The Committee on Foreign Investment in the United States (CFIUS) reviews foreign investments in the U.S. to determine their effect on the national security of the United States. This impacts a wide range of individuals and entities, including those on various visa categories (H-1B, L-1, E-2, etc.) with investments in US businesses.
What is CFIUS?
CFIUS is a US government committee that reviews foreign investments in U.S. businesses and real estate to determine if they pose a threat to national security. CFIUS operates pursuant to section 721 of the Defense Production Act of 1950, as amended.
All foreign investments in the United States, including acquisitions, mergers and takeovers by foreign nationals are subject to review for national security risks. Transactions determined to pose a threat to national security may be blocked.
CFIUS has broad discretion to determine if foreign ownership or control of U.S. businesses or real estate creates national security risks. CFIUS examines various covered transactions, including acquisitions, mergers, and even minority investments, if they involve “critical technologies,” “critical infrastructure,” or “sensitive personal data.”
CFIUS has 11 members that are chaired by the Secretary of the Treasury.
CFIUS Foreign Investment
One of the requirements for triggering a CFIUS review is an investment made by a “foreign person.” A foreign person is a foreign national, foreign government, foreign entity or any entity that is controlled or can be controlled by any of the above. This encompasses not just individuals but also entities controlled by foreign entities or governments. CFIUS reviews the entire ownership structure of an investment to identify any foreign person and the source of funds.
Foreign nationals in the United States on visas (such as H-1B, O-1, L-1, E-2, E-1, EB-5, EB-1C, EB-1A, EB-2 NIW, and Entrepreneur Parole) who invest in U.S. businesses, even with minority stakes, may have to file with CFIUS if their investments poses a national security risk by, for example allowing access to controlled critical technologies, critical infrastructure or sensitive personal data.
For example, an E-2 visa holder purchasing an insurance agency in the U.S. selling insurance for homes, cars and others likely triggers CFIUS review due to access to sensitive customer data of US citizens and lawful permanent residents (green card holders).
In the context of L-1 visa, CFIUS filing requirements apply to any entity engaged in commerce within the United States, including a U.S. office of a foreign company.
When does CFIUS apply?
- Only applies to acquisitions of interests in US businesses including acquisitions, mergers, takeovers or other business transactions resulting in ownership or control by foreign persons.
- Generally, CFIUS does not apply to:
- Greenfield investments (example, purchasing raw or undeveloped land)
- Debt financing (unless they effectively grant control or are convertible into equity ownership)
- Licensing agreements (unless they effectively grant control)
- Marketing and distribution agreements
- Strategic alliances
- Other transactions not involving an acquisition (unless the contribution is a US business)
Please note: CFIUS focuses on the substance of transactions, not just their form. Even if a transaction is structured as a joint venture, long-term debt financing, or licensing arrangement, it may trigger CFIUS filings if it effectively results in the acquisition of a “U.S. business”.
CFIUS Covered Transaction
Transactions between a US business and a foreign person that can impact the national security of the United States are covered transactions and include:
- Control transactions: Transactions that can result in a foreign person gaining ownership or control of a US business that develops or uses critical technologies as defined under the CFIUS regulations
- Investments: Direct or indirect investments by a foreign person in a US business that is not affiliated with them
- Real estate transactions: Transactions involving certain categories of real estate in the US
- Changes in rights: Changes to a foreign person’s rights in a US business that could result in a covered control transaction or investment, as discussed above
- Transactions that unlawfully evade CFIUS: Transactions requiring CFIUS review and approval that are structured to conceal foreign person ownership or control
- Non-Controlling Investments in U.S. businesses that:
- Work with particularly sensitive technologies (critical technologies)
- Own, operate, or support U.S. critical infrastructure like financial services or transportation providers (critical infrastructure); or
- Have access to certain sensitive personal data belonging to U.S. citizens (sensitive personal data)
For CFIUS review purposes, a “TID” U.S. business is defined as any company operating in sectors involving:
Mandatory CFIUS filings are triggered when a foreign investor gains:
Examples of “access” that may trigger CFIUS review include:
Beyond TID U.S. businesses, CFIUS also reviews certain foreign investments in real estate that may pose national security risks, even if there is no operating business.
Collectively, “covered control transactions,” “covered investments” in TID U.S. businesses, and “covered real estate transactions” are subject to CFIUS filings and reviews.
Triggering CFIUS Review:
Mandatory vs. Voluntary Filings
Parties involved in covered transactions are legally required to file with CFIUS before closing the transaction. CFIUS may also require filings before or after the transaction is completed. Failing to comply with mandatory filing requirements can result in significant penalties, potentially reaching the value of the investment.
A recent example highlights the importance of CFIUS compliance. On May 13, 2024, the Biden administration ordered the divestment of a Chinese-backed entity’s purchase of US real estate near a critical military site – a strategic missile base in Wyoming. This transaction was not filed with CFIUS for review, and the government intervened after the deal was finalized.
To avoid such consequences, voluntary filing with CFIUS before closing a covered transaction is highly recommended to secure a ‘safe harbor’ against a CFIUS requested filing. There is no statute of limitations and therefore, CFIUS can compel a filing years after an investment is made.
Consequences of Non-Compliance
Consequences of non-compliance include penalties, divestiture orders and substantial fines.
Malescu Law can assist
We can assist foreign investors in connection with the acquisition of, or investment in, a business in the U.S. as well as the compliance with CFIUS filings and review.
We serve companies and individuals across all 50 states and the District of Columbia.
Contact us or schedule a consultation.
Malescu Law P.A. – Business & Immigration Lawyers