United States: Treasury Department Proposes Regulations Comprehensively Implementing FIRRMA And Reforming CFIUS National Security Review

Last Updated: September 24 2019
Article by Ignacio E. Sanchez and Christine Daya

On September 17, 2019, the US Department of Treasury proposed regulations to comprehensively implement the Foreign Investment Risk Review Modernization Act (FIRRMA) – a law signed in August 2018 intended to strengthen the Committee on Foreign Investment in the United States (CFIUS) to more effectively guard against certain risk to US national security posed by certain types of foreign investments. The proposed regulations comprehensively implement the changes that FIRRMA made to CFIUS jurisdiction and its review process, but do not address CFIUS's authority to impose filing fees and do not modify the interim regulations governing the critical technologies pilot program (31 C.F.R. Part 801). The pilot program will remain in effect until Treasury publishes its final regulations, no later than February 13, 2020.

Interested parties may submit comments to CFIUS on the proposed regulations through October 17, 2019.

The proposed regulations largely address two new forms of "covered transactions": (1) certain non-controlling investments involving critical technologies, critical infrastructure, and sensitive personal data; and (2) certain transactions involving real estate in close proximity to US military or other sensitive national security facilities.

The proposed regulations also address the mandatory declaration requirement for foreign government-controlled transactions, and the new option for parties to submit a voluntary declaration.

New covered transactions

Non-controlling investments involving critical technologies, critical infrastructure, and sensitive personal data (31 C.F.R. Part 800)

Similar to the critical technologies pilot program, the proposed regulations expand CFIUS jurisdiction to include non-controlling investments in specific industries that afford a foreign person (1) access to material nonpublic technical information1 (2) membership on the board of directors, or (3) substantive decision-making rights (other than through voting shares), involving a US business that:

  1. produces, designs, tests, manufactures, fabricates, or develops critical technologies
  2. owns, operates, manufactures, supplies or services critical infrastructure, such as telecommunications, utilities, energy, and transportation (and as further described in Appendix A to the proposed regulations) or
  3. maintains or collects sensitive personal data (including financial, geolocation, electronic communication, and health data) that may be exploited to threaten national security, such as data that targets sensitive populations (ie, US military members) or data on over one million individuals.

The proposed regulations refer to these entities as "TID US businesses" - technology, infrastructure and data.

In the same way that the critical technologies pilot program extends CFIUS jurisdiction to transactions that may not have previously been covered by the CFIUS regulations, including (for example) a relatively small investment made by a venture capital firm with foreign limited partners in a pilot program US business that affords the firm a board seat, these proposed regulations extend CFIUS jurisdiction to similar investments made in US businesses involved in critical infrastructure and sensitive personal data. However, unlike the critical technologies pilot program, whether to make a filing in connection with such an investment generally remains voluntary.

Exceptions. Certain foreign persons are exempt from the proposed regulations on non-controlling investments, largely based on their ties to certain countries 2 and their compliance with certain laws and regulations. This exception does not extend to controlling transactions that are otherwise subject to CFIUS jurisidiction.

Passive, indirect investments made in a TID US business by a foreign person as a limited partner through an investment fund may also be exempt based on the same set of factors set forth in the critical technologies pilot program.

Purchase, lease by, or concession to a foreign person of certain US real estate (31 C.F.R. Part 802)

The proposed regulations also authorize CFIUS to review the purchase, lease by, or concession to a foreign person in real estate that affords a foreign person the ability to (1) physically access the property, (2) exclude others from accessing the property, (3) improve or develop the property, and/or (4) attach fixed or immovable structures/objects to the property,3 if the real estate:

  1. is located within, or will function as part of, an air or maritime port (as identified by the Transportation Department)
  2. is in close proximity (ie, within one mile) to a US military installation or another sensitive US government property
  3. could reasonably provide the foreign person the ability to collect intelligence on activities being conducted at a sensitive US government property or
  4. could otherwise expose national security activities at a sensitive US government property to the risk of foreign surveillance.

The proposed regulations contain extensive detail in Appendix A about military installations, as well as specific counties and geographic areas associated with missile fields and offshore ranges, that are subject to the new rule.

While real estate transactions have, in many cases, already been considered within the jurisdiction of CFIUS, FIRRMA and the proposed regulations explicitly deem the aforementioned types of real estate transactions to be "covered transactions" subject to the CFIUS voluntary filing process. However, the proposed regulations on real estate do not contemplate any mandatory filing requirement.

Exceptions. The proposed regulations create a number of exceptions, including for real estate transactions:

  • in an "urbanized area" or "urban cluster" (as defined by the Census Bureau), except those relating to relevant ports and those within one mile of a military installation or another sensitive US government property
  • involving a single "housing unit" (as defined by the Census Bureau) and
  • involving certain commercial office space in a multi-unit commercial office building.

Finally, and consistent with the exemption for non-controlling investments described above, certain foreign persons may be exempt largely based on their ties to certain countries (to be separately identified by Treasury).

New mandatory and voluntary declarations

The proposed regulations create a mandatory declaration requirement for foreign-government controlled transactions and outline the parameters for parties to submit voluntary declarations. Such declarations would mirror the standard fillable declaration form that is currently in place for the critical technologies pilot program.

The process would involve a 30-day CFIUS review period and the same potential review outcomes as the pilot program – CFIUS may (1) issue a safe harbor letter, (2) inform the parties that CFIUS was unable to conclude its review and the parties may file a voluntary notice, (3) request that the parties file a voluntary notice, or (4) initiate unilateral review of the transaction.

Unlike the pilot program, the proposed regulations explicitly provide that CFIUS may invite parties to a declaration to discuss and clarify issues pertaining to the transaction in a meeting with CFIUS.

Mandatory declaration requirement for foreign governments

The proposed regulations require mandatory declarations for acquisitions by a foreign person of a "substantial interest" (a 25 percent or greater voting interest) in TID US businesses, where a foreign government holds a "substantial interest" (a 49 percent or greater voting interest) in the foreign person. Such declarations would have to be submitted at least 30 days prior to closing.

Voluntary declarations

In addition, the proposed regulations establish a process for allowing parties to submit abbreviated filings through a declaration form for any covered transaction, as an alternative to a voluntary notice. This gives parties the option to submit a short-form declaration to CFIUS for review of a transaction in a more abbreviated time frame (30 days) than the traditional voluntary notice (45 days for review, an additional 45 days for investigation, and, under extraordinary circumstances, with a 15-day extension).

A summary Fact Sheet is available here.

Frequently Asked Questions are available here.

The proposed regulations are available here (for certain non-controlling investments) and here (for real estate).

Footnotes

1 The proposed regulations define material nonpublic technical information as information that: (1) provides knowledge, know-how, or understanding not available in the public domain, of the design, location, or operation of critical infrastructure, including without limitation 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 without limitation processes, techniques, or methods.

2 These countries are to be separately identified by Treasury based on an assessment of whether the foreign state has established and is effectively utilizing a robust process to assess foreign investments for national security risks, and to facilitate coordination with the United States on matters relating to investment security.

3 The foreign person must have three or more of these property rights.

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
Pillsbury Winthrop Shaw Pittman LLP
 
In association with
Related Topics
 
Similar Articles
Relevancy Powered by MondaqAI
Pillsbury Winthrop Shaw Pittman LLP
Related Articles
 
Related Video
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