Many U.S. enterprises and U.S. real estate holdings have some degree of foreign ownership. Federal law requires the filing of detailed reports on foreign ownership every five years by U.S. enterprises “in which a foreign person . . . owned or controlled, directly or indirectly, 10 percent or more of the voting securities in an incorporated U.S. business enterprise, or an equivalent interest in an unincorporated business enterprise.” 15 C.F.R. part 801.10(b). The U.S. government expects this requirement to apply to over 26,000 business entities in the United States. 87 Fed. Reg. 58594 (Sept. 29, 2022).

Who Must Report When?

June 30 is the electronic filing deadline for submitting the mandatory survey, known as “Form BE-12,” to the Bureau of Economic Analysis (“BEA”), an economic statistics agency with in the U.S. Department of Commerce. Form BE-12 details the extent of foreign investment in a U.S. business or U.S. affiliate/division of a foreign business.

Filing the report is NOT optional. The relevant rules make clear that applicable entities are “required to respond whether or not they are contacted by BEA” to remind them of the reporting requirement. 15 C.F.R. part 810.10(a).

Foreign Ownership of U.S. Real Estate Is Considered a Reportable Business

Foreign ownership of U.S. real estate is considered a business enterprise subject to mandatory reporting. Those reporting obligations will be the subject of a future blog post.

Expect Strong Enforcement Efforts and Government Reluctance to Grant Filing Extensions

There are civil penalties (fines of up to $25,000) for failing to make a timely report and, if the failure is willful, potential criminal penalties. 22 U.S.C. § 3105; 15 C.F.R. part 801.6. Because the Biden administration has aggressively responded to perceived Chinese efforts to misappropriate U.S. technology, steal personal information on U.S. citizens and spy on the U.S. military and businesses, we expect the administration will be aggressive in enforcing these rules.

Foreign direct investment by Chinese entities and other potential foreign adversary countries has become a more contentious political issue since the last survey was conducted in 2018, both for political reasons and because, in August 2018, Congress gave the Committee on Foreign Investment in the United States (CFIUS) far more authority to investigate and undo or condition such foreign investments in sensitive companies and real estate.

CFIUS is a federal interagency committee led by the Department of the Treasury that is very active in reviewing foreign investment – including minority investments -- in U.S. enterprises that have export-controlled technology, access to sensitive personal data on large numbers of American citizens or that own, operate or service vital infrastructure. CFIUS can also review real estate acquisitions close to sensitive military installations as well as near major ports and airports.

Given this political and regulatory context, parties subject to this filing requirement should NOT assume that the federal government will grant extensions to comply with this reporting obligation. BEA’s website states that companies seeking an extension should make the request through BEA’s electronic system before the deadline, not after. In 2018, companies with solid and valid reasons to seek such an extension still encountered difficulties in obtaining it.

Start Reporting Efforts Early – or Else

The BE-12 data-gathering requirements can be much more burdensome than estimated by the government, so it is important to address these requirements promptly. BEA estimates that the average respondent will take 10.5 hours to complete the appropriate BE-12 Form. 87 Fed. Reg. at 58,954. While BEA’s estimate may be true for some small companies, for most respondents, BEA’s time burden assessment is likely a significant underestimate. Indeed, for some enterprises, BEA’s figure will be a gross underestimate.

In reality, depending on the organization of the business and the assets involved, completing the form so that it is “substantially accurate” may require hundreds of hours of staff time, including senior staff. Therefore, with size and complexity in mind, a business should allot adequate preparation time, including, as necessary, time to consult with legal counsel.

Confidential Government Use of the Data

A filer’s submission will be kept confidential, is supposed to be used only for “analytical or statistical purposes within the United States Government[,]” 22 U.S.C. § 3104(c)(1) and “shall be available only to officials and employees (including consultants and contractors and their employees) of agencies designated by the President to perform functions under the [International Investment and Trade in Services Survey] Act[,]” 15 C.F.R. part 801.5(a). Thus, the government has provided legal assurance that the information is supposed to be used solely to help out the economists. Nonetheless, if the certified representations made in these filings conflict with a filing by the same company in connection with CFIUS approvals, that issue may well come out if there are enforcement investigations under either the BEA rules or the CFIUS rules.

The BE-12 form is used in part by the BEA to determine foreign direct investment (“FDI”) in other businesses. Other FDI-related surveys businesses with foreign entity ownership might be required to complete are Form BE-13 (survey of new FDI); Form BE-605 (quarterly reporting of FDI); and Form BE-15 (annual reporting of FDI).

Which Form to Use?

The federal regulations governing the BE-12 reporting requirements are found at 15 C.F.R. part 801.10.

The threshold criteria for required reporting is whether a foreign person or entity owned or controlled, directly or indirectly, 10% or more of the U.S business enterprise. After the minimum 10% ownership requirement is met, other filing particulars are based on whether the foreign interest is a majority owner and the size of the U.S. business enterprise. Essentially:

• If a company is larger than $300 million in size (measured by assets, revenue, or net income), and was majority foreign-owned at some point in 2022, it likely must file a Form BE-12A;
• If a company is more than $60 million in size, but not more than $300 million, and was majority foreign-owned at some point in 2022, it likely must file a Form BE-12B;
• Alternatively, if a company was not majority-foreign-owned in 2022, but larger than $60 million, it likely must also file a Form BE-12B; and
• If a company meets the minimum threshold of 10% foreign ownership at some point in 2022, and is not more than $60 million in size, it likely must file Form BE-12C.

To help companies navigate the BE-12 reporting requirements, the BEA published a flow chart as part of the Form BE-12 instructions, titled “Which 2022 BE-12 Form to File?” However, as of the date of this posting, BEA had not yet released Form BE-12 for the 2022 reporting year.

We will be addressing real estate issues and filing tips in later blog posts.

Opinions and conclusions in this post are solely those of the author unless otherwise indicated. The information contained in this blog is general in nature and is not offered and cannot be considered as legal advice for any particular situation. The author has provided the links referenced above for information purposes only and by doing so, does not adopt or incorporate the contents. Any federal tax advice provided in this communication is not intended or written by the author to be used, and cannot be used by the recipient, for the purpose of avoiding penalties which may be imposed on the recipient by the IRS. Please contact the author if you would like to receive written advice in a format which complies with IRS rules and may be relied upon to avoid penalties.

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