The Committee on Foreign Investment in the United States received 111 voluntary notices for national security review in 2011, an increase of about 19 percent from the previous year, according to an annual report to Congress published last month.
The highly-secretive multi-agency committee reviews purchases of domestic companies or interests in them by foreign-controlled buyers, screening for national security risks. The report does not provide details on specific acquisitions but does give a look into the industries and countries involved in the review process.
An analysis by attorneys Fried, Frank, Harris, Shriver & Jacobson LLP attributes the overall increase of notices in 2011 to improving market conditions for mergers and acquisitions, not increased oversight from CFIUS. Fried Frank partner Mario Mancuso sat on the committee during the George W. Bush administration.
Parties typically notify CFIUS voluntarily of transactions that may raise national security issues. Alternatively, the committee can open a review on its own. If national security problems are found, purchasers can either change terms of the deal to satisfy CFIUS or withdraw from the acquisition.
Purchasers almost never challenge a CFIUS decision.
However, a Chinese-controlled company filed suit in September 2012 against CFIUS after the committee found that wind farm projects in Oregon posed unchecked national security risks. President Barack Obama on Sept. 28 blocked the transaction in a rare exercise of presidential power not invoked since 1990.
The company, Ralls Corp., added Obama to the lawsuit and is fighting in court to have the block reversed.
Because of the secretive nature of the committee’s work, parties are often not told specifics on the national security issues a transaction might raise but are instead only told that certain criteria must be met to mitigate potential risks.
Breakdown for 2011
In 2011, one transaction was voluntarily withdrawn during CFIUS’ initial 30-day review period. An additional five transactions were withdrawn from consideration voluntarily during the committee’s 45-day investigation phase, meaning the deals cannot proceed.
CFIUS said that four cases that were withdrawn filed new notices in 2011 and two parties refiled notices in 2012.
The committee decided to conduct 45-day investigations of 40 notices, the report said. These investigations follow the initial 30-day review period and about 36 percent of the 111 notices for “covered transactions” made it to this step.
No transactions were subject to a presidential block in 2011.
Before approving a transaction, CFIUS sometimes asks that a party institute mitigation measures to address national security concerns. According to the CFIUS report, eight companies agreed to mitigation requirements for 2011.
Overall, CFIUS received notices related to four industries for 2011. The manufacturing industry accounted for 44 percent of notices, followed by the finance, information and services industry at 34 percent. Mining, utilities and construction accounted for 14 percent of the notices, followed by wholesale, retail and transportation at 7 percent.
The majority of the filings — 26 total — were from companies connected to the United Kingdom, though notices came from 23 countries overall. Fourteen notices had acquirers from France and 10 notices had acquirers from China. Canada had nine notices, followed by the Netherlands and Japan with seven notices each in 2011.
Chinese-related transactions have increased from four transactions in 2009 to 10 in 2011. Fried Frank notes that this is consistent with a recent push by the Chinese government to encourage foreign investment overall.