CFIUS/Foreign Investment/Enforcement

With an eye towards preserving and expanding the gatekeeper role in national security, the Committee on Foreign Investment in the United States (CFIUS) has issued proposed rules to strengthen enforcement.

On April 11, 2024, the U.S. Department of the Treasury, as Chair of CFIUS, announced proposed rules and accepted comment until May 15, 2024, 30 days following publication in the Federal Register on April 15, 2024. The proposed rules strengthen CFIUS regulations and enforcement tools in the following ways.

Implications for CFIUS Reporting and Review

The Executive Branch, through the National Science and Technology Council and the National Security Council, committed in 2020 to identify that are potentially significant to U.S. national security. The 2024 update was released on February 12, 2024. Updated every two years, the CET list is the product of extensive interagency deliberations, and “ …builds upon earlier lists and may inform government-wide and agency-specific efforts supporting U.S. technological competitiveness and national security.”

In April 2023, we published an overview of the BE-12, a benchmark survey conducted every five years by the Department of Commerce’s Bureau of Economic Analysis (“BEA”) to gather information about foreign direct investment in the United States. BEA also conducts surveys to gather information about United States direct investment abroad. The purpose of this post is to discuss one of those surveys, the BE-11, which has just gone live on BEA’s website and whose due date is approaching on May 31, 2024.

On August 9, 2023, President Biden signed Executive Order 14105 addressing investments by U.S. persons in certain identified national security technologies in “Countries of Concern,” initially naming The People’s Republic of China, The Special Administrative Region of Hong Kong and The Special Administrative Region of Macau. The Order, long anticipated, represents a further tightening of capital flows between the U.S. and China, following several years of increasing scrutiny on Chinese inbound investment into the U.S.

“Merger review is about to get thornier. While the FTC and DOJ have been tightening the merger review process incrementally over the course of the Biden administration, the newly proposed HSR rule changes represent a wholesale rethinking of how merger transactions are notified and filed. The new filing requirements, if implemented, would essentially trigger a significant antitrust investigation for every transaction valued above the HSR reporting threshold (currently $111.4 million) – without regard to substantive overlap or potential impact on competition. That, along with the expanded new disclosures aimed squarely at private equity firms and their investors, will make for frank conversations about the requirements and potentially will have a real chilling effect on transactions. Whether this is a wish list meant to be pared down, or something the agency will hold firm on remains to be seen.”

John Ingrassia, Antitrust, Washington, D.C.

On the heels of the historic proposed changes to the Hart‑Scott‑Rodino (“HSR”) merger review process, the U.S. Department of Justice Antitrust Division and the Federal Trade Commission released the 2023 Draft Merger Guidelines for public comment. The single set of guidelines will replace the former horizontal and vertical guidelines, becoming the principal resource for merger review and challenges. The DOJ and FTC will finalize the Draft Guidelines following the close of the 60‑day comment period on September 18, 2023. Together, the two sets of changes usher in a radically different climate for dealmaking in the U.S. and have the potential to grind transactions to a near halt just as M&A is beginning to regain steam.

On June 15, 2023, the Federal Trade Commission’s Bureau of Competition issued a statement on the relationship between voluntary interviews with the agency and contractual provisions that require or limit the disclosure of information. The Bureau explains that voluntary interviews are a key aspect of investigations because they “are essential to help [them] understand real-world dynamics and effects,” and “reduce unnecessary burdens on marketplace stakeholders and Bureau staff.” In the statement, the Bureau asserts that certain contractual restrictions impede investigations, and should be considered void.

On June 29, 2023, the Federal Trade Commission published a Notice of Proposed Rulemaking that would dramatically expand HSR reporting requirements. The historic changes fundamentally alter the HSR reporting landscape, shifting to more of a “white paper” approach, similar to that of ex‑U.S. jurisdictions like the EU. The change though brings new expansive reporting requirements to nearly sixfold the number of transactions seen in the EU (the EU took in about 400 ECMR filings last year, versus nearly 2,500 HSR filings at the FTC). The move would substantially increase the burden on reporting parties, and impact deal timing and certainty.

Private investment funds and fund managers are increasingly getting swept into the expanded jurisdiction of the Committee on Foreign Investment in the US, which now plays a prominent part in private fund transactions across the board.

Funds managed or operated outside the US need to manage CFIUS compliance regularly. This includes reviewing investment activities and

The SEC recently proposed to require investment managers to report short sale information on a monthly basis if such activity exceeds certain thresholds (described below), and to require broker dealers to begin to mark “buy to cover” trades under Regulation SHO in addition to marking trading activity as “long,” “short,” and “short exempt.”  The definition