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Committee on Foreign Investment in the United States: A Brief Review of the Recent Changes to CFIUS

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Amanda J. Dernovshek and Jean G. Schtokal
Foster Swift Business & Tax Law News
November 30, 2020

Foreign Investment and CurrencyTo protect your international business transactions, avoid a penalty of $250,000 per violation, and avoid unwinding your transaction after completion, a company who is seeking foreign investment must be aware of the Committee on Foreign Investment in the United States (“CFIUS” or “Committee”) and its strict rules surrounding foreign investment. To avoid the headache, read this article and consider whether you should contact one of the attorneys at Foster Swift to discuss your foreign investment opportunities.

CFIUS is a multi-agency governmental body that is comprised of nine cabinet-level Executive Branch agencies and offices, along with other agencies. CFIUS was created over 30 years ago to address national security concerns while enhancing the confidence in investment made in the U.S.

In August 2018, President Trump signed into law the Foreign Investment Risk Review Modernization Act of 2018 (“FIRRMA”). FIRRMA updates and modernizes CFIUS by expanding the scope of transactions subject to CFIUS review. Historically, CFIUS only covered transactions where the result would be control of a U.S. business by a foreign person and the filing process was wholly voluntary. FIRRMA drastically expands the scope of covered transactions and permits CFIUS to also review transaction that do not result in control by a foreign person. The expanded regulations continue to permit CFIUS to review transactions where two companies engage in a joint venture or other similar arrangement where a foreign person could control the U.S. business.

In 2020, CFIUS issued updated regulations that relate to mandatory filings under CFIUS. Mandatory filings are no longer triggered by a transaction within a specific industry, but rather the regulatory scheme focuses on the export controls that would apply to the critical technologies owned or used by the TID U.S. Business. The latest regulations became effective October 15, 2020 (the “Rule”).

Generally, the Rule requires mandatory declarations for covered transactions involving certain TID U.S. Businesses that produce, design, test, manufacture, fabricate, or develop one of more critical technologies.

Below we outline some of these specifics and provide some practical guidance to analyze whether your company may be subject to a mandatory filing.

What businesses are covered by CFIUS?

The Rule uses the term “TID U.S. Business.” A TID U.S. Business is one that: (1) produces, designs, tests, manufactures, fabricates or develops one or more critical technologies, as defined below; (2) performs critical infrastructure functions including owning or operating an internet protocol network or telecommunications services; or (3) maintains or collects, directly or indirectly, sensitive personal data of U.S. citizens.

Critical technologies are technologies that require a license or authorization for export, re-export, transfer or retransfer. Critical technologies include many categories, but notably include:

  1. Defense articles or defense services included on the United States Munitions List set forth in the International Traffic and Arms Regulation (“ITAR”);
  2. Items included on the Commerce Control List which are controlled under the Export Administration Regulations (“EAR”);
  3. Emerging and foundational technologies controlled by the Export Control Reform Act of 2018; and
  4. Items that require a license by the Nuclear Regulatory Commission Regulations.

Note that to determine whether CFIUS mandatory declaration requirement apply, each U.S. business will need to determine how its products and technologies would be classified for export, even if the company does not export some or any of its products or technology. If a license requirement or regulatory approval exists with respect to the transfer or access by the foreign investor or its owners to the critical technology, then a mandatory filing requirement may exist.

Who is a “foreign person”?

A “foreign person” includes any foreign national, foreign government, or foreign entity, or any entity over which control is exercised or exercisable by a foreign national, foreign government, or foreign entity. Each of these individual terms is also defined in the Rule.

Example 1:  Corporation A is organized under the laws of a foreign state and is engaged in business only outside the United States. All of its shares are held by Corporation X, which solely controls Corporation A. Corporation X is organized in the United States and is wholly owned and controlled by U.S. nationals. Assuming no other relevant facts, Corporation A, although organized and only operating outside the United States, is not a foreign person.

Example 2: Same facts as the first sentence of Example 1 above. The government of the foreign state under whose laws Corporation A is organized exercises control over Corporation A because a law establishing Corporation A gives the foreign state the right to appoint Corporation A’s board members. Corporation A is a foreign person.

What investments are covered?

Covered investments include those that afford the foreign person: (1) access to material non-public technical information in the possession of the TID U.S. Business, (2) membership or observer rights on the board of directors (or equivalent body) of the TID U.S. Business, or (3) any involvement in substantive decision making for the TID U.S. Business. Note that changes in existing foreign investors’ rights may also trigger a review by CFIUS. The Rule includes specifics about how to address incremental acquisition which includes an acquisition where an investor has an interest in a TID U.S. Business prior to October 15, 2020 and later acquires a controlling interest via a subsequent transaction.

Example: Corporation A proposes to acquire a 4% non-controlling equity interest in Corporation B. Corporation B is an unaffiliated TID U.S. Business that operates a container terminal at a strategic seaport within the National Port Readiness Network (Terminal B). Pursuant to the terms of the investment, Corporation A will have approval rights over which customers may utilize Terminal B. The proposed investment therefore affords Corporation A involvement in substantive decision making of Corporation B regarding the management, operation, manufacture, or supply of covered investment critical infrastructure.

Transactions that do not afford the foreign person any access, rights, or involvement (as specified by the Rule) are not covered investments.

Note that the Rule also requires filings for certain transactions with foreign governments or persons that have a “substantial interest” in the TID U.S. Business. Substantial Interest means (1) a voting interest, direct or indirect, of 25% or more for an individual and (2) a voting interest, direct or indirect, of 49% or more by a foreign government. An analysis of a company’s ownership by a parent or the ownership of its subsidiary is required in this analysis and will be fact specific for each transaction.

CFIUS jurisdiction may also cover some real estate transactions with U.S. businesses. This may include the purchase, lease, or concession of “covered real estate.” CFIUS’s jurisdiction is limited to real estate in or around specific sites – including certain airports, military installations, and other “sensitive” properties owned by the U.S. government, although there are some exceptions to this part of the Rule. If real estate leases or acquisitions are involved in a proposed transaction involving a U.S. business, the CFIUS requirements should be reviewed by legal counsel as part of the transactional due diligence.

CFIUS Submissions

Under the Rule, several transactions are covered and the parties to those transactions are required to submit a declaration. If a party is not required to submit a declaration, they may choose to submit a voluntary declaration to CFIUS. If that transaction is approved by CFIUS after filing declaration, the transaction is less likely to be unwound at some point in the future and the parties would avoid any risk of violating the provision of the Rule. The Rule also permits a party to submit a voluntary notice of a transaction. Both declarations and notices have separate requirements and time frames for review by CFIUS.

The list of what must be included in a declaration under the Rule is extensive. Required information includes (1) the names of the parties, (2) a description of the nature of the transaction, (3) the percentage of economic interest acquired, (4) total transaction value, (5) all sources for financing, (6) whether the U.S. business has multiple classes of ownership, and (6) expected completion date of the transaction, among other transaction details. Similar information is requested for the submission of notice, although a notice requires additional and more extensive information.

Advanced planning is required. By way of example, covered transaction declarations must be made at least 30 days in advance of the completion of a transaction. Once filed, the Committee has 30 days to assess the declaration and request additional information, initiate a unilateral review of the transaction, or notify the parties that the Committee has concluded its analysis of the transaction. The Committee has 45 days to review any notice that it receives.

Note that CFIUS is permitted to assess and collect fees with respect to its review of covered transactions. The fees are associated with the value of the transaction.


Penalties for failing to file a declaration when required or failing to be truthful in a declaration or notice are severe. Any person who submits a material misstatement or omission in a declaration or notice may be liable for a civil fine of up to $250,000 per violation. Any person who fails to submit a mandatory declaration may be liable for a civil fine of up to $250,000 or the value of the transaction, whichever is greater. If a transaction is completed and is later found to have violated the CFIUS regulations, the transaction may be forced to unwind.

Although there is an impending change in administration, it is unlikely to change the regulatory framework discussed above because of its relation to national security. It is important to note, however, that the President can block covered transactions if he believes they will pose a threat to national security. The Biden Administration could take a different view as to what constitutes an actionable threat to national security.

If your business is considering entering an investment transaction, or other transaction that you think may be covered by CFIUS, please contact Amanda Dernovshek, the author of this article.

This article is for general information purposes only and SHOULD NOT BE CONSIDERED LEGAL ADVICE. The legal landscape surrounding this topic is novel and has changed drastically through the year.  Please note that there are also other additional advance notices and approval requirements for some foreign ownership or control transaction, including for example requirement under the International Traffic in Arms regulations to provide pre-closing notice to the State Department of transfer of ownership or control to a foreign person or entity under certain circumstances. If you have questions about how this information applies to specific circumstances, please contact a Foster Swift business & tax attorney before taking any action.