On Monday 13 August 2018, President Trump is expected to sign into law the Foreign Investment Risk Review Modernization Act of 2018 (FIRRMA), the most significant changes to the law governing the Committee on Foreign Investment in the United States (CFIUS or Committee) since the creation of the US foreign investment regime in 1988. Although prompted primarily by national security concerns with Chinese investments, the legislation will affect investments by all foreign investors. The changes reflect a trend across advanced markets for greater scrutiny of inbound investments.
While Congress declares that the United States continues to welcome investments from abroad, FIRRMA grants the administration new tools to regulate foreign direct investments raising national security concerns. FIRRMA will expand the jurisdiction of CFIUS to scrutinize inbound investments, and will create for the first time mandatory declaration requirements for foreign government affiliated investors and for other investments designated by CFIUS. The law makes a series of other changes that strengthen CFIUS’s authority, delegates broad rule-making authority to the Committee, and authorizes the sharing of information on transactions with allied governments for the first time.
The enactment of FIRRMA will launch a major rule-making process at the same time that CFIUS agencies must undertake a significant expansion of staff. While extended timelines for the CFIUS review process will enter into force immediately, most FIRRMA provisions will phase in only after the issuance of regulations and expansion of staff, processes that will likely take over a year. Meanwhile, the administration will initiate a related regulatory process of classifying and imposing licensing requirements for exports of “emerging” and “foundational” technologies. This effort could affect cross-border transactions more broadly, including outbound investments from the United States.
While CFIUS previously had broad authority to review investments through which a foreign person could assume control of a US business, the new law grants CFIUS the authority to review:
Non-passive foreign investments: A non-passive foreign investment in a company that (1) owns, operates, manufactures, supplies or services critical infrastructure, (2) produces, designs, tests, manufactures, fabricates, or develops critical technologies, or (3) maintains or collects sensitive personal data of US citizens. “Non-passive” investments are those that provide any position on the board of directors including observer rights, a role in substantive decision-making, or access to “material non-public technical information,” with certain exemptions for investment funds.
Real Estate: The purchase, lease, or concession by or to foreign persons of real estate that is located within port, or is proximate to a “sensitive” US government property. Previously, CFIUS did not have jurisdiction to review acquisitions of real estate that was not associated with commercial activities.
Declarations — Mandatory and Voluntary
FIRRMA imposes a new declaration procedure in addition to the existing notification procedure. Declarations, whether voluntary or mandatory, will be short (about five pages). After receiving a declaration, CFIUS will have 30 days either to approve the transaction or to require a full CFIUS review.
Declarations will be mandatory for investments by foreign persons in which a foreign government has a "substantial interest." There will be a possibility of waiving the required declaration where the foreign investor has a record of compliance and cooperation with the US government. In addition, CFIUS will issue regulations imposing mandatory declarations on investments in other businesses, likely including those involved in critical infrastructure, critical technology, and handling of sensitive personal data of US citizens.
Parties will also have the option of submitting voluntary declarations where they desire the legal certainty of an approval through the expedited procedure.
FIRRMA amends the CFIUS process in a number of other ways. In terms of timing, FIRRMA extends the initial review period from 30 to 45 days, and adds a possible 15 day extension to the investigations phase (i.e., an investigation phase may take up to 60 days). FIRRMA also clarifies CFIUS’s authority to block transactions or impose conditions during a review process or when parties withdraw.
For the first time, CFIUS will be authorized to collect a filing fee. The fees will be determined by regulation, and will be based on the value of the transaction — they will be capped at the lesser of 1 percent of the value of the transaction, or $300,000.
Of broader importance, FIRRMA authorizes CFIUS to disclose to a US ally or partner information arising from a CFIUS process in order to advance the common national security interests of the United States and that other government. This new authority will facilitate greater cooperation between regulators in the United States and partner countries.