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CFIUS and Latin American Companies

Latin America Advisor

US President George W. Bush is expected to sign into law a bill passed by Congress earlier this month enhancing government scrutiny of proposed sales to foreign buyers of critical infrastructure businesses deemed to have possible national security implications. Does the legislation strike a proper balance between protecting national security and encouraging foreign investment? What does the legislation mean for Latin American companies investing in the US?

Mélida Hodgson, Counsel in the International Department at Miller & Chevalier: The Foreign Investment and National Security Act of 2007 does strike a proper balance between protecting national security and encouraging foreign investment, at least as compared to the 2006 legislation to reform the Committee on Foreign Investment in the United States (CFIUS). The business community came out strongly in favor of the 2007 version, which they, along with the administration, had a role in crafting. In essence, there are some transactions—those involving foreign government-controlled entities, and critical infrastructure and energy assets—that will likely receive greater scrutiny than in past years. (And, arguably, foreign government-controlled transactions should have been receiving greater scrutiny under previously existing legislation.) The legislation, for the most part, imposes a number of burdensome reporting and certification requirements on agencies involved in the process. Some of these existed before the enhancement, but were not complied with. In addition, more prominent roles for the director of national intelligence and the Department of Homeland Security will likely mean that transactions involving infrastructure and any issues that could implicate terrorism fears will be subject to more intense scrutiny. What this means for Latin American companies is essentially the same as for other companies—for the near future, companies should file with CFIUS unless they are certain that their transactions in no way implicate US national security (and if they are a government-controlled entity, they must file). Last year, a private Venezuelan company bought a US company that made electoral ballot machines, and did not initially file for a review of the transaction. It received a phone call from CFIUS and subsequently filed for review. More relevant for Latin American companies may be the legislation's requirement that CFIUS consider a country's cooperation in counterterrorism efforts. This creates room for Western Hemisphere politics to enter the process.

Ron Oleynik, Partner at Holland & Knight LLP: This legislation arises from the political debacle that resulted from the decision by CFIUS to allow Dubai Ports World, a firm owned by the United Arab Emirates, to acquire the operating rights to six US ports. Congress has spent the last year and a half struggling with the proper level of government control of foreign investment. The new legislation codifies existing practice and does relatively little damage to the open foreign investment environment of the United States. A review of the bill confirms that it maintains a balance between national security and promotion of foreign investment. The real change has come over the last year and a half through CFIUS practice, not through this legislation. Compared with proposals introduced immediately after the DP World fiasco, this legislation is fair and balanced. The law preserves the 30-day initial review and the 45-day investigation periods. However, it gives CFIUS the right to re-examine an approved transaction where the committee finds that the parties submitted false or misleading information, or omitted material facts. And, in an attempt to provide greater oversight, Congress demanded to be notified of each transaction, but only after CFIUS has concluded its review. The key issue is the strategic nature of the investment target. Latin American investors need to be conscious of the fact that, post 9/11 and DP World, the US government has raised the level of scrutiny of foreign investment in the United States.

Simeon Kriesberg, Partner at Mayer, Brown, Rowe & Maw LLP: The legislation codifies developments that have been taking place administratively over the last few years, particularly in the wake of the Dubai Ports controversy. Certainly, the more expansive understanding of national security reflected in the legislation has informed CFIUS reviews since 9/11. Moreover, CFIUS has already incorporated in the review process certain elements of the legislation, such as the threat assessment by the director of national intelligence, the more comprehensive reporting to Congress, and the more active involvement of political appointees from the CFIUS agencies. Some of the elements of the legislation are new, such as the designation of a lead agency for each review, and it will be interesting to see how that will affect the dynamic and outcome of future CFIUS reviews. I think the new law will result in more frequent extensions of the review process into the investigation stage, and it will reinforce CFIUS' increasing scrutiny of acquisitions outside of the defense sector. Latin American investors looking to make acquisitions in US energy, infrastructure, telecommunications, or technology sectors need to view the Exon-Florio process as a potential regulatory hurdle, just as antitrust reviews and industry-specific regulatory reviews often are. The consideration of whether to make an Exon-Florio filing and how to navigate the CFIUS process successfully now has to be part of the strategic planning for Latin American investments in broad sectors of the US economy.

Republished with permission from the Inter-American Dialogue's daily Latin America Advisor newsletter. 

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