Foreign investors in the United States are subject to heightened scrutiny and regulatory review processes. The recent political climate has only escalated the level of scrutiny surrounding cross-border M&A deals. There are many special regulatory considerations to keep in mind when pursuing a cross-border acquisition or strategic investment. These regulations can be particularly impactful on transactions in the telecommunications, cybersecurity, semiconductor, and infrastructure industries.

The Committee on Foreign Investment in the United States (CFIUS) is an inter-agency committee that reviews transactions involving U.S. businesses for potential national security risks. CFIUS consists of nine voting members and is chaired by the Department of Treasury. When CFIUS identifies national security concerns about a non-U.S. person or entity acquiring “control” of a U.S. business, it has the authority to refer the transaction to the president for a decision. It can also request modifications to a pending transaction in order to reduce the national security risks. For instance, it could request that a company divest certain sensitive assets prior to closing the transaction.

In 2018, the U.S. Department of Treasury adopted regulations to implement the Foreign Investment Risk Review Modernization Act of 2018 (FIRRMA). FIRRMA expands the scope of covered transactions that are required to undergo CFIUS review. FIRRMA implemented mandatory CFIUS filings requirements for transactions that involve a foreign person gaining “control” of material technical information or board governance rights in a U.S. business. Mandatory filings are also required when a foreign government exerts significant influence in the foreign person seeking to invest in or acquire a U.S. business.

A short-form declaration form can be filed with CFUIS at least 45 days prior to the closing of a transaction. Within 30 days of filing a short-form declaration form, CFIUS will issue a decision about whether to clear the transaction or whether to request a full-length notice. Alternatively, a company can initially submit a full-length notice. Within 45 days of filing a long-form notice, CFIUS will issue a decision.

Even in circumstances where a mandatory CFUIS filing is not needed, it may be advisable to make a voluntary filing with CFIUS. If there is a reasonable likelihood that the transaction may be subject to investigation by CFIUS, a company should proceed to file a full-length notice in order to avoid delays in the transaction timeline.

A number of transactions have failed CFIUS review in recent years, particularly those involving investments by Chinese companies. For example, Broadcom’s offer to acquire Qualcomm in 2018 was withdrawn after the U.S. government blocked it on national security grounds. More recently, CFIUS ordered ByteDance to divest its interests in the U.S. operations of TikTok as a result of data retention concerns. This order was ultimately not enforced.

Certain U.S. entities may be required to complete a BE-13 survey form. Promulgated by the U.S. Department of Commerce, Bureau of Economic Analysis, the BE-13 survey was designed to collect information about foreign direct investments. Specifically, it gathers information on the acquisition or establishment of U.S. business enterprises by foreign investors. It also collects information on expansions by existing U.S. affiliates of foreign companies.