Proposed CFIUS Regulations Expand Its Jurisdiction
September 26, 2019
On September 17, 2019, the Department of the Treasury proposed regulations implementing most of the remaining provisions of the Foreign Investment Risk Review Modernization Act of 2018 (“FIRRMA”), which updated the statute authorizing reviews of foreign investment by the Committee on Foreign Investment in the United States (“CFIUS”).
The proposal contains few surprises, largely codifying and expanding upon existing CFIUS practice and implementing changes already signaled in FIRRMA. The attached memorandum provides a summary of the most significant changes contained in the Proposed Regulations and highlights implications for practitioners and investors. Among other matters, the Proposed Regulations would:
- expand mandatory filings to cover any investment with respect to which (a)(i) a foreign government has a direct or indirect 49% or greater voting stake in the acquiror and (ii) the acquisition is of at least a 25% voting stake, and (b) the U.S. business of the target (i) develops critical technology, (ii) performs specified functions with respect to critical infrastructure, or (iii) handles sensitive personal data of specified types and volumes, subject to a qualified exception for investment through U.S.-managed investment funds;
- expand CFIUS’s jurisdiction over investments falling short of the more general “control” standards for businesses involving critical technology, critical infrastructure, and sensitive personal data, similar to standards previously adopted under the critical technology pilot program;
- extend CFIUS’s jurisdiction to certain acquisitions of real estate not operated as a business (e.g., raw land), including foreclosure on mortgages;
- exempt investments from a to-be-specified list of friendly countries from the expanded jurisdiction applicable to critical technology, critical infrastructure, and sensitive personal data transactions, but only if the eligible country adopts a foreign investment review regime that CFIUS approves as being adequately robust and cooperative, and not with respect to “control” transactions (which appear to remain subject to mandatory filing);
- expand the short-form “declaration” process to make it an option for all transactions within CFIUS’s jurisdiction; and
- make a number of important procedural changes, in particular with respect to the acquisition of contingent equity interests and secured lending.
Even where the proposed regulations do not directly apply, they provide important insight into CFIUS’s analysis of issues involving critical technology, critical infrastructure, sensitive personal data, and acquisitions of real estate in sensitive areas.
Please click here to read the full alert memorandum.