The “completion date” is the earliest date upon which any ownership interest is conveyed, assigned, delivered, or otherwise transferred to a person [31 C.F.R. § 800.206]. In a transaction where the ownership interest is conveyed before the foreign person receives the corresponding rights, the “completion date” is the earliest date upon which the foreign person acquired any of the equity interest. For example, if Company A acquired a 25 percent ownership interest in Company B on July 1, but its right to control Company B was deferred until after CFIUS reviews the transaction, the “completion date” for the transaction is July 1. If the transaction is subject to the mandatory declaration requirement pursuant to 31 C.F.R. § 800.401, the latest date that the parties can file the transaction with CFIUS is June 1. Note that contingent equity interests are assessed separately under 31 C.F.R. § 800.207.
Pursuant to 31 C.F.R. §§ 800.503 and 802.503, “Day 1” is the date on which the Staff Chairperson accepts a voluntary notice, which occurs the next business day after the Staff Chairperson has: (1) determined that the notice complies with § 800.502 (or § 802.502, as applicable); confirmed that the applicable filing fee has been received, or waived; and (3) disseminated the notice to all members of the Committee. The time that it takes for the Staff Chairperson to accept a voluntary notice after it has been submitted by the parties depends upon a variety of factors, including the notice itself and whether parties have submitted a draft notice before submitting the formal notice.
How can parties accurately and completely report all classified contracts as required by 31 C.F.R. § 800.502(c)(3)(iii)?
The notice should identify all classified contracts, subcontracts, purchase orders, lease agreements, service agreements, etc. (“classified contracts”), that contain a “Security Requirements Clause” (FAR 52.204-2 or similar clause) or include a Contract Security Classification Specification (DD Form 254). The clause identifies the contract as involving classified information, and the DD Form 254 provides classification guidance. Therefore, parties should report each contract that contains a Security Requirements Clause, has a DD Form 254, requires or will require access to classified information by a contractor or its personnel in the performance of the contract, or requires the contractor or its personnel to have security clearances. Note that a contract may be a classified contract (in that the nature of the subject goods or services to be performed under the contract are classified) even though the contract document itself is not classified.
Does CFIUS require information on all foreign persons, such as limited partners in an investment fund, that would hold an interest in a U.S. business, whether directly or indirectly, as part of a transaction?
In addition to the information required for submission of a complete filing with CFIUS, to facilitate its review, CFIUS through the Staff Chairperson may request follow-up information with respect to all foreign investors that are involved, directly or indirectly, in a transaction, including limited partners in an investment fund. Like other aspects of the CFIUS process, the scope of such a request depends on the facts and circumstances of each transaction. For example, CFIUS often requests identifying information for indirect foreign person investors, including limited partners, their jurisdiction(s) of organization, and ultimate ownership, among other information, regardless of any arrangements that may otherwise limit the disclosure of such foreign person’s identity. CFIUS may also request information with respect to any governance rights and other contractual rights that investors collectively or individually may have in an indirect or direct acquirer or the U.S. business to facilitate the Committee’s review regarding jurisdictional or national security risk-related considerations. Such information, as with all information filed with CFIUS pursuant to 50 USC 4565, is subject to the confidentiality protections afforded by 50 USC 4565(c).
What steps, though not required for a notice to be determined complete, may facilitate CFIUS’s review?
CFIUS has found it very helpful in the past for transaction parties to provide the following additional information, even if the activity is not the primary focus of their commercial operations. CFIUS often requests this information after a voluntary notice has been accepted if it was not included in the initial filing.
- Cyber systems, products, services: Identify whether the U.S. business that is the subject of the transaction develops or provides cyber systems, products, or services, including
- Business systems used to manage or support common business processes and operations (for example, enterprise resource planning, e-commerce, email, and database systems); control systems used to monitor, assess, and control sensitive processes and physical functions (for example, supervisory control, data acquisition, and process and distributed control systems); safety, security, support, and other specialty systems (for example, fire, intrusion detection, access control, people mover, and heating, ventilating, and air conditioning systems); or
- Telecommunications and/or Internet or similar systems, products or services.
- Natural resources: Identify whether the U.S. business that is the subject of the transaction processes natural resources and material or produces and transports energy, and the amount processed, produced, or transported annually.
It may also be useful to discuss the business rationale for the transaction in the notice.
Lastly, CFIUS’s regulations require parties to provide information regarding any other applicable national security-related regulatory authorities, such as the ITAR, EAR, and NISPOM. Some of the regulatory review processes under these authorities may have longer deadlines than the CFIUS process, and parties to transactions affected by these other reviews may wish to start or complete these processes prior to submitting a voluntary notice to CFIUS under Section 721.
Even if not required under 31 C.F.R. § 800.404, is there additional information about items subject to the EAR that parties should consider providing?
Pursuant to the regulations at 31 C.F.R. part 800, a declaration must include a statement as to whether the U.S. business produces, designs, tests, manufactures, fabricates, or develops one or more “critical technologies,” a term defined at 31 C.F.R. § 800.215 to include, inter alia, certain items controlled under the EAR. If applicable, the declaration must also include a description of each such critical technology and the Export Control Classification Numbers (ECCN).
Note that some items may be listed on the Commerce Control List (CCL), but are not critical technologies under the CFIUS definition. While not required, parties may include information about such items as part of the declaration submission. Parties may also state whether the items that the U.S. business produces, designs, tests, manufactures, fabricates, or develops are designated as EAR99. Inclusion of this information may avoid the need for the Committee to pose follow-up questions on these items during the assessment period and may facilitate a more efficient process.
What steps can be taken with respect to information required by 31 C.F.R. § 800.502 to further facilitate CFIUS review?
- Sections 800.502(c)(1)(iii) and (v) require submission of information related to the foreign person and its parents. CFIUS’s review would be aided if the notice identifies whether the actual party in interest is the party to the transaction or one of the parents of the party to the transaction. CFIUS does not consider special purpose vehicles, wholly-owned subsidiaries established for the sole purpose of the transaction, or other shell companies to be the actual parties in interest in a transaction.
- Sections 800.502(c)(3)(iii) and (iv) require information regarding certain U.S. Government contracts. Parties are advised to update and verify U.S. Government contact information for the contracting officials of such contracts. Private sector entities not party to the notice are not acceptable points-of-contact for contracts in question.
Notices are determined to be incomplete for multiple reasons, commonly including:
- Unclear description of business lines – the notice must provide a clear and detailed account of each company’s products and services;
- Unclear description of the transaction – the notice must clearly describe all entities involved in the transaction and the nature and structure of the transaction;
- Absence of geographic location(s) of the U.S. business – the notice must clearly describe the U.S. business with addresses and/or geographic coordinates for all U.S. properties and facilities; and
- Absence of a certification – all notices must be certified correctly (in accordance with the certification template at the Committee’s section of the Department of the Treasury website and 31 C.F.R. §§ 800.204 or 802.202) to be deemed complete.