For an entity that has historically placed an emphasis on maintaining the secrecy of its proceedings, the Committee on Foreign Investment in the United States (CFIUS, or the Committee) has recently attracted quite a few headlines. In the past week alone, the Committee has:

• issued a proposed rulemaking on filing fees,
• successfully completed a long-planned divestiture of a Chinese investor's interest in a dating platform,
• persuaded the U.S. president to force a Chinese hospitality IT firm to unwind its interest in an American hotel management solutions company, and
• reportedly recommended that the president block a German semiconductor maker's acquisition of an American semiconductor company.

This flurry of activity comes hot on the heels of the Committee's recent implementation of its enhanced jurisdiction over foreign investments into U.S. companies, which Congress granted to the Committee under the Foreign Investment Risk Review Modernization Act of 2018 (FIRRMA). The new FIRRMA rules took effect on February 13. The Committee's recent actions may demonstrate that with the bulk of the rulemaking process in the rearview mirror, it may begin to leverage its new authorities—and its new enforcement division—to examine a broader set of acquisitions and investments.

Blocks on Blocks on Blocks

StayNTouch, Inc. (StayNTouch) was acquired by a subsidiary of Beijing Shiji Information Technology Co., Ltd. (Shiji) in September 2018. However, on March 6, 2020, the president issued an executive order forcing Shiji to divest completely from StayNTouch on the grounds that there is "credible evidence" that Shiji "might take action that threatens to impair the national security of the United States." While CFIUS never publishes specific reasoning behind such actions, it appears that the Committee deemed Shiji to be an untrustworthy steward of data StayNTouch collected on American citizens; the executive order specifically prohibits Shiji from accessing StayNTouch's hotel guest data. While the Committee has given Shiji a 120-day deadline by which it must divest, Shiji only has seven days to show CFIUS that it cannot access any hotel guest data.

Notably, this is just the sixth instance in which a U.S. president has used formal CFIUS authorities to block or force the divestiture of a foreign investment into a U.S. business (and the third time under President Trump). However, some blocked transactions never reach the president's desk because parties back out of the transaction—or agree to a divestiture—before forcing the issue. An example of this type of informal CFIUS block, the forced divestiture of Beijing Kunlun Tech Co. Ltd.'s (Kunlun) majority share of Grindr, just recently concluded. In that case, the CFIUS order of divestiture came to the press's attention in March 2019 but was not completed until this past week, when Kunlun reportedly agreed to sell Grindr to a group of American investors. Other recent blocks, both formal and informal, have included the proposed purchases of semiconductor companies Lattice Semiconductor Corp. and Qualcomm Incorporated (Qualcomm), as well as the acquisitions of social media platform PatientsLikeMe and cybersecurity software provider Cofense.

Many of these recent divestitures, like Shiji/StayNTouch, have involved Chinese acquirers, though Qualcomm (Broadcom Inc. [Broadcom], at the time a Singaporean company) and Cofense (Pamplona Capital Management LLP, a Russian-backed hedge fund) were notable exceptions. Another blocked transaction involving a European buyer is reportedly on the horizon: according to press reports, CFIUS is also recommending that the president block Infineon Technologies AG's (Infineon) proposed acquisition of Cypress Semiconductor Corp. (Cypress). Reportedly, as with Broadcom, CFIUS may be concerned about Infineon's connections to third parties in China; the Committee previously scuttled Infineon's acquisition of the Wolfspeed business of Cree, Inc. in 2017.

Parties Better Have My Money

On March 9, 2020, the U.S. Department of Treasury issued a proposed rulemaking regarding filing fees for notices submitted to CFIUS. This proposed rulemaking is one of the few open items that remain outstanding from the Committee following its issuance of final rules under FIRRMA earlier this year.

FIRRMA stipulates that "the Committee may assess and collect a fee … with respect to each covered transaction for which a written notice is submitted to the Committee." The law requires that fees be limited by the value of the underlying transaction. FIRRMA gives CFIUS the statutory authority to charge parties up to $300,000 or 1 percent of the transaction value, whichever is less.

The proposed rule would establish a filing fee for voluntary notices—i.e., long-form CFIUS filings—submitted with respect to both "covered transactions" and "covered real estate transactions." Notably, declarations (short-form CFIUS filings) are exempt from fees. Under the recently released FIRRMA rules, parties have the option to submit a declaration in lieu of a notice in both mandatory and elective filing situations. As a result, if the new rules are ultimately promulgated in the form proposed, parties will always have the option to submit without paying a fee.

The fee structure is identical for both "covered transactions" and "covered real estate transactions," and is keyed to the value of the transaction. The Committee notes in its proposal that in no case will a fee exceed 0.15 percent of the value of the transaction under the proposed fee structure: 

The Committee has also issued guidance under the new rules about how to assess the value of a given transaction.

Because no fees have been proposed for the filing of a declaration, beginning with a short-form filing may often be the preferred choice for many investors if the rules are promulgated in the proposed form. However, CFIUS has the option to complete the short-form declaration process without reaching a conclusion as to whether national security risk is present. Specifically, the Committee can either conclude the process without issuing a clearance letter—but also without requesting a further filing—or can actively solicit a long-form notice from the parties to give it more time to review. In addition to those two options, CFIUS can initiate a filing on its own recognizance, directly compelling the parties to comply through the use of its legal authorities. Notices compelled by CFIUS will be exempt from the obligation to pay legal fees. However, parties who submit to a CFIUS-initiated filing may lose some or all of their ability to participate in the Committee's process, making CFIUS even more of a black box.

For those reasons, the new rules will complicate the calculus of parties whose declarations conclude without an outright clearance. Parties in such cases may wish to obtain full CFIUS clearance (which provides safe harbor against future investigation), but may not want to pay the filing fees necessary to obtain that clearance. On the other hand, failing to file a notice—especially if CFIUS has directly requested one—may result in a compelled filing. That will eliminate the fee, but at the cost of reducing the parties' likelihood of persuading CFIUS that the national security risks are limited.

CFIUS notes in the proposed rulemaking that they considered the potential effects the proposed filing fees would have on small businesses. Accordingly, the CFIUS staff chairperson has the authority to waive the filing fee in whole or in part if extraordinary national security circumstances are present.

CFIUS will consider written comments on the filing fee proposal submitted before the April 8, 2020 deadline.