Treasury Issues Long-Awaited Proposed CFIUS Regulations
September 30, 2019
On September 17, 2019, the Department of the Treasury issued two sets of proposed regulations implementing the Foreign Investment Risk Review Modernization Act of 2018 (FIRRMA). As described in our prior alerts—CFIUS Update: Congress Enacts the Foreign Investment Risk Review Modernization Act and CFIUS Update: Interim Regulations, FIRRMA Pilot Program, and Proposed Rulemaking on Emerging Technologies—FIRRMA, enacted in August 2018, expanded and clarified CFIUS’s authority in various ways, including jurisdiction to review certain non-controlling investments in US businesses. CFIUS issued interim regulations in October 2018, implementing parts of FIRRMA and a new FIRRMA Pilot Program that requires parties to declare some types of such transactions to CFIUS.
Treasury’s release of the proposed regulations heralds the first wholesale revamping of CFIUS regulations since 2008. During the past decade, the sources, levels, and nature of foreign direct investments in the US have changed dramatically. One consequence is a profound shift in US government thinking about the threats and vulnerabilities arising from foreign capital that has traditionally been welcomed. Congress enacted FIRRMA to better align CFIUS’s authority and rules with the emerging threat landscape.
The Pilot Program rules aim to provide CFIUS with visibility into foreign investments in certain critical technology businesses, particularly where a foreign investor acquires a small, non-controlling stake. The newly proposed regulations would largely implement the remaining provisions of FIRRMA; a notable exception is authority for CFIUS to charge filing fees, which CFIUS will address at a later time. The proposed regulations do not further address the FIRRMA Pilot Program, which is authorized until March 5, 2020.
The first set of proposed rules would amend the current CFIUS regulations (Part 800 Regulations). They primarily focus on the expansion of CFIUS jurisdiction to non-controlling investments (covered investments) in certain US businesses in the critical technology, critical infrastructure, and sensitive personal data industries (TID [Technology, Infrastructure, Data] US businesses). The second set of proposed rules solely addresses FIRRMA’s new jurisdiction over certain real estate transactions.
The documents comprising the proposed rules number over 300 pages. We address the key concepts below.
Covered, Non-controlling Investments
Consistent with the FIRRMA Pilot Program, “covered investments” are transactions that afford a foreign person (1) access to material non-public technical information about the TID US business; (2) membership or observer rights on the TID US business’s board of directors; or (3) involvement in substantive decision making of the TID US business relating to critical technology, critical infrastructure, or sensitive personal data. The Part 800 Regulations do not alter CFIUS’s jurisdiction over transactions in which a foreign person acquires “control” of any US business.
1. TID US Businesses
The Part 800 Regulations define the scope of each of the TID US businesses.
Critical Technology: FIRRMA expanded CFIUS jurisdiction to “covered investments” in US businesses that produce, design, test, manufacture, fabricate, or develop one or more critical technologies. Consistent with the definition of “critical technologies” in the FIRRMA Pilot Program regulations,1 “critical technologies” means items controlled pursuant to: (1) the International Traffic in Arms Regulations; (2) certain controls of the Export Administration Regulations; (3) nuclear-related equipment and materials; (4) select agents and toxins; and (5) “emerging and foundational technologies” specified in a parallel rulemaking by the Commerce Department pursuant to the Export Control Reform Act of 2018.2
Critical Infrastructure: FIRRMA expanded CFIUS jurisdiction to “covered investments” in a US business that “owns, operates, manufactures, supplies, or services critical infrastructure.” The Part 800 Regulations refer to these activities as “functions.” CFIUS jurisdiction is limited to functions related to specific types of critical infrastructure (e.g., internet exchanges, submarine cables, airports, oil and gas infrastructure, maritime ports, defense industrial resources, public water systems). Both the specific types of critical infrastructure and the relevant functions are identified in Appendix A to the Part 800 Regulations (see below). A US business only falls within the scope of a “covered investment,” if it performs a function listed in column 2 of Appendix A with respect to the corresponding critical infrastructure listed in column 1 of Appendix A.
Sensitive Personal Data: FIRRMA expanded CFIUS jurisdiction to “covered investments” in a US business that maintains or collects sensitive personal data of US citizens “that may be exploited in a manner that threatens to harm national security.” The Part 800 Regulations define sensitive personal data as:
(1) either genetic information or
(2) “identifiable data” (i.e., data used to distinguish an individual’s identity) that are maintained or collected by a (a) US business that either (i) targets or tailors its products or services to sensitive US Government personnel or contractors, (ii) maintains or collects data on greater than one million individuals, or (iii) has a business objective to maintain or collect data on greater than one million individuals and such data are an integrated part of the US businesses products and services;
and
(b) the data fall within one of a number of categories, including: (i) data used to analyze an individual’s financial hardship, (ii) consumer reports, (iii) insurance applications, (iv) health; and (v) geolocation.
2. Excepted Investments
The Part 800 Regulations also introduce the concept of “excepted investors,” to whom CFIUS’s expanded jurisdiction over “covered investments” will not apply. The scope of the exception is limited to foreign persons with a substantial connection to one or more foreign states that will be separately identified by the Treasury Department. The Part 800 Regulations indicate that the initial list of “excepted foreign states” will be limited and will take into account the foreign state’s own foreign investment review process and cooperation with the United States regarding investment security matters.
Mandatory Declarations
The Part 800 Regulations implement FIRRMA’s authorization of a short-form declaration process for both mandatory and voluntary filings. As with the current FIRRMA Pilot Program declarations,3 CFIUS can respond to a voluntary declaration in one of four ways: (1) request the parties file a formal notice; (2) unilaterally initiate a review of the transaction; (3) clear the transaction; or (4) determine that it is unable to make a determination on the basis of the declaration.
Per FIRRMA, declarations will be mandatory for “covered transactions” (e.g., both covered control transactions and covered investments) in which a foreign person obtains a “substantial interest” in a TID US business and a foreign government has a “substantial interest” in that foreign person.4 The Part 800 Regulations establish the threshold for the foreign person’s “substantial interest” as a 25% voting interest, direct or indirect, and the foreign government’s “substantial interest” as a 49% or more voting interest, direct or indirect.
Real Estate Transactions
In parallel with the Part 800 Regulations, the Treasury Department issued proposed regulations implementing FIRRMA’s expansion of CFIUS jurisdiction to review certain real estate transactions in the US, referred to as “covered real estate transactions” (Part 802 Regulations). Prior to FIRRMA, CFIUS jurisdiction encompassed acquisitions of real estate only where the transaction involved foreign acquisition of control of a US business. That remains the case: transactions involving real estate may still be treated as “covered transactions” under the Part 800 Regulations—for example, transactions involving long-term leases and other assets, or where the US business is in proximity to sensitive US government facilities. The Part 802 Regulations implement FIRRMA’s extension of jurisdiction to stand-alone real estate investments. In CFIUS’s view, the level of specificity required to review such “covered real estate transactions” warrants a separate rulemaking process.
The scope of CFIUS jurisdiction is framed by the proposed definitions identifying the types of real estate and real estate transactions that are covered by the Part 802 Regulations, and those that are not. In sum:
1) “Covered real estate” is only real estate in close proximity to airport and maritime ports, and certain military installations. The list of military installations are specifically identified in Appendix A to the Part 802 Regulations, which categorize the sites into four categories: (1) real estate within close proximity (i.e. one mile); (2) real estate in an extended range (between one and 100 miles); (3) real estate within specific counties in Colorado, Montana, Nebraska, North Dakota, and Wyoming, which are near air force base missile fields; and (4) real estate within an off-shore military range.
2) “Covered real estate transactions” are purchases or leases by, or concessions to, a foreign person (other than “excepted real estate transactions”) that afford a foreign person at least three “property rights” in “covered real estate.” “Property rights” include the right to physically access, exclude, improve, or develop, or attach structures or objects to the real estate.
3) Excepted real estate transactions include (i) investments by investors from specified foreign states, which will be identified by the Treasury Department, (ii) certain transactions in urbanized areas, (iii) single housing units, and (iv) retail and commercial office space.
Public Comment Period
The Treasury Department is providing only 30 days for submission of comments on the proposed regulations. It will publish final rules by February 13, 2020.
Proposed Appendix A to 31 C.F.R. Part 800
Column 1 - Covered investment critical infrastructure |
Column 2 - Functions related to covered investment critical infrastructure |
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Proposed Appendix A to 31 C.F.R. Part 802
Part 1
Site Name |
Location |
Adelphi Laboratory Center |
Adelphi, MD |
Air Force Maui Optical and Supercomputing Site |
Maui, HI |
Air Force Office of Scientific Research |
Arlington, VA |
Andersen Air Force Base |
Yigo, Guam |
Army Futures Command |
Austin, TX |
Army Research Lab – Orlando Simulations and Training Technology Center |
Orlando, FL |
Army Research Lab – Raleigh Durham |
Raleigh Durham, NC |
Arnold Air Force Base |
Coffee County and Franklin County, TN |
Beale Air Force Base |
Yuba City, CA |
Biometric Technology Center (Biometrics Identity Management Activity) |
Clarksburg, WV |
Buckley Air Force Base |
Aurora, CO |
Camp MacKall |
Pinebluff, NC |
Cape Cod Air Force Station |
Sandwich, MA |
Cape Newenham Long Range Radar Site |
Cape Newenham, AK |
Cavalier Air Force Station |
Cavalier, ND |
Cheyenne Mountain Air Force Station |
Colorado Springs, CO |
Clear Air Force Station |
Anderson, AK |
Creech Air Force Base |
Indian Springs, NV |
Davis-Monthan Air Force Base |
Tucson, AZ |
Defense Advanced Research Projects Agency |
Arlington, VA |
Eareckson Air Force Station |
Shemya, AK |
Eielson Air Force Base |
Fairbanks, AK |
Ellington Field Joint Reserve Base |
Houston, TX |
Fairchild Air Force Base |
Spokane, WA |
Fort Benning |
Columbus, GA |
Fort Belvoir |
Fairfax County, VA |
Fort Bliss |
El Paso, TX |
Fort Campbell |
Hopkinsville, KY |
Fort Carson |
Colorado Springs, CO |
Fort Detrick |
Frederick, MD |
Fort Drum |
Watertown, NY |
Fort Gordon |
Augusta, GA |
Fort Hood |
Killeen, TX |
Fort Knox |
Fort Knox, KY |
Fort Leavenworth |
Leavenworth, KS |
Fort Lee |
Petersburg, VA |
Fort Leonard Wood |
Pulaski County, MO |
Fort Meade |
Anne Arundel County, MD |
Fort Riley |
Junction City, KS |
Fort Shafter |
Honolulu, HI |
Fort Sill |
Lawton, OK |
Fort Stewart |
Hinesville, GA |
Fort Yukon Long Range Radar Site |
Fort Yukon, AK |
Francis E. Warren Air Force Base |
Cheyenne, WY |
Guam Tracking Station |
Inarajan, Guam |
Hanscom Air Force Base |
Lexington, MA |
Holloman Air Force Base |
Alamogordo, NM |
Holston Army Ammunition Plant |
Kingsport, TN |
Joint Base Anacostia-Bolling |
Washington, DC |
Joint Base Andrews |
Camp Springs, MD |
Joint Base Elmendorf-Richardson |
Anchorage, AK |
Joint Base Langley-Eustis |
Hampton, VA and Newport News, VA |
Joint Base Lewis-McChord |
Tacoma, WA |
Joint Base McGuire-Dix-Lakehurst |
Lakehurst, NJ |
Joint Base Pearl Harbor-Hickam |
Honolulu, HI |
Joint Base San Antonio |
San Antonio, TX |
Joint Expeditionary Base Little Creek-Fort Story |
Virginia Beach, VA |
Kaena Point Satellite Tracking Station |
Waianae, HI |
King Salmon Air Force Station |
King Salmon, AK |
Kirtland Air Force Base |
Albuquerque, NM |
Kodiak Tracking Stations |
Kodiak Island, AK |
Los Angeles Air Force Base |
El Segundo, CA |
MacDill Air Force Base |
Tampa, FL |
Malmstrom Air Force Base |
Great Falls, MT |
Marine Corps Air Ground Combat Center Twentynine Palms |
Twentynine Palms, CA |
Marine Corps Air Station Beaufort |
Beaufort, SC |
Marine Corps Air Station Cherry Point |
Cherry Point, NC |
Marine Corps Air Station Miramar |
San Diego, CA |
Marine Corps Air Station New River |
Jacksonville, NC |
Marine Corps Air Station Yuma |
Yuma, AZ |
Marine Corps Base Camp Lejeune |
Jacksonville, NC |
Marine Corps Base Camp Pendleton |
Oceanside, CA |
Marine Corps Base Hawaii |
Kaneohe Bay, HI |
Marine Corps Base Hawaii, Camp H.M. Smith |
Halawa, HI |
Marine Corps Base Quantico |
Quantico, VA |
Mark Center |
Alexandria, VA |
Minot Air Force Base |
Minot, ND |
Moody Air Force Base |
Valdosta, GA |
National Capital Region Coordination Center |
Herndon, VA |
Naval Air Station Joint Reserve Base New Orleans |
Belle Chasse, LA |
Naval Air Station Oceana |
Virginia Beach, VA |
Naval Air Station Oceana Dam Neck Annex |
Virginia Beach, VA |
Naval Air Station Whidbey Island |
Oak Harbor, WA |
Naval Base Guam |
Apra Harbor, Guam |
Naval Base Kitsap Bangor |
Silverdale, WA |
Naval Base Point Loma |
San Diego, CA |
Naval Base San Diego |
San Diego, CA |
Naval Base Ventura County – Port Hueneme Operating Facility |
Port Hueneme, CA |
Naval Research Laboratory |
Washington, DC |
Naval Research Laboratory – Blossom Point |
Welcome, MD |
Naval Research Laboratory – Stennis Space Center |
Hancock County, MS |
Naval Research Laboratory – Tilghman |
Tilghman, MD |
Naval Station Newport |
Newport, RI |
Naval Station Norfolk |
Norfolk, VA |
Naval Submarine Base Kings Bay |
Kings Bay, GA |
Naval Submarine Base New London |
Groton, CT |
Naval Surface Warfare Center Carderock Division – Acoustic Research Detachment |
Bayview, ID |
Naval Support Activity Crane |
Crane, IN |
Naval Support Activity Orlando |
Orlando, FL |
Naval Support Activity Panama City |
Panama City, FL |
Naval Support Activity Philadelphia |
Philadelphia, PA |
Naval Support Facility Carderock |
Bethesda, MD |
Naval Support Facility Dahlgren |
Dahlgren, VA |
Naval Support Facility Indian Head |
Indian Head, MD |
Naval Weapons Station Seal Beach Detachment Norco |
Norco, CA |
New Boston Air Station |
New Boston, NH |
Offutt Air Force Base |
Bellevue, NE |
Oliktok Long Range Radar Site |
Oliktok, AK |
Orchard Combat Training Center |
Boise, ID |
Peason Ridge Training Area |
Leesville, LA |
Pentagon |
Arlington, VA |
Peterson Air Force Base |
Colorado Springs, CO |
Picatinny Arsenal |
Morris County, NJ |
Piñon Canyon Maneuver Site |
Tyrone, CO |
Pohakuloa Training Area |
Hilo, HI |
Point Barrow Long Range Radar Site |
Point Barrow, AK |
Portsmouth Naval Shipyard |
Kittery, ME |
Radford Army Ammunition Plant |
Radford, VA |
Redstone Arsenal |
Huntsville, AL |
Rock Island Arsenal |
Rock Island, IL |
Rome Research Laboratory |
Rome, NY |
Schriever Air Force Base |
Colorado Springs, CO |
Seymour Johnson Air Force Base |
Goldsboro, NC |
Shaw Air Force Base |
Sumter, SC |
Southeast Alaska Acoustic Measurement Facility |
Ketchikan, AK |
Tin City Long Range Radar Site |
Tin City, AK |
Tinker Air Force Base |
Midwest City, OK |
Travis Air Force Base |
Fairfield, CA |
Tyndall Air Force Base |
Bay County, FL |
US Army Natick Soldier Systems Center |
Natick, MA |
Watervliet Arsenal |
Watervliet, NY |
Wright-Patterson Air Force Base |
Dayton, OH |
Part 2
Site Name |
Location |
Aberdeen Proving Ground |
Aberdeen, MD |
Camp Shelby |
Hattiesburg, MS |
Cape Canaveral Air Force Station |
Cape Canaveral, FL |
Dare County Range |
Manns Harbor, NC |
Edwards Air Force Base |
Edwards, CA |
Eglin Air Force Base |
Valparaiso, FL |
Fallon Range Complex |
Fallon, NV |
Fort Bragg |
Fayetteville, NC |
Fort Greely |
Delta Junction, AK |
Fort Huachuca |
Sierra Vista, AZ |
Fort Irwin |
San Bernardino County, CA |
Fort Polk |
Leesville, LA |
Fort Wainwright |
Fairbanks, AK |
Hardwood Range |
Necehuenemedah, WI |
Hill Air Force Base |
Ogden, UT |
Mountain Home Air Force Base |
Mountain Home, ID |
Naval Air Station Meridian |
Meridian, MS |
Naval Air Station Patuxent River |
Lexington Park, MD |
Naval Air Weapons Station China Lake |
Ridgecrest, CA |
Naval Base Kitsap – Keyport |
Keyport, WA |
Naval Base Ventura County – Point Mugu Operating Facility |
Point Mugu, CA |
Naval Weapons Systems Training Facility Boardman |
Boardman, OR |
Nellis Air Force Base |
Las Vegas, NV |
Nevada Test and Training Range |
Tonopah, NV |
Pacific Missile Range Facility |
Kekaha, HI |
Patrick Air Force Base |
Cocoa Beach, FL |
Tropic Regions Test Center |
Wahiawa, HI |
Utah Test and Training Range |
Barro, UT |
Vandenberg Air Force Base |
Lompoc, CA |
West Desert Test Center |
Dugway, UT |
White Sands Missile Range |
White Sands Missile Range, NM |
Yuma Proving Ground |
Yuma, AZ |
Part 3
Site Name |
County |
Township/Range |
90th Missile Wing Francis E. Warren Air Force Base Missile Field (Colorado, Nebraska, and Wyoming) |
Chase County, NE |
All |
Dundy County, NE |
All |
|
Goshen County, WY |
All |
|
Hitchcock County, NE |
All |
|
Laramie County, WY |
All |
|
Logan County, CO |
All |
|
Platte County, WY |
All |
|
Weld County, CO |
All |
|
341st Missile Wing Malmstrom Air Force Base Missile Field (Montana) |
Cascade County, MT |
All |
Chouteau County, MT |
All, except lands located north of Township 22 North and east of Range 7 East based on the Bureau of Land Management’s Public Lands Survey System |
Fergus County, MT |
All |
|
Judith Basin County, MT |
All |
|
Lewis and Clark County, MT |
All, except lands located south of Township 14 North and west of Range 9 West based on the Bureau of Land Management’s Public Lands Survey System |
|
Pondera County, MT |
All, except lands located west of Range 9 West based on the Bureau of Land Management’s Public Lands Survey System |
|
Teton County, MT |
All, except lands located west of Range 9 West based on the Bureau of Land Management’s Public Lands Survey System |
|
Toole County, MT |
All |
|
Wheatland County, MT |
All |
|
91st Missile Wing Minot Air Force Base Missile Field (North Dakota) |
Bottineau County, ND |
All |
Burke County, ND |
All |
|
McHenry County, ND |
All |
|
McLean County, ND |
All |
|
Mountrail County, ND |
All |
|
Renville County, ND |
All |
|
Ward County, ND |
All |
Part 4
Site Name |
Location |
Boston Range Complex |
Offshore Massachusetts, New Hampshire, Maine |
Boston Operating Area |
Offshore Massachusetts, New Hampshire, Maine |
Charleston Operating Area |
Offshore North Carolina, South Carolina |
Cherry Point Operating Area |
Offshore North Carolina, South Carolina |
Corpus Christi Operating Area |
Offshore Texas |
Eglin Gulf Test and Training Range |
Offshore Florida |
Gulf of Mexico Range Complex |
Offshore Mississippi, Alabama, Florida |
Hawaii Range Complex |
Offshore Hawaii |
Jacksonville Operating Area |
Offshore Florida, Georgia |
Jacksonville Range Complex |
Offshore Florida |
Key West Operating Area |
Offshore Florida |
Key West Range Complex |
Offshore Florida |
Narragansett Bay Range Complex |
Offshore Connecticut, Massachusetts, New York, Rhode Island |
Narragansett Bay Operating Area |
Offshore Connecticut, Massachusetts, New York, Rhode Island |
New Orleans Operating Area |
Offshore Louisiana |
Northern California Range Complex |
Offshore California |
Northwest Training Range Complex |
Offshore Oregon, Washington |
Panama City Operating Area |
Offshore Florida |
Pensacola Operating Area |
Offshore Alabama, Florida |
Point Mugu Sea Range |
Offshore California |
Southern California Range Complex |
Offshore California |
Virginia Capes Operating Area |
Offshore Delaware, Maryland, North Carolina, Virginia |
Virginia Capes Range Complex |
Offshore Delaware, Maryland, North Carolina, Virginia |
1 31 C.F.R. § 801.204.
2 On November 19, 2018, the Bureau of Industry and Security issued an Advance Notice of Proposed Rulemaking (ANPRM) regarding identification of emerging technologies. 83 FR 58201. The Commerce Department will issue a separate ANPRM regarding identification of foundational technologies.
3 31 C.F.R. § 801.407.
4 The Part 800 Regulations exclude certain investment fund transactions from the mandatory declaration requirement.
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. Theodore Kassinger, an O’Melveny partner licensed to practice law in the District of Columbia and Georgia, 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 Mary Pat Dwyer, an O’Melveny associate licensed to practice law in the District of Columbia and Pennsylvania, 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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