What is the Foreign Investment Risk Review Modernization Act?
The Foreign Investment Risk Review Modernization Act (FIRRMA) is a regulatory framework designed to strengthen the Committee on Foreign Investment in the United States (CFIUS), a government body that reviews foreign direct investments for national security concerns. Enacted in 2018, FIRRMA took effect in February 2020.
Previously, CFIUS jurisdiction was limited to transactions that could result in foreign control of a U.S. business. While CFIUS retains this jurisdiction, FIRRMA broadens CFIUS’s role by explicitly including for review:
- Certain real estate transactions in close proximity to a military installation or U.S. government facility or property of national security sensitivities
- Any noncontrolling investment in certain U.S. businesses involved in critical technology, critical infrastructure, or collecting sensitive personal data on U.S. citizens
- Any change in foreign investor rights
- Transactions in which a foreign government has a direct or indirect substantial interest
- Any transaction or arrangement designed to evade CFIUS
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Why is FIRRMA important?
According to a 2016 report by the Department of Commerce’s International Trade Administration, 12 million U.S. workers – 8.5 percent of the labor force – have jobs resulting from foreign investment, including 3.5 million jobs in the manufacturing sector alone.
Foreign investment provides substantial benefits such as productivity, innovation, and job creation to the U.S. However, there is growing concern regarding national security risks related to these foreign investments, particularly when the investments come from countries such as China and Russia. FIRRMA aims to protect national security, public order, and strategic interests by scrutinizing those investments that may lead to foreign control over critical infrastructure, technology, or resources.
FIRRMA imposes stringent review processes for foreign investments, requiring disclosure and assessment of potential risks. The act is intended to promote transparency and safeguard strategic interests, but it also adds layers of regulatory compliance for international investors, potentially affecting global investment flows and business operations.
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A key takeaway from both FIRRMA and the new regulations is that filing remains primarily a voluntary process. Mandatory filing applies to transactions within two specific categories:
- Investments by any investor (subject to certain exemptions) in certain technology, infrastructure, and data (TID) businesses involved with critical technologies
- Certain investments by foreign investors with substantial foreign government ownership (subject to certain exemptions) in any TID U.S. business
However, CFIUS retains the right to initiate reviews of non-notified transactions (defined as those that are not voluntarily filed with CFIUS).
Failure to make a mandatory filing may incur civil penalties not to exceed $250,000 or the value of the transaction, whichever is greater.
Because FIRRMA granted CFIUS increased hiring authority, the Committee has been able to build capacity and focus on non-notified transactions where it finds a national security concern or involves sensitive data about U.S. persons. Two examples of this:
- The Beijing Kunlun Wanwei Technology acquisition of a stake in Grindr, a company that collects personal user data. CFIUS ultimately ordered Kunlun to divest its interest.
- PatientsLikeMe’s acquisition by iCarbonX, a Chinese digital health company. CFIUS forced iCarbonX to divest its interest.
How you can ensure compliance with FIRRMA
FIRRMA’s mandatory filing requirements can impact both deal diligence and timing. For any investment or acquisition involving a U.S. business and a foreign person, corporate enterprises should assess CFIUS considerations as early as possible to avoid delays that may result from a CFIUS review.
Unless a foreign investor qualifies as an excepted investor (a national/foreign government of the Five Eyes countries, which include Australia, Canada, New Zealand, and the United Kingdom of Great Britain and Northern Ireland), enterprises should conduct due diligence on investments to assess FIRRMA-related risks and address potential CFIUS concerns.
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Request a personalized demo of Sayari Graph to learn how you can screen for potential risks associated with foreign investments to ensure compliance, protect national security interests, and make informed investment decisions.
