Companies outside the U.S. contemplating purchases of U.S. business (and potential U.S. acquisition targets) are continuing to parse the Department of the Treasury’s two proposed regulations continuing implementation of the Foreign Investment Risk Review Modernization Act (“FIRRMA”). The proposed rules change the Committee’s jurisdiction and certain procedures related to the national security reviews undertaken by the Committee on Foreign Investment in the United States (“CFIUS”). These proposed regulations provide additional clarity regarding how CFIUS intends to implement the FIRRMA amendments. When implemented, these regulations will formally expand CFIUS jurisdiction – but will also formalize current CFIUS practice in most respects. Implementation is scheduled to occur on or before February 13, 2020.
Jurisdiction over non-controlling investments
Traditionally, CFIUS exercised jurisdiction over investments that result in the “control” of a non-U.S. person over a U.S. business. After FIRRMA implementation, CFIUS will have jurisdiction over certain investments that do not result in control by a non-U.S. person. Specifically, CFIUS will have jurisdiction over non-controlling investments if the investment is in a specific company type, and if it affords the investor specific, enumerated rights.
The draft regulations identify several company types that satisfy the first part of the test. The first type is a business that produces or otherwise deals in certain “critical technologies.” A separate statute authorizes the Department of Commerce to identify these critical technologies. Although the Department of Commerce did identify examples of these technologies in a 2018 rulemaking, that process is not yet complete.