The Foreign Investment Risk Review Modernization Act of 2018 (FIRRMA) authorizes the Committee on Foreign Investment in the United States (CFIUS or the Committee) to establish pilot programs to carry out certain provisions of the statute. CFIUS is the multi-agency panel that reviews foreign investments to assess their impact on national security. Investments deemed a threat may be restructured or mitigated to address CFIUS objections. Transactions where the threat cannot be mitigated may be blocked by the President — if not withdrawn and abandoned.
On October 10, the Department of the Treasury announced a pilot program expanding CFIUS review to include specific non-controlling foreign investments in U.S. businesses that are involved in critical technologies. Qualifying controlling and non-controlling investments in “Pilot Program U.S. Businesses” must, at minimum, be reviewed by CFIUS under short-form declarations. After a 30-day review, CFIUS can clear the transaction, initiate a unilateral formal review, request a formal filing, or decline action on the declaration and invite a formal filing. Parties also have the option of bypassing the declarations process altogether in favor of a formal filing.
The notice for the CFIUS Pilot Program says that “the regulatory safe harbor described in section 800.204(e) is not available for pilot program covered transactions for which the Committee completes all action under section 721 on the basis of a declaration, irrespective of whether the transaction could result in foreign control of a U.S. business.” Nevertheless, “transactions that could result in control of a pilot program U.S. business by a foreign person and that are filed as a written notice, and for which the Committee completes all action under section 721, would receive the benefit of the regulatory safe harbor described in section 800.204(e).
The notice does not expressly say whether a safe harbor is given non-controlling transactions for which a written notice is filed — although it appears likely that the regulations provide a safe harbor for incremental non-controlling investments, if the investment gives the investor no new rights. We hope that CFIUS will clarify this issue.
There are clear advantages to the declarations process. It requires less documentation. And it may clear a transaction in 30 days. But complex transactions will still require full reviews — and if there is no safe harbor for pilot program transactions under the declarations process, even investors with low risk transactions may feel compelled to file full notices. This may swamp CFIUS — and deny the Committee the “trial run” for the declarations process that is presumably one purpose of the Pilot Program. We’ll be monitoring CFIUS announcements to see how — and if — they provide further guidance on this issue.
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