Recently, the U.S. Senate overwhelmingly passed the 2019 National Defense Authorization Act, H.R. 5515 (NDAA). The Senate version contains several differences from the NDAA as passed by the House, and these discrepancies must now be resolved through a joint conference committee. Notably, the Senate attached to the NDAA its proposed Foreign Investment Risk Review Modernization Act (FIRRMA), which would update and alter the CFIUS review process. The House had not attached its CFIUS reform bill, H.R. 5841, but recently passed this bill as a standalone piece of legislation. Both bills would expand CFIUS jurisdiction to include certain types of non-controlling investments, affecting foreign investors in U.S. businesses. However, impacts would vary depending on whether the investor is from a country of special concern or an allied nation.
While there are also commonalities, important differences between the Senate and House proposed CFIUS reform legislation are described below.
- Non-Passive Investments
- The House bill focuses on investments from a “country of special concern” and where the foreign person could obtain:
- Sensitive personal data;
- Involvement, other than through voting of shares, in substantive decision-making regarding sensitive personal data, critical technologies, or critical infrastructure; or
- Material nonpublic technical information.
- A country of special concern would include foreign countries subject to certain export control restrictions, such as an arms embargo.
- The Senate version would expand CFIUS jurisdiction to include any investment, other than a passive investment in a U.S. critical technology or critical infrastructure company. Notably, non-passive investments would include transactions where a foreign person obtains access to material nonpublic technical information or a Board observer seat, among other things.
- There are several exemptions for certain non-passive investments, such as:
- Transactions involving certain countries as to be defined via CFIUS regulations (e.g., NATO members or allies); and
- Investment funds where the fund is managed by a U.S. general partner and any foreign limited partners do not have the ability to control the fund, including the ability to approve or disapprove investment decisions or unilaterally dismiss or prevent the dismissal of the general partner.
- The House bill focuses on investments from a “country of special concern” and where the foreign person could obtain:
- CFIUS Review Period
- The Senate version increases the length of the CFIUS review period from 30 days to 45 days, and allows for one 30-day extension to the current 45-day investigation period.
- The House version also increases the CFIUS review period to 45 days, though would allow for only one 15-day extension of an investigation period.
- Declarations
- The Senate version creates a streamlined voluntary declaration process for most transactions, with mandatory declarations for certain other transactions, such as those involving significant foreign government interests.
- The House version has a similar declaration framework, though it is entirely within CFIUS’ discretion whether to implement corresponding regulations for voluntary declarations. Declarations would be mandatory where a transaction involves an investment that results in the release of critical technologies to a foreign person in which a foreign government has, directly or indirectly, a substantial interest (an undefined term).
- Judicial Review
- The Senate version expressly creates an avenue for judicial review of a CFIUS finding or action through a civil claim in the U.S. Court of Appeals for the D.C. Circuit.
- The House version does not contain an express avenue for judicial review of CFIUS determinations.
- Fees
- The Senate version allows for filings fees (with no identified cap), as well as an additional “prioritization fee” to move the filing up in the CFIUS queue.
- The House version allows for fees not to exceed the lesser of $300,000 or 1% of the value of the transaction.
Foreign investors should examine whether proposed activities would be impacted by the potential legislation, which would include investments in non-U.S. entities with operations in the United States.
This post was updated on July 11, 2018.