M&A Alert

Mandatory Filings for Foreign Investments in U.S. Required by New CFIUS Pilot Program

October 30, 2018

On October 10, 2018, the Department of the Treasury, which oversees the Committee on Foreign Investment in the United States (“CFIUS”), released interim regulations to implement portions of the Foreign Investment Risk Review Modernization Act of 2018 (“FIRRMA”), which was enacted in August. The interim rules defined a new pilot program that will 1) significantly expand CFIUS’s previous mandate (to review “controlling” foreign investments in U.S. businesses for national security implications) to now include certain non-controlling, non-passive investments by foreign persons. The newly covered transactions involve foreign investment of any magnitude in companies involved with “critical technologies” within 27 specified industries, and 2) impose a mandatory filing requirement for all non-passive investments by foreign entities in covered U.S. businesses, at the threat of potentially significant penalties. There is no minimum amount or equity percentage threshold for qualifying investments. The pilot program will take effect on November 10, 2018.

This Alert provides an overview of the pilot program, its coverage and requirements.

Mandatory Declarations for Pilot Program Covered Transactions

The interim regulations under FIRRMA require CFIUS review of certain foreign investments in a U.S. business covered by the pilot program – either in the form of an abbreviated “declaration” filing or the traditional, joint voluntary notice. The short-form declaration is a notice, approximately five pages in length, requiring details concerning the transaction, the investor and its owners, the pilot program U.S. business, all sources of financing and an explanation of the rights the foreign person will acquire, among other things.

The pilot program does not apply to transactions that close prior to November 10, 2018 or to transactions where prior to October 11, 2018, (i) the parties executed a binding written agreement or other document establishing the terms of the transaction, (ii) a party made a public offer to shareholders to buy shares of a pilot program U.S. business, or (iii) a shareholder solicited proxies in connection with the election of the board of directors of a pilot program U.S. business or requested the conversion of convertible voting securities.

Timing is critical to consider for deals taking place during or after this implementation period:

  • For covered transactions that close between November 10, 2018 and December 25, 2018, parties must file a declaration on or promptly after November 10, 2018. CFIUS will have 30 days to review and act on such declarations, according to the regulations, although it is possible they will prioritize review of earlier filings, or for earlier targeted closing dates.
  • For covered transactions that close after December 25, 2018, parties must file a declaration with CFIUS at least 45 days prior to completing the transaction.

Pilot Program Covered Businesses

Applicability of the new pilot program to an investment will depend on both the nature of the U.S. businesses involved in the transaction, as well as the rights granted to foreign investors with respect to their investment in those businesses.

The interim regulations will make CFIUS review a mandatory component of many foreign investments or transactions. Nearly all such investments pertaining to “pilot program U.S. businesses,” will be covered. A covered U.S. business is one that produces, designs, tests, manufactures, fabricates, or develops one or more “critical technologies” that are used and designed for one or more of 27 specified industries.

“Critical technologies” is defined in accordance with U.S. export-controlled technologies, and captures many items and technologies controlled under Export Administration Regulations, as well as other items and technologies including defense articles subject to the International Traffic in Arms Regulations, nuclear and chemical/biochemical controls, and “emerging and foundational technologies” (these last are still to be defined by the U.S. Department of Commerce).

The 27 identified industries covered by the pilot program are based on their NAICS codes, and are those in which “certain strategically motivated foreign investment” has been deemed a potential threat to U.S. national security and technological superiority. A list of the affected industries can be found at the end of this Alert.

Pilot Program Covered Transactions

The pilot program applies to any direct or indirect investment in a pilot program U.S. business by a foreign person or entity, which includes non-controlling, non-passive investments by foreign investors. Mandated filings must be submitted to CFIUS for review if any foreign investor:

  • receives access to any material, non-public technical information in the possession of the target U.S. business;
  • obtains membership or observer rights on the board of directors or equivalent governing body, or the right to nominate an individual to a position on the board or its equivalent, of a pilot program U.S. business; or
  • has any involvement other than through voting of shares, in substantive decision-making of the pilot program U.S. business regarding the use, development, acquisition, or release of critical technology.

Under current regulations, an entity which can demonstrate that a majority of the equity interest and control of such entity is ultimately owned by U.S. nationals would not be considered a “foreign person.”

Limited Exemption for Certain Investment Fund Structures

The pilot program provides an exemption for an indirect investment by a foreign person through an investment fund in a pilot program U.S. business that gives the foreign person membership as a limited partner or equivalent on an advisory board or a committee of the fund so long as:

  • The fund is managed exclusively by a general partner, managing member or equivalent that is not the foreign person (effectively this requires the fund be managed by a U.S. person);
  • The advisory board or committee does not have the ability to approve, disapprove or control investment decisions of the fund or decisions by the general partner, managing member or equivalent with respect to the fund’s investments;
  • The foreign person does not have the ability to otherwise control the fund; and
  • The foreign person does not have access to material non-public technical information as a result of its participation on the advisory board or committee.


The pilot program is already sending shock waves through fund structuring, pending transactions, and the planning for future investments in covered industries. As an immediate action item, any pending transactions should be analyzed to determine whether the transaction will be covered by the pilot program. This analysis is highly fact-specific and each transaction, in particular the activities of the U.S. business and its field of operation, should be carefully reviewed to determine whether a filing will be required. If a declaration is in fact required, expectations of parties need to be reset regarding timing in order to build in the ability to prepare, present and complete the required waiting periods for the filing.

Industries Impacted by the Pilot Program

  • Aircraft Manufacturing (NAICS Code: 336411) 
  • Aircraft Engine and Engine Parts Manufacturing (NAICS Code: 336412) 
  • Alumina Refining and Primary Aluminum Production (NAICS Code: 331313) 
  • Ball and Roller Bearing Manufacturing (NAICS Code: 332991) 
  • Computer Storage Device Manufacturing (NAICS Code: 334112) 
  • Electronic Computer Manufacturing (NAICS Code: 334111) 
  • Guided Missile and Space Vehicle Manufacturing (NAICS Code: 336414) 
  • Guided Missile and Space Vehicle Propulsion Unit and Propulsion Unit Parts Manufacturing (NAICS Code: 336415) 
  • Military Armored Vehicle, Tank, and Tank Component Manufacturing (NAICS Code: 336992) 
  • Nuclear Electric Power Generation (NAICS Code: 221113) 
  • Optical Instrument and Lens Manufacturing (NAICS Code: 333314) 
  • Other Basic Inorganic Chemical Manufacturing (NAICS Code: 325180) 
  • Other Guided Missile and Space Vehicle Parts and Auxiliary Equipment Manufacturing (NAICS Code: 336419) 
  • Petrochemical Manufacturing (NAICS Code: 325110) 
  • Powder Metallurgy Part Manufacturing (NAICS Code: 332117) 
  • Power, Distribution, and Specialty Transformer Manufacturing (NAICS Code: 335311) 
  • Primary Battery Manufacturing (NAICS Code: 335912) 
  • Radio and Television Broadcasting and Wireless Communications Equipment Manufacturing (NAICS Code: 334220) 
  • Research and Development in Nanotechnology (NAICS Code: 541713) 
  • Research and Development in Biotechnology (except Nanobiotechnology) (NAICS Code: 541714) 
  • Secondary Smelting and Alloying of Aluminum (NAICS Code: 331314) 
  • Search, Detection, Navigation, Guidance, Aeronautical, and Nautical System and Instrument Manufacturing (NAICS Code: 334511) 
  • Semiconductor and Related Device Manufacturing (NAICS Code: 334413)
  • Semiconductor Machinery Manufacturing (NAICS Code: 333242) 
  • Storage Battery Manufacturing (NAICS Code: 335911) 
  • Telephone Apparatus Manufacturing (NAICS Code: 334210) 
  • Turbine and Turbine Generator Set Units Manufacturing (NAICS Code: 333611)