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Treasury Issues Proposed CFIUS Regulations Expanding Review of Foreign Investment Transactions

joseph.moreno@cwt.com's picture
Commentary by Joseph Moreno

The Treasury Department proposed regulations (here and here) to implement last year's Foreign Investment Risk Review Modernization Act of 2018 ("FIRRMA"). The rules would broaden the authority of the Committee on Foreign Investment in the United States ("CFIUS") to scrutinize transactions involving foreign investments.

As previously covered, FIRRMA expanded CFIUS's review of transactions beyond "covered transactions" concerning mergers, acquisitions or takeovers that could result in foreign "control" of a U.S. business. The proposed regulations include several types of noncontrolling transactions for so-called TID ("Technology, Infrastructure and Data") businesses involving (i) critical technologies subject to export controls, (ii) critical infrastructure, such as telecommunications and public utilities, or (iii) the "sensitive personal data" of U.S. citizens, such as financial or health information. In addition, the proposed rules would apply to review of certain real estate transactions. FIRRMA also introduced mandatory declaration requirements for certain types of covered transactions, including where a foreign government has a "substantial interest."

Comments on the proposed regulations must be submitted by October 17, 2019. Under FIRRMA, the new regulations must be finalized no later than February 13, 2020.

Commentary

Since October 2018, legal practitioners have looked to the Treasury Department's temporary regulations implementing FIRRMA and its new pilot program which introduced FIRRMA's mandatory declaration provisions. If finalized, these proposed regulations would replace the temporary regulations while adding new rules outlining CFIUS's authority to review the purchase of certain U.S. real estate by foreign persons. CFIUS's jurisdiction over TID U.S. businesses would be broadened, along with its jurisdiction over a wider range of real estate transactions. The pilot program and its mandatory declaration requirements would remain in effect pending future evaluation. Some relief may be forthcoming in the form of carve-outs from covered transactions for "excepted foreign states" which have demonstrated compliance with certain U.S. laws. On balance these proposed regulations represent a continued expansion of CFIUS's ability to scrutinize foreign investment in the United States. Perhaps for that reason the Treasury Department felt compelled to proclaim in the FAQs to the proposed regulations that "[t]he United States welcomes foreign investment and remains one of the most open countries in the world to foreign investors."

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