CFIUS Foreign Investment Reviews & FOCI Mitigation

The Trump administration is making significant changes to longstanding trade policies. Among the flashpoints is the Committee on Foreign Investment in the United States (“CFIUS”), responsible for national security reviews of certain inbound foreign investments.  Since President Trump assumed office, the Committee has taken an increasingly critical eye to many transactions, scuttling an increasing number of deals and recommending that the president take action to block the Lattice Semiconductor/Canyon Bridge deal.

Given this period of significant change in the CFIUS process, the Committee’s annual report has been much anticipated. While the report only offers data through the end of 2015, it nonetheless provides interesting insights on the trends and developments that led up to the present period.

Delayed Publication of the Report

This year’s annual report has been significantly delayed in its release. In years past, the report, which the Committee must submit to Congress on a yearly basis, has been released in February.  This year’s delay likely is due to a significant increase in cases occupying CFIUS’s resources and a significant lack of political appointees at the Department of Treasury and other relevant agencies.  
Continue Reading CFIUS Releases Long-Awaited 2015 Annual Report

The European Commission issued on September 13th 2017 a Proposal for a Regulation establishing a framework on the screening of foreign direct investments (FDI) into the EU. The objective of this proposal is two-fold: pushing third countries to open their domestic markets to EU investments, and protecting EU assets against foreign takeovers detrimental to the essential interests of the EU or of its Member States.  The Commission proposes to achieve this by introducing information and coordination mechanisms between the Member States’ FDI screening schemes, and giving new powers to the Commission itself to screen some FDI with EU impact. The EU Member States’ ability to screen FDI would be harmonized, and would have to be based on grounds of security and public order.

Coordination of Member States and new powers to the Commission

The proposal sets up a mechanism whereby the Member States’ authorities are required to exchange information about FDI and adopt opinions within set deadlines. A Member State will be able to provide comments on any FDI occurring in another Member State.

The proposal also gives powers to the European Commission to screen FDI that are likely to affect listed projects or programmes of Union interest on the grounds of security or public order. The result of the Commission’s screening will be consigned in opinions that will not be binding but that Member States will be required to take into due consideration.  The proposed EU non-binding consultative process would be different than US reviews of inbound FDI via the Committee on Foreign Investment in the United States.  The US process occurs at the federal level without the input of the state in which the entity receiving the investment is located, and if the Committee does not clear the transaction to proceed, the parties will most likely abandon the transaction.
Continue Reading European Commission Proposes EU-Wide Scheme for Screening Foreign Investments in the EU

As many CFIUS-watchers were expecting, the President has just blocked the Lattice Semiconductor/Canyon Bridge deal.  CFIUS recommended that the President take this action because of national security concerns, and no President has refused to follow such a blocking recommendation by CFIUS.

In most cases, where CFIUS has made such a recommendation, the parties have abandoned the deal rather than waiting for the President to act.  This is only the fourth time that parties to a deal have forced presidential action:  at the recommendation of CFIUS, President George HW Bush ordered a divestment in 1990, President Obama ordered a divestment in 2012 and blocked a deal in 2016, and President Trump now has blocked this Lattice Semiconductor/Canyon Bridge deal.  All cases have involved Chinese companies.  (Steptoe has previously written on the 2012 and 2016 actions.)
Continue Reading Open Investment? Trump Blocks Lattice Semiconductor/Canyon Bridge Deal, Following CFIUS Recommendation

Germany has recently boosted its control over undesired foreign investments by introducing an amendment to its Foreign Trade and Payments Ordinance, which complements the Foreign Trade and Payments Act. Under the new rules, the acquisition by foreign investors of significant shareholdings in German companies will be subject to an enhanced government control from a public policy and security viewpoint. The Ordinance increases the power of the German Ministry for Economic Affairs and Energy (BMWi) to review investments that result in the acquisition of a direct or indirect participation corresponding to 25 percent or more of the voting rights in a German company.

Under German law, two different procedures exist for investment review, depending on the industry at stake. On the one hand, special rules apply to the acquisition of companies operating in sensitive security areas. The Ordinance brings clarification in this regard and defines new categories of transactions that are subject to a reporting obligation. Such categories include acquisitions of German operators of critical IT infrastructure, developers of software for the operation of critical infrastructure in certain specific industry such as the energy and water, telecommunications and data storage, transport, health, food, as well as financial services. The new Ordinance also expands on the transactions in the defence industry and related industries that are subject to a reporting obligation.
Continue Reading Towards a German CFIUS copycat? More scrutiny on foreign investments in German companies

On April 19, the Trump administration took action under a rarely-used provision of the Trade Expansion Act of 1962, allowing the United States to impose tariffs if it determines that certain imports pose a national security threat.  Acting under section 232 of the Trade Expansion Act, the Department of Commerce announced the start of an investigation to assess whether steel imports threaten US national security and should be curtailed accordingly.  Under the statute, the Department of Commerce has 270 days to submit to the President its findings and any recommendations for action.  However, the process may go considerably faster than that, as President Trump has signaled he wants the Commerce Department to move expeditiously.  Section 232 has not been invoked since 2001 and has not resulted in the imposition of tariffs since 1975. 

During the campaign, President Trump repeatedly promised to take a tough line on international trade issues, particularly where he believed American jobs were at stake.  He also frequently alleged that China, one of the principal sources of US steel imports, engages in unfair trade practices.  The initiation of a Section 232 investigation can be seen as another step in following through on those campaign promises.   
Continue Reading Trump Administration Considers National Security Implications of Steel Imports

The Committee on Foreign Investment in the United States (“CFIUS”) review process has long been a creature of the executive branch, but members of the House and Senate are increasingly trying to exert their influence over CFIUS in 2017—and it is Chinese and Russian investors who are first and foremost in Congress’s sights.

On April 10, a bipartisan group of senators urged Treasury Secretary Steven Mnuchin, who chairs the Committee, to conduct a “thorough, conflict-free and expedient review” of Russian energy giant Rosneft’s potential acquisition of part of Citgo’s Venezuelan parent company, Petroleos de Venezuela S.A. (PdVSA). Rosneft, which is majority-owned by the Russian government and run by Putin ally Igor Sechin, extended a $1.5 billion loan to PdVSA, but required that PdVSA put up as collateral a 49.9% share in Citgo’s US-chartered parent company, Citgo Holding. Sechin is currently on the Specially Designated Nationals and Blocked Persons List (“SDN”), meaning that he has been subject to US economic and travel sanctions in his individual capacity since April 2014 due to his role in “contributing to the situation in Ukraine.” The letter contends that, if PdVSA defaults and Rosneft acquires a stake in Citgo, it would “pose a grave threat to American energy security, impact the flow and price of gasoline for American consumers, and expose critical US infrastructure to national security threats.”
Continue Reading Congressional CFIUS Round-Up

In this age of heightened national security concerns, it might seem farfetched that an FBI field office was being housed in a foreign owned building. Yet, according to a new Government Accountability Office (“GAO”) report, it is not only true but a fairly common phenomenon. On January 30, 2017, the GAO released a new report entitled “GSA Should Inform Tenant Agencies When Leasing High-Security Space from Foreign Owners.” The report found that the General Services Administration (“GSA”) is leasing “high-security” space in 20 buildings with foreign owners. The leased space is used by 26 agencies and in some cases houses classified information, law enforcement evidence, and other sensitive data. The buildings in question are owned by entities from countries including Canada, China, Israel, Japan, and South Korea.
Continue Reading CFIUS Proximity Redux: New Report Raises Concern Over Government Agencies Operating in Foreign Owned Buildings

The US-China relationship is conceivably the most significant and complex bilateral relationship of the early 21st century, largely because China is the greatest US trading partner that is not a strategic ally.  US-China competition regarding security and global influence can drive innovative solutions or hamper trade and other areas of cooperation.  Please see our advisory

On Friday, December 2 – for just the third time since the creation of the Committee on Foreign Investment in the United States (“CFIUS”) – the President acted on a recommendation by CFIUS to block a foreign investment.

President Obama issued an Executive Order blocking the proposed acquisition of Aixtron, Inc., a California-based US subsidiary of the German parent company Aixtron SE.  The parent was the subject of a proposed acquisition by Grand Chip Investment GMBH.  Grand Chip is a German company, but it is ultimately controlled by GC Investment of Luxembourg and Fujian Grand Chip Investment Fund, a Chinese limited partnership.  According to Bloomberg, Aixtron, Inc. generates roughly 20% of the sales of Aixtron SE.
Continue Reading CFIUS History Redux: President Obama Blocks Chinese Purchase of Aixtron, Inc.