CFIUS Mandatory Filing Guide

What is a CFIUS mandatory filing?

CFIUS stands for the Committee on Foreign Investment in the United States, the interagency committee authorized to formally monitor and review certain foreign investments, called “Covered Transactions,” in the United States to identify national security concerns. Prior to the Foreign Investment Risk Review Modernization Act of 2018 (FIRRMA), CFIUS filings were strictly voluntary. Now, under the FIRRMA regulations certain transactions involving a Technology, Infrastructure, or Data U.S. business (“TID business”) trigger a mandatory filing requirement. A CFIUS Mandatory Filing generally requires information on the foreign acquiring party, target entity in the U.S., and ownership, access, and other rights implicated by the transaction. Importantly, a Mandatory Filing must be submitted at least thirty days before the subject transaction is completed.

What triggers a CFIUS mandatory filing?

Subject to certain limited exceptions, the following types of transactions require submission of a CFIUS filing:

  • Covered Transactions involving foreign government interest: where a foreign government has a voting interest of 49% or more in a foreign person, and that foreign person acquires a substantial interest (voting interest of 25% or more) in a TID U.S. business.

  • Covered Transactions involving “Critical Technologies”: where there is (i) a Covered Investment by a foreign person in a U.S. TID business that produces, designs, test, manufactures, fabricates, or develops Critical Technologies, and (ii) a U.S. regulatory authorization (i.e., an export license) would be needed to export, reexport, or transfer such Critical Technology to a direct or indirect party to the transaction, including those with a 25% stake in direct parties.

  • What constitutes “Critical Technologies” under CFIUS regulations?

    Critical technologies are described in 31 C.F.R. § 800.215 and include certain defense articles on the United States Munitions List (“USML”), items listed on the Commerce Control List (“CCL”), nuclear equipment, agents and toxins, and “emerging and foundational technologies.” Thus, the assessment of whether an item falls within the categories of critical technologies typically involves classification of the item under U.S. export control regulations (i.e., the International Traffic in Arms Regulations (“ITAR”) and the Export Administration Regulations (“EAR”)). Correctly classifying relevant items under U.S. export regulations can be a complex aspect of a CFIUS analysis that often requires expert advice. The attorneys at Torres Trade Law, PLLC are highly experienced in conducting export classification analyses, including encryption and software classifications, and thus can provide essential guidance on this crucial step.

How can a lawyer from Torres Trade Law assist a business or individual through this process?

Determining whether a subject transaction triggers the mandatory filing requirement (or whether a voluntary notice is prudent) can be a time-consuming and difficult process. Important facts such as the level of foreign government involvement, rights to be granted to a foreign investor, and a U.S. entity’s business activities related to certain technologies can be difficult to ascertain depending on the level of sophistication and cooperation of the involved parties. These facts must then be weighed against multiple definitions and provisions under the CFIUS regulations to determine whether a filing is required or prudent. Therefore, parties often engage internal or external legal counsel to help complete this process in an efficient manner. CFIUS attorneys can assist with identifying and gathering relevant facts, facilitating necessary communication with another party to a transaction, and navigating complex regulatory provisions. In addition, CFIUS attorneys can also provide essential guidance related to communications with CFIUS, relevant timelines, and possible outcomes if a mandatory filing is submitted.

When does a mandatory filing have to be submitted?

If the mandatory filing requirement is triggered, a filing must be submitted to CFIUS at least 30 days before the expected transaction completion date. According to CFIUS FAQs, the “completion date” is typically the earliest date upon which any ownership interest is conveyed or transferred to another party. However, in the context of a transaction involving delayed or “springing” rights, foreign parties may not use the date on which delayed rights that trigger a mandatory filing (e.g., board appointment, voting rights, or rights to material nonpublic information) come into effect as the completion date. Instead, for these types of transactions the completion date is the earliest date upon which a party acquires any equity interest in the target entity. Parties that believe a filing may be required should obtain legal counsel and begin the relevant CFIUS analysis early in the transaction to avoid missing CFIUS deadlines or delaying closing.

What are the important things to be aware of when completing a mandatory filing?

CFIUS mandatory filings can be in the form of a full Notice or short-form Declaration, both of which have different review timelines, requirements, and advantages. Compared to a Declaration, submitting a formal Notice is a more extensive process that requires the disclosure of more detailed information. In addition, a Notice requires submission of a filing fee while there is no fee associated with filing a Declaration. Filing fees are calculated based on the value of the proposed transaction and range from $0 for transactions under $500,000 to $300,000 for transactions valued at $750 million or more. While filing a Declaration may seem like a more efficient and cost-effective route, it is generally considered a riskier type of filing as CFIUS retains the power to later request the submission of a formal Notice if it needs more information from the parties.

Parties should also keep in mind how CFIUS timelines overlap with relevant transaction timelines. Depending on the type of filing submitted, CFIUS can take 30-45 days to review. CFIUS may also elect to conduct a further 45-day investigation after the initial review period, request that a party who filed a short-form Declaration resubmit its filing as a long-form Notice and impose conditions on the subject transaction to mitigate national security concerns. These actions can have practical implications on the timeline for a transaction and the rights of the contracting parties. CFIUS counsel can provide important assistance with identifying risks associated with the CFIUS process and provide guidance related to types of CFIUS filings and the timeline for review.

What happens if a mandatory filing is triggered but not filed?

According to 31 C.F.R. § 800.901(b), failure to submit a mandatory CFIUS filing can lead to penalties of up to $250,000 or the value of the transaction, whichever is greater. The severity of the penalty assessed will depend on the nature of the transaction as well as other factors such as the subject party’s sophistication and record of compliance, whether the failure to file was intentional or a result of negligence, and whether the subject party took remedial actions once the violation was discovered.

Aside from imposing penalties on a party that has failed to submit a mandatory filing, CFIUS can also require parties to enter into a mitigation agreement to address national security concerns or unwind a transaction even after it has already been completed. However, if a CFIUS filing is properly submitted and CFIUS clears the transaction, the parties receive a “safe harbor” which, except in very limited circumstances, prevents CFIUS from initiating a review of the transaction later. Importantly, the subject parties cannot receive a “safe harbor” with respect to the subject transaction unless a filing is submitted and cleared.

A party that discovers it failed to submit a mandatory CFIUS filing can self-disclose this violation to CFIUS as part of its remedial efforts. According to the CFIUS Enforcement and Penalty Guidelines, CFIUS “strongly encourages” the submission of a “timely” self-disclosure once a violation is discovered. Self-disclosures should be in the form of a written notification detailing the relevant conduct and parties involved in the violation. CFIUS attorneys can assist with the process of submitting a self-disclosure including communicating with CFIUS personnel, compiling relevant transaction details for the disclosure, and preparing for the submission of the CFIUS filing that is the subject of the self-disclosure.


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