Treasury Issues Final Rule for CFIUS Declaration Requirements Involving Critical Technologies

The Treasury Department issued its final rule to modify mandatory declaration requirements for certain transactions involving critical technologies and made several revisions in response to industry comments. The changes include technical revisions and clarifications related to exemptions and the timing of determining whether a party must submit a declaration.

Under the final rule, which was first proposed in May (see 2005200032) and which will take effect Oct. 15, transactions involving critical technologies will require a declaration with the Committee on Foreign Investment in the U.S. if the technology would normally be subject to a U.S. export license. Although Treasury said commenters were “generally supportive of the proposed rule,” the agency made several changes based on what it said were valid concerns voiced by industry.

In one change, Treasury specified that parties must determine whether their transactions involve an export controlled critical technology -- and therefore require a declaration -- at the “earliest date of any of the conditions” of the transaction. The agency made the change at the suggestion of a commenter, who said it would be more convenient for parties to make that determination at the beginning of the deal rather than at the “closing of the transaction.” That way, if the Commerce Department unexpectedly imposes an export control on a critical technology involved in the transaction, and if the parties are close to completing the deal, they will likely not be subject to the mandatory declaration requirements.

Although Treasury said that “in most circumstances, parties can reasonably anticipate if a transaction will meet the criteria” of a critical technology, the agency said some circumstances are “reasonably outside the control of parties.” The “determination of what constitutes a critical technology shall be assessed as of the earliest date” possible, Treasury said.

After receiving requests from industry, the agency also included an “explanatory note” in the final rule to clarify “what it means to be ‘eligible’ for the [Export Administration Regulations] license exceptions.” For the purposes of a “CFIUS exception to the mandatory declaration,” Treasury said, “eligibility” for a license exception means “having satisfied any requirements imposed by the EAR that must be satisfied prior to export.” The agency said this clarification will help parties determine whether they need to submit a mandatory declaration or “comply with the eligibility requirements under the relevant EAR license exception and hence be excepted from the CFIUS declaration requirement.”

Another commenter suggested that Treasury raise the “applicable voting interest threshold” from 25% to 50%, which would raise the threshold for people in ownership chains that are analyzed for export license and authorization purposes. Treasury disagreed with that suggestion, saying a threshold as high as 50% could “exclude interest holders that could wield significant influence over the U.S. business, including with respect to its critical technologies.”

Because the new declaration requirements take effect Oct. 15, the existing declaration requirements for critical technologies will still apply to transactions “for which specific actions occurred” on or after Feb. 13 and prior to Oct. 15.