log in
Print | Back

Lowenstein Sandler LLP

Christian C. Contardo

Christian C. Contardo

Associate

WSG Practice Industries

Activity

Profile

With over 15 years of legal experience, including more than a decade serving as a national security attorney in the federal government, Christian now advises clients in the technology, finance, and industrial sectors on a variety of national security, global trade, and privacy issues.

His deep knowledge of government policies concerning economic sanctions, data privacy and security, and financial intelligence enhance his ability to effectively counsel entities on Committee on Foreign Investment in the United States (CFIUS) reviews, import and export control, Office of Foreign Assets Control (OFAC) sanctions, government investigations, compliance programs, and potential risks to global transactions.

Christian advises on federal government contract matters, including agreements for foreign military sales under the Arms Export Control Act. He also works with defense contractors and subcontractors on related issues such as Foreign Corrupt Practices Act compliance, export controls, foreign ownership and control, and facility clearance.

While serving as an attorney advisor to the Department of the Treasury, Christian provided legal guidance on matters involving the Bank Secrecy Act, intelligence, economic sanctions, CFIUS, counterintelligence/insider threat programs, anti-money laundering, security clearance investigations, information security, and data privacy.

Earlier, he worked at the Department of Justice, National Security Division, where he represented the government before the Foreign Intelligence Surveillance Court. In addition, he served as a deputy chief for national security law at the U.S. Department of Homeland Security/Immigration and Customs Enforcement (DHS/ICE), advising leadership on legal and policy issues in federal investigations involving immigration, counterterrorism, espionage, visa security, fraud, and export control.

Bar Admissions

    District of Columbia
    New York

Education

National Intelligence University (M.S. 2015), strategic intelligence
American University Washington College of Law (J.D. 2005); senior staff, American University Law Review
Lewis and Clark College (B.A. 2000)
Areas of Practice

Global Trade & Policy

Professional Career

Significant Accomplishments

Speaking Engagements

Lowenstein's Doreen M. Edelman, partner and Chair, Global Trade & Policy, and Christian C. Contardo, associate, Global Trade & Policy, present "Evaluating CFIUS Risks In a Potential Opportunity and Positioning Your Company For an Easy CFIUS Process," as part of The Advanced Virtual Forum on CFIUS & Foreign Investmenta conference addressing recent updates to the Foreign Investment Risk Review Modernization Act (FIRRMA) and evolving CFIUS policies regarding foreign Investment.

Session description:

Learn how to navigate deal risks and get your deal questions answered from a practitioner. Takeaways:

  • Deciding which CFIUS filing you have to make and how long it will take
  • Exploring what happens if you don’t get approval
  • Addressing what happens if you’re just an investor in the target, or when in an auction or in bankruptcy
  • What if you want more foreign investment, have not classified your technology, or already have foreign ownership?

Date and time: Tuesday, August 11, 2020; 2:30 p.m. EDT

The conference runs Tuesday, August 11-Wednesday, August 12, 2020.

View program brochure.


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. Government Issues Updated Sanctions Warning
Lowenstein Sandler LLP, June 2020

On May 14, 2020, the U.S. Department of the Treasury’s Office of Foreign Assets Control (OFAC), the Department of State, and the U.S. Coast Guard issued a Sanctions Advisory for the Maritime Industry, Energy and Metals Sectors, and Related Communities, reflecting increased scrutiny and enforcement attention by U.S. government agencies on curbing illicit shipping practices...

U.S. Government Issues Updated Sanctions Warning to Maritime Shipping Community; Recommends Best Practices to Mitigate Risk
Lowenstein Sandler LLP, May 2020

On May 14, 2020, the U.S. Department of the Treasury’s Office of Foreign Assets Control (OFAC), the Department of State, and the U.S. Coast Guard issued a Sanctions Advisory for the Maritime Industry, Energy and Metals Sectors, and Related Communities, reflecting increased scrutiny and enforcement attention by U.S. government agencies on curbing illicit shipping practices...

Additional Articles

The coronavirus pandemic has affected international trade in a number of ways, from supply chain disruptions, calls to reduce tariffs on U.S. imports, pressure to relax economic sanctions to stem the spread of the virus and increased scrutiny of foreign investments.

To best position themselves during this time, companies need to focus on adapting supply chain vulnerabilities, examining and leveraging tariff modifications, scrutinizing export controls and sanctions, and maintaining awareness of the jurisdiction of the Committee on Foreign Investments in the United States.

Address supply chain vulnerabilities.

Between labor shortages, border restrictions and government bans on exports in efforts to secure domestic supplies, the coronavirus is reshaping global trade, with important implications for companies, including on their supply chain.

Companies should creatively consider alternative production and assembly sites, as well as suppliers (reviewing and renegotiating supplier contracts, if necessary) to be sufficiently agile to adapt to these tumultuous times.

Assess applicability of tariffs.

In the context of tariffs, the U.S. Trade Representative has excluded critical items relating to the pandemic from the China Section 301 tariffs. While excluding tariffs necessary to fight the pandemic provides some benefits, the USTR could consider removing duties on items that would help buoy the economy and help the American people, such as products to maintain their homes, farms, animals and pets.

A group of U.S. senators recently urged President Donald Trump to use his authority over trade policy, including tariffs and sanctions to reduce some of the economic stress on the U.S. caused by the virus. The request specifically pointed to Section 301 tariff relief on health, safety, and medical devices and products, and the temporary deferral of duty collection.

The senators also petitioned for broader exclusions to ensure that industries affected by the pandemic can seek and obtain exclusions, even if previously denied, concluding with a request that the president consider a moratorium on new tariffs and tariff increases.

U.S. Customs and Border Protection recently rescinded a notice that it would provide temporary delays on for customs duties on a case by case basis. Subsequently, however, the government began considering suspending the collection of import tariffs for three months.

The removal, exclusion, exemption or deferral of import duties could significantly affect U.S. companies’ revenues. For some companies, this will keep them afloat, avoiding layoffs and closings. For other companies, the cash flow will boost profit and improve quarterly earnings reports which will in turn help Wall Street when earnings are released. These earnings in the retail sector could limit the downward spiral in the market.  

The duties are significant and are paid directly by U.S. importers and U.S. consumers. The positive news will echo through the supply chain, particularly where the importer has no U.S. alternative supply.

Consider sanctions and export controls.

The pandemic is also affecting the export landscape, and companies should be aware of developments affecting trade sanctions, particularly if they are considering alternative supply chain options. As the virus spreads, the U.S. and other countries have been asked to relax economic sanctions to allow for the provision of medical and humanitarian support to sanctioned countries, including Iran and North Korea.

For now, however, sanctions against Iran and North Korea severely restrict U.S. companies’ activities involving those and other embargoed countries. Companies need to monitor any changes in the U.S. sanctions regime and be mindful of the restrictions so as to avoid potential severe financial and criminal penalties for any violations.

Importantly though, not all transactions and services involving sanctioned countries are prohibited. For instance, the U.S. Department of the Treasury’s Office of Foreign Assets Control has issued a general license that authorizes the export to Iran of certain medicines and medical devices. OFAC has also issued a general license authorizing emergency medical services to North Korea.

Specific licenses may be available upon approval from OFAC. Each license, however, includes restrictions on the items authorized, so each situation needs to be considered carefully.

Moreover, although there have been calls to relax sanctions for humanitarian purposes to support these countries’ efforts to slow the spread of the virus and treat infected people, OFAC has not taken any actions to relax existing export restrictions or licenses. Indeed there appears to be consideration for extending export controls on biotechnology items.

Keep CFIUS jurisdiction in mind.

Some companies may be in a position to make valuable investments during the market shifts caused by the pandemic. While doing so, it is important to maintain awareness of potential CFIUS jurisdiction.

Recent regulations, in effect since February, expand CFIUS jurisdiction beyond its previous remit to oversee transactions that led to foreign control of a U.S. company.

CFIUS' broader jurisdiction now includes direct or indirect noncontrolling investments in U.S. companies producing or developing critical technology, owning or operating critical infrastructure, or maintaining or collecting sensitive personal data of U.S. citizens. CFIUS assessments of transactions during the pandemic could focus on health care technology, biotechnology, or data related to those fields.

The rapidly shifting trade regime requires that companies relying on international supply chains and depending on imports or exports of products and services, or seeking to make new acquisitions or investments, keep abreast of the latest developments and work closely with trade counsel to lessen the impact of the coronavirus pandemic on these activities, while ensuring compliance with all applicable trade laws and regulations.

Reprinted with permission from the March 30, 2020, issue of Law360. © 2020 Portfolio Media, Inc. 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.

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.

On May 14, 2020, the U.S. Department of the Treasury’s Office of Foreign Assets Control (OFAC), the Department of State, and the U.S. Coast Guard issued a Sanctions Advisory for the Maritime Industry, Energy and Metals Sectors, and Related Communities, reflecting increased scrutiny and enforcement attention by U.S. government agencies on curbing illicit shipping practices. Recognizing that 90% of global trade involves maritime transportation, OFAC has identified a number of ways in which bad actors exploit maritime trading. The interagency advisory provides a broader U.S. government perspective and complements earlier OFAC guidance, providing information regarding common deceptive shipping practices as well as compliance recommendations tailored to maritime shipping-related businesses; it also updates and expands on prior OFAC sanctions shipping advisories regarding North Korea, Iran, and Syria. As a whole, the advisory warns companies what compliance measures OFAC expects companies to implement to address this threat. In light of increased sanctions enforcement across the industry, the guidance also serves as a warning to companies that they should abide by applicable sanctions regulations.

Who is this guidance for? The guidance is specifically addressed to entities engaged in the maritime industry as well as the energy and metals sectors. The deceptive shipping practices discussed create significant sanctions risks for companies and individuals working in those sectors.

The advisory offers compliance recommendations to mitigate this sanctions risk, with guidance tailored to a variety of functions operating in these sectors, including maritime insurance companies; flag registry managers; port state control authorities; regional and global commodity trading, supplier, and brokering companies; shipping industry associations; financial institutions; ship owners, operators, and charterers; classification societies; crewing companies; and vessel captains.

Deceptive Practices

What are deceptive shipping practices? The advisory identifies several tactics used by illicit actors to evade sanctions, facilitate smuggling and terrorist activities, and engage in the proliferation of weapons of mass destruction. Those tactics frequently consist of disabling or manipulating the Automatic Identification System (AIS) on vessels; physically altering vessel identifiers; falsifying cargo and vessel documents; making ship-to-ship transfers (STS) (especially at night or in high-risk areas); voyage irregularities (e.g., indirect routing, unscheduled detours, transit/transshipment through third countries); using false flags and flag hopping (frequently changing flag states); and adopting corporate structures that disguise beneficial ownership.

How are these practices used to evade sanctions? North Korea, Iran, and Syria use deceptive shipping practices in different ways to facilitate the illicit export and import of goods and to finance terrorist organizations. For example, North Korea uses deceptive shipping practices to facilitate export of its embargoed products as well as prohibited imports, including illicit STS transfers and barges that do not transmit AIS signals, to transport goods to China. Iran maintains a global network that uses deceptive shipping techniques to facilitate illicit transactions, particularly in the petroleum shipping industry. To evade U.S. sanctions, actors, including Iran’s Islamic Revolutionary Guard Corps Quds Force (IRGC-QF), alter documents to obfuscate origin, destination, and recipient information related to oil shipments. Payment derived from illicit oil shipments is used to finance Hezbollah and IRGC-QF. Iran and Russia have used deceptive shipping techniques to provide the Syrian regime with goods in violation of sanctions.

Recent Actions

The advisory to the maritime shipping community is one of a number of recent actions this year indicating increased OFAC focus on sanctions evasion in the shipping industry. On June 8, 2020, sanctions designations targeting two Iranian shipping companies went into effect. In December 2019, the U.S. government designated the Islamic Republic of Iran Shipping Lines (IRISL) and its subsidiary, E-Sail Shipping Company, Ltd, but postponed the effective date for six months to allow companies legally doing business with Iran for humanitarian purposes to find alternative shipping companies. According to the Department of State IRISL facilitated the transport of items related to Iran’s ballistic missile and military programs.

On June 2, 2020, OFAC designated four companies involved in shipping Iranian oil to Venezuela in violation of U.S. sanctions. OFAC’s action blocked any property or assets the companies might have in the United States and restricted them from any business transactions with U.S. companies or persons, including others involved in the shipping industry. These designations follow a May 28, 2020, action involving two Greek-owned, Liberian-flagged vessels. Those ships changed direction away from Venezuela after being informed they faced sanctions if they continued toward their destination. According to news reports, U.S. officials stated that if the vessels had continued, their owners would have been denied access to insurance and international banking systems, effectively putting them out of business.

Earlier this year, Eagle Shipping negotiated a settlement with OFAC over several apparent sanctions violations involving transport of sea sand from Burma to Singapore. Eagle Shipping ultimately agreed to pay $1.125 million to settle its potential civil liability for the violations. One of the mitigating factors OFAC considered in this case was that Eagle Shipping significantly enhanced its compliance program to include appointing a compliance officer and a formal sanctions compliance program with procedures for screening parties, employee training, transaction checklists, and red-flag identification tools.

The Eagle Shipping settlement and the later actions targeting the ships bound for Venezuela reflect increasing OFAC sanctions enforcement against maritime shipping and related businesses as well as the severe consequences of violations. These cases also illustrate the importance of establishing an effective sanctions compliance program to mitigate risk.

Minimizing Risk

Recommendations to minimize risk. The OFAC advisory provides tailored guidance relevant to certain businesses associated with maritime shipping. It also offers several general practices to help identify these deceptive practices and minimize risk of sanctions violations. For instance, actors in the maritime shipping industry should institutionalize sanctions compliance programs. These programs need to include sufficient due diligence and demonstrate that the company knows its customers and counterparties (including documenting identifying information on beneficial owners).

The guidance also urges everyone involved in maritime shipping to establish common best practices, such as developing requirements to minimize opportunities to manipulate or disrupt AIS data. This might include researching a ship’s history to identify previous AIS manipulation or instances where AIS was disabled while cargo was in transit. OFAC further recommends these practices be incorporated into contractual requirements where possible.

OFAC recommends continuous monitoring of ships throughout their life cycle, including periodic identification and tracking as well as verification of ships’ identifying information and flags. Owners and companies working in the industry should disseminate information wherever possible regarding suspected deceptive tactics in order to raise awareness among their colleagues.

Exporters and others involved in the maritime supply chain also need to conduct adequate due diligence to ensure that recipients of counterparties are not dealing in sanctioned commodities. This due diligence should include a review of the voyage details, confirmation of applicable export licenses, and verification of origin and recipient of goods.

Notably, while these recommendations emphasize increased due diligence, they go further by encouraging the industry to work together to develop consistent standards and share information to develop enhanced awareness and more-effective mitigation techniques. While OFAC is not prescribing companies adopt all of these recommendations, and encourages companies to engage a risk-based approach to sanctions, in the event of a violation, OFAC likely will consider the extent to which a company incorporated these recommendations when it conducts its penalty assessment.

The issuance of the advisory combined with the recent enforcement actions reflect OFAC and the U.S. government’s growing focus on the use of maritime shipping to evade sanctions and could be interpreted as a shot across the industry’s bow. While all companies have varying capabilities unique to their business and limited resources to apply to compliance, entities working in maritime shipping should pay close attention and where possible consider adopting the recommendations in the advisory. In the event of an inadvertent violation, OFAC considers a company’s compliance procedures as a possible mitigating factor–addressing the recommendations in the latest advisory could go a long way toward minimizing a company’s risk and ultimate liability.

Reprinted with permission from the June 9, 2020, issue of the American Journal of Transportation. © 2020 American Journal of Transportation. All Rights Reserved. Further duplication without permission is prohibited.

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.


WSG's members are independent firms and are not affiliated in the joint practice of professional services. Each member exercises its own individual judgments on all client matters.

HOME | SITE MAP | GLANCE | PRIVACY POLICY | DISCLAIMER |  © World Services Group, 2020