On January 6, 2022, the Committee on Foreign Investment in the United States (CFIUS) published a final rule updating the status of countries designated as "Excepted Foreign States" and "Excepted Real Estate Foreign States"1.

What you need to know

  • In February 2020, Canada, Australia and the United Kingdom (UK) were provisionally designated as "Excepted Foreign States" and "Excepted Real Estate Foreign States," thereby relieving many investors based in those countries of new CFIUS rules applicable to subsequent investments in U.S. businesses and real estate.
  • CFIUS has now conferred Canada and Australia with such status indefinitely.
  • UK, and newly-added New Zealand, retain such status until at least February 13, 2023.

The details

As we have previously described2, "excepted" status exempts the nationals, governmental agencies, and many business entities of such countries from various elements of CFIUS's enlarged jurisdiction, including that:

  • non-controlling investments in U.S. businesses by qualified "excepted investors" from these countries do not fall within CFIUS jurisdiction; and
  • investments in U.S. real estate by qualified "excepted real estate investors" from these countries are not subject to CFIUS review.

"Excepted" status does not bear, however, on CFIUS's jurisdiction to review an acquisition that does, or could, result in foreign control of a U.S. business.

CFIUS initially designated Canada, Australia and the UK due to their robust intelligence-sharing and "defense industrial base integration mechanisms" with the United States. To retain "excepted" status beyond February 2022, CFIUS also had to determine whether an eligible foreign state had established, and is effectively utilizing, "a robust process to analyze foreign investments for national security risks and to facilitate coordination with the United States on matters relating to investment security". Because CFIUS has concluded that Canada and Australia have done so, they are and will remain excepted foreign states and excepted real estate foreign states absent further CFIUS action.

With respect to the UK, CFIUS extended by a year, to February 13, 2023, to make such a determination. Just last week, the UK's National Security and Investment Act 2021 came into force and the one-year extension is understood to give the UK time to meet CFIUS's criteria.

Finally, CFIUS added New Zealand based on its intelligence-sharing relationship with the U.S. and its collective defense arrangement and cooperation. New Zealand had previously been the only member of the "Five Eyes" intelligence alliance not to be designated as an excepted foreign state. Like the UK, New Zealand has until February 13, 2023, to demonstrate that it has established and is utilizing a regime to review foreign investments for national security impacts.

  1. 87 Federal Register 731-32, amending 31 C.F.R. § 800.218 and 31 C.F.R. § 802.214.

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.