It’s generally only when a deal gets turned down that the Committee on Foreign Investment in the United States (CFIUS) makes headlines. As such, the 12-person inter-agency group, which vets foreign-invested transactions based on national security implications, has become a figure of fear in some corporate circles.
Tom Ridge, who served on CFIUS while US Secretary for Homeland Security, believes this is unfair.
“Only about 5% of all foreign investment transactions actually get a cursory look; then about 5% of that 5% go on to formal review,” said Ridge, who now heads his own consulttany, Ridge Global.
The committee was established by executive order in 1975 before its role was codified by the 1988 Exon-Florio amendment. This allows the president to block acquisitions of US-based entities that would grant “control” to a foreign party deemed to be a national security threat. According to Ivan Schlager, a partner at law firm Skadden, there is no strict definition as to what qualifies as “control.”
Filing for CFIUS review is voluntary but a successful transaction can still be investigated retroactively.
Of the two deals – China National Offshore Oil Corp’s (CNOOC) bid for Unocal and the proposed Dubai Ports World acquisition of P&O – for which the committee is perhaps most famous, neither received an unfavorable review from the committee. Rather, it was vehement political opposition that proved to be the decisive factor.
Stung by the criticism, the Chinese oil firm withdrew its application. Dubai Ports World, despite receiving CFIUS approval for its transaction, was eventually pressured into selling off the US assets to a US entity.
Congress also turned its attention to the CFIUS process, with some suggesting that the committee should operate on a tighter political leash. By the time amendments were made last year – with the introduction of the Foreign Investment and National Security Act – the fuss had died down sufficiently that the changes to the process were largely cosmetic.
“[The act] acknowledges Congress’s role in the process but does not give Congress the power of veto over transaction,” said Ivan Schlager, a partner at US law firm Skadden, who has been involved in numerous CFIUS cases. “It is an appropriate balance.”
Nevertheless, Ridge believes more should be done to repair the damage created by the controversies involving CNOOC and Dubai Ports World.
“We have to do a better job of making it clear that the US is open to foreign investment and that those who flirt around national security interests have to be sensitive to the political environment,” he said.