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Planning on registering a company in the US? This article will provide you with some valuable insights into how investment activities in the US are regulated.

The US government tries to maintain a healthy balance between conducting an FDI policy and verifying US companies’ acquisitions. 

Investing in the US financial sector requires indepth knowledge of legislation in this jurisdiction. Foreign investment in the US gets regulated as per FIRRMA, which has been authored, complied and issued by CFIUS. This piece of legislation deals primarily with acquisitions related to critically important infrastructure & technologies, as well as sensitive information and facilities situated in the vicinity of military installations. 

CFIUS concerns itself with analyzing risks some investments may pose to the national security of the United States, including but not limited to, correlation between potentially hazardous weaknesses (i.e. whether a US business ending up being controlled by citizens of other countries can be detrimental to the country’s security) and menaces (i.e. whether citizens of other countries investing in US business undertakings are capable of or going to jeopardize the security of the United States). 

CFIUS’s Scope of Powers

CFIUS is empowered to verify US businesses’ acquisitions or financing of US businesses. It can also or cancel any such transactions. 

CFIUS can also control non-domestic investment in the United States which may result in investors gaining control over any judicial or physical entity in the US. If you are planning on registering a joint venture in the US, you should keep in mind that  may also control such an investment, especially if it is related to a property that is not deemed a business.

The term ‘control’ stands for participating in voting, reaching cooperation deals with financiers, as well as being able to exercise influence over essential corporate-related matters (i.e. selling US companies’ assets, reorganizing, shutting down or relocating facilities, as well as concluding substantially priced contracts). 

As per FIRRMA, obtaining permission for investing in US companies involved in critically important technologies or infrastructure, as well as confidential personal data, requires submitting an application to . As per the Pilot Program, any investment which can provide foreign citizens with direct or indirect rights entitling them to exercise control over US companies involved in production of critically important technologies must be reported to CFIUS. 

Defining Foreign Nationals

If you are considering launching an investment project in the US, you should keep in mind that CFIUS defines any foreign citizen, government or legal entity operated by non-US citizens as a foreign agent. The definition ‘foreign agent’ also extends to any legal entity established in accordance with legislation of a foreign country if its main commercial undertaking is located outside the US, or if it is listed on foreign exchanges, unless such an undertaking is able to prove that US citizens possess its controlling stake. 

Special Rights for SOE or SWF

If you are thinking about registering an SWF in the USA or establishing an SOE in the USA, you should bear in mind that SOEs and SWFs are to undergo mandatory verifications by CFIUS. 

Legislative Threshold

As per the Pilot Programme, registering critical technological transactions in the USA is mandatory. CFIUS can launch a probe into a transaction prior to or after it is made, unless the parties to the deal have voluntarily submitted it for verification. Given the risks stemming from the deal’s cancellation, the parties should apply for a CFIUS permit regarding transactions that meet legal requirements and are potentially hazardous to the national security of the United States.

Reviewing a Transaction

If you are considering a possibility of registering an FDI company in the US, you should be bear in mind that CFIUS regulations require you to submit an application to CFIUS. Following its review, CFIUS is to put forth a recommendation or issue a 2-week notice, providing the parties have made a provision in their contract that the deal falls within its  jurisdiction. Then,CFIUS has forty five days for to conduct initial review, following which it will either authorize the deal or commence a 2nd stage of review (another forty five days which may extended by fifteen more days). 

Objecting to or Terminating a Deal

If authorized bodies ensured that investing in projects on US soil which are related to critically important technologies, confidential data or infrastructure may damage US security, they can suspend or terminate a deal. 

Can a CFIUS Verdict Be Appealed?

Normally, after receiving a negative verdict from CFIUS, the parties will suspend it and revoke their application.

Confidential Data

Any data furnished to the CFIUS is considered confidential. The Charter of CFIUS makes it illegal to divulge any data which has been received without explicit consent of the parties. provided they have observed specific limitations related to the security of the United States and intergovernmental collaboration.

Legal Advice

Looking for legal advice pertaining to FDI, investment projects in the US, registering an FDI company or investing in the US financial sector? IQ Decision UK is the answer! Our lawyers are always on standby to provide you with expert assistance!