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On January 13, 2020, the US Department of Treasury (“Treasury”) issued two anticipated final rules (the “Final Rules”) that replace the existing regulations governing the Committee on Foreign Investment in the United States (“CFIUS”). The Final Rules implement the Foreign Investment Risk Review Modernization Act (“FIRRMA”) enacted in August 2018, which expanded the United States’ foreign investment review regime. FIRRMA mandated pre-closing notification of certain foreign investments and expanded the scope of transactions subject to CFIUS’ jurisdiction. The Final Rules largely follow the proposed rules released on September 17, 2019. Our analysis of the proposed rules is available here. Our earlier analyses of FIRRMA and the “critical technologies” pilot program implementing certain FIRRMA provisions on an interim basis are available here and here.

The Final Rules will become effective on February 13, 2020. The full text of the Final Rule on investments by foreign persons in US businesses can be found here and the Final Rule on real estate transactions can be found here.


Mandatory Notification of Foreign Government-Affiliated Investments

The Final Rules require a pre-closing declaration (or notice) to CFIUS of a proposed acquisition by a foreign government-affiliated investor of 25 percent or more direct or indirect voting interest in a US business handling critical technology, critical infrastructure, or sensitive personal data (a “TID US Business”).

This provision covers only the investors in which a single foreign government holds 49 percent or more direct or indirect voting interest. CFIUS will aggregate the voting interest of all agencies, departments, or other entities of the foreign government to determine its total voting interest. This provision cover entities with a general partner, managing member or equivalent only if the foreign government holds 49 percent or more voting interest in such general partner, managing member or equivalent. In other words, interest held by a foreign government as a limited partner should not count toward the 49 percent.

Mandatory Notification of Investments in Critical Technology Businesses

The “critical technology” mandatory declaration (or notice) requirements implemented under a pilot program interim rule issued October 10, 2018 have survived in the Final Rules with a few notable modifications. For the moment, foreign investments in US businesses that produce, design, test, manufacture, fabricate, or develop items controlled under certain US regulatory regimes require prior notification to CFIUS if the US business uses or designs those items for certain designated industries. Treasury indicates that it will conduct a further rule making regarding the scope of this declaration requirement. See below.

The Final Rules carve out certain encryption items from the list of critical technologies that trigger the notification requirement. Investments in US businesses whose only critical technologies are items eligible for License Exception ENC under the Export Administration Regulations, which applies to certain commodities, software, and technology with encryption functionalities, would not trigger the mandatory filing. This change will significantly limit the scope of mandatory declarations.

Expanded Jurisdiction over Investments in TID US Businesses

The Final Rules expand CFIUS’ jurisdiction to review non-controlling foreign investments in TID US Businesses where the foreign person acquires (1) board representation or observer rights, (2) access to nonpublic technical information, or (3) rights to be involved in substantive decision-making regarding the relevant critical infrastructure, critical technology, or sensitive personal data. The Final Rules implement the definition of “critical technology” and virtually the same list of “critical infrastructure” and related functions published in the proposed rules.

The Final Rules amend the definition of “sensitive personal data.” In particular, the Final Rules limit the genetic information that qualifies as sensitive personal data to identifiable results of an individual’s genetic tests and excludes data derived from US government databases commonly used in research.

Initial “Excepted Foreign States” Designated: Australia, Canada, and the United Kingdom

The Final Rules designate Australia, Canada, and the United Kingdom as “excepted foreign states” to which CFIUS’ expanded jurisdiction to review non-controlling investments in TID US Businesses and real estate-only transactions does not apply. These three countries will be deemed excepted foreign states beginning February 13, 2020, for a period of two years. After February 13, 2022, for each country to remain an excepted foreign state, CFIUS will need to determine that the country’s foreign investment review process is sufficiently robust and otherwise coordinates with CFIUS on national security reviews of transactions. The Treasury Department indicated that it may consider adding other foreign states to the “white list” in the future.

Excepted Investors

Investors associated with “excepted foreign states” are excused from CFIUS’ expanded jurisdiction as indicated above. Importantly, such investors are exempt from the mandatory filing requirements set out in the Final Rules.

To qualify for the exemption, an excepted investor and each of its parent entities must:

  • be organized under the laws of an excepted foreign state or the United States;
  • have its principal place of business in an excepted foreign state or in the United States;
  • require that 75 percent or more of its board members or observers be US nationals or nationals of an excepted foreign state (and not any other state) (down from 100 percent of the board/observers as contemplated by the proposed rules);
  • require that any foreign person who, individually or as part of a group of foreign persons, holds more than 10 percent of its voting interests, be a national of an excepted foreign state or the
  • United States (and not any other state) (up from 5 percent contemplated by the proposed rules); and
  • ensure that at least 80 percent of its voting interest is held, individually or in the aggregate, by nationals of an excepted foreign state or the United States (and not any other state) (down from 90 percent contemplated by the proposed rules).

Investment Funds Exemption Preserved

The Final Rules preserve the proposed rules’ criteria for exemption from CFIUS’ expanded jurisdiction for passive foreign investments in TID US Businesses through US-managed investment funds. The Final Rules also offered a definition of “principal place of business” for the first time. Current CFIUS regulations do not define principal place of business, which created some ambiguity for investment funds incorporated outside of the United States but managed from the United States.

The Final Rules propose to define principal place of business 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 and investments are primarily directed, controlled, or coordinated by or on behalf of the general partner, managing member, or equivalent.” If an entity has represented in an official government filing that its principal place of business is outside of the United States, such location will be deemed the principal place of business of the entity for CFIUS purposes unless it can demonstrate that such location has subsequently changed. Investment funds may need to review the representations regarding principal place of business that they have previously made in filings with any government. The proposed definition is subject to a 30-day comment period.

Real Estate

The Final Rules extend CFIUS’ jurisdiction to review certain real estate transactions even where there is no “US business” involved. The purchase or lease by, or concession to, a foreign person of real estate in specific airports or maritime ports, and real estate near certain military facilities, is subject to CFIUS jurisdiction for the first time. This does not mean there is a mandatory declaration requirement; it means only that CFIUS has authority to review the transactions. The Final Rules regarding real estate transactions are substantially similar to the proposed rule.

“US Business” Definition

The Final Rules implement FIRRMA’s definition of “US business” as a “person engaged in interstate commerce in the United States,” without the second part of the definition in the current regulations, “but only to the extent of its activities in interstate commerce in the United States.” The revised definition generated concern that CFIUS might expand its jurisdiction to business operations outside of the United States. In the preamble to the Final Rules, Treasury stated that the revised definition is “not intended to suggest that the extent of a business’s activities in interstate commerce in the United States is irrelevant to the Committee’s analysis of national security risk.” The comment from Treasury does not seem to address the concern regarding global jurisdiction creep.

Future Actions

Filing Fees: The Final Rules do not include provisions imposing filing fees. Under FIRRMA, CFIUS is authorized to impose filing fees up to the lesser of one percent of the transaction value or USD 300,000 (adjusted annually for inflation) for notices (not declarations). Treasury will publish a separate proposed rule regarding fees at a later date.

Change to Mandatory “Critical Technologies” Notification: As noted, Treasury indicated in the preamble that it intends to revise the mandatory declaration trigger that hinges on using or designing “critical technologies” for certain listed industries, to one that hinges on “critical technologies” that are subject to certain export control licensing requirements. Treasury would issue a proposed rule prior to implementing such revision.

Potential Waivers:
Treasury indicated that it is assessing the potential for a waiver program to exempt certain individual foreign investors from mandatory declaration requirements. For frequent foreign investors in the United States, a waiver procedure (a possibility contemplated by FIRRMA) may ultimately prove a more useful vehicle than the excepted investor provisions in mitigating CFIUS’ regulatory burdens.


Rod Hunter, a partner based in the Washington, DC office of Baker McKenzie, practices trade and investment law. He previously served as Special Assistant to the President for National Security Affairs and senior director for international economics at the National Security Council (NSC), the White House office that coordinates trade policy and supervises CFIUS. In that role, he managed CFIUS cases, including negotiating resolution of the most sensitive cases. A recognized expert in the field, he has testified before Congress during the legislative process leading to recent amendments to CFIUS’ authorizing legislation. Previously, in addition to coordinating U.S. trade policy at the White House’s NSC, he served as senior counsel at the US Trade Representative’s office, where he litigated cases before the World Trade Organization. He has also taught trade law and policy at the University of Virginia’s Batten School of Leadership and Public Policy and has testified before the United States-China Economic and Security Review Commission. Earlier in his career, Rod practiced regulatory law in Brussels, Belgium for a decade, served as a judicial clerk to Judge Boyce F. Martin, US Sixth Circuit Court of Appeals, served as an associate to Chief Justice Sir Anthony Mason, High Court of Australia and served as an assistant to Senator John W. Warner, US Senate.


Maria helps clients keep up with trade regulations, sanctions matters and foreign investment requirements that apply to their their cross-border transactions and investments. Maria has experience advising on the international trade sanctions, export and import controls, and foreign investment reviews by the Committee on Foreign Investment in the United States.


Callie C. Lefevre is an associate in the Washington, DC office where she is a member of the International Practice Group. Her practice is focused on all aspects of International Trade law, particularly compliance with US export controls, trade and economic sanctions, and US foreign investment restrictions. Prior to joining Baker McKenzie, Callie worked as a student advocate for the New York University School of Law Environmental Law Clinic. While there, she participated in environmental litigation and advocacy pertaining to water quality and urban runoff under the supervision of attorneys at the Natural Resources Defense Council. Callie’s experience also includes working as a summer associate at Baker McKenzie in 2014, where she participated in all aspects of International Trade law, and working as a legal intern at the United Nations High Commissioner for Refugees in Beirut, Lebanon.