CFIUS Audit

Experienced Legal Counsel for CFIUS Audits Targeting Foreign Investments in the United States

Foreign investments, including certain real estate transactions, in the United States are subject to auditing by the Committee on Foreign Investment in the United States (CFIUS). Like other federal entities, CFIUS has substantial authority to carry out its National Security Act mandate, and CFIUS audits can—and do—lead to proposed transactions being barred due to a national security risk and foreign policy concern. With this in mind, foreign persons, entities, and the foreign government on both sides of proposed transactions that are subject to CFIUS’s oversight need to proceed carefully, and this starts with understanding what to expect during the CFIUS review process.

At Oberheiden P.C., we have extensive experience in mitigation agreements, advising clients both domestically and abroad in connection with proposed investments in U.S. businesses and U.S. real estate. If you are contemplating a transaction that is subject to CFIUS’s oversight, we can help prepare you for—and represent you or your organization during—your CFIUS audit. Our attorneys can proactively identify and address any potential concerns; and, if CFIUS raises any additional concerns during the audit process, we can work to resolve these concerns without them threatening your deal and keeping your sensitive personal data.

What is CFIUS?

The Committee on Foreign Investment in the United States (CFIUS) is an interagency committee composed of agents and attorneys from across the federal government. This includes agents and attorneys from several White House offices (including the Homeland Security Council and National Economic Council), as well as the following agencies:

• U.S. Department of the Treasury
• U.S. Department of Justice (DOJ)
• U.S. Department of Homeland Security (DHS)
• U.S. Department of Commerce
• U.S. Department of Defense (DOD)
• U.S. Department of State (DOS)
• U.S. Department of Energy (DOE)

Within these agencies, various specific offices may be assigned to handle CFIUS-related duties as well. For example, within the DOD, Global Investment and Economic Security (GIES) “works with DOD stakeholders to assess transactions to adopt DOD’s risk-based positions on its impact to national security and to make recommendations to CFIUS as to its disposition.” Each of the agencies and offices involved with CFIUS has its own unique priorities and concerns—and this can make preparing for (and successfully completing) a CFIUS audit challenging in many cases.

Put our highly experienced team on your side

Dr. Nick Oberheiden

Founder

Attorney-at-Law

Lynette S. Byrd

Former DOJ Trial Attorney

Partner

Brian J. Kuester

Former U.S. Attorney

Hon. Kevin McCarthy

55th Speaker, U.S. House of Representatives (ret.)

Government Consultant

Mike Pompeo

Of Counsel

Former U.S. Secretary of State

John W. Sellers

Former Senior DOJ Trial Attorney

Linda Julin McNamara

Federal Appeals Attorney

Nicholas B. Johnson

Former Prosecutor

Roger Bach

Former Special Agent (DOJ)

Chris J. Quick

Former Special Agent (FBI & IRS-CI)

Michael S. Koslow

Former Supervisory Special Agent (DOD-OIG)

Ray Yuen

Former Supervisory Special Agent (FBI)

The CFIUS Audit Process

The CFIUS audit process can begin in one of two ways—either: (i) CFIUS can initiate the audit by issuing a review notice; or, (ii) the parties to a proposed transaction can submit a “declaration” of their transaction to CFIUS. As the U.S. Department of the Treasury explains:

“Declarations provide for an abbreviated or light filing process that could result in shorter review timelines (i.e., a 30-day assessment period). . . . [P]arties may submit a short-form declaration notifying CFIUS of a covered transaction in order to receive a potential ‘safe harbor’ letter (which limits CFIUS from subsequently initiating a review of a transaction except in certain limited circumstances).”

It is important to note that the submission of a declaration is required in some cases. In any case, upon initiating an audit, CFIUS will review the subject transaction in depth, engaging with the parties’ legal counsel as necessary. If a proposed transaction of a foreign person raises concerns, CFIUS may also choose to conduct an investigation that goes beyond (and potentially far beyond) the scope of a typical CFIUS audit. For parties seeking approval, an informed and proactive approach is essential throughout the process, as it will be necessary to ensure that CFIUS personnel have an accurate understanding of the transaction and its national security or foreign policy implications (if any) so that they can reach an informed decision.

The Potential Outcomes of a CFIUS Audit

Broadly, a CFIUS audit can have four potential outcomes. For foreign investors and U.S. entities facing CFIUS audits, the goal is to receive a “safe harbor” designation from the committee. As the U.S. Department of the Treasury explains:

“If CFIUS determines that there are no unresolved national security concerns arising as a result of the covered transaction or that other provisions of law provide adequate and appropriate authority to address the risks, then CFIUS will advise the parties in writing that CFIUS has concluded all action . . . with respect to the transaction. . . . [T]hen the parties receive a ‘safe harbor’ with respect to that transaction, as described in 31 C.F.R. § 800.508(d) and section 7(f) of Executive Order 11858, as amended, subject only to certain circumstances described in 31 C.F.R. § 800.501(c)(1)(ii).”

A “safe harbor” designation allows the proposed foreign direct investment to move forward, and, as noted above. At the same time, it does not guarantee safety from further federal scrutiny (including scrutiny from the Office of Foreign Assets Control (OFAC) and other authorities). It indicates that CFIUS has found no reason to object to the transaction on national security or foreign policy grounds. If CFIUS does not grant a “safe harbor” then the audit5 will have one of two other outcomes—either:

• CFIUS can impose conditions on the proposed transaction or require that the parties to the proposed transaction enter into an agreement to meet certain requirements;
• CFIUS can refer the proposed transaction to the President of the United States for a final decision; or,
• CFIUS can suspend the transaction based on national security or foreign policy concerns.

If a CFIUS audit results in any outcome other than a “safe harbor” designation, the parties to the proposed transaction may need to continue working with CFIUS, engage with the White House, or challenge CFIUS’s determination in federal court depending on the circumstances involved. With that said, with careful preparation (including preparation and submission of a declaration) and a clear understanding of CFIUS’s authority and enforcement priorities, it will be possible to favorably resolve a CFIUS audit without the need for further action in many cases.

Preparing for a CFIUS Audit

With this in mind, what can (and should) foreign investors and U.S. entities do to prepare for a CFIUS audit? While preparing for a CFIUS audit is a complex, time-consuming, and circumstance-specific process, some of the key preparatory steps include:

• Conducting a CFIUS compliance review to identify any concerns that are likely to arise during the audit process;
• Addressing any potential concerns proactively, whether by modifying the terms of the transaction or preparing to work with CFIUS to secure an agreement or secure approval of the transaction subject to conditions;
• Preparing a declaration to file with CFIUS (if CFIUS has not initiated an audit independently);
• Getting ready to work with CFIUS personnel during their review and, if necessary, during their investigation; and,
• Establishing a CFIUS audit team with clear responsibilities and reporting roles, and designating legal counsel to communicate with CFIUS personnel directly.

Again, these are just broad examples of the steps involved in preparing for a CFIUS audit. If you are pursuing (or if your organization is pursuing) a transaction that is subject to CFIUS’s oversight, our attorneys can guide you through your preparations step-by-step; and, when the time is right, we can engage with CFIUS on your behalf to initiate the audit process and begin steering the audit toward a favorable outcome.

FAQs: Preparing for (and Successfully Completing) a CFIUS Audit

Discuss Your CFIUS Audit with a Senior Attorney at Oberheiden P.C.

If you have questions about undergoing a CFIUS audit, we invite you to contact us for more information. To speak with a senior attorney at Oberheiden P.C. in confidence, please call 888-680-1745 or contact us online today.