31 C.F.R. Appendix B to Part 800—Preamble to Regulations on Mergers, Acquisitions, and Takeovers by Foreign Persons (Published May 25, 1994)
Title 31 - Money and Finance: Treasury
Note: For the convenience of the reader, this appendix contains the text of the preamble to the final rules amending the regulations on mergers, acquisitions, and takeovers by foreign persons beginning at the heading “Discussion of the Final Rule” and ending before “List of Subjects in 31 CFR Part 800” (59 FR 27178, May 25, 1994). Discussion of the Final Rule Section 837(a) of the Defense Authorization Act creates for the first time a mandatory investigation provision under Exon-Florio. There are three points worth noting about this provision. First, this provision is limited in application to certain types of acquisitions. Specifically, the acquirer in question must be a foreign government controlled entity, or an entity acting on behalf of a foreign government. Furthermore, the acquisition must be one which “could result in control of a person engaged in interstate commerce in the United States that could affect the national security of the United States” (emphasis added). Thus, even where the other specified criteria are met, this provision does not mandate an investigation for cases that could not “affect the national security of the United States.” Second, for purposes of determining whether the acquisition results in foreign government control, CFIUS is applying the same functional test for control as provided in §800.204. Third, in contrast to the criterion for Presidential action under Exon-Florio, i.e., that the foreign party acquiring control might take action that “threatens to impair the national security,” the criterion for undertaking an investigation of transactions involving government controlled entities is that there could be an effect on the national security. The term “foreign government” has been broadly defined for purposes of these regulations to include any government or body exercising governmental functions, and includes but is not limited to national as well as various regional and local levels of government. It is important to note that the definition is not limited to the particular levels of government that are specified in the regulation, and that other governmental bodies, including supra-national entities such as the European Union (including its component parts), are covered by this regulation. For purposes of the mandatory investigation provision, the regulations define the term “engage in” as used in the phrase “seeks to engage in any merger, acquisition or takeover * * *” to mean “seeks to acquire control through.” The purpose of this regulation is to clarify that the mandatory investigation provision would not be triggered in cases where a foreign government controlled entity's participation in an acquisition is solely for the purpose of investment, as defined in §800.217 of the regulations. The Committee believes that this reading is supported by the legislative history, and particularly floor statements made by members of Congress who sponsored this particular amendment. See, e.g., Cong. Rec., Sept. 18, 1992, pages S 14050 through 14053 (comments of Senators Exon, Sarbanes and Riegle); and Cong. Rec. Oct. 3, 1992, page H 10986 (comments of Representative Collins). Subparagraph 800.402(c)(5)(iii) has been changed in the final regulations by the addition of the words “for example” to clarify that an agency or representative role are examples of ways in which a foreign person can act on behalf of a foreign government, but are not the only ways in which such a relationship could be conducted. Drafting Information The principal author of this document is the Office of the Assistant General Counsel (International Affairs). However, personnel from other offices of the Treasury Department and from other agencies that are members of the Committee participated extensively in its development. [59 FR 27180, May 25, 1994]
Title 31: Money and Finance: Treasury
PART 800—REGULATIONS PERTAINING TO MERGERS, ACQUISITIONS, AND TAKEOVERS BY FOREIGN PERSONS
Subpart G—Provision and Handling of Information
Appendix B to Part 800—Preamble to Regulations on Mergers, Acquisitions, and Takeovers by Foreign Persons (Published May 25, 1994)
