US Government Forces Parties to a Completed Transaction to Submit to Review by the Committee on Foreign Investment in the United States

Originally published November 23, 2010

Keywords: US Government, foreign investment, CFIUS, foreign acquisitions, FINSA, national security

According to press reports, the Committee on Foreign Investment in the United States (CFIUS), an interagency governmental body with authority to review foreign acquisitions in the United States that may threaten to impair the national security, has asked Huawei Technologies Ltd. (Huawei), a Chinese telecommunications equipment firm, to seek approval for a May 2010 transaction involving the US firm 3Leaf Systems (3Leaf). Huawei and 3Leaf did not notify CFIUS before the transaction and did not seek CFIUS approval. CFIUS did not learn of the transaction until after its completion.

CFIUS will review the six-month-old transaction for possible national security concerns. This unusual step by CFIUS, to initiate examination of a completed transaction, raises the prospect of rescission of the transaction or other measures by the government. These events illustrate the serious risk that companies may take in deciding not to notify CFIUS of a foreign acquisition in the United States that might broadly implicate the national security.

California-based start-up 3Leaf created virtual server technology for business enterprise data centers. Reportedly, Huawei acquired technology and key personnel from 3Leaf, but Huawei did not acquire equity or any physical assets of 3Leaf. According...