Should Third-Country Companies with Chinese Ties Fear US Scrutiny?

Summary:

• CFIUS has the power to take into account a third-country company’s China operations when reviewing investments by that company into the U.S.

• Companies should internally assess their exposure to China and consider submitting a voluntary or simplified filing with CFIUS

• Companies should also consider the impact of “reverse CFIUS”, export control rules, and forced labor restrictions on their U.S. investments and investments from U.S. companies

U.S. review of mergers that have any ties to China are bound to intensify, regulatory attorneys across the globe warn, detailing the many ways companies may continue to face scrutinization from regulatory authorities.

Reviews of proposed investments by third-country companies with Chinese links in the United States (U.S.) by the Committee on Foreign Investment in the U.S. (CFIUS) is “not surprising,” Michael Zolandz, Washington, D.C., managing partner and chair of federal regulatory and compliance at Dentons, comments. In fact, CFIUS has previously reviewed such transactions. Charles Wu, counsel at Clyde & Co’s Hong Kong office, notes that in 2019, CFIUS reviewed Japanese company Softbank’s investment into automobile company Cruise, which is backed by General Motors. It approved the deal with the condition that Softbank did not disclose information about Cruise to its portfolio companies in the PRC over the concern that Cruise’s intellectual property secrets may be obtained by China. Even before the Trump administration widened CFIUS’ jurisdiction, the Obama administration blocked German company Axtron’s prospective sale to a Chinese buyer due to Axtron’s significant R&D activities in the U.S.