On November 10, 2018, the Committee on Foreign Investment in the United States (“CFIUS”) began implementation of significant provisions of the Foreign Investment Risk Review Modernization Act (“FIRRMA”), starting with the issuance by the Department of the Treasury of interim regulations implementing FIRRMA’s requirements. As we previously reported, President Trump signed FIRRMA into law in August. FIRRMA is intended to strengthen and expand the reach of CFIUS, giving it the ability to review an increasing number of transactions involving the investment of foreign persons in the United States.

The interim regulations initiate a “pilot program,” which will establish some of the more significant aspects of the expanded authority granted to CFIUS by FIRRMA. The interim regulations make two important changes to the CFIUS process. First, the regulations expand the scope of CFIUS’s jurisdiction to cover non-controlling foreign investments in U.S. businesses that develop or produce critical technologies used in 27 key U.S. industry sectors (“pilot program industries”). Second, the regulations require parties to notify CFIUS of the acquisition of a controlling (and certain non-controlling) foreign investments in these U.S. businesses. This marks the first time parties must notify CFIUS of certain transactions. Failure to do so could trigger penalties for the party, which may range up to the value of the transaction.

The precise scope of the “critical technologies” covered by the regulations is still being developed. At this point, however, the regulations identify critical technologies as including (i) defense articles or defense services contained in the United States Munitions List, (ii) certain items on the Commerce Control List, (iii) certain nuclear-related equipment, parts and components, materials, software, technology, and facilities, (iv) select agents and toxins, and (v) emerging and foundational technologies. Although the scope of the term “emerging and foundational technologies” remains to be defined, the Commerce Department has issued an advance Notice of Proposed Rulemaking that defines “emerging technologies.” Commerce intends to seek comment on the definition of the term “foundational technologies” in the future.

While the definition of “critical technologies” is still being developed, the interim regulations clearly lay out the 27 key U.S. industries covered by the new law. The industries covered by the interim regulations include such major U.S. economic sectors as biotechnology and nanotechnology R&D; telecom, radio, and wireless manufacturing; certain alumina refining, manufacturing, smelting, and alloying activities; telecom, radio, TV, and wireless manufacturing; semiconductor, computer, and computer storage manufacturing; nuclear power generation; petrochemical, power transformer, turbine and generator set unit, and storage battery manufacturing. The full list can be found in the interim regulations.

Finally, the expansion of CFIUS’s jurisdiction to cover non-controlling direct or indirect investment by a foreign person in a pilot program U.S. business is a significant expansion of CFIUS’s review authority. Parties to a transaction must notify CFIUS of a non-controlling investment by a foreign person in a pilot program U.S. business if the investment provides the foreign person with (1) access to “material nonpublic technical information” in the pilot program U.S. business’s possession; (2) membership, observer, or nomination rights on the pilot program U.S. business’s board; or (3) any involvement, other than through voting of shares, in the U.S. business’s substantive decision-making regarding the use, development, acquisition, or release of critical technology. In this context, material nonpublic technical information means information that is not available in the public domain, and is necessary to design, fabricate, develop, test, produce, or manufacture critical technologies, including processes, techniques, or methods. It does not include publicly-available information or non-public financial information regarding the performance of an entity.