CFIUS Regulatory Expansion: Five Things You Need to Know

^{Grace Hochstatter (White & Case, Law Clerk, Washington, DC) contributed to the development of this publication.}

The U.S. Department of the Treasury ("Treasury") has engaged in a flurry of rulemaking over the last year, most recently issuing a final rule to sharpen and enhance the Committee on Foreign Investment in the United States ("CFIUS" or the "Committee") procedures and enforcement authorities, which will take effect on December 26, 2024. Additionally, last month, Treasury published a separate final rule expanding CFIUS coverage of real estate transactions with respect to nearly 60 military installations, which will take effect on December 9, 2024. Both regulatory updates introduce significant changes as CFIUS continues to expand its authorities to address national security risks relating to foreign direct investment and conduct monitoring and enforcement activities relating to parties' compliance obligations. Most notably, as CFIUS has continued to focus on enforcement, it will be able to impose much larger monetary penalties. The final rule generally tracks the proposed regulations issued earlier this year, though Treasury did pull back from a proposal that would have significantly limited the time parties have to review and respond to CFIUS mitigation proposals. CFIUS may still impose deadlines on a case-by-case basis.

Below are five key takeaways transaction parties should know as both rules take effect.

1. Maximum CFIUS monetary penalties are increasing dramatically. The new rule increases the explicit monetary cap for civil penalties relating to material statements or omissions from $250,000 to $5 million per violation—a 25-fold increase. Maximum penalties for failing to submit a mandatory filing also increase from $250,000 to $5 million or the value of the transaction, whichever is greater.  As mitigation measures are implemented over time, the penalties for violations of mitigation requirements similarly increased the maximum dollar value to $5 million, but the new rule also introduces additional ways for CFIUS to calculate the "value of the transaction" concept for penalty purposes to give CFIUS more flexibility. Specifically, for mitigation violations CFIUS can impose penalties up to the greater of (1) $5 million, (2) the value of the person's interest in the US business (or its parent) at the time of the transaction, (3) the value of the person's interest in the US business (or its parent) at the time of the violation, or (4) the value of the transaction filed with the Committee. CFIUS views the increase in the maximum penalty amounts as a stronger deterrent while also maintaining its discretion to choose the appropriate penalty amount in discrete cases.
2. CFIUS can seek more information related to non-notified transactions, including from non-transaction parties. The current CFIUS regulations authorize CFIUS to require parties to a non-notified transaction to provide information necessary to determine whether the transaction is a covered transaction (i.e., a transaction subject to CFIUS's jurisdiction). Under the new rule, CFIUS can also request information related to whether the transaction will raise national security considerations and whether the transaction meets the criteria for a mandatory filing. In addition, the rule empowers CFIUS to request information from "other persons" not just parties to the transaction. According to CFIUS, the rule's new fact-finding capabilities will help "focus" the transactions the Committee requests for filing. These changes are notable for their potentially expansive coverage. Non-notified inquiries are likely to broaden in scope under this update and may include more pointed requests, such as relating to limited partner investors in transactions involving fund investors. Treasury has advised that the expanded request authority will not substitute for formal review where a filing is ultimately made, but parties should expect a more involved non-notified process with more detailed initial inquiries.
3. CFIUS has broader authority to subpoena information from third parties in a wider range of circumstances. Under the new rule, CFIUS can subpoena information from "other persons" when the Committee has been provided a declaration or a notice of a transaction as well as in circumstances when a transaction is non-notified. As above, in non-notified contexts, CFIUS may subpoena other persons so long as it seeks information that will enable the Committee to determine whether a transaction is a covered transaction, assess whether the transaction raises national security considerations, or determine whether the transaction triggers mandatory filing requirements. Historically, CFIUS has not typically needed to use its subpoena powers to obtain information, but the regulatory update gives CFIUS sharper tools should it need information from third parties that is not being provided voluntarily.
4. CFIUS can impose a deadline for transaction parties to respond when negotiating National Security Agreements. The new rule affords CFIUS the discretion to require a substantive response to proposed mitigation terms within three business days or longer. Though Treasury decided against the proposal to have a three-day response deadline for substantive responses to mitigation proposals in all cases, this more limited change gives CFIUS the authority to try to expedite mitigation negotiations when it determines parties are not being sufficiently responsive. It remains to be seen in practice how liberally CFIUS will impose such deadlines—and how amenable CFIUS will be to granting extensions. Given that CFIUS has been requiring mitigation more frequently in recent years, it is more important than ever for parties to retain CFIUS counsel capable of anticipating mitigation terms and quickly processing the implications of the requirements outlined in CFIUS's proposals.
5. CFIUS real estate jurisdiction has expanded to nearly 60 additional sensitive US Government locations across 30 states. CFIUS added 40 military installations to the one-mile and 19 locations to the 100-mile lists. Real estate transactions within these distances of the new locations will fall under CFIUS's jurisdiction. In addition, CFIUS relocated eight sites from the one-mile list to the 100-mile list. These sites are also instructive for assessing substantive close-proximity risks in transactions subject to CFIUS's separate and more commonly used investment regulations, providing greater guidance for risk assessments conducted pre-transaction.

Overall, these new rules reflect a continuously evolving and increasingly aggressive CFIUS that is seeking to bolster its authorities to address national security concerns relating to foreign investment into the United States. However, most filings remain voluntary, and CFIUS continues to encourage foreign investment in the United States. By working closely—and early on—with CFIUS counsel for a transaction, parties can develop a CFIUS strategy to reduce uncertainty and most effectively manage CFIUS risks. Experienced counsel can also assist with mitigation implementation, including helping to avoid compliance pitfalls and minimize negative outcomes where violations occur.

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_{This article is prepared for the general information of interested persons. It is not, and does not attempt to be, comprehensive in nature. Due to the general nature of its content, it should not be regarded as legal advice.}

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