INTRODUCTION
CFIUS has the authority to review certain non-controlling investments in US businesses, when they might have major implications for the United States national interests. CFIUS applies to non-controlling, minority investments in the U.S. when a foreign person acquires specific rights in a TID U.S. business (Critical Technology, Infrastructure, or Sensitive Personal Data). These “covered investments” apply when the investor gains access to material nonpublic technical information, board representation, or involvement in substantive decision-making. A minor non-controlling investment (also known as a minority interest or non-control investment) in the United States refers to an ownership stake in a company where the investor holds less than 50% of the voting shares and does not have the power to direct the company’s day-to-day operations, management, or significant business decisions.
IN DEPTH
Jurisdiction Considerations
CFIUS jurisdiction extends to non-controlling “covered investments” where the foreign investor acquires at least a 10% interest or receives specific rights in a TID business.
Under FIRRMA, CFIUS regulates investments that offer access to material nonpublic technical information, board seats, or substantive decision-making in specific “TID U.S. businesses”. What are the components of a TID US Business?
• Critical Technology: Produces, designs, tests, manufactures, fabricates, or develops one or more critical Technologies (e.g., certain export-controlled “dual-use” items with both civilian and military applications, defense articles, nuclear technologies, select agents and toxins, and emerging and foundational technologies). “Critical technologies” include International Traffic in Arms (ITAR)‑controlled defense articles and services, specified items included in the Commerce Control List set forth if Part 774 of the Export Administration Regulations (EAR)‑controlled items, certain nuclear items, agents and toxins, and emerging/foundational technologies controlled under Section 1758 of the Export Control Reform Act of 2018. Determining whether a license would be required (and the reason for which an article or service is controlled) is a classification exercise under the EAR/ITAR that often drives the critical technology prong of the mandatory filing analysis. [1]
• Critical Infrastructure: Any business that performs specific functions (like owning, operating, or supplying) for types of “critical infrastructure” listed in federal regulations, such as major energy assets, ports, or telecommunications networks, or
• Sensitive Personal Data: Any business that maintains or collects, directly or indirectly, “sensitive personal data” of U.S. citizens. This typically covers data that could be used to identify or target individuals, including financial, health, geolocation, or biometric data for more than one million individuals
Mandatory Filing Considerations
A mandatory declaration or notice is required if a non-US investor acquires these rights and the target is a critical technology business that would require a license to export that technology to the investor. Furthermore, a mandatory filing is needed if a foreign government acquires a 25% or more voting interest in a TID business.
For a mandatory filing, the parties must submit at least 30 days before closing. The date of closing or “completion date” is the earliest date upon which the foreign person acquired any of the equity interest. Therefore, if Company A acquired a 25% ownership interest in Company B on July 1, but its right to control Company B was deferred until after CFIUS reviews the transaction, the “completion date” for the transaction is July 1.
CONCLUSIONS
Understanding the difference between mandatory and voluntary CFIUS filings is crucial. This requires a proactive approach, and a mitigation plan that would reduce the risk of incurring into increasing penalties. Maintaining internal policies, training and external legal counsel specialized in CFIUS, and export control laws is essential. Providing false or incomplete information is a direct violation. It is important to show that you have taken prompt action to assess any potential violation and prevent its recurrence
[1] https://diaztradelaw.com/mandatory-vs-voluntary-cfius-filings-triggers-timing-and-how-to-report-a-mandatory-transaction/
Image article from Freepik