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The presence of any foreign investments in the U.S. or any foreign acquisitions of control of a U.S. business is subject to scrutiny by the U.S. President. The Committee on Foreign Investment in the United States (“CFIUS”) was established to review transactions and make recommendations to the U.S. President for exercising his authority to interrupt, block or unwind a deal that is deemed to threaten the national security of the United States. There is no time limit on the President’s authority, it could happen anytime even after the deal was closed.
As to what constitutes a threat to the national security, it is to be determined by the U.S. President. The term “national security” is interpreted broadly. For this analysis, CFIUS assesses:
- Whether there is a threat, meaning whether the foreign person has the capability or intention to exploit or cause harm; and
- Whether there is a vulnerability, meaning whether the nature of the U.S. business, or its relationship to a weakness or shortcoming in a system, entity, or structure, creates susceptibility to impairment of U.S. national security.
The CFIUS also considers other various factors when conducting a national security risk assessment.
In 2017, President Trump blocked the acquisition of Lattice Semiconductor by a purportedly Chinese government-backed investment company. In the past 2 years, there have been other proposed deals in the semiconductor space involving Chinese investors that have reportedly been withdrawn after CFIUS criticism. Lately, a pending bipartisan legislation called the Foreign Investment Risk Review Modernization Act (“FIRRMA”), if enacted, could impose significant changes to the current CFIUS process. Lawyers should be aware of the potential for expanded CFIUS reviews in order to anticipate potential changes to the deal checklist and timeline.