Regulations Pertaining to Mergers, Acquisitions, and Takeovers by Foreign Persons, 21861-21880 [08-1172]

Agencies

• DEPARTMENT OF THE TREASURY
• Office of International Investment

[Federal Register Volume 73, Number 79 (Wednesday, April 23, 2008)]
[Proposed Rules]
[Pages 21861-21880]
From the Federal Register Online via the Government Printing 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: https://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: Nova.Daly@do.treas.gov., or Welby Leaman, Senior Advisor; 
telephone: (202) 622-0099; or e-mail: Welby.Leaman@do.treas.gov.

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 Barbara.Vaughn@do.treas.gov 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 https://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 
percen