On October 10, 2018, the U.S. Department of the Treasury released temporary regulations expanding the authority of the Committee on Foreign Investment in the United States (CFIUS). This important first step comes after the passage of the Foreign Investment Risk Review Modernization Act (FIRRMA), enacted this past August, which laid the initial framework for the expansion of the committee’s authority. (See Trump and Trade Update dated August 16, 2018.)

FIRRMA, which passed as part of the broader John S. McCain National Defense Authorization Act for Fiscal Year 2019, received bi-partisan support as congressional leaders aim to address national security concerns within the context of foreign investment activities in the United States that have historically fallen outside of the committee’s purview.

CFIUS, an interagency body that is led by the Department of Treasury, historically reviewed investment deals that involved acquiring foreign control of a U.S. entity. FIRRMA expanded this authority to now include the mandate that the committee review certain investments in U.S. industries regardless of whether they result in a controlling stake. Treasury Secretary Steven Mnuchin announced in a press release: “These temporary regulations address specific risks to U.S. critical technology while informing the department of final regulations that will fully implement FIRRMA.”

Pilot Program Overview

In a fact sheet released by the Treasury Department, the pilot program implements certain authorities provided by FIRRMA to now “include review of certain non-controlling investments” by foreign persons in key U.S. industries and also “makes effective FIRRMA’s mandatory declarations provisions for transactions that fall within the specific scope of the pilot program.”

Other important aspects of the pilot program include:

  • The program is not country specific, but applies to all foreign persons engaging in investment with certain U.S. industries.
  • The program applies to any U.S. business that “produces, designs, tests, manufactures, fabricates, or develops a critical technology …” as defined by FIRRMA along with “emerging and foundational technologies” controlled pursuant to the Export Control Reform Act of 2018.
  • The program applies to 27 industries identified by specific North American Industry Classification System (NAICS) codes that the U.S. government has evaluated and “for which certain strategically motivated foreign investment could pose a threat to U.S. technological superiority and national security.” This full list can be found in Annex A to Part 801 of the Federal Register notice.
  • Mandatory declarations, or abbreviated notices not exceeding five pages in length, for transactions involving critical technologies must be filed within 45 days prior to a transaction’s closure date or risk a civil monetary fine up to the value of the transaction. A party may also choose to file under the standard procedures instead of through a declaration.

The full pilot program regulations can be found in the October 11, 2018 Federal Register.

The pilot program is due to begin on November 10, 2018, after a brief public comment period and will likely remain in effect until February 2020, when the final FIRRMA provisions are implemented.