All About CFIUS, Trump's Watchdog on China Dealmaking: QuickTake

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(Bloomberg) -- America’s message to investors overseas has long been that the U.S. is open for business. Now a presidential administration that says "America First" is pushing back, and one of its tools is a formerly obscure committee that works behind closed doors. The Committee on Foreign Investment in the U.S., or CFIUS, has stopped a string of foreign acquisitions of American companies, particularly by Chinese investors. Some in Congress want to empower it to do even more.

1. Who’s on the committee?

CFIUS -- pronounced SIFF-ee-yus -- is a panel of government officials that reviews acquisitions of American businesses by foreign buyers to determine if the deals pose risks to national security. It’s led by the Treasury secretary, with other members from the State, Defense, Justice, Commerce, Energy and Homeland Security departments.

2. Why has it been in the news?

CFIUS has stopped a string of acquisitions under President Donald Trump. Many have involved Chinese buyers of American technology firms. Trump’s order blocking Broadcom Ltd.’s $117 billion takeover of Qualcomm Inc. -- what would have been the biggest deal in the history of technology -- was based on recommendations from CFIUS. It found that the deal could curtail U.S. investments in chip and wireless technologies, handing leadership to a relatively opaque Chinese company, Huawei Technologies Co., that’s funneling billions into developing next-generation wireless systems. A bill in Congress would expand the scope of CFIUS reviews to include proposed joint ventures between U.S. and foreign firms.

3. Why does it exist?

President Gerald Ford created the committee in 1975, at a time when U.S. policy makers were fretting over investments in U.S. Treasuries, stocks and bonds by members of the Organization of the Petroleum Exporting Countries, or OPEC. It gained new power in 1988, when Congress, responding to worries about Japanese investment in the U.S., gave the president the power to stop a foreign deal that "threatens to impair the national security.” Since 2007, CFIUS has operated under an added level of scrutiny. That’s because Congress demanded some oversight after CFIUS cleared a purchase that would have put a state-owned Dubai company, DP World, in charge of security at six major U.S. ports.  

4. How does it work?

The parties to a proposed transaction file a voluntary notice to CFIUS, which has 30 days for an initial review. If members of the committee see potential issues, they can call for a national security investigation to determine if there are any risks to the U.S. If so, CFIUS can negotiate with the parties to the proposed deal to mitigate problems. If its concerns aren’t resolved, it can recommend that the president intervene to stop the deal. In 2016, the committee reviewed 172 transactions, compared with 111 in 2011, according to the U.S. Government Accountability Office.

5. Can it reject a deal by itself?

No. It can impose changes to deals, like walling off part of an American business from foreigners. But the president has sole authority to stop a takeover. That has happened only five times since 1990. Barack Obama stopped two deals in eight years in office. Trump has blocked two in six months. Still, CFIUS concerns are often enough to undo a deal. That’s because companies will walk away rather than go to the president and risk being branded a national security threat.

6. Will CFIUS start looking at joint ventures?

Not if International Business Machines Corp. and other large U.S. technology companies get their way. Their lobbyists, along with some leading House Republicans, are working to remove that idea from legislation being debated in Congress that aims to strengthen CFIUS and expand its scope to prevent China from obtaining sensitive U.S. technologies.

7. How can I follow the committee’s work?

Good luck. The panel’s investigations are effectively a black box. It never comments on individual reviews and relies on classified information to decide whether to oppose or clear a deal.

The Reference Shelf

  • The U.S. Government Accountability Office report on CFIUS.
  • Why tech firms oppose an effort to broaden the committee’s scope.
  • More on CFIUS’s role in killing a Broadcom-Qualcomm deal.
  • A 2018 report on CFIUS by the Congressional Research Service.
  • Secretive it might be, but even CFIUS has a web page.

©2018 Bloomberg L.P.

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