by：Laura Luo, Thomas Hsieh King & Wood Mallesons
On June 18, 2018, in conjunction with the passage of the National Defense Authorization Act for Fiscal Year 2019, the United States Senate passed a new bill (the Foreign Investment Risk Review Modernization Act of 2018, or “FIRRMA”) that aims to enhance the powers of the Committee on Foreign Investment in the United States (“CFIUS”). FIRRMA lays a foundation for shifting the way how CFIUS operates and expanding its reach over proposed foreign investments in U.S. companies. Before FIRRMA can become law, it must be approved by a conference between the U.S. House of Representatives and the Senate, which may make changes to FIRRMA in order to resolve any disagreements, and then signed by the President.
Some notable changes to the current CFIUS review process under FIRRMA:
Broadening the scope of considerations in CFIUS reviews
The new legislation requires a broader approach in CFIUS reviews—in addition to reviewing proposed transactions on a case-by-case basis, CFIUS would be required to look at entire industries or sectors to assess “the potential national security-related effects of the cumulative market share of or a pattern of recent transactions in any one type of infrastructure, energy asset, critical material, or critical technology by foreign persons.”
A statement made by a Democratic Congressman during a CFIUS hearing illustrates how this new approach would work in the movie theater industry:
“I, for example, am worried that the Chinese control a big chunk of the movie screens in the United States—AMC in particular. What that means is that if you make a movie that Beijing doesn’t like, not only can’t you get it shown in China, you can’t get it shown in the United States. . . . To give China control of the minds of Americans by controlling the media of the United States was a mistake that we can reverse, perhaps in this bill.”
Simplifying and intensifying the scrutiny placed on covered transactions
For low-risk transactions, FIRRMA would allow parties to voluntarily submit abbreviated notifications that would not exceed five pages in length.
Conversely, FIRRMA requires CFIUS to prescribe regulations specifying the types of covered transactions for which declarations to CFIUS of such transactions would be mandatory, such as investments in critical technology and critical infrastructure companies by foreign government controlled investors. Under the current CFIUS regime, notifications to CFIUS of a covered transaction are on a voluntary basis, but CFIUS can unilaterally initiate a review of a non-notified or non-declared covered transaction at any time.
Broadening CFIUS jurisdictions by redefining “covered transaction”
Currently, CFIUS only has jurisdiction over a “covered transaction,” which are defined as transactions that would result in foreign control of a “U.S. business” and would threaten U.S. national security. FIRRMA authorizes CFIUS to review other types of transactions that may not be within CFIUS’s jurisdiction based on the current legal regime, including the following:
- Certain real estate transactions: the purchase or lease by a foreign person of real estate, whether or not involving the acquisition of a “U.S. business,” that is located at or near a U.S. port (land, air or maritime) or sensitive U.S. government facilities.
- Any non-passive investment: any investment (other than a passive investment) by a foreign person in an unaffiliated U.S. critical technology or infrastructure company; or
- Any change in the rights that a foreign person has with respect to an investment in a U.S. business if the change could result in foreign control of the U.S. business or an investment by the foreign person in an unaffiliated U.S. critical technology or infrastructure company.
Tracking non-notified or non-declared transactions
In conjunction with its more aggressive approach towards monitoring transactions involving foreign persons, FIRRMA would call for the establishment of a mechanism to identify non-notified or non-declared transactions for which information is reasonably available.
Lengthening initial CFIUS review period
Upon receiving a notice from involved parties, CFIUS would now have forty-five days, instead of thirty days, to complete its initial review. The Committee would still have an additional forty-five days to further investigate any issues following the expiration of the initial review period, but under FIRRMA, it would also be able to extend such investigation for another thirty days in “extraordinary circumstances.”
Finally, FIRRMA would authorize CFIUS to impose filing fees, the structure of which would be determined at a future date.
Although the bill has not been signed into law, the willingness of the U.S. Senate to approve such measures indicates a change in policy concerning foreign investments in the U.S., and foreign companies should be aware of the greater scrutiny that they may face when doing business with U.S. entities.