New implementing regulations on FDI screening promulgated

13 Feb 2020

On 13 January 2020, the US Department of the Treasury released regulations implementing the Foreign Investment Risk Review Modernization Act of 2018 (FIRRMA) that strengthened the Committee on Foreign Investment in the United States (CFIUS) and its jurisdictions. Under the new regime, the CFIUS will be competent to screen non-controlling investment in critical technology, critical infrastructure and sensitive personal data businesses. This is, however, limited only to instances, when a foreign investor gains 1) an access to material non-public technical information in possession of the U.S. business related to critical technology or covered investment critical infrastructure; 2) a membership or observer rights on, or the right to nominate an individual to the board of directors; or 3) an involvement in decision-making of the U.S. business. Some of the provisions from the new regulations have been already enacted in a pilot programme, but now there are of general application. Secondly, in relation to controlling investments, the regulations provide a complex and very broad definition of "control". It covers not only the majority of shares, voting rights or board representation, but also a dominant minority or formal or informal arrangements to act in concert. In addition, special considerations will be given to ascertain links with foreign governments. Thirdly, the regulations introduce mandatory fillings for foreign investors, in which a foreign country has a substantial interest (49%). Fourthly, the disclosure obligations are set forth in a very detailed manner. For example, a foreign investor is required to provide information and organizational charts both pre- and post-transaction on an immediate parent company, the ultimate parent, and each intermediate parent with names, principal places of business, places of incorporation, nationality, and ownership percentage. Fifty, strict sanctions are provided for. A fine up to $250,000 per violation may be imposed for a misstatement or omission or false certification in the fillings. A lack of of mandatory fillings or a violation of a mitigation agreement is sanctioned with the same fine that may, however, rise up to he value of the transaction. Finally, the regulations clarify conditions, under which foreign acquisitions of real property and related rights in the US are subject to screening. In general, these are real estates being or located in close proximity of airports, seaports or military installations.

Nature of measure:

• Entry restriction

Type:

• Entry and establishment (Approval and admission - screening)

Industry:

• Not industry specific
• Manufacturing (Manufacture of computer, electronic and optical products, and electrical equipment, Manufacture of machinery and equipment n.e.c.)
• Services (Electricity, gas, steam and air conditioning supply, Water supply, sewerage, waste management and remediation activities, Transportation and storage, Telecommunications, Computer programming, consultancy and related activities, Real estate activities, Scientific research and development, Other professional, scientific and technical activities, Public administration and defence; compulsory social security)

Sources:

• Committee on Foreign Investment in the United States, Fact Sheet: Final CFIUS Regulations Implementing FIRRMA, https://home.treasury.gov/system/files/206/Final-FIRRMA-Regulations-FACT-SHEET.pdf, 13 Jan 2020
• Committee on Foreign Investment in the United States, Provisions Pertaining to Certain Investments in the United States by Foreign Persons, https://home.treasury.gov/system/files/206/Part-800-Final-Rule-Jan-17-2020.pdf, 13 Jan 2020