The US Treasury Department (Treasury) recently published proposed rules which would significantly expand the jurisdiction of the Committee on Foreign Investment in the United States (CFIUS) over foreign direct investments in the United States as contemplated by the Foreign Investment Risk Review Modernization Act of 2018 (FIRRMA).

The proposed rules expand CFIUS jurisdiction to minority acquisitions and incremental investments by foreign persons and state-owned entities and reflect a clear intent by CFIUS to increase its scrutiny of foreign investments in the oil and gas, petrochemical, maritime, and financial services sectors. The proposed rules also provide guidance about the types of real estate investments which may warrant CFIUS review, namely real estate in proximity to airports, maritime ports, and military and government facilities and installations. 

CFIUS review will remain largely voluntary under the proposed rules. Further, in an effort to mitigate the regulatory burden, the rules also will limit the scope of disclosures required for most transactions and shorten the initial review period from 45 to 30 days. Treasury also plans to exempt certain investment fund transactions and publish a “white list” of countries whose citizens will be able to pursue investments in US firms with abridged scrutiny. 

While the increasing scrutiny of foreign investments is primarily driven by legitimate national security concerns, the impact of political, media attention, and trade disputes on CFIUS outcomes should not be discounted, particularly with respect to transactions involving Chinese nationals and state-owned entities. Further, although most transactions will not require a filing, it would be a strategic mistake for transaction parties to assume that their transaction will fly under the radar or to underestimate the importance of CFIUS risk-shifting provisions in their definitive agreements. As such, CFIUS should be considered early on in transactions involving foreign direct investments to permit identification of regulatory concerns and the development of effective arguments to address them. 

Co-Authored by Abra Murray special counsel in Jones Walker’s Corporate Practice Group