CFIUS and Private Equity Funds: Expanded Review of Foreign Investments, Filing Requirements

Description

FIRRMA, included as part of the National Defense Authorization Act for Fiscal Year 2019, expanded CFIUS oversight beyond controlling transactions to a more nuanced category of non-controlling transactions by U.S. businesses with foreign persons. Private equity firms must carefully examine their CFIUS profile and the level and nature of their ownership in a broader range of investments in U.S. companies.

CFIUS will have approval authority over non-controlling investments in companies involved with critical technology, critical infrastructure, and sensitive data regarding U.S. persons. It will also have the authority to review changes in investor rights that could lead to a covered transaction and certain real estate transactions and transactions that evade or circumvent CFIUS jurisdiction.

Subject to the satisfaction of specific management control and other criteria, foreign limited partners in private equity, venture capital, and hedge funds can qualify for an exclusion from CFIUS jurisdiction. Counsel must have a thorough understanding of the types of foreign investment subject to review and exemptions available to funds whose foreign investments meet exemption criteria.

FIRRMA also changed the CFIUS regime from a voluntary system to one where filings will be mandatory in certain circumstances. Such filings must be made for transactions where a foreign government acquires a "substantial interest" in a U.S. business. CFIUS may also require mandatory filings for investments in U.S. companies involved in certain critical technologies.

Listen as our authoritative panel discusses these and other reforms to CFIUS procedures and the implications of those reforms to structure private equity funds and joint ventures involving foreign investors.