By Nicholas P. Flint
Pursuant to a little-known requirement established by the U.S. Department of Commerce's Bureau of Economic Analysis (BEA), foreign investors in certain U.S. businesses must now report their investments by filing a Form BE-13 within 45 days after the investment. The BEA uses such BE-13 filings to collect information on the acquisition or establishment of U.S. business enterprises by foreign investors. Given that there are potential civil and criminal penalties for failing to file BE-13 forms, it is important to know when and what forms must be filed.
What constitutes a foreign investment that requires a BE-13 filing?
The rule defines "foreign direct investment in the United States" as the direct or indirect ownership or control by a foreign individual or parent company of 10% or more of the voting securities of an incorporated U.S. business enterprise, or an equivalent interest of a branch or division within an incorporated business. The filing is intended to cover a variety of business transactions with respect to foreign investments, such as the establishment, acquisition, or expansion of a U.S. business or division.
Who makes the BE-13 filing and by when must the BE-13 filing be made?
The target of the foreign parent's investment (i.e., the U.S. business or affiliate in which the investment is made) is subject to the BE-13 reporting requirements, not the foreign investor itself. The BE-13 filing must be made within 45 days after the effective date or completion of the reportable transaction (i.e., the closing of an acquisition, the commencement of an expansion, or the creation of a new affiliated entity). Even if the BEA does not contact the foreign investor or target of the investment, the BE-13 filing is required.
What form should be used for the BE-13 filing?
There are six versions of the form that the U.S. affiliate can file. The version of the form that is required is determined by the transaction type:
- Form BE-13A – When a foreign entity acquires a voting interest (directly, or indirectly through an existing U.S. affiliate) in an existing U.S. business enterprise and (a) the total cost of acquisition is greater than $3 million, (b) the U.S. business enterprise will operate as a separate legal entity, and (c) by this acquisition, at least 10% of the voting interests in the acquired entity are now held (directly or indirectly) by the foreign entity.
- Form BE-13B – When a foreign entity (directly, or indirectly through an existing U.S. affiliate) establishes a new U.S. business enterprise or division and (a) the total cost to establish the new legal entity is greater than $3 million, and (b) at least 10% of the voting interests in the new entity are held (directly or indirectly) by the foreign entity.
- Form BE-13C – When an existing U.S. affiliate of a foreign entity acquires a U.S. business enterprise or division, which is subsequently merged into its operations, and the total cost to acquire the business enterprise is greater than $3 million.
- Form BE-13D – When an existing U.S affiliate of a foreign entity expands its operations to include a new office or facility where business is conducted, and the projected total cost of the expansion is greater than $3 million.
- Form BE-13E – When a U.S. business enterprise that previously filed a BE-13B or BE-13D and the established or expanded entity or facility is still under construction.
- Form BE-13 Claim for Exemption – When a U.S. business enterprise that (a) was contacted by the BEA but does not meet the requirements for filing forms BE-13A, BE-13B, BE-13C, or BE-13D, or (b) whether or not contacted by the BEA, met all requirements for filing on Forms BE-13A, BE-13B, BE-13C, or BE-13D, except for the $3 million reporting threshold.
How is the filing made?
The U.S. affiliate or target of the foreign parent's investment can file the appropriate BE-13 form in a number of ways, though the BEA strongly recommends electronic filing through its portal at www.bea.gov/efile. The BEA website also provides a number of filing resources, including forms, filing instructions, FAQs, and video tutorials.
What are the penalties for failing to file the BE-13?
Failure to properly file the BE-13 (whether missing the deadline, using the wrong form or providing incomplete or inaccurate information) can result in civil and/or criminal penalties, ranging from $2,500 or more than $32,500 per violation, as well as injunctive relief compelling compliance, and imprisonment of up to one year and/or a fine of not more than $10,000 per violation (if it is found that such failure was willful).
Nick Flint is an associate attorney with Flint, Connolly & Walker, LLP who represents domestic and international clients on a variety of corporate and transactional matters, including mergers and acquisitions, joint ventures, private equity and venture capital transactions, financing and lending arrangements, and debt and equity offerings. In addition to his transactional work, Nick routinely serves as a general business and legal advisor to his clients, counseling on matters such as corporate governance, executive compensation, regulatory compliance, and commercial contracts.