[Federal Register Volume 73, Number 226 (Friday, November 21, 2008)]
[Rules and Regulations]
[Pages 70702-70729]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: E8-27525]



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Part II





Department of the Treasury





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Office of Investment Security



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31 CFR Part 800



 Regulations Pertaining to Mergers, Acquisitions, and Takeovers by 
Foreign Persons; Final Rule

  Federal Register / Vol. 73, No. 226 / Friday, November 21, 2008 / 
Rules and Regulations  

[[Page 70702]]


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DEPARTMENT OF THE TREASURY

Office of Investment Security

31 CFR Part 800

RIN 1505-AB88


Regulations Pertaining to Mergers, Acquisitions, and Takeovers by 
Foreign Persons

AGENCY: Department of the Treasury.

ACTION: Final rule.

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SUMMARY: This Final Rule amends regulations in part 800 of 31 CFR that 
implement section 721 of the Defense Production Act of 1950 (``section 
721''), as amended by the Foreign Investment and National Security Act 
of 2007, codified at 50 U.S.C. App. 2170. While the revised regulations 
retain many features of the prior regulations, a number of changes have 
been made to implement section 721, increase clarity, reflect 
developments in business practices over the past several years, and 
make additional improvements based on experiences with the prior 
regulations.

DATES: Effective date: This rule is effective December 22, 2008.
    Applicability date: See Sec.  800.103.

FOR FURTHER INFORMATION CONTACT: For questions about this Final Rule, 
contact: Nova Daly, Deputy Assistant Secretary, U.S. Department of the 
Treasury, 1500 Pennsylvania Avenue, NW., Washington, DC 20220, 
telephone: (202) 622-2752, e-mail: [email protected]; Welby 
Leaman, Senior Advisor, telephone: (202) 622-0099, e-mail: 
[email protected]; Aimen Mir, Senior Policy Analyst, telephone: 
(202) 622-0184, e-mail: [email protected]; or Mark Jaskowiak, 
Office Director, telephone: (202) 622-5052, e-mail: 
[email protected].

SUPPLEMENTARY INFORMATION:

I. Background

    The Foreign Investment and National Security Act of 2007 
(``FINSA''), Public Law 110-49, 121 Stat. 246, which amends section 721 
of the Defense Production Act of 1950 (``DPA'') (50 U.S.C. App. 2170), 
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. Senate Report 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'' or ``the 
Committee'') 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. (Previously, the sole 
basis for the existence of CFIUS had been Executive Order 11858 of May 
7, 1975, 40 FR 20263, 3 CFR, 1971-1975 Compilation, p. 990.) 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 designated the 
U.S. Trade Representative and the Director of the Office of Science and 
Technology Policy as additional members of CFIUS in Executive Order 
11858, as amended most recently by Executive Order 13456, 73 FR 4677 
(Jan. 23, 2008). In the same Executive Order, the President directed 
that ``[t]he following officials (or their designees) shall observe 
and, as appropriate, participate in and report to the President on 
[CFIUS's] activities'': (i) The Director of the Office of Management 
and Budget, (ii) the Chairman of the Council of Economic Advisors, 
(iii) the Assistant to the President for National Security Affairs, 
(iv) the Assistant to the President for Economic Policy, and (v) the 
Assistant to the President for Homeland Security and Counterterrorism. 
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 further provides 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, monitor, and enforce mitigation 
agreements or conditions with parties to a transaction to address any 
threats to national security posed by the transaction. FINSA requires 
regulations to provide for an appropriate role for the Secretary of 
Labor with respect to mitigation agreements.
    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 CFIUS review of covered transactions, 
which must be completed within 30 days, to determine the effect of the 
transaction on national security and to address any national security 
concerns. Subject to certain exceptions discussed below, FINSA requires 
an additional investigation, which must be completed within 45 days, 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) where the transaction 
results in foreign control over critical infrastructure that, in the 
determination of CFIUS, 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. 
Executive Order 11858 also provides that CFIUS shall undertake an 
investigation if a member of CFIUS advises the chairperson that it 
believes that the transaction threatens to impair the national security 
and that the threat has not been mitigated.
    To ensure accountability for CFIUS decisions, FINSA requires that a 
senior-level official of the Department of the Treasury and of the lead 
agency certify to Congress, for any covered transaction on which CFIUS 
has concluded action under section 721, that CFIUS has determined that 
there are no unresolved national security concerns. The certification 
must be made at a level no lower than an employee appointed by the 
President by and with the advice and consent of the Senate, 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 the President makes a decision on a transaction under section 721, 
then he must announce his

[[Page 70703]]

decision publicly within 15 days of the completion of the 
investigation.
    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 the national security.'' 
Similarly, in cases where the transaction would result in foreign 
control over critical infrastructure, the transaction could impair 
national security, but such impairment has 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 presents national security risks, 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 to impose conditions on the transaction to address 
such risks. 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 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 also must 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.

II. Comments on the Proposed Rule

    The Final Rule contained in this document is based on the Notice of 
Proposed Rulemaking published on April 23, 2008 (``Proposed Rule'') (73 
FR 21868), which proposed amendments to the regulations in part 800 of 
31 CFR. The comment period for the Proposed Rule ended on June 9, 2008. 
The Department of the Treasury received a total of 25 written 
submissions and some oral comments that were principally provided at a 
public meeting held at the Department of the Treasury on May 2, 2008. 
The written and oral submissions comprised approximately 200 distinct 
comments. The comments represented a wide range of interests, including 
foreign governments, U.S. business groups, law firms, and a member of 
Congress. All comments received by the end of the comment period were 
posted for public viewing at http://www.regulations.gov.
    Among the comments submitted were a number that welcomed the 
Proposed Rule as helping the Committee to safeguard U.S. national 
security in a manner consistent with the U.S. commitment to open 
investment. Although one commenter believed the Proposed Rule would 
result in the ``great majority'' of mergers and acquisitions being 
subject to reviews, the Committee does not expect the changes to the 
regulations to materially affect the number of transactions that it 
reviews. From 2005 through 2007, the Committee reviewed less than ten 
percent of foreign acquisitions in the United States.
    We respond to the comments submitted in the detailed section-by-
section analysis, below.

III. Discussion of Final Rule

Overview of Significant Issues

    The Final Rule retains many of the basic features of the existing 
regulations, which were adopted in 1991 after the 1988 enactment of 
section 721 of the DPA. The system continues to be based on voluntary 
notices to CFIUS by parties to transactions, although FINSA provides 
CFIUS with the authority to review a transaction that has not been 
voluntarily notified. The principal new development with regard to the 
procedures for filing notices with CFIUS is that the Final Rule makes 
explicit CFIUS's current practice of encouraging parties to contact and 
engage with CFIUS before making a formal filing. By consulting with 
CFIUS in advance of filing and, where appropriate, providing CFIUS with 
a draft notice or some portion of the information that later may be 
included in the notice, parties can help ensure that their notice, once 
submitted, will contain 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. Consistent with 
the requirement set forth in section 721(b)(2)(E), the Department of 
the Treasury, as Chairperson of CFIUS, will also be publishing in the 
Federal Register guidance on the types of transactions that CFIUS has 
reviewed and that have presented national security considerations. The 
guidance, among other things, will include a discussion of certain 
types of information the Committee, based on past experience, considers 
useful for parties filing a notice to provide.
    The provisions of Subpart D pertaining to the contents of a 
voluntary notice have been expanded to reflect information that CFIUS 
now routinely seeks from notifying parties. By 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 facilitate limited 
distribution of this information. In addition to the new information 
requirements, the Final Rule, consistent with FINSA, also requires each 
of the parties to a notified transaction to provide certifications 
regarding the accuracy and completeness of their notices, as 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 
Sec.  800.701(d) has not been received. Furthermore, material 
misstatements or omissions made by a party in connection with a 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 Final Rule 
provides for penalties for material misstatements or omissions made to 
CFIUS, for false certifications, or for breach of mitigation agreements 
or conditions entered into or imposed under section 721. The Final Rule 
also provides 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 submit to CFIUS a petition for

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reconsideration of the imposition of the penalties.
    Additional changes to the regulations have been made, including 
revisions to or deletions of existing examples or provisions, to take 
into account FINSA, and to otherwise add clarity to the regulations. 
The following discussion addresses changes to several of the key 
concepts of the regulations.
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 that is proposed or pending after 
August 23, 1988, which could result in foreign control of any person 
engaged in interstate commerce in the United States (the latter type of 
person is defined in these regulations as a ``U.S. business'').
    The Final Rule further clarifies the meaning of the term ``covered 
transaction,'' see Sec.  800.207, 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 Sec.  800.224, and 
implements the statutory requirement that a covered transaction be one 
that involves a ``merger, acquisition, or takeover'' that is proposed 
or pending after August 23, 1988, by encompassing both proposed and 
completed transactions. This definition continues to exclude start-up 
or ``greenfield'' investments 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, Public Law 110-49, 
section 2, adding section 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 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 involve the 
acquisition by a foreign person of control of an entity operating in 
the United States. Indeed, Congress made clear in the 1988 Conference 
Report that accompanied the originally enacted version of section 721 
that ``[t]he 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. Conf. Rep. 
No. 100-576, at 926 (1988). Nothing in FINSA or its legislative history 
suggests any departure from this focus on control. Indeed, FINSA 
incorporates the concept of control in its definition of the new term 
``covered transaction,'' as discussed above.
    The Final Rule maintains the long-standing approach of defining 
``control'' in functional terms as the ability to exercise certain 
powers over important matters affecting an entity. 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 the 
[matters listed in Sec.  800.204(a)], or any other similarly important 
matters affecting an entity.'' See Sec.  800.204(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 number 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 an entity. Second, echoing the 
congressional views expressed in the conference report accompanying the 
original legislation in 1988, the focus of the statute and therefore of 
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. See Sec.  800.302.
    Demonstrating its significance to this regulatory framework, the 
concept of control appears in several different places throughout the 
regulations, both in those sections 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.'' A foreign person is any 
foreign national (i.e., an individual who is not a U.S. national), 
foreign government, or foreign entity, or any ``entity over which 
control is exercised or exercisable by a foreign national, foreign 
government, or foreign entity.'' See Sec.  800.216 (emphasis added). A 
foreign government-controlled transaction is a covered transaction 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.'' See Sec.  800.214 (emphases added). Similarly, ``covered 
transaction'' is defined in this Final Rule as ``any transaction that 
is proposed or pending after August 23, 1988, by or with any foreign 
person, which could result in control of a U.S. business by a foreign 
person.'' See Sec.  800.207 (emphasis added).
    Conversely, transactions that could not result in foreign control 
of a U.S. business 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 ten percent or less of the voting 
interest in the entity and it holds that interest ``solely for the 
purpose of passive investment,'' as that term is defined in Sec.  
800.223. See Sec.  800.302(b). However, the regulations do not provide, 
and never have provided, an exemption based solely on whether an 
investment is ten percent or less in a U.S. business. If a foreign 
person holds ten percent or less of the voting interest in a U.S. 
business but does not hold that interest solely for the purpose of 
passive investment, then the transaction still may be a covered 
transaction. For example, a transaction involving a foreign person's 
acquisition of nine percent of the voting shares of a U.S. business in 
which the foreign person has negotiated rights to determine, direct, 
decide, take, reach, or cause decisions regarding important matters 
affecting that business would be a covered transaction.

[[Page 70705]]

    Section 800.204 lays out the basic definition of ``control,'' 
provides an illustrative 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 certain 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 as to the application of this definition.
U.S. Business
    Section 800.226 defines ``U.S. business,'' a term contained in the 
regulatory 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 first will 
consider whether the subject of the transaction is an ``entity'' (which 
is defined to include any branch, partnership, group or sub-group, 
association, estate, trust, corporation or division of a corporation, 
or organization; assets, whether or not organized as a separate legal 
entity, operated by any one of the foregoing as a business undertaking 
in a particular location or for particular products or services; and 
any government). If the subject of the transaction is an entity, CFIUS 
will consider whether the entity is engaged in interstate commerce.
Foreign Person
    The term ``foreign person'' is defined in Sec.  800.216. The Final 
Rule introduces the new concept of a ``foreign entity,'' further 
discussed below in the section-by-section analysis of Sec.  800.212, 
and specifies that an entity that falls within the definition of 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 Sec.  800.204 to ``power, 
whether or not exercised,'' 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, whether 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 forgoing, 
or delaying, the exercise of control.
    Section 800.302(b) provides a very limited qualification to the 
application of the general control principle. Pursuant to Sec.  
800.302(b), a foreign person does not control an entity if it satisfies 
a two-pronged test: (1) It holds ten percent or less of the voting 
interest in the entity; and (2) its interest is held solely for the 
purpose of passive investment. Section 800.223 lays out the test for 
whether an interest is held solely for the purpose of passive 
investment. Under that test, an interest would be held solely for the 
purpose of passive investment if the foreign person has no plan or 
intent to control the entity, neither possesses nor develops any 
purpose other than passive investment, nor takes any action that is 
inconsistent with an intent to hold the interest solely for the purpose 
of passive investment. This special rule applies to all types of 
investors equally, rather than assuming that certain types of 
institutions are passive investors.
    Sections 800.301(c) and 800.302(c) further illustrate the extent to 
which particular types of transactions, such as 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 or are not 
covered transactions. Section 800.301(d) addresses joint ventures, 
which may be covered transactions only if they involve the contribution 
of a U.S. business.
    Sections 800.302(d) and (e) and Sec.  800.303 establish special 
rules with regard to securities underwriting, insurance, and lending, 
to clarify certain circumstances in which a foreign person may obtain, 
in the ordinary course of its business, an interest in an entity that 
may not be considered control of that entity because of those 
circumstances.

Section-by-Section Analysis

Section 800.101--Scope

    Section 800.101 of the Proposed Rule states that the regulations 
implement section 721, which authorizes the President and the Committee 
to take certain actions with respect to covered transactions that 
threaten to impair U.S. national security. Several commenters noted 
that the regulations do not define ``national security'' and other 
related terms. A commenter suggested that there is a perception that 
the scope of CFIUS's reviews is broader than national security. Another 
suggested that ``national security'' be specifically defined to 
encompass economic security. A commenter also suggested that the 
Committee identify certain excepted industries or businesses, 
investments in which would not be subject to review.
    The Committee will continue its practice of focusing narrowly on 
genuine national security concerns alone, not broader economic or other 
national interests. The longstanding policy of the U.S. Government, 
which was reaffirmed in the President's Statement on Open Economies on 
May 10, 2007, is to welcome foreign investment. Section 1 of Executive 
Order 11858, as amended, applies that policy to the Committee's work: 
``It is the policy of the United States to support unequivocally 
[international] investment, consistent with the protection of the 
national security.'' The Committee reviews transactions for national 
security concerns on a case-by-case basis. This approach allows the 
Committee to fully address the national security concerns that a 
particular transaction may raise, rather than identifying certain 
sectors in which foreign investment is prohibited, restricted, or 
discouraged. As directed by FINSA, the Department of the Treasury is 
also publishing guidance regarding the types of transactions that the 
Committee has reviewed and that have presented national security 
considerations.

Section 800.103--Applicability rule/Section 800.210--Effective Date

    Several commenters expressed concern that new provisions in the 
regulations will cause uncertainty for transactions completed prior to 
the effective date of FINSA or this Final Rule and that parties should 
be given sufficient time to adjust to any new standards.
    As provided in section 721 as amended by FINSA and further 
elaborated in Sec.  800.207 and Sec.  800.601(b) of the Final Rule, the 
Committee has the authority to review any covered transaction. However, 
to allow parties time to adjust to this Final Rule, the amendments to 
part 800 made by this Final Rule will become effective thirty days 
after their publication in the Federal Register.
    With respect to actions already taken by parties to transactions, 
the Committee does not intend for this Final Rule to disrupt certain 
expectations created by the provisions of the regulations, prior to 
their amendment by this Final Rule. See 31 CFR Part 800 (July 1, 2008) 
(``the prior regulations''), available at http://www.access.gpo.gov/nara/cfr/waisidx_08/31cfr800_08.html. Therefore, consistent with 
Sec.  800.103, the provisions of the prior regulations will

[[Page 70706]]

continue to govern certain questions pertaining to past transactions 
and acts.
    As provided in Sec.  800.103(a), the provisions of this Final Rule 
apply as of the effective date of this Final Rule, with certain 
exceptions. These exceptions are spelled out in Sec.  800.103(b), and 
consist of the various provisions that relate to whether a particular 
transaction is a covered transaction. Provisions that pertain to 
procedural matters are thus not listed in paragraph (b) but, rather, 
apply to all CFIUS reviews and investigations as of the effective date. 
Accordingly, for example, all notices filed with the Committee on or 
after the effective date of this Final Rule must contain the 
information specified in Sec.  800.402 of this Final Rule, regardless 
of when the transaction occurred or will occur. Notices filed with the 
Committee prior to the effective date of this Final Rule are required 
to contain at least the information specified in Sec.  800.402 of the 
prior regulations.
    As provided in Sec.  800.103(b), particular sections of subparts B 
and C of this Final Rule apply to any transaction for which the 
execution of the agreement, or other comparable action underlying the 
transaction, occurs on or after the effective date of this Final Rule. 
As noted above, these provisions concern the assessment of whether a 
transaction is a ``covered transaction.'' Paragraphs (b)(1) through 
(b)(4) of Sec.  800.103 specify the particular event that needs to 
occur on or after the effective date in order for the relevant 
provision of the Final Rule to apply to the transaction. For example, 
if a letter of intent establishing the material terms of a transaction 
is signed on or after the effective date of this Final Rule, then the 
provisions of the Final Rule will govern the analysis of whether the 
transaction is a ``covered transaction.'' Conversely, if the letter of 
intent was signed before the effective date of this Final Rule, then 
the Committee will look at the provisions of the prior regulations in 
analyzing whether the transaction is a ``covered transaction,'' even if 
the transaction was notified to the Committee after the effective date 
of this Final Rule.
    Note that if parties sign a letter of intent prior to the effective 
date of this Final Rule, but the material terms differ in the final 
definitive agreement signed by the parties, then the Committee would 
look to the date on which that final definitive agreement was signed to 
determine the rules under which the assessment of whether the 
transaction is a ``covered transaction'' will be made.
    When reviewing any transaction notified to the Committee on or 
after the effective date that falls within the scope of Sec.  
800.103(b) and that includes minority shareholder protections listed in 
Sec.  800.204(c), the Committee will take into account Sec.  800.204(c) 
of the Final Rule to the extent that doing so would support a 
conclusion that the transaction is not a covered transaction.
    As provided in subpart H, the provisions concerning penalties will 
apply to any action after the effective date of this Final Rule that 
constitutes a violation under subpart H, regardless of when the related 
transaction occurred or when the mitigation agreement was signed. If, 
for example, after the effective date of this Final Rule, a party 
intentionally violates a mitigation agreement signed in 2000, the party 
may be subject to civil penalties under Sec.  800.801(b) of the Final 
Rule. Damages provisions written into mitigation agreements entered 
into prior to the effective date of this Final Rule are independent of, 
and not affected by, this Final Rule.

Section 800.204--Control

    The Proposed Rule made a number of changes to clarify the 
definition of ``control,'' which is now at Sec.  800.204. These 
include, among other revisions, clarification that control depends on 
powers over ``important matters'' affecting an entity, expansion of the 
illustrative list of ``important matters,'' and the addition or 
revision of examples to demonstrate what constitutes control. The 
Overview of Significant Issues, above, like the preamble to the 
Proposed Rule, also explains that the 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. The Proposed Rule 
also introduced a new paragraph concerning minority shareholder 
protections, which is addressed below in the discussion of Sec.  
800.204(c) of the Final Rule.
    Several commenters suggested that the Proposed Rule provided too 
expansive a definition of control, or, by not providing a more 
objective standard, risked inappropriate expansion of the definition. A 
commenter suggested that the definition of control would cause foreign 
investors to disclaim pro rata rights they obtain simply by right of 
their shareholdings and suggested that this would be detrimental to 
good governance. Several commenters asked for additional clarification 
regarding the difference between ``control'' and ``influence falling 
short of the definition of control.''
    The Final Rule makes numerous modifications to the language of 
Sec.  800.204(a) to provide greater clarification of what constitutes 
``control,'' including by clarifying circumstances where influence does 
not rise to the level of control. Examples in this section show that, 
although an investor might have influence within a business--for 
example, through a board seat, exercising pro rata voting rights 
attendant with share ownership, or otherwise--it does not have control 
unless it is able to determine, direct, take, reach, or cause decisions 
regarding the types of important matters listed in Sec.  800.204(a).
    Commenters suggested further clarification of several specific 
important matters listed in Sec.  800.204(a). Several commenters 
suggested that the power to determine, direct, or decide a single 
important matter affecting an entity should not constitute control and 
that, at the least, the Committee should clarify that it will consider 
the totality of the circumstances in making its assessment. Another 
commenter asked whether there is an ownership threshold at which 
control will always be found.
    The Final Rule makes no changes to the list of important matters at 
Sec.  800.204(a) in response to the commenters' requests for specific 
clarifications. The Committee approaches its analysis of whether a 
transaction could result in foreign control on a case-by-case basis, 
considering the level of ownership interest, the rights that emanate 
from such ownership, other rights held, restrictions on the exercise of 
such rights, and all other relevant facts and circumstances. The 
examples in Sec.  800.204 demonstrate this approach of considering 
together all relevant facts and circumstances in light of their 
potential impact on a person's ability to determine, direct, or decide 
important matters affecting an entity. As a result of this approach, 
the regulations provide no ownership threshold or other bright lines 
above which CFIUS would find control in all circumstances.
    Several commenters suggested that the Proposed Rule did not 
adequately illustrate that ownership and control can be separated 
through certain transaction structures--for example, in private equity 
funds structured as limited partnerships. One commenter suggested that 
the Committee clarify that it will review transactions involving 
private equity funds. The Final Rule adds Examples 8 and 9 in Sec.  
800.204, which provide greater clarification of the relationship 
between ownership and control and make clear that the Committee will 
focus on ``control,'' as defined, within any transaction structure 
rather than

[[Page 70707]]

formalistically distinguishing among structures.
    A commenter asked for clarification of the meaning of ``indirect'' 
power in Sec.  800.204(a). The Final Rule, like the Proposed Rule, 
defines ``control'' in functional terms. Therefore, for example, a 
person that has the power to determine important matters of an entity 
does not avoid having control of that entity by voting the shares of a 
wholly-owned subsidiary that, in turn, votes the shares of the entity, 
or by acting through another intermediary or agent.

Section 800.204(b)--Arrangements to Act in Concert

    The Proposed Rule provided that, in examining questions of control 
in situations where more than one foreign person has an ownership 
interest in an entity, consideration will be given, pursuant to what is 
now Sec.  800.204(b), to whether the foreign persons are related or 
have formal or ``informal'' arrangements to act in concert. A commenter 
asked for clarification of what constitutes an ``informal'' arrangement 
and whether this would include a voting trust.
    The Final Rule makes no change to the proposed language, which is 
now at Sec.  800.204(b), in response to this comment. If a trustee has 
the legal authority to vote the shares of different parties, even if 
unrelated, then those shares would be considered as being voted in 
concert if the trustee can vote the shares according to its discretion 
or is required to vote all shares in the same way. Example 1 in Sec.  
800.204 illustrates an informal arrangement to act in concert, where no 
formal agreement is disclosed but it is clear from other evidence that 
the foreign persons have agreed to act as a group in the exercise of 
their powers over important matters affecting the U.S. business.
Section 800.204(c)--Minority Shareholder Protections
    The Proposed Rule identified several minority shareholder 
protections at what is now Sec.  800.204(c) and provided that the 
Committee will not deem those negative rights (i.e., rights to prevent 
certain events from occurring) to confer control in themselves. Many 
commenters suggested negative rights that they believe should be added 
to the list of minority shareholder protections.
    This Final Rule expands the list of minority shareholder 
protections, now at Sec.  800.204(c), to include two additional 
negative rights: The power to prevent an entity from voluntarily filing 
for bankruptcy or liquidation, and the power to prevent the change of 
existing legal rights or preferences of the particular class of stock 
held by minority investors as provided in the relevant corporate 
documents governing such shares.
    The list in Sec.  800.204(c), however, expressly is not intended to 
be exhaustive of the rights that shall not in themselves be deemed to 
confer control over an entity. Section 800.204(c) includes a list of 
negative rights that the Committee recognizes as minority shareholder 
protections because they protect the investment-backed expectations of 
minority shareholders and do not affect strategic decisions on business 
policy or day-to-day management of an entity or other important matters 
affecting an entity.
    The Committee recognizes, however, that other negative rights 
proposed by commenters for inclusion in Sec.  800.204(c) are often 
provided to minority shareholders. Section 800.204(d) explicitly 
provides that the Committee will consider, on a case-by-case basis, 
whether minority shareholder protections other than those listed in 
Sec.  800.204(c) do not confer control over an entity. Non-inclusion in 
Sec.  800.204(c) of any particular right does not mean that the 
Committee has determined that such a right necessarily results in 
control and does not prejudge whether the Committee would determine 
under Sec.  800.204(d) that such a right does not confer control in a 
particular transaction.
    The Committee will consider favorably in the context of specific 
transactions notified to the Committee the parties' opinion that the 
following minority shareholder protections do not in themselves confer 
control: The power to prevent changes in the capital structure of the 
entity, including through mergers, consolidations, or reorganizations, 
that would dilute or otherwise impair existing shareholder rights; the 
power to prevent the acquisition or disposition of assets material to 
the business outside the ordinary course of business; the power to 
prevent fundamental changes in the business or operational strategy of 
the entity; the power to prevent incursion of substantial indebtedness 
outside the ordinary course of business; the power to prevent 
fundamental changes to the entity's regulatory, tax, or liability 
status; and the power to prevent any amendment of the Articles of 
Incorporation, constituent agreement, or other organizational documents 
of an entity. The Committee's favorable consideration of these rights 
does not preclude it from finding that the existence of one or a 
combination of these rights confers control under the facts and 
circumstances of a particular transaction.
Section 800.204(e)--Incremental Acquisitions
    A commenter asked that the regulations clarify whether CFIUS will 
review voluntary notices when a foreign person acquires an additional 
interest in a U.S. business after the Committee has concluded its 
review of a prior covered transaction involving the same parties and 
the President did not prohibit or suspend the transaction. The Proposed 
Rule did not address this point explicitly. The commenter suggested 
that clarifying this point would help to ensure that the Committee is 
not overburdened and can focus its resources appropriately on 
transactions that raise national security concerns.
    This Final Rule adds Sec.  800.204(e) and accompanying Example 7 to 
clarify the Committee's approach to incremental acquisitions. Pursuant 
to Sec.  800.204(e), a transaction in which a foreign person acquires 
an additional interest in a U.S. business that was previously the 
subject of a covered transaction for which the Committee concluded all 
action under section 721 will not be considered a covered transaction.
    If a prior investment by a foreign person in a U.S. business was 
not notified to CFIUS, or if CFIUS determined that the prior investment 
was not a covered transaction, then the subsequent investment may be a 
covered transaction, depending on whether the subsequent investment 
could result in the foreign person's control of the U.S. business.
    With respect to any covered transaction, any mitigation agreement 
or conditions may include, subject to the requirements of section 721 
and Executive Order 11858, measures to address any national security 
risk posed by the covered transaction, including any increased risk if 
the foreign acquirer were to have a greater ownership interest in the 
U.S. business.
Section 800.207--Covered Transaction
    The Proposed Rule defined ``covered transaction'' consistent with 
the definition of that term in section 721. The Proposed Rule provided 
additional clarity about what transactions are covered by section 721 
in numerous other provisions, including Sec. Sec.  800.301 and 800.302 
and the definitions of ``control,'' ``foreign person,'' and a ``U.S. 
business.'' A commenter suggested that the Committee regularly release 
redacted descriptions of transactions that have been filed with the 
Committee, along with descriptions of

[[Page 70708]]

the Committee's assessment of whether they were covered transactions.
    The Final Rule does not adopt this suggestion. Public release of 
any assessment by the Committee of whether a transaction is a covered 
transaction would implicate significant potential national security and 
confidentiality concerns. The Final Rule, at Sec. Sec.  800.207, 
800.301 and 800.302, provides greater clarity regarding what 
transactions are covered by section 721. Parties to a transaction, at 
their own discretion, may make available to the public information 
about transactions that they have voluntarily notified to the 
Committee.

Section 800.208--Critical Infrastructure

    The Proposed Rule defined ``critical infrastructure'' consistent 
with the definition of that term in section 721 and clarified that, in 
determining whether a covered transaction involves critical 
infrastructure, the Committee would consider the ``particular'' systems 
or assets involved, rather than defining certain classes of systems or 
assets as critical infrastructure. Several commenters expressed support 
for this approach. Others suggested that the scope of ``critical 
infrastructure'' be further illustrated by identifying infrastructure 
that would or would not be considered critical.
    The Final Rule, at Sec.  800.208, continues the case-by-case 
approach of section 721 and the Proposed Rule towards identifying 
critical infrastructure. Under this approach, the Committee determines 
whether (1) a particular transaction notified to it is a ``covered 
transaction,'' (2) that particular covered transaction would result in 
foreign control of critical infrastructure of or within the United 
States, and (3) that particular covered transaction has potential 
national security effects. Accordingly, the definition of critical 
infrastructure turns on the national security effects of any incapacity 
or destruction of the particular system or asset over which a foreign 
person would have control as a result of a covered transaction. 
Consistent with this approach, the Committee will not deem classes of 
systems or assets to be, or not to be, critical infrastructure.

Section 800.211--Entity

    The Proposed Rule made clear that an entity need not have a 
distinct legal personality in order to fall within the definition of 
``entity'' under these regulations. A commenter asked for clarification 
of the circumstances in which assets with no distinct legal personality 
would be considered an ``entity.''
    The Final Rule amends the proposed text of Sec.  800.211 to add a 
cross-reference to Sec. Sec.  800.301(c) and 800.302(c), which provide 
additional clarity regarding when assets with no distinct legal 
personality can constitute an ``entity'' and, in turn, a ``U.S. 
business.'' This additional clarification is provided, in particular, 
by Examples 6 and 7 in Sec.  800.301(c) and Examples 1, 2, 4, and 5 in 
Sec.  800.302(c).

Section 800.212--Foreign Entity

    The Proposed Rule introduced a new term, ``foreign entity,'' to 
refer to entities the Committee considers to be foreign persons based 
on either their place of organization and foreign exchange listing or 
the extent of their foreign ownership, even if no single foreign person 
controls the entity. Commenters expressed concern that the definition 
of ``foreign entity'' in the Proposed Rule would have captured entities 
that were incorporated outside of the United States if they were 
primarily traded on foreign exchanges, even if the entities were in 
fact majority-owned by U.S. nationals.
    The Final Rule revises the proposed text of Sec.  800.212 to cover 
entities organized under the laws of a foreign state if either its 
principal place of business is outside the United States or its equity 
securities are primarily traded on one or more foreign exchanges. The 
Final Rule excludes from the definition of ``foreign entity,'' however, 
any entity that is able to demonstrate to the Committee that a majority 
of the equity interest in the entity is ultimately owned by U.S. 
nationals. Note that, under the definition of ``foreign person'' at 
Sec.  800.216(b), any entity over which control is exercised or 
exercisable by a foreign person would still itself be deemed a foreign 
person, even if that entity does not constitute a ``foreign entity.'' 
Accordingly, an entity controlled by a foreign person is itself a 
foreign person, even if it is majority owned by U.S. nationals.
    Commenters also asked whether a foreign person's ownership of 
shares of an entity could result in that entity being considered a 
``foreign entity'' if the right to vote that person's shares were 
transferred to U.S. nationals through a voting trust. Example 3 in 
Sec.  800.301(a) of the Final Rule illustrates that an agreement to 
delay the exercise of voting rights for a limited period of time does 
not preclude a finding of control. Similarly, if a voting trust is 
revocable or time-limited, the Committee would consider the foreign 
person that placed its shares in such a voting trust as still holding 
the shares.
    Finally, a commenter asked whether the definition of ``foreign 
entity'' was intended to be a standard for determining foreign 
government control. The definition of ``foreign entity'' is not 
intended to be a standard for determining foreign government control. 
If an entity could be controlled by a foreign government, the question 
of whether it is a ``foreign entity'' would never arise, as ``foreign 
entity'' is a term that is intended to cover situations where there is 
significant foreign ownership but ownership is dispersed.

Section 800. 213--Foreign Government

    The Proposed Rule defined the term ``foreign government'' to 
include non-elected heads of state with governmental responsibilities. 
A commenter said that the term ``head of state'' in Sec.  800.213 was 
unclear.
    The Final Rule amends Sec.  800.213 to delete the clause referring 
to certain heads of state, since it imprecisely defined the 
circumstances under which the Committee may treat an investment by a 
government official as being an investment by a foreign government. 
Consistent with the reference in Sec.  800.214 to a person ``acting on 
behalf of a foreign government,'' the Final Rule permits the Committee 
to treat investments by foreign government officials as investments by 
foreign governments where the circumstances so warrant, such as in 
certain cases where an official invests to advance governmental 
objectives.

Section 800. 214--Foreign Government-Controlled Transaction

    The Proposed Rule defined ``foreign government-controlled 
transaction'' to mean 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. Commenters 
suggested that, in considering whether a transaction is foreign 
government-controlled, the regulations should treat certain types of 
entities owned by foreign governments or that have a ``government 
background'' as not foreign government-controlled--for example, if they 
operate on a purely commercial and market-driven basis.
    The Final Rule makes no changes to the proposed text of Sec.  
800.214. ``Foreign government-controlled transaction'' is defined by 
statute at section 721(a)(4) and may not be modified by regulation in a 
manner that is inconsistent with the statute. The statute makes clear 
that transactions are ``foreign government-controlled transactions'' if 
they could

[[Page 70709]]

result in the control of any person engaged in interstate commerce in 
the United States by a foreign government or an entity controlled by or 
acting on behalf of a foreign government, regardless of whether the 
transaction has a purely commercial and market-driven basis. 
Accordingly, the regulations do not exclude transactions involving 
entities controlled by a foreign government, even if the entities 
operate on a commercial basis, nor entities that are controlled only 
indirectly by a foreign government through a person controlled by or 
acting on behalf of a foreign government. Consistent with section 
721(b)(2)(E), however, the Department of the Treasury, as Chairperson 
of the Committee, is publishing guidance regarding the types of 
transactions that the Committee has reviewed and that have presented 
national security considerations. That guidance clarifies that whether 
a foreign government-controlled entity operates on a purely commercial 
and market-driven basis is among the important factors that the 
Committee takes into consideration when assessing whether foreign 
government control in a particular transaction poses concerns about 
possible impairment of U.S. national security.

Section 800.216--Foreign Person

    The Proposed Rule expanded the definition of ``foreign person'' to 
include the term ``foreign entity'' and added a number of examples. A 
commenter suggested that the examples in Sec.  800.216 and Sec.  
800.226, which respectively define ``foreign person'' and ``U.S. 
business,'' be expanded to make clear that the two concepts are 
distinct. A commenter also expressed concern that an acquisition by an 
investment fund controlled by a foreign bank may be treated differently 
under the regulations than would an acquisition by an investment fund 
controlled by U.S. nationals.
    The Final Rule makes no changes to the proposed text of Sec.  
800.216 and Sec.  800.226. The terms ``foreign person'' and ``U.S. 
business'' are independent of one another and serve distinct purposes 
in the Final Rule. Accordingly, it is possible that a particular entity 
may be just a foreign person, just a U.S. business, both a foreign 
person and a U.S. business simultaneously, or neither a U.S. business 
nor a foreign person.
    Section 721 and this Final Rule, which implements section 721, 
cover transactions after a certain date that could result in control of 
a U.S. business by a foreign person. Accordingly, whether a party that 
controls an investment fund is, or is not, a foreign person is central 
to the statutory and regulatory framework.

Section 800.220--Party or Parties to a Transaction

    The Proposed Rule provided, at Sec.  800.220(f), that any party in 
a role comparable to a party listed in paragraphs (a) through (e) of 
Sec.  800.220 would also be deemed a ``party to a transaction.'' A 
commenter suggested that Sec.  800.220(f) provides the Committee with 
excessive discretion.
    The Final Rule makes no change to the proposed text of Sec.  
800.220. Paragraph (f) of that section does not expand the scope of 
what constitutes a covered transaction. Rather, it identifies what 
persons, in circumstances other than those covered by paragraphs (a) 
through (e), are considered to be a ``party to a transaction'' and, 
therefore, may file a voluntary notice with the Committee consistent 
with the requirements of Sec.  800.402.

Section 800.224--Transaction

    The Proposed Rule replaced the term ``acquisition'' with the term 
``transaction,'' at Sec.  800.224, in order to harmonize the 
terminology of the regulations with that of FINSA, and provided that a 
transaction is a ``proposed or consummated merger, acquisition, or 
takeover.'' One commenter suggested that the Committee should not have 
the authority to review transactions after they have been completed. 
However, if a transaction is proposed after August 23, 1988 and could 
result in foreign control of a U.S. business, then it would be a 
``covered transaction,'' as defined in section 721, even if the 
transaction has been consummated by the time of review.
    In addition to other clarifications of the definition, the Proposed 
Rule also clarified that certain joint ventures and long-term leases 
are ``transactions.'' In particular, the Proposed Rule provided that 
long-term leases are transactions when, because of the terms of the 
lease and the extent of the lessee's authority over the U.S. business, 
the lessee operates the business as if it were the owner. A commenter 
asked whether a long-term lease in which a lessor retained only minimal 
oversight responsibilities and the ability to impose penalties in the 
event of a contractual breach would not constitute a ``transaction'' 
under Sec.  800.224(f) and the example in Sec.  800.224.
    The Final Rule makes no change to Sec.  800.224(f) or the example 
in Sec.  800.224 in response to the comment. As a general matter, and 
as reflected in the example in Sec.  800.224, the more significant the 
substantive responsibilities retained by the lessor over the leased 
property, the likelier that the lease would not be viewed as a 
transaction.

Section 800.301(d)--Joint Ventures

    The Proposed Rule, in Sec.  800.301(d), harmonized the application 
of the term ``covered transaction'' to joint ventures with its 
application to all other transactions. Thus, the Proposed Rule provided 
that the creation of a joint venture is a covered transaction if a U.S. 
business is contributed to the joint venture and a foreign person could 
gain control of that U.S. business through the creation of the joint 
venture. Example 1 in Sec.  800.301(d) of the Proposed Rule stated that 
the creation of a 50/50 joint venture by a foreign person and a party 
that contributes a U.S. business is a covered transaction, with respect 
to the U.S. business. A commenter suggested that such a transaction 
should not be a covered transaction because the power that the foreign 
person has over the U.S. business is no greater than the other party's.
    The Final Rule makes no change in response to the comment described 
above. To the extent that a joint venture involves the contribution of 
a U.S. business, a foreign 50/50 joint venture partner would obtain the 
same degree of power over the important matters affecting that joint 
venture--and therefore the U.S. business--as if the foreign person had 
made a direct investment in that U.S. business to obtain a 50 percent 
interest. The acquisition of a 50 percent interest in an existing U.S. 
business is not viewed differently with regard to foreign control based 
on whether it is structured as a direct investment or a joint venture. 
When all ownership interests in a U.S. business are held by two equal 
partners, each partner is able to veto all important matters affecting 
the U.S. business, so each partner controls the U.S. business.

Section 800.302(b) of the Regulations Issued in 1991--Corporate 
Reorganizations

    The Proposed Rule omitted a provision that had been included in the 
1991 regulations, at Sec.  800.302(b). The omitted provision stated 
that an acquisition is not subject to review under section 721 if the 
parent of the entity making the acquisition is the same as the parent 
of the entity being acquired. A commenter suggested reintroducing the 
omitted provision or confirming that the principle continues to apply.

[[Page 70710]]

    The Final Rule does not reintroduce the omitted provision. Section 
721, as amended by FINSA, requires the Committee to review any 
transaction notified to it that could result in control of a U.S. 
business by a foreign person. A corporate reorganization that results 
in a new foreign person acquiring control of a U.S. business would be a 
covered transaction, even though the ultimate parent of the U.S. 
business may not have changed. Thus, the Committee must treat such a 
reorganization as a covered transaction. Such a reorganization, 
however, will present national security considerations only in 
exceptional cases, as is explained in greater detail in guidance that 
the Department of the Treasury, as Chairperson of the Committee, is 
publishing on the types of transactions that the Committee has reviewed 
and that have presented national security considerations.

Section 800.302(b)--Solely for the Purpose of Passive Investment

    The Proposed Rule provided in Sec.  800.302(c) that a transaction 
that results in a foreign person holding ten percent or less of the 
outstanding voting interests in a U.S. business is not a covered 
transaction if the transaction is ``solely for the purpose of 
investment.'' In Sec.  800.223, ``solely for the purpose of 
investment'' was defined to refer to ownership interests in which the 
person holding or acquiring such interests has no plan or intent to 
exercise control, and takes no actions that indicate otherwise. Some 
commenters suggested that the term ``solely for the purpose of 
investment'' was too vague and created additional uncertainty for 
portfolio investors. A commenter also suggested clarifying that 
investors holding less than ten percent of the interests of a business 
can wield significant influence.
    The Final Rule addresses these comments by clarifying that the rule 
for holdings of ten percent or less of the outstanding voting interests 
in a U.S. business--which is now at Sec.  800.302(b) of the Final 
Rule--applies only to interests that are held or acquired ``solely for 
the purpose of passive investment.'' The addition of the word 
``passive'' emphasizes that this rule does not pertain to a transaction 
if the foreign person plans or intends to gain control over the U.S. 
business. The example in Sec.  800.223 of the Final Rule also makes 
clear that the Committee will consider whether the foreign person's 
negotiation of rights constitutes evidence that the foreign person 
possesses a purpose other than passive investment. Under the Final 
Rule, a transaction would not be a ``covered transaction'' if the 
foreign person holds ten percent or less of the voting shares in a U.S. 
business and the investment is passive such as where, for example, the 
foreign investor has no affirmative rights other than the ability to 
vote its shares pro rata and no negative rights other than any minority 
shareholder protection listed in Sec.  800.204(c) or as considered by 
the Committee on a case-by-case basis under Sec.  800.204(d).
    A commenter also suggested that the Proposed Rule be revised to 
identify a mechanism for tracking whether, after the Committee 
determines that this rule applies to a transaction, the foreign person 
develops plans or an intent to control the U.S. business or takes 
action inconsistent with passive intent. The Final Rule makes no change 
to the proposed language in response to this comment. The Committee 
will inform the parties if it determines a notified transaction is not 
a covered transaction because the investment is held or acquired solely 
for the purpose of passive investment. Should material facts change in 
the future relating to whether the foreign person has control of the 
U.S. business, the transaction may become a covered transaction subject 
to section 721.
    A commenter also suggested that the rule regarding transactions 
solely for the purpose of passive investment should be expressed in 
terms of whether the foreign person has ten percent or less of the 
outstanding ``ownership interest'' in the U.S. business, rather than 
the ``voting interest.''
    The Final Rule does not adopt this suggestion because it would not 
cover an investor whose voting power in a U.S. business is 
disproportionately large compared to its ownership interest. Such an 
investor could have the ability to exercise control, even though its 
ownership interest is under the ten percent threshold. For example, 
where a company has issued a class of non-voting stock, it is possible 
that a foreign person may have ten percent or less of the outstanding 
stock of a company, but still have greater than ten percent of the 
voting stock, possibly giving it powers that are disproportionate to 
its share of all outstanding stock.

Section 800.303--Lending Transactions

    The Proposed Rule, at Sec.  800.303, established a special rule 
that described the circumstances in which a foreign lender may obtain 
ownership of collateral but not be deemed to control that collateral. 
The Proposed Rule also intended to clarify that a lending transaction, 
even where accompanied by a security interest in property, ordinarily 
does not convey control. Several commenters expressed concern that 
Sec.  800.303 could be read to suggest that loans could be considered 
covered transactions based on the presence of standard negative 
covenants in the loan documents and requested that the Committee 
clarify that this is not the case.
    This Final Rule revises Sec.  800.303 to provide more clearly that 
loans themselves are not ``transactions'' (defined in Sec.  800.224), 
except where the foreign person acquires economic or governance rights 
in the U.S. business characteristic of an equity investment, but not of 
a loan. Loan covenants that give the lender a negative right over 
certain decisions of the borrower, therefore, would not result in the 
loan itself being subject to these regulations, so long as the foreign 
person does not acquire economic or governance rights in the U.S. 
business characteristic of an equity investment but not of a loan. 
Consistent with that rule, and as provided in Example 3 in Sec.  
800.303 of the Final Rule, if the loan agreement were to extend to the 
lender the right to be on the board of the borrower and the right to 
receive dividends from the borrower, the loan would be considered a 
``transaction'' and would be a covered transaction if these or other 
powers that the lender receives as a result of the loan would 
constitute ``control,'' as defined in Sec.  800.204. Note that the 
acquisition of control of a U.S. business by a foreign lender as a 
result of a borrower's default on a loan would still be considered a 
covered transaction, except in the circumstances described in Sec.  
800.303(c) or where the Committee determines that there is no control 
as a result of its assessment of the factors identified in Sec.  
800.303(a)(2).
    Several commenters suggested that, in assessing whether a loan 
could give the lender control over the borrower, the Committee should 
take into account the fact that lending transactions and banks are 
subject to other regulatory regimes, both in the United States and 
abroad. Section 721, however, creates a separate statutory process from 
that created under banking and other laws, with different purposes and 
standards. The Committee's determinations regarding control are 
independent of such other laws.
    The Proposed Rule, at Sec.  800.303(a)(1), provides that the 
Committee will accept a notice when default becomes imminent or some 
``other condition'' arises that would result in a ``significant 
possibility'' that the foreign lender may obtain control of the U.S. 
business. One commenter asked for further clarification of what ``other 
conditions''

[[Page 70711]]

are and what constitutes a ``significant possibility.'' As a general 
matter, the Committee declines to accept notices of covered 
transactions where the occurrence of the transaction is speculative or 
remote. Accordingly, the Final Rule continues to provide that the 
Committee will accept notices of loans that do not, by themselves, 
constitute covered transactions, only when, because of imminent or 
actual default or other condition, there is a significant possibility 
that the foreign person may obtain control of the U.S. business. Such a 
``significant possibility'' may exist, for example, where several 
persons other than the foreign lender also have security interests in 
the same collateral and it is very possible, but not certain, that the 
foreign lender will obtain control.
    Several commenters expressed concern about the possible effect of 
Sec.  800.303 on the validity of lenders' security interests. For 
example, a security interest, upon default, may result in ``control'' 
of the collateral by the lender, and section 721 authorizes the 
President to suspend or prohibit covered transactions in certain 
circumstances. To the extent that a security interest may be suspended 
or prohibited by the President under section 721 upon default, a 
commenter objected to the limitation on notifying the transaction until 
default becomes imminent or some other condition arises that would 
result in a significant possibility that the foreign lender may obtain 
control of the U.S. business in which it has a security interest. The 
commenters also requested that the Committee allow a reasonable period 
of time for a lender to transfer management decisions or day-to-day 
control over the U.S. business to U.S. nationals.
    The Final Rule recognizes in Sec.  800.303 that foreign persons 
that make loans in the ordinary course, such as commercial banks, do 
not do so in hopes of acquiring control over collateral in the event of 
default and retaining possession of the collateral indefinitely. 
Section 800.303(a)(2) allows the Committee to provide the foreign 
person with the time needed to dispose of collateral of which it has 
taken possession, so long as the foreign person has made arrangements 
to transfer management decisions or day-to-day control over the U.S. 
business to U.S. nationals during the interim period.

Section 800.304--Timing Rule for Convertible Voting Instruments

    Several commenters expressed concern over the treatment of 
convertible voting instruments in Sec.  800.302(b) of the Proposed 
Rule. One commenter suggested that the Proposed Rule might 
inadvertently eliminate the Committee's flexibility to determine on a 
case-by-case basis whether the acquisition of convertible voting 
instruments should be deemed to confer control even without the 
conversion of such instruments. Another commenter suggested that the 
Proposed Rule's treatment of convertible voting instruments 
inappropriately would cover transactions that result in foreign 
influence falling short of control, because it is only upon conversion 
that the holder receives rights relevant to control.
    The Final Rule revises the provision, which now appears at Sec.  
800.304, to further clarify that the Committee will consider the 
circumstances of conversion in order to determine whether the Committee 
will include the rights that the holder will obtain upon conversion in 
its assessment of whether a notified transaction that includes such 
instruments could result in control. This rule allows the Committee to 
consider the rights that would result from the conversion of the 
instruments at an appropriate time. In some cases, such as where the 
results of conversion are reasonably ascertainable and the conversion 
is in the near future, the Committee will consider such rights when the 
acquisition of the convertible instruments is notified to the 
Committee. In other cases, such as where conversion is speculative or 
remote, the Committee may choose not to consider the rights that would 
result from conversion at the time of the notified transaction. In such 
cases, however, the Committee consistent with Sec.  800.304(b), may, 
still consider whether the acquisition of the convertible voting 
instruments is a covered transaction because of any immediate rights 
that they convey to the holder with respect to the governance of the 
entity that issued the instruments. Furthermore, once the conversion of 
the instruments becomes imminent, it may be appropriate for the 
Committee to consider the rights that would result from conversion and 
whether the conversion is a covered transaction.

Section 800.401--Procedures for Notice

    The Proposed Rule, at Sec.  800.401, explicitly encouraged parties 
to a transaction to consult with the Committee prior to filing a 
notice. The preamble to the Proposed Rule made clear that pre-notice 
consultations give the Committee an opportunity to understand the 
transaction and to suggest information that the parties may wish to 
include in their notice to assist the Committee in addressing any 
national security considerations as efficiently as possible. Commenters 
asked for additional information regarding the purpose of such 
prefiling communications and when such communications would be 
appropriate.
    The Final Rule leaves Sec.  800.401(f) unchanged. Prefiling 
consultations may be particularly helpful where a party to the 
transaction has not previously prepared a notice for submission to the 
Committee or where a transaction is unusually complex. Included within 
the broad spectrum of prefiling consultations that may be helpful are: 
(1) Informing the Staff Chairperson orally or in writing of a 
transaction that may be filed and the date it may be filed; (2) 
requesting in writing that the Staff Chairperson modify a requirement 
in Sec.  800.402, as further described below; (3) asking the Staff 
Chairperson procedural questions orally or in writing; (4) requesting a 
meeting with the Staff Chairperson, other Treasury official, or other 
Committee staff, to provide information on a transaction and to allow 
the Staff Chairperson and others to pose questions that may help the 
party identify information it may wish to include in a voluntary 
notice; and (5) providing a draft of the voluntary notice.
    Several commenters suggested that the Committee provide a binding 
decision on whether a transaction is a covered transaction before a 
full voluntary notice is submitted to the Committee under Sec.  
800.401. One commenter expressed opposition to this proposal, 
suggesting that, prior to receipt of a full voluntary notice, the 
Committee might err on the side of caution in finding that transactions 
are covered transactions.
    The Committee has not made any changes in the Final Rule in 
response to these comments. The Committee recognizes the potential 
utility of a preliminary determination on whether a transaction is a 
covered transaction. The proposal for a timely, yet binding, decision 
through a new and separate prefiling process, however, would create a 
substantial new burden on the CFIUS process, thus undermining the 
Committee's ability to meet its statutory deadlines. As a determination 
that might fall outside the statutorily defined review and 
investigation process, it also raises potential concerns regarding 
consistency with section 721 that would require further examination.
    A commenter requested that the Department of the Treasury accept 
voluntary notices without requiring that they be broken into multiple 
electronic files. The Final Rule makes no changes

[[Page 70712]]

to the proposed language of Sec.  800.401, which makes no reference to 
this requirement. The Staff Chairperson does currently request, 
however, that large submissions be broken into smaller electronic files 
because information technology capabilities vary widely across the 
government departments and offices to which the Staff Chairperson 
forwards each notice. The Department of the Treasury is exploring 
options to improve the process for receipt and distribution of notices.

Section 800.402--Contents of Voluntary Notice

    The Proposed Rule, at Sec.  800.402, expanded the information that 
must be included in a voluntary notice submitted to the Committee to 
require certain additional information that the Committee routinely has 
requested of parties. Several commenters argued that the information 
requirements of Sec.  800.402 are onerous and suggested that the 
significant time and expense that they predicted would be required to 
prepare a notice may discourage voluntary filings. Commenters stated 
that some of the information requirements may not be relevant in 
particular cases and suggested asking only for a narrower set of 
information in each case, supplemented by additional data based on the 
type of industry, transaction, or the parties. A commenter also 
suggested a short-form notice that would provide the parties something 
less than the safe harbor provided in Sec.  800.601 upon the 
Committee's completion of its review.
    The Final Rule makes several significant changes to the proposed 
language of Sec.  800.402(c) to narrow the scope of some of the 
information required, as discussed further below. In those cases where 
the information sought under Sec.  800.402(c) is not applicable to the 
notified transaction, the voluntary notice should state so. Except 
where the Staff Chairperson modifies a particular information 
requirement for a particular filer as described below or where a party 
states, and the Staff Chairperson agrees, that a request is not 
applicable, a voluntary notice will not comply with Sec.  800.402 if 
any information required in Sec.  800.402 is missing.
    In extraordinary cases, parties may request that the Staff 
Chairperson modify an information requirement in these Final Rules for 
a particular transaction. All such requests must be submitted in 
writing to the Staff Chairperson before filing a notice. The Staff 
Chairperson will consider accommodating such a request only in the 
exceptional case where a requirement would place an extraordinary 
burden on the parties and where modification would not impair the full 
and efficient consideration of the transaction. For example, the Staff 
Chairperson may consider a request by a small company to modify the 
requirement at Sec.  800.701(b), to allow the company to submit a 
certified translation of only portions of its annual report. The Staff 
Chairperson, however, will not consider waiving the requirement at 
Sec.  800.402(c)(6)(vi) for personal identifier information regarding 
certain key personnel. If the Staff Chairperson grants the request for 
modification, the justification that was provided in the written 
request must be included in the party's voluntary notice. Even after a 
request has been granted, the Committee may request the information 
after the notice has been submitted, in which case Sec.  800.403(a)(3) 
will apply, and completion of the review or investigation, within the 
constraints of section 721, may take longer than if the information had 
been provided at the outset.
    A commenter requested confirmation that submission of a voluntary 
notice is not an admission that a transaction is a covered transaction. 
The Committee will not treat a voluntary filing as an admission that 
the transaction is a covered transaction. Furthermore, the Final Rule 
makes a minor change to the proposed language of Sec.  800.402(j), 
clarifying that parties filing a voluntary notice are required to state 
their ``opinion'' (rather than ``full statement of [their] view,'' as 
provided in the Proposed Rule) as to whether the transaction is a 
covered transaction.
    Commenters suggested changes to two proposed information 
requirements regarding the value of the transaction. The Final Rule 
modifies the proposed language of Sec.  800.402(c)(1)(viii) to request 
a ``good faith approximation of the net value of the interest 
acquired'' rather than a statement of the full value of the transaction 
and a description of how it was derived. The Final Rule modifies the 
proposed language of Sec.  800.402(c)(3)(i) to require identification 
of the methodology used to determine market share, rather than how the 
estimate was derived, although the Committee may request such an 
explanation on a case-by-case basis after a review is initiated.
    The Proposed Rule, at Sec.  800.402(c)(3)(iv), required filers to 
identify each contract that was in effect within the past three years 
with any U.S. Government agency. In response to comments suggesting 
that the Proposed Rule was unnecessarily broad, the Final Rule 
significantly narrows the proposed language, requiring identification 
of any contract in effect within the past three years with any U.S. 
Government agency or component with national defense, homeland 
security, or other national security responsibilities, including law 
enforcement as it relates to defense, homeland security, or national 
security.
    The Proposed Rule, at Sec.  800.402(c)(3)(vi), required information 
regarding rebranding or incorporation of the U.S. business's products 
or services by another company or in another company's products. 
Several commenters suggested this requirement may prove highly 
burdensome in some cases. The Final Rule makes no change to the 
proposed language. In those exceptional cases where the requirement is 
extraordinarily burdensome, however, the filer may request that the 
Staff Chairperson modify this requirement, subject to the conditions 
stated above regarding such requests. Such a request may be considered, 
for example, where the U.S. business produces and sells a raw material 
to thousands of manufacturers.
    The Proposed Rule, at Sec.  800.402(c)(3)(vii), required 
identification of priority rated contracts or orders for the past three 
years. A commenter noted that the Proposed Rule requested information 
on the target company's plans to ensure that it or any new entity 
formed at the completion of the transaction would remain in compliance 
with the Defense Priorities and Allocations System (DPAS) regulations. 
The commenter suggested that the language be amended to request a 
statement of the plans of the acquiring party (rather than the U.S. 
business itself) to ensure compliance of the U.S. business or newly 
formed U.S. business with the DPAS regulations. The Final Rule makes 
the suggested changes. Another commenter suggested that the requirement 
that parties identify all priority rated contracts and orders for the 
past three years could require a voluminous production. The Final Rule 
makes no change in this regard. Parties that comply with the three-year 
record-keeping requirement of the DPAS regulations should not face a 
significant burden in complying with this subsection.
    The Proposed Rule, at Sec.  800.402(c)(3)(viii), required a 
description and copy of cyber security plans. A commenter suggested 
this may be irrelevant in some cases and could be misinterpreted to 
suggest that a cyber security plan is expected in conjunction with 
foreign acquisitions. The Final Rule makes no change to this proposed 
requirement. The subsection refers to plans that any company may have 
to

[[Page 70713]]

protect its information technology systems, regardless of whether the 
company is in the information technology industry. The subsection 
requires submission of any such cyber security plan but does not state 
a view as to the appropriateness of a plan in any particular case.
    A commenter interpreted Sec.  800.402(c)(4)(i) of the Proposed Rule 
as requiring filers to identify and classify under the Export 
Administration Regulations (``EAR'') almost every item that the U.S. 
business produces or trades in, since all items subject to the EAR bear 
at least the designation EAR99. As noted by other commenters, however, 
this subsection, which has not been modified by the Final Rule, allows 
filers to provide commodity classifications for items by general 
product categories, which does not require the identification or 
classification of every individual item produced or traded.
    The Proposed Rule, at Sec.  800.402(c)(4)(ii)(B), required filers 
to identify articles and services that have not been, but may be, 
designated or determined to be covered by the U.S. Munitions List 
pursuant to 22 CFR 120.3. Commenters suggested that the scope of this 
requirement was ambiguous. The Final Rule revises this provision to 
make clear that the requirement includes articles and services ``under 
development'' that may be designated or determined in the future to be 
defense articles or defense services pursuant to 22 CFR 120.3.
    The Proposed Rule, at Sec.  800.402(c)(5)(i), required filers to 
identify certain licenses, permits, and authorizations that have been 
granted by an agency of the U.S. Government. A commenter questioned 
whether this would extend to sewer permits, motor vehicle licenses, 
business licenses, and other similar state or local permits, licenses 
or authorizations. The Final Rule makes no change to the proposed 
subsection. The requirement applies only to licenses, permits, and 
authorizations that have been granted by an agency of the ``United 
States Government,'' a term which refers only to federal--not state or 
local--government.
    The Proposed Rule, at Sec.  800.402(c)(6)(ii), required filers to 
identify the foreign person's plans with respect to the U.S. business's 
operations. A commenter suggested that this requirement has no relation 
to national security. The Final Rule makes no change in response to the 
comment because a foreign person's intentions with respect to the 
operations of the U.S. business may be central to the national security 
analysis, depending on the relevance of the business to U.S. national 
security interests.
    The Proposed Rule, at Sec.  800.402(c)(6)(iv)(D), required filers 
to state whether a foreign government has any affirmative or negative 
rights not already identified in the filing that could be relevant to 
the Committee's determination of whether the notified transaction is a 
foreign government-controlled transaction. A commenter suggested that 
the requirement be limited to ``material'' rights. The Final Rule makes 
no change to the proposed language because the requirement is already 
limited to rights ``that could be relevant'' to the determination of 
whether the transaction is a foreign government-controlled transaction.
    The Proposed Rule, at Sec.  800.402(c)(6)(vi) and (vii), required 
filers to provide certain biographical and personal identifier 
information for certain key personnel affiliated with the foreign 
acquirer and its parents. Commenters asked for clarification regarding 
how the two sections differ. Commenters also suggested that the 
information be required: Only for individuals affiliated with the 
immediate acquirer, the ultimate parent, and other entities that have 
control or have a role in the transaction; only if the information has 
not been provided in connection with another transaction in the 
preceding six months; or, with regard to shareholders, only at a 
threshold higher than five percent. Commenters also suggested that the 
scope of the requirement for information on government and military 
service be clarified and narrowed.
    The Final Rule combines the two proposed subsections into Sec.  
800.402(c)(6)(vi) and identifies a single group of individuals for whom 
filers must provide a curriculum vitae or similar professional synopsis 
as part of the main notice, as well as certain other personal 
identifier information in a separate document to facilitate special 
handling. Such information must be provided for each member of the 
board of directors and each officer of the foreign person engaged in 
the transaction and its immediate, intermediate, and ultimate parents 
(see Sec.  800.219 for the definition of ``parent''), and for any 
individual having an ownership interest of five percent or more in the 
foreign person engaged in the transaction and in its ultimate parent. 
The Final Rule does not remove this requirement with respect to foreign 
acquirers that were involved in a transaction within the preceding six 
months because the storage and retrieval of such information would 
create substantial new burdens on the Committee. The Final Rule, at 
Sec.  800.402(c)(6)(vi), also narrows the foreign military service 
information requirement. Filers are not required to provide details of 
foreign military service where the service was at a rank below the top 
two non-commissioned ranks of the foreign country. Filers must continue 
to provide the dates and nature of all other military and government 
service.

Section 800.403--Deferral, Rejection, or Disposition of Certain 
Voluntary Notices

    The Proposed Rule provided in Sec.  800.403(a)(3) that the Staff 
Chairperson of the Committee may reject a voluntary filing if a party 
fails to provide any follow-up information requested by CFIUS within 
two business days. Many commenters suggested that this requirement was 
too onerous and suggested expansion of the response time to three or 
five business days. One commenter also asked the Committee to clarify 
that holidays in both the United States and in the responding foreign 
party's home country would not be counted as business days.
    The Final Rule revises Sec.  800.403(a)(3) to extend the time 
allowed to a party to respond to a request for follow-up information to 
three business days, which appropriately balances the burden to parties 
to a transaction notified to CFIUS and the needs of the Committee to 
complete a review or investigation on a timely basis. The Final Rule 
also adds a definition of ``business day'' at Sec.  800.201 to exclude 
legal public holidays in the United States. This definition does not 
exclude other countries' holidays, so as to encourage a uniformly 
efficient review process.

Section 800.503--Determination of Whether To Undertake an Investigation

    The Proposed Rule reiterated in Sec.  800.503(a) the standards 
provided by statute and Executive Order for initiating an 
investigation. Two commenters suggested that the standards were not 
clear or objective. They asked that the regulations identify the 
factors that agencies must consider in assessing whether there is a 
threat to national security and require disclosure of the rationale for 
the Committee's determination. Two commenters suggested that one of the 
standards in particular--at Sec.  800.503(a)(1)--would make 
investigations inevitable in most cases, since it can be triggered by 
any one member of the Committee other than an ex officio member.
    The Final Rule makes no changes to the proposed text of Sec.  
800.503. The

[[Page 70714]]

standards for initiation of investigations are drawn directly from 
section 721(b)(2)(B) and section 6(b) of Executive Order 11858. Even 
after FINSA became effective on October 24, 2007, the vast majority of 
cases have been completed within the initial 30-day review period, 
demonstrating that the standards for initiation of investigations do 
not make investigations inevitable.
    Section 721(f) identifies factors for the Committee to consider, as 
appropriate, in assessing effects of a covered transaction on national 
security. Guidance on the types of transactions that have raised 
national security considerations that the Department of the Treasury, 
as Chairperson of the Committee, will publish separately in the Federal 
Register consistent with with section 721(b)(2)(E) provides additional 
context for those factors. The Committee's assessment of the national 
security effects of covered transactions is based on, among other 
things, sensitive business information submitted by the parties and 
classified U.S. Government information. Thus, the rationale for the 
Committee's determination in any particular case cannot be made public. 
Safeguards in section 721 and Executive Order 11858, however, ensure 
that actions taken by the President or the Committee are taken only to 
address legitimate national security concerns. For example, any risk 
mitigation must be based on a written analysis of the national security 
risk posed by the covered transaction and of the risk mitigation 
measures believed to be reasonably necessary to address the risk. In 
addition, the President cannot exercise his authority to suspend or 
prohibit a covered transaction under section 721 unless he finds: (1) 
That there is credible evidence that leads the President to believe 
that the foreign interest exercising control might take action that 
threatens to impair the national security; and (2) that provisions of 
law, other than section 721 and the International Emergency Economic 
Powers Act, do not, in the judgment of the President, provide adequate 
and appropriate authority for the President to protect the national 
security.
    A commenter also noted that the standard for initiating an 
investigation set forth in Sec.  800.503(b)(2) of the Proposed Rule 
omits a phrase included in section 721(b)(2)(B)(i)(III). The commenter 
asked that the phrase ``by assurances provided or renewed with the 
approval of the Committee'' be added to the proposed text of Sec.  
800.503(b)(2), to remind parties that national security concerns may be 
mitigated by prior mitigation agreements. The Final Rule does not make 
the requested addition. The point that the commenter wished to 
emphasize through the addition is correct. Entering into mitigation 
agreements, however, is not the only means of resolving any national 
security concerns. The Committee may also determine that any such 
concerns can be resolved through other applicable laws besides section 
721 that adequately address national security risks raised by a covered 
transaction.
    A commenter suggested that foreign government-controlled 
transactions should not be subject to an automatic investigation 
trigger. Section 721(b)(2)(B), however, requires that the Committee 
conduct an investigation of foreign government-controlled transactions. 
The Committee is allowed, pursuant to section 721(b)(2)(D) to conclude 
review of such a transaction without initiating an investigation if the 
Department of the Treasury and the lead agency determine at the Deputy 
Secretary level or higher that the transaction will not impair the 
national security of the United States.
    A commenter also suggested that the review and investigation 
schedule be condensed to a shorter period than the statutory maximum 
30-day review and 45-day investigation to minimize the impact on 
covered transactions reviewed by the Committee. Two commenters also 
asked that the regulations guarantee that the parties to a reviewed 
transaction will be informed several days before the end of the 30-day 
review period if risk mitigation will be required. The commenters noted 
that if the need for risk mitigation is not determined until near the 
end of the 30-day review, there may be insufficient time to reach 
resolution of concerns before the end of that period, resulting in an 
otherwise unnecessary 45-day investigation.
    The Final Rule makes no changes to the proposed text of Sec.  
800.503 or other sections in response to these comments. The Committee 
seeks to conclude each case, as well as to engage parties regarding the 
need for risk mitigation, as soon as practicable. The maximum 
timeframes for reviews and investigations are established by section 
721. They have proven in practice to be appropriate for numerous 
reasons: many officials from the various U.S. Government agencies that 
comprise the Committee, including senior officials, are involved in the 
Committee's determinations; the important national security 
responsibility entrusted to the Committee requires robust, often time-
consuming analysis of each case; many of the transactions reviewed by 
the Committee are complex; and the Committee's caseload is significant.
    The Final Rule does implement changes to the CFIUS process that are 
intended to maximize efficiency and ensure timely consideration of 
transactions notified to the Committee. These changes include, among 
others, encouragement of prefiling consultations, expansion of the 
required contents of voluntary notices to include information that the 
Committee, in practice, has been requesting during the course of 
reviews, and requirements that the Staff Chairperson take certain 
administrative actions promptly or within defined periods of time.

Section 800.508--Role of the Secretary of Labor

    The Proposed Rule, at Sec.  800.508, provided a role for the 
Secretary of Labor with respect to mitigation agreements, as required 
by section 721(h)(3)(C). A commenter suggested that the role defined 
for the Secretary of Labor was too narrow and that the regulations 
should make clear that the Chairperson can seek the Secretary of 
Labor's input on other occasions, as appropriate. Another commenter 
suggested that the meaning of Sec.  800.508 was ambiguous. A commenter 
also asked that the regulations make clear that mitigation agreements 
should not violate any U.S. laws, rather than only labor laws.
    The Final Rule revises the proposed text of Sec.  800.508 to expand 
the Secretary of Labor's role and to focus it on employment laws, 
rather than labor laws. The Final Rule also adds language to emphasize 
that the Secretary of Labor will have no other policy role. This 
reinforces the Committee's focus, consistent with section 721, on 
national security alone, rather than broader economic or other national 
interests, for example, the effect of foreign investment on domestic 
employment levels.
    The Final Rule retains the provision addressing consistency of 
mitigation agreements with employment laws, rather than all U.S. laws, 
not because the Committee believes that mitigation agreements may be 
inconsistent with other applicable U.S. laws, but because Sec.  800.508 
addresses solely the advice that will be sought from the Secretary of 
Labor.

Section 800.601--Finality of Actions Under Section 721

    The Proposed Rule revised Sec.  800.601(a) to clarify the 
circumstances under which the authority under section 721(d) will not 
be exercised. Paragraph (1) of Sec.  800.601(a) pertains to the

[[Page 70715]]

situation in which the Committee finds that a transaction notified to 
it is not a covered transaction. Paragraphs (2) and (3) pertain to the 
situation in which a transaction notified to the Committee is found to 
be a covered transaction, and either the Committee has advised the 
parties in writing that it has concluded all action under section 721, 
or the President has announced his decision not to exercise his 
authority under section 721 with respect to the covered transaction. 
These provisions do not preclude exercise of authority under section 
721(d) with respect to any other covered transaction.
    The following example illustrates a situation in which Sec.  
800.601(a)(2) would apply and a situation in which it would not apply: 
Corporation A, a foreign person, owns a non-controlling interest in 
Corporation B, another foreign person. Corporation B notifies the 
Committee of a proposed purchase of a controlling interest in 
Corporation X, a U.S. business. The Committee determines that 
Corporation B's purchase is a covered transaction, and the parties are 
advised in writing that the Committee has concluded all action under 
section 721 with respect to that transaction. Section 800.601(a)(2) 
would apply to that transaction. Corporation A subsequently engages in 
another transaction to increase its interest in Corporation B to 51 
percent and obtain control of Corporation B. Section 800.601(a)(2) 
would not apply to this later transaction. This later transaction would 
be a covered transaction because it results in Corporation A's control 
of Corporation X, a U.S. business.
    The Proposed Rule excluded provisions in the 1991 regulations 
pertaining to the President's authority that are not necessary to 
include in regulation because they are already addressed in FINSA. The 
Proposed Rule also described circumstances under which the Committee 
may reopen a review of a covered transaction as to which the Committee 
previously had concluded all action under section 721. A commenter 
stated that the regulations should incorporate section 
721(b)(1)(D)(iii), which permits reopening of a review as a result of 
certain intentional material breaches of mitigation agreements. 
Commenters also asked for clarification regarding the process the 
Committee would follow upon reopening a review.
    The Final Rule amends the proposed text of Sec.  800.601 to delete 
the description of circumstances under which the Committee may reopen a 
review of a covered transaction as to which the Committee previously 
had concluded all action. As provided under Executive Order 11858, the 
Committee may reopen a review of a covered transaction for which the 
Committee has concluded action only in those extraordinary 
circumstances authorized under section 721, including section 
721(b)(1)(D)(iii). In determining whether to reopen a review for 
material misstatement or omission, the Committee generally will not 
consider as material minor inaccuracies, omissions, or changes relating 
to financial or commercial factors not having a bearing on national 
security, as provided in the new Sec.  800.509.
    Where section 721 authorizes the Committee to reopen a review of a 
covered transaction as to which the Committee previously had concluded 
all action, the new review will be subject to the same procedural rules 
and requirements prescribed by section 721 and the regulations for 
notices of a covered transaction filed with the Committee by an agency 
under Sec.  800.401(c).

Section 800.702--Confidentiality

    The Proposed Rule, at Sec.  800.702, clarified that confidentiality 
protections apply to information provided to CFIUS during the course of 
a withdrawal or with regard to a notice that is rejected under Sec.  
800.403. The preamble to the Proposed Rule noted that, under 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 Sec.  800.702. In addition, Sec.  800.702(c) made 
clear that public statements of the Chairperson or his designee may 
reflect information that the parties to the transaction have already 
themselves publicly disclosed.
    Several commenters suggested that the confidentiality provisions of 
Sec.  800.702 were inadequate because they may not extend to 
information provided during the course of pre-notice consultations if 
no notice is ultimately filed with the Committee and because they do 
not provide clear civil remedies to parties for violations of 
confidentiality. Two commenters also expressed concern over the 
potential involvement of Congress during the course of the Committee's 
review of a covered transaction.
    The Final Rule amends the proposed text of Sec.  800.702 to 
explicitly extend the confidentiality provisions under the section to 
information or documentary material provided during the course of pre-
notice consultations pursuant to Sec.  800.401(f), regardless of 
whether a notice is ultimately filed with the Committee. Further, the 
Final Rule makes clear that the confidentiality provisions will 
continue to apply even when the transaction is no longer before the 
Committee.
    The Final Rule makes no changes in response to the comments 
regarding civil remedies for violations of confidentiality. The 
confidentiality requirements under section 721(c) and Sec.  800.702 
bind the entire Executive Branch. Further, section 721(g)(2)(A) applies 
section 721(c) to briefings provided to the U.S. Congress under section 
721(g)(1), and section 721(g)(2)(B) provides additional confidentiality 
assurances regarding proprietary information provided to Congress. 
Nothing in the regulations prevents parties from seeking any remedies 
available under existing law to prevent or redress violation of these 
confidentiality provisions. The Committee may also refer violations of 
these provisions to the Department of Justice for investigation and 
prosecution under 50 U.S.C. App. 2155(d), which provides for fines and 
imprisonment. It is also important to note that FINSA provides for 
reporting to Congress on each covered transaction only after all 
deliberative action is complete.

Section 800.801--Penalties

    The Proposed Rule, at Sec.  800.801, provided for the imposition of 
civil penalties for any violation of section 721, including a violation 
of any mitigation agreement entered into or conditions imposed pursuant 
to section 721(l). The preamble to the Proposed Rule made clear that 
civil monetary penalties could be imposed with regard to transactions 
entered into on or after the effective date of FINSA, October 24, 2007. 
In addition, Sec.  800.801(c) authorized 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.
    A commenter expressed concern that the civil penalties provided for 
in Sec.  800.801 of the Proposed Rule were so high as to potentially 
discourage parties from filing voluntary notices with the Committee. 
Another commenter, noting that penalties for certain breaches of 
mitigation agreements may be up to the value of the transaction, 
suggested that the Committee set an upper bound to such penalties for 
particularly large transactions. A commenter also asked whether 
penalties for violations of mitigation agreements under section 721 
will be separate from penalties assessed by the Department of Defense 
under agreements to mitigate foreign ownership, control, and influence 
under

[[Page 70716]]

the National Industrial Security Program Operating Manual (NISPOM).
    The Final Rule amends the proposed text of Sec.  800.801 to specify 
that civil penalties may be imposed under the section only if the 
action that could give rise to civil penalties occurs on or after the 
effective date of the Final Rule. The Final Rule also adds a 
requirement that the determination to impose civil penalties under 
Sec.  800.801 must be made by the members of the Committee named in 
FINSA and Executive Order 11858, except to the extent delegated by such 
official.
    The Final Rule makes no other changes to the proposed text of Sec.  
800.801 in response to public comments received. CFIUS retains the 
discretion to impose less than the maximum penalty identified in Sec.  
800.801, depending on the nature of the violation. The Final Rule also 
affords parties the opportunity to submit a petition for 
reconsideration of any decision to impose a penalty. Furthermore, the 
maximum penalty amounts provided for in Sec.  800.801 are consistent 
with the statutory penalty scheme under the International Emergency 
Economic Powers Act, a statute that provides the authority for a number 
of regulations related to national security.
    Mitigation agreements or conditions entered into or agreed to 
pursuant to section 721(l) are separate from agreements reached under 
the NISPOM pursuant to separate legal authority of the Department of 
Defense. In general, the remedy and penalty provisions of the former 
type of mitigation agreements or conditions have no bearing on the 
applicability or enforceability of remedy and penalty provisions in the 
latter type of agreement.

Executive Order 12866

    These regulations are not subject to the requirements of Executive 
Order 12866 because they relate to a foreign affairs function of the 
United States.

Paperwork Reduction Act

    The collection of information contained in this rule has been 
approved by the Office of Management and Budget in accordance with the 
Paperwork Reduction Act of 1995 (44 U.S.C. 3507(d)) and assigned 
control number 1505-0121.
    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.
    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. No. 
102-1028, at 42 (1992) and H.R. Rep. No. 102-208 pt. 1, at 28 (1991). 
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 mechanisms for publication and public participation 
are sufficiently different to distinguish the DPA procedures from a 
rule that requires a general notice of proposed rulemaking. 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 RFA, 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 fewer than 10 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. It is estimated 
that between 100 and 200 notices will be filed with CFIUS annually over 
the next few years. Few cases end with mitigation agreements. There 
were 16 mitigation agreements in 2006, 14 in 2007, and fewer than 5 to 
date in 2008. As such, a substantial number of entities are not 
impacted by these rules regardless of their size. We also note that 
these 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 the United States, Investigations, National 
defense, Reporting and recordkeeping requirements.

0
Accordingly, under the authority at 50 U.S.C. App. 2170(h), for the 
reasons stated in the preamble, the Department of the Treasury amends 
31 CFR chapter VIII as follows:

CHAPTER VIII--OFFICE OF INVESTMENT SECURITY, DEPARTMENT OF THE TREASURY

0
1. The heading for chapter VIII is revised to read as set forth above.


0
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 law.
800.103 Applicability rule; prospective application of certain 
provisions.
800.104 Transactions or devices for avoidance.

[[Page 70717]]

Subpart B--Definitions
800.201 Business day.
800.202 Certification.
800.203 Committee; Chairperson of the Committee; Staff Chairperson.
800.204 Control.
800.205 Conversion.
800.206 Convertible voting instrument.
800.207 Covered transaction.
800.208 Critical infrastructure.
800.209 Critical technologies.
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 passive investment.
800.224 Transaction.
800.225 United States.
800.226 U.S. business.
800.227 U.S. national.
800.228 Voting interest.
Subpart C--Coverage
800.301 Transactions that are covered transactions.
800.302 Transactions that are not covered transactions.
800.303 Lending transactions.
800.304 Timing rule for convertible voting instruments.
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.
800.509 Materiality.
Subpart F--Finality of 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.

    Authority: 50 U.S.C. App. 2170; E.O. 11858, as amended, 73 FR 
4677.

Subpart A--General


Sec.  800.101  Scope.

    The regulations in this part implement section 721 of title VII of 
the Defense Production Act of 1950 (50 U.S.C. App. 2170), as amended, 
hereinafter referred to as ``section 721.'' 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 might take action that 
threatens to impair the national security, and when provisions of law 
other than section 721 and the International Emergency Economic Powers 
Act (50 U.S.C. 1701-1706), do not, in the judgment of the President, 
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 law.

    Nothing in this part shall be construed as altering or affecting 
any other authority, process, regulation, investigation, enforcement 
measure, or review provided by or established under any other provision 
of federal law, including the International Emergency Economic Powers 
Act, or any other authority of the President or the Congress under the 
Constitution of the United States.


Sec.  800.103  Applicability rule; prospective application of certain 
provisions.

    (a) Except as provided in paragraph (b) of this section and 
otherwise in this part, the regulations in this part apply from the 
effective date (as defined in Section 800.210).
    (b) Sections 800.204 (Control), 800.205 (Conversion), 800.206 
(Convertible voting instrument), 800.211 (Entity), 800.212 (Foreign 
entity), 800.216 (Foreign person), 800.220 (Party or parties to a 
transaction), 800.223 (Solely for the purpose of passive investment), 
800.224 (Transaction), 800.226 (U.S. business), and 800.228 (Voting 
interest), and the regulations in subpart C (Coverage) do not apply to 
any transaction for which the following has occurred before the 
effective date, in which case corresponding provisions of the 
regulations in this part that were in effect the day before the 
effective date will apply:
    (1) The parties to the transaction have executed a written 
agreement or other document establishing the material terms of the 
transaction;
    (2) A party has made a public offer to shareholders to buy shares 
of a U.S. business;
    (3) A shareholder has solicited proxies in connection with an 
election of the board of directors of a U.S. business or has requested 
the conversion of convertible voting securities; or
    (4) The parties have, in the Committee's view, otherwise made a 
commitment to engage in a transaction.

    Note to Sec.  800.103: See subpart H of this part for specific 
applicability rules pertaining to that subpart.

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  Business day.

    The term business day means Monday through Friday, except the legal 
public holidays specified in 5 U.S.C. 6103 or any other day declared to 
be a holiday by federal statute or executive order.


Sec.  800.202  Certification.

    (a) 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:
    (1) 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
    (2) Is accurate and complete in all material respects, as it 
relates to:
    (i) The transaction, and

[[Page 70718]]

    (ii) The party providing the certification, including its parents, 
subsidiaries, and any other related entities described in the notice or 
information.
    (b) For purposes of this section, a duly authorized designee is:
    (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 any entity lacking officers, directors, or 
partners, any individual within the organization exercising executive 
functions similar to those of an officer or director of a corporation 
or a general partner of a partnership; and
    (4) In the case of an individual, such individual or his or her 
legal representative.
    (c) In each case described in paragraphs (b)(1) through (b)(4) of 
this section, such designee must possess actual authority to make the 
certification on behalf of the party to the transaction filing a notice 
or information.

    Note to Sec.  800.202: A sample certification may be found at 
the Committee's section of the Department of the Treasury Web site 
at http://www.treas.gov/offices/international-affairs/cfius/index.shtml.

Sec.  800.203  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.  800.204  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 or a voluntary filing for bankruptcy or 
liquidation;
    (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 an additional interest in an entity to 
prevent the dilution of an investor's pro rata interest in that entity 
in the event that the entity issues additional instruments conveying 
interests in the entity;
    (5) The power to prevent the change of existing legal rights or 
preferences of the particular class of stock held by minority 
investors, as provided in the relevant corporate documents governing 
such shares; and
    (6) 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 (5) 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.
    (e) Any transaction in which a foreign person acquires an 
additional interest in a U.S. business that was previously the subject 
of a covered transaction for which the Committee concluded all action 
under section 721 shall not be deemed to be a transaction that could 
result in foreign control over that U.S. business (i.e., it is not a 
covered transaction). However, if a foreign person that did not acquire 
control of the U.S. business in the prior transaction is a party to the 
later transaction, the later transaction may be a covered transaction.

    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 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, acquires a nine 
percent interest in the shares of Corporation B, a U.S. business. As 
part of the transaction, Corporation A also acquires certain veto 
rights that determine important matters affecting Corporation B,

[[Page 70719]]

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 a thirteen 
percent interest in the shares of Corporation B, a U.S. business, 
and the right to appoint one member of Corporation B's seven-member 
Board of Directors. Corporation A receives minority shareholder 
protections listed in Sec.  800.204(c), but receives no other 
positive or negative rights with respect to Corporation B. Assuming 
no other relevant facts, Corporation A does not control Corporation 
B.
    Example 6. Corporation A, a foreign person, acquires a twenty 
percent interest in the shares of Corporation B, a U.S. business. 
Corporation A has negotiated an irrevocable passivity agreement that 
completely precludes it from controlling Corporation B. Corporation 
A does, however, receive the right to prevent Corporation B from 
entering into contracts with majority investors or their affiliates 
and to prevent Corporation B from guaranteeing the obligations of 
majority investors or their affiliates. Assuming no other relevant 
facts, Corporation A does not control Corporation B.
    Example 7. Corporation A, a foreign person, acquires a 40 
percent interest and important rights in Corporation B, a U.S. 
business. The documentation pertaining to the transaction gives no 
indication that Corporation A's interest in Corporation B may 
increase at a later date. Following its review of the transaction, 
the Committee informs the parties that the notified transaction is a 
covered transaction, and concludes action under section 721. Three 
years later, Corporation A acquires the remainder of the voting 
interest in Corporation B. Assuming no other relevant facts, because 
the Committee concluded all action with respect to Corporation A's 
earlier investment in the same U.S. business, and because no other 
foreign person is a party to this subsequent transaction, this 
subsequent transaction is not a covered transaction.
    Example 8. Limited Partnership A comprises two limited partners, 
each of which holds 49 percent of the interest in the partnership, 
and a general partner, which holds two percent of the interest. The 
general partner has sole authority to determine, direct, and decide 
important matters affecting the partnership and a fund operated by 
the partnership. The general partner alone controls Limited 
Partnership A and the fund.
    Example 9. Same facts as in Example 8, except that each of the 
limited partners has the authority to veto major investments 
proposed by the general partner and to choose the fund's 
representatives on the boards of the fund's portfolio companies. The 
general partner and the limited partners each have control over 
Limited Partnership A and the fund.

    Note to Sec.  800.204: See Sec.  800.302(b) regarding the 
Committee's treatment of transactions in which a foreign person 
holds or acquires ten percent or less of the outstanding voting 
interest in a U.S. business solely for the purpose of passive 
investment.

Sec.  800.205  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.


Sec.  800.206  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.


Sec.  800.207  Covered transaction.

    The term covered transaction means any transaction that is proposed 
or pending after August 23, 1988, by or with any foreign person, which 
could result in control of a U.S. business by a foreign person.


Sec.  800.208  Critical infrastructure.

    The term critical infrastructure means, in the context of a 
particular covered transaction, 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.


Sec.  800.209  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 Atomic Energy Activities regulations (10 CFR part 
810), and nuclear facilities, equipment, and material specified in the 
Export and Import of Nuclear Equipment and Material regulations (10 CFR 
part 110); and
    (d) Select agents and toxins specified in the Select Agents and 
Toxins regulations (7 CFR part 331, 9 CFR part 121, and 42 CFR part 
73).


Sec.  800.210  Effective date.

    The term effective date means December 22, 2008.


Sec.  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 
or foreign state); assets (whether or not organized as a separate legal 
entity) operated by any one of the foregoing as a business undertaking 
in a particular location or for particular products or services; and 
any government (including a foreign national or subnational government, 
the United States Government, a subnational government within the 
United States, and any of their respective departments, agencies, or 
instrumentalities). (See examples following Sec. Sec.  800.301(c) and 
800.302(c).)


Sec.  800.212  Foreign entity.

    (a) The term foreign entity means any branch, partnership, group or 
sub-group, association, estate, trust, corporation or division of a 
corporation, or organization organized under the laws of a foreign 
state if either its principal place of business is outside the United 
States or its equity securities are primarily traded on one or more 
foreign exchanges.
    (b) Notwithstanding paragraph (a) of this section, any branch, 
partnership, group or sub-group, association, estate, trust, 
corporation or division of a corporation, or organization that 
demonstrates that a majority of the equity interest in such entity is 
ultimately owned by U.S. nationals is not a foreign entity.


Sec.  800.213  Foreign government.

    The term foreign government means any government or body exercising 
governmental functions, other than the United States Government or a 
subnational government of the United States. The term includes, but is 
not limited to, national and subnational governments, including their 
respective departments, agencies, and instrumentalities.


Sec.  800.214  Foreign government-controlled transaction.

    The term foreign government-controlled 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.

[[Page 70720]]

Sec.  800.215  Foreign national.

    The term foreign national means any individual other than a U.S. 
national.


Sec.  800.216  Foreign person.

    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 
government of 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, its principal place of business is located 
outside the United States, 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. A 
branch of Corporation A engages in interstate commerce in the United 
States. Corporation A (including its branch) is a foreign person. 
The branch is also a U.S. business.
    Example 5. Corporation A is a corporation organized under the 
laws of a foreign state and its principal place of business is 
located outside the United States. Forty-five percent of the voting 
interest in Corporation A is owned in equal shares by numerous 
unrelated foreign investors, none of whom has control. The foreign 
investors have no formal or informal arrangement to act in concert 
with regard to Corporation A with any other holder of voting 
interest in Corporation A. Corporation A demonstrates that the 
remainder of the voting interest in Corporation A is held by U.S. 
nationals. Assuming no other relevant facts, Corporation A is not a 
foreign person.
    Example 6. Same facts as Example 5, except that one of the 
foreign investors controls Corporation A. Assuming no other relevant 
facts, Corporation A is not a foreign entity pursuant to Sec.  
800.212(b), but it is a foreign person because it is controlled by a 
foreign person.


Sec.  800.217  Hold.

    The terms hold(s) and holding mean legal or beneficial ownership, 
whether direct or indirect, whether through fiduciaries, agents, or 
other means.


Sec.  800.218  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 as a lead agency, including all or a portion of a review, 
an investigation, or the negotiation or monitoring of a mitigation 
agreement or condition.


Sec.  800.219  Parent.

    (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., the 
intermediate parent) is also a parent of any other entity of which the 
intermediate parent is a parent.
    Example 1. Corporation P holds 50 percent of the voting interest 
in Corporations R and S. Corporation R holds 40 percent of the 
voting interest in Corporation X; Corporation S holds 50 percent of 
the voting interest in Corporation Y, which in turn holds 50 percent 
of the voting interest in 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 Corporation Y and Z, and Corporation Y 
is a parent of Corporation Z.
    Example 2. Corporation A holds warrants 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.


Sec.  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 acquisition or conversion of convertible 
voting instruments, the 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.


Sec.  800.221  Person.

    The term person means any individual or entity.


Sec.  800.222  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.


Sec.  800.223  Solely for the purpose of passive investment.

    Ownership interests are held or acquired solely for the purpose of 
passive investment if the person holding or acquiring such interests 
does not plan or intend to exercise control, does not possess or 
develop any purpose other than passive investment, and does not take 
any action inconsistent with holding or acquiring such interests solely 
for the purpose of passive investment. (See Sec.  800.302(b).)

    Example. Corporation A, a foreign person, acquires a voting 
interest in Corporation B, a U.S. business. In addition to the 
voting interest, Corporation A negotiates the right to appoint a 
member of Corporation B's Board of Directors. The acquisition by 
Corporation A of a voting interest in Corporation B is not solely 
for the purpose of passive investment.


Sec.  800.224  Transaction.

    The term transaction means a proposed or completed 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.

    Note to Sec.  800.224(b): See Sec.  800.304 regarding factors 
the Committee will consider in determining whether to include the 
rights to be acquired by a foreign person upon the

[[Page 70721]]

conversion of convertible voting instruments as part of the 
Committee's assessment of whether a transaction that involves such 
instruments is a covered transaction.

    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. Corporation B, however, 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.


Sec.  800.225  United States.

    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 43 U.S.C. 1331(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.''


Sec.  800.226  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. Corporation A and its branch or subsidiary is each also a 
foreign person should any of them engage in a transaction involving 
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.


Sec.  800.227  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.


Sec.  800.228  Voting interest.

    The term voting interest means any interest in an entity that 
entitles the owner or holder of that interest 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.

Subpart C--Coverage


Sec.  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 of 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 will have 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, by another foreign person, 
Corporation Z.

    (c) A transaction that results or could result in control by a 
foreign person of any part of an entity or of assets, if such part of 
an entity or assets constitutes a U.S. business. (See Sec.  
800.302(c).)

    Example 1. Corporation X, a foreign person, has a branch office 
located in the United States. Corporation A, a foreign person, 
proposes to buy that branch office. The proposed transaction is a 
covered transaction.
    Example 2. Corporation A, a foreign person, buys a branch office 
located entirely 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 of 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

[[Page 70722]]

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.

    (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 or more of the parties 
contributes a U.S. business and a foreign person could control that 
U.S. business by means of the joint venture.

    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 Sec.  
800.204(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.


Sec.  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 ten percent of the 
stock of Corporation B. Corporation B pays a 2-for-1 stock dividend. 
As a result of this stock split, Corporation A holds 20,000 shares 
of Corporation B, still constituting ten percent of the stock of 
Corporation B. Assuming no other relevant facts, the acquisition of 
additional shares is not a covered transaction.

    (b) A transaction that results in a foreign person holding ten 
percent or less of the outstanding voting interest in a U.S. business 
(regardless of the dollar value of the interest so acquired), but only 
if the transaction is solely for the purpose of passive investment. 
(See Sec.  800.223.)

    Example 1. In an open market purchase solely for the purpose of 
passive 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 passive investment and is 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 eleven 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 passive 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.

    (c) An acquisition of any part of an entity or of assets, if such 
part of an entity or assets do not constitute a U.S. business. (See 
Sec.  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, a U.S. business, 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 long-term 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, 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.

    (d) An acquisition of securities by a person acting as a securities 
underwriter, in the ordinary course of business and in the process of 
underwriting.
    (e) 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.


Sec.  800.303  Lending transactions.

    (a) The extension of a loan or a similar financing arrangement by a 
foreign person to a U.S. business, regardless of whether accompanied by 
the creation in the foreign person of a secured interest in securities 
or other assets of the U.S. business, shall not, by itself, constitute 
a covered transaction.
    (1) The Committee will accept notices concerning a loan or a 
similar financing arrangement that does not, by itself, constitute a 
covered transaction only at the time that, because of imminent or 
actual default or other condition, there is a significant possibility 
that the foreign person may obtain control of a U.S. business as a 
result of the default or other condition.
    (2) Where the Committee accepts a notice concerning a loan or a 
similar financing arrangement pursuant to paragraph (a)(1) of this 
section, and a party to the transaction is a foreign person that makes 
loans in the ordinary course of business, the Committee will take into 
account whether the foreign person has made any arrangements to 
transfer management decisions and day-to-day control over the U.S. 
business to U.S. nationals for purposes of determining whether such 
loan or financing arrangement constitutes a covered transaction.
    (b) Notwithstanding paragraph (a) of this section, a loan or a 
similar financing arrangement through which a foreign person acquires 
an interest in profits of a U.S. business, the right to appoint members 
of the board of directors of the U.S. business, or other

[[Page 70723]]

comparable financial or governance rights characteristic of an equity 
investment but not of a typical loan may constitute a covered 
transaction.
    (c) An acquisition of voting interest or assets of a U.S. business 
by a foreign person upon default or other condition involving a loan or 
a similar financing arrangement does not constitute a covered 
transaction, 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-[agrave]-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 Sec.  800.204 
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 person. Assuming no other relevant facts, this lending 
arrangement does not alone 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.
    Example 3. Corporation A, a foreign bank, makes a loan to 
Corporation B, a U.S. business. The loan documentation extends to 
Corporation A rights in Corporation B that are characteristic of an 
equity investment but not of a typical loan, including dominant 
minority representation on the board of directors of Corporation B 
and the right to be paid dividends by Corporation B. This loan is a 
covered transaction.


Sec.  800.304  Timing rule for convertible voting instruments.

    (a) For purposes of determining whether to include the rights that 
a holder of convertible voting instruments will acquire upon conversion 
of those instruments in the Committee's assessment of whether a 
notified transaction is a covered transaction, the Committee will 
consider factors that include:
    (1) The imminence of conversion;
    (2) Whether conversion depends on factors within the control of the 
acquiring party; and
    (3) Whether the amount of voting interest and the rights that would 
be acquired upon conversion can be reasonably determined at the time of 
acquisition.
    (b) When the Committee, applying paragraph (a) of this section, 
determines that the rights that the holder will acquire upon conversion 
will not be included in the Committee's assessment of whether a 
notified transaction is a covered transaction, the Committee will 
disregard the convertible voting instruments for purposes of that 
transaction except to the extent that they convey immediate rights to 
the holder with respect to the governance of the entity that issued the 
instruments.

    Example 1. Corporation A, a foreign person, notifies the 
Committee that it intends to buy common stock and debentures of 
Corporation X, a U.S. business. By their terms, the debentures are 
convertible into common stock only upon the occurrence of an event 
the timing of which is not in the control of Corporation A, and the 
number of common shares that would be acquired upon conversion 
cannot now be determined. Assuming no other relevant facts, the 
Committee will disregard the debentures in the course of its covered 
transaction analysis at the time that Corporation A acquires the 
debentures. In the event that it determines that the acquisition of 
the common stock is not a covered transaction, the Committee will so 
inform the parties. Once the conversion of the instruments becomes 
imminent, it may be appropriate for the Committee to consider the 
rights that would result from the conversion and whether the 
conversion is a covered transaction. The conversion of those 
debentures into common stock could be a covered transaction, 
depending on what percentage of Corporation X's voting securities 
Corporation A would receive and what powers those securities would 
confer on Corporation A.
    Example 2. Same facts as Example 1, except that the debentures 
at issue are convertible at the sole discretion of Corporation A 
after six months, and if converted, would represent a 50 percent 
interest in Corporation X. The Committee may consider the rights 
that would result from the conversion as part of its assessment.

Subpart D--Notice


Sec.  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 Security, Department of the Treasury, 1500 Pennsylvania 
Avenue, NW., Washington, DC 20220, that includes, in English only, the 
information set out in Sec.  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 http://www.treas.gov/offices/international-affairs/cfius/ 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 may raise 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, or his designee 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. 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, 
files such an agency notice.
    (d) No communications other than those described in paragraphs (a) 
and (c) of this section shall constitute the filing or submitting of a 
notice for purposes of section 721.
    (e) Upon receipt of the certification required by Sec.  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 and, in appropriate cases, to 
file with the Committee a draft notice or other appropriate documents 
to aid the Committee's understanding of the

[[Page 70724]]

transaction and to provide an opportunity for the Committee to request 
additional information to be included in the notice. Any such pre-
notice 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 Sec.  800.702.
    (g) Information and other documentary material provided by the 
parties to the Committee after the filing of a voluntary notice under 
Sec.  800.401 shall be part of the notice, and shall be subject to the 
certification requirements of Sec.  800.402(l).


Sec.  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 Sec.  
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 Sec.  800.401(a) shall 
describe or provide, as applicable:
    (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 
interest, 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, website address (if any), principal place 
of 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, website 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) A good faith approximation of the net 
value of the interest acquired in the U.S. business in U.S. dollars, as 
of the date of the notice; 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 U.S. 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 
(unless that entity is excluded from the scope of the transaction):
    (i) Their respective business activities, as, for example, set 
forth in annual reports, and the product or service categories of each, 
including an estimate of U.S. market share for such product or service 
categories and the methodology used to determine market share, and a 
list of direct competitors for those primary product or service 
categories;
    (ii) The street address (and mailing address, if different) within 
the United States and website 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 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) that is 
currently in effect or was in effect within the past three years with 
any United States Government agency or component with national defense, 
homeland security, or other national security responsibilities, 
including law enforcement responsibility as it relates to defense, 
homeland security, or national security, 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; and
    (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) for any 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) regulations (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 and the level of priority 
of such contracts or orders, and the acquiring

[[Page 70725]]

party's plan to ensure that any new entity formed at the completion of 
the notified transaction (or the U.S. business, if no new entity is 
formed) complies with the DPAS regulations; and
    (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 the 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; articles and services for which commodity jurisdiction requests 
(22 CFR 120.4) are pending; and articles and services (including those 
under development) that may be designated or determined in the future 
to be defense articles or defense services 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 part 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 (c)(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); and
    (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, and the 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, and if so, the identity of 
the foreign government;
    (iv) Whether a foreign government or a person controlled by or 
acting on behalf of a foreign government:
    (A) Has or controls ownership interests, including convertible 
voting instruments, of the acquiring foreign person or any parent of 
the acquiring foreign person, and if so, the nature and amount of any 
such instruments, and with regard to convertible voting instruments, 
the terms and timing of their conversion;
    (B) Has the right or power to appoint any of the principal officers 
or the members of the board of directors of the foreign person that is 
a party to the transaction or any parent of that foreign person;
    (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 government-controlled transaction, 
and if there are any such rights or powers, their source (for example, 
a ``golden share,'' shareholders agreement, contract, statute, or 
regulation) and the mechanics of their operation;
    (v) Any formal or informal arrangements among foreign persons that 
hold an ownership interest in the foreign person that is a party to the 
transaction or between such foreign person and other foreign persons to 
act in concert on particular matters affecting the U.S. business that 
is the subject of the transaction, and provide a copy of any documents 
that establish those rights or describe those arrangements;
    (vi) For each member of the board of directors or similar body 
(including external directors) and officers (including president, 
senior vice president, executive vice president, and other persons who 
perform duties normally associated with such titles) of the acquiring 
foreign person engaged in the transaction and its immediate, 
intermediate, and ultimate parents, and for any individual having an 
ownership interest of five percent or more in the acquiring foreign 
person engaged in the transaction and in the foreign person's ultimate 
parent, the following information:
    (A) A curriculum vitae or similar professional synopsis, provided 
as part of the main notice, and
    (B) 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:
    (1) Full name (last, first, middle name);
    (2) All other names and aliases used;
    (3) Business address;
    (4) Country and city of residence;
    (5) Date of birth;
    (6) Place of birth;
    (7) U.S. Social Security number (where applicable);
    (8) National identity number, including nationality, date and place 
of issuance, and expiration date (where applicable);
    (9) U.S. or 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
    (10) Dates and nature of foreign government and foreign military 
service (where applicable), other than military service at a rank below 
the top two non-commissioned ranks of the relevant foreign country; and
    (vii) The following ``business identifier information'' for the 
immediate, intermediate, and ultimate parents of the foreign person 
engaged in the transaction, including their main offices and branches:
    (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; and
    (D) Employer identification number or other domestic tax or 
corporate identification number.
    (d) The voluntary notice shall list any filings with, or reports 
to, agencies of

[[Page 70726]]

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 SF-328, and enters into discussions with the Defense 
Security 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 in which 
one or more of the parties is contributing a U.S. business, 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 the acquisition of some but not all of the 
assets of an entity, Sec.  800.402(c) requires submission of the 
specified information only with respect to the assets of the entity 
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 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 Sec.  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 
Sec.  800.401, and the certification required under Sec.  800.402(l) 
shall apply to such amendments. (See also Sec.  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) The opinion of the person regarding whether:
    (i) It is a foreign person;
    (ii) It is controlled by a foreign government; and
    (iii) The transaction has resulted or could 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
    (2) Any party to the transaction has been a 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 Sec.  800.202. A sample 
certification may be found on the Committee's section of the Department 
of the Treasury Web site, available at http://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.


Sec.  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 Sec.  
800.402 and so inform the parties promptly in writing;
    (2) Reject 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 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 follow-up information requested by the Staff Chairperson within 
three 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 any voluntary notice before the conclusion of a review 
or investigation, and so inform the parties promptly in writing, if one 
of the parties submitting the voluntary notice has not submitted the 
final certification required by Sec.  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

[[Page 70727]]

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 
Sec.  800.402(c)(3)(iii) and (iv) 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 the 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 U.S. business, 
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 has the right to 
appoint two members of Company X's board of directors. This 
information 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.

Subpart E--Committee Procedures: Review and Investigation


Sec.  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, 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 transaction under investigation 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.


Sec.  800.502  Beginning of thirty-day review period.

    (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 Sec.  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 
Sec.  800.401(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 
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 receipt of an agency notice by 
the Staff Chairperson, the Staff Chairperson shall send written advice 
of such 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 complete 
notice, and any subsequent information filed by the parties.


Sec.  800.503  Determination of whether to undertake an investigation.

    (a) After a review of a notified transaction under Sec.  800.502, 
the Committee shall undertake an investigation of any transaction that 
it has determined to be a 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 Sec.  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 of the Committee 
(or the Deputy Secretary of the Treasury) and the head of any lead 
agency (or his or her delegee at the deputy level or equivalent) 
designated by the Chairperson determine on the basis of the review that 
the covered transaction will not impair the national security of the 
United States.

[[Page 70728]]

Sec.  800.504  Determination not to undertake an investigation.

    If the Committee determines, during the review period described in 
Sec.  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.


Sec.  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 Sec.  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.


Sec.  800.506  Completion or termination of investigation and report to 
the President.

    (a) The Committee shall complete an investigation no later than the 
45th day after the date the investigation commences, or, if the 45th 
day is not a business day, no later than the next business day after 
the 45th 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 with respect to a covered 
transaction, 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 of the Committee shall 
submit a report of the Committee to the President setting forth the 
differing views and presenting the issues for decision.
    (d) Upon completion or termination of an investigation, if the 
Committee determines to conclude all deliberative action under section 
721 with regard to a notified covered transaction without sending a 
report to the President, action under section 721 shall be concluded. 
An official at the Department of the Treasury shall promptly advise the 
parties to such a transaction in writing of a determination to conclude 
action.


Sec.  800.507  Withdrawal of notice.

    (a) A party (or parties) to a transaction that has filed notice 
under Sec.  800.401(a) may request in writing, at any time prior to 
conclusion of all action under section 721, 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 
advise the parties to the transaction in writing of the Committee's 
decision.
    (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 
advise the parties to the transaction in writing 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 Sec.  
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 advise the 
parties of that time frame in writing.
    (d) A notice of a transaction that is submitted pursuant to 
paragraph (c)(2) of this section shall be deemed a new notice for 
purposes of the regulations in this part, including Sec.  800.601.


Sec.  800.508  Role of the Secretary of Labor.

    In response to a request from the Chairperson of the Committee, the 
Secretary of Labor shall identify for the Committee any risk mitigation 
provisions proposed to or by the Committee that would violate U.S. 
employment laws or require a party to violate U.S. employment laws. The 
Secretary of Labor shall serve no policy role on the Committee.


Sec.  800.509  Materiality.

    The Committee generally will not consider as material minor 
inaccuracies, omissions, or changes relating to financial or commercial 
factors not having a bearing on national security.

Subpart F--Finality of Action


Sec.  800.601  Finality of actions under section 721.

    (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 August 23, 1988. Such authority shall 
not be exercised if:
    (1) The Committee, through its Staff Chairperson, has advised a 
party (or the parties) in writing 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 been advised in writing 
pursuant to Sec.  800.504 or Sec.  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) Divestment or other relief under section 721 shall not be 
available with respect to transactions that were completed prior to 
August 23, 1988.

Subpart G--Provision and Handling of Information


Sec.  800.701  Obligation of parties to provide information.

    (a) Parties to a 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 Sec.  800.402(h). 
If deemed necessary by the Committee, information may be obtained from 
parties to a 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

[[Page 70729]]

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 Sec.  800.202. A 
sample certification may be found at the Committee's section of the 
Department of the Treasury Web site at http://www.treas.gov/offices/international-affairs/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 Sec.  800.202.) A sample 
certification may be found at the Committee's section of the Department 
of the Treasury Web site at http://www.treas.gov/offices/international-affairs/cfius/index.shtml.


Sec.  800.702  Confidentiality.

    (a) Any information or documentary material filed with the 
Committee pursuant to this part, including information or documentary 
material filed pursuant to Sec.  800.401(f), 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 
accordance with subsections (b)(3) and (g)(2)(A) of section 721.
    (b) This section shall continue to apply with respect to 
information and documentary material filed with the Committee in any 
case where:
    (1) Action has concluded under section 721 concerning a notified 
transaction;
    (2) A request to withdraw notice is granted under Sec.  800.507, or 
where notice has been rejected under Sec.  800.403;
    (3) The Committee determines that a notified transaction is not a 
covered transaction; or
    (4) Such information or documentary material was filed pursuant to 
Sec.  800.401(f) and the parties do not subsequently file a notice 
pursuant to Sec.  800.401(a).
    (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, or of the Chairperson's designee.
    (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


Sec.  800.801  Penalties.

    (a) Any person who, after the effective date, intentionally or 
through gross negligence, submits a material misstatement or omission 
in a notice or makes a false certification under Sec. Sec.  800.402(l) 
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, after the effective date, intentionally or 
through gross negligence, violates a material provision of a mitigation 
agreement entered into with, or a material condition imposed by, 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, whichever is greater. Any penalty assessed under 
this paragraph 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 section 
721(b)(1)(D).
    (c) A mitigation agreement entered into or amended under section 
721(l) after the effective date 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 specifying that the Committee will consider the 
severity of the breach in deciding whether to seek a lesser amount than 
that stipulated in the contract.
    (d) A determination to impose penalties under paragraph (a) or (b) 
of this section must be made by the named members of the Committee, 
except to the extent delegated by such official. 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 
paragraph (a) or (b) of this section, the penalized party may, within 
15 days of receipt of the notice of the penalty, submit a petition for 
reconsideration to the Staff Chairperson, including a defense, 
justification, or explanation for the penalized conduct. The Committee 
will review the petition and issue a final decision within 15 days of 
receipt of the petition.
    (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.

    Dated: November 14, 2008.
Clay Lowery,
Assistant Secretary (International Affairs).
 [FR Doc. E8-27525 Filed 11-17-08; 11:15 am]
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