On April 11, 2024, the Committee on Foreign Investment in the United States (CFIUS) issued a Notice of Proposed Rulemaking that, if enacted, will expand its power to obtain information and levy higher financial penalties. CFIUS — an interagency committee chaired by the Secretary of the Treasury Department — serves the president in overseeing the national security risks of certain foreign investment in the United States. If CFIUS identifies specific national security risks resulting from a proposed or completed foreign investment, it can impose mitigating conditions on the parties to mitigate the identified risks. In rare cases where mitigation of the national security risks is impossible, CFIUS can recommend the president suspend or prohibit the foreign investment altogether.

The proposed rule would sharpen the enforcement authority of CFIUS through increased financial penalties, expanded subpoena power, and a shorter timeframe for parties to respond to risk mitigation proposals.

Increased Penalties

• For submitting a declaration or notice with a material misstatement or omission or making a false certification in connection with a filing, the proposed rule increases the maximum penalty from $250,000 to $5 million per violation. In addition to declarations, notices, and false certifications, the proposed rule would allow CFIUS to also penalize material misstatements or omissions in responses to its requests for information.
• For failing to make a mandatory CFIUS filing, the proposed rule increases the maximum penalty from the greater of $250,000 or the value of the transaction to the greater of $5,000,000 or the value of the transaction.
• For violating material provisions of a national security agreement, material conditions imposed by CFIUS, or orders issued by CFIUS, the proposed rule increases the maximum penalty from the greater of $250,000 per violation or the value of the transaction to 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 at the time of the violation, or the value of the transaction.

These significantly increased penalties appear to reflect the concern of CFIUS leadership that the existing penalties do not provide a strong enough penalty to parties that may provide incomplete or inaccurate information. This is likely particularly true in cases where parties are responding to CFIUS ‘non-notified transaction’ investigations, which are cases where CFIUS unilaterally investigates foreign investment that has not been reported to CFIUS.

Increased Investigative Powers

The proposed rule would significantly expand the investigatory authority of CFIUS by allowing it to request information from transaction parties and other persons related to whether a transaction may raise national security considerations and whether a transaction meets the criteria for a mandatory declaration. Transaction parties and other persons would be required to respond. The proposed rule would further require transaction parties to provide information when CFIUS is monitoring compliance with or enforcing the terms of a national security agreement, order, or condition and when determining whether a material misstatement or omission was made during a previously concluded review or investigation. Finally, the standard for issuing a subpoena would also be lowered from “if deemed necessary” to “if deemed appropriate.” This proposed rule likely stems from CFIUS having encountered difficulty obtaining information from third parties during past reviews of foreign investment.

Shorter Time Frame to Respond

Lastly, the proposed rule would require parties to respond to a risk mitigation proposal within three days, absent an extension of time approved by CFIUS in writing. CFIUS already requires responses to its information requests regarding notices and declarations to be submitted within two or three days — depending on whether a declaration or notice has been filed. This may be the most challenging new part of the proposed rule for transaction parties and their legal counsel during good faith negotiations, as the current regulations do not provide hard timelines for responses during risk mitigation negotiations. This turnaround time may pose particular challenges for international clients, given the frequent need to coordinate responses across multiple time zones.

Public comments to the proposed rule are due by May 15, 2024, and can be submitted through the Federal government eRulemaking portal here. Taft attorneys can assist parties interested in understanding or making a public comment to the proposed rule. After all public comments are analyzed, the Treasury Department will issue a final rule.

Read the Treasury press release here and the Notice of Proposed Rulemaking here.