United States: FIRRMA Broadens Scope Of Foreign Investments Subject To CFIUS Review

The Situation: The National Defense Authorization Act ("NDAA"), which contains the Foreign Investment Risk Review Modernization Act ("FIRRMA"), broadens the scope of foreign investments subject to scrutiny by the Committee on Foreign Investment in the United States ("CFIUS").

The Result: Certain noncontrolling foreign investments involving "critical infrastructure," "critical technologies," or sensitive data are subject to CFIUS review as well as certain foreign investments in real estate.

Looking Ahead: Some of FIRRMA's provisions will be effective immediately, while others will be further refined and implemented via regulation.

President Trump signed the NDAA today following a rare demonstration of strong bipartisan Congressional support. The NDAA contains the much anticipated FIRRMA. As we previously reported, FIRRMA modernizes and strengthens the CFIUS process by broadening the scope of transactions within the jurisdiction of CFIUS to include certain real estate transactions and certain transactions in U.S. "critical infrastructure" and "critical technology" companies and U.S. companies that maintain or collect sensitive personal data.

CFIUS remains an important consideration for foreign parties looking to invest in the United States. FIRRMA codifies the ways in which CFIUS has evolved in recent years. In addition to expanding CFIUS's jurisdiction, FIRRMA extends CFIUS's period of review and introduces a "declarations" process that mandates filings for certain transactions and establishes a process for parties to voluntarily file streamlined notices for expedited review. The NDAA also includes the Export Controls Act of 2018 that, among other things, introduces a process to identify and control the export, re-export, and transfer of "emerging and foundational technologies."

We see a number of key provisions that will impact foreign investment in the United States. Some are effective immediately; others will be further refined through regulation.

Expanded Jurisdiction

FIRRMA expands CFIUS's authority to review new types of transactions.

  • "Other Investments" Involving Critical Infrastructure, Critical Technologies, or Sensitive Data. CFIUS now enjoys broader authority to review noncontrolling investments in "critical infrastructure" and "critical technology" companies, as well as companies that maintain or collect sensitive data of U.S. citizens. By definition, investors that negotiate an observer board seat or receive access to any material nonpublic information will be subject to CFIUS jurisdiction when investing in these companies, regardless of the size of the investment.
  • Real Estate Transactions. CFIUS is now authorized to review the purchase, lease, or concession of private or public real estate that is: (i) a part of an air or maritime port or (ii) in close proximity to a U.S. military installation or other sensitive government location. While the acquisition of a single home and real estate in "urbanized areas" as defined by the Census Bureau are exempt from this provision, CFIUS traditionally raises proximity concerns when reviewing what would otherwise be a benign investment. We expect that this provision may further constrain investments in certain geographic areas.
  • Changes in the Rights of a Foreign Person. CFIUS is now tasked with more closely scrutinizing any change in the rights that a foreign person has with respect to their existing investments in U.S. businesses. This evaluation will take into consideration whether the change in rights (e.g., through additional investments or restructuring of initial investments) could result in an otherwise "covered transaction."
  • Evasion or Circumvention. CFIUS will also evaluate transactions carefully to assess whether they are designed to evade or circumvent CFIUS's jurisdiction.

Short Form and Mandatory Declarations

Recognizing that not all transactions necessarily demand a comprehensive review by CFIUS or all the information included in a traditional notice, FIRRMA establishes a streamlined process for certain parties to submit a short-form "declaration" in lieu of a traditional notice. While the mechanics will be delineated through regulations, FIRRMA provides that the information required will generally not exceed five pages in length. CFIUS will then have 30 days to respond to the declaration, after which CFIUS will either clear the transaction, invite or request the parties to file a traditional notice, or initiate a unilateral review of the transaction.

FIRRMA also requires mandatory declarations for foreign government-controlled investments in "critical infrastructure" and "critical technology" companies, as well as companies that maintain or collect sensitive data of U.S. citizens, when the investment would result in the foreign government acquiring a "substantial interest." CFIUS is also authorized to mandate declarations for transactions involving U.S. "critical technology" companies, regardless of the size of an investment. The circumstances under which these declarations will be required will be set forth in regulations.

Timing and Filing Fees

FIRRMA immediately extends the initial 30-day review period to 45 days, followed by the traditional 45-day investigation period. FIRRMA also authorizes CFIUS one 15-day extension for "extraordinary circumstances." While an extended review period may allow CFIUS to complete more evaluations during the first 45-day period, parties should not expect that the change will happen anytime soon. CFIUS continues to face significant resource constraints and the CFIUS review process is typically taking four to six months for most parties. Adding more time to the timeline will likely extend the process until resources match demand. CFIUS will be required to provide comments on drafts and formal notices within 10 business days of submission though this provision will not take effect immediately.

FIRRMA also authorizes CFIUS to require filing fees for CFIUS reviews. Fees will be determined by regulation, though they are capped at the lesser of one percent of the value of the transaction or $300,000 (adjusted annually for inflation).

Private Equity Investors

The recent trend of private equity investors interacting more frequently with CFIUS has resulted in guidance from Congress on how CFIUS should evaluate foreign limited partner investments. Under FIRRMA, foreign limited partners investing through a fund managed exclusively by a general partner, managing member, or equivalent, that is not a foreign person, may be exempt from CFIUS's jurisdiction when investing in "other investments," so long as the limited partners do not participate on any advisory boards granting them the ability to control investment decisions or gain access to nonpublic technical information, or otherwise have the ability to control the fund.

Emerging and Foundational Technologies

One of the most significant changes to the final legislation was the removal of the technology transfer provision (the so-called "joint venture" provision) that was one of the most hotly contested provisions of the proposed legislation. However, under the companion export control legislation, the U.S. Department of Commerce could evaluate the national security considerations with regard to technology transfer via joint ventures or development agreements under certain circumstances, such as in the context of reviewing export license applications. In addition, the President is tasked with establishing an interagency process to identify "emerging and foundational technologies" that are essential to the national security of the United States and not currently controlled under U.S. export control regimes. For example, recent experience suggests the U.S. government is concerned with investments in companies focused on artificial intelligence, robotics, and semiconductors, particularly when the technology may be used for defense applications. Companies should anticipate that controls will be placed on these and similar technologies (i.e., license requirements for exports), and that they may be off-limits to certain foreign investors. 

Three Key Takeaways

  1. FIRRMA expands CFIUS's authority to review new types of transactions, and CFIUS remains an important consideration for foreign parties looking to invest in the United States.
  2. Foreign parties looking to invest in the United States should: (i) be aware that it may take longer for CFIUS to clear transactions with traditional notices; (ii) evaluate whether an investment will require a mandatory "declaration" to CFIUS; and (iii) consider the option of filing a voluntary "declaration" to potentially expedite the CFIUS review process. 
  3. The U.S. government will establish a process for identifying and controlling "emerging and foundational technologies," which may become off-limits to certain foreign investors.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
Similar Articles
Relevancy Powered by MondaqAI
 
In association with
Related Topics
 
Similar Articles
Relevancy Powered by MondaqAI
Related Articles
 
Related Video
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
 
Email Address
Company Name
Password
Confirm Password
Position
Mondaq Topics -- Select your Interests
 Accounting
 Anti-trust
 Commercial
 Compliance
 Consumer
 Criminal
 Employment
 Energy
 Environment
 Family
 Finance
 Government
 Healthcare
 Immigration
 Insolvency
 Insurance
 International
 IP
 Law Performance
 Law Practice
 Litigation
 Media & IT
 Privacy
 Real Estate
 Strategy
 Tax
 Technology
 Transport
 Wealth Mgt
Regions
Africa
Asia
Asia Pacific
Australasia
Canada
Caribbean
Europe
European Union
Latin America
Middle East
U.K.
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.

Disclaimer

The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.

General

Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions