On September 17, 2019, the U.S. Department of the Treasury issued a press release announcing two proposed regulations that will implement provisions of the Foreign Investment Risk Review Modernization Act of 2018 ("FIRRMA"). The proposed regulations will be published in the Federal Register on September 24, 2019, and they will expand the jurisdiction of the Committee on Foreign Investment in the United States ("CFIUS"). Specifically, the two proposed regulations will address certain non-controlling investments and real estate investments by foreign persons. The deadline to submit comments on the proposed regulations is October 17, 2019, and pursuant to FIRRMA the regulations will take effect no later than February 13, 2020.
As Torres Law previously discussed in several articles, almost a year ago, Treasury issued regulations implementing a pilot program which may trigger a mandatory declaration requirement for certain transactions involving "critical technologies." Notably, the above-referenced proposed regulations do not modify the pilot program.
One of the most significant changes that resulted from FIRRMA was that CFIUS can now review non-controlling foreign investments in a U.S. business. The proposed regulations now cover investments in U.S. businesses that are involved in certain ways with critical technologies, critical infrastructure, or sensitive personal data, referred to as "TID U.S. businesses," for technology, infrastructure, and data. In short, the non-controlling investments now include a U.S. business that: 1) produces, designs, tests, manufactures, fabricates, or develops critical technologies; 2) owns, operates, manufactures, supplies, or services critical infrastructure in subsectors, including telecommunications, utilities, energy, and transportation; or 3) maintains or collects sensitive personal data of U.S. citizens, which may be exploited in a manner that threatens national security.
Moreover, the proposed regulations also include new provisions for certain real estate transactions, including the purchase or lease by, or a concession to, a foreign person of certain real estate in the United States, if the transaction affords the foreign person specific property rights. Specifically, real estate transactions near certain airports, maritime ports, military installations, and other facilities and properties of the U.S. Government.1 Lastly, the proposed regulations include several exceptions that can apply to certain foreign real estate investors depending on their ties with certain countries and to transactions involving certain types of real estate.
Like the "critical technologies" pilot program regulations, parties with certain TID U.S. business transactions may notify CFIUS of the covered investment by filing a notice or submitting a short-form declaration. Importantly, covered transactions that involve a foreign government with a "substantial interest" will be subject to a mandatory declaration. The real estate transactions do not trigger a mandatory declaration; parties to a covered real estate transaction can submit a notice or a short-form declaration.
The much-anticipated proposed regulations provide investors with additional guidance and clarity of how CFIUS's jurisdiction is expanded, pursuant to FIRRMA. In sum, parties should submit their comments before the October 17, 2019 deadline and continue to closely monitor the final regulations that will be published early next year. For more information on the new proposed regulations and whether your future investments in the U.S. could trigger mandatory filing requirements, please do not hesitate to contact us.
Footnote
[1] The proposed regulations provide a list of specific military installations and the list of relevant airports and maritime ports are published by the Department of Transportation.
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