Mandatory declarations for foreign investment transactions involving U.S. critical technology will be based on export licensing requirements and not whether the business is in a specified industry under a new Treasury Department final rule. The changes made by this rule will generally apply starting Oct. 15.
The Committee on Foreign Investment in the United States has the authority to review, block, and even unwind certain transactions involving foreign investments in U.S. companies or operations that may jeopardize U.S. national security. CFIUS’ powers were greatly expanded by the 2018 Foreign Investment Risk Review Modernization Act, which broadened the committee’s jurisdiction to include emerging and foundational technologies, added new national security factors for CFIUS to consider, and strengthened CFIUS’ ability to protect critical infrastructure from foreign government disruption.
FIRMMA also created a requirement for parties to submit a mandatory declaration (essentially a prior notification filing) to CFIUS for certain investments by non-U.S. individuals in any U.S. business that produces, designs, tests, manufactures, fabricates, or develops one or more critical technologies, which are defined as any of the following.
- an export-controlled defense article or service (as defined under the International Traffic in Arms Regulations) or an item subject to export control under Nuclear Energy Commission rules
- an export-controlled commercial or dual-use item controlled under the Export Administration Regulations for reasons of regional stability or surreptitious listening as well as under multilateral regimes (including for reasons of national security; nonproliferation of nuclear, chemical, or biological weapons; or missile technology)
- a select agent or toxin
- an emerging and foundational technology as defined in forthcoming Department of Commerce regulations and controlled under the EAR
Treasury is now changing this declaration requirement from one that applies to 27 specific industries identified by North American Industry Classification System codes to one based on whether certain U.S. government authorizations are required to export, re-export, transfer (in-country), or retransfer the critical technology(ies) to certain transaction parties and foreign persons in the ownership chain. To accomplish this, this rule:
- introduces a new definition for “U.S. regulatory authorization” to specify the types of regulatory licenses or authorizations required under the four main U.S. export control regimes that, if applicable in the context of a particular transaction described under this rule, will trigger a mandatory declaration;
- introduces a new definition for “voting interest for purposes of critical technology mandatory declarations,” which is used to specify which persons in the ownership chain of foreign persons should be analyzed for export licenses and authorization purposes in determining whether a particular transaction could trigger a mandatory declaration; and
- amends the definition of “substantial interest” to clarify that it applies only when the general partner, managing member, or equivalent primarily directs, controls, or coordinates the activities of the relevant entity.
If a declaration is mandatory under this rule but is not filed, a penalty of up to $250,000 or the value of the transaction (whichever is greater) may be assessed.
Clients and potential clients requiring support related to the CFIUS mandatory declaration requirement or this rule should contact Kristine Pirnia.