The final rule issued signals a clear intent for CFIUS to intensify its oversight of foreign investments.
The U.S. Department of the Treasury recently issued a final rule that expands the enforcement powers of the Committee on Foreign Investment in the United States (CFIUS) and significantly increases the potential financial consequences for noncompliance. The final rule, which enters into effect on December 26, 2024, provides CFIUS with enhanced powers to request information, impose penalties and require timely responses to proposed mitigation terms. For companies engaging in foreign investment transactions, understanding the implications of this final rule is critical to ensuring compliance and mitigating risks.
Background on CFIUS and Its Powers
CFIUS, an interagency committee chaired by the Secretary of Treasury, reviews certain transactions involving foreign investments in U.S. businesses or real estate to assess and mitigate potential national security risks. The jurisdiction of CFIUS was considerably expanded by the Foreign Investment Risk Review Modernization Act of 2018 (FIRRMA) to permit CFIUS to review the following kinds of transactions:
- Noncontrolling investments in U.S. businesses involved in critical technologies, critical infrastructure or sensitive personal data (TID U.S. businesses);
- Real estate transactions near sensitive U.S. government facilities; and
- Non-notified transactions, allowing CFIUS to review deals even if the parties do not voluntarily file a notice or declaration.
FIRRMA implementing regulations introduced mandatory filing requirements for certain transactions and established penalties for noncompliance, including failure to file mandatory declarations, breaches of mitigation agreements and material misstatements or omissions in filings. In April 2024, Treasury issued a proposed rule to expand the authorities of CFIUS, which we discussed in our previous Alert.
Key Provisions of the Final Rule
Taking into consideration comments received relating to the April 2024 proposed rule, Treasury issued the final rule to expand authorities for CFIUS and to increase penalty limits for violations.
Broader Scope for Information Requests
CFIUS can now compel not only transaction parties, but also unrelated third parties, such as banks, underwriters or certain service providers to transaction parties, to provide information relevant to determining whether a transaction poses national security risks. This authority extends to non-notified transactions, bolstering the committee’s ability to assess deals that may not have been voluntarily disclosed. In determining whether to issue a request for information to a person other than the transaction parties, CFIUS will consider the relationship of the other person to the relevant transaction and the information sought, and will treat information submitted by third parties in accordance with its confidentiality obligations that are enumerated under the CFIUS statute and regulations.
Timelines for Mitigation Responses
To address delays in resolving national security concerns, CFIUS may impose a deadline, with a minimum of three business days, for transaction parties to respond to mitigation proposals. While extensions are possible, this provision underscores the importance of maintaining open communication and preparedness during the review process. It is important to have resources in place to respond quickly to mitigation proposals to avoid potential delays or penalties.
Increased Civil Penalties
The final rule raises the maximum civil penalty for violations of CFIUS regulations or agreements to $5 million per violation. Penalties can also be tied to the value of the transaction or the violator’s interest in the U.S. business. This marks a significant increase from the previous $250,000 cap, reflecting the heightened focus on deterrence. Companies should review and strengthen compliance mechanisms to minimize exposure to costly penalties.
Expanded Subpoena Authority
The final rule also expands CFIUS’s subpoena authority. In accordance with the final rule, CFIUS may, if appropriate, request and compel through issuance of a subpoena the production of information not only from transaction parties, but also from other persons to aid in the enforcement or administration of the CFIUS statute and regulations. When doing so, CFIUS will consider the relationship of the other person to the relevant transaction and the information sought, and CFIUS will treat information submitted by third parties in accordance with confidentiality obligations that are enumerated under the CFIUS statute and regulations. Given CFIUS’s expanded subpoena authority, parties to a transaction (and their lenders and advisors) need to account for CFIUS risk even in deals that may not seem to fall within its jurisdiction.
Extended Reconsideration Periods
The final rule extends the time frame for parties to respond to penalty notices and seek reconsideration, providing a more structured process for addressing alleged violations. While this change offers procedural flexibility, the importance of timely and accurate compliance should remain a priority for parties to a transaction.
Conclusion
The final rule issued signals a clear intent for CFIUS to intensify its oversight of foreign investments. Parties involved in cross-border transactions should evaluate whether their transactions could fall under CFIUS jurisdiction, including non-notified deals; build internal compliance frameworks to manage information requests and mitigation proposals effectively; and consider conducting pre-transaction CFIUS risk assessments to identify potential red flags and prepare for potential scrutiny.
About Duane Morris
Attorneys in the firm’s Corporate Practice Group and International Practice Group have considerable experience in assisting clients on a wide range of cross-border matters, including with respect to determining the applicability of foreign direct investment (FDI) control laws that are administered in various jurisdictions (e.g., the United States, United Kingdom and European Union) and in preparing and filing FDI-related submissions with the authorities in those jurisdictions when required or warranted. In addition, they frequently assist clients in performing comprehensive due diligence relating to international M&A transactions.
For More Information
If you have any questions about this Alert, please contact Geoffrey M. Goodale, Joel N. Ephross, Hope P. Krebs, Thomas R. Schmuhl, Elizabeth G. Hodgson, Raul Rangel Miguel, any of the attorneys in our International Practice Group or the attorney in the firm with whom you are regularly in contact.
Disclaimer: This Alert has been prepared and published for informational purposes only and is not offered, nor should be construed, as legal advice. For more information, please see the firm's full disclaimer.