DealLawyers.com Blog

According to a recent Cooley memo, CFIUS is increasingly relying on a “one size fits all” approach to national security agreements entered into in order to mitigate potential issues identified during its transaction review process.  This approach to the negotiation process creates significant burdens for smaller companies and, when coupled with CFIUS’s hard line approach to enforcement of these agreements, may be disincentivizing parties from making voluntary filings. This excerpt explains:

From a cost-benefit perspective, obtaining CFIUS clearance for a transaction will always constitute a valuable – if often not necessary – benefit to certain parties. Anecdotally speaking, however, the cost of pursuing that benefit appears to be increasing and uncertain. From the perspective of the transacting parties, CFIUS “costs” manifest not only in the expense of undergoing a formal CFIUS review and potential investigation, but also in the operational and financial burdens of negotiating and complying with NSA terms. As CFIUS appears to be increasingly turning to NSAs to manage perceived national security risks, and relying increasingly on standard NSA templates as a basis for negotiations, the costs of submitting a voluntary CFIUS filing become correspondingly high and uncertain.

This trend – combined with FIRRMA’s strict liability standard and CFIUS’s pivot to a more aggressive enforcement posture – can create significant disincentives for transaction parties to submit voluntary CFIUS filings, ample uncertainty to justify foregoing filings in the first place, and a decision to assume the risk of a post-closing CFIUS inquiry.

The memo says that the emerging NSA negotiation and enforcement dynamics and the evolving cost-benefit assessments regarding voluntary filings may be contributing factors to the 23% decline in CFIUS filings during 2023.

– John Jenkins