On April 11, 2023, Arkansas Governor Sarah Huckabee Sanders signed into law Senate Bill 383 (“SB 383”) which seeks to restrict certain foreign purchasers of land located within the boundaries of their state. Arkansas is one of approximately twelve states—along with Alabama, Florida, Idaho, Louisiana, Montana, North Dakota, Ohio, Oklahoma, Tennessee, Utah, and Virginia—to enact a law that seeks to prohibit certain foreign investments in land located within their state during the 2023 legislative session. Arkansas’ newly enacted foreign ownership law contains two separate prohibitions on foreign investments: (1) a restriction on agricultural land investments and (2) a restriction on certain foreign business entities from acquiring any real property located within the state. Recently, Arkansas became the first in the nation to enforce a state foreign ownership law when the state’s attorney general ordered a subsidiary of Syngenta Seeds—which is a Chinese-owned company—to divest itself of farmland it owned within the state.
This is the second of two articles discussing Arkansas’ newly enacted foreign ownership law. The first article explained that any investor who falls within the meaning of a “prohibited foreign party” (“PFP”) is prohibited from acquiring any interest in agricultural land located within the state. For more background on which foreign investors are considered PFPs under Arkansas’ foreign ownership law, read the first article of this series here. This article discusses the investigation, enforcement, and penalty provisions contained under the state’s foreign ownership law and the law’s restriction on purchases of any Arkansas real property by certain business entities.
Background
Section 18-11-803(a)(1) of Arkansas’ foreign ownership law provides that a “prohibited foreign party” (“PFP”) may not acquire any interest in agricultural land located within the state even if the PFP intends to use the land for nonfarming purposes. Under the law, a PFP includes individuals, business entities, and governments that are subject to the federal International Traffic in Arms Regulations and “entities of particular concern” as designated by the U.S. Secretary of State. An entity, including a domestic entity, is a PFP when a “significant interest or substantial control is directly or indirectly held or is capable of being exercised by” foreign parties subject to ITAR or the “entities of particular concern” list. A resident alien, which is a non-U.S. citizen who resides within the U.S. and has a principal dwelling located within Arkansas, is not considered a PFP under the law.
For a detailed explanation of the types of foreign investors prohibited from acquiring Arkansas agricultural land and the exceptions to this prohibition, click here.
Investigation, Enforcement, and Punishment
Like most states’ foreign ownership laws, Arkansas’ law contains enforcement and penalty provisions. Some states’ laws also include a provision that directs some government body to investigate possible violations of their foreign ownership law. Section 804 authorizes two separate entities to investigate and enforce the restriction: the Office of Agricultural Intelligence (“OAI”) and the state’s attorney general. Essentially, the law directs OAI, which was created under § 805, to perform two primary tasks: (1) gather and examine information regarding PFP acquisitions and investments in agricultural land, and (2) administer and enforce the restriction prescribed under the law. When OAI discovers an acquisition of agricultural land by a PFP, OAI is required to report the violation to the state’s attorney general.
Arkansas’ law authorizes the attorney general to investigate violations and enforce the restriction by bringing legal action against PFPs suspected of acquiring or holding agricultural land in violation of the law. There are two instances which provide the attorney general the authority to investigate potential violations of the law: (1) notice from OAI, and (2) receiving information that leads the attorney general to suspect a violation may exist. In either case, the attorney general is permitted to investigate potential violations by issuing subpoenas requiring: (i) witnesses appear for questioning; (ii) records relevant to a potential violation; and (iii) testimony concerning a potential violation.
If an investigation leads the attorney general to suspect a violation has occurred, the law requires the attorney general to initiate a legal action against the PFP in the jurisdiction where the agricultural land is located. If a court finds that a violation has occurred, the law requires the court to order the agricultural land to be sold through judicial foreclosure (i.e., sold at a public auction). Additionally, PFPs that are convicted of violating the restriction are guilty of a felony that carries a penalty of up to two years imprisonment and/or a $15,000 fine. However, the law provides an affirmative defense to PFPs that are “resident aliens,” which means if these individuals prove they are a “resident alien” within the meaning of the law, they are not subject to the foreclosure sale or felony offense for holding agricultural land within the state.
Restricting Investments in Real Property
Arkansas’ prohibition on PFP investments in farmland is not the only restriction enacted under SB 383. In fact, the law prohibits a “prohibited foreign-party-controlled business” (“PFPCB”) from acquiring any interest in any public or private real property within the state. See Ark. Code Ann. § 18-11-110(b)(1).
Under the law, a PFPCB is a “corporation, company, association, firm, partnership, society, joint-stock company, trust, estate or other legal entity whose controlling interest is owned by a prohibited foreign party.” The law defines “controlling interest” as an interest of 50% or more in the aggregate. Therefore, if a single PFP or multiple PFPs hold, in the aggregate, an interest of at least 50% in a business entity, that entity is classified as a PFPCB. As a result, this entity is prohibited from acquiring an interest in any Arkansas real property.
The law does not provide authority to OAI to investigate potential violations by PFPCB. Rather, potential violations of this restriction are investigated and enforced exclusively by the state’s attorney general. PFPCB’s in violation of the law have two years to divest their interest in the property, but if they fail to divest, a court will order the real property held in violation by a PFPCB to be sold through a public auction. PFPCBs in violation of the law are subject to the same criminal penalties as PFPs. However, the “resident alien” affirmative defense available to PFPs is also available to PFPCBs.
Conclusion
In 2023, Arkansas enacted a law restricting certain foreign investments in land located within their state. Specifically, the law created two separate prohibitions: one that restricts a PFP from acquiring agricultural land, and the second restricts a PFPCB from acquiring any real property within the state. On October 17, 2023, Arkansas’ attorney general ordered a subsidiary of Syngenta Seeds, a company ultimately owned by a Chinese state-owned entity, to divest its ownership interest in about 160 acres of agricultural land due to the restriction prescribed under the state’s newly enacted foreign ownership law. As a result, Arkansas is the first in the nation to enforce a state law banning certain foreign entities from owning agricultural land. The state also imposed a $280,000 penalty on Syngenta for failing to file a required notice of their landholdings to the Arkansas Department of Agriculture as required under the reporting law (Ark. Code Ann. § 2-3-111) enacted by the state legislature in 2021. The company has two years to divest its interest in the land. If the Chinese-owned company fails to divest during that period, the attorney general is authorized to bring a legal action seeking the land be sold at a public auction.
To read Arkansas’ foreign ownership law, click here.
To read the first article in this series that discusses Arkansas’ foreign ownership law, click here.
To learn more about foreign ownership of agricultural land, click here.
To view states’ laws regulating foreign ownership of private land, click here.
For other NALC resources on foreign ownership of ag land, click here.
Subscribe to NALC’s bi-weekly newsletter The Feed for recent legal developments affecting agriculture, including foreign ownership of agricultural land here.
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