FIRRMA Compliance for US Businesses & Foreign Investors

Learn What US Businesses and Foreign Investors Need to Know About the Foreign Investment Risk Review Modernization Act (FIRRMA)

Transactions between US businesses and foreign investors that raise national security concerns may be subject to review under FIRRMA. Foreign acquisitions in particular are likely to trigger the need for FIRRMA compliance, especially when they involve critical technology, real estate near federal installations, and controlling interests in US entities.

Transactions involving foreign investment in the United States are frequently subject to federal review under the Foreign Investment Risk Review Modernization Act (FIRRMA). FIRRMA compliance falls under the jurisdiction of the Committee on Foreign Investment in the United States (CFIUS), and failure to submit transactions falling within CFIUS’ jurisdiction for review can have significant legal and financial ramifications.

As a result, a proactive approach to CFIUS compliance is essential.

Our law firm represents US businesses, foreign businesses, foreign governments, and other foreign persons in all FIRRMA compliance matters. If you are preparing to execute a transaction that will involve a foreign interest in, or foreign control of, an asset covered under FIRRMA, we can assist with meeting all pertinent statutory and regulatory requirements. This includes submitting mandatory declarations and notices as required, as well as communicating with CFIUS directly to address any concerns related to national security risks and negotiate mitigation agreements when necessary.

FIRRMA Applies to Domestic Business and Real Estate Transactions with National Security Implications

Foreign investments that are subject to federal review under FIRRMA fall into three broad categories. If an investment qualifies as any one (or more) of the following, it will generally be necessary to go through the CFIUS review process:

• Covered Control Transactions – Covered control transactions are those that give a foreign investor the ability to, “determine, direct or decide important matters affecting,” a US business. While acquiring a majority interest in a US business will generally constitute a covered control transaction, the acquisition of a minority voting interest with substantive decision-making authority can constitute a covered control transaction as well—even if the US side of the business maintains primary control.
• Covered Non–Controlling Investments (TID Businesses) – Acquisitions of non-controlling interests can also qualify as covered transactions when they involve critical technology (T), critical infrastructure (I), or sensitive personal data (D). Such transactions have increasingly come under scrutiny with CFIUS’ expanded jurisdiction under FIRRMA, with CFIUS imposing mitigation requirements for non-controlling foreign investments in many cases.
• Covered Real Estate Transactions – Certain investments in US real estate can also trigger US businesses’ and foreign investors’ FIRRMA compliance obligations. Transactions involving real estate within a certain proximity of certain U.S. military bases and government installations are generally subject to CFIUS scrutiny.

Importantly, FIRRMA contains an “excepted investor” provision that provides a safe harbor for transactions involving qualifying foreign parties. Excepted foreign states and other excepted foreign entities are not subject to CFIUS oversight for non-controlling, non-passive investments in US businesses and real estate; and, as a result, they generally do not need to go through CFIUS’ processes when investing in the United States.

5 Key Aspects of FIRRMA Compliance

As with all areas of federal compliance, effectively managing FIRRMA compliance requires a comprehensive and custom-tailored approach. At Oberheiden PC, our experienced attorneys provide compliance services including (but not limited to):  

1. Conducting Comprehensive Compliance Needs Assessments

Our attorneys can provide a comprehensive compliance needs assessment based on your company’s or organization’s current obligations under FIRRMA as well as any proposed rules that are currently pending. This will allow your company’s or organization’s leaders to make informed decisions going forward—and to timely submit voluntary filings to CFIUS when necessary.

2. Conducting National Security Reviews for Control Transactions and Other Covered Investments

Our attorneys can also conduct national security reviews for specific transactions that have the potential to implicate the CFIUS review process. We routinely review foreign investments on behalf of our clients, including control transactions, transactions involving access to material nonpublic technical information, and transactions involving real estate covered under FIRRMA.

3. Engaging with the Committee on Foreign Investment in the United States (CFIUS)

In many cases, it will be in US businesses’ and foreign investors’ best interests to proactively engage with CFIUS before pursuing transactions that have the potential to raise red flags. Whether a business’s primary location raises concerns or a transaction involves the acquisition of a controlling stake or a non-controlling stake of a TID business, our attorneys can assist with ensuring that the CFIUS review process is as smooth and efficient as possible.

4. Filing a Timely Notice or Declaration for All Covered Investments

United States and foreign parties engaging in transactions that are subject to FIRRMA must comply with mandatory filing obligations. Depending on the nature of a particular transaction and the specific risks it presents, this may involve filing either a “notice” or a “declaration” with CFIUS. Our attorneys can assist with determining which route to pursue and meeting all applicable filing requirements. We can also engage with CFIUS during its review process—including negotiating a mitigation agreement if necessary.

5. Ensuring Ongoing Compliance with FIRRMA and CFIUS’s Final Regulations

Domestic businesses, foreign investment funds, and other parties that are subject to FIRRMA and CFIUS’s final regulations must effectively manage compliance on an ongoing basis. Noncompliance can create exposure to substantial civil penalties, and significant violations can have criminal implications in some cases.

While FIRRMA compliance is essential, this is not the only potential area of concern related to foreign investments in the United States. From complying with the Export Administration Regulations (EAR) to managing the oversight of the National Security Council (NSC) and other federal agencies, US and foreign parties can face a variety of other compliance concerns as well. Our attorneys assist domestic and foreign clients with managing compliance in all aspects of their business operations. We can provide a comprehensive assessment of your compliance risks, and then we can assist you with implementing a comprehensive and custom-tailored solution.

FAQs: FIRRMA Compliance for Foreign Investment in the United States

Why are only certain foreign investments subject to FIRRMA?

Certain transactions—including certain real estate transactions, certain business acquisitions, and certain non-controlling investments—are subject to FIRMMA because they raise US national security implications. FIRRMA (and CFIUS’s final rules promulgated under the statute) are intended to prevent foreign exploitation of investment structures that have the potential to threaten a substantial interest of the United States government.

What is CFIUS?

The Committee on Foreign Investment in the United States (CFIUS) is an interagency committee authorized to enforce compliance with FIRRMA. To this end, CFIUS has adopted extensive regulations pertaining to the review of foreign investments in the United States. When contemplating transactions that may be subject to FIRRMA, both domestic businesses and foreign investors must carefully evaluate any proposed ownership interests or governance rights that have the potential to trigger CFIUS’ jurisdiction.

FIRRMA was enacted on August 13, 2018, and it substantially overhauled CFIUS’s jurisdictional authority. Today, the CFIUS review process plays a central role in a wide range of foreign investments in the United States, and foreign investors may choose to structure their investments to avoid the CFIUS review process in various circumstances.

What is the mandatory declaration requirement for transactions that are subject to FIRRMA?

Under FIRRMA, US and foreign entities that are preparing to conduct domestic transactions that have potential national security implications may need to seek approval from CFIUS. Seeking approval involves filing either a “notice” or “declaration” and paying the applicable filing fee. Since penalties for noncompliance can reach $5 million per violation (or up to the value of the transaction or party’s interest, where applicable), a proactive approach to compliance is essential.

What are the risks of FIRRMA noncompliance for US businesses and foreign investors?

Noncompliance with FIRRMA can have serious legal and financial consequences for both US businesses and foreign investors. As discussed above, civil fines can reach (and potentially exceed) $5 million per violation. Additionally, while FIRRMA does not include criminal enforcement provisions, significant violations can implicate various other federal national security laws, and violations of these laws can lead to criminal prosecution in some cases.

Along with statutory financial penalties, noncompliance with FIRRMA can also lead to US businesses and investors being forced to unwind offending transactions in some cases. This can prove incredibly expensive, and being found in noncompliance can increase the risk of facing intensive scrutiny from CFIUS in the future.

How can US businesses and foreign investors effectively manage FIRRMA compliance?

US businesses and foreign investors can effectively manage FIRRMA compliance by proactively engaging experienced compliance counsel. By putting policies and procedures in place before transactions implicate the CFIUS review process, parties on both sides of these transactions can help ensure that they do not encounter any unnecessary issues going forward.

Speak with a Senior FIRRMA Compliance Lawyer at Oberheiden PC

If you would like to speak with one of our firm’s senior FIRRMA compliance lawyers, we invite you to get in touch. To arrange a complimentary initial consultation at Oberheiden PC, please call 888-680-1745 or tell us how we can reach you online today.