October 16, 2019
CFIUS: New Foreign Investment Review Regulations
Overview
traditional longer written notification. A declaration is
On September 17, 2019, the Treasury Department proposed
mandatory however, where a foreign government has a
regulations for public notice and comment to implement
“substantial interest” (see below). The proposed regulations
key parts of the Foreign Investment Risk Review
specify the content and filing processes for declarations and
Modernization Act (FIRRMA) (Title XVII, P.L. 115-232),
notices; misstatements or omissions are subject to a fine of
which ”strengthens and modernizes” the national security
$250,000 per violation. FIRRMA also authorizes CFIUS to
review of foreign direct investment (FDI) transactions by
impose fees and to create a mandatory filing process: those
the Committee on Foreign Investment in the United States
areas would be covered in future proposed regulations.
(CFIUS) (under P.L. 110-49). CFIUS is an interagency
body comprising nine Cabinet members and others as
One concern of some stakeholders has been the potential
appointed. The draft regulations initiate provisions that
impact of CFIUS’s expanded jurisdiction on smaller U.S.
would affect how certain real estate and noncontrolling
businesses that rely on foreign investment. Treasury
investments will be scrutinized. These regulations were
indicated that it could not project the economic impact of
widely anticipated by various stakeholders for clarifying
reviewing certain real estate transactions, but it estimated
key aspects of FIRRMA.
that the change was not expected to have a “significant
economic impact on a substantial number of small entities.”
While various provisions of FIRRMA became effective
Similarly, regarding noncontrolling equity investments,
upon enactment in August 2018, the Act also required
Treasury concluded that less than one percent of U.S. small
CFIUS to take certain actions within prescribed deadlines
businesses likely would be subject to a review.
for various programs, reporting, and regulations. The
proposed regulations are to be finalized by February 2020.
Real Estate Transactions
Treasury also launched a pilot program in October 2018
CFIUS’s expanded jurisdiction over certain real estate (land
related to transactions involving critical technology—the
and structures) transactions includes the purchase or lease
proposed regulations would not change the program.
by, or a concession to, a foreign person of certain private or
public real estate located in the United States. Real estate
The FIRRMA-amended CFIUS process maintains the
transactions are defined as those that accord the investor
President’s authority to block or suspend proposed or
certain fundamental property rights. In particular, the
pending foreign “mergers, acquisitions, or takeovers” that
provision focuses on real estate that is in proximity of
could result in control of U.S. entities, including through
certain airports, maritime ports, and other facilities and
joint ventures, that threaten to impair national security. The
properties of the U.S. Government that are sensitive for
proposed regulations expand and clarify new authority for
national security reasons (military installations include 190
CFIUS to review certain real estate and other
facilities located across 40 States and Guam). CFIUS
noncontrolling foreign investments on the basis of threats,
additionally retains the authority to review any transaction
vulnerabilities, and consequences to national security.
that raises national security concerns on the basis of
Reviews of noncontrolling investments are limited to U.S.
proximity to sensitive sites and activities.
businesses (referred to as “TID businesses” for Technology,
Infrastructure, and Data) that: (1) produce, design, test,
The regulations specify various definitions, such as:
manufacture, fabricate, or develop one or more critical
Stipulated airports: As defined by the Federal Aviation
technologies; or (2) own, operate, manufacture, supply, or
Administration (FAA), major passenger and cargo
service critical infrastructure (28 subsectors specified); or
airports based on volume and “joint use airports” that
(3) maintain or collect sensitive personal data. One major
serve civilian and military aircraft;
aim of the proposed regulations is to “provide clarity to the
Close proximity: Areas within one mile of a relevant
business and investment communities with respect to the
military installation or other facility or property of the
types of U.S. businesses that are covered under FIRRMA’s
U.S. Government;
other investment authority.” The regulations would limit the
Extended range: Areas between one and 100 miles;
application of the expanded review process to certain
Facilities located within designated counties,
categories of foreign persons, introducing new terms such
according to Appendix A; and
as “excepted investor” and “excepted foreign state” for
Off-shore ranges: Within 12 nautical miles of the U.S.
noncontrolling transactions.
Excepted real estate transactions include: (1) certain real
Parties involved in these new covered transactions can
estate investors, defined as those with a substantial
choose between providing voluntarily, a short (not to
connection to certain foreign countries and who have not
exceed five pages) written declaration to receive expedited
violated U.S. laws; (2) housing units; (3) urbanized areas
consideration or potential approval by CFIUS, or the
and urban clusters (both defined by the Census Bureau); (4)
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CFIUS: New Foreign Investment Review Regulations
commercial office space (with some exceptions); (5) retail
definition, regardless of these parameters. Other types of
trade, accommodation, or food service establishments; (6)
data include financial, geolocation, health, and others.
lands held by Native Americans and some Alaskan Natives;
Treasury emphasized that these parameters were drafted to
and (7) certain lending and contingent equity transactions.
provide as much clarity and specificity as possible to
Requirements for filing a voluntary declaration or written
businesses. These specifications do not constrain CFIUS’s
notice are similar to those for other investment transactions.
traditional review of any transaction resulting in foreign
The regulations define an excepted foreign investor through
control of a U.S. business.
various criteria, including holding the right to 5% or more
of the profit of the investing foreign firm, or the ability to
The regulations do not target any particular country for
exercise control.
greater scrutiny by CFIUS—a major topic of congressional
debate during consideration of FIRRMA. FIRRMA did
Noncontrolling Equity Investments
however, mandate criteria that exempts certain categories of
CFIUS’s expanded authority under FIRRMA directs it to
foreign investors from CFIUS’s expanded jurisdiction.
review investment transactions whether or not the
These criteria include the principal place of business and
investment conveys a controlling equity interest in cases
incorporation, as well as ties to certain eligible countries.
where a foreign person has: (1) access to information,
Treasury is to publish a list of criteria for determining a
certain rights, or involvement in the decisionmaking of
limited number of “excepted foreign states”—a status to be
certain U.S. businesses involved in critical technologies,
determined by the Treasury Secretary and a supermajority
critical infrastructure, or sensitive personal data (i.e., TID
of CFIUS member agencies. One major factor is whether
businesses); (2) any change in a foreign person’s rights, if
that country is “utilizing a robust process to assess foreign
such change could result in foreign control of a U.S.
investments for national security risks and to facilitate
business or a covered investment in certain U.S. businesses;
coordination with the United States on matters relating to
and (3) any other transaction, transfer, agreement, or
investment security.” Treasury is to delay implementation
arrangement, designed or intended to evade or circumvent
of this requirement to allow countries to enhance their
the CFIUS review process.
review processes. “Excepted investors,” however, would
not be exempt from CFIUS’s review of controlling
In the first category, CFIUS can review noncontrolling
transactions.
investments if they afford a foreign investor:
1. access to any “material non-public technical
Under FIRRMA, the process of notifying a transaction to
information” in the business’ possession;
CFIUS remains largely voluntary, but FIRRMA provided
new authority to require a declaration, an abbreviated filing,
2. membership or observer rights on the board
with basic information on the transaction. A declaration is
of directors (or equivalent body); or
mandatory for transactions in which a foreign person has a
3. involvement other than through voting of shares, in
“substantial interest” in a U.S. business, and a foreign
“substantive decisionmaking” regarding the business. government holds a “substantial interest” in the foreign
The proposed regulations further define the terms “material
entity making the investment. Notably, the regulations
non-public technical information” and “substantive
specify a voting interest (direct or indirect) threshold for
decisionmaking.” The regulations also clarify
“substantial interest” of 25% between a foreign person and
circumstances under which CFIUS can review an indirect
U.S. business and 49% or greater between a foreign
investment through investment funds. As discussed, this
government and foreign person. (Any voting interest of a
new authority is limited to so-called “TID U.S. businesses.”
parent entity in a subsidiary is deemed to be a 100% voting
interest.) The proposed rule would also implement
The proposed FIRRMA regulations elaborate a number of
FIRRMA’s mandate that CFIUS take certain actions in
important definitions that define and constrain the scope of
response to a declaration.
CFIUS’s reviews. The term, “critical technologies”
reflects the definition provided in FIRRMA that covers
Issues for Congress
various items, including “emerging and foundational
The new CFIUS regulations may raise a number of issues
technologies,” which are to be subject to export controls,
for Congress, including:
pursuant to the Export Control Reform Act of 2018.
Are the additional CFIUS regulations affecting new and
Regarding “critical infrastructure,” the application of
existing FDI in the United States? Would the amended
CFIUS’s new jurisdiction is limited to 28 subsectors listed
review process potentially delay or expedite approvals?
in an appendix (such as telecommunications, energy, and
What impact are CFIUS’s additional authorities and
transportation), and specific business functions.
regulations regarding reviews of FDI in critical
infrastructure, critical technologies, and emerging
“Sensitive personal data” that may be exploited to
technologies having on CFIUS activities?
threaten national security includes 10 categories of data
For more information, see CRS In Focus IF10952, CFIUS
maintained or collected by U.S. businesses that (1) “target
Reform: Foreign Investment National Security Reviews, and
or tailor” products or services to “sensitive populations,”
CRS In Focus IF11135, Deadlines, Programs, and
like U.S. government personnel; (2) maintain or collect data
Regulations Mandated by FIRRMA.
on more than one million individuals; or (3) have a
demonstrated objective to maintain or collect data on more
than one million individuals as part of its primary product
Cathleen D. Cimino-Isaacs, Analyst in International Trade
or service. Notably, genetic information is included in the
and Finance
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CFIUS: New Foreign Investment Review Regulations
IF11334
James K. Jackson, Specialist in International Trade and
Finance
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https://crsreports.congress.gov | IF11334 · VERSION 1 · NEW