In reaction to public protests surrounding recent high-profile
foreign acquisitions of American assets, Congress has added more
regulation, more publicity and more political risk to foreign
investment transactions in the United States.
The new law, the Foreign Investment and National Security Act of
2007, was signed by President Bush in July and goes into effect in
October. It expands the powers of a special U.S. government committee
to investigate and block foreign investments. The committee is called
the Committee on Foreign Investment in the United States or CFIUS.
"For twenty years CFIUS quietly, privately, and often informally,
reviewed a small percentage of foreign acquisitions of American
defense manufacturers and specialized tech companies," said George
Foote, a partner in the Washington, D.C. office of the international
law firm Bracewell & Giuliani. "The original CFIUS approach reflected
the Cold War view of national security. The new law is based on
post-September 11 concepts of security that are not tied so closely to
the identity of the home country of the acquiring company. That
difference can be a game changer in cross-border deals."
In 2006, CFIUS recommended approval of the acquisition of P&O, an
international company that manages American ports, by Dubai Ports
World, an Arab-controlled company. Because of the concerns about port
security after the September 11 attacks, the acquisition quickly
became a political hot potato.
The resulting outcry led Congress to add more formality and
publicity to once-informal processes at CFIUS. Congress drafted a bill
that requires certain reviews and makes full investigations more
likely.
"The scope of what is important to national security has been
dramatically expanded for purposes of a CFIUS review," said Foote.
"Now, foreign investment in many more companies will require CFIUS
filings and investigations will become more common. For example, any
power or pipeline company or even a company with a major stake in the
economy could be considered a national security asset that requires
domestic control, and a foreign bid to acquire it might be blocked by
the new CFIUS process."
Foote said, "CFIUS decisions will be more open and political.
CFIUS could become a political forum where many economic and political
interest groups will have a chance to weigh in on a wide range of
deals. The CFIUS process potentially is a weapon for almost any
American entity that is the target of a foreign acquirer. A demand for
CFIUS review might be deployed on behalf of a company, even a foreign
company, that is competing for an American target company."
Foreign investors have reacted unfavorably to the new law that
could lead to restrictions on what has traditionally been -- and
remains -- one of the most open economies in the world.
"The new law could raise the cost and lower the chance for
approval of foreign acquisitions and could discourage or defeat some
investments," said Foote. "It remains to be seen whether, in practice,
the national security benefits of the new law will outweigh the new
costs to corporations and the risk of reduced foreign investment in
America."
Bracewell & Giuliani LLP is a prominent international law firm.
With more than 400 lawyers in Texas, New York, Washington, DC,
Connecticut, Dubai, Kazakhstan and London, we serve clients
concentrated in the energy and financial services sectors worldwide.
In 2005, former New York City Mayor Rudolph W. Giuliani joined the
firm as a senior partner. His reputation for leadership and problem
solving is a unique asset for our clients, which include Fortune 500
companies, major financial institutions, leading private investment
funds, governmental entities and individuals. www.bgllp.com