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How to Handle a CFIUS Review in 2024
Thursday, March 7, 2024

Foreign investments in U.S. businesses and real estate assets are subject to review by the Committee on Foreign Investment in the United States (CFIUS) in many cases. CFIUS reviews can have three primary outcomes. Upon completing its review, CFIUS may either approve the transaction outright, approve the transaction subject to mitigation measures, or block the transaction from moving forward.

Entities contemplating transactions that are subject to CFIUS’s oversight must voluntarily disclose these transactions for review. Failure to voluntarily disclose a proposed transaction can lead to even greater scrutiny, and potentially a mandate to unwind the transaction. However, when preparing for a CFIUS review, entities should not simply disclose their transactions and take a wait-and-see approach. Instead, they should take a proactive and strategic approach to managing the CFIUS review process.

CFIUS reviews are often complex procedures, and entities seeking approval of foreign investments in domestic businesses and real estate assets may need to submit extensive documentation for CFIUS’s review. While this can be time-consuming and resource-intensive, it is necessary, and taking a proactive and strategic approach will help ensure that the process with government contracts is as streamlined as possible.

Key Considerations for Managing a CFIUS Review

With this in mind, here are some key considerations for managing a CFIUS review in 2024:

Ensure That the Transaction is Contingent on a Successful CFIUS Review

Before disclosing a pending transaction to CFIUS, the foreign persons seeking approval should ensure that the transaction documents include a clause that makes the transaction contingent upon a successful CFIUS review. This does two things. First, it ensures that the party will not have an obligation to move forward if it is blocked from doing so. Second, it sends a clear signal to CFIUS that the parties are aware of their obligations and are prepared to work through the review process in good faith.

Both of these can help set the stage for a successful review. If both parties are aware of the need for CFIUS’s approval, this can help ensure that any necessary cooperation or collaboration during the review process occurs. Similarly, by signaling to CFIUS that the parties understand the need for review and believe that they will be able to secure approval through the review process, this can set the stage for an open, productive, and efficient CFIUS review.

Clearly Outline the Transaction, Financing Structure, and Parties

When preparing a transaction notification to submit to CFIUS, it is important to clearly outline the transaction, financing structure, and parties involved. While only certain information is required in the notification itself, voluntarily providing additional information that CFIUS personnel are likely to request during the review can help to streamline the process as well.

For example, a CFIUS notification must include information about the acquiring entity’s board members and shareholders with 5% or greater equity. For individuals, this includes their name, address, date and place of birth, nationality, national identification number, and passport number. The notification must also identify all companies in the acquiring entity’s ownership chain and disclose whether the acquiring entity is controlled, either directly or indirectly, by a foreign government. During the review process, the acquiring entity is likely to have to prove the following information as well; and, given that this is the case, the entity may also choose to provide this information at the outset of the process:

  • The purpose of the investment and the foreign acquirer’s plans for managing, controlling, or operating the acquired business or asset;
  • Whether the target entity has access to sensitive technology or personal data;
  • Whether the target entity has a security clearance to access classified data;
  • Whether the target entity or asset manufactures or produces items on a U.S. control list;
  • Whether the target entity or asset is located in a National Security Area (NSA) or other sensitive location;
  • Whether the target entity or asset is involved in, or a part of, critical infrastructure; and,
  • Whether and to what extent that proposed transaction will have involvement with, or implications for, U.S. national security.

These are just examples. Determining what national security threats may be necessary to secure CFIUS approval requires a comprehensive review of each transaction on a case-by-case basis. But, in all cases, anticipating the information that CFIUS will need to approve the transaction is an important step toward avoiding civil monetary penalties and making the process as efficient as it can be.

Acknowledge Any Potential National Security Concerns

When seeking CFIUS approval, proactively acknowledging any potential national security risks raised by certain real estate transactions at issue will often be most advantageous. CFIUS is going to raise these concerns anyway; and, by acknowledging them at the outset of the process, acquiring entities can give themselves plenty of time to prepare their evidence and arguments for why blocking the covered transactions is unnecessary.

Executive Order 14083 outlines some of the primary national security concerns that fall within CFIUS’s review and enforcement authority. Some examples of potential national security concerns that foreign entities investing in U.S. businesses and assets may need to address during the review process include:

  • Acquiring an Interest in Real Estate Near a National Security Area (NSA) – An NSA is defined as “airspace of defined vertical and lateral dimensions established at locations where there is a requirement for increased security of ground facilities.” Foreign investments in businesses and real estate located near NSAs inherently present national security concerns.
  • Acquiring Sensitive Technology or Personal Data – Under the Defense Production Act, obtaining access to critical technologies or U.S. citizens’ sensitive personal data also raises national security concerns. Acquiring entities must be prepared to address them during the CFIUS review process.
  • Acquiring a Business Near a Sensitive Location or Involved with Critical Infrastructure – Similarly, acquiring a business near a sensitive location or that is involved with critical infrastructure will raise national security concerns as well. This includes, but is by no means limited to, investments in agricultural land and farming operations.

Here, too, these are just examples—and these are extremely broad categories of potential national security concerns. To successfully navigate the CFIUS risks review process, foreign entities must be prepared to address all specific national security concerns raised by their proposed investments. This can be a highly complex and detail-oriented process, and being prepared with clear explanations and documentation can be essential for securing CFIUS’s approval.

Explain Why These Concerns Do Not Warrant Blocking the Transaction

In all matters, CFIUS and other federal authorities err on the side of protecting national security. As a result, if a proposed transaction even facially implicates national investment security, it will be incumbent upon the foreign entity seeking approval to affirmatively demonstrate why blocking the transaction is unwarranted. If CFIUS raises a national security concern and the party seeking approval cannot clearly rationalize why this concern is misaligned with the true nature and implications of the transaction, it won’t be able to secure approval.

With this in mind, beyond acknowledging any national security concerns that CFIUS personnel are likely to raise during the review process, foreign entities seeking CFIUS’s approval should also proactively address these concerns in a manner that is likely to satisfy the Committee’s national security mandates. For example, foreign governments explaining the purpose of the investment, providing an overview of the entity’s existing business, disclosing its business partners, and providing a detailed overview of its business plans in the United States can all help to facilitate a favorable outcome.

Consider Whether Any Mitigation Measures May Be Necessary

As noted above, CFIUS reviews can have three potential outcomes. If CFIUS has persisting concerns after the review process but determines that blocking the transaction is unwarranted, it may approve the transaction subject to the implementation of suitable mitigation measures.

If the need for mitigation seems likely, proposing specific mitigation measures—or perhaps even implementing them proactively—could be the most advantageous approach. Not only does this help demonstrate to CFIUS that the parties are committed to preserving the nation’s security, but it also allows parties to take the lead on determining which specific mitigation measures will be sufficient to gain transaction approval.

Work With, Rather Than Against, CFIUS Personnel

Finally, when going through the CFIUS review process, it is generally best to work with, rather than against, CFIUS’s personnel. The process doesn’t have to be—and generally shouldn’t be—adversarial. By taking an open and collaborative approach, foreign entities seeking approval can ensure that they have every opportunity to secure approval without the need for litigation, and while establishing a good working relationship for any future interactions with CFIUS.

While the CFIUS review process can be both complex and high-risk, there are strategies that foreign entities and their U.S. counterparties can use to navigate the process successfully in most cases. A clear understanding of CFIUS’s review procedures and national security priorities is critical, and a proactive approach can help ensure that the process is as efficient and favorable as possible.

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