The most pressing question around the new FIRRMA regulations is “Will my transaction be covered?” To provide a bit of guidance on that point, we present an illustration from our upcoming Second Edition of The CFIUS Book due out in March of this year.

FIRRMA Regulations
Click image to enlarge.

With that question answered, we will examine the small changes between the proposed and final FIRRMA regulations.

On February 13, 2020 (just in time for Valentine’s Day), the biggest change to U.S. foreign investment review since its inception goes into effect. Like a Valentine card from the the Committee on Foreign Investment in the United States, an enormous (presumably heart-shaped) message:

Putting foreign money into the United States will be a lot harder.


P.S. Be careful with those tech investments. We’re really gonna be watching those, especially the emerging and foundational technologies.

Nevertheless, like all Valentine’s hopefuls, your investment in the U.S. economy still has a chance.

The Valentine’s Day Card

On January 13, 2020, CFIUS published its final rules implementing most of the changes created by the Foreign Investment Risk Review Modernization Act (FIRRMA). Those rules are largely similar to the proposed rules published on September 17, 2019. For background, our report on the investment regulation changes in those rules is available here, our report on the propsed real estate regulations is available here, and our report on Excepted Foreign States and Excepted Investors is available here. Finally, our report on the FIRRMA Pilot Program can be found here.

Building on those reports, this article provides a summary of the major points of the final regulations. We highlight where they differ from the proposed regulations:

I. The Heartbreak of Mandatory Filing

FIRRMA’s most significant change to foreign investment review was introducing a penalty – up to and including the value of an investment – for failure to file a declaration or notice for an investment that triggers a mandatory filing. Simply by failing to tick an administrative box, a company getting in on a seed or early series investment could be subject to millions of dollars in penalties. Under the FIRRMA regulations, two types of investments will trigger mandatory filings:

1. Investments in Critical Technology Businesses

Where a foreign person makes an investment in a U.S. business that produces, designs, tests, manufactures, fabricates, or develops critical technology for use in certain designated industries, the transaction parties must file a declaration or notice with CFIUS. At this point, the coverage of the Critical Technology mandatory filing will be largely similar to that under the Pilot Program.

However, the new regulations will expand significantly because they reference emerging and foundational technologies. Continuing to play with our hearts, the U.S. Commerce Department has not yet issued those lists of technologies. As soon as Commerce releases those lists, investment in large swaths of U.S. innovation and know how will be swept not only into CFIUS jurisdiction, but into the broadening expanse of mandatory CFIUS filings.

Interestingly, the final FIRRMA regulations except investments in critical technology that would be eligible for export pursuant to License Exception ENC. That may be a reach for those of you who are not export nerds, but it essentially means that the basic encryption technology that would be common in software being developed by companies looking for investment would not trigger the mandatory filing requirements.

2. Investments by Foreign Governments

If an entity in which a foreign government holds 49% of voting interest, directly or indirectly, obtains 25% or greater voting interest, directly or indirectly, in a U.S. Technology, Infrastructure, or Data (TID) business, the parties must file a declaration or notice with CFIUS (for more on the TID businesses, check back to our article on these regulations as initially proposed). Much to the relief of many investment funds, this mandatory filing is only triggered if a foreign government holds a 49% interest in the general partner of a fund, whereas the proposed rule had covered foreign government interests in funds’ limited partners.

II. More to love: Expanded CFIUS Jurisdiction

We note that all TID investments areas, though they do not quite have the sweetheart status of investments in critical technology or by foreign governments, have caught CFIUS’ eye.

The final rules provide for CFIUS jurisdiction over a non-controlling investments in a TID U.S. business by which a foreign person acquires any of the following in the target:

1. Board representation or board observer rights;

2. Access to non-public technical information; or

3. A right to participate in substantive decision-making regarding the U.S. company’s critical technology, infrastructure, or data.

We note that, in a tweak from the proposed rules, the final rules exclude from the “sensitive personal data” definition data that was derived from U.S. government databases as those data are broadly used in medical research.

III. CFIUS’ Crushes: Excepted Foreign States and Excepted Foreign Investors

As we discussed in our article on excepted foreign states, investors from certain countries will not be subject to the mandatory filing requirements or to CFIUS jurisdiction over non-controlling investments. For those companies, the investment review world will look a lot like CFIUS before the advent of FIRRMA. The initial countries selected are Australia, Canada, and the United Kingdom.

The regulations provide means to add other countries to the list, but we would not expect CFIUS to be handing out these passes freely . . . if at all. Further, the three initial countries on the Excepted Foreign State list will be subject to a review in two years. If their investment review regimes do not satisfy U.S. regulators, their Excepted Foreign State Status could be revoked.

Don’t forget, these are still just crushes. Only persons who meet the following qualifications can be an Excepted Foreign Investor:

1. You are organized under the laws of an Excepted Foreign State or the United States;

2. You have your principal place of business in an Excepted Foreign State or the United States;

3. 75% of your board members or observers must be nationals of an Excepted Foreign State or the United States;

4. Any individual or group of foreign persons that holds more than 10% of your voting interests must be nationals of an Excepted Foreign State or the United States; and

5. At least 80% of your voting interest must be held by nationals of an Excepted Foreign State or the United States.

IV. Location, Location, Location

The new regulations show CFIUS may be a bit enamored with real estate. The regulations make clear that CFIUS’ jurisdiction over real estate is not limited to transactions where a foreign person invests in a U.S. business where that business has close proximity to airports, ports, military installations, or other sensitive U.S. government facilities.

CFIUS will continue to review those transactions to determine national security vulnerabilities are exposed. But now CFIUS is taking full advantage that FIRRMA expanded CFIUS’ jurisdiction from transactions involving U.S. businesses to any purchases, leases, or concessions of real estate (including Real Estate Investment Trusts (REITs)) by foreign persons regardless (!) of whether a U.S. business is involved in that transaction. However, like all good relationships, there are some boundaries. CFIUS may only review those transactions that provide a foreign person with three of the four following property rights:

1. Physical access to the property

2. Exclusion of others from physically accessing the property

3. Improvement or development of the property

4. Affix structures or objects to the property

Thus, CFIUS’ love affair with real estate continues.

V. Private Equity: Not Yet Smitten

CFIUS’ love letter is not all final. While CFIUS is not exactly smitten with private equity, it is showing some affection by providing a few proposed definitions for some much-needed clarification.

CFIUS proposes the following:

1. Principal place of business is fully defined as the primary location where an entity’s management directs, controls, or coordinates the entity’s activities; or in the case of an investment fund, where the fund’s activities are primarily directed, controlled or coordinated by or on behalf of the general partner, managing member, or equivalent.

2. Parent is defined to include the general partner, managing member, or equivalent.

3. Limited partners are explicitly exempted in the following circumstances from critical technology and foreign government mandatory filings: Where the foreign person is a limited partner on the advisory board or committee of an investment fund, and that board or committee does not have the ability to approve or control investment decisions or decisions made by general partners, managing members, or the equivalent; and the foreign person does not otherwise have the ability to control the investment fund.

Note, however, that some of these definitions may now explicitly include more investors within CFIUS’ reach where before the regulations, there was some ambiguity.

While we could write an entire book on this (and we have!), we will leave you with our Valentine’s analogies and metaphors until the 13th. At that point, we invite you to revisit this blog for reference as these regulations will be in full effect.

Key Takeaways:

  • Technology Infrastructure and Data. CFIUS will focus its review on investments in critical Technology, critical Infrastructure, and sensitive personal Data (“TID Businesses”).
    • Critical technologies is defined to include certain items subject to export controls along with emerging and foundational technologies under the Export Control Reform Act of 2018.
    • CFIUS provides a very helpful list of critical infrastructure and functions to help assess whether any business is a TID Business. We reproduce most of this list at the end of this blog article. (Sneak preview: telecom, utilities, energy, and transportation dominate the list.)
    • The proposed regulations provide much-needed guidance on what constitutes sensitive personal data and also seek to limit the reach of the definition so it does not cast too wide a net over transactions in which CFIUS really should have no national security concern.
  • Exceptions for Certain Countries. Investors from certain countries may be excepted from CFIUS jurisdiction when making non-controlling investments.
  • New Set of Rules for Real Estate. In a companion piece, CFIUS proposed for the first time a detailed set of rules related to investments in real estate. We will cover this in a separate blog article to be published in the near future.
  • Expansion of Short-Form Declaration Use. The proposed rules provide parties the choice to use a short-form declaration for any transaction under CFIUS jurisdiction in lieu of a long-form notice.
  • Comments Due by October 17, 2019. Members of the public may submit comments on the proposed regulations any time between now and October 17, 2019. Final regulations must be adopted by CFIUS and become effective no later than February 13, 2020.

Continue Reading CFIUS Proposes Rules to Implement FIRRMA

  • On October 10, 2018, the Committee on Foreign Investment in the United States put into effect the first mandatory filing requirement ever imposed by CFIUS. The Department of Treasury’s summary of the Pilot Program is available here.
  • Effective November 10, 2018, CFIUS will require reviews of critical technology investments – including certain non-controlling investments – from any country.
  • A failure to file notice or a new short form declaration to CFIUS may result in a civil monetary penalty up to the value of the transaction.
  • The requirements will not apply to any transaction that is completed prior to November 10, 2018 or any transaction for which the material terms were established prior to October 11, 2018.


On August 13, 2018, President Trump signed FIRRMA into law. FIRRMA is a transformational expansion of the authority of the Committee on Foreign Investment in the United States (CFIUS) to review certain transactions that previously eluded the Committee’s jurisdiction (discussed in our blog, here). Congress left many critical aspects of the FIRRMA framework to be addressed through regulations promulgated by the Department of Treasury. Although we do not expect final rules to be forthcoming until late 2019 or early 2020, Congress empowered the Department of Treasury to “test-drive” parts of FIRRMA through Pilot Programs. Those programs can be implemented simply, taking effect 30 days after publication of the program requirements in the Federal Register. The adoption and implementation of the Pilot Program for critical technologies represents the Department of Treasury’s first attempt to implement substantive parts of FIRRMA prior to issuing formal regulations. Continue Reading FIRRMA Takes Form as CFIUS Enacts a New Pilot Program Targeting “Critical Technologies”

This week, there were reports that the Trump Administration would use emergency powers to restrict Chinese investment in the United States. On Wednesday, the White House backed away from that position after the House of Representatives passed a bill on Tuesday expanding and increasing the powers of the Committee on Foreign Investment in the United States (CFIUS). The bill is called the Foreign Investment Risk Review Modernization Act (FIRRMA). Continue Reading On FIRRMA Ground: Congress to Restrict Foreign Investment and Expand Export Controls

On October 15, 2020, CFIUS will officially tie mandatory filings to U.S. export control regimes, including the Export Administration Regulations (EAR) and the International Traffic in Arms Regulations (ITAR).  While that change may draw a clearer line of what constitutes a mandatory filing, it also pulls your CFIUS review into the complex (and somewhat nerdy) world of export regulations. Continue Reading Lend Me Your EARs: CFIUS Makes Export Controls a Trigger for Mandatory Filings

On August 6, 2020, Trump issued two separate executive orders that will severely restrict TikTok and WeChat’s business in the United States.  For weeks, the media has reported on Trump’s desire to “ban” TikTok with speculation about the legal authority to do so.  We break down the impact of the Orders below. Continue Reading National Security Meets Teenage Dance Battles: Trump Issues Executive Orders Impacting TikTok and WeChat Business in the U.S.

On May 21, 2020, a proposed rule change brought the threat of a mandatory CFIUS filing to investments across all U.S. industries. The U.S. Department of Treasury proposed a rule[1] that removes a restriction formerly in the Foreign Risk Review Modernization Act’s (FIRRMA) that limited mandatory filings with the Committee on Foreign Investment in the United States (CFIUS) to only 27 industries.

The proposed rule is consistent with a series of changes by the Trump Administration aimed at decreasing Chinese access to U.S. technology (through export controls, FDI review, and other restrictions). However, the rule change may create complications for investments from a wide range of countries. Continue Reading CFIUS UPDATE ISSUE — Well I Do Declare: Mandatory Declarations Everywhere

Taking a break from reporting on COVID-19 legal developments, we turn for a moment to what is happening now on export control of autonomous vehicle technology.

The autonomous vehicle R&D sector is booming, largely in the last three years. Companies are investing in sensor technology and machine learning, and creating pilot programs to test self-driving cars both for individuals and ride-sharing purposes.

Continue Reading The Emerging Landscape for Export Controls on Autonomous Vehicle Technology

By now, you have skimmed through the proposed FIRRMA regulations issued on September 17 2019, and you have very likely read a dozen summaries of those regulations (with titles like “New Proposed CFIUS Regulations Published” or “Five Things You Have Got to Know About FIRRMA” or even “Drop 10 Pounds in One Week AND Learn About Foreign Investment Restrictions!”), but none of those summaries, including our excellent précis of the regulations, could cover all the details in the more than 300 pages of text proposed by the Committee on Foreign Investment in the United States.

For that reason, we propose a series of focused articles where we will get our hands dirty and dig into the regulations to unearth those little gems that may be an advantage to your company.

Today we will look at the concepts of Excepted Foreign States and Excepted Investors and help you determine whether your business may slip the net of the new CFIUS regulations implemented under FIRRMA and invest in U.S. businesses without the burden of a CFIUS notification or filing.

It is easy to become too academic in these discussions, so we will proceed in a Q&A format to facilitate a more grounded discussion.

Q:   What are the limits to the exception?

A: Starting at the boundaries and working our way to the center, we note that the Excepted Foreign States and Excepted Investors will only be excepted from review of non-controlling investments. If you are a non-U.S. person and your transaction could result in control of a U.S. business, then you are under CFIUS jurisdiction. No exceptions.

Q:   What are the advantages of the exception?

A: Recall that the proposed FIRRMA regulations massively expand CFIUS jurisdiction over non-controlling investments. Where the FIRRMA Pilot Program only touched on 27 industries, the proposed regulations cast the CFIUS wide net over non-controlling investments in any “TID” business: companies working with critical Technology, critical Infrastructure, or sensitive personal Data.

This new proposed exception for Excepted Investors and Excepted Foreign States cuts a hole in that wide net. Excepted Investors will not have to consider whether they are making a covered non-controlling investment in a covered TID business. They will simply put in their money and reap the benefits of their investments (unless they obtain control of that business– then we’re back up in the section above and under CFIUS scrutiny).

Q:   That sounds great, but who will be “Excepted” ?

A: You can be sure that countries around the world are already lobbying hard to become an Excepted Foreign State. Under the proposed regulations, the Excepted Foreign States must be selected by CFIUS and then, in a separate process, be reviewed for the robustness of their own investment review regulations.

The smart bets for exceptions to U.S. security-based restrictions (U.S. export controls, for example) are on the so-called “NATO Plus” countries: NATO member states, plus South Korea, Japan, Australia, and New Zealand. However, the field may be more open in an era where U.S. policy toward NATO and other traditional allies is, at best, inconsistently articulated. However, you can safely avoid putting your chips on China to make the “excepted” list.

Q:   Ok, So I’m in a potentially Excepted Foreign State, how will I know if I’m an Excepted Investor?

A: The first part of the Excepted Investor definition is fairly straightforward. You are an Excepted Investor if you are:

  1. A national of an Excepted Foreign State (and not also a national of a non-excepted state); or
  2. A foreign government of an Excepted Foreign State. Simple enough, right? Well, there is one more type of Excepted Investor, but the rules get a little tricky, so we’ll list out some of the requirements, then parse them. You are also an Excepted Investor if:
  3. You are a company

3.1. Organized under the laws of an Excepted Foreign State,
3.2. With your principal place of business in an Excepted Foreign State,
3.3. With observers and board members who are only U.S. or Excepted-Foreign-State nationals; and
3.4. The same is true of all the persons or companies that own 5 percent of your company

So if all of those are true, you are off to a good start. But what if you have some investors that are not from Excepted Foreign States? Well, as stated above, no one non-excepted person may have more than 5 percent ownership and . . .

3.5. Your company must be held at the level of “minimum excepted ownership” by a person or entity that meets the qualifications in 1, 2, or 3.1 – 3.3.

Q:   [Deep breath] . . . So what is this “minimum excepted ownership?

A: Well, as we keep digging, we find that minimum excepted ownership may mean one of two things:

3.5.1. If your company’s securities are primarily traded on an exchange in an excepted state or the United States, then “minimum excepted ownership” is a majority, >50%, held by a party that meets one of the qualifications in sections 1-3 of Excepted Investor;[1] or

3.5.2. If your company’s securities are not traded on an exchange in an excepted foreign state or the United States, then “minimum excepted ownership” is 90 percent held by a party that meets one of the qualifications in sections 1-3 of Excepted Investor.

Q:   Wait, now I’m more confused. 

A: That’s not surprising. This article is getting long and these details are complex, but stay with us. This next part key.

Here’s how minimum excepted ownership works: If you’re a company owned, organized, and headquartered all in an Excepted Foreign State, you’re fine. But let’s say you’re all those things and a public company traded on the NASDAQ North in Stockholm. Well, if Sweden (a NATO Member) is an Excepted Foreign State, then you will need to be certain that more than 50% of your ownership is either U.S. a person or an excepted investor in order to meet the minimum excepted ownership threshold.

Now let’s say you’re a French company, privately held primarily by French persons, headquartered in France, but 3% of your company’s voting rights are held by a Saudi Sovereign Wealth Fund and 4% are held by a private Chinese investor, the rest is held by French and American individuals and companies. Again, if France (a NATO member) is an Excepted Foreign State, you will still be considered an Excepted Investor because you will meet the qualifications of 3.1 – 3.4, and the 93% ownership by U.S. and Excepted Foreign State persons will meet the threshold for minimum excepted ownership.

Q:   That is a lot.

A: Yes, it is. And there is more detail like that throughout these proposed FIRRMA regulations. But we will go through it slowly and carefully in our series of FIRRMA updates. You can also reach out to your trusted CFIUS counsel.

[1] That is, a majority of the company’s voting interest, the right to a majority of its profits, and the right in the event of dissolution to a majority of its assets.

Over the past year, the impact of international political risks on the global tech industry has been unprecedented.”
Tung Tzu-hsien, Chairman of iPhone’s Chinese assembly company, Pegatron

Technology investment is getting harder. A few years ago, strategic and private equity technology acquisitions, multinational joint venture creation, and cross-border R&D collaboration were not only relatively straightforward, they were an economic engine driving the global technology economy.

Now, U.S. export controls, technology transfer restrictions, CFIUS and other investment reviews, and tariffs and non-tariff barriers have begun to limit the options for successful transactions in the tech sector. In this article, we examine the new and emerging challenges and suggest a strategies for navigating the changing currents of global trade and politics to get your deal done despite the shifting landscape. Continue Reading INTERNATIONAL TECH INVESTMENT ISSUE – Threats to Technology Investment from Global Politics: How to Succeed as Borders Tighten