Department of the Treasury Releases Final Regulations Governing the Committee on Foreign Investment in the United States (“CFIUS”)

November 18, 2008

On November 14, 2008, the U.S. Department of the Treasury, on behalf of the Committee on Foreign Investment in the United States, issued final regulations governing CFIUS.  This follows Treasury’s issuance of proposed regulations on April 21, 2008.  The period for public comment ended on June 9, 2008.


The final regulations implement Section 721 of the Defense Production Act of 1950, as amended by the Foreign Investment and National Security Act of 2007 ("FINSA").  Section 721, as amended by FINSA, authorizes the President to suspend or prohibit transactions, by or with any foreign person, that may result in control of a U.S. business by a foreign person ("covered transactions") and that threaten to impair national security.  Covered transactions are reviewed by CFIUS, an interagency body created by executive order and chaired by the Secretary of the Treasury.  CFIUS includes representatives from a number of U.S. Government departments and agencies, including, but not limited to, Treasury, Homeland Security, State, Defense, Commerce, Justice, Energy, Labor, the U.S. Trade Representative, the Director of the Office of Science and Technology Policy and intelligence agencies under the coordination of the Director of National Intelligence.

FINSA anticipates that, for each transaction before CFIUS, the Department of the Treasury will appoint a lead agency.  The lead agency, acting on CFIUS’s behalf, may negotiate, enter into, and enforce mitigation agreements or conditions with parties to covered transactions that pose a threat to national security.

The Final Regulations

The final regulations, which make some significant changes to the proposed and current regulations, retain many of the basic features of the current regulations, which have been in effect since 1991.  The final regulations continue to be based on voluntary notices to CFIUS by parties to covered transactions, although CFIUS is authorized to review transactions that have not been voluntarily notified.  One of the principal new developments regarding the procedures for filing notices with CFIUS is that the final regulations make explicit CFIUS’s current practice of encouraging parties to contact and engage with CFIUS prior to making a formal filing.  Pre-filing consultations are important because they provide CFIUS an opportunity to aid parties in preparing notices and to ensure efficient reviews.

The information required in a voluntary notice has been formally expanded to incorporate requirements to provide information that CFIUS now routinely seeks from notifying parties.  For instance, the final regulations require parties submitting a voluntary notice to provide personal identifier information, which CFIUS uses to examine the backgrounds of members of the boards of directors and senior company officials of entities in the ownership chain of foreign acquirers.  The final regulations also require a notifying party to provide information regarding the ultimate and intermediate parents of the foreign person making the acquisition and other persons with a role in the transaction.  Under the final regulations, each party to a notified transaction must certify the accuracy and completeness of its voluntary notice as to information about the party making the certification, the transaction, and all follow-up information.  A voluntary notice will not be deemed complete without this certification from the notifying party.

The procedure for CFIUS reviews and investigations remains similar to those that were in place under the old regulatory scheme.  Many changes are definitional.  The impact of these changes, however, cannot be understated.  For example, the final regulations authorize CFIUS to review any "merger, acquisition, or takeover," § 800.224, "by or with any foreign person, which could result in control of a U.S. business by a foreign person," § 800.207, to determine its potential impact on national security.  "Control" is defined as the "power, direct or indirect, whether or not exercised, through the ownership of a majority or a dominant minority of the total outstanding voting interest in an entity, board representation, proxy voting, a special share, contractual arrangements, formal or informal arrangements to act in concert, or other means, to determine, direct, or decide important matters affecting an entity[.]"  § 800.204(a).  This broad definition, which eschews any bright-line test, has the potential to encompass a wide-range of transactions and creates potential unpredictability for foreign entities interested in investing in U.S. companies.

The final regulations also provide new definitions for the parties to covered transactions.  For instance, a "foreign person" is "[a]ny foreign national, foreign government, or foreign entity" or "[a]ny entity over which control is exercised or exercisable by a foreign national, foreign government, or foreign entity."  § 800.216.  A "U.S. business" is defined as "any entity, irrespective of the nationality of the person that controls it, engaged in interstate commerce in the United States, but only to the extent of its activities in interstate commerce."  § 800.226.  Under the new definitions, it is possible for a party to be both a "foreign person" and a "U.S. business."

The final regulations amend the proposed text of § 800.601 to delete the description of circumstances in which CFIUS may reopen a review of a covered transaction on which CFIUS previously had concluded all action.  Pursuant to Executive Order 11858 of May 7, 1975, which was amended by Executive Order 13456 on January 23, 2008, CFIUS may reopen a review of a covered transaction on which CFIUS previously had concluded all action only in the extraordinary circumstances authorized under Section 721 of the Defense Production Act of 1950.  These circumstances include when a party has submitted false or misleading material information to CFIUS, omitted material information from CFIUS, or intentionally materially breached a mitigation agreement.

FINSA continues to govern CFIUS’s reporting to Congress.  FINSA requires that a senior-level official of the Department of the Treasury and of the lead agency certify to Congress, for all covered transactions on which CFIUS has concluded action under Section 721, that CFIUS has concluded that there are no unresolved national security concerns.  FINSA also requires that CFIUS provide Congress with annual reports on its work, including a list of the transactions it has reviewed or investigated in the preceding year, analysis related to foreign direct investment and critical technologies, and a report on foreign direct investment from certain countries.

The finalized regulations will become effective thirty days after their publication in the Federal Register.  § 800.210.  Guidance regarding the types of transactions that CFIUS has reviewed and that have presented national security concerns will be published soon in the Federal Register.

 Gibson, Dunn & Crutcher LLP

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Judith A. Lee (202-887-3591, [email protected])
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