On May 13, 2024, President Biden issued the first ever Executive Order (the “Order”) formally prohibiting the acquisition of real estate within the United States by a foreign entity. This was done pursuant to the authorities that allow the Committee on Foreign Investment in the United States (“CFIUS” or the “Committee”) to review certain transactions involving foreign investment in the United States and certain real estate transactions by foreign persons. The Order prohibited the purchase and ultimately required the divestment of certain property that was being used to operate a cryptocurrency mining facility within one mile of Francis E. Warren Air Force Base (the “Real Estate”). The Order also required the removal of certain improvements and equipment located at the property by MineOne Partners Limited, an entity ultimately majority owned by nationals of People’s Republic of China; MineOne Cloud Computing Investment I LP; MineOne Data Center LLC; and MineOne Wyoming Data Center LLC (collectively, “MineOne”), and their affiliates.
The Order comes almost two years after MineOne acquired the real estate in June 2022. As a result of the Committee’s investigation following the tip, CFIUS identified “the proximity of the foreign-owned Real Estate to a strategic missile base and key elements of America’s nuclear triad, and the presence of specialized and foreign-sourced equipment potentially capable of facilitating surveillance and espionage activities” as salient national security risks arising from the acquisition of the Real Estate.
The Order compels MineOne to divest all direct and indirect ownership interests in the Real Estate within 120 days of this Order. Within 90 days, MineOne must remove all equipment (including items, structures or other physical objects or installations, hereafter the “Equipment”) and improvements (whether above ground, underground or connected to the Real Estate, hereafter the “Improvements”) from the property. Immediately upon the date of the Order and until the aforementioned requirements are met, the Order requires MineOne and its affiliates to refrain from physical or logical access to the Real Estate, Equipment and Improvements.
While these conditions are severe, they are not out of the ordinary. In fact, the Order bears notable similarities to the 2012 order signed by President Obama, which blocked the acquisition of four U.S. wind farm project companies next to a sensitive military installation by Ralls Corporation, a company also affiliated with nationals of People’s Republic of China. In that transaction, the Obama Executive Order also required the removal of items, structures and other physical objects or installations, even identifying concrete foundations as objects subject to removal requirements. As such, the degree of remediation required by the Order here is consistent with past practice and is likely to continue where parties attempt to circumvent CFIUS jurisdiction by failing to notify CFIUS of transactions that present national security risks.
That said, while the degree of remediation that the Order requires is not groundbreaking, certain aspects of the Order are novel:
1. Divestiture Based on Real Estate Authorities Added Under FIRRMA
While Executive Orders blocking transactions under CFIUS authorities are not new, previous prohibitions have involved the acquisition of U.S. businesses by foreign persons, rather than transactions involving the purchase of U.S. real estate by foreign persons. This distinction—the latter of which was made possible by Congress in the Foreign Investment Risk Review Modernization Act of 2018 (“FIRRMA”)—exists because, until February 13, 2020, CFIUS regulations pertaining to investments were confined to transactions that could result in foreign control of a U.S. business. As such, few real estate transactions were subject to review unless the property itself had some nexus to the business being acquired, as was the case with the Executive Order involving Ralls Corporation described above. After FIRRMA came into effect, CFIUS’s jurisdiction expanded to cover real estate with certain defined proximity to specific airports, maritime ports, or military installations. Despite this expansion, CFIUS’s review of real estate transactions has been relatively limited compared to its review of non-real estate transactions, due to the relatively narrow scope of its jurisdiction over those types of transactions. Nevertheless, the Order serves as a firm reminder that CFIUS can—and does—review real estate transactions falling within its jurisdiction and will not hesitate to take action where it believes action is warranted. This is particularly the case when parties to transactions that fall within that jurisdiction choose, for whatever reason, not to notify the transaction to CFIUS.
2. Increased Prevalence of CFIUS’s Public Tip Line
The Order also represents the first time CFIUS has acknowledged that a transaction was blocked as the result of a public tip. While CFIUS has bolstered its ability in recent years to review non-notified transactions for potential national security concerns and noncompliance with CFIUS regulations, including through the creation of a dedicated tip line, it has never previously attributed the blocking of a transaction to a public tip. This acknowledgement likely signifies an attempt to highlight the Committee’s tip-line resource, which is in line with Assistant Secretary of the Treasury for Investment Security Paul Rosen’s fall 2023 statement describing the review of non-notified transactions as “one of CFIUS’s most important functions” to which the Committee has “added resources to reinvigorate the attention we give to failures to file.” We expect this trend to continue, with CFIUS using public tips to exercise its broad authority to identify, review, and take action against non-notified transactions.
If you have any questions concerning the material discussed in this client alert, please contact the members of our CFIUS practice.
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