CFIUS Looks to Expand Jurisdiction Over Deals Near Sensitive Military Facilities
- The U.S. Department of the Treasury (Treasury Department), which chairs the Committee on Foreign Investment in the United States (CFIUS), published a Proposed Rule on May 5, 2023, in the Federal Register.
- The Proposed Rule would expand the list of sensitive military installations subject to review under CFIUS' authority, applicable to certain real estate transactions involving foreign investors or acquirers.
- Interested parties must submit written comments on the Proposed Rule to the Treasury Department by June 5, 2023.
The U.S. Department of the Treasury (Treasury Department), which chairs the Committee on Foreign Investment in the United States (CFIUS), published a Proposed Rule on May 5, 2023, in the Federal Register. The Proposed Rule would expand the list of sensitive military installations subject to review under CFIUS' authority, applicable to certain real estate transactions involving foreign investors or acquirers. Interested parties must submit written comments on the Proposed Rule to the Treasury Department by June 5, 2023.
CFIUS Jurisdiction Over Real Estate Transactions
Under the Foreign Investment Risk Review Modernization Act (FIRRMA), CFIUS has jurisdiction to review acquisitions by foreign investors of certain property rights in real estate within proximity to specified airports, maritime ports and military installations listed in Appendix A to 31 C.F.R. Part 802. Specifically, CFIUS has the authority to review real estate transactions involving foreign investors or acquirers within a 1-mile radius of installations listed in Part 1 of Appendix A or within a 100-mile radius of installations listed in Part 2 of Appendix A.
Currently, the regulations identify 211 sensitive U.S. military installations across the United States. The Proposed Rule would add eight new military installations to Appendix A, including seven U.S. Air Force bases principally involved in the ongoing development of the B-21 Raider stealth bomber aircraft, as well as the Iowa National Guard Joint Force Headquarters, all of which would be added to Part 2 and thus be subject to the expanded 100-mile geographic range. Importantly, the Proposed Rule, if adopted, would not change the filing requirements associated with real estate transactions, which would remain voluntary under CFIUS' real estate regulations (Part 802).
The eight additions to Appendix A include:
- Air Force Plant 42, Palmdale, California
- Dyess Air Force Base, Abilene, Texas
- Ellsworth Air Force Base, Box Elder, South Dakota
- Grand Forks Air Force Base, Grand Forks, North Dakota
- Iowa National Guard Joint Force Headquarters, Des Moines, Iowa
- Lackland Air Force Base, San Antonio, Texas
- Laughlin Air Force Base, Del Rio, Texas
- Luke Air Force Base, Glendale, Arizona
Growing Scrutiny: State and Local Governments Get Involved As Well
Over the past year, several high-profile U.S. real estate transactions have attracted scrutiny from a range of stakeholders, including the Biden Administration, Congress and state and local government officials. Growing concerns over the national security implications of Chinese purchases of U.S. agricultural land have brought a renewed focus to foreign investment in real estate, especially if it involves food security or close proximity to military or other sensitive government installations.
Most notably, the Proposed Rule includes Grand Forks Air Force Base on its list of additions to Appendix A. As analyzed in an article by Holland & Knight attorneys, in recent months, Grand Forks Air Force Base has been the subject of extensive media coverage after lawmakers at the federal, state and local levels expressed concerns over the purchase of a 370-acre greenfield site in Grand Forks – less than 15 miles from the base – by Chinese food manufacturer Fufeng Group to build a wet corn milling facility. Fufeng filed with CFIUS, and in December 2022, CFIUS notified Fufeng that the transaction was not an acquisition of U.S. business and therefore not subject to CFIUS jurisdiction under Part 800. CFIUS did not mention its authority under Part 802, which deals with real estate, but since the base was not listed in Appendix A to Part 802, CFIUS would not have had jurisdiction to block the investment as a covered real estate transaction either. Fufeng's efforts to move forward with the project were ultimately halted by the City of Grand Forks after the U.S. Air Force communicated its "unambiguous" view that the project posed a significant threat to national security. Despite the decision by local authorities, Fufeng's acquisition sparked debate by lawmakers and industry over the apparent gap in CFIUS jurisdiction.
The Proposed Rule would expand the list of designated facilities subject to CFIUS jurisdiction. Whether an investment transaction is a pure real estate transaction or the acquisition of an existing U.S. business, which has certain property rights that fall within the purview of CFIUS jurisdiction, CFIUS considers whether the investment will result in the acquisition of rights to real estate in close proximity to sensitive U.S. government sites. The Proposed Rule, following shortly after the Fufeng transaction development, indicates that the list of designated facilities is dynamically reviewed and will change based on perceived risk locations and vulnerabilities.
The list of sensitive military installations had not been updated since the implementation of FIRRMA, so the addition of new sites to the specified list is not surprising. The timing and nature of the Proposed Rule demonstrates two important trends. First, the fact that the new military installations – including Grand Forks – were added on the heels of intense public scrutiny is another example of how CFIUS is responsive to political pressure. Second, the Proposed Rule is evidence that the U.S. Department of Defense (DOD) is engaged in a continuous evaluation of potential vulnerabilities presented by military installations – including those related to proximity and intelligence collection – and, as appropriate, will urge updates to the CFIUS regulations to reflect this evolving threat.
Foreign investments involving real estate or assets located in close proximity to military bases or other sensitive government installations should evaluate the effect on national security and CFIUS' interest in the transaction. Moreover, even if the real estate or assets are not in close proximity to sites that are expressly listed in Appendix A to 31 C.F.R. Part 802, but are nonetheless in close proximity to other military bases or other sensitive government installations or involve foreign investors or foreign acquirers that may present national security threats, parties to the proposed transaction should analyze whether any state or local laws may impact risk assessment and factor in how public or political pressure may alter the legal or regulatory landscape. In the Fufeng case, the investment was stalled by the refusal of the city council to proceed with issuing various permits.
If you have any questions about this alert, are interested in submitting written comments or seek assistance formulating a CFIUS strategy, please contact the authors or another member of Holland & Knight's CFIUS and Industrial Security Team. The team's attorneys have the knowledge and experience to conduct the necessary due diligence – including geographic proximity analyses – to identify covered real estate transactions, to prepare the necessary CFIUS risk assessments to equip business leaders with tools to evaluate regulatory risk and to help navigate the evolving national security landscape.
Information contained in this alert is for the general education and knowledge of our readers. It is not designed to be, and should not be used as, the sole source of information when analyzing and resolving a legal problem, and it should not be substituted for legal advice, which relies on a specific factual analysis. Moreover, the laws of each jurisdiction are different and are constantly changing. This information is not intended to create, and receipt of it does not constitute, an attorney-client relationship. If you have specific questions regarding a particular fact situation, we urge you to consult the authors of this publication, your Holland & Knight representative or other competent legal counsel.