Treasury Finalizes CFIUS Regulations Expanding Review Of Foreign Investment Transactions

The Treasury Department finalized regulations (here and here) implementing the Foreign Investment Risk Review Modernization Act of 2018 ("FIRRMA").

As previously covered, FIRRMA expanded the Committee on Foreign Investment in the United States' review of transactions beyond "covered transactions" concerning mergers, acquisitions or takeovers that could result in the foreign "control" of a U.S. business. The regulations include several types of noncontrolling transactions for so-called TID ("Technology, Infrastructure and Data") businesses involving (i) critical technologies subject to export controls, (ii) critical infrastructure, such as telecommunications and public utilities, or (iii) the "sensitive personal data" of U.S. citizens, such as financial or health information. In addition, the rules will apply to the review of certain real estate transactions. FIRRMA also introduced mandatory declaration requirements for certain types of covered transactions, including where a foreign government has a "substantial interest."

In response to public comment received on the regulations' proposal, Treasury amended the final rule to:

• include a definition of "principal place of business" that refers to (i) "the primary location where an entity's management directs, controls, or coordinates the entity's activities," and (ii) "where the fund's activities and investments are primarily directed, controlled, or coordinated by, or on behalf of, the general partner, managing member, or equivalent";
• revise certain criteria regarding what qualifies as an "excepted investor";
• provide clarification on the application of the "incremental acquisition rule";
• modify the treatment of genetic data under the definition of "sensitive personal data";
• refine the application to investment funds (i.e., the definition of "substantial interest");
• amend the exceptions for certain real estate transactions in airports and maritime ports; and
• clarify geographic coverage in relation to certain military installations.

Additionally, the final rule incorporates several "critical technology" amendments from a pilot program, including the mandatory declaration requirement for transactions involving U.S. businesses that "produce, design, test, manufacture, fabricate, or develop one or more critical technologies."

The final regulations will go into effect on February 13, 2020. Comments on the definition of "principal place of business" must be received by February 18, 2020.

Commentary

The final regulations closely track the proposed regulations published in September. The regulations implement the policy program undergirding FIRRMA—providing national security review for a broader swath of foreign investment in the United States with an eye towards protecting against the transfer of sensitive technologies to, and the collection of sensitive personal information by foreign adversaries, primarily China. As a result, relevant parties to many more cross-border transactions will need to consider whether to voluntarily submit a notification. The regulations also expand the mandatory CFIUS filing regime beyond non-controlling and controlling investments in critical technology businesses to include certain transactions involving foreign governments. The regulations, however, were not entirely expansive. A subset of investors from certain countries—the United Kingdom, Canada, and Australia—receive limited relief from some of the regulations' provisions; this marks the first time CFIUS has ever publicly identified parties that will receive less scrutiny from the Committee. Interested parties should keep a close eye on this space, as the Treasury Department signaled that additional regulations will be forthcoming, including with respect to modifications to the mandatory filing regime for non-controlling investments in critical technology and to the setting of filing fees.

Primary Sources

1. Treasury Final Rule, Part 800: Provisions Pertaining to Certain Investments in the United States by Foreign Persons
2. Treasury Final Rule, Part 802: Provisions Pertaining to Certain Transactions by Foreign Persons Involving Real Estate in the United States
3. Treasury Press Release: Treasury Releases Final Regulations to Reform National Security Reviews for Certain Foreign Investments and Other Transactions in the United States
4. Treasury FAQ: Final CFIUS Regulations Implementing FIRRMA
5. Treasury Fact Sheet: Final FIRRMA Regulations

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