Client Alerts  - International Business Aug 08, 2023

Senate Passes Proposed Expansion of CFIUS Jurisdiction Over Foreign Real Estate Investments

Prior to departing the Capitol for the August recess, the Senate completed its work on S.2226, the National Defense Authorization Act (NDAA) for Fiscal Year 2024. The bill passed 86-11, and will next go to conference with the House of Representatives after that chamber returns from recess (scheduled for September 12, 2023). A number of contentious differences between the House and Senate versions will have to be resolved.

But legislation aimed at further expanding the authority of the Committee on Foreign Investment in the United States (CFIUS or the Committee) to review foreign investment in U.S. real estate, passed by the Senate on July 25, 2023, does not currently appear to be one of the controversial items. The amendment (now part of the Senate bill), co-sponsored by Senators Rounds (R-SD), Tester (D-MT), Daines (R-MT), Kennedy (R-LA) and Lummis (R-WY), was adopted by a decidedly bipartisan 91-7 vote.

Plainly stated, the legislation would prohibit the purchase of U.S. farmland by businesses or persons based in China, Russia, Iran or North Korea. If enacted into law, this would represent the first time the United States has imposed a blanket prohibition on real estate sales to, or purchases by, persons from specific foreign nations. In addition, it would require CFIUS to review specific types of land purchases by investors from any other foreign country.

The measure is an apparent reaction to a gap in the Committee’s jurisdiction highlighted on December 22, 2023, when, after a 90 day review, CFIUS determined it had no jurisdiction over the $700 million proposed acquisition of a 370-acre site in North Dakota for development of a corn-milling operation by Chinese investor Fufeng Group – despite the site being less than 12 miles from the U.S. Air Force Base (AFB) in Grand Forks.

CFIUS’ jurisdiction over foreign investment in U.S. real estate is predicated on national security concerns, and was previously limited to existing businesses. Regulations implemented pursuant to the Foreign Investment Risk Review Modernization Act of 2018 extended its jurisdiction (apart from existing businesses) to “covered real estate transactions” involving specified security-sensitive sites listed at Appendix A of 31 C.F.R. Section 802. There are currently 211 such military or national security facilities listed in the Appendix, separated into tables of one mile, 99 mile or total county/range restrictions.

In the case of the Fufeng investment, the Committee found it lacked jurisdiction to review the acquisition as the milling operation was a “greenfields” (startup, rather than existing) business and Grand Forks AFB was not among those sites listed on Appendix A of Section 802. (Sidenote: Municipal and local development authorities ultimately withdrew from and quashed the project two months later.)

Likely in response to this incident, on May 5, 2023, CFIUS issued a proposed rule adding eight more sites (all but one Air Force bases) to the Section 802 list (see previous PL Alert) – this time including Grand Forks AFB.

Also in response to this and other incidents raising similar concerns regarding foreign (mostly, Chinese) investments in U.S. farmland and food supply chain businesses, several legislative proposals aimed at regulating or restricting such purchases have been introduced in Congress by senators and members from agricultural states and districts. The Rounds-Tester amendment adopted by the Senate in the NDAA is the first to reach the conference stage.

Its key provision provides that ban (in the case of the four “adversary nations” listed above) or mandatory CFIUS review shall apply to any investment in any U.S. business “engaged in agriculture or biotechnology related to agriculture” that is a “purchase or lease by, or a concession to, a foreign person of private real estate” that is:

  • Located in the United States
  • Used in agriculture
  • Is more than 320 acres, or valued at an amount greater than $5 million U.S. dollars

The measure also adds the Secretary of Agriculture as an ex officio member of CFIUS. (Senate Amendment No. 813 to S.2226)

The final form of the NDAA – traditionally considered a “must-pass” bill before the end of the fiscal year – will be determined next month in conference and, of course, cannot be predicted here. The differences between the House and Senate versions are broad and in some instances intensely ideological, promising a busy (not to say tumultuous) set of negotiations. However, the concerns regarding foreign agricultural investment appear widespread and bipartisan—suggesting that parties contemplating such transactions (and their counsel) should stay carefully abreast of potential developments regarding CFIUS review.

For further information regarding the proposed rule, the regulations (including available exemptions), or other matters regarding foreign investment, please contact James Kevin Wholey at (202) 617-2714,; any member of the Phillips Lytle International Team; or the Phillips Lytle attorney with whom you have a relationship.

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