National Security Creep in Corporate Transactions
National security review of corporate transactions has long been a relatively sleepy corner of regulatory policy. But as governments merge economic and national security, national security reviews are expanding in frequency and scope, causing numerous deals to be renegotiated or even blocked. This expansion of national security’s impact on corporate transactions—which this Essay calls “national security creep”—raises theoretical questions in both national security and contract law and has important practical implications for dealmaking and the economy.
This Essay makes several contributions. First, it provides an updated account of the national security review process for investments, which has changed substantially in recent years with the expansion of the jurisdiction of the U.S. Committee on Foreign Investment in the United States (CFIUS), the diffusion of CFIUS-like processes to U.S. allies, and U.S. moves to regulate outbound investment. Second, this Essay considers the theoretical impact of national security creep. It argues that the executive branch’s increasingly broad claims about what constitutes national security may cause judges to alter long-standing deference to the executive on national security issues, with implications for deal parties, the executive, and scholars who debate whether courts should treat national security as “exceptional.” It also argues that CFIUS’s temporally tentacular review authority upends well-understood contract theory that considers regulatory review to be an “ex ante” contract design cost. Finally, this Essay considers practical implications of national security creep and concludes with suggestions for how the executive, courts, Congress, and scholars should approach national security creep going forward.