On May 5, 2023, the U.S. Department of the Treasury (Treasury), which chairs the Committee on Foreign Investment in the United States (CFIUS or the Committee), published a proposed rule that would add eight U.S. military installations to the definition of sensitive U.S. military installations listed in part 2 of Appendix A to Part 802, which may be found here. The proposed rule may be found here. Treasury is accepting comments on the proposed rule until June 5, 2023.
CFIUS has the power to review acquisitions by foreign investors of certain property rights in real estate within certain geographic ranges of specified U.S. military installations, ports, and airports. Currently, the regulations identify 211 sensitive U.S. military installations across the United States. With respect to certain U.S. military installations listed in Part 2 of Appendix A of Part 802, the relevant geographic range is 100 miles, meaning that an acquisition by a foreign investor of real estate within a 100-mile radius of the identified installations would be subject to CFIUS jurisdiction. Treasury has proposed adding the following eight U.S. military installations to Part 2:
- Air Force Plant 42 (Palmdale, California)
- Dyess Air Force Base (Abilene, Texas)
- Ellsworth Air Force Base (Box Elder, South Dakota)
- Grand Forks Air Force Base (Grand Forks, North Dakota)
- Iowa National Guard Joint Force Headquarters (Des Moines, Iowa)
- Lackland Air Force Base (San Antonio, Texas)
- Laughlin Air Force Base (Del Rio, Texas)
- Luke Air Force Base (Glendale, Arizona)
What Was the Impetus for Proposing Additional U.S. Military Installations?
Over the past year, there have been several high-profile U.S. real estate transactions that have attracted sharp scrutiny. In certain instances, members of Congress have asked CFIUS to investigate transactions involving real estate located near U.S. military installations. So-called “co-location” or “proximity” risks generally arise when a foreign adversary gains the capability to use signals intelligence, or other collection means, to spy on certain U.S. military installations.
While these deals have created headlines, updates to the list of sensitive U.S. military installations are unsurprising and simply reflect the continued evolution of CFIUS. The list had not been updated since the implementation of the Foreign Investment Risk Review Modernization Act of 2018 (FIRRMA).
Would the Proposed Rule Affect CFIUS’s Review of Investments in U.S. Businesses or Just Real Estate Transactions?
The proposed rule would expand the scope of CFIUS’s jurisdiction with respect to real estate transactions but not the scope of its jurisdiction with respect to investments in existing U.S. businesses. However, when reviewing potential risks associated with investments in existing U.S. businesses, CFIUS will consider whether a business is proximate to sensitive U.S. military installations and, if so, whether that vulnerability presents a risk arising from the transaction. To that extent, the proposed rule will have an indirect impact on CFIUS’s examination of investments in existing U.S. businesses, including, but not limited to, U.S. businesses operating in the solar/wind farm, oil/gas, and other sectors.
Big Deal, Little Deal, or No Deal?
On balance, clients should view this update as a “little deal.” The update expands the scope of CFIUS jurisdiction over certain U.S. real estate deals, but simply having the authority to review a deal does not mean that the Committee is likely to impose mitigation measures or prohibit an investment. However, if a CFIUS filing is prudent or requested by the Committee, investors should understand that the CFIUS process can take several months and requires company time and resources.
The Department of Defense (DoD) constantly monitors and assesses co-location/proximity, cyber, and infrastructure vulnerabilities associated with U.S. military installations. It is very likely that, over time, other U.S. military installations will be added to this list. Although unlikely, it is also possible that U.S. military installations may be removed from the list, if the DoD determines that the vulnerability of such installations becomes low enough.
