The CFIUS Book: Second Edition (Slight Delay)

The pandemic that has put our world a bit sideways has, as you might expect, set back our publication date. We should have paper copies of the (much anticipated) CFIUS Book: Second Edition available by mid-May 2020. However, because we have the text ready, we will publish a series of preview excerpts for your review and, of course, as teasers for the New York Review of Books.

In this excerpt we discuss a new decision that investors will face as they approach investment in the United States, whether to file a full Joint Voluntary Notice or to file a short-form Declaration, also sometimes referred to as “CFIUS Lite.”

Please don’t hesitate to reach out and tell us what you think.

— Reid Whitten

The Big New Decision: Declaration or Notice?

For those with transactions that whose transactions are subject to CFIUS jurisdiction, this question is an important jumping off point. The regulations state that parties may file a Declaration on any transaction they wish to submit to CFIUS, except where a Declaration or Notice has already been filed for the same transaction. Similarly, a Notice may be filed for any transaction that parties wish to submit to CFIUS, including in the case of mandatory filings. Therefore, both options are at your disposal for nearly any given transaction.

Each transaction will need to be analyzed based on the positions of the parties, the timing needs of the deal, and any changes in the trends of CFIUS reviews. However, in this chapter, we provide some brief guidance based on experience in the short time that CFIUS Declarations have been an available option.

CFIUS Declarations

Except where parties have already filed a Declaration or Notice with the Committee on the same or similar transaction, a party to any proposed or completed transaction may submit a Declaration regarding its transaction instead of a written Notice. That means you always have this potentially time-saving option at your disposal. Further, CFIUS is required to act on a Declaration within 30 days.

So why wouldn’t you take the option of a short-form Notice that requires less information and only takes 30 days to review? Well, as discussed below in Section 6.1.2, one of the potential responses from CFIUS is to request that you file a full Notice (or state that it could not clear your transaction and leave you to decide whether to file a full Notice or take the risk of CFIUS review after the transaction has closed). In that case, you would be back to square one, but 30 days later than when you might have started (plus whatever time it took to gather the Declaration information).

Still, there are times when a Declaration may have an increased chance of success. If you have filed a full Notice on a similar and recent previous transaction (e.g., same investor, target in a the same industry), that may increase your chances that a second or third filing as a Declaration will be cleared because the Committee has already put your company through the wringer and gotten all the information it needs. Now, CFIUS will tell you that every transaction is evaluated independently, and that is largely true. But the Committee members do work together and coordinate and the institutional knowledge created by the significant information sharing in a full Notice can pave the way for success on a following Declaration.

CFIUS Joint Voluntary Notice 

The CFIUS Notice process takes time. As you will see in Chapter 7, the information gathering is likely to take weeks and the 45-day review will often slide into the 45-day investigation period, making your total CFIUS time something near 10 – 12 weeks. However, a Notice is far more likely to obtain a clearance for your transaction than a Declaration.

The certainty of the Notice resolution may be more important to your matter than the potential time savings of a Declaration.  Further, if the parties to your transaction are not familiar to the Committee, or you have any reason to believe that the Committee will have a hesitation about some aspect of your transaction, then the chances you will obtain a clearance on a Declaration drops significantly. In that case, you may actually be saving time by starting with the Notice and dispensing with having your Declaration returned to you with a request to file a Notice anyway.