New Export Control Test for CFIUS Mandatory Critical Technology Filings
On September 14, 2020, the U.S. Department of Treasury, as Chair of the Committee on Foreign Investment in the United States (CFIUS), published final regulations changing the mandatory CFIUS declaration requirements for transactions involving U.S. businesses that produce, design, test, manufacture, or develop critical technologies. Previously, the regulations provided that a CFIUS declaration was mandatory for certain critical technology transactions where the U.S. business involved was part of a listed industry. The new regulations provide that a CFIUS declaration is mandatory where the critical technology would require a “U.S. regulatory authorization” for export, re-export, transfer (in-country), or re-transfer of such technology to certain parties or foreign persons in the ownership chain. In short, if a U.S. company would need an export license to transfer technology (know how required to develop, produce or use an export controlled product) to a foreign purchaser of the U.S. company, CFIUS review is mandatory.
The new regulations follow Treasury’s issuance of a proposed rule on May 21, 2020, as discussed in greater detail in our previous blog post. These final regulations take effect October 15, 2020, and would not apply to transactions completed before October 15, 2020.
The new regulations will result in an increased number of mandatory CFIUS filings for certain countries, especially China and Russia, that have stringent export control requirements. Companies will need to shift from conducting due diligence based on the industry of the target business to analyzing whether an export license would be required to release the U.S. business’s critical technology either to the non-U.S. company acquirer or to a person with 25 percent or more voting interest in the acquirer. CFIUS notes that this voting percentage can apply in certain cases to the acquirer’s general partner, or equivalent.
Where a mandatory declaration is required, it must be filed prior to the completion of the transaction. Failure to timely file can result in significant penalties - up to the transaction value.
We are happy to help your company understand how this final rule or related CFIUS developments may impact your business.