Purchase of US assets may lead to CFIUS review

The Exon Florio Amendment of the Defense Production Act of 1950, which was further amended by the Foreign Investment National Security Act (FINSA), authorizes the US president to investigate the effect on US national security of “mergers, acquisitions, and takeovers … which could result in foreign control of persons engaged in interstate commerce in the United States”. The president may suspend or prohibit a transaction if he finds that: (1) there is credible evidence that the foreign acquiring party may take action that threatens to impair US national security; and (2) US law does not otherwise provide adequate protection against such action.

Thus, the two key issues in any review under Exon-Florio are (1) the sensitivity of the US assets being sold from a national security, law enforcement or public safety perspective; and (2) the risks associated with the foreign buyer acquiring control.

The authority to review transactions under Exon Florio has been delegated to the Committee on Foreign Investment in the United States (CFIUS), a 12-member interagency committee chaired by the US Department of Treasury and including the departments of commerce, defence, justice, state, energy and homeland security, as well as the assistant to the president for national security affairs, among others. CFIUS reviews are not required by law, but review and clearance of a transaction provides a safe harbour against future restrictions to the transaction.

Jeanne S Archibald is a partner at New York-based law firm Hogan & Hartson. The firm has 1,300 lawyers in 28 global offices.