New Export Control Test For CFIUS Mandatory Critical Technology Filings – Government, Public Sector


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New Export Control Test For CFIUS Mandatory Critical Technology Filings


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On September 14, 2020, the U.S. Department of Treasury, as Chair
of the Committee on Foreign Investment in the United States
(CFIUS), published
final regulations
changing the mandatory CFIUS declaration
requirements for transactions involving U.S. businesses that
produce, design, test, manufacture, or develop  critical
technologies. Previously, the regulations provided that a CFIUS
declaration was mandatory for certain critical technology
transactions where the U.S. business involved was part of a listed
industry.  The new regulations provide that a CFIUS
declaration is mandatory where the critical technology would
require a “U.S. regulatory authorization” for export,
re-export, transfer (in-country), or re-transfer of such technology
to certain parties or foreign persons in the ownership chain. 
In short, if a U.S. company would need an export license to
transfer technology (know how required to develop, produce or use
an export controlled product) to a foreign purchaser of the U.S.
company, CFIUS review is mandatory.

The new regulations follow Treasury’s issuance of a proposed
rule on May 21, 2020, as discussed in greater detail in our
previous blog post
.  These final regulations take effect
October 15, 2020, and would not apply to transactions completed
before October 15, 2020.

The new regulations will result in an increased number of
mandatory CFIUS filings for certain countries, especially China and
Russia, that have stringent export control requirements. 
Companies will need to shift from conducting due diligence based on
the industry of the target business to analyzing whether an export
license would be required to release the U.S. business’s
critical technology either to the non-U.S. company acquirer or to a
person with 25 percent or more voting interest in the
acquirer.  CFIUS notes that this voting percentage can apply
in certain cases to the acquirer’s general partner, or
equivalent.

Where a mandatory declaration is required, it must be filed
prior to the completion of the transaction.  Failure to timely
file can result in significant penalties – up to the
transaction value.

We are happy to help your company understand how this final rule
or related CFIUS developments may impact your business.

Originally published by Kelley Drye, October 2020

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.

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