USA – CALIFORNIA Trends and Developments Contributed by: Vijay Sekhon, Mehdi Khodadad, Nicolai Schwarz-Gondek and Payom Pirahesh, Sidley Austin LLP
Committee on Foreign Investment in the US (CFIUS) CFIUS plays a critical role in the regulatory landscape for PE, particularly concerning national security. The current administration’s America First Investment Policy, and recent amendments to the CFIUS regula - tions, have expanded transactions subject to review, including certain non-controlling investments in criti - cal technology, infrastructure and data companies. PE sponsors involved in cross-border transactions must be aware of these regulations and foreign direct investment regulations in other jurisdictions and con - duct thorough national security assessments during due diligence and transaction documentation. CFIUS has broad authority to request detailed information from firms, including confidential details about LPs. If a PE sponsor includes investors from foreign adver - sary countries or those raising national security con - cerns, CFIUS can uncover this information. Compliance with CFIUS and foreign direct investment requirements is complex, necessitating experienced legal counsel to navigate the process with the White House and applicable federal and foreign agencies in PE acquisitions and dispositions. If CFIUS determines that a foreign investor poses a national security risk in a specific deal, it can mitigate or block the invest - ment, even if the foreign investor only gains an indirect interest in a US business. There is a “wait and see” approach by many PE sponsors and businesses seek - ing cross-border transactions as the current admin - istration seeks to redefine relationships with various countries, contributing to delays in CFIUS approvals for pending deals. Many transactions are experienc - ing extended CFIUS review periods as parties await greater clarity on US foreign policy and national secu - rity priorities. Non-competition restrictions and legal challenges In early 2024, the FTC adopted a rule prohibiting most post-employment non-competition agreements in the US. While this rule is subject to many lawsuits with respect to its constitutional and statutory authority, it includes an exemption with respect to non-competi - tion agreements entered in connection with the sale of a business. In the first half of 2025, the FTC asked courts to stay its appeals related to challenges against the non-compete rules for 120 days at the direction
Washington, etc). PE sponsors need to thoroughly evaluate antitrust risks during due diligence and deal documentation, and should expect longer review times and potential divestitures or other remedies when buying or selling portfolio companies. The DOJ’s recent challenge to Hewlett Packard Enterprise’s (HPE) USD14 billion acquisition of Juniper Networks – resolved only after HPE agreed to divest assets and license core software – highlights the continued regu - latory focus on consolidation in the technology sector. The DOJ’s action against KKR and HPE suggests PE sponsors should take their HSR Act reporting require - ments seriously, especially under the enhanced HSR rules implemented earlier this year. PE sponsors pur - suing transactions in concentrated industries should be particularly mindful of antitrust risk and ensure compliance with filing requirements to avoid future regulatory scrutiny. Anti-Money Laundering (AML) and Know Your Customer (KYC) Requirements PE sponsors are increasingly subject to stringent AML and KYC regulations. The Anti-Money Launder - ing Act of 2020 expanded the US regulatory frame - work, requiring PE sponsors to implement robust compliance programmes, including comprehensive customer due diligence and ongoing monitoring for illicit activity detection and prevention. The Corporate Transparency Act (CTA) of 2024 requires certain enti - ties to file beneficial ownership reports with FinCEN, a bureau of the US Department of Treasury. After the 2025 US District Court decision in National Small Business United v Yellen , enforcement of the CTA’s reporting requirements was suspended for domes - tic entities, while requirements continue for foreign entities and domestic entities not covered by the injunction. This has created a patchwork of compli - ance obligations and ongoing uncertainty about the CTA’s future scope and enforceability. The focus on AML and KYC compliance is part of a broader regu - latory effort to combat financial crimes and ensure PE investments do not facilitate money laundering or terrorism financing. Compliance programmes must be continuously updated to reflect evolving threats and regulatory expectations, with regular training to ensure employees are aware of their legal obligations.
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