Skip to main content

Nixon Peabody LLP

  • People
  • Capabilities
  • Insights
  • About
Trending Topics
    • People
    • Capabilities
    • Insights
    • About
    • Locations
    • Events
    • Careers
    • Alumni
    Practices

    View All

    • Affordable Housing
    • Community Development Finance
    • Corporate & Finance
    • Cybersecurity & Privacy
    • Entertainment & Media
    • Environmental
    • Franchising & Distribution
    • Government Investigations & White Collar Defense
    • Healthcare
    • Intellectual Property
    • International Services
    • Labor, Employment, and Benefits
    • Litigation
    • Private Wealth & Advisory
    • Project Finance
    • Public Finance
    • Real Estate
    • Regulatory & Government Relations
    Industries

    View All

    • Aviation
    • Cannabis
    • Consumer
    • Energy
    • Financial Services
    • Healthcare
    • Higher Education
    • Infrastructure
    • Manufacturing
    • Nonprofit Organizations
    • Real Estate
    • Sports & Stadiums
    • Technology
    Value-Added Services

    View All

    • Alternative Fee Arrangements

      Developing innovative pricing structures and alternative fee agreement models that deliver additional value for our clients.

    • Continuing Education

      Advancing professional knowledge and offering credits for attorneys, staff and other professionals.

    • Crisis Advisory

      Helping clients respond correctly when a crisis occurs.

    • DEI Strategic Services

      Providing our clients with legal, strategic, and practical advice to make transformational changes in their organizations.

    • eDiscovery

      Leveraging law and technology to deliver sound solutions.

    • Environmental, Social, and Governance (ESG)

      We help clients create positive return on investments in people, products, and the planet.

    • Global Services

      Delivering seamless service through partnerships across the globe.

    • Innovation

      Leveraging leading-edge technology to guide change and create seamless, collaborative experiences for clients and attorneys.

    • IPED

      Industry-leading conferences focused on affordable housing, tax credits, and more.

    • Legal Project Management

      Providing actionable information to support strategic decision-making.

    • Legally Green

      Teaming with clients to advance sustainable projects, mitigate the effects of climate change, and protect our planet.

    • Nixon Peabody Trust Company

      Offering a range of investment management and fiduciary services.

    • NP Capital Connector

      Bringing together companies and investors for tomorrow’s new deals.

    • NP Second Opinion

      Offering fresh insights on cases that are delayed, over budget, or off-target from the desired resolution.

    • NP Trial

      Courtroom-ready lawyers who can resolve disputes early on clients’ terms or prevail at trial before a judge or jury.

    • Social Impact

      Creating positive impact in our communities through increasing equity, access, and opportunity.

    • Women in Dealmaking

      We provide strategic counsel on complex corporate transactions and unite dynamic women in the dealmaking arena.

    1. Home
    2. Insights
    3. Alerts
    4. CFIUS proposes revising its procedures and penalties

      Alerts

    Alert / Export Controls

    CFIUS proposes revising its procedures and penalties

    April 23, 2024

    LinkedInX (Twitter)EmailCopy URL

    By David Crosby, Alexandra Lopez-Casero and Christopher GriggJule Giegling (Legal Intern–Corporate Practice) assisted with the preparation of this alert.

    Companies seeking to acquire a US business should carefully assess CFIUS’s regulations to ensure compliance in all transactions.

    What’s the impact?

    • The NPRM is the first substantive update to the CFIUS regulations’ mitigation and enforcement provisions since the Foreign Investment Risk Review Modernization Act of 2018 was implemented.
    • It expands CFIUS authority to request information from parties to determine whether a transaction poses a threat to national security.
    • The NPRM significantly increases the maximum civil penalty amounts CFIUS can impose for violations of its regulations.

    DOWNLOAD

    PDF: CFIUS proposes revisions to its procedures and penalties

    On April 11, 2024, the Department of the Treasury, as Chair of the Committee on Foreign Investment in the United States (CFIUS or the Committee), issued a Notice of Proposed Rulemaking (NPRM) announcing changes to certain procedures and civil penalty amounts in the CFIUS regulations. On the same day, which was also the first day of the 10th National Conference on CFIUS, Assistant Secretary for Investment Security Paul Rosen explained that the revisions to the regulations are designed to plug some holes and weaknesses in the Committee’s ability to enforce and expedite the processing of CFIUS filings. The NPRM is the first substantive update to the CFIUS regulations’ mitigation and enforcement provisions since the Foreign Investment Risk Review Modernization Act of 2018 amended CFIUS’s governing statute. In essence, the NPRM:

    • expands the types of information the Committee can request from transaction parties and other persons;
    • significantly increases (20x) the maximum penalty amount available for violations of the CFIUS regulations;
    • expands the circumstances under which such penalties may be imposed; and
    • introduces a timeline for petitions and mitigation agreements.

    The public is invited to submit comments until May 15, 2024, either electronically through the federal government eRulemaking portal or through the mail.

    In the following, we provide a brief overview of the proposed changes.

    Information collection authority

    Under the current rules, the Staff Chairperson, acting on the Committee’s recommendation, may only request the parties to a non-notified transaction to provide information necessary to determine whether the transaction is a “covered transaction” or a “covered real estate transaction.” Thus, CFIUS is only authorized to collect information to determine whether it has jurisdiction over a specific transaction. This authority, however, does not permit CFIUS to seek information that would enable it to determine whether a transaction meets the criteria for a mandatory declaration under Title 31, Code of Federal Regulation, Section 800.401, or information on whether a transaction may otherwise raise national security concerns

    The proposed rules would amend sections 800.501(b) and 802.501(b) to expressly grant the Staff Chairperson the authority to request information from transaction parties and other persons regarding whether a transaction may raise national security considerations and, in the case of 800.501(b), information as to whether a transaction meets the criteria for a mandatory declaration under section 800.401. The stated purpose of this new authority is to avoid unnecessary filings and to increase efficiency, to the benefit of the parties and national security.

    The proposed rule also amends sections 800.801(a) and 802.801(a) to require parties to provide information to CFIUS upon request in two other circumstances: (1) when the Committee seeks information to monitor compliance with or enforce the terms of a mitigation agreement, order, or condition, and (2) when it seeks information to determine whether the transaction parties made a material misstatement or omitted material information during the course of a previously concluded review or investigation.

    Parties would be obligated to respond to such requests, failing which CFIUS may seek to compel responses by issuing a subpoena, if the Committee deems it appropriate (as opposed to the current requirement that the Committee must deem the issuance of a subpoena necessary).

    Increase of penalty amounts

    Under the current rules, Sections 800.901(a) and 802.901(a) of the regulations set the penalty amount for submitting a declaration or notice with a material misstatement or omission or the making of a false certification at a maximum of $250,000 per violation. CFIUS believes this amount is insufficient to cause parties to “deter violations and promote compliance,” particularly when the transactions are valued at hundreds of millions or billions of dollars. Section 800.901(b) currently sets the per-violation penalty for failure to comply with section 800.401 requirements pertaining to “mandatory declarations” (which excludes any real estate transaction) to the greater of $250,000 or the value of the transaction. Sections 800.901(c) and 802.901(b) set the penalty for each violation of material provisions of mitigation agreements, material conditions imposed by CFIUS, or orders issued by CFIUS at the greater of $250,000 or the value of the transaction. CFIUS noted that this penalty amount is not sufficient to encourage compliance, particularly in cases where the value of the transaction is low.

    The NPRM proposes raising the maximum penalties to $5,000,000 per violation under sections 800.901(a) and 802.901(a); the greater of $5,000,000 or the value of the transaction per violation under section 800.901(b); and the greater of $5,000,000 or the value of the transaction (or the value of the party’s interest in the US business at the time of the violation or time of the transaction) per violation under sections 800.901(c) and 802.901(b).

    The proposed rules would further expand the circumstances in which CFIUS may impose a civil monetary penalty. Currently, the provision applies to material misstatements or omissions in a declaration or notice or false certifications. Under the proposed amendment, CFIUS penalties also would apply to material misstatements or omissions in contexts outside of declarations and notices—in particular, responses to CFIUS’s requests for information related to non-notified transactions, certain responses to CFIUS’s requests for information related to monitoring or enforcing compliance, and other responses to CFIUS’s requests for information, such as for agency notices.

    CFIUS clarified that it will notify parties in writing when their response to a particular communication may be subject to a penalty under sections 800.901(a)(2) and 802.901(a)(2) due to a material misstatement or omission. Such communications would include those relevant to requests for information related to non-notified transactions, failure to file a mandatory declaration, and compliance with, or enforcement, modification, or termination of a mitigation agreement, condition, or order imposed.

    CFIUS anticipates that the relevant value of the transaction or interest would be determined through, for example, audited financial statements or other industry standard methods of valuation. CFIUS holds that this increase is warranted since the current penalty maximum may not sufficiently deter or penalize certain violations.

    Procedural changes

    Under current regulations, upon receiving notice of a penalty to be imposed, the subject person may submit a petition within 15 business days of receipt of such notice, subject to an extension through written agreement with CFIUS. Similarly, 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.

    The proposed rule would further amend the regulations to introduce a new provision imposing a three-business-day period for substantive party responses to proposed National Security Agreements (NSAs) proposing mitigation terms (both initial and subsequent proposals or revisions), unless the parties request a longer time frame, and the Staff Chairperson grants that request in writing. This new procedural time frame is likely to catch parties off guard. Previously, the CMAs would email the draft NSA to the parties and there was no specific time frame for the parties to respond. The obvious problem with a three-day period to respond is that the buyer or investor is likely to be a foreign entity and will likely lose a day just transmitting the draft NSA to a foreign jurisdiction (that is likely already closed for business when received), leaving only one day to discuss with counsel and other advisors and one day to prepare the comments and any revisions. To the extent that parties want to involve third-party advisors, monitors, and auditors in the process, they will need to get them involved early and put them on standby, so they are able to provide meaningful input during the investigation period when the NSA is negotiated. Given the nature and importance of an NSA, three days is not likely to be enough time for the parties to review, consider, and prepare meaningful revisions, particularly if there is disagreement among the parties. If the parties fail to respond within this period, CFIUS is authorized to reject any voluntary notice at any time after the notice has been accepted.

    Outlook

    The proposed rules show that CFIUS is determined to more effectively enforce its regulations and to broaden the scope of transactions that it can review. As Assistant Secretary Rosen noted during his presentation at the CFIUS conference, further changes can be expected. Going forward, companies seeking to acquire a US business should carefully review the CFIUS regulations to determine whether their transaction is subject to the regulations, since CFIUS authority is becoming increasingly broad, and the penalties for non-compliance will be substantial. Any business that expects to be impacted by the proposed new rules should carefully consider submitting comments until May 15, 2024.

    For more information on the content of this alert, please contact your Nixon Peabody attorney or the authors of this alert.

    Practices

    Export Controls & Economic SanctionsCFIUS (Committee on Foreign Investment in the U.S.)

    Insights And Happenings

    • Alert

      BIS updates Commerce Country Chart and makes conforming changes to the EAR

      May 10, 2024
    • Alert

      BIS issues new License Exception MED

      April 26, 2024
    • Alert

      A closer look at the proposed restrictions on outbound US investments

      Aug 25, 2023
    The foregoing has been prepared for the general information of clients and friends of the firm. It is not meant to provide legal advice with respect to any specific matter and should not be acted upon without professional counsel. If you have any questions or require any further information regarding these or other related matters, please contact your regular Nixon Peabody LLP representative. This material may be considered advertising under certain rules of professional conduct.

    Subscribe to stay informed of the latest legal news, alerts, and business trends.Subscribe

    • People
    • Capabilities
    • Insights
    • About
    • Locations
    • Events
    • Careers
    • Alumni
    • Cookie Preferences
    • Privacy Policy
    • Terms of Use
    • Accessibility Statement
    • Statement of Client Rights
    • Purchase Order Terms & Conditions
    • Nixon Peabody International LLC
    • PAL
    © 2025 Nixon Peabody. All rights reserved