Treasury Proposes New Rules to Expand CFIUS’s Monitoring and Enforcement Authorities
May 1, 2024
On April 15, 2024, the U.S. Department of the Treasury, as chair of the Committee on Foreign Investment in the United States (CFIUS), published a proposed rule [1] (the “Proposed Rule”) aiming to enhance CFIUS’s monitoring and enforcement authorities by, among other things, expanding the required information regarding non-notified transactions, expediting the mitigation process, and increasing civil monetary penalties for CFIUS non-compliance. Below are certain key components of the Proposed Rule.
A. Expanded CFIUS Authority for Requiring Information on Non-Notified Transactions
Currently, CFIUS is authorized to request information from the parties of non-notified transactions to determine whether such transaction is a “covered transaction” (i.e., subject to CFIUS jurisdiction). The Proposed Rule would expand the scope of information that CFIUS may request from transaction parties to assess national security risks and whether a mandatory filing is required. Additionally, the Proposed Rule would expand CFIUS’s authority for issuing subpoenas from “if deemed necessary” to “if deemed appropriate,” allowing CFIUS to enhance its operational efficiency by obtaining information from third parties in connection with assessing national security risks associated with non-notified transactions.
B. Three (3)-Day Deadline for Responding to Proposed Mitigation Terms
The Proposed Rule requires transaction parties to respond substantively to CFIUS’s proposed mitigation terms within three (3) business days when negotiating mitigation agreements, which may be extended at CFIUS’s discretion. For the purposes of the Proposed Rule, a “substantive response” would include acceptance of the proposed terms, a counterproposal, or a comprehensive explanation of why the proposed terms cannot be complied with, which may also include a counterproposal. If the parties fail to respond within the specified period, CFIUS would have the authority to reject the filing. Notably, the Proposed Rule does not set a reciprocal timeline for CFIUS to propose mitigation terms or respond to the parties’ substantive responses and counterproposals to the proposed mitigation terms.
C. Increased Civil Monetary Penalties
The Proposed Rule would increase civil monetary penalties for various violations of CFIUS regulations, including:
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Material Misstatements or Omissions: The maximum civil penalty for these violations increases from $250,000 to $5 million per violation. This extends to false certifications by third parties or parties to non-notified transactions in response to CFIUS’s information requests.
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Failure to Make a Mandatory Filing: The maximum civil penalties rise from the greater of $250,000 or the value of the transaction to the greater of $5 million or the value of the transaction.
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Violation of a Material Provision of a Mitigation Agreement: The maximum civil penalties increase from $250,000 or the value of the transaction to the greatest, per violation, of (i) $5 million, (ii) the value of the transaction, and (iii) the value of the violator’s interest in the U.S. business.
The Proposed Rule, which is the first update to the information-gathering, mitigation, and enforcement provisions of CFIUS regulations since the implementation of the Foreign Investment Risk Review Modernization Act of 2018, signals CFIUS’s growing focus on strengthening its ability to address non-notified transactions and enforce penalties for non-compliance with CFIUS regulations and mitigation requirements. The public has until May 15, 2024, to submit comments on the Proposed Rule, and Treasury will issue the final rule after collecting and analyzing all comments received. It is currently unclear when the final rule will go into effect.