I've been wondering about what, exactly, the law enforced by CFIUS is, Paul has been wondering about sovereign wealth fund regulation.  It all seemed like an opportune time to attend a panel on CFIUS at the American Society of International Law's annual meeting.  The panel was a very good one, including well-spoken reps from Treasury, Homeland Security, USTR, a Barney Frank staffer, and a lobbyist.   You don't always get clarity from political operatives.  Here's some of the stuff we got:

• CFIUS reviews matters now more intensively than they ever did before.  Sayeth Homeland Security: "There is no doubt that we have a much more searching inqiury than we did 3 or 4 years ago."  Note that 3 or 4 years ago is 3 or 4 years after 9/11.

• One panelist explained why there will never be a CFIUS treatise.  The proceedings involve the proprietary information of the American business, national security purposes, an inter-agency process (which takes it out of FOIA), and intelligence reports.  Will this ever be open to public scrutiny?  The constituency for that sort of openness lies mostly with foreign sovereign acquirers.  It remains to be seen whether they have the pull with Congress or Treasury to get the transparency that we expect in other administrative action.

• Homeland Security was asked to define "critical infrastructure," which is the type of asset that CFIUS might conclude should not be sold to a foreign government.  What is critical infrastructure?  A farm?  A cement firm?  Given fears about foot in mouth style biological attacks, and, you know, buildings, Homeland Security thought that requests to define that term would be "unproductive."
  

• What about minority investments?  How little is too little? Chinese government-owned Hulawei, after all, got dinged for proposing to acquire 16% of 3Com. Treasury suggested that there might be some clarity in the impending next round of CFIUS regs. Could 10% be the number?  We will wait with baited breath.

• Oddly, the political dynamic at stake in these cases: left wingers skeptical of job-killing M&A, free marketers skeptical of CFIUS regulation, seems to be mirrored in the agencies involved in the inter-agency process, where DOD and Homeland Security are likely to worry about foreign sovereign acquisitions, while Treasury and USTR might be more pro-investment.  As far as I can recall, this "guns and unions" relationship is rather unique.

• As the trade rep noted, CFIUS is, of course, a potential avenue for protectionism.  How to avoid overpreventing foreign acquisitions?  We got a soundbite: the hope that CFIUS would try to protect "national security, not economic security."

• I've told you that CFIUS's secrecy makes its rulings on whether foreign sovereigns can acquire domestic firms (or even stakes in those firms) totally unpredictable - at least, without the assistance of high-paid Washington legal talent.  Will the post-Dubai Portsworld amendments help?  Maybe, as one panelist noted.  Said amendments require an annual report, which may offer the best practices guidance that the currently unavailable decisions do not.

• As USTR noted, CFIUS matters for BITs.  The BRIC countries are going to be unwilling to submit investment disputes to non-national arbitration without some sort of assurance that CFIUS decisions will either be disciplined by the BIT or be otherwise predictable.

• What about Sovereign Wealth Funds?  Nothing new, says Treasury, which has been "dealing with [that form of investment] since 1989."

• What does this mean in practice?  Deal makers are going to the Hill as well as to the investment banks and to CFIUS when a foreign sovereign (or SWF) is interested in a domestic acquisition.

• Beyond CFIUS: one panelist warned that Congress might look into foreign sovereign ownership of financial institutions, like when a Saudi prince bails out a bulge bracket bank.  "Are they being held to a lower standard" than domestic acquirers when they do this?  Wait for the Congressional hearings, apparently.

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