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CFIUS: New Guidelines Expand CFIUS Scrutiny

CFIUS stands for “Committee on Foreign Investment in the U.S.” Under the US law, the US president has the authority to examine foreign investments (takeovers, mergers and new acquisitions) on a case-by-case basis. He can then approve or deny them if they may lead to foreign control and endanger US national security. The President can also prohibit relevant investments.
On October 15, 2020, after the consultation by the US Treasury Department, new guidelines were established, altering the current mandatory Committee on Foreign Investments (“CFIUS”) filing requirements. Affected by this amendment are foreign direct investments into US businesses with a ‘critical technology’ focus. These new regulations are in line with the efforts of the US administration to address numerous perceived national security-related trade and investment issues with foreign countries. These are some of the new guidelines to be aware of.
Under the new rules, additional CFIUS scrutiny is now in place. CFIUS will be able to review a larger number of new transactions and acquisitions for national security concerns.

Before February 2020, CFIUS reviewed only those transactions in which a foreign entity intended to buy a controlling interest in a U.S. business. Now, CFIUS is responsible for reviewing non-controlling investments by foreign entities, where the investment gives those entities access to material, non-public technical information or provides management control such as veto rights or a board seat.[1]

Among other changes, the new rules allow CFIUS to review investments in US companies that carry out certain activities related to critical technologies, critical infrastructures and sensitive personal data of US citizens. The rules also extend the jurisdiction of CFIUS to specific transactions involving real estate in close proximity to sensitive US government facilities.

FIRRMA (Foreign Investment Risk Review Modernization Act) requires mandatory filings for investments in U.S. businesses that involve such “critical technologies,” and CFIUS has identified technologies in 27 categories as defined by North American Industry Classification System (NAICS) codes as “critical”.[2]

Many more investors in and sellers of U.S. businesses, technology, and real estate need to be concerned about a CFIUS review of their transactions. It is quite possible that, if a foreign acquisition is not coordinated with CFIUS in advance, the agency will still have the opportunity to contest the acquisition years later and possibly even decide to reverse it.
Therefore, it is recommended to be proactive when it comes to foreign deals.
Third-party experts, especially those with firsthand global trade controls and CFIUS expertise, are invaluable in this evaluation and can offer recommendations to help prevent future failures.

Do you have experiences with CFIUS or questions regarding the new regulations that you want to share with us? We have a knowledgeable team here at FabExchange that has extensive experience when it comes to trade laws. Let’s connect.

[1] Boylan, Scott & Holzer, Joshua (2020 September 15). Insight: Export Controls Claim Spotlight as CFIUS Shift Approach. Retrieved from https://news.bloomberglaw.com/mergers-and-acquisitions/insight-export-controls-claim-spotlight-as-cfius-shifts-approach
[2] Lis, Sylwia A. & Lefevre, Callie (2020 September 21). CFIUS Issues Final Rule Aligning Critical Technologies Mandatory Filing Requirement With US Export Controls. Retrieved from https://sanctionsnews.bakermckenzie.com/cfius-issues-final-rule-aligning-critical-technologies-mandatory-filing-requirement-with-us-export-controls/

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