Foreign Investment in the U.S.: Enhanced CFIUS Processes and Procedures

February 12, 2008

On January 23, 2008, President Bush issued a Further Amendment of Executive Order 11858 Concerning Foreign Investment in the United States, continuing the government’s efforts to clarify CFIUS responsibilities and procedures and ensure its thoroughness and efficacy. Executive Order 11858 established the Committee on Foreign Investment in the United States (“CFIUS”) to help carry out the President’s authority under the Defense Production Act of 1950, as amended, to suspend or prohibit certain foreign acquisitions, mergers or takeovers of U.S. entities Just last summer, the Foreign Investment and National Security Act of 2007 (“FINSA” or Public Law 110-49) was signed into law to update, discipline, and improve coordination of CFIUS practices and procedures to take into account the realities of a globally interdependent, post-9/11 environment , in the wake of controversy over the 2005 proposed acquisition of Chevron by the China National Offshore Oil Corporation (CNOOC) and the 2006 proposed acquisition of the commercial operations at six U.S. ports by Dubai Ports World.

The January 23rd EO designates more CFIUS members, observers and potential participants, identifies specific responsibilities of certain members (e.g., the lead agency the Department of Commerce and the Secretary of the Treasury as CFIUS chairperson), describes additional analysis, reporting and investigating opportunities by CFIUS members and/or participants, and describes certain procedures to be followed. In particular, the January 23rd EO provides that:

  1. The USTR and the Director of the Office of Science and Technology Policy are designated as CFIUS members.
  2. The Secretary of the Treasury, not just the President, can include the heads of any other executive department, agency or office, on a case-by-case basis, in the CFIUS membership.
  3. Five additional participants, or their designees, are to observe and, as appropriate, participate in, CFIUS activities, and to report on such activities to the President. Most were previously designated CFIUS members under either EOs 11858 or 12860.
  4. Insofar as analyses, reviews and investigations are concerned:
    1. Any CFIUS member can conduct its own inquiry into the potential security risk posed by a proposed transaction but can only communicate with the transaction parties through or in the presence of the Lead Agency(ies) or the Secretary of the Treasury, if there is/are no Lead Agency(ies).
    2. The Secretary of the Treasury can direct the Director of National Intelligence (“DNI”) to initiate a national security threat analysis prior to CFIUS’ acceptance of a written notice of the transaction. FINSA merely required the DNI provide CFIUS its analysis within 20 days of acceptance of a written notice of the transaction. This should facilitate the mitigation process, if applicable, which is to be based on CFIUS’ risk analysis, which in turn must take into account the DNI analysis under the January 23rd EO.
    3. CFIUS can investigate any transaction that a CFIUS member, following a review and after advising the Secretary of the Treasury, believes poses a non-mitigated threat to U.S. national security. This presents a counter to the provision that no investigation is required for transactions involving possible foreign-government control or “critical infrastructure” if the Lead Agency(ies) and the Secretary of the Treasury jointly determine, based on a CFIUS review, that U.S. national security will not be impaired by the proposed transaction.

The January 23rd EO does not change the 30 day review or 45 day investigation timing thresholds. However, it is unclear whether the January 23rd EO may increase, for example, the number of mitigation agreements or investigations of covered transactions because of the enhanced participation and reporting by the various government departments, offices and agencies.

If you have any questions regarding the January 23rd EO, or CFIUS requirements in general, please contact us.