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Exclusive Q&A on Foreign Investment

By Ronald A. Oleynik & Antonia Tzinova
Posted: 5th May 2016 09:55
What are the main advantages of investing in your jurisdiction?
The United States is one of the most open investment environments in the world.  No single industry sector is closed to foreign investment, however, there are restrictions on transactions that impact “national security.”  Various U.S. government agencies have developed their own processes for reviewing a particular transaction in terms of its implications to national security; however, one common theme is that the term “national security” is intentionally left undefined.  While this allows the government greater discretion in choosing to block a transaction, it also provides for flexibility—with a few, very limited exceptions, there is no bright-line test.  Note that of the more than 13,000 M&A transactions in the United States in 2015, the government reviewed only approximately 150 for national security purposes.  These facts, coupled with an open economy, the maturity of the U.S. financial system, respect for the rule of law, and predictable enforcement environment, guaranty some of the best advantages in choosing an investment destination. 
Are there any compliance issues investors need to be aware of?
In addition to taking measures to have the transaction reviewed and approved by the relevant regulatory authorities, a buyer need to consider the successor liability doctrine, which is peculiar to the United States.  Under the doctrine, certain U.S. agencies with jurisdiction over the business of the target company may assess penalties against the new owner for past conduct of the target or its previous owners (e.g., the Departments of State and Commerce with respect to export transactions of controlled equipment; the Department of Justice with respect to corruption activities abroad of target or its foreign affiliates and agents).  Successor liability may be asserted even in asset purchases, where the violations were related to the underlying assets acquired by buyer. 
Can you outline the main laws and regulatory authorities relating to oversight and review of foreign investment in your jurisdiction?
The Committee on Foreign Investment in the United States (“CFIUS”) has been granted authority to review foreign investment in existing U.S. businesses under the Defense Production Act of 1950, as more recently amended by the Foreign Investment and National Security Act of 2007.  CFIUS is an interagency committee chaired by the Department of the Treasury, and comprising representatives from sixteen U.S. departments and agencies, including the departments of defense, state, commerce, and homeland security, among others.  CFIUS jurisdiction extends to any transaction that will result in a foreign control over a U.S. business, and which could impact U.S. national security.  A transaction that poses a threat to U.S. national security where the threat cannot be reasonably mitigated under existing law or a CFIUS mitigation agreement may be referred to the President of the United States with a recommendation to block the transaction.  Foreign investors should note that a review of a covered transaction may be initiated any time after the transaction closes, with no statute of limitations.  The only guarantee that a foreign acquirer will not be ordered to divest is if the transaction has been reviewed, and not objected to, by CFIUS.
In parallel with the CFIUS review process, certain investments in various industry sectors are reviewed separately by the respective regulator.  For example, the Department of Defense administers its own review of foreign investment in defense contractors performing on classified projects; the Department of Justice and the Federal Communications Commission review investments in companies that hold telecom licenses; the Department of Energy (“DOE”) reviews investments in DOE contractors performing on DOE classified projects; the Department of State reviews certain foreign acquisitions of manufacturers or exporters of defense articles; the Federal Aviation Administration reviews investments in air carriers; and the Federal Maritime Commission reviews investments in domestic waterway carriers. 
Can you outline the process of an M&A with foreign investors?
In addition to the general due diligence review any buyer should undertake, a foreign investor looking to acquire a U.S. business should satisfy itself with respect to the following questions:
  • Is the industry sector among the few that have a cap on foreign investment (e.g., air carrier, banking, maritime)?  If so, determine the relevant thresholds and reporting requirements.
  • Is the acquisition of such character that it will be perceived by the U.S. government as posing a threat to national security (e.g., investing in a defense contractor, a company that serves predominantly the U.S. Government, a unique technology that is not available elsewhere, a company that holds a predominant market share within the U.S. or worldwide, an asset that is considered to be part of the U.S. critical infrastructure, such as a port or the electric grid)?  If yes, consider filing with CFIUS to obtain approval of the transaction before closing.
  • Will foreign persons acquire more than fifty percent of the ownership or effective control over a manufacturer or exporter of defense articles?  If yes, the transaction must be notified and approved by the Department of State.
  • Is the U.S. target involved in classified work for the U.S. Government?  A foreign ownership, control, or influence (“FOCI”) mitigation plan must be reviewed and approved by the Defense Security Service before closing.
How long does the review process take? What factors determine the timelines for clearance?
Each agency with a jurisdiction to review a foreign investment has its own review process.  The CFIUS review is strictly regulated by statute and undergoes an informal and a formal phase.  The informal phase can be initiated at any point by the parties to garner CFIUS view on a successful transaction.  While not required, a pre-filing notification five business days before formal filing has become customary.  Following formal filing and acceptance of the notice, CFIUS has thirty days to review the transaction.  The review process may be extended to an additional 45-day follow-up investigation in the following cases: (i) during the review phase, national security concerns have not been resolved, (ii) the transaction will result in a foreign-government owned or controlled investor acquiring control over a U.S. business; or (iii) the acquisition will result in foreign control over assets of critical infrastructure.  At any point, CFIUS may approve the transaction or refer the case to the President of the United States with a recommendation to block the acquisition.
Other agencies have differing timelines.  For example, a transaction subject to the Department of State’s jurisdiction must be notified sixty days in advance of closing.  An acquisition of a company performing on classified projects must be notified as soon as the parties determine they are moving forward, and a FOCI mitigation plan must be approved by the Defense Security Service before closing. 
What safeguards are in place to protect confidential information from being disseminated and what are the consequences if confidentiality is breached?
Each reviewing agency operates under strict confidentiality requirements.  Filings are exempt from reporting under the Freedom of Information Act (“FOIA”).  In the case of CFIUS, information provided by the parties is shared very narrowly within the government, only with government officials who are essential for the review process.  Unauthorized disclosure triggers criminal liability of up to ten years imprisonment.  CFIUS does not at any time report on a specific transaction.  Summaries of a review are provided to select members of Congress and generally treated as classified information.  Once a year, CFIUS publishes a report on prior years reviews (with a two year delay); however, the report provides aggregated numbers and tracking by industry and country only.  The intent behind the statutory prohibition is to provide the parties to the transaction strict confidentiality and confidence that filing with CFIUS will not inadvertently hurt their financial positions by leaking confidential business information.  

Ronald A. Oleynik is a partner practicing in Holland & Knight's Washington, D.C., office in the area of international trade regulation. His experience includes a broad range of industrial security, customs, export and international trade matters. In the area of industrial security, Mr. Oleynik has been involved in a significant percentage of all foreign investment review proceedings before the Committee on Foreign Investment in the United States (CFIUS), and is one of the leading practitioners in the area of foreign direct investment in the U.S. defense industry under the U.S. regulations regarding Foreign Ownership, Control and Influence (FOCI). 

Ronald can be contacted on +202.457.7183 or by email

Antonia Tzinova
is an attorney in Holland & Knight's Washington, D.C. office. Ms. Tzinova practices in the areas of international trade, foreign direct investment and industrial security. She regularly represents clients before the Committee on Foreign Investment in the United States (CFIUS) and advises on measures to mitigate Foreign Ownership, Control, or Influence (FOCI) in cross-border mergers and acquisitions of U.S. government and defense contractors. She counsels foreign investors on structuring investments in the defense, high-tech and critical infrastructure sectors of the U.S. economy. She also advises on defense and high-technology exports; U.S. sanctions and trade embargoes; and customs matters.

Antonia can be contacted on +202.419.2661 or by email at

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