Overcoming CFIUS Jitters: A Practical Guide for Understanding the Committee on Foreign Investment in the United States

Margaret L. Merrill

Abstract

The U.S. has long been an attractive place for foreign investment. Its reputable government and professional enforcement agencies, strong tradition of protecting private property and vibrant middle-class consumer base makes it a prudent investment choice for many foreign investment entities – both private and public. While the U.S. has long championed a free market ethos, it is not devoid of protectionist bias. Starting in 1988, the Committee on Foreign Investment in the United States (CFIUS) has been charged with monitoring foreign direct investment (FDI) and when necessary recommending that the President block or prohibit FDI transactions that may threaten U.S. national security. While the Committee has traditionally taken a rather laissez-faire attitude towards its gatekeeping role, the recently enacted Foreign Investment and National Security Act (FINSA) has ramped up the Committee’s mandate and increased Congressional oversight. Some foreign investors may perceive this stricter scrutiny as greatly increasing the risk and thus cost involved with undertaking FDI in the U.S. This is likely due to uncertainty about how CFIUS would operate post FINSA and the fact that the review process continues to be vulnerable to political manipulation by private interests. Nevertheless, the CFIUS process should continue to be surmountable for foreign investors with a sophisticated understanding of how the Committee operates. By providing a comprehensive overview of the evolution of the CFIUS mandate and applying the lessons of public choice theory, this article provides critical guidance for those contemplating FDI transactions in the U.S. and highlights strategies for maneuvering through the process with relative ease. It is particularly important that parties to a FDI transaction are proactive in engaging and gaining the support of relevant CFIUS members as well as the public at large.