Overview
On November 7, 2024, the U.S. Department of the Treasury (Treasury) published a final rule expanding the jurisdiction of the Committee on Foreign Investment in the United States (CFIUS) to review certain real estate transactions involving foreign persons near military installations and other sensitive U.S. government facilities. This rule significantly broadens CFIUS's authority to monitor foreign access to real estate close to sites critical to national security, aiming to mitigate risks posed by surveillance and potential intelligence-gathering activities by foreign persons. The final rule takes effect on December 9, 2024.
Authority and Background
The final rule is an outgrowth of the Foreign Investment Risk Review Modernization Act of 2018 (FIRRMA), which granted CFIUS authority to review and mitigate risks associated with foreign investments in U.S. real estate near sensitive government and military sites. Treasury promulgated FIRRMA's implementing regulations in 2020, which included a list of installations where real estate transactions within specified geographic limits were subject to CFIUS review.
Specifically, CFIUS's regulations established a list of military installations with respect to which certain "covered real estate transactions" located in varying degrees of geographic proximity to covered sites would be subject to CFIUS's jurisdiction. The relevant military installations are listed in Appendix A to 31 C.F.R. Part 802. Among other types of transactions, CFIUS has jurisdiction to review certain transactions involving (1) real estate located within one mile of the military installations identified in Part 1 or Part 2 of Appendix A and (2) real estate located within 100 miles of the military installations identified in Part 2 of Appendix A.
CFIUS previously amended this list through a rulemaking that took effect in September 2023, which added eight military installations to Appendix A (as well as making other technical changes).
Purpose and Scope of the Expanded Rule
The final rule follows recent U.S. efforts to strengthen protections around sensitive military and government sites. It addresses growing national security concerns associated with foreign persons acquiring real estate in close proximity to sites that could be exploited for intelligence collection or surveillance activities.
The final rule expands the list of covered military facilities in Appendix A significantly. In particular, the final rule:
- Adds 40 additional military installations to Part 1 of Appendix A – establishing CFIUS jurisdiction over covered real estate transactions within a one-mile radius of these sites.
- Adds 19 additional military installations to Part 2 of Appendix A – establishing CFIUS jurisdiction over covered real estate transactions within a 100-mile radius of these sites.
- Re-designates eight previously-listed military installations from Part 1 to Part 2 of Appendix A – expanding CFIUS jurisdiction for these sites from a one-mile to a 100-mile radius.
With these new additions, CFIUS jurisdiction now covers a total of over 250 military and government installations, allowing the Committee to act to address security risks related to real estate investments by foreign entities near those facilities. The expanded CFIUS jurisdiction only applies prospectively and does not impact transactions completed before the final rule's effective date.
In addition to the above revisions to the list of covered military installations, the final rule also provides some clarifications regarding the names and addresses of previously-listed military installations.
Practical Implications for Foreign Investors and Businesses
The Biden administration's decision to implement the final rule reflects heightened concern for safeguarding military sites from potential foreign surveillance. Real estate transactions in proximity to critical military installations create potential opportunities for foreign adversaries to gather sensitive information, track military activities, and conduct electronic surveillance. Expanding CFIUS's ability to review more of these transactions represents an effort to counter such risks and preserve U.S. strategic interests.
This final rule comes in the context of other actions being taken at the state and federal level to counter risks stemming from foreign ownership of real estate near sensitive military installations. For example, 26 states have passed laws restricting specific types of foreign investment in real estate, with 15 such laws having been passed in 2023 alone. At the federal level, President Biden signed a new law to include the Secretary of Agriculture as a voting CFIUS member on a case-by-case basis for certain transactions involving agricultural land (as well as other agriculture-related transactions). Additionally, President Biden, upon CFIUS's recommendation, earlier this year took the rare step of ordering the divestment of Chinese-owned real estate near Warren Air Force Base in Wyoming due to national security concerns.
The final rule, taken together with other measures regulating foreign ownership of U.S. real estate, demonstrates that foreign investment, acquisition and ownership of real estate near sensitive military and national security sites is now subject to significant scrutiny. With the expanded scope of CFIUS's jurisdictional reach, it seems likely that even more exacting scrutiny of such real estate transactions could be ahead in the coming years.
Conclusion
For more information on how the final rule might impact your business or to discuss specific transactions, please contact a member of Steptoe's CFIUS and National Security practice.
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.
