Increasingly there is a concern that allowing foreign investors to invest in certain types of U.S. Businesses may compromise our national security.
Is your company about to secure financing from a foreign investor? Before you accept, make sure you evaluate whether or not this investment will subject you to the jurisdiction of the Committee on Foreign Investment in the United States (CFIUS).
It used to be the CFIUS jurisdiction was only triggered if the foreign investor assumed control of your business. With the passage of the Foreign Investment Risk Review Modernization Act of 2018 (FIRRMA) last year, however, the definition of control has been greatly expanded:
According to the Treasury Department’s regulations as summarized in the CRS Report RL33388 –
The term control means the power, direct or indirect, whether or not exercised, and whether or not exercised or exercisable through the ownership of a majority or a dominant minority of the total outstanding voting securities of an issuer, or by proxy voting, contractual arrangements or other means, to determine, direct or decide matters affecting an entity; in particular, but without limitation, to determine, direct, take, reach or cause decisions regarding:
(1) The sale, lease, mortgage, pledge or other transfer of any or all of the principal assets of the entity, whether or not in the ordinary course of business;
(2) The reorganization, merger, or dissolution of the entity;
(3) The closing, relocation, or substantial alternation of the production operational, or research and development facilities of the entity;
(4) Major expenditures or investments, issuances of equity or debt, or dividend payments by this entity, or approval of the operating budget of the entity;
(5) The selection of new business lines or ventures that the entity will pursue;
(6) The entry into termination or nonfulfillment by the entity of significant contracts;
(7) The policies or procedures of the entity governing the treatment of nonpublic technical, financial, or other proprietary information of the entity;
(8) The appointment or dismissal of officers or senior managers;
(9) The appointment or dismissal of employees with access to sensitive technology or classified U.S. Government information; or
(10) The amendment of the Articles of Incorporation, constituent agreement, or other organizational documents of the entity with respect to the matters described at paragraph (a) (1) through (9) of this section.
The definitions of “covered transactions” and “critical technologies” also has been expanded, exposing many companies to these requirements that previously did not fall under CFIUS jurisdiction.
If required to report this could cause significant delays. See timeline and steps in chart from the CRS Report for the national security review to take place here.