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Regulation

CFIUS pilot program launched

Treasury Secretary Steven Mnuchin chairs CFIUS, whose jurisdiction was expanded in August

A pilot program testing an updated process for reviewing and potentially blocking foreign investments that could raise national security considerations will begin in November, the Treasury Department said Wednesday.

The program is a major component of the Foreign Investment Risk Review Modernization Act of 2018, the first major update for the Committee on Foreign Investment in the United States. It allows a deeper look into foreign minority-position investments made through U.S. venture capital and private equity funds.

Treasury Secretary Steven Mnuchin chairs CFIUS, whose jurisdiction was expanded in August to also consider whether a foreign investor controls a U.S. business or is non-passive.

The pilot program begins Nov. 10 after a 30-day comment period. Full implementation is expected no later than February 2020, and the pilot program will end no later than that date.

A fact sheet on the pilot program is on the Treasury website.

Nicole Lamb-Hale, managing director in the business intelligence and investigations practice of Kroll Associates and leader of the firm's CFIUS advisory practice, noted that the update was designed to close loopholes that allowed some foreign investors to circumvent CFIUS. The pilot program will allow for "a dry run on how the regulatory scheme should be structured" and provides stakeholders a source of input on what the final process will look like.

Firms concerned about CFIUS review should do their own due diligence on investors on the front end, she said, "because the government's going to do it."