This article was written by Laura Luo(Partner), Thomas Hsieh(Associate).
On August 1, 2018, the U.S. Senate passed the Foreign Investment Risk Review Modernization Act of 2018 (“FIRRMA”) as part of the 2019 National Defense Authorization Act, following the U.S. House of Representatives’ affirmative vote of the same bill in the previous week. After weeks of negotiation and compromise between the two chambers, the final version of FIRRMA is headed to the President’s desk for signature, and it purports to expand the purview of the Committee on Foreign Investment in the United States (“CFIUS”), while also potentially simplifying the review process for parties.
Expanding the Definition of “Covered Transactions”
FIRRMA expands the definition of “covered transactions.” Prior to the passage of FIRRMA, covered transactions included only those that could result in a foreign person’s “control” of a U.S. business. FIRRMA establishes five types of transactions that fall within the umbrella of “covered transactions”:
(1) any merger, acquisition, or takeover by or with any foreign person that could result in foreign control of a U.S. business;
(2) any purchase or lease by, or concession to, a foreign person of private or public real estate that is located in the U.S. and is within or part of a port or in close proximity to any military or other sensitive national security facilities;
(3) any investment in any U.S. business that
- deals with critical infrastructure,
- is involved in critical technology design, production, or manufacture, or
- maintains or collects sensitive personal data of U.S. citizens that may be exploited in a manner that threatens U.S. national security;
(4) any change in a foreign investor’s rights regarding a U.S. business that could result in foreign control of the business or an investment described in subclause (3) above; and
(5) any other transaction that is designed to “circumvent or evade” CFIUS regulations.
Extending the Review Timeline
FIRRMA extends the review period by a maximum of 30 days. Pre-FIRRMA, CFIUS had an initial 30 days to review submitted written notices and a subsequent 45-day investigation period, which may be taken at the Committee’s discretion. In total, a CFIUS review could last for a maximum of 75 days. FIRRMA expands the timeline by bumping the initial 30-day review period to 45 days and by authorizing CFIUS to extend its investigation period by an additional 15 days in extraordinary circumstances. In total, the maximum length of a CFIUS review under FIRRMA is 105 days.
Introducing Declaration Filing Alternative
Previously, parties to covered transactions could voluntarily file with CFIUS a written notice containing extensive details about the transaction. FIRRMA provides parties to any covered transactions with the option of first submitting to CFIUS a declaration with basic information regarding the transaction, instead of a written notice. Upon review of such declaration, CFIUS may, at its discretion,
- request that the parties file a written notice,
- inform the parties that CFIUS is unable to complete its review on the basis of the declaration and that they may file a written notice,
- initiate a unilateral review of the transaction, or
- notify the parties in writing that CFIUS has completed all action with respect to such transaction.
Any action to be taken by CFIUS with respect to a declaration must be completed within 30 days of receipt.
Additionally, under FIRRMA, parties to certain covered transactions with foreign government backing are required to file a declaration with CFIUS, and CFIUS has the authority to identify other types of covered transactions for which the submission of a declaration is mandatory.
Tracking Non-notified or Non-declared ransactions
The final FIRRMA text retains the aggressive approach set forth in the original Senate amendments by mandating CFIUS to establish a process to identify non-notified or non-declared transactions for which information is reasonably available.
Establishing Filing Fees
FIRRMA authorizes CFIUS to impose filing fees with respect to each covered transaction. No specific fee structure has been established by the bill’s text, but the amount of the fee may not exceed the lesser of
- 1 percent of the value of the transaction, or