CFIUS Regulations

Foreign Persons Seeking to Invest in U.S. Businesses and Other Domestic Assets Must Comply with the CFIUS Regulations

Foreign investors seeking to acquire business interests and pursue real estate transactions in the United States often need to go through the CFIUS review process. This process is governed by the Defense Production Act (DPA), Foreign Investment Risk Review Modernization Act (FIRRMA), and CFIUS’s regulations promulgated under these federal statutes.

**Attorney Nick Oberheiden**
CFIUS Team Lead

**Attorney John W. Sellers**
CFIUS Team
Former DOJ Trial Attorney

**Glenn Karabeika**
CFIUS Team Consultant
Former HSI Special Agent

In the United States, certain real estate transactions and business acquisitions involving foreign parties are subject to review by the Committee on Foreign Investment in the United States (CFIUS). Specifically, CFIUS reviews proposed transactions that pose potential national security risks—and parties pursuing these transactions must proactively seek CFIUS’s approval before moving forward. Failure to do so can trigger steep penalties; and, in the event that an unapproved transaction raises national security considerations, this can lead to additional consequences.

The federal government has a substantial interest in preventing national security threats related to proposed foreign investments. To protect these interests, Congress enacted the Defense Production Act (DPA) and Foreign Investment Risk Review Modernization Act (FIRRMA)—and CFIUS has adopted extensive regulations pursuant to these statutes. Our CFIUS lawyers help parties seek approval for covered transactions, and we provide representation for other matters falling within CFIUS jurisdiction as well.

About the Committee on Foreign Investment in the United States (CFIUS) Regulations

The regulations adopted by the Committee on Foreign Investment in the United States (CFIUS) pertaining to approval of foreign investments appear in the Federal Register—specifically, in Parts 800 through 802 of Title 31 of the Code of Federal Regulations. These regulations establish the CFIUS filing requirements for transactions that present national security issues as well as the procedures for CFIUS’s review of transaction parties’ requests for approval.

Applicability of the CFIUS Final Regulations

CFIUS’s regulations apply to certain transactions involving foreign parties, including foreign nationals, foreign businesses, and foreign government entities. Specifically, they apply to “covered transactions” (as defined in the regulations) between “foreign persons” and U.S. businesses and real estate owners.

Covered Investments Under the CFIUS Regulations

Foreign investments that are subject to the CFIUS process fall into three categories. Covered transactions that are subject to the mandatory filing requirement under CFIUS’s regulations include:

Acquiring a Controlling Equity Interest or Voting Interest in a U.S. Business

Foreign acquisitions of controlling interests in U.S. businesses are generally subject to CFIUS review. Both parties involved must participate in the review process, including responding to any CFIUS requests for additional information. Such transactions are often subject to intensive review, and transaction parties must work with experienced CFIUS counsel to demonstrate that foreign control does not pose a national security risk under the circumstances involved.

Acquiring a Non-Controlling Interest in a U.S. Business Involved in Critical Infrastructure, Critical Technologies, or Sensitive Personal Data

The CFIUS regulations also apply to foreign minority investments in U.S. businesses involved in critical infrastructure, that are involved in developing emerging and foundational technologies, or that process sensitive personal data. Like other covered transactions, cross-border transactions falling into this category are subject to review unless they involve an excepted foreign state or another excepted investor, or the parties structure their transaction to avoid the need for regulatory authorization.

Investing in Certain U.S. Real Estate

Certain investments in U.S. real estate are also subject to review under CFIUS’s regulations. These include investments that would result in a foreign ownership interest in airports, seaports, and parcels located near certain government facilities and military installations. CFIUS’s authority to review these transactions makes it essential for parties contemplating such transactions to proactively address their compliance obligations before moving forward.

The CFIUS Notice, Investigation, and Approval Process

The CFIUS regulations establish a multi-step approval process for foreign investments with national security implications. As noted above, transaction parties are required to disclose pertinent pending transactions to CFIUS, and CFIUS can investigate transactions that are not voluntarily reported. Unreported transactions can result in steep civil monetary penalties (up to the value of the unreported transaction) as well as other administrative, civil, and criminal consequences. While civil penalties were previously capped at $5 million per violation, this is no longer the case.

The CFIUS review process involves several stages with defined timelines. There are two primary tracks:

Declaration – Transaction parties can submit a short-form “Declaration” to receive expedited processing. A Declaration has a 30-day assessment period, though CFIUS can require transaction parties to submit a long-form Notice if it has concerns about their transaction.
Notice – Filing a long-form Notice triggers a more-extensive review process, but it can also provide greater certainty. A Notice filing can take anywhere from 45 to 105 days to review, though this timeline can be extended by the need to negotiate mitigation measures or seek presidential approval.

With both tracks, the review process can have a variety of outcomes. These include clearance, denial of clearance, and the requirement to implement mitigation measures. CFIUS can also decline to issue a decision and refer the matter to the President. The President can then either approve or block the transaction.

When CFIUS requires mitigation measures to address national security concerns, transaction parties must work with CFIUS to develop custom-tailored measures that address the specific concerns at hand. Alternatively, if it appears that it will not be possible to secure clearance on favorable terms, transaction parties can withdraw their application and restructure their transaction before submitting a revised Declaration or Notice.

FAQs: Seeking Approval for Foreign Entity Investments Under the CFIUS Regulations

When do foreign investments in the U.S. raise national security concerns for purposes of CFIUS compliance?

Foreign investments in the U.S. can raise national security concerns under various circumstances. These include (but are not limited to) concerns related to control of U.S. businesses, concerns related to foreign access to sensitive technology or data, and concerns related to physical proximity to U.S. government assets.

What qualifies as material nonpublic technical information for purposes of CFIUS compliance?

Transactions can be subject to CFIUS review if they involve access to “material nonpublic technical information.” Under Section 800.232 of the CFIUS regulations, this term is defined as follows:

“The term material nonpublic technical information means information that: (1) Provides knowledge, know-how, or understanding, in each case not available in the public domain, of the design, location, or operation of covered investment critical infrastructure, including vulnerability information such as that related to physical security or cybersecurity; or (2) Is not available in the public domain and is necessary to design, fabricate, develop, test, produce, or manufacture a critical technology, including processes, techniques, or methods.”

Corporate financial information is expressly excluded from the definition of material nonpublic technical information, as is general information about technical innovations that is nontechnical in nature.

Are there filing fees for seeking CFIUS approval?

Filing fees apply to long-form Notices only, not short-form Declarations. For Notices, filing fees are determined based on the value of the transaction for which approval is being sought. The minimum filing fee is $750 (with small transactions being exempt from filing fees under CFIUS’s regulations), while the maximum filing fee is $300,000.

Do foreign parties seeking to invest in the United States need to comply with the regulations of any other enforcement authorities?

In addition to complying with the CFIUS regulations regarding transaction approval, foreign parties seeking to invest in the United States may need to comply with various other federal sources of authority as well. These include (but are by no means limited to):

Commerce Control List (CCR) regulations
Export Administration Regulations (EAR)
Federal securities, antitrust, and anti-money laundering (AML) laws
International Traffic in Arms regulations (ITAR)
National Security Act
United States Munitions List (USML) regulations
Various executive orders related to foreign direct investment security

While CFIUS’s focus is on national security concerns rather than broader economic issues, other federal authorities focus in other areas. As a result, a comprehensive approach to federal compliance is essential.

What are the risks of failing to comply with the CFIUS regulations governing foreign investments in the United States?

Non-compliance with the CFIUS regulations can trigger an investigation that has the potential to lead to substantial penalties. CFIUS investigations have increased by approximately 300% since 2020 due to non-compliance; and, today, CFIUS is taking proactive measures to identify undisclosed covered transactions. While transactions in the defense and telecommunications industries are among those most likely to face CFIUS scrutiny, other transactions can (and do) face scrutiny as well. Importantly, CFIUS does not have a statute of limitations for investigating transactions that fall under its jurisdiction.

Contact the CFIUS Compliance Attorneys at Oberheiden PC

If you need to know more about the CFIUS review process or any other aspect of the federal government’s oversight of foreign investments in the United States, we invite you to get in touch. Our attorneys represent domestic and foreign parties in connection with all types of regulated cross-border transactions. To speak with a senior CFIUS compliance attorney at Oberheiden PC in strict confidence, call us at 888-680-1745 or contact us online today.

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