CFIUS REFORM – The Foreign Investment Risk Review Modernization Act of 2018
By Ruilin Li
On August 13, 2018, the President signed into law the Foreign Investment Risk Review Modernization Act of 2018 (FIRRMA). FIRRMA expands the jurisdiction of the Committee on Foreign Investment in the United States (CFIUS) to address U.S. national security concerns over foreign investment. FIRRMA also strengthens and modernizes CFIUS review process.
Key Provisions of FIRRMA
Expands the scope of Covered Transactions
FIRRMA added four (4) new types of covered transactions subject to CFIUS review:
1. Real Estate Transactions – A purchase, lease or concession by or to a foreign person of real estate located in proximity to sensitive government facilities;
2. Non-controlling Investment in Critical Technology – “Other investments” in certain U.S. businesses that (i) owns, operates, manufactures, supplies or services critical infrastructure; (ii) produces, designs, tests, manufactures, fabricates or develops one or more critical technologies; or (iii) maintains or collects sensitive personal data of United States citizens that may be exploited in a manner that threatens national security.
Other investment means any non-controlling investment, that directly or indirectly and regardless of size, that afford the foreign person access to such material nonpublic technical information in the possession of the U.S. business, membership on the board of directors, or other decision-making rights, other than through voting of shares.
Critical Infrastructure means, subject to regulations prescribed by CFIUS, systems and assets, whether physical or virtual, so vital to the United States that the incapacity or destruction of such systems or assets would have a debilitating impact on national security.
Critical Technology means the following: (i) defense articles or defense services included on the United States Munitions List set forth in the International Traffic in Arms Regulations under subchapter M of chapter I of title 22, Code of Federal Regulations; (ii) items included on the Commerce Control List set forth in Supplement No. 1 to part 774 of the Export Administration Regulations under subchapter C of chapter VII of title 15, Code of Federal Regulations, and controlled—(I) pursuant to multilateral regimes, including for reasons relating to national security, chemical and biological weapons proliferation, nuclear nonproliferation, or missile technology; or (II) for reasons relating to regional stability or surreptitious listening; (iii) specially designed and prepared nuclear equipment, parts and components, materials, software, and technology covered by part 810 of title 10, Code of Federal Regulations (relating to assistance to foreign atomic energy activities); (iv) nuclear facilities, equipment, and material covered by part 110 of title 10, Code of Federal Regulations (relating to export and import of nuclear equipment and material); (v) select agents and toxins covered by part 331 of title 7, Code of Federal Regulations, part 121 of title 9 of such Code, or part 73 of title 42 of such Code; and (vi) emerging and foundational technologies controlled pursuant to section 1758 of the Export Control Reform Act of 2018.
Material Nonpublic Technical Information, subject to regulations prescribed by CFIUS, means information that—(i) provides knowledge, know-how, or understanding, not available in the public domain, of the design, location or operation of critical infrastructure; or (ii) is not available in the public domain, and is necessary to design, fabricate, develop, test, produce or manufacture critical technologies, including processes, techniques or methods.
3. Changes in Rights – Any change in a foreign investor’s rights resulting in foreign control of a U.S. business or an “other investment” in certain U.S. businesses; and
4. Transactions Structured to Evade CFIUS Review – Any other transaction, transfer, agreement or arrangement designed to circumvent CFIUS jurisdiction.
FIRRMA provides for an abbreviated filing process through a new “declarations” procedure. The declaration would not generally exceed five pages in length and review period for such declaration is 30 days, instead of 45 days. It also allows CFIUS some discretion to require parties to file with CFIUS before closing a transaction.
The parties to a covered transaction are required to submit a declaration if the transaction involves an investment that results in the acquisition, directly or indirectly, of a substantial interest in a U. S. business in which a foreign government has, directly or indirectly, a substantial interest.
The mandatory declaration is not required with respect to an investment by an investment fund if the fund is managed exclusively by a U.S. general partner or equivalent and the foreign limited partners do not have the right to control investment decisions or otherwise control the fund.
Expands CFIUS Review Timelines
FIRRMA expands CFIUS’s review period from 30 to 45 days and allows an investigation to be extended for an additional 15-day period under “extraordinary circumstances” to be defined by CFIUS regulations. With these modifications, the CFIUS review process could take up to 105 days, rather than 75 days under current law.
Potential Filing Fees
Currently, there is no filing fee associated with a CFIUS filing. FIRRMA authorizes CFIUS to impose a fee, which will be set by the forthcoming regulations, of no more than 1 percent of the value of the transaction or $300,000 (adjusted annually for inflation), whichever is less.
The revised timeline for CFIUS review and investigation described above is effective immediately, but many of the most significant changes, including the expansion of CFIUS’s jurisdiction to “other investments” and real estate transactions, and the mandatory declaration filing process, will not go into effect upon earlier of 30 days after publication of the related regulations in the Federal Register, or February 2020.
As FIRRMA leaves many details to be implemented by CFIUS regulations, the full implications of FIRRMA will remain to be seen in the upcoming months. Please contact the International Group to discuss the applicability and implications of FIRRMA for particular transactions or if you have questions regarding FIRRMA not addressed in this brief summary.
This publication is provided for your convenience and does not constitute legal advice.