Department of Treasury Issues Final FIRRMA Regulations

The U.S. Treasury Department has issued final rules (the Regulations) implementing changes to the foreign investment review process administered by the Committee on Foreign Investment in the United States (CFIUS). The rules, which became effective on February 13, 2020, implement changes introduced by the Foreign Investment Risk Review Modernization Act of 2018 (FIRRMA) and govern CFIUS’ review of the national security implications of certain foreign investments and real estate transactions.


  • The Regulations require a CFIUS notification for certain investments in U.S. critical technology businesses (including some non-passive minority investments), similar to the filings necessary under the CFIUS Pilot Program that took effect in November 2018.
  • The Regulations require a CFIUS notification by most foreign-government-related investors making investments in U.S. businesses involved in (1) critical technology, (2) critical infrastructure, or (3) sensitive personal data (so-called “TID” U.S. businesses).
  • The Regulations create an exemption for the United Kingdom, Australia, and Canada as excepted foreign states on a so-called “white list.” Foreign investors with sufficient ties to these countries may be exempt from CFIUS review of non-controlling investments in certain U.S. businesses. Surprisingly, Japan was expected to be, but was not, included on the white list.
  • The Regulations refine FIRRMA’s application to investment funds to help ensure that investment funds managed and controlled by U.S. persons are not discouraged from investing in other U.S. businesses due to CFIUS’ expanded oversight of foreign transactions.
  • The Regulations implement an interim rule to test a new definition for “principal place of business,” which was previously not defined. The definition for principal place of business relates to the definition of foreign entity and helps determine if a foreign investor may be exempt from CFIUS review. The Treasury Department is accepting public comment on the interim definition through February 18, 2020.
  • The Regulations provide for CFIUS review of the purchase or lease by, or concession to, a foreign person of real estate located in proximity to sensitive U.S. government facilities, but do not create a mandatory filing requirement for covered real estate transactions.

Although the Regulations do not depart significantly from the Proposed Rules issued in September 2019, there are some important changes, particularly insofar as they operate to expand CFIUS’ jurisdiction to review certain non-controlling investments in U.S. businesses and certain real estate transactions. This Alert describes the new Regulations and highlights the important changes from the Proposed Rules.


The Regulations expand CFIUS’ authority to review certain non-controlling, or minority, investments by foreign persons in U.S. businesses involving critical technology, critical infrastructure, or sensitive personal data. Prior to FIRRMA, CFIUS had authority to review only foreign transactions that resulted in “control” of a U.S. business by a foreign person (such as through ownership of a majority or dominant minority of outstanding voting interests, board representation, or otherwise) and that posed a risk to national security.

CFIUS now has jurisdiction over minority investments when:

(1) A foreign person makes an investment in (2) certain types of Technology, Infrastructure and Data U.S. Businesses, called "TID U.S. Businesses," that (3) affords the foreign person:

(a) Access to material non-public information in the possession of the TID U.S. Business;
(b) Membership or observer rights on the board of directors or equivalent body; and/or 
(c) Involvement in the substantive decision-making of the TID U.S. Business regarding certain actions related to the critical technologies, critical infrastructure or sensitive personal data.

Thus, the size of the investment is not determinative, but rather the rights acquired through the investment.

A. Foreign Persons and Excepted Investors

FIRRMA requires that CFIUS limit application of its expanded jurisdiction over non-controlling investments to certain categories of foreign persons. To do so, the Proposed Rules provided a framework for identifying “excepted foreign states” and “excepted foreign investors” eligible for exclusion from FIRRMA’s coverage of non-controlling investments. To be eligible for the exception, the investment must be made by an excepted foreign investor based on its ties to an excepted foreign state. The Proposed Rules did not go so far as to identify any foreign states to be included on its so-called “white list.”

1. Excepted Foreign States

CFIUS has “initially” selected Australia, Canada, and the United Kingdom of Great Britain and Northern Ireland as excepted foreign states. CFIUS selected these countries due to their “robust intelligence-sharing” and “defense industrial base integration mechanisms” with the U.S.

These selections may only be temporary, and additional states may be added to the white list over time, but likely not until 2022. The Regulations modify the definition of excepted foreign state to clarify that it will take effect in two stages, giving these initially selected foreign states a trial period to satisfy the requirements.

The definition provides a two-part test for determining qualifying states: (1) CFIUS identifies it as an eligible foreign state; and (2) CFIUS determines that the foreign state has established and is effectively utilizing a robust process to analyze foreign investments for national security risks and to coordinate with the U.S. on the same. The second prong of this test will not take effect until February 13, 2022, giving the three foreign states initially selected two years to ensure that their national security-based foreign investment review process meets the criterion.

Somewhat surprisingly, CFIUS did not select Japan as one of the initially excepted foreign states. In November 2019, Japan tightened its foreign investment rules to require foreign investors to report plans to acquire more than 1 percent of shares in companies important to Japan’s national security; previously, the limit was 10 percent. This revision to its Foreign Exchange and Foreign Trade Control Law was made to coordinate with the U.S. in an apparent effort to make the white list. CFIUS may still add Japan to its white list, but perhaps not until the second prong of the excepted foreign state test takes effect. 

2. Excepted Foreign Investors

The Regulations also broadened the definition of “excepted foreign investor” to accommodate more exceptions. An excepted foreign investor is defined as a foreign national of one or more excepted foreign states that is not also a national of any non-excepted foreign states; a foreign government of an excepted foreign state; or a foreign entity that meets certain conditions regarding its ties to non-excepted foreign states (including as applied to its parent). The Regulations made the following changes to the conditions:

  • A foreign entity may still qualify for exception even if up to 25 percent of its board members are not nationals of an excepted foreign state;
  • A foreign entity may still qualify even if one or more foreign persons holding 10 percent or less of its ownership interest is not from an excepted foreign state (previously, they had to hold less than 5 percent);
  • A foreign entity may still qualify even if its minimum excepted ownership is 80 percent (previously, 90 percent), meaning the majority of its ownership interests are held by excepted foreign persons or non-foreign persons.

The Regulations also add a new interim rule defining the term “principal place of business.” In addition to the conditions outlined above, a foreign entity must be organized under the laws of, and have its principal place of business in, the excepted foreign state or the U.S. Principal place of business has been defined to help clarify FIRRMA’s application to investment funds managed or controlled in the U.S.

Principal place of business is now defined as, “the primary location where an entity’s management directs, controls, or coordinates the entity’s activities, or, in the case of an investment fund, where the fund’s activities and investments are primarily directed, controlled, or coordinated by or on behalf of the general partner, managing member, or equivalent.” The location or nationality of the limited partners is therefore not factored into this condition, but may be considered as part of the other conditions listed above.

B. TID U.S. Businesses

There are three categories of TID U.S. Businesses, some of which are still not clearly defined under the Regulations.

Critical Technologies

The definition of critical technologies refers to several other regulatory regimes. While the term primarily applies to defense items, “dual use items” (goods and technology) that are controlled for reasons related to national security, missile technology, nuclear technology, agents and toxins, and chemical, biological and nuclear nonproliferation, it also includes a broad, not yet defined category of “emerging and foundational technologies” that are controlled under section 1758 of the Export Control Reform Act of 2018 (50 U.S.C. 4817).

The Bureau of Industry (BIS) is still working on proposed rules to define “emerging and foundational technologies” that will be subject to future export controls. BIS is considering technologies such as: (a) artificial intelligence and machine learning technology; (b) Position, Navigation, and Timing (PNT) technology; (c) logistics technology; (d) quantum information and sensing technology; (e) robotics; (f) hypersonics; (g) advanced surveillance technologies, such as faceprint and voiceprint technologies; and (h) advanced materials, such functional textiles.

As part of their analysis, BIS officials are assessing the foreign availability of the technology at issue. On January 6, 2020, BIS issued an interim final rule adopting its first such classification, covering certain geospatial imagery software technology.

Critical Infrastructure

The Regulations’ definition of critical infrastructure only applies to non-controlling investments in U.S. businesses that own, operate, manufacture, supply or service critical infrastructure; for traditional control transactions, the term is defined more broadly. The term is defined through a list of types of infrastructure and the specific functions they must play with the U.S. business.

For example, any internet exchange point that supports public peering is critical infrastructure if “owned and operated” by the U.S. business. Any industrial control system utilized by certain interstate oil or natural gas pipelines is critical infrastructure if “manufactured or serviced” by the U.S. business.

Appendix A (to 31 C.F.R part 800) contains the full list of types and functions of critical infrastructure, and may be updated from time to time. It includes the following categories:

  • IP networks, internet exchange points, and telecommunications and information systems, including fiber optics cables and submarine cable systems
  • Satellite or satellite systems providing services directly to the DoD
  • Industrial resources and manufacturing facilities manufacturing or operating for certain defense purposes
  • Systems, facilities and storage resources comprising or servicing the bulk-power system
  • High capacity oil and gas refineries and crude oil storage facilities
  • LNG terminals or storage facilities
  • High capacity interstate oil pipelines and control systems
  • Financial market utilities and securities exchanges
  • Rail lines and connector lines designated part of the DOD’s Strategic Railroad Corridor Network
  • Airports and maritime ports
  • Public water systems and their industrial control systems

Sensitive Personal Data

FIRRMA also covers non-controlling investments in U.S. businesses that maintain or collect sensitive personal data of U.S. citizens that “may be exploited in a manner that threatens to harm national security.”

There are nine categories of sensitive personal data:

  • Financial
  • Consumer report data
  • Geolocational
  • Health data
  • Non-public electronic communications, including emails and chats
  • Biometric enrollment data
  • Federal ID card data
  • U.S. government personnel security clearance data
  • Genetic testing data

The categories are covered under FIRRMA only if the U.S. business: (a) targets or tailors its products or services to sensitive U.S. Government personnel or contractors, (b) maintains or collects such data on greater than one million individuals, or (c) has a demonstrated business objective to maintain or collect such data on greater than one million individuals and such data is an integrated part of the U.S. business’s primary products or services.

The definition excludes anonymized data and encrypted data, so long as the data cannot be de-anonymized or de-encrypted.

Importantly, the Regulations narrowed the definition of “genetic data” to focus on “genetic testing,” as defined in the Genetic Information Non Discrimination Act of 2008, and limit its coverage to identifiable data. The revised definition also carves out genetic testing data from databases maintained by the U.S. government and routinely provided to private parties for research, so as not to capture U.S. businesses using common datasets for research purposes.

Genetic data is given a heightened degree of protection and is covered even if the U.S. business does not meet the criteria above, and does not collect or maintain large amounts of data or does not target or tailor its products to government personnel.

C. Mandatory Filings and the FIRRMA Pilot program

Certain covered non-controlling investments require the filing of a mandatory five-page declaration. First, mandatory declarations are required for transactions that were covered by the FIRRMA pilot program. Although the pilot program was set to expire on February 13, 2020, the Regulations were revised to incorporate the requirements of the pilot program so that it remains in effect. That means non-controlling investments in Critical Technology U.S. Businesses in certain sensitive industries (listed by NAICS code) will still be subject to the mandatory filing requirement.

Second, mandatory declarations are required for covered non-controlling investments where a foreign government has a “substantial interest,” which is determined based on a certain voting interest threshold (foreign government’s voting interest in the foreign investor is 49 percent or more, and the voting interest that the foreign person is acquiring in a TID U.S. Business is 25 percent or more).

The Regulations revised the definition of “substantial interest” to clarify that it applies to only a single foreign government (not aggregated), including both national and subnational governments and their respective departments, agencies, and instrumentalities. The definition also clarifies that, as to investment funds, the substantial interest definition applies only to the general partner.

Failure to file a mandatory declaration can result in a civil penalty ranging from $250,000 up to the value of the transaction.

All other CFIUS notice filings remain voluntary. Of course, CFIUS maintains the right to review any covered transactions on its own accord, even if the parties elect not to make a voluntary filing. Parties elect to file notices voluntarily to obtain a safe harbor from CFIUS’ review. Failure to obtain a safe harbor for transactions can have serious financial consequences for the parties because CFIUS can require a review even after a deal closes and, if determined necessary to protect national security, order divesture, unwinding, or other mitigation measures.


Prior to FIRRMA, real estate was only covered to the extent it was part of a “control” transaction that posed a risk to national security. Now, under the Regulations, CFIUS has jurisdiction over (a) purchases, leases and concessions (b) through which a foreign person is afforded certain “property rights” (c) with respect to “covered real estate”.

A. Covered Real Estate

Covered real estate is defined in terms of proximity to certain sensitive sites—primarily airports, maritime points, and military installations.

First, it includes real estate that is, is located within, or will function as part of an airport or maritime port. The Regulations create a new, single definition for “covered port,” which includes both airports and maritime ports. The new definition identifies relevant lists of ports covered by FIRRMA that the Department of Transportation maintains and lists on its website. It also clarifies that there is a 30-day delayed effectiveness for any additions to the listed ports because changes will not be published in the Federal Register (whereas the removal of ports from the list will take effect immediately).

Second, the term also includes real estate that is located within: (i) close proximity (1 mile) to certain military installations or other government facilities or properties identified in parts 1 or 2 of Appendix A; (ii) extended range (99 miles) of other more sensitive military installations identified in part 2 of Appendix A; (iii) any county or other geographic area identified in connection with any military installation identified in part 3 of Appendix A; or (iv) any part of a military installation identified in part 4 of Appendix A.

Appendix A (to 31 C.F.R part 802) currently only lists military installations, but CFIUS plans to add other sensitive government facilities through notices published in the Federal Register. The Regulations revised Appendix A as it appeared in the Proposed Rules, removing one site and refining certain geographic areas relating to listed sites.

B. Property Rights

Property rights covered by FIRRMA exist when at least three of the following rights are afforded the foreign person: (i) to have physical access to the property; (ii) to exclude others from physical access to the property; (iii) to improve or develop the property; and (iv) to attach fixed or immovable structures to the real estate. Changes to existing property rights that result in the procurement of at least three of these rights can also trigger CFIUS’ review.

C. Exceptions

Covered real estate transactions, like covered minority investments, also provide certain exceptions through use of the terms “excepted real estate investor,” “excepted real estate foreign state” and “excepted real estate transactions.” The definitions for excepted real estate investor and excepted real estate foreign state track the definitions used for minority investments.

Therefore, Australia, Canada, and the United Kingdom are also excepted real estate foreign states, and the definition of excepted real estate investor was revised, as explained above, based on its ties to non-excepted foreign states.

“Excepted real estate transaction” is defined through a list of types of transactions that are not covered. Those include the following:

  • Transactions by an excepted real estate investor.
  • Transactions that are already covered in part 800 that include the purchase, lease, or concession of covered real estate.
  • Covered real estate within an urbanized area or urban cluster (except those relating to relevant ports and those in “close proximity” to certain military installations).
  • Covered real estate that is a single housing unit, including fixtures and adjacent land incidental to its use as a single housing unit.
  • Commercial real estate in a multi-unit building if the foreign person and its affiliates do not hold more than 10 percent of the total square footage and don’t represent more than 10 percent of the total number of tenants.
  • Covered real estate owned by an Alaska Native village, group or Corporation or held in trust for American Indians, Indian Tribes, or Alaska Natives.
  • Leased or conceded covered real estate that is located within or will function as part of a covered port, if the real estate may be used only for the purpose of engaging in the retail sale of consumer goods or services to the public, OR if the foreign person is a foreign air carrier (covered by the Department of Homeland Security).

The Regulations add an exception for foreign carriers leasing or receiving conceded real estate in airports sand maritime ports because the Department of Homeland Security already oversees those transactions.

The Regulations also clarify that the exception relating to commercial space in a multi-unit building is based on the number of parties that own, lease, or have a concession to the commercial space in the building, and not, for example, by the number of employee occupants.

D. Filing Requirement

There are no mandatory filing requirements for covered real estate transactions.

The Regulations are not the last word on the subject, as the Department of Treasury has indicated that amendments and additional rules will be forthcoming in 2020. Therefore, parties to foreign investment transactions will need to be sure to consider updates to the Regulations as well as interpretive guidance that is made available by CFIUS in assessing the applicability of CFIUS notification requirements.

This article was originally featured as an antitrust advisory on on February 14, 2020. Our editors have chosen to feature this article here for its coinciding subject matter.