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US exempts allies from some national security deal reviews

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Via Financial Times

The Trump administration has moved to exempt investors from the UK, Australia and Canada from some of its tough new restrictions on foreign investment, in final rules connected to the measures due to take effect next month. 

The Treasury department said on Monday that transactions involving buyers from the three US allies would avoid scrutiny from the inter-agency Committee on Foreign Investment for certain deals in the property sector and those involving non-controlling stakes.

The reprieve from Cfius review for deals involving the UK, Australia and Canada was motivated by their “robust intelligence-sharing and defence industrial base integration mechanisms with the US”. 

However, the Trump administration said the exemption for those countries would initially last for two years, to be renewed if their own foreign investment review processes and co-operation with the US on investment screening was satisfactory. 

“For the first time, Cfius recognises what we have all known — that there is, in effect, a bifurcated review process under which some investors receive preferential treatment and some do not,” said Anne Salladin, a partner at Hogan Lovells. 

The US Treasury also said that investors from the UK, Australia and Canada would still need to meet certain criteria in order to qualify as exempt from Cfius. All three countries are members of the “five eyes” anglophone intelligence alliance with the US. New Zealand is the only member of the pact to not benefit from an exemption from the tighter Cfius regulations. The US Treasury, however, said that more countries could be added to the list in the future. 

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The final rules issued by the Treasury department follow 2018 legislation expanding the US government’s scrutiny of foreign investments to more deals involving sensitive technology, infrastructure, personal data, and real estate, as officials fretted over the rising influence of China and Russia in global finance. 

“These regulations strengthen our national security and modernise the investment review process,” said Steven Mnuchin, the US Treasury secretary. “They also maintain our nation’s open investment policy by encouraging investment in American businesses and workers, and by providing clarity and certainty regarding the types of transactions that are covered.” 

Foreign investment reviews by the US government became a flashpoint for corporate boards and dealmakers just under two years ago after President Donald Trump turned to Cfius to block a $142bn hostile bid for Qualcomm by its then Singapore-based rival Broadcom. 

Lawyers who specialise in the national security reviews have been inundated with client queries and work since then, prompted by the new regulatory regime that now requires dealmaking in certain sectors be reported to Cfius. 

“The caseload and volumes have clearly exploded and so they [Cfius] are trying to find a way to manage and triage the workload,” said Ivan Schlager, a partner at the law firm Skadden Arps. 

Among other changes made in the final regulations was the inclusion of a definition for a buyer’s “principal place of business”, after US hedge fund, venture capital and private equity groups worried they may be subject to Cfius scrutiny for deals engineered through their overseas entities.

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