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Secretive Gov’t Body Poised to Amass More Influence on Cross-Border Deals

Secretive Gov’t Body Poised to Amass More Influence on Cross-Border Deals

Anthony Scaramucci had big plans for himself until they fell apart suddenly in Washington, D.C.

Sound familiar?

The first time it happened, “the Mooch” had been handed the plum job of White House communications director. Ten days in, his foul-mouthed rantings to the press about internal rivalries proved his undoing. This time his prize was not a job, but rather a deal with a Chinese buyer for his hedge fund, SkyBridge Capital. And it was not a self-inflicted wound that scuttled it.

The deal for SkyBridge is just the latest to be torpedoed by the most powerful government agency you’ve never heard of: the Committee on Foreign Investment in the United States. CFIUS (to sound in the know, pronounce it SIFF-ee-yus) has nixed a string of recent acquisitions: the sale of MoneyGram to Alibaba, the sale of semiconductor manufacturer Lattice to state-owned entities in China, and the hostile takeover of Qualcomm by Singapore-based Broadcom. With that kind of power, JPMorgan Chase’s Hernan Cristerna appropriately calls CFIUS “the ultimate regulatory bazooka.”

But for all its influence, CFIUS operates in the shadows. Created in 1975 as a body that would study foreign investment in the U.S., CFIUS gained great power in the late 1980s. That’s when Congress, fearing Japanese investment, granted the White House the ability to prohibit a foreign acquisition if it “threatens to impair the national security.” CFIUS reviews mergers for such threats. The committee is composed of cabinet officials from the departments of Defense, State, Justice, Commerce, Energy, and Homeland Security all led by the treasury secretary. It does its work in the dark, without disclosing the information that companies provide to it, nor announcing its findings publicly. “The panel’s investigations are effectively a black box,” Bloomberg says.

CFIUS’s investigations can effectively kill deals – like Scaramucci’s – before the president has to act on them. In fact, President Obama nixed only two deals in his entire eight years. Trump, meanwhile, has blocked two in six months. If that’s a sign that CFIUS is becoming an important mechanism through which the administration enforces its “America first” economic policy, it’s only going to become more so.

The Hill reported yesterday that the House and Senate are close to taking up a proposal to expand the power of CFIUS, backed by a bipartisan group wary of China’s growing influence. Not everyone’s a fan. The bill allows CFIUS to determine what kind of deals get reviewed, letting it go beyond acquisitions to investments and joint ventures. “The Information Technology Industry Council (ITIC), a trade group representing dozens of major U.S. companies, has pushed for Congress to clarify which deals could be subject to CFIUS approval,” The Hill reports. These and other enhanced powers raise the specter that the Trump administration will use CFIUS as a cover to lash out at China (or other nations) for reasons unrelated to national security. Trump previously cited “national security” concerns in imposing tariffs on steel and aluminum.

If the expansion of CFIUS’s power is going to happen, it should happen in the next month. That would leave just enough time for both chambers of Congress to act and reconcile their differences before activity slows in the run-up to the midterms.

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