On Tuesday, March 13, Dr. Heath P. Tarbert, Assistant Secretary for International Markets and Investment Policy, met with a group of CFIUS practitioners in Washington. The meeting was one of a regular set of meetings the informal “CFIUS Bar” has around Washington to discuss current developments in the CFIUS practice. Key takeaways from the meeting are:

1. China is not dead. When asked directly, Tarbert referenced the approval of more than a dozen Chinese acquisitions in 2017. He said that there is no policy to reject all proposed acquisitions by Chinese acquirers.

2. FIRRMA is moving forward. Tarbert noted the bipartisan and growing support for the Foreign Investment Risk Review Modernization Act (FIRRMA). He said that Treasury and other CFIUS agencies are actively working with Congress in support of FIRRMA, which the agencies believe is necessary to address holes in current policy. Tarbert confirmed that the goal of FIRRMA is not to “tweak” the process, but rather to more fundamentally change CFIUS jurisdiction and the nature of CFIUS reviews.

3. CFIUS reviews are increasingly complex. In response to a number of questions about the increasing unpredictability of the timeframe for CFIUS reviews, Tarbert noted a major contributing factor was the increasingly complex deal structures that come before CFIUS. When the CFIUS legislation was amended 11 years ago, the dominant model for a transaction was the strategic acquisition of a defense contractor (or subsidiary or division thereof) by a NATO ally. Those transactions were relatively clean, with few questions of jurisdiction or ultimate control. CFIUS has noted a clear trend toward a private equity acquisition model, which often include multiple acquirers and complex governance/control arrangements. The increased complexity of deal structures requires a significantly higher investment on the front end by Treasury analysts, who conduct a control analysis and determine the sufficiency of information filed before CFIUS can start the clock. This has slowed the ability of the Committee to start the clock on cases. The other major contributing factor is that . . .

4. CFIUS is extremely resource constrained. Prior to 2016, CFIUS would expect to see approximately 100 filings in a given year. Even at that pace, CFIUS resources were strained. Under current law, there is no separate, unified budget for CFIUS; each member agency commits whatever resources it deems appropriate to its own involvement in the process. During the boom of Chinese acquisitions in 2016 (primarily, but not entirely, in the semiconductor space), the number of filings reached a record in excess of 150 filings. In 2017, the total number of cases jumped to approximately 240, with no commensurate increase in funding. As anyone who regularly works with CFIUS can attest, agency personnel often trade emails with private practitioners at 2am, and join conference calls on weekends, to keep the process functioning. Two significant changes contemplated in the CFIUS reform effort are to require a unified budget for CFIUS and to allow CFIUS to charge a filing fee to help fund its operations.

Tarbert also fielded a number of questions from the group, primarily focusing on the finer points of CFIUS practice and ways, big and small, to improve the process. Many of these questions hit on common themes for CFIUS practitioners—predictability of timeframes, predictability of outcomes, more engagement and transparency in the process, and similar themes—which, given the current resource constraints at CFIUS and high number of filings, seem best addressed through fundamental changes to the CFIUS funding process.