Proposed Rule2024-07693
Amendments to Penalty Provisions, Provision of Information, Negotiation of Mitigation Agreements, and Other Procedures Pertaining to Certain Investments in the United States by Foreign Persons and Certain Transactions by Foreign Persons Involving Real Estate in the United States
Primary source
Metadata and text below are from the Federal Register, a public-domain U.S. government work. Always verify the official published version before relying on it for any legal matter.
Published
April 15, 2024
Issuing agencies
Treasury DepartmentInvestment Security Office
Abstract
This proposed rule would modify certain provisions in the regulations of the Committee on Foreign Investment in the United States (CFIUS) pertaining to penalties for violations of statutory or regulatory provisions or agreements, conditions, or orders issued pursuant thereto; negotiation of mitigation agreements; requests for information by CFIUS; and certain other procedures.
Full Text
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<title>Federal Register, Volume 89 Issue 73 (Monday, April 15, 2024)</title>
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[Federal Register Volume 89, Number 73 (Monday, April 15, 2024)]
[Proposed Rules]
[Pages 26107-26114]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2024-07693]
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DEPARTMENT OF THE TREASURY
Office of Investment Security
31 CFR Parts 800 and 802
[Docket ID TREAS-DO-2024-0005]
RIN 1505-AC85
Amendments to Penalty Provisions, Provision of Information,
Negotiation of Mitigation Agreements, and Other Procedures Pertaining
to Certain Investments in the United States by Foreign Persons and
Certain Transactions by Foreign Persons Involving Real Estate in the
United States
AGENCY: Office of Investment Security, Department of the Treasury.
ACTION: Proposed rule.
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SUMMARY: This proposed rule would modify certain provisions in the
regulations of the Committee on Foreign Investment in the United States
(CFIUS) pertaining to penalties for violations of statutory or
regulatory provisions or agreements, conditions, or orders issued
pursuant thereto; negotiation of mitigation agreements; requests for
information by CFIUS; and certain other procedures.
DATES: Written comments must be received by May 15, 2024.
ADDRESSES: Written comments may be submitted through one of two
methods:
<bullet> Electronic Submission: Comments may be submitted
electronically through the Federal government eRulemaking portal at
<a href="https://www.regulations.gov">https://www.regulations.gov</a>.
Electronic submission of comments allows the commenter maximum time
to prepare and submit a comment, ensures timely receipt, and enables
the Treasury Department to make the comments available to the public.
<bullet> Mail: Send to U.S. Department of the Treasury, Attention:
Meena R. Sharma, Director, Office of Investment Security Policy and
International Relations, 1500 Pennsylvania Avenue NW, Washington, DC
20220.
We encourage comments to be submitted via <a href="https://www.regulations.gov">https://www.regulations.gov</a>. Please submit comments only and include your name
and company name (if any) and cite ``Amendments to Penalty Provisions,
Provision of Information, Negotiation of Mitigation Agreements, and
Other Procedures Pertaining to Certain Investments in the United States
by Foreign Persons and Certain Transactions by Foreign Persons
Involving Real Estate in the United States'' in all correspondence. In
general, the Treasury Department will post all comments to <a href="https://www.regulations.gov">https://www.regulations.gov</a> without change, including any business or personal
information provided, such as names, addresses, email addresses, or
telephone numbers. All comments received, including attachments and
other supporting material, will be part of the public record and
subject to public disclosure. You should only submit information that
you wish to make publicly available.
FOR FURTHER INFORMATION CONTACT: Meena R. Sharma, Director, Office of
Investment Security Policy and International Relations at U.S.
Department of the Treasury, 1500 Pennsylvania Avenue NW, Washington, DC
20220; telephone: (202) 622-3425; email:
<a href="/cdn-cgi/l/email-protection#6724212e323449350200120b06130e08091427131502061412151e49000811"><span class="__cf_email__" data-cfemail="1754515e424439457270627b76637e78796457636572766462656e39707861">[email protected]</span></a>.
SUPPLEMENTARY INFORMATION:
I. Background
The regulations at parts 800 and 802 to title 31 of the Code of
Federal Regulations (part 800 and part 802, respectively) implement the
provisions of section 721 of the Defense Production Act of 1950, as
amended, which is codified at 50 U.S.C. 4565 (section 721) and which
establishes the authorities of the Committee on Foreign Investment in
the United States (CFIUS or the Committee). Section 721 authorizes the
President or his designee (i.e., CFIUS) to review mergers,
acquisitions, and takeovers by or with any foreign person that could
result in foreign control of any U.S. business, certain noncontrolling
investments by foreign persons in a subset of U.S. businesses, as well
as certain real estate transactions involving foreign persons. When in
the course of its review CFIUS identifies a national security risk that
arises as a result of a transaction within its jurisdiction (referred
to in the regulations as a ``covered transaction'' or, in appropriate
cases, a ``covered real estate transaction''), it is authorized to
negotiate and enter into agreements with the transaction parties or
impose conditions on the transaction parties to mitigate the risk, and
it is authorized to enforce those agreements and conditions. This
proposed rule includes several amendments to enhance the Committee's
identification and resolution of national security risks as well as
CFIUS actions in response to violations.
Among other things, the regulations at parts 800 and 802 include
provisions that govern CFIUS's requests for information from
transaction parties and other persons and their responses to those
requests. For example, where CFIUS is aware of a transaction that the
parties have not notified or declared to CFIUS, the Committee may
request information to determine whether the transaction is a covered
transaction. To help CFIUS mitigate risks to U.S. national security and
ensure compliance with section 721 and its implementing regulations,
this proposed rule sets forth amendments that would expand the
categories of information the Committee may request from transaction
parties and others. The proposed rule would also enhance the
Committee's ability to communicate with parties in other contexts to
include requirements to provide information for monitoring compliance
with applicable obligations and determining whether a violation of such
obligations has occurred.
The proposed rule also includes provisions pertaining to the
negotiation of agreements to mitigate national security risk. Section
721(l)(3) authorizes the Committee, or a lead agency on behalf of the
Committee, to negotiate and enter into an agreement with a party to a
covered transaction in order to mitigate any national security risk
that arises as a result of the covered transaction. The current
regulations contain no provision establishing a time frame within which
parties must respond to a Committee proposal or revision of terms to
mitigate identified national security risks, and the Committee often
exchanges multiple drafts with transaction parties during negotiation
of a mitigation agreement. This proposed rule would include a provision
ordinarily requiring transaction parties to respond to mitigation
agreement drafts within a specified number of days.
A final subject addressed in this proposed rule is the maximum
penalty amount that CFIUS may impose on a party for violating section
721 or the implementing regulations, including agreements entered into
and conditions and orders imposed pursuant thereto, and the
availability of such penalties outside the context of a declaration or
notice. The regulations provide for penalties to be imposed in the
following situations: (a) submitting a declaration or notice with a
material misstatement or omission, or making a false certification; (b)
failing to submit a timely declaration in the certain circumstances in
which submission is mandatory; and (c) violating a material provision
of a mitigation agreement, material condition imposed, or order issued.
In each case, the amount of the penalty imposed is based on the nature
of the violation. Currently, violations can result in a civil monetary
penalty not to exceed $250,000 per violation, or, in certain instances,
the greater of
[[Page 26108]]
$250,000 or the value of the transaction. This rule would amend the
regulations by increasing the maximum penalty amount for situations
where it is appropriate, allow the Committee to impose penalties for
material misstatements or omissions in certain information submitted to
the Committee outside of the submission of a declaration or notice, and
extend the time frames related to a petition for reconsideration of a
penalty.
II. Discussion of the Rule
A. Requesting Information and Requiring a Response for Transactions for
Which No Notice or Declaration Was Submitted, for Compliance
Monitoring, and for Determining Whether a Violation of Applicable
Obligations Has Occurred
Section 721(b)(1)(H) directs the Committee to establish a process
to identify covered transactions for which no notice or declaration has
been submitted to the Committee (each such transaction referred to
hereafter as a ``non-notified transaction''). A different provision of
the Defense Production Act of 1950 (section 705), which applies to the
Defense Production Act in its entirety, entitles the President ``by
regulation, subpoena, or otherwise, to obtain such information from . .
. any person as may be necessary or appropriate, in his discretion, to
the enforcement or administration of [the Defense Production Act of
1950] and the regulations or orders issued thereunder.'' Section 705
further requires the President to ``issue regulations insuring [sic]
that the authority of [subsection (a) of section 705] will be utilized
only after the scope and purpose of the investigation, inspection, or
inquiry to be made have been defined by competent authority, and it is
assured that no adequate and authoritative data are available from any
Federal or other responsible agency.''
In furtherance of the direction in section 721(b)(1)(H) and in
accordance with the authority in section 705, the regulations at
sections 800.501(b) and 802.501(b) provide that the Staff Chairperson,
acting on the recommendation of the Committee, may request the parties
to a non-notified transaction to provide to the Committee information
necessary to determine whether the transaction is a ``covered
transaction'' or a ``covered real estate transaction.'' Sections
800.801(a) and 802.801(a) of the regulations address parties'
obligations to respond to such requests as well as certain other
requests for information.
While the foregoing provisions contemplate requests related to a
transaction's potential status as ``covered'' (i.e., subject to the
jurisdiction of the Committee), they do not specifically address other
types of information requests. For example, they do not expressly
address requests for information that would enable the Committee to
determine whether a transaction meets the criteria for a mandatory
declaration under section 800.401, nor do they expressly address
requests for information that would enable the Committee to determine
whether a transaction may raise national security considerations. The
proposed rule would amend sections 800.501(b) and 802.501(b) by
expressly providing that the Staff Chairperson, acting on the
recommendation of the Committee, may request information from
transaction parties and other persons related to 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 proposed rule
would make corresponding amendments to sections 800.801 and 802.801,
requiring transaction parties and other persons to respond to such
requests for information. As required by section 705, these amendments
would define the scope and purpose of the investigation, inspection, or
inquiry to be made by CFIUS so as to allow CFIUS to obtain relevant
information.
Gathering information of the kind contemplated by the proposed
amendments would allow the Committee to prioritize transactions that
parties were required to submit under section 800.401 or that, in its
view, otherwise warrant formal review. When the Committee is able to
engage in preliminary fact-finding relevant to potential national
security considerations prior to receiving a formal notice, the
information it receives can inform the decision of whether and when to
request the submission of a notice. In the event the Committee does
request that the transaction parties file a notice, the Committee
encourages the parties to submit the notice promptly so that the
Committee can undertake its national security review. In the absence of
a filing, CFIUS will consider all available options to protect national
security, including initiating a review based on an agency notice as
provided for in section 800.501(c). For the avoidance of doubt, the
Committee does not intend to use its authority to obtain information
related to risk as a substitute for a review or an investigation, but
rather for the purpose of preventing unnecessary filings and increasing
efficiency in connection with filings for transactions that may present
an extant risk, benefitting both the transaction parties and national
security. A similar efficiency would be gained by being able to request
and require the submission of information that would enable the
Committee to determine whether a non-notified transaction was one that
should have been notified pursuant to the provision on mandatory
declarations in section 800.401 of the regulations.
The proposed rule would further amend sections 800.801(a) and
802.801(a) to require parties to provide information to the Committee
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 had made a
material misstatement or omitted material information during the course
of a previously concluded review or investigation (including a review
or investigation that ended with rejection of the parties' notice). The
Committee currently requests information in both circumstances, but the
regulations do not expressly obligate parties to respond. Under the
proposed amendments, parties would be obligated to respond to such
requests, failing which the Committee may seek to compel responses
through issuance of a subpoena, as provided for in section 705.
Finally, the last sentence of sections 800.801(a) and 802.801(a) of
the regulations states that ``[i]f deemed necessary by the Committee,
information may be obtained from parties to a transaction or other
persons through subpoena or otherwise . . . '' (emphasis added). The
proposed rule would amend this provision to state that if deemed
appropriate by the Committee, the Staff Chairperson may issue a
subpoena to obtain information. Requiring the Committee to determine
the appropriateness of a subpoena, rather than the necessity, is in
alignment with the criteria of section 705, which states that the
subpoena authority may be used only after the scope and purpose have
been defined by competent authority and assurance has been obtained
that no adequate and authoritative data are available from any Federal
or other responsible agency. The Department of the Treasury expects
that this change, and the explicit assignment
[[Page 26109]]
of this function to the Staff Chairperson, will enhance operational
efficiency.
B. Time Frame for Responding to Proposed Mitigation Terms
In order for the Committee to complete an investigation of a
transaction within the time prescribed by statute (i.e., 45 days), it
is incumbent upon parties to respond to Committee proposals of terms to
mitigate identified national security risks in a timely manner, where
relevant. However, parts 800 and 802 currently do not require
transaction parties to respond within a specific time frame. By
contrast, 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, and this greatly facilitates the Committee's ability to
complete its work within the statutory time frames. The absence of such
a requirement in connection with proposed mitigation terms can
sometimes result in a protracted process where parties may take longer
than is reasonable to respond to the Committee's proposed terms. This
is particularly the case with regard to reviews of closed transactions,
in which timing is critical for the Committee when it has identified an
extant risk to national security, but parties may be less motivated to
respond promptly given the absence of an impending closing date. In
some cases, parties' delayed responses impede the Committee's ability
to fulfill its statutory obligation to complete an investigation in 45
days and may result in parties opting to withdraw and refile their
notice, restarting the statutory clock, in order to allow sufficient
time to reach agreement on mitigation terms. The proposed rule would
amend the regulations to specify a three business day period for
substantive party responses to proposed 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. The Committee expects a substantive response to consist of
acceptance of the terms, a counterproposal, or a detailed statement of
reasons that the party or parties cannot comply with the proposed
terms, which may also include a counterproposal. The regulations as
amended by this proposal would be similar to the time frame in which
parties are required to respond to follow-up information requests under
sections 800.504(a)(4) and 802.504(a)(4).
The Committee anticipates that parties will seek extensions in
certain instances including but not limited to initial mitigation
proposals and in instances where the proposed risk mitigation is
complex and additional time is needed to consult with the transaction
parties. The Staff Chairperson may grant reasonable extension requests
on a case-by-case basis, as appropriate and taking into account views
of the Committee and factors such as the statutory time remaining for
the case and whether the transaction has been filed before closing. The
proposed rule would further provide that if the parties fail to respond
within the time frame specified, the Committee, acting through the
Staff Chairperson, may reject the notice, which mirrors the current
practice for missed deadlines in responding to requests for follow-up
information for a case in review or investigation. See 31 CFR
800.504(a)(4) and 31 CFR 802.504(a)(4).
C. Civil Monetary Penalties
Sections 800.901(a) and 802.901(a) of the regulations set the
penalty amount for the submission of 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. Section
800.901(b) sets the penalty for failure to comply with the requirements
in section 800.401 pertaining to ``mandatory declarations'' at a
maximum of $250,000 or the value of the transaction, whichever is
greater, per violation. (There is no counterpart to the mandatory
declaration provision in part 802, pertaining to real estate
transactions.) Sections 800.901(c) and 802.901(b) set the penalty for
violations of material provisions of mitigation agreements, material
conditions imposed by the Committee, or orders issued by the Committee
at a maximum of $250,000 or the value of the transaction, whichever is
greater, per violation. The current maximum penalty amounts provided
for in sections 800.901 and 802.901 are not specified in statute and
were developed over 15 years ago. This proposed rule would increase the
maximum penalty amount 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, as discussed below,
the value of the party's interest in the U.S. business at the time of
the violation or time of the transaction) per violation under sections
800.901(c) and 802.901(b). The Committee 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. These changes would apply to violations that
occur on or after the effective date of the final rule making the
amendments with respect to sections 800.901(a) and (b) and 802.901(a).
With respect to sections 800.901(c) and 802.901(b), the changes would
apply to mitigation agreements entered into, conditions imposed, and
orders issued on or after the effective date of the final rule making
the amendments.
The Committee assesses that the current penalty maximum of $250,000
(or the greater of $250,000 or the value of the transaction) may not
sufficiently deter or penalize certain violations. For context, from
2013 to 2022, the median value of covered transactions filed with CFIUS
pursuant to a joint voluntary notice was $170 million, with numerous
transactions valued in the billions. For covered transaction
declarations filed from 2018 (when declarations became an available
format for submission) to 2022, the median value was over $38 million.
Furthermore, under the definition of ``transaction'' in sections
800.249 and 802.237, covered transactions involving businesses with
valuations in the billions of dollars or with substantial liquidity
might still be purported to be valued at zero dollars. This
circumstance is due in part to the various forms a ``transaction'' may
take under sections 800.249 and 802.237, which include an acquisition,
or takeover including the acquisition of an ownership interest, the
acquisition of a voting interest, a merger consolidation, or the
formation of a joint venture; a long-term lease or concession
arrangement; an investment; or the conversion of contingent equity
interest. If a transaction has a low value (or a valuation of zero
dollars), then the value of the transaction becomes irrelevant for
penalty purposes, and the maximum penalty becomes $250,000 per
violation, which the Committee has determined may be an insufficient
deterrent or penalty. A higher maximum penalty stated as an absolute
dollar amount is therefore needed. As is the case under the current
regulations, the maximum would not necessarily be imposed, but may be
appropriate depending on the facts and circumstances including any
aggravating or mitigating factors as described in the Committee's
Enforcement and Penalty Guidelines (see 87 FR 66220) available on the
CFIUS web page of the Department of the Treasury's website.
In the case of sections 800.901(c) and 802.901(b) (pertaining to
violations of mitigation agreements or conditions),
[[Page 26110]]
the proposed rule would further allow for the maximum penalty to be
determined by reference to a person's interest in a U.S. business at
the time of the violation or the transaction (which, in certain cases,
could be greater than the value of the transaction). Thus, the maximum
penalty for a violation of material provisions of mitigation
agreements, material conditions imposed by the Committee, or orders
issued by the Committee would be the greatest, per violation, of (i)
$5,000,000, (ii) the value of the violating party's interest in the
U.S. business (or covered real estate) at the time of the transaction,
(iii) the value of the violating party'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. 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 $5,000,000.
Separately, the proposed rule would expand the list of
circumstances in which a penalty may be imposed under sections
800.901(a) and 802.901(a) respectively. 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 the Committee's requests for information related to non-notified
transactions, certain responses to the Committee's requests for
information related to monitoring or enforcing compliance, and other
responses to the Committee's requests for information, such as for
agency notices, as described in sections 800.901(a)(2) and
802.901(a)(2). Penalties of this nature are not intended to apply to
every material misstatement or omission in a communication between
parties and the Committee related to monitoring compliance with an
agreement, condition, or order entered into pursuant to section 721 and
these regulations. (In any event, there are criminal penalties for
making false statements to the government under 18 U.S.C. 1001.)
Pursuant to sections 800.901(a)(2) and 802.901(a)(2), the Committee
will notify parties in writing when parties' response to a particular
communication may be subject to a penalty under section 721 and these
regulations due to a material misstatement or omission. The Committee
anticipates such communications to 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. The majority of the Committee's communications with
transaction parties subject to a mitigation agreement or condition will
not be subject to section 800.901(a)(2) or 802.901(a)(2).
For 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's
discretion to determine the appropriate penalty in individual cases,
similar to other Federal enforcement regimes. In exercising this
discretion, the Committee will continue to take into account the
specific facts and circumstances of the violation and relevant
aggravating and mitigating factors as identified in the Committee's
Enforcement and Penalty Guidelines (see 87 FR 66220) available on the
CFIUS web page of the Department of the Treasury's website.
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 the Committee. Similarly, the Committee 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 Committee routinely grants extensions for penalty petitions, and
the Committee's experience is that extending both time frames will
facilitate the review of the penalty to be imposed. Consistent with the
current regulations, persons subject to a penalty may continue to
request extensions for submitting a petition for reconsideration. The
Staff Chairperson may also extend the time frames due to compelling
circumstances.
III. Rulemaking Requirements
Executive Order 12866
This rule is not subject to the general requirements of Executive
Order 12866, as amended, which covers review of regulations by the
Office of Information and Regulatory Affairs in the Office of
Management and Budget (OMB), because it relates to a foreign affairs
function of the United States, pursuant to section 3(d)(2) of that
order. In addition, this rule is not subject to review under section
6(b) of Executive Order 12866 pursuant to section 1(d) of the June 9,
2023, Memorandum of Agreement between the Treasury Department and OMB,
which states that CFIUS regulations are not subject to OMB's standard
centralized review process under Executive Order 12866.
Paperwork Reduction Act
The collection of information contained in this rule has been
previously submitted to the Office of Management and Budget (OMB) for
review in accordance with the Paperwork Reduction Act of 1995 (44
U.S.C. 3507(d)), and approved under OMB Control Number 1505-0121. An
agency may not conduct or sponsor and a person is not required to
respond to a collection of information unless it displays a valid OMB
Control Number.
Regulatory Flexibility Act
The Regulatory Flexibility Act (RFA) (5 U.S.C. 601 et seq.)
generally requires an agency to prepare a regulatory flexibility
analysis, unless the agency certifies that the rule will not, once
implemented, have a significant economic impact on a substantial number
of small entities. The RFA applies whenever an agency is required to
publish a general notice of proposed rulemaking under section 553(b) of
the Administrative Procedure Act (APA) (5 U.S.C. 553), or any other
law. As set forth below, because regulations issued pursuant to the
Defense Production Act of 1950, as amended (the Defense Production Act
of 1950), such as these regulations, are not subject to the rulemaking
requirements of the APA or other law requiring the publication of a
general notice of proposed rulemaking, the RFA does not apply.
The proposed rule makes amendments to the regulations implementing
section 721 of the Defense Production Act of 1950. Section 709(a) of
the Defense Production Act of 1950 provides that the regulations issued
under it are not subject to the rulemaking requirements of the APA.
Section 709(b)(1) instead provides that any regulation issued under the
Defense Production Act of 1950 be published in the Federal Register and
opportunity for public comment be provided for not less than 30 days.
Section 709(b)(3) of the Defense Production Act of 1950 also provides
that all comments received during the public comment period be
considered and the publication of the final regulation contain written
responses to such comments. Consistent with the plain text of the
Defense Production Act of 1950, legislative history confirms that
Congress intended
[[Page 26111]]
that regulations under the Defense Production Act of 1950 be exempt
from the notice and comment provisions of the APA and instead provided
that the agency include a statement that interested parties were
consulted in the formulation of the final regulation. See H.R. Conf.
Rep. No. 102-1028, at 42 (1992) and H.R. Rep. No. 102-208 pt. 1, at 28
(1991). The limited public participation procedures described in the
Defense Production Act of 1950 do not require a general notice of
proposed rulemaking as set forth in the RFA. Further, the mechanisms
for publication and public participation are sufficiently different to
distinguish the Defense Production Act of 1950's procedures from a rule
that requires a general notice of proposed rulemaking. In providing the
President with authority to suspend or prohibit the acquisition,
merger, or takeover of, or certain other investments in, a U.S.
business by a foreign person, and certain real estate transactions
involving foreign persons, if such a transaction would threaten to
impair the national security of the United States, Congress could not
have contemplated that regulations implementing such authority would be
subject to RFA analysis. For these reasons, the RFA does not apply to
these regulations.
Notwithstanding the foregoing, available data do not suggest that
the proposed rule, if implemented, would have a significant economic
impact on a substantial number of small entities. The proposed rule
would modify certain provisions pertaining to penalties for violations,
negotiation of mitigation agreements, requests for information by
CFIUS, and certain other procedures. The proposed rule would not impose
any new filing requirements on U.S. businesses, including small
businesses, that receive foreign investment subject to CFIUS's
jurisdiction.
The proposed rule expands the categories of information the
Committee may request from transaction parties and others in connection
with transactions that have not been notified or declared to include
whether a transaction meets the criteria for a mandatory declaration
and information that would enable the Committee to determine whether a
transaction may raise national security considerations. This proposed
change would not have a significant economic impact on a substantial
number of small entities for two reasons. First, the instances in which
the Committee requests this information are limited and, on average,
occur less than one hundred times in a year. Additionally, the volume
of overall non-notified transactions put forward to the Committee for
consideration may decrease as CFIUS works through its consideration of
transactions that pre-date the Committee's current, increased level of
resources. Second, even if some of these transactions may involve U.S.
businesses that qualify as small entities, the Department of the
Treasury does not anticipate that expanding information requests for
non-notified transactions will have a significant impact on the burden
hours for a party response. In instances of mandatory filing
requirements, transaction parties should be conducting this analysis
regardless of whether the Department of the Treasury reaches out.
With regard to information requests for the purposes of monitoring
compliance, the proposed rule would not create any new reporting
requirements. Rather, the rule would clarify that parties are obligated
under the regulations to provide information pertaining to the
monitoring of a mitigation agreement, condition, or order and may be
penalized for a material misstatement or omission in specified
circumstances. Under the current regulations, CFIUS can penalize
parties for submitting a declaration or notice with a material
misstatement or omission. The amendment put forth is consistent with
penalties already authorized under the current regulations.
As discussed above, the proposed rule would include a provision
ordinarily requiring transaction parties to respond to national
security risk mitigation proposals within three business days. The
Committee anticipates that parties would seek extensions in certain
instances and the Committee may grant reasonable extension requests on
a case-by-case basis, as appropriate. In recent years, the volume of
transactions before the Committee has been below 500 annually; only a
portion of these are subject to mitigation, and of those, many do not
involve small entities. Thus, this change will not have a significant
economic impact on a substantial number of small entities.
The proposed rule would increase the civil monetary penalty maximum
from $250,000 to $5,000,000 for certain violations and would expand the
scope of circumstances in which a penalty may be imposed. The maximum
penalty for a violation of material provisions of mitigation
agreements, material conditions imposed by the Committee, or orders
issued by the Committee would be the greatest, per violation, of (i)
$5,000,000, (ii) the value of the violating party's interest in the
U.S. business (or covered real estate) at the time of the transaction,
(iii) the value of the violating party's interest in the U.S. business
(or covered real estate) at the time of the violation, or (iv) the
value of the transaction. In assessing the penalty amount, as noted
above, the Committee has discretion to determine the appropriate
penalty in individual cases which in many instances may be lower than
the maximum allowed. In exercising this discretion, the Committee will
continue to take into account the specific facts and circumstances of
the violation including relevant aggravating and mitigating factors.
Given the approach to determining the monetary penalty and the limited
number of enforcement actions as compared to the number of transactions
reviewed by the Committee each year, this proposed change will not have
a significant economic impact on a substantial number of small
entities.
While the Department of the Treasury believes that the proposed
rule likely would not have a ``significant economic impact on a
substantial number of small entities'' (5 U.S.C. 605(b)), the
Department of the Treasury invites comments on the potential impacts of
this rule on small entities.
List of Subjects
31 CFR Part 800
Foreign investments in the U.S., Investment companies, Investments,
Penalties, Reporting and recordkeeping requirements.
31 CFR Part 802
Foreign investments in the U.S., Investment companies, Investments,
Land sales, National defense, Penalties, Public lands, Real property
acquisition, Reporting and recordkeeping requirements.
For the reasons set forth in the preamble, the Department of the
Treasury proposes to amend 31 CFR parts 800 and 802 as follows:
PART 800--REGULATIONS PERTAINING TO CERTAIN INVESTMENTS IN THE
UNITED STATES BY FOREIGN PERSONS
0
1. The authority citation for part 800 continues to read as follows:
Authority: 50 U.S.C. 4565; E.O. 11858, as amended, 73 FR 4677.
0
2. Amend Sec. 800.501 by revising paragraph (b) to read as follows:
Sec. 800.501 Procedures for notices.
* * * * *
(b)(1) If the Committee determines that a transaction for which no
voluntary notice or declaration has been submitted under this part, and
with
[[Page 26112]]
respect to which the Committee has not informed the parties in writing
that the Committee has concluded all action under section 721, may be a
covered transaction and may raise national security considerations, the
Staff Chairperson, acting on the recommendation of the Committee, may
request the parties to the transaction or other persons to provide to
the Committee information necessary to determine whether the
transaction is a covered transaction, whether the transaction may raise
national security considerations, or, as appropriate, whether the
transaction is a transaction for which a submission is or was required
under Sec. 800.401.
(2) If the Committee determines that a transaction referred to
under paragraph (b)(1) of this section is a covered transaction and may
raise national security considerations, the Staff Chairperson, acting
on the recommendation of the Committee, may request the parties to file
a notice of such covered transaction under paragraph (a) of this
section.
* * * * *
0
3. Amend Sec. 800.504 by:
0
a. In paragraph (a)(3), removing the period at the end of the section
and adding a semicolon in its place;
0
b. In paragraph (a)(4), removing ``or'' at the end of the paragraph;
0
c. In paragraph (a)(5), removing the period at the end of the paragraph
and adding ``; or'' in its place; and
0
d. Adding paragraph (a)(6).
The addition reads as follows:
Sec. 800.504 Deferral, rejection, or disposition of certain voluntary
notices.
(a) * * *
(6) Reject any voluntary notice at any time after the notice has
been accepted, and so inform the parties promptly in writing, if the
Committee has proposed risk mitigation terms, including revisions to
such terms, to the party or parties that submitted the notice and the
party or parties have failed to substantively respond to such terms
within three business days of the proposal, or within a longer time
frame if the parties so request in writing and the Staff Chairperson
grants that request in writing.
* * * * *
0
4. Amend Sec. 800.801 by revising paragraph (a) to read as follows:
Sec. 800.801 Obligation of parties or other persons to provide
information.
(a) This paragraph (a) sets forth requirements for parties to a
transaction or other persons to provide information to the Staff
Chairperson or requesting lead agency in the circumstances specified in
paragraphs (a)(1) through (6) of this section.
(1) Parties to a transaction that is notified or declared under
subpart D or E of this part shall provide information to the Staff
Chairperson that will enable the Committee to conduct a full
assessment, review, and/or investigation of the transaction.
(2) For a transaction for which no voluntary notice or declaration
has been submitted and for which the Staff Chairperson has requested
information as provided for in Sec. 800.501(b), parties to the
transaction or other persons shall provide information to the Staff
Chairperson that will enable the Committee to determine:
(i) Whether the transaction is a covered transaction;
(ii) Whether the transaction may raise national security
considerations; or
(iii) As appropriate, whether the transaction is a transaction for
which a submission is or was required under Sec. 800.401.
(3) Independent of any obligations under an agreement, condition,
or order authorized under section 721(l), parties shall provide
information to the Staff Chairperson or the requesting lead agency so
as to enable the Committee to assess compliance with section 721 and
the regulations in this part or to monitor compliance with, enforce or
modify the terms of, or decide to terminate any agreement, condition,
or order.
(4) Any person that has submitted information to the Committee
shall respond to requests from the Staff Chairperson for information to
enable the Committee to determine whether the person made any material
misstatement or omitted material information from any such submission.
(5) Parties to a transaction that have filed information with the
Committee shall promptly advise the Staff Chairperson of any material
changes to such information.
(6) If deemed appropriate by the Committee, the Staff Chairperson
may obtain information from parties to a transaction or other persons
through subpoena or otherwise, under the Defense Production Act, as
amended (50 U.S.C. 4555(a)).
* * * * *
0
5. Amend Sec. 800.901 by:
0
a. Revising paragraph (a);
0
b. In paragraph (b), removing ``$250,000'' and adding in its place
``$5,000,000''; and
0
c. Revising paragraphs (c) and (f).
The revisions read as follows:
Sec. 800.901 Penalties and damages.
(a)(1) Any person who submits a declaration or notice with a
material misstatement or omission or makes a false certification under
Sec. 800.404, Sec. 800.405, or Sec. 800.502 may be liable to the
United States for a civil penalty not to exceed $5,000,000 per
violation.
(2) Any person who, in response to a request from the Staff
Chairperson or a lead agency, submits to the Committee any information
pursuant to Sec. 800.801(a)(2), (3), or (4) or (c) with a material
misstatement or omission may be liable to the United States for a civil
penalty not to exceed $5,000,000 per violation. This paragraph (a)(2)
shall apply only with respect to responses to requests that were made
in writing, specified a time frame for response, and indicated the
applicability of this paragraph (a).
(3) The amount of the penalty imposed for a violation as provided
for in this paragraph (a) shall be based on the nature of the
violation.
* * * * *
(c)(1) Any person who, after December 22, 2008, violates,
intentionally or through gross negligence, a material provision of a
mitigation agreement entered into before October 11, 2018, with, a
material condition imposed before October 11, 2018, by, or an order
issued before October 11, 2018, by, the United States under section
721(l) may be liable to the United States for a civil penalty not to
exceed $250,000 per violation or the value of the transaction,
whichever is greater. For clarification, under the previous sentence,
whichever penalty amount is greater may be imposed per violation, and
the amount of the penalty imposed for a violation shall be based on the
nature of the violation.
(2) Any person who violates a material provision of a mitigation
agreement entered into on or after October 11, 2018, and before
[EFFECTIVE DATE OF FINAL RULE], with, a material condition imposed on
or after October 11, 2018, and before [EFFECTIVE DATE OF FINAL RULE],
by, or an order issued on or after October 11, 2018, and before
[EFFECTIVE DATE OF FINAL RULE], by, the United States under section
721(l) may be liable to the United States for a civil penalty per
violation not to exceed $250,000 or the value of the transaction,
whichever is greater. For clarification, under the previous sentence,
whichever penalty amount is greater may be imposed per violation, and
the amount of the penalty imposed for a violation shall be based on the
nature of the violation.
(3)(i) Any person who violates a material provision of a mitigation
agreement entered into on or after
[[Page 26113]]
[EFFECTIVE DATE OF FINAL RULE], with, a material condition imposed on
or after [EFFECTIVE DATE OF FINAL RULE], by, or an order issued on or
after [EFFECTIVE DATE OF FINAL RULE], by, the United States under
section 721(l) may be liable to the United States for a civil penalty
per violation not to exceed the greatest of:
(A) $5,000,000;
(B) The value of the person's interest in the U.S. business (or, as
applicable, the parent of the U.S. business) at the time of the
transaction;
(C) The value of the person's interest in the U.S. business (or, as
applicable, the parent of the U.S. business) at the time of the
violation in question or the most proximate time to the violation for
which assessing such value is practicable; or
(D) The value of the transaction filed with the Committee.
(ii) For clarification, under paragraphs (c)(3)(i)(A) through (D)
of this section, whichever penalty amount is greatest may be imposed
per violation, and the amount of the penalty imposed for a violation
shall be based on the nature of the violation.
* * * * *
(f) Upon receiving notice of a penalty to be imposed under
paragraphs (a) through (c) of this section, the subject person may,
within 20 business days of receipt of such notice, submit a petition
for reconsideration to the Staff Chairperson, including a defense,
justification, or explanation for the conduct to be penalized. The
Committee will review the petition and issue any final penalty
determination within 20 business days of receipt of the petition. The
Staff Chairperson and the subject person may extend either such period
through written agreement or, where there is a compelling circumstance
and it is deemed appropriate by the Committee, the Staff Chairperson
may extend either period by notifying the subject person in writing of
the extended time frame. The Committee and the subject person may reach
an agreement on an appropriate remedy at any time before the Committee
issues any final penalty determination.
* * * * *
PART 802--REGULATIONS PERTAINING TO CERTAIN TRANSACTIONS BY FOREIGN
PERSONS INVOLVING REAL ESTATE IN THE UNITED STATES
0
6. The authority citation for part 802 continues to read as follows:
Authority: 50 U.S.C. 4565; E.O. 11858, as amended, 73 FR 4677.
0
7. Amend Sec. 802.501 by revising paragraph (b) to read as follows:
Sec. 802.501 Procedures for notices.
* * * * *
(b)(1) If the Committee determines that a transaction for which no
voluntary notice or declaration has been submitted under this part, and
with respect to which the Committee has not informed the parties in
writing that the Committee has concluded all action under section 721,
may be a covered real estate transaction and may raise national
security considerations, the Staff Chairperson, acting on the
recommendation of the Committee, may request the parties to the
transaction or other persons to provide to the Committee information
necessary to determine whether the transaction is a covered real estate
transaction or whether the transaction may raise national security
considerations.
(2) If the Committee determines that a transaction referred to
under paragraph (b)(1) of this section is a covered real estate
transaction and may raise national security considerations, the Staff
Chairperson, acting on the recommendation of the Committee, may request
the parties to file a notice of such covered real estate transaction
under paragraph (a) of this section.
* * * * *
0
8. Amend Sec. 802.504 by:
0
a. In paragraph (a)(3), removing the period at the end of the section
and adding a semicolon in its place;
0
b. In paragraph (a)(4), removing ``or'' at the end of the paragraph;
0
c. In paragraph (a)(5), removing the period and adding ``; or'' in its
place; and
0
d. Adding paragraph (a)(6).
The addition reads as follows:
Sec. 802.504 Deferral, rejection, or disposition of certain voluntary
notices.
(a) * * *
(6) Reject any voluntary notice at any time after the notice has
been accepted, and so inform the parties promptly in writing, if the
Committee has proposed risk mitigation terms, including revisions to
such terms, to the party or parties that submitted the notice and the
party or parties have failed to substantively respond to such terms
within three business days of the proposal, or within a longer time
frame if the parties so request in writing and the Staff Chairperson
grants that request in writing.
* * * * *
0
9. Amend Sec. 802.801 by revising the section heading and paragraph
(a) to read as follows:
Sec. 802.801 Obligation of parties or other persons to provide
information.
(a) This paragraph (a) sets forth requirements for parties to a
transaction or other persons to provide information to the Staff
Chairperson or requesting lead agency in the circumstances specified in
paragraphs (a)(1) through (6) of this section.
(1) Parties to a transaction that is notified or declared under
subpart D or E of this part shall provide information to the Staff
Chairperson that will enable the Committee to conduct a full
assessment, review, and/or investigation of the transaction.
(2) For a transaction for which no voluntary notice or declaration
has been submitted and for which the Staff Chairperson has requested
information as provided for in Sec. 802.501(b), parties to the
transaction or other persons shall provide information to the Staff
Chairperson that will enable the Committee to determine whether the
transaction is a covered real estate transaction or whether the
transaction may raise national security considerations.
(3) Independent of any obligations under an agreement, condition,
or order authorized under section 721(l), parties shall provide
information to the Staff Chairperson or the requesting lead agency so
as to enable the Committee to assess compliance with section 721 and
the regulations in this part or to monitor compliance with, enforce or
modify the terms of, or decide to terminate any agreement, condition,
or order.
(4) Any person that has submitted information to the Committee
shall respond to requests from the Staff Chairperson for information to
enable the Committee to determine whether the party made any material
misstatement or omitted material information from any such submission.
(5) Parties to a transaction that have filed information with the
Committee shall promptly advise the Staff Chairperson of any material
changes to such information.
(6) If deemed appropriate by the Committee, the Staff Chairperson
may obtain information from parties to a transaction or other persons
through subpoena or otherwise, under the Defense Production Act, as
amended (50 U.S.C. 4555(a)).
* * * * *
0
10. Amend Sec. 802.901 by revising paragraphs (a), (b), and (e) to
read as follows:
Sec. 802.901 Penalties and damages.
(a)(1) Any person who submits a declaration or notice with a
material misstatement or omission or makes a
[[Page 26114]]
false certification under Sec. 802.402, Sec. 802.403, or Sec.
802.502 may be liable to the United States for a civil penalty not to
exceed $5,000,000 per violation.
(2) Any person who, in response to a request from the Staff
Chairperson or a lead agency, submits to the Committee any information
pursuant to Sec. 802.801(a)(2), (3), or (4) or (c), with a material
misstatement or omission may be liable to the United States for a civil
penalty not to exceed $5,000,000 per violation. This paragraph (a)(2)
shall apply only with respect to responses to requests that were made
in writing, specified a time frame for response, and indicated the
applicability of this paragraph (a).
(3) The amount of the penalty imposed for a violation as provided
for in this paragraph (a) shall be based on the nature of the
violation.
(b)(1) Any person who violates a material provision of a mitigation
agreement entered into on or after February 13, 2020, and before
[EFFECTIVE DATE OF FINAL RULE], with, a material condition imposed on
or after February 13, 2020, and before [EFFECTIVE DATE OF FINAL RULE],
by, or an order issued on or after February 13, 2020, and before
[EFFECTIVE DATE OF FINAL RULE], by, the United States under section
721(l) may be liable to the United States for a civil penalty per
violation not to exceed $250,000 or the value of the transaction,
whichever is greater. For clarification, under the previous sentence,
whichever penalty amount is greater may be imposed per violation, and
the amount of the penalty imposed for a violation shall be based on the
nature of the violation.
(2)(i) Any person who violates a material provision of a mitigation
agreement entered into on or after [EFFECTIVE DATE OF FINAL RULE],
with, a material condition imposed on or after [EFFECTIVE DATE OF FINAL
RULE], by, or an order issued on or after [EFFECTIVE DATE OF FINAL
RULE], by, the United States under section 721(l) may be liable to the
United States for a civil penalty per violation not to exceed the
greatest of:
(A) $5,000,000;
(B) The value of the person's interest in the covered real estate
(or, as applicable, the owner of the covered real estate) at the time
of the transaction;
(C) The value of the person's interest in the covered real estate
(or, as applicable, the owner of the covered real estate) at the time
of the violation in question or the most proximate time to the
violation for which assessing such value is practicable; or
(D) The value of the transaction filed with the Committee.
(ii) For clarification, under paragraphs (b)(2)(i)(A) through (D)
of this section, whichever penalty amount is greatest may be imposed
per violation, and the amount of the penalty imposed for a violation
shall be based on the nature of the violation.
* * * * *
(e) Upon receiving notice of a penalty to be imposed under
paragraphs (a) through (c) of this section, the subject person may,
within 20 business days of receipt of such notice, submit a petition
for reconsideration to the Staff Chairperson, including a defense,
justification, or explanation for the conduct to be penalized. The
Committee will review the petition and issue any final penalty
determination within 20 business days of receipt of the petition. The
Staff Chairperson and the subject person may extend either such period
through written agreement or, where there is a compelling circumstance
and if it is deemed appropriate by the Committee, the Staff Chairperson
may extend either period by notifying the subject person in writing of
the extended time frame. The Committee and the subject person may reach
an agreement on an appropriate remedy at any time before the Committee
issues any final penalty determination.
* * * * *
Paul M. Rosen,
Assistant Secretary for Investment Security.
[FR Doc. 2024-07693 Filed 4-12-24; 8:45 am]
BILLING CODE 4810-AK-P
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This is legal information, not legal advice. Laws vary by jurisdiction and change frequently. Always verify current law with official sources and consult a licensed attorney in your jurisdiction for advice on your specific situation.