On December 9, 2024, the U.S. District Court for the Eastern District of Arkansas (the Court) issued a preliminary injunction enjoining Arkansas’s enforcement of Acts 636 and 174 (the Acts), which impose certain restrictions on foreign ownership of land and digital asset mining businesses in Arkansas. The Court’s decision addresses concerns a crypto mining company (the Company) raised about the Acts’ constitutionality and their preemption by other federal regulations.

We provide an overview of the decision below:

• Arkansas prohibits certain foreign entities and individuals from owning or acquiring interests in land or digital asset mining businesses under Acts 636 and 174, respectively. The Acts target “prohibited foreign parties,” including entities and individuals from certain countries listed in the International Traffic in Arms Regulations (ITAR) and those owned or controlled by such parties.
• The Company is owned by a naturalized U.S. citizen from China and has digital asset or crypto mining operations in Arkansas. China is currently a country listed in the ITAR and subject to the Acts’ restrictions.
• In December 2023, the Arkansas Governor’s Office directed the Arkansas attorney general to investigate the Company and another entity that may have had significant ties to China for violations of Act 636.
• In response, the Company filed suit challenging the investigation and potential enforcement of the Acts on federal preemption grounds. The Company asserted that the Acts conflicted with federal regulations governing foreign investment – specifically, the Committee on Foreign Investment in the United States, as statutorily codified by the Foreign Investment Risk Review Modernization Act, and the ITAR.
• The Court held that the Company was likely to succeed on the merits of its claims because the Acts (1) clearly conflict with the federal government’s cautious, transaction-specific approach to foreign investment, (2) use broader and inconsistent definitions of foreign ownership, and (3) intrude on foreign affairs, which should be exclusively within the federal government’s domain.
• The Court also determined that the Company would suffer irreparable harm in the absence of a preliminary injunction because the ongoing investigation and potential enforcement actions were causing significant damage to the Company’s reputation and goodwill, which could not be adequately compensated through monetary damages.

Approximately half of U.S. states currently have laws restricting foreign ownership of land, and many others are seeking to enact similar laws following broader federal and state trends to regulate foreign ownership of U.S. real estate. The Court’s decision to halt the Acts’ enforcement may have significant implications by setting a precedent for others to bring constitutional challenges to other state or local foreign ownership laws. All investors and businesses should be vigilant in conducting thorough due diligence on proposed transactions to ensure compliance with the expanding and changing regulatory landscape.