On April 11, the U.S. Treasury Department promulgated a Notice of Proposed Rulemaking (NPRM) amending the regulations that govern the operations of the Committee on Foreign Investment in the United States (CFIUS) to increase penalties on offenders, expand CFIUS authority to request information, and tighten the time frame parties have to respond to drafts of mitigation agreement terms. CFIUS is the U.S. government’s interagency body that reviews potential national security concerns resulting from foreign investments in and acquisitions of U.S. businesses.

The NPRM is meant to “enhance certain CFIUS procedures and sharpen its penalty and enforcement authorities” and “reflects CFIUS’s . . . increased focus on monitoring, compliance, and enforcement.” The public has until May 15 to submit comments.

Increased Penalties

The NPRM increases the maximum monetary penalty from $250,000 to $5 million per violation. At present, the regulations allow for imposition of a penalty for any of the following:

• Submitting a declaration or notice with a material misstatement or omission or making a false certification.
• Failing to submit a timely declaration when submission is mandatory.
• Violating a material provision of a mitigation agreement, a material condition imposed, or order issued.

Given that the median value of covered transactions reviewed by CFIUS was $170 million in recent years, Treasury understandably believes that it is appropriate to increase penalties to promote compliance. Moreover, in the NPRM Treasury proposes that penalties may additionally be imposed against a party that makes “a material misstatement or omission to the Committee in contexts outside of a CFIUS filing.” Most notably, this would cover requests for information pertaining to non-notified transactions.

Expansion of Authority to Request Information

The NPRM also proposes significant changes to allow CFIUS broader authority to collect relevant information to enforce its regulations. In particular, the NPRM would allow CFIUS to require non-parties (those not directly party to the transaction) to provide information in certain situations and strengthen CFIUS’s power to investigate non-notified transactions.

First, under the NPRM, when monitoring compliance with a mitigation agreement or investigating potential material misstatements or material information omitted, CFIUS would be permitted to request information from non-parties. This will broaden CFIUS’s investigative powers and provide more information to inform enforcement actions.

Second, the NPRM would grant CFIUS broader authority to investigate non-notified transactions. CFIUS would be able to “request information from parties or other persons regarding information . . . necessary to determine whether the non-notified transaction would trigger a mandatory CFIUS filing obligation, and . . . whether the non-notified transaction would raise national security considerations.” This could give CFIUS significant discretion to investigate a wide array of non-notified transactions.

CFIUS has recently prioritized the review of non-notified transactions. In September 2023, Assistant Secretary for Investment at the Treasury Department, Paul Rosen, called CFIUS’s “non-notified work . . . one of [it’s] most important functions.” To this end, the NPRM would authorize CFIUS to exercise its subpoena authority whenever it deems it necessary.

Tightening Mitigation Negotiation Timelines

Currently, there is no specified timeline for responding to mitigation agreement terms proposed by CFIUS. The NPRM would require a substantive response to any proposed mitigation agreement terms within three business days unless CFIUS grants an extension. The Treasury Department believes that “[t]he absence of such a requirement in connection with proposed mitigation terms can sometimes result in a protracted process where parties may take longer than is reasonable to respond to [CFIUS’s] proposed terms.” This is not a lot of time to develop the required response making it important to begin a CFIUS review with a well-defined strategy and an understanding of what remediation measures may be palatable to ensure deadlines are met. This also brings the mitigation negotiation process and timeline into accordance with the timeline for responding to CFIUS questions during the course of a review.

New Tool for Countering China?

Some believe these proposed changes are meant to create additional tools for the administration to specifically counter China. These changes come as ByteDance’s ownership of TikTok is receiving increased congressional and regulatory scrutiny.

Going Forward

The NPRM signals to industry that CFIUS will enforce compliance with its regulations and reinforces a desire to review non-notified transactions. There also continue to be calls to broaden the scope of CFIUS jurisdiction. For example, a member of the U.S.-China Economic and Security Review Commission recently urged Congress to pass legislation that would view foreign contracts with universities as a type of “foreign-funded acquisition” subject to CFIUS review. Such recommendations, matched with a more muscular CFIUS as a result of these new regulations, mean that CFIUS is likely to increase its enforcement and oversight efforts. In this environment, nearly any transaction involving a foreign investor or acquirer should be reviewed for CFIUS implications.