CFIUS No Longer an Afterthought With Foreign Investors, Lawyer Says
Foreign investors are increasingly incorporating the regulatory requirements of the Committee on Foreign Investment in the U.S. into the due diligence they conduct for U.S. transactions, a trade lawyer said in an interview.
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Luciano Racco, counsel at Foley Hoag and co-chair of the firm’s International Trade and National Security Practice, said he attributes this trend to CFIUS’ public outreach, the recent penalties it has imposed in enforcement actions, and investors’ growing awareness of the geopolitical tensions between the U.S. and China and between the U.S. and certain Middle Eastern countries.
“I would say that CFIUS is now a consideration in any cross-border transaction,” Racco said. “That seems like an obvious thing to say, but that was not previously the case. Up until a few years ago, maybe it was an afterthought, but now it is one of the primary areas of discussion and diligence on a cross-border transaction. From CFIUS’ perspective, that’s a good thing. They want parties to be thinking about this.”
Racco praised CFIUS for doing “a very good job providing guidance on which industries and technologies are a focus for the committee. We find that foreign investors are generally aware of CFIUS obligations, even if they’re not expert in them.”
Racco said CFIUS seems generally comfortable with the number of filings it's receiving. In its most recent report to Congress, CFIUS said it reviewed thousands of non-notified transactions, in which the parties didn’t make a filing, and opened inquiries on only 60 of them. It requested filings for only 13 and in three other cases the parties decided to make a voluntary filing after they were approached by CFIUS (see 2407230017).
“I don’t think they think that lots of parties are trying to skirt the filing requirement,” Racco said. “What we don’t know is how many transactions are abandoned or never started because of CFIUS concerns, and so that could be something we want to keep an eye on in terms of what participants in the market are seeing.”
CFIUS has raised eyebrows with some of its recent penalties, including a $60 million fine against T-Mobile after the telecommunications company violated its national security agreement (see 2408150015). Nevertheless, Racco asserted that the number of penalties remains low and doesn't indicate a surge in enforcement.
“This idea that there’s been a spike in enforcement, I don’t really see that in the numbers that CFIUS is reporting to Congress,” he said.