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New Interim CFIUS Regulations Announced

The U.S. Treasury Department issued on 10 October new pilot programme interim regulations for the Committee on Foreign Investment in the United States. This pilot programme is authorised under the Foreign Investment Risk Review Modernization Act of 2018 (FIRRMA), which became law in August.  “We are pleased to implement this first step of the important and bipartisan FIRRMA legislation,” declared Treasury Secretary Steven Mnuchin. “These temporary regulations address specific risks to U.S. critical technology while informing the development of final regulations that will fully implement FIRRMA,” he added. The Treasury Department maintains that no particular country is targeted by any of the regulations, but rather specific investments, industries and technologies of concern. 

The pilot programme expands the scope of transactions subject to CFIUS review to include certain non-controlling investments made by foreign persons (which can include companies, not just individuals) in U.S. businesses involved in “critical technologies” related to 27 specific industries. These industries include, among others, certain metals, chemicals, aircraft, defence goods, and computer and communications equipment. The full list is available in the annex to Treasury’s Federal Register notice, at https://home.treasury.gov/system/files/206/FR-2018-22182_1786904.pdf.

A covered investment is one that gives a foreign investor (1) access to material non-public technical information in the possession of the target U.S. business; (2) membership or observer rights, or the right to nominate members, to the board of directors of the U.S. business; or (3) involvement in substantive decision making of the U.S. business regarding the use, development, acquisition or release of “critical technology.” Covered investments can thus include minority ownership or joint ventures, among other structures. 

Critical technologies concern (1) defence articles or services included on the U.S. Munitions List; (2) industries included on the Commerce Control List (relating to national security, chemical and biological weapons proliferation, nuclear non-proliferation or missile technology); (3) articles relating to regional stability or surreptitious listening; (4) specially designed and prepared nuclear equipment, parts and components, materials, software and technology (relating to assistance to foreign atomic energy activities); (5) nuclear facilities, equipment and material (relating to export and import of nuclear equipment and material); (6) certain agents and toxins; and (7) emerging and foundational technologies controlled pursuant to the Export Control Reform Act of 2018 (part of FIRMMA).

The pilot programme also establishes mandatory declarations of no more than five pages for transactions within the purview of CFIUS (both controlling investments and other investments).  Declarations must be filed at least 45 days prior to a transaction’s expected completion date and CFIUS has 30 days to take any action. Parties may choose to file a notice under CFIUS’s standard procedures rather than a mandatory declaration. Parties that are required to file with CFIUS and do not do so can be assessed a civil monetary penalty up to the value of the transaction.

In addition to the pilot programme, Treasury issued updates to current regulations that entered into force on 11 October. These provisions include an extension from 30 to 45 days of the current CFIUS review period for notifications as well as clarification of the definition of many terms specified in FIRRMA. 

The public can submit comments on both the immediate changes and the pilot programme, since changes based on comments received could go into effect when final regulations are announced. The pilot programme will begin on 10 November 2018 and full implementation will occur by February 2020.

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