Over the last few weeks, there has been a flurry of activity at the Committee on Foreign Investment in the United States (CFIUS).  In addition to imposing filing fees, which we wrote about here, and issuing proposed amendments to broaden the mandatory CFIUS notification requirements, which we wrote about here, CFIUS recently blocked a robotics joint venture in China with no U.S. assets and limited to operations outside the United States, released detailed information regarding the transactions reviewed by CFIUS during 2018 (as well as summary data for transactions reviewed in 2019), and announced a new electronic filing system. Continue Reading CFIUS Blocks Joint Venture Outside the United States, Releases 2018-2019 Data, and Goes Electronic

On May 21, 2020, the U.S. Department of the Treasury published a proposed rule (the “Proposed Rule”) that would significantly broaden the scope of mandatory filing requirements of the Committee on Foreign Investment in the United States (“CFIUS”) for foreign investments involving U.S. critical technology businesses.

The Proposed Rule abandons the current restriction to specified industries and focuses on whether the target develops, tests, or manufactures critical technologies that would require a license for export—whether or not the critical technologies are exported or sold to third parties at all (e.g., proprietary manufacturing technologies)—to the jurisdiction of the foreign investor and its parent entities, effectively creating different mandatory notification requirements for different countries.

The Proposed Rule would:

  • Expand the CFIUS mandatory critical technology notification requirement to cover foreign investments in all industries, if the target U.S. business develops, tests, or manufactures technology that would require a license or other authorization under any of the four main U.S. export control regimes to export or transfer to any foreign party in the ownership chain of the investors in the transaction.
  • Complicate the mandatory CFIUS notification analysis by requiring parties to identify the export control status of all products, software, and technology produced, designed, tested, manufactured, fabricated, or developed by the U.S. business (whether or not sold to third parties), all jurisdictions relevant to the investors, and the corresponding licensing requirements, potentially introducing significant delays.
  • Provide a significant exemption from the mandatory notification requirement for a wide range of dual-use goods, software, and technology eligible for export to a list of countries thought to pose a low risk of diversion, based on an existing license exception in the export control rules.

The Proposed Rule also clarifies the ownership rules used to determine when an investor linked to a foreign government is required to file with CFIUS for an investment in a sensitive U.S. technology, infrastructure, or data business.

Please click here to read the full alert memorandum.

On May 15, 2020, the U.S. Department of Commerce, Bureau of Industry and Security (BIS) issued an interim final rule (the Interim Rule) amending the direct product rule under the Export Administration Regulations (EAR) to further restrict Huawei Technologies Co., Ltd. (Huawei) and its affiliates designated on the Entity List from receiving semiconductor and other products produced outside the United States using U.S.-origin software and technology.  The changes, which are effective immediately (but subject to two savings clauses), could have a significant impact on the ability of non-U.S. foundries that manufacture semiconductor products for Huawei and its affiliates (e.g., HiSilicon) using U.S.-origin software or technology to continue to do so (and could have a corresponding significant impact on the competitiveness of U.S. semiconductor manufacturing equipment and software).  BIS also extended the temporary general license (TGL) that authorizes certain activities subject to the EAR involving Huawei and its affiliates through August 13, 2020.[1] Continue Reading BIS Expands Export Restrictions on Huawei, Extends Temporary General License

The COVID-19 pandemic has created market conditions ripe for increased cross border investment as businesses scramble for capital and investors target distressed assets.  The Committee on Foreign Investment in the United States (CFIUS) is focused on the trend.  Senior Department of Defense officials have recently and repeatedly stressed the need for the active use of CFIUS reviews to protect against “adversarial capital coming into our markets for nefarious means” during the current economic crisis.  Against this backdrop, U.S. businesses and foreign investors must be mindful of the CFIUS implications of acquisitions and financing transactions (including the exercise of creditors’ rights with respect to distressed companies).  The attached memorandum explores these issues and available approaches to mitigating them.

Please click here to read the full alert memorandum.

On April 28, 2020, the U.S. Department of Commerce, Bureau of Industry and Security (BIS) published two final rules and one proposed rule[1] that will result in tighter restrictions on exports, reexports, and in-country transfers of dual-use items subject to the Export Administration Regulations (EAR) and controlled for national security reasons to China, Russia, Venezuela, and a number of other countries.  Companies involved in exports and reexports of controlled items to these countries should carefully review the changes. Continue Reading BIS Tightens National Security Export Controls

Today, the U.S. Department of the Treasury (“Treasury”) published an interim rule (the “Interim Rule”) implementing the filing fee provisions of the Foreign Investment Risk Review Modernization Act (“FIRRMA”) along the lines set out in Treasury’s proposal of March 9. The Committee on Foreign Investment in the United States (“CFIUS”) will assess tiered filing fees for all final notifications filed on or after May 1 (whether or not a draft notification was filed before May 1). The Interim Rule is open for public comment until June 1, 2020.

Please click here to read the full alert memorandum.

On April 20, OFAC issued COVID-related guidance indicating that it encourages those subject to its jurisdiction to contact the OFAC staff if they believe they will have difficulty meeting OFAC deadlines (whether reporting deadlines, responses to administrative subpoenas, or other matters).  OFAC also encouraged electronic submission of any communications.  In our experience, OFAC is still functioning at a relatively high level, remote operations notwithstanding, but the staff has also been flexible in responding to the challenges all institutions face.  As OFAC’s guidance and our own experience underline, open communication with the staff is very important. Continue Reading OFAC Issues Guidance on COVID’s Impact on Compliance and Enforcement

In a March 25, 2020 communication, the European Commission (“EC”) issued guidance on the screening of foreign direct investments (“FDI”) in the context of the COVID-19 pandemic. The communication identifies an increased risk of attempts by non-EU acquirers to obtain control over suppliers of essential products, in particular healthcare sector products. The EC calls on Member States to make use of pre-existing FDI regimes, and to introduce robust screening mechanisms where they do not already exist, to protect “critical health infrastructure, supply of critical inputs, and other critical sectors.”  The communication builds on the increasing coordination among Member States that was already encouraged by the EU FDI Screening Regulation that comes into effect in October 2020.

Continue Reading European Commission Urges Member States to Protect Suppliers of Essential Products from Foreign Takeovers

On March 25, the European Commission issued guidance on the screening of foreign direct investment in the context of the COVID-19 pandemic. The Commission calls Member States to make use of existing FDI regimes to protect critical health infrastructure, supply of critical inputs, and other critical sectors. Further details can be found in our memorandum, accessible here.

As the final CFIUS regulations implementing FIRRMA take effect in the U.S. (and the Trump Administration issues its own cautionary statements regarding review of foreign investments during the crisis), and France announces a revised foreign investment regime of its own, we would like to remind our clients and friends that national security reviews of foreign investment are rapidly growing in scope and importance for cross-border transactions. The United Kingdom has recently confirmed its intention to introduce a new national security regime, joining the pre-existing but expanding regimes in France, Germany, Italy, and elsewhere. The European Union’s emerging effort to coordinate foreign investment review, described in a previous blog post, highlights the trend toward increasing coordination and consultation among national authorities as FDI regimes expand.

Cleary Gottlieb’s Foreign Investment Review group has been at the forefront of these developments, with over two decades of experience in its renowned CFIUS practice and lawyers closely involved in the evolution of each of the national regimes above. We also have experience and strong relationships with local firms in other important regimes such as those of Canada and Australia (which has just announced a broadening of its regime to temporarily eliminate the size of transaction threshold during the crisis). The Foreign Investment Review group coordinates closely with our market-leading Antitrust & Competition and M&A practices to provide the seamless advice guiding global transactions to completion for which Cleary has been known since its inception.

To stay abreast of these developments, please contact any member of our Foreign Investment Review group or your regular contacts at the firm.