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

Part 5: The Declaration Mechanism


by the Fluet International Trade & Transactions team
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Earlier this month, in anticipation of The Foreign Investment Risk Review Modernization Act’s (FIRRMA) impending passage, we provided an overview of the exceptions contained in FIRRMA for certain types of transactions that would otherwise be under the Committee on Foreign Investment in the United States’ (CFIUS) expanded jurisdiction.  Since that time, FIRRMA was passed when President Trump signed into law the John S. McCain National Defense Authorization Act for Fiscal Year 2019. Over the next few weeks we will continue to summarize FIRRMA’s critical provisions as the Department of the Treasury begins drafting the implementing regulations.  This week, we will focus on FIRRMA’s creation of a new filing mechanism: declarations.

Under the existing CFIUS regulations, “a party or parties to a proposed or completed transaction may file a voluntary notice of the transaction with the Committee.”  31 C.F.R. 800.401(a).  If, however, CFIUS “determines that a transaction for which no voluntary notice has been filed…may be a covered transaction and may raise national security considerations, the Staff Chairperson, acting on recommendation of the Committee, may request the parties to the transaction to provide to the Committee the information necessary to determine whether the transaction is a covered transaction, and if the Committee determines that the transaction is a covered transaction, to file a notice…of such covered transaction.”  31 C.F.R. 800.401(b). 

“Joint Voluntary Notices,” as they are called, are lengthy documents and, as such, investors/buyers and sellers typically spend significant funds on retaining counsel to draft their segments of their Joint Voluntary Notices.  Between the time it takes to draft a Joint Voluntary Notice and the cost of doing so, some investors/buyers and sellers likely either convince themselves that their transactions would not be of interest to CFIUS and avoid submitting Joint Voluntary Notices or elect to ignore the voluntary notification process with the hope that CFIUS will not learn of their transactions.  Under either circumstance, CFIUS loses the opportunity to assess what could be untold numbers of covered transactions due to the burden of filing a Joint Voluntary Notice.

FIRRMA seeks to address this blind-spot by giving parties to a covered transaction the option of filing with CFIUS a “declaration” that includes “basic information regarding the transaction.”  FIRRMA leaves it to CFIUS to outline the specific contents of a declaration but makes clear that they shall be such that a typical declaration would not exceed 5 pages in length.

In addition to giving parties the option of filing declarations, however, FIRRMA also requires that parties file declarations (or, at their discretion, Joint Voluntary Notices) under certain circumstances.  While FIRRMA does not describe, with specificity, all of these circumstances, it does stipulate that parties to a covered transaction shall file a mandatory declaration “if the transaction involves an investment that results in the acquisition, directly or indirectly, of a substantial interest1 in a United States critical infrastructure company or United States critical technology company by a foreign person in which a foreign government has, directly or indirectly, a substantial interest.”   FIRRMA also requires that, in identifying the circumstances under which declarations are mandatory, CFIUS consider the following factors:

          (a)  the technology, industry, economic sector, or economic subsector in which the United States business that is a party to the transaction trades or of which it is a part;

          (b)  the difficulty of remedying the harm to national security that may result from completion of the transaction;

          (c)  the difficulty of obtaining information on the type of covered transaction through other means; and 

          (d)  the difficulty of obtaining information on the ultimate ownership of the foreign person that is a party to the transaction. 

FIRRMA does make clear that an otherwise mandatory declaration is not required where the investment is being made by an investment fund and the following criteria apply:

          (a)  the fund is managed exclusively by a general partner, a managing member, or an equivalent;

          (b)  the general partner, managing member, or equivalent is not a foreign person; and

          (c)  the advisory board or committee of which any foreign person is a member does not have the ability to approve, disapprove, or otherwise control investment decisions of the fund or decisions made by the general partner, managing member, or equivalent related to entities in which the fund is invested and any such foreign person does not otherwise have the ability to control the fund, including the authority —

                    I.  to approve, disapprove, or otherwise control investment decisions of the fund;

                    II.  to approve, disapprove, or otherwise control decisions made by the general partner, managing member, or equivalent related to entities in which the fund is invested; or 

                    III.  to unilaterally dismiss, prevent the dismissal of, select, or determine the compensation of the general partner, managing member, or equivalent.

With respect to timing, mandatory declarations must be submitted no later than 45 days before the covered transaction closes.  If, however, parties elect to submit a Joint Voluntary Notice in lieu of a mandatory declaration, they must do so no later than 90 days before the transaction closes.

Lastly, FIRRMA indicates that CFIUS may respond in the following manners upon receiving a declaration:

          (a)  request that the parties to the transaction file a written notice;

          (b)  inform the parties to the transaction that the Committee is not able to complete action with respect to the transaction on the basis of the declaration and that they may file a written notice to seek written notification from the Committee that the Committee has completed all actions with respect to the transaction;

          (c)  initiate a unilateral review of the transaction; or

          (d)  notify the parties in writing that the Committee has completed all actions with respect to the transaction. 


FIRRMA’s creation of declarations is arguably a positive development for both parties to covered transactions and CFIUS, as declarations are both a cost-efficient notification mechanism and a means of giving CFIUS visibility into transactions that may otherwise escape its scrutiny.  Whether they function in the manner intended, though, remains to be seen.

Up Next: We will examine other notable procedural modifications effectuated by FIRRMA.

1. FIRRMA leaves it to CFIUS to define the term “substantial interest” but requires that, when doing so, CFIUS “consider the means by which a foreign government could influence the actions of a foreign person, including through board membership, ownership interest, or shareholder rights.” FIRRMA further stipulates that an ownership interest that either qualifies as a passive investment or is less than 10% shall not be considered a substantial interest.

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 and the White House, and with foreign Ministers of Defense. She has expertise in export compliance, securities regulations, and other regulatory regimes.

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