Foreign Investment Review and Notification Rules Updated
Regulations to comprehensively implement the Foreign Investment Risk Review Modernization Act, which broadened the authorities of the Committee on Foreign Investment in the United States to better address national security concerns arising from some types of investments and real estate transactions, will become effective Feb. 13. Among other things, these regulations will implement CFIUS’s new authority to review (a) certain non-controlling investments into certain U.S. businesses involved in critical technology, critical infrastructure, or sensitive personal data and (b) certain real estate transactions involving foreign persons.
The first rule reflects the expansion of CFIUS’s jurisdiction to non-controlling investments that afford a foreign person certain access, rights, or involvement in a U.S. business that (a) produces, designs, tests, manufactures, fabricates, or develops one or more critical technologies (e.g., certain items subject to export controls as well as emerging and foundational technologies controlled under the Export Control Reform Act of 2018); (b) owns, operates, manufactures, supplies, or services critical infrastructure (e.g., telecommunications, energy, utilities, and transportation); or (c) maintains or collects sensitive personal data of U.S. citizens that may be exploited in a manner that threatens national security.
According to the Treasury Department, the CFIUS review process remains largely voluntary under this rule; i.e., parties can choose whether or not to file a notice or submit a short-form declaration notifying CFIUS of a covered investment in order to receive a potential safe harbor letter, after which CFIUS will generally not initiate a review. However, filing a declaration is mandatory for specified covered transactions where a foreign government is acquiring a substantial interest in certain U.S. businesses.
In addition, this rule imposes a mandatory declaration requirement on covered transactions involving certain U.S. businesses that produce, design, test, manufacture, fabricate, or develop one or more critical technologies. In light of this requirement and its Feb. 13 effective date, the related pilot program CFIUS has been conducting will end Feb. 12. While many of the provisions of the pilot are incorporated into this rule, Treasury anticipates issuing a separate proposal to revise this mandatory declaration requirement from one based on North American Industry Classification System codes to one based on export control licensing requirements.
A second final rule implements FIRMMA’s authorization for CFIUS to review foreign persons’ purchase or lease of U.S. real estate that is, is located within, or will function as part of an air or maritime port, as well as certain other types of real estate, provided the transaction affords the person specified rights to that property. However, the rule does not include a mandatory filing requirement for such transactions, and parties may choose to file a notice or submit a short-form declaration to potentially qualify for a safe harbor letter.
Treasury states that its final rules reflect some changes from the proposed versions, including adding a definition for “principal place of business” (on which comments are being accepted through Feb. 18) and modifying the exceptions for certain real estate transactions in airports and maritime ports. In addition, Treasury anticipates issuing a proposed rule to assess fees for covered transactions for which a written notice is filed.