The United States is the world's top destination for foreign direct investment (FDI).1 In 2021, the United States recorded the largest increase of inward FDI of all economies.2 European and other foreign companies are deeply embedded in traditional and renewable U.S. energy markets, having invested over $400 billion in U.S. energy-related industries.3 It is expected that FDI into renewable energy will continue to grow substantially in the coming years.4

For non-U.S. companies, sometimes it makes sense to enter or expand in the lucrative U.S. market through an acquisition or merger. But there are significant regulatory hurdles to overcome when a non-U.S. company tries to buy or control a U.S. company, including understanding whether the proposed transaction must (or should) go through a review by the U.S. Committee on Foreign Investment in the United States (CFIUS or Committee).

Chaired by the U.S. Secretary of the Treasury, CFIUS includes representatives from several U.S. departments and agencies who are tasked with reviewing the national security implications of foreign investments in U.S. companies. In 2018, the U.S. Congress expanded the jurisdiction of CFIUS by passing the Foreign Investment Risk Review Modernization Act of 2018 (FIRRMA). FIRRMA also made significant changes to the CFIUS review process. As a result, many more foreign investment transactions are subject to review and increasing scrutiny by CFIUS. This is especially true for the energy sector, where companies often deal with critical infrastructure and technologies that implicate national security. Moreover, transactions that involve real estate purchases might need to go through a CFIUS process simply because of their location.

The overall number of transactions reviewed by CFIUS has dramatically increased over recent years.5 Failing to obtain a CFIUS review can have significant and costly consequences for non-U.S. investors, including monetary penalties for failure to file a mandatory review request and the forced unwinding of business transactions.6 For these and multiple other reasons, it is crucial for investors to thoroughly consider whether a particular transaction should be reviewed by CFIUS before it is completed.

Does My Transaction Require CFIUS Review?

CFIUS is authorized to review any "covered transaction," which is defined broadly to include transactions that could:

  1. Directly or indirectly result in foreign control of any U.S. business;7
  2. Afford a foreign person certain rights or decision-making authority over a U.S. business that produces, designs, tests, manufactures, fabricates, or develops one or more critical technologies (TID8 U.S. business),9 or
  3. . Afford a foreign person access to nonpublic technical information in possession of a TID U.S. business.10

This last prong is not limited to the non-U.S. investors themselves, but also the non-U.S. investors' relationship contacts or vendors who may indirectly gain access to information. For example, if the business will include investors who have dealings with countries or individuals that are of national security concern, then this too may trigger a CFIUS review.

Non-U.S. energy investors will also need to consider whether their proposed transactions are covered by new CFIUS regulations. Specifically, as indicated, the new regulations cover real estate purchases and leases, as well as the acquisition of concessions, easements, or other land rights that may be necessary for solar, wind, water, or other U.S.-based energy products.11 This is especially true when the relevant real estate is located near military installations and other sensitive U.S. government facilities.12 Every U.S. energy investment by a non-U.S. investor should go through a location diligence process to spot

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CFIUS concerns.

Footnotes

1. Jannick Damgaard & Carlos Sanchez-Munoz, United States Is World's Top Destination for Foreign Direct Investment, IMF Blog (Dec. 7, 2022), https://www.imf.org/en/Blogs/Articles/2022/12/07/united-states-is-worldstop-destination-for-foreign-direct-investment#:~:text=The%20United%20 States%20recorded%20the,or%2011.3%20percent%2C%20last%20year.

2. Id.

3. Daniel S. Hamilton & Joseph Quinlan, The Transatlantic Energy Economy, Wilson Center (Apr. 19, 2021), https://www.wilsoncenter.org/article/transatlantic-energy-economy.

4. Jacopo Dettoni, Renewables Set to Smash FDI Record in 2022, fDi Insights (Sept. 22, 2022), https://www.fdiintelligence.com/content/news/renewables-set-to-smash-fdi-record-in-2022-81463.

5. Committee on Foreign Investment in the United States, Annual Report to Congress for CY 2021 at 15-16.

6. See 50 U.S.C. § 4565.

7. 31 C.F.R. §§ 800.210 and 800.213(a).

8. "TID" stands for Technologies, critical Infrastructure and personal Data. See Fact Sheet: Final CFIUS Regulations Implementing FIRRMA, U.S. Dep't of Treasury, Office of Public Affairs, 2 (Jan. 13, 2020), https://home.treasury.gov/system/files/206/Final-FIRRMA-Regulations-FACT-SHEET.pdf.

9. 31 C.F.R. § 800.248.

10. 31 C.F.R. §§ 800.211, 800.213(b), and 800.248.

11. 31 C.F.R. § 802 et seq.

12. 31 C.F.R. § 802 and Appx. A.

Originally Published by The Journal of Federal Agency Action

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