Treasury “significantly expands” CFIUS jurisdiction over covered real estate transactions

On July 8, 2024, the United States Department of the Treasury’s Office of Investment Security issued a Notice of Proposed Rulemaking (“NPRM”) that proposed to expand the geographic reach in which the Committee on Foreign Investment in the United States (“CFIUS”) has jurisdiction to review certain “covered” real estate transactions. Comments to the NPRM closed on August 7, 2024.

Background:

Following the passing of the Foreign Investment Risk Review Modernization Act of 2018, Congress provided CFIUS with the authority to review, analyze, and potentially block the purchase or lease by, or concession to, foreign persons of real estate located in close proximity to specified (“covered”) military installations or another facility of property of the United States that (1) is sensitive for reasons relating to national security, (2) could reasonably provide the foreign person the ability to collect intelligence on activities being conducted at such an installation, facility, or property, or (3) could otherwise expose national security activities at such an installation, facility, or property to the risk of foreign intelligence.

When initially proposed, CFIUS estimated that its jurisdiction of covered real estate transactions would result in approximately 350 filings per year. The actual number of filings has been much smaller, as CFIUS’s real estate jurisdiction is based upon voluntary disclosures and the limited threat posed by most real estate acquisitions to national security. For example, in 2022, CFIUS only received six filings for real estate transactions involving a specified military installation or other government facility.

Despite the small number of filings, the power of CFIUS’ jurisdiction should not be ignored by a foreign person intending to purchase real estate within the United States. In May 2024, CFIUS, with President Biden’s approval, prohibited a covered real estate transaction, dating back to June 2022, involving a Chinese-controlled specialized cryptocurrency mining operation due to its close proximity to a strategic missile base in Wyoming.

Proposed additions:

Presently, CFIUS has jurisdiction to review transactions for real estate located within a one-mile radius of 130 military installations and within a 100-mile radius of 40 military installations. Under this proposed NPRM, the scope of CFIUS-jurisdiction will expand to (1) add 40 installations with a one-mile radius, (2) add 19 installations with a 100-mile radius, and (3) increase the range of eight installations from a one- to a 100-mile radius. The addition of these new installations will constitute the largest expansion of CFIUS jurisdiction since the program was implemented. This NPRM will raise the number of listed installations under the scope of CFIUS jurisdiction to over 225.

The NPRM also proposes two amendments focused on aiding the public in identifying listed installations and facilities. The first amendment updates the names of 14 military installations already listed in the regulations to assist the public in identifying the relevant sites. The second amendment updates the location of seven military installations already listed in the regulations to assist the public in identifying the relevant sites.

Commenting on the expansion of CFIUS jurisdiction, Assistant Secretary of the Treasury for Investment Security Paul Rosen commented that this “proposed rule is another example of CFIUS’s continuing commitment to hone our tools to protect U.S. national security, and is a significant milestone in safeguarding critical U.S. military installations.” He also alluded to the possibility of future additions, stating his office “will remain responsible to the evolving nature of the risks we face to ensure we are protecting our military installations and related defense assets.”[1]

Key takeaway:

Given recent use of CFIUS jurisdiction to block a covered real estate transaction in Wyoming, we believe that CFIUS may be increasing its focus on analysing certain real estate transaction. Foreign clients who are interested in purchasing real estate near a listed military installation or government facility should consider whether their transaction requires a CFIUS filing.

[1] U.S. Dep’t of the Treasury, Press Release: Treasury Issues Proposed Rule to Expand CFIUS Coverage of Real Estate Transactions Near Military Installations (Jul. 8, 2024), available here.