May 2007

Client Alert: CFIUS Reform

Last week the Senate Banking Committee approved legislation that would amend the process for review of foreign investments affecting U.S. national security. The House of Representatives passed companion legislation in February. Banking Committee Chairman Christopher Dodd (D-CT), a candidate for the Democratic presidential nomination, predicts that the Senate will pass the bill before Congress recesses for the July 4th holiday. Although differences between the House and Senate bills must be reconciled before the bill can be sent to the President for enactment, Dodd is optimistic that any differences can be readily smoothed out. If so, the Democratic Congress will achieve reform that eluded the Republican Congress, which considered but failed to enact legislation in 2006.

Among other things, the Senate bill would codify the Committee on Foreign Investment in the United States (CFIUS), the multi-agency committee that now reviews foreign investment pursuant to Executive Order. The bill would also provide for designation of a "lead agency" to oversee mitigation of national security issues related to acquisitions. The bill expressly calls out acquisitions involving "critical infrastructure" for CFIUS review, and provides for mandatory 45-day investigation of acquisitions by foreign government controlled entities. In a departure from prior drafts, however, the bill makes clear that such investigations will not be required if the Secretary of the Treasury and the head of the lead agency conclude that the acquisition will not impair national security. The bill also provides for expanded reporting to Congress on the results of agency reviews.

The Banking Committee bill has not yet been introduced, but instead has been drafted as a committee bill, a rare but not unprecedented parliamentary device that can help avoid committee jurisdictional disputes. We are monitoring this legislation closely.

Copyright ©2007 by Kaye Scholer LLP. All Rights Reserved. This publication is intended as a general guide only. It does not contain a general legal analysis or constitute an opinion of Kaye Scholer LLP or any member of the firm on the legal issues described. It is recommended that readers not rely on this general guide in structuring individual transactions but that professional advice be sought in connection with individual transactions. References herein to "Kaye Scholer LLP & Affiliates," "Kaye Scholer," "Kaye Scholer LLP," "the firm" and terms of similar import refer to Kaye Scholer LLP and its affiliates operating in various jurisdictions.

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