DealLawyers.com Blog

May 28, 2020

National Security: Changes Proposed to CFIUS Mandatory Declaration Rules

Last week, the Treasury Department proposed changes to CFIUS’s mandatory declaration filing rules. The intro to this Locke Lord memo summarizes the proposed changes:

On May 21, 2020, the Treasury Department published a Proposed Rule that would alter the Committee on Foreign Investment in the United States (“CFIUS”) regulations at 31 C.F.R. Part 800 in two important respects. First, the Proposed Rule would modify the mandatory declaration filing provision for “critical technology” transactions by using export control regimes to assess whether parties to a transaction must file with CFIUS, and by eliminating prior reliance on North American Industry Classification System (“NAICS”) codes. Second, the Proposed Rule would change language in 31 C.F.R. § 800.244 to clarify the definition of “substantial interest,” a definition which also plays a role in determining whether parties have to file with CFIUS. The comment period for the Proposed Rule expires on June 22.

Instead of the current requirement that the critical technology bear a connection to a particular NAICS code, the proposed rule would require a mandatory declaration filing for a covered transaction if the U.S. business would be required to obtain an authorization to export the technology to the foreign parties involved in the deal. In determining the need for export authorization, the proposed rules instruct parties to the parties to consult the four major export control regimes administered by the Departments of State, Commerce, and Energy, and the Nuclear Regulatory Commission.

The proposal also clarifies that the national or subnational governments of a single foreign state will be considered to have a “substantial interest” in an entity only if they hold 49% or more of the interest in the general partner, managing member, or equivalent of the entity. It also makes clear that the attribution rules contained in § 800.244(c) apply both to § 800.244(a), which looks to a “voting interest” held by a foreign government, and to § 800.244(b), which looks to an “interest” held by a foreign government.

John Jenkins