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Mandatory Filings Under CFIUS New Rules

On September 15, 2020, the Committee on Foreign Investment in the United States (“CFIUS”) promulgated a final rule modifying its mandatory declaration requirements for certain foreign investment transactions involving “TID US businesses” (sensitive U.S. businesses dealing in critical technologies, critical infrastructure and sensitive personal data) dealing in “critical technologies” – i.e., U.S. businesses that produce, design, test, manufacture, fabricate, or develop one or more critical technologies. The new rule also makes amendments to the definition of the term “substantial interest” (used to determine whether a foreign government has a substantial interest in an entity). The final rule became effective on October 15, 2020.

For background purposes, CFIUS is an interagency committee authorized to review certain transactions involving foreign investment in the United States and certain real estate transactions by foreign persons, in order to determine the effect of such transactions on the national security of the United States. 

The new rule renders it critical for parties to a potentially covered transaction to conduct due diligence with legal counsel regarding the classification of the technology of a U.S. company under export control laws.

Prior to the new rule, filings were mandatory for covered transactions involving 27 sensitive industries (31 C.F.R. Part 801 – Annex A). [i] By eliminating the requirement that the critical technology falls within one of 27 industries identified by CFIUS, a filing will now be required for a covered transaction involving a TID US business that deals in critical technologies for which a “U.S. regulatory authorization” would be required to export, re-export, transfer (in-country) or retransfer the technologies to a certain foreign person.

Under the former rule, a foreign government would have a substantial interest in an entity with a general partner (or managing member or equivalent) if the foreign government held a 49% or greater interest (either voting or economic) in the general partner. Under the new rule, this requirement pertains to instances where the activities of the entity are primarily directed, controlled, or coordinated by or on behalf of the general partner. Note that a general partner is deemed to direct, control, or coordinate such activities by contracting a third party to perform such services.

The new rule clarifies how indirect interests in a general partner (or managing member or equivalent) will be calculated. Under the current rule, for purposes of calculating substantial interest, a parent is deemed to hold 100% of only the voting interest of its subsidiary. Under the new rule, a parent will be deemed to hold 100% of the voting and economic interest of its subsidiary.

CFIUS filing is mandatory when a foreign person (a) makes a direct investment, or acquires a direct interest, in a U.S. business that is a covered transaction in a U.S. critical technology business or (b) individually holds, or is part of a group of foreign persons that in the aggregate holds, a direct or indirect 25% or more voting interest in the foreign investor identified in clause (a). If the foreign investor is a partnership that is controlled by a general partner, then the 25% share referenced in clause (b) is based on the foreign person’s share in the general partner. A parent is deemed to own 100% of the interest held by its subsidiary. 

Based on the foregoing, it will be important for a U.S. company contemplating a potentially covered transaction to review with legal counsel the effects of the new CFIUS rule.

If you have questions regarding CFIUS filing, please contact Robert Q. Lee at rqlee@bmdpl.com.

[i] (31 C.F.R. Part 801 – Annex A) 

List of Pilot Program Industries 1. Aircraft Manufacturing (NAICS Code: 336411) 2. Aircraft Engine and Engine Parts Manufacturing (NAICS Code: 336412) 3. Alumina Refining and Primary Aluminum Production (NAICS Code: 331313) 4. Ball and Roller Bearing Manufacturing (NAICS Code: 332991) 5. Computer Storage Device Manufacturing (NAICS Code: 334112) 6. Electronic Computer Manufacturing (NAICS Code: 334111) 7. Guided Missile and Space Vehicle Manufacturing (NAICS Code: 336414) 8. Guided Missile and Space Vehicle Propulsion Unit and Propulsion Unit Parts Manufacturing (NAICS Code: 336415) 9. Military Armored Vehicle, Tank, and Tank Component Manufacturing (NAICS Code: 336992) 10. Nuclear Electric Power Generation (NAICS Code: 221113) 11. Optical Instrument and Lens Manufacturing (NAICS Code: 333314) 12. Other Basic Inorganic Chemical Manufacturing (NAICS Code: 325180) 13. Other Guided Missile and Space Vehicle Parts and Auxiliary Equipment Manufacturing (NAICS Code: 336419) 14. Petrochemical Manufacturing (NAICS Code: 325110) 15. Powder Metallurgy Part Manufacturing (NAICS Code: 332117) 16. Power, Distribution, and Specialty Transformer Manufacturing (NAICS Code: 335311) 17. Primary Battery Manufacturing (NAICS Code: 335912) 18. Radio and Television Broadcasting and Wireless Communications Equipment Manufacturing (NAICS Code: 334220) 19. Research and Development in Nanotechnology (NAICS Code: 541713) 20. Research and Development in Biotechnology (except Nanobiotechnology) (NAICS Code: 541714) 21. Secondary Smelting and Alloying of Aluminum (NAICS Code: 331314) 22. Search, Detection, Navigation, Guidance, Aeronautical, and Nautical System and Instrument Manufacturing (NAICS Code: 334511) 23. Semiconductor and Related Device Manufacturing (NAICS Code: 334413) 24. Semiconductor Machinery Manufacturing (NAICS Code: 333242) 25. Storage Battery Manufacturing (NAICS Code: 335911) 26. Telephone Apparatus Manufacturing (NAICS Code: 334210) 27. Turbine and Turbine Generator Set Units Manufacturing (NAICS Code: 333611)

New York, Kansas, Massachusetts, and Delaware Become the latest States to Adopt Full Practice Authority for Nurse Practitioners

While the COVID-19 pandemic certainly created many obstacles and hardships, it also created many opportunities to try doing things differently. This can be seen in the instant rise of remote work opportunities, telehealth visits, and virtual meetings. Many States took the challenges of the pandemic and turned them into an opportunity to adjust the regulations governing licensed professionals, including for advanced practice registered nurses (APRNs).

Explosive Growth in Pot of Gold Opportunity for Bank (and Other) Cannabis Lenders Driving Erosion of the Barriers

Our original article on bank lending to the cannabis industry anticipated that the convergence of interest between banks and the cannabis industry would draw more and larger banks to the industry. Banks were awash in liquidity with limited deployment options, while bankable cannabis businesses had rapidly growing needs for more and lower cost credit. Since then, the pot of gold opportunity for banks to lend into the cannabis industry has grown exponentially due to a combination of market constraints on equity causing a dramatic shift to debt and the ever-increasing capital needs of one of the country’s fastest growing industries. At the same time, hurdles to entry of new banks are being systematically cleared as the yellow brick road to the cannabis industry’s access to the financial markets is being paved, brick by brick, by the progressively increasing number and size of banks that are now entering the market.

2021 EEOC Charge Statistics: Retaliation & Impact of Remote Work

The U.S. Equal Employment Opportunity Commission (EEOC) released its detailed information on workplace discrimination charges it received in 2021. Unsurprisingly, for the second year in a row, the total number of charges decreased as COVID-19 either shut down workplaces or disconnected employees from each other. In 2021, the agency received a total of approximately 61,000 workplace discrimination charges - the fewest in 25 years by a wide margin. For reference, the agency received over 67,000 charges in 2020, and averaged almost 90,000 charges per year over the previous 10 years.

Ohio’s Managed Care Overhaul Delayed – New Implementation Timeline

At the direction of Governor Mike DeWine, the Ohio Department of Medicaid (ODM) launched the Medicaid Managed Care Procurement process in 2019. ODM’s stated vision for the procurement was to focus on people and not just the business of managed care. This is the first structural change to Ohio’s managed care system since the Centers for Medicare & Medicaid Services' (CMS) approval of Ohio’s Medicaid program in 2005. Initially, all of the new managed care programs were supposed to be implemented starting on July 1, 2022. However, ODM Director Maureen Corcoran recently confirmed that this date will be pushed back for several managed care-related programs.

Laboratory Specimen Collection Arrangements with Contract Hospitals - OIG Advisory Opinion 22-09

On April 28, 2022, the Department of Health and Human Services, Office of Inspector General (“OIG”) published an Advisory Opinion[1] in which it evaluated a proposed arrangement where a network of clinical laboratories (the “Requestor”) would compensate hospitals (each a “Contract Hospital”) for specimen collection, processing, and handling services (“Collection Services”) for laboratory tests furnished by the Requestor (the “Proposed Arrangement”). The OIG concluded that the Proposed Arrangement would generate prohibited remuneration under the federal Anti-Kickback Statute (“AKS”) if the requisite intent were present. This is due to both the possibility that the proposed per-patient-encounter fee would be used to induce or reward referrals to Requestor and the associated risk of improperly steering patients to Requestor.