This year’s defense authorization bill didn’t just fund the Department of Defense, but also set the stage for big changes to foreign investment and export controls. Signed on August 13, 2018, the John S. McCain National Defense Authorization Act (NDAA) included the Foreign Investment Risk Review Modernization Act of 2018 (FIRRMA) and the Export Control Reform Act (ECRA).
Foreign Investment Risk Review Modernization Act
The Foreign Investment Risk Review Modernization Act (FIRRMA) expands the jurisdiction of the Committee on Foreign Investment in the United States (CFIUS). CFIUS, an interdepartmental committee chaired by the Treasury Department, was already authorized to review certain business transactions involving foreign investment in the United States that involve national security considerations.
FIRRMA expands the scope of transactions subject to CFIUS review to include transactions involving foreign persons including:
- real estate located in proximity to airports, maritime ports, or sensitive government facilities such as military bases;
- critical infrastructure, critical technologies, or sensitive personal data of US citizens;
- membership on the board of directors or other decision-making rights;
- changes in a foreign investor’s rights resulting in foreign control; and
- other transactions designed to circumvent CFIUS jurisdiction.
FIRRMA also revises filing and review processes and timelines, expanding the ordinary review period from 30 to 45 days, effective when FIRRMA became law. Notices received before August 13th will remain subject to the 30 day review period. FIRRMA also provides for the option for CFIUS to implement filing fees.
The most significant provisions will not be effective until the earlier of eighteen months after the enactment (February 2020) or 30 days after the Secretary of the Treasury publishes a notice that the necessary regulations and resources are in place. CFIUS may also conduct pilot programs under the new law.
CFIUS has advised businesses to continue to notify transactions as provided in current CFIUS regulations.
The Treasury Department has released a summary of FIRRMA and FIRRMA FAQs.
The International Traffic in Arms Regulations (ITAR) continue to require notification when there are changes to ownership or control (as well as other material changes) under 122.4. Notification of transfer of ownership or control to a foreign person is required 60 days in advance and is independent of CFIUS processes. See the State Department’s Directorate of Defense Trade Controls Mergers/Acquisition/Divestitures page for more information.
Export Control Reform Act
The new Export Control Reform Act (ECRA) provides statutory authority for the Export Administration Regulations (EAR) and Antiboycott rules, which have been maintained by emergency executive orders under the International Emergency Economic Powers Act (IEEPA) since the Export Administration Act (EAA) expired in 1994.
Notably, the ECRA also directs the Departments of Commerce, Defense, Energy, and State to “identify emerging and foundational technologies” that may warrant export controls, including CFIUS and export licensing.
Continuing developments from the last year, the ECRA establishes a US government procurement ban on telecommunications equipment produced by Huawei Technologies Company or ZTE Corporation. It does not reinstate the Department of Commerce’s denial order for ZTE which was lifted in July. The procurement ban also includes video surveillance and telecommunications equipment produced by Hytera Communications Corporation, Hangzhou Hikvision Digital Technology Company, or Dahua Technology Company.
The ECRA also increases potential civil penalties to $300,000 (from the most recently inflation-adjusted $295,141).
ECS will continue to monitor developments as new CFIUS regulations and the reviews of “emerging and foundational technologies” are discussed, proposed for comment, and implemented.