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Treasury Announces Proposed Rule to Update CFIUS Regulations and Bolster Enforcement

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On April 11, 2024, the U.S. Department of the Treasury (Treasury), as Chair of the Committee on Foreign Investment in the United States (CFIUS), issued a Notice of Proposed Rulemaking (NPRM), which is the first substantive update to the mitigation and enforcement provisions of the CFIUS regulations since the Foreign Investment Risk Review Modernization Act of 2018 (FIRRMA).

Treasury has requested public comments on the NPRM, which was published in the Federal Register on April 15, 2024. Comments will be accepted until May 15, 2024.

Key Proposed Changes

1. Expanding CFIUS’s authority to require parties to provide certain information:

    • Non-notified transactions (i.e., transactions that were not previously filed with CFIUS). Under the new rule, CFIUS would be able to require parties to provide information to determine whether a transaction may raise national security considerations and whether a transaction meets the criteria for a mandatory declaration;
    • Monitoring. CFIUS can require information to monitor compliance with or enforcement of the terms of a mitigation agreement, order, or condition; and
    • Investigation. CFIUS can require information to determine whether transaction parties had made a material misstatement or omitted material information during a previously concluded review or investigation.

2. Adding to the instances in which CFIUS may use its subpoena authority, amending the regulation so that if CFIUS deems the subpoena “appropriate” rather than “necessary,” CFIUS may issue a subpoena to obtain information from a party not involved in the transaction.

3. Implementing a new time frame for responding to proposed mitigation terms.

    • Under the proposed rule, CFIUS specifies a period of three business day for parties to provide substantive responses to proposed mitigation terms (both initial and subsequent proposals or revisions), unless CFIUS grants in writing a party’s request for a longer time frame. At present there is no required time frame for such responses.

4. Increasing civil monetary penalties.

    • Under the new rule, CFIUS raises the maximum penalty amount to $5 million per violation. Currently, the maximum penalty violation is $250,000 per violation.
    • CFIUS found the current maximum penalty may not sufficiently deter or penalize certain violations, noting that some transactions that have a low value (or a valuation of zero dollars) can involve companies worth billions of dollars. The higher maximum penalty would allow larger fines in such instances.
    • Penalties would also apply to material misstatements or omissions in the context outside of declarations and notices, i.e., responses to CFIUS’s request for information related to non-notified transactions, CFIUS’s request for information related to monitoring or enforcing compliance, and other responses to CFIUS’s request for information.
    • The new rule also extends the time frame for submission of a petition for reconsideration of a penalty to CFIUS and the number of days for the Committee to respond to such a petition. Both time frames are increased from 15 business days to 20 business days.

Takeaways

  • The NPRM does not impose any new filing requirements on U.S. businesses. That said, it does reflect an emphasis on streamlining existing procedures and expands the mitigation and enforcement power of the Committee.
  • The NPRM expands the categories of information CFIUS may request from parties to a transaction as well as non-transaction parties (i.e., information to determine whether a transaction may raise national security considerations and whether a transaction meets the criteria for a mandatory declaration). While practically speaking, CFIUS generally already requests this information, the NPRM provides explicit authority to do so.
  • Importantly, the changes reflect the Committee’s increased scrutiny of enforcement, also underscored by the recent announcement of the appointment of a “CFIUS enforcement Tsar.”
  • The NPRM also signals more emphasis on the review of non-notified transactions, of which we expect more activity by the Committee. There are no time bars or statutes of limitation on CFIUS jurisdiction, which means that non-notified transactions remain subject indefinitely to CFIUS review.