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November 17, 2021

Stroock Client Alert

By: Jeffrey R. Keitelman, Kim Pagotto, Chris Griner, Shannon Reaves, Gregory Jaeger, Christopher R. Brewster, Erin Bruce Iacobucci

The Foreign Investment Risk Review Modernization Act (FIRRMA) authorized the Committee on Foreign Investment in the United States (CFIUS) to exempt from review certain noncontrolling investments and real estate transactions by trusted foreign investors. 

In January 2020, CFIUS identified the United Kingdom (UK), Canada, and Australia as “excepted foreign states” – thereby excluding from CFIUS's jurisdiction covered investments by certain foreign persons that are organized in and otherwise closely tied to one or more of these countries. 

The definition of “excepted foreign state” is, however, a two-pronged definition. In addition to identifying a foreign state as an eligible foreign state, CFIUS must confirm whether the eligible country “has established and is effectively utilizing a robust process” to assess foreign investments for national security risks and to support coordination with the United States government on matters relating to investment security.  To allow time for implementation, CFIUS delayed the effective date of the second test until February 13, 2022. 

A similar rule governs foreign investment in real estate.  Certain investors from “excepted real estate foreign states” are excluded from CFIUS's jurisdiction over certain real estate transactions.  Again, there is a two-part test, and CFIUS must determine – by February 13, 2022 – that the eligible country has “made significant progress” in establishing and effectively utilizing the same “robust process” for national security reviews of foreign investments and for coordination with the United States government on matters related to investment security. 

The determination that the UK, Canada, and Australia are “excepted foreign states” was made without regard to the second test, given that the effective date had been delayed. 

Now, with the clock ticking and foreign investment regimes under review, CFIUS has proposed to change the effective date to February 13, 2023.  The proposed rule would not make any change to the two-pronged test.  It would make no change to any country's status as an excepted foreign state or excepted real estate foreign state – and thus would make no change to any investor’s status as an excepted foreign investor or excepted real estate foreign investor.

The proposed rule is open for comment until December 15, 2021.

For more information, please contact any of the above members of Stroock’s Real Estate and National Security/CFIUS/Compliance Teams.

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