CFIUS Reform: An Expanded Role (Part II of II)
Congress enacted the Foreign Investment Risk Review Modernization Act of 2018 (FIRRMA), which was intended to modernize and strengthen the CFIUS process. FIRRMA was incorporated into the National Defense Authorization Act which as passed and signed into law.
FIRRMA expands CFIUS jurisdiction to include four new types of transactions, expands the definition of “critical technology,” requires CFIUS to respond to written notices, extends the time period for review of transactions, and creates a CFIUS filing fee.
FIRRMA expands CFIUS’ jurisdiction to cover four new types of transactions, including:
- A non-passive investment by a foreign person in any U.S. business involved in critical infrastructure or in the production of critical technologies, or that maintains sensitive personal data that could threaten national security;
- Any change in a foreign investor’s rights regarding such a U.S. business;
- Any other transaction, transfer, agreement or arrangement designed to circumvent or evade CFIUS; and
- The purchase, lease, or concession by or to a foreign person of certain real estate in close proximity to military or other sensitive national security facilities.
To expedite the CFIUS review process, particularly in situations where there is little security risk, FIRRMA allows parties to obtain an initial review after filing a streamlined declaration (no more than five pages). In response, CFIUS could include a request to file a full notice, a request for additional information, initiation of a unilateral review, or notification that no further action is required.
If a transaction results in the acquisition of a substantial interest in a US business by a foreign person in which a foreign government has a substantial interest, FIRRMA requires that the parties submit a written declaration no more than 45 days before closing. CFIUS regulations will define the term “substantial interest,” based on the ability of a foreign government to influence the foreign person (e.g. board membership, ownership interests, shareholder rights), and will exclude investments with a less than 10 percent voting interest.
FIRRMA also includes provisions that:
- Provide CFIUS additional time to review a transaction from 30 days to 45 days, with a 15 day extension for extraordinary circumstances;
- Require CFIUS to establish a process for identifying transactions that occur that do not fall within the CFIUS notification requirements in order to identify potential transactions that raise national security concerns;
- Creates exemptions from review for investment fund investments where the foreign partner is a limited partner; and
- Allow CFIUS to impose filing fees not to exceed $300,000.
To address potential national security risks, and depending on a risk-based analysis, CFIUS will have authority to:
- Suspend a transaction during review or investigation;
- Use mitigation agreements and conditions to address specific risks; and
- Impose interim mitigation agreements and conditions on completed transactions that are undergoing CFIUS review.
FIRRMA requires CFIUS to formulate and adhere to a compliance plan for any mitigation agreement so that such agreements include specific requirements and authorizes CFIUS to impose penalties for violations of the agreement requirements. Parties are authorized to contract with independent, non-government entities to monitor compliance with any mitigation agreement.