On September 17, 2019, the United States Department of the Treasury issued two proposed rules relating to the operations and jurisdiction of the Committee on Foreign investment in the United States (“CFIUS”). One proposed rule broadly relates to CFIUS’s jurisdiction and procedure; the other relates specifically to CFIUS’s review of transactions involving foreign investment into U.S. real estate. These proposed regulations are intended to largely complete the implementation of the Foreign Investment Risk Review Modernization Act of 2018 (“FIRRMA”) and will replace in full the existing regulations governing CFIUS found at 31 C.F.R. Part 800. These are our top takeaways from the proposed rules:

Non-Controlling Investments: While prior to FIRRMA CFIUS jurisdiction was largely limited to transactions that would result in foreign “control” of a U.S. business, FIRRMA expanded that jurisdiction to cover non-controlling investments that would provide a foreign person with specified types of access to information in the possession of, rights in, or involvement in the decision making of U.S. businesses with sufficient links to critical technology, critical infrastructure, or sensitive personal data. The proposed rule further defines these categories and clarifies the extent to which non-controlling investments in certain Technology, Infrastructure and Data companies (“TID U.S. Businesses) may be subject to CFIUS review.

Sensitive Personal Data: As noted above, FIRRMA explicitly expanded CFIUS jurisdiction to cover certain investments into U.S. businesses that maintain or collect the “sensitive personal data” of U.S. citizens that “may be exploited in a manner that threatens to harm national security.” In order to limit the potentially expansive sweep of such jurisdiction, the proposed rule provides a detailed definition of sensitive personal data that focuses on both the sensitivity of the data and the sensitivity of the population about whom the data is maintained or collected, including, among other groups, U.S. government personnel or contractors and particularly large groups of U.S. citizens.

Excepted Foreign States and Foreign Persons: Despite legislative attempts, FIRRMA includes neither a “white list” of countries that could be exempted from CFIUS review or a “black list” of countries that would be subject to heightened scrutiny. Instead, FIRRMA directed the Department of the Treasury to identify “certain categories of foreign persons” that may be subject to varying levels of review. The proposed rule introduces “excepted foreign states,” which may be identified based on later agreement of the Committee, and “excepted investors,” nationals of excepted foreign states who meet other criteria relating to, for example, places of business and incorporation, ownership, and compliance with laws.

Real Estate: Citing distinctions in the technical and procedural aspects of CFIUS’s review of transactions involving real estate, CFIUS has proposed to implement a separate rule, released on the same day, to cover its jurisdiction and procedures for real estate focuses transactions. While CFIUS considered relevant physical locations of a U.S. business prior to the enactment of FIRRMA, that law explicitly expanded CFIUS jurisdiction to cover real estate transactions (including leases) by a foreign person if the real estate is proximate to air or maritime ports or U.S. military or other government facilities if the site could be used to collect intelligence. This proposed rule defines “covered real estate transactions” as those that would afford a foreign person at least three of the fundamental property rights (the right to physically access, exclude, improve or develop, and attach structures or objects to the property) to property that is located in a proscribed location.

Despite their breadth, the proposed rules do not address several important points. Notably, the proposals do not address the mandatory declaration aspect of the Pilot Program issued by interim rule in October 2018, and only notes that the comments to that interim rule, which were due November 10, 2018, will be addressed in the final rule implementing FIRRMA. Further, while FIRRMA authorizes CFIUS to impose fees with written notices, the interim rule notes that the Committee continues to consider how to implement such fees and will address this issue in a later rulemaking.

FIRRMA requires that final rules for its implementation take effect no later than February 13, 2020. The proposed regulations are open for public comment through October 17, 2019.