By, Scott A. Schimpa, Esq., Partner at Winston & Strawn; Francesca M.S. Guerrero, Esq., Partner at Winston & Strawn; and Stephen J. Migala, Esq., Partner at Winston & Strawn.
U.S. national security implications are increasingly important for foreign companies considering investments in U.S. businesses, and for U.S. companies soliciting such interest.
In 2017, high-profile deals that struggled to close or ultimately fell through due to national-security concerns raised the profile of The Committee on Foreign Investment in the United States (CFIUS), an inter-agency committee authorized to review transactions that could result in control of a U.S. business by a foreign person (“covered transactions”).
To this point, submission to CFIUS has been “voluntary” in that no law or regulation required companies to file. However, companies that did not submit ran the risk of CFIUS initiating its own investigation, which could lead to a recommendation that the President unwind the deal.
Now, proposed bipartisan legislation, the Foreign Investment Risk Review Modernization Act, or “FIRRMA,” is gaining steam, and, for the first time in decades, stands to significantly affect CFIUS’s jurisdiction, filing requirements, and timetables.
This paper reviews some of the possible changes, including the ways in which FIRRMA might expand the definition of a covered transaction. In particular, FIRRMA would make certain filings mandatory where a foreign government would ultimately own 25% or more of the interest in a U.S. business.
It is not clear when, or if, this bill will pass, but it could happen in early 2018.
The authors emphasize that expanding the scope of CFIUS to include transfer of intellectual property also stands to introduce substantial uncertainty and burdens on technology companies who partner with foreign companies to develop or produce goods or services.
Regardless of when or if FIRRMA becomes law, 2018 will likely see a continued focus by CFIUS on foreign investment in critical technologies. The paper presents a recent history of such cases, including transactions that were blocked by the U.S. government; ones that were withdrawn or abandoned after adverse feedback by CFIUS; and others that were subject to extended reviews, but eventually cleared.
Among other key considerations for 2018, according to the authors, investment by certain nations, including China, will continue to see enhanced scrutiny; and investments in critical technologies will be highly scrutinized whether or not FIRRMA or other CFIUS legislation becomes law.
Overall, in the coming year, parties should anticipate CFIUS reviews to continue to run on a longer time line.