The process in the United States for reviewing the national security implications of foreign investment in the United States is increasingly complex, non-transparent, and often unpredictable. Our attorneys have participated in the CFIUS process from the White House and CFIUS member agencies, and now guide clients through the CFIUS review process, post-closing CFIUS reviews, and negotiation of national security agreements with the CFIUS agencies. Willkie’s Global Trade & Investment Group is a leading practice that advises foreign acquirers and domestic targets with all aspects of this onerous review process, from the threshold determination of whether a particular transaction warrants notifying the U.S. government, to the development of declarations and notices, to negotiating and implementing mitigation agreements. Our lawyers in-depth experience and technical capabilities help clients avoid delays that can impede deals.
The proliferation of foreign ownership and control of U.S.-based businesses in all sectors and at all levels of operation has been one of the hallmarks of economic globalization over the last two decades. The historic investment flow of U.S.-based multinationals expanding abroad has been counterbalanced, and in many years exceeded, by foreign acquisitions of U.S. entities. While the United States maintains, at least in principle, an “open investment” policy, that policy has been significantly tempered by concerns over protecting U.S. national security, as demonstrated by the passage of the Foreign Investment Risk Review Modernization Act of 2018 (FIRRMA).
U.S. law has long restricted foreign investment in key defense and intelligence activities, as well as in industry sectors such as airlines and telecommunications. However, over the past two decades the government has established an increasingly more rigorous and systematic investment screening regime, and has sought to apply that regime to an ever-widening range of transactions.
Our Global Trade & Investment Group works with clients to manage CFIUS notifications and reviews. The group calls upon the technical experience of attorneys in our Washington, New York, and European offices in a broad range of practice areas relevant to the U.S. national security screening review process, including financial institution and securities law, technology and telecommunications, intellectual property, mergers and acquisitions, asset management, antitrust and competition law, and national security and export control law.
This close collaboration of the firm’s attorneys across multiple offices and disciplines of law provides clients with comprehensive, practical advice and support optimally tailored for their particular CFIUS-related issues. Clients count on us to successfully navigate the CFIUS and related U.S. national security review processes, minimizing the risk of adverse effects on their transactions.
U.S. government perception of what constitutes national security has significantly broadened in recent years to include both “critical technologies” and “critical infrastructure.” Many more economic sectors are now considered appropriate for CFIUS review, including information technology, financial services, energy, environmental services, telecommunications, aviation and space technology, and defense-related activities. In addition, the increasing activity of commercial enterprises involving foreign government participation, sovereign wealth funds, and other foreign government investment vehicles, all of which have sought to purchase U.S. businesses, have served to expand the scope of transactions that raise national security questions.
We have advised both acquirers and targets on CFIUS issues in a wide variety of transactions. Representative transactions include:
- The multibillion dollar merger of two European information technology companies (both with manufacturing facilities in the United States) in which CFIUS required that the parties negotiate with the Department of Homeland Security and the Department of Justice to reach a “mitigation agreement” establishing national security protections
- The acquisition by a European company of a variety of businesses being divested by another European company, which included U.S. transportation, aviation, and space technology activities
- The transfer of significant minority ownership in a foreign company with U.S. defense operations between two foreign shareholders
- The acquisition of a U.S. petroleum services company by a foreign purchaser
- The acquisition of a U.S. communications satellite company by a foreign telecommunications company
- The acquisition of a U.S. telephone company by a foreign purchaser
- The acquisition of U.S.-based international freight forwarding company by a foreign maritime container company
- The acquisition of a U.K. manufacturer of cyber-security devices primarily operating in the United States by a diversified foreign technology company in which a foreign government owned significant equity
- The negation of a national security agreement with CFIUS agencies following the post-acquisition review of the acquisition of a software developer with U.S. sales operations
In addition to these transactions, we have worked with both foreign and domestic clients to evaluate the extent to which possible transactions might require or merit CFIUS notification, and the expected timetable and prospects for CFIUS review and approval with or without national security conditions. We have engaged in confidential discussions with CFIUS staff regarding possible transactions, or arranged such discussions for our clients.
MANAGING THE PROCESS
The U.S. national security review process requires parties to a proposed transaction to understand and manage a combination of technical, administrative, legal, and political challenges within a limited timetable. Parties must be prepared to provide detailed information under very short deadlines, educate government officials about their businesses, deal with diverse and sometimes conflicting concerns of multiple government agencies, and recognize and respond to possible political influences on those agencies. We have the experience to meet these challenges. Additionally, when clients need or wish to utilize outside public relations or government relations consultants in support of a transaction, we establish precise goals and strategies, help create key informational and media materials, and provide overall coordination and supervision. Where appropriate, we identify suitable public affairs or government relations consultants or work with consultants already associated with our clients.
Some of the specific tasks we cover are:
- Evaluating the transaction and advising on whether a declaration or notification is warranted
- Forming the CFIUS team within the acquirer and the target and developing a CFIUS strategy
- Arranging a pre-notification briefing for CFIUS agencies and preparing briefing materials
- Preparing the declaration or notification and filing with CFIUS
- Meeting with CFIUS member agencies and advising on follow-on investigations
- Preparing and filing required notifications with the Department of State under the International Traffic in Arms Regulations (ITAR) and addressing other issues involving goods and services covered by U.S. export control laws
- Advising and where appropriate representing clients in complying with the novations provisions of the Federal Acquisition Regulations (FAR)
- In the case of U.S. entities holding security clearances, notifying and filing with the Defense Security Service (DSS) of information on foreign ownership, control, or influence (FOCI) required by the National Industrial Security Program Operating Manual (NISPOM), and if required instituting measures to address FOCI concerns
- Negotiating and implementing mitigation agreements
- Dealing with possible opposition, congressional interest, and public relations