On October 11, 2018, the U.S. Treasury Department issued new interim regulations that significantly expand the scope of national security reviews of in-bound foreign investments in U.S. companies and make filings with the Committee on Foreign Investment in the United States (CFIUS) mandatory under certain circumstances. These new regulations implement portions of the Foreign Investment Risk Review Modernization Act (FIRRMA) that was signed into law on August 13, 2018, as part of the John S. McCain National Defense Authorization Act for Fiscal Year 2019. As discussed previously, FIRRMA is a response to growing concerns over the trade and industrial policies of certain foreign countries (especially China) and is aimed at increasing CFIUS’ authority to review and regulate investments in U.S. businesses and critical U.S. technology and infrastructure that may implicate U.S. national security concerns.

The new regulations issued by CFIUS do two things. First, they implement largely technical changes to the existing CFIUS review process. This process allows foreign investors in U.S. businesses to obtain “safe harbor” protection for their investments by filing detailed voluntary disclosures with CFIUS. Absent such safe harbor reviews, CFIUS can order the blocking or unwinding of transactions that CFIUS determines afford the foreign investor “control” via a merger, acquisition, or takeover of a U.S. business that implicates U.S. national security concerns.1 FIRRMA made a number of technical changes to this existing review process, including further defining the scope of covered transactions and including a new category of export-controlled “emerging and foundational technologies” under the list of industries and technologies presumed to raise national security concerns. The latest interim regulations implement many of these changes and apply to all covered transactions subject to CFIUS reviews on or after October 11, 2018.

Second, the new regulations dramatically expand the scope of CFIUS jurisdiction to cover controlling and certain non-controlling investments in any U.S. business that produces, designs, tests, manufactures, fabricates or develops a critical technology utilized in connection with (or otherwise designed by the U.S. business for use in) one or more covered industries, as defined by 27 categories under the North American Industry Classification System (NAICS):

Aircraft Manufacturing
NAICS Code: 336411
Powder Metallurgy Part Manufacturing
NAICS Code: 332117
Aircraft Engine and Engine Parts Manufacturing
NAICS Code: 336412
Power, Distribution, and Specialty Transformer Manufacturing
NAICS Code: 335311
Alumina Refining and Primary Aluminum Production
NAICS Code: 331313
Primary Battery Manufacturing
NAICS Code: 335912
Ball and Roller Bearing Manufacturing
NAICS Code: 332991
Radio and Television Broadcasting and Wireless Communications Equipment Manufacturing
NAICS Code: 334220
Computer Storage Device Manufacturing
NAICS Code: 334112
Research and Development in Nanotechnoloy
NAICS Code: 541713
Electronic Computer Manufacturing
NAICS Code: 334111
Research and Development in Biotechnology (except Nanobiotechnology)
NAICS Code: 541714
Guided Missile and Space Vehicle Manufacturing
NAICS Code: 336414
Secondary Smelting and Alloying of Aluminum
NAICS Code: 331314
Guided Missile and Space Vehicle Propulsion Unit and Propulsion Unit Parts Manufacturing
NAICS Code: 336415
Search, Detection, Navigation, Guidance, Aeronautical, and Nautical System and Instrument Manufacturing
NAICS Code: 334511
Military Armored Vehicle, Tank, and Tank Component Manufacturing
NAICS Code: 336992
Semiconductor and Related Device Manufacturing
NAICS Code: 334413
Nuclear Electric Power Generation
NAICS Code: 221113
Semiconductor Machinery Manufacturing
NAICS Code: 333242
Optical Instrument and Lens Manufacturing
NAICS Code: 333314
Storage Battery Manufacturing
NAICS Code: 335911
Other Basic Inorganic Chemical Manufacturing
NAICS Code: 325180
Telephone Apparatus Manufacturing
NAICS Code: 334210
Other Guided Missile and Space Vehicle Parts and Auxiliary Equipment Manufacturing
NAICS Code: 336419
Turbine and Turbine Generator Set Units Manufacturing
NAICS Code: 333611
Petrochemical Manufacturing
NAICS Code: 325110

Non-controlling investments in the above categories are subject to mandatory CFIUS reporting if they permit the foreign investor: (i) access to “any material nonpublic technical information” in possession of the U.S. business; (ii) membership or observer rights on the board of directors or equivalent governing body of the U.S. business, (iii) the right to nominate an individual to a position on the board of directors or equivalent governing body of the U.S. business; or (iv) any involvement, other than through voting of shares, in the substantive decision-making of the U.S. business regarding the use, development, acquisition or release of critical technology.

Mandatory reports can be made via a standard CFIUS notice filing or through a new short-form “declaration.” The declaration is an abbreviated notice that generally should not exceed five pages in length. Upon filing of a declaration, CFIUS has 30 days to respond. Within those 30 days, CFIUS can notify the parties that it has completed its review without action (effectively clearing the transaction), request the filing of a full notice, unilaterally initiate a full review, or inform the parties that the declaration was not sufficient to allow CFIUS to complete its review and that they may submit a full notice. If the declaration or full written notice is not submitted by the relevant deadline (i.e., on or “promptly after” November 10, 2018, for transactions expected to close between November 10 and December 25, 2018, or, for all other transactions, at least 45 days prior to the transaction’s expected closing), Treasury may assess civil penalties up to the value of the transaction.

Importantly, the new mandatory reporting requirements are not limited to investments by foreign persons from any specific countries. Accordingly, any investment by a foreign person in a U.S. business that develops or produces technology for or is involved in one of the 27 industries listed above should be carefully vetted from an export control and jurisdictional standpoint early on in the transaction.

For more information on how this CFIUS pilot program could affect your company or any transactions in which you are currently engaged or contemplating, please do not hesitate to contact the authors below or any other member of Drinker Biddle’s Customs and International Trade Team.


1 The definition of “control” can vary with the facts and circumstances of each case but is typically presumed to exist in the case of transactions that result in the acquisition of voting shares in excess of 10 percent of total voting shares.

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