Complying with CFIUS and FIRRMA
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Complying with CFIUS and FIRRMA


>>Hi all, welcome. My name is Elizabeth
Shaffer I’m the director of investment research
with Select U.S.A and it is my great
pleasure to be able to introduce this distinguished
panel which is complying with CFIU.S. and FIRRMA. I will introduce them in
mere moments but just to go over some admin, hopefully
everybody’s properly caffeinated to enjoy this, this
panel coming up.>>They aren’t going to need, they won’t need caffeine
for this one Laura.>>It’s, okay we’re good>>This is a naturally
caffeinated panel.>>I’m excited to be
energized by this.>>Alright.>>We’re looking forward to it. So our distinguished
guests will speak and there won’t be any
Q&A for this session. But just to give you a heads
up we are very grateful for all of the private and
public information we were about to receive so if it’s
okay I will go in order and introducing our
distinguished guests. So our moderator, our emcee
today is general counsel of the U.S. Department of
Commerce Peter Davidson. He brings a plethora of
experience in gosh every version of public service that
you can basically have. So in addition to his experience
serving as general counsel for the U.S. Department
of Commerce, he was the senior vice president
for federal government relations at Verizon, and he was the
general counsel assisting the United States Trade
Representative. He worked in negotiating and
implementing trade agreements at the WTO he also
served as general counsel and policy director
for the majority leader of the U.S. House of
Representatives Dick Armey, and he clerked for
Judge John Portfolio on the 10th Circuit Court of
Appeals in Denver Colorado. He has even more
experience, but I know we want to actually cover
some information about the topic today,
so we are very grateful to have general counsel
Davidson’s stewardship in this discussion today. To Peter’s left you’re
right we were very fortunate to be joined by Laura Black. Laura is the director of
investment security policy, and international
relations for cifia, CFIUS at the U.S.
Department of Treasury. She, her responsibilities there
include leading the rulemaking process to implement the
Foreign Investment risk Review Modernization Act of 2018 and spearheading
international engagement on investment security issues. Since joining Treasury in 2007, Laura has had quite
a diverse portfolio; she was senior advisor
to the U.S. Department of Treasury’s general
counsel, senior advisor to the assistant secretary
for international markets and development and
did a super cool detail to the U.S. Executive
Eirector’s office at the Inter-American
Development Bank where she represented
the U.S. interests on the bank’s board
of directors. She also is bringing experience
from the private sector. She was a senior associate in DC
and Brussels offices of Cleary, Gottlieb, Steen, and Hamilton
LLP where her practice focused on cross-border M&A;
so we’re very grateful to have Laura joining us. To Laura’s left, your
right, we are very fortunate to be joined by Ender Sing. Ender leads a team in the UK and is executive vice
president and CFO of ARM. for those not familiar with ARM
it’s a foundational technology company that produces
a suite of products. Everything from micro-processors
to IOT. I mean the the scope of stuff that ARM provides is
mind-boggling; I encourage you to check out the website
if you are curious. Prior to joining ARM under
served as CFO for UNISYS. He helped accelerate organic
growth and profitability but while also leading strategy
and M&A functions there. And he also served in an
advisory role on projects for the U.S. Department
of Homeland Security for 15 years providing them
with insights on current and future technologies
in the context of M&A. And Ender, I have to confess
I have a fun fact on you that I kind of snuck in there. So he grew up on four continents
speaking five languages>>Oh my gosh.>>So Ender, yeah, we can
thank you in many languages. So thank you for
joining us today. And finally to Enders left,
your right, is Kevin Wolf. Kevin is a partner at Akin,
Gump, Strauss, Hauer & Feld LLP, with their international
trade practice that’s based in Washington DC. Prior to joining Akin Gump,
Mr. wolf served for seven years as assistant secretary
of commerce for the export administration
and the Bureau of Industry and Analysis otherwise
known as BIS in the U.S. Department
of Commerce. He was also a Commerce
Department representative to the Committee on
foreign investment for the United States CFIU.S.. And his active participation in CFIUS decision-making
processes included reviewing over 1,000 CFIUS filings
and being a key participant in the committee’s resolution of national security
risks associated with more complex cases. So, as a numbers person
I think we’ve got more than a thousand cases,
more than five languages, and between the two of these
guys I don’t know how many years of public service, so we’re
really grateful for all of your expertise that
you’re willing to share today and I very happily turn it over
to our distinguished moderator, General Counsel Davidson.>>Great Liz thank you very
much it’s a great introduction. Thank you. And I also want to thank Liz for pulling this panel
together she did a lot of work on the logistics of getting this
together so terrific job Liz. So, we got a great
panel as you can see, and I want to keep
this kind of lively and moving I am really
excited about CFIUS and I think you’ll find the
rest of the panelists are as well it is a very
interesting time to be working on CFIUS issues and
we’ve been talking about preparing for this panel. We have kind of the advances in
technology and we have advances in terms of interactions between
companies of all nations going on at the same time as we’re
dealing with national security and new and advancing national
security threats as well. So, you have this really
interesting formation of an environment that
leads to difficult questions and sometimes an evolving
process, and we had Congress, and we’ll talk a little
bit about this in a minute, was very active in the last
session of Congress in terms of revising both of our
export control laws as well as our CFIUS laws under
FIRRMA which is the acronym that I can’t remember
what it means, but Liz already read it off,
so we don’t have to go there. So, let me do this because I
know that in the audience here, okay on a scale of one to
ten how many of you think that you are, and ten being like
the most knowledgeable expert in the world, how many
of you think you are one to five raise your hand. One to five of in terms
of knowledge of CFIUS. So, if you’re you’re like me
you’re one to five okay I don’t, you know, I’m not an
expert all right so how many of you would say that
you’re five to ten in terms of knowledge of the
CFIU.S. process? Okay, so it’s a mix so that’ll
help us dial a little bit about where we’re we’re going to
go in terms of how weedy we get on some of the topics. So, what I want to do so
that I can learn something to start with. I’m going to ask Laura to give
us a little bit of a CFIUS 101, so we can all start from
kind of the same foundation and then we’ll get weedier
as the panel goes on. So Laura would you do
that for us please?>>Great, sure, I’m
very happy to be here. I want to start out first by
underscoring the importance of foreign direct investment to
the United States as of the end of last year the stock of
foreign direct investment stood at a healthy 8.6 trillion. Numerous studies have shown
the benefits of this investment with respect to innovation, job
growth, and economic growth. So, while the United
States strongly supports and welcomes foreign
investment, we also recognize that not all foreign
investment is benign, and that’s where CFIUS steps in. So, CFIUS is an interagency
committee led by the Department of Treasury that reviews certain
foreign direct investment for national security concerns. As Peter just mentioned we had
some landmark legislation they passed with overwhelming
bipartisan support and was signed into law
in August of last year. It’s the Foreign Investment
Risk Review Modernization Act.>>That’s it.>>Or FIRRMA.>>That’s it, yeah.>>Yes. So, CFIUS has been in
existence for over three decades and this is the first expansion
of our jurisdiction during that time and I think later
we’ll talk about the reasons for some of that expansion. But I wanted to first mention
a few key elements of CFIUS that will not change
under the legislation. First CFIUS is focused
exclusively on national security and not broader economic
or foreign policy issues. CFIUS reviews are robust and
analytically rigorous and made on a case-by-case basis. So, for each transaction we
look at the particular acquire and the particular
U.S. business to try to determine if there’s a risk. So, we really go through it with a scalpel rather
than a broad brush. And that helps us again focus on addressing any
national security risks and allowing benign
investments to go forward. Third CFIUS is proportional in its approach to
addressing risks. CFIUS is an authority
of last resort if we do find a risk posed by a
transaction we would first look to see if other authorities were
sufficient to address that risk, such as export controls. If CFIUS finds that there
aren’t other authorities that are sufficient we
would then look to try to mitigate any risks,
so we would try to negotiate conditions
with the parties. In the vast majority of cases
we’re able either able to clear or clear with mitigation. In rare cases when we can’t
mitigate the risk we would refer a matter to the President for
the President to take action, because only the President
can block a transaction. Forth, CFIUS is efficient
and accountable. We operate under strict
statutory deadlines and then that gives information
to the businesses that have filed the transactions
with us when they should expect to receive a decision. And CFIUS is also accountable
to high political level for each transaction the
initial analysis is performed by subject matter experts and
generally the career staff and final decisions have to
be certified at a high level, so it’s a protection
built into the system. And then finally, CFIUS
is confidential subject to very limited exceptions. So, any business
confidential information or even the existence of a
transaction is kept confidential under criminal penalties. And this is to give
businesses confidence when they share information
with us it won’t become public. So, those are a few
of the elements of CFIUS that won’t change. I also wanted to just briefly
highlight so we’re all starting from the same base how CFIUS
has traditionally operated and then we can talk
about some of the changes. So, historically CFIUS
has had the authority to review transactions that
could result in control by a foreign person
over a U.S. business. Control is a facts
and circumstances test for us looking at the
ability to direct determine or decide important matters. Unlike some jurisdictions
we don’t have a particulars shareholding cutoff or value
the transaction cut off, although we would
look at shareholding and other special rights
in making that decision. And another thing to
note, our jurisdiction is over all U.S. businesses. Of course in some
sectors there’re, you know businesses may be
more likely to pose risk but it’s not a sector-by-sector
approach we do have jurisdiction over all U.S. businesses. Historically CFIUS has
been a voluntary process so there haven’t been
mandatory filings, although that’s changing
a bit with FIRRMA. But what that means is
parties decide to file with us, but the parties that do
file once we’ve cleared a transaction, unless they’ve
provided us materially inaccurate information we
can’t go back and reopen that transaction, they
get a safe harbor. So that’s the benefit of filing. As I said it’s mostly voluntary,
however we do have the authority of parties don’t file
with us to later go back and bring those parties in and
possibly to impose conditions or in the worst-case scenario
to propose [inaudible]. The general timeline, and
this will change a little bit under FIRRMA with something
called declarations, but the general timeline
is a 45-day review and if more time is needed
a 45-day investigation. For each case all the CFIUS
member agencies review the information provided
by the parties as well as information provided
by other agencies, and we look at as I
was saying that threat. So, the intent and the
capability of the foreign person to has caused harm to national
security and the vulnerability of the U.S. business and
there we look at the nature of the business and the
relationship of that business to any system or assets
that could cause harm to national security and
look at the consequences of those two together. If we don’t find a risk, we
would clear a transaction without any conditions. As I mentioned if we do
find some risk we would try to mitigate it in
the vast majority of transactions we are able to
find conditions, and as I said in the case where
we can’t find a way to mitigate it we could
refer that to the President. So, that was a brief
overview of the process.>>That was a great overview. Yeah, very good and
I should also mention that I helped coordinate
the CFIU.S. activities within Department
of Commerce as well. So, I can can attest
to what Laura says about the thoroughness of the
review at multiple layers. So, it’s a, it’s a very
labor-intensive process, fact-specific process, and people take it
extremely seriously. I spend a good part of my
time dealing on CFIU.S. issues at the Department of Commerce. So, Laura mentioned FIRRMA
and some of the changes that we’re going to be seeing
to the way CFIU.S. is operated in the past, so I’m going to ask
Kevin if you would just walk us through some of the major
changes that Congress enacted and the President
signed in FIRRMA.>>Sure. And first
by the way thank you for having me back gets terrific to be helping the
Commerce Department mission and select U.S.A again.>>Can never leave.>>Excuse me?>>You can never.>>I never leave. No, no it’s, this is a terrific
opportunity and everything that was just said in terms of encouraging foreign direct
investment with conferences like this and through CFIUS. And a shout-out to one of my
former colleagues from BIS, Steven Holl, thanks
for being here. And so at the beginning
or rather at the end of our administration we started
seeing significant changes with respect to the nature
of the types of investments into the United States from
China and other countries that fell below the control
threshold that was described; that is investments you know that were non-controlling
investments in early stage technologies
that were involving emerging and foundational technologies
of national security concern or at least that
warranted consideration of whether they were of concern. And also transactions
involving certain types of real estate near
sensitive military facilities that wouldn’t necessarily have
been caught by the structure of CFIUS, the traditional
CFIUS again is foreign person, an investment that’s
controlling in a U.S. business. And if it wasn’t a
controlling investment, CFIUS would not have had
jurisdiction over it. So., on an extremely bipartisan
indeed nine nonpartisan basis at the beginning of 2017
senators Cornyn and Feinstein, Texas and California,
began to work together on an early version of a bill
that would expand the authority of CFIUS in order to
give it more visibility and more jurisdiction into
non-controlling investments in technologies of
concern and other types of investments of concern. And in the late fall
of 2017 FIRRMA, the Foreign Investment Risk
Review Modernization Act, which had as elements
of it the ability to give CFIUS jurisdiction
over investments or other acquisitions of
real estate in the U.S. that might be near
sensitive military facilities or other government facilities
that might not have been caught by existing CFIU.S., and for
non-controlling investments that involved sensitive
technologies or companies involved
in technologies that were either
export controlled or that were not
export controlled that perhaps should be. Transactions that
involved situations where there would be a release
of sensitive personal data of U.S. persons that could be
used by foreign adversaries for compromising purposes. And in non-controlling
investments into critical infrastructure a
broad concept that could be read to include, for example,
airports and and highways and telecommunications
and internet and other types of
infrastructure. In the bill that was introduced
there was also an element of it that would have given
CFIUS jurisdiction over outbound investments,
not just inbound investments but rather investments
by U.S. companies such as a joint venture
in China. The underlying concern
being that as a result of such joint venture, there might be uncontrolled
technology; technology that was not subject to export control
regulations for the transfer. But nonetheless, was
sensitive or could be used for sensitive applications
and for which the government
should have visibility into. And through a very active
very robust hearing process, and give-and-take
within the administration and between the House and the
Senate, eventually that part of FIRRMA was removed from
the original legislation and it was moved over into what
became a new export control bill the Export Control Reform Act. And so think of export
controls as the rules that govern the transfer
of technology and software and hardware out of the U.S.
moving in one direction, and then CFIUS and FIRRMA as the
rules that govern investments into the U.S. that might
result in such transfers or other activities of
national security concern as was well described. And so, in August of last year,
both laws both bills became law. The Export Control Reform Act which created a formal regular
order process for the bureau of industries industry
and security at the Commerce Department
to lead an effort to identify emerging and
foundational technologies of concern that were
not now controlled for exports but should be. And these are technologies that commerce is later
identified involving broad categories that are under
current investigation such as that dealing with artificial
intelligence or robotics or quantum computing or
additive manufacturing and nanotechnology, and
about 20 or so other areas. And at the same time than
giving permanent authorization to the Commerce Department
to regulate the export of technologies and items
generally for national security and foreign policy purposes. And then what the statute
did what FIRRMA did when it became law in in August of last year is it gave
the Treasury Department the authority to implement
pilot programs which would be the
early implementation of having a process in place
to require mandatory — remember historically
it was voluntary — mandatory filings of companies
engaged not a foreign companies engaged in non-controlling
investments in U.S. businesses in certain sectors, and then
require the Treasury Department to lead an effort to
come up with regulations to implement new
controls with respect to investments pertaining to,
again, sensitive personal data and real estate and
non-controlling investments in in critical infrastructure. And so, it didn’t, when it
passed actually require any of these changes, but it
gave authority and a mandate to Treasury to lead an effort
to publish those regulations. In November of last year
Treasury published what are called pilot program regulations that create a mandatory filing
requirement with respect to even non-controlling
investments from any country into a U.S. business
that would involve about 27 different sectors
of the U.S. economy if one of three conditions is met.>>Let’s wait in
the pilot program.>>Oh and get to that later
that’s right that’s one of our topics later>>We’re going to wait
a little bit that’s.>>That’s the, I got very
excited about this this.>>Told you we were caffeinated.>>This is fun stuff.>>No, that’s great. Kevin, that’s a great
overview of FIRMMA, and I think his description of
the congressional negotiations and ultimately compromise
of what happened with export control ECRA and
FIRRMA changes to to CFIUS. So you now kind of
know where we’ve been, where Congress wants us to go,
and what I think could be useful at this point is to kind of
get a view from a company on how they view
the CFIUS process, a company that’s looking at doing a transaction
what are the considerations that they have to take
into account before they go into that transaction,
where the processes that they have to figure out. And we’re lucky to have
Ender here with us today. And Ender, you use we have
a little introduction of ARM but if you want to take a moment
and talk to us a little bit more about ARM in is CFIUS
context is in terms of someone who’s
looking to do deals in the United States why don’t
you do that and then talk to us a little bit about
ARMs experience as they look at doing those those deals.>>Sure so it you can tell
this is an exciting topic. So, from a practitioners
standpoint in terms of well what do you do with
it if you’re a company? And so how do you ensure
that you’re on the right side of what the requirements are? You basically have to treat it
as any other approval process and give it the same rigor
that you would normally give to for example an
antitrust clearance from DOJ. This one is probably even more,
requires more homework ahead of time because the process is
sometimes not well understood. And it’s the process that has
evolved as you just heard. For ARM, let me tell you
about ARM a little bit. ARM is a UK-based company. It was founded as a joint
venture between Apple Computer, and a company called
Acorn computers. And 1992, I think 16 engineers
came together, yes in a garage, but not in Palo Alto
but in Cambridge, and they envisioned creating
chips that, semiconductors, that would be low-power
imagine that. Power was not even on
people’s minds back in 1992 because it was considered to be
plentiful, so why would you need to be more power efficient? As it turned out the company
was quite prescient in the sense that it had maybe
preceded the development of smartphones by
a decade or two. And so when you start getting
into understanding that ARM is, yes, it’s a semiconductor
company doesn’t make any chips, it just designs them. So, it’s kind of
like the architect. But it’s used by virtually
every semiconductor company that you can think of. And if you think of smart
TVs, smartphones, tablets, there’s a supercomputer
for example in Sandia National
Laboratory that runs on ARM. It’s everywhere. So, wherever compute happens
is where ARM is present. Yes, it is UK-based but of the
6,000 or so people 1,400-ish are in the U.S. and we’re investing. So, we’re investing
in hiring engineers and talent creating electoral
property in the U.S. But, we’re also investing
in acquiring as well you know nuke
other companies as part of our strategy but also
investing in U.S. companies. In my experience at least, the UK and the U.S. have enjoyed
a very close relationship some of you may have heard of the
five eyes, which are countries that share intelligence
together, well, the UK and U.S. are
among that, right? So, among even among the closest of countries you
have to follow CFIUS. And that’s an important
point; it doesn’t matter which country the foreign
entity or the foreign person is from you still have
to follow the process. So, as as ARM has
branched into other areas, for example into data
and analysis of data for the retail sector
for example. We acquired a company
called treasure data which had a ingest engine —
and everybody know what sort of an ingest engine is? It takes in gobs of
information and spits out insights on the other side. You could take that and apply
that in many different sectors which is kind of what
we think we’re going to be doing in the IOT world. And, that company, because
it now involves data and maybe even some PII
associated with U.S. citizens, it is now under the purview of
the CFIUS process and FIRRMA. Especially with FIRMMA. And so we had to take that through a CFIUS
approval process. We had to hire outside
counsel who could advise us on here’s the do’s and don’ts, here’s the what what
you have to prepare for. You know, what is your intent? There’s an entire process. So while it may take 45 days
for the first stage and 45 days for the second stage you
could say it’s three months. I would add another couple
months on both sides of that. So, the preparation
work is really where many companies fall short.>>Yeah.>>Really under estimating
what this thing will require. And partly it’s because not only
because it’s a different process than usual that you
may not be familiar with from other countries, but also because of the
national security aspect of what the CFIUS panel looks at they can’t really tell you
much during the review process. They can they might be able
to give you some indications of maybe that they might
have, clarifications that might be needed,
but because of the type of assessment being done much of the information is
considered classified and therefore you don’t get the
the live feedback that you might from a DOJ on a [inaudible]
process. So all of that is
something you have to go in with eyes wide
open and realize that you know this
may be the one thing that prevents your acquisition
even if from every angle. Financial antitrust, if it passes all the other
litmus tests this might be the one that you didn’t
put enough energy into. So, you know last week we
announced an investment in another semiconductor
company called Marvel, which is a publicly
traded U.S. entity. ARM has most of its
leadership team in the U.S. The CEO is based in
San Jose, I’m based in San Jose, most of the leadership team the
executive team is in San Jose. It’s about as U.S. if
you would think it is, but we still made sure that
even for a minority investment where we were taking a
percent ownership of a company, potentially if the
warrants paid, paid out at what we
thought they would pay out. That’s a hypothetical. Even then we wanted to
make sure that we filed, follow the the process,
and just to make sure that we weren’t surprised
on the other side. I think Laura said this;
CFIUS has the authority to actually unwind
an acquisition. So, if you don’t apply,
and now you almost have to, but if you don’t
apply you can be asked to divest the acquisition
you just did. So better to be on the safe side
then on the sorry side of it. You know I have experienced
with CFIUS in its prior instantiations
and other companies, and also working from the inside
of advising Homeland Security on some on some things. These are career professionals. They’re not politically
motivated. These are folks that have
done it through Democratic and GOP administrations,
and then some again. So, these are folks who look at
this in a very serious fashion. They’re super smart
and the meetings that I’ve had with them. Incredibly so, that you almost
feel comfortable that you’re in good hands as a
nation because of kind of what they’re looking at. It can be in technology, it
can be in thing in sectors, that are not technology
as Laura said. Virtually in every area. There was a situation
around harbors and ports so many years ago if you may
remember that [inaudible] that was critical
infrastructure. So, anything related to anything
critical infrastructure falls into the into the into
the purview so better safe than sorry is kind of the the
message for you from for me.>>Great well Ender
that’s a terrific overview from a practical experience,
and I think very well said. So Kevin introduced us a
little bit to pilot program. And what I think maybe what
I’ll do Kevin is have have Laura start with a little
bit of the of and then you can put
a little more gloss.>>Sure.>>If you’d like to do
that so Laura you want to explain a little bit more
of what the pilot program is.>>So, under FIRRMA some
provisions became effective immediately but a lot of the
substantive meet of it has to be defined in regulations
that we have 18 months to drive so February 2020. The legislation did give us
the authority though to set up pilot programs to pilot
some of the new jurisdiction. So within two months of
enactment of this statute we put out a pilot program
that does two things. First, it expanded
our jurisdiction over certain non-controlling
transactions involving critical technology. Critical technology is defined
with respect to export control, it’s not a CFIUS
specific definition. So, that allowed us to close
a gap in our jurisdiction because previously we only could
review controlled transactions, but as we all know, you
know, sensitive technology that you can get access to
material nonpublic information, some very technical
sensitive information without having control. So we’re now able to look at these non-controlling
transactions where there’s a board member
access material nonpublic information or involvement in certain substantive
decision-making. But we limited that for the
purpose of the pilot program to 27 high-priority industries, so we didn’t open
it up completely.>>And that’s thus the pilot.>>Yes.>>You’re seeing kind of what
works what doesn’t work as you as you look at filling
a regulation.>>And then the second,
the second portion, so that’s the expansion
of our jurisdiction. The second part of it is for
the first time we introduced the concept of mandatory
declarations. So as we, I mentioned previously
we had joint voluntary notices that were voluntary. Now there’s a certain subject
subset that will be mandatory. So for these transactions we
now have mandatory declarations and I’m happy to discuss
in more detail later if that’s of interest.>>Okay great. Kevin do you.>>So, yeah, terrific summary. And as mentioned it’s
actually an overlap between export controls
and CFIUS now. Because the jurisdictional hook for when a mandatory filing
requirement is now triggered under the pilot program,
if you’re in one of those 27 technology
sectors of the U.S. economy, is if among other things you
have access to technology which is export controlled or, the magic phrase is material
nonpublic technical information, which is uncontrolled
technology that’s necessary for the development of
export control technology. And so why is that relevant? Well, before you never really
with investments needed to necessarily know the export
control status of the technology into which was being invested
from abroad, and now in order to know whether you have a
mandatory filing requirement before you engage in any
non-controlling investment in the U.S., the
export control status of the underlying
information that’s in the U.S. company
is now needed. And the definition of
what that is again tracks with the export control rules
which, as they are expanded, to include emerging and
foundational technologies through a regular order
process will not only expand the authority of U.S.
export controls over those technologies, but
also the jurisdiction of CFIUS into investments involving
those technologies. And, so, that’s just sort
of a general commentary now about how the two sets
of laws export controls and foreign direct investment
rules are now very much overlapping and working
together with one another, even more so than they used to.>>Great. That’s a great
summary and and it leads I think into the regulatory process? So, we’re ongoing right
now, Laura mentioned, was it February 2020 you said? Was the deadline for doing the
full regulatory scheme I know they’re they’re working
busily working on this we have some folks
helping with you with that, so I know how hard
they’re working. Why don’t you talk to us
a little bit about timing and where where you are in
terms of the regulatory process.>>Sure, so Treasury has
been leading a very robust interagency process drawing
on subject matter experts from all the agencies to
produce the regulations as I mentioned before Congress
provided us the contours of the new Authority. And as Kevin mentioned there’s
some key terms that still need to be defined; sensitive
personal data, a subset of critical
infrastructure that will be subject to this new
non-controlling jurisdiction, the definition of
sensitive government facility for the real estate prong. So there’s several key
pieces of the legislation that we’re still
working to define. I can’t talk about that too
much now, but I will say that we will have a
public comment period of at least 30 days in advance
of making the regulations final.>>Okay, so you’re going to be
putting out, and again for those of you familiar with the way our
regulatory system works here, we have an endless series
of things that happen and then somewhere at the end of your lifetime the
actual rules come out. But here we have a deadline.>>Yes. [Laughs].>>We actually have a deadline.>>Yes, I have timelines
all over my office.>>Right. So I’m actually an
administrative law attorney, so I shouldn’t make fun of it. But, what what you’re going to do then is you’re
going to put out a your.>>Draft notice.>>Your draft regulations
and then people will have 30 or however many days
to comment on that. So, those should be well if
you had to give us a window of when you think
that would be coming out what would you estimate? I’m not going to hold we
have to allow enough time so I’m not going to hold.>>We have to allow enough
time, so I’m not going to give a particular date today.>>Okay great. So, enough time for people to
digest it and take a look it. And [inaudible] extremely
complicated stuff so. And I know that you do
appreciate the advice that goes back in. What, just an aside on the
administrative law side, one of the things that I think
has been very refreshing coming back into the government again
after being the private sector for a while, is that the notice and comment periods are
taken very seriously by the government agencies. And people review the comments and provide detailed
explanations and responses to those comments. So you know I’d kind of gotten
used to thinking them as kind of perfunctory, you have to
do it and, but I have to say that the ones that I’ve seen
the Department of Commerce since in the two years that I’ve
been there have been taken very seriously and and the answers
come from career professionals who are experts in their field
and provide detailed responses. So, you have if you
are interested in this area please do comment. We will look at it we’ll
review it carefully and we value your
input into the process.>>If I could just
add something.>>Yeah absolutely, Ender.>>So what happens on the
other side of the process? It isn’t I think Laura said it
it isn’t a thumbs up and the or thumbs down like with
some other approval, required approvals,
antitrust for example, it can be your just am asking
too much market share sorry. With this process it’s actually
intended to find ways for you to make the investment and
then things that you should, you’re not allowed to do
or things that you know set of rules that basically say
you shouldn’t be doing XYZ with this acquisition,
or this investment. So, there’s a caseworker that
is assigned, there’s an officer that works with you, there’s
a letter you might get which is an agreement, that you
will operate this investment or this acquisition
in the following way. And it could be related to
the governance of that entity, or it could be related
to who can make decisions for further investment of R&D;
it can be related to even a spin out of a piece of the business that may be considered a
critical infrastructure area where perhaps a different
governance scheme has to be put in. So, in my experience all of
those scenarios have happened, up to and including a special
board being appointed for a part of the business that’s being
acquired that is chaired by U.S. citizens so on, so on. So, just to protect the
integrity of the work and the technology being
developed in those areas. It isn’t the no you can’t do
the acquisition what at all. So, that’s one the
other one is I think I’m around real estate
which you mentioned. It’s not just acquiring real
estate its leasing real estate as well. So, you need to factor that
into your equation that and I don’t know what
the final rules will be and Laura will tell us
if and when she’s ready with the integration
of FIRMMA and CFIUS, but it can even be very
subtle things like that that you’ve gotten control
of a property adjacent to a critical site
in the United States and you might not be
allowed to do that or you might have some
controls put on who can use that that piece of property
either owned or leased. So I thought I would
just add that.>>No, that’s very, very
helpful and I think kind of the practical aspect of the mitigation is
is really important to understand the spectrum of
things that can be required, but that they are required to
end, and they’re often imposed in a minimum fashion to
achieve the objective so not an overreach in terms of the mitigation I think is a
really important point as well. As much that is needed to address the national security
issue and not more than that>>Correct.>>So, Kevin do have
any more comments on the regulatory
process or kind of where you see things going? I mean you can speak a little
bit more freely I think then Laura and I can.>>Oh, sure. This is an insanely difficult
exercise I do not envy my friend, well, I do in a way
I’d still like to be there, but these are very
difficult things to do because as described
earlier, it’s how do you come up with regulations in order to regulate real
estate acquisitions in the U.S. near sensitive
military facilities without basically
requiring every lease and every transaction and every
apartment you know purchased et cetera, and flooding CFIUS with
tens of thousands of filings and just getting
exactly what you need? How do you describe the subset of technologies involving
critical infrastructure that warrant additional filings? And you know, I want
to emphasize again, this was a completely
nonpartisan effort that said you know
widespread support in the House and the Senate Democrats
and Republicans, so the law and the principles
are very good. And and really do fill gaps
that were there that we noticed at the end of my tenure as
well, but actually putting those into regulations, it’s going
to be mind-blowingly complex. And I really want to emphasize
what Peter said about commenting because you know as
a former regulator as a former reg writer
we think we’re smart, we generally are pretty
good we’ve got lots of really good people around
us to help, but you have to crowdsource it
through the notice and comment process unless
people engage, unless they write in with pointing out what
works or what doesn’t work or unintended consequences
the process can’t improve. So I just want to pick up again
on the emphasis of engaging in the process and when the
regs get published in draft to really think hard and and
and send in thoughtful comments because they generally will
get factored in which will make for a better regulatory
structure, so.>>So, Laura mentioned the
Declaration process earlier on in your presentation. Why don’t you talk to us a
bit more about what that is because that actually might
be the first time when many of the folks in the room will
actually have to interact with the CFIUS process.>>So, you know as I mentioned
before we have a notice process. That notice the notice
requirements can be a couple dozen pages, so the idea with
the declaration was twofold. One, to provide a
more streamlined way for parties to make a filing. Generally, declarations can
be no longer than five pages, so it’s a short form filing. And the declarations, the
timeline for review is 30 days. So, for the notices I
mentioned was 45 and 45. However with respect
to a notice CFIUS has to make a determination,
clear negotiate conditions, or propose blocking
to the president. With a declaration CFIUS
can clear, can decide not to take action based on
the abbreviated timeline and abbreviated information,
request a full notice, or initiate action on its
own if there’s some kind of an emergency for example. So there is this other process. We’ve designed for the first
time a fillable PDF form to try to make it easier particularly
for smaller businesses to make a filing
through the declaration. So, some of those as I mentioned when FIRRMA becomes fully
effective, will be voluntary and then there will be a
subset that are mandatory. Under FIRRMA we still
need to define these terms but transactions that involve a
substantial government interest in one of those three business
areas that Kevin had mentioned where we have the
non-controlling jurisdiction, critical technology,
critical infrastructure, and sensitive personal
data will be mandatory; we’re still defining
substantial interest. And then we have the
discretionary authority to require declarations for other critical
technology companies.>>Well that’s terrific. And I just want to also
kind of emphasize, you know, just put us in context
here where we are today. We are at the Select
U.S.A Summit. The United States is
open for business, we’re a great place
to do business. You heard all the governors
and everyone talking about how their states are
the best place to do business. So, one could say we’re a
little bit of an outlier at this conference,
the panel is here. But I don’t look at it that way. I look at at it as that
the United States is still as interested in getting foreign
investment in the United States. We are emphatic about that. What we’re doing is trying to
make the process is transparent and easy to deal
with as possible and if there are issues we have
very smart people that are going to help you work around this
through a mitigation plan. And if there aren’t there
aren’t but then at the end of the day that’s what it is. So, I just want to make sure
that the emphasis we have in this panel is consistent
with the emphasis of the rest of the the meeting that you’re
at today, and we’re just kind of helping you with
that compliance process. So, Kevin is there anything
else you want to add on declarations,
or Ender as well?>>No, it’s a good summary. I’ll defer to your judgment. On, is there something?>>No.>>Nope. Well, that was an
excellent summary there.>>Yeah. I think that is. And Ender, I don’t know if you.>>I think that was
great summary. I think I would just
add one other thing. That when you think about
firm A buying firm B and frim A is a foreign entity, it may have a large
U.S. presence, but it may still have a large
international presence as well. And CFIUS will not only be
concerned about the technologies or the capabilities
coming together in the U.S. but also the technologies or capabilities coming
together outside the U.S. when these of entries combine. So, you have to think of
it from both angles as well to say what new thing gets
created in, I’ll pick Asia, I’m from Asia, versus
the United States. It’s not all about what
what’s happening in the U.S., it’s all about it’s also about what’s happening
outside the United States as these [inaudible].>>Actually I did
have a thought.>>Yeah go ahead.>>Sorry, to answer
your question what with the new mandatory filing
requirement that’s in place now which has penalties up to
the value of the transaction for failing to abide by
it, it is really critical to do advance planning and
that you combine your export compliance people, the people that can identify
the technologies in the United States
that are controlled and the technologies related
to it and that group of people that know about your information in your company work very
closely with your deal team and the due diligence team, so
that you don’t get surprised when the deal people get
to the point of wanting to actually do the investment
but somebody says oh, wait, stop we have this
mandatory requirement that must be completed
45 days before closing. And so my practice
advice to all of you is to have the compliance people and the deal people start
actually working very closely together very early
in the process as potential investments
are being considered so that this information
gathering and collection process that’s
required to even submit, what’s a shorter form but nonetheless requires
some detailed information, doesn’t take you by surprise
and ends up hurting the ability or the willingness to
invest in the United States. And it does require
more advanced planning, it does require more
coordination within the company, but if you do those two
things it is designed to go through the system
more smoothly. So, that’s my practice
tip to you all; more time and coordinate between
compliance and deals deal folks.>>And I’ll add one more, which is when you ask
the question earlier like what is your level of
knowledge between zero to five or five to ten I’m
proud and happy to say that the ARM contingent
sitting in the back of the room over their raised their
hands and said ten. So that is success, when
everybody on your team, deal team or otherwise, communications government
affairs, everybody needs to understand this process. And, so it’s an education
our general counsel is very, very much on top of
the compliance side of things our M&A leader and
our general counsel work hand in hand. And, so that’s the level of I’ll
call it execution that you want to be able to get
to on this process. And just as you would
on any other approval.>>I think those are two great
comments they’re kind of back to back about you know don’t
just you know wish something is going to go away don’t
think oh well I can deal with that later or whatever. This is, it’s a very good
area to be very proactive and get the people at the
beginning of the process when you’re doing your do
your deal risk assessment, it’s something you
need to consider. And as FIRRMA, you know, gets
out the regulations, get out, there will be more
information upon which you can base decisions
about whether to do a deal or not do a deal kind of based
on CFIUS, FIRMMA concerns, so. [Inaudible] raise the
International component here a little bit. I want to go back to that
just for a minute, too, because the United
States not an island. We deal with a lot of
different countries in the United States companies
doing business abroad also deal with CFIUS like regimes in other
countries so Laura I’m going to ask you to start a little bit
and talk a little bit about kind of what are other
regimes around the world and are there is there
international cooperation on how to deal with these kind of national security
/ investment issues?>>Sure. So, CFIUS has always
cooperated with our allies, but since FIRRMA we’ve
been building our capacity; I now have dedicated
staff to work on international cooperation. And this is in recognition of
transnational risk, particularly with integrated supply chains and as we’re seeing
technology develop, we found that it’s more
important now than ever to coordinate with our allies, and we have some
increased authority under FIRRMA to do that. So, we’ve been working both
bilaterally and multilaterally, and have been really
happy with the response. So, for example last year
the United helped set up a G7 working group
on investment security under the French presidency. We’ve been working closely
with the EU Commission as well as Japan on trilateral
cooperation, and the EU Commission even set
up a workshop for us to talk to EU Member States about
investment security. That was in the around
the time of the passage of an EU regulation on
investment screening, which the United States
strongly supported so it’s been getting
a lot of attention. Several countries are either
strengthening their systems and, in some cases, countries
are looking to set up an investment screening
mechanism for the first time and we’ve been providing
advice there, but I think it’s publicly known
that some of the countries that are either into
strengthening or and thinking about it include Japan, Germany,
France, UK, New Zealand, some other European countries. So, I think there’s
a growing recognition that we need to work together. But on the other hand just to reiterate the point you
made earlier, you know, when we’re meeting with these
other countries we’re always talking about how do you
protect national security without deterring inward
foreign investment? You know and as I said
before CFIUS has been around for three decades we
have a healthy stock of FDI, we want to keep it that way, but we need to address
national security risks. So, I think that’s something
that’s at the forefront of a lot of countries minds as they’re
determining the next steps.>>Right. Kevin or Ender,
do you want to add anything on the international
cooperation.>>No that was.>>That well said.>>Okay, yeah. I’ve been doing quite a bit
of work not necessarily only in the CFIUS, context
but I spend a lot of time in digital economy issues
traveling around the world and speaking to colleagues
and government agencies and particularly in the
European Commission, and in the Japanese as well. And there’s a lot of
emphasis on this right now. It is interesting, and
this is a longer speech, I would I usually give this about the Commerce Department
a little infomercial here if I can take my
prerogative as moderator. Commerce Department, and Kevin’s
going to back me up on this one, is a very interesting place because 10 years ago
I would have said, or 15 years ago I would
have said it was kind of an eclectic mix of bureaus that had something
to do with business. And today well it still
is something to do with business we have
five or six bureaus and I think the other
seven would be mad at me for not including
them that all deal with digital economy issues. So, we have intellectual
property at PTO, we’ve got you know satellites
and technology at NOAA, we’ve got NIST for standards
technology and issues, we have NTIA that deals
with spectrum privacy policy and other types of things, BIS
that deals with these issues, ITA and BIS that deal with
CFIUS in these kind of issues. So we have a national security
and digital economy kind of focus and we have a
place that does a lot of good policymaking, so
we have good people working on all these issues coming at it
from slightly different angles. So, our partnership with
Treasury is terrific. They’re a wonderful
group of folks in terms of I’ve been dealing on the on
the Taxation digital’s taxation over in Europe where there’s
a little epidemic going on right now that we’re
trying to address, but they’re great partners
on all of those issues. So, the interagency working
group that I’ve been seeing on CFIUS works extremely well. Multi-layered, extremely
professional the way you would like to have it design so you have the experts
providing the first cut on all the facts and
information, and it moves up the chain to the next level and then assistant
secretary level. Then it goes to deputies
and then ultimately to the President if
there needs to be. So, it is a four or
five level exercise that is very professionally
done. So, I want to ask the panelists if they have anything
else we have a little bit of a Ferris Bueller moment
I think with my clock here, I got some extra moments
but thank you very much. It ran backwards for a while but
that’s good, that’s all good. Well, let me just
ask the panelists if they have anything
else they would like to throw into the mix here?>>[Inaudible] I think
that in my 15 years of watching this process
both from from a part of it being a part of it in
some ways and then being a user of the process and and
following the process in terms of seeking approvals,
what I’ve seen is that it is it has improved in
a number of different ways. First of all it’s been
clearer around what’s included and what’s not included,
that’s one. I think FIRRMA helped a lot and
I think, that you know that, and there every 10 years or
so I think there’s a sort of change made to it. The second thing is I think the
transparency is getting better. Partly because of the people
understanding a process, because that’s really
part of transparency is if you understand the process
then it’s transparent to you. But, also, I think the
agencies that are involved in it are trying
to do a great job of actually telling you
here are our concerns, here’s how you can
mitigate them, this is what you
can expect from us, this is what we expect from you. And the consequences are clear. So, I think that companies
are getting more prepared. There’s also much more
advice available from people that have been either in the
process of managing CFIUS or involved in some of the
decision-making or involved in some of even the analysis
that they’re out there for you to consult with, and so
they’re available to you as resources we use them at ARM
because it’s just good hygiene from my standpoint, to make sure that we haven’t missed
something, because it does change. And I do think that you know
the spirit of it is the same as with any other any other
country, whether it’s the EU, the Netherlands, India, China; each country has something
I mean they may not make it as explicit as the
U.S. makes it for you. But this is about making
sure that you do invest in the country, but
that you understand that there’s some some
things that you might have to watch how you
do, and some things that you may not
quite be permitted to do that you anticipated. So, I think the CFIUS panel
tries to make it no surprises, but you can be surprised if
you’re not familiar with it. And and you can wake
up one day and realize, oops I should have filed and
I just you know lost 45 days or something like that. So if you’re prepared that’s
that’s a great starting point.>>And as transparent
as it is and baked into the process is the ability
to have informal discussions in fact in the regulations
it says come in and talk to Treasury in advance
of a filing to work through any issues. At the end of the day
remember, however, it is a confidential
process known only to you and to the committee, and also,
it’s, there’s a heavy aspect of it from the intelligence
community that’s involved. So, although the
committee’s, committee staff and the agencies will do
what they can in terms of helping you guide through
and work through the issues, remember there’s always going to be a little bit
of uncertainty in it. And this is not new by the
way, it’s always been this way with respect to underlying
national security issues that may not be able
to be discussed. So, there’s always going to
be a degree of uncertainty which is why when
you’re trying to think through on the voluntary side of it whether there is
potentially a national security risk sometimes being a little
bit more conservative and going in and talking with CFIUS or
making the voluntary filing, and don’t just assume
that you, you know, you have complete visibility
into what all the issues are. So, I’ll stop there.>>Great, thanks. Laura do you have
any closing comments?>>No, no closing comments. I just filling up on what Kevin
was saying we do have a process for parties to submit
a draft notice.>>Yeah.>>And we’ll give comments
before you submit the final to get the clock started.>>So, for a small medium-sized
business or something like that that may not have the ability to
go out and hire a big law firm like Kevin’s that would be a
good process for them to go through to get some
advice on how to do filing.>>Well, you know,
even some parties that have you know sophisticated
CFIUS counsel will file that to make sure it’s
complete while they’re kind of finishing negotiating
the transaction we like to have a deal
that’s pretty baked so while they’re finalizing it
sometimes they’ll file a draft just to kind of get the
okay if it’s complete or get some guidance
on [inaudible].>>Okay, good excellent.>>Not really a closing
remark but just.>>No, no, that’s
that’s a great way to end well listen I just
want to thank Kevin, Ender, Laura for a great great panel
discussion very, very exciting and interesting developments
going on here so thanks for your your great
comments, and please join me in thanking our panelists
for a great discussion. [Applause].

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