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Thursday, September 19, 2019

Treasury Department Publishes Proposed CFIUS Regulations to Implement the Foreign Investment Risk Review Modernization Act of 2018 (FIRRMA)

On September 19, 2019, the Treasury Department issued proposed regulations to implement the bipartisan Foreign Investment Risk Review Modernization Act of 2018 (FIRRMA), as well as a Fact Sheet and list of Frequently Asked Questions (FAQs). FIRRMA was signed into law on August 13, 2018, and expanded the authority of the Committee on Foreign Investment in the United States (CFIUS) with respect to the review of national security concerns arising from certain foreign non-controlling investments and real estate transactions.

By way of background, the President has the authority to review any merger, acquisition or takeover involving a foreign person that could result in foreign control of a U.S. business, and has delegated this authority to CFIUS. CFIUS is led by the Secretary of the Treasury and its members include the U.S. Trade Representative, the Director of the Office of the Science and Technology Policy, the Director of National Intelligence, the Attorney General, and the Secretaries of Homeland Security, Commerce, Defense, State, Energy, and Labor.

CFIUS may self-initiate its review of transactions within its jurisdiction at any time prior to closing. Therefore, many parties voluntarily notify CFIUS of the transaction and submit themselves to the U.S. national security review process if there is a potential CFIUS-related risk. Without clearance by CFIUS, the President could impose adverse conditions post-closing or require divestiture. The review process commences with the parties submission of a voluntary notice to CFIUS. If CFIUS finds that a proposed transaction poses a national security risk, the President may impose conditions on, suspend or prohibit the transaction. CFIUS currently has the authority to review transactions (any time prior to closing) that may result in a foreign person’s control of a U.S. company, which includes either the acquisition of a majority interest in the company or minority interests that confer a significant ability to influence important matters related to the U.S. company.

The proposed regulations would expand CFIUS’s current jurisdiction to allow for the review of certain foreign non-controlling investments and real estate transactions. The proposed regulations were published in two parts. The first part would replace the current regulations in 31 C.F.R. Part 800 and implement the changes that FIRRMA made to CFIUS’s jurisdiction and process with respect to transactions that could result in foreign control of any U.S. business, as well as certain non-controlling “other investments” that afford a foreign person certain access, rights or involvement in certain types of U.S. businesses. The second part of the regulations can be found in new 31 C.F.R. Part 802 and provide CFIUS with the authority to review purchases, leases by, or concessions to foreign persons of certain real estate in the United States.

The following are the key take-away’s from the first part of the proposed regulations—

  • Expanded CFIUS Jurisdiction to Include Non-Controlling Transactions and Certain Real Estate Transactions: CFIUS will maintain its authority to review the potential impact on U.S. national security of any proposed transaction that could result in the foreign control of any U.S. business. At the same time, the proposed regulations would expand CFIUS’s jurisdiction over certain “non-controlling” transactions and certain real estate transactions.
  • Excepted Investors and Excepted Foreign States: FIRRMA requires that the proposed regulations limit the application of CFIUS’s jurisdiction over non-controlling investments and certain real estate transactions involving so-called “excepted investors” and “excepted foreign states.” In order to be considered an excepted investor or foreign state, strict criteria must be satisfied. For example, an excepted investor must have a substantial connection (e.g., nationality of ultimate beneficial owners and place of incorporation) to one or more particular foreign states. However, foreign persons who have violated, or whose parents or subsidiaries have violated, certain U.S. laws and regulations, or who have submitted misstatements or omission in a CFIUS notice, among other things, may not be an excepted investor. For excepted foreign states, the proposed rule employs a two-factor conjunctive test:

(a) the foreign state must be included in the list of eligible foreign states that will be published by the Treasury Department in the near future; and,

(b) whether the foreign state has established and is effectively utilizing a robust process to assess foreign investments for national security risks and is working with the U.S. on matters relating to investment security.

Notwithstanding, the proposed rules provide that CFIUS retains authority to review a transaction regardless of whether the foreign person is an excepted investor or an excepted real estate investor.

  • Short-Form Declarations: The proposed regulations provide the option of submitting a short-form declaration to CFIUS instead of the traditional voluntary notice. The Treasury Department will make a template of the short-form declaration available on its website when the final regulations take effect.
  • Mandatory Declarations: In certain circumstances, filing a declaration will be mandatory. For example, a declaration will be required for transactions where a foreign government has a substantial interest, or where the U.S. business produces, designs, tests, manufacturers, fabricates or develops one or more critical technologies.
  • Pilot Program Will Remain Unchanged: The proposed regulations do not modify the regulations currently at 31 C.F.R. Part 801 relating to the pilot program on critical technologies. CFIUS continues to evaluate the pilot program on critical technologies, and the Treasury Department invites public comments on the retention of the mandatory declarations for certain transactions involving critical technologies.


The following are the key take-away’s for the second part of the proposed regulations relating to real estate transactions—

  • Specified Geographic Areas: The proposed regulations focus on specific sites (e.g., certain airports, maritime ports, military installations, other facilities and properties of the U.S. Government, and specific geographic areas in and/or around those sites). These sites are provided in an appendix to the proposed regulations. However, not all real estate transactions that fall within the specified geographic areas described in the proposed regulations covered by the proposed regulations. Such excluded real estate transactions are referred to as “excepted real estate transactions” in Section 802.217 of the proposed regulations.
  • Single Housing Units: FIRRMA excludes from CFIUS’s jurisdiction the sale or lease of residential single “housing units” as that term is defined by the U.S. Census Bureau. Because many single housing units are conveyed with adjoining land, the proposed regulations exclude any fixtures and adjacent land from CFIUS’s jurisdiction provided that they are incidental to the intended use of the real estate as a housing unit (i.e., if their size and nature is common for similar single housing units in the locality in which the unit is located). If the incidental real estate is not common for other similar housing units in the locality, the exception would apply only to the housing unit itself.
  • Urbanized Areas: Real estate transactions in urbanized areas are within the scope of the proposed regulations. Information on urbanized areas and urban clusters can be found on the Census Bureau website, including the map (using the “urban areas” filter) at
  • No Mandatory Declarations for Real Estate Transactions: The transactions described in the proposed rule on real estate are not subject to a mandatory declaration requirement. As a general matter, parties to a covered real estate transaction will decide whether to file a notice voluntarily or submit a declaration to CFIUS.

Public comments on the proposed regulations may be submitted until October 17, 2019. Interested persons may submit comments electronically through the Federal government’s eRulemaking Portal at or by mail. The Treasury Department also intends to hold one or more teleconferences on the proposed regulations.

FIRRMA requires that final regulations take effect no later than February 13, 2020. The full text of the proposed regulations can be accessed at:

If you have any questions relating to the proposed regulations or other international trade-related issues, please contact Melissa Proctor ( or Peggy Chaplin Louie ( at Miller Proctor Law PLLC ( ).




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Melissa M. Proctor
President and CEO
Peggy Chaplin Louie
Senior Attorney
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