U.S. Treasury Proposes New Rules to Expand CFIUS Oversight and Enforcement Authority
2024-09-24 22:53:13
On April 15, 2024, the U.S. Department of the Treasury, as the chair of the Committee on Foreign Investment in the United States (CFIUS), issued a proposed rule (hereinafter referred to as the "Proposed Rule") aimed at enhancing CFIUS's oversight and enforcement authority. This would be achieved by requiring parties to provide more information on non-notified transactions, accelerating the mitigation negotiation process, and expanding civil penalties for violations of CFIUS-related laws and regulations. Below is a summary of some key aspects of the Proposed Rule:
A. Expanded Authority for CFIUS to Request Information on Non-Notified Transactions
Under current CFIUS regulations, CFIUS has the authority to request information from parties involved in non-notified transactions to determine whether the transaction qualifies as a "covered transaction" (i.e., subject to CFIUS jurisdiction). The Proposed Rule would expand the scope of information CFIUS can request from transaction parties to assess national security risks and determine whether a mandatory filing is required. Additionally, the Proposed Rule would broaden CFIUS's subpoena authority from "if deemed necessary" to "if deemed appropriate," allowing CFIUS to obtain information from third parties (who are not transaction parties but are relevant to assessing national security risks) to enhance its operational efficiency in reviews.
B. Three-Day Response Deadline for Proposed Mitigation Terms
Under the Proposed Rule, parties negotiating mitigation agreements must provide a substantive response to CFIUS's proposed mitigation terms within three (3) business days, with the possibility of an extension at CFIUS's discretion. A "substantive response" includes accepting the proposed terms, raising objections, or providing a detailed explanation of why the proposed terms cannot be complied with and raising objections. If the parties fail to respond within the specified timeframe, CFIUS may reject the filing. Notably, the Proposed Rule does not specify a timeframe for CFIUS to propose mitigation terms or respond to the parties' substantive responses and objections.
C. Expanded Civil Penalties
The Proposed Rule seeks to increase civil penalties for violations of CFIUS regulations, including:
Material Misstatements or Omissions: The maximum civil penalty per violation would increase from 5 million. This also applies to false certifications made by third parties or non-notified transaction parties in response to CFIUS's information requests.
Failure to File a Mandatory Declaration: The maximum civil penalty would increase from 5 million or the value of the transaction (whichever is greater).
Violations of Material Terms of Mitigation Agreements: The maximum civil penalty per violation would increase from 5 million, (ii) the value of the transaction, or (iii) the value of the violator's interest in the U.S. business.
The Proposed Rule represents the first update to CFIUS regulations regarding information collection, mitigation, and enforcement since the implementation of the Foreign Investment Risk Review Modernization Act (FIRRMA) in 2018. It underscores CFIUS's growing focus on strengthening its ability to monitor and enforce compliance with respect to non-notified transactions and violations of CFIUS regulations and mitigation agreements. The public may submit comments on the Proposed Rule by May 15, 2024. The Treasury will issue a final rule after reviewing and analyzing all received comments, though it is unclear when the final rule will be published and take effect.