Navigating CFIUS: Ensuring Compliance and Success in Cross-Border M&A and Investments

Businesses often engage in cross-border transactions to expand their operations, access new markets, and leverage technological advancements. However, such transactions can raise national security concerns, prompting regulatory scrutiny from agencies like the Committee on Foreign Investment in the United States (CFIUS). Understanding CFIUS regulations and navigating its review process are crucial for companies involved in M&A and investments where a buyer or investor is a non-U.S. person. This article explores the impact of CFIUS on business transactions and provides guidance on how to mitigate associated risks.

Understanding CFIUS

Established in 1975 by Executive Order 11858 and chaired by the U.S. Department of the Treasury, CFIUS reviews foreign investments in U.S. businesses in order to assess their potential impact on national security. Initially, CFIUS focused on transactions involving controlling interests in, and acquisitions of, U.S. companies by foreign entities. CFIUS had authority to review any Covered Transaction. A Covered Transaction was any transaction that would result in a foreign person having control over a U.S. business. CFIUS could require the parties to implement measures to mitigate any known national security risks. If CFIUS determines that it is unable to mitigate a risk, it may recommend that the President of the United States block the transaction. In cases where the parties did not file and completed the transaction, the President could direct the foreign buyer to divest from the U.S. business. In many cases, parties would file voluntarily with CFIUS to obtain clearance of the transaction and a “safe harbor” that CFIUS would not review the transaction again in the future.