CFIUS Continues to Expand Its Authority and Increase Enforcement Activity

The Committee on Foreign Investment in the United States (CFIUS) continues to aggressively utilize and expand its authority to address national security risks related to foreign investment into the United States:

• CFIUS has increased its enforcement activity and recently disclosed that it had issued three times as many penalties in the prior 18 months as it had in the prior 30 years, including a penalty of $60 million for violations of a mitigation agreement. This follows an April 2024 proposed rule to expand CFIUS’s enforcement authority and its maximum penalty amounts.
• CFIUS recently proposed to expand its authority over real estate transactions by adding 59 military installations in 30 states to the list of sites around which it has jurisdiction. This follows the first Presidential block of a real estate transaction.
• CFIUS continues to actively mitigate transactions that it reviews and identify transactions that have not been voluntarily filed, as disclosed in its most recent Annual Report.

Increased Enforcement

Treasury, which chairs CFIUS, recently disclosed information about penalties. Key highlights include the following:

• CFIUS has issued six penalties since 2023, representing three times the number of penalties that it had previously issued in its entire 30-year history (only two penalties prior to 2023).
• The penalties were primarily for violations of mitigation agreements, with $60 million as the largest penalty.
• Other penalties were for material misstatements and failure to divest holdings within specified timelines.

The imposition of those penalties were announced in conjunction with the unveiling of a new enforcement website, underscoring the increasing importance that CFIUS places on enforcing compliance with mandatory filing requirements and mitigation agreements (agreements with conditions for clearing a transaction). These disclosures follow a notice of proposed rulemaking (NPRM) to increase CFIUS’s enforcement authority (the Enforcement NPRM), which Treasury issued in April 2024. Once effective, CFIUS will have expanded subpoena authority, and maximum penalties will be increased from $250,000 to $5 million. For some violations, the penalty can be up to the value of the transaction if it is greater than $5 million. Further detail about the Enforcement NPRM can be found in a prior client alert.

Although none of the recently announced penalties pertain to violations of mandatory filing requirements, in its latest Annual Report, discussed below, CFIUS revealed that it had undertaken several investigations in 2023 related to ensuring compliance with mandatory filing requirements, which resulted in the issuance of several “formal determinations of noncompliance,” but no penalties. As the Committee continues its focus on enforcement, particularly with respect to mandatory filing requirements, we would expect CFIUS to begin issuing its first penalties related to mandatory filing violations.

Expanded Real Estate Jurisdiction and Presidential Block

Treasury recently issued a notice of proposed rulemaking to increase CFIUS’s authority to review real estate transactions within defined ranges of an additional 59 military installations in 30 states (the Real Estate NPRM). This action follows the first Presidential block of a real estate transaction in May 2024, and the addition of eight installations last year, as discussed in a prior client alert. Together, these actions illustrate the government’s increasing focus on real estate transactions. The block also shows that CFIUS continues to aggressively identify transactions that have not been voluntarily filed and that may pose a national security risk, particularly those involving Chinese investors. 

Presidential Block. In May 2023, President Biden issued his first CFIUS Order, which required divestment of real estate following a recommendation by CFIUS that the underlying transaction presented unresolved national security concerns that could not be mitigated. It was also the first Presidential block of a real estate transaction since those regulations came into effect in 2020. In his Order, President Biden directed MineOne Partners Limited, a company ultimately majority owned by Chinese nationals, and related entities to divest ownership of real estate near Warren Air Force Base, a strategic missile base that is part of the United States’ Nuclear Triad in Cheyenne, Wyoming. The purchasers had acquired the land in 2022 and installed specialized equipment to conduct cryptocurrency mining operations, some of which was foreign sourced. The purchasers did not file the transaction with CFIUS at the time of acquisition. CFIUS and President Biden determined that the proximity of operations to the sensitive base and the installation of the specialized equipment that was “potentially capable of facilitating surveillance and espionage activities” constituted a national security risk. Under the Order, the purchasers were directed to remove equipment and other improvements within 90 days and divest the property within 120 days.

Real Estate NPRM. CFIUS has jurisdiction to review certain foreign investment into U.S. companies but does not generally have authority to review greenfield investments. A 2018 law, however, gave CFIUS jurisdiction to review foreign investment involving real estate near sensitive government facilities, as well as certain air and marine ports. When this authority came into effect in 2020, CFIUS identified in regulations an initial set of sensitive facilities around which it would have jurisdiction (or in some cases, entire counties and offshore areas), which covered about 25% of the United States. At that time, CFIUS stated that the list would be reviewed periodically and updated as needed. The Real Estate NPRM represents the second time CFUS has expanded the list of sensitive government facilities.

Once effective, CFIUS will have authority to review purchases of land and certain leases by foreign persons within defined proximities around 59 additional sites, subject to certain exceptions such as for single family houses and urbanized areas. It also expanded the meaning of “military installation” in a way that will give CFIUS a wider range of eligible sites to add to its list moving forward. Key highlights of the Real Estate NPRM include the following:

• Expands CFIUS’s jurisdiction to include real estate transactions within a one-mile radius around 40 additional military installations.
• Expands CFIUS’s jurisdiction to include real estate transactions within a 100-mile radius around 19 additional military installations.
• Expands CFIUS’s jurisdiction relating to eight installations from a one-mile radius to a 100-mile radius.
• Removes three installations from the list to account for the fact that those locations are already included within the boundaries of other listed installations.

Annual Report Highlights

In its most recent Annual Report, which covers calendar year 2023 (the Annual Report), CFIUS provided key insights into trends in CFIUS filings, which are otherwise confidential. Overall, the Annual Report shows some increase in efficiency, a continued focus on identifying transactions that have not been filed voluntarily, a continued focus on mitigating risks and monitoring compliance with mitigation agreements, and a relatively high number of transactions that parties abandoned due to failure to reach agreement on mitigation. Key highlights specifically include the following:

• CFIUS reviewed fewer filings in 2023 compared to 2022, highlighting a decrease in global mergers and acquisitions (M&A) activity. CFIUS reviewed 342 filings in 2023, down from 440 in 2022, which represented the largest number of cases reviewed in a single year.
• While most transactions continue to clear without mitigation conditions, about 21% of transactions filed as a notice were subject to mitigation. This represents a slight decrease from about 23% in 2022.
• CFIUS improved efficiency in its review of lower risk filings. The Committee increased the number of transactions cleared under a short-form declaration (30-day review period) or during the first 45-day review period for long-form notices from 58% in 2022 to 66% in 2023.
• As in 2022, however, a significant number of CFIUS cases were withdrawn and/or refiled at the end of the statutory period, though the percentage decreased. In 2023, CFIUS approved the withdrawal of 57 notices. In 43 of these instances, the parties filed a new notice in either 2023 (35 notices refiled) or 2024 (eight notices refiled). Parties withdrew their notice and abandoned their transaction 14 times after being unable to reach agreement with CFIUS on mitigation measures to resolve identified national security concerns (nine) or due to commercial reasons (five). The rate of transactions withdrawn and refiled decreased for the first time in five years, from 24% in 2022 to 18% in 2023.
• CFIUS continued its focus on monitoring and enforcing compliance with mitigation agreements. CFIUS monitoring agencies conducted 43 site visits in 2023, which entailed compliance-focused interviews with senior executives and line-level personnel, records checks and physical security assessments, among other activities.
• CFIUS formally considered fewer non-notified transactions in 2023 than in 2022, though the percentage that resulted in a request for a filing increased. In 2023, 60 non-notified transactions were put forward to CFIUS for formal consideration, as opposed to 84 in 2022. Even so, CFIUS reported that it and its member agencies regularly review thousands of non-notified transactions for potential formal consideration each year. CFIUS requested a formal filing for 13 transactions, and transaction parties voluntarily filed in three cases after CFIUS outreach but prior to receiving a formal request.