CFIUS Scrutiny Of Foreign Investment Intensifies With Broadening Scope

Author:Mr John Barker, John B. Bellinger, III, Charles A. Blanchard, Ronald D. Lee, Claire Reade, Nancy L. Perkins, Nicholas L. Townsend and Amanda Claire Hoover
Profession:Arnold & Porter Kaye Scholer LLP
 
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The environment for foreign investment in the United States is shifting. Most recently, a bid by Chinese-owned Ant Financial to acquire MoneyGram International Inc., a US money transfer company, was derailed early this year after the Committee on Foreign Investment in the United States (CFIUS) rejected proposals offered to try to mitigate national security concerns associated with the deal. 1 At the same time, high-profile US legislation to tighten and expand CFIUS controls seems to be gaining momentum. It remains to be seen what these developments portend.

Ant Financial is jointly owned by Jack Ma, the executive chairman of the powerful Chinese conglomerate Alibaba Group Holding Ltd., and other Alibaba executives. The deal to acquire MoneyGram was reportedly abandoned because of CFIUS concerns over Chinese access to personally identifiable information of US citizens and residents collected and transmitted by MoneyGram. When the deal's abandonment was announced, some commentators opined that the deal's demise meant that no Chinese deal would ever be approved. 2Fortunately for the many Chinese deals in the works, that is an overly pessimistic reading of this CFIUS decision. While the $1.2 billion deal's failure could be seen as merely the latest in a string of deals involving Chinese buyers to face difficult CFIUS scrutiny, unique risks associated with this deal may have been to blame for the deal's ultimate demise. Representative Robert Pittenger (R-NC), a vocal critic on foreign investment issues, had raised particular concerns about Ant Financial's potential access to sensitive personal and financial information of Americans through its proposed acquisition of MoneyGram. 3 The purchase would have given Ant Financial access to approximately 350,000 MoneyGram outlets in nearly every country in the world. 4

Further, some of the MoneyGram locations are within or very close to US military installations and frequently are used by soldiers, their families, and defense contractors to transfer money. 5 Foreign access to this information could threaten national security by revealing to a foreign power which individuals with access to intelligence or national defense information are facing financial trouble or other personal issues, making them vulnerable to foreign pressure. Additionally, some have worried that this acquisition could frustrate US law enforcement access to one of the most frequently used money transfer services and hinder efforts to investigate and curb money laundering, financing of terrorism, and related financial crimes. 6

The failed Chinese acquisition of MoneyGram therefore does portend difficulty for Chinese buyers interested in acquiring financial institutions, insurance companies, or even health care companies. However, this CFIUS action should not be seen as implying a radical change in...

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