US Expands Foreign Investment Reviews
I detailed the changes in export controls previously [cite] passed within the John McCain National Defense Authorization Act of 2018. Another piece of that legislation importantly affects many future foreign direct investors seeking to invest in the US. The Foreign Investment Risk Review Modernization Act of 2018 has greatly expanded the application and filings required for certain foreign direct investments in the United States under the auspices of the Committee on Foreign Investment in the United States (CFIUS).
The first change is the expansion of the definition of a covered transaction which was already rather broad but will now cover even some real estate acquisitions by foreign direct investors. Real estate acquisition in the US has been a favorite investment option for many foreigners because of our strong property protection laws, relative simplicity of the transaction, and the lack of concern for triggering major government regulations. The real estate transactions that will be covered by the expansion include real estate that is part of an air or marine port or near any military base. Thankfully, acquisitions of single family housing units or real estate in an urban area will be exempted from a CFIUS review.
Another expansion involves those transactions where the acquisition would not result in foreign control (but some foreign ownership) if the US business is engaged in anything relating to “critical infrastructure or technologies” or that maintain or collect personal data of US citizens. This last bit may have major implications for various social media, software, and other applications that collect data within the US. It remains to be seen how aggressive this provision will be enforced but it could radically change the industry in the next decade if it is.
The trigger for transactions involving critical tech or infrastructure is if the foreign person will have access to “material non-public technical information” or that they are given membership on the board of directors or other certain corporate rights. The definition of critical tech includes most items subject to export controls, including items on the CCL and USML, with various exceptions.
The next change involves the filing requires and procedure. Covered transactions will now be required to file the notice (as before) and potentially a declaration. This new declaration is largely voluntary but will mandatory when a foreign government has (directly or indirectly) a substantial interest in the transaction. This is a major red flag for business transacting in industries with typical state actors: oil/petroleum, mining, aeronautics and space, and others.
Should a declaration be required and the CFIUS require it, parties will be liable for a new filing fee for the review. The new filing fee will be the lessor of $300,000 or 1% of the transaction value. This will likely not be required for many basic and smaller transactions but it remains to be seen. The expanded powers and filing fee may become a harbinger for a beefed up and active CFIUS. Lastly, the timeline for the initial review was upped to 45 days from 30 days.
The CFIUS is a relatively forgotten but potentially powerful agency reviewing foreign direct investments in the US. The additional powers under the new Act is likely a sign that the current administration intends to fiercely protect certain industries from foreign acquisition. This does not mean there are reduced investment opportunities in the US for foreign direct investors but it does mean that legal compliance and due diligence on the part of the foreign investor is nor more important than ever. If you are seeking to invest in the US in the near future and need assistance assuring your acquisition goes as smooth as possible, contact Reidel Law Firm today. Reach us by the email button below or by calling us at +1(832)510-3292 to get us on your team US acquisition project today.
