Senior Leadership Offers the Inside Scoop on CFIUS: A Few Items Worth Noting
September 18, 2023
Client Alert
By: Gregory Jaeger, Andrew J. Astuno
The Committee on Foreign Investment in the United States (“CFIUS”) hosted its second annual conference for practitioners on September 14, providing a rare opportunity to observe an open discussion among senior government officials concerning the latest and most significant developments affecting CFIUS. Chris Griner, Chair of Stroock’s National Security/CFIUS/Compliance Practice Group, was in attendance.
Assistant Secretary for Investment Security Paul Rosen spoke at lunch. Only a day earlier, Rosen testified before the House Financial Services Committee and defended the recent Executive Order issued by President Biden regulating U.S. outbound investments into China.[1] Responding to criticism that the Executive Order merely mirrors existing Office of Foreign Assets Control authorities, he argued that the regulatory initiative will be a separate and singular “notification and prohibition regime” for finding potential threats “before they're on an export control list, before they're on a sanctions list.”
At the luncheon, Rosen offered some important guidance to transaction parties appearing before CFIUS:
- CFIUS is committed to fully examine transaction structures and ownership (including investment agreements or arrangements involving limited partners, and – in turn - those partners’ shareholders). CFIUS review will extend to confidential side letters and other confidential investment agreements.
- CFIUS will file an “Agency Notice” when parties refuse to file or cooperate with the Committee – meaning the government will undertake an involuntary review of the relevant transaction and its parties if it deems necessary.
- Mitigation agreements are increasingly common. Parties can expect “more compliance checks, questions, and site-visits.” CFIUS is vetting and retaining more experienced third-party monitors to ensure compliance.
- CFIUS continues to add resources to assess and “bring in” non-notified transactions. In 2022, filings were requested for 19 non-notified transactions. (Although this is more than twice the number of transactions called in for calendar year 2021, neither number begins to reach the number of cases reportedly reviewed by CFIUS. In this regard, it is important to note that transactions that are not reviewed and cleared are subject to review in perpetuity.)
- In 2022, for the first time in its decades-long history, CFIUS issued penalty guidelines for non-compliance, an action that agencies often take when they intend to step up enforcement activity. [2] So far in 2023, CFIUS has issued two civil monetary penalties, and have several more pending at various stages. Rosen stated, “We are on track to have more civil monetary penalties issued this year than we have in our entire history.”
- Within the year, Treasury intends to begin rulemaking to: (1) allow for increased efficiency and effectiveness in case processing, (2) update penalty and enforcement authorities, (3) enhance tools to police non-notified transactions, and (4) ensure that CFIUS’s tools and processes are best aligned to the current commercial landscape. We will be monitoring these developments and report as appropriate.
Assistant Secretary Rosen concluded by noting the importance of obtaining and utilizing sophisticated representation in CFIUS reviews. Specifically, he remarked, “The Committee very much values the working relationship we have with companies and firms who file with the Committee and their counsel.”
As we have noted before, not all matters are candidates for CFIUS filings. Please contact our office if you have any questions about whether a particular transaction is subject to CFIUS jurisdiction and/or merits formal review.
[1] See Stroock & Stroock & Lavan LLP: “Now the Hard Work Begins: Treasury Invites Comments on Regulating U.S. Investment in China,” August 16, 2023, available at: https://www.stroock.com/news-and-insights/now-the-hard-work-begins-treasury-invites-comments-on-regulating-u-s-investment-in-china.
[2] See October 20, 2022 release, available at: https://home.treasury.gov/policy-issues/international/the-committee-on-foreign-investment-in-the-united-states-cfius/cfius-enforcement-and-penalty-guidelines.
September 18, 2023
Client Alert
By: Gregory Jaeger, Andrew J. Astuno
The Committee on Foreign Investment in the United States (“CFIUS”) hosted its second annual conference for practitioners on September 14, providing a rare opportunity to observe an open discussion among senior government officials concerning the latest and most significant developments affecting CFIUS. Chris Griner, Chair of Stroock’s National Security/CFIUS/Compliance Practice Group, was in attendance.
Assistant Secretary for Investment Security Paul Rosen spoke at lunch. Only a day earlier, Rosen testified before the House Financial Services Committee and defended the recent Executive Order issued by President Biden regulating U.S. outbound investments into China.[1] Responding to criticism that the Executive Order merely mirrors existing Office of Foreign Assets Control authorities, he argued that the regulatory initiative will be a separate and singular “notification and prohibition regime” for finding potential threats “before they're on an export control list, before they're on a sanctions list.”
At the luncheon, Rosen offered some important guidance to transaction parties appearing before CFIUS:
- CFIUS is committed to fully examine transaction structures and ownership (including investment agreements or arrangements involving limited partners, and – in turn - those partners’ shareholders). CFIUS review will extend to confidential side letters and other confidential investment agreements.
- CFIUS will file an “Agency Notice” when parties refuse to file or cooperate with the Committee – meaning the government will undertake an involuntary review of the relevant transaction and its parties if it deems necessary.
- Mitigation agreements are increasingly common. Parties can expect “more compliance checks, questions, and site-visits.” CFIUS is vetting and retaining more experienced third-party monitors to ensure compliance.
- CFIUS continues to add resources to assess and “bring in” non-notified transactions. In 2022, filings were requested for 19 non-notified transactions. (Although this is more than twice the number of transactions called in for calendar year 2021, neither number begins to reach the number of cases reportedly reviewed by CFIUS. In this regard, it is important to note that transactions that are not reviewed and cleared are subject to review in perpetuity.)
- In 2022, for the first time in its decades-long history, CFIUS issued penalty guidelines for non-compliance, an action that agencies often take when they intend to step up enforcement activity. [2] So far in 2023, CFIUS has issued two civil monetary penalties, and have several more pending at various stages. Rosen stated, “We are on track to have more civil monetary penalties issued this year than we have in our entire history.”
- Within the year, Treasury intends to begin rulemaking to: (1) allow for increased efficiency and effectiveness in case processing, (2) update penalty and enforcement authorities, (3) enhance tools to police non-notified transactions, and (4) ensure that CFIUS’s tools and processes are best aligned to the current commercial landscape. We will be monitoring these developments and report as appropriate.
Assistant Secretary Rosen concluded by noting the importance of obtaining and utilizing sophisticated representation in CFIUS reviews. Specifically, he remarked, “The Committee very much values the working relationship we have with companies and firms who file with the Committee and their counsel.”
As we have noted before, not all matters are candidates for CFIUS filings. Please contact our office if you have any questions about whether a particular transaction is subject to CFIUS jurisdiction and/or merits formal review.
[1] See Stroock & Stroock & Lavan LLP: “Now the Hard Work Begins: Treasury Invites Comments on Regulating U.S. Investment in China,” August 16, 2023, available at: https://www.stroock.com/news-and-insights/now-the-hard-work-begins-treasury-invites-comments-on-regulating-u-s-investment-in-china.
[2] See October 20, 2022 release, available at: https://home.treasury.gov/policy-issues/international/the-committee-on-foreign-investment-in-the-united-states-cfius/cfius-enforcement-and-penalty-guidelines.
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