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.

Background

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.

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
Events from this Firm
24 Oct 2019, Speaking Engagement, New York, United States

Orrick’s Lisa Lupion will serve as a panelist for an upcoming CLE program hosted by the New York County Lawyers Association entitled, “New Strategies in Sexual Harassment Investigation.”

24 Oct 2019, Other, Munich, Germany

Orrick and M.M.Warburg & CO invite you to an event on Lean Startups on 24. October.

25 Oct 2019, Speaking Engagement, New York, United States

A joint program of the American Arbitration Association and the Center for Labor and Employment Law at NYU School of Law

Similar Articles
Relevancy Powered by MondaqAI
Cleary Gottlieb Steen & Hamilton LLP
 
In association with
Related Topics
 
Similar Articles
Relevancy Powered by MondaqAI
Cleary Gottlieb Steen & Hamilton 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