject to certain export restrictions, including China, Russia and Venezuela.
  •  The Senate version of FIRRMA gives CFIUS authority to review any non-”passive” investment in a U.S. critical infrastructure or critical technology company. Unlike the House version, the Senate bill also empowers CFIUS to exempt acquirers from certain identified “low-risk” countries. Notably, the House report on FIRRMA criticizes reliance on a company’s “critical infrastructure” ties to establish the boundaries of CFIUS’ jurisdiction and calls for a narrower focus on “critical technologies” only.
  •  Both the House and Senate versions of FIRRMA give CFIUS jurisdiction over purchases or leases of real estate, including real estate that is adjacent to or part of port operations and real estate that is proximate to U.S. military sites. The Senate bill also permits CFIUS to review purchases or leases of real estate in close proximity to sensitive U.S. government facilities.
CFIUS Filings Will Take Longer. Both versions of FIRRMA lengthen the statutory timeline for CFIUS reviews, providing that the current initial 30-day review period would be extended to 45 days, followed by a 45-day investigation phase.
  •  The House bill permits one 15-day extension of the investigation phase.
  •  The Senate bill allows one 30-day extension of the investigation phase “in extraordinary circumstances.”
Filing Fees Will Attach to CFIUS Reviews. Currently, transaction parties’ expenses for CFIUS filings are limited to legal fees; there is no separate fee payable to the U.S. government. Both versions of FIRRMA permit CFIUS to levy a fee for review of filings:
  •  The House version of FIRRMA sets the filing fee for a transaction as the lesser of 1% of the transaction’s value or $300,000.
  •  The Senate version of FIRRMA does not establish a fee, but provides factors for CFIUS to consider in setting fees and empowers CFIUS to impose an additional fee to expedite review of a filing.
Light” Filings Will Be Permissible And, In Some Cases, Required. Both bills provide that, in certain circumstances, parties to a transaction could submit “light” filings to CFIUS in lieu of a formal joint voluntary notice, thereby obtaining CFIUS approval of a transaction more quickly. In some cases, these “light” filings would be mandatory:
  •  The House bill mandates that these filings be submitted in connection with investments that “result[] in the release of critical technologies ... to a foreign person in which a foreign government has, directly or indirectly, a substantial interest.”
  •  The Senate bill requires light filings for investments in U.S. “critical infrastructure” or “critical technology” companies by a foreign investor in which a foreign government has, directly or indirectly, a substantial interest.
Investors Will Be Subject to Heightened Disclosure Requirements. Both versions of FIRRMA require parties to a covered transaction to include partnership agreements (e.g., LPAs), integration agreements, and side letters relevant to the transaction in the parties’ notice. In practice, CFIUS often requests these documents in the ordinary course of its review; FIRRMA would codify and make mandatory this type of disclosure for all filings.

“Emerging” and “Foundational” Technologies Will Be Subject to Greater Scrutiny. Both the House and Senate bills require the establishment of an interagency process to identify and control “emerging” and “foundational” technologies that are considered essential for U.S. national security, but are so new that they have not yet been formally classified under U.S. export controls (e.g., under the U.S. Export Administration Regulations).

Mario Mancuso leads Kirkland & Ellis’ International Trade and National Security practice. A former member of the President’s national security team, Mario specializes in advising clients on cross-border M&A matters in regulated or sensitive industries, guiding clients through the CFIUS and other national security investment clearance processes, and resolving crises involving national security-related investigations by the U.S. government. Luci Hague, an associate in Kirkland’s ITNS practice, counsels U.S. and foreign clients on CFIUS and international risk matters across transaction scenarios, including fundraising, M&A, lending transactions, minority investments, and exit.

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