CFIUS publishes proposed regulations

The Committee on Foreign Investment in the United States (CFIUS) has published proposed regulations for the Foreign Investment Risk Review Modernization Act (FIRRMA) that was signed into law last year. The proposed regulations aim to implement the most significant changes to its jurisdiction and procedures in over 10 years.1 The public has the opportunity to submit its views to CFIUS on how the final regulations should read.

What you need to know

  • Proposed regulations to implement an amended U.S. foreign investment review process are open to public comment until October 17, 2019 and must be finalized by February 2020.
  • CFIUS will identify countries whose investors can receive an exemption from certain of the new rules.
  • If adopted as proposed, many investments by foreign pension plans and sovereign wealth funds in U.S. businesses involving critical technologies, critical infrastructure, or sensitive personal data of U.S. citizens will be subject to a mandatory filing.

The regulations

Assuming adoption in materially the same form as proposed, the regulations will:

  • Expand the scope of CFIUS’s review to reach:
    • certain non-controlling “covered investments” by foreign persons in U.S. businesses involving critical technologies, critical infrastructure, or sensitive personal data of U.S. citizens, which CFIUS calls a “TID U.S. Business;” and
    • real estate acquisitions of airports, maritime ports and other property within range of military installations and sensitive facilities;
  • Identify a list of “excepted foreign states” whose investors can establish an exemption from the non-controlling covered investment rules and certain of the real estate provisions; and
  • Require filings for acquisitions of a 25% or more voting interest in a TID U.S. Business by entities in which a foreign government holds a 49% or more voting interest.

CFIUS made no changes at this time to the FIRRMA pilot program and stated that it is still considering “the scope of mandatory declarations for covered transactions involving critical technologies”.2

In connection with the publication of the proposed regulations, CFIUS underscored that the foreign investment review process under FIRRMA largely remains a voluntary filing regime. As expected, CFIUS plans to adopt FIRRMA’s exemption for non-controlling investments by most U.S.-managed investment funds even if the fund has foreign limited partners on an advisory board. In addition, CFIUS expressed its intention to narrow the potential breadth of its jurisdiction under FIRRMA by specifically defining key terms, including “critical infrastructure”, “sensitive personal data”, “close proximity”, and “substantial interest”.

Although authorized by FIRRMA, the proposed regulations do not currently prescribe any filing fees.

Two proposed changes expected to materially impact our clients is the identification of “excepted foreign states” and mandatory filings for certain foreign government-related transactions.

Introducing a “white list”

By introducing the concept of “excepted foreign states”, CFIUS plans to create a so-called “white list” of allied nations whose companies will be able to avoid some of the new aspects of CFIUS’s expanded jurisdiction. Conversely, CFIUS does not intend to establish a “black list” of countries subject to additional scrutiny that, if adopted, undoubtedly would have included China, among others.

According to the proposal, “excepted foreign states” are a “limited number of eligible foreign states”, considering, among other things, whether such countries employ “a robust process to assess foreign investments for national security risks and to facilitate coordination with the United States on matters relating to investment security”. The proposed regulations also define an “excepted real estate foreign state”, suggesting the possibility of separate country lists for investments in TID U.S. Businesses and real estate.

An “excepted investor” or “excepted real estate investor” is a foreign national, entity or government with sufficient connections, as detailed in the proposed definitions, to an excepted foreign state or excepted real estate foreign state, as the case may be. The proposed regulations would excuse excepted investors from CFIUS’s expanded jurisdiction over non-controlling covered investments and most real estate transactions.

CFIUS will identify “excepted” countries when it adopts the final regulations in February 2020, but will provide those countries with a two-year grace period to establish, or enhance, their foreign investment review processes and bilateral cooperation with the U.S., as necessary, to retain excepted status.

Mandatory filings

Before the enactment of FIRRMA, any submission to CFIUS, even for “covered transactions” within its jurisdiction, was voluntary. The proposed regulations will establish a new category of transactions for which submissions to CFIUS are mandatory when the investor is related to a foreign government. Specifically, filings will be required when a foreign investor acquires a “substantial interest” in a TID U.S. Business and a foreign government has a “substantial interest” in the investors. CFIUS proposes to define “substantial interest” to mean a 25% or more voting interest in the TID U.S. Business in a 49% or more voting interest in the foreign investor. The proposed real estate regulations do not include any provision for mandatory filings.

CFIUS proposes a penalty for parties that fail to submit mandatory filings of up to $250,000 or the value of the transaction at issue, whichever is greater.

Comment period

The tentative FIRRMA rules are subject to a comment period ending October 17, 2019 during which the public may submit its views to CFIUS on how the final regulations should read. CFIUS is required to finalize the FIRRMA regulations by February 2020.


1 See our bulletin “Changes coming for U.S. foreign investment review process”.

2 See our bulletin “CFIUS expands mandate with first pilot program”.

To discuss these issues, please contact the author(s).

This publication is a general discussion of certain legal and related developments and should not be relied upon as legal advice. If you require legal advice, we would be pleased to discuss the issues in this publication with you, in the context of your particular circumstances.

For permission to republish this or any other publication, contact Janelle Weed.

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