CFIUS Determines that New Zealand and the United Kingdom Meet Requirements for Key CFIUS Exemptions

The Committee on Foreign Investment in the United States (“CFIUS”) recently announced final determinations to provide preferential treatment to certain investors from New Zealand and the United Kingdom. As described in our prior alerts—CFIUS Adds New Zealand to List of Countries Eligible for Preferential Treatment and Determines Australia and Canada Meet Requirements for Key CFIUS Exemptions; CFIUS Extends Deadline for Australia, Canada, and UK to Implement Eligibility Requirements for Key CFIUS Exemptions—pursuant to the Foreign Investment Risk Review Modernization Act of 2018’s (“FIRRMA”) requirement that CFIUS specify criteria to limit the application of its expanded jurisdiction to review certain investments, CFIUS implemented rules for “excepted foreign states” that receive preferential treatment under the CFIUS regulations. On February 10, 2023, CFIUS determined both New Zealand and the United Kingdom met the requisite criteria for becoming “excepted foreign states.” They join fellow Five Eye countries Australia and Canada, which met the criteria for “excepted foreign states” last year.

What Is “Excepted Foreign State” Status?

FIRRMA expanded CFIUS’s authority to review certain “covered investments” in the critical technology, critical infrastructure, and sensitive personal data industries (“Part 800 Regulations”) as well as certain real estate transactions (“Part 802 Regulations”) and implemented a mandatory filing requirement for certain “covered transactions.” 

Both the Part 800 and 802 Regulations also included rules excluding investors who meet certain criteria establishing sufficiently close ties to foreign states closely allied to the United States from CFIUS’s expanded jurisdiction over “covered investments” and real estate transactions, as well as from CFIUS’s mandatory filing requirement. In order to be eligible for such exclusions, the foreign investor must be from an “excepted foreign state,” which is defined by a two-part test.

First, CFIUS is required to identify whether a foreign state is an “eligible foreign state.” In 2020 and 2022, CFIUS identified Australia, Canada, New Zealand, and the United Kingdom as eligible foreign states because of their intelligence sharing and defense relationships with the United States.

Second, by February 13, 2023, CFIUS was required to determine: (1) under the Part 800 Regulations, that an eligible foreign state “has established and is effectively utilizing a robust process” to analyze foreign investments for national security risks and to facilitate coordination with the United States on matters relating to investment security; and (2) under the Part 802 Regulations, that the eligible foreign state has “made significant progress” in establishing and effectively utilizing a robust foreign investment review process in coordination with the United States.

In January 2022, CFIUS determined that Australia and Canada met the necessary criteria to become “excepted foreign states,” and on February 10, 2023, CFIUS made the required determination for New Zealand and the United Kingdom. As a result, investors from New Zealand and the United Kingdom who meet the applicable regulatory requirements join those from Australia and Canada who are exempt from CFIUS’s jurisdiction over “covered investments” and real estate transactions as well as the mandatory filing requirement. At this time, no other countries have been identified as “eligible foreign states” from which investors could receive preferential treatment.

What Do the Data Show About the Impact of “Excepted Foreign State” Determination on Investors?

CFIUS’s determination of Australia, Canada, New Zealand, and the United Kingdom as “excepted foreign states” raises the question of whether such preferential status has a meaningful impact on eligible investors, namely by reducing the number of filings from those jurisdictions. Since the concept of an “excepted foreign state” has only been in existence since 2020 and the public availability of CFIUS filing data is limited, it may be too soon to assess whether investors from Australia, Canada, New Zealand, and the United Kingdom benefit from the “excepted foreign state” status and, in turn, whether countries that seek such status are practically disadvantaged by not having it. An assessment of the utility of the “excepted foreign state” status also requires identifying transactions involving investors taking advantage of that status that would have been subject to CFIUS jurisdiction but for the exemption. Nevertheless, publicly available CFIUS filing data may provide some insight. The number of CFIUS filings involving investors from Australia, Canada, New Zealand, and the United Kingdom from 2019-2021 (the most recent available data covering the period pre- and post-introduction of the “excepted foreign state” concept in 2020) are shown below:

It is notable that the average number of total filings from Australia, New Zealand, and the United Kingdom have stayed the same, whereas the number of Canadian filings has increased significantly. Various factors could be at play, including increased investment from “excepted foreign state” investors in sectors of the U.S. economy where voluntary filings are nevertheless merited or the insistence of investors on the certainty that comes with CFIUS clearance. Additional data will be required to assess whether the preferential status of being an investor from an “excepted foreign state” leads to demonstrable benefits. If the number of filings do not decrease, the filing data may call into question whether there is a tangible benefit to being an “excepted foreign state.” In turn, that could influence whether other countries see an advantage to cooperating with the United States in order to achieve that status.

This memorandum is a summary for general information and discussion only and may be considered an advertisement for certain purposes. It is not a full analysis of the matters presented, may not be relied upon as legal advice, and does not purport to represent the views of our clients or the Firm. Greta Lichtenbaum, an O’Melveny partner licensed to practice law in the District of Columbia, David J. Ribner, an O'Melveny counsel licensed to practice law in the District of Columbia and New York, and Damilola G. Arowolaju, an O’Melveny associate licensed to practice law in the District of Columbia, contributed to the content of this newsletter. The views expressed in this newsletter are the views of the authors except as otherwise noted.

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