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September 12, 2019

Stroock Special Bulletin

By: Chris Griner, André B. Nance, Shannon Reaves, Gregory Jaeger, Erin Bruce Iacobucci

As we welcome the former Associate Director of CFIUS Operations and Regulatory Affairs from the Department of Defense to our highly ranked CFIUS team, we want to share some insights into how the new statutory and regulatory changes to the authorities of the Committee on Foreign Investment in the United States (CFIUS) affect the investment funds industry.  In collaboration with Stroock’s premier Private Funds practice, we offer the following key takeaways to the new regulatory landscape and potential issues to watch for in the near future.

CFIUS is a federal interagency committee with the authority to suspend, block, mitigate or unwind investments in the U.S.  CFIUS jurisdiction was previously limited to investments that could provide a “foreign person,” including foreign investment funds and certain U.S. investments funds with foreign limited partners, “control” over a “U.S. business.”   “Control” is broadly defined by regulation as the power to determine, direct or decide important matters of a U.S. business.  CFIUS was a voluntary process and, upon conclusion of the process and clearance by CFIUS, a reviewed transaction was safe from subsequent CFIUS intervention.

Congress passed the Foreign Investment Risk Review Modernization Act (FIRRMA) in August 2018 and expanded CFIUS jurisdiction in a number of key ways for the investment funds industry:

  • Non-controlling investments into U.S. businesses related to critical technology (defined generally to include certain technologies controlled under U.S. export laws and regulations), critical infrastructure and sensitive personal data (collectively “critical U.S. businesses”) may now be subject to CFIUS jurisdiction.
  • The purchase, lease or concession of real estate in close proximity to sensitive government sites may become subject to CFIUS jurisdiction.
  • Foreign investment funds in which a foreign government has a “substantial interest” will be required to “declare” (i.e., submit short form filings for)[1] investments into critical U.S. businesses if the investment fund will obtain a “substantial interest” in the critical U.S. business.

Many details of these changes are subject to implementing regulations due on or before February 2020.  Some of these requirements, however, became immediately effective through a temporary pilot program in October of last year, which included the following:

  • Foreign investors, including investment funds, are required to declare both controlling and non-controlling foreign investments in certain critical technology sectors.
  • CFIUS identified 27 industry sectors covered by the pilot program and required certain investments into U.S. businesses that produce, design, test, manufacture, fabricate or develop a critical technology in these industry sectors be declared.

For the purpose of this pilot program, an investment fund will not be considered a “foreign person” if:

  • The fund is managed exclusively by a general partner who is not a foreign person.
  • No foreign limited partners have the ability to direct or decide “important matters” of the general partners or the fund, and foreign investors otherwise do not have access to material non-public technical information of the U.S. business. (“Important matters” may include the ability to determine the compensation of, or dismiss, or select the general partners and the right to approve decisions made by the general partners with respect to the use of development of critical technologies.)
    • Note that membership on an advisory board alone will not trigger a filing requirement as long as the above criteria are satisfied.

Rights that might trigger a filing requirement if afforded to a foreign person through an investment  in a U.S. business covered by the pilot program include:

  • Access to material non-public technical information relating to the design and development of critical technology in the possession of the pilot program U.S. business. (This does not include financial information regarding the performance of a U.S. business.)
  • Membership or observer rights on the board of directors or equivalent body of a pilot program U.S. business or the right to nominate an individual.
  • Any involvement, other than through the voting of shares, in the substantive decision-making of the pilot program U.S. business regarding the use, development, acquisition or release of critical technology.

If an investment fund is not a “foreign person” and all foreign investors participating in that fund do not meet the criteria for control or non-controlling investments, then the transaction is excluded from the pilot program.  Failure to file a mandatory declaration could result in financial penalties up to the value of the transaction, as well as the government’s ability to suspend a transaction pending a national security review.

While this pilot program is temporary, CFIUS is in the process of developing full implementing regulations for FIRRMA – a draft of which we are likely to see soon.  A couple of key elements to look for include:

  • CFIUS is authorized to exempt certain investors from certain countries from CFIUS’s expanded jurisdiction over real estate transactions and certain non-controlling investments. The pilot program did not implement this authority, but the permanent regulations may.  Investment funds that are “foreign persons” or with foreign limited partners from exempted countries could be otherwise exempted from CFIUS jurisdiction if implemented.
  • FIRRMA mandates that investments in which a foreign government has a substantial interest in a foreign person obtaining a substantial interest in critical U.S. businesses file a declaration. CFIUS is authorized to waive this requirement, which could affect the extent to which certain sovereign wealth funds and other funds with foreign government investors would be subject to CFIUS’s mandatory requirements. It would not, however, eliminate CFIUS’s jurisdiction to review the transaction.

While the pilot program focused on critical technologies, as discussed above, full FIRRMA implementation will expand CFIUS jurisdiction to non-controlling investments in all critical U.S. businesses.  Further, the Export Control Reform Act requires the government to identify and control certain emerging and foundational technologies. Once implemented, CFIUS’s jurisdiction would expand with respect to those technology sectors[2], reaching non-controlling investments by funds that are active in those sectors.


If you have any questions, or are considering an investment that may be covered by the expanded CFIUS filing obligations and would like to discuss the specifics of your investment or investment partners, please reach out to any of the following:

Chris Griner

André Nance

Shannon Reaves

Gregory Jaeger

Erin Bruce Iacobucci

This article is for general information purposes only. It is not intended as legal advice, and you should not consider it as such.

[1] Full filings can be submitted instead.

[2] For a preview of what some of those new technologies might be, please see the Bureau of Industry and Security, Review of Controls for Certain Emerging Technologies, Advance notice of proposed rulemaking (ANPRM), 83 Fed. Reg. 58201 (Nov. 11, 2018), available at: