August 03, 2012
For lawyers representing non-US clients who are considering acquiring a U.S. company, questions of national security may come into play.
The U.S. is a familiar destination for Indian corporate investment. The statistics speak for themselves. Indian companies invested US$870 million in the U.S. from April 2011 to 28 February 2012, according to the Reserve Bank of India (RBI). This made the US the No. 3 choice, after Mauritius and Singapore.
Although entry onto U.S. soil has been relatively easy, recent turmoil suffered by large Indian corporate investors suggests that companies targeting the U.S. still have many lessons to learn.
The Committee on Foreign Investment in the United States (CFIUS) – which is composed of several members of president Barack Obama's cabinet, including the secretaries of the treasury, commerce, defence, state, and homeland security – is charged with reviewing transactions to decide whether they pose a threat to US national security. If CFIUS rules a takeover or joint venture a threat, it can set conditions that are meant to diminish the potential threat, or even recommend that the president axe the transaction.
CFIUS rarely disallows deals altogether, but it can certainly impact the time frame of transactions. It is allowed to initiate its own review but many businesses elect to file a voluntary notice with CFIUS instead of waiting to see if that happens.
Michael Amm calls CFIUS one of the "biggest impediments" to transactions in the U.S. "There’s a lot of concern [about] how the legislation will be applied and getting approval of the deal." In Canada, by contrast, Michael says a similar review process is largely unpoliticized.
Read the full article here.