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US Government Announces Proposed Rule Related to CFIUS Regulations

On April 11, 2024, the U.S. Treasury Department’s Office of Investment Security announced a proposed rule that would modify regulations governing the Committee on Foreign Investment in the United States (“CFIUS”). The proposed rule represents the first substantive update to CFIUS’ mitigation and enforcement provisions since implementation of the Foreign Investment Risk Review Modernization Act of 2018, 50 U.S.C. § 4564 and follows CFIUS’ Enforcement Penalty Guidelines issued on October 22, 2022. Our previous blog post on this topic is available here.

The proposed rule would expand CFIUS fact-finding tools, address a procedural weakness in mitigation negotiations and increase penalties:

  • Information Requests for Non-Notified Transactions: The proposed rule expands the categories of information that CFIUS may request in non-notified transactions. Currently, CFIUS may request information related to whether CFIUS has jurisdiction. The proposed rule would allow CFIUS to ask questions related to whether the transaction creates national security risks. This change would allow CFIUS to engage in preliminary fact-finding relevant to national security considerations prior to receiving a filing from the parties. Such fact finding could entail, for example, questions relating to the U.S. business’ technology, operations and customers (e.g., government contracts).
  • Timelines for Mitigation Negotiations: The proposed rule would impose a three business day period for parties to respond to proposed mitigation terms (both initial and subsequent proposals or revisions), unless the parties obtain an extension from CFIUS. This timeline and extension procedure is consistent with the process for responses to questions during consideration of a filing. There is currently no such time constraint on responding to CFIUS’ mitigation proposals, and in most cases parties are highly motivated to respond to CFIUS’ proposals. However, as CFIUS notes, parties are not always so motivated to respond quickly when the transaction has already closed. This time limit will address that narrow circumstance, but will have broader impacts on mitigation discussions. Normally it takes foreign investors and U.S. businesses longer than three days to formulate responses to CFIUS’ proposals, and so parties will find themselves having to seek dispensations from CFIUS in order to adequately consider responses.
  • Civil Monetary Penalties: The proposed rule expands circumstances where civil penalties may be imposed, particularly for material misstatements, omissions, or false certifications in contexts outside of declarations and notices (e.g., information requests for non-notified transactions, monitoring or enforcement compliance, and agency notices). In addition, the proposed rule increases the maximum civil penalty amount for material misstatements, omissions, or false certifications from $250,000 to $5,000,000 per violation. Lastly, the proposed rule extends the time frame related to a petition for reconsideration of a penalty.
  • Subpoenas to Third Parties: The proposed rule also expands instances in which CFIUS may issue subpoenas to third parties for requested information. Presently, CFIUS may issue a subpoena to obtain information from third parties that it deems necessary. The proposed rule amends this provision to state that CFIUS may issue a subpoena to obtain information from third parties that it deems appropriate.

The U.S. Treasury Department has requested public comments on the proposed rule, which is pending placement in the Federal Register. Comments will be accepted for 30 days following the date of publication in the Federal Register.

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Rod Hunter, a partner in the Washington, DC office, regularly advises on U.S. foreign investment regulation, including reviews conducted by the Committee on Foreign Investment in the United States (CFIUS) and procedures relating to mitigation of foreign ownership, control or influence (FOCI) under national industrial security regulations. He previously served as Special Assistant to the President for National Security Affairs and senior director for international economics at the National Security Council (NSC), the White House office that coordinates trade policy and supervises CFIUS. A recognized expert in the field, he has served as an expert witness on CFIUS in civil litigation and has testified before Congress during the legislative process leading to recent amendments to CFIUS’ authorizing legislation.

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Sylwia Lis is a partner in the Washington, DC office. She has extensive experience advising clients on national security reviews of foreign investments, including representation before the Committee on Foreign Investment in the United States (CFIUS). Sylwia also advises companies on US law relating to exports and reexports of commercial goods and technology (EAR), defense trade controls (ITAR), and trade sanctions (OFAC) - including licensing, regulatory interpretations, M&A due diligence and regulatory notifications (DDTC/ITAR notification process), compliance programs and enforcement matters.

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Lise Test is an of counsel in the Firm’s International Trade Group in Washington, DC and practices in the area of international trade regulation and compliance — with emphasis on US export control laws (Export Administration Regulations (EAR) and International Traffic in Arms Regulations (ITAR)), trade sanctions, and anti-boycott laws. Ms. Test advises clients on issues relating to product classifications, licensing, regulatory interpretations, risk assessments, enforcement actions, internal investigations and compliance audits, as well as the design, implementation, and administration of compliance programs. Ms. Test works regularly with companies across a wide range of industries, including the pharmaceutical/medical device, telecommunications, manufacturing, and technology sectors. She joined the Firm as a summer associate in 2007 and became a full-time associate in 2008. Prior to joining Baker McKenzie, Ms. Test served as a lawyer at the Danish Ministry of Defence.

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Callie is an Associate in Baker McKenzie's Washington, DC office in the International Commercial practice. She has experience advising on international trade law, particularly national security reviews of foreign investments and compliance with US export controls and trade and economic sanctions.

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Daniel Andreeff is an associate in the Firm’s International Trade practice group in Washington, DC. Prior to joining the Firm, he interned with the Department of the Treasury’s Office of Foreign Assets Control.

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Alexandra Kumar is an Associate in Baker McKenzie, Washington, DC office. Alex’s practice focuses on international trade law, particularly compliance with US export controls, trade and economic sanctions, and anti-boycott laws. She also represents clients in national security reviews before the Committee on Foreign Investment in the United States (CFIUS).

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