At the recent NEI Nuclear Fuel Supply Forum, Morgan Lewis partner Giovanna M. Cinelli highlighted important changes to the Committee on Foreign Investment in the United States (CFIUS) transaction review process being considered by Congress that are likely to affect the Energy industry in general and the nuclear industry in particular. Giovanna is the leader of the Morgan Lewis International Trade, National Security & Economic Sanctions practice and has been practicing in that area of law for more than 25 years. Giovanna counsels clients in the defense, aerospace, and technology sectors on a broad range of issues affecting national security and export controls, including complex export compliance matters, audits, cross-border due diligence (including CFIUS), and export enforcement, both classified and unclassified.
CFIUS is an inter-agency committee authorized to review cross-border transactions that could result in ownership, control, or (in some instances) influence of a US business by a foreign person, in order to determine the effect of such transactions on the national security of the United States. In her presentation, Giovanna described some of the challenges parties have encountered with the CFIUS review process in light of the government’s recent focus on the national security implications of cross-border investments, including: a greater volume of requests for additional information; an increase in the number of days needed to complete a pre-filing review; and an increase in the number of filings that require a 75 calendar day review period.
In response to these challenges, Congress is engaging in efforts to modernize the CFIUS process. There will likely be process changes and increased scrutiny for specific types of transactions, including those related to technologies with civil nuclear applications and other commercial technologies with potential applications that could impact national security. To prepare for the anticipated changes, Giovanna advises that companies should
- expand due diligence – e.g., not only of the business but of the parties involved;
- research beyond the information provided by the parties – see, e.g., Ness Technologies SARL v. Pactera Technology International, et al. (Supreme Court of NY, Filed December 6, 2016) (where a failure to complete adequate due diligence when engaging with CFIUS resulted in a breach of contract suit);
- plan for detailed filings – e.g., parties will likely find little success by taking the approach, “we’ll submit it to CFIUS and see what it says”;
- carefully consider financial penalties when CFIUS is a closing condition;
- answer CFIUS questions asked, not ones the parties would like to answer; and
- keep in mind that although the process remains voluntary, the government has identified and is using resources to educate itself on transactions that have occurred or are underway, but have not been notified to the committee.
Here is a link to the full set of slides Giovanna used for her presentation.