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Aug 23, 2021

CFIUS, an acronym for the Committee of Foreign Investment in the U.S., reviews business deals related to national security.

In June of this year, CFIUS issued an interim order preventing a Chinese investor’s planned acquisition of a South Korean semi-conductor company and prevented them from de-listing from the New York Stock Exchange (NYSE).

CFIUS has been and continues to share information with similar committees of United States allies and those allies are also looking at their respective national security interests. For example, the U.K. government is starting a national-security review of the Nvidia Corp. deal to buy British chip designer Arm.

CFIUS just released its 2020 Annual Report to U.S Congress. The report showed that in 2020, CFIUS conducted assessments on 126 declarations of covered transactions (short form) and CFIUS directed 34 parties to file mandatory notices and 28 parties to file a written notice following an assessment.

CFIUS conducted 187 reviews with respect to covered transactions filed in 2020 and then conducted 88 subsequent reviews and concluded its review of 16 transactions after the adoption of various mitigation measures were enacted to address national security concerns. Additionally, mitigation measures in three cases were enacted to address residual national security concerns. Twenty-nine notices were withdrawn and of those 15 were re-filed with a new notice in 2020. The Committee rejected one notice due to a material change in the transaction. In one case, the President issued an order prohibiting an acquisition.

Negotiated mitigation measures included:

  • Prohibiting or limiting the transfer or sharing of certain intellectual property, trade secrets, or technical knowledge;
  • Establishing guidelines and terms for handling existing or future U.S. government contracts;
  • Ensuring that only authorized persons have access to certain technology;
  • Ensuring that only U.S. citizens handle certain products and services, and ensuring that certain activities and products are located only in the United States;
  • Establishing a Corporate Security Committee and other mechanisms to ensure compliance with all required actions;
  • Establishing security protocols to ensure the integrity of goods or software sold to the U.S. government;
  • Excluding certain sensitive assets from the transaction;
  • Ensuring that only authorized vendors supply certain products or service; and
  • Demanding prior notification to and approval by relevant U.S. government parties in connection with any increase in ownership or rights by the foreign acquirer.

The majority of the 2020 notices were in the finance, information, and services sectors which accounted for 43% of covered transactions and 36% pertained to manufacturing.

The top five investor countries were (1) Japan, (2) China, (3) United Kingdom, (4) Canada and (5) France.

In a previous update, EisnerAmper mentioned that CFIUS , with an increased budget, would be looking at prior transactional activities where a filing was not made. The 2020 report noted that 117 transactions were brought to the Committee for consideration and review. Of these, 17 were requested to file post transaction notices.

EisnerAmper also earlier noted that if “The Strategic Competition Act” is enacted, it would create a new role for CFIUS by allowing them to review donations/gifts to “institutions of higher education” in the United States.

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