July 26, 2007
Today the President signed legislation increasing the federal government’s scrutiny of mergers and corporate takeovers of U.S. businesses by foreign companies. The "Foreign Investment and National Security Act of 2007" gives the federal Committee on Foreign Investment in the United States (CFIUS) expanded powers to investigate and block these transactions, and to monitor compliance by companies with "mitigation agreements" after the transactions are completed. The bill also requires CFIUS to report on its reviews to Congress, which would more closely oversee the review process.
The legislation makes substantive changes to CFIUS’ authority, expanding and focusing its review in certain areas. It also establishes CFIUS as an executive governmental agency, further integrating it into governmental agencies it relies on in its role. The bill includes or heightens CFIUS’ consideration of certain factors in its reviews, including effects on "critical technologies," adherence to nonproliferation control regimes by a subject country and cooperation with U.S. anti-terrorism efforts. The reforms also define and provide special review of transactions involving "critical infrastructure." The legislation increases CFIUS’ scrutiny of transactions involving foreign state-owned entities, adding a second level of review of transactions with such parties. The legislation also includes an "evergreen provision," allowing CFIUS to reopen its review of a transaction where it finds that there have been material misrepresentations to it in the review process, or where a party has breached a mitigation agreement.
The legislation also reforms the Committee’s structure and operations. It adds the Director of National Intelligence as an "ex officio" non-voting member and requires him to direct intelligence agency review of transactions. The Treasury Department is directed to designate a lead agency to review each covered transaction and to negotiate mitigation agreements, and Treasury is required to increase CFIUS’ consultation with other federal agencies. The legislation also mandates higher approval levels in CFIUS, and requires confidential reporting to Congress on its reviews. Further, Congress has substantially increased oversight over CFIUS operations and the approval and treatment of covered transactions.
Through CFIUS, the President exercises his authority granted under the 1988 Exon-Florio amendments to review a merger or acquisition creating foreign ownership of a corporation operating in the United States. The Exon-Florio amendments require the President to block foreign acquisition of a U.S. corporation if he finds "credible evidence that the foreign entity exercising control might take action that threatens national security" and if certain other legal provisions do not adequately address national security concerns. CFIUS was originally created in 1975 to monitor the impact of foreign direct investment in the United States. In 1988 the President delegated his authority under the Exon-Florio amendment to review transactions to CFIUS. The impending change in the law stems from the controversy over Dubai Ports World’s proposed 2006 acquisition of operating rights in some U.S. ports. Although no clear national security issues were ultimately identified with this transaction, public and Congressional criticism of CFIUS’ review process and approval of that transaction led to sustained calls for strengthening and reforming Exon-Florio enforcement.
For further information, please contact the Gibson, Dunn & Crutcher attorney with whom you work, or the following members of the firm’s International Trade Regulation and Compliance Practice Group:
Judith A. Lee (202-887-3591, [email protected])
Daniel J. Plaine (202-955-8286, [email protected])
Alan Platt (202-887-3660, [email protected])
Mel Levine (310-557-8098, [email protected])
Dave M. Wharwood (202-887-3579, [email protected])
Patrick Speice* (202-887-3776, [email protected])
* Admitted only in Virginia; practicing under the supervision of Principals of the Firm.
© 2007 Gibson, Dunn & Crutcher LLP
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