From fretting takeovers to vetting CFIUS: finding a balance in U.S. policy regarding foreign acquisitions of domestic assets

Vanderbilt Journal of Transnational Law, Oct, 2006 by Gaurav Sud

In Japan, though foreign takeovers and mergers are relatively rare, a nonresident tender offeror must file its offer with the securities company or bank it has appointed to manage the transaction. (72) Moreover, the Foreign Investment and Trade Control Law (FITCL) requires notice to be given to the Minister of Finance when a foreign corporation is attempting to transact with a Japanese corporation. (73) At this point, the Minister of Finance may require a license for the transaction "if the transaction might disturb the equilibrium of Japan's balance of international payments; might result in a drastic fluctuation of Japanese foreign exchange rates; or might result in transfers of funds between Japan and foreign countries in a large volume, thereby adversely affecting the Japanese money or capital market." (74) Further, the Minister may refer the matter to the Committee on Foreign Exchange and Other Transactions for recommendations on various matters, including whether the transaction "could imperil the national security of Japan." (75) Thus, there is a decided concern for the protection of Japanese assets evident in Japanese merger law. Although this has relaxed in recent years given the effects of globalization, it is nonetheless rare for parties entering a merger to be able to "contract freely, without government influence or guidance." (76)

Similarly, the Reserve Bank of India, which also falls under the Ministry of Finance, is the central administrative agency charged with regulating foreign investment in India. (77) The Industrial Policy Statement of 1977 lays out the terms under which foreign investment and acquisition of technology are allowed, stating that such transactions will only be permitted when they are deemed to be "in the national interest." (78) The document goes on to state that "majority interest in the ownership of companies, and effective control of companies, should be in the hands of Indian nations." (79) In addition, the Foreign Exchange Regulation Act regulates foreign financial participation in Indian business, stating that all proposals must be cleared by the Foreign Investment Board of the Indian government and delineating an elaborate process for approval of a merger proposal. (80) The regulatory infrastructure in place, even in a developing economy like India's, is far more elaborate and demanding than that which is found in U.S. corporate law.

It is evident that there are more, and better developed, statutory restrictions on foreign investment in place in foreign jurisdictions than in the United States. Indeed, economists, politicians, and lawyers would likely agree that the open investment policy of the United States has been one of the hallmarks of U.S. diplomatic posturing throughout its history. The ability of this open investment policy to coexist with a new infrastructure for vetting foreign investment in the United States. is uncertain--both in terms of its feasibility and its desirability. As the following section of this Note will demonstrate, however, there is, in fact, a mechanism within the mire known as "alphabet soup" in Washington, D.C., that at least ostensibly was designed to perform a function similar to that of the various panels and agencies existing in the European and Asian countries described above: the Committee for Foreign Investment in the United States (CFIUS). (81) Its power and role in cross-border transactions involving U.S. entities has, however, been almost negligible up to this point. (82) Whether this will continue to hold true given new found national security concerns in the United States is a question that will be answered only in the context of future situations that mirror the proposed Unocal/CNOOC transaction.