Expanding the National Security review of foreign investments - Long-awaited regulations provide definitions, exceptions and some controversy

Eversheds Sutherland (US) LLP
Contact

Eversheds Sutherland (US) LLPThe Committee on Foreign Investment in the United States (“CFIUS”) has now released for public comment its long awaited proposed regulations (“Proposed Regulations”) to implement the landmark Foreign Investment Risk Review Modernization Act of 2018 (“FIRRMA”) in two separate releases – one covering investments in real estate (135 pages in length) and the other covering all other types of investments (184 pages in length). Comments on the Proposed Regulations are due by October 17, 2019, and can be submitted electronically. CFIUS also may hold a public teleconference during the comment period.

The Proposed Regulations are sweeping in nature and cover the authority of CFIUS to review, and the authority of the President to prohibit, suspend or mitigate minority foreign investments in US businesses that work with critical technology, critical infrastructure and sensitive personal data, as well as certain real estate near ports and other sensitive government installations. They also provide helpful transparency in some areas and clarify numerous points left unstated in FIRRMA. 
 
Plainly, the Proposed Regulations are carefully considered and the numerous definitions, limitations and exceptions set forth therein reflect a desire to limit the reach of CFIUS to situations that really involve national security. At the same time, however, the clear indication that only investments from a small number of “Excepted Countries” will be exempt from FIRRMA’s expanded coverage means that a wide range of transactions from around the world, including those from many US allies and partner countries, will be subject to scrutiny.  
 

The Proposed Regulations have implications for foreign governments, sovereign wealth funds and other state-owned enterprises, as well as private equity funds and  a wide range of business sectors, including aerospace and defense, energy, insurance and financial services, firms that collect personal data, real estate, and a range of evolving high-tech sectors in areas like artificial intelligence and autonomy. Both mature and fledging high-tech firms need to scrutinize the new law’s expanded coverage and consider whether to seek regulatory fixes or exemptions for their specific situations.

The Eversheds Sutherland team is reviewing the draft regulations and will provide more detailed analysis of key elements thereof as warranted. Please note the following key highlights as you review the Proposed Regulations and consider whether to file comments with CFIUS:

  • The Proposed Regulations Define CFIUS’ Expanded Jurisdiction Over Certain Minority Investments in US Businesses with Critical Technology, Critical Infrastructure and Sensitive Personal Data. Traditionally, CFIUS has had jurisdiction under the Defense Production Act, as amended, to review foreign acquisitions of “control” over any US businesses. As we wrote last summer when FIRRMA was enacted and reaffirm today, FIRRMA is “one of the broadest expansions of regulatory authority over business transactions in a generation.” Specifically, while retaining CFIUS’ traditional jurisdiction over “control” transactions, FIRRMA affords CFIUS additional jurisdiction over certain minority foreign investments in US businesses with specified involvement in critical technology, critical infrastructure and sensitive personal data. Such non-controlling investments are covered by FIRRMA where they afford the foreign acquirer certain access to information in the possession of, rights in, or involvement, in the decision making of such US businesses. The Proposed Regulations flesh out the scope of coverage of such critical  technology, critical infrastructure and sensitive personal data US businesses (called “TID” US businesses). In particular, please note the following:
    • Critical Technology. The definition mirrors that in FIRRMA and the Pilot Program Regulations, and makes clear that “emerging and foundational technologies” identified and made subject to export controls by the Department of Commerce  under the companion Export Control Reform Act of 2018 (“ECRA”)  would be considered “critical technologies” under the Proposed Regulations. Thus, to the extent the Department of Commerce adds certain aspects of technologies like artificial intelligence, biotechnology, data analytics to the Control List of “dual use technologies,” US companies working with such export controlled technologies would be subject to the expanded CFIUS jurisdiction.
    • Critical Infrastructure. For the first time, CFIUS has set forth a detailed list of what constitutes “critical infrastructure” for the purpose of foreign investment reviews, and also what particular “functions” related to each specific type of covered infrastructure would be subject to CFIUS’ jurisdiction (e.g., the ownership or operation of such assets, or the manufacture of specified systems or industrial resources). While the list covers certain defense related assets and infrastructure, it also covers specified infrastructure in a broad range of business sectors, including certain types of telecommunications services and information services, internet protocol networks, electrical energy generation, oil refining and crude oil storage facilities, liquefied natural gas import or export terminals, rail lines, interstate pipelines, certain carbon, alloy, and armor steel plate, water systems, certain financial market “utilities,” securities exchanges, or the like. 
      • Defense Industrial Base Elements as Critical Infrastructure. Also considered “critical infrastructure” are areas related to the defense industrial base, including “special metals” (where restrictions exist today on use of imported specialty metal products in federal procurements), certain industrial resources manufactured pursuant to Defense Department priority ratings (“DX rated orders”), and certain US businesses that are “single source,” “sole source,” or “strategic multisource” to the extent the US business has been notified of such status. The defense industrial base focus marks an apparent concern by the Trump Administration over foreign ownership in areas where the US industrial base is more limited (i.e., and, therefore, there is a need to focus on whether foreign owners would be prudent steward of these important assets).
    • Sensitive Personal Data. Recognizing that many companies collect some types of data on individuals, CFIUS has sought to carefully tailor its coverage in the Proposed Regulations in a variety of ways to only encompass information related to national security (i.e., that could be exploited by potential adversaries). Thus, for example, most data concerning a company’s employees has been excluded from the definition of sensitive personal data. Nevertheless, the Proposed Regulations, as drafted, will encompass certain minority foreign investments in a wide range of financial, insurance, and health care businesses.
      • Types of Covered US Businesses. Specifically, the Proposed Regulations apply to certain specified types of personal data, and only where the US business: a) targets or tailors its products or services to sensitive US government personnel or contractors; (b) maintains or collects such data on more than one million individuals; or c) where the US business has a “demonstrated business objective” to maintain or collect such data on over one million individuals and such data is an “integrated part of the US business’s primary products or services.”  As a practical matter, the “one million individuals” threshold will probably encompass many regional and national financial and insurance businesses with the specified types of personal data. 
  • ​Types of Covered Data. Subject to specific limitations in the Proposed Regulations, the types of sensitive personal data covered include, among other things: data used to analyze or determine an individual’s financial distress or hardship, certain data in consumer reports, data in certain types of insurance applications (health, long-term care, professional liability, mortgage or life insurance), data relating to physical mental or psychological health condition of an individual, genetic data, certain geolocation data, biometric enrollment data (e.g., facial, voice, retina/iris and palm/fingerprints), and security clearance information.  
  • The Proposed Regulations Define Covered Foreign Acquisitions of Real Estate Interests at US Ports and Near Military and Sensitive Installations. FIRRMA also afforded CFIUS the ability to review a foreign person’s purchase, lease or concession with respect to US real estate located at, or that will function as part of, an air or maritime port, or is in close proximity to a US military installation or other US government facilities or properties that are national security sensitive, or could reasonably afford a foreign person the ability to engage in intelligence collections or otherwise expose national security activities at such installations, facilities or properties. The Proposed Regulations flesh out the types of “covered real estate transactions” through offering a series of more specific definitions of  the types of “purchase,” “lease” and “concession” through which a foreign person is afforded certain “property rights” with respect to “covered real estate.”  It also establishes exceptions in certain situations for real estate in urbanized areas and urban clusters as well as single housing units. Of particular, note:
  • Types of Covered Real Estate. The Proposed Rule for the first time provides definitions in order to limit coverage to a set of important facilities, including specific types of airports (major passenger and cargo airports by volume as well as civil-military “joint use airports”) and maritime ports (the top 25 tonnage, container, and dry bulk ports as well as strategic seaports). It also provides a limiting definition of military facilities as well as a specific list of covered military installations that meets the definition (see Appendix A to the Proposed Regulations). 
    • The Proximity Rule for Military Installations. Foreign investments are covered where the real estate being acquired is in “close proximately” (i.e., one mile or less) to a military installation or, in the case of a shorter list of installations (e.g., army combat training centers in the continental United States, major range and test facility base activities, and certain other military ranges), an area less than 99 miles from the outer boundary of such military installation (but, where applicable, no more than 12 nautical miles seaward of the coastline of the United States).
  • ​​​Exemptions of Trustworthy Investors from “Excepted Countries.”  Bound to be controversial are provisions in the Proposed Regulations which exempt from CFIUS’ expanded jurisdiction certain “excepted investors” (as defined therein) from “excepted foreign states.”  The “excepted foreign states” are those that will be set forth on a list to be separately published by Treasury and are determined, by a super-majority of CFIUS voting member agencies,  to have established and be effectively utilizing “a robust process to assess foreign investments for national security risks” and to be coordinating with the United States on matters relating to investment security. The notice makes it clear that the initial list of excepted foreign states will be “limited” and may be added to over time. In effect, CFIUS has returned to a “white list” approach in the original Senate version of FIRRMA, which applies the expanded CFIUS rules to all countries other than those that are exempted, rather than only applying the new disciplines to those countries that warrant it on the basis of sustained pernicious investment practices. The selection of a limited number of countries undoubtedly will spark considerable consternation among US friends and allies left off the list.
  • Other Key Elements of the Proposed Regulations. The draft provisions include numerous other features that warrant consideration. A few salient ones are as follows:
  • Mandatory Filings – Foreign Governments. The acquisition of a substantial interest in a TID business (at least a 25% voting interest, direct or indirect) by a foreign person in which a foreign government has a substantial interest (at least a 49% voting interest, direct and indirect) requires the filing of a mandatory declaration. The thresholds for “substantial” interest bear scrutiny for potential investors, including in particular sovereign wealth funds considering significant investments in US entities.
  • Private Equity Fund Exemption. There is a detailed exemption for investments by traditional private equity funds managed exclusively by a US general partner, managing partner or the equivalent that meet certain criteria.
  • Treatment of Joint Ventures. The Proposed Regulations clarify that joint ventures involving the contribution of a US business to the venture are covered.
  • Use of Declarations vs. Notices. CFIUS establishes an abbreviated filing process that may be useful for certain transactions through a declaration that will be shorter in length and subject to a shorter 30 day review period, but may result in a number of responses (including that CFIUS will not make a determination unless a notice is subsequently filed).

[View source.]

Written by:

Eversheds Sutherland (US) LLP
Contact
more
less

Eversheds Sutherland (US) LLP on:

Readers' Choice 2017
Reporters on Deadline

"My best business intelligence, in one easy email…"

Your first step to building a free, personalized, morning email brief covering pertinent authors and topics on JD Supra:
*By using the service, you signify your acceptance of JD Supra's Privacy Policy.
Custom Email Digest
- hide

JD Supra Privacy Policy

Updated: May 25, 2018:

JD Supra is a legal publishing service that connects experts and their content with broader audiences of professionals, journalists and associations.

This Privacy Policy describes how JD Supra, LLC ("JD Supra" or "we," "us," or "our") collects, uses and shares personal data collected from visitors to our website (located at www.jdsupra.com) (our "Website") who view only publicly-available content as well as subscribers to our services (such as our email digests or author tools)(our "Services"). By using our Website and registering for one of our Services, you are agreeing to the terms of this Privacy Policy.

Please note that if you subscribe to one of our Services, you can make choices about how we collect, use and share your information through our Privacy Center under the "My Account" dashboard (available if you are logged into your JD Supra account).

Collection of Information

Registration Information. When you register with JD Supra for our Website and Services, either as an author or as a subscriber, you will be asked to provide identifying information to create your JD Supra account ("Registration Data"), such as your:

  • Email
  • First Name
  • Last Name
  • Company Name
  • Company Industry
  • Title
  • Country

Other Information: We also collect other information you may voluntarily provide. This may include content you provide for publication. We may also receive your communications with others through our Website and Services (such as contacting an author through our Website) or communications directly with us (such as through email, feedback or other forms or social media). If you are a subscribed user, we will also collect your user preferences, such as the types of articles you would like to read.

Information from third parties (such as, from your employer or LinkedIn): We may also receive information about you from third party sources. For example, your employer may provide your information to us, such as in connection with an article submitted by your employer for publication. If you choose to use LinkedIn to subscribe to our Website and Services, we also collect information related to your LinkedIn account and profile.

Your interactions with our Website and Services: As is true of most websites, we gather certain information automatically. This information includes IP addresses, browser type, Internet service provider (ISP), referring/exit pages, operating system, date/time stamp and clickstream data. We use this information to analyze trends, to administer the Website and our Services, to improve the content and performance of our Website and Services, and to track users' movements around the site. We may also link this automatically-collected data to personal information, for example, to inform authors about who has read their articles. Some of this data is collected through information sent by your web browser. We also use cookies and other tracking technologies to collect this information. To learn more about cookies and other tracking technologies that JD Supra may use on our Website and Services please see our "Cookies Guide" page.

How do we use this information?

We use the information and data we collect principally in order to provide our Website and Services. More specifically, we may use your personal information to:

  • Operate our Website and Services and publish content;
  • Distribute content to you in accordance with your preferences as well as to provide other notifications to you (for example, updates about our policies and terms);
  • Measure readership and usage of the Website and Services;
  • Communicate with you regarding your questions and requests;
  • Authenticate users and to provide for the safety and security of our Website and Services;
  • Conduct research and similar activities to improve our Website and Services; and
  • Comply with our legal and regulatory responsibilities and to enforce our rights.

How is your information shared?

  • Content and other public information (such as an author profile) is shared on our Website and Services, including via email digests and social media feeds, and is accessible to the general public.
  • If you choose to use our Website and Services to communicate directly with a company or individual, such communication may be shared accordingly.
  • Readership information is provided to publishing law firms and authors of content to give them insight into their readership and to help them to improve their content.
  • Our Website may offer you the opportunity to share information through our Website, such as through Facebook's "Like" or Twitter's "Tweet" button. We offer this functionality to help generate interest in our Website and content and to permit you to recommend content to your contacts. You should be aware that sharing through such functionality may result in information being collected by the applicable social media network and possibly being made publicly available (for example, through a search engine). Any such information collection would be subject to such third party social media network's privacy policy.
  • Your information may also be shared to parties who support our business, such as professional advisors as well as web-hosting providers, analytics providers and other information technology providers.
  • Any court, governmental authority, law enforcement agency or other third party where we believe disclosure is necessary to comply with a legal or regulatory obligation, or otherwise to protect our rights, the rights of any third party or individuals' personal safety, or to detect, prevent, or otherwise address fraud, security or safety issues.
  • To our affiliated entities and in connection with the sale, assignment or other transfer of our company or our business.

How We Protect Your Information

JD Supra takes reasonable and appropriate precautions to insure that user information is protected from loss, misuse and unauthorized access, disclosure, alteration and destruction. We restrict access to user information to those individuals who reasonably need access to perform their job functions, such as our third party email service, customer service personnel and technical staff. You should keep in mind that no Internet transmission is ever 100% secure or error-free. Where you use log-in credentials (usernames, passwords) on our Website, please remember that it is your responsibility to safeguard them. If you believe that your log-in credentials have been compromised, please contact us at privacy@jdsupra.com.

Children's Information

Our Website and Services are not directed at children under the age of 16 and we do not knowingly collect personal information from children under the age of 16 through our Website and/or Services. If you have reason to believe that a child under the age of 16 has provided personal information to us, please contact us, and we will endeavor to delete that information from our databases.

Links to Other Websites

Our Website and Services may contain links to other websites. The operators of such other websites may collect information about you, including through cookies or other technologies. If you are using our Website or Services and click a link to another site, you will leave our Website and this Policy will not apply to your use of and activity on those other sites. We encourage you to read the legal notices posted on those sites, including their privacy policies. We are not responsible for the data collection and use practices of such other sites. This Policy applies solely to the information collected in connection with your use of our Website and Services and does not apply to any practices conducted offline or in connection with any other websites.

Information for EU and Swiss Residents

JD Supra's principal place of business is in the United States. By subscribing to our website, you expressly consent to your information being processed in the United States.

  • Our Legal Basis for Processing: Generally, we rely on our legitimate interests in order to process your personal information. For example, we rely on this legal ground if we use your personal information to manage your Registration Data and administer our relationship with you; to deliver our Website and Services; understand and improve our Website and Services; report reader analytics to our authors; to personalize your experience on our Website and Services; and where necessary to protect or defend our or another's rights or property, or to detect, prevent, or otherwise address fraud, security, safety or privacy issues. Please see Article 6(1)(f) of the E.U. General Data Protection Regulation ("GDPR") In addition, there may be other situations where other grounds for processing may exist, such as where processing is a result of legal requirements (GDPR Article 6(1)(c)) or for reasons of public interest (GDPR Article 6(1)(e)). Please see the "Your Rights" section of this Privacy Policy immediately below for more information about how you may request that we limit or refrain from processing your personal information.
  • Your Rights
    • Right of Access/Portability: You can ask to review details about the information we hold about you and how that information has been used and disclosed. Note that we may request to verify your identification before fulfilling your request. You can also request that your personal information is provided to you in a commonly used electronic format so that you can share it with other organizations.
    • Right to Correct Information: You may ask that we make corrections to any information we hold, if you believe such correction to be necessary.
    • Right to Restrict Our Processing or Erasure of Information: You also have the right in certain circumstances to ask us to restrict processing of your personal information or to erase your personal information. Where you have consented to our use of your personal information, you can withdraw your consent at any time.

You can make a request to exercise any of these rights by emailing us at privacy@jdsupra.com or by writing to us at:

Privacy Officer
JD Supra, LLC
10 Liberty Ship Way, Suite 300
Sausalito, California 94965

You can also manage your profile and subscriptions through our Privacy Center under the "My Account" dashboard.

We will make all practical efforts to respect your wishes. There may be times, however, where we are not able to fulfill your request, for example, if applicable law prohibits our compliance. Please note that JD Supra does not use "automatic decision making" or "profiling" as those terms are defined in the GDPR.

  • Timeframe for retaining your personal information: We will retain your personal information in a form that identifies you only for as long as it serves the purpose(s) for which it was initially collected as stated in this Privacy Policy, or subsequently authorized. We may continue processing your personal information for longer periods, but only for the time and to the extent such processing reasonably serves the purposes of archiving in the public interest, journalism, literature and art, scientific or historical research and statistical analysis, and subject to the protection of this Privacy Policy. For example, if you are an author, your personal information may continue to be published in connection with your article indefinitely. When we have no ongoing legitimate business need to process your personal information, we will either delete or anonymize it, or, if this is not possible (for example, because your personal information has been stored in backup archives), then we will securely store your personal information and isolate it from any further processing until deletion is possible.
  • Onward Transfer to Third Parties: As noted in the "How We Share Your Data" Section above, JD Supra may share your information with third parties. When JD Supra discloses your personal information to third parties, we have ensured that such third parties have either certified under the EU-U.S. or Swiss Privacy Shield Framework and will process all personal data received from EU member states/Switzerland in reliance on the applicable Privacy Shield Framework or that they have been subjected to strict contractual provisions in their contract with us to guarantee an adequate level of data protection for your data.

California Privacy Rights

Pursuant to Section 1798.83 of the California Civil Code, our customers who are California residents have the right to request certain information regarding our disclosure of personal information to third parties for their direct marketing purposes.

You can make a request for this information by emailing us at privacy@jdsupra.com or by writing to us at:

Privacy Officer
JD Supra, LLC
10 Liberty Ship Way, Suite 300
Sausalito, California 94965

Some browsers have incorporated a Do Not Track (DNT) feature. These features, when turned on, send a signal that you prefer that the website you are visiting not collect and use data regarding your online searching and browsing activities. As there is not yet a common understanding on how to interpret the DNT signal, we currently do not respond to DNT signals on our site.

Access/Correct/Update/Delete Personal Information

For non-EU/Swiss residents, if you would like to know what personal information we have about you, you can send an e-mail to privacy@jdsupra.com. We will be in contact with you (by mail or otherwise) to verify your identity and provide you the information you request. We will respond within 30 days to your request for access to your personal information. In some cases, we may not be able to remove your personal information, in which case we will let you know if we are unable to do so and why. If you would like to correct or update your personal information, you can manage your profile and subscriptions through our Privacy Center under the "My Account" dashboard. If you would like to delete your account or remove your information from our Website and Services, send an e-mail to privacy@jdsupra.com.

Changes in Our Privacy Policy

We reserve the right to change this Privacy Policy at any time. Please refer to the date at the top of this page to determine when this Policy was last revised. Any changes to our Privacy Policy will become effective upon posting of the revised policy on the Website. By continuing to use our Website and Services following such changes, you will be deemed to have agreed to such changes.

Contacting JD Supra

If you have any questions about this Privacy Policy, the practices of this site, your dealings with our Website or Services, or if you would like to change any of the information you have provided to us, please contact us at: privacy@jdsupra.com.

JD Supra Cookie Guide

As with many websites, JD Supra's website (located at www.jdsupra.com) (our "Website") and our services (such as our email article digests)(our "Services") use a standard technology called a "cookie" and other similar technologies (such as, pixels and web beacons), which are small data files that are transferred to your computer when you use our Website and Services. These technologies automatically identify your browser whenever you interact with our Website and Services.

How We Use Cookies and Other Tracking Technologies

We use cookies and other tracking technologies to:

  1. Improve the user experience on our Website and Services;
  2. Store the authorization token that users receive when they login to the private areas of our Website. This token is specific to a user's login session and requires a valid username and password to obtain. It is required to access the user's profile information, subscriptions, and analytics;
  3. Track anonymous site usage; and
  4. Permit connectivity with social media networks to permit content sharing.

There are different types of cookies and other technologies used our Website, notably:

  • "Session cookies" - These cookies only last as long as your online session, and disappear from your computer or device when you close your browser (like Internet Explorer, Google Chrome or Safari).
  • "Persistent cookies" - These cookies stay on your computer or device after your browser has been closed and last for a time specified in the cookie. We use persistent cookies when we need to know who you are for more than one browsing session. For example, we use them to remember your preferences for the next time you visit.
  • "Web Beacons/Pixels" - Some of our web pages and emails may also contain small electronic images known as web beacons, clear GIFs or single-pixel GIFs. These images are placed on a web page or email and typically work in conjunction with cookies to collect data. We use these images to identify our users and user behavior, such as counting the number of users who have visited a web page or acted upon one of our email digests.

JD Supra Cookies. We place our own cookies on your computer to track certain information about you while you are using our Website and Services. For example, we place a session cookie on your computer each time you visit our Website. We use these cookies to allow you to log-in to your subscriber account. In addition, through these cookies we are able to collect information about how you use the Website, including what browser you may be using, your IP address, and the URL address you came from upon visiting our Website and the URL you next visit (even if those URLs are not on our Website). We also utilize email web beacons to monitor whether our emails are being delivered and read. We also use these tools to help deliver reader analytics to our authors to give them insight into their readership and help them to improve their content, so that it is most useful for our users.

Analytics/Performance Cookies. JD Supra also uses the following analytic tools to help us analyze the performance of our Website and Services as well as how visitors use our Website and Services:

  • HubSpot - For more information about HubSpot cookies, please visit legal.hubspot.com/privacy-policy.
  • New Relic - For more information on New Relic cookies, please visit www.newrelic.com/privacy.
  • Google Analytics - For more information on Google Analytics cookies, visit www.google.com/policies. To opt-out of being tracked by Google Analytics across all websites visit http://tools.google.com/dlpage/gaoptout. This will allow you to download and install a Google Analytics cookie-free web browser.

Facebook, Twitter and other Social Network Cookies. Our content pages allow you to share content appearing on our Website and Services to your social media accounts through the "Like," "Tweet," or similar buttons displayed on such pages. To accomplish this Service, we embed code that such third party social networks provide and that we do not control. These buttons know that you are logged in to your social network account and therefore such social networks could also know that you are viewing the JD Supra Website.

Controlling and Deleting Cookies

If you would like to change how a browser uses cookies, including blocking or deleting cookies from the JD Supra Website and Services you can do so by changing the settings in your web browser. To control cookies, most browsers allow you to either accept or reject all cookies, only accept certain types of cookies, or prompt you every time a site wishes to save a cookie. It's also easy to delete cookies that are already saved on your device by a browser.

The processes for controlling and deleting cookies vary depending on which browser you use. To find out how to do so with a particular browser, you can use your browser's "Help" function or alternatively, you can visit http://www.aboutcookies.org which explains, step-by-step, how to control and delete cookies in most browsers.

Updates to This Policy

We may update this cookie policy and our Privacy Policy from time-to-time, particularly as technology changes. You can always check this page for the latest version. We may also notify you of changes to our privacy policy by email.

Contacting JD Supra

If you have any questions about how we use cookies and other tracking technologies, please contact us at: privacy@jdsupra.com.

- hide

This website uses cookies to improve user experience, track anonymous site usage, store authorization tokens and permit sharing on social media networks. By continuing to browse this website you accept the use of cookies. Click here to read more about how we use cookies.