United States: Proposed CFIUS Regulations: The U.S. Remains Open For Business … But Read The Fine Print

On September 17, 2019, the U.S. Department of the Treasury issued over 300 pages of proposed regulations to implement the Foreign Investment Risk Review Modernization Act of 2018 ("FIRRMA"), legislation that expanded the scope of inbound foreign investment subject to review by the Committee on Foreign Investment in the United States ("CFIUS" or the "Committee"). FIRRMA expanded—subject to the promulgation of these implementing regulations—the Committee's jurisdiction beyond transactions that could result in foreign control of a U.S. business. The Committee’s jurisdiction will now include non-passive but non-controlling investments, direct or indirect, in U.S. businesses involved in specified ways with critical technologies, critical infrastructure, or sensitive personal data (referred to as "TID U.S. businesses" for technology, infrastructure, and data) and certain real estate transactions. The comment period will conclude on October 17, 2019, and as required by FIRRMA, the final regulations will become effective no later than February 13, 2020.

To date, only certain provisions of FIRRMA have been fully implemented. In late 2018, CFIUS launched a pilot program to require mandatory filings in higher risk "critical technology" investments. For the past year, the pilot program has served as a regulatory laboratory for the Committee—allowing it to experiment with the use of a short-form "declaration" and better assess the issues that arise in non-controlling but non-passive investments. Notably, the pilot program will remain in place for the foreseeable future, and the new proposed regulations will implement the remainder of the Committee's expanded authority under FIRRMA. Other developments are still to come—including the publication of a list of excepted foreign countries from which certain investors will receive less scrutiny.

Key developments are described below.

Covered Investments

  1. No Changes to the Critical Technologies Pilot Program. The proposed regulations leave the existing pilot program for critical technologies untouched. Notably, "critical technologies" is defined to include certain items subject to export controls and other existing regulatory schemes, as well as emerging and foundational technologies controlled pursuant to the Export Control Reform Act of 2018 ("ECRA"). Throughout the summer, several political and non-political leads at the Department of Commerce reported that we can expect new emerging technologies to be identified under specific Export Administration Regulations export control classification numbers ("ECCNs") within weeks. However, no new emerging technologies ECCNs have been identified since Commerce issued its advanced notice of proposed rule-making ("ANPRM") on the subject last fall. Commerce has also noted that it plans to release an additional ANPRM focused on foundational technologies in the coming weeks.
  2. Identification of Critical Infrastructure Sectors. CFIUS may review transactions related to U.S. businesses that perform specified functions—owning, operating, manufacturing, supplying, or servicing—with respect to critical infrastructure across subsectors such as telecommunications, utilities, energy, and transportation. Relying in part on the definition provided in the USA Patriot Act of 2001, the new regulations define "critical infrastructure" to include physical or virtual systems or assets the destruction or incapacitation of which would have a debilitating impact on U.S. national security. Previously, President Obama used this definition to identify 16 critical infrastructure sectors meriting special protection and assistance. CFIUS is more specific in its new regulations, listing 28 particular types of "covered investment critical infrastructure" that require additional investment protection. This list, provided in an Appendix to the new regulations, includes a range of technology and assets—from producers of certain steel alloys to industrial control systems used by interstate oil pipelines with specified diameters. However, only U.S. businesses that perform the specific functions matched to each particular type of infrastructure are TID U.S. businesses. For example, companies providing physical or cyber security to a crude oil storage facility would be TID U.S. businesses, but those that provide fencing around the facility or commercially available off-the-shelf cyber security software to the facility are not. The new proposed regulations also provide specific definitions for the listed "covered investment critical infrastructure" functions.
  3. Definition of "Sensitive Personal Data." CFIUS may review transactions related to U.S. businesses that maintain or collect sensitive personal data of U.S. citizens that may be exploited in a manner that threatens national security. "Sensitive personal data" is defined to include ten categories of data maintained or collected by U.S. businesses that (i) target or tailor products or services to sensitive populations, including U.S. military members and employees of federal agencies involved in national security, (ii) collect or maintain such data on at least one million individuals, or (iii) have a demonstrated business objective to maintain or collect such data on greater than one million individuals and such data is an integrated part of the U.S. business's primary products or services. The categories of data include types of financial, geolocation, and health data, among others. Genetic information is also included in the definition regardless of whether it meets (i), (ii), or (iii).
  4. Excepted Investors from Excepted Foreign States. Under the new regulations, certain foreign investors with ties to "excepted foreign states" will receive preferential treatment with respect to the review of covered investments. The proposed regulations create an exception from covered investments (but not transactions that could result in control) for investors based on their ties to certain countries identified as "excepted foreign states," and their compliance with certain laws, orders, and regulations (including U.S. sanctions and export controls). An investor's nationality is not dispositive—the proposed regulations identify criteria that a foreign person must meet in order to qualify for excepted investor status. Among these, investors cannot qualify for and may lose their excepted status if they are parties to settlement agreements with OFAC or BIS, or are debarred by the Department of State, for sanctions or export control violations. This will have a significant impact on foreign companies who run afoul of U.S. sanctions and export control regulations—the potential loss of this status for respondents might have the unintended effect of deterring disclosures to OFAC and BIS by those concerned about the loss of excepted investor status.

A list of factors will be posted on the Department of the Treasury's website outlining what the Committee will consider when making a determination on whether certain investors from a foreign state will be excepted from CFIUS scrutiny. Such factors will include whether the 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. The proposed regulations indicate that excepted states will be identified by the CFIUS Chairperson with the agreement of two-thirds of the voting members of the Committee, beginning two years after the effective date of the final rule (most likely February 2022). At the outset, the foreign state exception will likely apply to allies with whom the United States shares intelligence data under the multilateral UKUSA Agreement—Australia, Canada, New Zealand and the United Kingdom.

  1. Mandatory Filing Requirement. The proposed regulations implement FIRRMA's requirement for mandatory declarations for certain transactions where a foreign government has a substantial interest, in addition to the mandatory filing requirement for certain investments in U.S. critical technology companies under the pilot program. The submission of a declaration is not required with respect to investments by qualified investment funds.Notably, a majority of the declarations filed under the pilot program have been pushed into the standard review process, meaning that the streamlined "light" filing actually resulted in a longer review process for the parties involved. Anecdotal evidence suggests that fewer than 10 percent of cases filed under the pilot program have been decided on the basis of the short-form declaration alone, despite a relatively low volume of filings. Numerous transactions have required the submission of the full notice, and it has been difficult for the intelligence community to complete their full assessment within the allocated 30 days.

Real Estate Transactions

FIRRMA expanded the scope of transactions subject to CFIUS review to include the purchase or lease by a foreign person of real estate that "is, located within, or will function as part of, an air or maritime port..."; "is in close proximity to a United States military installation or another facility or property of the United States Government that is sensitive for reasons relating to national security;" "could reasonably provide the foreign person the ability to collect intelligence on activities being conducted at such an installation, facility, or property; or;" "could otherwise expose national security activities at such an installation, facility, or property to the risk of foreign surveillance." Although FIRRMA sought to codify the Committee's standard practice of examining such risks, it punted on the task of defining such terms. As a result, the proposed regulations resolve a number of uncertainties in FIRRMA with respect to how national security risks associated with real estate transactions will be ascertained.

  1. Property Rights that Trigger CFIUS Review. The proposed regulations clarify that—subject to certain exceptions for single housing units and real estate in urbanized areas—real estate transactions subject to the Committee's review include the purchase or lease by, or a concession to, a foreign person of certain real estate in the United States that affords the foreign person three or more of the following property rights: to physically access; to exclude; to improve or develop; or to affix structures or objects.
  2. Covered Real Estate. Coverage is focused on transactions in and/or around specific airports, maritime ports, and military installations. The relevant military installations are listed by name and location in an appendix to the proposed regulations. The relevant airports and maritime ports are on lists published by the Department of Transportation. Notably, such real estate will include properties located within "close proximity" of any military installation identified in Appendix A, parts 1 and 2, "extended range" of any military installation identified in part 2, and any county or geographic area identified in connection with a military installation set forth in part 3 of Appendix A.
  3. Definition of "Close Proximity" and "Extended Range." The proposed rule defines close proximity as "the area measured outward from the boundary of the relevant installation or other facility or property." The close proximity definition applies with respect to most of the military installations described in the proposed rule and in particular, those identified in the list in parts 1 and 2 of Appendix A. "Extended range" is defined as "the area that extends 99 miles outward from the outer boundary of close proximity" but, where applicable, "no more than 12 nautical miles seaward from the coastline of the United States." The extended range definition applies with respect to military installations described in part 2 of Appendix A.
  4. Exceptions for Certain Investors and Foreign States. The proposed rule sets forth a narrow definition of excepted real estate investor in the interest of protecting national security, in light of increasingly complex ownership structures, and to prevent foreign persons from circumventing CFIUS's jurisdiction. Thus, the criteria specified in § 802.216 require that a foreign person have a substantial connection (e.g., nationality of ultimate beneficial owners and place of incorporation) to one or more particular foreign states in order to be deemed an excepted real estate investor. Note that foreign persons who have violated, or whose parents or subsidiaries have violated, certain U.S. laws will lose their excepted investor status under these provisions.
  5. Urban Cluster Exception. FIRRMA requires that real estate in "urbanized areas," as defined by the Census Bureau in the most recent U.S. census, be excluded from CFIUS's real estate jurisdiction except as otherwise prescribed by the Committee in regulations in consultation with the Secretary of Defense. The urbanized area exclusion applies to covered real estate everywhere except where it is in "close proximity" to a military installation or another sensitive facility or property of the U.S. Government as listed in appendix A, or is, is within, or will function as part of, an airport or maritime port.
  6. Intersection of Real Estate and Other Covered Transactions or Investments. The proposed regulations clarify that real estate transactions that are also subject to CFIUS's existing and proposed regulations regarding control transactions and non-controlling investments involving U.S. businesses should be analyzed under those regulations.
  7. No Mandatory Filing Requirement. The transactions described in the proposed rule on real estate are not subject to a mandatory declaration requirement. As a general matter, parties to a covered real estate transaction will decide whether to file a notice voluntarily or submit a declaration to CFIUS.

CFIUS Filings

  1. Voluntary Short Form Declarations as Alternative to Notice. The proposed regulations provide a short-form declaration as an alternative to the Committee's traditional voluntary notice. To date, declarations have only been available under the pilot program. Declarations will allow parties to submit basic information regarding a transaction that should generally not exceed five pages in length. The Department of the Treasury will accept declarations submitted by parties using a standard template form which will be available on the Department of the Treasury's website by the time the final regulations become effective. The Committee will have 30 days to assess a covered transaction that is the subject of a declaration (as opposed to the 45-day initial review period available for notices).
  2. No Fees to Date. The Department of the Treasury will publish separate proposed regulations regarding fees at a later date.
  3. 5 p.m. Eastern Deadline. The new regulations impose a 5 p.m. EST filing deadline—a seemingly small point that could have a substantial impact in a cross-border deal involving players in multiple time zones.

Regulatory Framework

The proposed regulations would replace the current regulations found at part 800 of title 31 of the Code of Federal Regulations (31 C.F.R. part 800) and implement the changes that FIRRMA made to CFIUS's jurisdiction and process with respect to transactions that could result in foreign control of any U.S. business, as well as certain non-controlling "other investments" that afford a foreign person certain access, rights, or involvement in certain types of U.S. businesses. These proposed regulations would establish a new part 802 of title 31 of the C.F.R. and implement the authority FIRRMA provided to CFIUS to review the purchase or lease by, or concession to, a foreign person of certain real estate in the United States. The proposed regulations do not at this time modify the regulations currently at 31 C.F.R. part 801, which set forth the scope of, and procedures for, a pilot program to review certain transactions involving foreign persons and critical technologies. CFIUS continues to evaluate the pilot program.

The following Gibson Dunn lawyers assisted in preparing this client update: Judith Alison Lee, Jose Fernandez, Adam M. Smith, Stephanie Connor, Chris Timura and R.L. Pratt.

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.

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
Font Size:
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.


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.


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