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CFIUS Issues Final Rule Revising the Mandatory Declaration Requirement for Foreign Investments in US Businesses Involved with Critical Technologies

September 15, 2020

The Committee on Foreign Investment in the United States (“CFIUS”) amended its regulations governing the review of certain foreign Investments in US businesses today with publication of a final rule revising the criteria triggering mandatory declarations. This rule addresses mandatory declarations for certain foreign investment transactions in US businesses involved with critical technologies. Since November 2018, when CFIUS first implemented interim rules defining such transactions, whether this requirement applies has turned in part on the US business’s industry code under the North American Industry Classification System (“NAICS”). Effective October 15, 2020, the regulations will eliminate the NAICS classification factor. Instead, whether a transaction must be declared will depend solely on the sensitivity of the U.S. business’s technology under US export control regulations.

The final rule closely follows, with a few technical changes and clarifications, the proposed rule issued by CFIUS in May 2020 and discussed in our prior alert, CFIUS Proposes Revision to Mandatory Declaration Requirement for Foreign Investments in US Businesses Involved with Critical Technologies. The final rule heightens the need for parties to foreign investments involving critical technologies to conduct appropriate due diligence on the export control classifications of a US business’s products and technology.

Current Regulations

The current regulations mandate declaration of “covered control transactions” or “covered investments” in US businesses that (1) produce, design, test, manufacture, fabricate, or develop one or more “critical technologies” and (2) that are used in connection with 27 industries identified by NAICS codes. “Critical technologies” means items controlled pursuant to: (1) the International Traffic in Arms Regulations (“ITAR”); (2) certain controls of the Export Administration Regulations (“EAR”); (3) nuclear-related equipment and materials; (4) select agents and toxins; and (5) “emerging and foundational technologies.”

The NAICS was developed for federal agencies to classify US businesses for statistical purposes, but it was not designed with national security in mind. As a result, both practitioners and investors expressed frustration with using the system as a reference point for the mandatory declaration requirement, in part, because of potential over-inclusion of US businesses that do not pose a risk to national security.

Regulations under the Final Rule

The final rule addresses these concerns by removing the NAICS code criteria. Instead, the mandatory declaration requirement related to critical technologies will now solely depend on the export licensing or authorization requirements applicable to the US business’s products and technology. Specifically, mandatory declarations will apply only if―

  1. a U.S. business produces, designs, tests, manufactures, fabricates, or develops “critical technologies;”
  2. such critical technologies would require a “regulatory authorization” to export to an investor’s country; and
  3. the investor will either (a) directly control or acquire the U.S. business involved in the transaction, or (b) individually or in aggregate with other foreign investors, hold a direct or indirect voting interest of 25% or more in the investing entity.

A “regulatory authorization” is a license, approval, or authorization from: (1) the State Department under the ITAR; (2) the Commerce Department under the EAR; (3) the Energy Department; or (4) the Nuclear Regulatory Commission, as applicable.

Importantly, with narrow exceptions, the determination of whether an export transaction requires a “regulatory authorization” depends on the controls applicable to exports of the US business’s “critical technologies” to the investor’s country without regard to eligibility for a license exemption under the ITAR or a license exception under the EAR. The only exceptions are for EAR license exceptions for encryption (“ENC”), technology and software unrestricted (“TSU”), and strategic trade authorization (“STA”). If at least one of these exceptions applies, then the transaction will be exempt from the mandatory declaration requirement. If, however, the US business’s “critical technologies” are eligible for export without a license under any other license exception, but not ENC, TSU, or STA, then a mandatory declaration will still be required.

Effective Date

The final rule will become effective on October 15, 2020. Transactions that are completed, or for which a binding written agreement is executed, prior to October 15, will not be subject to the final rule.


While eliminating a source of uncertainty regarding when parties to a covered transaction must notify CFIUS, the final rule increases the importance of assessing a US business’s “critical technologies” under applicable US export control classification regulations. Previously, if a business fell outside of the 27 relevant NAICS codes, then it was unnecessary for mandatory filing purposes to determine the applicable export licensing requirements. For transactions under the amended rule, however, complete and accurate assessments of the relevant technology controls are essential to avoid violating the mandatory declaration requirements and consequent potential for significant fines.

This memorandum is a summary for general information and discussion only and may be considered an advertisement for certain purposes. It is not a full analysis of the matters presented, may not be relied upon as legal advice, and does not purport to represent the views of our clients or the Firm. Greta Lichtenbaum, an O’Melveny partner licensed to practice law in the District of Columbia, Theodore W. Kassinger, an O’Melveny of counsel licensed to practice law in the District of Columbia and Georgia, Mary Pat Dwyer, an O’Melveny counsel licensed to practice law in the District of Columbia and Pennsylvania, David J. Ribner, an O’Melveny counsel licensed to practice law in the District of Columbia and New York, and Paras Shah, an O’Melveny associate licensed to practice law in New York, contributed to the content of this newsletter. The views expressed in this newsletter are the views of the authors except as otherwise noted.

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