What does the new CFIUS proposed rule mean for foreign investment in the US?

As background, CFIUS is made up of US agencies that collectively review transactions for national security concerns. In extreme circumstances process can block deals entirely, or impose significant reporting and mitigation measures. Growing scrutiny is being applied to deals with real estate located near "critical infrastructure”, including airports, maritime ports, or military installations, despite the fact that CFIUS seems primarily concerned with M&A deals. These deals are sometimes called “802” transactions, a reference to the relevant code section. 

What critical infrastructure locations does the proposed rule apply to? CFIUS created an interactive map (802 Geographic Reference Tool) to help the public identify critical infrastructures. Searching by address will generate proximity to a covered piece of real estate. A 99-mile proximity can trigger CFIUS authority, but the test can be more an art than a science.

The owners of some Chinese agriculture (or land-heavy) projects have been concerned by what happened to Fufeng Group last year, where it is rumoured the US Department of Defense stepped in to disrupt an agriculture project located near an air force base in North Dakota, following demands from Senators Rubio, Hoeven, and Cramer that CFIUS review the deal. 

Additionally, many state governments have adopted or expanded restrictions on investments by foreign adversary states. As of 02 June 2023, the National Agricultural Law Center reports a large number of states have prohibited these kinds of acquisitions outright, without a process for requesting permission. 

The new proposed rule would expand CFIUS jurisdiction to projects in the proximity of eight additional air force bases, evidencing what could become a trend in policy scrutinising foreign direct investment (FDI). 

Further evidencing this trend, members of the US House of Representatives have introduced legislation to curb foreign land ownership near military bases. The new law, known as the Protecting US Farmland and Sensitive Sites From Foreign Adversaries Act, comes in response to growing concerns about foreign adversary entities acquiring land near sensitive sites, including military facilities. This law will have a significant impact on CFIUS decision-making and jurisdiction.

This bill will give CFIUS jurisdiction over foreign adversary real estate transactions. Foreign adversaries include China, Cuba, Iran, North Korea, Russia and Venezuela. CFIUS will also consider food security issues as it reviews the national security risk of transactions. This includes review of biotechnology acquisitions and farmland purchases near sensitive sites. The Secretary of Agriculture will then have a vote in the review of transactions that involve farmland or agriculture technology, and any of these transactions will have a “presumption of non-resolvability” for CFIUS reviews, meaning there will be a higher approval threshold for transactions by foreign adversary entities purchasing land near sensitive sites.

As good news, CFIUS generally wants to promote greenfield, ground-up manufacturing FDI deals. 

The “declaration” clearance process is the quickest path to clearance and takes about 30 days from submission. Last year, declarations had an approximately 75% clearance rate. Clearance takes the form of a “safe harbour letter”, meaning CFIUS cannot come after the project later. It is important to craft these disclosures carefully. A declaration can lead to additional questions by CFIUS, a more in-depth review process, or a green light from the feds to move forward with the deal.

Given the proposed rule, investors should consider how their projects may be impacted, and consult with their legal counsel to determine if any next steps are required. Leaders of projects interested in whether they require CFIUS review and could be eligible for a safe harbour letter should contact Philip Land or a member of Haynsworth Sinkler Boyd’s economic development team.

CFIUS members include the heads of the following US government departments and offices:

• Department of the Treasury (chair)
• Department of Justice
• Department of Homeland Security
• Department of Commerce
• Department of Defense
• Department of State
• Department of Energy
• Office of the US Trade Representative
• Office of Science & Technology Policy
• Director of National Intelligence (non-voting, ex-officio)
• Secretary of Labor (non-voting, ex-officio)

Philip Land is a US business and economic development lawyer with Haynsworth Sinkler Boyd, P.A. His clients include company owners, real estate developers, investment funds and international businesses.