The Committee on Foreign Investment in the United States (“CFIUS”) has proposed a new rule which extends, for an additional year, the date by which CFIUS will make a determination regarding which countries will be exempt from certain CFIUS filing requirements as “excepted foreign states” or “excepted real estate foreign states.” This extension gives countries that have not yet implemented stronger foreign investment review processes, such as the United Kingdom (“UK”), more time to meet CFIUS’s requirements for designation as an “excepted foreign state” or “excepted real estate foreign state.”
The 2018 Foreign Investment Risk Review Modernization Act (“FIRRMA”) expanded CFIUS jurisdiction to include transactions involving less than controlling “covered investments” and “covered real estate transactions.” The CFIUS regulations, however, carve out an exception to this expanded jurisdiction for investors from certain “excepted” foreign states.
The initial list of “excepted” foreign states designated by CFIUS in January 2020 included only Canada, Australia, and the UK “due to aspects of their robust intelligence-sharing and defense industrial base integration mechanisms with the United States.” However, in order for these foreign states to remain on (or additional foreign states to be added to) this initial list after February 12, 2022, CFIUS must first make a determination that the foreign state has “established and is effectively utilizing a robust process to analyze foreign investments for national security risks and to facilitate coordination with the United States on matters relating to investment security.” The proposed rule extends the date by which CFIUS must make such a determination to February 12, 2023. This extension would allow CFIUS to continue to afford “excepted” status to Canada, Australia, and the UK, as well as add additional foreign states to this “excepted” list, without first making a determination regarding the efficacy of each foreign state’s process to analyze foreign investments for national security risks.
The proposed one-year extension most clearly benefits the UK, whose 2021 National Security and Investment Act does not come into full effect until January 4, 2022, leaving little time to demonstrate effective utilization of the process. This grace period could also benefit other U.S. allies who are seeking to be added to the “excepted” list while their own foreign investment review processes mature. For example, in June 2020, Japan passed the Foreign Exchange and Foreign Trade Act, and in May 2021, Germany adopted new rules to implement the European Union’s Foreign Direct Investment Screening Regulation. Both of these actions are designed to strengthen each nation’s foreign investment review process.