The past week brought two important developments in connection with the Committee on Foreign Investment in the United States (“CFIUS”). First, the U.S. Department of the Treasury, which chairs CFIUS, released a long-awaited proposed rule to establish CFIUS filing fees. Notably, while Treasury is proposing a tiered system of filing fees for traditional, long-form CFIUS notices, it has not proposed any fee for the submission of short-form declarations. Second, in what is only the sixth such order in the history of CFIUS, President Trump issued an Executive Order (the “Order”) forcing China’s Shiji Group to divest its interests in StayNTouch, Inc., a U.S. hotel property management systems developer, and to implement certain security measures pending completion of the divestment. We summarize the key takeaways from these important developments below.
CFIUS Proposes to Implement Filing Fees for Voluntary Notices
On March 4, 2020, CFIUS released its proposed rule to establish filing fees for transactions that are voluntarily noticed to the Committee. The Foreign Investment Risk Review Modernization Act of 2018 (“FIRRMA”) grants CFIUS authority to implement filing fees along with a number of other CFIUS reforms. CFIUS implemented most of the other FIRRMA reforms in new final rules that went into effect on February 13, 2020. We summarized those rules here.
Under the latest proposed rule, CFIUS will require a filing fee for voluntary “notices” filed with CFIUS regarding foreign investments in U.S. businesses or real estate that are subject to CFIUS jurisdiction. Under the proposed rule, no filing fees will be assessed for voluntary or mandatory short-form declarations, or for unilateral reviews initiated by CFIUS. However, if parties file a declaration, and CFIUS is unable to complete its assessment within the 30 days allotted for a declaration and requests that the parties file a formal notice, the filing fee will apply.
The proposed rule establishes a tiered system of fees, based on the value of the notified transaction. Transactions valued below $500,000 will be exempt from paying any filing fee. CFIUS has proposed the following tiered approach:
| Value of Transaction |
Filing Fee (US dollars) |
| <$500,000 |
No Fee |
| ≥$500,000 to <$5 million |
$750 |
| ≥$5 million to <$50 million |
$7,500 |
| ≥$50 million to <$250 million |
$75,000 |
| ≥$250 million to <$750 million |
$150,000 |
| ≥$750 million |
$300,000 |
Under the proposed rule, the “value of the transaction” for purposes of calculating fees “will be the total value of all consideration that has been or will be paid in the context of the transaction by or on behalf of the foreign person who is a party to the transaction, including cash, assets, shares or other ownership interests, debt forgiveness, services, or other in-kind consideration.” Where a transaction includes one or more non-U.S. businesses, “the total value of the transaction will generally be assessed based on the global value of the transaction encompassing both U.S. and non-U.S. businesses.” However, there is an exception for larger transactions that involve only a small-value U.S. business: where the value of the transaction is equal to or greater than $5,000,000, but the value of the interests or rights acquired in the U.S. business is less than $5,000,000, CFIUS has proposed only a $750 fee. The exception is “intended to minimize any potential disincentives the fee may pose to parties filing a notice with CFIUS, where the target company has a limited presence in the United States.” Where CFIUS determines that a notified transaction is not a “covered transaction” or a “covered real estate transaction,” CFIUS will refund the filing fee to the party that made the payment.
The proposed rule also outlines how to calculate the value of the transaction when non-cash consideration is used, e.g., securities, services, or other in-kind consideration. For instance, where consideration is a publicly traded security, “the value of the transaction is calculated based on the closing price on the national securities exchange on which the securities are primarily listed on the trading day immediately prior to the date the parties file a notice with the Committee.”
CFIUS has specifically invited public comment on whether the proposed filing fees will discourage foreign investment in the United States or filing notices with CFIUS. Comments on the proposed rule are due by April 3, 2020, which is 30 days from the date the proposed regulations were filed with the Federal Register.1
President Trump Orders Shiji Group to Divest StayNTouch
On Friday March 6, 2020, acting pursuant to the authorities authorizing CFIUS to review foreign investment in the United States, President Trump ordered Beijing Shiji Information Technology, Co., Ltd., a Chinese publicly traded company, and its wholly owned direct subsidiary, Shiji (Hong Kong) Ltd., a Hong Kong limited company (collectively, the “Shiji Group”) to divest itself of StayNTouch, Inc., a Delaware cloud-based hotel property management software company, on national security grounds. The Order does not provide details regarding the national security concerns identified with the transaction beyond stating that there is credible evidence that the Shiji Group, through acquiring an interest in StayNTouch, “might take action that threatens to impair the national security of the United States.” The Shiji Group acquired StayNTouch in 2018.
StayNTouch’s software solutions include cloud-based property management software and guest management solutions, such as mobile check-in and check-out and guest self-service stations for check-in, key retrieval and check-out onsite. Such technology offerings likely involve the collection of substantial amounts of sensitive personal data, as well as location information based on the travel-related nature of the data.
The President’s Order requires the Shiji Group to divest itself of StayNTouch within 120 days, unless that deadline is extended by CFIUS. Shiji Group must divest all interests in: (i) StayNTouch; (ii) StayNTouch’s assets, intellectual property, technology, data (including customer data managed and stored by StayNTouch), personnel, and customer contracts; and (iii) any operations developed, held, or controlled, by StayNTouch at the time of, or since, its acquisition. The Order further requires that the Shiji Group refrain from accessing hotel guest data through StayNTouch and implement controls to prevent any such data access until the divestment has been completed.
The Order is an important reminder of CFIUS’s authority to review and take action on closed transactions that have not been filed with CFIUS. Transactions that are approved by CFIUS receive safe harbor limiting the ability of CFIUS to reopen its review, but for transactions that are not filed with CFIUS, there is no statute of limitations on CFIUS’s ability to review a transaction, including at any time post-closing. CFIUS has received increased funding and has dedicated additional resources to monitor non-notified transactions for potential national security concerns. The risk to parties that do not file with CFIUS increases in a post-closing review, in part because it is more difficult for CFIUS to implement measures to mitigate concerns and determine that there are no unresolved national security concerns if certain activity may have already occurred between closing and the time of the CFIUS review.
The Order also illustrates the significant national security concerns that CFIUS may identify in transactions involving U.S. companies that collect or maintain sensitive personal data of U.S. citizens. While big data has consistently been scrutinized closely by CFIUS, the importance of sensitive personal data has been further highlighted in FIRRMA and the new CFIUS regulations, which expand the jurisdiction of CFIUS to review more transactions involving U.S. companies that collect or maintain sensitive personal data and create a mandatory filing requirement for substantial foreign government investment in such companies.
Altogether, there have been six instances of a U.S. president blocking or unwinding a transaction pursuant to CFIUS authorities, three of which have occurred under the current administration.
1 While the proposed regulations published in the Federal Register on March 9, 2020 state that the due date for comments is April 8, 2020, we understand that it was Treasury’s intent to make the comments due 30 days from the date the proposed regulations were filed with the Federal Register, which occurred on March 4, 2020, making the due date April 3, 2020.
