October 17, 2019 

Via www.regulations.gov (Docket Nos. TREAS-DO-2019-0008)

The Honorable Thomas Feddo
Assistant Secretary for Investment Security
U.S. Department of the Treasury
1500 Pennsylvania Avenue
Washington, DC 20220

Re: Comments of the Securities Industry and Financial Markets Association on the Proposed Rule Regarding Provisions Pertaining to Certain Investments in the United States By Foreign Persons

Dear Mr. Feddo,

The Securities Industry and Financial Markets Association (“SIFMA”) appreciates the opportunity to comment on the Proposed Rule Regarding Provisions Pertaining to Certain Investments in the United States By Foreign Persons issued on September 17, 2019 by the Department of the Treasury’s Office of Investment Security (the “Proposed Rule”).[1]   SIFMA is the leading trade association for broker-dealers, investment banks, and asset managers operating in the United States and global capital markets.  On behalf of nearly one million industry employees, SIFMA advocates on legislation, regulation, and business policy affecting retail and institutional investors, equity and fixed income markets, and related products and services.  SIFMA serves as an industry coordinating body to promote fair and orderly markets, informed regulatory compliance, and efficient market operations and resiliency.

SIFMA supports the important role that the Committee on Foreign Investment in the United States (“CFIUS” or the “Committee”) plays in protecting U.S. national security.  Because our members are regularly involved in transactions subject to CFIUS’s jurisdiction, we also have an interest in ensuring that the Committee operates within timelines that are consistent with business realities, and that the rules governing the process are clear and unambiguous.  Further, because the CFIUS process is likely to be a model for other countries that are developing their own foreign investment screening procedures — to which U.S. investors may be subject — we have an interest in ensuring that the process remains grounded in fundamental principles of fairness and due process, and imposes no greater restriction on foreign investment than is necessary to protect U.S. national security.  To that end, our comments address five aspects of CFIUS’s authority under the Proposed Rule:  (i) the definition of “U.S. business;”  (ii) the scope of mandatory filings under the critical technology Pilot Program (the “Pilot Program”);[2]  (iii) the declaration process; (iv) the treatment of investment funds; and (v) the application of mandatory filing requirements in debt transactions.

1.     CFIUS should clarify that the Committee’s jurisdiction does not extend to businesses having no assets in the United States

We are concerned that the proposed definition of U.S. business set forth at § 800.252 of the Proposed Rule suggests that CFIUS may seek to assert jurisdiction over transactions involving businesses with no U.S. assets.  The scope of CFIUS’s jurisdiction is broad, but it also has long been a core principle of applicable law and policy that there must be a “U.S. business.”  While the term “U.S. business” has been interpreted expansively in some instances, there always has been a requirement that there must be some assets in the United States to constitute a U.S. business.

The definition of U.S. business in the Foreign Investment Risk Review Modernization Act (“FIRRMA”), and now in the Proposed Rule, raises the spectre that CFIUS may intend to deviate from this core principle.  Under the existing regulations, “U.S. business” is defined as “any entity, irrespective of the nationality of the persons that control it, engaged in interstate commerce in the United States, but only to the extent of its activities in interstate commerce.”[3]   The Proposed Rule omits this important qualifying language.  While the Proposed Rule provides a single example that appears to narrow the scope of the term  — indicating that a foreign business that sells products into interstate commerce is not a U.S. business — this one example does not cover many other foreign businesses, such as service providers, that could for the first time be swept within CFIUS’s jurisdiction.

To resolve the uncertainty created by the Proposed Rule, CFIUS should retain the existing definition of U.S. business in the current regulations, or otherwise clarify through further examples that a business that has no assets in the United States is not a “U.S. business.”  In particular, CFIUS should ensure that the regulations are clear that foreign businesses with no U.S. assets that provide services, or bundled products and services, to U.S. customers — or that otherwise participate in U.S. interstate commerce without having assets in the United States — are not U.S. businesses.

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[1] 84 Fed. Reg. 50174 et seq. (to be codified at 31 C.F.R. pt. 800).

[2] 31 C.F.R. pt. 801 (2018).

[3] 31 C.F.R. § 800.226 (2008).