# Provisions Pertaining to Certain Investments in the United States by Foreign Persons

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URL: https://www.frixlaw.com/law-library/documents/fr%3A2020-00188

## Record

- **Collection:** Federal Register
- **Document type:** Rule
- **Published:** January 17, 2020
- **Citation:** 85 FR 3112

## Text

DEPARTMENT OF THE TREASURY
Office of Investment Security
31 CFR Parts 800 and 801
RIN 1505-AC64
Provisions Pertaining to Certain Investments in the United States by Foreign Persons

AGENCY:

Office of Investment Security, Department of the Treasury.

ACTION:

Final rule; and interim rule with request for comments.

SUMMARY:

The final rule revises regulations that implement certain provisions of section 721 of the Defense Production Act of 1950, as amended by the Foreign Investment Risk Review Modernization Act of 2018 (FIRRMA). The interim rule also adds a new definition for the term “principal place of business” and the Department of the Treasury is seeking comments on this definition. While this rule retains many features of the prior regulations, the rule makes a number of substantive changes, primarily to implement FIRRMA.

DATES:

Effective date:
The final rule is effective on February 13, 2020. The interim rule regarding § 800.239 is effective on February 13, 2020.

Applicability date: See
§ 800.104.

Comment date:
The Department of the Treasury (Treasury Department) is seeking written comments from the public on the definition of “principal place of business” found at § 800.239, which must be received by February 18, 2020.

ADDRESSES:

Written comments on § 800.239 may be submitted through one of two methods:

•
Electronic Submission:
Comments may be submitted electronically through the Federal government eRulemaking portal at
https://www.regulations.gov.
Electronic submission of comments allows the commenter maximum time to prepare and submit a comment, ensures timely receipt, and enables the Treasury Department to make the comments available to the public.

•
Mail:
Send to U.S. Department of the Treasury, Attention: Laura Black, Director of Investment Security Policy and International Relations, 1500 Pennsylvania Avenue NW, Washington, DC 20220.

Please submit comments only and include your name and company name (if any), and cite “Provisions Pertaining to Certain Investments in the United States by Foreign Persons” in all correspondence. In general, the Treasury Department will post all comments to
https://www.regulations.gov
without change, including any business or personal information provided, such as names, addresses, email addresses, or telephone numbers. All comments received, including attachments and other supporting material, will be part of the public record and subject to public disclosure. You should only submit information that you wish to make publicly available.

FOR FURTHER INFORMATION CONTACT:

Laura Black, Director of Investment Security Policy and International Relations; Meena R. Sharma, Deputy Director of Investment Security Policy and International Relations; David Shogren, Senior Policy Advisor; or Alexander Sevald, Senior Policy Advisor, at U.S. Department of the Treasury, 1500 Pennsylvania Avenue NW, Washington, DC 20220; telephone: (202) 622-3425; email:
CFIUS.FIRRMA@treasury.gov.

SUPPLEMENTARY INFORMATION:

I. Background

A. The Statute and Proposed Rules

On August 13, 2018, the Foreign Investment Risk Review Modernization Act of 2018 (FIRRMA), Subtitle A of Title XVII of Public Law 115-232, 132 Stat. 2173, became law. FIRRMA amended and updated section 721 (section 721) of the Defense Production Act of 1950 (DPA), which delineates the authorities and jurisdiction of the Committee on Foreign Investment in the United States (CFIUS or the Committee). FIRRMA maintains the Committee's jurisdiction over any transaction which could result in foreign control of any U.S. business, and it broadens the authorities of the President and CFIUS under section 721 to review and to take action to address any national security concerns arising from certain non-controlling investments and real estate transactions. Additionally, FIRRMA modernizes CFIUS's processes to better enable timely and effective reviews of transactions falling under its jurisdiction. In FIRRMA, Congress acknowledged the important role of foreign investment in the U.S. economy and reaffirmed the United States' open investment policy, consistent with the protection of national security.
See
section 1702(b) of FIRRMA.

FIRRMA requires the issuance of regulations implementing its provisions. In Executive Order 13456, 73 FR 4677 (January 23, 2008), the President directs the Secretary of the Treasury to issue regulations implementing section 721. On October 11, 2018, the Treasury Department published its first rulemaking under FIRRMA in the form of an interim rule, which amended the regulations in part 800 to implement, and make updates consistent with, certain provisions of FIRRMA that became immediately effective (October 2018 Interim Rule).
See
83 FR 51316 (October 11, 2018). The October 2018 Interim Rule took effect on November 10, 2018.

The Treasury Department published a second interim rule on October 11, 2018, pursuant to section 1727(c) of FIRRMA, setting forth the scope of, and procedures for, a pilot program to review certain transactions involving foreign persons and critical technologies (Pilot Program Interim Rule).
See
83 FR 51322 (October 11, 2018). The Pilot Program Interim Rule, which took effect on November 10, 2018, implemented jurisdiction over, and established mandatory declarations for, certain transactions involving investments by foreign persons in certain U.S. businesses that produce, design, test, manufacture, fabricate, or develop one or more critical technologies.

On September 24, 2019, the Treasury Department published two proposed rules to implement provisions of FIRRMA.
See
84 FR 50174 (September 24, 2019); 84 FR 50214 (September 24, 2019). (The Office of the Federal Register made versions available for public inspection on September 17, 2019.) Public comments on the proposed rules were due by October 17, 2019.

The proposed rule at 84 FR 50174 proposed amendments to CFIUS regulations codified at part 800 of title 31 of the Code of Federal Regulations (CFR). These provisions specifically relate to CFIUS's authorities and the process and procedures to review: (1) A merger, acquisition, or takeover by or with a foreign person that could result in foreign control of a U.S. business; (2) a non-controlling “other investment” that affords a foreign person specified access to information in the possession of, rights in, or involvement in the substantive decisionmaking of certain U.S. businesses related to critical technologies, critical infrastructure, or sensitive personal data; (3) any change in a foreign person's rights if such change could result in foreign control of a U.S. business or an “other investment” in certain U.S. businesses; or (4) any other transaction, transfer, agreement, or arrangement, the structure of which is designed or intended to evade or circumvent the application of section 721. Further explanation of FIRRMA and the proposed provisions can be found in the proposed rule at 84

FR 50147; changes to the proposed rule are explained in further detail below.

The proposed rule at 84 FR 50214, which proposed regulations to implement the provisions of FIRRMA related to CFIUS's new jurisdiction to review certain types of transactions involving real estate in the United States, is being finalized in a separate and concurrent rulemaking. That rule adds a part 802 to chapter VIII of title 31 of the CFR to implement FIRRMA's expansion of CFIUS's jurisdiction over transactions involving the purchase or lease by, or concession to, a foreign person of certain real estate in the United States.

FIRRMA also authorizes the Committee to assess and collect fees with respect to covered transactions for which a written notice is filed. The Treasury Department will publish a separate proposed rule implementing the Committee's fee authority at a later date.

B. Structure of FIRRMA Rulemaking and This Rule

Consistent with CFIUS processes generally, this rule reflects extensive consultation with CFIUS member agencies, as well as other relevant U.S. Government agencies. Given the specificity of certain provisions of the rule, the Treasury Department anticipates that it will periodically review, and when necessary, amend the regulations to address changes in technology, data use, and the national security landscape more generally.

This action finalizes the revisions to part 800. The rule retains many features of the provisions of part 800 prior to their revision by the October 2018 Interim Rule and this rule.
See
73 FR 70702 (November 21, 2008) (Prior Regulations), while implementing the changes that FIRRMA made to CFIUS's jurisdiction and process. In amending part 800 to incorporate CFIUS's new jurisdiction over certain non-controlling “other investments” (which this rule describes as “covered investments”), certain conforming revisions were made to existing provisions. For example, the coverage section in subpart C of the rule regarding “covered control transactions” is based on the “covered transactions” section in the Prior Regulations and provides examples illustrating transactions that are covered control transactions and those that are not. There is also now a covered investment section within the coverage section in subpart C that provides examples illustrating transactions that are covered under the new jurisdiction. The rule seeks to provide clarity to the business and investment communities with respect to the types of U.S. businesses that are covered under FIRRMA's “other investment” authority.

The rule also incorporates the changes made to part 800 in the October 2018 Interim Rule published in October 2018, 83 FR 51316 (October 11, 2018), and updates certain other provisions, generally as a result of written submissions received during this rule's public comment period and the public comment period of the Pilot Program Interim Rule, such as amending the definitions of “excepted investor” and “sensitive personal data,” clarifying the application of the “incremental acquisition rule,” refining several examples, and making adjustments to the information requirements for declarations and notices. In response to public comments, this action also implements an interim rule with respect to the definition of “principal place of business” at § 800.239, and the Treasury Department is seeking public comment on this definition.

In the proposed rule, the Treasury Department noted that it was considering whether to retain the mandatory filing requirement under the Pilot Program Interim Rule. The rule incorporates many of the provisions of the Pilot Program Interim Rule, including the mandatory filing requirements for covered transactions involving critical technologies. However, the Treasury Department anticipates issuing a notice of proposed rulemaking that would revise the mandatory declaration requirement regarding critical technology at § 800.401(c) from one based upon North American Industry Classification System (NAICS) codes to one based upon export control licensing requirements.

As noted in the Pilot Program Interim Rule, the pilot program was temporary and was required by FIRRMA to end no later than March 5, 2020. This rule modifies the applicability of the pilot program so that it applies only to transactions for which specified actions were taken prior to the effective date of this rule. Because the Committee retains jurisdiction over pilot program covered transactions that were subject to the Pilot Program Interim Rule during the period of its effectiveness, the regulations at part 801 will remain in chapter VIII of title 31 of the CFR for reference. Accordingly, this rule revises the applicability rule in part 801, at § 801.103, to specify that part 801 applies only to pilot program covered transactions (as defined in part 801) for which specified actions occurred between November 10, 2018, and February 12, 2020.

II. Overview of Comments on the Proposed Rule and the Pilot Program Interim Rule

During the public comment period, the Treasury Department received a number of written submissions on the proposed rule reflecting a wide range of views. All comments received by the end of the comment period are available on the public rulemaking docket at
https://www.regulations.gov.
Additionally, the Treasury Department hosted a public teleconference call to discuss the proposed rule on September 27, 2019, and a summary is available on the Committee's section of the Treasury Department website.

Following the publication of the Pilot Program Interim Rule in October 2018, the Treasury Department also received a number of written comments on that rule, which are similarly available on the public rulemaking docket and are addressed herein.

The Treasury Department considered each comment submitted. Some of the comments were general in nature, for example, supporting the Treasury Department's efforts and approach with respect to aspects of the proposed rule. Other commenters noted the potential impact of the proposed rule and the Pilot Program Interim Rule on foreign investment in the United States. The Treasury Department recognizes the vital importance of foreign investment to the U.S. economy. The Treasury Department drafted the proposed rule and Pilot Program Interim Rule, and made revisions in finalizing the rule, to protect U.S. national security from the risk posed by certain foreign investment while at the same time maintaining the open foreign investment policy of the United States. The Treasury Department has determined that the specificity provided in the rule—with respect to, for example, identification of covered investment critical infrastructure in the appendix and specific categories of sensitive personal data—provides clarity to the business and investment communities with respect to the types of transactions that are covered by the Committee's new authority under FIRRMA. The Treasury Department will evaluate implementation of the rule and will provide, as appropriate, additional information to assist the public.

Some comments requested clarification of specific provisions. Where appropriate, the Treasury Department provided additional clarification in the text of the rule and included more illustrative examples. Some commenters, however, requested greater specificity than is feasible in regulations of general applicability, or

revisions that conflict with the Committee's statutory authority under FIRRMA. The section-by-section analysis below includes responses to comments. Further edits were made to the rule for consistency and clarity.

In addition to comments on the substance of the rule, two commenters requested an extension of the public comment period for the proposed rule. The Treasury Department did not extend the public comment period in light of the fixed effective date established by FIRRMA. The Treasury Department anticipates that it will periodically review, and as necessary, make changes to the regulations (and any appendices), consistent with applicable law and, when appropriate, will provide the public an opportunity to comment.

III. Discussion of the Rule

a. Relationship With Part 802

Before addressing individual sections of the rule raised in the comments or otherwise revised from the proposed rule, it is important to address the relationship between this rule and the new rule for part 802 of this chapter, which as noted is being issued concurrently with this rule.

The new part 802 clarifies that a “covered transaction,” as defined by this part 800, that also includes the purchase, lease, or concession of “covered real estate,” as that term is defined in part 802, is not a “covered real estate transaction,” as defined in part 802. If a party intends to notify CFIUS of a transaction as subject to this part 800, the transaction should not be notified under part 802. The concurrent rulemaking for part 802 discusses the relationship between the two rules in greater detail.

b. Interim Rule: Section 800.238—Principal Place of Business

This rule includes a definition of “principal place of business” as an interim rule. The interim rule is effective as of February 13, 2020, and the Treasury Department is seeking public comment on the new definition through February 18, 2020. The substance of the new definition is discussed below in conjunction with comments received to § 800.220 (definition of “foreign entity”).

c. Summary of Comments and Changes From the Proposed Rule

1. Subpart A—General

Section 800.104—Applicability Rule

The rule makes clarifying edits to § 800.104 by inserting the date the regulations become effective (February 13, 2020), as well as clarifying that the Pilot Program Interim Rule will, going forward, apply only to transactions for which specified actions were taken on or after the effective date of the Pilot Program Interim Rule and prior to the effective date of this rule. This rulemaking includes conforming amendments to part 801 at § 801.104 to specify which transactions remain subject to part 801. As discussed further below, certain aspects of the mandatory declaration provisions of the Pilot Program Interim Rule have been incorporated into part 800 through this rule.

Section 800.105—Rules of Construction and Interpretation

The rule adds a new section to clarify that the examples included in the regulations are provided for informational purposes and should not be construed to alter the meaning of the text of the regulations in this part, as well as to clarify that, as used throughout the regulations, the term “including” means “including without limitation.”

2. Subpart B—Definitions

The proposed rule made several changes to the definitions in the Prior Regulations and added several new definitions that are broadly applicable to both covered control transactions and covered investments.

Before addressing individual definitions, the Treasury Department notes that one commenter remarked that the regulations do not define “national security.” The rule makes no change to subpart B in response to this comment. In evaluating any transaction, CFIUS's analysis is guided by the law, including the applicable legislation. FIRRMA states that it is the sense of Congress that the Committee “should continue to review transactions for the purpose of protecting national security and should not consider issues of national interest absent a national security nexus.”
See
Section 1702(b)(9) of FIRRMA. Section 721(f) of the DPA provides an illustrative list of factors for consideration by the Committee and the President in determining whether a covered transaction poses a national security risk. Additionally, the Treasury Department previously published Guidance Concerning the National Security Review Conducted by CFIUS, 73 FR 74567 (December 8, 2008), which is still in effect.

Section 800.206—Completion Date

The proposed rule included a definition for “completion date” to clarify that, in the event that a covered transaction will be effectuated through multiple or staged closings, the completion date is the earliest date on which any transfer of interest or change in rights that constitutes a covered transaction occurs.

Commenters expressed concern that parties may be required to submit a declaration 30 days before completing the acquisition of a contingent equity interest, but that, under § 800.308 (
i.e.,
the timing rule for a contingent equity interest), the Committee could conclude that there is no covered transaction until the interest is converted. Commenters suggested that the definition of “completion date” be further refined to explicitly exclude transfers of contingent equity interests that are not subject to CFIUS jurisdiction consistent with § 800.308.

The rule makes no change to § 800.206 in response to these comments. The acquisition of a contingent equity interest alone, without the acquisition of control or the access, rights, or involvement specified in § 800.211(b), is not a covered transaction. Where a party later acquires control or the access, rights, or involvement specified in § 800.211(b) in connection with the earlier acquisition of a contingent equity interest, the submission of a mandatory declaration, if applicable, is required 30 days before the acquisition of such control or the access, rights, or involvement specified in § 800.211(b). The timing rule under § 800.308 specifies when a party will be considered to have acquired control or the access, rights, or involvement specified in § 800.211(b) (
i.e.,
upon actual conversion of the contingent equity interest, or upon initial acquisition of the contingent equity interest if certain factors are present).

Section 800.208—Control

Although the proposed rule did not significantly modify the definition of “control” from the Prior Regulations, commenters suggested that the threshold for control is too low, thereby discouraging foreign investment in U.S. companies. Commenters also requested additional clarifications, such as whether the rights described in § 800.307(a)(4) should be added to § 800.208. Finally, commenters suggested incorporating the excepted investor concept into the definition of “control.”

The rule makes no change to § 800.208 in response to these comments. As noted in the preamble to the proposed rule, FIRRMA maintains the Committee's jurisdiction over any transaction which could result in foreign control of any U.S. business, and

provides no legislative direction to substantively narrow the existing definition of “control.” In addition, given the many changes to the regulations required by FIRRMA, the Treasury Department determined that substantive amendments to the well-established control standard would not advance the goal of transactional certainty at this time. The Treasury Department also notes that additional information regarding control transactions is available in responses to certain frequently asked questions that may be found at the Committee's section of the Treasury Department website.

Furthermore, as noted in the preamble to the proposed rule, the excepted investor concept addresses FIRRMA's requirement that the Committee limit the application of FIRRMA's expanded jurisdiction over covered investments to certain categories of foreign persons. The Treasury Department followed this legislative direction by limiting the excepted investor concept to covered investments, and not extending it to control transactions, thereby maintaining the same jurisdiction over control transactions as in the Prior Regulations.

Regarding the limited partner rights described in § 800.307(a)(4), each of the rights is already substantively covered in § 800.208(a). While the rule makes no specific revisions to § 800.208 with respect to limited partners, the rule does provide additional clarification for investment funds in other provisions, including in the definitions of “principal place of business” and “substantial interest,” and in § 800.401.

Finally, the rule makes a technical correction to § 800.208(c)(4) to clarify that anti-dilution protections are more accurately characterized as a right instead of a power.

Section 800.211—Covered Investment

The proposed rule used the term “covered investment” to capture an investment by a foreign person in certain types of U.S. businesses that affords the foreign person certain access to information in the possession of, rights in, or involvement in the substantive decisionmaking of such U.S. businesses but that does not afford the foreign person control over the U.S. business. One commenter requested clarification regarding the applicability of the access, rights, or involvement described in § 800.211(b) in situations in which the U.S. business that produces, designs, tests, manufactures, fabricates, or develops the critical technology is a subsidiary of the U.S. business in which the foreign person invests. The rule adds an example showing the application of § 800.211(b) in situations where the investment affords a foreign person membership or observer rights on the board of directors or equivalent governing body of a U.S. business that operates as a TID U.S. business through a subsidiary.

Other commenters requested additional clarification regarding the meaning of “access to material nonpublic technical information,” including the timing of access and whether theoretical or potential access should be included. The rule makes no change to § 800.211 in response to these comments. CFIUS's new jurisdiction under FIRRMA is established once a foreign investor in a TID U.S. business has been afforded access to material nonpublic technical information, regardless of whether or when the investor exercises the right of access.

Section 800.212—Covered Investment Critical Infrastructure

To distinguish the subset of critical infrastructure that is relevant for the Committee's jurisdiction over covered investments from critical infrastructure more broadly, the proposed rule created a new term, “covered investment critical infrastructure.” This definition references a list of specific systems and assets in appendix A of the rule. As noted in the preamble to the proposed rule, the subset of critical infrastructure identified in appendix A does not alter the definition of “critical infrastructure” as used in any other regulatory regime or context. Different commenters suggested either narrowing this subset or expanding it, for example to include railcars and communication equipment. The rule makes no change to § 800.212 or appendix A in response to these comments. Appendix A reflects extensive consultation with subject matter experts at CFIUS member agencies, as well as other relevant U.S. Government agencies, who, in developing appendix A, considered, among other factors, whether other U.S. Government authorities provided adequate protections for national security. The Treasury Department will evaluate implementation of the rule, and when necessary, revise the regulations (and any appendices) to address changes in the national security landscape.

Section 800.213—Covered Transaction

The proposed rule defined “covered transactions” to include covered control transactions, covered investments, changes in a foreign person's rights with respect to a U.S. business that could result in foreign control of a U.S. business or a covered investment in certain U.S. businesses, and transactions structured to evade or circumvent CFIUS review. Commenters sought additional information about what types of changes in rights trigger CFIUS's jurisdiction over a covered transaction, including in the context of a foreign investor in a U.S. business exercising the right to purchase additional interest to prevent the dilution of its
pro rata
interest. Commenters also suggested that transactions falling below a minimum threshold for the investment amount or the annual revenue of the U.S. business should be exempted from the definition of “covered transaction.”

The rule makes no change to § 800.213 in response to these comments. With respect to a change in rights that results in a “covered transaction,” the rule provides examples in § 800.213(e)(1) and (2), respectively (note that these and certain other examples were moved to § 800.213 from subpart C for clarity). Additionally, the examples in § 800.304(f)(2) and (5) address the acquisition of additional equity interest. With respect to implementing a minimum threshold for a covered transaction, the Treasury Department has determined that a categorical exemption for transactions below a minimum threshold is unwarranted. The Committee evaluates each transaction based upon the particular facts and circumstances, including the size of the investment and other factors.

Section 800.215—Critical Technologies

The proposed rule defined “critical technologies” as set forth in FIRRMA. Commenters recommended narrowing the definition and noted that the Department of Commerce, at the time of the proposed rule, had yet to define emerging and foundational technologies under section 1758 of the Export Control Reform Act of 2018 (ECRA). The rule makes no change to § 800.215 in response to these comments. FIRRMA defines “critical technologies,” and FIRRMA does not give the Treasury Department discretion to change this statutory definition through these regulations. Accordingly, the rule does not independently define emerging and foundational technologies. Rather, it incorporates by cross-reference the emerging and foundational technologies that the Department of Commerce identifies pursuant to a separate rulemaking, as required by ECRA.

Section 800.218—Excepted Foreign State

The proposed rule defined “excepted foreign state” to refer to a group of eligible foreign states for purposes of

implementing FIRRMA's requirement that the Committee limit the application of FIRRMA's expanded jurisdiction over covered investments to certain categories of foreign persons. The Treasury Department received several comments on this definition, including requests that the Committee publish the criteria by which a foreign state is identified as an eligible foreign state. Other commenters suggested that the Committee identify certain countries or certain defined lists of countries as excepted foreign states. Some commenters recommended against the excepted foreign state and excepted investor provisions and argued that the provisions treat allies of the United States differently from other countries.

The rule makes no change to § 800.218 in response to these comments. As noted above, FIRRMA directs that implementing regulations must limit the application of “other investment” jurisdiction to certain categories of foreign persons, and the Treasury Department therefore cannot eliminate the concepts of excepted foreign state and excepted investor entirely without adopting an alternative limitation. With respect to the eligible foreign states, the Committee has initially selected Australia, Canada, and the United Kingdom of Great Britain and Northern Ireland. The Committee identified these countries due to aspects of their robust intelligence-sharing and defense industrial base integration mechanisms with the United States. Additionally, as noted in the preamble to the proposed rule, the concept and definition of “excepted foreign states” are new and an expansive application carries potentially significant implications for the national security of the United States. Consequently, the Committee is initially identifying a limited number of eligible foreign states and may expand the list in the future.

The rule revises § 800.218 to clarify that the definition of “excepted foreign state” operates as a two-criteria conjunctive test, with delayed effectiveness for the second criterion. Thus, as of February 13, 2020, each of the three foreign states that the Committee identifies as an eligible foreign state will be an excepted foreign state, without regard to the second criterion (
i.e.,
favorable determination under § 800.1001). In order for each of these countries to remain an excepted foreign state after the end of the two-year delayed effectiveness period (
i.e.,
February 13, 2022), the Committee must make a determination under § 800.1001. This two-year period is intended to provide these initial eligible foreign states time to ensure that their national security-based foreign investment review processes and bilateral cooperation with the United States on national security-based investment reviews meet the requirement under § 800.1001. This two-year period also provides the Committee time to develop processes and procedures for making determinations under § 800.1001, which could be applied to a broader group of countries in the future. In selecting the initial eligible foreign states, the Committee takes no position on whether the foreign states currently meet the determination factors discussed below at § 800.1001. Finally, the rule removes language regarding internal Committee processes (for which a conforming change was also made in § 800.1001), and revises note 1 to § 800.218 to clarify the publication mechanics for identifying the foreign states that have met each of the two separate criteria of the definition of “excepted foreign state.”

Section 800.219—Excepted Investor

The proposed rule set forth a definition of “excepted investor,” taking into account increasingly complex ownership structures and accounting for such structures in the application of the Committee's jurisdiction. Commenters suggested relaxing the criteria to allow more entities to qualify as excepted investors, including the criteria related to the nationality of board members and observers, the percentage ownership limit for an individual investor in an excepted investor, and the minimum excepted ownership. In response to these comments, the rule modifies the definition of “excepted investor.” First, the board member nationality criterion is revised to allow up to 25 percent representation by foreign nationals of foreign states that are not excepted foreign states. Second, the percentage ownership limit for an individual investor in an excepted investor is revised from five to 10 percent. Third, the definition of “minimum excepted ownership” under § 800.233 is revised as discussed below.

One commenter suggested that the Committee narrow the types of felonies that disqualify an investor from excepted investor status to those relating to national security. The rule makes no change to § 800.219 in response to this comment. Because excepted investor status limits the Committee's jurisdiction, the regulations appropriately preserve jurisdiction over transactions by foreign investors that have been convicted of, or entered into a deferred prosecution agreement or non-prosecution agreement with the Department of Justice with respect to, any felony, in the five years prior to the completion date of the transaction.

Some commenters requested that the Committee consider the specific commenters themselves to be excepted investors or sought additional information regarding the process to qualify as an excepted investor, including how an excepted investor can prove that status, or whether an excepted investor would receive a form or certificate from the Committee establishing that status. The rule makes no change to § 800.219 in response to these comments. There is no separate process for the Committee to provide a determination for a prospective investor on whether it qualifies as an excepted investor. As with other jurisdictional determinations, parties themselves should assess whether they qualify as excepted investors.

Commenters suggested that the Committee adopt a category similar to excepted investor, which some termed “trusted investor,” that would allow certain investors who are not connected to an excepted foreign state to receive the benefits of excepted investor status. Commenters further suggested various criteria for this “trusted investor” concept, including the individual investor's previous interactions with the Committee, the investor's record of compliance with mitigation agreements, and whether the investor is subject to an agreement to mitigate foreign ownership, control, or influence (FOCI) pursuant to the National Industrial Security Program regulations.

The rule makes no change to § 800.219 in response to these comments. Consistent with FIRRMA, the “excepted investor” definition focuses on the investor's connection to an excepted foreign state, which provides the greatest clarity to the business and investment communities while protecting national security interests. Such a definition also furthers the Committee's efforts to encourage partner countries to implement robust processes to review foreign investment in their countries and increase cooperation with the United States. Notably, the “excepted investor” definition eliminates Committee jurisdiction for specified transactions by certain investors. Therefore, some criteria suggested by commenters as part of the “trusted investor” concept are less suitable for determining jurisdiction and more suitable for other aspects of the rule, such as determining which parties must make mandatory filings under § 800.401. For example, the rule now provides an exception to mandatory filings for foreign

investments via FOCI-mitigated entities under § 800.401, as discussed below.

One commenter cautioned that the public may equate excepted investor status with trust and may misconstrue that an investor who does not qualify as an excepted investor is not trusted and could present greater national security concerns. In this regard, it is important to note that not qualifying as an excepted investor should not be interpreted as an individualized assessment that the particular foreign person poses a threat to national security.

Commenters expressed an inaccurate view of the minimum excepted ownership criterion's application up the ownership chain of the foreign person. All of the conditions under § 800.219(a)(3), including the minimum excepted ownership conditions, apply to
each “parent”
(as defined at § 800.235) of the foreign person.

Finally, the rule revises § 800.219(b) to specify when the ownership interests of separate foreign persons will be aggregated for the purposes of § 800.219(a)(3)(iv). The rule also modifies § 800.219(d) to include the criteria in § 800.219(c)(1)(i) through (iii) in order to retain jurisdiction over certain transactions where the foreign investor is deemed not to be an excepted investor subsequent to the transaction due to action by the President under section 721, or enforcement by the Committee of violations under this part, parts 801 or 802, or section 721.

Section 800.220—Foreign Entity/New Section 800.239—Principal Place of Business

The proposed rule did not change the definition of “foreign entity” from the Prior Regulations. Commenters requested further clarification regarding CFIUS's jurisdiction over transactions by investment funds, and recommended revising the definition of “foreign entity” to focus on control by foreign persons, rather than the amount of equity held by foreign persons. Other commenters urged the Committee to provide additional clarity by defining “principal place of business.” The rule makes no change to § 800.220, but does include a new definition of “principal place of business” as an interim rule at § 800.239 in response to these comments.

The proposed rule used the term “principal place of business” but did not define it. Commenters recommended that the regulations include a definition, and one suggested the “nerve center” test used by U.S. courts to evaluate federal diversity jurisdiction. Under the new definition at § 800.239, a party's “principal place of business” is defined as “the primary location where an entity's management directs, controls, or coordinates the entity's activities, or, in the case of an investment fund, where the fund's activities and investments are primarily directed, controlled, or coordinated by or on behalf of the general partner, managing member, or equivalent,” subject to the qualification in § 800.239(b). For those entities whose nerve center is in the United States, the purpose of the qualification in § 800.239(b) is to nevertheless ensure consistent treatment of an entity's principal place of business in accordance with its own assertions to government entities, provided the facts have not changed since those assertions. The Treasury Department believes that this definition achieves substantially the same result as potential revisions to the definition of “foreign entity” suggested by commenters to address investment funds managed and controlled by U.S. persons in the United States.

Because the definition of “principal place of business” in § 800.239 is new, it is being made effective by this rule on an interim basis and may be amended based on comments received. As an interim rule, § 800.239 will become effective on the same date as the other provisions in this rule (
i.e.,
February 13, 2020) to provide clarity and certainty for transaction parties. The Treasury Department invites comments on this interim rule, in particular with respect to whether § 800.239 adequately addresses concerns raised by commenters seeking greater clarity concerning investment funds managed and controlled by U.S. persons.

Section 800.224—Foreign Person

The proposed rule used the definition of “foreign person” from the Prior Regulations. The rule adds a new subsection (b) to clarify that an entity which is controlled by a “foreign person” is itself a “foreign person.”

Section 800.225—Identifiable Data

The proposed rule defined the term “identifiable data” to mean data that can be used to distinguish or trace an individual's identity, including through the use of any personal identifier. The definition noted that, for the avoidance of doubt, aggregated data or anonymized data is “identifiable data” if any party to the transaction has, or as a result of the transaction will have, the ability to disaggregate or de-anonymize the data, or if the data is otherwise capable of being used to distinguish or trace an individual's identity. Commenters addressed data aggregation and anonymization in the context of this definition. Some commenters suggested that the Treasury Department was incorrectly considering the ability of the foreign acquirer to disaggregate or de-anonymize data; they suggested that the focus of the Committee's inquiry should be on whether the U.S. business being acquired or invested in could disaggregate or de-anonymize the data. Similar comments were received regarding encryption and de-encryption capabilities. The rule makes no change in response to these comments. A foreign acquirer that would receive access to data that has been encrypted or anonymized, and for which the foreign acquirer has the ability to re-identify, is a relevant factor in the Committee's risk assessment. Any militating effect afforded by de-identification would be lost if the foreign acquirer is able to re-identify the data.

Section 800.232—Material Nonpublic Technical Information

The proposed rule provided a definition of “material nonpublic technical information” consistent with the definition in FIRRMA. Commenters asked for clarification about the scope of the definition of material nonpublic technical information, such as whether it is limited to information necessary to reverse engineer a technology or product, whether it includes information typically afforded to minority investors such as technical milestones, and what is meant by “not available in the public domain.”

The rule adds an illustrative example regarding technical milestones in response to the comments. No other changes were made. What constitutes “material nonpublic technical information” will depend on particular facts and circumstances. “Material nonpublic technical information may include,” but is not limited to, information necessary to reverse engineer a component of a company's product. Conversely, information that is readily accessible to people with no connections to the TID U.S. business is likely in the public domain and therefore not material nonpublic technical information. However, any such a determination requires a fact-specific evaluation of the information that may be provided.

Section 800.233—Minimum Excepted Ownership

The proposed rule defined “minimum excepted ownership” along with other terms which operate together to exclude from CFIUS's jurisdiction covered

investments by certain foreign persons who meet certain criteria establishing sufficiently close ties to certain foreign states. Commenters suggested that the percentage threshold of minimum excepted ownership should be lowered; that privately held and publicly traded entities be treated the same; and that for investment funds, the minimum excepted ownership requirement should apply only to the general partner. Commenters also requested clarifications to address situations where the interests in an entity are not voting interests and to help entities determine whether § 800.233(a) or § 800.233(b) is applicable.

In response to these comments, the rule amends § 800.233 by reducing the minimum excepted ownership percentage in § 800.233(b) from 90 to 80 percent. The rule does not adopt the suggestion to treat privately held and publicly traded entities the same. The different treatment reflects the difference in governance realities between publicly traded companies (typically one share, one vote) and privately held companies (which can vary widely and may provide minority shareholders outsized rights relative to their ownership stake). The rule also does not adopt the suggestion to apply the minimum excepted ownership criteria only to the general partner in a fund setting. Investment fund structures can vary significantly, and limited partners may have significant rights vis-à-vis their investment interests.

With regard to non-voting interests, note that the regulations already accommodate different structures by also considering rights to profits or rights to assets in the event of dissolution, a formulation that has existed in the definition of “parent” since the Prior Regulations. Finally, to qualify for the lower threshold in § 800.233(a), which is in turn used in the application of the criteria in § 800.219(a)(3)(v), the majority of an entity's outstanding shares must be traded on one or more exchanges in the United States or in an excepted foreign state.

Section 800.235—Parent

The proposed rule did not change the definition of “parent” from the Prior Regulations. One commenter, however, asked if the regulations should clarify whether a general partner of a partnership (or equivalent) is a “parent” of that partnership. The rule adds a provision at § 800.235(a)(2) that explicitly includes a general partner, managing member, or equivalent of an entity within the definition of “parent.” The rule also makes some minor technical edits and adds an example illustrating an entity with more than one parent.

Section 800.236—Party to a Transaction

The proposed rule provided, at § 800.236(a)(1), that a party to a transaction includes a target U.S. business whose ownership interest is being transferred between third parties. One commenter sought additional clarification about which party or parties to a covered transaction are required to submit a mandatory declaration under § 800.401. The rule makes no change to the text of § 800.236 in response to this comment. The obligation to file a mandatory declaration is on the parties to such transaction. Finally, there appears to be confusion by some commenters about which entity is a party to a transaction in a fund context. Note that § 800.236 provides a definition of “party to a transaction,” which includes the person acquiring an ownership interest. In a fund context, this is typically the fund itself (and not the general partner), though, as noted in § 800.401(j)(3), there are circumstances in which a limited partner may have a mandatory filing obligation based on its indirect investment while the fund itself does not.

Section 800.241—Sensitive Personal Data

The proposed rule set forth a detailed definition of “sensitive personal data.” Commenters suggested that the scope of “sensitive personal data,” as defined in the proposed rule, may exceed what is necessary to protect national security. Commenters also noted that unnecessarily burdensome regulation negatively impacts technological advancements, such as artificial intelligence. The Treasury Department is cognizant of the potential impacts of the CFIUS process on foreign investment and has endeavored to be specific and circumspect in delineating the Committee's new authorities over covered investments where appropriate and consistent with national security.

One commenter suggested further narrowing the definition by focusing the “target or tailor” prong on contractors or employees of national security agencies that support the national security functions, rather than all employees of such agencies. The rule makes no change in response to this comment. Certain U.S. Government employees may not have direct national security functions, but may nevertheless support critical missions of the agency and present equal sensitivity with respect to sensitive personal data as colleagues that do have direct national security functions. In many cases, it would be difficult for parties to ascertain the specific functions that U.S. Government employees may have within their respective agency.

Commenters also suggested that CFIUS exempt from the definition data held by companies that meet certain internationally-recognized standards for the protection of data, such as those set out by the National Institute of Standards and Technology (NIST) or International Organization for Standardization. However, these standards are voluntary in nature, and currently no enforcement mechanism exists to require that businesses comply with them. The Treasury Department is not the appropriate entity to monitor compliance with voluntary standards such as these, and the rule makes no change in response to this comment.

Commenters suggested that the “demonstrated business objective” concept is vague and would deter investment in start-up businesses. In response to this comment, an example has been added to the rule, at § 800.241(c)(5), to illustrate a case where a “demonstrated business objective” exists under § 800.241(a)(1)(i)(C).

In response to a comment requesting clarity, the rule specifies that § 800.241(a)(1)(ii)(A) applies only to financial data that could be used to determine an individual's financial distress or hardship.

Commenters also discussed the threshold for the number of individuals on whom a business collects and maintains data. Some suggested increasing the threshold for capturing sensitive personal data from one million individuals to, for example, five million U.S. citizens. These commenters argued that the lower threshold in the proposed rule might capture too many businesses that do not pose national security risks. Other commenters stated that these provisions could hinder the growth of social networking companies or financial technology start-ups. One commenter asked whether, for a company with a defined business plan to maintain or collect data on over one million people, the rule requires that the business plan describe with particularity an objective to maintain or collect such data, or merely the objective to have one million users, whose data is incidentally collected or maintained.

The rule does not make any changes to the threshold of one million individuals. Section 800.241(a)(1)(i)(B) and (C) accounts for the possibility that a U.S. business holds sensitive personal data on sensitive individuals despite not

targeting or tailoring their products or services to sensitive populations. In accordance with FIRRMA, the rule requires that a U.S. business collect or maintain “sensitive personal data” on U.S. citizens.
See
§ 800.248(c). The threshold, however, refers to individuals, rather than U.S. citizens, because it is unfeasible in most cases for a U.S. business to confirm the citizenship status of individuals of whom it has maintained or collected sensitive personal data. The threshold of one million individuals will ensure that large data collectors, which in many industries account for the vast majority of data being collected, will be included. Conversely, the threshold will minimize additional regulatory burden for many small businesses and companies that incidentally collect or maintain data on a small number of individuals.

The rule makes clarifying edits to § 800.241(a)(1)(i) and adds examples in § 800.241(c)(1)-(5) to further illustrate the rule's application. Examples 1-3 in § 800.241(c) address the timing element of the one million individual threshold, showing that if the U.S. business collects or maintains the applicable data on over one million people at any time over the preceding twelve months, the requirement in § 800.241(a)(1)(i)(A) is met. Example 4 clarifies that the parties should consider the number of individuals for whom sensitive personal data is maintained or collected in the aggregate across the enumerated categories. Example 5, as noted above, illustrates the scope of the “demonstrated business objective” provision.

Commenters also addressed the proposed rule's treatment of genetic data. Some suggested that the scope of genetic information as proposed was too broad, and that it should be narrowed in a way that remains consistent with national security. Others suggested narrowing the definition to focus on, for example, identifiable data or information about a person's full genome, to better tailor the definition to national security concerns. Other commenters recommended modifying the definition to exclude anonymized data obtained from drug discovery or clinical trials, or aggregated data from large heterogeneous populations.

In response to these comments, the rule recalibrates this provision on genetic testing data and does so in two ways: First, by focusing the definition on “genetic tests” as that term is defined in the Genetic Information Non-Discrimination Act of 2008 (GINA); and second, by limiting the coverage of the rule to identifiable data. To account for datasets commonly used in research, the rule also carves out genetic testing data derived from databases maintained by the U.S. Government and routinely provided to private parties for the purposes of research.

Section 800.244—Substantial Interest

The proposed rule established a voting interest threshold for the definition of “substantial interest.” Commenters requested additional clarification on its application, including with respect to limited partners of investment funds, asked whether this provision applies to only a single foreign government, and inquired about the mechanics of § 800.244 regarding the voting interests of parents.

The rule revises § 800.244 in response to these comments. It clarifies, in § 800.244(a), that substantial interest applies to a single foreign government, which is consistent with the definition of “foreign government” at § 800.222, which, in turn, includes both national and subnational governments, including their respective departments, agencies, and instrumentalities. In § 800.244(a), the rule also excludes governments of excepted foreign states in order to better synchronize the application of the two mandatory filing requirements under § 800.401.

Additionally, the rule revises § 800.244(b) to define “substantial interest,” in certain circumstances, as a foreign government's interests in the general partner (or equivalent) only, disregarding its limited partner interests. This provides clarity to parties in the investment fund context and focuses the substantial interest analysis on the entity that typically is responsible for the day-to-day decisionmaking regarding the investment fund. Finally, the rule adds illustrative examples.

Section 800.248—TID U.S. Business

The proposed rule defined the types of businesses with certain involvement in critical technology, critical infrastructure, and sensitive personal data in which an investment may constitute a covered investment. Commenters requested clarification regarding the application of this rule to a U.S. business that indirectly maintains or collects sensitive personal data. In response to these comments, the rule adds examples addressing scenarios in which a U.S. business is maintaining or collecting sensitive personal data indirectly via an intermediary.

Additionally, the rule adds illustrative examples with respect to critical technology, informed by the Committee's experience with respect to the pilot program on certain transactions involving foreign persons and critical technologies. One example illustrates that the mere verification of the fit and form of a relevant critical technology is not “testing” under § 800.248(a). Another example illustrates that a U.S. business that ceases performing one of the actions listed in § 800.248(a) but retains the ability to perform the relevant action with regard to a critical technology, is a TID U.S. business.

Finally, with respect to TID U.S. businesses described in § 800.252(a) (
i.e.,
those related to critical technology) it is important for parties to be aware that the rule establishes the Committee's jurisdiction over covered investments in any U.S. business that “produces, designs, tests, manufactures, fabricates, or develops” one or more critical technologies. However, as discussed below in connection with § 800.401, the rule requires mandatory declarations for transactions involving only a subset of these TID U.S. businesses.

Section 800.251—United States

The rule revises the definition of “United States” for consistency with the definition in FIRRMA.

Section 800.252—U.S. Business

The proposed rule revised the definition of “U.S. business” from the Prior Regulations by excluding the phrase “but only to the extent of its activities in interstate commerce in the United States.” Commenters requested that the Committee restore the prior definition of “U.S. business” or provide clarity with respect to the Committee's intended interpretation of that term. The rule makes no change to the proposed definition. The proposed definition tracks the language of FIRRMA and is not intended to suggest that the extent of a business's activities in interstate commerce in the United States is irrelevant to the Committee's analysis of national security risk.

The rule also makes amendments to example 2 of § 800.252(b) to illustrate that a business may export and license technology and provide services into the United States, yet not qualify as a U.S. business for purposes of the rule.

Section 800.254—Voting Interest

The proposed rule did not change the definition of “voting interest” from the Prior Regulations. Commenters sought additional clarification about the scope of the voting interest involved, including whether it includes consent, veto, or other special rights, or how parties should calculate voting interest in situations where there are different

levels of voting interest types (
e.g.,
preferred stock). Commenters also suggested the term be limited to voting interests in major decisions.

The rule makes no change to § 800.254 in response to these comments. The definition of “voting interest” is long-established, and, as many commenters noted, any revisions will have wide-ranging effects throughout the regulations because voting interest is incorporated into other defined terms, such as parent. Where appropriate, the Treasury Department provided clarification through revisions to other sections of the regulations, for instance, with respect to the definition of “substantial interest” in § 800.244, discussed above.

3. Subpart C—Coverage

Subpart C of the proposed rule included provisions that described with particularity transactions that are, or are not, “covered control transactions” or “covered investments.” These provisions contain several examples illustrating different scenarios, and commenters requested additional examples, including particular examples illustrating the rule's treatment of export agreements or technology transfers.

In response to these comments, the rule revises and supplements the examples in § 800.305 through § 800.307, as further discussed below. The rule also makes technical revisions to § 800.301 through § 800.304, and § 800.308. Note that technology transfers are separately addressed by export control regulations promulgated by the Department of Commerce and the Department of State. The Treasury Department refers the public to the Export Administration Regulations, at 15 CFR parts 730-774, and the International Traffic in Arms Regulations, at 22 CFR parts 120-130.

Section 800.305—Incremental Acquisitions

The proposed rule provided affirmative assurance that certain transactions subsequent to a covered control transaction for which the Committee concluded all action under section 721 on the basis of a notice are not covered transactions. Commenters requested a number of clarifications, including regarding whether an incremental investment or acquisition of additional rights in a U.S. business by a foreign person that already controls that business would constitute a covered transaction. Other commenters asked whether the Committee will communicate to parties whether the Committee found jurisdiction over a particular investment as a covered control transaction or a covered investment, or how the incremental acquisition rule applies to related but not wholly owned entities.

Revisions were made in response to some of the comments. The rule expands the incremental acquisition rule to apply to transactions made subsequent to a covered control transaction submitted to the Committee via declaration, and for which the Committee concludes action based upon that declaration. The rule also makes technical edits and adds an example regarding related entities. Additionally, note that the Committee, in response to a notice, currently informs parties whether an investment is a covered control transaction or a covered investment.

Section 800.306—Lending Transactions

The proposed rule expanded the Prior Regulations' provision on “lending transactions” to address covered investments. A commenter noted that the mandatory declaration requirement may present challenges in the context of lending transactions and recommended that the Treasury Department not subject lenders to the mandatory declaration requirement for transactions involving a default on a loan, or, in the alternative, the parties in such a situation be required to file as soon as practicable.

The rule makes no change in response to this comment. Lenders typically do not automatically acquire title to assets in the event of a default on a loan. In these cases, the lender must first perform an affirmative act, such as transferring ownership interests using a stock power, thus allowing the lender to comply with the mandatory declaration provision in § 800.401, if applicable, before performing such act. Moreover, even in the event of a default on a loan, lenders typically use commercially reasonable efforts to cure the event of default with the borrower, and only resort to taking title of assets as a last resort. These efforts typically last longer than the 30-day advance notification time requirement for mandatory declarations under § 800.401. If, however, parties to a transaction subject to the mandatory declaration requirement are unable to timely file a submission due to circumstances of a default, the Committee will consider the circumstances in assessing any potential civil monetary penalty determination.

The rule does, however, revise § 800.306, including its examples, to further clarify and illustrate its application to covered investments.

Section 800.307—Specific Clarification for Investment Funds

The proposed rule implemented FIRRMA's provisions relating to investment funds. Commenters to the investment fund provisions supported the limitation on the application of CFIUS's review authority over certain investment funds. Other commenters requested clarification on the scope of CFIUS's jurisdiction with respect to investment funds. For example, a commenter asked if CFIUS's jurisdiction extends to an investment fund organized outside of the United States but which has U.S. general and limited partners. The rule makes no change in response to these comments in § 800.307 because the Treasury Department cannot provide confirmation of commenters' legal interpretations, clarifications, or examples based on hypothetical scenarios that are highly fact-specific. Note that, as discussed further below, additional examples have been added in § 800.401 addressing investment funds in the context of mandatory declarations.

Another commenter suggested including additional examples illustrating certain rights that would not provide a limited partner with the ability to control the fund, or in the alternative, narrowing the statutorily enumerated examples of rights that would constitute control. The Committee's authority in this respect is limited by the provision in FIRRMA relating to investment funds, and the rule makes no change in response to this comment.

One commenter noted that the Committee's section of the Treasury Department website describing the pilot program (which features responses to frequently asked questions) clarifies that failure to meet all of the criteria in § 801.304(a) does not necessarily mean that an indirect investment by the foreign person in a TID U.S. business through an investment fund is a covered transaction. Consistent with § 801.304, § 800.307(a) is not intended to create a presumption that any investment by a foreign person in a TID U.S. business through an investment fund is a covered transaction if the criteria in § 800.307(a) are not met; the particular facts and circumstances of the investment would need to be considered.

A commenter suggested that the definition is intended as a barrier to investment by foreign-government owned investment funds, because foreign-government owned or controlled funds cannot seek exemption to the mandatory declaration requirements,

while some investment funds that are not state-owned or controlled may seek this waiver. The investment fund clarification addresses scenarios involving foreign limited partners in investment funds that are managed exclusively by another party. A foreign-government owned or controlled investment fund is inconsistent with such scenarios, which typically involve passive limited partners. The rule makes no change in response to this comment.

Finally, the rule revises the lead-in of § 800.307(a) and criteria in § 800.307(a)(2) regarding a general partner of an entity, in both instances to conform with the language of FIRRMA.

Section 800.308—Timing Rule for a Contingent Equity Interest

The Treasury Department received comments regarding the interaction of the timing rule in § 800.308 with mandatory filings required under § 800.401, including suggestions to revise the definition of “completion date” in § 800.206, discussed above. The rule makes no change in response to these comments. In cases where the conversion of a contingent equity interest may result in a covered transaction that requires the submission of a filing under § 800.401, parties are advised to carefully consider whether § 800.308 is applicable to avoid potential penalties.

4. Subpart D—Declarations

The proposed rule set out an abbreviated filing process through the submission of a declaration, as directed by FIRRMA. Commenters stated that the declaration process impacts foreign direct investment by putting foreign firms at a competitive disadvantage vis-à-vis U.S. investors, especially in the context of competitive auctions. Commenters also proposed that CFIUS commit to notify parties of specific national security concerns, if any, in a transaction to enable the parties to promptly address such concerns.

Commenters also requested that the Treasury Department create an expedited review process for evaluating declarations (or notices) submitted by parties with whom the Committee is already familiar through having reviewed and cleared prior transactions involving the same foreign person. One commenter suggested the Committee provide “comfort letters” to certain investors who have been reviewed by the Committee previously and found not to pose a national security threat. Finally, commenters requested that CFIUS make available a list of factors it considers when reviewing declarations that, if addressed by the parties, would lead to the Committee concluding all action on the transaction in 30 days.

The rule makes no change to the process and procedures for declarations in response to these comments. The Treasury Department is aware of the importance of timing to transaction parties and notes that the declaration process itself is an expedited review. The Committee must evaluate each transaction based upon the particular facts and circumstances, including the identity of the parties involved. As a result, the DPA provided for a specific review period to enable CFIUS agencies to carry out their national security responsibilities, and it would not be in the interest of national security for the Committee to further accelerate the assessment period. Similarly, it is not appropriate for the Committee to prescribe in regulations a list of factors that will expedite the Committee's assessment of a declaration, given the fact-specific nature of each assessment conducted by the Committee.

Section 800.401—Mandatory Declarations

The proposed rule included a mandatory declaration requirement for transactions involving a “substantial interest” by a foreign government. Comments related to the mandatory filing requirement under § 800.401(b) are addressed in the discussion of the definition of “substantial interest” under § 800.244, above. The Pilot Program Interim Rule set forth a mandatory declaration requirement for covered transactions involving certain critical technology TID U.S. businesses. The Treasury Department received comments on the Pilot Program Interim Rule, both in response to the October 2018 publication of the Pilot Program Interim Rule and in response to the September 2019 publication of the proposed rule for part 800.

Commenters noted the complexity involved in assessing which investments require mandatory filings under the Pilot Program Interim Rule, including with respect to assessing whether a certain U.S. business's connection to certain industries identified by NAICS codes meets the requirements of § 801.213 in the Pilot Program Interim Rule. Some commenters suggested that the Committee not continue to exercise its authority under FIRRMA to require mandatory declarations for transactions involving certain U.S. businesses with activities relating to critical technologies. Other commenters recommended that the regulations require mandatory declarations only for transactions involving a defined subset of critical technologies (
e.g.,
only emerging and foundational technologies), or remove the mandatory filing requirement for certain other critical technologies that do not raise national security concerns (
e.g.,
non-sensitive encryption software) or certain sectors (
e.g.,
biotechnology) in order to encourage foreign investment in those sectors.

Commenters also suggested that certain categories of investors, such as excepted investors or FOCI-mitigated entities, be exempted from the mandatory declaration requirement for control transactions or, as applicable, covered investments, or that the Committee waive mandatory filings for transactions involving the acquisition of certain rights—such as a board seat—in a U.S. business so as not to impact foreign investment.

The rule integrates the mandatory declaration requirement from the Pilot Program Interim Rule, which is based upon whether a transaction involves certain U.S. businesses with a nexus to specified industries identified by NAICS codes. However, the Treasury Department anticipates issuing a separate notice of proposed rulemaking that would replace this requirement with a mandatory declaration requirement based upon export control licensing requirements. Additionally, in response to public comments, the rule exempts certain transactions from the critical technology mandatory declaration requirement. These exemptions relate to excepted investors, FOCI-mitigated entities, certain encryption technology, and investment funds managed exclusively by, and ultimately controlled by, U.S. nationals. The Treasury Department anticipates that these exemptions would continue to apply even if the scope of the mandatory declaration requirement is modified as described above.

Commenters also requested the inclusion of a mechanism to the mandatory declaration requirements, through which the Committee would grant waivers to individual foreign investors (which some commenters described as “trusted investors”) after evaluating such investors pursuant to various criteria. Some commenters suggested that this mechanism only apply to parties that have filed a notice that was cleared by the Committee, noting that the Committee will have already examined the investor and any national security concerns it presents through its review of the notice. The rule makes no change in response to these comments. The Treasury Department will continue to consider instituting a potential waiver

mechanism in the future. Once the Committee has more data on mandatory declarations under this rule, it can better assess the potential for a waiver program and mechanisms for implementation and administration.

Finally, one commenter requested clarification about the commencement of the 30-day advance notification requirement for mandatory declarations. As stated in § 800.401(g), this 30-day period begins when a declaration or notice, as applicable, is submitted, and not upon acceptance by the Staff Chairperson. Under § 800.401(i), in the event the Committee rejects or permits a withdrawal of the declaration (or notice), the 30-day period resets from the date of resubmission, absent written approval of the Staff Chairperson. The rule also includes an exception from mandatory declarations for air carriers to conform to FIRRMA.

Section 800.403—Procedures for Declarations

The proposed rule set forth the procedures for declarations. Commenters requested that CFIUS begin assessments of declarations, or provide feedback on a declaration, within five days of receiving it. The rule makes no change in response to these comments. The Committee makes every effort to provide feedback to the parties and initiate review of a transaction as quickly as possible. Consistent with FIRRMA, the rule does prescribe that the Committee respond within a set timeframe to voluntary notices that include certain stipulations.

Section 800.404—Contents of Declarations

The proposed rule set forth the information requirements for a declaration, consistent with FIRRMA's requirement that CFIUS establish declarations as “abbreviated notices that would not generally exceed five pages in length.” As part of a declaration, parties may voluntarily stipulate that the transaction is a covered transaction and, if so, whether the transaction is a foreign-government controlled transaction.

One commenter objected to the provision in § 800.404(e) that parties stipulate in a declaration that a transaction is a covered investment, covered transaction, or a foreign government-controlled transaction. Note that, under § 800.404(e), stipulations are not required from parties submitting declarations, but are available as an option and may help expedite the Committee's review. Making a stipulation does not affect judicial review of CFIUS's final decision regarding a transaction. Rather, parties that make a stipulation may not challenge a decision as to whether the transaction is a covered investment, covered transaction, or foreign government-controlled transaction, where that decision is based on the stipulation.

While no change was made to the declaration content requirement as a result of this comment, the rule makes modifications in this section to require additional information, including to allow the Committee to more efficiently assess whether a transaction is a covered transaction. For example, for declarations involving the acquisition of a U.S. business that produces, designs, tests, manufactures, fabricates, or develops one or more critical technologies, parties must describe the item(s) and the applicable export control classification/category.

Section 800.407—Committee Actions

The rule clarifies that the Committee may request that parties file a written notice under subpart E if it has reason to believe that the transaction may raise national security considerations.

5. Subpart E—Notices

The proposed rule set out the process for filing notices.

Section 800.501—Procedures For Notices

One commenter suggested that the Committee be prohibited from reviewing a transaction after a certain time period following its completion. The rule makes no change in response to this comment. Parties that wish to obtain safe harbor from the Committee with respect to previously completed transactions can undertake to do so by filing a voluntary notice or submitting a declaration.

Section 800.502—Contents of Voluntary Notices

One commenter suggested that asking parties for a cyber-security plan is insufficient to determine whether the party's information technology systems are adequately protected. The commenter recommended that the Committee rely on cyber-security standards promulgated by other federal agencies, such as the Department of Homeland Security, or NIST within the Department of Commerce. Alternatively, the commenter recommended using an algorithm to assess a filing party's cyber-security vulnerabilities and suggested requiring parties to meet certain cyber security standards. The rule makes no change in response to these comments. A company's cyber-security plan is relevant information for the Committee to consider. Adherence by a party to government or industry standards could be a relevant factor in the Committee's risk assessment, but is not necessary to prescribe in regulations. Revisions were made to § 800.502, which are similar to the revisions discussed above under § 800.404, as well as other clarifying edits.

6. Subpart G—Finality of Action

Section 721 maintains that a covered transaction that has been notified to CFIUS and on which CFIUS has concluded action under section 721 after determining that there are no unresolved national security concerns, qualifies for safe harbor from further action by the Committee. A commenter noted the rule lacked a safe harbor provision and requested additional guidance on how to structure a transaction to ensure it is not altered or overturned by the Committee.

In accordance with section 721, the rule provides a safe harbor to parties, under § 800.701, and through the incremental acquisition rule discussed above. Neither section 721 nor this rule prescribes transaction structures, allowing parties to structure transactions in the most appropriate manner based on the facts and circumstances of the particular transaction. As described above, section 721(f) of the DPA provides an illustrative list of factors for consideration by the Committee and the President in determining whether a covered transaction poses a national security risk. Additionally, the Treasury Department's previously published Guidance Concerning the National Security Review Conducted by CFIUS, 73 FR 74567 (December 8, 2008), is still in effect.

7. Subpart I—Penalties and Damages

Commenters requested that the Treasury Department promulgate guidelines on when it will assess civil monetary penalties. The Treasury Department is considering whether it can make additional information available to assist the public in understanding the Committee's enforcement priorities. A number of clarifying and technical edits were made to this subpart. Additionally, the rule revises § 800.901(f) to allow tolling of the Committee's deadline to respond to a petition, upon written agreement with the party, to facilitate further negotiations, including for settlement of the potential civil monetary penalty.

8. Subpart J—Foreign National Security Investment Review Regimes

Section 800.1001—Determinations

The proposed rule provided for Committee determinations regarding a foreign state's process to review foreign investment for national security in its own country and its cooperation with the United States with respect to review of foreign investment. Commenters recommended that the Committee, in making these determinations, recognize that differing systems can achieve the same outcomes, and avoid insisting that foreign states adopt procedures that mirror those of CFIUS.

The rule makes no change to § 800.1001 in response to these comments. The Treasury Department will in the near term publish on the Committee's section of its website the factors the Committee will take into consideration when making determinations, which focus on the substance of a foreign state's process and cooperation with the United States to address national security risks arising from foreign investment, and do not prescribe a specific form. Finally, such determinations are relevant only to the status of a foreign state as an excepted foreign state under the rule. They do not imply any broader U.S. Government approval of a foreign state's investment review regime, including aspects of a foreign state's investment review regime that may incorporate factors beyond national security.

9. Other Comments

The Treasury Department also received comments on topics not specifically addressed in the proposed rule. Commenters noted that the proposed rule did not address independent monitors for mitigation agreements, and recommended that the Committee provide additional clarification, including on monitor qualifications or whether monitors may provide additional services without violating the conflict of interest provision in FIRRMA. The rule makes no change in response to these comments. The Treasury Department takes seriously the importance of ensuring the integrity and qualifications of monitors, including avoidance of conflicts of interest. The Committee has extensive experience with the use of monitors for mitigation agreements and has found that appropriate safeguards can be incorporated into the mitigation agreement itself, which is dependent on facts and circumstances of each transaction.

IV. Rulemaking Requirements

Executive Order 12866

These regulations are not subject to the general requirements of Executive Order 12866, which governs review of regulations by the Office of Information and Regulatory Affairs (OIRA) in the Office of Management and Budget (OMB), because they relate to a foreign affairs function of the United States, pursuant to section 3(d)(2) of that order. In addition, these regulations are not subject to review under section 6(b) of Executive Order 12866 pursuant to section 7(c) of the April 11, 2018 Memorandum of Agreement between the Treasury Department and OMB, which states that CFIUS regulations are not subject to OMB's standard centralized review process under Executive Order 12866.

Justification for Interim Rule

The proposed rule, and the proposed rule at 84 FR 50214, included provisions that use the term “principal place of business.” The Treasury Department received comments on these provisions, including recommendations to add a definition for the term.

In response to these comments, a definition for “principal place of business” has been included. The Treasury Department believes it would benefit the public and the Committee to receive comments from the public on this definition before it is made final. This rule therefore contains an interim rule that implements a definition for the term “principal place of business” that will become effective with the rest of the rule, and the Treasury Department is providing the public 30 days to comment on the new definition of “principal place of business.”

It is in the public interest to make the “principal place of business” definition effective on the same date as the rule. Commenters requested greater clarity concerning which parties are subject to the mandatory declaration requirements and to CFIUS jurisdiction more generally. The new definition directly addresses those requests and provides greater transactional certainty. If the definition were not effective with this rule, some parties that, under the new definition, may not need to submit a declaration (or choose to file a notice in lieu of a mandatory declaration) with the Committee would nonetheless have to (or choose to) do so. By clarifying that certain parties need not submit declarations and that certain transactions are not subject to CFIUS jurisdiction, the addition of the definition of “principal place of business” reduces the regulatory burden on the public, allowing some parties to forego the expense, time, and uncertainty involved in submitting a declaration or filing a notice with the Committee. Because of the added clarity and potential reduction in regulatory burden the definition provides to the public, having it become effective immediately is in the public's interest. Nonetheless, the Treasury Department is requesting comments to that definition and will consider them before finalizing the interim rule.

Paperwork Reduction Act

The collections of information contained in this rule were submitted to OMB for review along with the proposed rule, in accordance with the Paperwork Reduction Act of 1995 (PRA, 44 U.S.C. 3507(d)). No comments were received to the PRA estimates. However, and as noted above, the Treasury Department has modified some of the information requests associated with notices and on the declarations form. These changes represent clarifications that the Treasury Department identified in its review of the information requirements, as well as changes necessary to implement certain provisions that were modified from the proposed rule. The additional information requested is not substantially different from the information that was proposed to be collected, and the Treasury Department's estimates of burden hours for completing declarations and notices do not differ from those estimated at the proposed rule stage. These collections have been submitted to OMB under control number 1505-0121.

Under the PRA, an agency may not conduct or sponsor, and a person is not required to respond to, a collection of information unless it displays a valid control number assigned by OMB.

Regulatory Flexibility Act

Regardless of whether the provisions of the Regulatory Flexibility Act (RFA, 5 U.S.C. 601
et seq.
), apply to this rulemaking, for reasons noted in the preamble to the proposed rule, the Treasury Department prepared for public comment an Initial Regulatory Flexibility Analysis and determined through that analysis that the proposed rule would most likely not affect a substantial number of small entities. The Treasury Department specifically requested comments on the proposed rule's effect on small entities; no such public comments were received. The Secretary of the Treasury hereby certifies that the rule will not have a significant economic impact on a

substantial number of small entities based on the following.

The rule expands the jurisdiction of the Committee to include additional types of transactions not previously subject to CFIUS review. Additionally, the Committee will retain its existing jurisdiction over any transaction through which any foreign person could acquire control of any U.S. business. Accordingly, the rule may impact any U.S. business, including a small U.S. business that engages in a covered transaction.

There is no single source for information on the number of small U.S. businesses that receive foreign investment (direct or indirect), including those involved with critical technologies, critical infrastructure, or sensitive personal data, such that they would be directly impacted by this rule. However, the Bureau of Economic Analysis (BEA) within the Department of Commerce collects, on an annual basis, data on new foreign direct investment in the United States through its Survey of New Foreign Direct Investment in the United States (Form BE-13). While these data are self-reported, and include only direct investments in U.S. businesses in which the foreign person acquires at least 10 percent of the voting shares (and consequently, do not capture investments below 10 percent, which may nevertheless be covered transactions), they nonetheless provide relevant information on a category of U.S. businesses that receive foreign investment, some of which may be covered by the proposed rule.

According to the BEA, in 2018, the most current year for which data is available, foreign persons obtained at least a 10 percent voting share in 832 U.S. businesses.
See
U.S. Bureau of Economic Analysis, “Number of Investments Initiated in 2018, Distribution of Planned Total Expenditures, Size by Type of Investment,”
https://apps.bea.gov/international/xls/Table15-14-15-16-17-18.xls
(last visited January 6, 2020). The BEA only reports the general size of the investment transaction, not the type of the U.S. business involved, nor whether the U.S. business is considered a “small business” by the Small Business Administration (SBA), which defines small businesses based on annual revenue or number of employees. The smallest foreign investment transactions that the BEA reports are those with a dollar value below $50 million. While not all U.S. businesses receiving a foreign investment of less than $50 million are considered “small” for the purposes of the RFA, many might be, and the number of U.S. businesses receiving foreign investments of less than $50 million can serve as a proxy for the number of transactions involving small U.S. businesses that might be subject to CFIUS's jurisdiction.

Of the above mentioned 832 U.S. businesses receiving foreign investment in 2018, 576 were involved in transactions valued at less than $50 million. Although this figure is under inclusive because it does not capture all transactions that could potentially fall under the rule, it also is over inclusive because it is not limited to any particular type of U.S. business. We believe the figure of 576 is the best estimate based on the available data of the number of small U.S. businesses that may be impacted by this rule.

According to the SBA, there are 30.2 million small businesses (defined as “firms employing fewer than 500 employees”) in the United States as of 2018.
https://www.sba.gov/sites/default/files/advocacy/2018-Small-Business-Profiles-US.pdf
(last visited January 6, 2020). If approximately 600 small U.S. businesses will be potentially impacted by this rule, then the rule may potentially impact less than one percent of all small U.S. businesses. Accordingly, the Department of the Treasury does not believe the rule will impact a “substantial number of small entities.”

Nonetheless, the rule includes provisions that would reduce the costs to all businesses, including small businesses. For example, the availability of a shorter declaration for covered transactions may result in smaller cost to entities than having to prepare a lengthier notice. Additionally, having a fillable form for declarations may reduce some of the cost for parties.

Congressional Review Act

This rule has been submitted to OIRA, which has determined that the rule is a “major” rule under the Congressional Review Act. However, the Treasury Department has determined there is good cause under 5 U.S.C. 808(2) to publish the rule notwithstanding the timing requirements for major rules under 5 U.S.C. 801(a)(3) because delaying the effectiveness of this rule beyond 30 days is impracticable, unnecessary, and contrary to the public interest. Under FIRRMA, the provisions expanding jurisdiction and establishing declarations, among others, will become effective on February 13, 2020, regardless of whether this rule is published and effective.
See
Section 1727(b)(1)(A) of FIRRMA. Without the processes, procedures and definitions provided by the rule as directed by FIRRMA, market participants will face substantial hardship, delay, and expense in complying with the requirements of FIRRMA. Accordingly, the Treasury Department finds good cause that notice and public procedure under 5 U.S.C. 801(a)(3) are impracticable, unnecessary, and contrary to the public interest. This rule will become effective on February 13, 2020, notwithstanding 5 U.S.C. 801(a)(3).

List of Subjects

31 CFR Part 800
Foreign investments in the United States, Investigations, Investments, Investment companies, National defense, Reporting and recordkeeping requirements.

31 CFR Part 801
Foreign investments in the United States, Investigations, Investments, Investment companies, National defense, Reporting and recordkeeping requirements.

For the reasons set forth in the preamble, the Treasury Department amends parts 800 and 801 of title 31 of the Code of Federal Regulations as follows:

1. Revise part 800 to read as follows:

PART 800—REGULATIONS PERTAINING TO CERTAIN INVESTMENTS IN THE UNITED STATES BY FOREIGN PERSONS

Subpart A—General

Sec.
800.101
Scope.
800.102
Risk-based analysis.
800.103
Effect on other law.
800.104
Applicability rule.
800.105
Rules of construction and interpretation.

Subpart B—Definitions

800.201
Aggregated data.
800.202
Anonymized data.
800.203
Business day.
800.204
Certification.
800.205
Committee; Chairperson of the Committee; Staff Chairperson.
800.206
Completion date.
800.207
Contingent equity interest.
800.208
Control.
800.209
Conversion.
800.210
Covered control transaction.
800.211
Covered investment.
800.212
Covered investment critical infrastructure.
800.213
Covered transaction.
800.214
Critical infrastructure.
800.215
Critical technologies.
800.216
Encrypted data.
800.217
Entity.
800.218
Excepted foreign state.
800.219
Excepted investor.
800.220

Foreign entity.

800.221
Foreign government.
800.222
Foreign government-controlled transaction.
800.223
Foreign national.
800.224
Foreign person.
800.225
Hold.
800.226
Identifiable data.
800.227
Investment.
800.228
Investment fund.
800.229
Involvement.
800.230
Lead agency.
800.231
Manufacture.
800.232
Material nonpublic technical information.
800.233
Minimum excepted ownership.
800.234
Own.
800.235
Parent.
800.236
Party to a transaction.
800.237
Person.
800.238
Personal identifier.
800.239
Principal place of business.
800.240
Section 721.
800.241
Sensitive personal data.
800.242
Service.
800.243
Solely for the purpose of passive investment.
800.244
Substantial interest.
800.245
Substantive decisionmaking.
800.246
Supply.
800.247
Targets or tailors.
800.248
TID U.S. business.
800.249
Transaction.
800.250
Unaffiliated TID U.S. business.
800.251
United States.
800.252
U.S. business.
800.253
U.S. national.
800.254
Voting interest.

Subpart C—Coverage

800.301
Transactions that are covered control transactions.
800.302
Transactions that are not covered control transactions.
800.303
Transactions that are covered investments.
800.304
Transactions that are not covered investments.
800.305
Incremental acquisitions.
800.306
Lending transactions.
800.307
Specific clarification for investment funds.
800.308
Timing rule for a contingent equity interest.

Subpart D—Declarations

800.401
Mandatory declarations.
800.402
Voluntary declarations.
800.403
Procedures for declarations.
800.404
Contents of declarations.
800.405
Beginning of 30-day assessment period.
800.406
Rejection, disposition, or withdrawal of declarations.
800.407
Committee actions.

Subpart E—Notices

800.501
Procedures for notices.
800.502
Contents of voluntary notices.
800.503
Beginning of 45-day review period.
800.504
Deferral, rejection, or disposition of certain voluntary notices.
800.505
Determination of whether to undertake an investigation.
800.506
Determination not to undertake an investigation.
800.507
Commencement of investigation.
800.508
Completion or termination of investigation and report to the President.
800.509
Withdrawal of notices.

Subpart F—Committee Procedures

800.601
General.
800.602
Role of the Secretary of Labor.
800.603
Materiality.
800.604
Tolling of deadlines during lapse in appropriations.

Subpart G—Finality of Action

800.701
Finality of actions under section 721.

Subpart H—Provision and Handling of Information

800.801
Obligation of parties to provide information.
800.802
Confidentiality.
Subpart
I—Penalties and Damages
800.901
Penalties and damages.
800.902
Effect of lack of compliance.

Subpart J—Foreign National Security Investment Review Regimes

800.1001
Determinations.
800.1002
Effect of determinations.

Appendix A to Part 800—Covered Investment Critical Infrastructure and Functions Related to Covered Investment Critical Infrastructure

Appendix B to Part 800—Industries

Authority:

50 U.S.C. 4565; E.O. 11858, as amended, 73 FR 4677.

Subpart A—General

§ 800.101
Scope.

(a) Section 721 of title VII of the Defense Production Act of 1950, as amended (50 U.S.C. 4565), authorizes the Committee on Foreign Investment in the United States to review any covered transaction, as defined in § 800.213 of this part, and to mitigate any risk to the national security of the United States that arises as a result of such transactions. Section 721 also authorizes the President to suspend or prohibit any covered transaction when, in the President's judgment, there is credible evidence that leads the President to believe that the foreign person engaging in a covered transaction might take action that threatens to impair the national security of the United States, and when provisions of law other than section 721 and the International Emergency Economic Powers Act (50 U.S.C. 1701
et seq.
) do not, in the judgment of the President, provide adequate and appropriate authority for the President to protect the national security of the United States in the matter before the President.

(b) This part implements regulations pertaining to covered transactions. Regulations pertaining to “covered real estate transactions” are addressed in part 802 of this chapter.

§ 800.102
Risk-based analysis.
Any determination of the Committee with respect to a covered transaction to suspend, refer to the President, or to negotiate, enter into or impose, or enforce any agreement or condition under section 721 shall be based on a risk-based analysis, conducted by the Committee, of the effects on the national security of the United States of the covered transaction. Any such risk-based analysis shall include credible evidence demonstrating the risk and an assessment of the threat, vulnerabilities, and consequences to national security related to the transaction. For purposes of this part, any such analysis of risk shall include and be informed by consideration of the following elements:

(a) The
threat,
which is a function of the intent and capability of a foreign person to take action to impair the national security of the United States;

(b) The
vulnerabilities,
which are the extent to which the nature of the U.S. business presents susceptibility to impairment of national security; and

(c) The
consequences to national security,
which are the potential effects on national security that could reasonably result from the exploitation of the vulnerabilities by the threat actor.

§ 800.103
Effect on other law.
Nothing in this part shall be construed as altering or affecting any other authority, process, regulation, investigation, enforcement measure, or review provided by or established under any other provision of federal law, including the International Emergency Economic Powers Act, or any other authority of the President or the Congress under the Constitution of the United States.

§ 800.104
Applicability rule.
(a) Except as provided in paragraphs (b) and (c) of this section and otherwise in this part, the regulations in this part apply from February 13, 2020.

(b) Subject to paragraph (c) of this section, for any transaction for which the following has occurred before February 13, 2020, the corresponding provisions of the regulations in this part that were in effect on February 12, 2020, will apply:

(1) The completion date;

(2) The parties to the transaction have executed a binding written agreement, or other binding document, establishing the material terms of the transaction;

(3) A party has made a public offer to shareholders to buy shares of a U.S. business; or

(4) A shareholder has solicited proxies in connection with an election of the board of directors of a U.S.

business or an owner or holder of a contingent equity interest has requested the conversion of the contingent equity interest.

(c) For any transaction to which part 801 of this title was applicable from November 10, 2018, through February 12, 2020, the regulations in part 801 in effect during that time will continue to apply.

Note 1 to § 800.104:

See subpart I (Penalties and Damages) of this part for specific applicability rules pertaining to that subpart.

§ 800.105
Rules of construction and interpretation.
(a) The examples included in this part are provided for informational purposes and should not be construed to alter the meaning of the text of the regulations in this part.

(b) As used in this part, the term “including” means “including but not limited to.”

Subpart B—Definitions

§ 800.201
Aggregated data.

The term
aggregated data
means data that have been combined or collected together in summary or other form such that the data cannot be identified with any individual.

§ 800.202
Anonymized data.

The term
anonymized data
means data from which all personal identifiers have been completely removed.

§ 800.203
Business day.

The term
business day
means Monday through Friday, except the legal public holidays specified in 5 U.S.C. 6103, any day declared to be a holiday by federal statute or executive order, or any day with respect to which the U.S. Office of Personnel Management has announced that Federal agencies in the Washington, DC, area are closed. For purposes of calculating any deadline imposed by this part triggered by the submission of a party to a transaction under § 800.401(g)(2) or § 800.501(i), any submissions received after 5 p.m. Eastern Time are deemed to be submitted on the next business day.

Note 1 to § 800.203:

See § 800.604 regarding the tolling of deadlines during a lapse in appropriations.

§ 800.204
Certification.

(a) The term
certification
means a written statement signed by the chief executive officer or other duly authorized designee of a party filing a notice, declaration, or information, certifying under the penalties provided in the False Statements Accountability Act of 1996, as amended (18 U.S.C. 1001) that the notice, declaration, or information filed:

(1) Fully complies with the requirements of section 721, the regulations in this part, and any agreement or condition entered into with the Committee or any member of the Committee, and

(2) Is accurate and complete in all material respects, as it relates to:

(i) The transaction; and

(ii) The party providing the certification, including its parents, subsidiaries, and any other related entities described in the notice, declaration, or information.

(b) For purposes of this section, a
duly authorized designee
is:

(1) In the case of a partnership, any general partner thereof;

(2) In the case of a corporation, any officer or director thereof;

(3) In the case of any entity lacking partners, officers, and directors, any individual within the organization exercising executive functions similar to those of a general partner of a partnership or an officer or director of a corporation; and

(4) In the case of an individual, such individual or his or her legal representative.

(c) In each case described in paragraphs (b)(1) through (4) of this section, such designee must possess actual authority to make the certification on behalf of the party filing a notice, declaration, or information.

Note 1 to § 800.204:

A sample certification may be found at the Committee's section of the Department of the Treasury website.

§ 800.205
Committee; Chairperson of the Committee; Staff Chairperson.

The term
Committee
means the Committee on Foreign Investment in the United States. The
Chairperson of the Committee
is the Secretary of the Treasury. The
Staff Chairperson
of the Committee is the Department of the Treasury official so designated by the Secretary of the Treasury or by the Secretary's designee.

§ 800.206
Completion date.

The term
completion date
means, with respect to a transaction, the earliest date upon which any ownership interest, including a contingent equity interest, is conveyed, assigned, delivered, or otherwise transferred to a person, or a change in rights that could result in a covered control transaction or covered investment occurs.

Note 1 to § 800.206:

See § 800.308 regarding the timing rule for a contingent equity interest.

§ 800.207
Contingent equity interest.

The term
contingent equity interest
means a financial instrument that currently does not constitute an equity interest but is convertible into, or provides the right to acquire, an equity interest upon the occurrence of a contingency or defined event.

§ 800.208
Control.

(a) The term
control
means the power, direct or indirect, whether or not exercised, through the ownership of a majority or a dominant minority of the total outstanding voting interest in an entity, board representation, proxy voting, a special share, contractual arrangements, formal or informal arrangements to act in concert, or other means, to determine, direct, or decide important matters affecting an entity; in particular, but without limitation, to determine, direct, take, reach, or cause decisions regarding the following matters, or any other similarly important matters affecting an entity:

(1) The sale, lease, mortgage, pledge, or other transfer of any of the tangible or intangible principal assets of the entity, whether or not in the ordinary course of business;

(2) The reorganization, merger, or dissolution of the entity;

(3) The closing, relocation, or substantial alteration of the production, operational, or research and development facilities of the entity;

(4) Major expenditures or investments, issuances of equity or debt, or dividend payments by the entity, or approval of the operating budget of the entity;

(5) The selection of new business lines or ventures that the entity will pursue;

(6) The entry into, termination, or non-fulfillment by the entity of significant contracts;

(7) The policies or procedures of the entity governing the treatment of non-public technical, financial, or other proprietary information of the entity;

(8) The appointment or dismissal of officers or senior managers or, in the case of a partnership, the general partner;

(9) The appointment or dismissal of employees with access to critical technology or other sensitive technology or classified U.S. Government information; or

(10) The amendment of the Articles of Incorporation, constituent agreement, or other organizational documents of the entity with respect to the matters described in paragraphs (a)(1) through (9) of this section.

(b) In examining questions of control in situations where more than one

foreign person has an ownership interest in an entity, consideration will be given to factors such as whether the foreign persons are related or have formal or informal arrangements to act in concert, whether they are agencies or instrumentalities of the national or subnational governments of a single foreign state, and whether a given foreign person and another person that has an ownership interest in the entity are both controlled by any of the national or subnational governments of a single foreign state.

(c) The following minority shareholder protections shall not in themselves be deemed to confer control over an entity:

(1) The power to prevent the sale or pledge of all or substantially all of the assets of an entity or a voluntary filing for bankruptcy or liquidation;

(2) The power to prevent an entity from entering into contracts with majority investors or their affiliates;

(3) The power to prevent an entity from guaranteeing the obligations of majority investors or their affiliates;

(4) The right to purchase an additional interest in an entity to prevent the dilution of an investor's pro rata interest in that entity in the event that the entity issues additional instruments conveying interests in the entity;

(5) The power to prevent the change of existing legal rights or preferences of the particular class of stock held by minority investors, as provided in the relevant corporate documents governing such shares; and

(6) The power to prevent the amendment of the Articles of Incorporation, constituent agreement, or other organizational documents of an entity with respect to the matters described in paragraphs (c)(1) through (5) of this section.

(d) The Committee will consider, on a case-by-case basis, whether minority shareholder protections other than those listed in paragraph (c) of this section do not confer control over an entity.

(e) Examples:

(1)
Example 1.
Corporation A is a U.S. business. A U.S. investor owns 50 percent of the voting interest in Corporation A, and the remaining voting interest is owned in equal shares by five unrelated foreign investors. The foreign investors jointly financed their investment in Corporation A and vote as a single block on matters affecting Corporation A. The foreign investors have an informal arrangement to act in concert with regard to Corporation A, and, as a result, the foreign investors control Corporation A.

(2)
Example 2.
Same facts as the example in paragraph (e)(1) of this section with regard to the composition of Corporation A's shareholders. The foreign investors in Corporation A have no contractual or other commitments to act in concert, and have no informal arrangements to do so. Assuming no other relevant facts, the foreign investors do not control Corporation A.

(3)
Example 3.
Corporation A, a foreign person, is a private equity fund that routinely acquires equity interests in companies and manages them for a period of time. Corporation B is a U.S. business. In addition to its acquisition of seven percent of Corporation B's voting shares, Corporation A acquires the right to terminate significant contracts of Corporation B. Corporation A controls Corporation B.

(4)
Example 4.
Corporation A, a foreign person, acquires a nine percent interest in the shares of Corporation B, a U.S. business. As part of the transaction, Corporation A also acquires certain veto rights that determine important matters affecting Corporation B, including the right to veto the dismissal of senior executives of Corporation B. Corporation A controls Corporation B.

(5)
Example 5.
Corporation A, a foreign person, acquires a 13 percent interest in the shares of Corporation B, a U.S. business, and the right to appoint one member of Corporation B's seven-member board of directors. Corporation A receives minority shareholder protections listed in paragraph (c) of this section but receives no other positive or negative rights with respect to Corporation B. Assuming no other relevant facts, Corporation A does not control Corporation B.

(6)
Example 6.
Corporation A, a foreign person, acquires a 20 percent interest in the shares of Corporation B, a U.S. business. Corporation A has negotiated an irrevocable passivity agreement that completely precludes it from controlling Corporation B. Corporation A does, however, receive the right to prevent Corporation B from entering into contracts with majority investors or their affiliates and to prevent Corporation B from guaranteeing the obligations of majority investors or their affiliates. Assuming no other relevant facts, Corporation A does not control Corporation B.

(7)
Example 7.
Limited Partnership A comprises two limited partners, each of which holds 49 percent of the interest in the partnership, and a general partner, which holds two percent of the interest. The general partner has sole authority to determine, direct, and decide all important matters affecting the partnership and a fund operated by the partnership. The general partner alone controls Limited Partnership A and the fund.

(8)
Example 8.
Same facts as the example in paragraph (e)(7) of this section, except that each of the limited partners has the authority to veto major investments proposed by the general partner and to choose the fund's representatives on the boards of the fund's portfolio companies. The general partner and the limited partners each have control over Limited Partnership A and the fund.

Note 1 to § 800.208:

See § 800.302(b) regarding the Committee's treatment of transactions in which a foreign person holds or acquires 10 percent or less of the outstanding voting interest in a U.S. business solely for the purpose of passive investment. See § 800.303 regarding the Committee's treatment of transactions that do not result in control over a U.S. business by a foreign person, but may be covered investments. See § 800.305 regarding the Committee's treatment of a subsequent transaction involving a foreign person that previously acquired control of the U.S. business.

§ 800.209
Conversion.

The term
conversion
means the exercise of a right inherent in the ownership or holding of a particular financial instrument to exchange any such instrument for an equity interest.

§ 800.210
Covered control transaction.

The term
covered control transaction
means any transaction that is proposed or pending after August 23, 1988, by or with any foreign person that could result in foreign control of any U.S. business, including such a transaction carried out through a joint venture.

§ 800.211
Covered investment.

The term
covered investment
means an investment, direct or indirect, by a foreign person other than an excepted investor, in an unaffiliated TID U.S. business that is proposed or pending on or after February 13, 2020, and that:

(a) Is not a covered control transaction; and

(b) Affords the foreign person:

(1) Access to any material nonpublic technical information in the possession of the TID U.S. business;

(2) Membership or observer rights on, or the right to nominate an individual to a position on, the board of directors or equivalent governing body of the TID U.S. business; or

(3) Any involvement, other than through voting of shares, in substantive decisionmaking of the TID U.S. business regarding:

(i) The use, development, acquisition, safekeeping, or release of sensitive personal data of U.S. citizens maintained or collected by the TID U.S. business;

(ii) The use, development, acquisition, or release of critical technologies; or

(iii) The management, operation, manufacture, or supply of covered investment critical infrastructure.

(c) Notwithstanding paragraphs (a) and (b) of this section, no investment involving an air carrier, as defined in 49 U.S.C. 40102(a)(2), that holds a certificate issued under 49 U.S.C. 41102 shall be a covered investment.

(d) Example: Corporation A, a foreign person that is not an excepted investor, makes a non-controlling investment in Corporation B, a U.S. business, that affords Corporation A the right to nominate one of the directors on Corporation B's board of directors.

Corporation B, through its wholly-owned subsidiary Corporation X, designs and manufactures a critical technology. Corporation A's investment in Corporation B is a covered investment.

§ 800.212
Covered investment critical infrastructure.

The term
covered investment critical infrastructure
means, in the context of a particular covered investment, the systems and assets, whether physical or virtual, set forth in column 1 of appendix A to this part.

§ 800.213
Covered transaction.

The term
covered transaction
means any of the following:

(a) A covered control transaction;

(b) A covered investment;

(c) A change in the rights that a foreign person has with respect to a U.S. business in which the foreign person has an investment, if that change could result in a covered control transaction or a covered investment; or

(d) Any other transaction, transfer, agreement, or arrangement, the structure of which is designed or intended to evade or circumvent the application of section 721.

(e) Examples:

(1)
Example 1.
Corporation A, a foreign person, acquires a 10 percent non-controlling equity interest in Corporation X, a U.S. business. Corporation X subsequently provides Corporation A the right to appoint the Chief Executive Officer and the Chief Technical Officer of Corporation X. Corporation A does not acquire any additional equity interest in Corporation X. Assuming no other relevant facts, the change in rights is a covered transaction.

(2)
Example 2.
Corporation A, a foreign person that is not an excepted investor, acquires a 10 percent non-controlling equity interest in Corporation X, an unaffiliated TID U.S. business, but Corporation A is not afforded any of the access, rights, or involvement specified in § 800.211(b) at the time of its investment. Corporation X later expands its board of directors and provides Corporation X with the right to appoint a director. Assuming no other relevant facts, the change in rights is a covered transaction.

(3)
Example 3.
Corporation A is organized under the laws of a foreign state and is wholly owned and controlled by a foreign national. With a view towards circumventing section 721, Corporation A transfers money to a U.S. citizen, who, pursuant to informal arrangements with Corporation A and on its behalf, purchases all the shares in Corporation X, a U.S. business. The transaction is a covered transaction.

(4)
Example 4.
Corporation A is organized under the laws of a foreign state, is wholly owned and controlled by a foreign national, and is not an excepted investor. With a view towards circumventing section 721, Corporation A transfers money to a U.S. citizen, who, pursuant to informal arrangements with Corporation A and on its behalf, makes a non-controlling minority equity investment in Corporation X, an unaffiliated TID U.S. business that maintains and collects sensitive personal data of U.S. citizens. In connection with the investment, the U.S. citizen is afforded the right to be involved in substantive decisionmaking regarding the release of sensitive personal data of U.S. citizens maintained by Corporation X. The transaction is a covered transaction.

Note 1 to § 800.213:

Any transaction described in (a) through (d) of this section that arises pursuant to a bankruptcy proceeding or other form of default on debt is a covered transaction. See also § 800.306 for the treatment of certain lending transactions.

§ 800.214
Critical infrastructure.

The term
critical infrastructure
means, in the context of a particular covered control transaction, systems and assets, whether physical or virtual, so vital to the United States that the incapacity or destruction of such systems or assets would have a debilitating impact on national security.

§ 800.215
Critical technologies.

The term
critical technologies
means the following:

(a) Defense articles or defense services included on the United States Munitions List (USML) set forth in the International Traffic in Arms Regulations (ITAR) (22 CFR parts 120-130);

(b) Items included on the Commerce Control List (CCL) set forth in Supplement No. 1 to part 774 of the Export Administration Regulations (EAR) (15 CFR parts 730-774), and controlled—

(1) Pursuant to multilateral regimes, including for reasons relating to national security, chemical and biological weapons proliferation, nuclear nonproliferation, or missile technology; or

(2) For reasons relating to regional stability or surreptitious listening;

(c) Specially designed and prepared nuclear equipment, parts and components, materials, software, and technology covered by 10 CFR part 810 (relating to assistance to foreign atomic energy activities);

(d) Nuclear facilities, equipment, and material covered by 10 CFR part 110 (relating to export and import of nuclear equipment and material);

(e) Select agents and toxins covered by 7 CFR p

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Source: Frix Law Library, https://www.frixlaw.com/law-library/documents/fr%3A2020-00188. Public record. Not legal advice.