Updated January 14, 2020
CFIUS: New Foreign Investment Review Regulations
Overview
traditional longer written notification. A declaration is
On January 13, 2020, the Department of the Treasury
mandatory however, where a foreign government has a
issued final regulations after public notice and comment to
“substantial interest” (see below). The proposed regulations
implement key parts of the Foreign Investment Risk
specify the content and filing processes for declarations and
Review Modernization Act (FIRRMA) (Title XVII, P.L.
notices; misstatements or omissions are subject to a fine of
115-232), which ”strengthens and modernizes” the national
$250,000 per violation. FIRRMA also authorizes CFIUS to
security review of foreign direct investment (FDI)
impose fees and to create a mandatory filing process: those
transactions by the Committee on Foreign Investment in the
areas would be covered in future proposed regulations.
United States (CFIUS) (under P.L. 110-49). CFIUS is an
interagency body comprising nine Cabinet members and
One concern of some stakeholders has been the potential
others as appointed. The draft regulations initiate provisions
impact of CFIUS’s expanded jurisdiction on smaller U.S.
that 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 1% 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 implemented by February
Real Estate Transactions
13, 2020. Treasury also launched a pilot program in
CFIUS’s expanded jurisdiction over certain real estate (land
October 2018 related to transactions involving critical
and structures) transactions includes the purchase or lease
technology—the proposed regulations would not change the
by, or a concession to, a foreign person of certain private or
program.
public real estate located in the United States. Real estate
transactions are defined as those that accord the investor
The FIRRMA-amended CFIUS process maintains the
certain fundamental property rights. In particular, the
President’s authority to block or suspend proposed or
provision focuses on real estate that is in proximity of
pending foreign “mergers, acquisitions, or takeovers” that
certain airports, maritime ports, and other facilities and
could result in control of U.S. entities, including through
properties of the U.S. Government that are sensitive for
joint ventures, that threaten to impair national security. The
national security reasons (military installations include 190
proposed regulations expand and clarify new authority for
facilities located across 40 States and Guam). CFIUS
CFIUS to review certain real estate and other
additionally retains the authority to review any transaction
noncontrolling foreign investments on the basis of threats,
that raises national security concerns on the basis of
vulnerabilities, and consequences to national security.
proximity to sensitive sites and activities.
Reviews of noncontrolling investments are limited to U.S.
businesses (referred to as “TID businesses” for Technology,
The regulations specify various definitions, such as:
Infrastructure, and Data) that: (1) produce, design, test,
Stipulated airports: As defined by the Federal Aviation
manufacture, fabricate, or develop one or more critical
Administration (FAA), major passenger and cargo
technologies; or (2) own, operate, manufacture, supply, or
airports based on volume and “joint use airports” that
service critical infrastructure (28 subsectors specified); or
serve civilian and military aircraft;
(3) maintain or collect sensitive personal data. One major
Close proximity: Areas within one mile of a relevant
aim of the proposed regulations is to “provide clarity to the
military installation or other facility or property of the
business and investment communities with respect to the
U.S. Government;
types of U.S. businesses that are covered under FIRRMA’s
Extended range: Areas between one and 100 miles;
other investment authority.” The regulations would limit the
Facilities located within designated counties,
application of the expanded review process to certain
according to Appendix A; and
categories of foreign persons, introducing new terms such
Off-shore ranges: Within 12 nautical miles of the U.S.
as “excepted investor” and “excepted foreign state” for
noncontrolling transactions.
Excepted real estate transactions include: (1) certain real
estate investors, defined as those with a substantial
Parties involved in these new covered transactions can
connection to certain foreign countries and who have not
choose between providing voluntarily, a short (not to
violated U.S. laws; (2) housing units; (3) urbanized areas
exceed five pages) written declaration to receive expedited
and urban clusters (both defined by the Census Bureau); (4)
consideration or potential approval by CFIUS, or the
commercial office space (with some exceptions); (5) retail
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CFIUS: New Foreign Investment Review Regulations
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 FIRRMA regulations elaborate a number of important
FIRRMA’s mandate that CFIUS take certain actions in
definitions that define and constrain the scope of CFIUS’s
response to a declaration.
reviews. The term, “critical technologies” reflects the
definition provided in FIRRMA that covers various items,
Issues for Congress
including “emerging and foundational technologies,” which
The new CFIUS regulations may raise a number of issues
are to be subject to export controls, pursuant to the Export
for Congress, including:
Control Reform Act of 2018. Regarding “critical
Are the additional CFIUS regulations affecting new and
infrastructure,” the application of CFIUS’s new
existing FDI in the United States? Would the amended
jurisdiction is limited to 28 subsectors listed in an appendix
review process potentially delay or expedite approvals?
(such as telecommunications, energy, and transportation),
What impact are CFIUS’s additional authorities and
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 1 million individuals; or (3) have a
demonstrated objective to maintain or collect data on more
than 1 million individuals as part of its primary product or
Cathleen D. Cimino-Isaacs, Analyst in International Trade
service. Notably, genetic information is included in the
and Finance
definition, regardless of these parameters. Other types of
https://crsreports.congress.gov
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 3 · UPDATED