CFIUS Scratches the FIRRMA Itch – Pilot Programs Begin Early Implementation

October 11, 2018

The August 2018 enactment of the Foreign Investment Risk Review Modernization Act (FIRRMA) came after more than two years of debate over the appropriate scope of jurisdiction for the Committee on Foreign Investment in the United States (CFIUS). Much has already been written about FIRRMA and its potentially ambitious reach, as well as about the interest by certain parties, including members of Congress, to keep CFIUS away from some transactions. The result was a law that amended a number of provisions defining CFIUS jurisdiction, both expanding and narrowing key parts of the Committee’s reach.

To manage the many changes included in FIRRMA, Congress made some of its provisions effective immediately upon enactment, while leaving many of the more important and/or controversial provisions to become effective when CFIUS issued new regulations or established pilot programs to test the viability of certain provisions. To that end, and in an effort to better inform the Committee regarding how certain sections of FIRRMA would impact both the government and investors, CFIUS has invoked a lesser-discussed provision to begin implementing those authorities immediately. Using the pilot program authority in Section 1727(c), CFIUS has announced the immediate implementation of two important parts of the authority granted by FIRRMA:

  1. The pilot program expands the scope of transactions subject to review by CFIUS to include certain investments involving foreign persons and critical technologies
  2. The pilot program implements FIRRMA’s mandatory declarations provision for all transactions that fall within the specific scope of the pilot program.

The pilot programs become effective November 10, 2018, and will end no later than March 5, 2020 (or presumably sooner if the full regulations issue before then).

Background on FIRRMA’s Implementation Schedule

While certain provisions of FIRRMA, included in Section 1727(a), were effective immediately upon enactment of the law on August 13, 2018, Section 1727(b) delayed the effective date of any provision of FIRRMA not listed in Section 1727(a) until the earlier of February 13, 2020 (defined in the statute as 18 months after the effective date); or 30 days after publication in the Federal Register by CFIUS that the regulations, organizational structure, personnel, and other resources necessary to administer the new provisions are in place. Section 1727(c) authorizes CFIUS to implement “pilot programs” that can begin 30 days after notice and procedures are published in the Federal Register. The Committee’s action starts that 30-day clock.

Although the interim rules are posted for comment, they are not subject to the notice and comment requirements of the Administrative Procedure Act (APA), and therefore can enter into effect immediately after the 30-day period required by FIRRMA expires—November 10, 2018. The CFIUS notice nonetheless allows an “immediate opportunity for public comment” on the interim rule and indicates that CFIUS will consider and address any comments in the process of promulgating any final rule. This approach “appropriately balances the urgency of the pilot program with the need for public participation in the formulation of any final rule.” Under the Defense Production Act, of which FIRRMA is a part, CFIUS may forego the full APA notice and comment period if it finds that there are “urgent and compelling circumstances” requiring immediate implementation of the interim rule. CFIUS concludes that these circumstances exist because delay in implementing the pilot program will allow foreign “threat actors with time to harm U.S. national security by quickly acquiring U.S. critical technologies.” The Committee determined that there is an imminent danger that foreign entities intend to engage in “foreign investment into certain U.S. businesses that produce, design, test, manufacture, fabricate, or develop one or more critical technologies.”

Scope of the Pilot Program

The pilot program encompasses two main objectives:

  1. It implements a requirement for mandatory declarations “for certain transactions involving investments by foreign persons in certain U.S. businesses that produce, design, test, manufacture, fabricate, or develop one or more critical technologies;” and

  2. It implements definitions that have the effect of including transactions that fall within specific portions of the “other investments” definition found in FIRRMA. Interestingly, the Committee chose to exclude from the program transactions involving sensitive personal data at this time. The rule defines “pilot program US business” to include:

    “any U.S. business that produces, designs, tests, manufactures, fabricates, or develops a critical technology that is either utilized in connection with the U.S. business’s activity in one or more pilot program industries, or designed by the U.S. business specifically for use in one or more pilot program industries. For purposes of the pilot program, this definition has been narrowly scoped to allow CFIUS to assess and address the foreign investment transactions most likely to raise concerns regarding the technological superiority of the United States in industries of national security importance.”

The program is designed to address two key concerns:

  1. “The ability and willingness of some foreign persons to obtain equity interests in U.S. businesses in order to affect certain decisions regarding, or to obtain certain information relating to, critical technologies;” and
  2. The rapid pace of technological change in certain U.S. industries.”

In addition, the pilot program currently includes all countries (i.e., excludes no country) from the mandatory declaration process. According to the Federal Register preamble, this approach is expected to better inform CFIUS of the nature and focus of foreign direct investment and thereby improve the final regulations. The interim regulations do not change the definition of critical technologies, except for the addition of technologies to be identified by BIS as “emerging and foundational.” The pilot program currently does not include transactions involving critical infrastructure that do not involve critical technology and these transactions will continue, for now, to be governed by the existing rules.

Types of Other Investments Covered by the Pilot Program

The pilot program is focused on certain specific types of transactions, without regard to the country of the acquiring entity, that CFIUS can review under FIRRMA—transactions that give the following to the foreign investor:

  1. Access to any material nonpublic technical information in the possession of the target US business
  2. Membership or observer rights on the board of directors (or an equivalent governing body) of the US business
  3. The right to nominate an individual to a position on the board of directors (or equivalent governing body) of the US business
  4. Any involvement, other than through voting of shares, in substantive decisionmaking of the US business regarding the use, development, acquisition, or release of critical technology

The pilot program also identifies 27 critical industries, defined by NAICS codes, which it includes as “Pilot Program Industries.” According to CFIUS, this list was “carefully developed” based on the government’s determination that these are “industries for which certain strategically motivated foreign investment could pose a threat to U.S. technological superiority and national security.” The “Pilot Program Industries” currently includes the following industries and NAICS codes:



Aircraft Manufacturing


Aircraft Engine and Engine Parts Manufacturing


Alumina Refining and Primary Aluminum Manufacturing


Ball and Roller Bearing Manufacturing


Computer Storage Device Manufacturing


Electronic Computer Manufacturing


Guided Missile and Space Vehicle Manufacturing


Guided Missile and Space Vehicle Propulsion Unit and Propulsion Unit Parts Manufacturing


Military Armored Vehicle, Tank, and Tank Component Manufacturing


Nuclear Electric Power Generation


Optical Instrument and Lens Manufacturing


Other Basic Inorganic Chemical Manufacturing


Other Guided Missile and Space Vehicle Parts and Auxiliary Equipment Manufacturing


Petrochemical Manufacturing


Powder Metallurgy Part Manufacturing


Power, Distribution and Specialty Transformer Manufacturing


Primary Battery Manufacturing


Radio and Television Broadcasting and Wireless Communications Equipment Manufacturing


Research and Development in Nanotechnology


Research and Development in Biotechnology (except Nanobiotechnology)


Secondary Smelting and Alloying of Aluminum


Search, Detection, Navigation, Guidance, Aeronautical, and Nautical System and Instrument Manufacturing


Semiconductor and Related Device Manufacturing


Semiconductor Machinery Manufacturing


Storage Battery Manufacturing


Telephone Apparatus Manufacturing


Turbine and Turbine Generator Set Units Manufacturing


A wide range of other industries have been mentioned previously by the government in other contexts as also constituting critical technologies for US national security or industrial competitiveness, including new energy vehicles and alternative energy generation (wind and solar), might be added in the future as the new program evolves. “Critical technologies” does not need to be new technologies. FIRRMA includes within critical technologies (as the interim rule confirms) existing technologies, including, for example, items on the US Munitions List and the Commerce Control List, in addition to “emerging and foundational technologies.”

While the interim rule identifies these areas as critical technologies, the Committee is not precluded from reviewing covered transactions that involve technologies other than those identified at this stage.

Establishment of Mandatory Declarations for Pilot Program Industry Transactions

The pilot program also adds a mandatory declaration requirement for any transaction for foreign transactions involving pilot program US businesses that are within CFIUS’s jurisdiction. Thus, if the transaction involves both “control” by the foreign investor and meets the definition of “other investments,” the parties will have to file either a full notice or the mandatory declaration.

  1. Declarations must be filed at least 45 days prior to a transaction’s expected completion date. The Committee will have 30 days to take action.
  2. Parties may choose to file a notice under CFIUS’s standard procedures rather than a declaration.
  3. Parties that are required to file with CFIUS and do not do so can be assessed a civil monetary penalty up to the value of the transaction.


If you have any questions or would like more information on the issues discussed in this LawFlash, please contact any of the following Morgan Lewis lawyers:

Washington, DC
Giovanna Cinelli
Kenneth J. Nunnenkamp

Carl Valenstein