Committee on Foreign Investment in the United States

The Foreign Investment and National Security Act of 2007, Pub. L. 110-49, which amends section 721 of the Defense Production Act of 1950 (50 USC §2170) authorizes the President to review merger, acquisitions and takeovers by or with any foreign person which could result in foreign control of any person engaged in interstate commerce in the United States to determine the effects of such transaction on the national security of the United States.

FINSA codifies the structure, role, process and responsibilities of the Committee on Foreign Investment in the United States. Previously, CFIUS had existed only by executive order. FINSA establishes CFIUS in statute.

FINSA provides for a 30 day review period of a “covered transaction” to determine the effect of the transaction on national security.

The system is based on voluntary notices to CFIUS by parties to a transaction, although CFIUS can review a transaction regardless of whether it has been notified.

The term ‘control’ has the meaning given to such term in regulations which the Committee shall prescribe.

The term ‘covered transaction’ means any merger, acquisition, or takeover that is proposed or pending after August 23, 1988, by or with any foreign person which could result in foreign control of any person engaged in interstate commerce in the United States.

The term ‘foreign government-controlled transaction’ means any covered transaction that could result in the control of any person engaged in interstate commerce in the United States by a foreign government or an entity controlled by or acting on behalf of a foreign government.

The Department of the Treasury issued proposed regulations for the CFIUS on April 21, 2008. You can also get the comments on the proposed CFIUS regulations.

The key part of the proposed regulations is section 800.302(c) (on page 54) stating that a “transaction that results in a foreign person holding ten percent or less of the outstanding voting interests in a U.S. business (regardless of the dollar value of the interests so acquired), but only if the transaction is solely for the purpose of investment” is not a covered transaction.

Section 800.203 helps to clarify “control.” Even though an investor has some investor protection rights associated with their investment, that does not necessarily create “control” under section 800.203(c). Having the power to limit insider deals and selling the company’s assets do not in themselves confer control of the entity.

Section 800.224 expands the term transaction to include the acquisition of an ownership interest in an entity, the formation of a joint venture and certian types of long term leases.

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