Key Takeaways From CFIUS Final Rules Implementing FIRRMA

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 filings fees soon.

CFIUS pilot program included in final rule, future changes anticipated

The final rules incorporate the CFIUS pilot program, which expanded CFIUS' jurisdiction to cover non-controlling transactions involving investments by foreign persons in certain U.S. businesses that produce, design, test, manufacture, fabricate or develop critical technologies that are utilized in connection with or designed by a U.S. business in one or more pilot program industries (the Pilot Program). However, the Treasury Department indicated that it will promulgate a new rule modifying the Pilot Program. The new rule would change the criteria for mandatory filings to be based on export-control licensing requirements rather than North American Industry Classification System (NAICS) codes. The proposed change should help provide clarity to businesses that are unsure of their NAICS code(s).

The final rules also exempt certain transactions from the mandatory declaration requirement under the Pilot Program. Most importantly, there is an exemption for companies captured by the Pilot Program solely because they are involved with critical technologies eligible for License Exception ENC. This license exception applies to a number of items controlled for encryption reasons. The exception in the final rules make it clear that companies developing items solely controlled for mass market encryption reasons (or other less sensitive encryption items) will not be pilot program businesses solely due to such activities. Another...