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The Morning Risk Report: CFIUS Reform Becomes Law |
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President Trump in March blocked a hostile takeover of Qualcomm Inc., citing national-security concerns raised by CFIUS. PHOTO: MIKE BLAKE/REUTERS
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Good morning. President Trump this week signed into law a reform of the agency that oversees acquisitions of American companies by overseas firms as part of annual defense policy legislation.
The law will lead to major changes during the foreign-investment review process overseen by the interagency Committee on Foreign Investment in the U.S., known as CFIUS. The changes expand the CFIUS jurisdictional ambit, making it the most consequential reform to the committee since it was reconstituted in 1988, attorneys told Risk & Compliance Journal.
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CFIUS received a lot of attention in the last year amid heightened scrutiny of deals involving Chinese companies buying American firms. The committee, which is lead by the Treasury department, can advise the president to block deals on national security grounds.
It often, however, merely makes recommendations to mitigate concerns. U.S. presidents have blocked five transactions based on CFIUS recommendations since the panel was established in 1975, the Government Accountability Office noted Tuesday in a blog post. One of those blocked transactions was by President Trump in March, when he scuttled a hostile takeover attempt of Qualcomm Inc. by then-Singapore-based Broadcom
Inc.
China hawks cheered on the legislation as it wound through Congress. Treasury will have to write rules to implement the law before any of the changes take effect and that could be a monthslong process, said Scott Flicker, a partner at the firm Paul Hastings LLP.
The law, among other things, shifts CFIUS focus from whether a foreign investor could control a U.S. business to whether the investor is “non-passive.” This will capture many investments that weren't historically subject to a CFIUS review, particularly those by venture-capital and private-equity firms, said Mario Mancuso, a partner at the firm Kirkland & Ellis LLP who wrote the book “A Dealmaker’s Guide to CFIUS.”
“Every board, banker and investor should take careful note” of the reforms, said Mr. Mancuso. “Once implemented, [the] regulations will broadly reshape the deal [and competitive] landscape for transactions in infrastructure, technology and many other sectors.”
The law also introduced, for the first time, a category of mandatory filings with CFIUS, noted law firm Paull Paul, Weiss, Rifkind, Wharton & Garrison LLP in a client alert. Failure to comply with the mandatory filing requirement could result in civil penalties, adding a new area of risk in the CFIUS context, the firm said.
CFIUS can for the first time impose a filing fee for the submission of a formal notice by the transaction parties. The law also authorized the appropriation of $20 million per year into a fund at Treasury, provides for a new assistant secretary whose responsibility will focus on CFIUS, and requires each agency represented at CFIUS to submit a spending plan.
“While both staffing levels and funding related to CFIUS can be expected to increase to a meaningful degree in the coming period, we anticipate that the increased workload brought about by [the law] will present significant challenges for CFIUS staff going forward,” the note said.
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Turkey sharply raised tariffs Wednesday on some U.S. imports in response to U.S. sanctions on Ankara, WSJ reports, as the latest spat between the two NATO allies led to a currency crisis. Problems between the U.S. and Turkey will be resolved, Ankara says, but is President Trump turning a trade conflict turning into financial war? The lira rallied on the news as Turkey pivots toward Russia.
Elon Musk again caught the financial world by surprise with an announcement on Twitter about his desire to take Tesla Inc. private, WSJ reports, this time revealing a list of advisers before arrangements with all of them were completed. The Saudi fund he’s relying on may only play a small part in the plan, Reuters reports. Saudi Arabia has turned into a key tech investor, WSJ reports, sourcing direct deals and shifting into higher-risk startups. Mr. Musk’s plan may take a while, Bloomberg reports.
Three of Tinder’s founders and a handful of current executives say the popular dating app’s parent companies cheated them out of as much as $2 billion by manipulating financial information to undermine its valuation, according to a lawsuit filed Tuesday. It is not uncommon for relations to sour between founders of businesses and their bosses within larger companies, WSJ reports. The lawsuit is unusual in part because it involves so many senior officials who remain at the company.
Royal Bank of Scotland will pay $4.9 billion to settle U.S. claims that it misled investors on residential mortgage-backed securities between 2005 and 2008, Reuters reports, citing the U.S. Justice Department. The Justice Department said the penalty is the largest-ever imposed on a bank for misconduct leading up to the financial crisis. The bank announced in May that it had reached the settlement in principle.
Chinese oil importers are shying away from buying U.S. crude, Reuters reports, as they fear Beijing’s decision to exclude the commodity from its tariff list in a trade dispute between the world’s biggest economies may only be temporary. U.S. solar tariffs violate trade rules, China said.
Exxon Mobil Corp. must face a lawsuit by investors, Bloomberg reports, who blamed a drop in the company’s shares on the disclosure that regulators were scrutinizing its reserve accounting related to climate change, a U.S. federal judge ruled.
Securities regulators opened a new front in their campaign to crack down on fraud in the initial-coin-offering market by punishing a firm that didn’t sell any tokens, WSJ reports.
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A computer screen displays a website featuring cryptocurrency token sales and ICO lists in Berlin on Nov. 26, 2017. PHOTO: JOHN MACDOUGALL/AFP/GETTY IMAGES
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U.S. foreign policy is driving sharp swings in European and Asian markets this summer, drawing investors into the safety of the U.S. It is also raising questions about how long U.S. markets can continue to outpace the rest of the world, WSJ reports.
A broad investor retreat has pushed the market for digital currencies down 70% from its January high, WSJ reports, reflecting user frustration over their modest inroads into commerce and a general shakeout in speculative investments.
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The credit scores of millions of U.S. consumers have risen following a broad overhaul of how credit-reporting firms handle negative credit information, WSJ reports. The firms—Equifax Inc., Experian PLC and TransUnion—agreed to revamp the reports following settlements with state attorneys general dating back to 2015.
German companies last year managed to attract more apprentices to their dual-track vocational training schemes due to a surge in applications from asylum seekers from Afghanistan and Syria, Reuters reports.
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At a company long ruled by a rigid operational structure, Ford Motor Co. chief Jim Hackett’s cerebral, free-flowing management style has won some fans and mystified others, WSJ reports. For investors, the question remains: What exactly is he thinking?
Kroger Co. will sell its products in China on an e-commerce site owned by Alibaba Group Holding Ltd., WSJ reports, the grocer’s first foray into foreign sales amid a broader push into online retail.
Through a Samsung Electronics Co. deal and others with the likes of General Electric Co. and BMW AG, top New York Times Co. executive Meredith Kopit is upending the Times century-old ad sales strategy, WSJ reports, shifting away from one-off ad placements of the low-six-figure variety, in favor of more elaborate and lucrative deals that resemble corporate partnerships.
A major health insurer said it will stop reimbursing patients for use of injectable amniotic-tissue products made by MiMedx Group Inc. and other manufacturers, WSJ reports, saying they are considered “experimental, investigational and/or unproven for all indications.” The decision by Health Care Service Corp., effective Aug. 1, will likely curb the use of products promoted aggressively for an array of ailments including hair loss, erectile dysfunction, knee pain and osteoarthritis.
Large companies increasingly are willing to work with early-stage startups and set up corporate venture capital arms as they pursue digital transformation, CIO Journal reported venture capitalists as saying at an event.
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Tribune Media Co. said executives who worked on the failed merger with Sinclair Broadcast Group Inc. will receive bonuses, Reuters reports.
The Methodist Church is developing a system analyzing corporate ethics and will invest in companies it believes are committed to mending their ways, Bloomberg reports.
Former Baidu Inc. executive Qi Lu was named head of Y Combinator China, marking the American startup incubator’s first full-fledged international effort.
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Novartis AG recruited Klaus Moosmayer, its new chief compliance officer, from Siemens AG after a string of scandals, including a contract with President Trump’s fixer Michael Cohen the firm now calls a mistake, Reuters reports.
One of Wells Fargo & Co.’s top risk management executives is leaving the bank months after it was slapped with an unprecedented enforcement action from the Federal Reserve, WSJ reports.
Uber Technologies Inc. named Matt Olsen, the former general counsel for the National Security Agency, as its chief trust and security officer, Bloomberg reports.
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