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CFIUS Foreign Investment Reviews

The Committee on Foreign Investment in the United States (CFIUS) is a US government multi-agency committee that conducts national security reviews of in-bound foreign investments.  The Committee effectively can block investments and force divestments if the Committee did not give approval prior to a transaction closing.

Steptoe’s CFIUS practice is led by two former CFIUS officials.  Stewart Baker served as the first Assistant Secretary for Policy at the Department of Homeland Security; Stephen Heifetz served as the Deputy Assistant Secretary and Acting Assistant Secretary for the Office of Policy Development at the Department of Homeland Security.  In their roles, both served on CFIUS, where they reviewed hundreds of CFIUS cases and negotiated dozens of “risk mitigation agreements” that the Committee deemed necessary to approve transactions.

In many of the most high-profile matters, Steptoe has helped clients navigate CFIUS.  Steptoe helps clients determine whether a formal “notice” to the Committee is warranted, assess the risks of filing and not filing, interpret and apply CFIUS regulations, compile the notice, interface with the Committee during the review and investigation processes, negotiate risk mitigation agreements to facilitate CFIUS approval, and otherwise advise clients about CFIUS and related matters.

For many transactions – particularly those involving investments from countries with which the US government has tense security relations – CFIUS has become a difficult regulatory obstacle.  The following Committee actions from the 12 months July 2012-June 2013 are illustrative:  CFIUS forced divestment of a California identification verification company; forced divestment of a Canadian mining company that had California and Nevada operations, forced divestment of Oregon wind farm projects, imposed stringent conditions on the acquisition of a global oil and gas company, imposed stringent conditions on the acquisition of a telecommunications company, and approved an acquisition of a high-tech battery manufacturer only after the deal was restructured to carve out the manufacturer’s government contracting business.  Even small investments have been scuttled by CFIUS:  in 2010, for example, CFIUS forced the Chinese telecommunications giant Huawei to divest its $2 million acquisition of the assets of 3Leaf, a California-based company that provided cloud computing technology.

Each CFIUS review – even the fact that a review is being conducted – is strictly confidential unless the transacting parties choose to disclose information.  So problems created by CFIUS generally are not widely known outside a relatively small circle of CFIUS practitioners.  While CFIUS ultimately approves most foreign investments, failure to consider CFIUS in the context of a potential foreign investment can create very significant risks – often unknown or misunderstood by the transacting parties.

In many instances, deal counsel at other law firms have called on Steptoe’s specialized CFIUS practice to help clients understand and address the uniquely challenging CFIUS process.

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