A white paper on foreign investment in U.S. technology start-ups, commissioned under President Obama, has caught President Trump’s team’s attention. Federal law requires all U.S. businesses to report qualifying foreign investment; given this recent federal concern with foreign investment in tech start-ups, tech start-ups, in particular, should ensure compliance.

BE-13 Overview

In 1976, Congress enacted the International Investment and Trade in Services Survey Act, which gives the President broad authority to collect data related to (i) foreign direct investment in the U.S. and (ii) U.S. investment.[note]BE-13 Overview, (video) produced by U.S. Bureau of Economic Analysis, April 27, 2017, www.youtube.com/watch?v=vb_XAc3vZcg (https://www.youtube.com/watch?v=vb_XAc3vZcg).[/note]

President Ford delegated the related survey power to the U.S. Commerce Department, and the U.S. Commerce Department delegated this responsibility to U.S. Commerce Department, Bureau of Economic Analysis, (BEA).[note]International Investment and Trade in Services Survey Act, P.L. 94–472, 90 Stat. 2059, 22 U.S.C. 3101–3108, as amended (https://www.gpo.gov/fdsys/pkg/USCODE-2015-title22/pdf/USCODE-2015-title22-chap46.pdf);15 C.F.R. Part 801, as amended (https://www.gpo.gov/fdsys/pkg/CFR-2017-title15-vol3/pdf/CFR-2017-title15-vol3-part801.pdf).[/note] While BEA gathers and analyzes data on many facets of the U.S. economy, this a article focuses on BEA data collection related to foreign direct investment in U.S. business and real estate.

Other than a four-year hiatus from 2009 to 2013, since the early 1980s, BEA has gathered data on new foreign direct investment in U.S. business and real estate by combining mandatory reporting requirements with BE-13 surveys. I represented resort developers during Hawaii’s late 1980s to early 1990s Japanese investment boom. At that time, filing a BE-13 survey was mandatory automatically when a transaction with foreign investment exceeded $3 million; otherwise, a transaction with foreign investment had to be reported only if BEA contacted a party and directed the party to report. When a foreigner invested over $3 million in a client’s project, I ensured a BE-13 survey reached BEA within 45 days to avoid potential penalties for noncompliance, which at that time could include fines exceeding $30,000 and up to one year in jail. BEA discontinued BE-13 reporting requirements in 2009 due to budget restrictions.[note]Foreign Direct Investment in the U.S.: Disclosure Regulations, Diane E. McNamara, 12 Ga. J. of Int’l & Comp. L. 193 (1982), at 193-94 (http://digitalcommons.law.uga.edu/cgi/viewcontent.cgi?article=1913&context=gjicl). Direct Investment Surveys: BE-13, Survey of New Foreign Direct Investment in the United States, Proposed.[/note]

In November 2014, during President Obama’s second term, BEA reinstated BE-13 mandatory reporting requirements with a reporting structure that made reporting mandatory for a far broader range of transactions than under earlier versions.[note]Direct Investment Surveys: BE-13, Survey of New Foreign Direct Investment in the United States, Proposed Rule by U.S. Bureau of Economic Analysis, May 28, 2014, Supplementary Information, 79 FR 30503 at 30504 (https://www.federalregister.gov/documents/2014/05/28/2014-12159/direct-investment-surveysbe-13-survey-of-new-foreign-direct-investment-in-the-united- states).[/note] Perhaps the reinstatement is related to growing concern over foreign investment in technology start-ups, a concern that triggered a white paper begun under President Obama.[note]Id., 79 FR 30503 at 30504, www.federalregister.gov/documents/2014/05/28/2014-12159/direct-investment-surveys-be-13-survey-of-new-foreign-direct-invest- ment-in-the-united-states (https://www.federalregister.gov/documents/2014/05/28/2014-12159/direct-investment-surveys-be-13-survey-of-new-foreign-direct-investment-in-the-united- states); Direct Investment Surveys: BE-13, Survey of New Foreign Direct Investment in the United States, and Changes to Private Fund Reporting, Rule by the U.S.Bureau of Economic Analysis, Oct. 20, 2016, www.gpo.gov/fdsys/pkg/FR-2016-10-20/pdf/2016-25208.pdf(https://www.gpo.gov/fdsys/pkg/FR-2016-10-20/pdf/2016-25208.pdf).[/note] The November 2014 reinstatement applied retroactively to transactions occurring as early as January 1, 2014. The requirements were rendered far more onerous than earlier versions by no longer including a prerequisite dollar threshold as a trigger. Qualifying transactions now must be reported without regard to how large or small the investment and without any need for BEA to direct a party to report.[note]Mozer, Paul and Perlez, Jane. “China Bets on Sensitive U.S. Start-Ups,Worrying the Pentagon.” New York Times, March 23, 2016, at B1 (https://www.nytimes.com/2017/03/22/technology/china-defense-start-ups.html).[/note] Current rules require filing a BE-13 survey within 45 days to report:

• A transaction resulting in ten percent or more of the voting interest in a U.S. business being held by a foreign person or company, including foreign ownership of U.S. improved and unimproved real estate.
• An expansion of a U.S. business’s facilities if ten percent or more of the U.S. business’s voting interest is under foreign control.

A BE-13 survey or a claim for exemption must be filed within 45 days whether or not the voting interest is held directly or is held indirectly through another U.S. business affiliate that has ten percent or more foreign control.[note]International Investment and Trade in Services Survey Act, supra, noter 2, as amended (https://www.gpo.gov/fdsys/pkg/USCODE-2015-title22/pdf/USCODE-2015-title22-chap46.pdf); 15 CFR part 801, supra, note 2, as amended (https://www.gpo.gov/fdsys/pkg/CFR-2017-title15-vol3/pdf/CFR-2017-title15-vol3-part801.pdf).[/note]

Some foreign investment evades BE-13 mandatory reporting requirements. If a foreigner purchases U.S. real estate that is exclusively for personal use, the transaction generally is excluded from BE-13 reporting requirements.[note]Id. (https://www.gpo.gov/fdsys/pkg/USCODE-2015-title22/pdf/USCODE-2015-title22-chap46.pdf) (https://www.gpo.gov/fdsys/pkg/CFR-2017-title15-vol3/pdf/CFR-2017-title15-vol3-part801.pdf).[/note] Most EB-5 investments, which typically are done through a Regional Center, do not trigger BE-13 reporting requirements; a certain number of EB-5 investors, however, make their investments directly, without the use of a Regional Center, and any investments in which the foreign investor acquires a ten percent or more voting interest in a U.S. business enterprise before becoming a U.S. resident (including on a conditional basis) triggers BE-13 mandatory reporting requirements.[note]U.S. Bureau of Economic Analysis, FAQ: “I only own real estate in the United States. Why am I required to file a BE-12 report?“ (April 10, 2017), www.bea.gov/faq/index.cfm?faq_id=1015 (https://www.bea.gov/faq/index.cfm?faq_id=1015).[/note]

Failure to file a timely BE-13 survey or claim for exemption may result in the imposition of penalties that currently may include fines exceeding $35,000 and/or, for individuals, including corporate directors and officers, up to one-year imprisonment.[note]International Investment and Trade in Services Survey Act, supra, noter 2, as amended (https://www.gpo.gov/fdsys/pkg/USCODE-2015-title22/pdf/USCODE-2015-title22-chap46.pdf)); 15 CFR part 801, supra, note 2, as amended(https://www.gpo.gov/fdsys/pkg/CFR-2017-title15-vol3/pdf/CFR-2017-title15-vol3-part801.pdf).[/note] When BEA recommends enforcing compliance, it forwards the recommendation to the U.S. Commerce Department, Office of General Counsel, for review; if the U.S. Commerce Department, Office of General Counsel, agrees with BEA’s recommendation, it sends the matter to the U.S.  Department of Justice (DOJ) to institute an enforcement action.[note]Foreign Direct Investment in the U.S.: Disclosure Regulations, supra, note 3, at 206-07 (http://digitalcommons.law.uga.edu/cgi/viewcontent.cgi?article=1913&context=gjicl).[/note]

BE-13’s Legally-Created “Cloak of Mystery”

Why have most people heard nothing about BE-13 surveys, their mandatory reporting requirements or enforcement actions for noncompliance? From its inception through its 2009 discontinuance, BE-13 reporting requirements came into play automatically only for qualifying transactions that exceeded $3 million; qualifying transactions that did not exceed $3 million had to be reported only if BEA issued a personal directive to file a BE-13 survey. It is only since November 2014 that the law mandates reporting qualifying transactions without regard to the transaction’s dollar value. In addition, from its inception, applicable law has covered BE-13-related information with a concealing cloak by prohibiting BEA from sharing information from a BE-13 survey with the public or with other government agencies, including the IRS, in any way that would lead to identifying the filer.[note]International Investment and Trade in Services Survey Act, supra, noter 2, §3104(c) and §3104(d) (https://www.gpo.gov/fdsys/pkg/USCODE-2015-title22/pdf/USCODE-2015-title22-chap46.pdf);15 CFR part 801, supra, note 2, as amended, at 801.5(https://www.gpo.gov/fdsys/pkg/CFR-2017-title15-vol3/pdf/CFR-2017-title15-vol3-part801.pdf).[/note]

BEA and DOJ each claim that a filed BE-13 survey is immune from disclosure in response to a Freedom of Information Act request[note]International Investment and Trade in Services Survey Act, supra, noter 2, §3104(c), as amended (https://www.gpo.gov/fdsys/pkg/USCODE-2015-title22/pdf/USCODE-2015-title22-chap46.pdf);15 CFR part 801, supra, note 2, §801.5, as amended(https://www.gpo.gov/fdsys/pkg/CFR-2017-title15-vol3/pdf/CFR-2017-title15-vol3-part801.pdf).;U.S. Bureau of Economic Analysis, “International Economic Accounts, Legal Authority and Confidentiality,” (April 11, 2017), www.bea.gov/international/federalregs.htm (citing Young Conservative Foundation, Inc. v. U.S. Dept. of Commerce,1987 WL 9244 (D.D.C. Mar. 25, 1987) (No. 85-3982))(https://www.bea.gov/international/federalregs.htm);U.S. Dept. of Justice, Office of Information Policy, “FOIA Guide, 2004 Edition: Exemption 3,” at note 80 (citing Young Conservative Foundation, Inc. v. U.S. Dept. of Commerce, supra), https://www.justice.gov/oip/foia-guide-2004-edition-exemption-3(https:/www.justice.gov/oip/foia-guide-2004-edition-exemption-3).[/note] BEA recently proposed a slight revision to its confidentiality rules to accommodate mandated Department of Homeland Security-provided cybersecurity assistance.[note]U.S. Bureau of Economic Analysis, “Request for Comments; Notice of Revision of Confidentiality Pledge,”(Feb. 13, 2017), www.federalregister.gov/documents/2017/02/13/2017-02821/request-for-comments-notice-of-revision-of-confidentiality-pledge, 82 FR 10455 (https://www.federalregister.gov/documents/2017/02/13/2017-02821/request-for-comments-notice-of-revision-ofconfidentiality-pledge).[/note]

In the late 1980s and early 1990s, statistical information about BE-13 enforcement actions was publicized without disclosing identifying details; at that time, even BEA directors issued public statements on the number of enforcement actions instituted for noncompliance.[note]Foreign Direct Investment in the U.S.: Disclosure Regulations, supra, note 3 at 206-07 (including notes 76-81) (http://digitalcommons.law.uga.edu/cgi/viewcontent.cgi?article=1913&context=gjicl).[/note] Today, however, for some unknown reason, BEA, the U.S. Commerce Department, Office of General Counsel, and DOJ claim that even statistical information about BE-13 enforcement actions is confidential.

Though I have hit many walls in my search for definitive information on recent sanctions imposed for noncompliance, I found two interesting DOJ press releases. One boasts that in 2013, the year before the BE-13 reinstatement, DOJ collected over $8 billion from actions instituted for noncompliance with various federal reporting requirements.[note]“Justice Department Collects More Than $8 Billion in Civil and Criminal Cases in Fiscal Year 2013,” U.S.Dept. of Justice, Office of Public Affairs, Jan. 9, 2014 (https://www.justice.gov/opa/pr/justice-department-collects-more-8-billion-civil-and-criminal-cases-fiscal-year-2013).[/note] A parallel DOJ press release for 2015, the first year BE-13 reports were filed under the 2014 reinstatement, boasted over $23 billion in revenue, almost three times the comparable 2013 revenue.[note]“Justice Dept. Collects More Than $23 Billion in Civil and Criminal Cases in Fiscal Year 2015,” U.S. Dept. of Justice, Office of Public Affairs, Dec. 3, 2015 (https://www.justice.gov/opa/pr/justice-department-collects-more-23-billion-civil-and-criminal-cases-fiscal-year-2015).[/note] The DOJ would not share the underlying data for these revenue figures.

Continuing my quest for data on sanctions imposed for noncompliance, I contacted attorneys who had written articles about the November 2014 reinstatement and requested information on recent sanctions imposed for noncompliance. One attorney, who attends BEA meetings, noted that BEA employees are looking for noncompliance and had started sending letters threatening $35,000 fines and prison terms of up to one year.

Conclusion

In the current, rapidly chilling U.S. political climate for foreigners, BE-13 compliance is a timely topic, rendered more important by the news that the BEA is looking for noncompliance and has started sending letters threatening significant sanctions and also by recent concerns about the white paper on foreign investment in technology start-ups. Those involved with foreign investment in the U.S. should

•       Understand the BE-13 mandatory reporting requirements
•       Determine who has a fiduciary responsibility to file a BE-13 survey
•       Consider implementing an internal BE-13 compliance program

The version of the BE-13 reporting requirements in effect before the 2009 discontinuance in certain circumstances mandated reporting by real estate brokers, investment brokers and others who assisted with a qualifying transaction.[note]See obsolete versions of 15 C.F.R. §806(j)(4)(i) that were in effect during pre-2009 versions of the International Investment and Trade Services Survey Act, i.e., (https://www.gpo.gov/fdsys/pkg/CFR-2003-title15-vol3/xml/CFR-2003-title15-vol3-subtitleB.xml (obsolete)).[/note] While the current law does not mandate reporting by those who assist with a qualifying transaction, title insurance companies, real estate brokerage companies and investment companies with foreign client should consider implementing a program to educate their clients about BE-13 reporting requirements as a relatively inexpensive customer service that may save their clients the headache and expense potentially triggered by noncompliance.

No one is under the radar. Those not compliant with the BE-13 reporting requirements should consider promptly filing. Most would agree that the four-hour average completion time to prepare and file a BE-13 survey that does not require payment of any filing fee would be far preferable to dealing with repercussions of being discovered as noncompliant by BEA, repercussions that may include significant fines, imprisonment and a possible deleterious impact on a green card application.

If anyone has information on recent sanctions imposed for BE-13 noncompliance and is willing to disclose the information in a way that will not reveal the identity of the sanctioned party or the elated business, please contact me. I would be delighted to provide popcorn for a showing of the BEA-produced video BE -13 Forms Change, a YouTube video that has not yet reached viral status but inspired my first and more in-depth article on BE-13 reporting requirements.[note]U.S. Bureau of Economic Analysis Mandatory Foreign Direct Investment Reporting – No One is Under the Radar, Marcia McCraw, www.linkedin.com/pulse/us-bureau-economic-analysis-mandatory-foreign-direct-reporting(https://www.linkedin.com/pulse/us-bureau-economic-analysis-mandatory-foreign-direct-reporting); BE-13 Form Changes, (video) produced by U.S. Bureau of Economic Analysis, Feb. 15, 2017 (https://www.youtube.com/watch?v=rpLEBwdwtbU).[/note]