Treasury tightens foreign investment review rules

By Doug Palmer

The Treasury Department has finalized two regulations that expand the power of the U.S. executive branch to block foreign investments in real estate or certain businesses involved in critical technology, infrastructure or personal data.

The increased authority could significantly expand the number of transactions reviewed each year, although a senior Treasury official told reporters on Monday that he was not prepared to say by how much.

“These regulations strengthen our national security and modernize the investment review process,” Treasury Secretary Steven Mnuchin said in a statement. “They also maintain our nation’s open investment policy by encouraging investment in American businesses and workers, and by providing clarity and certainty regarding the types of transactions that are covered."

The regulations will go into effect on Feb. 13, as mandated by the Foreign Investment Risk Review Modernization Act, or FIRRMA, passed by Congress in 2018. That law, passed with bipartisan support and the backing of the Trump administration, expanded the ability of the Committee on Foreign Investment in the United States, or CFIUS, to review transactions for national security threats.

The legislation was aimed at addressing concerns about China acquiring sensitive U.S. technology through its overseas investments, though the new regulations do not single out any country by name.

The CFIUS review process remains largely voluntary, except in certain circumstances when a foreign government acquires a substantial interest in certain U.S. businesses involved in crucial technology, infrastructure or data, a senior Treasury official said.

A mandatory review is required even if the acquiring interest is non-controlling. It is aimed at preventing such possibilities as the transfer of war-fighting technologies to an adversary, the official said.

The final rules also establish CFIUS’ jurisdiction over certain real estate transactions, particularly near airports, marine ports and certain military installations. They apply to most real estate located close to the sites, but exclude most transactions involving single-housing units and most real estate in urban areas, the official said.

The 2018 FIRRMA law also required CFIUS to exempt certain allies, or "accepted foreign states," from scrutiny under its increased jurisdiction. Treasury has decided to apply that initially to investment from just three countries — Canada, Australia and the United Kingdom — but could expand the list in the future, the senior Treasury official said.