Scott Boylan advises public- and private-sector organizations on a broad range of international legal and business issues, including trade compliance, investment security and government contracting. Notably, he has been involved in all aspects of the Committee on Foreign Investment in the United States (CFIUS), from negotiating mitigation agreements for the government, sellers and buyers to establishing and leading protocols for mitigated companies. He previously served as chief legal officer for large, CFIUS-mitigated companies and has held leadership positions in several government agencies, including the U.S. Departments of Homeland Security (DHS), Treasury and Justice (DOJ).
Q: The Department of Treasury recently announced final regulations for implementation of the Foreign Investment Risk Review Modernization Act of 2018 (FIRRMA) under CFIUS. What are the key aspects of these new rules governing foreign investment in the U.S., which took effect on February 13?
A: The FIRRMA law and regulations significantly expand the definition of covered transactions. Previously, they were limited to the foreign purchase of a controlling interest in a U.S. business. Covered transactions now also include non-controlling investments in businesses involved in critical technology, critical infrastructure, or sensitive data that give access to non-public technical information, and/or rights to management control such as veto rights or a board seat.
Prior to these changes, CFIUS was a voluntary process. Now there are certain mandatory filing requirements.
Many more deals and transactions will now be subject to a national security review by CFIUS. CFIUS has the power to force the unwinding of a transaction, and to issue fines amounting to the value of entire transaction—potentially billions of dollars. This can put transactions with a U.S. nexus at risk. Dealmakers should understand what constitutes a threat to national security in the context of their business or seek the right experts to guide them through the process.
Q. Are there any notable industries or sectors that may be most impacted by the new regulations? (i.e., PE, technology, real estate?)
A. The regulations identify a number of critical technologies, including geo-spatial imaging, biomedical, semiconductor, 3D printing and quantum computing technologies. Critical infrastructure includes telecoms, power, oil and gas, water, financial market utilities, defense industrial base, seaports and airports.
Additionally, real estate has specifically been added in the statute and the regulations regarding it are quite complex. This is an entirely new area for CFIUS and the real estate industry.
Q. As the number of CFIUS-reviewed deals continue to increase, what is the first piece of advice you would provide a company that is seeking CFIUS approval, given that this is largely a voluntary process?
A. My advice is to evaluate your company and your partners as CFIUS will evaluate you. Then, work to remediate any identified deficiencies before even beginning the CFIUS process. Anticipate mitigation agreements and understand the operational impact on your business or activity.
Q. Can investors anticipate any other regulations to be issued in the near-term?
A. Yes, we are awaiting several important pieces of new guidance, including:
- The U.S. Department of Commerce is expected to issue additional export controls on emerging technologies;
- CFIUS expects to issue a separate rule changing the identification of mandatory filing based upon NAICS codes to one based on export control licensing requirements; and
- Given CFIUS is now authorized to charge filing fees under FIRRMA, separate regulations regarding fees will be issued in the future.
