United States: Impacts Of New CFIUS Pilot Program On Investment Funds

Last Updated: November 13 2018
Article by Robert G. Sawyer and Ayah K. Zaidi

On October 10, 2018, the Department of the Treasury, which oversees the Committee on Foreign Investment in the United States ("CFIUS"), released interim regulations to implement portions of the Foreign Investment Risk Review Modernization Act of 2018 ("FIRRMA"), which was enacted in August.

The interim rules defined a new pilot program that will 1) significantly expand CFIUS's mandate (previously limited to the review of "controlling" foreign investments in U.S. businesses for national security implications) to now include certain non-controlling, non-passive investments by foreign persons, including investment made indirectly through U.S. entities such as investment funds. The newly covered transactions involve foreign investment of any magnitude in companies involved with "critical technologies" within 27 specified industries; and 2) impose a mandatory filing requirement for all non-passive investments by foreign entities in covered U.S. businesses, at the threat of potentially significant penalties. There is no minimum amount or equity percentage threshold for qualifying investments. The pilot program will take effect on November 10, 2018.

This Alert provides an overview of the pilot program and its coverage with respect to investment funds.

Mandatory Declarations for Pilot Program Covered Transactions

The interim regulations under FIRRMA require CFIUS review of certain foreign investments in a U.S. business covered by the pilot program – either in the form of a "declaration" filing or the traditional, joint voluntary notice. The short-form declaration is a notice, approximately five pages in length, requiring details concerning the transaction, the investor and its owners, the pilot program U.S. business, all sources of financing and an explanation of the rights the foreign person will acquire, among other things.

The pilot program does not apply to transactions that close prior to November 10, 2018 or to transactions where prior to October 11, 2018, (i) the parties executed a binding written agreement or other document establishing the terms of the transaction, (ii) a party made a public offer to shareholders to buy shares of a pilot program U.S. business, or (iii) a shareholder solicited proxies in connection with the election of the board of directors of a pilot program U.S. business or requested the conversion of convertible voting securities.

Timing is critical to consider for investments taking place during or after this implementation period:

  • For covered transactions that are scheduled to close from November 10, 2018 to December 25, 2018, parties must file a declaration on or promptly after November 10, 2018. CFIUS will have 30 days to review and act on such declarations, according to the regulations, although it is possible they will prioritize review of earlier filings, or for earlier targeted closing dates.
  • For covered transactions that will close after December 25, 2018, parties must file a declaration with CFIUS at least 45 days prior to completing the transaction

Pilot Program Covered Businesses

Applicability of the new pilot program to an investment will depend on both the nature of the U.S. businesses involved in the transaction, as well as the rights granted to foreign investors with respect to their investment in those businesses.

The interim regulations will make CFIUS review a mandatory component of many foreign investments or transactions. Nearly all such investments pertaining to "pilot program U.S. businesses," will be covered. A covered U.S. business is one that produces, designs, tests, manufactures, fabricates, or develops one or more "critical technologies"1 that are used and designed for one or more of 27 specified industries.

Pilot Program Covered Transactions

The pilot program applies to any direct or indirect investment in a pilot program U.S. business by a foreign person or entity, which includes non-controlling, non-passive investments by foreign investors. Mandated filings must be submitted to CFIUS for review if any foreign investor:

  • receives access to any material, nonpublic technical information in the possession of the target U.S. business;
  • obtains membership or observer rights on the board of directors or equivalent governing body, or the right to nominate an individual to a position on the board or its equivalent, of a pilot program U.S. business; or
  • has any involvement other than through voting of shares, in substantive decision-making of the pilot program U.S. business regarding the use, development, acquisition, or release of critical technology.

Limited Exemption for Investment Funds

The pilot program provides an exemption for an indirect investment by a foreign person through an investment fund in a pilot program U.S. business that gives the foreign person membership as a limited partner or equivalent (including where the foreign person may have the right to serve on an advisory board or a committee of the fund) so long as:

  • The fund is managed exclusively by a general partner, managing member or equivalent that is not the foreign person (effectively this requires the fund be managed by U.S. persons);
  • The advisory board or committee does not have the ability to approve, disapprove or control investment decisions of the fund or decisions by the general partner, managing member or equivalent with respect to the fund's investments;
  • The foreign person does not have the ability to otherwise control the fund; and
  • The foreign person does not have access to material nonpublic technical information as a result of its participation on the advisory board or committee.

Certain advisory board rights, such as waiver of potential conflicts of interest, allocation limitations and similar activities are not considered to constitute control of the investment decisions of the fund except in extraordinary circumstances. While the carve out described above may take some investments outside the scope of the pilot program and mandatory reporting, examples of scenarios that may still trigger a review include:

  • A foreign investor serves on the advisory board of a fund with access to information that may be considered material nonpublic technical information. This may be more common, for example, in funds focused on investing in technology with significant advisory board engagement in review of the fund's portfolio;
  • A foreign limited partner with the authority to unilaterally dismiss the general partner; and
  • Certain investment structures, such as "funds-of-one", separately managed accounts and co-investment vehicles, where a foreign investor (or a small group of foreign investors) may have more control than a passive limited partner typically would.


Any fund managers with foreign investors should review their relevant fund documents (including side letter arrangements with any foreign persons) and any applicable side letter agreements as soon as possible to determine whether the rights granted to such investors may trigger mandatory CFIUS filings, which go into effect November 10, 2018. Additionally, if the fund will not qualify for the investment fund exemption described above, any pending investments must be analyzed to determine whether the transaction will require a declaration filing. This analysis is highly fact-specific and each investment should be carefully reviewed to determine whether a filing will be required. If a declaration is in fact required, expectations of parties need to be reset regarding timing in order to build in the ability to prepare, present and complete the required waiting periods for the filing. Please contact your Foley Hoag lawyer with any questions.


1. "Critical technologies" is defined in accordance with U.S. export-controlled technologies, and captures many items and technologies controlled under Export Administration Regulations, as well as other items and technologies including defense articles subject to the International Traffic in Arms Regulations, nuclear and chemical/biochemical controls, and "emerging and foundational technologies" (these last are still to be defined by the U.S. Department of Commerce).

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Similar Articles
Relevancy Powered by MondaqAI
In association with
Related Topics
Similar Articles
Relevancy Powered by MondaqAI
Related Articles
Related Video
Up-coming Events Search
Font Size:
Mondaq on Twitter
Mondaq Free Registration
Gain access to Mondaq global archive of over 375,000 articles covering 200 countries with a personalised News Alert and automatic login on this device.
Mondaq News Alert (some suggested topics and region)
Select Topics
Registration (please scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.


The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.


Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions