(L to R) Chris Griner and Shannon Reaves, Stroock & Stroock & Lavan

The interagency panel within the U.S. Treasury Department that reviews foreign deals for national security risks dropped more guidance recently about investment funds exceptions under its Critical Technology Pilot Program.

Chris Griner, chair of the national security practice/CFIUS/compliance practice group at Stroock & Stroock & Lavan in Washington, D.C., and special counsel Shannon Reaves explained in a special bulletin issued by the firm last week that updated Frequently Asked Questions guidance just released by the Treasury Department's committee on foreign investment in the U.S., or CFIUS, confirms that the pilot program introduced in November under the Foreign Investment Risk Review Modernization Act of 2018 applies to investments “by or through investment funds.” They said that broader fund exceptions under FIRRMA also apply to the pilot program. 

The updated FAQs provide new insight and clarifications on the specific circumstances that would trigger the need for review of an investment fund transaction, but they are still very fact-specific and should be reviewed on a case-by-case basis with counsel, the Stroock lawyers said. 

As little as 1% foreign equity in a deal for a U.S. company covered by the pilot program could now trigger the need for a CFIUS review, a far smaller share than the controlling equity or controlling rights that used to trigger the CFIUS review requirement, so M&A dealmakers must pay close attention.

“It could be at any equity level. That's an important difference,” Griner said.

“The determining factor will be the rights the foreign investor holds in the pilot program U.S. businesses,” Reaves added.

The Treasury Department is also expected to issue new proposed regulations this fall. Firms and clients should watch for the opportunity to comment on them during the rulemaking comment period, Griner and Reaves said, because the regulations are sure to affect transactions.

Meanwhile, just as law firms have been busy hiring and poaching other CFIUS practitioners from competitors to meet increased demand, the government also has been on a hiring spree to meet the need for more officials to perform the regulatory reviews, which should cut down some of the backlog that had been previously reported, the attorneys said.

“We are seeing some improvement in the timing for completing the CFIUS process,” Griner  said.

But Reaves warned, “also, CFIUS will now have more personnel who dedicate time to monitoring for transactions that should have been notified but were not. The pilot program allows fines of up to the value of the transaction for non-compliance.”

Read More:

CFIUS Arms Race Heats Up With Hires at V&E, Linklaters, Norton Rose Fulbright

Global Firms Are Struggling in China as Work Dries Up

CFIUS Imposes 'Historic' $1M Penalty for Breach of Mitigation Agreement