The Committee on Foreign Investment in the United States (CFIUS), chaired by the Secretary of the Treasury, is a multi-agency group responsible for the regulation of foreign transactions and investments involving U.S. businesses, and the intersection of those investments with national security concerns. Earlier this year, the U.S. Treasury Department expanded CFIUS’s reach through regulations implementing the Foreign Investment Risk Review Modernization Act (FIRRMA).
Before FIRRMA, businesses and investors could voluntarily submit their transactions to CFIUS for review, with an eye to obtaining CFIUS clearance and eliminating that risk permanently. Now, in many cases, filing for review has become mandatory. If those participating in such transactions do not flag their deal for review, they could face significant consequences, up to and including forced divestiture.
Your transaction might be subject to CFIUS review if it entails foreign investment in U.S. businesses that:
produce, design, test, manufacture, fabricate, or develop critical technologies;
own, operate, manufacture, supply, or service critical infrastructure; or
maintain or collect sensitive personal data of U.S. citizens that could be exploited in a way that threatens national security;
or if it entails foreign investment in real estate located near U.S. military bases or sensitive government facilities, or areas important to national security such as air or maritime ports.
Paraphrasing the pertinent regulations, “critical technologies” is meant to encompass, generally, technologies that are potentially military or defense-related, as well as “emerging and foundational technologies” (which it appears will include artificial intelligence, biotechnology, and robotics). “Critical infrastructure” refers to systems and assets vital to U.S. national security. “Sensitive personal data” includes health, financial, and similar information. Collectively, these are referred to as TID (technology, infrastructure, and data) industries.
Many factors need to be weighed in evaluating whether a transaction falls within CFIUS purview. Key issues to review include whether the transaction would provide a foreign government a substantial interest in a TID business, result in control by a foreign person over the U.S. business, or provide certain rights to the foreign investor (including substantive decision-making influence, access to material non-public technical information, and board observer status). Certain carve-outs to the filing requirement do exist – for example, for “excepted investors” from qualifying countries, for passive participants in a U.S.-based private equity fund, and for some types of real estate transactions, but these exceptions are somewhat limited, and it may still be prudent in some cases to file a voluntary notice. For transactions involving critical technologies, pursuant to final regulations recently issued by the Treasury Department, the determination of whether a mandatory declaration is needed will be based on whether the technology would fall under certain U.S. export control authorization regimes.
Filing a notice with CFIUS is a substantial, rather technical undertaking, and the parties preparing the notice must produce a significant amount of information. Although information filed with CFIUS is required to be treated confidentially, this can still be a burdensome process. There are also considerable filing fees, especially for higher value transactions.
At Fonville Legal, we understand the complexities of the review process under CFIUS and FIRRMA, and can help your business navigate through it, including in the initial determination of whether a filing is necessary or advisable. To learn more about CFIUS and how we can assist, we invite you to contact our firm today.