Calls for CFIUS investigation of Twitter are misguided
In response to Elon Musk’s acquisition of Twitter, there have been calls for the Committee on Foreign Investment in the United States (CFIUS) to review the transaction. Although Musk may have received some help from foreign investors in buying Twitter, that kind of financial backing is not uncommon, and it is unlikely that any of the foreign investors will receive anything from the Twitter deal that could jeopardize U.S. national security. Indeed, it is highly unlikely that CFIUS even has the authority to review the deal. Thus, all the talk about Twitter, CFIUS, and national security will likely do nothing other than force CFIUS staff to divert time and attention away from more important cases.
CFIUS is a committee of nine federal agencies, led by the Department of Treasury, that reviews acquisitions of, and investments in, U.S. businesses to determine whether those transactions pose risks to U.S. national security. From 2019–2021, I was responsible for managing the day-to-day operations of Treasury’s CFIUS team.
One of CFIUS’s priorities is protecting sensitive personal data of U.S. citizens. CFIUS routinely reviews foreign investments in U.S. businesses that collect and maintain sensitive personal data of U.S. citizens, including social media companies, fintech startups, and other companies that make cellphone applications, and CFIUS frequently requires transaction parties to enter into mitigation agreements to protect that data.
But Musk is a U.S. citizen. CFIUS has no authority to review a transaction where a U.S. citizen buys a U.S. business, regardless of what type of business it is.
If Musk bought Lockheed Martin, CFIUS couldn’t review the deal.
Thus, any suggestion that CFIUS should review Musk’s personal investment in Twitter, including because his other company, Tesla, is supposedly dependent on China, is way off the mark. CFIUS does not have the legal authority to review Musk’s investment in Twitter. It cannot mitigate any potential risks arising from his investment, whether real or imagined. And it cannot force him to sell his stake in Twitter.
Although Musk is off-limits, he reportedly received assistance in buying Twitter from foreign investors, including investors linked to Saudi Arabia and Qatar. In theory, CFIUS might be able to review those investments. But even if foreign investors participated in Musk’s takeover of Twitter, CFIUS does not have jurisdiction over any of the foreign investors unless those investors received, as part of their investment in Twitter, special rights, such as blocking or veto rights over important company matters, board seats (or board observer seats), access to material nonpublic technical information, or other substantive decision-making rights. Nothing in the public record indicates that foreign investors obtained those special rights. Indeed, if anything, it is likely that the deal documents make clear that they will not receive any of the special rights that could trigger CFIUS jurisdiction, thereby insuring against future CFIUS involvement.
Even if CFIUS does have jurisdiction over foreign investors who made investments in Twitter as part of Musk’s takeover, that does not mean that CFIUS can do whatever it wants.
CFIUS can only mitigate or block a transaction if a national security risk arises from the transaction, which may be hard to establish here, especially if the foreign investors simply rolled over their equity from old Twitter to new Twitter.
Even if CFIUS identifies a national security risk, CFIUS could reduce that risk with a straightforward and targeted mitigation agreement. It wouldn’t need to force a divestment. Even if it did, that would only mean that a foreign investor would have to sell its shares of Twitter on the open market to another investor. It would do nothing to interfere with Musk’s ownership stake.
All the noise about Twitter, CFIUS, and national security may not amount to much, but that doesn’t mean it’s harmless. CFIUS staff are good at blocking out the political noise and focusing on their jobs. But if politicians and interest groups start calling for a CFIUS review of Twitter just to score political points, CFIUS — and particularly Treasury — will be forced to divert time and resources from more important cases.
If the people calling for a CFIUS review of the Twitter deal are truly concerned about U.S. national security, they won’t try to force CFIUS to spend time on a benign transaction.
In any event, Musk’s opponents will likely be disappointed with the results of any CFIUS review. Regardless of whether CFIUS investigates the Twitter deal, or what it finds, Musk is going to remain in charge of Twitter, and there is nothing CFIUS can do about it.
Tyler McGaughey is a partner at Winston & Strawn LLP in Washington, D.C. From 2019–2021, he served as the Deputy Assistant Secretary for Investment Security at the U.S. Department of the Treasury, where he was responsible for managing the day-to-day operations of Treasury’s CFIUS team. The opinions expressed here are his own.