The US Department of the Treasury’s Committee on Foreign Investment in the United States (CFIUS) published proposed rule changes on May 21 addressing when parties must notify the Committee of proposed transactions. The current regulations require parties to file a notice when the target US business is classified by one of 27 North American Industry Classification System (NAICS) Codes. The proposed regulations would rely on the US export control regulations and regimes – and not on NAICS codes – to determine when parties must notify CFIUS. In short, although the proposed changes represent an expansion of the potential industries affected by the mandatory declaration requirements through the elimination of the 27 NAICS codes, they narrow the focus for the nuclear industry to those foreign persons (and the countries where they are located) that are subject to export licensing requirements.
Background
CFIUS is an interagency committee that evaluates the national security implications of certain investments in US businesses. CFIUS’s regulations have not historically required parties to notify the Committee of a proposed transaction that might implicate national security. However, recent regulations changed that. Those regulations require a submission to CFIUS if a proposed transaction is a “covered transaction” that constitutes a “covered investment” in, or would result in a change in control of, a Technology, Infrastructure, or Data (TID) business that designs, tests, manufactures, fabricates, or develops one or more “critical technologies” and uses or specifically designs such technology for use in an industry categorized by one of 27 NAICS codes, including “nuclear electric power generation” (NAICS Code: 221113). “Critical technologies” included “[s]pecially designed and prepared nuclear equipment, parts and components, materials, software, and technology covered by 10 C.F.R. part 810” (Part 810), and “nuclear facilities, equipment, and material covered by 10 C.F.R. part 110” (Part 110).
Proposed Rule
Through its May 21 proposed rule, the Committee will pivot from NAICS codes to domestic export control regulations and regimes in order to determine when parties must notify CFIUS of a covered transaction. Determining whether a particular covered transaction or investment is subject to a mandatory CFIUS filing will now depend on the detailed export control analysis required by the regulations.
In brief, the proposed rule would require parties to a covered activity to notify CFIUS when a “US regulatory authorization” would be required for the export, reexport, transfer (in country), or retransfer of “critical technology” to a foreign person that is a party to the covered transaction. The proposed rule defines “US regulatory authorization” to include a general or specific authorization issued by the US Department of Energy (except the general authorization at 10 CFR § 810.6(a)), and specific export licenses or other specific export approvals issued by the US Nuclear Regulatory Commission, the Department of State, or the Department of Commerce.
In addition, the foreign person:
- could directly control the business as a result of the covered transaction;
- is directly acquiring an interest that is a covered investment in the business;
- has a direct investment in the business, the rights of such foreign person with respect to the business are changing, and such change in rights could result in a covered control transaction or a covered investment;
- is a party to any transaction, transfer, agreement, or arrangement to evade CFIUS jurisdiction or review; or
- individually holds, or is part of a group of foreign persons that, in the aggregate, hold, a voting interest for purposes of critical technology mandatory declarations in a foreign person described in the foregoing sections.
How Could This Help the Nuclear Industry?
Although the definition of “critical technologies” includes all technologies regulated by 10 CFR Part 810, the proposed rule excludes from the scope of a “US regulatory authorization” the general authorization at 10 CFR § 810.6(a). Thus, a foreign investment in a US nuclear business that possesses only technologies that would require a general authorization for export to the investor’s home country would not trigger the mandatory submittal to CFIUS.
For example, under the current rules, a covered transaction by a Brazilian privately owned investor in a US commercial nuclear reactor design company would require a submittal to CFIUS. But Brazil is a generally authorized destination for commercial nuclear reactor technology under 10 CFR 810.6(a). Therefore, that same Brazilian investment under the proposed rules would not require a submittal to CFIUS. (The parties might wish to voluntarily submit a notification to CFIUS, but it would not be mandatory). Accordingly, we expect that fewer proposed investments in US nuclear businesses will be subject to mandatory CFIUS submittals under the proposed rule.
Should CFIUS adopt the proposed revisions, parties to proposed transactions involving foreign investment in US businesses that participate in the nuclear marketplace should carefully assess the nature of those transactions to determine, among other things, (1) whether they are required to notify CFIUS of the transaction, (2) whether it is desirable to voluntarily notify CFIUS of the transaction absent a requirement to do so, and (3) opportunities to mitigate foreign involvement in the US business.
Comments are due by June 22.