Shutdown and the increasing challenges for CFIUS
A Kabealo Law update, a shutdown, and several analyses of the impact of CFIUS reform on cross-border investment. In other words, Happy 2019. As always, you can sign up for the Kabealo PLLC newsletter here.
The editorial we here at Kabealo PLLC have been delighted with the progress we have made in just a few short months. We have a strong and growing stable of fantastic clients, including premier investment firms and cutting-edge technology companies. Our relationships with firms in need of national security regulatory expertise are growing. We’ve paid close attention to CFIUS reform and helped to guide clients through the uncharted territory (and updated our resources accordingly). It has been a truly enjoyable time to be in this field.
Of course, not all excitement is good excitement. The dysfunction in Washington has affected the U.S. in ways both big and small. In our corner of the world, as noted before, CFIUS is shut down, although certain member agencies are at least partially funded. All formal deadlines are suspended for the length of the shutdown. Past experience says that all other work–primarily draft filings that require staff review and non-deadline mitigation compliance work–will be even further delayed whenever the government reopens, as staff will have to dig out of the hole on matters with formal deadlines before they address all other work that has piled up.
Of note–it has always surprised and impressed parties working with CFIUS when we get emails and convene calls with the Committee staff at all hours of the day and night. Any party facing a deadline on a mitigation agreement knows that the agencies, led by Treasury, work as long or longer hours than their private-sector counterparts, often working overnight to revise mitigation agreements prior to a deadline.
When they arrive back at work, the demands on an already hardworking group of public servants will be extraordinary. Parties should be advised that delays, sometimes substantial, are inevitable. At the same time, CFIUS always strives to be practical, and staff understands that parties’ commercial imperatives do not disappear due to a government shutdown. In this practitioner’s judgment, CFIUS will attempt to be accommodating if parties need to close transactions in the absence of CFIUS approval in all but the most difficult of cases. As always, transparency and early warning to the agencies will be key.
Finally, my friends over at Kaerus Consulting have collected a number of insightful articles about CFIUS reform and its impact on cross-border investment. Kaerus includes a nation-wide network of professionals who can assist parties under mitigation agreements, particularly those which require third-party monitor services. Kaerus consultants are former military, law enforcement, and Intelligence Community officials who understand U.S. Government counterintelligence concerns and who maintain active security clearances. Many also have private sector business experience.
For more information, or to be added to their mailing list, contact Albert Schultz:
Kaerus wrote the lead-ins to the links below:
CFIUS has suspended all deadlines for declarations and transactions under review due to the government shutdown:
The impact of FIRRMA on Chinese investment in Silicon Valley has been swift:
A very interesting interview on the impact of the Chinese investor exodus from the Valley, particularly on hardware startups:
https://www.keranews.org/post/exodus-chinese-investors-silicon-valley-real-how-much-does-it-matter
Chinese VCs and PEs are still flying to San Jose, but to poach talent and seek JVs inside China:
http://www.globaltimes.cn/content/1135204.shtml
FIRRMA is hitting the startup community in Boston (heavy on biotech) as well:
Amid a fear that Chinese limited partners face additional scrutiny:
https://www.penews.com/articles/cfius-scrutiny-to-focus-on-chinese-lps-in-2019-20190104
More broadly, a Forbes contributor sees growing transparency in CFIUS after FIRRMA:
The same contributor, Harry Broadman, sees FIRRMA resulting in lower economic growth: