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must be completed by CFIUS within 30 days. If, at the end of its review, CFIUS concludes that a transaction “threatens to impair” national security, it has 45 days to conduct a national security investigation. Transactions not opposed by CFIUS – historically, the overwhelming majority of foreign acquisitions – may proceed, and CFIUS will not later seek to re-open the transaction except in certain extraordinary circumstances provided by FINSA. National Security Inquiries By CFIUS Members E.O. 13456 appears to expand the authority of the individual member agencies of CFIUS by providing that any member may conduct its own inquiry with respect to the potential national security risk posed by a transaction. However, communications with the parties to the transaction must occur through, or in the presence of, the lead agency (or Treasury, if no lead agency has been designated). National Security Investigations FINSA requires CFIUS to conduct a national security investigation of certain covered transactions, particularly those that would result in foreign control of any “critical infrastructure” or that are by “foreign government-controlled” entities (subject, in each case, to certain conditions and exceptions). E.O. 13456 adds to the list of transactions requiring a 45-day national security investigation any transaction that a single member of CFIUS believes “threatens to impair” national security. Reports to the President Under previously applicable procedures, reports were required to be sent to the President at the end of every national security investigation. E.O. 13456 provides that CFIUS shall report to the President, and request the President’s decision on a review or investigation of a transaction, in only three circumstances: (i) if the Committee recommends suspension or prohibition of a transaction; (ii) if the Committee is unable to make a recommendation; or (iii) if the Committee requests that the President make a determination with regard to the transaction. This appears to mean that reports to the President are no longer required at the conclusion of a national security review if CFIUS concludes that the transaction either does not present a national security risk or that such risk is mitigated by agreement or condition. (However, reports to Congress may be required by FINSA on such matters, as part of the effort to enhance Congressional oversight of the CFIUS process.) MITIGATION AGREEMENTS AND ENFORCEMENT Consistent with FINSA, E.O. 13456 authorizes CFIUS, or any lead agency, to seek a mitigation agreement or otherwise impose conditions on the parties to a transaction to address a national security risk found to be posed by a transaction if such risk is “not adequately addressed by other provisions of law.” CFIUS Review of Foreign Investment January 31, 2008 -4-
E.O. 13456, however, sets out additional requirements limiting a lead agency’s discretion in this regard, presumably with the intent of helping to ensure that the full Committee gives careful consideration to any proposed mitigation agreement or condition. Prior to proposing a mitigation agreement to any of the parties to a transaction, the lead agency must first provide written notice to the full Committee identifying the specific national security risk that the transaction poses and setting forth the proposed mitigation measures believed to be reasonably necessary to address that risk. Only if the full Committee agrees that mitigation is appropriate and approves the proposed mitigation measures may the lead agency commence negotiating the agreement with the parties to the transaction. E.O. 13456 also addresses issues that may arise from overlapping jurisdiction and authority. E.O. 13456 specifically preserves the authority of each CFIUS member to conduct inquiries, communicate with the parties, and negotiate, enter into, impose, or enforce contractual provisions with the parties to a transaction so long as these activities are conducted in the exercise of authorities other than those provided under Exon-Florio. At the same time, a CFIUS member may not condition its exercise of other authority it may have upon its exercise (or forbearance in the exercise) of its CFIUS-related authority. E.O. 13456 also provides that a mitigation agreement shall not, except in “extraordinary circumstances”, require a party to a transaction to recognize, state its intent to comply with, or consent to the exercise of any authority under existing provisions of law. 4 This provision appears to be intended to limit the potentially coercive power of CFIUS in certain respects. For example, one effect of this provision appears to be that, in the normal course, CFIUS will not be able to require a party to consent to the exercise of authority when it otherwise would not be bound, simply in order to have its transaction approved. Another effect appears to be that CFIUS is restrained, in the normal course, from including catch-all agreements to comply with applicable law, the breach of which could later be used to reopen consideration of a transaction, as Exon-Florio allows CFIUS to reopen consideration in the event of a material breach of a mitigation agreement. In a similar vein, E.O. 13456 expressly provides that CFIUS may not reopen a transaction that has previously been reviewed, except in the extraordinary circumstances identified by Exon-Florio, that is, where a party materially breaches its mitigation agreement or provides false or misleading, or omits, material information during the initial review. * * * Copyright © <strong>Sullivan</strong> & <strong>Cromwell</strong> LLP 2008 4 E.O. 13456 expressly provides that it does not impair or otherwise affect “existing mitigation agreements”; presumably, this means mitigation agreements entered into prior to January 23, 2008. CFIUS Review of Foreign Investment January 31, 2008 -5-
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Page 3: Role and Authority of the Lead Agen

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