Adversarial Possession: The Expansion of Biden’s CFIUS in the Wake of Foreign Real Estate Acquisitions in the United States

As the national security environment, including the behavior of countries and individuals that seek to impair U.S. national security, evolves, the review process of the Committee on Foreign Investment in the United States (CFIUS) has continued to adapt in the face of more aggressive forms of adversarial foreign aggression.

Biden’s Executive Order 14083, signed in 2022, recognizes that some countries use foreign investment to obtain access to sensitive data, technologies, and prime real estate for purposes that are detrimental to U.S. national security. The Order seeks to ensure that CFIUS remains an effective tool to combat these threats now and in the future. More broadly, it explicitly ties CFIUS’ role, actions, and capabilities with the Administration’s overall priorities to ensure that the United States’ national security tools and objectives are consistent and mutually reinforcing.

CFIUS looks at foreign investment that shifts ownership, rights, or control to a foreign person in certain manufacturing capabilities and sectors that are fundamental to national security and could make the United States vulnerable to future supply disruptions of critical goods and services. These considerations include the degree of diversification through alternative suppliers across the supply chain, including suppliers located in allied or partner countries, supply relationships with the U.S. government, and the concentration of ownership or control by the foreign person in a given supply chain.

In May 2023, CFIUS issued a notice of proposed rulemaking to add eight military installations to the list that makes transactions involving property within 100 miles of those installations potentially subject to CFIUS jurisdiction. Notably, these installations include the Grand Forks Air Force Base in North Dakota. In 2022, CFIUS reportedly determined that it did not have jurisdiction to review an acquisition of real estate near this base by Fufeng Group, a company with Chinese ownership. This determination drew congressional and public criticism and was a catalyst for the proliferation of bills at the state level restricting foreign ownership of real property.

The other installations proposed for inclusion are Air Force Plant 42, located in Palmdale, California, Dyess Air Force Base, located in Abilene, Texas, Ellsworth Air Force Base, located in Box Elder, South Dakota, Iowa National Guard Joint Force Headquarters, located in Des Moines, Iowa, Lackland Air Force Base, located in San Antonio, Texas, Laughlin Air Force Base, located in Del Rio, Texas, and Luke Air Force Base, located in Glendale, Arizona.

In the wake of the Fufeng transaction, dozens of proposals have been introduced in state legislatures to prohibit acquisitions of land by certain entities and persons from China, Russia and a handful of other “countries of concern,” such as Cuba, Iran, North Korea and the Maduro Government of Venezuela. The scope of the bills varies considerably– while some proposals focus primarily on transactions involving China, many capture transactions involving private businesses and foreign nationals as well.

CFIUS’s latest action, if finalized as proposed, will increase the number of real estate transactions that are subject to CFIUS review. The proliferation of restrictions at the state level, however, with various parameters and definitions, is likely to complicate or prevent certain foreign investment in real estate, particularly where indirect holdings through U.S. companies or funds are prohibited. U.S. companies and funds with investors from China and other countries of concern must increasingly understand and navigate federal and state laws to avoid unintentional violations.

Article Written by Sarah Smith

Sources:

President Biden signs executive order to ensure robust reviews of evolving national security risks by the Committee on Foreign Investment in the United States, The White House (2022), https://www.whitehouse.gov/briefing-room/statements-releases/2022/09/15/fact-sheet-president-biden-signs-executive-order-to-ensure-robust-reviews-of-evolving-national-security-risks-by-the-committee-on-foreign-investment-in-the-united-states/ (last visited Sep 1, 2023).

Statement by secretary of the Treasury Janet L. Yellen on President Biden’s Executive Order on the Committee on Foreign Investment in the United States, U.S. Department of the Treasury (2022), https://home.treasury.gov/news/press-releases/jy0951 (last visited Sep 1, 2023).

31 C.F.R. §802.211.

Press Release by Senator Rubio, available at https://www.rubio.senate.gov/public/index.cfm/2022/12/rubio-slams-cfius-s-refusal-to-take-action-regarding-fufeng-farmland-purchase, (last visited Sep 1, 2023).

Akin Gump Strauss Hauer & Feld LLP – Treasury Releases Final Regulations Implementing CFIUS Reform, https://www.akingump.com/en/insights/alerts/treasury-releases-final-regulations-implementing-cfius-reforms (last visited Sep 1, 2023).