For over 30 years, the Committee on Foreign Investment in the United States ("CFIUS" or the "Committee") focused on a narrow subset of M&A transactions and investments. That era is coming to an end. On Tuesday of this past week, CFIUS issued its anticipated proposed final regulations ("Regulations") to implement the Foreign Investment Risk Review Modernization Act of 2018 ("FIRRMA"). The Regulations chart the path for CFIUS to become the frontline gatekeeper for a broad swath of foreign direct investment in the United States: an authority that will define where individual privacy intersects with national security, how 21st century technologies shape geostrategic power relationships, and the manner in which private enterprise is held accountable for protecting national security. CFIUS also will become an affirmative -- rather than punitive -- diplomatic and economic weapon in the forthcoming decades' strategic competition between the United States and China.
The Regulations reflect notable self-restraint in several material respects -- a clear effort by the Committee to balance national security concerns with the desire to maintain an open investment policy. While the Regulations are expansive and clearly intended to enable adaptation as risks evolve, they also draw some unusually bright lines that appear intended, among other things, to avoid: (i) over-regulating and restricting capital flows, particularly to smaller businesses; (ii) turning national security agencies into privacy regulators; and (iii) encroaching on domains appropriately occupied by counter-intelligence and other authorities of the U.S. government.
Comments on the Regulations are due October 17. This will be the only formal opportunity for transaction parties and other interested stakeholders and members of the public to help shape the final regulations that will control the new CFIUS process. We want to underscore that such comments will be critically important in establishing the framework that will govern CFIUS going forward. First and foremost, they establish the administrative record against which the final regulations can be understood and assessed. In turn, the comments that are filed -- and CFIUS's response to them in the preamble to the final regulations -- will inform how the regulations are interpreted in the future, including potentially in legal challenges to CFIUS actions. Simply by way of example, we have had direct experience where the preamble to the 1994 CFIUS regulations was directly relevant to the disposition of important jurisdictional determinations by the Committee. We accordingly urge our clients and other interested parties to take seriously this opportunity for comment, and to engage in the rulemaking process if their interests warrant. The final regulations are expected to be issued in January 2020, 30 days before they become effective in February 2020.
Our executive summary of the key themes in the Regulations, followed by a more detailed analysis of key provisions, is below.
On September 17, 2019, the Office of Investment Security of the Department of Treasury, which oversees CFIUS, released two proposed rules: Provisions Pertaining to Certain Investment in the United States, which comprise the primary rulemaking to update and enhance CFIUS regulations as required by FIRRMA; and Provisions Pertaining to Certain Transactions by Foreign Persons Involving Real Estate in the United States, which address the new authorities under FIRRMA for CFIUS to review, for the first time, certain greenfield investments in the United States involving real estate. Both proposed rules have a short period for parties to weigh in by providing written comments: just 30 days from the date of issuance, until October 17, 2019.
Together these proposed rules -- along with the Critical Technology Pilot Program ("the Pilot Program") issued last November and certain other resource and process updates that the CFIUS agencies have implemented over the past year -- usher in a new era for CFIUS by formalizing the most dramatic reform and expansion of the Committee's process in its history. The Regulations themselves are dense, totaling over 300 pages, and introduce a profusion of new concepts and terms. Recognizing that there is much to absorb and a short period for comment, we would suggest that the following are the critical takeaways from the Regulations: