CFIUS: Account for CFIUS risks in transactions involving non-U.S. investments in businesses with a U.S. presence
Over the past year, the Committee on Foreign Investment in the United States (CFIUS), an interagency committee chaired by the Department of the Treasury, has been particularly active in reviewing and, at times, intervening, in non-U.S. investments in U.S. businesses to address national security concerns. CFIUS has the authority to impose mitigation measures on a transaction before it can proceed. It may also recommend that the President block a pending transaction or order divestiture of a U.S. business in a completed transaction. Consequently, companies that have not sufficiently accounted for CFIUS risks may face significant hurdles in successfully closing a deal. With the incoming Trump administration, there is also the potential for an expanded role for CFIUS, particularly in light of campaign statements opposing certain foreign investments.
Here is our annual list of hot topics for the boardroom in the coming year:
1. Corporate strategy: Oversee the development of the corporate strategy in an increasingly uncertain and volatile world economy with new and more complex risks
Directors will need to continue to focus on strategic planning, especially in light of significant anticipated changes in U.S. government policies, continued international upheaval, the need for productive shareholder relations, potential changes in interest rates, uncertainty in commodity prices and cybersecurity risks.
The results of the U.S. presidential election are historic and unanticipated, and they will have significant economic, political, legal and social implications. As we prepare for the Trump presidency, many uncertainties remain regarding how the incoming administration will govern. President-elect Trump has stated that he will pursue vast changes in diverse regulatory sectors, including international trade, health care, and energy and the environment. These changes are likely to reshape the legal landscape in which companies must conduct their business, both in the United States and abroad.
Government regulators, financial industry standards agencies, nongovernment organizations and activist investor groups are advocating enhanced disclosure of the potential effects of business activity on the environment, or the disclosure of so-called environmental, social and governance (ESG) factors. The ESG factors measure sustainability and ethical impact of investing into a particular asset or business.
After striking out in its first attempt to formulate a proposed rule to implement the extractive industry payments provision of the Dodd-Frank Wall Street Reform and Consumer Protection Act (“Dodd-Frank”), the Securities and Exchange Commission (SEC) is back at the plate with a new proposal. Both are efforts to implement Section 1504 of Dodd-Frank, which requires issuers involved in the commercial development of oil, natural gas and minerals to track and report certain payments they have made to the United States and foreign governments. Under the new proposed rule, such issuers would be required to file special disclosures (Form SDs) for payments that include taxes, royalties, fees (including licensing fees), production entitlements, bonuses and other material benefits, including certain dividends and infrastructure payments. This publicly available, detailed payment information can then be used by multiple stakeholders to increase the accountability of governments receiving payments for their countries’ natural resources and to help shine a light on potential corruption.
On December 15, 2015, U.S. congressional leaders announced a year-end budget compromise that removes the ban on the export of crude oil from the United States. In exchange for this concession, the Democratic-led opposition to the repeal secured multiyear extensions of certain currently expired renewable energy tax credits (discussed here). Assuming the legislation is passed by both the House of Representatives and the Senate (likely by Friday of this week), and the president signs the bill into law, as is currently anticipated, U.S. oil producers will soon be able to export crude oil with minimal restrictions for the first time in nearly 40 years.
On October 18, 2015, the day on which the Joint Comprehensive Plan of Action (JCPOA) became effective (“Adoption Day”), the U.S. Department of State (“State Department”) issued contingent waivers of certain extraterritorial sanctions targeting non-U.S. persons that engage in certain transactions with Iran, pursuant to the terms of the JCPOA. Importantly, these waivers are not currently in effect and will take effect only when Iran has fulfilled its nuclear commitments under the JCPOA (i.e., “Implementation Day”). Furthermore, these waivers do not apply to non-U.S. persons that are owned or controlled by U.S. persons (e.g., foreign subsidiaries of U.S. companies). Although the U.S. Department of the Treasury’s Office of Foreign Assets Control (OFAC) is expected to issue a General License that will permit non-U.S. persons that are owned or controlled by U.S. persons to engage in activities “consistent with the JCPOA,” the terms of this General License are not yet available.
U.S. Department of Commerce Places Export Restrictions on 29 Parties; State Department Announces Sanctions on Russian Defense Companies; EU to Extend Russia-Related Sanctions.
A. BIS Adds 29 Entities to Entity List
On September 2, 2015, the U.S. Department of Commerce’s Bureau of Industry and Security (BIS) issued a final rule amending the Export Administration Regulations (EAR) by adding
29 parties to its Entity List, a restricted-party list identifying foreign persons that engage in activities contrary to U.S. national security and/or foreign policy interests. This latest action was taken in accordance with Executive Orders 13660, 13661, 13662 and 13685 to “ensure the efficacy of existing sanctions on [Russia] for violating international law and fueling the conflict in Ukraine.”
For 14 of the 29 entities added to the Entity List, BIS imposes a general license requirement for all items subject to the EAR. Accordingly, all exports, re-exports and transfers (in-country) of all restricted items to these companies require a license from BIS, and . This BIS action essentially conforms the Entity List with actions against the same entities previously taken by the U.S. Treasury Department’s Office of Foreign Assets Control (OFAC), designating these entities as “Specially Designated Nationals” (SDNs) under Executive Orders 13660, 13661 and 13685.