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

<RULE> DEPARTMENT OF THE TREASURY <SUBAGY>Office of Investment Security</SUBAGY> <CFR>31 CFR Parts 800 and 802</CFR> <DEPDOC>[Docket ID TREAS-DO-2024-0006]</DEPDOC> <RIN>RIN 1505-AC85</RIN> <SUBJECT>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</SUBJECT> <HD SOURCE="HED">AGENCY:</HD> Office of Investment Security, Department of the Treasury. <HD SOURCE="HED">ACTION:</HD> Final rule. <SUM> <HD SOURCE="HED">SUMMARY:</HD> This final rule revises certain provisions of 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. </SUM> <EFFDATE> <HD SOURCE="HED">DATES:</HD> This final rule is effective on December 26, 2024. </EFFDATE> <FURINF> <HD SOURCE="HED">FOR FURTHER INFORMATION CONTACT:</HD> 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: <E T="03">CFIUS.Regulations@treasury.gov.</E> </FURINF> <SUPLINF> <HD SOURCE="HED">SUPPLEMENTARY INFORMATION:</HD> <HD SOURCE="HD1">I. Background</HD> The regulations at parts 800 and 802 to title 31 of the Code of Federal Regulations (parts 800 and 802, respectively) implement the provisions of section 721 of the Defense Production Act of 1950 (DPA), 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 ( <E T="03">i.e.,</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 “covered real estate transaction” as appropriate), it is authorized to negotiate and enter into agreements with the transaction parties or impose conditions on the transaction parties, including through the issuance of orders, to mitigate the risk. CFIUS is further authorized to enforce those agreements, conditions, and orders, including through assessing a penalty. On April 15, 2024, the U.S. Department of the Treasury (Treasury Department) published in the <E T="04">Federal Register</E> a notice of proposed rulemaking (proposed rule) (89 FR 26107) that proposed amendments to certain provisions of parts 800 and 802. Specifically, the proposed rule included amendments that would: (1) expand the categories of information that CFIUS may request from transaction parties and other persons; (2) introduce a time frame within which parties would ordinarily be required to respond to a Committee proposal to mitigate identified national security risk (including any revision of such a proposal); (3) expand the instances in which CFIUS may use its subpoena authority; (4) expand the circumstances in which a civil monetary penalty may be imposed; (5) increase the maximum civil monetary penalty available for certain violations of CFIUS's statute or regulations, including as related to mitigation agreements, conditions, or orders; and (6) extend the time frames for a party's submission of a petition for reconsideration of a penalty and the Committee's response to such a petition. Further explanation of the proposed changes can be found at 89 FR 26107. The public was given an opportunity to comment on the proposed rule, and comments were due by May 15, 2024. The Treasury Department received 728 comment submissions, of which 718 were duplicates or near duplicates. Comments are discussed in the following section along with the changes made in this final rule. <HD SOURCE="HD1">II. Summary of Comments and Changes From the Proposed Rule</HD> During the public comment period, the Treasury Department received 728 comment submissions reflecting a range of views. The Treasury Department considered each comment submitted on the proposed rule and made one revision to this final rule in response to the comments. The section-by-section analysis below discusses the comments received, explains the Treasury Department's responses to the comments, and describes changes made in this final rule in light of the comments. <HD SOURCE="HD2">A. Requesting Information From Transaction Parties and Other Persons—Sections 800.501, 802.501, 800.801, and 802.801</HD> One commenter expressed the view that the provisions pertaining to requesting information from “other persons” are without any limitation and recommended that the provisions be modified to make clear that such other persons must have a connection to a particular transaction. Additionally, the commenter recommended that the Committee's evaluation of the adequacy of a non-party's response to a CFIUS request for information should be based on whether the response sufficiently addressed the specific questions posed, rather than whether the Committee derived any benefit from the response. Finally, the commenter proposed that if such other persons or transaction parties omit information from a response to a CFIUS inquiry about a transaction, a determination of whether that omission constitutes a violation of the statute or regulations should be subject to a “knowledge qualifier”— <E T="03">i.e.,</E> the Committee should determine a person's omission constitutes a violation if the person “knew or should have known,” for example, that the information omitted was responsive to the Committee's inquiry. Such a qualifier would be warranted, according to the commenter, because persons who are not transaction parties may not be familiar with CFIUS and its authorities. The final rule makes no change in response to this comment. As discussed in the proposed rule, CFIUS, acting on behalf of the President, currently has authority pursuant to section 705 of the DPA to obtain information from “any person as may be necessary or appropriate . . . to the enforcement or administration of [section 721 and the regulations thereunder].” Therefore, CFIUS may, if appropriate, request and compel through issuance of a subpoena the production of information not only from transaction parties but also from other persons to aid in the enforcement or administration of the CFIUS statute and regulations. The proposed rule addressed requests for information when such information pertains to a transaction that has been notified or declared to the Committee or, in certain circumstances, a transaction for which no notice or declaration has been submitted (a non-notified transaction). The Committee proposed to be able to seek and compel information to enable it to determine whether a transaction is a covered transaction, whether it may raise national security concerns such that the Committee should review it (if it is a covered transaction), and whether the transaction is of a type for which submission of a declaration was mandatory. Because any request made or subpoena issued must be in furtherance of one of the foregoing purposes, as specified in the proposed rule, the Committee's authority is not “without any limitation whatsoever,” as suggested by the commenter. Furthermore, in determining the sufficiency of a party's response to an inquiry, the Committee would assess whether the information provided adequately responded to the question posed, as the commenter suggests. In determining whether to issue a request for information or (as appropriate) subpoena to a person other than the transaction parties, CFIUS will consider the relationship of the other person to the relevant transaction and the information sought and will comply with applicable confidentiality provisions in section 721(c). In addition, as with information submitted by transaction parties, CFIUS will treat information submitted by third parties in accordance with its confidentiality obligations. It would be challenging to specify in regulations an exhaustive list of “other persons” to whom CFIUS may issue requests (or, as appropriate, subpoenas) for information. The identity of such other persons may vary depending on the nature of the transaction and transaction parties as well as the information that CFIUS needs to obtain. The Committee can envision situations in which it would seek information from third persons such as banks, underwriters, or service providers to transaction parties. There may be situations in which relevant information is possessed by other third parties and the Committee would consider it appropriate to seek information from such third parties. Moreover, the Committee does not consider it appropriate to put in place what the commenter refers to as a “knowledge qualifier” for purposes of determining whether a third party's omission of information from a submission to CFIUS constitutes a violation of the statute or regulations. (As noted above, while the commenter used the phrase “knowledge qualifier,” CFIUS understood it to be referring to the responding party's knowledge with respect to whether information is appropriate to include in response to the Committee's information request.) For CFIUS to impose a penalty on a transaction party or other person for an omission of information, the omiss ━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━ Preview showing 10k of 58k characters. Full document text is stored and available for version comparison. ━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━