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Proposed Regulations Set to Expand Authority of CFIUS

By: Olga Torres, Managing Member & Maria Alonso, Associate
Date: 01/16/2020

This article first appeared in the Newsletter of the International Law Section (www.ilstexas.org) of the State Bar of Texas, and is reproduced with the Section’s permission. This article was written prior to the two final regulations issued by the U.S. Department of the Treasury on January 13, 2020.

  1. Introduction: New Regulations

On September 17, 2019, the U.S. 美国财政部(" Treasury ")发布了两项拟议规则,将扩大美国外国投资委员会(" CFIUS ")的管辖权。.[1] 拟议的法规根据2018年外国投资审查现代化法案(“FIRRMA”)实施。, which was signed into law in August 2018. If enacted, 这些拟议中的新规定可能对美国的外国投资和房地产交易产生重大影响,投资者和公司必须意识到这种潜在影响.

Prior to FIRRMA, CFIUS’s authority included reviewing transactions that could result in the foreign control of a U.S. business. FIRRMA, which received bipartisan support in Congress, significantly expanded CFIUS’s authority. Notably, under FIRRMA, 美国外国投资委员会仍然有权审查“覆盖的控制交易”,但现在也对在美国某些地区的非控制投资拥有管辖权.S. businesses and certain real estate transactions. The first set of proposed rules[2] would amend and expand CFIUS’s existing regulations at 31 C.F.R. Part 800, which include changes related to controlled investments, foreign investments in U.S. businesses involved in critical infrastructure sectors, and those that hold sensitive personal data of U.S. citizens. The second set of proposed rules[3] would create a new set of regulations at 31 C.F.R. Part 802, which implement CFIUS’s new jurisdiction over certain real estate transactions.

Final regulations implementing FIRRMA will formally take effect by February 2020. 现行关键技术试点计划2018年10月暂行规定未因条例草案而改变. For more information about FIRRMA and the Pilot Program, please see our previous article.

FIRRMA和拟议的法规基于两个新的理由扩大了CFIUS的管辖权:1)在某些美国企业的非控股投资.S. businesses involved with critical technology, critical infrastructure, or sensitive personal data, referred to as “TID U.S. businesses” for technology, infrastructure, and data; and 2) certain real estate transactions. The comprehensive proposed regulations provide detailed criteria that would trigger U.S. businesses or real estate transactions to fall under the purview of CFIUS’s jurisdiction. Both proposed frameworks are addressed below, 特别关注非控制性投资和房地产交易,涉及特定敏感地点附近的房地产.

  1. Non-Controlling Investments: From Control to Involvement

The nature of the investment and the nature of the target TID U.S. business are key to determining whether a certain non-controlling investment will fall under CFIUS’s jurisdiction. The nature of the investment was promulgated in FIRRMA—the investment must afford a foreign person[4] 1)查阅工业贸易署所管有的重要非公开技术资料.S. business; 2) membership or observer rights on the board of directors or equivalent governing body of the TID U.S. business, 或提名个人出任工贸署董事会或同等管委会成员的权利.S. business; or 3) any involvement (other than through voting of shares) in substantive decision-making of the TID U.S. business regarding certain actions related to sensitive personal data, critical technologies, or critical infrastructure.[5]

Furthermore, the nature of the target TID U.S. business is further defined in the proposed regulations. The three categories of TID U.S. businesses include:

  • 1) Critical Technology TID U.S. business is one that produces, designs, tests, manufactures, fabricates, or develops a critical technology;[6]
  • 2) Critical Infrastructure TID U.S. business is one that owns, operates, manufactures, supplies, or services the subset of 28 types of critical infrastructure identified in Appendix A. Some of these include telecommunications, utilities, energy, and transportation; and
  • 3) Sensitive Personal Data TID U.S. business is one that maintains or collects sensitive personal data of U.S. citizens, which may be exploited in a manner that threatens national security. The proposed regulations provide two types of sensitive personal data: a) “identifiable data,” including data related to financial, geolocation, and health, among others, but only if the “category” and “collection” requirements are met (there are ten “categories” and three “collections”); and b) “genetic information” as defined in 45 C.F.R. § 160.103.

Excepted Investors

拟议的法规确实为某些被定义为“例外投资者”的外国人提供了“覆盖投资”的例外,这些人将因与被确定为“例外外国国家”的某些国家有联系而获得优惠待遇,” and their compliance with certain laws, orders, and regulations (including U.S. export controls and sanctions).[7] 拟议的法规没有列出任何国家,而CFIUS尚未公布将被纳入“例外外国州”的国家名单.” Importantly, this exception does not apply to control transactions (e.g., foreign control of a U.S. business).

Furthermore, proposed § 800.220 sets out the complex criteria that a foreign person needs to meet to be an “excepted investor,” which is not determinative on the foreign person’s nationality. Even if a foreign person meets the “excepted investor” criteria, the foreign person may lose their excepted status if, among others, the foreign person or related entities: 1) violated U.S. sanctions laws or received a civil monetary penalty from the Office of Foreign Assets Control (“OFAC”); 2) entered into a settlement agreement with OFAC or the Commerce Department, Bureau of Industry & Security (“BIS”); 3) were debarred by the State Department, Directorate of Defense Trade Controls; or 4) listed on the BIS Unverified List or Entity List.[8] It is evident that the proposed regulations, significantly impact foreign companies who violate U.S. sanctions and export control regulations.

Mandatory Filings

Another key aspect of FIRRMA and the proposed regulations is that CFIUS filings remain primarily voluntary. 有两种类型的交易触发强制声明要求:1)某些覆盖控制交易或某些美国的覆盖投资.S. businesses involved with critical technologies, pursuant to the Pilot Program that went into effect in November 2018; and 2) the covered transactions where a foreign government has a substantial interest in a TID U.S. business. Under both the Pilot Program and the proposed regulations, 有关人士可提交简短声明或以完整通知代替声明,以符合强制性声明的规定.

  1. Real Estate Transactions: Proximity to Sensitive Locations

FIRRMA and the proposed regulations also make clear that, in the eyes of CFIUS, real estate transactions that involve foreign parties can also be a matter of national security. As a result, 希望在美国购买或租赁房产的外国房地产投资者必须了解这些规则,以及如何有效地遵守它们.

The proposed regulations regarding certain real estate transactions are found at 31 C.F.R. Part 802, which apply to “covered real estate transactions” defined as “the purchase or lease by, or a concession to,” a foreign person of “covered real estate,”[9] either directly or indirectly, that affords the foreign person certain property rights, and that do not fall within the seven “excepted real estate transactions.“涉及的房地产交易”包括在特定机场等敏感地点或附近的交易, maritime ports, and military installations. The airports and maritime ports are identified on lists published by the U.S. Department of Transportation, and the military installations are listed at Appendix A to Part 802.

Moreover, the proposed regulations focus on real estate properties located within: 1) “close proximity” (one mile) of any military installation identified in parts 1 and 2 of Appendix A; 2) the “extended range” (between one mile and 100 miles) of any military installation enumerated in part 2 of Appendix A; 3) the 24 counties or geographic areas associated with missiles fields listed in part 3 of Appendix A; and 4) the 23 off-shore range complexes and operating areas, located within 12 nautical miles of the U.S. coastline and listed in part 4 of Appendix A.

The proposed regulations provide seven exceptions in § 802.217, which include transactions: 1) by certain “excepted real estate investors” based on their ties to “excepted real estate foreign states”; 2) covered real estate transactions not already covered under CFIUS’s jurisdiction pursuant to 31 C.F.R. Part 800 (e.g., control transactions and non-controlling investments involving TID U.S. businesses); 3) real estate in an “urbanized area” or “urban cluster,” unless it is in “close proximity” to a military installation listed on part 1 or 2 of Appendix A, or located within, or will function as part of, an airport or maritime port; 4) single housing units; 5) retail establishments at airports or maritime ports; 6) commercial office space within a multi-tenant commercial office building; and 7) certain lands owned by Alaska Natives or held in trust by the United States for American Indians, Indian tribes, Alaska Natives, and Alaska Native entities.

Under the new proposed regulations, real estate transactions, unlike certain covered non-controlling transactions mentioned above, do not require a mandatory filing. 受“覆盖房地产交易”影响的各方可以决定提交自愿通知或向CFIUS提交“简短”声明. 重要的是,各方要记住,根据第800部分,某些房地产可能属于外国投资委员会的管辖范围, which trigger the mandatory declaration filing requirement.

  1. Conclusion

By expanding CFIUS’s authority through these new proposed regulations, 财政部正在加强其在国家安全事务中的作用,因为它涉及到外国投资和房地产交易. The potential effects of these new proposed rules remain uncertain moving forward. Could these changes lead to a decline in foreign investment in the United States? According to the Secretary of the Treasury, 拟议的规则旨在更好地解决国家安全担忧,并为CFIUS的角色提供“明确性和确定性”, but do not discourage investment in the United States.[10] Such an intention may be true, but until the new proposed rules are implemented, the future role of CFIUS and its impact on foreign investment in the United States remains to be known.

 

[1] The proposed rules were published in the Federal Register on September 24, 2019.

[2] Provisions Pertaining to Certain Investments in the United States by Foreign Persons, 84 Fed. Reg. 50,174 (Sept. 24, 2019) (to be codified at 31 C.F.R. pt. 800) [hereinafter Covered Investments Regulations].

[3] Provisions Pertaining to Certain Transactions by Foreign Persons Involving Real Estate in the United States, 84 Fed. Reg. 50,214 (Sept. 24, 2019) (to be codified at 31 C.F.R. pt. 802) [hereinafter Real Estate Investments Regulations].

[4] As discussed below, the proposed regulations provide certain exceptions for an “excepted investor.”

[5] See § 800.211 in the Covered Investments Regulations, 84 Fed. Reg. at 50,185-86.

[6] The proposed regulations do not change the existing Critical Technologies Pilot Program under 31 C.F.R. Part 801. In brief, “critical technologies” is defined to include five categories, related to certain items subject to export controls and other regulatory schemes, and emerging and foundational technologies controlled under the Export Control Reform Act of 2018.

[7] See §§ 800.219 and 800.220 in the Covered Investments Regulations, 84 Fed. Reg. at 50,186-87.

[8] See § 800.220 in the Covered Investments Regulations, 84 Fed. Reg. at 50,187.

[9] “Covered real estate” is defined in § 802.211 and Appendix A to Part 800 in the Real Estate Investments Regulations, 84 Fed. Reg. at 50,224, 50,239.

[10] Press Release, U.S. Dep’t of the Treasury, 财政部发布改革美国某些外国投资和其他交易国家安全审查的拟议条例, (Sept. 17, 2019) (available at http://home.treasury.gov/news/press-releases/sm779).

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