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CFIUS Proposes Enhanced Review Procedures and Increased Penalties for Violations

Apr 19, 2024

Pivotal updates to longstanding regulations enforced by the Committee on Foreign Investment in the United States (“CFIUS” or the “Committee”) may be imminent. On April 11, 2024, the U.S. Department of the Treasury (“Treasury”) announced proposed rule amendments aimed at enhancing CFIUS review procedures, expanding the Committee’s authority to request pertinent information, and increasing penalties for non-compliance violations.  

At the American Conference Institute’s 10th National Conference on CFIUS, Assistant Secretary of the Treasury for Investment Security, Paul Rosen, emphasized the Committee’s focus on leveraging lessons learned to better “promote compliance and deter violations.” Published in the Federal Register, the proposed rule amendments focus on three key areas: 

Requesting Information and Requiring Responses for Non-Notified Transactions, Compliance Monitoring, and Violation Determination 

Overview: Non-notified transactions refer to those in which no notice or declaration had previously been submitted for CFIUS review. The proposed amendment will allow CFIUS to request information as to whether a transaction may raise national security considerations or if the transaction would meet the criteria for mandatory declaration.   

The proposed amendment will also require responses to information requests to determine if both a mitigation agreement is being complied with and if there was a misstatement or omission of material information during a previous review or investigation. Subpoenas may be issued to transaction parties or third persons not party to the transaction if deemed appropriate (as compared to the current rule: if deemed necessary).  

Rationale: The proposed rule amendments signal the Committee’s attempt to prioritize the review of transactions that are required to submit a notice or declaration and determine if non-notified transactions should have been notified, so as to assist in preventing unnecessary filings and increase the efficiency of reviews.  

Takeaways: The updates proposed significantly increase the scope of information that can be requested by CFIUS regarding non-notified transactions and enhance compliance monitoring of existing agreements, including the types of parties such information can be requested from and the requirements for such information to be provided to CFIUS.    

Timeline for Responding to Proposed National Security Risk Mitigation Terms 

Overview: The proposed amendment will require transaction parties to respond to the Committee’s proposed mitigation terms within a three-business-day period, facilitating the Committee’s ability to meet the 45-day deadline to complete an investigation. The current rules do not specify a timeframe separate from the requirement for transaction parties to provide follow-up information when requested regarding a declaration or notice.   

Rationale: The proposed amendment reflects the Committee’s efforts to streamline the transaction review process and prevent missed deadlines that inevitably require the parties to refile the transaction, essentially restarting the clock of the mitigation agreement review.  
Takeaways: The expedited timeline to provide responses to mitigation agreement terms will undoubtably apply pressure on parties, especially in complex transaction scenarios. CFIUS expects to receive requests for extensions, which may be granted on a case-by-case basis.   

Increases to Monetary Penalties  

Overview: Current regulations specify the maximum amount per violation of $250,000 in the following scenarios: 

  • Submission of a declaration or notice with material misstatements/omissions or making a false certification ($250,000 per violation).
  • Failure to comply with the requirements pertaining to mandatory declarations ($250,000 or the value of the transaction, whichever is greater).  
  • Violations of material provisions of mitigation agreements, material conditions imposed by CFIUS, or orders issued by CFIUS ($250,000 or the value of the transaction, whichever is greater).

The proposed amendment will increase the maximum penalty from $250,000 to $5 million in each scenario.   

Rationale: The proposed amendment reflects the Committee’s assessment that the current maximum penalty amounts may not be significant enough to deter violations by the transaction parties, with CFIUS citing an average value of covered transactions filed over the last 10 years that greatly exceeds the penalty amounts.  

Takeaways: While the proposed rule amendment seeks to increase maximum penalties allowable by 20x, the Committee still maintains discretion on the amount imposed based on the facts and circumstances of the violation.  

The proposed rule amendments reinforce the Committee’s obligation to ensure covered transactions are reported timely, free from misstatements or omissions, and contain accurate certifications—fostering compliance and enforcement of mitigation terms. 

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Jack Paladino

Jack Paladino is a Manager within the firm’s Risk and Compliance Services (RCS) practice and has over 5 years of experience in Sarbanes-Oxley (SOX) Section 404 compliance and internal audit.

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