On August 13, 2018, the Foreign Investment Risk Review Modernization Act (FIRRMA) was signed into law. FIRRMA substantially expands the scope of transactions eligible for review by the Committee on Foreign Investment in the United States (CFIUS).
Under prior law, CFIUS and the President already had the authority to prohibit foreign persons from making controlling investments in US businesses for reasons of national security – Broadcom Ltd.’s stymied takeover of Qualcomm back in March is a recent high-profile example.
While CFIUS review was previously limited to transactions by which a foreign buyer obtains control of a US business, CFIUS review under FIRRMA will include foreign-buyer non-controlling transactions as well. Essentially, anything more than a passive non-controlling investment by a foreign buyer – including any investment coupled with access to any material nonpublic technical information, board membership or observer rights, and substantive decision-making – will be subject to CFIUS review.
Not only is control over a US business no longer a condition for CFIUS review, but an investment in a “business” is no longer necessary, as CFIUS now captures real estate transactions involving foreign persons as well, where the real estate transaction constitutes, functions, or is located within an airport or maritime port, or is in “close proximity” to a US military installation or another sensitive facility or property of the US government.
The precise scope of CFIUS’s increased review authority is still subject to clarification by regulation, and most of the changes will not take effect until the earlier of February 13, 2020 or 30 days after CFIUS publishes notice that it has sufficient resources in place to administer the new provisions. That said, parties contemplating transactions with foreign buyers should be aware that the scope of transactions subject to CFIUS review is in the process of being substantially expanded.
For further guidance, please contact Bryan Seigworth or your Metz Lewis relationship attorney.