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Lowenstein Sandler LLP

Abbey E. Baker

Abbey E. Baker

Counsel

Expertise

  • Global Trade & Policy
  • Corporate
  • Corporate Investigations & Integrity
  • Life Sciences

WSG Practice Industries

Activity

Profile

Abbey advises domestic and foreign companies on navigating dynamic trade policies, remaining compliant with U.S. and foreign regulatory requirements, and managing and reducing liabilities in cross-border M&A and investment transactions, agreements, and distribution contracts for foreign sales. She counsels clients on a broad array of trade compliance issues, including import and export controls, economic sanctions on foreign countries (including Iran, Cuba, North Korea, and Russia/Crimea), secondary sanctions on third-country entities, anti-bribery compliance, anti-boycott compliance, Committee on Foreign Investment in the U.S. (CFIUS) and Foreign Investment Risk Review Modernization Act (FIRRMA) reviews and filings, U.S. Customs and Border Protection (CBP) procedures and regulations, USCIS Form I-129 Part 6 Certifications, and sanctions issues pertaining to EB-5 immigration matters.

Abbey works with businesses and entrepreneurs seeking to expand their market position in the global economy. Her experience analyzing, identifying, and leveraging opportunities for doing business worldwide while avoiding the pitfalls associated with global trade has allowed her to guide clients through obstacles in regions around the world. She remains diligently focused on ensuring her clients are in alignment with U.S. trade regulations through the creation of comprehensive compliance programs, including tailored manuals, trainings, and other effective risk management materials. Abbey also performs internal investigations and audits, restricted party and other trade compliance diligence, and trade controls liability assessments. Training program topics include the International Traffic in Arms Regulations (ITAR), the Export Administration Regulations (EAR), the Foreign Corrupt Practices Act (FCPA) and U.K. Bribery Act, and U.S. embargoes and sanctions.

Notably, Abbey delivers honed skill in the aerospace and aviation industry as well as in trade in defense articles and services. She regularly assists clients in trade in technology; trade in health care products and medical devices; country of origin determinations; Bureau of Economic Analysis (BEA) inbound and outbound foreign investment filings; customs seizures; import and export classifications; CBP ruling requests; and obtaining licenses from and navigating the disclosure process under the Department of Commerce's Bureau of Industry and Security (BIS), the Department of State's Directorate of Defense Trade Controls (DDTC), and the Department of the Treasury's Office of Foreign Assets Controls (OFAC).

Bar Admissions

    District of Columbia
    Massachusetts

Education

American University Washington College of Law (J.D. 2011)
University of Massachusetts Boston (2008), summa cum laude
Areas of Practice

Corporate | Corporate Investigations & Integrity | Global Trade & Policy | Life Sciences | The Tech Group | White Collar Criminal Defense

Professional Career

Professional Associations

Member, Massachusetts Bar AssociationMember, American Bar Association


Professional Activities and Experience

Accolades
  • Rising Star - Super Lawyers - Abbey Baker
  • D.C. Bar Pro Bono High Honors - Abbey Baker
  • D.C. Court of Appeals and D.C. Superior Court Capital Pro Bono High Honor Roll - Abbey Baker

Articles

DOE’s Recent RFI Specifies “Foreign Adversaries” – What Does it Mean?
Lowenstein Sandler LLP, July 2020

What You Need To Know: Recent events emphasize the effect of the U.S.-China relationship on imports, exports, and foreign investment. Companies should consider looking closely at whether and how their products or services could be considered a national security concern in a variety of regulatory capacities, including foreign investment, export controls, and even real estate...

U.S. Companies Required to Report Foreign Investments: BEA’s Little-Known Reporting Requirements
Lowenstein Sandler LLP, July 2020

Many U.S. companies are unaware that a relatively unknown agency, the Bureau of Economic Analysis (BEA) at the Department of Commerce, administers mandatory reporting requirements that oblige ALL U.S. businesses to file reports identifying foreign direct investment (FDI).Reports are filed at the inception of the investment andthen every five years in a follow-up “benchmark survey.”Additionally, the BEA will contact certain companies tomake additional filings...

DOD Seeks to Match Investors With Technology Companies
Lowenstein Sandler LLP, April 2020

The U.S. Department of Defense (DOD) is presenting an opportunity for U.S. companies and investors alike: the recently established Trusted Capital Program...

Additional Articles

The U.S. Department of Treasury’s Office of Foreign Assets Control (OFAC) has been active in exerting control over digital assets. So what can cyber currency users, hosts and financial institutions do to stay on the right side of the law?

The recent 2019 Congressional hearings and regulatory scrutiny on cryptocurrency highlighted the provocative nature of the innovation. And, while federal authorities from the Securities and Exchange Commission (SEC) and Commodity Futures Trading Commission (CFTC) continue to test competing theories over whether this technological medium is a security or a medium, other agencies are pressing ahead with traditional applications of longstanding law.

The U.S. Department of Treasury’s Office of Foreign Assets Control (OFAC) has been active in exerting control over these digital assets and has taken some noteworthy action. OFAC administers approximately 30 unique economic and trade sanctions programs in order to keep funds and resources away from terrorists, drug traffickers, oppressive government regimes and other entities that are involved in activities that the U.S. views as a threat. 

For example, OFAC responded to the issuance of Venezuela’s state-sponsored digital coin, the petro, as well as the public’s growing concern as to how OFAC would treat digital currency by publishing a number of “FAQs” on its website. In its FAQs, OFAC assures the public that sanctions obligations are the same, regardless whether a transaction is completed in traditional or digital currency.

Companies in the digital currency industry have also been hearing privately from OFAC about transactions that potentially violate sanctions. In its FAQs, OFAC has specifically reminded digital currency platforms that “persons that provide financial, material, or technological support for or to a designated person may be designated by OFAC under the relevant sanctions authority.” This means that cryptocurrency platforms under OFAC jurisdiction are prohibited from allowing OFAC restricted parties use of the platform or the currency. Adding to the complexity is that OFAC sanctions apply not only to the directly listed party, but also to any parties owned or controlled by an SDN.

What can cyber currency users, hosts and financial institutions do to stay on the right side of the law?

Understand whether OFAC rules apply to your company. OFAC employs long arm jurisdiction over many entities that are not directly based in the U.S., and those that have U.S. ownership or control, transact in U.S. goods or U.S. currencies, or even those who cause U.S. persons to violate OFAC rules. 

Improve internal compliance. OFAC specifically recommends that parties involved with cryptocurrencies “develop a tailored, risk-based compliance program, which generally should include sanctions list screening and other appropriate measures.” Companies should have internal cross-department trainings that discuss the new OFAC programs and the risks. 

Report to OFAC when a transaction is blocked or rejected as OFAC’s new reporting requirement has also implemented a new rule requiring U.S. persons to file reports. 

OFAC has made it clear that it is, and will continue to prioritize the regulation of cryptocurrencies. In late 2018, for the first time OFAC added two Bitcoin addresses to the Special Designated Nationals (SDN) list, a list of entities with whom no U.S. parties may transact. The addresses were associated with Iranian nationals who were sanctioned for ransomware cyberattacks. In August 2019, OFAC added two additional bitcoin addresses to the SDN list, this time the addresses were associated with Chinese drug traffickers.

In 2019 alone, OFAC issued more than $1 billion in fines. Those fines ranged from anywhere from about $13,000 to over $650 million. Being listed on OFAC’s SDN list will immediately cut a company off from all U.S. businesses, and from most of the world’s banking industry. So, as we continue to learn just how the regulation of digital currency will play out, ensure that your company knows what rules apply and has a plan to play within the lines.

Reprinted with permission from the February 19, 2020, edition of Legaltech News.

© 2020 ALM Media Properties, LLC. All rights reserved.

Further duplication without permission is prohibited. ALMReprints.com – 877.257.3382 - [email protected].

In today’s trade policy environment, it seems as if there is a new business risk every day. One day, it is sanctions on Chinese entities for doing business in North Korea; the next day, it is the activities of Russian oligarchs. Then companies are hit with four waves of increased import duties on steel, aluminum, and most raw materials and finished products from China. Even if firms are not importing on their own, US manufacturers are receiving “the letter” stating that they must pay additional fees on parts and other inputs. Sometimes the affected products simply involve imported packaging or aluminum can made in America from imported raw material. With so much change and uncertainty, how do investors identify and evaluate these and other trade-related risks that may impact their portfolio companies?

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The U.S. Department of the Treasury’s Office of Foreign Assets Control (OFAC) doesn’t care whether a company means to violate the law or is unaware of U.S. sanctions. The regulatory organization’s role is to dole out significant penalties and even jail time for violations and it’s turning its sights on the tech world.

Many startups reason that since they aren’t technically financial institutions or operating off of open source code, they aren’t subject to stifling and irritating regulations.

However, when it comes to U.S. sanctions, these companies are wrong, and that ignorance can lead to significant consequences. Recent headline-making OFAC cases such as Chinese telecom giant ZTE being fined $1.2 billion or the high-drama Canadian arrest of Huawei CFO Meng Wanzhou have underscored the impact of violating U.S. sanctions laws.

President Trump’s Executive Order No. 13884 significantly expanded U.S. economic sanctions against the Government of Venezuela.

The EO took effect Aug. 5, and authorizes two types of sanctions: primary sanctions and secondary sanctions. Primary sanctions apply to transactions with a nexus to the U.S., such as those involving U.S. entities, goods, or services.

Secondary sanctions can target a person or company involved in a Venezuelan transaction even if there is no U.S. nexus. The imposition of secondary sanctions can block an entity from doing business in the U.S. and can even affect its ability to transact abroad.

Primary Sanctions

All property and interests in property of the government of Venezuela are now fully blocked. The EO provides that no “United States Person” can have any dealings, unless otherwise exempted, with the government of Venezuela. A “United States Person” is a U.S. citizen, permanent resident alien, entity organized under the laws of the U.S. or any jurisdiction within the U.S. (including foreign branches), or any person located in the U.S.

The “Government of Venezuela” is defined to include any political subdivision, agency, or instrumentality of the government of Venezuela, including the Central Bank of Venezuela and Petroleos de Venezuela, S.A. (PdVSA). It also includes any entity owned or controlled, directly or indirectly, by the Venezuelan government or any person who has acted or purported to act directly or indirectly on the government’s behalf. This includes members of the Maduro regime.

While this definition of the government of Venezuela does not include all private persons and companies within Venezuela, it may implicate commercial business in Venezuela that either have some government ownership, government control, or are directly or indirectly acting on the Venezuelan’s government’s behalf.

This means that those doing business in Venezuela must vet their business partners carefully to identify any government ownership or other government nexus. 

Secondary Sanctions

The EO allows the U.S. government to block all the property of any individual or company worldwide if it is found to have materially assisted, sponsored, or provided support to the government of Venezuela or any party listed under the EO as a specially designated nationals and blocked person (SDN). This sanctioned activity is deemed to include the provision of goods and services or other financial, material, or technological support.

These secondary sanctions now place any person or company anywhere in the world in jeopardy of being locked out of the U.S. economy if they facilitate or provide support to the government of Venezuela as defined above. Some potentially affected actors might include insurance companies, brokers, freight forwarders, distributors, sales agents, service providers, or financial institutions.

Accordingly, any company doing business in Venezuela needs to understand how these new requirements will affect its business. It will likely have to choose carefully if it can do business with Venezuela or possibly risk losing the ability to do business in the U.S. This is a major decision and must be analyzed correctly so that the company itself is not targeted by the U.S. for a violation of the secondary sanctions, and added to the SDN List.

Note that there are exemptions related to food, clothing, and medicine. In addition, OFAC has authorized general licenses for personal remittances, international organizations, receipt and transmission of telecommunications and mail and packages, services, software or technology incident to exchange of certain communications over the Internet and humanitarian projects, democracy building, educations and environmental protection in Venezuela. 

Proceed With Caution

Before your company proceeds with a Venezuela-related transaction, you should ensure it:

  1. Conducts due diligence inquiries, such as screening and background checks, regarding all parties to the transaction to insure that no party to a proposed transaction could arguably fall within the definition of “Government of Venezuela” as defined above.
  2. Keeps complete written records for five years of your due diligence inquiries and applicable general license exemptions.
  3. Maintains a memo for five years explaining why you have concluded the transaction does not involve a party that could arguably fall within the definition of “Government of Venezuela” as defined above.
  4. Ensures that you notify your financial institution as to why the proposed transaction does not violate U.S. sanctions so that it won’t be rejected. 
  5. Reviews the U.S. Export Administration Regulations (EAR) for additional restrictions on U.S. and non-U.S. persons exporting or re-exporting items subject to U.S. export control jurisdiction to Venezuela.
  6. Notifies OFAC within 10 business days if your company blocks or rejects a transaction due to any sanctions program, including Venezuela. Failure to file with OFAC a required report may itself constitute a violation.

President-elect Trump recently targeted General Motors Co. and Ford Motor Co. over trade issues, threatening to impose import taxes based on their overseas manufacturing. The retail and manufacturing industries responded quickly, condemning such measures and the resulting cost to American consumers. Trump has made numerous claims about overhauling U.S. trade policies, but what is the real potential for major change and how will it impact our local economy?

Trump vowed to renegotiate or terminate the North American Free Trade Agreement (NAFTA). Is this possible? Probably.

Though the President arguably can pull out of NAFTA without Congressional approval, the political and economic realities likely do not support such a unilateral move. If the U.S. did successfully withdraw, the agreement would remain in force between Mexico and Canada, leaving the U.S. as the outside man. Similarly, withdrawal without Congressional approval would release Mexico and Canada from obligations, leaving only the U.S. bound to the statutorily implemented NAFTA rules. U.S. companies could lose access to relied upon NAFTA dispute resolution mechanisms.

Moving forward, the U.S. and Canada could reestablish the Canada-United States Free Trade Agreement, but U.S.- Mexico trade relations would revert to World Trade Organization agreements and disproportionately increase duties between the U.S. and Mexico. Taxes on imported Mexican goods would increase only an average of about 3.5 percent, while tariffs on certain U.S. exports to Mexico could skyrocket to 36 percent.

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Every day we hear more and more about the changing landscape of American–Iranian politics, and, if you read the newspapers, it looks like some U.S. businesses are beginning to benefit. It’s a good potential market. There are approximately 80 million consumers, a young population and an interest in U.S. goods and investment in the United States. But, what is really allowed and what does that mean for Iranian EB-5 investors? Is unencumbered Iranian investment in the U.S. the new reality?

The short answer is, no. It’s not that simple. But there are opportunities, and EB-5 investment is possible if you do your homework and stay compliant with the rules.

EB-5 Investment Procedures
An Iranian investor looking to obtain a U.S. EB-5 Visa through investment in a regional center must go through a variety of procedures in order to utilize the EB-5 program. First, potential investors need to determine whether their EB-5 funds transfer falls within the Department of Treasury’s Office of Foreign Assets Control’s (“OFAC”) General License. They may need an opinion letter from legal counsel providing financial institutions evidence that the transfer does not violate the sanctions program. Restricted party screenings must also be completed to ensure the individuals and entities involved in the investment are not U.S. government prohibited parties. Such parties are restricted from doing business in the United States or with a U.S. Person (this includes U.S. businesses).

U.S. foreign policy is moving fast these days, especially when it comes to sanctions and the aviation industry. While U.S. aviation and leasing has not been given a complete go-ahead, steady changes are continuing to open aviation markets in both Iran and Cuba. Everyone should pay attention to the details, because most aircraft have at least some small amount of U.S. content, falling under U.S. rules.

Commercial Aviation Sales and Leasing in Iran

On Jan. 16, 2016, it was confirmed that Iran implemented key nuclear-related measures described in the Joint Comprehensive Plan of Action (JCPOA). This confirmation triggered Implementation Day, the day that the U.S. and other parties agreed to lift nuclear related-sanctions against Iran. These lifted sanctions generally relate to secondary sanctions or those imposed by the U.S. government against non-U.S. persons.

Although U.S. parties are still prohibited from entering into most activities with Iran, there are exceptions for the U.S. civil aviation industry. These changes include the adoption of a Favorable Licensing Policy for commercial airline transactions. Specific licenses may be issued on a case-by-case basis and may authorize various activities such as export, re-export, sale, lease, or transfer of commercial passenger aircraft, spare parts and components, and the provision of certain associated services. Conditions may apply, so always carefully read any license you obtain and consult export counsel.

While CFIUS can’t stop a U.S. company from relocating overseas just because the committee decides that some dating data is a national security risk, companies should be aware of CFIUS’ powers so they don’t get caught having a classic Gavin Belson meltdown at the 11th hour.

In the final season of HBO’s tech-focused comedy series, “Silicon Valley,” the show brought to light a little-known but long-standing government committee with the ability to control, and even block, foreign investment in the United States.

In Season 6, fictional mega-corporation Hooli’s CEO, Gavin Belson, suffers major disappointment when he finds out the U.S. government is blocking his latest Hail Mary cost-cutting scheme. In the show, Belson goes on a tirade when a mysterious committee called the Committee on Foreign Investment in the United States, or CFIUS, puts the quash on his plans to move the company to the country of Georgia due to national security concerns based on a U.S. general’s use of a Hooli app that helps U.S. military personnel find illicit romantic encounters abroad. Is this for real? Can CFIUS really stop U.S. companies from activities like relocating?

Spoiler alert: not exactly. While the government can stop you from sending technology overseas (that’s a story for another article), CFIUS can’t stop a U.S. company from relocating overseas just because the committee decides that some dating data is a national security risk. But CFIUS does have the power to affect other major business decisions. And companies should be aware of CFIUS’ powers so they don’t get caught having a classic Gavin Belson meltdown at the 11th hour.

The breakup of the $245 million Grindr acquisition mentioned in the show was very real, and CFIUS’ scrutiny of tech industry deals continues. CFIUS recently launched an investigation into ByteDance’s $1 billion acquisition of Musical.ly, the company under which the social media app TikTok was held. In both the Grindr and the TikTok cases, CFIUS’ concern revolves around the personal data of U.S. citizens, and in the case of TikTok specifically, alarms have also been raised over potential censorship activities. CFIUS’ power over these investment deals is so great that ByteDance is now trying to separate TikTok operations from the rest of its organization in an attempt to avoid CFIUS’ unwinding of the entire deal.

If Silicon Valley got it so wrong, how does CFIUS work?

CFIUS is an interagency committee that the President has authorized to review transactions that result in foreign ownership or control of U.S. companies. For example, CFIUS might review a French company’s acquisition of a U.S. corporation, an investment by a VC fund with Turkish investors in a San Francisco startup, or the merger of U.S. companies in which a Chinese national is given a controlling seat on the board of directors. CFIUS’ job is to determine whether these foreign investments or controlling positions present a risk to U.S. national security.

Determining what a national security concern might be is really an exercise in imagination. National security is so broad that it could include any number of businesses or activities, from technology that upholds U.S. military superiority or critical infrastructure to food supply or the security of U.S. citizens’ personal data. Or it could include a target company that provides important services to the U.S. government; has developed high-level AI or encryption technology; holds tons of U.S. citizens’ personal, financial, or health data; or controls the majority of a critical industrial sector like energy or transportation.

If we allow ourselves free rein to imagine worst-case scenarios with a foreign bad actor using control of these assets against the United States, the factors that might affect national security are really too numerous to even try to list. Thus, as it reviews proposed or completed transactions, CFIUS has the broad power to determine in real time what is and what is not a national security risk.

If CFIUS does decide that a deal creates such a risk, it can either impose conditions to alleviate those risks or it can block the transaction altogether. Worse, if CFIUS decides to review a deal that was already completed, it can force the foreign party out or unwind the entire transaction.

This is a huge risk for companies and people who are spending millions on investments. On the other hand, if CFIUS finds there is no national security risk, it will “clear” the deal, giving it a stamp of approval sometimes referred to as a “safe harbor.” To avoid risk, many parties will go to CFIUS beforehand to secure that stamp of approval and avoid the risk of a surprise unwinding.

If this system wasn’t complicated enough, CFIUS’ jurisdiction has recently been expanded to cover more transactions and foreign investments. And for the first time, there are now mandatory CFIUS filings for certain industries. This mandatory filing program is expected to expand even further in coming months.

Should you be worried about CFIUS?

In short, yes, you should be worried about CFIUS. CFIUS can prevent acquisitions and funding. It could theoretically crush your business dreams, as it did to Gavin Belson in “Silicon Valley.” But there are things that you can do to limit the chances that you are caught off guard:

  • Know with whom you are considering doing business. Vet your investors and buyers. Where are they from and who owns them? Can you imagine a worst-case scenario national security problem?
  • Do the foreign countries related to the deal have good relationships with the United States?
  • Consider whether your industry carries national security concerns. Do you hold or acquire personal data or financial information? Are you the sole source of an important national resource? Do you control information or critical U.S. infrastructure? Do you provide critical services such as health care? Do you have government contacts or provide the government with goods or services? These are just a few questions to think about.
  • Consider whether there is any way to separate the sensitive aspect of your business or organization.
  • Follow the trends in CFIUS activity, and be cognizant of the limitations that CFIUS may present.

While “Silicon Valley” did get quite a bit wrong, the show (perhaps inadvertently) did present one scenario where CFIUS may have realistically intervened–fictional company Pied Piper’s offer to buy Hooli’s problematic military app and subsequent acquisition of the entire company. At the time of the offer and acquisition, Pied Piper was itself partially owned by a foreign entity, a Chilean investor with an ignoble vision for the company and the data that it receives. That foreign ownership would make Pied Piper’s investment in Hooli subject to CFIUS oversight.

Here is where the show’s use of CFIUS careens out of reality and into a fictional deus ex machina. Pied Piper’s grandiose master plan was really that if it bought a company with a national security problem, CFIUS would kick out its villainous Chilean investor, turning Pied Piper back into the ethical company that it always claimed to be. But this isn’t how CFIUS works. If CFIUS did consider the investment to be a problem, it would simply have blocked Pied Piper from buying Hooli in the first place (or forced the completed transaction to be wholly unwound). In the real world, if CFIUS didn’t like the Chilean investor, the company itself would have had to orchestrate the removal of the investor as part of an approved mitigation plan. Only then would CFIUS allow the deal.

So while we can only speculate as to whether Pied Piper smartly submitted a CFIUS filing before completing its newest acquisition, the one thing we know for sure is that both Pied Piper and Hooli could have used better CFIUS lawyers.

Reprinted with permission from the March 5, 2020, edition of Legaltech News.

© 2020 ALM Media Properties, LLC. All rights reserved.

Further duplication without permission is prohibited. ALMReprints.com – 877.257.3382 - [email protected].

WHAT IS CFIUS? The Committee on Foreign Investment in the United States (CFIUS) is a U.S. inter-agency committee that reviews “covered transactions” - foreign acquisitions of and investments in U.S. companies - for national security concerns. Upon review, CFIUS can block or unwind a transaction or require the parties to alter the transaction to mitigate any national security concerns. Thus, foreign companies seeking to acquire or invest in U.S. businesses need to be aware of the potential for a CFIUS review of their transactions and to plan for future CFIUS friendly structuring.

Historically, CFIUS maintained jurisdiction over transactions in which a foreign investor acquired a controlling interest in a U.S. business. Parties to such transactions could submit a “voluntary” notice for CFIUS review to obtain a “safe harbor” from future CFIUS intervention in the transaction if the Committee agreed that no national security concerns existed. While these notices have always been technically voluntary, not filing one leaves parties vulnerable to a CFIUS review at any time, even after a transaction has closed. This process still exists for investors to minimize risk and to obtain a “safe harbor.”

However, in February 2020, CFIUS jurisdiction expanded to require that investors file mandatory declarations (a shorter form filing than a notice) for certain covered transactions involving critical technologies or infrastructure or large amounts of sensitive personal data.  In addition, CFIUS jurisdiction expanded to include certain non-controlling investments, as well as real estate investments in close proximity to U.S. military installations, ports, and other locations sensitive for national security purposes.

WHAT HAPPENS IF THE PARTIES DO NOT MAKE THE CFIUS FILING? The consequences of not filing with CFIUS can be severe. CFIUS could require the parties to unwind a completed transaction or negotiate mitigation of the foreign national security concern. 

ARE THERE PENALTIES? CFIUS may impose financial penalties ranging between $250,000 and the value of the transaction for material misstatements or omissions, negligence, or failure to comply with the requirements.  The new requirements are still being finalized, but may go into effect shortly.

WHAT IS THE NEW MANDATORY DECLARATION? Investors generally must file a mandatory declaration when:

  • a foreign government will acquire a substantial direct or indirect investment in a U.S. business that produces, designs, tests, manufactures, fabricates, or develops critical technology, performs functions with respect to certain critical infrastructure, or maintains and collects significant amounts of sensitive personal data (known as a "TID business").
  • a private foreign investor makes an investment in a TID business that produces, designs, tests, manufactures, fabricates, or develops one or more Critical Technologies for use in certain industries and the  foreign investor also has access to:
    • any non-public material technical information;
    • membership, observer rights, or the right to nominate individuals to the board of directors; or involvement in substantive decision-making related to critical technologies, critical infrastructure, or sensitive personal data (in a TID business).

IS THERE A NEW EXCEPTION FOR FOREIGN INVESTORS? Maybe. CFIUS regulations include exceptions to the mandatory declaration requirements related to investments in TID businesses for investors from excepted countries (Australia, Canada, and the U.K.). To qualify as an excepted investor, the investor must be:

  • a foreign national of an excepted state;
  • a foreign government of an excepted state; or
  • an entity (organized under the laws of an excepted foreign state or the U.S.) with a principal place of business in either when:
    • Any foreign person with 10% or more voting interest is a national of an excepted state or organized under its laws with a principal place of business in an excepted state or the U.S.
    • 75% or more of both the board members and observers are either U.S. nationals or nationals of one or more excepted foreign states.

WHAT IF WE ARE GOING TO BE LIMITED PARTNERS? Foreign limited partners investing in a TID business through an investment fund may be exempt from a mandatory declaration if:

  • the General Partner will not be a foreign person;
  • the firm’s advisory board will have no control of investment decisions;
  • the foreign person(s) will have no ability to control the fund; and
  • the foreign person(s) will have no access to material, nonpublic technical information

Note that this is a narrow definition, and control is a very broad definition. If the foreign limited partners have negative rights, these rights may also be deemed as control.

WHAT SHOULD I LEARN ABOUT THE TARGET COMPANY THAT MIGHT SIGNAL IF AN INVESTMENT COULD TRIGGER A CFIUS REVIEW?

As early as possible, learn the following information about the U.S. target company:

  • Is it involved in critical technology, critical infrastructure, or collect or maintain sensitive personal data (as defined in the CFIUS regulations)?
  • What are the export classifications for its products and technology?
  • Do any of its physical locations have geographic proximity to a U.S. Government facility, military base, airport, restricted airspace, or seaport?
  • Does it have any direct or indirect business with U.S. government agencies, including the military? Has there been any government funding or investment, or does it provide any products or services under or connected to a government contract? Are any of its research and development activities of special interest to any government or military?

FINALLY, WHAT DO I NEED TO KNOW ABOUT MY COMPANY? To address a CFIUS concern, you will not only need to know the details of your ownership structure and the nationalities of your investors, but also your individual beneficial owners.  In completing this analysis, you must pierce all corporate veils and identify if you have any government ownership.

Please let us know if we can answer any specific questions.

The U.S. Department of Defense (DOD) is offering to match U.S. companies with investors through its new Trusted Capital Program. The impetus for the program is to counter what the DOD characterizes as “adversarial capital”: foreign investment in U.S. companies through which foreign governments seek to acquire sensitive U.S. technology or data. The recent outbreak of COVID-19 has increased the Pentagon’s interest in the program, as it recognizes both (i) that in particular small companies and startups face significant uncertainty as to whether their funding streams will continue, and (ii) that foreign governments, through foreign companies, could take advantage of the uncertainty to obtain sought-after technology or intellectual property.

Traditionally, the U.S. government has relied on the Committee for Foreign Investment in the United States (CFIUS) to identify and mitigate foreign acquisitions or investments that threaten U.S. national security or, if necessary, require the purchaser to divest from the U.S. company. CFIUS, however, imposes significant burdens on companies and investors. Specifically, the legal analysis and due diligence necessary to determine whether CFIUS has jurisdiction over a transaction impose high costs on the parties in terms of time and money. Additionally, where CFIUS does have jurisdiction, parties may need to spend further time and expenses to file notices or declarations with CFIUS. Recently imposed filing fees for certain transactions can reach up to $750,000.

What Is the Trusted Capital Program? Established in May 2019 pursuant to the 2018 National Defense Authorization Act, and hosting its first event in November 2019, the Trusted Capital Program seeks to serve as a proactive complement to CFIUS by matching prescreened investors with companies working on technology or products of national security interest. While receiving some criticism as a necessary but insufficient solution to the U.S. government’s efforts to foster innovation in critical technologies and protect them from foreign exploitation, the program does provide a beneficial investment environment for companies and capital providers.

The program provides a secure ecosystem of capital and companies for the U.S. government to support while also providing participating businesses and investors a number of benefits. For instance, companies have access to vetted investors interested in funding the companies’ areas of focus. DOD conducts necessary due diligence, likely minimizing time and cost to the parties. Both companies and investors gain access to and insight regarding the government’s national security priorities. Investors tend to be private equity and venture capital firms focused on technology. Such firms are free from foreign government influence and derive the majority of revenue from U.S. sources.

Sectors of Focus. Strong company candidates typically develop critical technologies in a number of sectors, including:

  • Health care
  • Biotechnology
  • Unmanned aerial systems
  • 5G
  • Artificial intelligence
  • Space
  • Cybersecurity
  • Robotics
  • Quantum
  • Autonomy
  • Hypersonics
  • Directed energy
  • Nuclear energy
  • Castings and forgings
  • Rare earths
  • Semiconductors and microelectronics

How Companies Can Join. Companies are encouraged to participate through various Venture Days events hosted jointly by the military services and academic institutions. Upcoming virtual events include:

  • May 2020: AFWERX and Army Futures Command (COVID-19 response)
  • June 2020: Air Force Life Cycle Management Center
  • June 2020: Special Operations Command (Artificial Intelligence Solutions with Subcomponents in Small Maneuver and Influence Operations)

Consider In-Q-Tel (IQT). Companies interested in the Trusted Capital Program may also be interested in another U.S. government-connected investment possibility, IQT, which is a nonprofit strategic investor in companies developing technology of interest to national security agencies. Established in 1999, IQT works with venture capital companies to identify technology that will be commercially successful and have high impact on national security. IQT investments typically range from $500,000 to $3 million. IQT partners with a company to adapt its technology to national security customers’ requirements. Following a pilot program, the customers purchase the product from the company.

In April 2020, Q-CTRL, an Australian company that develops quantum engineering and software tools, announced an investment by IQT to support quantum technology for national security missions. Other IQT focus areas include:

  • Data analytics
  • Cybersecurity
  • Artificial intelligence/machine learning
  • Ubiquitous computing
  • IT solutions
  • Communications
  • Materials/electronics
  • Commercial space
  • Power and energy
  • Biotechnology
  • Remote sensing

Although different from the Trusted Capital program, IQT may also offer smaller companies working on critical technologies opportunities for funding sources in unpredictable times.

Reprinted with permission from the June 22, 2020, issue of Homeland Security Today. © 2020 Homeland Security Today. All Rights Reserved. Further duplication without permission is prohibited.

To see our other material related to the pandemic, please visit the Coronavirus/COVID-19: Facts, Insights & Resources page of our website by clicking here.

Could your upcoming commercial real estate transaction or investment raise national security concerns? 

Under recently developed federal law,  the Committee on Foreign Investment in the United States (CFIUS), a long-standing interagency committee chaired by the Department of the Treasury that was formed under federal law in the 1950’s, is now charged with considering this question;  if it determines that there are national security implications to your real estate deal, the federal government may have the right to prevent the deal from happening, order that it be unwound, or impose penalties if it has already closed. 

In February 2020, new regulations issued by Department of the Treasury granted the U.S. government broad authority to intervene in a wide variety of real estate transactions involving foreign investors if CFIUS identifies a national security concern related to the transaction. 

However, CFIUS’s regulations do not clearly define what constitutes a national security concern and the law is evolving rapidly to address emerging national security trends. 

This lack of clarity can challenge companies trying to determine if transactions or investments involving their real estate, products, technology, non-real estate based businesses, or investments could trigger a CFIUS review. 

CFIUS’s mandate has only recently expanded into exploring the national security implications of a wide range of real estate investments by foreign persons or entities; outside of the real estate context CFIUS has long reviewed deals where critical or emerging technology that may have military applications are involved, as well as deals involving critical infrastructure like electric grids, telecommunications systems, or sensitive data about U.S. citizens which in the wrong hands could harm U.S. national security interests.

The February 2020 changes to the regulations represent an expansion of CFIUS’s jurisdiction beyond its traditional scope of reviewing foreign acquisitions of U.S. businesses, including acquisitions of real estate.

Due to evolving concerns about information sharing among partners or co-investors, CFIUS’s authority has now expanded to include not only direct foreign control of sensitive real estate but also passive foreign investment in real estate, including the acquisition of even non-controlling equity interest in a business that owns real estate that could have national security implications. 

In addition, almost every kind of commercial real estate transaction is now subject to review, including the purchase or lease of real property to a foreign-owned investor or company that could raise national security concerns, as well as the granting of any right or concession that conveys to a foreign-owned party rights which include physical access to such a property, the right to exclude others from that property, the ability to improve or develop that property, or the ability to attach fixed or immovable structures on that property. 

Real estate that could raise national security concerns include any kind of property that is proximate to certain governmental or law enforcement agencies, including U.S. military installations and Department of Defense facilities, air and sea ports, production and research and development facilities used by defense contractors, and law enforcement or intelligence agencies such as the FBI, CIA and NSA, to name a few. 

As a result of this expansion, foreign-owned companies and foreign investors seeking to acquire even a non-controlling interest in U.S. real estate and U.S. owners planning to sell majority or minority interests in real estate to a foreign buyer, not to mention owners of real estate in proximity to a national security sensitive facility who are looking either to enter into leases of space in their building or sell their property or grant concessions or interests therein to foreign-owned companies or persons, now need to be aware of and structure their deals around the potential for a CFIUS review of their transactions and its potential implications.

If a landlord leases space in its building to the FBI or a defense contractor, for example, their leases with other tenants could have national security implications under the new regulations.

Impacted companies and investors should consider filing a notice with CFIUS to obtain a safe harbor ruling prior to the closing of their deals because the downside to not doing so could result in CFIUS review that leads to an order unwinding the deal.  In addition, CFIUS can also: 

  • Impose penalties;
  • Block a transaction;
  • Force the foreign purchaser or investor to divest its interests in U.S. real estate or a U.S. company; or
  • Require the parties to alter the transaction to mitigate any national security concerns.

While submitting a notice for CFIUS review is technically voluntary and there are filing fees associated with the review, parties choosing not to file for review remain vulnerable to a unilateral CFIUS review and the consequences thereof at any time, even after a transaction has closed.  

There are also a number of exceptions that have been identified that will make some investors happy, such as  exempting from CFIUS’s review the sale or lease of most individual housing units, real estate transactions in most urban centers, as well as real estate transactions with certain investors from Australia, Canada and the United Kingdom.

However, due to the fact that this is an emerging area of the law and the consequences of not obtaining a safe harbor could be severe, we expect that most prudent companies and investors will opt to engage sophisticated counsel to help them robustly investigate whether their transaction could have national security implications and, if so, to explore any applicable exemptions. 

Counsel will also be able to help the parties craft their deal documents in a manner which protects them against the consequences of an adverse CFIUS determination. 

Reprinted with permission from the July 3, 2020, issue of Real Estate Weekly. © 2020 Hagedorn Publishing. All Rights Reserved. Further duplication without permission is prohibited.

Many U.S. companies are unaware that a relatively unknown agency, the Bureau of Economic Analysis (BEA)
at the Department of Commerce, administers mandatory reporting requirements that oblige ALL U.S. businesses to file reports identifying foreign direct investment (FDI). Reports are filed at the inception of the investment and then every five years in a follow-up “benchmark survey.” Additionally, the BEA will contact certain companies to make additional filings.

Mandatory FDI Reporting Is Triggered When:

  1. A foreign investor/entity aquires ownership or control of 10 percent or more of a U.S. business
  2. A foreign investor/entity or its existing U.S. affiliateestablishes a new U.S. business resulting in the
    foreign investor/entity having at least 10 percent ownership or control (direct or indirect)
  3. An existing U.S. affiliate of a foreign investor/entity expands its U.S. operations
  4. An existing U.S. affiliate of a foreign investor/entity acquires a U.S. business, giving the foreign entity at least 10 percent ownership or control 

Penalties. Failure to file the report(s) risks civil penalties of up to $48,000 and criminal penalties of up to $10,000 for each individual and/or up to one year of imprisonment.

Reporting Requirements. The BEA administers these requirements pursuant to the International Investment and Trade in Services Survey Act based on business structure and certain financial criteria. The BEA publishes the anonymized results to track the scale of foreign investment activities in the United States and their effects on the U.S. economy.

Required Filings. Entities must file at least two reports: the new FDI and the five-year benchmark survey.

  • New FDI. All U.S. entities must file this report within 45 days of completing any transaction described above.

*Exemptions are available if the total, actual or expected cost of the transaction is $3 million or less, but to receive an exemption, the entity still must file a report

  • Five-year benchmark survey. All U.S. entities with qualifying foreign investment must file this
    comprehensive survey every five years (the most recent benchmark survey was issued in 2017).

* Exemptions are available if foreign ownership is less than 10 percent, the business is consolidated with another U.S. affiliate, or the business was liquidated or dissolved. Exemptions still require filing a report

  • The BEA may contact entities to require additional quarterly or annual reporting. Directed reporting may involve transactions between foreign parents or organizational changes, such as the establishment, acquisition, liquidation or sale of the business.

Similar filings are required when U.S. entities make foreign investments. For more information on determining whether a BEA filing is required, review the BEA website here, or contact the Lowenstein Sandler Global Trade and Policy Group. Watch for our upcoming alert on BEA filing requirements for U.S. outbound investments.

[1] Affiliate means a business enterprise located in one country that is directly or indirectly owned or controlled by an entity of another country to the extent of 10 percent or more of its voting stock for an incorporated business or an equivalent interest for an unincorporated business enterprise.


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