This Wilson Sonsini memo reviews CFIUS’s activities during the first quarter of 2020. The memo says that the first few months of the year held few surprises – new regs were rolled out, the pace of filings remaind steady, and enforcement activity largely focused on China-related deals. But this excerpt says that a number of other trends have surfaced as 2020 has progressed:
COVID-19. The world-changing pandemic has resulted in a CFIUS slowdown for two distinct reasons: (i) with investors exhibiting caution in uncertain times, there are fewer transactions; and (ii) CFIUS staff, while continuing to work, have reduced the pace at which they accept cases for review, which can have significant implications for transaction timing. There are, however, reasons to think the pre-COVID-19 pace of CFIUS filings will eventually resume or even increase.
Enforcement. Perhaps related to the current slowdown in cases under review, CFIUS enforcement staff have been contacting a number of transaction parties that did not make CFIUS filings for transactions that closed over the last few years. CFIUS reaches out in such cases to assess whether it has jurisdiction over past transactions and whether there is sufficient national security concern to prompt CFIUS intervention (which ultimately can lead to forced divestment, conditions on the governance or operation of the U.S. company, and/or monetary penalties). Anecdotal evidence suggests the frequency of such CFIUS outreach is increasing.
Jurisdiction. Over the last several months, CFIUS staff also appears to be more frequently determining that filed transactions are outside CFIUS’s jurisdiction. With new, complex jurisdictional rules, this growth trend is not surprising, as CFIUS presumably wants to conserve resources and convey to the public its interpretations of the new jurisdictional rules. However, CFIUS’s general opacity regarding the reasons for its jurisdictional dismissals seemingly undermines the goal of clarifying the jurisdictional rules.
In discussing the apparent uptick in enforcement, the memo says that it is unclear whether CFIUS will focus exclusively on transactions in which the investors have ties to China or Russia, which has been its past practice, or whether – in light of the expanded mandatory filing requirements – it will broaden its focus to review cases involving investors with ties to other countries.
– John Jenkins