On September 17, 2019, the US Treasury Department proposed much-anticipated regulations to implement the Foreign Investment Risk Review Modernization Act of 2018 (“FIRRMA”) and expand the jurisdiction of the Committee on Foreign Investment in the United States (“CFIUS”) to review, and potentially block or require changes to, certain foreign non-controlling and real estate investments in the United States. Interested parties have until October 17, 2019, to submit comments on the proposed regulations, which, pursuant to FIRRMA, are slated to go into force no later than February 13, 2020.

The proposed regulations would expand CFIUS’s jurisdiction to cover two types of transactions: (1) certain non-controlling investments in the United States by foreign persons and (2) certain US real estate transactions involving foreign persons. Pursuant to its authority under FIRRMA, which was enacted into law in August 2018, CFIUS has already implemented a separate pilot program which makes it mandatory to file with CFIUS for transactions involving certain “critical technologies”; the proposed regulations do not change the pilot program. CFIUS will also continue to review voluntary notices regarding transactions that could result in foreign persons gaining control of US businesses.

One key element of FIRRMA was its expansion of CFIUS’s jurisdiction to cover transactions in which foreign persons made investments in the United States without gaining control of US businesses. With respect to these non-controlling investments by foreign persons, the proposed regulations address investments in US businesses that (1) produce, design, test, manufacture, fabricate or develop critical technologies; (2) own, operate, manufacture, supply or service critical infrastructure in sectors including telecommunications, utilities, energy and communications; or (3) maintain or collect the sensitive personal data of US citizens, which may be exploited in a manner that threatens national security.  Such businesses are designated as “TID U.S. businesses,” for technology, infrastructure and data. 

CFIUS proposes that, in most circumstances, parties submitting such transactions for review will be able to do so via a short-form declaration rather than a full-fledged notice—a less onerous process. For transactions involving a foreign party in which a foreign government has a substantial interest, CFIUS proposes that the submission of a declaration be mandatory (as required by FIRRMA).

With respect to real estate transactions, the proposed regulations focus on transactions near sensitive US facilities and, in fact, include a list of specified airports, maritime ports and military facilities. The proposed regulations also would clarify that CFIUS’s jurisdiction extends to transactions involving the purchase, lease by or concession to a foreign person of real estate near these ports and facilities if the transaction grants the foreign person certain property rights.

According to the proposed regulations, there would be several exceptions to this expanded jurisdiction, both for real estate investors from certain countries and transactions involving certain types of real estate. Parties to these transactions could also take advantage of the declaration process, and CFIUS would also maintain jurisdiction over transactions involving real estate that could also result in control of a US business by a foreign person.

With the proposed regulations, investors are finally gaining some clarity into how CFIUS may expand its jurisdiction as it implements FIRRMA. With approximately one month to offer comments on the proposals, investors have a final opportunity to impact the process. As the regulatory process continues, foreign investors and interested US businesses should monitor the situation closely, as the implementation of FIRRMA will substantially expand CFIUS’s ability to review a range of transactions.