The COVID-19 pandemic has created market conditions ripe for increased cross border investment as businesses scramble for capital and investors target distressed assets.  The Committee on Foreign Investment in the United States (CFIUS) is focused on the trend.  Senior Department of Defense officials have recently and repeatedly stressed the need for the active use of CFIUS reviews to protect against “adversarial capital coming into our markets for nefarious means” during the current economic crisis.  Against this backdrop, U.S. businesses and foreign investors must be mindful of the CFIUS implications of acquisitions and financing transactions (including the exercise of creditors’ rights with respect to distressed companies).  The attached memorandum explores these issues and available approaches to mitigating them.

Please click here to read the full alert memorandum.

On April 28, 2020, the U.S. Department of Commerce, Bureau of Industry and Security (BIS) published two final rules and one proposed rule[1] that will result in tighter restrictions on exports, reexports, and in-country transfers of dual-use items subject to the Export Administration Regulations (EAR) and controlled for national security reasons to China, Russia, Venezuela, and a number of other countries.  Companies involved in exports and reexports of controlled items to these countries should carefully review the changes. Continue Reading BIS Tightens National Security Export Controls

Today, the U.S. Department of the Treasury (“Treasury”) published an interim rule (the “Interim Rule”) implementing the filing fee provisions of the Foreign Investment Risk Review Modernization Act (“FIRRMA”) along the lines set out in Treasury’s proposal of March 9. The Committee on Foreign Investment in the United States (“CFIUS”) will assess tiered filing fees for all final notifications filed on or after May 1 (whether or not a draft notification was filed before May 1). The Interim Rule is open for public comment until June 1, 2020.

Please click here to read the full alert memorandum.

On April 20, OFAC issued COVID-related guidance indicating that it encourages those subject to its jurisdiction to contact the OFAC staff if they believe they will have difficulty meeting OFAC deadlines (whether reporting deadlines, responses to administrative subpoenas, or other matters).  OFAC also encouraged electronic submission of any communications.  In our experience, OFAC is still functioning at a relatively high level, remote operations notwithstanding, but the staff has also been flexible in responding to the challenges all institutions face.  As OFAC’s guidance and our own experience underline, open communication with the staff is very important. Continue Reading OFAC Issues Guidance on COVID’s Impact on Compliance and Enforcement

The UK Government’s Office of Financial Sanctions Implementation (“OFSI”) recently announced it has fined Standard Chartered Bank £20.5 million (about $25 million) for alleged breaches of sanctions.

Continue Reading UK Sanctions Regulator Issues its Largest Fine to Date

In a March 25, 2020 communication, the European Commission (“EC”) issued guidance on the screening of foreign direct investments (“FDI”) in the context of the COVID-19 pandemic. The communication identifies an increased risk of attempts by non-EU acquirers to obtain control over suppliers of essential products, in particular healthcare sector products. The EC calls on Member States to make use of pre-existing FDI regimes, and to introduce robust screening mechanisms where they do not already exist, to protect “critical health infrastructure, supply of critical inputs, and other critical sectors.”  The communication builds on the increasing coordination among Member States that was already encouraged by the EU FDI Screening Regulation that comes into effect in October 2020.

Continue Reading European Commission Urges Member States to Protect Suppliers of Essential Products from Foreign Takeovers

On March 25, the European Commission issued guidance on the screening of foreign direct investment in the context of the COVID-19 pandemic. The Commission calls Member States to make use of existing FDI regimes to protect critical health infrastructure, supply of critical inputs, and other critical sectors. Further details can be found in our memorandum, accessible here.

As the final CFIUS regulations implementing FIRRMA take effect in the U.S. (and the Trump Administration issues its own cautionary statements regarding review of foreign investments during the crisis), and France announces a revised foreign investment regime of its own, we would like to remind our clients and friends that national security reviews of foreign investment are rapidly growing in scope and importance for cross-border transactions. The United Kingdom has recently confirmed its intention to introduce a new national security regime, joining the pre-existing but expanding regimes in France, Germany, Italy, and elsewhere. The European Union’s emerging effort to coordinate foreign investment review, described in a previous blog post, highlights the trend toward increasing coordination and consultation among national authorities as FDI regimes expand.

Cleary Gottlieb’s Foreign Investment Review group has been at the forefront of these developments, with over two decades of experience in its renowned CFIUS practice and lawyers closely involved in the evolution of each of the national regimes above. We also have experience and strong relationships with local firms in other important regimes such as those of Canada and Australia (which has just announced a broadening of its regime to temporarily eliminate the size of transaction threshold during the crisis). The Foreign Investment Review group coordinates closely with our market-leading Antitrust & Competition and M&A practices to provide the seamless advice guiding global transactions to completion for which Cleary has been known since its inception.

To stay abreast of these developments, please contact any member of our Foreign Investment Review group or your regular contacts at the firm.

Update: Treasury has clarified that comments on the Proposed Rule are due April 3, 2020, instead of the previously provided deadline.

On March 9, 2020, the U.S. Department of the Treasury published a proposed rule implementing the filing fee provisions of the Foreign Investment Risk Review Modernization Act. The Proposed Rule would assess tiered filing fees for all voluntary notifications to the Committee on Foreign Investment in the United States and is open for public comment until April 8, 2020.  No proposed effective date is included in the Proposed Rule, and so presumably filing fees will not apply to any filing accepted prior to an effective date to be specified in a future rule.

Under the Proposed Rule, CFIUS would:

  • assess fees for full notifications based on the value of the transaction, ranging from no fees for transactions valued at less than $500,000 to a fee of $300,000 for transactions valued at greater than $750 million;
  • base the fee on the value of the U.S. business rather than the total transaction value in the case of mergers or joint ventures (but not other transactions);
  • cap the fee at $750 where the value of the U.S. business is less than $5 million; and
  • expand the required content of voluntary notices to include a certification as to the transaction value and an explanation of the valuation methodology.

CFIUS has not imposed (and lacks statutory authority to impose) filing fees for short-form declarations.

Please click here to read the full alert memorandum.

With a draft bill to amend the Foreign Trade and Payments Act (Außenwirtschaftsgesetz – AWG) issued on January 30, 2020, the German Federal Ministry of Economics and Energy (Bundesministerium für Wirtschaft und Energie – BMWi) has started a legislative process to change the German foreign direct investment control regime (FDI Regime). This will be the third amendment to the FDI Regime since 2017. While the German Government continues to emphasize that Germany maintains an investment-friendly environment, these changes will further strengthen the Government’s ability to scrutinize foreign direct investments in Germany. As with earlier amendments to the FDI Regime, which all aimed to protect German and European security interests, these new changes will have a significant impact on M&A transactions in Germany. Continue Reading Upcoming Changes to the German Foreign Direct Investment Control Regime

On December 31, 2019 the French Government adopted a Decree and a Ministerial Order, which implement the reform of the French foreign investment control regime initiated by the Law n°2019-486 of May 22, 2019.   Since many years, foreign direct investment in certain sensitive sectors for French national interests has been subject to prior clearance by the Minister for the Economy.

The Decree notably aims to expand the scope of sectors subject to prior foreign investment control and to clarify and simplify the authorization procedure. Together with the Ministerial Order, it constitutes the new framework applicable to foreign investments in France. The Decree also includes measures aimed at implementing in France the cooperation mechanism provided for under EU Regulation 2019/452 of March 19, 2019 establishing a framework for the screening of foreign direct investments in the European Union (the “EU Regulation 2019/452”). Continue Reading French Foreign Investment Control – New Rules Applicable as From April 1st, 2020