US Treasury Proposes Enhanced Powers to Scrutinize Foreign Investments

The U.S. Treasury is taking significant steps to fortify the oversight capabilities of the Committee on Foreign Investment in the United States (CFIUS), a key but less-known entity responsible for scrutinizing corporate transactions involving foreign investors for national security implications. This move is in response to growing concerns over foreign investments in American companies, highlighted by recent high-profile cases such as ByteDance's ownership of TikTok and Nippon Steel's attempt to acquire U.S. Steel Corp.

Under the new proposed rulemaking, CFIUS would see an enhancement in its powers, including an expansion of its subpoena authority, the ability to demand additional information from parties involved in a proposed sale, and an increase in the penalties for misstatements, omissions, and failures to file mandatory declarations — with fines potentially rising from $250,000 to $5 million. This proposal aims to bolster the committee's enforcement capabilities amidst escalating national security concerns tied to foreign investments, particularly as competition with global powers intensifies and the U.S. seeks to bolster its domestic supply chains.

President Joe Biden has publicly opposed the sale of U.S. Steel to Japan's Nippon Steel, emphasizing the importance of maintaining robust American steel companies and workforce. The proposed acquisition, announced in December for $14.1 billion in cash, has sparked debate over its potential impact on unionized workers, supply chains, and national security. Japanese Prime Minister Fumio Kishida expressed optimism for a positive outcome from discussions regarding the deal during a White House press conference.

Paul Rosen, Treasury's Assistant Secretary for Investment Security, highlighted that the rulemaking is designed to "more effectively deter violations, promote compliance and swiftly address national security risks" associated with CFIUS reviews. The initiative reflects a broader government stance that corporations play a critical role in national security policy and must be vigilant about foreign investments.

John Carlin, a former Justice Department national security chief, noted that the proposed changes signify a shift towards making CFIUS more of an enforcement agency through enhanced investigative tools and incentives for thorough deal scrutiny. Another focal point of CFIUS's review process is TikTok's ownership, which has been under examination since at least 2019 without conclusive action. The U.S. House of Representatives has passed legislation that could force ByteDance to divest TikTok or face a ban in the U.S.

Treasury Secretary Janet Yellen expressed support for efforts to address national security concerns related to sensitive personal data through platforms like TikTok, acknowledging the legitimacy of such concerns given China's restrictions on U.S. social apps operating within its borders.

J. Philip Ludvigson, a former CFIUS Monitoring & Enforcement director now with King & Spalding law firm, views the proposed regulations as indicative of a more aggressive stance on protecting national security. He anticipates that CFIUS will leverage its enhanced subpoena power to impose more substantial penalties than ever before.

The U.S.'s focus on safeguarding national security extends beyond these measures, as evidenced by President Biden's executive order last August aimed at regulating high-tech investments from the U.S. into China. This comprehensive approach underscores the administration's commitment to mitigating potential risks associated with foreign investments in critical sectors.