Three Recommendations Relating to Federal Clearance of Foreign Investments in U.S. Businesses

What do you mean, “CFIUS requires review under FIRRMA”?  

(Our compliments to the federal government, that always manages to create indecipherable word salad.)

Digesting the above:  the U.S. government wishes to limit or prevent certain foreign investments in U.S. businesses that implicate “national security”.  Its filter, a multi-agency group chaired by the Secretary of the Treasury, is called the Committee on Foreign Investment in the United States (CFIUS).

Until recently CFIUS reviews were often voluntary, but its decisions were helpful to clients worried about potential federal interference with their transactions.  However, recent legislation (i.e.,  the Foreign Investment Risk Review Modernization Act, or FIRRMA) links this review to the U.S.’s (comprehensive and complicated) export controls regimes.  In effect, FIRRMA has now made certain reviews mandatory.  Non-compliance is subject to significant penalties, including severe fines (on both the buyer and the seller) and mandatory divestment (even post-closing).

How did this come about?  The federal government has shifted its focus from general “sectors and industries” to specific export controls applicable to critical technologies.  This shift is somewhat logical; it also may generate problems for our clients because U.S. export controls regulations are some of the most complicated in the world.


1. When analyzing a potential investment, assess the sensitivity of the U.S. business’s technologies, the applicability of U.S. licensing requirements, and whether FIRRMA will mandate CFIUS notice.

2. When designing the terms of a potential investment, limit control (or substantial interest or rights) by foreign persons and governments.

3. When considering potential “carve-outs” to a CFIUS filing mandate under current law, also consider the prophylactic value of a voluntary filing.

As you, Wise Reader, could already surmise:  filing a CFIUS notice is a substantial, technical, costly, and burdensome undertaking.  In some cases, however, your avoidance of material risks far outweigh these burdens and costs.  The Wallenstein Law Group stands ready to assist you at all stages of this process.  For further analysis and support, contact us today!

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