Committee on Foreign Investment in the United States

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The Committee on Foreign Investment in the United States ( CFIUS ) is an interagency committee of the United States government that controls foreign investment in the United States . It examines the national security impact of foreign investment in American companies. The committee is chaired by the US Secretary of the Treasury and consists of nine representatives from various departments and departments. The legal requirements for CFIUS can be found in Section 721 of the Defense Production Act of 1950.

background

The USA basically pursues an open investment policy. They believe that private engagement by foreign investors is also crucial to the growth of the US economy and that the US will lose its competitive position if foreign investors are prevented or deterred from investing in the US. Foreign investors therefore play an important role in the US economy: (Figures below for calendar year 2007)

  • US investments abroad: approx. $ 17.64 trillion
  • foreign investment in the USA: approx. $ 20.08 trillion
  • Share of foreign investments in US gross domestic product: approx. 25%
  • Foreign research and development investments in the USA: approx. $ 13 billion
  • foreign infrastructure investments in the USA: approx. $ 109 billion
  • U.S. Foreign Investment Tax Revenue: $ 20 billion (5 - 6 percent of all corporate income taxes)
  • Number of US citizens employed by foreign subsidiaries: approx. 5 million

Development of the CFIUS

year Legal instrument Explanations
1975 Executive Order 11858 Establishment of the CFIUS as an inter-ministerial control committee for reporting on foreign direct investments
1988 Exon Florio determination Section 721 is added to the Defense Production Act 1950 and empowers the President to review foreign direct investment from a national security perspective
1988 Executive Order 12661 the President delegates the duties assigned to him by Section 721 to CFIUS
1992 Section 837 (a) of the National Defense Authorization Act for Fiscal Year 1993 Tightening of the Exon Florio determination; Transactions whose purchaser is controlled by a foreign government or acting on behalf of a foreign government should also be checked.
2007 Foreign Investment and National Security Act (FINSA) Section 721 Defense Production Act 1950 is expanded and the President is given additional powers to review foreign investments
2008 Executive Order 13456 the president delegates the additional powers to the CFIUS
2008 Regulations Pertaining to Mergers, Acquisitions, and Takeovers by Foreign Persons Treasury Department Executive Order to Section 721 Defense Production Act 1950
2008 Guidance Concerning the National Security Review Conducted by the Committee on Foreign Investment in the United States Procedural instructions of the CFIUS u. a. with clarifications of terms, information requirements and regulations on fines

For security reasons, the US does not want to leave foreign investments exclusively to the free market. In 1975, as one of the aftermath of the Arab oil embargo , President Gerald Ford, through Executive Order 11858, ordered the establishment of the CFIUS as an inter-ministerial control committee. At that time, CFIUS was primarily responsible for monitoring the effects of foreign investments and reporting on them to the President.

In the 1980s, with increased Japanese investment in the US, calls for greater investment control were raised. The catalyst for the enactment of corresponding rules was the (failed) takeover of the American company Fairchild Semiconductor Corp. (Fairchild) by the Japanese company Fujitsu Ltd. (Fujitsu). In 1987 Fujitsu intended to take over 80% of Fairchild from its French owner Schlumberger SA. Fairchild was a leading US manufacturer of computer chips of high military importance. Resistance to the deal developed rapidly as defense officials became concerned that US industry could become dependent on Japan for semiconductor technology. When the Justice Department raised antitrust concerns and the US Secretary of Commerce also announced his opposition, Fujitsu abandoned its acquisition plan. At the time, critics complained that the president lacked sufficient authority to prevent such an (undesired) acquisition. This was remedied in 1988 with the Exon Florio determination. Section 721 of the Defense Production Act of 1950 was created with the amendment to the law, also known as the Exon Florio Amendment. The President has been formally tasked with examining certain FDI (i.e. business combinations or acquisitions with or through a foreign investor that could result in foreign control of domestic trade in the US) from a national security perspective. In the same year President Ronald Reagan delegated this task assigned to him by Section 721 to the CFIUS through Executive Order 12661 of 1988.

The Exon Florio determination was tightened in 1992, after the attempted takeover of LTV Missile Operations by the Carlyle Group and the French company Thomson . LTV was subject to American bankruptcy law ( Chapter 11 Bankruptcy Proceedings) since 1986 and was forced to sell its missile and aircraft division. The remaining bidders were Martin Marietta and Lockheed on the one hand and the Carlyle Group and Thomson on the other. Thomson planned to acquire the LTV missile business with Hughes Aircraft as a minority shareholder. Carlyle was to buy LTV's aircraft division with Northrop as a subordinate investor. LTV's creditors and the bankruptcy judge rejected the Lockheed / Marietta offer i. H. of $ 385 million in favor of the Thomson i. H. of $ 450 million. Since the French state owned 60% of Thomson's parent company, an Exon Florio application was made. Instead of an increase in supply, Martin Marietta and Lockheed began a lobbying campaign against Thomson's acquisition plans. During the Exon Florio exam, several congressional committees held high-profile hearings in which Martin Marietta and Lockheed and their experts portrayed the Thomson offer as a serious threat to national security. At the end of the investigation, there were reports that the CFIUS would recommend that the President prohibit the acquisition. In the face of an almost certain presidential rejection, Thomson withdrew his offer.

The change in CFIUS competencies in 1992 involved investments by state-controlled foreign companies. All acquisitions of US companies by state-controlled foreign companies that could endanger the national security of the US have since had to be examined by CFIUS. State-controlled foreign companies were also prohibited from acquiring certain contractors from the Department of Defense (DoD) or Department of Energy (DoE).

At the beginning of 2007 there was a discussion about a reorganization of the procedure for examining foreign investments in the USA. The debate was triggered by the takeover of Peninsular and Oriental Steam Navigation Co. by Dubai Ports World and the associated transfer of port management from six US ports to a state-controlled company in the UAE in 2006. Dubai Ports World is owned by the holding company Company Dubai World , under the control of Sheikh Muhammad bin Raschid Al Maktum , Prime Minister of the United Arab Emirates . The finance committees of the Senate and the House of Representatives presented significantly different bills to reform the Exon Florio provision and CFIUS. In addition to the length of the procedure and the notification requirements, the reporting obligation and the scope of the report to the Congress, a case classification, the term "critical infrastructure" and any authorization by the Congress to initiate proceedings were also controversial.

The result of the discussions was the “Foreign Investment and National Security Act of 2007” (FINSA), which revised Section 721 of the Defense Production Act and reformed the structure, role, work process and area of ​​responsibility of the CFIUS.

In January 2008, President Bush transferred the powers conferred on him by FINSA to the CFIUS. Through Executive Order 13456 he delegated large parts of the CFIUS-relevant cooperation between the President and the Congress to the Minister of Finance as chairman of the CFIUS.

Based on the FINSA amendment, the Department of Treasury issued a new implementing regulation for Section 721 DPA (Regulations Pertaining to Mergers, Acquisitions, and Takeovers by Foreign Persons). It came into force on March 21, 2008. The core elements of the new implementing regulation are

  • Clarification of the term "corporate control"
  • Definition of the information obligations of the applicants, which are more extensive than in the past
  • Encouragement of preliminary consultations, definition of a response time for additional requests for information from the CFIUS
  • Introduction of a fine of up to $ 250,000 US for willful or grossly negligent misrepresentation or omissions in the display of the transaction

In accordance with FINSA specifications, the CFIUS also published procedural instructions on December 1, 2008 (Guidance Concerning the National Security Review Conducted by the Committee on Foreign Investment in the United States). However, they lack legal force. In addition to the actual information on the procedure, this guidance also contains explanations on the interpretation of the term “national security” (threat and hazard analysis) as well as the content and scope of any risk mitigation agreements.

structure

CFIUS members are the representatives of six ministries:

as well as the representatives of six offices from the White House area:

Representatives of the intelligence services take part in an advisory capacity. The CFIUS is chaired by the Minister of Finance. If it deems it necessary, it can invite representatives from other departments and authorities to attend the meetings.

Procedure

The Exon Florio determination provides for a multi-stage test procedure and allows a procedure duration of up to 90 days (30 + 45 + 15). The procedure is secret. Only Congress is informed by the Treasury Secretary. After the start of a procedure (at the request of a company involved in the transaction or ex officio), a 30-day preliminary examination phase begins. If during this review the CFIUS comes to the conclusion that

  • the transaction threatens to compromise US national security,
  • the lead authority recommends an investigation and the CFIUS agrees,
  • the transaction would lead to control by a foreign government, or
  • the transaction would result in control of a critical area of ​​infrastructure, which * could compromise US national security, and this threat has not yet been mitigated,

CFIUS then conducts an extensive investigation into the transaction within 45 days. The transaction will only be presented to the President for a final assessment under special conditions.

The circumstances are described in Executive Order 13456. A submission must be made if

  • the committee comes to the conclusion that the transaction should be suspended or prohibited, or
  • the committee is unable to make a decision to recommend to the President to suspend or prohibit the transaction.

(see Section 6 c of Executive Order 11858).

The President has another 15 days to decide whether to prohibit the transaction. The parties usually do not allow a decision by the US President that is not justiciable to come down to it. In such cases, the application is regularly withdrawn.

In order to prevent bans, CFIUS tries to resolve issues that arise during proceedings together with the companies involved. In this way, CFIUS should take into account the overarching goal of enabling investment and thus creating jobs, income and taxes. Therefore, before issuing a negative recommendation, the CFIUS must always consider how US security concerns could be addressed in a more appropriate manner than through a ban, for example through the conclusion of security agreements.

With regard to the complexity of corporate takeovers, it is also crucial for the success of an Exon Florio procedure that the companies concerned contact CFIUS before the formal procedure, prepare documents and clarify for themselves what security implications their planned business could have pending approval or disapproval by Congress.

The Exon Florio determination is used by the CFIUS on a case-by-case basis. An example of this is the approval dated November 18, 2007 for the merger of Lucent Technologies Inc. with Alcatel . The transaction was approved after the companies committed to implement a National Security Agreement and a Special Security Agreement within a specified period. If the companies had not complied with the obligation, a readmission agreement negotiated exclusively for this case would have taken effect, which breaks the principle of final legal force of Exon Florio decisions. The background to this was that President Bush on the one hand did not want to block the proposed merger, but on the other hand the companies could no longer conclude the above-mentioned agreements before the end of the 90 days of the proceedings.

Known cases

  • In 2005, Lenovo , China's largest computer manufacturer, acquired IBM's PC and laptop division . The takeover has been approved.
  • In 2005 the state-run China National Offshore Oil Corporation (CNOOC) tried to acquire the oil company Unocal . After loud protests in the US Congress and the press, CNOOC abandoned the project.
  • In 2006, the state-owned Dubai Ports World acquired P&O , a company that operates numerous ports in the USA. CFIUS voted in favor of the transaction and President Bush approved it. A controversial debate broke out in which Congress threatened to legislate against the takeover. After attempts to mediate did not work, DPW bowed to public pressure and sold P&O to an American investor.
  • In 2016 the FAZ reported that the CFIUS had threatened the Philips group with import restrictions and thereby prevented it from selling its Lumileds division to China.
  • On July 14, 2016, Infineon announced its intention to purchase Wolfspeed, a subsidiary of Cree Inc. , for $ 850 million. This should strengthen the market presence in the area of gallium nitride on silicon carbide (GaN on SiC). Shortly before implementation, however, the takeover was classified and thwarted by the CFIUS of the new US administration under President Trump as a risk to national security.
  • In September 2017, following the recommendation of the CFIUS, Donald Trump prohibited the takeover of Lattice Semiconductor Corporation by a group of buyers controlled by the Chinese state because of the threat to national security .
  • In 2018, CFIUS prohibited the takeover of the financial company MoneyGram by the Chinese Ant Financial Services Group (operator of Alipay ).

statistics

Since 1992 CFIUS has approx. 1,850 transactions (as of 2007) viewed and one of them blocked. Investigations were carried out in 32 cases, seven of them in 2006. 24 of the aforementioned investigations involved an investment by a company controlled or controlled by a foreign government.

CFIUS Notifications and Investigations, 1988-2007

year Registrations Investigations Applications withdrawn Decisions by the president
1988 14th 1 0 1
1989 204 5 2 3
1990 295 6th 2 4th
1991 152 1 0 1
1992 106 2 1 1
1993 82 0 0 0
1994 69 0 0 0
1995 81 0 0 0
1996 55 0 0 0
1997 62 0 0 0
1998 65 2 2 0
1999 79 0 0 0
2000 72 1 0 1
2001 55 1 1 0
2002 43 0 0 0
2003 41 2 1 1
2004 53 2 2 0
2005 65 2 2 0
2006 111 7th 19th 2
2007 138 6th 15th 0
Total 1,841 37 47 14th

The number of notifications and reviews has (again) increased significantly in recent years. The proportion of withdrawn applications has also increased significantly. The total value of transactions verified in 2006 was $ 189 billion. The transactions take place in a wide variety of industrial sectors, including real estate trading, leasing and the automotive industry. Almost half of all notifications between 2005 and 2007 relate to the manufacturing industry, and more than a third to the information sector.

The foreign companies involved in the period 2006 to 2007 come from 57 different countries. Companies from five countries dominated (in descending order): the United Kingdom, Canada, Japan, Germany and France.

debate

US investment control decision-making is based on national security and economic development criteria. It is difficult to give these and their relationship to one another a current shape. The turbulence experienced at CFIUS and the Exon Florio determination is an expression of the difficulty. There is no lack of understanding in the USA that development and security should not be played off against each other, but rather behave in a complementary manner. Rather, the challenge is practical events, with differences in time horizons, addressees and instruments. This led to friction and contradictions between investors, administration and Congress. However, since neither the importance of development nor of security was questioned or re-weighted, the recorded tension reduction should not be assessed as a reorientation of the USA in the area of ​​investment control.

The administration's work on implementing the “FINSA legislation” appears to have been completed for the time being. The main changes since the discussions began in 2005 are of a formal nature. When reviewing foreign investments, CFIUS will still have to fall back on indefinite legal terms ("National Security"; "Critical Infrastructure"), the interpretation of which can be significantly influenced by current political events. The more formalization and documentation of the decision-making process should help to ensure the independence of the CFIUS in making decisions about "sensitive investments" and defending these decisions and the like. a. to strengthen against the Congress.

The fear that the CFIUS discussion has led to a loss of image for the US market for foreign investors has so far not been fulfilled. Likewise, it is not possible to establish a link between the US discussion about investment control and corresponding measures in China or considerations in India or Mexico . In order to maintain favorable global conditions for foreign investment and investment freedom, the US Treasury Department is ready to delve into the subject bilaterally and multilaterally, for example in the OECD Directorate for Finance and Corporate Affairs.

See also

literature

Web links

Individual evidence

  1. ↑ Alias: §2170 of Title VII (General Provisions) of the chapter “Act Jan. 27, 1942, Ch. 20, 56 Stat. 19 ”in the section“ Displaced Persons, Refugees and Orphans ”of the Appendix to US Code Title 50 (Title 50, Appendix - War and National Defense), short citation: 50 USC App. 2170.
  2. ↑ Executive Order 11858 of May 7, 1975, appears as 40 FR 20263, 3 CFR, 1971-1975 Comp., P. 990. For the various legal instruments of US American administrative law, see Keith M. Werhan, Principles of Administrative Law, Thomson West, 2007.
  3. ^ Part of the 1988 Omnibus Trade and Competitiveness Act, Pub. L. No. 100-418, § 5021 102 Stat. 1425-1426 (codified as 50 USC 2170).
  4. ↑ Executive Order 12661 of December 27, 1988, available at 54 FR 779, 3 CFR, 1988 Comp., P. 618.
  5. ↑ Public Law 110-49, signed by President George W. Bush on July 26, 2007; in force since October 26, 2007.
  6. ↑ Administrative instruction from President George W. Bush on President Ford's Executive Order 11858 from 1975.
  7. ↑ 31 CFR Part 800.
  8. ↑ Press release: Infineon plans to acquire Wolfspeed for $ 850 million on July 14, 2016
  9. ↑ Wolfspeed takeover by Infineon failed , heise online, February 17, 2017, accessed April 9, 2017
  10. ↑ Infineon: Takeover ban in the USA ( Memento of the original from April 9, 2017 in the Internet Archive ) Info: The archive link was inserted automatically and has not yet been checked. Please check the original and archive link according to the instructions and then remove this notice. , boerse.ARD.de, February 9, 2017, accessed April 9, 2017 @1@ 2Template: Webachiv / IABot / boerse.ard.de
  11. ↑ https://www.heise.de/newsticker/meldung/Datenschutz-Alibaba-Chef-darf-Moneygram-nicht-uebernehmen-3930850.html
  12. ^ Edward M Graham, David M. Marchick: US National Security and Foreign Direct Investment May 2006, ISBN 978-0-88132-391-7 , p. 57.
  13. ^ Committee on Foreign Investment in the United States, Annual Report to Congress, December 2008, p. 4.
  14. ^ Committee on Foreign Investment in the United States, Annual Report to Congress, December 2008, p. 27.