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Thompson Hine LLP, a full-service business law firm with approximately 400 lawyers in 11 offices, was ranked number 1 in the category “Most innovative North American law firms: New working models” by The Financial Times and was 1 of 7 firms shortlisted for The American Lawyer’s inaugural Legal Services Innovation Award. The firm has been recognized by the National Law Journal as a Legal Technology Trailblazer and featured by Bloomberg for its innovative service delivery models, which drive accuracy and predictability. The firm’s commitment to innovation is embodied in Thompson Hine SmartPaTHTM – a smarter way to work – predictable, efficient and aligned with client goals. For more information, please visit ThompsonHine.com and ThompsonHine.com/SmartPaTH.

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On April 15, 2024, the U.S. Department of the Treasury, as Chair of the Committee on Foreign Investment in the United States (CFIUS), issued a <a href="https://www.govinfo.gov/content/pkg/FR-2024-04-15/pdf/2024-07693.pdf" target="_blank" rel="noreferrer noopener">Notice of Proposed Rulemaking</a> (NPR) to enhance certain CFIUS procedures.&nbsp;This proposed rule would modify certain provisions in the CFIUS regulations pertaining to: (i) penalties for violations of statutory or regulatory provisions or agreements, conditions, or orders issued pursuant thereto; (ii) negotiation of mitigation agreements; (iii) requests for information by CFIUS; and (iv) certain other procedures.&nbsp;
The proposed rule would refine and expand CFIUS&rsquo; authorities as follows:
<ul class="wp-block-list">
<li>Expanding the types of information CFIUS can require transaction parties and other persons to submit when engaging with them on transactions that were not filed with CFIUS.&nbsp;The proposed rule would expressly provide CFIUS authority to request information from transaction parties and other persons related to whether a transaction may raise national security considerations and/or meets the criteria for a mandatory CFIUS declaration, even for non-notified transactions.&nbsp;As for compliance monitoring and review of potential violations, the proposed rule would further amend relevant regulations to require parties to provide information to the Committee upon request in these circumstances.&nbsp;Currently, CFIUS can request information in both circumstances, but the regulations do not expressly obligate parties to respond. Under these proposed amendments, parties would be obligated to respond to such requests, and if failing to do so, CFIUS could seek to compel responses through issuance of a subpoena to the parties to the transaction or other persons.</li>
<li>Instituting an extendable timeline for transaction parties to respond to risk mitigation proposals for matters under active review to assist CFIUS in concluding its reviews and investigations within the statutory time frame.&nbsp;CFIUS notes that the regulations require parties to respond to follow-up information requested by the Staff Chairperson in connection with a declaration or notice generally within two or three business days of the request, however, with regards to proposals of terms to mitigate any identified national security risks there are no such deadlines.&nbsp;This proposed rule seeks to establish a similar time frame in which parties are required to respond to follow-up information requests during the investigation phase, and would allow parties to seek extensions in certain circumstances.</li>
<li>Expanding the circumstances in which a civil monetary penalty may be imposed due to a party&rsquo;s material misstatement and omission, including when the material misstatement or omission occurs outside a review or investigation of a transaction and when it occurs in the context of CFIUS&rsquo; monitoring and compliance functions.&nbsp;Currently, this penalty amount is set at a maximum of $250,000 per violation as established 15 years ago. CFIUS believes this current penalty maximum may not sufficiently deter or penalize certain violations.&nbsp;The proposed rule seeks to increase this maximum penalty to $5&nbsp;million per violation or, for certain provisions of the regulations, the greater of $5&nbsp;million or the value of the transaction.</li>
<li>Similarly, CFIUS also seeks to increase the maximum civil monetary penalty available for violations of material provisions of mitigation agreements, material conditions imposed by CFIUS, or orders issued by CFIUS.&nbsp;The proposed rule maximum penalty of the greatest, per violation, of (i) $5&nbsp;million, (ii) the value of the violating party&rsquo;s interest in the U.S. business (or covered real estate) at the time of the transaction, (iii) the value of the violating party&rsquo;s interest in the U.S. business (or covered real estate) at the time of the violation or the most proximate time to the violation for which assessing such value is practicable, or (iv) the value of the transaction. CFIUS notes that this range of measurements for the maximum penalty would provide an additional deterrent or penalty in the case of certain transactions valued at less than $5&nbsp;million.</li>
<li>Extending the time frame for submission of a petition for reconsideration of a penalty to the Committee and the number of days for CFIUS to respond to such a petition. Currently, upon receiving notice of a penalty to be imposed, the subject party may submit a petition within 15 business days of receipt of such notice and CFIUS has 15 business days to assess the petition and issue a final penalty determination. The proposed rule would extend both time frames to 20 business days.&nbsp;Parties would continue to be allowed to seek extension of time for submitting a petition.</li>
</ul>
Regarding the proposed increases in applicable penalties, CFIUS notes that &ldquo;[f]or the avoidance of doubt, while the amendments provided for in the proposed rule pertain to the maximum penalty that may be imposed for certain violations, they would not affect the Committee&rsquo;s discretion to determine the appropriate penalty in individual cases.&rdquo;&nbsp;In assessing compliance and whether to bring an enforcement action and seek any penalties in a particular case, CFIUS will continue to evaluate the facts and circumstances surrounding the conduct including the aggravating and mitigating factors described in the&nbsp;<a href="https://home.treasury.gov/policy-issues/international/the-committee-on-foreign-investment-in-the-united-states-cfius/cfius-enforcement-and-penalty-guidelines" target="_blank" rel="noreferrer noopener">CFIUS Enforcement and Penalty Guidelines</a>.
CFIUS is accepting public comments on this proposed rulemaking until May 15, 2024.&nbsp;

core/freeform

SmarTrade

Senior Legislative and Regulatory Policy Advisor

Scott E. Diamond

Partner

Samir D. Varma

Francesca M.S. Guerrero

International Trade

CFIUS Proposed Rulemaking Seeks to Refine and Expand Enforcement and Penalty Regulations