New Treasury Dept. Program Requires Reporting Of Certain Transactions
The U.S. Department of the Treasury recently issued new rules requiring U.S. companies involved with critical technologies to report certain transactions involving foreign investors. Failure to report can result in significant penalties - a fine up to the value of the transaction.
The regulations are temporary and implement portions of a recently passed law that tightens review of foreign investment, the Foreign Investment Risk Review Modernization Act. FIRRMA authorized the Committee on Foreign Investment in the United States, or CFIUS, to conduct pilot programs to implement provisions of the legislation that did not become immediately effective.
Announced Oct. 10, this pilot program does two main things. It expands the scope of transactions subject to review by the CFIUS to include certain investments by foreign individuals in U.S. businesses that work in critical technologies related to specific industries. It also makes effective FIRRMA’s mandatory declarations provision for transactions that are within the scope of the pilot program.
The pilot program will take effect Nov. 10 and run until the final FIRRMA regulations are fully implemented.
The pilot program focuses on U.S. businesses that make or test a critical technology that is used, or designed for use, in connection with particular industries for which “certain strategically motivated foreign investment could pose a threat to U.S. technological superiority and national security.”
There are 27 pilot program industries:
1. Aircraft Manufacturing (NAICS Code: 336411)
2. Aircraft Engine and Engine Parts Manufacturing (NAICS Code: 336412)
3. Alumina Refining and Primary Aluminum Production (NAICS Code: 331313)
4. Ball and Roller Bearing Manufacturing (NAICS Code: 332991)
5. Computer Storage Device Manufacturing (NAICS Code: 334112)
6. Electronic Computer Manufacturing (NAICS Code: 334111)
7. Guided Missile and Space Vehicle Manufacturing (NAICS Code: 336414)
8. Guided Missile and Space Vehicle Propulsion Unit and Propulsion Unit Parts Manufacturing (NAICS Code: 336415)
9. Military Armored Vehicle, Tank, and Tank Component Manufacturing (NAICS Code: 336992)
10. Nuclear Electric Power Generation (NAICS Code: 221113)
11. Optical Instrument and Lens Manufacturing (NAICS Code: 333314)
12. Other Basic Inorganic Chemical Manufacturing (NAICS Code: 325180)
13. Other Guided Missile and Space Vehicle Parts and Auxiliary Equipment Manufacturing (NAICS Code: 336419)
14. Petrochemical Manufacturing (NAICS Code: 325110)
15. Powder Metallurgy Part Manufacturing (NAICS Code: 332117)
16. Power, Distribution, and Specialty Transformer Manufacturing (NAICS Code: 335311)
17. Primary Battery Manufacturing (NAICS Code: 335912)
18. Radio and Television Broadcasting and Wireless Communications Equipment Manufacturing (NAICS Code: 334220)
19. Research and Development in Nanotechnology (NAICS Code: 541713)
20. Research and Development in Biotechnology (except Nanobiotechnology) (NAICS Code: 541714)
21. Secondary Smelting and Alloying of Aluminum (NAICS Code: 331314)
22. Search, Detection, Navigation, Guidance, Aeronautical, and Nautical System and Instrument Manufacturing (NAICS Code: 334511)
23. Semiconductor and Related Device Manufacturing (NAICS Code: 334413)
24. Semiconductor Machinery Manufacturing (NAICS Code: 333242)
25. Storage Battery Manufacturing (NAICS Code: 335911)
26. Telephone Apparatus Manufacturing (NAICS Code: 334210)
27. Turbine and Turbine Generator Set Units Manufacturing (NAICS Code: 333611)
The term “critical technologies” is defined by FIRRMA and includes emerging and foundational technologies controlled pursuant to the Export Control Reform Act. This category has yet to be defined but guidance is expected from the Commerce Department in the near future.
Not all foreign investments in eligible businesses fall within the purview of the pilot program. In order for an investment to be covered under the program, it must give the foreign investor:
Access to non-public technical information in the possession of the U.S. business;
Membership rights on the board of directors or equivalent governing body or the right to nominate an individual such a position; or
Any involvement, other than through voting of shares, in substantive decision making of the U.S. business regarding the use, development, acquisition, or release of critical technology.
The regulation covers all foreign individuals and is not specific to any particular countries. When reporting is required, declarations must be filed at least 45 days before the transaction’s expected completion date. Companies also have the option to file a notice under CFIUS’s standard procedures rather than submit a declaration.