Don’t let the Committee on Foreign Investment in the United States (“CFIUS”) be your 3:00 AM phone call after your sale of telecom or information technology assets to foreign investors has closed.
CFIUS “is an inter-agency committee authorized to review transactions that could result in control of a U.S. business by a foreign person … in order to determine the effect of such transactions on the national security of the United States.” (see U.S. Department of the Treasury, The Committee on Foreign Investment in the United States (CFIUS), Resource Center). Obtaining CFIUS’ blessing is voluntary, but CFIUS has the authority to review transactions on its own. The CFIUS may recommend to the President of the United States to involuntarily suspend or prohibit your transaction if your deal has a negative impact on national security 50 U.S.C. § 2170(d).
The concern over foreign investment in the U.S. is not new. For example, the International Investment Survey Act requires that foreign direct investment in the U.S. be reported to the Bureau of Economic Analysis 22 U.S.C. § 3101-08., and the Foreign Investment in Real Property Tax requires foreign persons to pay a tax when they dispose of US real estate (see irs.gov, FIRPTA Withholding). CFIUS tracks foreign involvement in mergers, acquisitons, takeovers, long term leases and joint ventures of critical infrastructure. Critical infrastructure is not defined by class or size of transaction, but by impact on national security (31 C.F.R. § 800.208).
James K. Jackson writes:
The broad sweep of industrial sectors in the economy that fall within the terms “critical infrastructure,” “homeland security,” and “key resources” reflects a fundamental change in the way some in Congress view national economic security. From this viewpoint, economic activities are a separately identifiable component of national security and, therefore, should be protected from foreign investment that transfers control to foreigners or shifts technological leadership abroad.” (see Foreign Investment, CFIUS, and Homeland Security: An Overview)
The Department of Homeland Security is tasked with identifying critical infrastructure industries relevant to CFIUS review, and that list currently includes telecommunications (see DHS Critical Infrastructure Sectors).
Clearly, voluntarily reporting and additional due diligence are considerations for transactions involving foreign investors.