The Proposed CFIUS Rules
 
June 12, 2008
 
Francois Janson- New York

In April 2008, the U.S. Treasury issued proposed rules to implement the Foreign Investment and National Security Act (FINSA). FINSA, which became effective in October 2007, expanded the President’s authority under Section 721 of the Defense Production Act of 1950 (also known as the “Exon-Florio amendment”) to review, block or unwind all mergers, acquisitions and takeovers that result in foreign control of a U.S. business and that could adversely impact U.S. national security. FINSA broadened the types of transactions subject to enhanced review to include all acquisitions of businesses involved in critical U.S. infrastructure and those that result in a U.S. business becoming controlled by a non-U.S. government. Control is broadly defined as the power to determine important matters affecting an entity and notification of acquisitions of minority interests as low as 6 percent has been requested in the past.

The proposed rules generally codify the existing review framework. Parties may notify a transaction to the Committee on Foreign Investment in the U.S. (CFIUS) to obtain a declaration of no-action prior to closing a transaction. The process begins with an initial 30-day review, followed by a 45-day extension in the event CFIUS determines that the transaction may result in an unmitigated threat to national security, a U.S. business becoming controlled by a foreign government or foreign control over critical U.S. infrastructure that could impair national security. CFIUS may also exercise its review power if requested to do so by the lead government agency having jurisdiction over the matter. CFIUS may condition its approval to the signing of a mitigation agreement to minimize the adverse impact of a transaction. The proposed rules formalize the practice of engaging in pre-notice consultations with CFIUS. Parties are encouraged to consult with CFIUS prior to filing in order to obtain an early assessment of the issues raised by a particular transaction and discuss the information that CFIUS will require to process the request. The release states that CFIUS will publish additional guidance on the type of information that may be provided to facilitate its review.

With the increased media scrutiny over foreign investments in the U.S. the proposed rules will serve as a strong reminder of the need to address any national security issue as early as possible when planning a potential U.S. acquisition.

For more information, email Francois Janson at francois.janson@hklaw.com or call toll free, 1.888.688.8500.