Findings
Based on a public tip, CFIUS issued a non-notified transaction inquiry to MineOne Partners Limited and certain related entities (the Purchasers)1, which had purchased property in June 2022 and made improvements to the property to allow for use of the property for specialized cryptocurrency mining operations (the Transaction). CFIUS’s outreach ultimately resulted in the Purchasers submitting a filing to CFIUS. CFIUS reviewed and investigated the Transaction pursuant to the Defense Production Act of 1950 (the DPA), as amended by the Foreign Investment Risk Review Modernization Act of 2018 (FIRRMA), which expanded CFIUS’s jurisdiction to foreign persons’ purchases or leases of U.S. real estate in proximity to certain sensitive U.S. Government facilities. CFIUS concluded that the Transaction resulted in national security risks related to (i) the proximity of the real estate at issue to Francis E. Warren Air Force Base (Warren AFB) in Cheyenne, Wyoming and (ii) the presence of specialized, foreign-sourced equipment that is used to conduct cryptocurrency mining operations and that is “potentially capable of facilitating surveillance and espionage activities.” CFIUS referred the Transaction to the President after determining that it would not be possible to enter into a national security agreement with the Purchasers that would address the national security risks of the Transaction in an “effective, verifiable, and monitorable manner.”
The Order
President Biden’s May 13 order (the Order) reported a finding of credible evidence that the Purchasers, through their purchase of real estate within one mile of Warren AFB, home to Minuteman III intercontinental ballistic missiles (ICBMs), might take action that threatens to impair the national security of the United States.
The Order sets forth an aggressive timetable for compliance with the Order. Key steps and deadlines include:
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Access: Immediate cessation of logical or physical access to the site (unless necessary to satisfy other requirements described in the Order) and putting in place measures and controls necessary to ensure compliance with such prohibitions within seven days after the date of the Order;
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Equipment and improvements removal: Removal, within 90 days after the date of the Order, of all equipment and improvements to the real estate that the Purchasers “stockpiled, stored, deposited, installed, or affixed”; and
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Divestment: Sale or transfer, not later than 120 calendar days after the date of the Order, of all direct and indirect legal and beneficial ownership interests or other rights in the real estate. The Purchasers and their affiliates must certify in writing that such divestment has been completed.
Moreover, certain affiliates of the Purchasers, including its foreign person shareholders, partners, and beneficial owners, including through certain of the Purchasers’ subsidiaries or affiliates are prohibited from holding any ownership interest or rights in the real estate at issue.
Implications for foreign investments in the United States
The Order will require a significant equipment and improvement removal effort for the Purchasers. Beyond the commercial ramifications of the Order for the parties, the Order is noteworthy in several respects:
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CFIUS exerted the DPA’s expanded jurisdiction over a transaction involving a purchase of real estate in proximity to a U.S. Air Force ICBM base, resulting in two firsts -- the first presidential order for a transaction covered by CFIUS’s real estate regulations and the first prohibition of a transaction under the Biden Administration.
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The Order comes against the backdrop of a plethora of state laws restricting foreign entities’ (with a particular focus on China) ownership of real property.
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This action represents only the eighth time a U.S. president has blocked a transaction or forced a divestiture since the establishment of CFIUS:
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In 2020, President Trump issued an order forcing Beijing Shiji Information Technology Co., Ltd., organized in China, and its Hong Kong subsidiary, to divest of their interests in StayNTouch, Inc., a Delaware hotel management software company.
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In 2020, President Trump issued an order requiring TikTok owner ByteDance to divest of its interest in Musical.ly.
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In 2018, President Trump blocked the hostile takeover of Qualcomm Inc. by Broadcom, Ltd, a company organized in Singapore but headquartered in California.
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In 2017, President Trump blocked the proposed acquisition of a U.S. semiconductor company by a Chinese venture fund.
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In 2016, President Obama blocked a Chinese-owned German company from indirectly acquiring the U.S. semiconductor business of a German company.
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In 2012, President Obama ordered a Chinese-owned U.S. company to divest of its interests in U.S. wind farm projects located near a U.S. Navy training facility in Oregon.
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In 1990, President George H.W. Bush ordered a Chinese government-owned firm to divest of its ownership of a Seattle-based aerospace company.
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Non-notified transactions and public tips: The Purchasers did not notify CFIUS of the Transaction prior to closing the Transaction; rather, the Transaction was investigated through CFIUS’s non-notified transaction inquiry process following a public tip. CFIUS continues to pursue non-notified transactions that raise national security concerns. Following the enactment of FIRRMA, CFIUS has stepped up its pursuit of non-notified transactions – those in which the parties initially decline to file with CFIUS. The Order is just the latest example.
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Parties to transactions subject to CFIUS’s real estate regulations may submit filings voluntarily to CFIUS; there is no mandatory filing requirement under CFIUS’s real estate regulations. Thus, this case illustrates that even though a transaction may not be subject to CFIUS’s mandatory filing requirements, parties are well-advised to carefully assess whether their transactions could raise national security concerns that would warrant voluntarily filing with the Committee.
Next steps
Although acquisitions that raise national security concerns so severe that the president orders divestiture are rare, parties to cross-border deals are well-advised to assess the potential CFIUS risks of their transactions as early as possible to avoid such adverse consequences.
Authored by Andrea Fraser-Reid, Zachary Alvarez, Patrick Miller, Brian Curran, and Anne Salladin.
References
1 The Purchasers, collectively, are MineOne Partners Limited (a British Virgin Islands limited company ultimately majority owned by Chinese nationals); MineOne Cloud Computing Investment I L.P. (a British Virgin Islands limited partnership); MineOne Data Center LLC (a Delaware limited liability company); and MineOne Wyoming Data Center LLC (a Delaware limited liability company).
