As the lead agency for the Committee on Foreign Investment in the United States (CFIUS or the Committee), the U.S. Department of the Treasury released new proposed rules on April 11, 2024 intended to enhance the enforcement and mitigation tools at the Committee's disposal.
This is the first major substantive update to the CFIUS regulations since its adoption of a revamped framework in February 2020 following Congress's enactment of the Foreign Investment Risk Review Modernization Act of 2018 (FIRRMA). This is part of a series of advisory alerts from Venable's International Trade and Logistics Group, published in response to key CFIUS developments. A few earlier alerts on important changes to the CFIUS rules are available here, here, here, here, and here.
Under the new proposed rules, both the maximum civil penalty amount that CFIUS may impose for noncompliance, and the circumstances under which civil penalties could be imposed, are likely to increase soon. The proposed rules would also establish new timing for when filing parties are required to respond to a mitigation agreement proposed by the Committee, and for when the Committee may reconsider a case. In addition, the proposed rules would expand the Committee's subpoena authority. Taken as a whole, the amendments in the proposed rules are the result of the Committee's experience over the past few years as it has moved to increase mitigation and enforcement efforts. Against the backdrop of other recent changes, such as the Committee's expanded jurisdiction concerning real estate transactions, the new proposals show the Committee's continued interest in updating and modernizing its tools, just as the 50th anniversary of CFIUS in 2025 is just around the corner.
As outlined below in more detail, the proposed rules would make substantive amendments to CFIUS procedures in three main categories.
Higher Civil Monetary Penalties
The proposed rule would increase the maximum civil penalty amount for violations from $250,000 in most cases to $5 million. According to CFIUS, it has been over 15 years since the penalty ceiling was last changed, and, furthermore, there are some instances where transaction in the "billions of dollars" or those "with substantial liquidity" are still valued at zero dollars—which makes a higher maximum penalty stated as an absolute dollar amount necessary. Therefore, CFIUS proposes to make the maximum penalty for violations as follows, depending on the circumstances:
- For material misstatements or omissions: $5,000,000
- For failure to submit a mandatory filing: The greater of $5,000,000 or the value of the violating party's interest in the U.S. business (or covered real estate) at the time of the transaction
- For violations of CFIUS mitigation agreements: The greatest of $5,000,000; the value of the violating party's interest in the U.S. business at the time of the transaction or violation; or the value of the transaction
CFIUS would continue to impose penalties as appropriate, depending on the facts and circumstances of the violation (and in accordance with its Enforcement and Penalty Guidelines), which would not necessarily be the maximum penalty permissible.
The proposed rules would also authorize penalties for an expanded set of circumstances. This would include not only material misstatements or omissions in a declaration or notice, or a false certification, but also material misstatements or omissions in response to Committee requests for information in the non-notified context and certain responses to Committee requests related to monitoring and enforcement efforts, such as failure to file a mandatory declaration or surrounding mitigation agreements, conditions, and orders.
Requesting Information and Compelling Responses Under More Circumstances
The Committee proposes to expand the situations in which CFIUS may request certain information. Currently, the Committee may use its subpoena power to require parties to a non-notified transaction to submit information to confirm whether the transaction is subject to CFIUS's jurisdiction (i.e., a "covered transaction" or a "covered real estate transaction" as defined in Sections 800.213 and 802.212, respectively). The proposed changes would provide CFIUS with authorization to also require parties to respond to requests for other purposes, such as in the initial fact-finding stage for non-notified transactions when the Committee is seeking to determine whether a transaction is subject to a mandatory filing requirement or whether a transaction may raise national security implications.
Another proposed amendment would require parties to provide CFIUS with information when the Committee is seeking to monitor compliance or enforce the terms of a mitigation agreement, and when it is seeking information to determine if a material misstatement or omission has occurred in a previously concluded review or investigation (including a review or investigation that ended with rejection of the parties' notice).
The proposed addition would also allow the Committee to use its subpoena power to compel information, when needed, from persons besides the transaction parties to make these determinations. Once these amendments are adopted, we expect CFIUS to make full use of its subpoena authority under these expanded circumstances when the Committee believes it to be necessary.
New Time Frame for Responding to Proposed Mitigation Agreements
In addition, CFIUS proposes to create a new timing requirement under which parties would be required to respond within three business days, for both the Committee's initial and subsequent proposals for mitigation (unless the Committee agrees to an extension). In explaining the amendment, CFIUS notes that this timing requirement is most necessary for reviews of closed transactions, in which "timing is critical for the Committee when it has identified an extant risk to national security, but parties may be less motivated to respond promptly given the absence of an impending closing date." The proposed rule would also allow CFIUS to reject the notice for a missed deadline, similar to the procedure for missed deadlines in response to requests for follow-up information in the context of a typical review or investigation.
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The Treasury Department will be accepting comments on the proposed changes until May 15, 2024.
