Law and policyPolicies and practices
What, in general terms, are your government’s policies and practices regarding oversight and review of foreign investment?
The US federal government balances an open policy towards foreign direct investment (FDI) with scrutiny of acquisitions of US businesses (including the US operations of foreign companies) for national security concerns. The current US FDI oversight regime dates back to 1975 with the establishment of the interagency Committee on Foreign Investment in the United States (CFIUS) by President Ford. A formal review process was created by the Exon-Florio Amendment in 1988. Controversial foreign acquisitions in the mid-2000s, in particular the 2006 acquisition of a US firm managing terminal operations at six US ports by a Dubai state-owned entity, led Congress to pass the Foreign Investment and National Security Act of 2007, which increased scrutiny of FDI resulting in foreign control over US ‘critical infrastructure’ or control of a US business by a foreign government.
Recently, the Foreign Investment Risk Review Modernization Act of 2018 (FIRRMA) codified CFIUS’s focus on acquisitions involving critical technology, critical infrastructure, sensitive personal data and facilities located near military bases and created mandatory notification for the first time for certain technology-related transactions and technology, infrastructure and data transactions involving foreign governments. At press time, FIRRMA was in the process of implementation, with a pilot programme for technology transactions (the Pilot Programme) and proposed regulations for the remaining changes (the Proposed Regulations). Final implementation is expected in early 2020.
In CFIUS practice, the questions of ‘what’ and ‘who’ matter. CFIUS analyses the national security risk of a specific investment as a function of the interaction between the potential vulnerability (ie, whether control over the specific US business by a hostile actor could result in damage to US national security) and threat (ie, whether the foreign actor has the capability or intent to cause harm to US national security). Each transaction is reviewed on its individual facts and circumstances. ‘National security’ is not defined in the statute or regulations but is understood broadly to include issues related to homeland security, critical infrastructure, cybersecurity and commercial and governmental espionage (including exploitation of sensitive personal data) as well as traditional defence-related issues.Main laws
What are the main laws that directly or indirectly regulate acquisitions and investments by foreign nationals and investors on the basis of the national interest?
The President has the authority to review acquisitions or investments in US businesses by foreign persons under section 721 of the Defense Production Act of 1950 (50 U.S.C. § 4565), as amended, and may block or unwind such transactions. This review authority has been delegated to CFIUS. Implementing regulations are located at 31 Code of Federal Regulations Chapter VIII.Scope of application
Outline the scope of application of these laws, including what kinds of investments or transactions are caught. Are minority interests caught? Are there specific sectors over which the authorities have a power to oversee and prevent foreign investment or sectors that are the subject of special scrutiny?
CFIUS can review any investment or acquisition that could result in a foreign person acquiring ‘control’ (ie, the affirmative or negative power to determine important decisions) over any person or entity engaged in interstate commerce in the United States from any other person (including from another foreign person). Joint ventures involving contributions of an existing business and certain investments involving real estate are also covered, but other ‘green field’ investments and purchases of assets that do not result in control of a business are not. ‘Control’ is used in a broad sense; in practice, CFIUS views any non-passive transaction of greater than 10 per cent as potentially reviewable. CFIUS may deem a transaction an acquisition of control based on factors such as the voting nature of the interest, arrangements to cooperate with other investors and the ability of the investor to influence key corporate decisions (eg, sale of assets, reorganisation, closing or moving facilities, major expenditures and entering into significant contracts). However, certain limited minority shareholder rights are not considered independently sufficient to provide control (eg, the power to prevent the sale of all or substantially all assets and the power to prevent voluntary filing for bankruptcy or liquidation).
There is a safe harbour for most ‘passive’ investments of less than 10 per cent of the voting interests in a US business where the investor ‘does not intend to exercise control, does not possess or develop any purpose other than passive investment, and does not take any action inconsistent with passive investment’. As a practical matter, CFIUS tends to view any transaction outside the safe harbour (which itself is not absolute) as potentially reviewable, although purely passive positions (such as limited partnership interests in investment funds with no governance rights outside narrow investor protections) may be excluded. The Proposed Regulations contemplate further narrowing the safe harbour to exclude investments that afford a foreign investor with certain rights (eg, board observer rights, access to material non-public technical information or involvement in substantive decision-making) in any US business that develops critical technology, performs certain functions involving critical infrastructure or handles US sensitive personal data. Finally, under the Proposed Regulations, CFIUS could review certain real estate transactions not constituting an acquisition of a US business (eg, purchasing raw land or leasing facilities) near certain military installations.
FIRRMA paved the way for mandatory filing requirements for certain investments in US businesses involved in critical technologies, critical infrastructure and sensitive personal data. Pursuant to the Pilot Programme, any investment in which a foreign person receives any explicit or implicit governance rights in a US business that produces or develops technology subject to certain export controls for use in one of 27 industries must be notified to CFIUS at least 45 days prior to closing. A new short-form notification was also created. The Proposed Regulations would further expand mandatory filings to require that parties to any transaction providing a foreign government with a ‘substantial interest’ in certain US businesses involving critical technology (not tied to any particular industry), critical infrastructure and sensitive personal data of US persons submit a notification to CFIUS 30 days prior to closing (with a ‘substantial interest’ defined as any investment in which a foreign government directly or indirectly holds at least 49 per cent of the voting equity of an acquirer purchasing a 25 per cent or greater voting stake in the relevant US entity).
The proposed expansion of mandatory filings is subject to a qualified exception for investment through US-managed investment funds and a narrow exemption for investors from certain countries friendly to the United States (with relevant ‘white list’ countries to be determined later). Even where the mandatory notification requirements do not apply, the Proposed Regulations provide insight into the specific types of technology, infrastructure and data that are of greatest interest to CFIUS.Definitions
How is a foreign investor or foreign investment defined in the applicable law?
Under the CFIUS regulations, a ‘foreign person’ is any foreign national, foreign government or foreign entity or any US entity controlled by a foreign person. A foreign entity includes any entity organised under the laws of a foreign state if either its principal place of business is outside the United States or its equity securities are primarily traded on one or more foreign exchanges, unless the entity can demonstrate US nationals own a majority of its equity.Special rules for SOEs and SWFs
Are there special rules for investments made by foreign state-owned enterprises (SOEs) and sovereign wealth funds (SWFs)? How is an SOE or SWF defined?
Under the CFIUS regulations, a foreign government includes both national and subnational governments and their respective departments, agencies and instrumentalities. Both SOEs and SWFs fall within these definitions. Acquisitions by foreign government-controlled entities are presumptively subject to an in-depth investigation unless senior officials determine that there is no national security issue. As described above, the mandatory filing regime contemplated by the Proposed Regulations includes certain investments by foreign parties in which a foreign government directly or indirectly holds at least a 49 per cent voting stake, which would likely cover many SOEs and SWFs; there is also a presumption of a second-stage, in-depth review of foreign government transactions (though it can be and often is waived).Relevant authorities
Which officials or bodies are the competent authorities to review mergers or acquisitions on national interest grounds?
The President has delegated FDI reviews to CFIUS, which is chaired by the US Department of the Treasury. The Treasury also maintains a permanent CFIUS staff in its Office of Investment Security and works with the other members of CFIUS, including the departments of Justice, Homeland Security, Commerce, Defense, State, and Energy and the Office of the US Trade Representative and the Office of Science and Technology Policy, with seven other offices, agencies and departments observing and participating as appropriate. The Treasury Department appoints one or more lead agencies for each CFIUS review, based on the issues involved in the particular transaction.
Notwithstanding the above-mentioned laws and policies, how much discretion do the authorities have to approve or reject transactions on national interest grounds?
The President has broad discretion to determine if a transaction threatens national security and may block a transaction if he or she finds that there is credible evidence that leads him or her to believe that the foreign interest proposing to acquire a US business ‘might’ take action that ‘threatens to impair the national security’. The President’s determination of whether a threat to national security exists and the remdy to be imposed is not reviewable by any court.
What jurisdictional thresholds trigger a review or application of the law? Is filing mandatory?
Filing is currently mandatory for critical technology transactions covered by the Pilot Programme. Proposed regulations specifying critical technology, critical infrastructure and personal data transactions subject to a mandatory filing requirement have been released and will be revised and implemented by mid-February 2020. Otherwise, CFIUS filings of any transaction within CFIUS’s jurisdiction are voluntary, but CFIUS may initiate a review in the absence of a voluntary filing, either before or after closing. Because of the risk of post-closing review resulting in mandatory remedies or divestiture, it is prudent for parties to seek CFIUS clearance for any transaction that meets the jurisdictional requirements and is likely to raise national security concerns.National interest clearance
What is the procedure for obtaining national interest clearance of transactions and other investments? Are there any filing fees? Is filing mandatory?
Parties file a joint notice to CFIUS detailing the material terms of the transaction. US targets must also submit information about their business and, in particular, any US government contracts. Foreign investors must provide information about their parents and their parents’ directors, officers and significant shareholders. There is no standard form for the filing; however, the CFIUS regulations specify the information that must be included in the filing. Throughout the review process, CFIUS may require the disclosure of additional information from the parties, even on issues that are not covered in the regulations. Interim regulations specify the information that parties must submit to CFIUS for Pilot Programme covered transactions.
If the parties do not voluntarily file a notification, CFIUS or one of its member agencies may initiate a review of a transaction. Typically, the parties are asked to, and do, file a notification, but CFIUS has subpoena authority if necessary. There are currently no filing fees required. FIRRMA permits CFIUS to impose filing fees of up to the amount of the lesser of 1 per cent of the value of the transaction or US$300,000 (adjusted annually for inflation), and final regulations are expected to include a filing fee. CFIUS has yet to release a proposal for such fees.
Filing is currently only mandatory for critical technology transactions covered by the Pilot Programme. The Proposed Regulations contemplate expanding mandatory filings to cover investments where a foreign government acquires a ‘substantial interest’ in certain US businesses involving critical technology, critical infrastructure and sensitive personal data of US persons.
Which party is responsible for securing approval?
Generally, the US target and the acquiring entity must make CFIUS filings jointly, and any applicable mandatory filing obligations fall on both parties. Parties to the transaction are required to submit all information called for by the regulations, and CFIUS may reject notices if the parties do not fully comply with these regulatory requirements or if they do not respond promptly to follow-up inquiries from CFIUS. In addition, both filing parties must have a senior official certify that the submitted information is complete and accurate in all material respects to the best of his or her knowledge.
A single party may file a notice in cases such as hostile takeovers, but CFIUS tends to seek information from both parties, even in these cases.Review process
How long does the review process take? What factors determine the timelines for clearance? Are there any exemptions, or any expedited or ‘fast-track’ options?
CFIUS regulations call for the Committee to review draft filings and provide comments on or accept a notice within two weeks where the parties stipulate CFIUS has jurisdiction to review the transaction, but this target is not binding and is often missed. In any event, the formal timeline does not start until CFIUS accepts a filing, the timing of which it views as discretionary. CFIUS then has 45 days for its initial review. At the end of this period, CFIUS will either clear the transaction or initiate a second-stage investigation lasting an additional 45 days, with one 15-day extension possible. Transactions involving foreign-government-controlled entities and transactions that would result in a foreign person controlling critical technology, critical infrastructure or sensitive personal data face heightened scrutiny and a default presumption of a second stage of review. At the conclusion of the investigation, CFIUS will issue a letter clearing the transaction or refer the transaction (with or without a recommendation) to the President, who then has 15 days to rule on the transaction. The President typically accepts CFIUS’s recommendations.
In practice, the clearance process takes longer than the statutory timeline. CFIUS often delays acceptance of the formal filing. At the end of the process, CFIUS has often pressured parties to ‘voluntarily’ withdraw and resubmit notices in complex cases, which restarts the statutory clock at the initial 45-day review.
Transactions subject to mandatory filing under the Pilot Programme for critical technologies may submit a short-form declaration. The Proposed Regulations would make short-form declarations available to all notifiable transactions. Once a declaration is received, CFIUS is required to either (i) clear the transaction; (ii) request a full notice; (iii) inform the parties that CFIUS cannot conclude review based on the submitted declaration (which neither prevents closing nor precludes CFIUS from opening a full investigation at a later time); or (iv) initiate a unilateral review within 30 days. Although a CFIUS filing generally is not suspensive, a short-form declaration must be submitted at least 45 days prior to closing.
Must the review be completed before the parties can close the transaction? What are the penalties or other consequences if the parties implement the transaction before clearance is obtained?
Parties generally may close a transaction, at the buyer’s risk, before obtaining CFIUS clearance. However, the President retains the power to block or unwind a covered transaction unless or until it is cleared by CFIUS. CFIUS discourages parties from closing over a pending review and has the power to prohibit it (though that power is rarely exercised and closing during review happens with some frequency).
A transaction subject to mandatory filing under the Pilot Programme must file the short-form declaration (or, in the alternative, a full filing) at least 45 days prior to closing. Failure to file can result in a civil monetary penalty of up to the value of the transaction. The Proposed Regulations would permit such penalties for failure to file any transaction subject to a mandatory filing requirement.Involvement of authorities
Can formal or informal guidance from the authorities be obtained prior to a filing being made? Do the authorities expect pre-filing dialogue or meetings?
CFIUS regulations formalised the submission of a pre-filing draft notice to CFIUS. However, it is generally difficult to get meaningful feedback pre-filing. In some cases, it is possible to engage with the agencies most likely to be concerned with a transaction in advance of the formal CFIUS process.
When are government relations, public affairs, lobbying or other specialists made use of to support the review of a transaction by the authorities? Are there any other lawful informal procedures to facilitate or expedite clearance?
Typically, the clearance process is handled by specialist legal advisers of the parties. Other advisers may assist depending on the nature of the businesses involved (such as industry analysts for transactions involving sensitive technology). Public affairs specialists and lobbyists may in some cases be involved in a CFIUS clearance effort where an investment or acquisition is controversial or has attracted the interest of lawmakers. Parties may also consider contacting any US government customers of the target US business to address concerns before making a formal filing. In difficult cases, parties may want to contact members of Congress who are likely to be concerned. However, these public efforts have no direct role in the process, and their main purpose is to dampen political pressure that the CFIUS agencies may perceive.
What post-closing or retroactive powers do the authorities have to review, challenge or unwind a transaction that was not otherwise subject to pre-merger review?
The President retains the power to block or unwind any transaction within CFIUS’s jurisdiction that threatens to impair US national security and has not received CFIUS clearance. CFIUS retains authority to rescind an earlier approval and reopen a review where any transaction party fails to conform to a material term of a mitigation agreement or condition and the Committee finds that no other enforcement mechanisms exist. As demonstrated by the Grindr example discussed in question 23, CFIUS has recently dedicated increased resources to reviewing transactions within its core areas of concern that were not notified to CFIUS. CFIUS may also reopen a review if material misrepresentations were made.
Substantive assessmentSubstantive test
What is the substantive test for clearance and on whom is the onus for showing the transaction does or does not satisfy the test?
To block or unwind a transaction, the President must find ‘credible evidence’ that a ‘foreign interest exercising control over a US business might take action that threatens to impair the national security’ of the United States, and provisions of other laws do not provide ‘adequate and appropriate authority to protect the national security’. The term ‘national security’ is not defined in either the statute or the CFIUS regulations and is interpreted broadly.
There is no formal legal burden on the parties to a transaction to demonstrate the absence of a national security threat; however, the President’s determination is discretionary and cannot be judicially reviewed. Because CFIUS also has broad discretion in making a recommendation to the President and the President has typically followed CFIUS’s recommendation, the parties effectively must persuade CFIUS that the transaction does not pose a national security threat. As such, parties should present available evidence in their filing that the transaction is commercially motivated and does not pose a threat to national security.
To what extent will the authorities consult or cooperate with officials in other countries during the substantive assessment?
The CFIUS statute now permits information sharing with foreign governmental entities (subject to confidentiality and classification requirements). We are aware of prior consultations and note CFIUS intends to increasingly consult with international partners on perceived threats.Other relevant parties
What other parties may become involved in the review process? What rights and standing do complainants have?
The members of CFIUS currently consist of the heads of the following departments and offices:
- the Department of the Treasury (chair);
- the Department of Justice;
- the Department of Homeland Security;
- the Department of Commerce;
- the Department of Defense;
- the Department of State;
- the Department of Energy;
- the Office of the US Trade Representative; and
- the Office of Science and Technology Policy.
The Department of Labor and the Director of National Intelligence are non-voting members, and the Office of Management and Budget, the Council of Economic Advisors, the National Security Council, the National Economic Council and the Homeland Security Council may also observe and participate in CFIUS reviews. The President may also appoint the heads of other executive departments, agencies or offices to participate on a case-by-case basis.
Competitors, customers and Congress do not have a formal role in pending reviews, and CFIUS is forbidden to disclose information in a filing or even publicly acknowledge that a filing has been made (unless the parties disclose the information first). Nevertheless, CFIUS is aware of political and media pressure and, though such pressure is unlikely to determine the outcome of the national security review, it may make CFIUS aware of potential issues and lead CFIUS to be more cautious in anticipation of later oversight.Prohibition and objections to transaction
What powers do the authorities have to prohibit or otherwise interfere with a transaction?
Once the President finds credible evidence that an investment or acquisition poses a national security threat, he or she has statutory authority to suspend or prohibit the investment. CFIUS has authority to suspend transactions and to negotiate or impose conditions on transactions, though technically does not have authority to block or unwind transactions without presidential action. Presidential action to date has, however, followed CFIUS’s recommendations.
Is it possible to remedy or avoid the authorities’ objections to a transaction, for example, by giving undertakings or agreeing to other mitigation arrangements?
CFIUS may condition clearance on parties entering into an agreement (or impose an agreement) with the US government to address or mitigate national security concerns raised by the transaction. Either CFIUS or the lead agency for a particular transaction may negotiate mitigation agreements and establish conditions for monitoring and enforcing them. The parameters of such agreements depend on transaction-specific concerns. Mitigation provisions vary widely but, as examples, might include:
- the requirement that a US citizen be appointed as a security officer for the US business;
- an agreement that only US persons will sit on certain committees, such as security committees;
- periodic government reviews of export control and security policies and procedures in place at the US business;
- the isolation or ring-fencing of certain businesses or assets so that foreign persons do not have access to them, including in some cases the formation of a US subsidiary managed by independent directors with limited parent involvement;
- requirements that the government receive notice of or approve changes in business processes, procedures or the locations of activities;
- an agreement prohibiting foreign parties from accessing certain technologies; and
- an agreement to institute a cybersecurity plan.
CFIUS is most likely to impose such requirements in deals involving classified information, presence in the supply chain for a national security agency or industry or especially sensitive infrastructure or data. A CFIUS decision to pursue a mitigation agreement is based on an internal risk-based analysis of the proposed transaction’s threat to national security, and CFIUS must believe that the measures imposed are reasonably necessary to address that risk. Where parties materially breach a mitigation agreement, CFIUS may reopen the investigation or apply penalties of up to US$250,000 per violation or the value of the transaction, whichever is greater. A mitigation agreement may also provide for liquidated damages if the transaction parties violate the agreement. FIRRMA also empowers CFIUS to impose mitigation conditions while a review is ongoing or after a transaction has been abandoned.Challenge and appeal
Can a negative decision be challenged or appealed?
By statute, neither the President’s finding of a national security threat nor the selection of remedies is subject to judicial review. Typically, when facing a potential negative recommendation from CFIUS, transaction parties will abandon the transaction and request to withdraw their CFIUS notice, and CFIUS usually grants such requests.
In Ralls Corp v CFIUS, 758 F.3d 296 (D.C.Cir. 2014), a federal appeals court ruled that parties to a CFIUS review have certain due process rights during the process leading up to a presidential decision. These rights include access to the unclassified information upon which CFIUS relies in making its recommendation. Implicitly, other matters outside of those explicitly immunised from judicial review, such as whether a transaction is within CFIUS’s jurisdiction, might also be open to challenge.Confidential information
What safeguards are in place to protect confidential information from being disseminated and what are the consequences if confidentiality is breached?
Information submitted to CFIUS during the filing process is deemed confidential information that may not be released to the public, including under a Freedom of Information Act request. The CFIUS statute specifically forbids the releasing of information obtained in a filing without the consent of the parties, subject to certain narrow exceptions related to national security and intergovernmental cooperation with adequate safeguards for confidentiality; this protection extends to information provided in relation to withdrawn notices and pre-notice consultations. Wrongful disclosure is a criminal violation and punishable by fines or imprisonment.
Recent casesRelevant recent case law
Discuss in detail up to three recent cases that reflect how the foregoing laws and policies were applied and the outcome, including, where possible, examples of rejections.
CFIUS reviews are confidential and neither the outcome nor the reasoning is released to the public, except in cases involving presidential orders, so all discussion of recent cases is limited to information that has been publicly discussed by parties or media accounts.Lattice Semiconductor Corporation
On 13 September 2017, President Trump blocked the US$1.3 billion proposed acquisition of US chip manufacturer Lattice Semiconductor Corporation by Canyon Bridge Capital Partners, a US-headquartered private equity firm. The Canyon Bridge investment group included a company with ties to Chinese state-owned entities. The Trump administration’s statement announcing the decision specifically referenced Chinese government involvement in the transaction, among other national security concerns, as a reason for blocking the transaction.
Canyon Bridge and Lattice filed a formal joint notice with CFIUS in late December 2016. Over the next eight months, the proposed transaction went through three 75-day CFIUS review cycles. Finally, Lattice disclosed that CFIUS was poised to recommend that President Trump block the transaction. Lattice and Canyon Bridge opted to have President Trump review the proposed acquisition directly instead of abandoning it as is typically the case when CFIUS recommends that the president block a transaction.
Despite the parties’ numerous offers to undertake mitigation, on 13 September 2017, President Trump blocked the proposed transaction. Concurrent statements on the decision by President Trump and Treasury Secretary Steven Mnuchin cited four national security justifications for the decision: the risk posed by the potential transfer of intellectual property to a foreign party, the Chinese government’s role in the proposed acquisition, the importance of the semiconductor supply chain to the US government and US government use of Lattice products.
The Lattice decision was somewhat counter-intuitive because of the seemingly low-tech nature of Lattice’s products, but it demonstrated the importance of supply chain integrity (the reliability of even low-tech suppliers) to CFIUS.Qualcomm Incorporated
On 12 March 2018, President Trump blocked the proposed US$117 billion hostile acquisition of Qualcomm Incorporated, a US chipmaker, by Broadcom Limited, a Singapore-incorporated company headquartered in the United States. Although Broadcom is based in Singapore, it is not obviously a foreign acquirer under CFIUS’s regulations because its primary stock exchange and principal place of business are within the United States. CFIUS moved with unprecedented aggressiveness to block the deal before it was signed and before Broadcom reincorporated in the United States. President Trump issued an order blocking the deal days before Qualcomm shareholders were set to replace a majority of directors with persons nominated by Broadcom.
CFIUS’s reasoning supporting the conclusion that the acquisition would impair US technological competitiveness was also unprecedented. The parties released a letter from the Treasury stating that CFIUS was concerned that acquisition by Broadcom would weaken Qualcomm’s research and development given the former’s ‘private equity style approach’ and reputation for cost-cutting. CFIUS’s stated justification was that this would reduce Qualcomm’s long-term competitiveness and thus leave an opening for China to take the lead in 5G technology standards. Surprisingly, other than a passing reference to Broadcom’s relationship with unnamed foreign third parties, the Treasury letter did not set out any traditional national security concerns. Instead, the Committee appears to have focused on whether or not the proposed business plan for an entity would be successful. This move and the rationale behind it marks new territory for an entity not historically concerned with industrial policy.Grindr
On 27 March 2019, press reports emerged that CFIUS was forcing the Kunlun Group, a China-based technology firm, to divest its wholly owned US subsidiary, the dating app Grindr, because the group’s continued ownership constituted a national security risk. While no official statement was released, CFIUS was likely concerned with the sensitive personal data that Grindr collects about its US users, potentially including US military and intelligence personnel or other persons with access to information of interest to foreign governments and potentially vulnerable to blackmail.
Grindr operates ‘a geosocial networking and online dating application geared towards gay, bi, trans, and queer people’ with a reported 27 million users that are required to provide potentially personally identifiable information (eg, account credentials, unique device identifiers, and last known device locations). Users can also voluntarily provide additional personal information such as ethnicity, age, height, weight, relationship status, and health information. As a result, Grindr collects and maintains a substantial amount of sensitive US personal information, which is a key area of concern for CFIUS.
Notably, CFIUS’s decision came more than three years after Kunlun Group acquired 60 per cent ownership and effective control of Grindr in January 2016. In January 2018, the group acquired the remaining ownership interests of Grindr and replaced the CEO and founder with the group chairman, who is a Chinese national. Neither transaction was notified to CFIUS. Kunlun Group publicly stated in May 2019 that it had reached an agreement with CFIUS prohibiting further access to information about Grindr’s users and setting a deadline for sale of the app by June 2020.
The forced divestiture of Grindr is an important reminder that CFIUS remains focused on protecting the sensitive personal data of US citizens; has the power to upend closed deals that have not been cleared by the Committee; and is dedicating increased resources to the review of transactions that are not notified to CFIUS.
Updates & TrendsKey developments of the past year
Are there any developments, emerging trends or hot topics in foreign investment review regulation in your jurisdiction? Are there any current proposed changes in the law or policy that will have an impact on foreign investment and national interest review?Key developments of the past year24 Are there any developments, emerging trends or hot topics in foreign investment review regulation in your jurisdiction? Are there any current proposed changes in the law or policy that will have an impact on foreign investment and national interest review?
The Proposed Regulations implementing FIRRMA are a significant development for US foreign investment review. While largely codifying existing CFIUS practice, the Proposed Regulations provide greater specificity regarding areas of interest to CFIUS and the types of transactions that are likely to be subject to new mandatory filing requirements under the final regulations. In addition to expanding mandatory filings for foreign-government-linked transactions involving certain technology, infrastructure and data businesses, the Proposed Regulations would:
- expand CFIUS’s jurisdiction over investments that fall short of the general ‘control’ standards in technology, infrastructure and data businesses;
- extend CFIUS’s jurisdiction to certain acquisitions of real estate not operated as a business;
- exempt investments from a to-be-specified list of friendly countries from the expanded jurisdiction applicable to critical technology, critical infrastructure and sensitive personal data transactions, but only if the eligible country adopts a foreign investment review regime that CFIUS approves as being adequately robust and cooperative, and not with respect to ‘control’ transactions (which remain subject to mandatory filing);
- make the short-form declaration process available to all notifiable transactions; and
- retain broad exemptions for US-managed investment funds.
The final version of the regulations is due by February 2020, but the Proposed Regulations highlight CFIUS’s areas of focus for the foreseeable future. As this chapter went to press, the likely extent of any revisions to the Proposed Regulations and the Pilot Programme in the final FIRRMA regulations remained unclear. Parties would be wise to consult with experienced CFIUS counsel in navigating the US FDI landscape in 2020.