February 14, 2023
Client Alert
By: Chris Griner, Shannon Reaves, Tom Firestone, Christopher R. Brewster, Gregory Jaeger, Andrew J. Astuno, Erin Bruce Iacobucci
On February 10, 2023, CFIUS determined that the United Kingdom and New Zealand have joined Australia and Canada as full-fledged “excepted foreign states.”
“Probationary” status is generally nothing to brag about, but for the United Kingdom and New Zealand, being on probation was apparently time well spent. Last week, the U.S. Committee on Foreign Investment in the United States (“CFIUS”) determined that the United Kingdom and New Zealand have sufficiently robust investment screening processes to warrant formal recognition as “excepted foreign states”[1]. Until last Friday, both countries had only probationary status. They now join fellow Five Eyes members Australia and Canada as full-fledged excepted foreign states.
Being incorporated and principally based in an excepted foreign state is a threshold (though not decisive) factor if a foreign acquirer is to be deemed an “excepted investor” or “excepted real estate investor” under the rules that govern CFIUS reviews. Achieving “excepted investor” status is a high bar (see our prior related alert, including description of the robust criteria that must be met by the investor, its parent, and intermediate entities involved in the transaction) – but it starts with being organized in an excepted foreign state. (Among other baseline requirements, “excepted investors” must also demonstrate a record of compliance with U.S. law.)
The benefits are significant. Excepted investors are exempt from CFIUS’s recently expanded jurisdiction, including (1) all mandatory declarations, (2) non-controlling investment jurisdiction, and (3) jurisdiction over real estate transactions not otherwise subject to review. Plainly, this status can make a foreign investor an attractive candidate when other bidders cannot claim such status. Of note, “excepted investor” status does not exempt a transaction from CFIUS jurisdiction if the investor will acquire “control”[2] over a U.S. business, as defined under applicable regulations, even if the target is not involved in sensitive activities (e.g., the production or development of “critical technologies”). Thus, while the benefits of “excepted investor” status are clear, CFIUS ultimately still has the right to review many transactions involving foreign acquirers from excepted foreign states.
Through its latest action, the U.S. Treasury has acknowledged that a longstanding relationship (including the sharing of sensitive information) exists among the nations comprising the Five Eyes. The Five Eyes alliance is an intelligence partnership among the U.S., Canada, Australia, the U.K. and New Zealand. This degree of alliance and information-sharing is the exception, and not the rule, among nations, including the United States. For CFIUS to add any other country to the excepted foreign state list in the future, its government will need to have adopted a robust investment screening regime (similar in nature to what has been structured in Canada, Australia, and now, as of last week, the United Kingdom and New Zealand), as well as have demonstrated significant and lengthy cooperation in the sharing of sensitive intelligence as it relates to furthering U.S. national security priorities.
Please contact our team members with any questions concerning the requirements for “excepted investors,” including how this latest Treasury announcement may relate to your business, including potential plans for investment in U.S. businesses and real estate.
[1] See: 31 C.F.R. § 800.218(a).
[2] See: 31 C.F.R. § 800.208.
February 14, 2023
Client Alert
By: Chris Griner, Shannon Reaves, Tom Firestone, Christopher R. Brewster, Gregory Jaeger, Andrew J. Astuno, Erin Bruce Iacobucci
On February 10, 2023, CFIUS determined that the United Kingdom and New Zealand have joined Australia and Canada as full-fledged “excepted foreign states.”
“Probationary” status is generally nothing to brag about, but for the United Kingdom and New Zealand, being on probation was apparently time well spent. Last week, the U.S. Committee on Foreign Investment in the United States (“CFIUS”) determined that the United Kingdom and New Zealand have sufficiently robust investment screening processes to warrant formal recognition as “excepted foreign states”[1]. Until last Friday, both countries had only probationary status. They now join fellow Five Eyes members Australia and Canada as full-fledged excepted foreign states.
Being incorporated and principally based in an excepted foreign state is a threshold (though not decisive) factor if a foreign acquirer is to be deemed an “excepted investor” or “excepted real estate investor” under the rules that govern CFIUS reviews. Achieving “excepted investor” status is a high bar (see our prior related alert, including description of the robust criteria that must be met by the investor, its parent, and intermediate entities involved in the transaction) – but it starts with being organized in an excepted foreign state. (Among other baseline requirements, “excepted investors” must also demonstrate a record of compliance with U.S. law.)
The benefits are significant. Excepted investors are exempt from CFIUS’s recently expanded jurisdiction, including (1) all mandatory declarations, (2) non-controlling investment jurisdiction, and (3) jurisdiction over real estate transactions not otherwise subject to review. Plainly, this status can make a foreign investor an attractive candidate when other bidders cannot claim such status. Of note, “excepted investor” status does not exempt a transaction from CFIUS jurisdiction if the investor will acquire “control”[2] over a U.S. business, as defined under applicable regulations, even if the target is not involved in sensitive activities (e.g., the production or development of “critical technologies”). Thus, while the benefits of “excepted investor” status are clear, CFIUS ultimately still has the right to review many transactions involving foreign acquirers from excepted foreign states.
Through its latest action, the U.S. Treasury has acknowledged that a longstanding relationship (including the sharing of sensitive information) exists among the nations comprising the Five Eyes. The Five Eyes alliance is an intelligence partnership among the U.S., Canada, Australia, the U.K. and New Zealand. This degree of alliance and information-sharing is the exception, and not the rule, among nations, including the United States. For CFIUS to add any other country to the excepted foreign state list in the future, its government will need to have adopted a robust investment screening regime (similar in nature to what has been structured in Canada, Australia, and now, as of last week, the United Kingdom and New Zealand), as well as have demonstrated significant and lengthy cooperation in the sharing of sensitive intelligence as it relates to furthering U.S. national security priorities.
Please contact our team members with any questions concerning the requirements for “excepted investors,” including how this latest Treasury announcement may relate to your business, including potential plans for investment in U.S. businesses and real estate.
[1] See: 31 C.F.R. § 800.218(a).
[2] See: 31 C.F.R. § 800.208.
