Takeaways from Treasury's Recently Proposed CFIUS Regulations Implementing FIRRMA

6 min

On September 24, 2019, the U.S. Department of Treasury issued two proposed rules, to update the regulations governing reviews of "covered transactions" by the Committee on Foreign Investment in the United States (CFIUS or the Committee) (set forth in Part 800 of the Treasury Regulations) and to add regulations governing certain covered real estate transactions (Part 802 of the Treasury Regulations). These proposed rules arise from the recent push in Washington to strengthen and expand the authority of this interagency committee led by the Treasury Department that reviews foreign investments in the United States. Interested parties should keep up to date on the proposed rules, as the changes promise to fundamentally alter how foreign investors, and target U.S. businesses, approach merger, acquisitions, investments, and real estate transactions in the near future.

As Venable noted last summer when Congress enacted the Foreign Investment Risk Review Modernization Act of 2018 (FIRRMA), the types of transactions under CFIUS jurisdiction were expanded to include not only transactions that result in control of a U.S. business by a foreign person, but also certain non-controlling investments and real estate transactions, as well as any transaction intended to evade or circumvent a CFIUS review.

With the two sets of proposed rules, Treasury now provides additional details for how the CFIUS review process will expand and change under FIRRMA. Below are some key takeaways from the newly proposed regulations.

Expanded Jurisdiction to Review Certain Non-Controlling Investments in U.S. Businesses Involving Technology, Infrastructure, and Sensitive Personal Data

With respect to CFIUS's traditional area of focus – acquisitions and takeovers that may result in control of a U.S. business by a foreign person – the proposed rules make very few changes. Nevertheless, the changes to the regulations are significant enough that Treasury has opted to re-issue Part 800 in its entirety.

Among the most critical aspects of the newly proposed regulations is the expanded focus on non-controlling foreign investments in U.S. technology, infrastructure, and personal data-related companies (referred to as "TID U.S. businesses" in the proposed regulations). CFIUS now expands jurisdiction over transactions where a foreign person makes an investment in a "TID U.S. business" that affords that foreign person access to material non-public information in the possession of, management rights in, or involvement in the decision-making of, that business.

Whether a U.S. business qualifies as a "TID U.S. business" depends on its involvement in one or more of three key areas:

  • Critical Technologies. As proposed, CFIUS's jurisdiction will now cover non-controlling investments in U.S. businesses that produce, design, test, manufacture, fabricate, or develop one or more critical technologies. The term "critical technologies" captures technologies controlled on the Commerce Control List (CCL) and United States Munitions List (USML), as well as emerging and foundational technologies to be controlled pursuant to the Export Control Reform Act of 2018 (ECRA). The Commerce Department has yet to finalize the technologies that will be considered to be emerging technologies or foundational technologies – which means ongoing uncertainty about the full scope and reach of the Committee's jurisdiction in this area.
  • Critical Infrastructure. As proposed, CFIUS may also review non-controlling investments in U.S. businesses involved in critical infrastructure. For a U.S. business to be covered, it must provide one or more specified functions that are related to certain types of "critical infrastructure." Treasury has included an Appendix A to the proposed rule, enumerating various types of covered critical infrastructure, as well as the types of functions that would make the U.S. business covered.
  • Sensitive Personal Data. Under the proposed regulations, the Committee may now review non-controlling investments in U.S. businesses that maintain or collect, directly or indirectly, sensitive personal data of U.S. citizens. The concern is that such personal data could be exploited to harm U.S. national security. Treasury proposes a two-part test for determining whether a U.S. business is covered. First, the U.S. business must (a) collect personal identifier data that is targeted or tailored to U.S. government personnel or government contractors, (b) maintain or collect data on more than a million individuals, or (c) have a "demonstrated business objective" of maintaining or collecting data on more than a million individuals and integrate that data as part of its primary products or services. Second, the data itself must fall within certain categories, such as genetic data, data that could be used to determine an individual's financial distress or hardship, and data relating to the physical, mental, or psychological health of an individual.

With respect to these non-controlling investments, filing is still voluntary in most cases. The proposed regulations mandate filing with the Committee only in certain circumstances where a foreign government has a "substantial interest" in the foreign investor, and the foreign investor is acquiring a substantial voting interest in the TID U.S. business.

The proposed regulations provide for a whitelist for "excepted investors" with ties to "excepted foreign states." A list of potential excepted foreign states will be published by Treasury, most likely with the final rules in February 2020. To qualify as an "excepted foreign state," a foreign state on the list will be required to demonstrate its own robust process for assessing foreign investments, with a two-year grace period to meet the requirement.

Expanded Jurisdiction to Review Certain Real Estate Transactions

Under a new Part 802 of Treasury Regulations, Treasury has also taken steps to implement CFIUS's expanded jurisdiction over certain real estate transactions of "covered real estate." Relevant real estate transactions are those where the foreign person purchases, leases, or obtains concessions through which the foreign person is afforded certain property rights. "Covered real estate" is defined as real estate (1) within an airport or maritime port, (2) within one mile of certain military and government facilities, (3) within an extended range (up to 100 miles) of certain sensitive facilities, (4) within certain counties and other geographic areas in the United States, or (5) within certain additional military areas. The rules propose exceptions for certain types of real estate, like single-family homes. As with most non-controlling investment transactions, filing remains voluntary.

In this case too, there is a whitelist for "excepted real estate investors" with ties to an "excepted real estate foreign state." As above, a list of potential excepted real estate foreign states will be published by Treasury. To qualify as an "excepted real estate foreign state," a foreign state on the list will be required to demonstrate significant progress in analyzing foreign investments, with a similar two-year grace period to meet this bar.

Status of "Critical Technologies" Pilot Program and Possible Filing Fees

Recall that in October 2018 Treasury issued an initial round of regulations implementing FIRRMA, most notably creating a temporary pilot program under Part 801 of the Treasury Regulations that mandated that parties file with CFIUS for certain foreign investment transactions involving critical technologies. As of now, the future of the pilot program is uncertain. It may be included in the final regulations or it may be sunsetted soon: no later than March 5, 2020, but more likely when Treasury issues the final rules in February 2020.

Under FIRRMA, the Congress also provided CFIUS with the authority to charge filing fees to submitter, based on the value of the proposed transaction under review by the Committee. Treasury has not yet issued regulations related to these possible fees.


Final rules are expected on or before February 13, 2020 – a hard deadline set by FIRRMA. Please do not hesitate to reach out to Venable's International Trade Group attorneys if you have any questions about Treasury's FIRRMA-related proposed rules and how they may impact your business activities.