What does the new CFIUS proposed rule mean for foreign investment?

June 20, 2023 - J. Philip Land
Last month, the Committee on Foreign Investment in the United States (CFIUS) issued a proposed rule that could restrict foreign investment in real estate located near certain military bases. 

As background, CFIUS is made up of U.S. agencies that collectively review transactions for national security concerns. The process can block deals entirely, in extreme circumstances, or impose significant reporting and mitigation measures. Growing scrutiny is being applied to deals with real estate located near "critical infrastructure," including airports, maritime ports, or military installations, despite the fact that CFIUS seems primarily concerned with M&A deals. These deals are sometimes called “802” transactions, a reference to the relevant code section. 

What critical infrastructure locations does the proposed rule apply to? CFIUS created an interactive map (802 Geographic Reference Tool) to help the public identify critical infrastructures. Searching by address will generate proximity to a covered piece of real estate. A 99-mile proximity can trigger CFIUS authority, but the test can be more an art than a science.

Some Chinese agriculture (or land-heavy) projects have been concerned by what happened to Fufeng Group last year, where it is rumored the DOD (a CFIUS Member) stepped in to disrupt an agriculture project located near an Air Force Base in North Dakota, following demands from Senators Rubio, Hoeven and Cramer that CFIUS review the deal. 

Interestingly, many state governments have adopted or expanded restrictions on investments from foreign adversary states. As of June 2, 2023, the National Agricultural Law Center reports a large number of states have prohibited these kinds of acquisitions outright, without a process for requesting permission.

The new CFIUS proposed rule would expand CFIUS jurisdiction to projects in the proximity of eight additional air force bases, evidencing what could become a trend in policy scrutinizing FDI.

As good news, CFIUS generally wants to promote greenfield, ground-up manufacturing FDI deals.

The ‘declaration’ clearance process is the quickest path to clearance and takes about 30 days from submission. Last year, declarations had approximately a 75% clearance rate. Clearance takes the form of a “Safe Harbor Letter,” meaning CFIUS cannot come after the project later. As our previous blog post covered, it is important to craft these disclosures carefully. A declaration can lead to additional questions by CFIUS, a more in-depth review process, or a ‘green light’ from the feds to move forward with the deal.

Given the proposed rule, investors should consider how their projects may be impacted and consult with their legal counsel to determine if any next steps are required. Projects interested in whether they require CFIUS review and could be eligible for a Safe Harbor Letter should contact Philip Land or a member of Haynsworth Sinkler Boyd’s Economic Development team.