Transcript What is FINSA? - International trade

CFIUS & FINSA.
Bret Kelly
Mie Nakanishi
What is CFIUS?
The Committee on Foreign Investment in the United States
 Inter-agency committee chaired by the
Secretary of Treasury
 “13-member body and the president
together are statutorily authorized to review
and ultimately block mergers and
acquisitions between foreign entities and
U.S. firms if those transactions threaten
U.S. national security.”
What is FINSA?
The Foreign Investment and National Security Act
FINSA was an amendment made to the Exon-Florio
provision that was Signed by President Bush on July 26,
2007 and became effective on Oct 24, 2007.

“Exon-Florio provision provides authority to the President
to suspend or prohibit any foreign acquisition, merger or
takeover of a U.S. corporation that is determined to
threaten the national security of the United States.”

“Exon-Florio provision is not to discourage FDI generally,
but to provide a mechanism to review and, if the President
finds necessary, to restrict FDI that threatens the national
security.”

What does FINSA do?
 “FINSA increases the power of the President of the
United States and the Committee on CFIUS.”
 “FINSA gives the President more latitude in
defining national security and widens the rage of
companies that might be subject to protection from
foreign acquisition.”
 “While enlarging executive branch control over
foreign acquisitions, FINSA also opens the review
and investigation process for foreign acquisitions
to many new parties, including Congress,
advocacy groups, labor unions and competing
bidders for acquisition targets.”
CFIUS Chair
CFIUS
Department of
the Treasury
Department of Energy
Department of
Defense
The Office of Science and
Technology Policy
National Security
Council
National Economic Council
Department of
Commerce
Department
of State
President
Homeland Security
The office of
Office of the United States
Management
Trade Representative
Council of
and Budget
Economic Advisors
History of CFIUS and FINSA
 “Established in 1975, CFIUS has reviewed foreign
acquisition from a cold war view of national
security.”
 Since the end of the Cold War, and especially
since September 11, 2001, the focus of national
security planning has been defense against attacks
within the U.S. by terrorist organizations.”
 Recent “The Dubai Ports World controversy (in
2006) led Congress and the President to cooperate
in enacting FINSA. The act formally defines “
national security” to include “ homeland security”
Focus of CFIUS & FINSA
 “CFIUS establishes procedures to review foreign
acquisition of “ critical infrastructure” and “ critical
technologies” defined as “systems and assets,
whether physical or virtual, so vital to the United
States that the incapacity or destruction of such
systems or assets would have a debilitating impact
on national security.”
 In addition to defense and technology companies,
any business operating in a sector that is important
to the U.S. economy- including transportation
companies energy and power companies, ports
and airports, banks, food supplies and
telecommunications providers- may be subject to
national security analysis.”
CFIUS review process
* In total, the process can not
exceed 90 days
30-day
CFIUS review
If there is a
threat
Reporting the
results
45-day
CFIUS investigation
Congress
CFIUS provides a report and
recommendation to the President
15-day
Presidential review
President’s Decision whether to suspend, prohibit or allow
transaction
“The CFIUS review under FINSA must determine
whether
(1) the transaction could result in control by a foreign person of a
U.S. person engaged in interstate commerce
(2) there is credible evidence to support a belief that the foreign
person might take action that threatens to impair U.S. national
security
(3) there are any other laws that provide adequate authority to
protect national security.”
Major Problems of CFIUS
Very protectionist, scaring off capital. Discouraging
capital flows into the U.S.

Former secretary Powell, “ money, capital is a coward, it will go
nowhere where it is put in fear.”
Narrow interpretation of threat to national security.

CFIUS’s definition effectively covered only sectors involving
classified contracts, export-controlled technologies, or foreign
acquirers subject to specific intelligence concerns. This
constricted view often trumps efforts by some CFIUS members,
namely Homeland Security, the Defense Department, and the
Justice Department, to expand the term to encompass foreign
control of critical communications or transportation infrastructure,
inputs to defense systems and related technology, and cuttingedge R&D."
Major Problems of CFIUS
Insufficient time for review

The GAO said that 30 days for clearing
inbound transactions is insufficient in many
cases.
Lack of Transparency

The GAO termed the CFIUS proceedings
"opaque" and recommended morecomprehensive reporting to Congress and
more-active oversight.
Major Problems of CFIUS
Reluctance to initiate investigations.

Since Exon-Florio's inception, more than 1,560
notices have been filed, 25 of which were formally
investigated.
Decisions mostly made by staffers, not high level
officials.

"The committee almost never met, and when it
deliberated it was usually at a fairly low bureaucratic
level," Richard Perle said. Perle, who has worked for
the Reagan, Clinton and both Bush administrations
added, "I think it's a bit of a joke."
Major Problems of FINSA
Closing Delays

CFIUS will feel political pressure to extend more
national security reviews beyond the 30-day
clearance period to the supplemental 45-day
investigation phase.
Wider Net

Transactions subject to national security review now
include investments in "critical US infrastructure,"
which is broadly defined. As one sign of this wider
focus, FINSA added the US Energy Department and
Labor Department to CFIUS.
Major Problems of FINSA
Hinder Competitive Bidding Process

Free market distortions and the drag on foreign investment will be strongest
in bidding situations where foreign firms compete with US firms, foreign
government-owned enterprises compete with private bidders or bidders
from US-allied countries bid against companies from countries viewed as
higher security risks. Offering the highest bid now will be no guarantee of
winning a deal. In fact, financial analysts may apply a price premium if they
perceive a political risk or the potential for significant transactional delays
with a particular bidder.
Policy Implications

In combination, the proposals could have a chilling effect on attracting
important foreign investment into the United States. America is both the
world's largest recipient of foreign direct investment and the world's largest
investor. A perception that the country is less open to foreign investment
could undercut current U.S. efforts to open financial markets overseas, and
cause a backlash through harsh reciprocal treatment for American investors
abroad.
Global Implications
The enactment of FINSA will have a global
impact, not only on FDI in the U.S.

German Chancellor Angela Merkel has
already stated that the European Union
should consider adopting protective controls
on certain types of foreign investments in
Europe. China and other countries also are
considering additional restrictions on foreign
investment in the interest of national security.
Political Interference
A prime example of political interference is
the Dubai Ports World attempted takeover
of a few American ports.

Commerce Secretary Carlos Gutierrez, told
the AP in an interview: "They are not in
charge of security. We are not turning over the
security of our ports. When people make
statements like that you get an instant
emotional reaction."
Political Interference
Became a problem under CFIUS, now it is heavily
involved with FINSA.

FINSA raises the bureaucratic profile of the national security
review process by creating a new Assistant Treasury Secretary
responsible for CFIUS reviews, requiring the Director of National
Intelligence to perform an intelligence review of each transaction
and mandating that high-level CFIUS officials sign off on key
decisions. CFIUS now has explicit statutory authority to impose
changes to deals via "mitigation agreements" before granting
approvals. For example, in exchange for clearance, it could
demand that parties to a deal undergo a restructuring, allow law
enforcement access or spin off or wall off sensitive operating
units.
Political Interference
FINSA also significantly enhances Congress's
role in the potentially explosive issue of foreign
investment. CFIUS now must notify Congress
about each transaction it considers, and answer
to a breathtaking number of Congressional
committees and officials. This transaction-bytransaction political involvement could lead to
problems, particularly if US constituents have an
interest in opposing a competing foreign investor
or have an ax to grind against a foreign
investor's home country.
Policy Proposal
The main issue with the new CFIUS is its
allowance for political interference. It is
still to early to tell if this is going to be a
problem in the process or not. If it is, then
somehow the committee needs to be
insulated from outside political pressures.
Clearly define what is meant by “critical
U.S. infrastructure.”
http://www.ustreas.gov/offices/international-affairs/exon-florio/
http://www.forbes.com/opinions/2007/10/22/investment-national-security-opedcx_hlc_1023finsa.html
http://www.law.com/jsp/ihc/PubArticleIHC.jsp?id=1190106174477
http://www.clm.com/publication.cfm/ID/140
Bracewell & Giuliani LLP, United States; the foreign investment and national
security act of 2007; improved transparency and slower deal making
30OCT 2007 by George M. Foote and Joshua Zive
"Remarks at Sovereign Credit Rating Conference", United States Department
of State, April 23, 2002.
"Bush, Congress In Dark About Port Deal", CBS News, February 22, 2006.
http://www.whitecase.com/publications/detail.aspx?publication=785
http://www.whitecase.com/talking_08032007/