The CFIUS Awakens: Will the Force Be With Foreign Investors Under Trump?
The Committee on Foreign Investment in the United States was created by Congress with the 1950 Defense Production Act. For decades, it was a sleepy intergovernmental coordinating body led by the Treasury Department that only a handful of Washington lawyers knew or even cared about. CFIUS isn’t a household name, and the subject didn’t even make it into the very long, debate-filled presidential campaign season in 2016. But the election of Donald Trump, and his first days as president, should put deal makers around the world on notice given the prominence of populist plans (i.e., border wall with Mexico) and xenophobic rhetoric (i.e., extreme vetting of Muslim immigrants). And if anyone was looking for some moderation or transition into governing, Trump’s “America First” inaugural address was a shot across the bow to businesses and investors abroad — especially ones seeking to invest in the United States.
Interest in the CFIUS process peaked in 2006 after the purchase of six major U.S. ports by foreign-government owned Dubai Ports World. The port operations in Miami, New York and Boston, bought by a Middle Eastern government investment fund post-September 11th, incited a bipartisan outcry. Former President George W. Bush responded to the uproar by threatening to veto any bill that Congress passed to overturn that deal. (One might take a moment to imagine what the reaction from Trump might have been when faced with a similar challenge.) The Dubai Ports World incident paved the way for an updated, reinvigorated and more transparent CFIUS process in 2007 — and that deal was unraveled around that time, too.
Per CFIUS’ latest annual report to Congress filed in February 2016, from 2009–2014: 627 deals were noticed, 244 were investigated by the Committee, 47 were withdrawn and only one was nixed by former President Barack Obama. The key participants are senior government bureaucrats from assorted Cabinet departments and agencies — Defense, State, Commerce, Energy, Justice, Homeland Security; along with multiple White House councils such as the Office of Management and Budget, National Security, Economic and Homeland Security Councils.
The concerns around foreign meddling in U.S. political and economic activities through investment in the United States or gifts to politicians by foreign governments or individuals are longstanding. In fact, the rejuvenated awareness of the Constitution’s “emoluments clause” is creating ethical and compliance issues for Trump, with his multitude of business interests, including a new Washington hotel three blocks from the White House. While important and generally related, the emoluments clause is a constitutional conversation being explored by qualified lawyers, ethicists and scholars — one government watchdog group, Citizens for Responsibility and Ethics in Washington, has sued the president on this front already.
Foreign government-controlled or directed investment or ownership of U.S. assets or companies, particularly in national security-related or other critical industries has been periodic concern for Congress and for past administrations. At the start of the Cold War with the Soviet Union, Congress thought it wise to set up an optional review body for such investments in U.S. companies. Recently, we’ve seen congressional eyebrows raised by Chinese investments in the top-secret entertainment space (AMC movie theaters) and in mission critical fin-tech (MoneyGram). In other words, it isn’t just national security or infrastructure deals that cause concern around foreign investment in U.S. assets.
But there has also been the need for balance because the United States has been open to, and at times desperate for, large capital injections to start or complete risky or critical investments. In fact, the Commerce Department spends time and resources attracting foreign capital to the United States. Through SelectUSA conferences in the U.S. and around the world, attachés in scores of U.S. embassies and other levers, the government helps businesses seek out foreign investment. Companies often find or announce major investments alongside U.S. government officials at these kinds of events. President-elect Trump announced one such investment deal along these lines with a Japanese company prior to his inauguration.
As the author of “Trump: The Art of the Deal” learns more about the more mundane functions of government intended to protect U.S. national security (and more), it would be hard to imagine that he doesn’t take a keen interest in blocking as many deals as he’d like to consummate. And if you are looking for U.S. investment opportunities — whether it is a manufacturer, a financial services provider, a tech or telecommunications firm, or a movie studio — “may the Force be with you,” because the only guarantee business has is that the new administration will be a rogue one when it comes to foreign investments.