Read the original article: CFIUS’s Excepted Foreign States Provision: U.S. Economic Security Policy Gets Longer Arms
On Feb. 13, new U.S. Treasury Department regulations came into effect defining how the Committee on Foreign Investment in the United States (CFIUS) reviews foreign investment transactions. The regulations, which implemented the Foreign Investment Risk Review Modernization Act of 2018 (FIRRMA), include an “excepted foreign states” (EFS) provision that gives the United States new leverage in its efforts to compel other nations to adopt investment review regimes that it finds acceptable. Allies like Canada, which has had robust national security review authorities in place since 2009, will also wonder whether that leverage may be used to compel broader economic and national security policy changes, and to control the outcomes of specific transactions.
You can see Lawfare coverage on the other changes FIRRMA made to CFIUS’s jurisdiction here and here.
The EFS provision offers a new lever through which the United States can incentivize (or compel) consistent standards on foreign investment reviews across like-minded nations. Investments originating from countries on the EFS list are excluded from the definition of covered investments—deals that would not result in control by a foreign person of a U.S. business but over which CFIUS may nevertheless exercise jurisdiction. EFS designation acts as a preemptive stamp of approval, one that will probably privilege investors from designated countries, who will face a lightened regulatory burden and smaller likelihood of CFIUS intervention in their deals.
Included on this list, for now, are Canada, the United Kingdom and Australia. As of Feb. 13, 2022, however, EFS designation will turn on whether CFIUS has determined that a country has “established and is effectively utilizing a robust process to analyze foreign investments for national security risks and to facilitate coordination with the United States on matters relating to investment security.” The factors CFIUS suggests that it may take into account in making this determination reflect an expectation that partner countries have sufficient legal authorities in place. Yet the nonbinding nature of the guidance, along with the fact that the committee may take into account “such other factors as [it] may deem to be appropriate” suggests that there will be a good deal of discretion in the EFS designation process.
Since 2009, Canada has had a foreign investment review regime that enables the government to block, unwind or mitigate investments deemed to be injurious to national security, under the Investment Canada Act (ICA). The Canadian government’s jurisdiction in this respect is sweeping. For example, while CFIUS was granted the ability to intervene in noncontrolling investment transactions only recently by dint of the changes brought about by FIRRMA, the Canadian government has had that authority since national security provisions were first added to the ICA in 2009.
The Canadian government has not been shy about exercising its national security authorities under the ICA. Between 2010 and 2019, it blocked four transactions, ordered divestiture in seven more and imposed mitigating conditions on an additional four investments. By way of comparison, in the same period, five presidential decisions were issued pursuant to CFIUS’s authorities.
The United States and its […]
Read the original article: CFIUS’s Excepted Foreign States Provision: U.S. Economic Security Policy Gets Longer Arms