Expanding CFIUS: New Law Strengthens And Slows Investment Review
This week, you have likely heard about FIRRMA, the Foreign Investment Risk Review Modernization Act, the law that will expand CFIUS. We have written about a number of aspects of the new law as it was being made, including the following:
In this alert, we provide a quick overview of the major points of that law.
Four New Transactions Covered by CFIUS
Before FIRRMA, CFIUS had jurisdiction over transactions that would result in control by a foreign person or company of a U.S. business. That jurisdiction has been expanded expressly to cover the following four types of transactions:
1. Real estate in “close proximity” to U.S. military or other sensitive facilities, proximity sufficient to pose a national security risk
2. Non-passive investment by a foreign person – even where the investment does not result in control of the U.S. company – in any of the following:
→ Critical technologies – U.S. companies that produce, design, test, manufacture, fabricate, or develop critical technologies
→ Critical infrastructure – U.S. companies that own, operate, manufacture, supply or service critical infrastructure
→ Personal data – U.S. companies that maintain or collect sensitive personal data
3. Changes in a foreign investor’s rights where that change could result in the foreign investor controlling the U.S. company or any of these additional CFIUS covered transactions
4. Transactions designed to circumvent or evade CFIUS review
CFIUS Free Filings
→ CFIUS may consider persons from certain countries not to be “foreign persons” for the purposes of the new covered transactions listed above. The regulations on that point have not been set, but we believe it is likely that those counties will be NATO countries, as well as South Korea, Japan, Australia, and New Zealand.
Changes to CFIUS Review Timing
→ Review Period Extended. FIRRMA extends CFIUS’s initial review from 30 days to 45 days, with an optional 15 day period for investigations in “extraordinary circumstances.”
→ Deadlines for the Committee. CFIUS is required to provide comments on a draft or formal notice, or accept a formal notice, no later than 10 business days after submission.
“CFIUS Lite” and Required CFIUS Filings
→ CFIUS Lite. FIRRMA allows a party to submit a short (no more than 5 pages) written declaration of a transaction and, in 30 days, CFIUS must respond in one of the following ways:
• Requesting a formal written notice;
• Informing the parties that CFIUS cannot review on the basis of the declaration; parties may file a written notice;
• Initiating a unilateral review; or
• Clearing the transaction.
→ Mandatory CFIUS Declarations. Where a transaction results in a company in which a foreign government holds a “substantial interest” acquiring a “substantial interest” in a U.S. business, CFIUS now requiresparties to submit a written declaration (a CFIUS Lite filing) no more than 45 days before closing.
• CFIUS will define the term “substantial interest” but will exclude investments with a less than 10% interest.
• CFIUS may decide to require written declarations for any covered transactions that involve critical technologies.
CFIUS Review Additions
→ Partnership and side agreements. CFIUS is authorized to require parties to submit partnership, integration, or other side agreements related to a transaction under review.
→ Limitation of Judicial Review. FIRRMA provides that challenges to CFIUS decisions through a civil suit may only be brought in the U.S. Court of Appeals for the District of Columbia Circuit.
→ FIRRMA authorizes the Committee to assess a filing fee that may not exceed the lesser of one percent of the value of the transaction, or $300,000. CFIUS is also studying a “prioritization fee” by which parties could “jump to the head of the line” by paying extra.
New CFIUS powers
→ Identifying Transactions. CFIUS must establish a process to identify covered transactions for which notification was not filed.
→ Authorities. CFIUS will now have the authority to:
• Suspend a transaction during review or investigation;
• Use mitigation agreements or conditions to address potential issues with abandoned transactions; and
• Impose interim mitigation agreements or conditions on completed transactions that are still in under CFIUS review.
→ New Information Sharing – CFIUS may now disclose to U.S. government agencies or allied foreign governments information that it receives as required for national security purposes.
→ Chinese Investment Report. The U.S. Secretary of Commerce is required to submit a report to Congress and CFIUS on the foreign direct investment in the United States by China.
→ Rail Investment Report. The U.S. Secretary of Homeland Security is required to submit a report to Congress on the risk related to foreign government investments in the U.S. rail industry.
→ Congressional Annual Report. FIRRMA adds to the required information in CFIUS’s annual report to congress
→ Enhanced Intelligence Analysis. The Director of National Intelligence is required to conduct an analysis of threats posed by a covered transaction and identify any intelligence collection gaps relevant to that analysis. The DNI may also be asked to update its analysis on past transactions that were cleared with a mitigation agreement.
→ Much of the law goes into effect on the date it was signed into law and will apply to any review or investigation initiated after the enactment date.
→ Certain elements requiring that CFIUS create a definition for a term, for instance the “critical technologies” or “substantial interest” terms listed above, will take effect on the earlier of 18 months after FIRRMA’s enactment date, or 30 days after the Federal Register publication.