In this age of heightened national security concerns, it might seem farfetched that an FBI field office was being housed in a foreign owned building. Yet, according to a new Government Accountability Office (“GAO”) report, it is not only true but a fairly common phenomenon. On January 30, 2017, the GAO released a new report entitled “GSA Should Inform Tenant Agencies When Leasing High-Security Space from Foreign Owners.” The report found that the General Services Administration (“GSA”) is leasing “high-security” space in 20 buildings with foreign owners. The leased space is used by 26 agencies and in some cases houses classified information, law enforcement evidence, and other sensitive data. The buildings in question are owned by entities from countries including Canada, China, Israel, Japan, and South Korea.
The report recommended that GSA review all beneficial ownership of high-security leased space and inform tenant agencies so they can take security mitigation measures if necessary. The report specifically mentions the Committee on Foreign Investment in the United States (“CFIUS”) as playing an important role in this space, while also noting that CFIUS is only authorized to review foreign acquisitions of U.S. businesses and therefore is not relevant in all situations.
For frequent CFIUS watchers, this report will be a reminder of the proximity issues that first became prominent when the Committee raised concerns over a series of foreign investments, mostly from China, which were located in close physical proximity to U.S. defense installations. This included a number of Chinese acquisitions of U.S. mines, such as Northwest Nonferrous International Investment Company’s purchase of Firstgold Corp. and Procon Resources Inc.’s purchase of Lincoln Mining Corp. Both deals were brought down by the mines’ close location to Fallon Naval Air Station. Another prominent example is the 2012 Presidential Order, made at the recommendation of CFIUS, directing Chinese-owned Ralls Corp. to divest certain windfarm projects located near a U.S. defense facility.
Proximity concerns have remained an issue in many inbound investments involving the transfer of real property. The GAO report serves as a reminder that U.S. officials remain wary of foreign ownership of real property in close proximity to high-security government activity and reaffirms that foreign companies investing in the U.S. should continue to pay careful attention to possible proximity issues.
A final note of interest is the report’s focus on the Financial Crimes Enforcement Network and the Financial Action Task Force in combatting money laundering in commercial real estate. The GAO notes that commercial real estate is often held by “anonymous companies and hidden beneficial owners” and that such opaqueness means the government may not always know the ultimate owner of a specific property or the destination of funds paid under such leases. The report’s emphasis on anti-money laundering (“AML”) can be seen as part of a broader trend in AML enforcement outside sectors of traditional concern such as finance and banking, a topic about which we’ve written previously.
Evan Abrams, an associate in Steptoe’s Washington office, contributed to this post.