What Happened

On April 11, 2024, the US Department of Treasury (Treasury) issued a Notice of Proposed Rulemaking (Notice) that proposes to amend the regulations for the Committee on Foreign Investment in the United States (CFIUS) to enhance certain CFIUS procedures and strengthen its penalty and enforcement authorities. The proposed rule changes reflect CFIUS’s increased focus on monitoring, compliance and enforcement. Treasury encourages the public to submit written comments in response to the proposed rules by May 15, 2024.

The Bottom Line:

The Notice illustrates the further maturation of CFIUS rules following the Foreign Investment Risk Review Modernization Act of 2018 (FIRRMA) with increasing focus on compliance and enforcement. The proposed rules follow efforts in the United States and globally as other countries also work to implement or strengthen foreign direct investment regimes. Parties subject to mitigation agreements, as well as foreign companies seeking to invest in the United States and domestic US companies seeking foreign investors, should consider these developments carefully.

The Full Story:

CFIUS is an interagency committee authorized under Section 721 of the Defense Production Act (DPA) to review covered transactions (certain transactions involving foreign investment in the United States and certain real estate transactions by foreign persons) in order to determine the effect of such transactions on the national security of the United States. CFIUS enforces transaction parties’ compliance with the DPA and its regulations, as well as agreements entered into and conditions and orders imposed under such law and rules, through its authority to impose civil monetary penalties and seek other remedies.

The Notice follows a series of recent steps to strengthen and modernize CFIUS’s authority to review foreign investments into the United States and to enforce its rules under the DPA and FIRRMA. In September 2022, President Biden issued an Executive Order emphasizing certain factors that CFIUS should consider when reviewing transactions to assess their potential impact on national security (our coverage of the Executive Order is available here). In October 2022, Treasury released the first-ever enforcement and penalty guidelines for CFIUS. In August 2023, Treasury published a final rule adding to the list of military installations subject to the jurisdiction of CFIUS with respect to certain real estate transactions.

The proposed changes described in the Notice reflect further maturation of the CFIUS rules. In Treasury’s Press Release accompanying the Notice, Assistant Secretary for Investment Security Paul Rosen stated that the proposed changes in the Notice “reflect lessons learned in the course of [CFIUS]’s monitoring, compliance, and enforcement work and build on the 2022 CFIUS Enforcement and Penalty Guidelines.”

Specifically, Treasury proposes to refine and enhance CFIUS’s authorities through the following key changes:

• expanding the types of information CFIUS can require transaction parties and other persons to submit when engaging with them on transactions that were not filed with CFIUS (e., non-notified transactions);
• instituting a three-business day timeline for transaction parties to respond to risk mitigation proposals for matters under active review (subject to extension) to assist CFIUS in concluding its reviews and investigations within the statutory time frame;
• instituting a requirement for parties to provide information upon request, including requests for information related to monitoring compliance with, or enforcing the terms of, a mitigation agreement or in the course of CFIUS’s determination of whether a transaction party made a material misstatement or omission to CFIUS;
• expanding the circumstances in which a civil monetary penalty may be imposed due to a party’s material misstatement and omission, including when the material misstatement or omission occurs outside a review or investigation of a transaction or when it occurs in the context of the Committee’s monitoring and compliance functions;
• substantially increasing the maximum civil monetary penalty available for violations of obligations under the CFIUS statute and regulations as set forth in the table below:

• expanding the instances in which CFIUS may use its subpoena authority, including when seeking to obtain information from third persons not party to a transaction notified to CFIUS or in connection with assessing national security risk associated with non-notified transactions; and
• extending the time frame for submission of a petition for reconsideration of a penalty to the Committee and the number of days for the Committee to respond to such a petition from 15 business days to 20 business days.

These proposed changes would not expand the types of transactions that are subject to CFIUS filing requirements, but would expand the Committee’s investigation and enforcement authority for notified and non-notified transactions by adding to CFIUS’s investigative tools and greatly increasing the penalties for breaching filing requirements, mitigation agreements and CFIUS orders. Last year, we noted an increasing use of mitigation agreements to mitigate national security concerns in voluntarily-noticed transactions where the parties did not foresee significant national security issues. The proposed changes reflect the agency’s perceived need for enhanced tools to negotiate and enforce compliance with mitigation agreements, in line with the recent observed trend of more mitigation agreements.

Treasury will issue final rules at a later date. The public is invited to submit comments on the proposed rules by May 15, 2024.