Tag: Department of Treasury

CFIUS Determines it Lacks Jurisdiction to Review Chinese Land Acquisition

In 2022, Fufeng USA, a subsidiary of Chinese company Fufeng Group, purchased 370 acres near Grand Forks, North Dakota, with the intention of developing the land to build a plant for wet corn milling and biofermentation,[1] prompting opposition from federal and state politicians.[2] North Dakota Senators, North Dakota’s Governor, and Senator Marco Rubio urged the Committee on Foreign Investment in the United States (CFIUS) to review the acquisition as a potential national security risk for being located within 12 miles from the Grand Forks Air Force Base, which is home to military drone technology and a space networking center.[3] Following CFIUS’ review of Fufeng’s notice submission, CFIUS determined that it lacked jurisdiction over the transaction. This post summarizes the public information about that CFIUS case and provides observations about the responses by North Dakota and CFIUS in the wake of Fufeng’s proposed investment.

CFIUS Review and Determination

1. Procedural History

In conjunction with rising public opposition to its land acquisition, public reports show that Fufeng USA submitted a declaration to CFIUS on July 27, 2022.[4] North Dakota local news outlet Valley News Live obtained a copy of the CFIUS closing letter to that declaration filing, which stated that CFIUS determined on August 31, 2022 that it lacked sufficient information to assess the transaction and requested that the parties file a full notice.[5] (CFIUS has the option under the regulations to request a full notice filing at the conclusion of the abbreviated 30-day review of a declaration filing.) Based on the CFIUS closing letter to that subsequent notice filing, which was likewise obtained and published by Valley News Live, Fufeng USA submitted a notice on October 17, 2022, and CFIUS subsequently concluded that it lacked jurisdiction to review the transaction in December 2022.[6]

2. Why CFIUS did not Review under its Part 802 Covered Real Estate Authority

According the CFIUS Letter released by Fufeng to Valley News Live, Fufeng submitted its notice pursuant to 31 C.F.R. Part 800 (“Part 800”), which pertains to covered transaction involving existing U.S. businesses.[7] The closing letter made no reference to the transaction being reviewed as a “covered real estate transaction” under 31 C.F.R. Part 802 (“Part 802”).[8] A reason for this could be that, at the time the case was before CFIUS, the land acquisition by Fufeng USA was not within any of the requisite proximity thresholds and, thus, did not fall within Part 802 authority. Under Part 802, CFIUS has authority over certain real estate transactions involving property in specific maritime ports or airports, or within defined proximity thresholds to identified “military installations” listed in Appendix A to Part 802. Grand Forks Air Force Base was not included in Appendix A at that time, nor was the acquired land within the defined proximity of any other listed military installation. Accordingly, the only way for CFIUS to extend authority would be under its Part 800 authority relating to certain acquisitions of U.S. businesses.

3. CFIUS Determined It Lacked Jurisdiction Under its Part 800 Covered Transaction Authority

CFIUS’ closing letter to Fufeng stated that “CFIUS has concluded that the Transaction is not a covered transaction and therefore CFIUS does not have jurisdiction under 31 C.F.R. Part 800.”[9] Part 800 provides CFIUS with authority to review covered control transactions (i.e., those transactions that could result in control of a U.S. business by a foreign person) or covered investment transactions (i.e., certain non-controlling investments directly or indirectly by a foreign person in U.S. businesses involved with critical technology, critical infrastructure, or the collection and maintaining of US citizen personal data). Greenfield investments, however, inherently do not involve an existing U.S. business. As such, greenfield investments would be outside of CFIUS’ jurisdiction under Part 800. Although the justification underlying CFIUS’ determination regarding Fufeng’s acquisition is not publicly available, CFIUS might have determined that it lacked authority under Part 800 because Fufeng’s purchase of undeveloped land was not an acquisition of a U.S. business, but more likely a greenfield investment.

State and Federal Response

Under state and federal pressure, the City of Grand Forks, which initially approved Fufeng’s development of the corn milling facility, “officially decided to terminate the development agreement between the city and Fufeng USA Inc.” on April 20, 2023.[10] This decision was largely impacted by the U.S. Air Force’s determination that “the proposed project presents a significant threat to national security with both near- and long-term risks of significant impacts to our operations in the area.”[11] As of today, the land appears to still be under the ownership of Fufeng USA.[12]

CFIUS’ determination that it lacked authority drew sharp criticism from state and federal politicians. North Dakota Senator Cramer purported that CFIUS may have determined the jurisdictional question too narrowly and indicated that the determination may prompt federal legislative action.[13] Senator Marco Rubio (R-Florida) concurred, issuing a statement that permitting the transaction was “dangerous and dumb.”[14] In response to the determination, the Governor of South Dakota announced plans for “legislation potentially limiting foreign purchases of agricultural land” by investigating “proposed purchases of ag land by foreign interests and recommend either approval or denial to the Governor.”[15]

On April 29, 2023, North Dakota Governor Doug Burgum signed Senate Bill No. 2371 into law, which prohibits local development and ownership of real property by foreign adversaries and related entities, effective August 1, 2023. Notably, these entities include businesses with a principal executive offices located in China, as well as businesses with a controlling Chinese interest or certain non-controlling Chinese interest.

On May 5, 2023, the U.S. Department of Treasury, the agency tasked with administering CFIUS, also took steps to expand its authority to cover more real property acquisitions. It published a Proposed Rule that would expand CFIUS covered real estate transaction authority over real restate located with 99 miles of the Grand Forks Air Force Base and seven other facilities located in Arizona, California, Iowa, and North Dakota. See a summary of that Proposed Rule and related implications at this TradePractition.com blog post.

FOOTNOTES

[1] See, Alix Larsen, CFIUS requesting Fufeng USA give more information on corn mill development, Valley News Live (Sep. 1, 2022), https://www.valleynewslive.com/2022/09/01/cfius-requesting-fufeng-usa-give-more-information-corn-mill-development/.

[2] See Letter from Gov. Doug Burgum to Secretaries Janet Yellen and Lloyd Austin (Jul. 25, 2022), https://www.governor.nd.gov/sites/www/files/documents/Gov.%20Burgum%20letter%20urging%20expedited%20CFIUS%20review%2007.25.2022.pdf; Letter from Senators Marco rubio, John Hoeven, and Kevin Cramer to Secretaries Janet Yellen and Lloyd Austin (Jul. 14, 2022), https://senatorkevincramer.app.box.com/s/2462nafbszk2u6yosy77chz9rpojlwtl.

[3] See id; Eamon Javers, Chinese Company’s Purchase of North Dakota Farmland Raises National Security Concerns in Washington, CNBC, July 1, 2022, https://www.cnbc.com/2022/07/01/chinese-purchase-of-north-dakota-farmland-raises-national-security-concerns-in-washington.html.

[4] See, Alix Larsen, CFIUS requesting Fufeng USA give more information on corn mill development (Sep. 1, 2022), https://www.valleynewslive.com/2022/09/01/cfius-requesting-fufeng-usa-give-more-information-corn-mill-development/.

[5] See id.

[6] See Stacie Van Dyke, Fufeng moving forward with corn milling plant in Grand Forks (Dec. 13, 2022), https://www.valleynewslive.com/2022/12/14/fufeng-moving-forward-with-corn-milling-plant-grand-forks/.

[7] See id.

[8] Id.

[9] See id.

[10] Bobby Falat, Grand Forks officially terminates Fufeng Deal (Apr. 20, 2023), https://www.valleynewslive.com/2023/04/20/grand-forks-officially-terminates-fufeng-deal/.

[11] News Release, Senator John Hoeven, Hoeven, Cramer: Air Force Provides Official Position on Fufeng Project in Grand Forks, (Jan. 31, 2023), https://www.hoeven.senate.gov/news/news-releases/hoeven-cramer-air-force-provides-official-position-on-fufeng-project-in-grand-forks.

[12] See, Meghan Arbegast, Fufeng Group owes Grand Forks County more than $2,000 in taxes for first half of 2022 (Apr. 5, 2023), https://www.grandforksherald.com/news/local/fufeng-group-owes-grand-forks-county-more-than-2-000-in-taxes-for-first-half-of-2022.

[13] See Josh Meny, Senator Cramer discusses latest on Fufeng in Grand Forks (Dec. 27, 2022), https://www.kxnet.com/news/kx-conversation/senator-cramer-discusses-latest-on-fufeng-in-grand-forks/.

[14] Press Release, Senator Marco Rubio, Rubio Slams CFIUS’s Refusal to Take Action Regarding Fufeng Farmland Purchase (Dec. 14, 2022) https://www.rubio.senate.gov/public/index.cfm/2022/12/rubio-slams-cfius-s-refusal-to-take-action-regarding-fufeng-farmland-purchase.

[15] Jason Harward, Gov. Kristi Noem takes aim at potential Chinese land purchases in South Dakota (Dec. 13, 2022),https://www.grandforksherald.com/news/south-dakota/gov-kristi-noem-takes-aim-at-potential-chinese-land-purchases-in-south-dakota.

© Copyright 2023 Squire Patton Boggs (US) LLP

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No More Surprise Medical Bills: Providers Score More Victories in First Year of No Surprises Act Arbitrations, But Claims Backlog Otherwise Complicates Implementation

In the year following the implementation of the arbitration process established under the federal No Surprises Act (NSA), more than 330,000 disputes have been submitted for resolution. This figure far outpaces the predictions of the US Departments of Health and Human Services (HHS), Labor, and the Treasury (the Departments), and complicates the implementation of the NSA.

*This is the eighth article in a series analyzing the No Surprises Act and its implementation. To view the entire series, click here.

As background, Congress passed the NSA in 2020, effective in 2022, to curb so-called “surprise” medical bills — balance bills received by patients in situations where they have no control over who is involved in their care. Frequently, patients incur these bills when they obtain emergency care from out-of-network facilities or non-emergency services at in-network facilities where at least one member of the care team is out-of-network. In these situations, the NSA forbids out-of-network providers from balance billing the patients to collect the difference between billed charges and what the patient’s health insurance actually paid. Instead, to protect patients and ensure that reasonable payments are made to providers, the NSA establishes an alternative dispute resolution process, allowing eligible parties to submit disputed claims to independent dispute resolution entities (IDREs) to determine appropriate out-of-network payment rates.

Dispute resolution was intended to be streamlined and efficient, but IDREs have been inundated with submissions in the year since the NSA became effective. The volume of claims has created a significant backlog, hindering providers’ ability to obtain timely and appropriate reimbursement for the services they rendered. In an effort to promote transparency, the Departments recently issued a “status update” on the arbitration process. The report revealed several key findings regarding the volume, eligibility, and outcomes of claims submitted under the NSA to date.

Key Findings of the Status Update Report

First, the report provided insight into the overall numbers of claims that have been filed since the NSA became effective. Since the federal claims submission portal first went live in April 2022, disputing parties have initiated more than 330,000 arbitration submissions. This figure is nearly 14 times greater than the Departments’ initial estimates. The sheer volume of claims has drastically slowed the adjudication of claims submitted under the NSA.

Second, the report states that IDREs have rendered determinations in favor of one party or the other in only a small fraction of cases, with approximately 42,000 disputes decided as of March 31, 2023. Of these, initiating parties (typically health care providers) have prevailed approximately 71% of the time.

Third, to date, IDREs have closed more cases than they have decided. Overall, more than 100,000 claims,  – more than four times the amount anticipated by the Departments, have been closed. There are various reasons for this. Some claims were closed following successful negotiations between the parties. Others were closed due to one or both parties failing to submit the required fees mandated under the NSA. A large number — nearly 40,000 — were closed for eligibility reasons. Non-initiating parties have challenged the eligibility of more than a third of claims submitted for arbitration, balking at approximately 120,000 disputes. Non-initiating parties frequently object that claims are not eligible for arbitration under the NSA for multiple reasons, including lack of timely negotiation or arbitration submission, or because the disputed claims involve insurance programs outside the scope of the NSA.

In addition to the objections lodged by non-initiating parties, the IDREs have an independent duty to confirm that all claims submitted for arbitration are eligible under the NSA. These determinations require IDREs to engage in what can be a complex and time-consuming analysis of each claim, frequently requiring the submission of additional information from the parties. The report finds that these eligibility determinations represent the primary cause for the delays in processing arbitration submissions.

Finally, in an effort to help resolve delays, the status update includes that the Departments have begun to require initiating parties to submit additional information to assist IDREs in evaluating the eligibility of claims. The Departments have also modified the arbitration portal to require the input of additional information to enable non-initiating parties to identify disputed claims. These are among the “ongoing technical and operational improvements” the report states the Departments have been making over the last year.

Looking Ahead: Additional Legislation and Ongoing Court Challenges

The report highlights a series of problems that have hampered the implementation of the NSA, including larger-than-expected dispute volume, complex eligibility determinations, and technical issues. Collectively, these problems have left many parties awaiting arbitration awards and payment.

Meanwhile, the legal challenges to the Departments’ implementing regulations under the NSA continue, and HHS Secretary Xavier Bacerra recently testified before Congress regarding the implementation of the NSA. These developments have fueled speculation that Congress may step in and pass additional legislation to streamline the arbitration process. While these events play out, providers should continue to submit timely open negotiation notices and IDR initiation forms to preserve their rights under the NSA.

A copy of CMS’s report can be found here.

© 2023 ArentFox Schiff LLP

For more Healthcare Legal News, click here to visit the National Law Review.

New U.S. Restrictions on Russia: OFAC (Office of Foreign Assets Control) Guidance and Industry-Specific Sanctions

Sheppard Mullin Law Firm

OFAC Expands the 50 Percent Rule

Last month, the Department of Treasury’s Office of Foreign Assets Control (OFAC) released new guidance related to entities owned or controlled by persons designated as a Specially Designated National (SDN) on OFAC’s SDN list.  Although the guidance leaves intact the current meaning “50 percent rule,” the rule will now allow OFAC to take a far broader approach in determining when the 50 percent rule applies.

Under the 50 percent rule, as it stood before the August 13 release of the updated guidance, all entities owned or controlled, directly or indirectly, by an SDN (i.e., any entity of which an SDN owns 50 percent or more) are considered designated by operation of law and must be treated as SDNs.  Thus, companies owned or controlled by SDNs are blocked, even if they are not themselves specifically listed on the SDN list.  It is unlawful for U.S. persons to conduct virtually any business with any SDN.

In a major expansion of the 50 percent rule, OFAC will now aggregate the ownership interests of SDNs when it determines whether the rule applies.  Specifically, the new guidance provides that “any entity owned in the aggregate, directly or indirectly, 50 percent or more by one or moreblocked persons is itself considered to be a blocked person” (emphasis added).  According to OFAC’S updated Frequently Asked Questions on the issue, “if Blocked Person X owns 25 percent of Entity A, and Blocked Person Y owns another 25 percent of Entity A, Entity A is considered to be blocked.”  Taken to the logical conclusion, the new approach means that an entity owned or controlled by a large number of SDNs, each with a small interest in the entity itself, may nonetheless be designated, and afforded the same regulatory treatment, as an SDN.

Notably, OFAC did not provide for a transition period as the new rule takes effect, nor is there any mention of a general authorization for companies to end involvement in now-potentially prohibited transactions.

More than ever, companies must focus on conducting appropriate due diligence when operating in the universe of potentially covered persons, entities, or transactions.  Due to the expansion of potentially blocked entities, American companies must determine what policies and procedures need to be in place for vetting would-be business partners before engaging in any transaction, so they do not inadvertently conduct unlawful business with SDNs.

Russian Industry Sector Sanctions

Separately, On August 6, 2014, the U.S. Commerce Department’s Bureau of Industry and Security (BIS) issued a final rule amending the U.S. Export Administration Regulations (EAR) to implement the most aggressive set of export controls against Russia in recent memory.  In short, the new rules will deny export, reexport, and transfer (in-country) licenses for certain dual-use items for use in Russia’s energy sector.

Specifically, under the new EAR section 746.5 and amendments to other sections, a license is now required to export, reexport, or transfer (in-country) certain items when the exporter “knows or is informed that the item will be used directly or indirectly in Russia’s energy sector for exploration or production from deepwater …, Arctic offshore, or shale projects in Russia that have the potential to produce oil or gas or is unable to determine whether the item will be used in such projects in Russia.”

The “certain items” referred to in the regulation include two classes of products: (1) any item subject to the EAR listed in Supplement No. 2 to Part 746, including fifty-two specific products listed by Schedule B number; and (2) any item specified in the following Export Control Classification Numbers: 0A998, 1C992, 3A229, 3A231, 3A232, 6A991, 8A992, or 8D999.  BIS includes the following list of illustrative examples of restricted products: “drilling rigs, parts for horizontal drilling, drilling and completion equipment, subsea processing equipment, Arctic-capable marine equipment, wireline and down hole motors and equipment, drill pipe and casing, software for hydraulic fracturing, high pressure pumps, seismic acquisition equipment, remotely operated vehicles, compressors, expanders, valves, and risers.”

With the exception of License Exception GOV, which authorizes certain exports and reexports to U.S. and foreign governmental agencies and intergovernmental organizations, no license exceptions are available to fulfill the new licensing requirement.  Thus, all exports of the restricted products will require a BIS license for export or reexport to Russia, regardless of whether those products were formerly exportable to Russia with no license required.  Further, the new BIS rule imposes a presumption of denial for license applications “when there is potential for use directly or indirectly for exploration or production” from deepwater, Arctic offshore, or shale projects in Russia with the potential to produce oil.

The final rule does not contain a savings clause. That means any restricted products exported to Russia without a license on or after August 6 may be considered violations, even if the products were formerly exported under a license exception.

Those companies exporting items used in the exploration or production of oil or gas should immediately determine whether any of the products they export, reexport, or transfer to Russian end-users (or intermediaries with constructive or direct knowledge that the ultimate end-user is in Russia) are restricted products as defined in the new rule.  If so, companies should understand the implications of the new licensing requirements and the presumption of denial for license applications.  Further, if your company is unable to determine whether your products are used in the end-uses defined in the rule, the rule requires that such products be considered subject to the licensing requirements.  Thus, unless you can affirmatively determine that your products are not to be used for the energy-related activities defined in the rule, then your company should assume that its products are subject to the licensing requirements.

ARTICLE BY

J. Scott Maberry
Matthew L. Riemer
OF
Sheppard, Mullin, Richter & Hampton LLP
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