When in doubt, ask: President Biden orders property divestment after a CFIUS non-notified transaction

Published Date
Jun 27, 2024
The United States has, for the first time, taken action to require divestment of real estate in the exercise of its powers under the Foreign Investment Risk Review Modernization Act of 2018 (“FIRRMA”). FIRRMA was passed to update and strengthen the Committee on Foreign Investment in the United States (“CFIUS”) and authorizes the President to suspend or prohibit certain transactions by foreign persons involving United States real estate in close proximity to sensitive United States facilities.

On May 13, 2024, the President exercised such authority to order (the “Order”) a purchaser of real estate located within one mile of Warren Air Force Base, a strategic missile base in Wyoming, to divest itself of its interest in the real estate nearly two years after purchasing the property and making substantial investments in improvements and equipment.  This is only the eighth time in history that a president has issued an order blocking a transaction.

The acquisition took place in June 2022.  The purchaser (the “Purchaser”) was a group of companies which included MineOne Partners Limited, a company ultimately majority-owned by nationals of the People’s Republic of China.  Notwithstanding the foreign ownership of the Purchaser and the close proximity of the real estate to a United States Air Force base, the Purchaser did not seek CFIUS review and approval of the transaction.  After acquiring the property, the Purchaser made improvements and installed equipment for the purpose of conducting cryptocurrency mining activities on the site.

After receiving a “public tip,” CFIUS began an investigation of the transaction and required the Purchaser to make a CFIUS filing.  CFIUS identified national security risks relating to (i) the close proximity of the property to a strategic missile base home to Minuteman III intercontinental ballistic missiles, and (ii) the presence of specialized, and in some cases, foreign-sourced equipment on the property used for its cryptocurrency mining operation and, as noted in the Treasury Department’s press release, “potentially capable of facilitating surveillance and espionage activities.”  CFIUS referred the transaction to President Biden who, noting that CFIUS determined that mitigation of the national security risks would not be possible, issued the Order.  The President issued the order even though MineOne had entered into a definitive agreement to sell the property.

The Order prohibits the purchase of the real estate and orders its divestiture.  In addition, the Order requires the Purchaser to remove the improvements made and equipment installed after the acquisition within 90 calendar days after the Order.  The Order gives the Purchaser 120 calendar days to complete the divestiture (subject to possible extension by CFIUS) and requires ten business days’ advance notification to CFIUS of the identity of the intended buyer or transferee during which CFIUS may object to the same.  Until such time as the requirements of the Order are completed and verified, the Purchaser is ordered to refrain from accessing the property except for the purpose of implementing the order. The Purchaser is required to submit weekly progress certifications and to permit access for CFIUS-designated government employees to all of the facilities owned by Purchaser in the United States to verify and enforce compliance.

The Order demonstrates that there is no benefit to consummating transactions that present unresolved questions of U.S. national security because CFIUS dedicates resources to identifying, investigating, and, if necessary, blocking them.  The effort and expense required to unwind this transaction after the fact is one to keep in mind before entering into a transaction which may trigger CFIUS scrutiny.  In addition to the usual diligence regarding proximity to military bases, real estate investors should now also conduct diligence into whether investments involve foreign sourced equipment that could be used for surveillance, particularly if the real estate is being used for cryptocurrency mining.  


Related capabilities