On March 4, 2020, the U.S. Treasury Department, as chair of the Committee on Foreign Investment in the United States (“CFIUS” or the “Committee”), released a proposed rule to establish for the first time filing fees for CFIUS reviews of notices of transactions (“Proposed Rule”). The proposed fees range from $750 to $300,000, depending on the size of the transaction. The Proposed Rule will impact not only the timing but also the type of transaction notices filed with CFIUS. Interested parties have until April 8, 2020 to submit comments on the Proposed Rule. 

This Proposed Rule implements one of the last remaining changes to the CFIUS process initiated by the Foreign Investment Risk Review Modernization Act of 2018 (“FIRRMA”). In January, we wrote about two other major implementations under FIRRMA: the final regulations for transactions involving critical technology, critical infrastructure and sensitive personal data (“TID Final Regulations”); and the final regulations pertaining to provisions of FIRRMA that expand CFIUS jurisdiction over certain real estate transactions (“Real Estate Final Regulations”). Please find our coverage of the TID Final Regulations and the Real Estate Final Regulations here and here. 

Background 

CFIUS, an interagency committee principally comprising nine members and chaired by the Secretary of the Treasury, has broad powers to review foreign investments in and acquisitions of U.S. businesses to determine the potential impact on U.S. national security. CFIUS has the authority to impose mitigation measures, suspend transactions and, where appropriate, recommend that the President block or unwind transactions.

FIRRMA and the accompanying final regulations modified the previous CFIUS process by adding mandatory filing requirements for certain investments involving critical technology and certain investments by foreign government-controlled entities. In addition, the final regulations expanded CFIUS’ jurisdiction beyond transactions involving control of a U.S. business to cover non-controlling investments, whether direct or indirect, in U.S. businesses involved in critical technology, critical infrastructure or sensitive personal data, and certain real estate transactions. 

The Proposed Rule implements an important change to the CFIUS process under FIRRMA by adding filing fees for certain notices pertaining to “covered transactions” and “covered real estate transactions” (as these terms are defined in the TID Final Regulations and the Real Estate Final Regulations). Notably, the Proposed Rule does not create filing fees for short-form declarations filed with the Committee. The proposed filing fees are intended to allow the Committee to recoup a portion of the costs associated with its review of transaction notices. 

Filing Fee Structure 

The Proposed Rule sets forth a tiered fee structure. In each case, the fee amount is no more than 0.15% of the transaction’s value. 

Transactions valued under $500,000 would not be assessed a filing fee. For all other transactions valued higher than $500,000, the proposed fee structure is as set out below. 

There is one exception to the above for transactions with a value equal to or greater than $5,000,000 but where the value of the interests or rights acquired in the U.S. business is less than $5,000,000. The filing fee for such transactions will be $750 as opposed to $7,500, in order to continue encouraging parties to file with the Committee even if the target company has a limited presence in the U.S. 

Parties must pay the filing fee prior to CFIUS accepting a notice for review except when the Committee determines that extraordinary circumstances relating to national security warrant a waiver of the filing fee. The filing fee covers both voluntary notices to CFIUS and notices filed in lieu of declarations for mandatory review requirements. CFIUS will not begin formal review of a notice until the filing fee is received. A filing fee is not required when submitting a draft notice for informal review by the Committee.  

If the Committee determines that a filing fee was underpaid, prior to rejecting the notice CFIUS will inform the parties in writing and provide parties three business days to pay the remainder of the filing fee. As a general matter, the Committee will not refund filing fees. However, for those cases where CFIUS determines that a transaction is not subject to Committee review, CFIUS will refund the filing fee. Parties can also receive a partial refund for any amount paid that was greater than the amount required. In addition, there is no additional fee if a party withdraws and re-files a notice, unless the Committee determines that a material change to the transaction has occurred or a material inaccuracy or omission was made by the parties in the information initially provided to CFIUS.

The Proposed Rule also addresses how transaction value should be calculated. The Committee will publish payment instructions on its website prior to the Proposed Rule becoming effective. 

Declarations 

There is no filing fee associated with a short-form declaration filed with the Committee.

Declarations can be utilized for mandatory filings for (1) transactions where there are foreign government-controlled investments in TID U.S. businesses and (2) transactions involving U.S. businesses that produce, design, test, manufacture, fabricate or develop certain critical technologies. However, parties whose investments are subject to CFIUS jurisdiction, but not to a mandatory filing requirement, also can file a voluntary declaration instead of a full notice.

A declaration contains less information than a full notice about the target and the acquirer (a declaration must be no longer than five pages), and it must be filed at least 45 days prior to the expected completion date of the transaction. CFIUS may respond to a declaration by informing parties that it: (1) has cleared the transaction, (2) is initiating a unilateral review, (3) is requesting that the parties submit a full formal notice, or (4) is unable to reach a decision regarding clearance on the basis of the declaration alone.

Under the last option, parties do not have the investment protection that accompanies formal CFIUS clearance under a voluntary notice and do not have clear guidance from CFIUS as to how to proceed. As a result, parties should consider whether it is preferable to submit a full formal notice from the outset so as to be guaranteed a final response from CFIUS that will provide certainty, even if this requires payment of a filing fee. In addition, should the Committee request that parties submit a full formal notice, a filing fee will be required with the submission of that notice.

Conclusion 

The Proposed Rule is an important change in the CFIUS process: CFIUS reviews of transaction notices are no longer free. Although the Proposed Rule provides guidance on how filing fees will be assessed and how transaction value should be calculated, it adds yet another level of complexity to the calculus of the CFIUS review process. The changes reinforce the importance of considering CFIUS implications early in the development of plans to pursue investments in and acquisitions of U.S. businesses.