IMPACT OF CFIUS REFORMS FOR PE HOUSES
R&C: Could you provide an overview of the expanded scope of transactions subject to review by the US Committee on Foreign Investment in the United States (CFIUS), following the Foreign Investment Risk Review Modernization Act (FIRRMA) signed into law in August 2018?
Zucker: FIRRMA is the first overhaul of CFIUS in the past decade; it is the result of longstanding debates about how best to balance protecting national security while promoting inbound investment in the United States. Historically, CFIUS reviewed ‘covered transactions’, which included mergers, acquisitions and takeovers that could result in non-US control of a US business. FIRRMA significantly expanded this authority to include: review of inbound real estate investments that are co-located near US defence installations or other US national security facilities; investments or changes in rights involving a US business working in critical infrastructure or critical technology or possessing sensitive personal data regarding US citizens; and investments intended to evade CFIUS review. Though CFIUS has always been empowered to initiate reviews on its own, prior to FIRRMA, the Committee review process generally involved voluntary notifications by transaction parties. FIRRMA added a mandatory filing requirement for certain investments, ‘whether or not controlling’, in critical US businesses.
Leiter: Before FIRRMA, CFIUS’ jurisdiction was limited to transactions resulting in foreign control of a US business. FIRRMA expanded CFIUS’ jurisdiction in a few key respects. First, CFIUS may now review some non-controlling investments that concern critical technology, critical infrastructure or sensitive personal data of US citizens. CFIUS will consider how these transactions give foreign investors access to non-public information and provide authority to make decisions to develop and use that information. In October, CFIUS began a ‘Pilot Program’ to implement this expanded jurisdiction for critical technology transactions, including FIRRMA’s requirement for filing mandatory declarations about these transactions before closing. Second, FIRRMA expanded CFIUS’ jurisdiction over real estate transactions, including to properties that are undeveloped, or that will be leased. Third, certain changes in rights are now covered transactions, even if not tied to new investment. Extending jurisdiction to these transactions and creating mandatory filing requirements are paradigm-shifting changes.
Apr-Jun 2019 Issue
Dechert LLP
Mayer Brown LLP
Skadden, Arps, Slate, Meagher & Flom LLP