CFIUS received expanded authority when Congress passed the 2018 Foreign Investment Risk Review Modernization Act (FIRRMA), and the U.S. Department of the Treasury issued regulations in 2020. FIRRMA compliance is a growing area of law, and practitioners are better understanding how to comply with the CFIUS review process.
A transaction can become subject to CFIUS scrutiny when a foreign entity acquires a stake in a US business involved in critical Technology, Infrastructure or Data (aka a TID business), as well as certain projects involving real estate investment near airports, seaports, and military bases, to name a few. Failing to comply could result in civil penalties as steep as the value of the entire transaction.
Some transactions require mandatory filings with CFIUS, while other filings are voluntary. Parties who want to avoid the risk of civil penalties – even for seemingly low risk transactions - can voluntarily file a short-form “Declaration”. A Declaration sets forth information about the parties involved, the nature of the businesses involved posing potential risk to the United States, and other information about the transaction. CFIUS must respond to the Declaration within 30 days.
Parties would be wise to carefully craft these disclosures. A declaration can lead to additional questions by CFIUS, a more in-depth review process, or a ‘green light’ from the feds to move forward with the deal.
Congress is also considering a bill that would require a CFIUS type of review for foreign outbound investment. Thus, cross-border transactions are a growing area for government review, and U.S. and foreign companies should be aware of potential pitfalls during the review process.