National Security Clearances for Foreign Investment in the US

Generally, US law makes it simple for foreign companies and individual investors to acquire US assets and invest in US companies. However, the President of the United States has the authority to block or unwind foreign acquisitions of sensitive US assets on the grounds of national security.

Voluntary CFIUS National Security Reviews

Parties to a cross border transaction may submit a voluntary notification to the CFIUS (Committee on Foreign Investments in the United States) to initiate a voluntary national security review. The initial CFIUS review may take up to30 days. CFISU may clear the transaction or begin a more detailed national security investigation lasting up to 45 days. If CFIUS does not clear the transaction, it may refer the matter to the President of the United States. The President has 15 days to take action, including blocking or unwinding the transaction on national security grounds.

The possible benefit of the voluntary notification is that the parties may obtain a no-action letter from CFIUS which would provide a safe harbor against future presidential action. This would provide greater certainty that the transaction would not be overturned and would provide transparency about the deal which may mitigate any public or political criticism of the transaction.

Chinese Investments

China has led foreign countries for at least three straight years in CFIUS reviews. Some of these deals are coming under increasing scrutiny. One pending deal which has received press coverage is China National Chemical Corporation’s $43 billion acquisition of Syngenta, a Swiss farm chemicals and seeds company, because of its operations in the United States.

The New York Times recently reported “Chinese companies are desperate to get dollars out of China in anticipation of a further slide in its currency. Foreign acquisitions are an easy solution, since they are encouraged by the Chinese government. And American sellers are willing to take the risk.”

A Few Factors to Consider

If you are a foreign investor or a US company selling to a foreign investor, you should consider whether there are any US national security implications to the proposed deal. Here are just a few items to consider:

– Is the foreign company owned or controlled by a government or sovereign fund?
– Does the US company have access to classified data or possess a facility security clearance?
– Does the US company have: (i) access to critical infrastructure (ii)holdings in a sensitive resources or (iii)facilities near any US defense facility?
– Does the US company produce any item that is on a Commerce Control List?
– Does the US company have government contracts with national security responsibilities?
– Could foreign control of the US industry affect the capability to meet national security requirements?

If the proposed transaction does have national security implications, it is better for the parties to seek pre-approval of the transaction. This is not an instance where it is better to seek forgiveness than approval.

Doug McCullough | mccullough@dealfirm.comпотолочные светильники точечные

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