Against the backdrop of congressional action targeting Chinese-owned app TikTok, the Treasury Department is looking to bolster enforcement powers of the U.S.’ foreign investment screening body.
A recent proposal would grant the Committee on Foreign Investment in the United States new powers to broaden its oversight of foreign investments. Specifically, it enables CFIUS to more easily subpoena companies involved in corporate acquisitions, expand the types of information it can require they turn over and levy higher fines.
The announcement comes amid intense official scrutiny of Chinese investments in the U.S. In mid-March, the House of Representatives passed a bipartisan bill that would force TikTok’s parent company to either sell it or see the app banned from use in the United States. The bill, which will now face a vote in the Senate, follows growing frustration by lawmakers on Capitol Hill — in committee statements and elsewhere — over perceived inaction by CFIUS against TikTok.
CFIUS is a federal interagency committee tasked with evaluating the national security implications of foreign investments in the U.S.
The Treasury proposal is intended to fill in several gaps in CFIUS’ enforcement authority and bring its available compliance tools in line with its expanded scope and practice.
Robert A. Friedman, a partner in Holland & Knight’s Washington, D.C, office, says while none of the proposed measures, independently, “will cause an earthquake for cross-border dealmakers”, they are nonetheless important for what they signify.
‘Taken together the new authorities signal a Committee that will remain active on both ends of the CFIUS spectrum: underscoring its commitment to identifying transactions that were not notified to the Committee on one hand, and providing the Committee with increased subpoena power and higher maximum civil monetary penalties on the other hand,” he says.
When parties make the decision not to file with CFIUS — known as a non-notified transaction — there is a chance that CFIUS will reach out to the parties proactively to assess whether the committee has jurisdiction and whether the relevant transaction presents any material national security risks, Friedman explains.
When CFIUS learns of a non-notified transaction, it typically first conducts investigatory outreach to assess whether it has jurisdiction. At the same time, CFIUS begins evaluating any national security risks associated with the deal.
“One of the most significant trends over the last few years is the substantial increase in CFIUS’ non-notified inquiries,” Friedman says.
A main thrust of the new enforcement and compliance proposal, he explains, is to ensure that CFIUS has adequate authorities to conduct these non-notified inquiries and that parties are incentivized to fully and transparently cooperate in the preliminary reviews.
CFIUS was created by an executive order from U.S. President Gerald Ford in 1975 in response to concerns over petrodollar investments into the country. Chaired by the Secretary of the Treasury, CFIUS is composed of representatives from 16 government departments and agencies, including the Departments of Defense, State, Homeland Security, Commerce, and Energy, among others.
CFIUS has the authority to review any transactions that could result in control of a U.S. business by a foreign person or entity; this includes mergers, acquisitions, joint ventures, and other investments. The committee evaluates whether the transaction could result in the transfer of sensitive technology, compromise critical infrastructure or cause other national security issues.
The Foreign Investment Risk Review Modernization Act of 2018 expanded the types of transactions subject to review, introduced mandatory declarations for certain transactions involving critical technologies, and gave CFIUS more resources and authority to address national security threats.
