The Committee on Foreign Investment in the United States (CFIUS) is an interagency committee that assesses the potential national security risks of foreign direct investment in the U.S. Often called a “black box,” CFIUS operates in a classified environment. Aimen Mir and Colin Costello of Freshfields shed light on the CFIUS review process and its recently expanded scope of jurisdiction, and examine CFIUS's reputation for secretive deliberation and decision-making.
Aimen Mir is a partner at Freshfields in the antitrust, competition and trade practice and global sanctions and trade practice.
Colin Costello is a CFIUS Client Advisor at Freshfields in the national security practice.
Watch the full interview Powers of the Modern CFIUS
Navigating CFIUS (Freshfields Insights)
The Committee on Foreign Investment in the United States (CFIUS) (U.S. Department of the Treasury)
Joel Cohen (Host): So, Colin, before we get too deep into the details, why don't you give us a quick overview. What is CFIUS?
Colin Costello (Costello): So, CFIUS is an interagency committee that's chaired by the Department of the Treasury and is made up of other departments, including the departments of Energy, Homeland Security, Justice, Commerce, Defense, State, the United States Trade Representative, and the White House's Office of Science & Technology Policy. What CFIUS does is it looks for risks to national security in foreign investments in U.S. companies in certain real estate transactions.
What transactions can CFIUS review?
Host: What types of transactions are they able to review?
Costello: CFIUS has jurisdiction over three types of transactions:
(1) transactions that result in foreign control of a U.S. business;
(2) transactions that are non-passive but also non-controlling in certain types of U.S. businesses, involving critical technology, sensitive personal data, or critical infrastructure;
(3) certain types of real estate transactions that are near sensitive U.S. government facilities.
Host: interesting, I didn’t even know about the real estate aspect. So, that could be any type of business. It just depends where they're located.
Costello: So, for the real estate transactions, it actually doesn't even require a business. CFIUS’s original jurisdiction would have allowed it to review the acquisition of a business, so long as it provided the foreign person control over the business. The extension to real estate is really to capture transactions that don't involve a business, that just involve real estate assets, but that might be located near a sensitive facility, such that they might be able to be used as an intelligence collection platform, but would have previously been excluded from CFIUS's jurisdiction, which was based on foreign control of the U.S. business.
The Powers of CFIUS
Host: So, they have the ability to review these types of transactions all in the name of national security. What about muscle? What kind of power does CFIUS actually deploy?
Costello: So, a very common misconception about CFIUS is that it blocks transactions. CFIUS itself doesn't technically block transactions as a legal matter. Only the President has the authority to actually prohibit or suspend a transaction. What CFIUS does after reviewing a transaction and identifying a risk to national security is seek to mitigate the transaction and its primary vehicle for doing that is going to be a negotiated mitigation agreement, although it can also impose mitigation if the parties choose not to engage in negotiations. If it identifies a risk that it does not think can be mitigated through a mitigation agreement, at that point, it can recommend to the President that the President prohibit the transaction via presidential order.
Host: Oh, interesting. So, the committee's real power is that the President takes it seriously, but the decision making itself to block must be made at the top level.
Costello: Yes, that's correct. The power of the committee, particularly when negotiating a mitigation agreement, is the veiled threat that if the parties don't agree to mitigate through a negotiated agreement, that CFIUS always reserves the right to make a recommendation to the President to prohibit or suspend the transaction.
Aimen Mir (Mir): And Joel, I would add that as a general matter, CFIUS acts by consensus. So, when it makes a recommendation to the President, that means that the Department of Defense, Department of Justice, Department of Homeland Security, Treasury, Commerce, et cetera have all, in most cases, determined that it presents a risk. So, as you'd imagine, the likelihood that the President would take a different view than the recommendation of the committee is pretty low. And as a result, what usually happens is that the committee will inform the parties that the committee intends to recommend to the President that he prohibit a transaction, and then even without the transaction going to the President, the parties will withdraw their notice and abandon the transaction.
The Secrecy of CFIUS
Host: One characteristic of CFIUS is its secretive nature. It's often thought of as this mysterious black box. Maybe you can explain why that is.
Costello: CFIUS has a reputation for secrecy that's very well earned. It actually operates primarily in a classified environment, which is to say the information it's relying upon — other than the information provided by the parties and the information it can derive from open sources — is going to be provided by the intelligence community or other government agencies and is going to be classified itself. And also, there are very strict statutory confidentiality provisions that prohibit the disclosure of any information provided by the parties in the context of a filing. This includes even acknowledging the existence of a review even if the parties have themselves acknowledged that it's under review, either in the press or maybe in an SEC filing. If you ask the Treasury Department whether a particular transaction is under review, you're going to get a ‘no comment’. The only exception to this rule is if a transaction is prohibited by the President, which has to be done by presidential order and has to be published in the Federal Register. This is a major incentive that parties have to either negotiate a mitigation agreement, or if they are informed that the committee is prepared to recommend a prohibition, to walk away and abandon the transaction so that they aren't publicly branded as a risk to national security and can maintain some level of plausible deniability, potentially about the transaction and why they abandoned it.