Based on current industry trends, 2024 may prove to be a historic year for the construction of physical infrastructure related to emerging technologies. But the year is also poised to herald a period of heightened governmental surveillance.
This investigation focused on the property purchases that frequently come before the building of data centers and cryptocurrency mining operations in general. Large-scale, foreign-backed land purchases in the US could give rise to major financial and national security concerns.
In a proposed regulation released on July 8, the Treasury Department sought to extend the Committee on Foreign Investment’s jurisdiction over foreign-backed real estate holdings in the US. The CFIUS has jurisdiction over real estate transactions that may have an impact on national security, including those involving land that is close to military installations and other important US government facilities.
Real estate at or close to airports and maritime ports may be subject to existing regulations. President Joe Biden made waves in May when he ordered crypto mining company MineOne to sell the land it was acquiring in 2022 close to an Air Force post in Wyoming because the company had Chinese financial support.
The proposed rule from CFIUS would include 59 more facilities within the committee’s jurisdiction. It would extend the jurisdiction of the CFIUS over foreign investments in US territory to a radius of 100 miles from the location of certain existing facilities, compared to the current radius of just one mile.
The MineOne divestiture order and the new regulations indicate the Biden administration’s growing ability and willingness to review business transactions involving foreign investment close to sensitive facilities. Given both the crypto and data center industries usually involve foreign investment on US land, this development is particularly relevant to them.
From coast to coast, there is a chance of CFIUS scrutiny. The states of Texas, Georgia, Virginia, California, and Tennessee are among the most well-liked states for crypto mining and data center facilities, and these sites are similar to some of the current and planned ones.
From the beginning of investor identification, transaction negotiation, and project development, developers and investors involved in these land agreements would benefit from knowing CFIUS’s capabilities. Dealing with a foreign entity at any point throughout the transaction could make regulatory control more difficult to maintain during the course of the investment.
The CFIUS’s examination might make or break the development of the physical infrastructure that powers power-dense technologies like artificial intelligence and cryptocurrency because it has broad jurisdiction and no statute of limitations.
The recent decision by the US Supreme Court to reverse the Chevron case, which allowed courts to defer to reasonable agency interpretations of ambiguous statutes and laws, has put agency action under closer scrutiny. Agencies and interagency groups like the CFIUS are still exercising their regulatory authority and might continue to be respected due to their concerns for national security.
An entity that is forced to sell a foreign real estate investment close to one of these facilities, for example, may contest CFIUS’ assessment of the national security risk the investment poses, as well as the agency’s overall jurisdiction, if they are confronted with enforcement actions under these proposed rules.
The effects of Chevron’s downfall on the foreign investment regulatory landscape, however, have yet to be seen. Meanwhile, companies with international relationships can profit from knowing the new rule’s broad scope.
