Foreign persons considering investments in the United States beware. Under the Foreign Investment Risk Review Modernization Act (FIRRMA), the Committee on Foreign Investment in the United States (CFIUS) has substantially expanded authority to review, impose conditions on and, if necessary, unwind both controlling and non-controlling investments involving “critical technologies” – including certain passive investments that do not qualify for an exemption.

Filing a minimum of 45 days before closing is now mandatory for certain controlling and non-controlling investments across a broad range of industries and technologies. Failure to comply is punishable by penalties equal to the value of the transaction and forced divestiture. Pre-transaction due diligence is critical.

What happened? – CFIUS reform

Before FIRRMA, CFIUS jurisdiction extended only to investments that could result in foreign “control” of US businesses (i.e., businesses engaged in interstate commerce in the US) and filing with CFIUS was strictly voluntary. CFIUS reviews investments for threats to US national security, and the primary benefit of filing and clearing a transaction through CFIUS was to obtain a safe harbour from post-transaction government action to alter or unwind the transaction on this basis. The primary risk of filing a transaction was CFIUS authority to condition the safe harbour on transactional “mitigating measures”, which could reduce or eliminate the value of the investment. Buyers and targets unwilling to adopt CFIUS mitigating measures generally abandoned transactions. In the rare cases where deal parties refused to accept mitigating measures, CFIUS could recommend to the president that he block the investment or, if already closed, unwind the transaction.

FIRRMA extended CFIUS jurisdiction to non-controlling investments in certain US businesses and directed CFIUS to establish a mandatory filing process for certain investments. CFIUS has begun the process of implementing these new authorities with a pilot programme mandating pre-closing filing and review for controlling and non-controlling investments that involve “critical technologies”.

Jan-Mar 2019 Issue

Wiggin and Dana LLP