The Committee on Foreign Investment in the United States (CFIUS) last week added considerable teeth to its powers through draft regulations implementing key provisions of the Foreign Investment Risk Review Modernization Act of 2018 (FIRRMA), which last August overhauled the U.S. law governing CFIUS national security reviews. The proposed rules expand CFIUS jurisdiction beyond controlling investments, which are defined as those transactions that give foreign investors authority to make important business decisions for a U.S. business, to cover certain non-controlling investments.

The proposed rules would extend jurisdiction to non-controlling investments in U.S. critical infrastructure, critical technologies, U.S. ports, real estate in close proximity to sensitive U.S. Government facilities and businesses that collect sensitive personal data of U.S. citizens. The draft rules, which are subject to public comment, also expand the situations in which parties are required to make a CFIUS declaration or file a notice. In addition to those critical technologies listed in regulations finalized last November, acquisitions by foreign government-controlled entities of significant stakes in certain U.S. businesses also now require declarations or notifications. The regulations also start a process for delineating those U.S. allies that will in certain cases not be subject to certain CFIUS requirements.

Congress made it clear through its long deliberation process over FIRRMA that it was concerned that China was gaining access to sensitive U.S. technologies despite U.S. export control requirements and getting a foothold in U.S. critical infrastructure, often through minority and non-controlling investments. Congress addressed these perceived loopholes through FIRRMA by expanding jurisdiction to the non-controlling investments listed above and by starting a process to expand export licensing requirements for certain U.S. technology through the Export Control Reform Act of 2018, which was companion legislation to FIRRMA.

When FIRRMA was enacted last August, however, many of FIRRMA's most significant changes were put off until CFIUS could craft rules for dealing with these issues. Last November, CFIUS took the first step in this process by setting up as a pilot program extending CFIUS jurisdiction to certain non-controlling foreign investments in certain U.S. critical technology businesses and by subjecting those investments, whether controlling or not, to a mandatory short-form CFIUS declaration. Prior to FIRRMA, CFIUS filings were generally voluntary, although CFIUS had the authority to self-initiate a formal review.

These new regulations address most of the remaining key areas of FIRRMA, are comprehensive and go well beyond the November 2018 pilot program. They are subject to public comment for a 30-day period.

Special thanks to Lisa Raisner, Head of Government Relations, who co-authored this publication.

Read the full memo, "M&A Watch: New Regulations Significantly Expand CFIUS Reach."

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