[Federal Register Volume 73, Number 79 (Wednesday, April 23, 2008)]
[Proposed Rules]
[Pages 21861-21880]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 08-1172]
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DEPARTMENT OF THE TREASURY
Office of International Investment
31 CFR Part 800
RIN 1505-AB88
Regulations Pertaining to Mergers, Acquisitions, and Takeovers by
Foreign Persons
AGENCY: Department of the Treasury.
ACTION: Proposed Rule; Notice of Inquiry and Public Meeting.
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SUMMARY: This proposed regulation amends regulations in part 800 of 31
CFR that implement section 721 of the Defense Production Act of 1950,
as amended. The proposed regulations would implement amendments made by
the Foreign Investment and National Security Act of 2007 to section 721
of the Defense Production Act of 1950 (``section 721''). While the
proposed regulations retain many features of the existing regulations,
a number of changes have been made to increase clarity, reflect
developments in business practices over the past several years, and
make additional improvements based on experiences with the existing
regulations.
DATES: Comment Date: Written comments must be received by June 9, 2008.
Public Meeting Date: The public meeting will be held from 10 a.m.
until 12 p.m. on May 2, 2008.
ADDRESSES: Comments: Written comments on the proposed regulations may
be submitted electronically via the federal government E-Rulemaking
Portal: www.regulations.gov. Written comments may be submitted by mail
to: Nova Daly, Deputy Assistant Secretary, U.S. Department of the
Treasury, 1500 Pennsylvania Avenue, NW., Washington, DC 20220. All
comments and attachments submitted are part of the public record and
subject to disclosure. Do not include any material in your comments
that you consider to be confidential or inappropriate for public
disclosure.
You may view copies of this proposed rule and any comments we
receive about this proposal at www.regulations.gov. You may personally
inspect and photocopy comments at the Department of the Treasury
Library, Room 1428, Main Treasury Building, 1500 Pennsylvania Avenue,
NW., Washington, DC. You can make an appointment to inspect comments by
calling (202) 622-0990.
A link to written comments will be established on the following Web
site: http://www.treas.gov/offices/international-affairs/cfius/index.shtml.
Public Meeting Address: The public meeting will be held in the Cash
Room of the Treasury Building, at 1500 Pennsylvania Avenue, NW.,
Washington, DC 20220.
FOR FURTHER INFORMATION CONTACT: For questions about this Proposed Rule
or the Notice of Inquiry and Public Meeting, contact: Nova Daly, Deputy
Assistant Secretary, U.S. Department of the Treasury, 1500 Pennsylvania
Avenue, NW., Washington, DC 20220; telephone: (202) 622-2752; or e-
mail: [email protected]., or Welby Leaman, Senior Advisor;
telephone: (202) 622-0099; or e-mail: [email protected].
SUPPLEMENTARY INFORMATION:
I. Background With Regard to the Notice of Inquiry and Public Meeting
The President has directed the Secretary of the Treasury to issue
regulations implementing section 721 of the Defense Production Act of
1950, as amended. On October 24, 2007, the Department of the Treasury
convened a public meeting at the Department of the Treasury to solicit
a wide array of views on several broad topics, including from
businesses and professionals active in international mergers and
acquisitions, in order to inform regulatory development. The purpose of
this second notice of inquiry and public meeting is to continue to seek
public input on these important matters,
[[Page 21862]]
particularly in light of the publication of the proposed regulations.
Treasury announces a public meeting to be held from ten until
twelve o'clock (10 a.m.-12 p.m.) on May 2, 2008, in the Cash Room of
the Treasury Building, at 1500 Pennsylvania Avenue, NW., Washington, DC
20220, to discuss issues associated with these proposed regulations.
The meeting will be open to the public on a first-come, first-served
basis. Space is limited. Due to security requirements and to facilitate
entry to the meeting site, anyone wishing to attend must contact Ms.
Barbara Vaughn at [email protected] or (202) 622-1935 no
later than April 25, 2008, in order to provide the necessary clearance
information: Full name, business affiliation, date of birth, and Social
Security number. For foreign nationals: Full name, business
affiliation, date of birth, passport number, and the country where the
passport was issued. When arriving for the meeting, attendees must
present photo or passport identification and/or a U.S. Government
building pass, if applicable, and should arrive at least one-half hour
prior to the start time of the meeting. The public meeting is
physically accessible to people with disabilities. Individuals
requiring special services, such as sign language interpretation, are
asked to indicate this to Ms. Vaughn.
II. Background
The Statute
The Foreign Investment and National Security Act of 2007, Public
Law 110-49, 121 Stat. 246 (``FINSA''), which amends section 721 of the
Defense Production Act of 1950 (50 U.S.C. App. Sec. 2170 et seq.)
(``DPA''), requires the issuance of regulations implementing its
provisions, following public notice and comment.
FINSA was passed by Congress as H.R. 556, which adopted the
language of S. 1610. S. Rep. 110-80, accompanying S. 1610, provides a
useful history of the various bills leading to the enactment of FINSA.
President Bush signed FINSA into law on July 26, 2007, and it became
effective on October 24, 2007.
Section 721 authorizes the President to review mergers,
acquisitions, and takeovers by or with any foreign person which could
result in foreign control of any person engaged in interstate commerce
in the United States, to determine the effects of such transactions on
the national security of the United States. FINSA codifies aspects of
the structure, role, process, and responsibilities of the Committee on
Foreign Investment in the United States (``CFIUS'') and the role of
executive branch departments, agencies, and offices in CFIUS's review
of transactions for national security concerns. A brief summary of
major aspects of the statute follows.
FINSA formally establishes CFIUS in statute, as CFIUS had existed
only by executive order. FINSA specifies the following as members of
CFIUS: The Secretary of the Treasury (who serves as chairperson), the
Attorney General, and the Secretaries of Homeland Security, Commerce,
Defense, State, and Energy. FINSA also provides that CFIUS may include,
generally or on a case-by-case basis as the President deems
appropriate, the heads of any other executive department, agency, or
office. The President has designated additional members of CFIUS in
Executive Order 11858, as amended by Executive Order 13456 on January
23, 2008. FINSA also establishes the Director of National Intelligence
(``DNI'') and the Secretary of Labor as ex officio members of CFIUS.
FINSA specifies that the DNI is to provide independent analyses of any
national security threats posed by transactions, and is to have no
other policy role. FINSA requires that the role of the Secretary of
Labor, with respect to mitigation agreements, be defined by
regulations. FINSA further anticipates that, for each transaction
before CFIUS, the Department of the Treasury shall designate, as
appropriate, one or more lead agencies. The lead agency, on behalf of
CFIUS, may negotiate, enter into or impose, and enforce mitigation
agreements or conditions with parties to the transaction to address any
threats to national security posed by the transaction.
FINSA also formalizes the process by which CFIUS conducts national
security reviews of any transaction that could result in foreign
control of a person engaged in interstate commerce in the United
States, which FINSA refers to as a ``covered transaction.''
Specifically, FINSA provides for a 30-day CFIUS review of covered
transactions to determine the effect of the transactions on national
security, and address any threat. Subject to certain exceptions
(discussed below), FINSA requires an additional 45-day investigation in
the following types of cases: (1) Where the transaction threatens to
impair U.S. national security and that threat has not been mitigated
prior to or during the 30-day review; (2) where the transaction is a
foreign government-controlled transaction; (3) transactions that would
result in foreign control over critical infrastructure and that CFIUS
determines could impair national security, if that impairment has not
been mitigated; or (4) where the lead agency recommends, and CFIUS
concurs, that an investigation be undertaken.
To ensure high-level accountability for CFIUS decisions, FINSA
requires that a high-level official of the Department of the Treasury
and at the lead agency certify to Congress that, for any covered
transaction on which CFIUS has concluded action under section 721,
CFIUS has determined that there are no unresolved national security
concerns. The certification must be made at the Assistant Secretary
level or above for transactions on which CFIUS concludes action under
section 721 after a review, and at the Deputy Secretary level or above
for transactions on which CFIUS concludes action under section 721
after an investigation. If it is the President who concludes action on
a transaction under section 721, then he must announce his decision
publicly.
In addition, in order for CFIUS to conclude action under section
721 for a foreign government-controlled transaction without proceeding
beyond a review to an investigation, the Department of the Treasury and
the lead agency must determine, at the Deputy Secretary level or above,
that the transaction will not impair national security. Similarly,
under sections 721(b)(2)(B)(i)(III) and 721(b)(2)(D)(i), in cases where
the transaction would result in foreign control over critical
infrastructure that could impair national security, and such impairment
has not been mitigated during the review period, CFIUS may conclude
action under section 721 without proceeding beyond a review if the
Department of the Treasury and the lead agency determine, at the Deputy
Secretary level or above, that the transaction will not impair national
security.
Where a covered transaction does present national security
concerns, FINSA provides statutory authority for CFIUS, or a lead
agency acting on behalf of CFIUS, to enter into mitigation agreements
with parties to the transaction or impose conditions on the transaction
to address such concerns. This authority enables CFIUS to mitigate any
national security risk posed by a transaction, rather than recommending
to the President that the transaction be prohibited because it could
impair U.S. national security.
FINSA provides that CFIUS may reopen its review of a transaction on
which it previously concluded action under section 721 if a party to
the transaction submitted false or misleading material information or
omitted material information. CFIUS may also reopen a review where a
party to a transaction intentionally and
[[Page 21863]]
materially breaches a mitigation agreement or condition, and there are
no other remedies available to address the breach. Any decision by
CFIUS to reopen a review must be made at the Under Secretary level or
above. FINSA also provides CFIUS with authority to impose civil
penalties for violations of section 721, including violations of any
mitigation agreement. Finally, FINSA increases CFIUS's reporting to
Congress concerning the work it has undertaken pursuant to section 721.
In addition to the certifications described previously, which CFIUS
must provide to Congress after concluding action on a transaction under
section 721, CFIUS must also provide annual reports on its work,
including a list of the transactions it has reviewed or investigated in
the preceding 12 months, analysis related to foreign direct investment
and critical technologies, and a report on foreign direct investment
from certain countries.
III. Discussion of Proposed Regulations
Overview
The proposed CFIUS regulations retain many of the basic features of
the existing regulations, which were adopted after the 1988 enactment
of the Exon-Florio provision of the DPA. The system continues to be
based on voluntary notices to CFIUS by parties to transactions,
although CFIUS retains the authority to review a transaction of which
it has not been voluntarily notified. The principal new development
with regard to the procedures for filing notice to CFIUS is that the
proposed regulations make explicit CFIUS's current practice of
encouraging parties to contact and engage with CFIUS before formally
filing. By consulting with the Staff Chairperson in advance of filing
and, where appropriate, providing CFIUS with a draft notice or some
portion of the information that may later be included in the notice,
parties can help ensure that their notice, once submitted, will provide
the information CFIUS needs to do its work. Such pre-notice
consultations can help ensure that reviews of covered transactions are
concluded as efficiently as possible. In addition to these regulations,
the Committee is preparing guidance on certain transactions, pursuant
to section 721(b)(2)(E). The guidance is to include a discussion of,
among other things, certain types of information the Committee
considers useful for companies filing a notice to provide, based on
past experience.
The provisions of Subpart D pertaining to the contents of a
voluntary notice have been expanded to reflect questions that CFIUS now
routinely asks of notifying parties. By laying out these questions in
the regulations, and having the relevant information included in each
notification, CFIUS will be better prepared to conduct an efficient and
in-depth analysis as soon as a notice is accepted. As noted in the
proposed regulations, personal identifier information, which is needed
to examine the backgrounds of members of the boards of directors and
senior company officials of entities in the ownership chain of the
foreign acquirer, should be submitted in conjunction with each
notification, and should be marked clearly and provided as a separate
document to ensure that distribution of the personal identifier
information is as limited as possible, as well as to facilitate
deletion of this information from CFIUS's records once action under
section 721 is concluded. In addition to the new information
requirements, the proposed regulations, consistent with FINSA, also
require each of the parties to a notified transaction to provide
certifications regarding the accuracy and completeness of their
notices, with regard to information about the party making the
certification (including certain affiliated entities), the transaction,
and all follow-up information. A notice will not be deemed complete if
it lacks certifications that comply with these requirements, and CFIUS
may reject a notice that has previously been accepted if the final
certification required under section 800.701(d) has not been received.
Furthermore, material misstatements or omissions made by a party in
connection with a section 721 review or investigation may result in the
rejection of the notice, or the reopening of a completed review or
investigation.
Consistent with the new authority provided by FINSA, the proposed
regulations provide for penalties for breach of section 721 or of
mitigation agreements or conditions. The proposed regulations also
provide that a mitigation agreement may include provisions establishing
liquidated damages for violations of the agreement. (See Sec.
800.801.) Parties that receive a notice of the imposition of penalties
will have the opportunity to appeal the imposition of the penalties to
CFIUS.
Certain changes to the existing regulations have been made,
including revisions to or deletions of existing examples or provisions,
to take into account FINSA and other applicable law.
Covered Transaction
FINSA introduced the term ``covered transaction'' to identify the
types of transactions that are subject to review and investigation by
CFIUS. The statutory definition of covered transaction maintains the
scope of section 721 as pertaining to any merger, acquisition, or
takeover by or with a foreign person which could result in foreign
control of any person engaged in interstate commerce in the United
States.
These proposed regulations further clarify the meaning of the term
``covered transaction'' (see Sec. 800.206) by specifying the scope of
important elements of the term, including ``transaction,'' ``control,''
``U.S. business,'' and ``foreign person.'' The definitions and
clarification of these terms appear in Subpart B (Definitions) and in
Subpart C (Coverage).
Transaction
The term ``transaction'' is defined in section 800.224, and
implements the statutory requirement that a covered transaction be one
that involves a ``merger, acquisition, or takeover'' that is proposed
or consummated. This definition continues to exclude greenfield
investment, and includes only a very limited type of long-term lease.
Control
FINSA does not define ``control,'' but rather requires that CFIUS
prescribe a definition by regulation. (See FINSA, Pub. L. 110-49,
section 2, adding Sec. 721(a)(2).) ``Control'' is and always has been
a key threshold concept in section 721, as the authority provided under
that section, from the authority to review or investigate a notified
transaction to the authority of the President to take action to suspend
or prohibit a transaction, is predicated on the existence of foreign
control of a person engaged in interstate commerce in the United
States. This focus on control suggests a fundamental congressional
judgment that national security risks are potentially highest in
transactions that entail the acquisition of control of an entity
operating in the United States. Indeed, Congress made clear in the 1988
Conference Report that accompanied the original Exon-Florio provision
that ``the Conferees in no way intend to impose barriers to foreign
investment. Section 721 is not intended to authorize investigations on
investments that could not result in foreign control of persons engaged
in interstate commerce.'' (See H.R. Rep. No. 100-576 at 926.) Nothing
in FINSA
[[Page 21864]]
or its legislative history suggests any departure from this focus on
control. Indeed, FINSA introduces the new term ``covered transaction,''
which, as discussed above, incorporates the concept of control in its
definition.
The proposed regulations adopt the long-standing approach of
defining ``control'' in functional terms as the ability to exercise
certain powers over important matters affecting a business.
Specifically, ``control'' is defined as the ``power, direct or
indirect, whether or not exercised, through the ownership of a majority
or a dominant minority of the total outstanding voting interest in an
entity, board representation, proxy voting, a special share,
contractual arrangements, formal or informal arrangements to act in
concert, or other means, to determine, direct, or decide important
matters affecting an entity; in particular, but without limitation, to
determine, direct, take, reach, or cause decisions regarding * * *
important matters affecting an entity[.]'' (See Sec. Sec. 800.203(a).)
Two points should be emphasized concerning this definition. First, it
eschews bright lines. Consistent with the existing regulations, control
is not defined in terms of a specified percentage of shares or numbers
of board seats. Although share holding and board seats are relevant to
a control analysis, neither factor on its own is necessarily
determinative. Instead, all relevant factors are considered together in
light of their potential impact on a foreign person's ability to
determine direct, or decide important matters affecting a company.
Second, echoing the congressional views expressed in the conference
report accompanying the original legislation in 1988, the focus of the
statute and therefore these regulations is control. Even acknowledging
the considerable flexibility necessarily inherent in a national
security regulation, the statutory standard is not satisfied by
anything less than control. Acquisition of influence falling short of
the definition of control over a U.S. business is not sufficient to
bring a transaction under section 721.
In light of the significance of the concept of control to this
regulatory framework, control appears in several different places
throughout the regulations, both in those regulations that define the
nature of the acquirer and those that define the transaction itself.
For example, control is a key concept in the definitions of ``foreign
person'' and ``foreign government-controlled transaction.'' (See
Sec. Sec. 800.216 and 800.214, respectively.) A foreign person is any
foreign national (i.e., a natural person who is a citizen of another
country), foreign government, or foreign entity, or any ``entity over
which control is exercised or exercisable by a foreign national,
foreign government or foreign entity.'' A foreign government-controlled
transaction is one that ``could result in the control of a U.S.
business by a foreign government or a person controlled by or acting on
behalf of a foreign government.'' Similarly, ``covered transaction'' is
defined in these proposed regulations as ``any transaction that is
proposed or pending after the effective date [i.e., August 23, 1988] by
or with any foreign person, which could result in control of any person
engaged in interstate commerce in the United States.''
Conversely, transactions that will not result in foreign control
over a person engaged in interstate commerce in the United States are
not subject to section 721. Thus, a start-up or ``greenfield''
investment is not subject to section 721. (See Sec. 800.301(c),
example 3.) Moreover, as noted below, a foreign person does not control
an entity if it holds 10 percent or less of the voting interest in the
entity and it holds that interest ``solely for the purpose of
investment,'' as that term is defined in Sec. 800.223. (See Sec.
800.302(c).) This rule would not apply if only the first prong is
satisfied. For example, a transaction involving a foreign person with
an interest of nine percent in a U.S. business who has bargained for
rights to determine, direct, take, reach, or cause decisions regarding
important matters affecting that business, would be a covered
transaction. Thus, the regulations do not provide, and never have
provided, an exemption based solely on whether an investment is 10
percent or less in a U.S. business.
Section 800.203 lays out the basic definition of ``control,''
provides an exemplary list of matters that are deemed to be important,
states that CFIUS will consider certain relationships between persons
in evaluating whether an entity is considered to be controlled by a
foreign person, and identifies minority shareholder protections that
are not considered in themselves to confer control over an entity. The
regulations add a number of examples to provide greater clarity on the
application of this definition.
U.S. Business
Section 800.227 defines ``U.S. business,'' which is included in the
definition of ``covered transaction,'' to mean any entity engaged in
interstate commerce in the United States, but only to the extent of its
activities in interstate commerce in the United States. In determining
whether a person is a U.S. business, CFIUS will consider whether the
entity (which is defined to include any branch, partnership, group or
sub-group, association, estate, trust, corporation or division of a
corporation, organization, assets operated by any one of the foregoing
as a business undertaking in a particular location or for particular
products or services, even though those assets may not be organized as
a separate legal entity, or government) that is the subject of the
acquisition is engaged in interstate commerce.
Foreign Person
The term ``foreign person'' is defined in section 800.216. The only
significant revision that the proposed regulations make to the
definition of foreign person is to introduce the new concept of a
``foreign entity,'' further discussed in the section-by-section
analysis below (see Sec. 800.212), and to specify that an entity that
qualifies as a foreign entity will be deemed a foreign person.
Transactions That Are and Are Not Covered Transactions
Sections 800.301 and 800.302 illustrate the types of transactions
that are and are not covered transactions, respectively. Section
800.301(a) further develops the reference in section 800.203 to
``exercisable'' power by making clear that, if a foreign person has the
ability to exercise control over a U.S. business at the time a
transaction is consummated, at will, or after a particular period of
time, then the person cannot avoid a determination that ``control''
exists for purposes of section 721 by voluntarily forbearing from, or
delaying, the exercise of control.
Section 800.302(c) provides a special, but very limited,
qualification to the application of the general control principle.
Pursuant to section 800.302(c), a foreign person does not control an
entity if it satisfies a two-pronged test: (1) It holds 10 percent or
less of the voting interest in the entity, and (2) its interest is held
solely for the purpose of investment. Section 800.223 lays out the test
for whether an interest is held solely for the purpose of investment.
Under that test, an interest would not be held solely for the purpose
of investment if the foreign person has the capability and an intention
to control the entity, possesses or develops any purpose other than
investment, or acts in a way that is inconsistent with an intent to
hold the interest solely for the purpose of investment. This special
rule applies to all types of investors equally, rather than assuming
that
[[Page 21865]]
certain types of institutions are passive investors.
Sections 800.301(b) and 800.302(d) further illustrate the extent to
which greenfield investments, the acquisition of branch offices, assets
from multiple sources, and defunct businesses, and the entry into
commodity purchase contracts, service contracts, and technology license
agreements, are covered transactions. Section 800.301(d) addresses
joint ventures, which may be covered only if they involve the
contribution of a U.S. business.
Sections 800.302(e), (f), and (g) and 800.303 establish special
rules with regard to securities underwriting, insurance, and lending,
to clarify certain circumstances in which a foreign person may, in the
ordinary course of its business, obtain an interest in an entity that
may not be considered control of that entity because of those
circumstances.
Section-by-Section Discussion of Proposed Changes
Section 800.201. The term certification has been added as part of
the implementation of a provision in FINSA stating that parties that
file voluntary notices must certify the accuracy and completeness of
their filings with CFIUS. This new requirement applies both to notices
and to any follow-up information provided to CFIUS. The Staff
Chairperson may reject at any time during a review or investigation a
voluntary notice that does not include certifications that comply with
the requirements of these regulations. An inaccurate or incomplete
certification may give rise, in certain circumstances, to the
imposition of penalties under section 800.801(a) and other applicable
laws.
Section 800.203. The definition of control has been clarified and
refined to remove unnecessary wording, but is substantively similar to
the prior definition. The remaining changes are generally intended to
clarify that control can be exercised in a number of ways, both
affirmatively and, in some cases, negatively. At the same time, the
definition recognizes that certain types of negative rights that are
intended only to protect the investment-backed expectations of minority
shareholders, and that do not affect strategic decisions on business
policy or day-to-day management of an entity or other important matters
affecting the entity, do not constitute control. The focus of CFIUS's
analysis of whether a particular transaction could result in the
acquisition of foreign control is on the ability of a foreign person to
determine, direct, or decide important matters affecting a U.S.
business, including to determine, direct, take, reach, or cause
decisions regarding important matters affecting the U.S. business.
Numerous examples have been added to illustrate the operation of these
principles.
Section 800.207. In defining critical infrastructure, the proposed
regulations state that a transaction involves critical infrastructure
where the incapacity or destruction of the particular assets at issue
in the particular transaction under review would have a debilitating
impact on national security.
Section 800.208. FINSA requires that regulations implementing
section 721 include a definition of critical technologies. The proposed
regulations define critical technologies with reference to existing
regulatory regimes that deal with the trade or handling of sensitive
goods, technology, and services. Section 800.402(c)(4) requires
voluntary notices to identify, among other things, any critical
technologies produced or traded by the U.S. business that is the
subject of the covered transaction.
Section 800.209. This section defines duly authorized designee,
which the definition of certification in section 800.201 uses to
identify additional persons besides the chief executive officer who may
complete the certifications required by the regulations. This
definition makes clear that certifications must come from specified
knowledgeable, high-level individuals who have the authority to bind an
organization. CFIUS will not accept a certification signed only by
outside counsel.
Section 800.211. The term entity encompasses the range of persons,
other than natural persons, that can comprise a ``person'' for purposes
of section 721. An entity need not have a distinct legal personality,
as the term includes branches, partnerships, groups or sub-groups,
associations, estates, trusts, corporations or divisions of
corporations, organizations, governments, or assets operated by any one
of the foregoing as a business undertaking in a particular location or
for particular products or services, regardless of whether they are
organized as a legal matter. Accordingly, an operating unit or sub-unit
of a business--particularly one that includes the business' production
facilities, customer or vendor relationships, technology, staff, know-
how or other tangible or intangible assets--may be an entity, even if
that operating unit or sub-unit is not legally organized.
Section 800.212. A new term, foreign entity, has been added to
refer to entities organized outside the United States that CFIUS
considers to be foreign persons because of their substantial foreign
ownership, even though ownership is widely dispersed among different
foreign persons and no single foreign person may control the entity.
Section 800.216. The definition of foreign person has been expanded
to include ``foreign entity.'' In addition, a number of examples have
been added to provide further guidance.
Section 800.218. The definition of lead agency specifies, pursuant
to FINSA and Executive Order 11858, as amended by Executive Order
13456, that the Department of the Treasury may designate an agency as
being responsible for all or any portion of a matter under section 721,
including the review, investigation, and negotiation or monitoring of
mitigation agreements and conditions. The Department of the Treasury
may appoint more than one lead agency for a single transaction.
Section 800.219. The definition of the term parent includes
immediate, intermediate, and ultimate parents of an entity.
Section 800.224. The term transaction replaces the term acquisition
in order to harmonize the terminology of the regulations with that of
the statute. In addition to general clarifications to the definition,
the proposed regulations add certain joint ventures and long-term
leases as types of transactions. The current regulations already
provide that joint ventures involving the contribution of a U.S. person
could be covered transactions, though joint ventures are not actually
listed in the definition of acquisition. Long-term leases are covered
when, because of the terms of the lease and the extent of the lessee's
authority over the U.S. business, the lease is effectively a
transaction for purposes of section 721. A ``transaction'' is only a
``covered transaction'' if the other elements of the definition of
``covered transaction'' are also present.
Section 800.227. The term U.S. business replaces and expands upon
the term United States person, in the manner and for the reasons
described above.
Section 800.301. This section is revised to further clarify the
types of transactions that are covered transactions under section 721.
The principal substantive change in this section relates to joint
ventures. The proposed regulations revise section 800.301(d) to
harmonize the control standard for joint ventures with the standard
used for all other transactions. If the joint venture would result in
``control'' of a U.S. business by a foreign person under the definition
of ``control''
[[Page 21866]]
in section 800.203, then the joint venture is a covered transaction.
Section 800.302. Paragraph (b) clarifies factors that CFIUS will
take into account in determining whether the acquisition of convertible
instruments, rather than the conversion of such instruments, would be
the transaction that is potentially a covered transaction. The time at
which control is conferred, whether at acquisition or conversion, will
depend, among certain other factors, on the extent to which the
acquirer can control the timing of the conversion. In either case,
control will depend on what rights the convertible interests, once
converted, will convey to their holder.
Paragraph (c) has been revised and an example added to clarify that
the 10 percent threshold is determinative only if the foreign person's
acquisition is solely for the purpose of investment, as that term is
defined in section 800.223. If the acquisition is not solely for the
purpose of investment--which may be reflected by the foreign person's
actions, its negotiation of special rights, or other factors--then the
rule that an ownership interest of 10 percent or less does not confer
control does not apply.
Paragraph (d) combines two previous provisions that addressed the
``U.S. business'' element of the ``covered transaction'' definition. In
particular, this paragraph elaborates upon the provision in the
``entity'' definition that an entity, and therefore a U.S. business,
may involve the acquisition of assets of an entity, provided that those
assets are bound together in a sufficiently cohesive relationship such
that they themselves could be readily operated as a separate, stand-
alone business.
Section 800.401. The procedures for voluntary notice have been
expanded to make explicit the opportunity for interaction between CFIUS
and the parties to a transaction before a notice is formally filed.
After two decades of experience implementing section 721, CFIUS
believes that the review process is most effective and efficient when a
notice provides CFIUS with full information regarding a transaction,
rather than requiring CFIUS to ask for additional information after the
notice is filed. This experience is the reason for the additions to
this section and section 800.402, which lays out the required contents
of voluntary notice. In particular, with regard to the procedures for
notice, CFIUS encourages parties to consult with CFIUS prior to filing
a notice. Information provided to CFIUS as part of a pre-notice
consultation becomes part of the formal notice and is accorded the
confidentiality protections of section 721(c). This gives CFIUS an
opportunity to understand the transaction, and to suggest information
that the parties should include in their notice, thereby helping CFIUS
resolve any national security issues as efficiently as possible. These
new provisions also make clear the circumstances under which CFIUS may
contact parties that have not yet filed a notice, and request that they
provide information to help CFIUS determine whether a filing may be
appropriate.
Section 800.402. This section, which describes the information that
must be included in a voluntary notice to CFIUS, is expanded to require
additional data that CFIUS routinely has requested of parties.
Information submitted to CFIUS in connection with a voluntary notice is
entitled to confidentiality under section 800.702, and is exempt from
disclosure under 5 U.S.C. 552.
Paragraph (a) has been revised to make clear that a voluntary
notice will not be considered complete if any required information is
missing. However, in the case of a hostile takeover where a voluntary
notice is filed by fewer than all of the parties to a transaction,
paragraph (b) provides that CFIUS may accept an otherwise complete
notice that does not provide complete information on each non-notifying
party, so long as it provides the portion of that information that is
known or reasonably available to the notifying parties. (See also Sec.
800.403(b), providing that the Staff Chairperson may require the
parties to provide certain information pertaining to the transaction
within seven days of the Staff Chairperson's request for such
information.)
Paragraph (c) specifies the details relating to the transaction
that must be described in a voluntary notice. While the regulations
previously required parties to submit many of these details in
voluntary notices, some specified in paragraph (c) are newly required.
These include, for example, additional information regarding ultimate
and intermediate parents of the foreign person making the acquisition;
transaction value information; identification of other persons with a
role in the transactions; additional information regarding contracts
with and goods supplied directly or indirectly to the government;
additional product information; identification of any special
government rights over the foreign person making the acquisition;
description of any agreements among foreign persons to act in concert
with respect to parties to the transaction; and personal identifier
information for certain key personnel. Subparagraph (c)(ii) requires
that the notice include certain export-control related information,
including the identification of emergent technologies that may be
designated or determined to be covered by the United States Munitions
List, which is set forth in the International Traffic in Arms
Regulations (22 CFR parts 120 through 130), and therefore be critical
technologies, as defined in section 800.208(a).
Other paragraphs in this section contain new informational
requirements for parties filing voluntary notices. These include
paragraph (j), which requires an organization chart showing the
relationship between the foreign person making the acquisition and its
parents, affiliates, and subsidiaries; and paragraph (k), which
requires the parties to indicate whether either party has been involved
previously in a transaction notified to CFIUS, and whether either party
is a party to a mitigation agreement entered into under section 721.
Paragraph (j) also requires the parties to provide a full statement of
their view as to whether (1) the acquirer is controlled by a foreign
government, (2) the acquirer is a foreign person, and (3) the
transaction will result in foreign control of a U.S. person.
Paragraph (i), which requires the provision of the purchase
agreement or other similar documents establishing the terms of the
agreement, has been revised to reflect that such documents must reflect
terms as to which there is an actual agreement between the parties,
particularly with respect to matters relating to post-closing control
and governance. CFIUS reserves the right to reject a voluntary notice
in cases in which the deal terms regarding such matters are undecided.
Section 800.403. It is CFIUS's expectation that, in light of the
added questions pertaining to the contents of voluntary notice (see
Sec. 800.402), the need to request follow-up information from the
parties will be reduced. However, in cases where CFIUS requests follow-
up information, such information must be provided promptly. This
section makes clear that a party's failure to provide promptly any
follow-up information requested by CFIUS is grounds for rejecting the
notice. If such information cannot be provided within two business days
of CFIUS's request, the parties should request an extension of time in
writing.
Section 800.501. A new paragraph (c) has been added to this section
to clarify the Chairperson's role in overseeing the secretariat
function for CFIUS. Parties contemplating filing notices or that have
filed notices should therefore work with the Staff Chairperson, who may
arrange
[[Page 21867]]
contacts or meetings with other member agencies as appropriate.
Section 800.502. Provisions on commencing review (which were
previously in section 800.404 of subpart D) have been consolidated with
provisions regarding the beginning of the 30-day review period in
section 800.502. The proposed regulations also provide that the 30-day
review period will commence on the next business day after the Staff
Chairperson has determined that the notice is complete and has
disseminated the notice to all CIFUS members, which the Staff
Chairperson is required to do promptly.
Section 800.503. This section now specifies the triggers for
commencing an investigation, which are drawn from FINSA and Executive
Order 11858, as amended.
Section 800.506. Executive Order 11858, as amended, specifies the
circumstances under which CFIUS will forward a transaction to the
President for a final decision. This section repeats these
requirements. In all other cases, where CFIUS concludes deliberative
action without referring the matter to the President, the Department of
the Treasury will send written advice to the parties of the
determination to conclude action under section 721. When the President
makes the final decision on a transaction, FINSA requires that that
decision be announced publicly.
Section 800.507. As under the prior regulations, parties may
request that their notices be withdrawn from CFIUS consideration at any
time prior to the conclusion of all deliberative action under section
721. However, section 800.507 incorporates the new procedures that
FINSA requires CFIUS to follow with regard to withdrawn transactions,
including tracking of withdrawn transactions and the establishment of
interim protections, as appropriate, to address national security
concerns.
Section 800.508. FINSA requires that the regulations provide for an
appropriate role for the Secretary of Labor with respect to mitigation
agreements. Under the proposed regulations, the Secretary of Labor will
identify for CFIUS any risk mitigation provisions proposed to or by
CFIUS that would violate U.S. labor laws.
Section 800.601. This section has been substantially shortened to
delete provisions pertaining to the President's authority that are not
necessary to include in regulation because they are already addressed
in FINSA.
Section 800.701. FINSA includes an important provision that
requires each notifying party to certify in writing that the
information it provides to CFIUS is complete and accurate as it relates
to itself and the transaction. This requirement pertains both to the
information in the voluntary notice (see Sec. 800.402(k)) and to
follow-up information. CFIUS may consider a party's failure to provide
a certification with regard to follow-up information to be a material
omission. (See Sec. 800.601(e).)
Section 800.702. The confidentiality protections have been
clarified to emphasize that they apply to information provided to CFIUS
during the course of a withdrawal or with regard to a notice that is
rejected under section 800.403. (As noted in Sec. 800.401(f),
information provided during the course of pre-notice consultations is
also protected by the confidentiality provisions of section 721(c) and
this section of the regulations.) In addition, paragraph (c) makes
clear that the Chairperson's public statements may reflect information
that the parties to the transaction have already themselves publicly
disclosed.
Section 800.801. This new section implements the FINSA requirement
that the regulations provide for the imposition of civil penalties for
any violation of section 721, including a violation of any mitigation
agreement entered into or conditions subsequent imposed pursuant to
section 721(l). This section extends civil monetary penalties to
transactions entered into on or after the effective date of FINSA,
October 24, 2007. In addition, paragraph (c) authorizes CFIUS to
include in any mitigation agreement described in section 721(l) a
liquidated damages provision tied to the harm to the national security
that could result from a breach.
Executive Order 12866
These regulations are not subject to the requirements of Executive
Order 12866 because they relate to a foreign and military affairs
function of the United States.
Paperwork Reduction Act
The collection of information contained in this notice of proposed
rulemaking (in particular, sections 800.401 and 800.402) have been
submitted to the Office of Management and Budget for review in
accordance with the Paperwork Reduction Act of 1995 (44 U.S.C.
3507(d)). Comments on the collection of information should be sent to
the Office of Management and Budget, Attn: Desk Officer for the
Department of the Treasury, Office of Information and Regulatory
Affairs, Washington, DC 20503, with copies to Nova Daly, Deputy
Assistant Secretary, U.S. Department of the Treasury, 1500 Pennsylvania
Avenue, NW., Washington, DC 20220. Comments on the collection of
information should be received by June 23, 2008.
In accordance with 5 CFR 1320.8(d)(1), the Department is soliciting
comments from members of the public concerning this collection of
information to:
(1) Evaluate whether the proposed collection of information is
necessary for the proper performance of the functions of the agency,
including whether the information will have practical utility;
(2) Evaluate the accuracy of the agency's estimate of the burden of
the proposed collection of information;
(3) Enhance the quality, utility, and clarity of the information to
be collected; and
(4) Minimize the burden of the collection of information on those
who are to respond; including through the use of appropriate automated
collection techniques or other forms of information technology.
The burden of the information collections in this proposed rule is
estimated as follows:
Estimated total annual reporting and/or recordkeeping burden: 1200
hours.
Estimated average annual burden per respondent: 100 hours.
Estimated number of respondents: 120 per year.
Estimated annual frequency of responses: Not applicable.
Under the Paperwork Reduction Act, an agency may not conduct or
sponsor, and a person is not required to respond to, a collection of
information unless it displays a valid control number assigned by the
Office of Management and Budget.
Regulatory Flexibility Act
The Regulatory Flexibility Act (RFA) (5 U.S.C. 601 et seq.)
generally requires an agency to prepare a regulatory flexibility
analysis unless the agency certifies that the rule will not have a
significant economic impact on a substantial number of small entities.
The RFA applies when an agency is required to publish a general notice
of proposed rulemaking under section 553(b) of the Administrative
Procedure Act (5 U.S.C. 553(b)), or any other law. As set forth below,
because regulations issued pursuant to the Defense Production Act of
1950 (50 U.S.C. App 2170) are not subject to the Administrative
Procedure Act, or other law requiring the publication of a general
notice of proposed rulemaking, the RFA does not apply.
[[Page 21868]]
This regulation implements Section 721 of the DPA. Section 709 of
the DPA (50 U.S.C. App. 2159 as amended by section 136 of the Defense
Production Act Amendments of 1992 (Pub. L. 102-558)), provides that the
regulations issued under it are not subject to the rulemaking
requirements of the Administrative Procedure Act. Section 709 of the
DPA instead provides that any regulation issued under the DPA be
published in the Federal Register and opportunity for public comment be
provided for not less than 30 days. (Similarly, FINSA requires the
President to direct the issuance of implementing regulations subject to
notice and comment.) Section 709 of the DPA also provides that all
comments received during the public comment period be considered and
the publication of the final regulation contain written responses to
such comments. Legislative history demonstrates that Congress intended
that regulations under the DPA be exempt from the notice and comment
provisions of the Administrative Procedure Act and instead provided
that the agency include a statement that interested parties were
consulted in the formulation of the regulation (see H.R. Conf. Rep.
102-1028 and H.R. Rep. 102-208(II)). The limited public participation
procedures described in the DPA do not require a general notice of
proposed rulemaking as set forth in the RFA. Further, the mechanism for
publication and public participation is sufficiently different to
distinguish the DPA procedures from a rule that requires a general
notice of proposed rulemaking. Moreover, in explaining the DPA
amendments in 1992, Congress expressed its concerns about the potential
threat to our national security preparedness posed by foreign
domination of key dual use technologies. In providing the President
with the authority to suspend or prohibit the acquisition, merger, or
takeover of a domestic firm by a foreign firm if such action would
threaten to impair the national security, Congress could not have
contemplated that regulations implementing such authority would be
subject to RFA analysis. For these reasons, the RFA does not apply to
these regulations.
Notwithstanding the inapplicability of the Regulatory Flexibility
Act, we certify that this rule would not have a significant economic
impact on a substantial number of small entities. These regulations
provide for a voluntary system of notification, and historically less
than ten percent of all foreign acquisitions of U.S. businesses are
notified to CFIUS. Typically, some of the notices filed with CFIUS
concern U.S. companies that would qualify as small entities. It is
estimated that an average filing requires about 100 hours of
preparation time. Based on the number of filings in 2007 and the number
filed thus far in 2008, it is estimated that an average of 120 notices
can be expected annually over the next few years. Of these notices, it
is unlikely that more than 12 will be subject to protracted
investigation or a mitigation agreement. As such, a substantial number
of entities are not impacted by these rules regardless of their size.
We also note that these proposed regulations, to a substantial degree,
merely provide a detailed explanation of the current burdens of
complying with CFIUS procedures and do not impose significant new
burdens on entities subject to CFIUS.
List of Subjects in 31 CFR Part 800
Foreign investments in United States, Investigations, National
defense, Reporting and recordkeeping requirements.
Accordingly, under the authority at 50 U.S.C. Appendix 2170(h), for
the reasons stated in the preamble, the Department of the Treasury
proposes to amend 31 CFR chapter VIII as follows:
Chapter VIII--Office of Investment Security, Department of the Treasury
1. The heading for chapter VIII is revised to read as set forth
above.
2. Part 800 is revised to read as follows:
PART 800--REGULATIONS PERTAINING TO MERGERS, ACQUISITIONS, AND
TAKEOVERS BY FOREIGN PERSONS
Subpart A--General
Sec.
800.101 Scope.
800.102 Effect on other laws.
800.103 Applicability.
800.104 Transactions or devices for avoidance.
Subpart B--Definitions
800.201 Certification.
800.202 Committee; Chairperson of the Committee; Staff Chairperson.
800.203 Control.
800.204 Conversion.
800.205 Convertible voting instrument.
800.206 Covered transaction.
800.207 Critical infrastructure.
800.208 Critical technologies.
800.209 Duly authorized designee.
800.210 Effective date.
800.211 Entity.
800.212 Foreign entity.
800.213 Foreign government.
800.214 Foreign government-controlled transaction.
800.215 Foreign national.
800.216 Foreign person.
800.217 Hold.
800.218 Lead agency.
800.219 Parent.
800.220 Party or parties to a transaction.
800.221 Person.
800.222 Section 721.
800.223 Solely for the purpose of investment.
800.224 Transaction.
800.225 United States.
800.226 U.S. national.
800.227 U.S. business.
800.228 Voting interests.
Subpart C--Coverage
800.301 Transactions that are covered transactions.
800.302 Transactions that are not covered transactions.
800.303 Lending transactions.
Subpart D--Notice
800.401 Procedures for notice.
800.402 Contents of voluntary notice.
800.403 Deferral, rejection, or disposition of certain voluntary
notices.
Subpart E--Committee Procedures: Review and Investigation
800.501 General.
800.502 Beginning of thirty-day review period.
800.503 Determination of whether to undertake an investigation.
800.504 Determination not to undertake an investigation.
800.505 Commencement of investigation.
800.506 Completion or termination of investigation and report to the
President.
800.507 Withdrawal of notice.
800.508 Role of the Secretary of Labor.
Subpart F--Presidential Action
800.601 Finality of actions under section 721.
Subpart G--Provision and Handling of Information
800.701 Obligation of parties to provide information.
800.702 Confidentiality.
Subpart H--Penalties
800.801 Penalties.
Appendix to Part 800--Preamble to Regulations on Mergers,
Acquisitions, and Takeovers by Foreign Persons (Published [date to
be determined], 2008.)
Authority: Section 721 of Pub. L. 100-418, 102 Stat. 1107, made
permanent law by section 8 of Pub. L. 102-99, 105 Stat. 487 (50
U.S.C. App. 2170) and amended by section 837 of the National Defense
Authorization Act for Fiscal Year 1993, Pub. L. 102-484, 106 Stat.
2315, 2463; E.O. 12661, 54 FR 779, 3 CFR, 1988 Comp., p. 618, and
Pub. L. 110-49, 121 Stat. 246 (the Foreign Investment and National
Security Act of 2007).
Subpart A--General
Sec. 800.101 Scope.
The regulations in this part implement section 721 of title VII of
the
[[Page 21869]]
Defense Production Act of 1950, as amended, hereinafter referred to as
``section 721'' (see Sec. 800.222). The definitions in this part are
applicable to section 721 and these regulations. The principal purpose
of section 721 is to authorize the President to suspend or prohibit any
covered transaction when, in the President's judgment, there is
credible evidence to believe that the foreign person exercising control
over a U.S. business (as defined in these regulations at Sec. 800.227)
might take action that threatens to impair the national security, and
provisions of law other than section 721 and the International
Emergency Economic Powers Act, do not, in the President's judgment,
provide adequate and appropriate authority for the President to protect
the national security in the matter before the President. It is also a
purpose of section 721 to authorize the Committee to mitigate any
threat to the national security of the United States that arises as a
result of a covered transaction.
Sec. 800.102 Effect on other laws.
Nothing in this part shall be construed to alter or affect any
existing power, process, regulation, investigation, enforcement
measure, or review provided by any other provision of law.
Sec. 800.103 Applicability.
Section 721 and the regulations in this part apply to transactions
proposed or pending on or after the effective date (as defined in Sec.
800.210).
Sec. 800.104 Transactions or devices for avoidance.
Any transaction or other device entered into or employed for the
purpose of avoiding section 721 shall be disregarded, and section 721
and the regulations in this part shall be applied to the substance of
the transaction.
Example.Corporation A is organized under the laws of a foreign
state and is wholly owned and controlled by a foreign national. With
a view towards avoiding possible application of section 721,
Corporation A transfers money to a U.S. citizen, who, pursuant to
informal arrangements with Corporation A and on its behalf,
purchases all the shares in Corporation X, a U.S. business. That
transaction is subject to section 721.
Subpart B--Definitions
Sec. 800.201 Certification.
The term certification means a written statement signed by the
chief executive officer or other duly authorized designee of a party to
a transaction filing a notice or information, certifying that the
notice or information filed:
(a) fully complies with the requirements of section 721, the
regulations in this part, and any agreement or condition entered into
with the Committee or any member of the Committee, and
(b) Is accurate and complete in all material respects, as it
relates to:
(1) The transaction, and
(2) The party providing the certification, including its parents,
subsidiaries, and any other related entities described in the notice or
information.
A sample certification may be found at the Committee's section of
the Department of the Treasury Web site at http://www.treas.gov/offices/international-affairs/cfius/index.shtml.
Sec. 800.202 Committee; Chairperson of the Committee; Staff
Chairperson.
The term Committee means the Committee on Foreign Investment in the
United States. The Chairperson of the Committee is the Secretary of the
Treasury. The Staff Chairperson of the Committee is the Department of
the Treasury official so designated by the Secretary of the Treasury or
by the Secretary's designee.
Sec. 800.203 Control.
(a) The term control means the power, direct or indirect, whether
or not exercised, through the ownership of a majority or a dominant
minority of the total outstanding voting interest in an entity, board
representation, proxy voting, a special share, contractual
arrangements, formal or informal arrangements to act in concert, or
other means, to determine, direct, or decide important matters
affecting an entity; in particular, but without limitation, to
determine, direct, take, reach, or cause decisions regarding the
following matters, or any other similarly important matters affecting
an entity:
(1) The sale, lease, mortgage, pledge, or other transfer of any of
the tangible or intangible principal assets of the entity, whether or
not in the ordinary course of business;
(2) The reorganization, merger, or dissolution of the entity;
(3) The closing, relocation, or substantial alteration of the
production, operational, or research and development facilities of the
entity;
(4) Major expenditures or investments, issuances of equity or debt,
or dividend payments by the entity, or approval of the operating budget
of the entity;
(5) The selection of new business lines or ventures that the entity
will pursue;
(6) The entry into, termination, or non-fulfillment by the entity
of significant contracts;
(7) The policies or procedures of the entity governing the
treatment of non-public technical, financial, or other proprietary
information of the entity;
(8) The appointment or dismissal of officers or senior managers;
(9) The appointment or dismissal of employees with access to
sensitive technology or classified U.S. Government information; or
(10) The amendment of the Articles of Incorporation, constituent
agreement, or other organizational documents of the entity with respect
to the matters described in paragraphs (a)(1) through (9) of this
section.
(b) In examining questions of control in situations where more than
one foreign person has an ownership interest in an entity,
consideration will be given to factors such as whether the foreign
persons are related or have formal or informal arrangements to act in
concert, whether they are agencies or instrumentalities of the national
or subnational governments of a single foreign state, and whether a
given foreign person and another person that has an ownership interest
in the entity are both controlled by any of the national or subnational
governments of a single foreign state.
(c) The following minority shareholder protections shall not in
themselves be deemed to confer control over an entity:
(1) The power to prevent the sale or pledge of all or substantially
all of the assets of an entity;
(2) The power to prevent an entity from entering into contracts
with majority investors or their affiliates;
(3) The power to prevent an entity from guaranteeing the
obligations of majority investors or their affiliates;
(4) The power to purchase additional shares to prevent the dilution
of an investor's pro rata interest in an entity in the event that the
entity issues additional interests; or
(5) The power to prevent the amendment of the Articles of
Incorporation, constituent agreement, or other organizational documents
of an entity with respect to the matters described in paragraphs (c)(1)
through (4) of this section.
(d) The Committee will consider, on a case-by-case basis, whether
minority shareholder protections other than those listed in paragraph
(c) of this section do not confer control over an entity.
Example 1. Corporation A is a U.S. business. A U.S. investor
owns 50 percent of the voting interest in Corporation A, and the
remaining voting interest is owned in equal
[[Page 21870]]
shares by five unrelated foreign investors. The foreign investors
jointly financed their investment in Corporation A and vote as a
single block on matters affecting Corporation A. The foreign
investors have an informal arrangement to act in concert with regard
to Corporation A, and, as a result, the foreign investors control
Corporation A.
Example 2. Same facts as in Example 1 with regard to the
composition of Corporation A's shareholders. The foreign investors
in Corporation A have no contractual or other commitments to act in
concert, and have no informal arrangements to do so. Assuming no
other relevant facts, the foreign investors do not control
Corporation A.
Example 3. Corporation A, a foreign person, is a private equity
fund that routinely acquires substantial interests in companies and
manages them for a period of time. Corporation B is a U.S. business.
In addition to its acquisition of seven percent of Corporation B's
voting shares, Corporation A acquires the right to terminate
significant contracts of Corporation B. Corporation A controls
Corporation B.
Example 4. Corporation A, a foreign person, is acquiring a nine
percent interest in the shares of Corporation B, a U.S. business. As
part of the transaction, Corporation A is also acquiring certain
veto rights that determine important matters affecting Corporation
B, including the right to veto the dismissal of senior executives of
Corporation B. Corporation A controls Corporation B.
Example 5. Corporation A, a foreign person, acquires an 11
percent interest in the shares of Corporation B, a U.S. business.
Under a minority shareholder protection agreement, Corporation A
receives the right to participate pro rata in future share issuances
to prevent dilution of its percentage interest. Corporation A
receives no other positive or negative rights with respect to
Corporation B. Assuming no other relevant facts, Corporation A does
not control Corporation B.
Note to Sec. 800.203: See Sec. 800.302(c) regarding the
Committee's treatment of cases where a foreign person acquires 10
percent or less of the outstanding voting interests in a U.S.
business solely for the purpose of investment.
Sec. 800.204 Conversion.
The term conversion means the exercise of a right inherent in the
ownership or holding of particular financial instruments to exchange
any such instruments for voting instruments.
Sec. 800.205 Convertible voting instrument.
The term convertible voting instrument means a financial instrument
that currently does not entitle its owner or holder to voting rights
but is convertible into a voting instrument.
Sec. 800.206 Covered transaction.
The term covered transaction means any transaction that is proposed
or pending after the effective date by or with any foreign person,
which could result in control of a U.S. business by a foreign person.
Sec. 800.207 Critical infrastructure.
The term critical infrastructure means, in the context of a
particular covered transaction, systems and assets, whether physical or
virtual, so vital to the United States that the incapacity or
destruction of the particular systems or assets of the entity over
which control is acquired pursuant to that covered transaction would
have a debilitating impact on national security.
Sec. 800.208 Critical technologies.
The term critical technologies means:
(a) Defense articles or defense services covered by the United
States Munitions List (USML), which is set forth in the International
Traffic in Arms Regulations (ITAR) (22 CFR parts 120-130);
(b) Those items specified on the Commerce Control List (CCL) set
forth in Supplement No. 1 to part 774 of the Export Administration
Regulations (EAR) (15 CFR parts 730-774) that are controlled pursuant
to multilateral regimes (i.e., for reasons of national security,
chemical and biological weapons proliferation, nuclear
nonproliferation, or missile technology), as well as those that are
controlled for reasons of regional stability or surreptitious
listening;
(c) Specially designed and prepared nuclear equipment, parts and
components, materials software and technology specified in the
Assistance to Foreign Energy Activities regulations (10 CFR part 810),
and nuclear facilities, equipment, and material specified in the Export
and Import of Nuclear Equipment and Materials regulations (10 CFR part
110); and
(d) Select agents and toxins specified in the Export and Import of
Select Agents and Toxins regulations (7 CFR part 331, 9 CFR part 121,
and 42 CFR part 73).
Sec. 800.209 Duly authorized designee.
(a) The term duly authorized designee means:
(1) In the case of a partnership, any general partner thereof;
(2) In the case of a corporation, any officer or director thereof;
(3) In the case of an entity lacking officers, directors, or
partners, any individual within the organization exercising similar
executive functions; and
(4) In the case of an individual, such individual.
(b) In each case described in paragraphs (a)(1) through (a)(4) of
this section, such designee must possess actual authority to make the
relevant certification on behalf of the person filing a notice or
information.
Sec. 800.210 Effective date.
The term effective date means August 23, 1988, the date section 721
became effective.
Sec. 800.211 Entity.
The term entity means any branch, partnership, group or sub-group,
association, estate, trust, corporation or division of a corporation,
or organization (whether or not organized under the laws of any State);
assets operated by any one of the foregoing as a business undertaking
in a particular location or for particular products or services, even
though those assets may not be organized as a separate legal entity;
and any government (including a foreign national or subnational
government, the United States Government, a subnational government
within the United States, and any agency, corporation, financial
institution, or other entity or instrumentality thereof, including a
government sponsored agency).
Sec. 800.212 Foreign entity.
The term foreign entity means:
(a) A public company organized under the laws of a foreign state
whose equity securities are primarily traded on one or more foreign
exchanges; or
(b) Any other entity organized under the laws of a foreign state in
which foreign nationals hold, directly or indirectly, at least 50
percent of the outstanding ownership interest in an entity.
Sec. 800.213 Foreign government.
The term foreign government means any government or body exercising
governmental functions, other than the government of the United States,
a State of the United States, or a political subdivision of the United
States or a State. The term includes, but is not limited to, national
and subnational governments, including their respective departments,
agencies, and instrumentalities, as well as individuals acting as non-
elected heads of state with governmental responsibilities.
Sec. 800.214 Foreign government-controlled transaction.
The term foreign government-controlled transaction means any
covered transaction that could result in control of a U.S. business by
a foreign government or a person controlled by or acting on behalf of a
foreign government.
[[Page 21871]]
Sec. 800.215 Foreign national.
The term foreign national means any individual other than a U.S.
national.
Sec. 800.216 Foreign person.
The term foreign person means:
(a) Any foreign national, foreign government, or foreign entity; or
(b) Any entity over which control is exercised or exercisable by a
foreign national, foreign government, or foreign entity.
Example 1. Corporation A is organized under the laws of a
foreign state and is only engaged in business outside the United
States. All of its shares are held by Corporation X, which controls
Corporation A. Corporation X is organized in the United States, and
is wholly owned and controlled by U.S. nationals. Assuming no other
relevant facts, Corporation A, although organized and only operating
outside the United States, is not a foreign person.
Example 2. Same facts as in the first sentence of Example 1. The
foreign state under whose laws Corporation A is organized exercises
control over Corporation A, through government interveners.
Corporation A is a foreign person.
Example 3. Corporation A is organized in the United States, is
engaged in interstate commerce in the United States, and is
controlled by Corporation X. Corporation X is organized under the
laws of a foreign state, and 50 percent of its shares are held by
foreign nationals and 50 percent of its shares are held by U.S.
nationals. Both Corporation A and Corporation X are foreign persons.
Corporation A is also a U.S. business.
Example 4. Corporation A is organized under the laws of a
foreign state and is owned and controlled by a foreign national.
Through a branch, Corporation A engages in interstate commerce in
the United States. Corporation A (including its branch) is a foreign
person. The branch also is a U.S. business.
Example 5. Corporation A is a corporation organized under the
laws of a foreign state. Forty-five percent of the voting interests
in Corporation A are owned in equal shares by numerous unrelated
foreign investors, none of whom has control. The foreign investors
have no formal or informal arrangement, with regard to Corporation
A, to act in concert with any other holder of voting interests in
Corporation A. The remainder of the voting interests in Corporation
A is held by U.S. investors. Assuming no other relevant facts,
Corporation A is not a foreign person.
Example 6. Same facts as Example 5, except that foreign
investors own 55 percent of the voting interests in Corporation A.
Assuming no other relevant facts, Corporation A is a foreign entity
and, therefore, a foreign person.
Sec. 800.217 Hold.
The terms hold(s) and holding mean legal or beneficial ownership,
whether direct or indirect, through fiduciaries, agents, or other
means.
Sec. 800.218 Lead agency.
The term lead agency means an agency designated by the Chairperson
of the Committee to have primary responsibility, on behalf of the
Committee, for the specific activity for which the Chairperson
designates it a lead agency, including all or a portion of a review,
investigation, or negotiation or monitoring of mitigation agreements or
conditions.
Sec. 800.219 Parent.
(a) The term parent means a person who or which directly or
indirectly:
(1) Holds or will hold at least 50 percent of the outstanding
voting interest in an entity; or
(2) Holds or will hold the right to at least 50 percent of the
profits of an entity, or has or will have the right in the event of the
dissolution to at least 50 percent of the assets of that entity.
(b) Any entity that meets the conditions of paragraphs (a)(1) or
(2) of this section with respect to another entity (i.e., an
intermediate parent) is also a parent of any other entity of which the
intermediate parent is a parent.
Example 1. Corporation P holds 50 percent of the voting
securities of Corporations R and S. Corporation R holds 40 percent
of the voting securities of Corporation X; Corporation S holds 50
percent of the voting securities of Corporation Y, which in turn
holds 50 percent of the voting securities of Corporation Z.
Corporation P is a parent of Corporations R, S, Y and Z, but not of
Corporation X. Corporation S is a parent of Corporations Y and Z,
and Corporation Y is a parent of Corporation Z.
Example 2. Corporation A holds warrants, exercisable at its sole
discretion, which when exercised will entitle it to vote 50 percent
of the outstanding shares of Corporation B. Corporation A is a
parent of Corporation B.
Sec. 800.220 Party or parties to a transaction.
The terms party to a transaction and parties to a transaction mean:
(a) In the case of an acquisition of an ownership interest in an
entity, the person acquiring the ownership interest, and the person
from which such ownership interest is acquired, without regard to any
person providing brokerage or underwriting services for the
transaction;
(b) In the case of a merger, the surviving entity, and the entity
or entities that are merged into that entity as a result of the
transaction;
(c) In the case of a consolidation, the entities being
consolidated, and the new consolidated entity;
(d) In the case of a proxy solicitation, the person soliciting
proxies, and the person who issued the voting interest;
(e) In the case of the conversion of convertible voting
instruments, the issuer and the person holding the convertible voting
instruments; and
(f) In the case of any other type of transaction, any person who is
in a role comparable to that of a person described in paragraphs (a)
through (e) of this section.
Sec. 800.221 Person.
The term person means any individual or entity.
Sec. 800.222 Section 721.
The term section 721 means section 721 of title VII of the Defense
Production Act of 1950, 50 U.S.C. App. 2170, as added by section 5021
of the Omnibus Trade and Competitiveness Act of 1988, Pub. L. 100-418,
102 Stat. 1107, and as amended by Pub. L. 102-484, 106 Stat. 2463, and
the Foreign Investment and National Security Act of 2007, Public Law
110-49, 121 Stat. 246.
Sec. 800.223 Solely for the purpose of investment.
Ownership interests are held or acquired ``solely for the purpose
of investment'' if the person holding or acquiring such interests has
no plans or intention of exercising control, does not possess or
develop any purpose other than investment, and does not take any action
inconsistent with acquiring or holding such interests solely for the
purpose of investment. (See Sec. 800.302(c).)
Sec. 800.224 Transaction.
The term transaction means a proposed or consummated merger,
acquisition, or takeover. It includes:
(a) The acquisition of an ownership interest in an entity.
(b) The acquisition or conversion of convertible voting instruments
of an entity.
(c) The acquisition of proxies from holders of a voting interest in
an entity.
(d) A merger or consolidation.
(e) The formation of a joint venture.
(f) A long-term lease under which a lessee makes substantially all
business decisions concerning the operation of a leased entity, as if
it were the owner.
Example. Corporation A, a foreign person, signs a concession
agreement to operate the toll road business of Corporation B, a U.S.
business, for 99 years. However, Corporation B is required under the
agreement to perform safety and security functions with respect to
the business and to monitor compliance by Corporation A with the
operating requirements of the agreement on an ongoing basis.
Corporation B may terminate the agreement or impose other penalties
for breach of these operating requirements. Assuming no other
relevant facts, this is not a transaction.
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Sec. 800.225 United States.
The term United States or U.S. means the United States of America,
the States of the United States, the District of Columbia, and any
commonwealth, territory, dependency, or possession of the United
States, or any subdivision of the foregoing, and includes the Outer
Continental Shelf, as defined in section 2(a) of the Outer Continental
Shelf Lands Act (43 U.S.C. 1131(a)). For purposes of these regulations
and their examples, an entity organized under the laws of the United
States of America, one of the States, the District of Columbia, or a
commonwealth, territory, dependency or possession of the United States,
is an entity organized ``in the United States.''
Sec. 800.226 U.S. national.
The term U.S. national means a citizen of the United States or an
individual who, although not a citizen of the United States, owes
permanent allegiance to the United States.
Sec. 800.227 U.S. business.
The term U.S. business means any entity, irrespective of the
nationality of the persons that control it, engaged in interstate
commerce in the United States, but only to the extent of its activities
in interstate commerce.
Example 1. Corporation A is organized under the laws of a
foreign state and is wholly owned and controlled by a foreign
national. It engages in interstate commerce in the United States
through a branch or subsidiary. Its branch or subsidiary is a U.S.
business. Each is also a foreign person for purposes of acquiring a
U.S. business.
Example 2. Same facts as in the first sentence of Example 1.
Corporation A, however, does not have a branch office, subsidiary or
fixed place of business in the United States. It exports and
licenses technology to an unrelated company in the United States.
Assuming no other relevant facts, Corporation A is not a U.S.
business.
Example 3. Corporation A, a company organized under the laws of
a foreign state, is wholly owned and controlled by Corporation X.
Corporation X is organized in the United States and is wholly owned
and controlled by U.S. nationals. Corporation A does not have a
branch office, subsidiary, or fixed place of business in the United
States. It exports goods to Corporation X and to unrelated companies
in the United States. Assuming no other relevant facts, Corporation
A is not a U.S. business.
Sec. 800.228 Voting interests.
The term voting interests means any interests in an entity that
entitle the owner or holder thereof to vote for the election of
directors of the entity (or, with respect to unincorporated entities,
individuals exercising similar functions) or to vote on other matters
affecting the entity.
Subpart C--Coverage
Sec. 800.301 Transactions that are covered transactions.
Transactions that are covered transactions include, without
limitation:
(a) A transaction which, irrespective of the actual arrangements
for control provided for in the terms of the transaction, results or
could result in control of a U.S. business by a foreign person.
Example 1. Corporation A, a foreign person, proposes to purchase
all the shares of Corporation X, which is a U.S. business. As the
sole owner, Corporation A will have the right to elect directors and
appoint other primary officers of Corporation X, and those directors
will have the right to make decisions about the closing and
relocation of particular production facilities, and the termination
of significant contracts. The directors also will have the right to
propose to Corporation A, the sole shareholder, the dissolution of
Corporation X and the sale of its principal assets. The proposed
transaction is a covered transaction.
Example 2. Same facts as in Example 1, except that Corporation A
plans to retain the existing directors of Corporation X, all of whom
are U.S. nationals. Although Corporation A may choose not to
exercise its power to elect new directors for Corporation X,
Corporation A nevertheless retains that exercisable power. The
proposed transaction is a covered transaction.
Example 3. Corporation A, a foreign person, proposes to purchase
50 percent of the shares in Corporation X, a U.S. business, from
Corporation B, also a U.S. business. Corporation B would retain the
other 50 percent of the shares in Corporation X, and Corporation A
and Corporation B would contractually agree that Corporation A would
not exercise its voting and other rights for ten years. The proposed
transaction is a covered transaction.
(b) A transaction in which a foreign person conveys its control of
a U.S. business to another foreign person.
Example. Corporation X is a U.S. business, but is wholly owned
and controlled by Corporation Y, a foreign person. Corporation Z,
also a foreign person, but not related to Corporation Y, seeks to
acquire Corporation X from Corporation Y. The proposed transaction
is a covered transaction because it could result in control of
Corporation X, a U.S. business in this context, by another foreign
person, Corporation Z.
(c) A transaction that results or could result in control by a
foreign person of assets that constitute a U.S. business. (See Sec.
800.302(d).)
Example 1. Corporation A, a foreign person, proposes to buy a
branch office in the United States of Corporation X, which is a
foreign person. Corporation X is a U.S. business to the extent of
its branch office in the United States. The proposed transaction is
a covered transaction.
Example 2. Corporation A, a foreign person, buys a branch office
located entirely outside the United States of Corporation Y, which
is incorporated in the United States. Assuming no other relevant
facts, the branch office of Corporation Y is not a U.S. business,
and the transaction is not a covered transaction.
Example 3. Corporation A, a foreign person, makes a start-up, or
``greenfield,'' investment in the United States. That investment
involves such activities as separately arranging for the financing
of and the construction of a plant to make a new product, buying
supplies and inputs, hiring personnel and purchasing the necessary
technology. The investment may involve the acquisition of shares in
a newly incorporated subsidiary. Assuming no other relevant facts,
Corporation A will not have acquired a U.S. business, and its
greenfield investment is not a covered transaction.
Example 4. Corporation A, a foreign person, purchases
substantially all the assets of Corporation B. Corporation B, which
is incorporated in the United States, was in the business of
producing industrial equipment, but stopped producing and selling
such equipment one week before Corporation A purchased substantially
all of its assets. At the time of the transaction, Corporation B
continued to have employees on its payroll, maintained know-how in
producing the industrial equipment it previously produced, and
maintained relationships with its prior customers, all of which were
transferred to Corporation A. The acquisition of substantially all
of the assets of Corporation B by Corporation A is a covered
transaction.
Example 5. Corporation A, a foreign person, owns businesses both
outside the United States and in the United States. Corporation B, a
foreign person, acquires Corporation A. The acquisition of
Corporation A by Corporation B is a covered transaction with respect
to Corporation A's businesses in the United States.
Example 6. Corporation X, a foreign person, seeks to acquire
from Corporation A, a U.S. business, an empty warehouse facility
located in the United States. The acquisition would be limited to
the physical facility, and would not include customer lists,
intellectual property, or other proprietary information, or other
intangible assets or the transfer of personnel. Assuming no other
relevant facts, the facility is not an entity and therefore not a
U.S. business, and the proposed acquisition of the facility is not a
covered transaction.
Example 7. Same facts as Example 6, except that, in addition to
the proposed acquisition of Corporation A's warehouse facility,
Corporation X would acquire the personnel, customer list, equipment,
and inventory management software used to operate the facility.
Under these facts, Corporation X is acquiring a U.S. business, and
the proposed acquisition is a covered transaction.
(d) A joint venture in which the parties enter into a contractual
or other similar arrangement, including an agreement on the
establishment of a new entity, but only if one of the parties
contributes a U.S. business and a foreign person gains control over
that U.S. business by means of the joint venture.
[[Page 21873]]
Example 1. Corporation A, a foreign person, and Corporation X, a
U.S. business, form a separate corporation, JV Corporation, to which
Corporation A contributes only cash and Corporation X contributes a
U.S. business. Each owns 50 percent of the shares of JV Corporation
and, under the Articles of Incorporation of JV Corporation, both
Corporation A and Corporation X have veto power over all of the
matters affecting JV Corporation identified under Sec.
800.203(a)(1) through (10), giving them both control over JV
Corporation. The formation of JV Corporation is a covered
transaction.
Example 2. Corporation A, a foreign person, and Corporation X, a
U.S. business, form a separate corporation, JV Corporation, to which
Corporation A contributes funding and managerial and technical
personnel, while Corporation X contributes certain land and
equipment that do not in this example constitute a U.S. business.
Corporations A and B each have a 50 percent interest in the joint
venture. Assuming no other relevant facts, the formation of JV
Corporation is not a covered transaction.
Sec. 800.302 Transactions that are not covered transactions.
Transactions that are not covered transactions include, without
limitation:
(a) A stock split or pro rata stock dividend that does not involve
a change in control.
Example. Corporation A, a foreign person, holds 10,000 shares of
Corporation B, a U.S. business, constituting 10 percent of the stock
of Corporation B. Corporation B pays a 2-for-1 stock dividend. As a
result of this stock split, Corporation A holds 20,000 shares of
Corporation B, still constituting 10 percent of the stock of
Corporation B. Assuming no other relevant facts, the acquisition of
additional shares is not a covered transaction.
(b) An acquisition of convertible voting instruments that does not
involve control. In determining whether an acquisition of convertible
voting instruments may involve control, consideration will be given to
factors such as whether the date of conversion has been agreed upon by
the parties or is within the power of the acquiring entity to
determine, and whether the amount of voting interests that would be
acquired upon conversion can be reasonably determined at the time of
the acquisition of the instruments.
Example 1. Corporation A, a foreign person, buys debentures,
options and warrants of Corporation X, a U.S. business. By their
terms, the debentures are convertible into common stock, and the
options and warrants can be exercised for common stock, only upon
the occurrence of an event the timing of which is not in the control
of the holder of the stock. Assuming no other relevant facts, the
acquisition of those debentures, options and warrants is not a
covered transaction. The conversion of those debentures into, or the
exchange of those options and warrants for, common stock could be a
covered transaction, depending on what percentage of Corporation X's
voting securities Corporation A receives and what powers those
securities confer on Corporation A pursuant to Sec. 800.203.
Example 2. Same facts as Example 1, except that the securities
at issue are convertible or exercisable at the sole discretion of
Corporation A after one year, and if converted, would represent a 50
percent interest in Corporation X. The acquisition of these
debentures, options and warrants by Corporation A is a covered
transaction.
(c) A transaction that results in a foreign person holding ten
percent or less of the outstanding voting interests in a U.S. business
(regardless of the dollar value of the interests so acquired), but only
if the transaction is solely for the purpose of investment (see Sec.
800.223).
Example 1. In an open market purchase solely for the purpose of
investment, Corporation A, a foreign person, acquires seven percent
of the voting securities of Corporation X, which is a U.S. business.
Assuming no other relevant facts, the acquisition of the securities
is not a covered transaction.
Example 2. Corporation A, a foreign person, acquires nine
percent of the voting shares of Corporation X, a U.S. business.
Corporation A also negotiates contractual rights that give it the
power to control important matters of Corporation X. The acquisition
by Corporation A of the voting shares of Corporation X is not solely
for the purpose of investment, and therefore constitutes a covered
transaction.
Example 3. Corporation A, a foreign person, acquires five
percent of the voting shares in Corporation B, a U.S. business. In
addition to the securities, Corporation A obtains the right to
appoint one out of 11 seats on Corporation B's Board of Directors.
The acquisition by Corporation A of Corporation B's securities is
not solely for the purpose of investment. Whether the transaction is
a covered transaction would depend on whether Corporation A obtains
control of Corporation B as a result of the transaction.
(d) An acquisition of assets or any part of an entity in the United
States that does not constitute a U.S. business. (See Sec.
800.301(c).)
Example 1. Corporation A, a foreign person, acquires, from
separate U.S. nationals: (a) products held in inventory, (b) land,
and (c) machinery for export. Assuming no other relevant facts,
Corporation A has not acquired a U.S. business, and this acquisition
is not a covered transaction.
Example 2. Corporation X produces armored personnel carriers in
the United States. Corporation A, a foreign person, seeks to acquire
the annual production of those carriers from Corporation X under a
long-term contract. Assuming no other relevant facts, this
transaction is not a covered transaction.
Example 3. Same facts as Example 2, except that Corporation X, a
U.S. business, has developed important technology in connection with
the production of armored personnel carriers. Corporation A seeks to
negotiate an agreement under which it would be licensed to
manufacture using that technology. Assuming no other relevant facts,
neither the proposed acquisition of technology pursuant to that
license agreement, nor the actual acquisition, is a covered
transaction.
Example 4. Same facts as Example 2, except that Corporation A
enters into a contractual arrangement to acquire the entire armored
personnel carrier business operations of Corporation X, including
production facilities, customer lists, technology and staff. This
transaction is a covered transaction.
Example 5. Same facts as Example 2, except that Corporation X
suspended all activities of its armored personnel carrier business a
year ago and currently is in bankruptcy proceedings. Existing
equipment provided by Corporation X is being serviced by another
company, which purchased the service contracts from Corporation X.
The business's production facilities are idle but still in working
condition, some of its key former employees have agreed to return if
the business is resuscitated, and its technology and customer and
vendor lists are still current. Corporation X's personnel carrier
business constitutes a U.S. business, and its purchase by
Corporation A is a covered transaction.
(e) An acquisition of securities by a person acting as a securities
underwriter, in the ordinary course of business and in the process of
underwriting.
(f) An acquisition pursuant to a condition in a contract of
insurance relating to fidelity, surety, or casualty obligations if the
contract was made by an insurer in the ordinary course of business.
(g) An acquisition of a security interest, but not control, in the
voting securities or assets of a U.S. business at the time a loan or
other financing is extended. (See Sec. 800.303.)
Sec. 800.303 Lending transactions.
(a) The extension of a loan or similar financing by a foreign
person to a U.S. business, accompanied by the creation in the foreign
person of a secured interest in securities or other assets of the U.S.
business, does not, by itself, constitute a covered transaction.
However, if control over a U.S. business is acquired by the foreign
person at the time the loan or other financing is extended, then the
transaction is a covered transaction.
(1) The Committee will accept notices concerning transactions that
involve loans or financing by foreign persons only when, because of
imminent or actual default or other condition, there is a significant
possibility that the
[[Page 21874]]
foreign person may obtain control of the U.S. business.
(2) For purposes of this section, in determining whether a
transaction of the type described in paragraph (1) that involves a
foreign person that makes loans in the ordinary course of business is a
covered transaction, the Committee will take into account whether the
foreign person has made any arrangements to transfer management
decisions or day-to-day control over the U.S. business to U.S.
nationals.
(b) Control will not be deemed to be acquired in cases involving an
acquisition of voting interests or assets of a U.S. business by a
foreign person upon default, or other condition, involving a loan or
other financing, provided that the loan was made by a syndicate of
banks in a loan participation where the foreign lender (or lenders) in
the syndicate:
(1) Needs the majority consent of the U.S. participants in the
syndicate to take action, and cannot on its own initiate any action
vis-a-vis the debtor; or
(2) Does not have a lead role in the syndicate, and is subject to a
provision in the loan or financing documents limiting its ability to
control the debtor such that control for purposes of Sec. 800.203
could not be acquired.
Example 1. Corporation A, which is a U.S. business, borrows
funds from Corporation B, a bank organized under the laws of a
foreign state and controlled by foreign persons. As a condition of
the loan, Corporation A agrees not to sell or pledge its principal
assets to any other person. Assuming no other relevant facts, this
lending arrangement does not constitute a covered transaction.
Example 2. Same facts as in Example 1, except that Corporation A
defaults on its loan from Corporation B and seeks bankruptcy
protection. Corporation A has no funds with which to satisfy
Corporation B's claim, which is greater than the value of
Corporation A's principal assets. Corporation B's secured claim
constitutes the only secured claim against Corporation A's principal
assets, creating a high probability that Corporation B will receive
title to Corporation A's principal assets, which constitute a U.S.
business. Assuming no other relevant facts, the Committee would
accept a notice of the impending bankruptcy court adjudication
transferring control of Corporation A's principal assets to
Corporation B, which would constitute a covered transaction.
Subpart D--Notice
Sec. 800.401 Procedures for notice.
(a) A party or parties to a proposed or completed transaction may
file a voluntary notice of the transaction with the Committee.
Voluntary notice to the Committee is filed by sending:
(1) One paper copy of the notice to the Staff Chairperson, Office
of Investment Security, Department of the Treasury, 1500 Pennsylvania
Avenue, NW., Washington, DC 20220, that includes, in English only, the
information set out in Sec. 800.402, including the certification
required under paragraph (l) of that section; and
(2) One electronic copy of the same information required in
paragraph (a)(1) of this section. See the Committee's section of the
Department of the Treasury Web site, at http://www.treas.gov/offices/international-affairs/cfius/index.shtml for electronic submission
instructions.
(b) If the Committee determines that a transaction for which no
voluntary notice has been filed under paragraph (a) of this section may
be a covered transaction and raises national security considerations,
the Staff Chairperson, acting on the recommendation of the Committee,
may request the parties to the transaction to provide to the Committee
the information necessary to determine whether the transaction is a
covered transaction, and if the Committee determines that the
transaction is a covered transaction, to file a notice under paragraph
(a) of such covered transaction.
(c) Any member of the Committee, at or above the Under Secretary or
equivalent level, may file an agency notice to the Committee through
the Staff Chairperson regarding a transaction for which no voluntary
notice has been filed under paragraph (a) of this section if that
member has reason to believe that the transaction is a covered
transaction and may raise national security considerations. Notices
filed under this paragraph are deemed accepted upon their receipt by
the Staff Chairperson. In the event that an agency notice is filed, the
Staff Chairperson will promptly furnish the parties to the transaction
with written advice of such notice. No agency notice under this
paragraph shall be made with respect to a transaction more than three
years after the date of the completion of the transaction, unless the
Chairperson of the Committee, in consultation with other members of the
Committee, requests such an agency notice.
(d) No communications other than those described in paragraphs (a)
and (c) of this section shall constitute notice for purposes of section
721.
(e) Upon receipt of the certification required by Sec. 800.402(l)
and an electronic copy of a notice filed under paragraph (a) of this
section, the Staff Chairperson shall promptly inspect such notice for
completeness.
(f) Parties to a transaction are encouraged to consult with the
Committee in advance of filing a notice and, in appropriate cases, to
file with the Committee a draft notice or other appropriate documents
to aid the Committee's understanding of the transaction and to provide
an opportunity for the Committee to request additional information to
be included in the notice. Any such pre-notice consultation should take
place, or any draft notice should be provided, at least five business
days before the filing of a voluntary notice. All information and
documentary material made available to the Committee pursuant to this
paragraph shall be considered to have been filed with the President or
the President's designee for purposes of section 721(c) and Sec.
800.702, and shall be considered part of any notice filed under section
721(b).
(g) Information and other documentary material provided by the
parties to the Committee after the filing of a voluntary notice under
Sec. 800.401 shall be part of the notice, and shall be subject to the
certification requirements of Sec. 800.402(l).
Sec. 800.402 Contents of voluntary notice.
(a) If the parties to a transaction file a voluntary notice, they
shall provide in detail the information set out in this section, which
must be accurate and complete with respect to all parties and to the
transaction. (See also paragraph (l) of this section and Sec.
800.701(d) regarding certification requirements.)
(b) In the case of a hostile takeover, if fewer than all the
parties to a transaction file a voluntary notice, each notifying party
shall provide the information set out in this section with respect to
itself and, to the extent known or reasonably available to it, with
respect to each non-notifying party.
(c) A voluntary notice filed pursuant to Sec. 800.401(a) shall
describe:
(1) The transaction in question, including:
(i) A summary setting forth the essentials of the transaction,
including a statement of the purpose of the transaction, and its scope,
both within and outside of the United States;
(ii) The nature of the transaction, for example, whether the
acquisition is by merger, consolidation, the purchase of voting
interests, or otherwise;
(iii) The name, United States address (if any), Web site address
(if any), nationality (for individuals) or place of incorporation or
other legal organization (for entities), and address of the principal
place of business of each foreign person that is a party to the
transaction;
(iv) The name, address, Web site address (if any), principal place
of
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business, and place of incorporation or other legal organization of the
U.S. business that is the subject of the transaction;
(v) The name, address, and nationality (for individuals) or place
of incorporation or other legal organization (for entities) of:
(A) The immediate parent, the ultimate parent, and each
intermediate parent, if any, of the foreign person that is a party to
the transaction;
(B) Where the ultimate parent is a private company, the ultimate
owner(s) of such parent; and
(C) Where the ultimate parent is a public company, any shareholder
with an interest of greater than five percent in such parent.
(vi) The name, address, Web site address (if any), and nationality
(for individuals) or place of incorporation or other legal organization
(for entities) of the person that will ultimately control the U.S.
business being acquired;
(vii) The expected date for completion of the transaction, or the
date it was completed;
(viii) The price paid for the interest in the U.S. business in U.S.
dollars, or, where the price does not accurately reflect the full value
provided for the interest in the U.S. business, a statement of such
value and a description of how it was derived; and
(ix) The name of any and all financial institutions involved in the
transaction, including as advisors, underwriters, or a source of
financing for the transaction.
(2) With respect to a transaction structured as an acquisition of
assets of a business, a detailed description of the assets of the U.S.
business being acquired, including the approximate value of those
assets in U.S. dollars;
(3) With respect to the U.S. business that is the subject of the
transaction, and any entity of which that U.S. business is a parent
that is also a subject of the transaction:
(i) Their respective business activities, as, for example, set
forth in annual reports, and the product or service lines of each,
including an estimate of U.S. market share for primary product or
service lines and an explanation of how that estimate was derived, and
a list of direct competitors for those primary product or service
lines;
(ii) The street address (or mailing address, if different) within
the United States and Web site address (if any) of each facility that
is manufacturing classified or unclassified products or producing
services described in paragraph (c)(3)(v) of this section, their
respective Commercial and Government Entity Code (CAGE Code), assigned
by the Department of Defense, their Dun and Bradstreet identification
(DUNS) number, and their North American Industry Classification System
(NAICS) Code, if any;
(iii) Each contract (identified by agency and number) that is
currently in effect or was in effect within the past five years, with
any agency of the United States Government involving any information,
technology or data that is classified under Executive Order 12958, as
amended, its estimated final completion date, and the name, office, and
telephone number of the contracting official;
(iv) Any other contract (identified by agency and number) currently
in effect, or that was in effect within the past three years, with any
agency of the United States Government, its estimated final completion
date, and the name, office, and telephone number of the contracting
official;
(v) Any products or services (including research and development):
(A) That it supplies, directly or indirectly, to any agency of the
United States Government, including as a prime contractor or first tier
subcontractor; a supplier to any such prime contractor or
subcontractor; or, if known by the parties filing the notice, a
subcontractor at any tier;
(B) If known by the parties filing the notice, for which it is a
single qualified source (i.e., other acceptable suppliers are readily
available to be so qualified) or a sole source (i.e., no other supplier
has needed technology, equipment, and manufacturing process
capabilities) of a particular product or service for such agencies and
whether there are other suppliers in the market that are available to
be so qualified.
(vi) Any products or services (including research and development)
that:
(A) It supplies to third parties and it knows are rebranded by the
purchaser or incorporated into the products of another entity, and the
names or brands under which such rebranded products or services are
sold; and
(B) In the case of services, it provides on behalf of, or under the
name of, another entity, and the name of any such entities;
(vii) For the prior three years--
(A) The number of priority rated contracts or orders under the
Defense Priorities and Allocations System (DPAS) regulation (15 CFR
part 700) that the U.S. business that is the subject of the transaction
has received and the level of priority of such contracts or orders
(``DX'' or ``DO''); and
(B) The number of such priority rated contracts or orders that the
U.S. business has placed with other entities and the level of priority
of such contracts or orders, and its plan to ensure that any new entity
formed at the completion of the notified transaction complies with the
DPAS regulation;
(viii) A description and copy of the cyber security plan, if any,
that will be used to protect against cyber attacks on the operation,
design, and development of the U.S. business's services, networks,
systems, data storage, and facilities.
(4) Whether the U.S. business that is being acquired produces or
trades in:
(i) Items that are subject to EAR and, if so, a description (which
may group similar items into general product categories) of the items
and a list of the relevant commodity classifications set forth on the
CCL (i.e., Export Control Classification Numbers (ECCNs) or EAR99
designation);
(ii) Defense articles and defense services, and related technical
data covered by the USML in the ITAR, and, if so, the category of the
USML, including:
(A) Defense articles, services, and technical data for which
commodity jurisdiction determinations (22 CFR 120.4) are pending; and
(B) Defense articles, services, and technical data that have not
been, but may be, designated or determined to be covered by the USML,
pursuant to 22 CFR 120.3;
(iii) Products and technology that are subject to export
authorization administered by the Department of Energy (10 CFR part
810), or export licensing requirements administered by the Nuclear
Regulatory Commission (10 CFR part 110); or
(iv) Select Agents and Toxins (7 CFR part 331, 9 CFR 121, and 42
CFR part 73);
(5) Whether the U.S. business that is the subject of the
transaction:
(i) Possesses any licenses, permits, or other authorizations other
than those under the regulatory authorities listed in paragraph (4) of
this section that have been granted by an agency of the United States
Government (if applicable, identification of the relevant licenses
shall be provided); or
(ii) Has technology that has military applications (if so, an
identification of such technology and a description of such military
applications shall be included).
(6) With respect to the foreign person engaged in the transaction
and its parents:
(i) The business or businesses of the foreign person and its
ultimate parent, as such businesses are described, for example, in
annual reports. Provide
[[Page 21876]]
CAGE codes, NAICS codes, and DUNS numbers, if any, for such businesses;
(ii) The plans of the foreign person for the U.S. business with
respect to:
(A) Reducing, eliminating, or selling research and development
facilities;
(B) Changing product quality;
(C) Shutting down or moving outside of the United States facilities
that are within the United States;
(D) Consolidating or selling product lines or technology;
(E) Modifying or terminating contracts referred to in paragraphs
(c)(3)(iii) and (iv) of this section; or
(F) Eliminating domestic supply by selling products solely to non-
domestic markets.
(iii) Whether the foreign person is controlled by or acting on
behalf of a foreign government, including as an agent or
representative, or in some similar capacity;
(iv) Whether a foreign government or a person controlled by or
acting on behalf of a foreign government:
(A) Has or controls ownership interests or convertible voting
instruments of the acquiring foreign person or any parent of the
acquiring foreign person, and if so, the nature and percentage amount
of any such instruments;
(B) Has the right or power to appoint any of the principal officers
or the members of the board of directors of the acquiring foreign
person or any parent of the foreign person that is a party to the
transaction;
(C) Holds any contingent interest (for example, such as might arise
from a lending transaction) in the foreign acquiring party and, if so,
the rights that are covered by this contingent interest, and the manner
in which they would be enforced; or
(D) Has any other affirmative or negative rights or powers that
could be relevant to the Committee's determination of whether the
notified transaction is a foreign government-controlled transaction;
and if there are any such rights or powers, describe their source (for
example, a ``golden share,'' shareholders agreement, contract, statute,
or regulation) and the mechanics of their operation;
(v) A description of any formal or informal arrangements among
foreign ownership interest holders of the foreign person or between the
foreign person and other persons to act in concert on particular
matters affecting the U.S. business that is the subject of the
transaction and a copy of any documents that establish those rights or
describe those arrangements;
(vi) Biographical information of members of the board of directors,
senior management, and the ultimate beneficial owner of five percent or
more of the following:
(A) The foreign person engaged in the transaction;
(B) The immediate parent of the foreign person engaged in the
transaction; and
(C) The ultimate parent of the foreign person engaged in the
transaction.
(vii) The following ``personal identifier information,'' which, for
privacy reasons, and to ensure limited distribution, shall be set forth
in a separate document, not in the main notice, with regard to current
members of the board or boards of directors (including boards comprised
partially or entirely of external members) and senior executives of the
immediate acquirer and its ultimate parent, and any other entities in
the same chain of ownership that could exercise control over the U.S.
business being acquired, and any natural person having an ownership
interest of five percent or more in the ultimate parent of the
acquirer:
(A) Full name (last, first, middle name);
(B) All other names and aliases used;
(C) Business address;
(D) Country and city of residence;
(E) Date of birth;
(F) Place of birth;
(G) U.S. Social Security number (where applicable);
(H) National identity number, including nationality, date and place
of issuance and expiration date (where applicable);
(I) U.S. and foreign passport number (if more than one, all must be
fully disclosed), nationality, date and place of issuance and
expiration date and, if a U.S. visa holder, the visa type and number,
date and place of issuance and expiration date; and
(J) Dates and nature of foreign government and foreign military
service (where applicable);
(viii) The following ``business identifier information'' for
parents of the immediate acquirer, including the ultimate parent, and
any other entities in the same chain of ownership that could exercise
control over the U.S. business that is the subject of the transaction:
(A) Business name, including all names under which the business is
known to be or has been doing business;
(B) Business address;
(C) Business phone number, fax number, and e-mail address;
(D) Employer identification number or other domestic tax or
corporate identification number; and
(E) For each branch, the information required in paragraphs
(c)(6)(viii)(B) through (D) of this section, if applicable.
(d) The voluntary notice shall list any filings with, or reports
to, agencies of the United States Government that have been or will be
made with respect to the transaction prior to its closing indicating
the agencies concerned, the nature of the filing or report, the date on
which it was filed or the estimated date by which it will be filed, and
a relevant contact point and/or telephone number within the agency, if
known.
Example. Corporation A, a foreign person, intends to acquire
Corporation X, which is wholly owned and controlled by a U.S.
national and which has a Facility Security Clearance under the
Department of Defense Industrial Security Program. See Department of
Defense, ``Industrial Security Regulation,'' DOD 5220.22-R, and
``Industrial Security Manual for Safeguarding Classified
Information,'' DOD 5220.22-M. Corporation X accordingly files a
revised Form DD 441s, and enters into discussions with the Defense
Investigative Service about effectively insulating its facilities
from the foreign person. Corporation X may also have made filings
with the Securities and Exchange Commission, the Department of
Commerce, the Department of State, or other federal departments and
agencies. Paragraph (d) of this section requires that certain
specific information about these filings be reported to the
Committee in a voluntary notice.
(e) In the case of the establishment of a joint venture,
information for the voluntary notice shall be prepared on the
assumption that the foreign person that is party to the joint venture
has made an acquisition of the existing U.S. business that the other
party to the joint venture is contributing or transferring to the joint
venture. The voluntary notice shall describe the name and address of
the joint venture and the entities that established, or are
establishing, the joint venture.
(f) In the case of acquisitions of some but not all of the assets
of a person, Sec. 800.402(c) requires submission of the specified
information with respect to the assets in the United States that have
been or are proposed to be acquired.
(g) Persons filing a voluntary notice shall, with respect to the
foreign person that is a party to the transaction, its immediate
parent, the U.S. business that is the subject of the transaction, and
each entity of which the foreign person is a parent, append to the
voluntary notice the most recent annual report of each such entity, in
English. Separate reports are not required for any entity whose
financial results are included within the consolidated financial
results stated in the annual report of any parent of any such entity,
unless the transaction involves the acquisition of a U.S. business
whose parent is not being acquired, in which case the notice shall
include the most recent audited
[[Page 21877]]
financial statement of the U.S. business that is the subject of the
transaction. If a U.S. business does not prepare an annual report and
its financial results are not included within the consolidated
financial results stated in the annual report of a parent, the filing
shall include, if available, the entity's most recent audited financial
statement (or, if an audited financial statement is not available, the
unaudited financial statement).
(h) Persons filing a voluntary notice shall, during the time that
the matter is pending before the Committee or the President, promptly
advise the Staff Chairperson of any material changes in plans, facts
and circumstances addressed in the notice, and information provided or
required to be provided to the Committee under Sec. 800.402, and shall
file amendments to the notice to reflect such material changes. Such
amendments shall become part of the notice filed by such persons under
Sec. 800.401, and the certification required under Sec. 800.402(l)
shall apply to such amendments. (See also Sec. 800.701(d).)
(i) Persons filing a voluntary notice shall include a copy of the
most recent asset or stock purchase agreement or other document
establishing the agreed terms of the transaction.
(j) Persons filing a voluntary notice shall include:
(1) An organizational chart illustrating all of the entities or
individuals above the foreign person that is a party to the transaction
up to the person or persons having ultimate control of that person,
including the percentage of shares held by each; and
(2) A full statement of the view of the person as to whether:
(A) It is a foreign person;
(B) It is controlled by a foreign government; and
(C) The transaction has resulted or will result in control of a
U.S. business by a foreign person, and the reasons for its view,
focusing in particular on any powers (for example, by virtue of a
shareholders agreement, contract, statute, or regulation) that the
foreign person will have with regard to the U.S. business, and how
those powers can or will be exercised.
(k) Persons filing a voluntary notice shall include information as
to whether:
(1) Any party to the transaction is, or has been, a party to a
mitigation agreement entered into or condition imposed under section
721, and if so, shall specify the date and purpose of such agreement or
condition and the United States Government signatories; and
(2) Any party to the transaction was ever party to a transaction
previously notified to the Committee.
(l) Each party filing a voluntary notice shall provide a
certification of the notice consistent with Sec. 800.201. A sample
certification may be found on the Committee's section of the Department
of the Treasury Web site, available at http://www.treas.gov/offices/international-affairs/cfius/index.shtml.
(m) Persons filing a voluntary notice shall include with the notice
a list identifying each document provided as part of the notice,
including all documents provided as attachments or exhibits to the
narrative response.
Sec. 800.403 Deferral, rejection, or disposition of certain voluntary
notices.
(a) The Committee, acting through the Staff Chairperson, may:
(1) Reject any voluntary notice that does not comply with Sec.
800.402 and so inform the parties promptly in writing;
(2) Reject in writing any voluntary notice at any time, and so
inform the parties promptly in writing, if, after the notice has been
submitted and before action by the Committee or the President has been
concluded:
(i) There is a material change in the transaction as to which
notification has been made; or
(ii) Information comes to light that contradicts material
information provided in the notice by the parties;
(3) Reject in writing any voluntary notice at any time after the
notice has been accepted, and so inform the parties promptly in
writing, if the party or parties that have submitted the voluntary
notice do not provide follow-up information requested by the Staff
Chairperson within two business days of the request, or within a longer
time frame if the parties so request in writing and the Staff
Chairperson grants that request in writing; or
(4) Reject in writing any voluntary notice before the conclusion of
a review or investigation and so inform the parties promptly in
writing, if the party submitting the voluntary notice has not submitted
the final certification required by Sec. 800.701(d).
(b) Notwithstanding the authority of the Staff Chairperson under
paragraph (a) of this section to reject an incomplete notice, the Staff
Chairperson may defer acceptance of the notice, and the beginning of
the thirty-day review period, to obtain any information required under
this section that has not been submitted by the notifying party or
parties or other parties to the transaction. Where necessary to obtain
such information, the Staff Chairperson may inform any non-notifying
party or parties that notice has been filed with respect to a proposed
transaction involving the party, and request that certain information
required under this section, as specified by the Staff Chairperson, be
provided to the Committee within seven days after receipt of the Staff
Chairperson's request.
(c) The Staff Chairperson shall notify the parties when the
Committee has found that the transaction that is the subject of a
voluntary notice is not a covered transaction.
Example 1. The Staff Chairperson receives a joint notice from
Corporation A, a foreign person, and Corporation X, a company that
is owned and controlled by U.S. nationals, with respect to
Corporation A's intent to purchase all of the shares of Corporation
X. The joint notice does not contain any information described under
Sec. 800.402(d)(3) (iv) and (v) concerning classified materials and
products or services supplied to the U.S. military services. The
Staff Chairperson may reject the notice or defer the start of the
thirty-day review period until the parties have supplied the omitted
information.
Example 2. Same facts as in first sentence of Example 1, except
that the joint notice indicates that Corporation A does not intend
to purchase Corporation X's Division Y, which is engaged in
classified work for a U.S. Government agency. Corporations A and X
notify the Committee on the 25th day of the 30-day notice period
that Division Y will also be acquired by Corporation A. This fact
constitutes a material change with respect to the transaction as
originally notified, and the Staff Chairperson may reject the
notice.
Example 3. The Staff Chairperson receives a joint notice by
Corporation A, a foreign person, and Corporation X, a company that
is owned and controlled by U.S. nationals, indicating that
Corporation A intends to purchase five percent of the voting
securities of Corporation X. Under the particular facts and
circumstances presented, the Committee concludes that Corporation
A's purchase of this interest in Corporation X could not result in
foreign control of Corporation X. The Staff Chairperson shall advise
the parties in writing that the transaction as presented is not
subject to section 721.
Example 4. The Staff Chairperson receives a voluntary notice
involving the acquisition by Company A, a foreign person, of the
entire interest in Company X, a U.S. business. The notice mentions
the involvement of a second foreign person in the transaction,
Company B, but states that Company B is merely a passive investor in
the transaction. During the course of the review, the parties
provide information that clarifies that Company B's approval would
be required before Company X can pursue certain lines of business.
This contradicts the material assertion in the notice that Company B
is a passive investor. The Committee may reject this notice without
concluding review under section 721.
[[Page 21878]]
Subpart E--Committee Procedures: Review and Investigation
Sec. 800.501 General.
(a) The Committee's review or investigation (if necessary) shall
examine, as appropriate, whether:
(1) The transaction is by or with any foreign person and could
result in foreign control of a U.S. business;
(2) There is credible evidence to support a belief that any foreign
person exercising control of that U.S. business might take action that
threatens to impair the national security of the United States; and
(3) Provisions of law, other than section 721 and the International
Emergency Economic Powers Act (50 U.S.C. 1701-1706), provide adequate
and appropriate authority to protect the national security of the
United States.
(b) During the thirty-day review period or during an investigation,
the Staff Chairperson may invite the parties to a notified transaction
to attend a meeting with the Committee staff to discuss and clarify
issues pertaining to the transaction. During an investigation, a party
to the investigated transaction may request a meeting with the
Committee staff; such a request ordinarily will be granted.
(c) The Staff Chairperson shall be the point of contact for
receiving material filed with the Committee, including notices.
(d) Where more than one lead agency is designated, communications
on material matters between a party to the transaction and a lead
agency shall include all lead agencies designated with regard to those
matters.
Sec. 800.502 Beginning of thirty-day review period.
(a) The Staff Chairperson of the Committee shall accept a voluntary
notice the next business day after the Staff Chairperson has:
(1) Determined that the notice complies with Sec. 800.402; and
(2) Disseminated the notice to all members of the Committee.
(b) A thirty-day period for review of a transaction shall commence
on the date on which the voluntary notice has been accepted, agency
notice has been received by the Staff Chairperson of the Committee, or
the Chairperson of the Committee has requested a review pursuant to
Sec. 800.601(b). Such review shall end no later than the thirtieth day
after it has commenced, or if the thirtieth day is not a business day,
no later than the next business day after the thirtieth day.
(c) The Staff Chairperson shall promptly and in writing advise all
parties to a transaction that have filed a voluntary notice of:
(1) The acceptance of the notice;
(2) The date on which the review begins; and
(3) The designation of any lead agency or agencies.
(d) Within two business days after its receipt by the Staff
Chairperson, the Staff Chairperson shall send written advice of an
agency notice to the parties to a covered transaction. Such written
advice shall identify the date on which the review began.
(e) The Staff Chairperson shall promptly circulate to all Committee
members any draft pre-filing notice, any agency notice, any accepted
notice, and any subsequent information filed by the parties.
Sec. 800.503 Determination of whether to undertake an investigation.
(a) After a review of a covered transaction under Sec. 800.502,
the Committee shall undertake an investigation of any covered
transaction if:
(1) A member of the Committee (other than a member designated as ex
officio under section 721(k)) advises the Staff Chairperson that the
member believes that the transaction threatens to impair the national
security of the United States and that the threat has not been
mitigated; or
(2) The lead agency recommends, and the Committee concurs, that an
investigation be undertaken.
(b) The Committee shall also undertake, after a review of a covered
transaction under Sec. 800.502, an investigation to determine the
effects on national security of any covered transaction that:
(1) Is a foreign government-controlled transaction; or
(2) Would result in control by a foreign person of critical
infrastructure of or within the United States, if the Committee
determines that the transaction could impair the national security and
such impairment has not been mitigated.
(c) The Committee shall undertake an investigation as described in
paragraph (b) of this section unless the Chairperson (or the Deputy
Secretary of the Treasury) and the head of any lead agency (or his or
her delegee at the Deputy Secretary or equivalent level) designated by
the Chairperson determine at the conclusion of the review that such
transaction will not impair the national security of the United States.
Sec. 800.504 Determination not to undertake an investigation.
If the Committee determines, during the review period described in
Sec. 800.502, not to undertake an investigation of a notified covered
transaction, action under section 721 shall be concluded. An official
at the Department of the Treasury shall promptly send written advice to
the parties to a covered transaction of a determination of the
Committee not to undertake an investigation, and to conclude action
under section 721.
Sec. 800.505 Commencement of investigation.
(a) If it is determined that an investigation should be undertaken,
such investigation shall commence no later than the end of the thirty-
day review period described in Sec. 800.502.
(b) An official of the Department of the Treasury shall promptly
send written advice to the parties to a covered transaction of the
commencement of an investigation.
Sec. 800.506 Completion or termination of investigation and report
to the President.
(a) The Committee shall complete an investigation no later than the
forty-fifth day after the date the investigation commences, or, if the
forty-fifth day is not a business day, no later than the next business
day after the forty-fifth day.
(b) Upon completion or termination of any investigation, the
Committee shall send a report to the President requesting the
President's decision if:
(1) The Committee recommends that the President suspend or prohibit
the transaction;
(2) The members of the Committee (other than a member designated as
ex officio under section 721(k)) are unable to reach a decision on
whether to recommend that the President suspend or prohibit the
transaction; or
(3) The Committee requests that the President make a determination
with regard to the transaction.
(c) In circumstances when the Committee sends a report to the
President requesting the President's decision upon completion or
termination of an investigation, such report shall include information
relevant to sections 721 (d)(4)(A) and (B), and shall present the
Committee's recommendation. If the Committee is unable to reach a
decision to present a single recommendation to the President, the
Chairperson shall submit a report of the Committee to the President
setting forth the differing views and presenting the issues for
decision.
(d) If the Committee determines to conclude all deliberative action
under
[[Page 21879]]
section 721 with regard to a notified covered transaction without
sending a report to the President upon completion or termination of an
investigation, action under section 721 shall be concluded. An official
at the Department of the Treasury shall promptly send written advice to
the parties to a covered transaction of a determination to conclude
action.
Sec. 800.507 Withdrawal of notice.
(a) A party (or parties) to a transaction that has filed notice
under Sec. 800.401(a) may, at any time prior to conclusion of all
action under section 721, request in writing that such notice be
withdrawn. Such request shall be directed to the Staff Chairperson and
shall state the reasons why the request is being made. Such requests
will ordinarily be granted, unless otherwise determined by the
Committee. An official of the Department of the Treasury will promptly
send written advice of the Committee's decision to the parties.
(b) Any request to withdraw an agency notice by the agency that
filed it shall be in writing and shall be effective only upon approval
by the Committee. An official of the Department of the Treasury shall
provide written advice to the parties to the transaction of the
Committee's decision to approve the withdrawal request within two
business days of the Committee's decision.
(c) In any case where a request to withdraw a notice is granted
under paragraph (a) of this section:
(1) The Staff Chairperson, in consultation with the Committee,
shall establish, as appropriate:
(i) A process for tracking actions that may be taken by any party
to the covered transaction before notice is refiled under Sec.
800.401; and
(ii) Interim protections to address specific national security
concerns with the transaction identified during the review or
investigation of the transaction.
(2) The Staff Chairperson shall specify a time frame, as
appropriate, for the parties to resubmit a notice and shall provide
written advice of that time frame to the parties.
(d) Written notice of a covered transaction pursuant to paragraph
(c)(2) of this section shall be deemed a new notice for purposes of the
regulations in this part, including Sec. 800.601.
Sec. 800.508 Role of the Secretary of Labor.
In response to a request from the Chairperson, the Secretary of
Labor shall identify for the Committee any risk mitigation provisions
proposed to or by the Committee that would violate U.S. labor laws.
Subpart F--Finality of Action
Sec. 800.601 Finality of actions under section 721.
(a) All authority available to the President or the Committee under
section 721(d), including divestment authority, shall remain available
at the discretion of the President with respect to covered transactions
proposed or pending on or after the effective date. Such authority
shall not be exercised if:
(1) The Committee, through its Staff Chairperson, has in writing
advised a party (or the parties) that a particular transaction, with
respect to which voluntary notice has been filed is not a covered
transaction;
(2) The parties to the transaction have received written advice
pursuant to Sec. 800.504 or Sec. 800.506(d) that the Committee has
concluded all action under section 721 with respect to the covered
transaction; or
(3) The President has previously announced, pursuant to section
721(d), his decision not to exercise his authority under section 721
with respect to the covered transaction.
(b) Notwithstanding any other provision in the regulations in this
part, and in addition to such other penalties as may be provided by
law, in any case where one or more parties to a covered transaction
submits false or misleading material information to the Committee, or
omits material information, including relevant information that is
supplied in response to provisions of Sec. 800.402; that is requested
specifically by the President or the Committee in the course of a
review, investigation, or Presidential determination; or that is
actually provided by a party:
(1) The Committee may, consistent with sections 721(b)(1)(D)(ii)
and (b)(1)(F), reopen its review of the transaction and exercise all
its original authorities under section 721 with respect to the
transaction, including revising any recommendation or recommendations
submitted to the President; and
(2) The President may take action under section 721 for such time
as the President deems appropriate with respect to the covered
transaction, and may revise actions earlier taken.
(c) The Committee will generally not consider as material minor
inaccuracies, omissions, or changes relating to financial or commercial
factors not having a bearing on national security.
(d) Divestment or other relief under section 721 shall not be
available with respect to transactions that were completed prior to the
effective date.
Subpart G--Provision and Handling of Information
Sec. 800.701 Obligation of parties to provide information.
(a) Parties to a covered transaction that is notified under subpart
D shall provide information to the Staff Chairperson that will enable
the Committee to conduct a full review and/or investigation of the
proposed transaction, and shall promptly advise the Staff Chairperson
of any material changes in plans or information pursuant to Sec.
800.402(h). If deemed necessary by the Committee, information may be
obtained from parties to a covered transaction or other persons through
subpoena or otherwise, pursuant to 50 U.S.C. App. 2155(a).
(b) Documentary materials or information required or requested to
be filed with the Committee under this part shall be submitted in
English. Supplementary materials, such as annual reports, written in a
foreign language, shall be submitted in certified English translation.
(c) Any information filed with the Committee by a party to a
covered transaction in connection with any action for which a report is
required pursuant to section 721(l)(3)(B) with respect to the
implementation of a mitigation agreement or condition described in
section 721(l)(1)(A) shall be accompanied by a certification that
complies with the requirements of section 721(n) and Sec. 800.201. A
sample certification may be found at the Committee's section of the
Department of the Treasury Web site at http://www.treas.gov/offices/international-affairs/cfius/index.shtml.
(d) At the conclusion of a review or investigation, each party that
has filed additional information subsequent to the original notice
shall file a final certification. (See Sec. 800.201.) A sample
certification may be found at the Committee's section of the Department
of the Treasury Web site at http://www.treas.gov/offices/international-affairs/cfius/index.shtml.
Sec. 800.702 Confidentiality.
(a) Any information or documentary material filed with the
Committee pursuant to this part shall be exempt from disclosure under 5
U.S.C. 552 and no such information or documentary material may be made
public, except as may be relevant to any administrative or judicial
action or proceeding. Nothing in this part shall be construed to
prevent disclosure to either House of Congress or to any duly
authorized committee or subcommittee of the Congress, in
[[Page 21880]]
accordance with subsections (b)(3)(B) and (g)(2)(A) of section 721.
(b) In any case where a request to withdraw notice is granted under
Sec. 800.507, or where notice has been rejected under Sec. 800.403,
Sec. 800.702 shall continue to apply with respect to information and
documentary material filed with the Committee.
(c) Nothing in paragraph (a) of this section shall be interpreted
to prohibit the public disclosure by a party of documentary material or
information that it has filed with the Committee. Any such documentary
material or information so disclosed may subsequently be reflected in
the public statements of the Chairperson, who is authorized to
communicate with the public and the Congress on behalf of the
Committee.
(d) The provisions of 50 U.S.C. App. 2155(d) relating to fines and
imprisonment shall apply with respect to the disclosure of information
or documentary material filed with the Committee under these
regulations.
Subpart H--Penalties
Sec. 800.801 Penalties.
(a) Any person who, intentionally or through gross negligence,
submits a material misstatement or omission in a notice or makes a
false certification under Sec. 800.402(k) or 800.701(c) may be liable
to the United States for a civil penalty not to exceed $250,000 per
violation. The amount of the penalty assessed for a violation shall be
based on the nature of the violation.
(b) Any person who, intentionally or through gross negligence,
violates a material agreement or condition entered or agreed with the
United States under section 721(l) may be liable to the United States
for a civil penalty not to exceed $250,000 per violation or the value
of the transaction. Any penalty assessed under this subsection shall be
based on the nature of the violation and shall be separate and apart
from any damages sought pursuant to a mitigation agreement under
section 721(l), or any action taken under Sec. 800.601(b).
(c) A mitigation agreement entered into under section 721(l) may
include a provision providing for liquidated or actual damages for
breaches of the agreement by parties to the transaction. The Committee
shall set the amount of any liquidated damages as a reasonable
assessment of the harm to the national security that could result from
a breach of the agreement. Any mitigation agreement containing a
liquidated damages provision shall include a provision that the
Committee will consider the severity of the breach in deciding whether
to seek a lesser amount than that stipulated in the contract.
(d) A determination to impose penalties under paragraphs (a) or (b)
of this section must be made by the Committee. Notice of the penalty,
including a written explanation of the penalized conduct and the amount
of the penalty, shall be sent to the penalized party by U.S. mail.
(e) Upon receiving notice of the imposition of a penalty under
paragraphs (a) or (b) of this section, the penalized party may, within
15 days of receipt of the notice of the penalty, submit a written
statement of appeal to the Staff Chairperson, including a defense,
justification, or explanation for the penalized conduct. The Committee
will review the appeal and issue a final decision within 15 days of
receipt of the appeal.
(f) The penalties authorized in paragraphs (a) and (b) of this
section may be recovered in a civil action brought by the United States
in federal district court.
(g) The penalties available under this section are without
prejudice to other penalties, civil or criminal, available under law.
Appendix to Part 800--Preamble to Regulations on Mergers, Acquisition,
and Takeovers by Foreign Persons
(Published [date to be determined], 2008.)
[Text of Appendix will appear in the final rule.]
Clay Lowery,
Assistant Secretary (International Affairs).
[FR Doc. 08-1172 Filed 4-21-08; 8:45 am]
BILLING CODE 4810-25-P