Articles Posted in CFIUS

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GettyImages-478409256-Treasury-300x261On September 15, 2020, the U.S. Department of Treasury published a final rule that removes the mandatory declaration requirement for filings to the Committee on Foreign Investment in the United States (CFIUS) based on North American Industry Classification System (NAICS) code and replaces it with a determination based on U.S. export control criteria. The final rule largely adopts the changes outlined in the proposed rule that was published on May 21, 2020, and which we discussed previously, with some added clarifications. The final rule will be effective on October 15, 2020.

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On May 21, 2020, the U.S. Department of the Treasury published a proposed rule that would revise the mandatory declaration requirement for foreign investments involving a U.S. business that produces, designs, tests, manufactures, fabricates, or develops one or more critical technologies.

Currently, a key element of the mandatory declaration requirement is whether the U.S. business engaged in the specified activities involving critical technologies utilizes that critical technology, or designs the technology specifically for use in, one or more industries identified by North American Industry Classification (NAICS) codes.

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The COVID-19 pandemic has generated a renewed focus on biotechnology and life sciences companies. Non-U.S. investors need to be aware of the potential that the Committee on Foreign Investment in the United States (CFIUS) may have jurisdiction to review, and possibly disallow certain investments in U.S. companies. In particular, new rules enacted this year expand CFIUS jurisdiction to include non-controlling investments in certain U.S. businesses dealing in “critical technologies,” which includes certain products and technologies in the biotechnology sector. Moreover, the COVID-19 pandemic has resulted in the expansion of biotech-type businesses that might be considered sensitive from a national security perspective even if they do not rise to the level of “critical technologies,” which could trigger mandatory CFIUS filings. CFIUS risk assessments will be an important part of any transaction involving foreign investors in the biotech sector.

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Beginning on May 1, 2020, the Committee on Foreign Investment in the United States (CFIUS) will require a fee for any joint voluntary notice of a “covered transaction” or “covered real estate transaction.” This requirement also applies to (i) voluntary notices filed after CFIUS has completed its assessment of a declaration, (ii) voluntary notices filed for transactions subject to mandatory declarations, and (iii) voluntary notices filed in lieu of a declaration when the transaction is not subject to a mandatory declaration. There is no fee to submit a declaration with CFIUS or if CFIUS initiates a unilateral review. Continue reading →

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The COVID-19 pandemic and the resulting economic turmoil have the potential to shake up the U.S. real estate market due to an anticipated influx of real estate investors looking to purchase heavily discounted, distressed assets and an expected increase in real estate foreclosures. Non-U.S. real estate lenders and investors need to be aware of the potential that the Committee on Foreign Investment in the United States (CFIUS) may have jurisdiction to review, and potentially disallow certain investments in real estate and mortgage default remedies where foreign persons are involved.

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TAKEAWAYS

  • Establishes deadlines for Committee to respond to FCC referrals
  • Invites Committee review of existing license holders
  • Resolution of long pending FCC proposed rulemaking expected

On April 4, 2020, the White House issued an Executive Order creating the Committee for the Assessment of Foreign Participation in the United States Telecommunications Services Sector (the Committee). The Committee, chaired by the Attorney General, includes the Secretaries of Homeland Security and Defense, and any other executive department head so designated by the President, is seen as an attempt to formalize the long-standing “Team Telecom” review process that began in the 1990s. The Committee’s stated goal is similar to Team Telecom’s, i.e., to assist the Federal Communications Commission (FCC) in its public interest review of national security and law enforcement concerns that may be triggered by foreign investment in the U.S. telecommunications sector. But there may be some notable differences.

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TAKEAWAYS

  • A transfer of control of a borrower or its business to non-U.S. lenders who exercise remedies under financing documents could trigger CFIUS issues
  • CFIUS regulations adopted in February 2020 dramatically heighten the risk to non-U.S. lenders and borrowers by sweeping many more businesses and industries within CFIUS’ regulatory reach.
  • Advance planning can limit the need for CFIUS reviews for parties entering into new financings and provides a safety valve for parties to existing financings, whether in distressed, workout or bankruptcy scenarios.

The COVID-19 pandemic has had a drastic and abrupt impact on global commerce, as many businesses have slowed or suspended operations. Despite aggressive U.S. Government efforts to support vulnerable businesses, the sharp economic downtown is compelling lenders and investors to consider restructuring and/or exercising remedies under their financing documents in order to protect their interests. In so doing non-U.S. lenders and investors potentially face an additional hurdle that may not have been accounted for at the time of the original transaction. The Committee on Foreign Investment in the United States (CFIUS) may have jurisdiction to review and potentially disallow certain default remedies, financial restructurings, and equity conversion rights where foreign persons are involved.

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On March 6, 2020, President Trump issued an Executive Order (EO) instructing the Chinese company Beijing Shiji Information Technology Co. Ltd. (Shiji) to divest its acquisition of StayNTouch Inc., a U.S.-based software company providing management systems to hotels. Pursuant to the EO, Shiji is required to fully divest its interest in StayNTouch within 120 days, with the possibility of a 90-day extension. The President determined that there was “credible evidence” that Shiji, through its acquisition of StayNTouch, “might take action that threatens to impair the national security of the United States.” The EO does not specify CFIUS’s particular concerns but it appears that StayNTouch’s platform could provide Shiji with access to a large database of personal and financial information of its users.

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On March 5, 2020, the U.S. Department of the Treasury issued a proposed rule establishing filing fees for parties submitting a voluntary notice to the Committee on Foreign Investment in the United States (CFIUS) for “covered transactions” under Part 800 (which includes covered investments) and “covered real estate” under Part 802. The proposed rule implements the filing fee provision contained in section 1723 of the Foreign Investment Risk Review Modernization Act (FIRRMA).

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On January 13, 2020, the U.S. Department of the Treasury issued two final rules for the Committee on Foreign Investment in the United States (CFIUS) implementing the Foreign Investment Risk Review Modernization Act (FIRRMA), which was enacted on August 13, 2018. The final rules largely adopt the proposed rules published on September 17, 2019, with several key clarifications and modifications. As discussed previously, FIRRMA has resulted in two separate rulemakings that expand CFIUS’ jurisdiction to include (i) certain non-controlling investments in U.S. businesses engaged in critical technology, critical infrastructure, and sensitive personal data, and (ii) certain real estate transactions. The final rules will be published in the Federal Register on January 17, 2020 and will go into effect February 13, 2020 (Effective Date), with one exception described below. We anticipate that the Treasury Department will publish a separate rule concerning filing fees soon.

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