United States: CFIUS Proposed Regulations – Evolution Toward Broad Foreign Investment Screening Continues Apace

The Committee on Foreign Investment in the United States (CFIUS) has published proposed regulations that, when finalized, will:

  • expand its jurisdiction to scrutinize foreign investment transactions to cover noncontrolling investments that implicate U.S. critical technology, critical infrastructure or sensitive personal data (SPD) and certain transactions involving real estate;
  • mandate filings with CFIUS regarding some critical technology, critical infrastructure and SPD (but not real estate) transactions if a non-U.S. government holds a substantial interest in the investor; and
  • implement other changes authorized by the 2018 Foreign Investment Risk Review Modernization Act (FIRRMA), such as a "country specification" regime to liberalize treatment of certain types of investors from designated countries.

This comprehensive regulatory proposal signals the formal establishment of the expanded intensity, scope and complexity of U.S. government scrutiny of foreign investments and transactions involving the United States, as prognosed by FIRRMA (covered in our prior alert).

Comments on the regulatory proposal are due by October 17 or 24, 2019, depending on which of two regulations are the subject of comments. CFIUS must finalize the regulations by February 13, 2020.


Traditionally, the President and CFIUS have had jurisdiction under the Exon-Florio law to disturb foreign investment transactions for national security reasons only if a foreign person could gain control over a U.S. business. Since November 2018, CFIUS has partially implemented FIRRMA under a "pilot program" by (i) exercising jurisdiction to act against certain foreign investment transactions that involve critical technology even when a foreign investor will not gain control over a U.S. business and (ii) requiring parties to notify CFIUS of certain critical technology investments (covered in our prior alert). The pilot program will terminate when the final regulations take effect.

Expanded CFIUS Jurisdiction

CFIUS now proposes to exercise FIRRMA authority permanently to expand jurisdiction over "noncontrolling" transactions if they involve critical technology, critical infrastructure, SPD or real estate in certain circumstances.

  1. Critical Technology: Critical technology comprises goods, services, software and technical information that are commonly export licensable or designated in certain related ways. A key subset of critical technology – emerging and foundational technology – is yet to be established by the U.S. government (covered in our prior alert). The 2018 pilot program regulations provide for CFIUS's jurisdiction over – and mandatory filings for – critical technology transactions if, among other things, the U.S. business's use or design for use of critical technology is connected to any of 27 specified industries listed here. The proposal would provide the President and CFIUS with jurisdiction over – but not require a filing for – such transactions even if there is no connection to a designated sensitive industry.  
  2. Critical Infrastructure: The proposal would provide the President and CFIUS with jurisdiction over certain noncontrolling foreign investments in U.S. businesses involved in a subset of critical infrastructure. Expanded jurisdiction could cover instances in which the U.S. business owns, operates, manufactures, supplies or services certain types of critical infrastructure in categories such as:
    • certain electric energy systems or facilities providing electric power to or located near military installations;
    • certain petroleum facilities, LNG terminals or storage facilities, and interstate petroleum and LNG pipelines; and
    • certain telecommunications and information services or fiber-optic cable that directly serve a military installation.
    Jurisdiction over noncontrolling investments will be limited to transactions involving U.S. businesses that perform any of certain types of functions with respect to a corresponding type of critical infrastructure.  
  3. Sensitive Personal Data: The proposal would provide the President and CFIUS with jurisdiction over certain noncontrolling foreign investments in U.S. businesses that maintain or collect SPD of U.S. citizens in particular circumstances. In general, a U.S. business would be considered to maintain or collect SPD if it: (i) targets or tailors products or services to sensitive groups, such as military personnel; (ii) collects or maintains SPD on at least one million individuals; or (iii) has a demonstrated business objective to maintain or collect SPD on greater than one million individuals and the SPD is an integrated part of the U.S. business's primary products or services.  
  4. Real Estate: The proposal would provide the President and CFIUS with jurisdiction over certain acquisitions of or leases by, or concessions to, foreign persons of certain U.S. real estate. The proposal would generally cover instances in which transactions provide foreign persons any of certain rights and involve:
    • real estate within, or that will function within or as part of, airports or maritime ports; or
    • real estate within specified distances of U.S. military installations and other U.S. government property that is sensitive for national security reasons.

Expanded CFIUS Filing Requirements

Today, under "pilot program" regulations, filings with CFIUS are mandatory only for certain foreign investment transactions involving U.S. businesses that implicate critical technology and at least one of 27 covered industries.

CFIUS now proposes to implement mandatory filing requirement for certain foreign investments in U.S. businesses that involve critical technology, critical infrastructure or SPD if a non-U.S. government is a substantial owner of the investor. If a foreign person's investment in such a business gives the foreign person a 25% or greater direct or indirect voting interest in the business and a foreign government holds a 49% direct or indirect interest in the foreign person making the investment, a filing with CFIUS would generally be required.

As under the pilot program, the U.S. government could penalize the foreign investor, the U.S. investment target business, or both if the parties fail to submit a required filing with CFIUS.

Other FIRRMA Implementation

The proposals will implement FIRRMA in a variety of other ways. For example, they provide for designation of countries that will receive favorable treatment under the Exon-Florio law. In particular, investments of parties that are from designated countries and that satisfy certain criteria would generally be exempt from expansion of Exon-Florio jurisdiction for noncontrolling critical technology, critical infrastructure, SPD and real estate transactions.

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.

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