Regulations Pertaining to Mergers, Acquisitions, and Takeovers by Foreign Persons, 21861-21880 [08-1172]
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Federal Register / Vol. 73, No. 79 / Wednesday, April 23, 2008 / Proposed Rules
INFORMATION CONTACT
section of this
document.
LaNita Vandyke,
Chief, Publications and Regulations Branch,
Legal Processing Division, Associate Chief
Counsel, (Procedure and Administration).
[FR Doc. E8–8815 Filed 4–22–08; 8:45 am]
BILLING CODE 4830–01–P
DEPARTMENT OF THE TREASURY
List of Subjects in 26 CFR Part 1
Income taxes, Reporting and
recordkeeping requirement.
Internal Revenue Service
26 CFR Part 1
Withdrawal of Notice of Proposed
Rulemaking
Accordingly, under the authority of
26 U.S.C. 7805, the notice of proposed
rulemaking (REG–109367–06) published
in the Federal Register on August 7,
2006 (71 FR 44600) is withdrawn.
[REG–109367–06]
RIN 1545–BF52
Section 1221(a)(4) Capital Asset
Exclusion for Accounts and Notes
Receivable
Internal Revenue Service (IRS),
Treasury.
ACTION: Withdrawal of notice of
proposed rulemaking.
AGENCY:
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SUMMARY: This document withdraws a
notice of proposed rulemaking relating
to the circumstances in which accounts
or notes receivable are ‘‘acquired * * *
for services rendered’’ within the
meaning of section 1221(a)(4).
FOR FURTHER INFORMATION CONTACT: K.
Scott Brown, (202) 622–7454 (not a tollfree call).
SUPPLEMENTARY INFORMATION:
Background
On August 7, 2006, the Treasury
Department and the IRS published in
the Federal Register (71 FR 44600)
proposed regulations § 1.1221–1(e)
under section 1221(a)(4) of the Internal
Revenue Code. These regulations sought
to clarify the circumstances in which
accounts or notes receivable are
‘‘acquired * * * for services rendered’’
within the meaning of section
1221(a)(4).
Written comments were received from
interested parties, and public hearings
to discuss these regulations were held
on November 7, 2006, and August 22,
2007. Most of the comments focused on
the decisions in Burbank Liquidating
Corp. v. Commissioner, 39 T.C. 999
(1963), acq. sub nom. United Assocs.,
Inc., 1965–1 C.B. 3, aff’d in part and
rev’d in part on other grounds, 335 F.2d
125 (9th Cir. 1964) and Federal National
Mortgage Association v. Commissioner,
100 T.C. 541 (1993). The Treasury
Department and the IRS considered the
comments and have decided to
withdraw the proposed regulations.
The IRS will not challenge return
reporting positions of taxpayers under
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section 1221(a)(4) that apply existing
law, including Burbank Liquidating;
Federal National Mortgage Association;
and Bieldfeldt v. Commissioner, 231
F.3d 1035 (7th Cir. 2000), cert. denied,
534 U.S. 813 (2001). See also Rev. Rul.
80–56 (1980–1 C.B. 154) and Rev. Rul.
80–57 (1980–1 C.B. 157). The IRS and
the Treasury Department will continue
to study this area and may issue
guidance in the future.
Jkt 214001
Linda E. Stiff,
Deputy Commissioner for Services and
Enforcement.
[FR Doc. E8–8817 Filed 4–22–08; 8:45 am]
BILLING CODE 4830–01–P
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
Department of the Treasury.
Proposed Rule; Notice of
Inquiry and Public Meeting.
AGENCY:
ACTION:
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.
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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.
ADDRESSES:
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,
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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.
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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.
§ 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
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(‘‘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 30day 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
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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
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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.
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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
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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 § 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.
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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 § 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
§ 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
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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
§§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 governmentcontrolled transaction.’’ (See §§ 800.216
and 800.214, respectively.) A foreign
person is any foreign national (i.e., a
natural person who is a citizen of
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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 governmentcontrolled 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 § 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 § 800.223. (See
§ 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
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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 subgroup, 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 § 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 twopronged 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
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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
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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 subgroups, 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 subunit 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
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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’’
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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
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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 nonnotifying party, so long as it provides
the portion of that information that is
known or reasonably available to the
notifying parties. (See also § 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
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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 § 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 followup 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
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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
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complete and accurate as it relates to
itself and the transaction. This
requirement pertains both to the
information in the voluntary notice (see
§ 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
§ 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
§ 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
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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.
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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
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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.
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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
§ 800.101
Scope.
The regulations in this part
implement section 721 of title VII of the
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Defense Production Act of 1950, as
amended, hereinafter referred to as
‘‘section 721’’ (see § 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 § 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.
§ 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.
§ 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 § 800.210).
§ 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.
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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
§ 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
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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.
§ 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.
§ 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;
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(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 nonpublic 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
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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 § 800.203: See § 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.
§ 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.
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§ 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.
§ 800.206
Covered transaction.
The term covered transaction means
any transaction that is proposed or
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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.
section, such designee must possess
actual authority to make the relevant
certification on behalf of the person
filing a notice or information.
§ 800.207
§ 800.210
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.
§ 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).
§ 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
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Effective date.
The term effective date means August
23, 1988, the date section 721 became
effective.
§ 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).
§ 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.
§ 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.
§ 800.214 Foreign government-controlled
transaction.
The term foreign governmentcontrolled 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.
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§ 800.215
Foreign national.
§ 800.218
The term foreign national means any
individual other than a U.S. national.
§ 800.216
Foreign person.
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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.
§ 800.217
Hold.
The terms hold(s) and holding mean
legal or beneficial ownership, whether
direct or indirect, through fiduciaries,
agents, or other means.
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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.
§ 800.219
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.
§ 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
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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.
§ 800.221
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Person.
The term person means any
individual or entity.
§ 800.222
(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.
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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.
§ 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
§ 800.302(c).)
§ 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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United States.
§ 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.
§ 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.
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§ 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.
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(c) A transaction that results or could
result in control by a foreign person of
assets that constitute a U.S. business.
(See § 800.302(d).)
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.
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
(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.
Subpart C—Coverage
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.’’
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§ 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.
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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 § 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.
§ 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-for1 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.
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(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
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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 § 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
§ 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 § 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 longterm 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,
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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 § 800.303.)
§ 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
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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
§ 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
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§ 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
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Security, Department of the Treasury,
1500 Pennsylvania Avenue, NW.,
Washington, DC 20220, that includes, in
English only, the information set out in
§ 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 https://
www.treas.gov/offices/internationalaffairs/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 § 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
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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 prenotice 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 § 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 § 800.401
shall be part of the notice, and shall be
subject to the certification requirements
of § 800.402(l).
§ 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 § 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 § 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
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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
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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
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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 governmentcontrolled 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,
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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.
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(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,
§ 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
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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 § 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
§ 800.401, and the certification required
under § 800.402(l) shall apply to such
amendments. (See also § 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
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(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 § 800.201. A sample
certification may be found on the
Committee’s section of the Department
of the Treasury Web site, available at
https://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.
§ 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 § 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 followup 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 § 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
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21877
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 § 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.
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Subpart E—Committee Procedures:
Review and Investigation
§ 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.
mstockstill on PROD1PC66 with PROPOSALS
§ 800.502
period.
Beginning of thirty-day review
(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 § 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 § 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
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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.
§ 800.503 Determination of whether to
undertake an investigation.
(a) After a review of a covered
transaction under § 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 § 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.
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§ 800.504 Determination not to undertake
an investigation.
If the Committee determines, during
the review period described in
§ 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.
§ 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 § 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.
§ 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
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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.
§ 800.507
Withdrawal of notice.
mstockstill on PROD1PC66 with PROPOSALS
(a) A party (or parties) to a transaction
that has filed notice under § 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 § 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 § 800.601.
§ 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.
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Subpart F—Finality of Action
§ 800.601
721.
Finality of actions under section
(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
§ 800.504 or § 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 § 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.
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21879
Subpart G—Provision and Handling of
Information
§ 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 § 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 § 800.201. 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/internationalaffairs/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 § 800.201.) 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/internationalaffairs/cfius/index.shtml.
§ 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
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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
§ 800.507, or where notice has been
rejected under § 800.403, § 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
mstockstill on PROD1PC66 with PROPOSALS
§ 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 § 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 § 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
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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
DEPARTMENT OF HOMELAND
SECURITY
Coast Guard
33 CFR Part 165
[Docket No. USCG–2008–0096]
RIN 1625–AA00
Safety Zone; Festival of Sail 2008
Ship’s Parade; San Diego Harbor, San
Diego, CA
Coast Guard, DHS.
Notice of proposed rulemaking.
AGENCY:
ACTION:
The Coast Guard proposes a
safety zone, on the navigable waters of
San Diego Bay in support of the Festival
of Sail 2008 Ship’s Parade. This
temporary safety zone is necessary to
SUMMARY:
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Fmt 4702
Sfmt 4702
provide for the safety of the
participants, crew, spectators,
participating vessels, and other vessels
and users of the waterway. Persons and
vessels are prohibited from entering
into, transiting through, or anchoring
within this safety zone unless
authorized by the Captain of the Port, or
his designated representative.
DATES: Comments and related material
must reach the Coast Guard on or before
May 23, 2008.
ADDRESSES: You may submit comments
identified by Coast Guard docket
number USCG–2008–0096 to the Docket
Management Facility at the U.S.
Department of Transportation. To avoid
duplication, please use only one of the
following methods:
(1) Online: https://
www.regulations.gov.
(2) Mail: Docket Management Facility
(M–30), U.S. Department of
Transportation, West Building Ground
Floor, Room W12–140, 1200 New Jersey
Avenue, SE., Washington, DC 20590–
0001.
(3) Hand delivery: Room W12–140 on
the Ground Floor of the West Building,
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E:\FR\FM\23APP1.SGM
23APP1
Agencies
[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.
-----------------------------------------------------------------------
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