Trade and Security

Genworth Approval Offers New Hope for CFIUS Reviews

By Daniel J. Rosenthal
Thursday, July 12, 2018, 8:00 AM

Since its creation by President Gerald Ford, the Committee on Foreign Investment in the United States (CFIUS) has acted as a gatekeeper, working to ensure that foreign acquisitions do not impair U.S. national security. 

In recent years, the committee has grown increasingly concerned with acquisitions that would result in foreign access to or control over personal identifying information about U.S. citizens. It has imposed itself on completed transactions involving personal identifying information in which the parties did not seek the committee’s review in advance, such as Chinese Fosun’s acquisition of U.S. insurance provider Ironshore. It has prevented certain transactions involving such information from going forward, as in Chinese Ant Financial’s bid to acquire Moneygram, a Chinese investment firm’s bid to acquire U.S. semiconductor company Lattice, and most recently, President Trump’s decision to block Broadcomm’s attempt at a hostile takeover  of U.S. chipmaker Qualcomm). Still, other attempted transactions not publicly reported further validate this tightening. The result is growing alarm within the foreign investment community—and the cadre of lawyers and consultants who work with such investors to gain CFIUS approval—over the prospects of the committee clearing such transactions. 

But the committee’s approval in June of China Oceanwide’s multibillion-dollar acquisition of U.S. insurance company Genworth tells a different story: that all hope for the future of inbound investments appears to not be lost. The implicit message to would-be investors? The U.S. is open to foreign investments, if you are willing to accept the sometimes-burdensome conditions that  may be imposed.

Genworth’s press release says that the committee approved its sale pursuant to a “mitigation agreement,” requiring  among other steps that Genworth retain a third party to “manage and protect the personal data of Genworth’s U.S. policyholders.” That external oversight gave CFIUS  comfort that U.S. policyholder information would remain protected after the acquisition. 

The Genworth approval marks the largest publicly reported Chinese acquisition to win CFIUS approval during the Trump administration.  Gaining approval was probably not easy for China Oceanwide or Genworth. The parties engaged with the committee for more than a year before winning its blessing, repeatedly withdrawing and refiling their notice with the committee, drawing out the timeline on which CFIUS was statutorily required to render a final decision. And the mitigation terms imposed as a condition of approval, by requiring a third party to “manage and protect” U.S. policyholder information, appear potentially burdensome. 

For prospective foreign investors in U.S. businesses, CFIUS’s approval of the Genworth transaction offers hope. Granted,  investors must work diligently and proactively to demonstrate a commitment to the transaction from a purely business perspective; and they must  remain open to (and, as I have advocated elsewhere, proactively offer) substantial mitigation measures—likely to include the introduction of a third party to oversee aspects of business and protect U.S. personal identifying information. But if Genworth is any bellwether, investors who do so may find CFIUS open to approving their transactions.