On November 18, 2024, the U.S. Department of the Treasury issued a final rule enhancing the mitigation monitoring and enforcement tools of the Committee on Foreign Investment in the United States (CFIUS or the "Committee"). As we noted this past spring, this represents the first major update to CFIUS's enforcement powers since Congress substantially expanded the Committee's jurisdiction through enactment of the Foreign Investment Risk Review Modernization Act (FIRRMA) in 2018.
There were only limited changes between the newly released final rules and the rules as proposed last spring. As described in more detail in our prior alert, the new rules establish higher maximum civil penalties for noncompliance, including noncompliance with CFIUS-imposed mitigation agreements, increasing the maximum penalty 20 times over, from $250,000 to $5 million in most cases.
The finalized rules also expand CFIUS's subpoena authority, providing the Committee with access to information in more instances and from a broader array of persons in addition to the transaction parties – such as banks, underwriters, or service providers. CFIUS emphasized the need for this expanded subpoena authority in order to give the Committee a stronger enforcement hand, particularly in cases of "non-notified" transactions, where the parties did not file notice of a deal with CFIUS.
The initial version of the rules this past spring also proposed a new requirement that transaction parties must respond within three business days, unless extended, to proposals from CFIUS imposing terms to mitigate a deal's national security risks. The final rule released this week changes this requirement, instead providing that the CFIUS staff chairperson has discretion to impose a time frame of "no fewer than" three business days for parties to respond to these mitigation agreement proposals. In other words, CFIUS will have the power but not the obligation to impose a three-day deadline on parties, depending on the nature of the transaction, the timing, and the transaction parties' past record of responsiveness. We expect CFIUS to readily impose deadlines whenever it views the transaction parties as "less motivated" to respond promptly to a proposal.
All in all, for transaction parties considering whether to make a voluntary filing with the Committee, the new rules put a thumb on the scale toward filing by giving CFIUS more power to scrutinize "non-notified" transactions. Moreover, those transaction parties in the unfortunate position of failing to make a mandatory filing with CFIUS can expect to face stiffer civil monetary penalties. The new rules serve as a powerful reminder of CFIUS's ability to increase its jurisdiction and enforcement capabilities without the cumbersome requirements of a major legislative proposal like FIRRMA. This won't be the last time we see the Committee deal itself a better hand in order to support its national security mission. As CFIUS turns 50 next year, the trend toward an ever more powerful interagency Committee is unlikely to let up, particularly in light of the upcoming change in administration.
