U.S. Department Of The Treasury Publishes Final Rule Modifying The Mandatory CFIUS Filing Requirements For Critical Technology Companies



On September 15, 2020, the U.S. Department of the Treasury issued a final rule modifying the mandatory filing requirements associated with reviews conducted by the Committee on Foreign Investment in the United States (CFIUS) of certain foreign investments in U.S. businesses that engage with “critical technologies.” The final rule will become effective on October 15, 2020. 

As previewed in our May 26, 2020 client alert, the final rule imposes a CFIUS filing requirement on certain foreign investments in U.S. businesses where a “U.S. regulatory authorization” would be required for the export, reexport, transfer (in-country), or retransfer of the U.S. business’s critical technology to any foreign person that:

  • could “control” such U.S. business as a result of the transaction;
  • is directly acquiring an interest that is a “covered investment” in such U.S. business (e.g., board seat/observer, rights to certain information, or involvement in substantive decisionmaking on certain topics, all as described here); 
  • has a direct investment in such U.S. business and their rights change in a way that could result in a covered transaction;
  • individually, or as part of a group of foreign persons, will hold a direct or indirect voting interest of 25 percent or more as a result of the transaction, subject to special calculation rules; or
  • is a party to any transaction, transfer, agreement, or arrangement designed or intended to evade or circumvent CFIUS jurisdiction.

Note that this new rule will abandon the test, first imposed under the CFIUS Pilot Program, that turned in part on the North American Industry Classification System, or NAICS. 

The term “U.S. regulatory authorization” means a license or other approval issued by the U.S. Departments of State, Commerce, or Energy and the Nuclear Regulatory Commission.

The foreign person’s principal place of business (in the case of entities) or nationality (for individuals) will determine if a filing is required without regard to any exemptions and exceptions under the International Traffic in Arms Regulations or Export Administration Regulations (EAR) that would authorize technology transfer to the foreign person, except in certain situations under EAR License Exceptions ENC (encryption), TSU (technology and software unrestricted) and STA (strategic trade authorization).

Importantly, the final rule clarifies that for a U.S. business to be “eligible” for these exceptions from a mandatory CFIUS filing, it must actually satisfy requirements imposed by the EAR that must be completed prior to export—even if no export is to occur. 

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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