Treasury Guidance Limits Investor Options, Ex-CFIUS Lawyer Says

A US Treasury panel that reviews transactions for security risks has new guidance that makes it harder for investors to quickly finance deals, an ex-department attorney said.

The guidance removes the ability for investors to infuse equity into a deal before the Committee on Foreign Investment in the US, or CFIUS, completes its review, said Aimen Mir, a partner at Freshfields Bruckhaus Deringer.

“For transactions where that’s a real issue in terms of an immediate need for money, there will be an incentive to look for other investors or other forms of financing,” Mir said in an interview.

The guidance, released through an update of the frequently asked questions section of the CFIUS website, adds considerations for foreign investors at a time when China is trying to boost investment in the US.

“The guidance published by Treasury is an attempt to ensure that transaction parties are aware of their filing requirements,” the department said in a statement, “and CFIUS has the opportunity to review certain foreign investments into US businesses before they are completed in order to protect US national security.”

Previously, lawyers advised parties making a minority investment to go ahead and complete the equity portion of a transaction before the CFIUS review was finished as long as they delayed granting governance rights.

CFIUS’s new guidance is that the date on which equity is transferred will be counted as the deal’s completion date, meaning they must wait for the complete review.

The CFIUS review process can take anywhere from around two months for a simple filing to a year for complex deals, said Mir, who joined Freshfields as a partner in 2019 after eight years in leadership roles in CFIUS and Treasury.

The time spent waiting for the CFIUS process is often a bigger consideration than the cost of the review, especially for smaller deals, Mir said. For example, on a deal of $1 million, it may not make sense to retain counsel and proceed with the CFIUS process.

“Most of the transactions we see are of a sufficient size where the cost of going through the process is probably not going to impact whether or not the parties proceed with the deal,” he said.

Treasury Role

Mir most recently acted as deputy assistant secretary for investment security at the department, and he was previously CFIUS staff chair.

His first task as a public sector official was to write the regulations and coordinate the process to internally approve and implement the Foreign Investment and National Security Act, he said.

The statute followed the Dubai Ports World controversy in 2006, when the state-owned company announced its takeover of P&O, a British logistics company responsible for managing terminal operations at six American ports.

The proposed deal was met with objections, with Americans worried about surrendering control of US ports to a United Arab Emirates-based company.

“That happened to be a hot issue when I was looking to the government,” Mir said. “The Treasury Department was looking to have somebody come in help write the regulations.”

Top of mind today are countries of concern, including China and Russia. Transactions from those countries will be subject to greater scrutiny, and the scope their investors have to make investments is narrower, Mir said.

That can include third-party ties with those countries, such as an investor with business ties to China who is not based in China.

“Just because a company has operations in China, which I think any global company would be expected to have, that’s not a disqualification,” Mir said.

“The more sensitive the technology of the target, the more the government is going to think about whether or not that investor has ties in China,” he said.