The Committee on Foreign Investment in the United States (CFIUS) is an interagency federal body that screens inbound foreign investments for national security risks, and it is currently putting the finishing touches on its draft regulations to implement the Foreign Investment Risk Review Modernization Act of 2018 (FIRRMA). FIRRMA was a sweeping overhaul of the operations and jurisdiction of CFIUS, and one aspect of the new law that has not gotten as much attention is the expansion of jurisdiction to cover a much broader range of real estate transactions.
FIRRMA allows CFIUS to review “the purchase or lease by, or concession to, a foreign person” of certain public and private real estate. Prior to the enactment of FIRRMA, CFIUS could already review real estate deals, but its jurisdiction was limited to situations where the real estate was part of an existing “US business.” If the real estate was a stand-alone parcel and not part of an existing US business, that was the end of the story. Once the new regulations take effect, CFIUS will be able to review purchases and leases of certain stand-alone parcels. Depending on whether the regulations are narrowly tailored, this could mean a significant increase in US real estate that is subject to CFIUS jurisdiction.
More specifically, FIRRMA gives CFIUS jurisdiction over these types of transactions when the real estate is either part of an airport or seaport (or will function as part of one), or it meets one of three specific criteria in relation to a US military installation or other US government facility that is “sensitive for reasons relating to national security.” These criteria are that the real estate:
- Is in “close proximity” to that installation or facility;
- Could enable foreign intelligence collection on activities conducted there; or
- Could otherwise expose national security activities there to risk of foreign surveillance.
“Single housing” units are specifically exempted by FIRRMA, as is real estate in “urbanized” areas (subject to exceptions to be prescribed in the regulations). In addition, FIRRMA preserves flexibility for CFIUS to prescribe other criteria with regard to these same types of installations or facilities.
What Types of Government Facilities Might Be Considered “Sensitive”?
The types of US government facilities that are likely to be considered “sensitive” include many military and intelligence facilities across the country. Of course, the Federal Bureau of Investigation is now a full member of the US Intelligence Community (as are 16 other US government organizations), so it’s likely that facilities such as FBI field offices and their “resident agency” offices (in smaller cities and towns) will be considered sensitive as well. Facilities of other types of agencies, such as the National Aeronautics and Space Administration (NASA), whose missions are not necessarily security-oriented, could fall within the scope of the expanded jurisdiction as well. Offices of the US State Department and other federal agencies may also be implicated.
What Sort of Foreign Intelligence Collection Was Congress Worried About?
When Congress enacted FIRRMA, its concerns about foreign intelligence collection centered on signals intelligence and imagery intelligence. The National Security Agency (NSA) is the US Government’s subject matter expert on (and collector of) signals intelligence (SIGINT), and its website explains that “SIGINT is intelligence derived from electronic signals and systems used by foreign targets, such as communications systems, radars, and weapons systems. SIGINT provides a vital window for our nation into foreign adversaries' capabilities, actions, and intentions.”
Of course, when foreign adversaries collect SIGINT against the US, it can provide them with a similar window into US capabilities, actions, and intentions, which is something CFIUS seeks to prevent. For example, the intercepting of US communications such as phone calls, emails, or text messages could be of great concern, especially at the types of sensitive government facilities described in FIRRMA. Real estate transactions that could give a foreign entity the opportunity to collect this type of information would be of great concern to CFIUS.
Imagery intelligence (IMINT) was also on Congress’s mind when it expanded CFIUS’s jurisdiction to review real estate transactions. The National Geospatial-Intelligence Agency (NGA), the US Government’s subject matter expert on IMINT, defines the term as “technical, geographic, and intelligence information derived through the interpretation or analysis of imagery and collateral materials.” As the Office of the Director of National Intelligence (ODNI) website points out, IMINT “includes representations of objects reproduced electronically or by optical means on film, electronic display devices, or other media. Imagery can be derived from visual photography, radar sensors, and electro-optics.”
Certainly, a hostile foreign intelligence service could use real estate as a platform to employ ground-based sensors and thereby collect various types of IMINT from a sensitive US government facility, particularly if the real estate afforded a direct line of sight to that facility. This type of intelligence collection and surveillance is certainly something that CFIUS seeks to avoid, and its forthcoming regulations are likely to reflect that.
Who Should Be Paying Attention to This, and Just How Much Real Estate Could Fall Within the Scope of This?
As CFIUS decides on the exact scope of its jurisdiction over these types of real property, the US real estate sector will want to pay close attention. Sometimes, sensitive facilities can exist where one least expects them. For example, in 2010, the Washington Post ran a series of investigative articles dubbed “Top Secret America,” in which it attempted to shine a light on the expansion of the US Intelligence Community after the terrorist attacks of September 11, 2001. As part of that series, the Post published maps of the Washington, DC, area (and other parts of the US), purporting to show the location of an array of sensitive intelligence facilities. Most residents of the area had little idea of the scope and scale of reportedly sensitive facilities in the DC region.
In order to give real estate investors predictability, it is possible that CFIUS will utilize a map of the entire country or even just certain key regions (such as the Washington, DC, area). Such a map might even be color-coded to indicate areas of heightened sensitivity or scrutiny. CFIUS will have to balance the desire to give investors predictability with the need to avoid handing foreign spies a shopping list of high-value espionage targets.
Critically, CFIUS allows the government to force the unwinding of real estate transactions that have not been pre-cleared. Given the uncertainty of the scope of CFIUS concern, and given the secrecy within which various sensitive government activities are conducted, any transaction involving a building in which any General Services Administration (GSA) or other federal agency lease is present, as well as transactions near military or civilian government agencies outside of urban areas, should be evaluated under CFIUS principles.
CFIUS is likely to release for comment its draft regulations in the next couple of months, and Arent Fox will continue to closely monitor developments.
This is the fifth client alert in the “CFIUS 2.0” series, which focuses on implementation of the Foreign Investment Risk Review Modernization Act of 2018 (FIRRMA). Dave Hanke was the primary staff architect of FIRRMA and chief strategist behind its 2018 enactment, while working at the Senate Select Committee on Intelligence as the staff designee for Sen. John Cornyn (R-Texas), the lead author of FIRRMA.