Updated rules on how the federal government reviews foreign investment, including private equity and real estate transactions, were released Tuesday by the Treasury Department.
Treasury Secretary Steven T. Mnuchin said in a statement that the proposed regulations "will provide clarity and certainty to investors regarding CFIUS's enhanced authorities to address national security risks that arise from certain foreign investments."
The rules are open for a 30-day comment period and due to go into effect in February.
The proposal implements changes made in the bipartisan Foreign Investment Risk Review Modernization Act of 2018 that expands the ability of the Committee on Foreign Investment in the United States, CFIUS, to review transactions based on the degree of control of a foreign investor or government. Treasury would allow CFIUS to pay closer attention to transactions involving "critical" technology and infrastructure, and the authority to block foreign investment, especially by China.
The proposal adds four new types of covered transactions:
- Real estate located near sensitive government facilities.
- "Other investments" in certain U.S. businesses that afford access to material nonpublic technical information or other decision-making rights.
- Changes in a foreign investor's rights resulting in foreign control of certain U.S. business or investment.
- Any other transaction designed to circumvent CFIUS jurisdiction.
Applying the proposed changes to real estate and other transactions "is going to be complicated" but should be less onerous for private equity investors whose limited partners have limited influence on investments, said a former government official familiar with the CFIUS process.
While Congress originally had a 10% threshold of foreign government-controlled acquisitions triggering CFIUS review, the proposed changes "put the bar much higher," and limit review to certain technologies, he said. Congress originally had a 10% threshold of foreign government-controlled acquisitions for mandatory review, but the proposed changes raises it to 25%, among other changes.
