Dealmakers Beware: Trump Expands CFIUS’ Reach
15 August 2018
On August 13, 2018, President Donald Trump expanded the powers of the Committee on Foreign Investment in the United States (CFIUS) to review foreign investments in the United States by signing into law the Foreign Investment Risk Review Modernization Act of 2018 (FIRRMA) as incorporated in the National Defense Authorization Act for Fiscal Year 2019 (NDAA). FIRRMA largely codifies certain CFIUS practices of the past several years and formally expands CFIUS’ operational mandate. Many provisions of FIRRMA became effective upon enactment through the President’s signature; others will come into effect within the next 18 months. Cross-border deal makers and transaction advisors should make certain that they understand CFIUS’ expanded authority and how it might impact contemplated transactions.
- Expansion of CFIUS jurisdiction to include:
- certain non-controlling foreign investments in U.S. businesses that are involved in critical infrastructure or critical technologies, or that maintain or collect sensitive personal data of U.S. citizens;
- changes in a non-U.S. investors rights in a U.S. business that could result in foreign control of the business or access to information regarding critical infrastructure, critical technology, or sensitive personal information;
- transactions involving the sale or lease of property located in the United States at an airport or sea port or in close proximity to or that otherwise provide an opportunity to observe U.S. military or government facilities that are sensitive for national security reasons; and
- any transaction intended to evade or circumvent review by CFIUS;
- Significant procedural changes including:
- a requirement that CFIUS must provide comments to a draft notice and accept a formal notice no later than 10 business days after filing if parties stipulate that the transaction is covered;
- an option for parties to submit a short-form declaration for less sensitive transactions;
- a mandatory declaration filing requirement for certain investments to be submitted at least 45-days prior to closing;
- an extension of the initial CFIUS review period from 30 days to 45 days;
- an optional 15-day extension of the 45-day investigation phase in extraordinary circumstances;
- that CFIUS may share information with foreign allies for the benefit of U.S. security;
- CFIUS authority to suspend a proposed or pending transaction that may pose a risk to U.S. national security while the transaction is under review or investigation;
- the right to judicial review of CFIUS findings; and
- authorization for CFIUS to assess filing fees that do not exceed an amount equal to the lesser of 1% of the transaction value or $300,000 (to be adjusted annually for inflation).
Expanded Scope of Transactions Subject to CFIUS Jurisdiction
- Investments in Critical Technology, Critical Infrastructure, and Sensitive Personal Data Maintenance – certain non-controlling investments by a non-U.S. person in a U.S. business that: (i) is involved in critical infrastructure; (ii) produces critical technologies; or (iii) maintains or collects sensitive personal data of U.S. citizens that may be exploited in a way that threatens national security. FIRRMA excludes from this provision indirect investments by a non-U.S. person through an investment fund that affords the non-U.S. person membership as a limited partner on an advisory board or committee of the fund provided certain criteria are met.
- Changes in Foreign Investors’ Existing Rights – any change in the rights that a non-U.S. person has with respect to a U.S. business in which the foreign person has an investment, if that change could result in foreign control of the U.S. business or an investment in critical infrastructure, critical technology, or the maintenance of sensitive personal data of U.S. citizens that may be exploited in a way that threatens national security.
- Real Estate Transactions – The purchase or lease by, or a concession to a foreign person of private or public real estate located within the U.S. and that is: (i) within or a part of an air or maritime port; (ii) in close proximity to a U.S. military installation or U.S. Government property that is sensitive for national security reasons; (iii) could reasonably provide the foreign person the ability to collect intelligence on activities being conducted at such a property; or (iv) that could otherwise expose national security activities at such a property to foreign surveillance risk.
- Evasion or Circumvention of CFIUS Review – any other transaction, transfer, agreement, or arrangement designed or intended to evade or circumvent review by CFIUS.
Extended Timeline for CFIUS Reviews
CFIUS Filing Fees
Authority to Suspend Transactions
Judicial Review of CFIUS Decisions
- CFIUS jurisdiction over transactions intended to evade or circumvent CFIUS;
- CFIUS jurisdiction over changes in rights of non-U.S. investors that could result in control of a U.S. business;
- extension of the initial CFIUS review period from 30 days to 45 days;
- CFIUS’s ability to share national security information with allies; and
- parties’ right to judicial review of CFIUS decisions.