• The Biden Administration recently issued a historic Executive Order (the “Order,” available here) unwinding the purchase by an entity backed by Chinese nationals of U.S. real estate in close proximity to a strategic missile base in Wyoming.
• The transaction was not submitted to the Committee on Foreign Investment in the United States (“CFIUS” or the “Committee”) for its review. Instead, CFIUS learned of the transaction (after it had closed) from a tip provided by a third party, initiated an investigation, and determined that divestment was required.
• In the approximately five decades since CFIUS was established, the Order is only the eighth time that the President has formally blocked a transaction, and it marks the first time the President has blocked a transaction involving CFIUS’ authority to review certain real estate transactions.
• What does this mean? CFIUS and the President are actively reviewing transactions, including those that are not submitted to the Committee for review, to assess national security risks. Dealmakers, including for real estate transactions, should evaluate CFIUS-related considerations from the start of the transaction planning process to avoid potential disruptions.

This OnPoint discusses the historic Order as well as key trends and takeaways for the investment community.

Background on CFIUS

CFIUS is an interagency committee, principally comprising nine members and chaired by the Secretary of the Treasury, which has broad powers to review foreign investments in and acquisitions of U.S. businesses and certain U.S. real estate to determine the potential impact on U.S. national security.

Since its authority was expanded by the Foreign Investment Risk Review Modernization Act of 2018 (“FIRRMA”), CFIUS has jurisdiction to review transactions involving the purchase or lease by, or concession to, a non-U.S. person of certain U.S. real estate that might raise national security concerns (additional coverage is available here). The Committee has the authority to impose mitigation measures, suspend transactions and, where appropriate, recommend that the President block or unwind transactions.

What Happened

In June 2022, MineOne Cloud Computing Investment I L.P. (collectively with its affiliates, “MineOne”) acquired real estate within one mile of Francis E. Warren Air Force Base (“F.E. Warren AFB”). Through various affiliates, MineOne then made improvements to establish cryptocurrency operations on the site.

MineOne did not seek CFIUS approval in connection with the acquisition of real estate in 2022. The Committee learned of the transaction thereafter through a public tip. Upon receipt of the information, the Committee investigated the transaction and ultimately identified national security risks that could not be mitigated through a national security agreement, at which point the matter was referred to President Biden by the Committee.

President Biden issued the Order on May 13, 2024 prohibiting MineOne’s property acquisition, requiring the divestment of certain real estate operated as a cryptocurrency mining facility located within one mile of F.E. Warren AFB, and requiring the removal of certain improvements and equipment at the relevant property by MineOne. Both the divestment and the equipment removal are mandated to occur on a rapid timetable.

We summarize a few key trends and takeaways for the investment community below.

1. The Committee is Focused on Non-Notified Reviews, and Third Parties Can and Do Make Tips/Referrals

One of the overarching changes under FIRRMA was the strengthening and broadening of the Committee’s authority to review foreign investments in and acquisitions of U.S. businesses, including with respect to review of so-called “non-notified/non-declared” transactions, meaning transactions that are within CFIUS’ jurisdiction but were not presented to the Committee for review.

As described above, the MineOne real estate acquisition was not formally submitted to the Committee for review at the time of the real estate acquisition in 2022. The Committee reportedly became aware of the MineOne matter following receipt of a 16-page report from a Microsoft team working near the relevant site.

The MineOne matter is consistent with recent trends with respect to non-notified matters. For context, according to the Committee’s most recent Annual Report (which we cover here), during 2022 CFIUS identified and requested information regarding 88 “non-notified/non-declared” transactions. Above and beyond the transactions about which CFIUS requests information, member agencies of the Committee are reviewing hundreds of transactions to determine if information requests should be made. The Committee is investing time and resources in its non-notified teams; it plans to expand its authority with respect to non-notified transactions and has proposed rules in recent weeks in this regard (our coverage of the proposed rules is available here).

In addition to the Committee’s extensive resources to identify non-notified transactions, the investment community should note the involvement of third parties reporting information to CFIUS. The Committee has a tips and referrals system to facilitate such information gathering/whistleblowing, and CFIUS has long been subject to pressure from public officials and reporters. The investment community should consider whether third parties will exert such pressure in connection with their CFIUS strategy.

2. The Number of Blocked and Abandoned Deals is Increasing

While the Committee sees hundreds of filings each year, it rarely refers a transaction to the President to be prohibited: to date, only eight transactions have ever been formally blocked by Presidential Order. At the same time, mandated blocking/unwinding of deals has occurred more frequently in recent years. President Trump ordered the blocking of two transactions and the unwinding of two others. President Biden has now formally blocked his first transaction, and it remains possible that additional transactions will be blocked during the remainder of his current term. Of course, transactions are not only subject to formal disruption via Presidential Order but also may be withdrawn in anticipation of such orders.

During 2022, for example, according to CFIUS 20 transactions were withdrawn from the CFIUS review process and ultimately abandoned. In 12 of the 20 instances, either CFIUS could not identify mitigation measures that would resolve the Committee’s national security concerns, or the parties were unwilling to accept the mitigation measures presented to them. In the remaining eight instances, the parties withdrew their notices and abandoned the transactions due to commercial reasons (which could also include reasons related to perceived CFIUS risk).

The complexity of navigating the CFIUS review process is increasing, and this has impacted a growing number of transactions. Transactions that are not brought before the Committee can be reviewed by the Committee at any time, including post-close. Moreover, as was the case in the MineOne matter, if the Committee reviews a transaction and determines there are national security risks that cannot be mitigated through a national security agreement, CFIUS and the President have broad power to block a transaction, order divestment, and issue orders to remove sensitive equipment from property. Parties would be wise to manage this legal and reputational tail risk by evaluating CFIUS considerations from the start.

3. The Biden Administration is Scrutinizing Crypto Investment

The Biden Administration has scrutinized the crypto space in a number of national security contexts including export and trade controls, economic sanctions, and prosecutions by the Justice Department. The MineOne Order is consistent with this crypto-specific scrutiny. Specifically, the Order identifies two CFIUS-related concerns that can arise from crypto investments: (i) proximity to a sensitive military facility, and (ii) the presence of specialized foreign equipment with potential use for espionage. There has also reportedly been discomfort within the Biden Administration with respect to the surge of Chinese investment in crypto mining assets around the United States generally and on the continuous operation of crypto mining equipment, which strains power grids.

Beyond the ultimate ownership/nationality of a potential investor, MineOne demonstrates that the investment community should include assessments of co-location, foreign equipment use, and resource consumption in their evaluations of potential CFIUS risk in a crypto or real estate transaction.

Conclusion

As evidenced by the historic Order, the CFIUS landscape continues to evolve. A sophisticated CFIUS strategy, at every step of the process, can make a significant difference. Parties contemplating transactions involving foreign investments in U.S. businesses and/or U.S. real estate should evaluate CFIUS considerations early in the transaction process. As the Biden Administration continues to make clear through its guidance and now formally through the Order, the cost for failing to do so may be more than reputational.

Dechert has represented many clients through CFIUS reviews, including major operators and investors in the industries surrounding real estate, high tech, telecommunications, energy, defense, and infrastructure. We regularly advise foreign and domestic entities (“buyers” and “sellers,” as well as other interested third parties) through the CFIUS review process, helping them determine whether or not to bring a transaction before the Committee (and whether or not CFIUS review is required), to assemble the required information and materials for a filing, and then (as necessary) to negotiate national security agreements with CFIUS in a manner that minimizes both delay and the imposition of conditions that might threaten the transaction. We also advise on strategies for identifying and addressing political and policy considerations that may arise.