Industry trends indicate that 2024 could be another significant year for physical infrastructure development in the emerging technologies space. However, this growth is poised to encounter increased government scrutiny, primarily focused on land acquisitions preceding the construction of cryptocurrency mining facilities and data centers. Foreign-backed acquisitions across large areas of the U.S. may trigger national security concerns with serious financial implications.
The Treasury Department’s proposed rule published on July 8 aims to expand the geographic reach of the Committee on Foreign Investment in the United States (CFIUS) concerning foreign-backed real estate investments in the U.S. CFIUS’s jurisdiction covers transactions involving real estate with potential national security implications, particularly near military installations and other critical U.S. government facilities.
Existing regulations already cover real estate near airports and maritime ports. This existing capability drew attention in May when President Joe Biden required cryptocurrency mining company MineOne to divest its 2022 land acquisition near an Air Force base in Wyoming, owing to its Chinese financial backing, as reported by Bloomberg Law.
The new rule would extend CFIUS’s purview to 59 additional facilities and increase its jurisdictional radius over foreign investments in U.S. land from one mile to 100 miles around these facilities. This shift, coupled with the MineOne divestment order, illustrates the Biden administration’s growing willingness and capability to scrutinize corporate deals involving foreign investment in proximity to sensitive sites. This trend is particularly pertinent to the cryptocurrency and data center industries, which often involve foreign investments in U.S. land.
The scope for CFIUS scrutiny spans the entire country, with current and proposed sites located in some of the most popular states for cryptocurrency mining and data center facilities, including Texas, Georgia, Virginia, California, and Tennessee.
Investors and developers engaged in these land deals should be well-versed in CFIUS’s capabilities from the onset of investor identification, deal negotiation, and project development. Any interaction with a foreign party at any stage of a deal could complicate regulatory oversight during the lifespan of an investment.
Without a statute of limitations and possessing wide-ranging jurisdiction, CFIUS scrutiny could critically impact the development of physical infrastructures that support power-dense technologies like cryptocurrency and AI. Moreover, agency activity is presently under greater scrutiny following the U.S. Supreme Court’s recent reversal of the Chevron case, historically permitting courts to defer to reasonable agency interpretations of ambiguous statutes and unclear laws. Nevertheless, agencies and interagency committees like CFIUS may continue to exercise regulatory authority and may still receive deference on national security grounds.
Entities facing enforcement actions under the proposed rules, such as being forced to divest a foreign real estate investment near one of these facilities, might challenge CFIUS’s assessment of the national security risk posed and question the committee’s broader authority. While the ramifications of the Chevron reversal for the foreign investment regulatory landscape are yet to be fully understood, companies with foreign ties should familiarize themselves with the proposed rule and its extensive implications.
Learn more about the ongoing developments in this matter in the complete article by Bloomberg Law here.