CFIUS Finalizes Changes to Mandatory Declaration Regulations

September 18, 2020

Key Takeaways

  • On September 15, 2020, the U.S. Department of Treasury issued a final rule (the “Final Rule”) to modify mandatory filing regulations administered by the Committee on Foreign Investment in the United States (“CFIUS”) related to covered transactions involving U.S. “critical technologies”1 and certain investments involving non-U.S. government investors.
    The Final Rule is largely similar to the proposed rule published in May 2020 (and covered in our prior OnPoint) and is significant in two respects:
  • It modifies the criteria for determining whether a transaction involving U.S. critical technology requires a mandatory declaration by replacing the assessment from one based on North American Industry Classification System (“NAICS”) codes applicable to the U.S. business to one based on whether an export license would be required to export critical technology to the non-U.S. investor; and
  • It clarifies the scope of the mandatory declaration requirement for certain covered transactions involving investments by non-U.S. government investors in U.S. businesses dealing in critical technologies, critical infrastructure and sensitive personal data (“TID Business”).
  • The Final Rule will take effect on October 15, 2020.


President Trump signed into law the Foreign Investment Risk Review Modernization Act of 2018 (“FIRRMA”) on August 13, 2018. FIRRMA made several substantial changes to the CFIUS process and expanded the scope of the Committee’s jurisdiction. Among other changes (described in more detail in our prior OnPoint), FIRRMA authorized CFIUS to mandate short form declarations for certain covered transactions involving U.S. critical technologies or involving the acquisition of a “substantial interest” in certain U.S. businesses by a non-U.S. person in which a non-U.S. government holds a “substantial interest.” The Final Rule modifies the requirements for mandatory declaration related to transactions involving U.S. critical technology and clarifies the scope of requirements related to transactions involving acquisitions by non-U.S. governments.

Mandatory declarations typically are no longer than five pages and must be filed at least 30 days prior to the expected completion date of the transaction. Required information includes, but is not limited to, the size, timing and governance rights implicated by the transaction, statements about the non-U.S. acquirer and the U.S. target and information related to the critical technologies involved.

Parties whose investments are subject to a mandatory filing requirement also can file a full notice instead of a short-form declaration. CFIUS may respond to a declaration by informing parties that it: (1) has cleared the transaction, (2) is initiating a unilateral review, (3) is requesting that the parties submit a full formal notice or (4) is unable to reach a decision regarding clearance on the basis of the declaration alone.

Under the last option, parties do not have the investment protection that accompanies formal CFIUS clearance under a notice and do not have clear guidance from CFIUS as to how to proceed. As a result, parties should consider whether it is preferable to submit a full formal notice from the outset so as to be guaranteed a final response from CFIUS that will provide certainty, even if this requires payment of a filing fee. In addition, should the Committee request that parties submit a full formal notice, a filing fee will be required with the submission of that notice.

Mandatory Declarations for Transactions Involving Critical Technology

CFIUS regulations currently require parties to submit a mandatory declaration for covered transactions that involve “critical technologies” and industries covered by 27 NAICS codes (which include military/defense industries as well as industries whose products and technologies might have broader application, such as semiconductors, batteries, aviation and petrochemicals). The Final Rule narrows the scope of covered transactions involving “critical technologies” that require a mandatory declaration by eliminating the NAICS code criterion and instead basing the requirement on whether a U.S. government export authorization would be required to transfer the U.S. target company’s critical technology to the non-U.S. investor(s).

The assessment should determine whether export authorizations would be required for technology exports to non-U.S. investors who, as a result of the proposed transaction, would:

  • Acquire control over the U.S. business;
  • Have a “covered investment” in the U.S. business (which can include gaining certain board appointment or information access rights related to the U.S. business); or
  • Otherwise hold a direct or indirect voting interest of more than 25% in a person that would have a controlling or covered investment interest in the U.S. business.

Mandatory declarations would not be required, however, for certain transactions in which the critical technologies can be provided to the non-U.S. investor without a license pursuant to certain license exceptions under the Export Administration Regulations (which includes license exceptions related to certain encryption items, strategic trade authorizations or certain unrestricted technology or software).

As a result of the upcoming changes, there now are three different sets of mandatory filing requirements that must be assessed by parties to a transaction involving a non-U.S. investment in a U.S. business that deals in “critical technologies”:

  • Transactions for which specified actions occurred on or after November 10, 2018 and prior to February 13, 2020 are subject to the CFIUS “Pilot Program” regulations set forth in 31 C.F.R. Part 801;
  • Transactions for which specified actions occurred on or after February 13, 2020 and prior to October 15, 2020 are subject to the critical technology mandatory declaration regulations currently set forth in 31 C.F.R. Part 800.401; and
  • Transactions that occur after October 15, 2020 will be subject to the new modifications to the critical technology mandatory declaration provision set forth in the Final Rule, except for certain transactions for which specified actions occurred prior to that date.

Clarifications for Mandatory Declaration Requirements Involving Non-U.S. Government Investors

In addition to mandatory declarations for transactions involving U.S. critical technologies, mandatory declarations also are required for transactions in which a “substantial interest” in a TID U.S. business is acquired by a non-U.S. person in which a non-U.S. government holds a “substantial interest.” The meaning of “substantial interest” differs based on the context:

  • A non-U.S. person is considered to be acquiring a “substantial interest” in a U.S. business if the non-U.S. investor obtains an indirect or direct voting interest of 25% or more in the U.S. business. 
  • A non-U.S. government is considered to hold a “substantial interest” in the non-U.S. investor if the government holds a 49% or greater direct/indirect voting interest in the non-U.S. person.
  • In the case of an investment fund or an entity with a general partner, managing member or equivalent, the non-U.S. government will be considered to hold a “substantial interest” if it holds 49% or more of the interest in the general partner, managing member, or equivalent of the entity. 

The Final Rule clarifies that this last factor is focused on the interest held by a non-U.S. government in the general partner, managing member or equivalent only when such general partner, managing member or equivalent primarily directs, controls or coordinates the activities of the fund/entity – it does not automatically apply in all cases where a fund/entity simply has a general partner, managing member or equivalent that does not have such power over the fund/entity. The Final Rule also clarifies, however, that the general partner does not cease to primarily direct, control or coordinate the activities of the entity simply by contracting a third party to perform such services.


The Final Rule significantly modifies the scope of covered transactions that require mandatory declarations to CFIUS. Given the increasing complexity of CFIUS requirements and heightened scrutiny being applied by CFIUS more broadly, parties to cross-border transactions involving investments in U.S. businesses must assess whether mandatory filing requirements are triggered and, if not, whether voluntary filings are prudent. The Final Rule also highlights the importance of identifying proper export classifications for the products and technologies of a target TID U.S. business.

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