On August 13, 2018, President Trump signed into law the Foreign Investment Risk Review Modernization Act (“FIRRMA”), which enacts significant reforms to the Committee on Foreign Investment in the United States (“CFIUS”). CFIUS is an interagency committee chaired by the Treasury Department that is responsible for reviewing inbound foreign investment for national security concerns. The Committee has jurisdiction to review “covered transactions,” which are transactions that result in a foreign person gaining “control” – defined very broadly – over a U.S. business operating in interstate commerce.
Over the past few years, CFIUS has sought to stretch the bounds of its jurisdiction. The new law continues this process. Specifically, FIRRMA closes existing loopholes relating to the purchase assets in bankruptcy and leasing or the purchase of real estate near sensitive U.S. government installations and facilities. It also greatly narrows the safe harbor for passive investments, which includes investments made by private equity and venture capital funds that have foreign limited partners that were not previously disclosed to CFIUS.
In addition, FIRRMA and the related Export Controls Reform Act (“ECRA”) will increase US government oversight over sensitive industries that involve national security concerns. For example, the new law authorizes CFIUS to expand and update its definitions of “critical infrastructure” and “critical technologies.” Moreover, for the first time, FIRRMA makes certain CFIUS filings mandatory, including those involving certain investments in U.S. critical infrastructure and critical technology companies. Furthermore, the ECRA authorizes a new interagency process that will review early-stage technologies that are not yet controlled for export because they are too nascent to have manifested dual or military uses. The new process will cover transfers of such technologies resulting from a U.S. company’s contribution to a joint venture.
Many of these major substantive revisions to jurisdiction and review powers of CFIUS will not go into effect until CFIUS promulgates new regulations, which may take up to 18 months from enactment. Nonetheless, U.S. manufacturers seeking foreign investment should be aware that these changes will become effective in the near future.
Moreover, a number of changes made by the law become effective immediately, such as an extension of the CFIUS review process from 75 days to 90-105 days, and an expansion of the scope of “covered transactions” to include evasive transactions and certain transactions that could result in foreign control of a U.S. business or another U.S. investment.
Further, CFIUS will immediately have greater authority to intervene in transactions to address national security concerns. Among other things, the Committee now has the authority to impose “interim” mitigation while it reviews a completed transaction, and will be able to suspend a covered transaction during the review process.
