Publications

New rules that became final on February 13, 2020 dramatically expand the jurisdiction of the Committee on Foreign Investment in the United States (CFIUS). Where CFIUS was once concerned only with transactions that would result in foreign control of a U.S. business, the Committee’s authority now extends to non-controlling investments in a broad range of U.S. businesses, as well as investments in certain real estate.[1]

The new rules will significantly affect foreign investment in hi-tech, biotech, health care, finance, and insurance, among other sectors. Importantly, because the rules apply to both direct and indirect foreign investment, parties need to be alert to possible CFIUS issues not only when contemplating direct foreign investment, but also with respect to investments via funds with foreign limited partners, or via U.S. companies that are controlled by foreign persons, or into a foreign company that has a U.S. subsidiary. 

Parties who fail to seek CFIUS approval where applicable do so at their peril: the Committee can not only recommend blocking of proposed transactions, but also unwinding of completed investments/acquisitions.  More commonly, the Committee will propose mitigation conditions restricting foreign investor/acquiror rights, such as rights to participate in substantive decision-making or to access the target’s intellectual property. While prior notification to CFIUS is at the parties’ discretion in many cases (subject to the risk of unwinding/forced mitigation if notification is not made), the new rules make prior notification to CFIUS mandatory for investments in a broad range of businesses that deal with export-controlled and other sensitive technology, as well as for transactions involving a significant foreign government interest. Where filing is mandatory, failure to comply can lead not only to unwinding or imposition of mitigation conditions, but also penalties of the greater of value of the transaction or $250,000. 

To read the full Advisory, click on the Resources link below.

[1] A portion of the rules involving non-controlling investments in certain U.S. businesses that deal in critical technology was implemented as a pilot program beginning in October 2018. But the new rules go much further.