DealLawyers.com Blog

Earlier this month, the Treasury Department announced the creation of a new website dedicated to CFIUS’ monitoring & enforcement functions. This Wilson Sonsini memo says that the enforcement website is part of a steady increase in CFIUS’ monitoring of foreign investments and enforcement actions aimed at them. With the rules implementing its expanded authority under FIRRMA now in place, CFIUS is engaging in monitoring & enforcement activities “on a previously unprecedented scale.” Here’s an excerpt:

The Committee’s new enforcement and monitoring team has a number of responsibilities. These include searching for unfiled foreign investments (i.e., “non-notified” transactions); requesting filings for non-notified investments; imposing penalties for failing to make mandatory filings; monitoring compliance with CFIUS mitigation agreements; and imposing penalties for noncompliance with mitigation agreements. Given the expansion in CFIUS’s jurisdiction under FIRRMA, a concomitant expansion in the scope of the Committee’s enforcement activities is unsurprising.

This increased emphasis on enforcement may ultimately be the most important result of FIRRMA. The Committee has always had elective jurisdiction over a wide range of transactions; while FIRRMA expanded that jurisdiction slightly, the key limitation on CFIUS activity has always been limited resources and attention.

Now, however, the one to two persons formerly charged with seeking out non-notified transactions in the pre-FIRRMA era has become a full-time team, and its activity levels are intensifying. Ultimately, we expect that for venture investments or acquisitions involving more sensitive investors—e.g., Chinese or Russian acquirers—and/or more sensitive industries—e.g., semiconductors, advanced battery technologies, gene sequencing technologies, etc.—the calculus on not filing with CFIUS voluntarily may be about to change substantially.

The memo says that CFIUS is increasing its outreach to parties involved in non-notified transactions, particularly those involving unfiled Chinese investments in sensitive U.S. industries. While this outreach has not yet been accompanied by the imposition of penalties for failing to make mandatory filings, the memo says that CFIUS staff have indicated that such penalties “will be forthcoming in appropriate cases.”

The new website also includes a tipline feature, which the memo points out may further ramp-up enforcement activity due to the ability of competitors to “drop a dime” on a pending deal.

– John Jenkins