​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)[1].  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.

The most significant changes under FIRRMA include the following:

• 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).

One of the most significant changes under FIRRMA is the expanded definition of “covered transactions” that are subject to CFIUS review, including most notably certain non-controlling transactions.  CFIUS now has explicit authority to review the following transactions:

• 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.

In addition, notwithstanding that CFIUS has historically treated bankruptcy proceedings as subject to its jurisdiction, FIRRMA now requires that CFIUS regulations clarify that transactions arising from bankruptcy proceedings are “covered transactions.”

The expansion of CFIUS’s jurisdiction to include review of non-controlling investments by non-U.S. persons in critical infrastructure, critical technology and sensitive personal data maintenance is certain to increase the role CFIUS plays in a broader range of industries including the financial, healthcare, insurance, and retail industries.

Short-Form Declarations

Under FIRRMA, foreign investors engaging in transactions they believe to be less concerning to CFIUS may submit a short-form declaration for CFIUS review to potentially receive a faster response.  The short-form declaration must be no longer than five pages and should describe basic information regarding the transaction.  CFIUS will have 30 days from the date that a declaration is filed to respond to the parties by either requesting a written notice be filed, clearing the transaction, or conducting an independent review of the transaction.

Mandatory Declarations

Pursuant to FIRRMA and regulations to be promulgated by CFIUS, parties to certain covered transactions will now be required to submit declarations containing basic information about those transactions.  Transactions involving the direct or indirect acquisition of a “substantial interest” in a U.S. business involved in critical infrastructure, critical technology, or the maintenance of sensitive personal data of U.S. citizens by a non-U.S. person in which a foreign government has a direct or indirect “substantial interest” are subject to the mandatory filing requirement.  The term “significant interest” will need to be defined by CFIUS in the implementing regulations. 

The mandatory declaration requirement is a significant change, given that up until now entering the CFIUS process had been strictly voluntary.  The mandatory declaration requirement is likely to have a significant impact on Chinese investors, many of which have Chinese government shareholders.

CFIUS may waive the mandatory declaration requirement if it determines that the non-U.S. investor is not controlled by a foreign government and if the non-U.S. investor has a history of cooperation with CFIUS.  Parties may instead decide to fill a full notice in lieu of the mandatory declaration.

Extended Timeline for CFIUS Reviews

FIRRMA extends CFIUS’s initial transaction review period from 30 days to 45 days.  After the initial review period, as has been the case, CFIUS may conduct an additional 45-day investigation of a proposed transaction. FIRRMA now permits CFIUS to extend the 45-day investigation period by an additional 15 days in the event of “extraordinary circumstances,” as will be defined by the implementing regulations.  Taking the initial now 45-day review period into account, in “extraordinary circumstances” this change could extend the total time period for CFIUS (and Presidential review) from 90 days to 120 days.

CFIUS Filing Fees

Currently, CFIUS does not charge parties to submit filings.  FIRRMA authorizes CFIUS to assess filing fees for full notices that do not exceed an amount equal to the lesser of 1% of the value of the transaction or $300,000 (to be adjusted annually for inflation).  The introduction of a filing fee is intended to provide additional resources to support CFIUS’s expanded caseload and address current delays.  Under FIRRMA, CFIUS may assess and collect filling fees as of the date of enactment, however, as a practical matter, the filing fee amount must first be set by CFIUS through implementing regulations.

Authority to Suspend Transactions

CFIUS now has the explicit authority to suspend a proposed or pending covered transaction that may pose a risk to U.S. national security while the transaction is under review or investigation.  Previously, only the President had the power to suspend a transaction based on a referral from CFIUS.

Judicial Review of CFIUS Decisions

FIRRMA expressly provides that civil actions challenging a CFIUS decision may be brought before the U.S. Court of Appeals for the District of Columbia (D.C.) Circuit; essentially a codification of past practice as a CFIUS decision was challenged by Ralls Corporation in the D.C. Circuit Court in 2014 on constitutional grounds.  FIRRMA also provides that the D.C. Circuit, as the reviewing court, will have the opportunity to review the classified record if it determines that the use of such information is necessary to review CFIUS decisions.

Implementation Dates

Certain provisions took effect immediately upon enactment on August, 13, 2018 and other provisions will become effective on the earlier of 18 months from the date of enactment or once CFIUS formally determines that the necessary regulations and resources are in place to administer the new provisions.

Several key provisions came into immediate effect on August 13, 2018, including:

• 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.

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With the enactment of FIRRMA, CFIUS now has broadened authority to review and possibly prevent cross-border transactions involving US assets or businesses.  International dealmakers need to fully understand CFIUS’s newly expanded jurisdiction and clarified procedures in order to assess the viability, timing and execution certainty of the transactions they are contemplating.