Final FIRRMA Regulations Address Commenter Concerns, Omit Clearer Definition for Critical Technology

The regulations, which were released Jan. 13 and take effect Feb. 13, (see 2001130051), expand the authority of the Committee on Foreign Investment in the U.S. to review a broader range of foreign business dealings in the U.S. In October comments to Treasury (see 1910180026), companies and trade groups warned against an unnecessarily restrictive set of regulations that could repel foreign customers and urged the agency to provide more specific definitions for many of the terms used in the regulations. Companies were particularly concerned about the broad definition Treasury provided for critical technologies: “items subject to export controls and other existing regulatory schemes, as well as emerging and foundational technologies.” In the final regulations, Treasury made no change to that definition.

“Commenters recommended narrowing the definition and noted that the Department of Commerce, at the time of the proposed rule, had yet to define emerging and foundational technologies,” Treasury said. “The rule makes no change ... in response to these comments. FIRRMA defines ‘critical technologies,’ and FIRRMA does not give the Treasury Department discretion to change this statutory definition through these regulations.”

Treasury also said it will not be defining emerging and foundational technology, preferring to defer to Commerce. “Rather, [FIRRMA] incorporates by cross-reference the emerging and foundational technologies that the Department of Commerce identifies,” the regulations said. Commerce is working on export controls for emerging technologies (see 1912160032) and plans to publish an advance notice of proposed rulemaking for foundational technology controls. Both have been delayed (see 1912100019).

The FIRRMA regulations did make a series of changes based on public comments in other areas, according to guidance released by Treasury, including an added definition for “principal place of business,” modified criteria to qualify as an “excepted investor,” and the release of three initial countries listed as “excepted foreign states.” The excepted states will be composed of a group of countries for which FIRRMA’s jurisdiction will be limited in an effort to not over-regulate business dealings, Treasury said. The regulations list the first three excepted foreign states as Australia, Canada and the United Kingdom.

In comments, companies and trade groups requested that Treasury amend the regulations to specify the criteria for which a country is determined to be an excepted foreign state. Commenters also asked for certain allied countries to be included in the list, such as Japan, while others suggested that Treasury eliminate the concept because it unfairly gives benefits to companies located in territories belonging to U.S. allies. Treasury declined to make those changes.

In response to concerns that the concept unfairly benefits U.S. allies and should be deleted, Treasury said it “cannot eliminate the concepts … entirely without adopting an alternative limitation.” The agency said it chose Australia, Canada and the U.K. because of those countries’ “robust intelligence sharing and defense industrial base integration mechanisms” with the U.S. Because the concept is “new” and may carry “potentially significant implications” for U.S national security, Treasury wanted to initially name only a limited number of countries. The agency said it “may expand the list in the future,” but did not provide a time frame.

Among the other additions to the final regulations is an interim rule for a definition for principal place of business. The term is defined as the “primary location where an entity’s management directs, controls, or coordinates the entity’s activities,” Treasury said. In the case of an investment fund, the term is defined as the place where “the fund’s activities and investments are primarily directed, controlled, or coordinated by or on behalf of the general partner, managing member, or equivalent.” Because the definition is new, Treasury is proposing it on an interim basis and is requesting comments before it becomes effective. Comments are due Feb. 17.

Treasury also amended the definition for “genetic data” because commenters suggested the scope of genetic information was too broad and should be narrowed to focus on “identifiable data or information about a person’s full genome, to better tailor the definition to national security concerns,” Treasury said. The agency said the final regulations change the provision on genetic testing data in two ways: “by focusing the definition on ‘genetic test’ as that term is defined in the Genetic Information Non-Discrimination Act of 2008 (GINA); and second, by limiting the coverage of the rule to identifiable data.”

In the September proposed regulations, Treasury said it was considering retaining the mandatory filing requirement under a pilot program interim rule issued in 2018, which set procedures for reviewing certain transactions with foreign people and entities involving critical technologies. While Treasury will keep many of the same provisions of the pilot program, including aspects of the “mandatory filing requirements” for transactions involving critical technologies, the agency plans to issue a separate notice of proposed rulemaking to revise those mandatory declaration requirements. The requirements will be revised “from one based upon North American Industry Classification System (NAICS) codes to one based upon export control licensing requirements,” Treasury said.

The regulations also include rules for transactions involving real estate. Treasury addressed several public comments that requested changes to the regulations, including one from a commenter who asked that Treasury clarify how it will use terms such as “threat,” “vulnerabilities” and “consequences on national security” when describing “risk-based analyses undertaken” by CFIUS. Specifically, the commenter asked for clarification for how the terms would be applied to lease agreements with foreign airlines. Treasury declined to provide a clarification because the regulations apply “to many types of real estate transactions, and it would be inappropriate in regulations of general applicability to specify the application of this provision to a particular type of transaction.”

Commenters also took issue with a definition in the regulations that defined “close proximity” as an “area that extends outward one mile from the boundary of a relevant site.” Commenters requested that Treasury ensure that “applicable set-back distances are appropriately tailored to each individual site” and urged the agency to create an “online resource,” such as a map or interactive tool, to provide guidance. Treasury declined to clarify the definition, saying the distances around “particular military installations” are determined by the Defense Department. But the agency did say it plans to create a “web-based tool” to help industries “understand the geographic coverage of the rule.”

Treasury expects to “periodically review” and “amend” the final regulations “given the specificity of certain provisions.” These reviews and changes will likely arise from developments in the use of technology, data and the “evolving national security landscape more generally,” the agency said. Treasury also said it will publish a separate proposed rule covering CFIUS’s authorization to “assess and collect fees with respect to covered transactions … for which a written notice is filed.” That rule will come at “a later date,” Treasury said.