U.S. broadens scope for scrutiny of foreign investments
On August 13, 2018, President Trump signed into law the Foreign Investment Risk Review Modernization Act of 2018 (“FIRRMA”), which makes significant changes to the US foreign investment regime as administered by the Committee on Foreign Investment in the United States (“CFIUS”).
Increased scrutiny for certain types of transactions: FIRRMA expands CFIUS’s ability to review and mitigate threats to national security for transactions involving sensitive US businesses. Such provisions include:
- Increased scrutiny for transactions involving companies in critical infrastructure or critical technologies, and involving access to U.S. citizens’ personal data, including: (i) jurisdiction over certain non-controlling transactions in such companies; (ii) mandatory filings of declarations for critical technology companies; and (iii) mandatory filings of declarations for transactions in which a foreign government holds a “substantial interest” in such companies.
- CFIUS is encouraged to consider patterns of recent transactions involving any one type of critical infrastructure, critical material, critical technology, or energy assets by a foreign government or person, and the effects of cumulative control on national security.
Increased scope: FIRRMA expands CFIUS’s authority to review certain transactions that were traditionally outside of its purview, for example:
- CFIUS’s jurisdiction will include certain real estate transactions (sales, leases, concessions) when in or part of airports, seaports, or in close proximity to U.S. government or military facilities—even if the transaction does not involve an acquisition of a U.S. business (for example, the purchase of undeveloped land next to a U.S. military facility).
- FIRRMA also allows jurisdiction over transactions that are structured to evade CFIUS reviews.
- CFIUS reviews may also be based on changes in governance rights that result in foreign control of a U.S. business.
Short form declarations: FIRRMA allows for short-form “declarations” for low-risk transactions, with potential clearance within 30 days or less.
Process and timing changes: FIRMMA makes notable changes to review timing and process, such as:
- For non-short-form transactions, FIRRMA increases the initial review period from 30 days to 45 days. The formal 45-day investigation period can also be extended an additional 15 days.
- FIRRMA grants CFIUS the authority to impose filing fees, to be established by regulation but to not exceed the lesser of $300,000 (adjusted annually for inflation) or 1% of the value of the transaction.
Various provisions of the amended legislation will apply immediately upon enactment. Respecting changes to the timing of reviews and investigations by CFIUS, these provisions will apply to reviews and investigations that are initiated by CFIUS on or after enactment. Other provisions will go into effect 30 days after the publication of the implementing regulations but no later than 18 months after enactment, including: (i) the increased scope of transactions subject to CFIUS’s jurisdiction; and (ii) declarations and mandatory filings for certain transactions. CFIUS will have to promulgate regulations to implement FIRRMA’s provisions but will have the authority to establish pilot programs on certain provisions prior to formal regulations.