The Impact of the Russia-Ukraine Conflict on CFIUS

“Given the recent event in Ukraine, Russia now has CFIUS’s undivided attention” said Grigore Alexandru, a former deputy director of the Department of Defense's (DoD’s) Office of Foreign Investment Review.¹

The Committee of Foreign Investment in the U.S., known by the acronym CFIUS, has a history of spotting and analyzing Russian transactions, such as the Russian-oligarch-backed private-equity firm Pamplona Capital Management.

“While CFIUS attention on Russia is not new, the Treasury Department is clearly committed at this moment to using the full range of its authorities to respond to Russia’s invasion of Ukraine,” said Britt Mosman, a partner at Willkie Farr & Gallagher who previously worked in the Treasury Department's Office of Foreign Assets Control.²

The instability and conflict between countries such as Russia and Ukraine are necessitating increased due diligence and risk mitigation and possibly indicating a fundamental shift in how parties determine what creates a national security concern sufficient to justify CFIUS review.

Following Russia's invasion of Ukraine, the impact of the conflict can be seen in the three areas below:

1. Increase in the Number of Detailed Questions Asked During the CFIUS Review Process:

The latest CFIUS interactions during the review process reveal a higher level of inquiry on the committee's part, both in terms of understanding deal structure and highlighting areas of concern like supply chain network, cybercrime, export control misclassifications, and "hidden in plain sight" government issues.

2. Increase in Unnotified Committee Outreach:

As CFIUS's monitoring and enforcement resources have increased, the committee's stance on non-notified transactions is driving some of this voluntary filing. While these enforcement actions have primarily targeted live transactions, CFIUS has also acted against many completed transactions, including those that closed several years ago. Those with ties to Russia or China are especially susceptible, reflecting rising geopolitical tensions and security concerns between these countries and the United States in recent years. As per unconfirmed reports, CFIUS has begun taking a particular interest in non-notified transactions from Russian investors and may be looking at deals that are up to ten years old.

Even though the U.S. Department of Treasury oversees the non-notified transactions, the DoD has established its own non-notified team to hunt for transactions that were not reported to the committee but may contain DoD equities.

3. Increase in the Need to Confirm Regulatory Requirements:

Whether due to export controls, sanctions, or government contracts/subcontracts, an increase can be seen in the need to confirm that regulatory requirements are being met. The underlying classification information, export licensing requirements, and sanctions compliance all have CFIUS' interest and attention.

The U.S. sanctions against Russia are proceeding, affecting a growing number of transactions, commodities, and people. We may expect further sanctions, Russian countermeasures, and U.S. law enforcement investigations into U.S. companies that engage with Russia or receive funding from Russian corporations or persons – directly or indirectly – as the war in Ukraine continues. As a result, U.S. companies should work closely with qualified legal counsel to thoroughly investigate all of their Russia-related operations (including operations by their foreign affiliates and operations in the former Soviet Union in general) to ensure compliance with all applicable U.S. and foreign laws, including those under CFIUS jurisdiction.

¹Is CFIUS doubling down on non-notified transactions from Russia? - Foreign Investment Watch
²Is CFIUS doubling down on non-notified transactions from Russia? - Foreign Investment Watch