Authors: Michael T. Gershberg, Gregory Bernstein

On April 15, 2024, the U.S. Department of the 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 strengthen and expand its enforcement powers and increase the maximum penalty for certain violations of the CFIUS regulations. While the Proposed Rule would not change CFIUS's jurisdiction, it does continue the Committee's focus on monitoring and enforcement. The Proposed Rule is subject to public comment for a period of 30 days -- until May 15, 2024 -- and will not take effect until publication of a final rule.

Increased Maximum Civil Penalties

The Proposed Rule would increase the maximum civil penalties for different violations of the CFIUS regulations from $250,000 to $5,000,000. This increase in the maximum civil penalty comes after CFIUS determined that the current penalties "may not sufficiently deter or penalize certain violations." In the preamble to the rule, the Committee noted that even with violations that can currently be penalized by the greater of $250,000 or the value of the transaction, there is not always a strong enough deterrent effect because the purported value of a transaction can be as low as zero dollars due to the many different forms that a "transaction" can take within the meaning of the CFIUS regulations (e.g., the acquisition of a voting interest, the formation of a joint venture, a long-term lease or concession arrangement, or the conversion of a contingent equity interest).

To further enhance the deterrent power of CFIUS civil penalties, the Proposed Rule would make the maximum civil penalty for the violation of material provisions of mitigation agreements or conditions imposed by the Committee the greatest of (i) $5,000,000, (ii) the value of the transaction, or(iii) the value of the party's interest in a U.S. business at the time of the violation or the transaction. Figure 1 shows the current maximum penalties for different violations of the CFIUS regulations and the maximum penalties under the Proposed Rule.

Figure 1

Additional Enforcement Tools

In addition to greater maximum civil penalties, the Proposed Rule makes a number of other changes to CFIUS enforcement powers, as described below.

Information Requests for Non-Notified Transactions: Currently, the CFIUS regulations permit the Committee to request that parties to a transaction provide information needed to determine whether a non-notified transaction is a covered transaction (i.e., subject to CFIUS's jurisdiction). The Proposed Rule would permit the Committee to request additional information necessary to determine whether a non-notified transaction meets the criteria for a mandatory declaration, as well as information that would allow the Committee to determine whether a transaction may raise national security concerns. These changes are intended to assist CFIUS in determining whether and when to request that parties to a non-notified transaction submit a notice. In the most recent year for which CFIUS has made data available, the Committee identified and considered 84 non-notified transactions and requested that the parties submit a notice for 11 of them.

Penalties for Material Misstatements: Currently, the CFIUS regulations' prohibition on material misstatements or omissions only applies to declarations and notices, as well as false certifications. The Proposed Rule would allow for penalties to be imposed for material misstatements made in a range of other contexts, including responses to (i) requests for information regarding non-notified transactions, (ii) information requests related to monitoring or enforcing compliance, and (iii) other CFIUS requests for information.

Other Changes: The Proposed Rule includes a number of other changes to CFIUS' investigation and enforcement power including:

• Requiring transaction parties to respond to mitigation agreement drafts within three business days;
• Allowing CFIUS to issue subpoenas to third parties when the committee deems that doing so would be appropriate (in contrast to the current regulations, which only permit the Committee to issue third-party subpoenas when doing so is deemed necessary); and
• Extending the timeframe for parties to petition for reconsideration after a penalty is imposed from 15 days to 20 days (and making a similar extension to the time in which CFIUS has to assess the petition and make a final penalty determination).

Key Takeaways

The Proposed Rule would increase the maximum civil penalty for violations of the CFIUS regulations for the first time in 15 years and provide the Committee with a suite of additional tools to help it identify and consider non-notified transactions, review transactions for national security concerns, and monitor and enforce mitigation agreements. In a statement, Treasury Department Assistant Secretary Paul Rosen stated that these enhancements are intended to "more effectively deter violations, promote compliance, and swiftly address national security risks in connection with CFIUS reviews." He also noted that the new enforcement tools included in the Proposed Rule "reflect lessons learned in the course of our monitoring, compliance, and enforcement work and build on the 2022 CFIUS Enforcement and Penalty Guidelines." It is clear that one of CFIUS's main concerns continues to be investigation, monitoring, and enforcement.

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