By Jing Li, Ning Zhang, Yiqi Wang
On August 13, 2018, President Donald Trump signed the Foreign Investment Risk Review Modernization Act of 2018 (“FIRRMA”), codifying certain regulations and practices of the reviews of foreign investments by the Committee on Foreign Investment in the United States (“CFIUS”), as well as expanding CFIUS’ jurisdiction and strengthening its review power. A reform of the CFIUS review process has long been discussed and debated over the past decade.
In order to assist our readers in better understanding the key provisions of FIRRMA, and how it changes or will change CFIUS’s practices, we have prepared the following chart for your reference:
|
Items |
Pre-reform |
Post-reform |
Subsequent Clarifications |
Effectiveness |
|
|
CFIUS Jurisdiction |
Non-controlling Investments |
“Covered transactions”, i.e., transactions that could result in foreign control of a U.S. business |
Significant expansion to cover transactions that are not “controlling” investments, including non-controlling investments by specific countries in which the foreign investor is investing in a U.S. business that involves “critical technologies,” “critical infrastructure,” or “sensitive personal data of U.S. citizens.” |
Subsequent CFIUS regulations will specify these specific countries. |
Up to 18 months |
|
Real Estate Transactions |
CFIUS reviews transactions where a foreign purchaser seeks to purchase real estate which may result in threats to national security, such as a property housing a sensitive person or a property is in proximity to sensitive locations. |
CFIUS has jurisdiction over leases and other real estate transactions, including purchases of vacant land. However, certain real estate transactions such as purchases of single housing units are excluded. |
Subsequent CFIUS regulations may further narrow the scope of these provisions to investors from certain countries. |
Further rulemaking required |
|
|
Sensitive personal data |
In practice, access to bulk personal data of U.S. citizens is considered a national security concern. |
Codification of CFIUS’s jurisdiction over transactions with access to sensitive personal data by foreign parties |
Specifics to be defined in CFIUS regulations |
Up to 18 months |
|
|
Investment funds |
Historically, CFIUS treated such transactions as less concerning |
Indirect investments, if the below qualifiers are met, will not fall into CFIUS’s jurisdiction: (1) the fund is managed by a U.S. general partner or a U.S. managing member (or equivalent); (2) the relevant advisory board or committee does not approve, disapprove, or control the fund’s investment decisions; (3) the foreign person does not otherwise have the ability to control the fund; and (4) the foreign person does not have access to material nonpublic technical information as a result of its advisory board or committee representation. |
|
Up to 18 months |
|
|
CFIUS Procedure |
Review Timeline |
30-day initial review |
Initial review period is extended to 45 days |
|
Immediate |
|
If necessary, a further 45-day statutory investigation |
A 15-day extension of investigation period is allowed in extraordinary circumstances
|
Extraordinary circumstances are to be defined in CFIUS regulations. |
Further rulemaking required |
||
|
Declaration Process |
Filing is voluntary |
Parties may choose to submit a short-form filing (declaration) in order to obtain CFIUS’s review of a transaction. CFIUS is required to respond within 30 days (a full written notice or clearance).
For certain transactions, mandatory clarifications are required to be submitted at least 45 days before closing. Other filings will remain voluntary. |
|
Up to 18 months |
|
|
Filing Fees |
None |
Up to 1% of transaction value, capped at $300,000 |
|
Further rulemaking required |
|
FIRRMA will place the burden on foreign persons making investments in the U.S. due to the increase in transaction costs and delays in completing deals. Nevertheless, we believe that the U.S. will remain an attractive market for foreign investors. We encourage foreign investors to seek professional guidance and allow extra time and budget additional funds for transactions that may be deemed sensitive in the U.S. The depth of FIRRMA’s impact on the trends of foreign investments in the U.S. remains uncertain, until more statistics are collected. However, FIRRMA will require CFIUS to provide details regarding the parties and the results of each case. We predict that the increased transparency of the CFIUS review process will help legal professionals in better servicing foreign clients in this regard.
CKR will continue to monitor developments surrounding FIRRMA. Should you require further information on this or other CFIUS-related matters, feel free to contact our New York-based corporate partners Jeffrey A. Rinde (jrinde@ckrlaw.com) and Jing Li (jli@ckrlaw.com).
DISCLAIMER: This article is not intended to provide legal or tax advice, and no legal, tax or business decision should be made based on its contents. This article may be considered attorney advertising in some jurisdictions.