04/17/2024 | News release | Distributed by Public on 04/17/2024 08:08
The proposed rule represents the most significant expansion of CFIUS's enforcement, monitoring, and penalty authorities since the finalization of the rules implementing the Foreign Investment Risk Review Modernization Act of 2018 (FIRRMA).
CFIUS is a Treasury-chaired US government interagency body charged with reviewing certain foreign direct investment into the United States for national security risks. In 2018, the US Congress strengthened CFIUS's authority by enacting FIRRMA, which represented the most sweeping overhaul of the operations and jurisdiction of CFIUS in its 44-year history. The Committee has jurisdiction over a range of transactions involving foreign persons, including acquisitions of control over a US business, some non-controlling investments in certain sensitive US businesses, and some real estate transactions close to certain sensitive facilities. If CFIUS identifies a national security risk arising from a transaction subject to its jurisdiction, it has broad authority to impose mitigation provisions or recommend that the President block the transaction or mandate divestment.
Reflecting CFIUS's "increased focus on monitoring, compliance, and enforcement," the proposed rule expands the Committee's information collection authorities and significantly expands potential civil monetary penalties for material misstatements and omissions. It also includes a number of changes to the Committee's procedures.
The proposed rule significantly broadens CFIUS's scope for requiring submission of information regarding transactions along three key vectors.
The CFIUS regulations currently provide for penalties ranging up to the greater of $250,000 or the value of the transaction for failure to comply with mandatory declaration requirements or for the making of material misstatements or omissions in notices or declarations. The proposed rule makes two main changes:
CFIUS notes that it retains discretion to determine the appropriate penalty, which may be less than the maximum and that it will "will continue to take into account the specific facts and circumstances of the violation and relevant aggravating and mitigating factors as identified in the Committee's Enforcement and Penalty Guidelines."
Finally, the new rule would make changes to certain CFIUS procedures, which could affect transaction parties. First, the regulations would impose new time limits for parties to respond to proposed CFIUS mitigation terms, set at three business days. Second, when a notice of penalty has been issued, the time for parties to submit and for CFIUS to respond to petitions would be increased from 15 days to 20 business days.
The new regulations demonstrate that CFIUS is intent on giving more bite to its authorities. The focus on procedural efficiency, including expanded authorities to request information at earlier stages, likely further reflects and expectation the CFIUS will continue to become more active and assertive. With higher potential penalties, parties to transactions should take extra care to ensure compliance with CFIUS filing requirements. Additionally, with curtailed timelines for negotiation of mitigation terms, parties to transactions that may be subject to CFIUS review should prioritize considering potential mitigation requirements as early as possible.
Finally, CFIUS is accepting comments to the proposed rule until May 15. Comments may be submitted electronically or by mail.