The Committee on Foreign Investment in the United States (CFIUS) is an interagency committee that reviews foreign investments in U.S. businesses and real estate assets. The primary purpose of a CFIUS review is to examine any potential national security risk implications—and to implement mitigating measures or block transactions when warranted. For foreign entities investing in U.S. companies and real estate, a robust compliance program is critical, and these entities must take proactive steps to ensure that their investment activities do not lead to civil or criminal investigations or litigation.
While CFIUS compliance is extremely important, it is also extremely complex. As a result, an informed approach is critical. Foreign entities pursuing investments in the U.S. must work to establish compliance proactively and be prepared to affirmatively demonstrate compliance during the CFIUS review process of the covered transaction.
“CFIUS has become more active in scrutinizing foreign investments in U.S. businesses and real estate in recent years. Foreign entities have a duty to disclose proposed investments to CFIUS in many cases, and making this disclosure (when required) is just one small part of effectively managing CFIUS compliance.” – Dr. Nick Oberheiden, Founding Attorney of Oberheiden P.C.
Despite the complexities of CFIUS compliance, foreign entities can manage compliance effectively with an informed approach and a commitment to understanding and meeting CFIUS’s requirements for transaction approval. This article provides some tips for managing CFIUS compliance in 2024.
7 Tips for Managing CFIUS Compliance: 2024 Update
What does it take to manage CFIUS compliance in 2024 effectively? Here are some key considerations:
1. Understanding CFIUS’s Composition and Priorities
One of the first steps toward effectively managing CFIUS compliance with CFIUS mitigation agreements is to understand the Committee’s composition and priorities. CFIUS monitoring agencies are composed of attorneys and other personnel from federal departments, including:
- U.S. Department of Treasury
- U.S. Department of Justice
- U.S. Department of Homeland Security
- U.S. Department of Commerce
- U.S. Department of Defense
- U.S. Department of State
- U.S. Department of Energy
- The White House Office of the U.S. Trade Representative
- The White House Office of Science & Technology Policy
This composition provides insight into the types of issues that CFIUS is likely to examine when reviewing a proposed foreign investment in a U.S. business or real estate asset. While CFIUS is broadly responsible for ensuring that foreign investments do not compromise U.S. national security, it has several specific priorities within this broad mandate. When preparing to disclose a pending foreign investment for purposes of a CFIUS review, proactively addressing each constituent department’s and office’s priorities can go a long way toward facilitating an efficient and favorable outcome.
2. Understanding When Foreign Investments Are Subject to CFIUS Review
Another key aspect of effectively managing CFIUS compliance in 2024 is understanding what types of foreign investments are currently subject to CFIUS review and Defense Production Act. Investments made by entities located in certain countries recognized as U.S. allies (including the United Kingdom, Australia, and Canada) are not subject to the CFIUS review process.
However, the Foreign Investment Risk Review Modernization Act (FIRMMA), which Congress enacted in 2018, substantially expanded the scope of investments made by entities located in other countries that are subject to review. In fact, under FIRMMA, nearly all proposed investments in U.S. businesses and real estate by entities from non-excluded countries fall within CFIUS’s oversight authority. As a result, assessing the need to notify CFIUS of a proposed investment is a necessary step for most foreign entities.
3. Preparing CFIUS Notifications
Under federal law, foreign entities contemplating investments in the U.S. must inform CFIUS of their plans before going to the closing table. As the CFIUS regulations review process can take several weeks, and, in some cases several months, it is critical to start the review process as soon as possible.
Starting the review process involves submitting a formal notification to CFIUS. This notification must include detailed information about the foreign entity, its owners and board members, its relationship with the government in its country of residence (if any), and the transaction at issue. Carefully preparing thorough and compliant CFIUS notifications can help foreign entities avoid unnecessary delays while also improving their chances of securing CFIUS’s approval.
4. Being Proactive During the CFIUS Review Process
Along with preparing a thorough and compliant CFIUS notification, foreign entities seeking CFIUS’s approval for domestic investments can also help improve their chances of securing approval by being proactive during the review process. For example, some steps that will often prove beneficial include:
- In addition to meeting the minimum requirements for submitting a CFIUS notification, foreign entities seeking approval can submit additional documentation detailing the nature of the transaction, its financing structure, and the U.S. party (or parties) involved.
- Foreign entities seeking CFIUS’s approval can also anticipate questions regarding the potential national security implications of the proposed investment and have their counsel draft a memorandum or letter that explains why these potential implications do not warrant blocking the investment.
- In some cases, CFIUS will approve foreign investments subject to the implementation of mitigation measures. Suppose it appears likely that CFIUS will require mitigation. In that case, foreign entities can proactively propose specific mitigation measures that (i) they can implement cost-effectively and, (ii) are likely to address CFIUS’s national security concerns.
These are just examples. As all transactions are unique, each foreign investment in a U.S. business or real estate asset requires an individualized analysis and approach. By conducting a thorough analysis of a proposed investment before CFIUS gets involved, foreign entities can put themselves in a favorable position to secure approval as quickly and with as few mitigating measures as possible.
5. Managing CFIUS Compliance on an Ongoing Basis
For foreign entities that invest in U.S. businesses and real estate, managing CFIUS compliance with the mitigation agreement is not a one-time event. While securing approval is a major step in the process, it generally is not the end of a foreign investor’s relationship with CFIUS. Instead, after securing approval, foreign entities must ensure that they close their transactions in line with what CFIUS has expressly authorized; and, if new questions or concerns arise, it may be necessary for transaction parties to re-engage with CFIUS in order to avoid a government-initiated inquiry.
With this in mind, another tip for managing CFIUS compliance is to focus on establishing a good working relationship. While foreign entities certainly shouldn’t capitulate when it isn’t necessary to do so, it is generally more advantageous to work with, rather than against, federal authorities that have oversight of entities’ domestic investments and business activities. If more investments are planned, this will mean re-engaging with CFIUS; and, if the entity has been proactive and forthright in the past, this can help to facilitate efficient reviews in the future.
6. Looking Beyond CFIUS Compliance
Along with managing CFIUS compliance, foreign entities planning U.S. investments will generally need to address various other federal legal and regulatory requirements as well. For example, the Office of Foreign Assets Control (OFAC), which is part of the U.S. Department of Treasury, has oversight of cross-border transactions that implicate its sanctions programs. If a foreign entity submits a transaction for CFIUS’s review but cannot complete the transaction because it is (or will be) blocked by OFAC, this will result in a substantial waste of resources for all parties involved.
This is just one example. For foreign entities contemplating investments inside the United States, managing federal compliance can prove to be an incredibly complex challenge. This is especially true when proposed investments have (or appear to have) U.S. national security implications. By taking a proactive approach to addressing all relevant federal requirements, foreign entities can avoid unnecessary costs and delays while building favorable relationships with CFIUS, OFAC, and all other pertinent U.S. federal authorities.
7. Engaging Legal Counsel with Specific Experience in the Area of CFIUS Compliance
Due to the challenge of aggravating and mitigating factors that CFIUS compliance presents, it is important that foreign entities contemplating investments in U.S. businesses and real estate engage experienced legal counsel. Not only will this generally prove to be the most cost-effective approach, but it will also prove necessary when seeking CFIUS’s approval for a proposed transaction. Experienced counsel will be able to provide assistance with all aspects of the CFIUS review process—from preparing and submitting the initial transaction notification to working with CFIUS to address any national security concerns and develop feasible mitigation measures if necessary.
While CFIUS compliance can present significant challenges, these challenges can typically be overcome with the right approach. Being proactive is key, and foreign entities must work closely with U.S. legal counsel to ensure that they are making informed and strategic decisions throughout the process. Working closely with legal counsel will also allow foreign entities to avoid pursuing transactions that are likely to be blocked, or for which the costs of securing approval and implementing required mitigation measures make moving forward undesirable. Effectively managing CFIUS compliance is a necessary part of investing in U.S. businesses and real estate for many foreign entities; and, while there are costs involved, incurring these costs in order to move forward in full compliance (when it makes sense to do so) is the best approach.
