Treasury Considering Extending Eligibility Deadline for CFIUS Excepted State Provision

The Treasury Department is considering extending the deadline by which three U.S. allies must meet certain criteria to remain eligible for a foreign investment review exemption, the agency said last week. Treasury’s proposed rule would extend the deadline for one year to give Australia, Canada and the United Kingdom more time to cement their positions as excepted foreign states and excepted real estate foreign states, which excludes them from certain screening requirements by the Committee on Foreign Investment in the U.S. Comments on the proposal are due Dec. 15.

Treasury first introduced the concept of excepted foreign states in 2020 with the implementation of the Foreign Investment Risk Review Modernization Act, which allowed CFIUS to review a broader range of foreign business dealings in the U.S. (see 2001140060). The excepted state provision -- which so far only applies to Australia, Canada and the U.K. -- provides certain foreign countries exemptions to the CFIUS process, sometimes allowing them to skip CFIUS clearance altogether (see 2109030039).

Treasury said it may extend the date by which all three countries’ governments must prove they are properly screening foreign investments, which will allow them to continue to be eligible for the excepted estate provision. The deadline for meeting that criteria is currently Feb. 13, 2022, but Treasury may extend it to Feb. 13, 2023.

To remain eligible for the excepted foreign state provision, the three countries’ governments must show they are adequately analyzing foreign investments for national security risks and working to “facilitate coordination” with the U.S. on investment security issues, Treasury said in the proposed rule. To remain eligible for the excepted real estate foreign states provision, the countries must show they have “made significant progress” in “establishing and effectively utilizing" a "robust" screening process, and that they are closely coordinating on investment security issues with the U.S.

Treasury said the deadline’s original two-year delayed effective date was intended to give the countries time to ensure their “national security-based foreign investment review processes and bilateral cooperation with the United States on national security-based investment reviews” met the excepted state provision’s requirements. “Extending the time period before which such requirements become applicable is desirable given certain ongoing changes to foreign investment review regimes,” the agency said. Industry lawyers have seen a sharp rise over the past few years in global foreign direct investment screening regimes, particularly ones more closely scrutinizing Chinese investments (see 2109070043).

The proposed rule would “make no change to any country’s status as an excepted foreign state or excepted real estate foreign state,” Treasury said. It also said it may make determinations on the eligibility of each of the three countries, or other countries, “at any time” before the deadline. The Biden administration could expand the list to additional countries, including potentially Japan and Germany (see 2109030039, 2105060056 and 2108030045), but lawyers said that may take time.