The U.S. government has blocked the acquisition of U.S. money transfer company MoneyGram International Inc. by Ant Financial, a mobile wallet company and an affiliate of the large Chinese e-commerce, retail, and technology firm Alibaba Group Holding Limited.
Ant Financial had initially announced its intention to acquire MoneyGram in January 2017. On January 2, 2018, the companies announced the termination of the deal, after they were unable to obtain required approval from the Committee on Foreign Investment in the United States (“CFIUS”), ostensibly due to concerns of cybersecurity and the integrity of personal data. CFIUS is a Treasury Department-run multi-agency panel that evaluates foreign acquisitions of U.S. companies for national security concerns.
The rejection of this transaction illustrates a fundamental tension between the communal and accessible nature of financial solutions offered by fintech businesses on one hand and the issues of national security, protection of personal data, and trade issues on the other.
Canada’s Investment Canada Act
Canada has equivalent powers to CFIUS to review acquisitions of Canadian businesses under the Investment Canada Act, which provides the Canadian government with the right to review any investment that “could be injurious to national security.”
Unlike other restrictions on investment in Canadian businesses by foreign companies which use a minimum value threshold to determine whether a transaction is reviewable by the government, there is no minimum investment size for a review on national security grounds. The national security provisions empower the Canadian government to prohibit any proposed investment, impose conditions on its completion, or require divestiture of a completed investment.
New Technology Means New Challenges for Regulators
As fintech companies become more dominant in the financial services market, regulators and administrators will face unique challenges when balancing cyber security and personal data concerns with the promotion of trade and commerce across national borders.
Photo Credit: MoneyGram