On November 18, 2024, the U.S. Department of the Treasury (“Treasury”), as Chair of the Committee on Foreign Investment in the United States (“CFIUS”), issued a final rule (the “Final Rule”) that enhances CFIUS’s mitigation and enforcement authority.  The Final Rule, which will take effect December 26, 2024 (30 days after the Final Rule was published in the Federal Register), represents a continued evolution of CFIUS’s approach to monitoring, compliance, and enforcement and largely is consistent with the Notice of Proposed Rulemaking (the “Proposed Rule”) issued on April 11, 2024, which we wrote about here.  We previously wrote about the first-ever 2022 CFIUS Enforcement and Penalty Guidelines here.

Provided below is a description of CFIUS’s enhanced authority under the Final Rule.

• Information Subject to CFIUS Request or Subpoena.  The Final Rule expands the categories of information that CFIUS may request or subpoena from transaction parties and, notably, from other persons that are not parties to transactions in connection with transactions that may be within the jurisdiction of CFIUS and potentially raise national security concerns, but for which a filing was not submitted to CFIUS.  Under these circumstances, CFIUS will have the authority to request or subpoena information necessary to determine whether the transaction: (i) is within the jurisdiction of CFIUS;[1] (ii) may raise national security considerations; or (iii) triggered a mandatory filing requirement.[2]  If CFIUS subsequently determines that a transaction is within its jurisdiction and may raise national security considerations, CFIUS may request that the parties file a CFIUS notice.

• Time Frame to Respond to Proposed Mitigation Terms.  The Final Rule authorizes CFIUS to require parties to provide a substantive response to proposed risk mitigation terms within three business days (subject to potential extension).[3]  When determining the appropriate time frame within which to require a response, CFIUS must consider a number of factors, including the nature of the transaction, the time remaining in the CFIUS review process, and the transaction parties’ past responsiveness.  If the transaction parties fail to respond to proposed mitigation terms within the time frame specified by CFIUS, the Final Rule authorizes CFIUS to reject the CFIUS notice.[4]  These provisions will not apply to transactions already under CFIUS review as of December 26, 2024.

• Expanded Civil Monetary Penalty Scope and Increased Maximum Penalty.  The Final Rule expands the circumstances in which a civil monetary penalty may be imposed and increases the maximum civil monetary penalty for certain violations. 
  • Specifically, the Final Rule increases the maximum penalty for making a material misstatement or omission, such as in connection with written submissions (e.g., CFIUS declarations and notices and responses to CFIUS question sets during a CFIUS review process) and in the context of CFIUS’s monitoring and compliance functions, from $250,000 to $5 million per violation. 
  • Under the Final Rule, maximum penalties for failing to satisfy a mandatory filing requirement increase from $250,000 to $5 million or the value of the transaction, whichever is greater.
  • For material violations of mitigation agreements entered into after October 11, 2018 and before December 26, 2024 (which, as noted above, is the effective date of the Final Rule), the maximum penalty per violation will remain $250,000 or the value of the transaction, whichever is greater.  However, for material violations of mitigation agreements entered on or after December 26, 2024, the maximum penalty per violation will now be the greatest of:[5] (i) $5 million; (ii) the value of the person’s interest in the U.S. business at the time of the transaction; (iii) the value of the person’s interest in the U.S. business at the time of the violation; or (iv) the value of the transaction notified to CFIUS.

• Extended Time Frames to Petition for Reconsideration of Penalty.  The Final Rule also extends the time frame for a party to submit a petition for reconsideration in response a notice of penalty from CFIUS and CFIUS’s response time to such a petition.  Specifically, under the Final Rule, parties may submit a petition for reconsideration within 20 days of receiving notice of the penalty.  CFIUS must generally issue a final penalty determination within 20 days of receiving the petition.  The current CFIUS regulations provide for a 15-day period under each of these circumstances.

[1] The current version of this provision in the CFIUS regulations limits CFIUS’s authority under these circumstances to request information necessary to determine whether a transaction is within the jurisdiction of CFIUS.

[2]  The Final Rule adopts the Proposed Rule without any changes.  Notably, CFIUS rejected other proposals that would have narrowed the scope of non-party “other persons” subject to subpoenas or requests for information.

[3] A “substantive response” could include: (i) acceptance of the proposal; (ii) a counterproposal; or (iii) an explanation regarding why the parties cannot comply with the proposal.

[4] The Proposed Rule would have strictly required transaction parties to respond to CFIUS mitigation proposals within three business days, with no consideration of other factors.

[5] The Final Rule does not include any changes from the Proposed Rule with respect to these penalties.  CFIUS justified the increased penalties on the ground that the current penalty maximum of $250,000 was established through regulations issued over 15 years ago, and it has never been adjusted.