Insights

On August 14, 2024, the Department of the Treasury (“Treasury”) announced in a press release a revamped Committee on Foreign Investment in the United States (“CFIUS” or “the Committee”) enforcement webpage. Among other updates, the webpage provides information about six CFIUS penalty actions from 2023 and 2024. For the past several years, CFIUS’s webpage only included two enforcement actions, one from 2018 and another in 2019. The lack of enforcement action likely gave the casual observer the impression that the Committee was not actively enforcing the CFIUS regulations. Now, the Treasury press release touts, “In 2023 and to date in 2024, CFIUS has issued three times more penalties than it had in the previous nearly 50-years since its establishment.” 

Much has been written about the Corporate Transparency Act (“CTA”), which was enacted on January 1, 2021, and went into effect on January 1, 2024. Briefly, the CTA requires “reporting companies” to disclose beneficial ownership information (“BOI”) to the federal government. A perhaps overlooked effect of the CTA’s BOI reporting rule is its potential impact on the Department of the Treasury’s continual search for foreign investment transactions that were not notified to the Committee on Foreign Investment in the United States (“CFIUS” or “the Committee”).

On July 23, 2024, the Committee on Foreign Investment in the United States (“CFIUS” or “the Committee”) released its annual report to Congress regarding the Committee’s national security reviews and investigations of certain foreign investment transactions from the preceding year. The report offers valuable insight into the CFIUS review process and highlights the various foreign investment transaction elements that are coming under scrutiny. Even with an overall decrease in global merger and acquisition activity in 2023, CFIUS activity was still significant.

A new proposed rule issued by the Committee on Foreign Investment in the United States (CFIUS) seeks to expand the scope of information that CFIUS can request from parties, expand its ability to monitor and investigate non-notified transactions, target procedural weaknesses in mitigation negotiations, and increase penalties. Written comments on the proposed rule must be received by May 15, 2024. 

In a move that highlights the U.S. government’s ongoing fight against evasion of sanctions and export control laws, the Departments of the Treasury, Commerce, and Justice yesterday published yet another Tri-Seal Compliance Note directed specifically at foreign persons, describing the applicability of these international trade and finance laws to foreign-based persons (the “March 6 Compliance Note”). Since Russia’s invasion of Ukraine in February 2022 and the significant increase of sanctions and export controls targeting Russia, these Departments have published Tri-Seal Compliance Notes on “Third-Party Intermediaries Used to Evade Russia-Related Sanctions” and “Export Controls and Voluntary Self-Disclosure of Potential Violations.”

On June 16, 2023, the U.S. Department of Commerce (“Commerce”) issued a long-awaited final rule (the “Final Rule”), effective July 17, 2023, related to the Information and Communications Technology Supply Chain.¹ Among other clarifications, the Final Rule identifies the Under Secretary of Commerce for Industry and Security as responsible

On September 14, 2023, the U.S. Department of the Treasury held the annual Committee on Foreign Investment in the United States (“CFIUS”) Conference in Washington, DC.

Any person or company in the United States that manufactures, exports, temporarily imports, or brokers items, including technical data and software (defense articles), or performs certain services (defense services) that are controlled under the International Traffic in Arms Regulations (ITAR) is required to register with the U.S. Department of State Directorate of Defense Trade Controls (DDTC) and keep that registration current. Current in the context of the ITAR means not only the information that is current at the time the registration is initially submitted, but the registration information must accurately reflect the registered entity’s current information at any point in its timeline. 

On August 9, 2023, President Biden issued an Executive Order (“E.O.”) on outbound investment regulation. This long-anticipated action marks the first time the U.S. government has sought to regulate investments made abroad by U.S. firms.

On July 31, 2023, the Committee on Foreign Investment in the United States (“CFIUS” or “the Committee”) released its annual report to Congress of the Committee’s national security reviews and investigations of certain foreign investment transactions from the preceding year. The report offers valuable insight into the CFIUS review process and highlights the various foreign investment transaction elements that are coming under scrutiny. 

In our recent article Amid TikTok Tensions, CFIUS Signals Increased Enforcement and Other Updates, we discussed updates from the Committee on Foreign Investment in the United States (“CFIUS” or “the Committee”) primarily with respect to enforcement. 

As TikTok CEO Shou Zi Chew was facing (often contentious) questions from members of Congress during a four and a half hour hearing on March 23, 2023, many casual observers were learning for the first time about the interagency Committee on Foreign Investment in the United States (“CFIUS” or “the Committee”). 

Torres Trade Law is pleased to share our contribution to “The Law Reviews: Mergers & acquisitions” Review 16th Edition. Our Managing Member, Olga Torres, and Senior Associate, Derrick Kyle, authored a chapter on U.S. Trade Compliance Due Diligence. The chapter focuses on two essential considerations when conducting trade due diligence. The chapter discusses U.S. trade due diligence required for M&A transactions, focusing on successor liability from violations by the target company and the impact of foreign investment reviews triggered by acquisition or investment by foreign persons.

The Mergers & Acquisitions Review provides a practical overview of global M&A activity and the legal and regulatory frameworks governing M&A transactions in major jurisdictions worldwide.

To receive a copy of the book, please email operations@torrestradelaw.com. The number of hard copies is limited and will be given on a first come first basis. 

*Reproduced with permission from Law Business Research Ltd. This article was first published in December 2022.   

We have seen a tremendous year in the trade and national security front and are now, more than ever, deeply aware of the impact trade compliance professionals have on safeguarding national security in the face of continued geopolitical threats. Here are some of the 2022 year-end review highlights.

On October 20, 2022, the U.S. Department of the Treasury, acting as Chair of the interagency Committee on Foreign Investment in the United States (“CFIUS” or “the Committee”), released the first-ever CFIUS Enforcement and Penalty Guidelines (“the Guidelines”). The Committee, sometimes called a “black box” for its notoriously opaque internal processes, is authorized to review certain transactions involving foreign investment in the United States and certain real estate transactions by foreign persons to determine the effect of such transactions on U.S. national security. CFIUS is tasked with identifying and mitigating certain national security risks, often by entering into agreements or imposing conditions on transaction parties. The Guidelines provide insight into how CFIUS determines whether and in what amount to impose a penalty or take some other enforcement action against a party that fails to comply with CFIUS mitigation agreements or other legal obligations.

On Tuesday, August 2, 2022, the Committee on Foreign Investment in the United States (“CFIUS” or “the Committee) released its Annual Report to Congress for calendar year 2021. The report, replete with charts, tables, and graphs visualizing the data and comparing it to prior years, broadly details the work the Committee has done in the past year concerning oversight of foreign investment transactions in areas deemed critical to U.S. national security. There are several key takeaways from the report that are particularly important to international businesses looking to invest in the United States.

On May 23, 2022, the U.S. Department of Commerce Bureau of Industry and Security (“BIS”) published a proposed rule identifying new unilateral export controls on four dual-use biological marine toxins, the synthesis and collection of which BIS has identified for evaluation in accordance with the criteria set forth in Section 1758 of the Export Control Reform Act of 2018 (“ECRA”).1 Section 1758 requires BIS to identify and establish appropriate controls on the export, reexport, or transfer (in-country) of “emerging and foundational technologies” that are “essential to the national security of the United States.”2 Importantly, the proposed rule announced a change in BIS’s approach to identifying new technologies of high strategic importance for control: moving forward, BIS will no longer distinguish between “emerging technologies” and “foundational technologies,” but rather “will characterize all technologies identified pursuant to Section 1758 as ‘Section 1758 technologies.’”

On February 4, 2022, the House of Representatives passed the National Critical Capabilities Defense Act of 2021 (“NCCDA”) as part of the much larger America Creating Opportunities for Manufacturing, Pre-Eminence in Technology, and Economic Strength Act of 2022 (“COMPETES Act”). The COMPETES Act has many aims related to shoring up domestic manufacturing, protecting technology capabilities, and generally, as the name suggests, improving the country’s competitiveness with the rest of the world, primarily China.

On June 9, 2021, Momentus Inc., a U.S. commercial space company offering in-space transportation and infrastructure services, as a condition to its acquisition by a foreign-owned company, entered into a National Security Agreement with the Department of Defense (“DoD”) and Department of Treasury. Under this agreement, Momentus was required to “implement increased security measures, hire key positions to provide additional oversight and appoint a [Committee on Foreign Investment in the United States (“CFIUS”)]-approved director to its board of directors.”¹ In doing so, Momentus agreed to mitigate the national security risks associated with its foreign ownership.

Olga Torres provides commentary for the Foreign Investment Watch survey on CFIUS readiness. According to this new survey, both corporate executives and outside counsel feel more knowledgeable about CFIUS and feel better prepared to comply with filing obligations or inquiries from the Committee.

This article first appeared in the Foreign Investment Watch Journal on August 6, 2021 (www.foreigninvestmentwatch.com) and is reproduced with permission.

The Committee on Foreign Investment in the United States (“CFIUS” or “the Committee”), under the U.S. Department of the Treasury (“Treasury”), has the authority to review for national security risks certain foreign investment transactions in U.S. businesses.

On July 29, 2021, CFIUS published its 2020 Annual Report summarizing CFIUS-covered transaction declarations and notices, outlining mitigation measures and conditions, demonstrating credible evidence of coordinated strategies by foreign actors to acquire critical U.S. technology companies, and reporting on foreign direct investment in the U.S. by countries that boycott Israel or do not ban terrorist organizations.

For many years, the Committee on Foreign Investment in the United States ("CFIUS") has had the authority to review non-notified transactions – deals which have not been submitted to CFIUS for review and approval – but until recently, resources for such efforts were limited. That changed in 2018, when the Foreign Investment Risk Review Modernization Act of 2018 (“FIRRMA”) significantly bolstered resources for CFIUS oversight and enforcement activities.

The U.S. semiconductor industry has always been very important to the country’s national security. As a result, the U.S. government ("USG") continues to increase legal protections of the semiconductor industry by imposing certain foreign investment restrictions and export controls.

This article will discuss some of the recent foreign investment deals reviewed by the Committee on Foreign Investment in the United States (“CFIUS”) and recent export controls involving the semiconductor industry.

On January 19, 2021, the Department of Commerce (“Commerce”) published its interim final rule on “Securing the Information and Communications Technology and Services Supply Chain” (the “Final Rule”) to implement the provisions of a May 15, 2019 Executive Order on the same topic.

Scheduled to take effect on March 22, 2021, the Final Rule is intended to address the growing security risk to the nation’s information and communications systems from using technology developed by “foreign adversaries.” Commerce has requested public comment on the rule up until the time the rule takes effect (feedback must be received by March 22, 2021).

In 2020, the U.S. Department of the Treasury issued several final regulations to implement the Foreign Investment Risk Review Modernization Act of 2018, which as readers will recall expanded the jurisdiction of the Committee on Foreign Investment in the United States (“CFIUS”). In addition, the U.S. Government also issued in 2020 several regulatory actions that impact foreign investments, including the identification and review by the U.S. Department of Commerce for “emerging and foundational technologies that are essential to the national security of the United States,” among others. Overall, the final CFIUS regulations along with other regulatory actions call for closer scrutiny of foreign investments and the export controls.

Now more than ever Chinese investment in the United States is facing barriers stemming from the strict reviews conducted by the Committee on Foreign Investment in the United States (“CFIUS” or the “Committee”). After several high-profile cases, which our law firm has covered in previous articles and are summarized below, the general consensus is that Chinese investment will be greatly scrutinized – and in many cases completely blocked – to satisfy the U.S. government’s national security concerns.

But even in these uncertain times, we have also seen some Chinese transactions approved by CFIUS, confirming that not all Chinese investment is off limits.

The long-awaited, Advanced Notice of Proposed Rulemaking ("ANPRM") soliciting comments on the definition of, and criteria for, identifying “foundational technologies” (“the Notice”) was finally issued on August 27, 2020, by the U.S. Department of Commerce, Bureau of Industry and Security (“BIS”). The deadline to submit comments is October 26, 2020.

The U.S. Department of the Treasury Office of Investment Security (“Treasury”) published a final rule on September 15, 2020, significantly changing the mandatory filings administered by the Committee on Foreign Investment in the United States (“CFIUS”). 

Most people are familiar with the social media sensation, TikTok, a mobile device application which allows users to create and share short-form videos. It is reported that there have been over 175 million downloads of the application in the U.S. Despite its popularity, most TikTok users are oblivious to how the national security concerns raised by the current White House Administration will affect them. Not to mention many users are probably unaware and will be surprised to learn that TikTok is a Chinese application. Beijing-based, ByteDance Ltd. (ByteDance) is the parent company of TikTok.

On May 21, 2020, the U.S. Department of the Treasury (“Treasury”) published a Proposed Rule that includes two important changes impacting mandatory filings.

The U.S. Department of the Treasury finalized the new Committee on Foreign Investment in the United States (“CFIUS”) regulations, which became effective on February 13, 2020.[1]

Amongst other matters, the new regulations significantly expand CFIUS’s jurisdiction for non-controlling investments, including the review of transactions involving U.S. businesses that manage or collect “sensitive personal data” of U.S. citizens.

Pursuant to the Foreign Investment Risk Review Modernization Act of 2018 (“FIRRMA”), the Committee on Foreign Investment in the United States (“CFIUS”) is authorized to review certain real estate transactions by foreign persons in the United States. The regulations at 31 C.F.R. part 802[1] (effective on February 13, 2020), implement CFIUS’s authority to review certain “covered real estate transactions,” involving the purchase or the lease by, or a concession to, a foreign person of certain real estate in the United States. The real estate transactions subject to review include transactions meeting certain criteria and that are in, or around, sensitive sites such as specific airports, maritime ports, and military installations. The airports and maritime ports are identified in the regulations and contained on lists published by the U.S. Department of Transportation. Furthermore, the military installations are listed at Appendix A to Part 802.

On September 17, 2019, the U.S. Department of the Treasury (“Treasury”) issued two proposed rules that would expand the jurisdiction of the Committee on Foreign Investment in the United States (“CFIUS”).[1] If enacted, these new proposed regulations could have major implications on foreign investment and real estate transactions in the United States and investors and companies must be aware of such potential impact.

On September 17, 2019, the U.S. Department of the Treasury issued a press release announcing two proposed regulations that will implement provisions of the Foreign Investment Risk Review Modernization Act of 2018 (“FIRRMA”). The proposed regulations will be published in the Federal Register on September 24, 2019, and they will expand the jurisdiction of the Committee on Foreign Investment in the United States (“CFIUS”). Specifically, the two proposed regulations will address certain non-controlling investments and real estate investments by foreign persons. The deadline to submit comments on the proposed regulations is October 17, 2019, and pursuant to FIRRMA the regulations will take effect no later than February 13, 2020.

In April 2019, CFIUS published a notice on its website that in 2018 it had issued a $1 million fine for breaches of a 2016 CFIUS mitigation agreement. 

The Council of the European Union just made investing in the EU more complicated.

This article discusses how new regulations significantly change foreign investments in U.S. businesses and the temporary Pilot Program, which addresses specific risks related to U.S. critical technologies.

This article first appeared in the Newsletter of the International Law Section (www.ilstexas.org) of the State Bar of Texas, and is reproduced with the Section’s permission.

On October 10, 2018, the U.S Department of the Treasury issued temporary regulations to conduct pilot programs to implement provisions of the Foreign Investment Risk Review Modernization Act of 2018 (“FIRRMA”), which became effective August 13, 2018, and amended section 721 of the Defense Production Act of 1950 specifically to protect American technology companies and intellectual property. As Torres Law previously discussed in several articles, the Committee on Foreign Investment in the United States (“CFIUS”) reviews foreign investment in U.S. companies for national security considerations, and FIRRMA has significantly expanded CFIUS jurisdiction.

On August 13, 2018, President Trump signed the John S. McCain National Defense Authorization Act for Fiscal Year 2019 (NDAA) into law. The NDAA contains the Foreign Investment Risk Review Modernization Act (FIRRMA), which makes significant changes to the Committee on Foreign Investment in the United States (CFIUS). This article briefly summarizes a number of changes to the current CFIUS process that will significantly impact foreign companies seeking to invest in U.S.-based businesses. The changes introduced by FIRRMA are the most significant changes made to CFIUS in over a decade.

The Committee on Foreign Investment in the United States (“CFIUS”) is an interagency body which has the authority to assess the national security implications of transactions that could result in control of U.S. businesses by a foreign person. The CFIUS is chaired by the U.S. Secretary of Treasury and includes representatives from 16 U.S. departments and agencies. Over the last thirty years, the CFIUS has advised the president concerning foreign investment, particularly with respect to transactions that, for one reason or another, the CFIUS believes the president should review in the interest of national security. Under the CFIUS’s guidance, U.S. presidents have only blocked a total of five transactions, two of which have happened in the last six months under President Trump. This article provides a brief summary regarding recent cases and proposed legislation that will impact foreign investment in the United States.

The recent presidential campaign was notable for the debate concerning whether interaction with foreign entities benefitted the U.S. While trade deficits and offshoring of U.S. jobs grabbed headlines, there has been growing attention to the acquisition of U.S. companies by foreign entities.