United States: Staying Out Of The Penalty Box – A Reminder Regarding The CFIUS Pilot Program

In Short

The Situation: Certain controlling and non-controlling investments by foreign persons in the United States require a mandatory notification to the Committee on Foreign Investment in the United States ("CFIUS").

The Developments: CFIUS previously established a mandatory notification pilot program pursuant to legislation that will significantly change CFIUS and the CFIUS process.

The Impact: Parties that fail to comply with the mandatory notification requirement can be subject to significant penalties.


As we previously wrote about here and here, there is a relatively new program (effective November 2018) pursuant to which certain investments in the United States trigger a mandatory notification to the Committee on Foreign Investment in the United States ("CFIUS"). Under this program, which implements portions of the Foreign Investment Risk Review Modernization Act of 2018, CFIUS can impose significant penalties (up to the value of the transaction) on both the buyer/investor and the seller/target for failing to comply with the mandatory notification requirement. There are several components to this new program—including coverage of transactions falling below CFIUS's traditional "control" threshold—that require thinking about the CFIUS issue in a new way. Parties should consult with counsel early in deal planning to make sure that they are able to properly consider these issues in the planning stages.

Here's what you need to know:

  • Critical technology companies. The program applies to foreign investments in U.S. "critical technology" companies—a category whose contours are broad and subject to change. This includes companies that develop, manufacture, or test, among other products and technologies, sensitive export controlled and certain nuclear products and technologies. It also includes companies that develop or manufacture technologies subject to export controls as so-called "emerging" and "foundational" technologies. The U.S. government is working to define emerging and foundational technologies, but they may include, among other technologies, artificial intelligence, semiconductors, and biotechnology. Whether a U.S. company may be considered a "critical technology" company is not always obvious. It is important to ask the right questions and complete the appropriate analysis before proceeding with a transaction.
  • Controlling and non-controlling rights. Under the new program, a foreign investor no longer needs to receive control rights for the transaction to fall within CFIUS's purview. The mandatory filing requirement applies to controlling and certain types of non-controlling investments in U.S. critical technology companies. The types of non-controlling rights that trigger a mandatory notification include a foreign person obtaining: (i) access to certain technical information; (ii) a board seat or board observer rights; or (iii) involvement in substantive decision-making regarding the use, development, acquisition, or release of critical technology (which can include having access to or discussions with senior officers of a U.S. company). So, even a very small investment with board observer rights can trigger a mandatory filing, with a potential penalty up to the value of the transaction for failing to file.
  • Definition of foreign person is broad. A "foreign person," for purposes of the mandatory notification program, could be someone that you may not think of as "foreign." In particular, in addition to entities organized outside the United States, CFIUS may treat as "foreign persons" U.S. companies controlled by foreign persons (such as by having, in some circumstances, a foreign person Chief Executive Officer) or U.S. private equity funds that have foreign person general partners or significant foreign limited partners. Investments by those companies or funds could trigger a mandatory CFIUS notification. Note that U.S. private equity funds with foreign limited partners will not be considered foreign if certain conditions are met. Parties should consider these issues when forming new funds or contemplating potential investments.
  • Timing. Under the new program, parties to investments covered by the mandatory notification requirement must submit a declaration 45 days before closing. During that time, CFIUS will review the declaration and issue a determination. At the conclusion of its review, CFIUS may: (i) request a full written notice; (ii) inform the parties that its review cannot be completed based on the declaration and that the parties may file a full notice to seek CFIUS clearance; (iii) initiate a unilateral review; or (iv) notify the parties that it has concluded all action with respect to the transaction. Given these potential outcomes, parties need to plan ahead, including to assess what the parties will do if CFIUS informs the parties that its review cannot be completed based on the declaration and that the parties may file a full notice to seek CFIUS clearance. Note that parties can also file a full notice to meet the mandatory notification requirement if they believe that CFIUS likely will require a full notice in the declaration process.
  • Declaration form. The mandatory notification, which is called a declaration, is essentially a short form (five-six pages) CFIUS notice. The form requires information from both the foreign investor and the U.S. business.
  • Penalties. Failure to comply with the mandatory notification program can result in a penalty on each non-compliant party up to the value of the investment or transaction.

Jones Day has been advising on these issues in connection with numerous transactions since November 2018. Please do not hesitate to reach out if you have any question about whether a particular investment might trigger a mandatory notification.


Three Key Takeaways

  1. Foreign investments in U.S. critical technology companies can trigger a mandatory CFIUS notification requirement.
  2. The mandatory notification requirement applies to controlling and certain non-controlling investments.
  3. CFIUS can impose significant penalties up to the value of the transaction if parties do not comply with the mandatory notification requirement.

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
 
In association with
Related Topics
 
Related Articles
 
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Mondaq Free Registration
Gain access to Mondaq global archive of over 375,000 articles covering 200 countries with a personalised News Alert and automatic login on this device.
Mondaq News Alert (some suggested topics and region)
Select Topics
Registration (please 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