Historically, the Committee on Foreign Investment in the United States (“CFIUS” or the “Committee”) did not provide country-wide exemptions from applicable regulations governing national security reviews of foreign investment in or acquisitions of U.S. companies. In connection with final regulations that became effective on February 13, 2020, however, for the first time CFIUS proposed an initial list of “excepted foreign states,” and named Australia, Canada and the United Kingdom (including Northern Ireland) to its initial list for a two-year period through February 13, 2022. On November 15, 2021, CFIUS issued a proposed rule (the “Proposed Rule”) providing these “excepted foreign states” additional time, through February 13, 2023, to maintain their current status and also provided an opportunity for other countries to become “excepted foreign states.”
CFIUS, an interagency committee principally comprising nine members and chaired by the Secretary of the Treasury, has broad powers to review foreign investments in and acquisitions of U.S. businesses to determine their potential impact on U.S. national security. On January 13, 2020, the U.S. Treasury Department, as chair of CFIUS, finalized two sets of regulations to implement FIRRMA (the “TID Final Regulations” and the “Real Estate Final Regulations,” together the “Final Regulations”).
The Final Regulations expanded CFIUS jurisdiction in a number of ways but also, importantly, set forth limitations on its jurisdiction, including with respect to transactions involving certain “excepted investors” from “excepted foreign states.” We describe these jurisdictional changes and the requirements for qualifying as an “excepted investor” in prior publications (available here and here). Under the Final Regulations Australia, Canada and the United Kingdom (including Northern Ireland) were named “excepted foreign states” for an initial period that will be extended through February 13, 2023, under the Proposed Rule.
Extension under the Proposed Rule
In order to remain on the list of “excepted foreign states,” or qualify for it, eligible foreign states must meet certain criteria set forth by CFIUS. Among other factors, CFIUS will consider whether a foreign country has established and implemented a foreign investment review process and the extent to which a foreign country has a consultative relationship with the U.S. Government that enables coordination on national security matters.
The Proposed Rule provides eligible foreign states with an additional year (extending the period of eligibility to February 13, 2023) to meet these and other criteria. One beneficiary of the grace period through 2023 appears to be the United Kingdom. Whereas Canada and Australia have maintained foreign investment review processes for many years, the UK’s 2021 National Security and Investment Act does not become effective until January 2022. The additional year is expected to enable the United Kingdom to demonstrate the effectiveness of its foreign review process. The grace period will also allow other countries time to implement foreign investment laws and demonstrate to the Committee and U.S. government that they merit inclusion on the list of “excepted foreign states.”
The evolution and development of the list of “excepted foreign states” continues to be important to monitor given the potential implications. In the time since the list was published it has become clear that “excepted investors” enjoy benefits not available to other foreign investors in the market. Under certain circumstances, “excepted investors” are not subject to mandatory filing requirements and are shielded from CFIUS’ expanded jurisdiction over non-controlling investments in certain U.S. businesses and certain U.S. real estate transactions. This permits such “excepted investors” to present fewer impediments to closing to their transaction partners as compared to investors that condition the same investments on the receipt of CFIUS approval.
The Final Regulations and Proposed Rule reinforce the importance of considering CFIUS implications early in the process of developing plans to pursue investments in and acquisitions of U.S. businesses. These regulations also make clear that investors should stay tuned – there will be further refinements of the CFIUS process to monitor.