On April 11, the U.S. Department of the Treasury (“Treasury”), as Chair of the Committee on Foreign Investment in the United States (“CFIUS”), issued a Notice of Proposed Rulemaking (the “Proposed Rule”) that would modify and expand CFIUS’s mitigation and enforcement authority. 

For background, in October 2022, Treasury released its first-ever CFIUS Enforcement and Penalty Guidelines (see our prior update here), and the Proposed Rule represents a continued evolution of CFIUS’s approach to monitoring, compliance, and enforcement.

The Proposed Rule would enhance CFIUS’s authority in the following important ways:

  • Inquiries into Non-Notified Transactions: The CFIUS regulations currently contemplate that CFIUS may request information regarding transactions where the parties did not file with CFIUS in order to determine whether the transaction was subject to CFIUS jurisdiction.  The Proposed Rule clarifies that CFIUS also may request information from transaction parties—and third parties—related to whether a transaction (i) meets (or met) the criteria for a mandatory declaration and (ii) may raise a national security consideration.  The Proposed Rule also strengthens CFIUS’s subpoena power, increasing CFIUS’s ability to compel responses from parties.
  • Timing for Parties to Respond to Risk Mitigation Proposals: During a CFIUS review of a transaction, CFIUS may seek to resolve any identified risks to U.S. national security by entering into a mitigation agreement with the parties.  Currently, there is no required timeframe for parties to respond to a mitigation proposal from CFIUS, and the process for agreeing to the final form of a mitigation agreement can significantly extend the timeline for CFIUS’s review, including (in some cases) by requiring the parties to withdraw and refile a notice.  Under the Proposed Rule, parties to transactions under active review must substantively respond to proposed mitigation terms within three business days.  A substantive response includes: (i) acceptance of the proposal; (ii) a counterproposal; or (iii) an explanation regarding why the parties cannot comply with the proposal.  The Proposed Rule enables CFIUS to grant extensions on a case-by-case basis.
  • Expanded Authority for Civil Monetary Penalties: CFIUS currently has authority to impose a civil monetary penalty up to $250,000 for submission of a material misstatement or omission during a CFIUS review of a transaction. When parties fail to notify CFIUS of a transaction that triggers a mandatory filing obligation or violate a material provision of a mitigation agreement, CFIUS has authority to impose a civil monetary penalty up to $250,000 or the value of the transaction, whichever is greater.  The Proposed Rule permits CFIUS to impose a civil monetary up to $5 million (increased from $250,000) or the value of the transaction, whichever is greater, for failing to make a mandatory CFIUS filing.  For a violation of a material provision of a mitigation agreement, the Proposed Rule permits CFIUS to impose a civil monetary penalty up to the greatest of: (i) $5 million (increased from $250,000); (ii) the value of the violating party’s interest in the U.S. business at the time of the transaction or at the time of the violation; or (iii) the value of the transaction.  Finally, the Proposed Rule grants CFIUS authority to impose a civil monetary penalty for material misstatements and omissions made outside of an active CFIUS review, including when the misstatement or omission occurs in the context of CFIUS’s monitoring and compliance functions.. 
  • Reconsideration of a Penalty: The Proposed Rule extends the timeline for when parties may submit a petition for reconsideration of a penalty (from 15 to 20 days) and the timeline for CFIUS to respond to such a petition (from 15 to 20 days).

A 30-day public comment period will commence once the Proposed Rule is published in the Federal Register.