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IE Insights: What is CFIUS?

Committee on Foreign Investment in the United States (CFIUS) – An Overview
The Committee on Foreign Investment in the United States (CFIUS) is a pivotal instrument of U.S. national security policy concerning foreign investments. Its role and significance in monitoring, reviewing, and intervening in foreign investments that might pose threats to national security cannot be understated.
1. Origin and Purpose:
CFIUS was established by an Executive Order in 1975, later codified in law by the 1988 Exon-Florio Amendment to the Defense Production Act of 1950. The primary objective of CFIUS is to review and investigate mergers, acquisitions, and certain other foreign investments in the U.S. to determine their implications on national security. If a transaction poses a threat, CFIUS has the authority to impose measures to mitigate those threats or recommend that the President block the transaction altogether.
2. Structure:
CFIUS comprises nine federal agencies, including the Departments of Treasury (which serves as the chair), Defense, State, Commerce, and Energy, among others. Depending on the nature of the transaction under review, other agencies and offices can be involved as well.
3. Process:
The CFIUS process typically begins when parties to a foreign investment voluntarily submit a notice to the committee. While this is not always mandatory, failure to notify can result in subsequent review and potential unwinding of the transaction if it’s determined to be a threat. Once notified, CFIUS undergoes an initial 45-day review period. If concerns remain after this period, a more in-depth, 45-day investigation commences. At the conclusion of the investigation, if concerns persist, CFIUS may enter into an agreement with the involved parties to mitigate the threats or send the transaction to the President with a recommendation to prohibit or suspend it.
4. Modern Evolution:
The importance and scope of CFIUS have grown over the years. The Foreign Investment Risk Review Modernization Act (FIRRMA) of 2018 was a significant overhaul, expanding CFIUS’s purview. Before FIRRMA, CFIUS mainly focused on transactions resulting in foreign control of a U.S. business. Post-FIRRMA, its jurisdiction widened to include certain non-controlling investments, especially in sectors like technology, infrastructure, and data-handling where potential security risks are prevalent.
5. Challenges and Criticisms:
While CFIUS plays a pivotal role in safeguarding U.S. national security, it’s not without criticisms. Some argue that the process lacks transparency and can be used as a tool of economic protectionism, rather than purely for security concerns. Others believe that the expanding reach of CFIUS may deter beneficial foreign investments. Furthermore, given the rapidly evolving technological landscape and global interconnectedness, ensuring CFIUS remains up-to-date is an ongoing challenge.
CFIUS remains an integral part of the U.S. approach to foreign investments, balancing the dual needs of ensuring national security while also maintaining an open investment climate. As the global investment landscape changes, so too will the challenges facing CFIUS, necessitating periodic reviews and adaptations to ensure its continued efficacy.