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.[1]

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[2] 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.
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After months of negotiation, Congress recently passed, and the president is expected to sign, the Foreign Investment Risk Review Modernization Act of 2018 (“FIRRMA”).[1]  FIRRMA updates the national security review of inbound investments undertaken by the Committee on Foreign Investments in the United States (“CFIUS” or “the Committee”), an interagency body located within the

On Wednesday, President Trump issued a statement in support of restrictions on Chinese investment in the United States in firms with critical technologies, and in greater protection of those technologies through enhanced export controls.  In particular, the President has thrown his support behind the Foreign Investment Risk Review Modernization Act (FIRRMA), bipartisan legislation that passed in the House on Tuesday.  FIRRMA intend to strengthen the existing Committee on Foreign Investment in the United States (CFIUS) by expanding the scope of foreign investment restrictions that the Administration could block for national security reasons.

CFIUS is an inter-agency committee that has jurisdiction to review transactions that could result in control of a U.S. business by a foreign person  If CFIUS determines the transaction presents a national security risk, it can take action to mitigate the risk or refer the case to the President for further action.  The reforms under FIRRMA would expand CFIUS’s jurisdiction to review foreign minority investments in start-ups in key sectors, certain sensitive real estate transactions, and joint ventures – all of which are currently not subject to examination.  The FIRRMA bill passed in the House specifically notes that the “national security risks related to foreign investment, particularly those emanating from countries such as China and Russia, warrant an appropriate modernization of the processes and authorities of {CFIUS}.”  FIRRMA would also expand existing export controls that govern trade in sensitive technologies.
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According to Bloomberg, the Trump administration is considering using the International Emergency Economic Powers Act (IEEPA) to block Chinese investments in industries or technologies “deemed important” to the U.S.  (This statute has been used primarily to authorize economic sanctions and embargoes administered by the Office of Foreign Assets Control).  To utilize IEEPA, the President

A bipartisan group of co-sponsors in both the House and the Senate recently introduced the Foreign Investment Risk Review Modernization Act (“FIRRMA”).  These substantively identical bills demonstrate that Congress is now considering increasing the scrutiny of foreign investment in the U.S., particularly from China.

The Committee on Foreign Investment in the United States (“CFIUS”) is the interagency body is responsible for reviewing incoming foreign investments for national security risks, so long as they are “covered transactions.”  FIRRMA would broaden the scope of “covered transactions” to include, among other things: the purchase or lease by a foreign person of real estate located near U.S. military or national security interests; non-passive investments in critical technologies or critical infrastructure; and the contribution of U.S. critical technology to a foreign person, including through joint ventures, among others.  The bills would also update certain terms and definitions, including “critical technology,” which can include emerging technologies that are not necessarily controlled for export.  Notably, FIRRMA would not extend CFIUS jurisdiction to “greenfield” investments, which the regulations carve out from CFIUS review. 
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Senate Minority Leader Charles Schumer wants President Trump to take a stand against China for its kids-gloves response to North Korea’s nuclear missile activity by using the Committee on Foreign Investment in the United States (CFIUS) to deny all pending requests involving Chinese acquisition of U.S. companies.  President Trump has been critical of China for not using leverage within its means to pressure North Korea, and Schumer’s request, which would block Chinese company efforts to establish control of U.S. companies presently being reviewed by the Committee, aims to drive Beijing to take stronger action by wielding its perceived influence over North Korea.
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The U.S. Department of Commerce’s Bureau of Economic Analysis has released the 2016 figures in their data series on foreign direct investment in U.S. Businesses. This series allows businesses, researchers, and policy makers to gain insights into recent trends in foreign investment. Investments and the employment generated, are broken down by country of origin, industry type, and location of businesses in which the investments were made.  The data are further broken down by whether the investment involves acquisition, establishment, or expansion of a business.
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Senior members of the Senate Finance, Banking, and Homeland Security Committees recently requested a Government Accounting Office (GAO) investigation of how the Committee on Foreign Investment in the U.S. (CFIUS) examines U.S. real estate transactions involving foreign investors.

This follows two recent proposed real estate transactions involving the Chinese company Anbang that did not close.