In a September 8 article in the Australian Financial Review, Allens partner Wendy Rae is cited as saying the approval process of Australia's Foreign Investment Review Board (FIRB) "had become increasingly political, and that had opened the way for stakeholders, rival bidders and others to more aggressively lobby the regulator publicly and in private." She noted that the political nature of the process has led some advisors to recommend that clients postpone transactions until after elections.
This is both unfortunate and quite different from the United States, where the Committee on Foreign Investment in the United States (CFIUS), which conducts most U.S. foreign investment reviews, takes a far more technocratic approach to its cases and resists political influence.
- By law, and specifically to keep politics out of CFIUS, the Committee does not tell Congress about the transactions it is reviewing until after the cases are complete.
- While CFIUS comprises representatives of Executive Branch agencies, and various White House sub-offices have voting or observer seats at the CFIUS table, there have been remarkably few instances in which the President has "put his thumb on the scale" during CFIUS's deliberations. Of course, the President does get the final decision on whether to formally block transactions, but that has happened only seven times in CFIUS's history.
This does not mean that members of Congress do not routinely request that CFIUS review particular transactions of interest to their constituents or that competing bidders have not tried to use public and government relations campaigns to try to sway CFIUS. Still, and probably contrary to public perception, CFIUS has managed to remain largely immune to political influence.
CFIUS's political independence is a key to its credibility. CFIUS operates in the context of the U.S. government's open investment policy, but has always claimed that its decisions are based strictly on national security considerations:
- Vulnerabilities: the nexus between the U.S. target and national security
- Threat: the capability and intent of the foreign investor, or third parties acting through the investor, to exploit the vulnerabilities and harm U.S. national security
- Consequences: the projected impact if the identified vulnerabilities were in fact exploited
Adding political considerations to the mix would undermine the integrity of the CFIUS process and open it up to the types of manipulation that parties are apparently experiencing in Australia. There's a lesson here for the many other countries that are adopting or expanding their own foreign investment review processes.
"The FIRB process is essentially political . . . that brings a whole different dimension to regulatory risk."