While it appears the Federal Government may escape another shutdown, as Congress and the White House negotiate over legislative priorities (the looming shutdown, which will occur if there is no resolution before midnight April 28, 2017), no one expects that the possibility of future shutdowns has been eliminated. Federal Government shutdowns have broad implications for numerous government functions, and the current lack of attention to their impact on certain national security issues, including those carried out by the Committee on Foreign Investment in the Untied States ("CFIUS"), which review transactions and investments by foreign persons and companies in US businesses for national security concerns, should be addressed before the next threat of a shutdown arises. Under current law, there is no consideration for the effects of a shutdown on CFIUS reviews, and that oversight could adversely impact national security reviews conducted by the Committee.

CFIUS, created in the mid-1970's by President Gerald Ford as an advisory body, has twice been the subject of legislation. First, in 1988, the Exon-Florio amendments to the Omnibus Trade and Competitiveness Act of 1988, 5021, Public Law 100-418 (1988) and more recently by the Foreign Investment and National Security Act of 2007, Public Law No. 110-49 ("FINSA"). CFIUS legislation resides in section 721 of the Defense Production Act of 1950, 50 U.S.C. App. 2170. The current embodiment of CFIUS is implemented by Executive Order 11858 and the CFIUS regulations at 31 C.F.R. Part 800.

These citations are relevant because they impose immutable deadlines on the CFIUS process, yet none addresses what happens if and when the US Government shuts down while CFIUS notices are pending. Since the CFIUS workload is such that there are always notices pending, the absence of any extension or other language to address this situation means that the clock keeps running on pending CFIUS notices during a government shutdown. It also means that new notices cannot be accepted while the federal government remains closed.

In the last government shutdown, in October 2013, CFIUS advised parties that no new notices would be accepted, and that, in fact, the clock would continue to run on pending notices. A number of parties with transactions pending before the anticipated shutdown date -- October 1, 2013 -- reportedly received requests to withdraw their notices, or were informed that the Committee instituted 45-day investigation periods as a way to retain jurisdiction. Although the government shutdown lasted just over two weeks, these actions show that the shutdown directly impacted several pending reviews and investigations, in addition to delaying the filing of new notices.

Unfortunately, despite the lessons of the last shutdown, nothing was done to provide a fix to the problem of CFIUS timelines during a government shutdown. Thus, should the situation recur, the same dilemmas will be repeated. At some point, a party may seek to take advantage of the situation and argue that the running of the clock during the government shutdown divested CFIUS of jurisdiction, and constitutes an approval under FINSA and the CFIUS regulations. Whether that challenge can ultimately succeed, however, is not clear.

The uncertainty surrounding the impact of a federal shutdown on CFIUS jurisdiction cannot continue to be ignored. What would happen if a party with a pending notice declined to withdraw the notice ahead of a shutdown? Or, if a 45-day investigation that was not complete ran out while the government was shut down? Would CFIUS jurisdiction be divested under FINSA? Could CFIUS revive its jurisdiction? And what if the parties were negotiating a mitigation agreement and the shutdown ran out the clock? Can the parties close their transaction without regard to CFIUS' previously-expressed concerns? Similarly, what happens if CFIUS recommends Presidential action just prior to the shutdown, and the government remains close during the 15-day Presidential review period under FINSA? These uncertainties subject CFIUS decisions to political winds inapposite to the seriousness of these investigations.

FINSA's Timelines

The timelines for CFIUS reviews and investigations are set forth in FINSA. While CFIUS can control when the clock starts to run, once it "accepts" the parties' notice, it has 30 calendar days to complete its "review", and a maximum of 90 days for all activity to be completed. The purpose of a review is "to determine the effects of the transaction on the national security of the United States." 721(b)(1)(A)(i). If the Committee determines that any of the following conditions exist (or if it simply needs more time to make that determination), FINSA directs CFIUS to commence an "investigation":

  1. the transaction threatens to impair the national security of the United States and that threat has not been mitigated during or prior to the review of a covered transaction;
  1. the transaction is a foreign government-controlled transaction;
  1. the transaction would result in control of any critical infrastructure of or within the United States by or on behalf of any foreign person, if the Committee determines that the transaction could impair national security, and that such impairment to national security has not been mitigated by assurances provided or renewed with the approval of the Committee, during the review period; or
  1. the lead agency recommends, and the Committee concurs, that an investigation be undertaken.

50 U.S.C. App. § 721(b)(2)(B). An investigation is also limited by FINSA to 45 calendar days. Id. at §721(b)(2)(C). Thus, the combined review and investigation can total no more than 75 days after acceptance of a CFIUS notice.

Within these time frames, FINSA also requires that the Director of National Intelligence ("DNI") provide, "not later than 20 days after the date on which notice of the transaction is accepted by the Committee", a "thorough analysis of any threat to the national security of the United States posed by any covered transaction." Id. at § 721(b)(4)(A).

The final statutory timeline applicable to CFIUS and the President's authority under FINSA comes if and when the Committee recommends to the President that a transaction be blocked. FINSA grants broad authority to the President under CFIUS to "take such action for such time as the President considers appropriate to suspend or prohibit any covered transaction that threatens to impair the national security of the United States." Id. at § 721(d)(1). Where Presidential review and/or involvement occurs, FINSA directs that "[t]he President shall announce the decision on whether or not to take action pursuant to paragraph (1) not later than 15 days after the date on which an investigation" is completed. Id. at § 721(d)(2).

FINSA thus sets forth a carefully constructed timeline for reviews, investigations and decisions with respect to transactions before it, and with respect to the DNI's provision of its national security "threat" analysis. But nowhere within FINSA is there any way to extend these deadlines. Without this safeguard, a CFIUS review or investigation could meet an untimely death during a government shutdown or other crisis. And there may not be much CFIUS can do to force the issue, once it has accepted a notice.

From a practical perspective, CFIUS has found a work around when it simply needs more time, whether to analyze a transaction or to negotiate mitigation with which the parties can agree. That work around comes through the tool of withdrawal. FINSA allows CFIUS and the parties to agree that a notice will be withdrawn, and nothing in the statute or regulations prohibits a withdrawal followed by a refiling. Thus, parties occasionally may be requested to withdraw a notice as a way to restart the statutory clock. When a notice is withdrawn, it is again subject to up to the full 90-day review, investigation and decision period. But FINSA and the CFIUS regulation are silent as to the Committee's authority to extend any statutory period in extraordinary or unusual circumstances. This could lend credence to an argument that a CFIUS review or investigation could simply "run out" during a government shutdown or similar period when CFIUS might be unable to act (i.e., a national emergency).

Nothing in FINSA allows for a circumstance such as a government shutdown. FINSA speaks only in terms of calendar days, and does not even allow for rollovers where the last day of a review or investigation falls on a weekend or a Federal holiday. This begs the question then, what happens if CFIUS does not complete its action in the time allotted, whatever the reason, and does not obtain the parties' agreement to withdraw and re-file? While this may be unlikely during normal times, when CFIUS can use the threat of a recommendation to the President to block a transaction, the situation could be entirely different if this happens due to a government shutdown. During a government shutdown, if the review time runs out, CFIUS would not be able to initiate an investigation. And if the investigation period runs out, CFIUS would not be in position to meet the requirements for a recommendation to the President. Likewise, what happens if the DNI fails to provide the required threat assessment in the 20-day statutory period because the government was shut down? Can CFIUS act without the assessment because of the shutdown, even though it is mandatory?

Certainly CFIUS could, as it did in 2013, reach out to all filers and ask that they withdraw pending notices, or, in the alternative, CFIUS can unilaterally initiate investigations and hope the shutdown does not outlive the 45 days (or part thereof) allotted for the investigation by FINSA. But what if it does not, or if the shutdown outlasts the applicable time period (whether an existing review period or investigation period)?

Does the end of the time period result in "approval" or, more aptly, a decision not to take action? This is an important question, because the CFIUS regulations both support this proposition but also suggest that something more might be required. For example, section 800.504 titled "Determination not to undertake an investigation" states that "if the Committee determines, during the review period . . . not to undertake an investigation of a notified covered transaction, action under section 721 shall be concluded."

On the other hand, section 800.601(a) of the CFIUS regulations states that the Committee's and President's authority under FINSA "shall not be exercised if . . . (2) The parties to the transaction have been advised in writing pursuant to
§ 800.504 or § 800.506(d) that the Committee has concluded all action under section 721 with respect to the covered transaction." (emphasis added). Similarly, section 800.504 also appears to require some form of written determination by CFIUS before action is "final". That section states that, upon reaching a decision not to undertake an investigation, "an official at the Department of the Treasury shall promptly send written advice to the parties to a covered transaction of [the] determination of the Committee not to undertake an investigation and to conclude action under section 721." FINSA similarly requires the Committee to "notify the parties to a covered transaction of the results of a review or investigation under this section, promptly upon completion of all action under this section." 50 U.S.C. App. § 721(b)(6).

Collectively, these sections appear to end CFIUS jurisdiction when the time runs out, but they also could be argued to continue CFIUS jurisdiction until such time as the Committee notifies the parties in writing of its decision. No legal actions have been brought by parties asserting that CFIUS improperly extended its own time limits and retained jurisdiction beyond that allowed by FINSA. However, one could envision a circumstance where the parties take advantage of a government shutdown to let the clock run out on their CFIUS investigation, and declare the Committee divested of its jurisdiction for not acting within statutorily-prescribed time limits. Similarly, a challenge might be based on DNI's failure to provide the required threat assessment within the time required by FINSA as ground for a due process or other violation.

Rather than leave this uncertainty, Congress could easily amend FINSA to take into account circumstances such as a government shutdown or national emergency, and mandate that delays in CFIUS decisions due to such events shall still be timely. For example, a provision that tolls the time for review, investigation or action in such circumstances should be sufficient to protect against an unfortunate result that could be harmful to national security. CFIUS should not be hostage to the politics surrounding government shutdowns, or the uncertainties that accompany national emergencies. The Committee's work is too important to be subject to these uncertainties.

© 2017 Kenneth J. Nunnenkamp and Giovanna M. Cinelli


The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.