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Wachtell Lipton: Legislation Would Substantially Broaden CFIUS Process

The Foreign Investment Risk Review Modernization Act (FIRRMA), introduced in the Senate by Senator John Cornyn, alongside co-sponsors Senators Dianne Feinstein and Richard Burr, among others, with a companion bill introduced in the House of Representatives by Representative Robert Pittenger, would significantly reform the operation and mandate of the Committee on Foreign Investment in the United States (CFIUS) and substantially expand the number of transactions subject to CFIUS review. Key features of the FIRRMA include:

  • Expansion of CFIUS Jurisdiction. The proposed legislation would expand CFIUS’s jurisdiction to cover more than transactions that result in “control” by a foreign person of a U.S. business. CFIUS would have jurisdiction over any non-passive investment by a foreign person in any U.S. critical technology or infrastructure company. The proposed legislation defines passive investment narrowly, excluding for example investments that confer board or observer rights, access to nonpublic information or involvement in substantive decision-making pertaining to U.S. business, thus broadening the number of transactions that will be covered.
  • New Filing Requirements. The proposed legislation creates a new abbreviated filing referred to as a “declaration,” which is intended to allow CFIUS to determine whether a more extensive filing is required and to which CFIUS will endeavor to respond within 30 days. While filing with respect to most transactions would remain voluntary, filing of a declaration would be mandatory for certain transactions, including any acquisition of “a voting interest of at least 25 percent in a United States business by a foreign person in which a foreign government owns, directly or indirectly, at least a 25 percent voting interest.”
  • Focus on Certain Countries. The proposed legislation mandates heightened CFIUS scrutiny of transactions involving any country that poses “a significant threat to the national security interests of the United States,” thus memorializing existing CFIUS practice. The bill does not enumerate or require CFIUS to publish the list of countries meeting this definition.

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  • Changes to Review Timeline. The proposed legislation extends the initial review period from 30 to 45 days, retains the current optional second-stage 45-day review period and authorizes CFIUS to extend an investigation by an additional 30 days.
  • Increased Scrutiny of Mitigation. The proposed legislation bars CFIUS from entering into mitigation agreements or conditions unless CFIUS determines that the agreement or condition is effective, verifiable and capable of effective monitoring. This is effectively what CFIUS already endeavored to do, but the legislation would mandate this standard.
  • New Suspensory Authority. The proposed legislation provides CFIUS with the authority to suspend a proposed or pending transaction during the pendency of CFIUS review or investigation.
  • Limitation of Statutory Safe Harbor. Existing law enables CFIUS to reopen review of a transaction it has already approved if a party intentionally and materially breaches a mitigation agreement or condition of approval. The proposed legislation eliminates the intentionality requirement.
  • Immunity from Judicial Review. Under the proposed legislation, decisions by CFIUS to suspend or prohibit a transaction are not subject to judicial review (except that parties that voluntarily file may submit a petition to the U.S. Court of Appeals for the District of Columbia Circuit for an alleged violation of a constitutional right).
  • Filing Fee. The proposed legislation authorizes CFIUS to charge a fee of not more than the lesser of 1 percent of the value of the transaction or $300,000.

    The proposed bill would constitute the most significant change in the last 10 years to U.S. review of foreign investment and merits close attention, especially in the current environment where there is an increasing degree of protectionist rhetoric within the United States as well as a number of other countries.

David A. Katz Ilene Knable Gotts Joseph D. Larson Nelson O. Fitts

Gordon S. Moodie Lori S. Sherman Monica M. Heinze