U.S.: Final CFIUS Regulations Issued by Treasury

Contributed by Kendal Tyre
Thursday, 26 March 2009

On November 18, 2008, the U.S. Treasury Department, as chair of the Committee on Foreign Investment in the United States (CFIUS) and as required by the Foreign Investment and National Security Act of 2007 (FINSA), issued final regulations, effective December 22, 2008, reforming the process by which CFIUS conducts national security reviews of mergers, acquisitions, or takeovers of U.S. businesses by foreign persons (Final Regulations). On December 8, 2008, Treasury published guidance regarding the types of transactions that CFIUS has reviewed that have presented national security considerations in the past (Guidance). In general, CFIUS maintains broad discretion to conduct national security reviews of foreign investments in the United States on a case-by-case basis.

Procedural Provisions

Pre-filing Recommendations

The Final Regulations describe circumstances in which consultations with CFIUS staff before making a formal filing may be helpful. This includes when a party has not previously submitted to CFIUS review. The regulations also recommend, when appropriate, that parties inform the committee of the transaction, request a meeting with CFIUS staff, and provide a draft of the voluntary notice, as well as some portion of the information that may later be included in the notice.

Information Requirements

The Final Regulations maintain many information requirements contained in the proposed regulations, including questions about contracts of the target U.S. business, U.S. government licenses granted to the U.S. business, and the foreign investor’s plans with respect to the U.S. business. However, the Final Regulations also clarify the scope of other information requirements. For example, they seek more information on the value of the transaction and the individuals for whom parties must provide biographical and other personal information. The Final Regulations also ask parties to identify contracts over the past three years with U.S. government agencies, with homeland security, national defense, and national security responsibilities, instead of requiring information on all U.S. government contracts for this period. The Final Regulations extend the response time for follow-up requests to three business days.


The Final Regulations provide for civil penalties of up to $250,000 per violation for intentional or grossly negligent submission of material misstatements or omissions in a notice or submission of a false certification. Violations of mitigation agreements may also result in civil penalties of up to $250,000 per violation or the value of the transaction.

Substantive Provisions

Covered Transactions

FINSA authorizes CFIUS to review “covered transactions,” meaning mergers, acquisitions, or takeovers that result in foreign control of a U.S. business to evaluate the effects of such transactions on U.S. national security. The Final Regulations make no substantive changes to the definition of covered transaction, but clarify the scope of CFIUS jurisdiction.

For example, 50/50 joint ventures are included in the definition of a covered transaction, because both the U.S. and foreign partners would have equal control over the target U.S. business. The Final Regulations confirm that greenfield investments are not covered transactions and further exempt asset acquisitions from this definition if the assets do not constitute a U.S. business. They also clarify that lending transactions are not covered transactions unless the foreign person acquires financial or governance rights characteristic of an equity investment. With respect to the so-called safe harbor for acquisitions of 10 percent or less of a U.S. company’s voting securities that existed pre-FINSA, the Final Regulations clarify that such a transaction is not a covered transaction only when it is “solely for the purpose of passive investment.” In other words, the exemption does not apply if the foreign investor intends to gain control of the U.S. business.

Concepts of Control

With the proposed regulations, the concept of “control” was defined as the ability to “determine, direct, or decide important matters affecting an entity.” Examples of “important matters” included major expenditures and the appointment or dismissal of officers. While the proposed regulations granted CFIUS broad discretion to conduct national security reviews, they provided some limitations on CFIUS’s jurisdiction by identifying certain minority shareholder protections deemed insufficient to confer control over an entity. In short, the Final Regulations refine the concept of “control” to clarify the process for foreign investors.

The Final Regulations avoid brightlines as a threshold for control. Instead, CFIUS will continue to evaluate control on a case-by-case basis, considering factors such as the level of ownership interest and the rights that flow from ownership. The Final Regulations also add to the nonexclusive list of minority shareholder protections deemed insufficient to constitute control, with examples centered on rights that protect investment expectations and do not affect strategic business decisions or management.

Critical Infrastructure

FINSA presumes that transactions involving “critical infrastructure” implicate national security and require stricter scrutiny. Typically, this involves a 45-day investigation following the initial 30-day review. FINSA designated “major energy assets” as the only example of critical infrastructure. The Final Regulations continue a case-by-case approach and avoid designating any class of assets as falling under this definition.

Foreign-government–controlled transactions

FINSA creates a heightened level of scrutiny for “foreign-government–controlled transactions,” which are defined as “any covered transaction that could result in control of a U.S. business by a foreign government or a person controlled by or acting on behalf of a foreign government.”

CFIUS Guidance

Treasury’s Guidance provides a list of covered transactions reviewed by CFIUS that have presented “national security considerations” in the past. The considerations raised relate to: (1) the nature of the target U.S. business and/or (2) the nature of the foreign person acquiring control.

In the first category, transactions involving U.S. businesses with government contracts raise national security considerations. Transactions involving U.S. businesses with operations, products, or services relevant to national security also fall under this category and include energy, transportation, or financial matters; U.S. critical infrastructure; the production of advanced technologies; and activities related to U.S. export controls.

In the second category, key considerations are those transactions that present national security considerations based on the history or intentions of the foreign investor in connection with actions that could impair U.S. national security. In foreign-government–controlled transactions, CFIUS considers, among other factors, the record of the foreign investor’s country regarding non-proliferation and other national security-related matters, and a variety of circumstances that may lessen the significance of foreign government control in a transaction, including the degree to which the foreign investor’s decisions are based on commercial grounds; the extent to which the foreign investor’s management decisions are independent from government control; and the foreign investor’s transparency with respect to investment objectives, institutional arrangements, and financial information.


The Final Regulations reflect Treasury’s efforts to balance national security interests and encourage foreign investment. As CFIUS carries out its responsibilities, it is clear it will conduct its national security review and determinations on a largely case-by-case basis.

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