McDermott Will & Emery

The US Treasury Department issued proposed regulations that would “comprehensively” implement legislation passed last year, FIRRMA, to broaden the jurisdiction of CFIUS. Interested parties have until October 17 to file comments that could influence how Treasury finalizes the rules.


On September 17, 2019, the US Treasury Department (Treasury) issued proposed regulations that would “comprehensively” implement legislation passed last year, the Foreign Investment Risk Review Modernization Act of 2018 (FIRRMA). This would broaden the jurisdiction of the Committee on Foreign Investment in the United States (CFIUS) to review foreign investments in the United States to determine their impact on US national security. FIRRMA expanded the role of CFIUS to review non-controlling foreign investments in US businesses and foreign investments in certain US real estate. Interested parties have until October 17, 2019, to file comments that could influence how Treasury finalizes the rules, which FIRRMA requires be completed by February 13, 2020.

Under prior legislation, CFIUS has had authority to review transactions that could result in control of a US business by a foreign person. FIRRMA expanded the authority of CFIUS to review certain foreign non-controlling investments and real estate transactions that previously fell outside its jurisdiction. A CFIUS review of any transaction may result in the transaction being cleared to proceed without revision, cleared to proceed with mitigating measures to address any national security issues, or blocked on account of unresolved national security issues. The new rules would provide important clarity and predictability for the business community concerning how CFIUS will treat foreign investment transactions.

Although FIRRMA provided for CFIUS to establish a filing fee requirement for notifications and reviews, the new proposed rules do not impose a filing fee. Instead, Treasury has indicated that it will publish a separate proposed rule regarding fees at a later date.

The proposed rules can be accessed here: Proposed-FIRRMA-Regulations-Part-800 and Proposed-FIRRMA-Regulations-Part-802. CFIUS guidance on the proposed rules can be accessed here: Proposed-FIRRMA-Regulations-FACT-SHEET and Proposed-FIRRMA-Regs-FAQs. Following is a summary of key provisions.

Rules for ‘Covered Investments’

Prior to FIRRMA, CFIUS had authority to review controlling investments (primarily acquisitions) in US businesses by foreign persons, called “covered transactions.” FIRRMA expanded CFIUS’s jurisdiction to authorize reviews of certain non-controlling investments by foreign persons in a US business if (1) such investment affords the foreign person

  • access to material nonpublic technical information;
  • membership, observer, or nomination rights for the board of directors or equivalent; or
  • involvement in substantive decision-making regarding
  • ouse, development, acquisition, safekeeping, or release of “sensitive personal data” of US citizens;
  • ouse, development, acquisition, or release of “critical technologies”; or
  • omanagement, operation, manufacture, or supply of “critical infrastructure”;

and (2) if the US business is one that

  • produces, designs, tests, manufactures, fabricates or develops one or more “critical technologies”;
  • owns, operates, manufactures, supplies or services “critical infrastructure”; or
  • maintains or collects “sensitive personal data” of US citizens that may be exploited in a manner that threatens US national security.

In the first of two sets of proposed new rules, Treasury will amend its existing Title 31, Part 800 of the Code of Federal Regulations (CFR) to define more clearly the highlighted terms above. The new rules would name such a non-controlling investment subject to CFIUS jurisdiction a “covered investment,” rename a foreign controlling investment in a US business a “covered control transaction” and retain the old term “covered transaction” to cover both of the foregoing as well as any transaction intended to evade or circumvent the CFIUS law.

Under the new rules, CFIUS reviews of most covered investments would continue to be triggered by parties voluntarily notifying CFIUS of the transaction, by filing either a full notice or a short-form “declaration” on a five-page form. However, pursuant to FIRRMA, the rules will make declarations mandatory for certain covered transactions where a foreign government has a “substantial interest” or where the US business involves critical technologies. For the latter, Treasury already has established a “pilot program” mandating declarations or notices for such covered investments, and the new rules would not at this time modify the pilot program.

Neither FIRRMA nor the proposed rules establish a “white list” or “black list” to treat distinctly any specified countries or nationals thereof. However, the new rules would create an exception from “covered investments” (but not from “covered control transactions”) for foreign persons that qualify as “excepted investors” (i.e., investors tied to a country that CFIUS determines to be an “excepted foreign state” based on that country’s maintenance and compliance with certain laws and practices in furtherance of national security protection).

Rules for Certain Real Estate Transactions

In a second set of proposed rules creating a new Part 802 of CFR Title 31, Treasury would implement the provisions of FIRRMA that authorize CFIUS to review certain real estate transactions. Specifically, FIRRMA subjected to CFIUS jurisdiction the lease by, or concession to, a foreign person of private or public real estate that:

  • is, is located within or will function as part of an air or maritime port;
  • is in “close proximity” to (i.e., within one mile of) a US military installation or other sensitive US government property;
  • could provide the foreign person the ability to collect intelligence on activities at such US government property; or
  • could expose national security activities at such US government property to foreign surveillance risk.

An appendix to the proposed rules lists by name and location relevant military installations and incorporates lists of relevant airports and maritime ports published by the US Department of Transportation.

The rules do not impose a mandatory filing with CFIUS for covered real estate transactions; rather, parties to covered real estate transactions may voluntarily file a notice or short-form declaration to seek review and clearance by CFIUS.

As in the case of “covered investments,” the new CFIUS real estate rules create exceptions from coverage for certain foreign persons defined as “excepted real estate investors” if they have requisite ties to certain countries that CFIUS identifies as “excepted real estate foreign states” and if the persons are found to comply with certain national security-related laws of those countries. The new rules provide other exceptions from the scope of covered real estate transactions for single housing units, real estate in an “urbanized area” and office space in multi-unit commercial office buildings.

Considerations for Parties to Covered Transactions and Covered Real Estate Transactions

FIRRMA, which passed with large bipartisan congressional and executive branch support, leaves a wide range of discretion for CFIUS. Those contemplating transactions involving foreign investment in the United States should carefully consider the scope of the new CFIUS rules, in conjunction with the political and practical dimensions of US national security concerns, to determine if and/or how the new rules may apply. From these perspectives, interested parties should also consider submitting comments prior to the comment deadline of October 17 to influence how Treasury finalizes the rules.

CFIUS will continue for now its pilot program mandating notification and CFIUS reviews for certain covered transactions involving US businesses with critical technologies in one of 27 specified industries. Accordingly, parties to such transactions will need to continue to adhere to the interim regulations issued by CFIUS for this program in October 2018 (see McDermott On the Subject on CFIUS Pilot Program).