The Committee on Foreign Investment in the United States (CFIUS) is an interagency federal body that screens inbound foreign investments for national security risks. It is currently finalising its draft regulations to implement the Foreign Investment Risk Review Modernisation Act 2018 (FIRRMA). The FIRRMA was a sweeping overhaul of the operations and jurisdiction of CFIUS, but one aspect of the new law that has received little attention is the expansion of CFIUS's jurisdiction to cover a much broader range of real estate transactions.
The FIRRMA allows CFIUS to review "the purchase or lease by, or concession to, a foreign person" of certain public and private real estate. Prior to the enactment of the FIRRMA, CFIUS could already review real estate deals, but its jurisdiction was limited to situations where the real estate was part of an existing US business. If the real estate was a standalone parcel and not part of an existing US business, that was the end of the story. Once the new regulations take effect, CFIUS will be able to review purchases and leases of certain standalone parcels. Depending on whether the regulations are narrowly tailored, this could mean a significant increase in US real estate that is subject to CFIUS's jurisdiction.
More specifically, the FIRRMA gives CFIUS jurisdiction over these types of transaction when the real estate is either part of an airport or seaport (or will function as part of one) or meets one of three specific criteria in relation to a US military installation or other US government facility that is "sensitive for reasons relating to national security". These criteria are that the real estate:
- is in close proximity to that installation or facility;
- could enable foreign intelligence collection on activities conducted there; or
- could otherwise expose national security activities to the risk of foreign surveillance.
Single housing units are specifically exempted by the FIRRMA, as is real estate in urbanised areas (subject to exceptions to be prescribed in the regulations). In addition, the FIRRMA preserves flexibility for CFIUS to prescribe other criteria with regard to these same types of installation or facility.
The types of US government facility that are likely to be considered sensitive include many military and intelligence facilities. Of course, the Federal Bureau of Investigation (FBI) is now a full member of the US Intelligence Community (as are 16 other US government organisations), so it is likely that facilities such as FBI field offices and their resident agency offices (in smaller cities and towns) will also be considered sensitive. Facilities of other types of agency (eg, the National Aeronautics and Space Administration) whose missions are not necessarily security oriented could also fall within the scope of the expanded jurisdiction. Offices of the US State Department and other federal agencies may also be implicated.
When Congress enacted the FIRRMA, its concerns about foreign intelligence collection centred on signals intelligence and imagery intelligence. The National Security Agency is the US government's subject matter expert on (and collector of) signals intelligence (SIGINT), and its website explains that:
SIGINT is intelligence derived from electronic signals and systems used by foreign targets, such as communications systems, radars, and weapons systems. SIGINT provides a vital window for our nation into foreign adversaries' capabilities, actions, and intentions.
Of course, when foreign adversaries collect SIGINT against the United States, it can provide them with a similar window into US capabilities, actions and intentions, which is something that CFIUS seeks to prevent. For example, the interception of US communications (eg, phone calls, emails or text messages) could be of great concern, especially at the types of sensitive government facility described in the FIRRMA. Real estate transactions that could give a foreign entity the opportunity to collect this type of information would be of great concern to CFIUS.
Imagery intelligence (IMINT) was also on Congress's mind when it expanded CFIUS's jurisdiction to review real estate transactions. The National Geospatial-Intelligence Agency, the US government's subject matter expert on IMINT, defines the term as "technical, geographic, and intelligence information derived through the interpretation or analysis of imagery and collateral materials". As the Office of the Director of National Intelligence website points out, 'IMINT' "includes representations of objects reproduced electronically or by optical means on film, electronic display devices, or other media. Imagery can be derived from visual photography, radar sensors, and electro-optics".
A hostile foreign intelligence service could use real estate as a platform to employ ground-based sensors and thereby collect various types of IMINT from a sensitive US government facility, particularly if the real estate affords a direct line of sight to that facility. This type of intelligence collection and surveillance is something that CFIUS seeks to avoid, and its forthcoming regulations are likely to reflect that.
As CFIUS decides on the exact scope of its jurisdiction over these types of real property, the US real estate sector will want to pay close attention. Sensitive facilities can sometimes exist where they are least expected. For example, in 2010 the Washington Post ran a series of investigative articles dubbed "Top Secret America", in which it attempted to shine a light on the expansion of the US Intelligence Community after 9/11. As part of that series, the Washington Post published maps of the Washington DC area (and other parts of the United States), purporting to show the location of an array of sensitive intelligence facilities. Most DC residents had little idea of the scope and scale of reportedly sensitive facilities in the region.
In order to give real estate investors predictability, CFIUS may use a map of the entire country or even just certain key regions (eg, the Washington DC area). Such a map might even be colour-coded to indicate areas of heightened sensitivity or scrutiny. CFIUS will have to balance the desire to give investors predictability with the need to avoid handing foreign spies a shopping list of high-value espionage targets.
CFIUS allows the government to force the unwinding of real estate transactions that have not been pre-cleared. Given the uncertainty of the scope of CFIUS concern and the secrecy within which various sensitive government activities are conducted, any transaction involving a building in which any General Services Administration or other federal agency lease is present, as well as transactions near military or civilian government agencies outside urban areas, should be evaluated under CFIUS principles.
CFIUS is likely to release its draft regulations for comment in the next few months.
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