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THE CFIUS BOOK
4. Foreign Government interest
§800.402(c)(6)(iv): whether a foreign government or a person controlled by or acting on behalf of a foreign government:
a. Has or controls ownership interests of the acquiring foreign person or any parent of the acquiring foreign person, and if so, the nature of those interests;
b. Has the right or power to appoint any of the foreign person or its parent’s principal officers or board members;
c. Holds any contingent interest in the foreign acquiring party and, if so, the rights covered by that contingent interest, and the manner in which they would be enforced; or
d. Has any other affirmative or negative rights or powers that could be relevant to the determination of whether the transaction is foreign government- controlled.
Complex deals may create government ownership interests in ways that are not immediately evident. You should be certain that your CFIUS counsel coordinates with deal counsel to fully understand whether and how a foreign government interest may arise in a transaction, such as the following:
l Interest from lending transactions: If a loan or financing agreement makes the critical U.S. asset a possible collateral over which a foreign government lender may take control, you should clarify under what circumstances the lender may take control. The disclosure will likely trigger an automatic 45-day investigation, but it will allow you to frame the narrative and highlight arrangements in the deal that would assuage U.S. national security concerns.27
We note that a loan agreement that gives a foreign person a veto right over certain decisions of the U.S. business would not, by itself, be considered a covered transaction as long as the agreement does not grant the foreign person economic or governance rights normally found in an equity investment.
l Convertible voting instruments: If a convertible bond or other security interest can be converted into voting shares by a government or person acting on behalf of the government, you should make clear the nature and amount of those instruments and, with regard to convertible voting instruments, the terms and timing of their conversion. Recall that CFIUS considers control to be present in a deal, whether or not that control is exercised (Section 1.1.3).
l Otherrightsorpowers:Ifaforeigngovernmentoritsagenthasanyotherrights or powers in the deal, this is where you will want to clarify the source and mechanism of those rights and powers (e.g., a clause in the shareholder agreement or a side contract, the operation of regulations, or a “golden share” held by the government.)
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