The foreign investment review landscape in the United States has, over the course of the past year, grown more complicated as new regulations under the Foreign Investment Risk Review Modernization Act (FIRRMA) have been implemented and new enforcement tools and resources have been allocated.
Major Developments in 2020
New regulations under FIRRMA were implemented in February 2020 that
- expanded the jurisdiction of the Committee on Foreign Investment in the United States (CFIUS) to include certain non-controlling investments in US businesses that have activities involving critical technologies, critical infrastructure, or maintain sensitive personal data of US persons;
- created new mandatory filing requirements for certain investments involving critical technologies or where a foreign government has a substantial interest in the foreign investor; and
- provided CFIUS jurisdiction over pure real-estate transactions where the target real-estate is located in proximity to sensitive U.S. government or military facilities.
The new regulations coincided with the creation of a new enforcement bureau within CFIUS and the provision of significant additional staff and other resources for CFIUS to utilize in investigating transactions that are not notified to it.
In May 2020, CFIUS imposed, for the first time, filing fees for full notifications to the Committee. The fees are tied to a graduated schedule with potential fees ranging from $0 to $300,000, depending on the overall valuation of the transaction.
Finally, in October 2020, CFIUS’ mandatory filing requirements that were established in February 2020 were modified such that CFIUS abandoned the requirement that the U.S.
business operate in specified industries in favor of an analysis of whether the technologies or products developed, manufactured, or tested by the U.S. business would require an export license to the foreign investor or certain entities in its ownership chain.
All of these developments together significantly expanded CFIUS’ jurisdiction and provided it with powerful new enforcement tools. CFIUS has, for example, already begun utilizing its increased enforcement resources to identify, review, and, if necessary, mitigate, non-notified transactions that it believes pose national security concerns.
Outlook under the Biden Administration
While the new Biden Administration is yet to announce formal foreign investment policies, approaches, or initiatives, changes in administration typically do not have a major impact on CFIUS priorities or approaches to foreign investment reviews. The lack of impact is, at least in part, due to the fact that CFIUS is largely governed by career civil servants and not subject to the vagaries of political appointees.
The wide-spread expectation, therefore, is that the impact of the new administration on foreign investment reviews in the United States will be minimal. Thus, CFIUS will, in all likelihood, continue to focus on the technology sector, particularly emerging technologies, as well as critical infrastructure, and personal data. The Department of Commerce is also expected to continue its efforts to implement new rules identifying certain emerging and foundational technologies that will have a direct impact on what transactions are subject to CFIUS’ jurisdiction and will be of interest to it.
CFIUS will also likely maintain its focus on Chinese investments as well as any other attempts by China, Russia, or other non-allied nations to target U.S. businesses involved in critical or emerging technologies or infrastructure, or those that are suffering financial distress as a result of COVID-19. In addition, CFIUS will continue to scrutinize investments related to an effective U.S. response to COVID-19 and any future pandemics, such as personal protective equipment, ventilators, vaccines, treatments or testing products.
Given the increased jurisdiction of CFIUS and resources devoted to enforcement, parties considering foreign investment in the United States are encouraged to evaluate potential CFIUS implications as early as possible and, if necessary, lawful mechanisms to structure the transaction so as to mitigate potential CFIUS risk.