Pending CFIUS Reform Expands U.S. Foreign Investment Review

Recently, the United States House of Representatives passed legislation, which, if also passed by the Senate and signed into law by the president, will significantly expand the jurisdiction to review foreign investments on national security grounds.

KEY TAKEAWAYS FOR CANADIAN COMPANIES:

  • Canadian companies looking to make investments in the U.S. could face a longer review period and a substantial filing fee in connection with a national security review.
  • The amendments will expand the scope of the transactions covered to include real estate investments.
  • U.S. security agencies will have greater authority to consult with domestic and foreign governments to assess national security concerns.

PLANNED AMENDMENTS

Under the Exon-Florio amendments to the Defense Production Act of 1950, transactions resulting in foreign control of a U.S. business can be reviewed by the Committee on Foreign Investment in the United States (CFIUS) when those investments potentially impact U.S. national security interests. If CFIUS determines that an investment threatens the national security of the U.S., it can recommend that the president suspend or block the investment, or impose remedial measures as a condition of clearance.

Once the new legislation becomes law, it will:

  • Expand the types of transactions covered by CFIUS review to include: (i) purchases, leases or concessions involving real estate in close proximity to military and other facilities that may raise national security concerns; (ii) investments affording a foreign investor access to non-public technical information or financial data not available to other shareholders, nomination rights for board or other advisory positions, or a substantive decision-making role for the investor for companies engaged in critical infrastructure, critical technologies, or sensitive data; (iii) any change in the rights of existing foreign investors that could result in foreign control of a U.S. business or access rights described above; and (iv) other transactions, transfers, agreements or arrangements designed or intended to evade or circumvent the CFIUS process.
  • Allow for certain transactions to receive CFIUS approval on an expedited basis through the filing of an abbreviated declaration. Upon receipt of the declaration, CFIUS can require the investor to file a full notice, initiate a unilateral review or clear the transaction.
  • Require mandatory filings for transactions that involve an investment resulting in the direct or indirect acquisition of a “substantial interest” in a critical technology or infrastructure company, or in a company that maintains or collects sensitive personal data of U.S. citizens by an investor in which a foreign government has a substantial direct or indirect interest.
  • Lengthen the statutory time periods for the review process by 15 days, with the option for CFIUS to extend the period by a further 15 days in “extraordinary circumstances,” bringing the total statutory review period to 120 days.
  • Permit the sharing of information with domestic and foreign governmental entities for national security purposes.
  • Include additional factors for consideration when determining whether an investment threatens U.S. national security, such as cybersecurity and protecting the U.S. defence supply chain.
  • Allow CFIUS to impose substantial filing fees (up to the lower of one per cent of the transaction value or US$300,000).

While some amendments, such as the extensions of the review timeline, will go into effect immediately upon enactment, others, such as the expansion of CFIUS jurisdiction to real estate transactions and the mandatory notification process, will not go into effect until implementing regulations are adopted.

If you have any questions regarding these developments, please do not hesitate to contact your usual Blakes contact or any member of the Blakes Competition, Antitrust & Foreign Investment group.

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