October 20, 2020

National Security: An Overview of the New CFIUS Regime

If you’re looking to get your arms around the CFIUS national security review regime following the full implementation of FIRRMA, check out this Wilson Sonsini memo. Here’s the intro:

On October 15, 2020, the final rule implementing the baseline requirements of the Foreign Investment Risk Review Modernization Act of 2018 (FIRRMA) took effect. This final rule altered the mandatory filing rules of the Committee on Foreign Investment in the United States (CFIUS or the Committee). The most important change in the new rule replaces an old piece of the mandatory filing tests—i.e., are “critical technologies” used in or designed for use in “sensitive industries”—with a new test that asks instead whether a U.S. regulatory authorization (e.g., a license) would be required for the export or transfer of such technologies to the investing entity or certain affiliated parties. With this rule, a cycle of more than two years of CFIUS rulemaking came to a close.

While the Committee has indicated that its rules are likely to continue to evolve in the future, the end of the initial round of FIRRMA rulemaking marks a moment for investors, companies, and decisionmakers to take stock of the new CFIUS. Earlier incremental variants of the CFIUS rules will continue to apply to transactions finalized before October 15, 2020—and, as discussed below, the CFIUS enforcement team is actively looking at many such transactions—but today’s rules will govern transactions going forward. Accordingly, companies and investors should understand when filings are required, when they are elective, and what the risks are of forgoing a filing under the completed first-generation FIRRMA rules.

The memo addresses basic issues such as the scope of CFIUS’s jurisdiction, mandatory and voluntary filing requirements and the potential downsides of CFIUS review. It also gets into the details of mandatory and voluntary filings, and provides some guidance to companies deciding whether or not to make a voluntary filing.

John Jenkins