New regulations for how the federal government reviews foreign investment in the U.S., including private equity and real estate transactions, were finalized Monday by the Treasury Department.
The rules, which become effective Feb. 13, were mandated by the bipartisan Foreign Investment Risk Review Modernization Act of 2018 that expanded the ability of the federal government's interagency Committee on Foreign Investment in the United States, or CFIUS, to review transactions based on the degree of control of a foreign investor or government.
Under the changes, CFIUS officials will now be able to pay closer attention to transactions involving critical technology and infrastructure or operations that collect sensitive personal data on U.S. citizens. Critical infrastructure sectors include telecommunications, utilities, energy and transportation.
They also gain the authority to refuse certain investments that are not passive but don't rise to the level of control, and to scrutinize real estate transactions near sensitive government facilities, such as military sites, airports and marine ports, while excluding most transactions involving housing units and near urban areas.
A senior Treasury official said on a press background call Monday that the U.S. "remains open for business" and the sole focus is on national security risk. "Foreign direct investment is vital to the U.S. economy," he said.
The official noted that several changes were made to the rules first proposed in September after receiving "hundreds" of comments seeking clarity. One change was an interim rule incorporated into the final rules to define "principle place of business" by having CFIUS officials focus on what are the "nerve centers" of businesses seeking to invest in U.S. companies. The final rules also refine how the law applies to investment funds.
For now, the U.S. will exempt potential investors from Australia, Canada and the U.K. from the new rules unless there is a question of possible foreign control of a U.S. business, but may expand the list of exempted states in future years, the official said.
The official also noted that going through a CFIUS review in order to get a safe harbor letter from the U.S. government for transactions that include foreign investment "will remain largely voluntary," except for investments by foreign governments in those areas deemed critical. Treasury officials also plan to soon propose new definitions of critical technology, he said.