CFIUS Final Regulations under FIRRMA

  • FIRRMA significantly reformed the process used by CFIUS to review foreign direct investments into U.S. businesses that pose national security threats.
  • On Jan. 13, 2020, CFIUS released two final regulations that implemented FIRMMA. These regulations were the result of growing concerns over the potential of personal data breaches from China.
  • The first set of final regulations govern CFIUS’s broadened jurisdiction over certain types of “covered” transactions, such as non-controlling foreign investments in certain U.S. businesses in critical technology, critical infrastructure, and sensitive personal data sectors.
  • The second set of final regulations govern CFIUS’s broadened jurisdiction over certain foreign investments in real estate in the United States that were previously not covered transactions.
  • Some of the key provisions addressed in the Final Regulations include a broader definition of “covered” investments, provisions on excepted investors and excepted foreign countries, and CFIUS mandatory filing requirements.
  • Consider hiring a team of defense attorneys who can advise you on how these Final Regulations will impact your business.

Experienced CFIUS Defense Team

If you need advice regarding the implications of the CFIUS final regulations, get in contact with an experienced attorney today.

The massive reforms to CFIUS jurisdiction and CFIUS authority introduced by FIRRMA have altered the review process that CFIUS uses to determine whether foreign investments into U.S. businesses pose national security threats.

Further, CFIUS has introduced regulations, issued final regulations, and has also recently proposed new regulations. This makes it very challenging to stay abreast of all these regulatory changes.

At Oberheiden, P.C., our attorneys are extremely knowledgeable and experienced in foreign investments into U.S. businesses as well as the particulars of the process that CFIUS uses to scrutinize these investments.

It is our job to be aware of any and all changes to the CFIUS review process and authority as updated and revised by CFIUS regulations.

Do not wait to get in touch with a qualified team of attorneys regarding these changes and how they affect you.

Put Oberheiden, P.C. on your side today to advise you on these issues.

Put our highly experienced team on your side

Dr. Nick Oberheiden
Dr. Nick Oberheiden

Founder

Attorney-at-Law

John W. Sellers
John W. Sellers

Former Senior Trial Attorney
U.S. Department of Justice

Local Counsel

Joanne Fine DeLena
Joanne Fine DeLena

Former Assistant U.S. Attorney

Local Counsel

Joe Brown
Joe Brown

Former U.S. Attorney & Former District Attorney

Local Trial & Defense Counsel

Amanda Marshall
Amanda Marshall

Former U.S. Attorney

Local Counsel

Aaron L. Wiley
Aaron L. Wiley

Former Federal Prosecutor

Local Counsel

Roger Bach
Roger Bach

Former Special Agent (OIG)

Gamal Abdel-Hafiz
Gamal Abdel-Hafiz

Former Supervisory Special Agent (FBI)

Chris Quick
Chris Quick

Former Special Agent (FBI & IRS-CI)

Kevin M. Sheridan
Kevin M. Sheridan

Former Special Agent (FBI)

Ray Yuen
Ray Yuen

Former Supervisory Special Agent (FBI)

Dennis A. Wichern
Dennis A. Wichern

Former Special Agent-in-Charge (DEA)

Introduction

President Trump signed the NDAA 2019 into law on August 13, 2018, which included the Foreign Investment Risk Review Modernization Act (“FIRRMA”).

FIRRMA significantly reformed the process used by the Committee on Foreign Investment in the United States (“CFIUS”) to investigate foreign direct investments into U.S. businesses that present national security issues.

On Jan. 13, 2020, CFIUS released two final regulations that implemented FIRMMA and were set to go into effect on February 13, 2020.

These regulations were a response to the growing concern that the increase in foreign investments into the United States are harmful to U.S. national security interests, especially with respect to U.S. industries that are regularly susceptible to foreign threats such as critical technology.

The potential for personal data breaches from China was also a driving impetus behind both the reforms included in FIRRMA and CFIUS’s final regulations.

CFIUS Final Regulations

The two sets of FIRRMA final regulations include:

  • 31 C.F.R. Part 800 – Provisions Pertaining to Certain Investments in the United States by Foreign Persons
  • 31 C.F.R. Part 802 – Provisions Pertaining to Certain Transactions by Foreign Persons Involving Real Estate in the United States

The first set of final regulations—Part 800 Regulations—govern CFIUS’s broadened jurisdiction over certain types of transactions—”covered investments”—such as non-controlling foreign investments in certain U.S. businesses in critical technology, critical infrastructure, and sensitive personal data sectors.

The second set of final regulations—Part 802 Regulations—govern CFIUS’s broadened jurisdiction over certain foreign investments in real estate in the United States that were previously not covered transactions.

The final rules are similar to the draft regulations, though they differ in several important ways.

Below is a summary of the key components of the new CFIUS final regulations that recently took effect in February 2020:

  • Enhanced CFIUS Jurisdiction
    • The regulations provide a broader basis for CFIUS to assert jurisdiction over non-controlling transactions involving TID Business investments by foreign individuals or foreign entities.
    • Specifically, these final regulations implement FIRRMA’s authorization of CFIUS’s expanded jurisdiction to now encompass foreign investments of certain U.S. businesses that involve critical technologies, critical infrastructure, and sensitive personal data of U.S. citizens—TID Businesses. They also now include enhanced jurisdiction over certain real estate transactions.
  • Broadened Definition of “Covered” Investments
    • The Regulations finalized the rules implementing CFIUS’s authority under FIRRMA regarding “covered” non-controlling foreign investments involving critical technology, critical infrastructure, and sensitive personal data U.S. industries—TID Businesses.
    • These three categories are defined as follows:
      • Critical Technology: The regulations do not modify the definition of critical technology industries. This category includes industries such as nuclear-related facilities, select agents and toxins, and emerging and foundational technologies. U.S. businesses that design, test, fabricate, or develop “critical technologies” are classified as TID Businesses.
      • Critical Infrastructure: The final rules identify a certain category of industries that are classified as critical infrastructure such as ports, water systems, or oil refineries. U.S. businesses that conduct major operations such as owning, operating, or manufacturing assets in connection with these industries are considered critical infrastructure industries for purposes of identifying as a TID Business.
      • Sensitive Personal Data: This category broadly includes industries that maintain and store confidential information on U.S. citizens that may be exploited to the detriment of those citizens and threaten U.S. national security interests. U.S. businesses that are encompassed by this category are deemed TID Businesses.
  • Excepted Foreign Countries
    • In connection with the release of the final regulations, CFIUS designated three foreign countries as excepted foreign countries: Australia, Canada, and the United Kingdom.
    • The reasons these countries are exempt from the requirements is because they are allies of the United States and have a track record of maintaining open intelligence sharing with the United States.
    • CFIUS may add more countries to this list in the future.
  • Excepted Investor
    • The final regulations apply to all foreign persons unless that foreign person is specifically exempted. The final regulations slightly modified the standard used to determine whether a foreign person is an excepted investor (or an excepted real estate investor).
    • These foreign investors are excepted for reasons similar to the regulations on the foreign country exceptions.
    • In order to be classified as an excepted investor, that foreign investor must satisfy one of the following:
      • A national of an excepted foreign country and not a national of a non-excepted foreign country;
      • A foreign government of an excepted foreign country; or
      • A foreign company or other foreign entity in the excepted foreign country that meets specified criteria.
  • CFIUS Mandatory Filing Requirements
    • The new regulations make clear that unless the proposed transaction falls within specified categories (see below), the CFIUS filing process is voluntary. This means that the parties to the proposed transaction can choose whether or not to submit the transaction to CFIUS for review.
    • In other words, filing is mandatory for certain transactions and not others; however, it is important to note that CFIUS retains the authority to review any foreign transaction or foreign investment for possible national security threats.
    • The two specified categories that are subject to the CFIUS mandatory filing requirements include the following:
      • Investments by any investor in certain U.S. TID Businesses involving critical technologies or
      • Investments by foreign investors in any TID Businesses with substantial foreign government ownership (with limited, specified exemptions).
  • CFIUS Filing Fees and Other Expenses
    • The CFIUS final regulations do not mention filing fees, though CFIUS is empowered to establish such fees under FIRRMA.
  • Real Estate Regulations
    • The final regulations gave CFIUS jurisdiction to review certain real estate transactions that are considered “covered” real estate investments unless an exception applies.
    • These regulations were published in response to concerns that certain transactions involving the purchase or lease of real estate without any connection to a U.S. business could evade the jurisdiction and review process conducted by CFIUS for possible national security threats.
    • CFIUS was vested with the authority to review any proposed purchase, lease, or concession by or to a foreign person of U.S. real estate that is located near sensitive U.S. facilities such as airports and military bases and that—either directly or indirectly—affords that foreign person at least three of the four property rights:
      • the right to physical access to the real estate,
      • the right to exclude others from the real estate,
      • the right to improve or develop the real estate, or
      • the right to attach fixed/immovable structures or objects to the real estate
    • Additional specific changes include the term “covered port”—such as airport and maritime ports—and clarifications regarding real estate that is in close proximity to missile fields at air force bases.

New Proposed Regulations

On May 21, 2020, the Treasury Department published proposed revisions to the existing regulations implementing FIRRMA.

The proposed regulations, entitled “Provisions Pertaining to Certain Investments in the United States by Foreign Persons” would modify the mandatory declaration for certain foreign investment transactions that involve a U.S. business that produces, designs, tests, manufactures, fabricates, or develops one or more critical technologies. The proposed regulations would also make certain amendments to the definition of ‘‘substantial interest.”

In effect, these regulations would modify the scope of CFIUS’s authority due to the expanded scope of foreign investments involving critical technologies.

Public comments were due June 22, 2020, after which the CFIUS will then issue final regulations.

Need Advice Regarding the CFIUS Final Regulations?

If you need advice regarding the CFIUS Final Regulations or the newly proposed regulations and how they may affect your business or proposed foreign investments and transactions, you need the advice of a skilled attorney.

The Final Regulations are very complicated, nuanced, and contain various exceptions. The process of complying and understanding their implications can be challenging.

The attorneys at Oberheiden, P.C. have the experience and knowledge needed to properly advise you on parsing through the CFIUS Final Regulations.

We can help you decide whether a filing should be made to CFIUS, how a proposed foreign investment could impact your business in relation to the new requirements mandated by the Final Regulations, and how to respond to CFIUS requests for information.

Call us at 888-680-1745 or contact our office for a free consultation to help resolve these new resulting implications.

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