President Trump has signed into law the Foreign Investment Risk Review Modernization Act (FIRRMA) as part of the National Defense Authorization Act for Fiscal Year 2019 (Title XVII of the NDAA). The FIRRMA expands the jurisdiction of the Committee on Foreign Investment in the United States (CFIUS) to address national security concerns over foreign exploitation of certain investment structures that traditionally have fallen outside of CFIUS jurisdiction. Additionally, FIRRMA modernizes CFIUS’s processes to better enable timely and effective reviews of covered transactions.
CFIUS is an interagency committee authorized to review certain transactions involving foreign investment in the United States in order to determine the effect of such transactions on the national security of the United States. CFIUS’s authority was last updated more than a decade ago and its jurisdiction has remained unchanged in the 30 years since Congress first passed the Exon-Florio Amendment, which created Section 721 of the Defense Production Act of 1950, the statutory foundation of CFIUS for the review of certain foreign investment transactions in the United States. A generally bipartisan effort was undertaken by Congress earlier this year to update and revise the CFIUS process since both the nature of foreign investments in the United States and the level of concern over national security issues have changed in recent years.
Certain provisions of FIRRMA take effect immediately while others, including some related to the expanded scope of CFIUS, will take effect at a later date. The Department of the Treasury and the chairperson of CFIUS will issue interim regulations and guidance at a later date. In the meantime, parties should continue to notify transactions for CFIUS review as provided in CFIUS’s current regulations. Until more formal regulations and guidance are issued, Treasury has provided the following summary of key provisions of FIRRMA:
- Covered transactions: Broadens the purview of CFIUS by explicitly adding four new types of covered transactions: (1) a purchase, lease or concession by or to a foreign person of real estate located in proximity to sensitive government facilities; (2) “other investments” in certain U.S. businesses that afford a foreign person access to material nonpublic technical information in the possession of the U.S. business, membership on the board of directors, or other decision-making rights, other than through voting of shares; (3) any change in a foreign investor’s rights resulting in foreign control of a U.S. business or an “other investment” in certain U.S. businesses; and (4) any other transaction, transfer, agreement or arrangement designed to circumvent CFIUS jurisdiction.
- Declarations: Provides for an abbreviated filing or “light filing” process through a new “declarations” procedure that could result in shorter review timelines. It also allows CFIUS some discretion to require parties to file with CFIUS before closing a transaction.
- Review period: Expands CFIUS’s review period from 30 to 45 days and allows an investigation to be extended for an additional 15-day period under “extraordinary circumstances.”
- Mitigation: Strengthens requirements on the use of mitigation agreements, including the addition of compliance plans to inform the use of such agreements.
- Special hiring authority and funding: Grants special hiring authority for CFIUS and establishes a fund for collection of new CFIUS filing fees.
- Effective date and pilot programs: Delays the applicability of some of the bill’s most significant provisions until either (1) 18 months following enactment of FIRRMA, or (2) 30 days after the secretary of the Treasury publishes in the Federal Register a determination that the necessary regulations, organizational structure, personnel and other resources are in place to administer those provisions, whichever is sooner. This section also authorizes CFIUS to conduct pilot programs to implement any authority provided under this bill.
As previously noted, many of these provisions will be implemented only after a formal rulemaking process in which interested parties may comment on any proposed updates and revisions to the CFIUS regulations (31 C.F.R. Part 800). However, parties currently preparing or considering filings should note that one key provision effective as of August 13, 2018, is the extension of the initial review period after formally filing a CFIUS notification from 30 days to 45 days.