New CFIUS regulations

On 14 November 2008 the Committee on Foreign Investment in the United States (“CFIUS”) issued its final regulations governing national security reviews of foreign investments in U.S. businesses, formally implementing amendments adopted by the Foreign Investment and National Security Act of 2007 (“FINSA”) to the Exon-Florio Amendment to the Defense Production Act of 1950. The final regulations follow the issuance by CFIUS of the proposed regulations on 21 April 2008, and public comments and hearing on the proposed regulations, and will become effective thirty days after publication in the Federal Register.

The new regulations, for example, define “critical infrastructure” as “a system or asset, whether physical or virtual, so vital to the United States that the incapacity or destruction of the particular system or asset of the entity over which control is acquired pursuant to that covered transaction would have a debilitating impact on national security.” Aki Bayz et al. of Morrison & Forester write that given this broad definition, many types of transactions may be deemed to involve critical infrastructure. Therefore, in evaluating whether a particular transaction may warrant a CFIUS filing, the parties will need to determine whether the U.S. business involved in the transaction holds assets that may be deemed to be critical infrastructure. They ad that “the effect of FINSA and the final regulations is likely to be that a greater number of transactions will be notified to CFIUS, and such transactions, in particular those involving foreign government interests and critical infrastructure, will be subject to enhanced scrutiny.”