Understanding CFIUS: Protecting U.S. National Security in Foreign Investments

Introduction

The Committee on Foreign Investment in the United States (CFIUS) is an interagency committee responsible for reviewing transactions that could result in foreign control of U.S. businesses, particularly where national security interests are at stake. Established in 1975 and strengthened by the Foreign Investment Risk Review Modernization Act (FIRRMA) of 2018, CFIUS has the authority to scrutinize mergers, acquisitions, joint ventures, and certain non-controlling investments involving foreign entities.

For companies engaged in cross-border transactions, understanding CFIUS regulations is essential. Failing to comply can result in delays, forced divestitures, or civil and criminal penalties. Proper preparation, including voluntary notification or mitigation planning, is crucial for smooth approval of foreign investment transactions.

Key Details About CFIUS

1. Scope of Review

CFIUS reviews cover transactions where a foreign person may gain B'control or certain rights' over a U.S. business. FIRRMA expanded the scope to include:

• Non-controlling investments in U.S. companies dealing with critical technologies, critical infrastructure, or sensitive personal data‍
• Real estate transactions near sensitive government or military facilities

By broadening its jurisdiction, CFIUS aims to protect U.S. national security without unnecessarily restricting foreign investment.

2. Notification Process

CFIUS filings can be voluntary or mandatory depending on the transaction type:

• Voluntary filings: The most common method; parties submit a Joint Voluntary Notice (JVN) to provide detailed information about the transaction, foreign investor, and U.S. business.
• Mandatory declarations: Certain non-controlling investments in critical technology companies now require a short-form declaration under FIRRMA.

Submitting a voluntary notice allows parties to receive clearance before completing the transaction, reducing the risk of post-transaction enforcement actions.

3. Investigation and Review Timeline

CFIUS conducts a structured review process:

• Initial Review (30 days): The committee evaluates whether the transaction poses national security risks.
• Full Investigation (45 additional days): If risks are identified, a more in-depth investigation occurs.
• Mitigation or Resolution: Parties may agree to mitigation measures such as B'firewalls, governance restrictions, or limits on foreign access' to sensitive information.

CFIUS may recommend that the President B'block or unwind a transaction' if risks cannot be adequately mitigated.

4. Factors Considered by CFIUS

CFIUS evaluates multiple factors when reviewing a transaction:

• Access to critical technologies that could have military or dual-use applications
• Control over sensitive personal data of U.S. citizens
• Impact on critical infrastructure or national defense systems
• Foreign government influence over the acquiring entity

Understanding these criteria helps companies proactively address potential risks and prepare a comprehensive filing.

5. Mitigation Agreements and Compliance

When national security risks are identified, CFIUS often negotiates mitigation agreements with the parties. Typical measures include:

• Limiting foreign investor access to sensitive technology
• Implementing governance restrictions, such as board observer limitations
• Requiring ongoing reporting to CFIUS

Compliance with mitigation agreements is mandatory. Failure to adhere can result in penalties, forced divestiture, or other enforcement actions.

Conclusion

CFIUS plays a critical role in safeguarding U.S. national security while allowing foreign investment in strategic sectors. Companies engaged in cross-border transactions must understand the scope of CFIUS, determine whether a voluntary or mandatory filing is required, and be prepared for investigations or mitigation measures.

Early planning, proper documentation, and transparent communication with CFIUS increase the likelihood of a smooth review process. By understanding the committee’s jurisdiction, review criteria, and mitigation strategies, businesses can navigate foreign investment transactions confidently while ensuring compliance with U.S. national security regulations.