An Eight-Part Introduction to the Foreign Investment Risk Review Modernization Act

Part 1: CFIUS Now


by the Fluet International Trade & Transactions team
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On November 8, 2017, the Foreign Investment Risk Review Modernization Act was introduced in the House and Senate. “FIRRMA,” as it is known, has strong bipartisan support and seeks to significantly enhance the jurisdiction and authority of the Committee on Foreign Investment in the U.S. (CFIUS) by amending the legislation that created it (Section 721 of the Defense Production Act of 1950 (50 U.S.C. 5465(a)).

The implications of FIRRMA for foreign investors and U.S. entities alike are profound and will, without question, transform the legal landscape. FIRRMA was approved by the Senate on June 18, 2018 and the House of Representatives passed a similar bill on June 26, 2018, and, in light of the Trump administration’s commitment to curtail strategic Chinese investment in critical industries, FIRRMA will likely pass into law in the next few months.  

Between now and then we will examine various aspects of FIRRMA on a regular basis, resulting in a comprehensive and user-friendly overview of the Act and its consequences by the date of its passage. FIRRMA has also been adjusted between now and when it was initially introduced as U.S. industry has organized its objections and lobbied Congress accordingly.  We will report on these adjustments as they occur.

As an initial matter, we will provide an overview of CFIUS as it currently exists, focusing specifically on its membership, jurisdiction, procedural mechanisms, and areas of focus.

Committee Composition 

CFIUS is an interagency committee authorized to review transactions that could result in control of U.S. businesses by foreign persons (“covered transactions”) in order to determine the effects of such transactions on U.S. national security.  

The CFIUS member agencies are as follows:

          1. Department of Treasury (CFIUS chair)
          2. Department of Justice
          3. Department of Homeland Security
          4. Department of Commerce
          5. Department of Defense
          6. Department of State
          7. Department of Energy
          8. Office of the U.S. Trade Representative
          9. Office of Science and Technology Policy
          10. Office of Management and Budget (observes and occasionally participates)
          11. Council of Economic Advisors (observes and occasionally participates)
          12. National Security Council (observes and occasionally participates)
          13. National Economic Council (observes and occasionally participates)
          14. Homeland Security Council (observes and occasionally participates)
          15. Office of the Director of National Intelligence (non-voting, ex-officio)
          16. Secretary of Labor (non-voting, ex-officio)

CFIUS is chaired by the Department of Treasury and, more specifically, the Office of Investment Security, which coordinates and facilitates the interagency reviews and communicates to parties CFIUS’ positions and decisions.


As noted above, CFIUS has the authority to review “covered transactions.”  The CFIUS regulations outline in relative detail, though, the types of transactions that do, and do not, qualify as covered transactions or, in other words, those transactions in which foreign persons do and do not acquire control over U.S. businesses.

Per 31 CFR § 800.301, the following transactions constitute covered transactions:

          (a) A transaction which, irrespective of the actual arrangements for control provided for in the terms of the transaction, results or could result in control of a U.S. business by  foreign person;

          (b) A transaction in which a foreign person conveys its control of a U.S. business to another person;

          (c) A transaction that results or could result in control by a foreign person of any part of an entity or of assets, if such part of an entity or assets constitutes a U.S. business; and

               – Note that, under the existing regulations, Subsection (c) does not cover “greenfield” investments. Accordingly, as noted in § 800.301, if a foreign person invests in the United States by “separately arranging for the financing of and the construction of a plant to make a new product, buying supplies and inputs, hiring personnel, and purchasing the necessary technology[,]” even if the investment involves “the acquisition of shares in a newly incorporated subsidiary” the transaction is not considered “covered.”

          (d) A joint venture in which the parties enter into a contractual or other similar arrangement, including an agreement on the establishment of a new entity, but only if one or more of the parties contributes a U.S. business and a foreign person could control that U.S. business by means of the joint venture.

Per 31 CFR § 800.302, the following transactions do not constitute covered transactions:

          (a) A stock split or pro rata stock dividend that does not involve a change in control;

          (b) A transaction that results in a foreign person holding ten percent or less of the outstanding voting interest in a U.S. business (regardless of the dollar value of the interest so acquired), but only if the transaction is solely for the purpose of passive investment;

          (c) An acquisition of any part of an entity or of assets, if such part of an entity or assets do not constitute a U.S. business;

          (d) An acquisition of securities by a person acting as a securities underwriter, in the ordinary course of business and in the process of underwriting; and

          (e) An acquisition pursuant to a condition in a contract of insurance relating to fidelity, surety, or casualty obligations if the contract was made by an insurer in the ordinary course of business.

Note that, under the existing regulations “[o]wnership interests are held or acquired solely for the purposes of passive investment if the person holding or acquiring such interests does not plan or intend to exercise control, does not possess or develop any purpose other than passive investment, and does not take any action inconsistent with holding or acquiring such interests solely for the purpose of passive investment.”

CFIUS Review Process

While, as discussed below, the U.S. Government has the authority to block and even unwind covered transactions that it deems a threat to national security, parties are not presently required to notify CFIUS of their covered transactions. 

Accordingly, if a foreign buyer/investor and a U.S. seller believe that their transaction is subject to CFIUS’ jurisdiction then they would voluntarily submit a “Joint Voluntary Notice” to the Committee that satisfies the requirements outlined in 31 CFR § 800.402. Thereafter, under the present regulations, CFIUS has 30 days to review the transaction, determine whether it constitutes a “covered transaction,” and assess whether the investment has any national security implications.

At the end of the 30-day review, CFIUS will either notify the parties that it is concluding its review and that it has not identified any unresolved national security implications of the investment, or it will continue its review by initiating a 45 day “investigation” into the transaction. 

The Committee is required to conduct a 45 day investigation if a covered transaction (a) is a foreign government-controlled transaction (i.e., if the transaction “could result in control of a U.S. business by a foreign government or a person controlled by or acting on behalf of a foreign government”);” or (b) “[w]ould result in control by a foreign person of critical infrastructure of or within the United States, if the Committee determines that the transaction could impair the national security and such impairment has not been mitigated.”

Once the 45 day investigation has concluded, the Committee will either notify the parties that it has not identified any unresolved national security risks or it will indicate that there are in fact unresolved national security concerns, describe these concerns using non-classified information, convey to the parties that it will submit the matter to the President for his/her determination, and give them an opportunity to propose mitigation measures, which are typically enshrined in a National Security Agreement between the buyer/investor, the seller, and the U.S. Government. 

CFIUS may only report its decision to the President, though, where it recommends that the transaction be suspended or blocked, if the CFIUS member agencies are unable to reach a decision on whether the transaction should be suspended or blocked, or the Committee wishes for the President to make his/her own decision.  

In practice, the Committee typically gives parties the opportunity to withdraw and refile their Joint Voluntary Notice before sending the transaction to the President so as to give them additional time to negotiate with CFIUS their proposed mitigation measures.  If the transaction is submitted to the President, though, he/she has 15 days to make his/her determination.

National Security Factors

At present, the CFIUS regulations do not define what does and does not constitute a threat to U.S. national security. Section 721(f) of the Defense Production Act of 1950, as amended by the Foreign Investment and National Security Act of 2007, does, however, identify the factors that the President, and thus CFIUS, may consider when making national security assessments of covered transactions.  Those factors are as follows:

          1. domestic production needed for projected national defense requirements;

          2. the capability and capacity of domestic industries to meet national defense requirements, including the availability of human resources, products, technology, materials, and other supplies and services;

          3. the control of domestic industries and commercial activity by foreign citizens as it affects the capability and capacity of the United States to meet the requirements of national security;

          4. the potential effects of the proposed or pending transaction on sales of military goods, equipment, or technology to any country—

               A. identified by the Secretary of State

                    i. under Section 6(j) of the Export Administration Act of 1979…as a country that supports terrorism;

                    ii. under Section 6(l) of the Export Administration Act of 1979…as a country of concern regarding missile proliferation; or

                    iii. under Section 6(m) of the Export Administration Act of 1979…as a country of concern regarding the proliferation of chemical and biological weapons;

               B. identified by the Secretary of Defense as posing a potential regional military threat to the interests of the United States; or

               C. listed under section 309(c) of the Nuclear Non-Proliferation Act of 1978…on the “Nuclear Non-Proliferation Special Country List” (15 C.F.R. Part 778, Supplement No. 4) or any successor list;

          5. the potential effects of the proposed or pending transaction on United States international technological leadership in areas affecting United States national security;

          6. the potential national security-related effects on United States critical infrastructure, including major energy assets;

          7. the potential national security-related effects on United States critical technologies;

          8. whether the covered transaction is a foreign government-controlled transaction…;

          9. as appropriate…a review of the current assessment of—

               A. the adherence of the subject country to nonproliferation control regimes, including treaties and multilateral supply guidelines, which shall draw on, but not be limited to, the annual report on ‘Adherence to and Compliance with Arms Control, Nonproliferation and Disarmament Agreements and Commitments’ required by section 403 of the Arms Control and Disarmament Act;

               B. the relationship of such country with the United States, specifically on its record on cooperating in counter-terrorism efforts, which shall draw on, but not be limited to, the report of the President to Congress under section 7120 of the Intelligence Reform and Terrorism Prevention Act of 2004; and

               C. the potential or transshipment or diversion of technologies with military applications, including an analysis of national export control laws and regulations;

          10. the long-term projection of United States requirements for sources of energy and other critical resources and material; and

          11. such other factors as the President or the Committee may determine to be appropriate, generally or in connection with a specific review or investigation.


CFIUS already wields significant authority and has, since its inception, been responsible for the scuttling of many transactions. FIRRMA will only further expand its oversight capabilities and, undoubtedly, force parties to more regularly, and seriously, consider CFIUS’ mandate when structuring international transactions.


Up Next: We will begin examining the broader jurisdiction granted to CFIUS under FIRRMA.

About the Authors

Jennifer Huber and Adam Munitz are Partners in Fluet’s International Trade + Transactions Practice.  Focusing primarily on the defense, security, and intelligence sectors, Jennifer and Adam position U.S. businesses for overseas growth and help foreign investors/acquirers and U.S. sellers navigate the CFIUS review process.

Fluet Of Counsel Mary Beth Long is the first-ever Senate confirmed female Assistant Secretary of Defense and worked directly with Secretaries of Defense Rumsfeld and Gates on the Department’s highest priority issues. As the Defense Secretary’s principle advisor on the Middle East, Europe and Africa, including Iraq and Afghanistan, Ms. Long represented the Department of Defense at the National Security Council, the White House, and with foreign Ministers of Defense. She has expertise in export compliance, regulatory regimes, and securities regulations.

Additional information regarding the Fluet International Trade + Transactions Practice and previous representations can be found here.