Corporate Law News

All About CFIUS, Trump’s Watchdog on China Dealmaking: QuickTake

Feb. 14, 2020, 8:56 PM

America’s message to investors overseas has long been that the U.S. is open for business. The administration of President Donald Trump, whose slogan is “America First,” has pushed back, and one of its tools is a formerly obscure committee that works behind closed doors. The Committee on Foreign Investment in the U.S., or CFIUS, has thwarted acquisitions of American companies, particularly by Chinese investors. Now it has new powers to do even more.

1. Who’s on the committee?

CFIUS -- pronounced SIFF-ee-yus -- is a panel of government officials that reviews acquisitions of, and some investments in, American businesses by foreign buyers to determine if the deals pose risks to national security. It’s led by the Treasury secretary, with other members from the State, Defense, Justice, Commerce, Energy and Homeland Security departments.

2. How does it work?

The parties to a proposed transaction file a notice to CFIUS, often voluntarily though it can now be mandatory in the case of deals backed by foreign governments or involving critical technology. If members of the committee see potential issues, they can call for a national security investigation to determine if there are any risks to the U.S. If so, CFIUS can negotiate with the parties to the proposed deal to mitigate problems. If its concerns aren’t resolved, it can recommend that the president intervene. CFIUS concerns are often enough to undo a deal, because companies will walk away rather than go to the president and risk being branded a national security threat. Only the president has authority to stop a deal, something that has happened only five times since 1990. Two of those came during Barack Obama’s eight-year presidency, two more during Trump’s first two years as president.

3. How active has CFIUS been under Trump?

In Trump’s first two years, CFIUS opened 331 investigations, according tothe Treasury Department, more than double the 145 investigations in the final two years of Obama‘s presidency.

4. Which deals have been disrupted?

The biggest by far under Trump was Broadcom Ltd.’s proposed $117 billion takeoverof Qualcomm Inc., which would have been the biggest deal in the history of technology. CFIUS found that the deal could curtail U.S. investments in chip and wireless technologies, handing leadership to Huawei Technologies Co., the relatively opaque Chinese company that’s developing next-generation wireless systems. Others deals disrupted by CFIUS included the planned acquisition of MoneyGram International Inc. by Ant Financial, the Chinese financial-services giant controlled by billionaire Jack Ma, and the proposed sale of Lattice Semiconductor Corp. to Canyon Bridge Capital Partners LLC, a private-equity firm backed by a Chinese state-owned asset manager. A more recent example: In 2019, CFIUS reached an agreement requiring the Chinese company Beijing Kunlun Tech Co. to unwind its purchase of Grindr, the gay-dating app, and to refrain from accessing information about Grindr’s users.

5. What new powers does CFIUS have?

Under a law passed by Congress in 2018 and new rules that took effect Feb. on 13, the committee’s oversight was broadened to include minority investments by foreigners in “critical technology” or “critical infrastructure,” in real estate, in businesses that maintain or collect personal data, and in joint ventures where technology companies contribute intellectual property. That means more cross-border transactions will now be subject to reviews, exposing a greater number of deals to the risk of rejection by the U.S. government. IBM and other large U.S. technology companies lobbied against expanding CFIUS’s purview this way. Tech firms feared that the law could cover a broad cross-section of their industry, from computer hardware sales and service to software licensing and trademarks.

6. Why does CFIUS exist?

President Gerald Ford created the committee in 1975, at a time when U.S. policy makers were fretting over investments in U.S. Treasuries, stocks and bonds by members of the Organization of the Petroleum Exporting Countries, or OPEC. It gained new power in 1988, when Congress, responding to worries about Japanese investment in the U.S., gave the president the power to stop a foreign deal that “threatens to impair the national security.” Since 2007, CFIUS has operated under an added level of scrutiny. That’s because Congress demanded some oversight after CFIUS cleared a purchase that would have put a state-owned Dubai company, DP World, in charge of operations at six major U.S. ports, a prospect that raised security concerns.

7. How can I follow the committee’s work?

Good luck. The panel’s investigations are effectively a black box. It never comments on individual reviews and relies on classified information to decide whether to oppose or clear a deal.

The Reference Shelf

  • The U.S. Government Accountability Office report on CFIUS.
  • Why tech firms opposedbroadening the committee’s scope.
  • More on CFIUS’s role in killing the Broadcom-Qualcomm deal.
  • A 2020 report on CFIUS by the Congressional Research Service.
  • Secretive it might be, but even CFIUS has a web page.

--With assistance from Naoreen Chowdhury.

To contact the reporters on this story:
David McLaughlin in Washington at dmclaughlin9@bloomberg.net;
Saleha Mohsin in Washington at smohsin2@bloomberg.net;
Jacob Rund in Arlington at jrund2@bloomberg.net

To contact the editors responsible for this story:
Sara Forden at sforden@bloomberg.net

Laurence Arnold

© 2020 Bloomberg L.P. All rights reserved. Used with permission.

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