On April 24, 2024, President Biden signed into law a significant amendment to the statute of limitations for violations under U.S. sanctions laws, as part of the national security package (H.R. 815). This change extends the period for enforcement actions from five to ten years, reflecting a more robust approach to national security and foreign policy enforcement. Key details of the statute of limitations amendment include:

  • IEEPA and TWEA. The statute of limitations has been extended under the International Emergency Economic Powers Act (IEEPA; 50 U.S.C. 1705); and the Trading With the Enemy Act (TWEA; 50 U.S.C. 4315).
  • Commencing Proceedings: Under both acts, an action, suit, or proceeding for the enforcement of any civil fine, penalty, or forfeiture, pecuniary or otherwise, must not be entertained unless commenced within 10 years after the latest date of the violation upon which the civil fine, penalty, or forfeiture is based. The commencement of such actions includes the issuance of a pre-penalty notice or finding of violation.
  • Indictments: For both acts, no person shall be prosecuted, tried, or punished for any offense unless the indictment is found or the information is instituted within 10 years after the latest date of the violation upon which the indictment or information is based.

This amendment not only significantly extends the period during which U.S. authorities can address and penalize sanctions violations, allowing for retrospective action on transactions up to a decade old, but also emphasizes the necessity for businesses to adopt or amend compliance strategies.

In practice, this amendment means that businesses should enhance their recordkeeping and compliance practices to prepare for potential audits that could review up to ten years of transactions and interactions under these laws. Such requirements are poised to notably impact how businesses, especially those involved in international trade and operating in high-risk jurisdictions like Russia and Iran, manage their compliance programs.

On April 29, 2024, the Department of the Treasury’s Office of Foreign Assets Control (OFAC) issued amended Russia-related General License No. 8I, once again extending the authorization to conduct transactions involving Vnesheconombank, Bank Financial Corporation Otkritie, Sovcombank, Sberbank, VTB Bank, Alfa-Bank, Rosbank, Bank Zenit, Bank Saint-Petersburg, and the Central Bank of Russia that are related to energy until November 1, 2024.

The original General License No. 8, issued on February 24, 2022, had previously been amended to expand the list of Russian financial institutions and was scheduled to expire on May 1, 2024. The term “related to energy” means the extraction, production, refinement, liquefaction, gasification, regasification, conversion, enrichment, fabrication, transport, or purchase of petroleum, including crude oil, lease condensates, unfinished oils, natural gas liquids, petroleum products, natural gas, or other products capable of producing energy, such as coal, wood, or agricultural products used to manufacture biofuels, or uranium in any form, as well as the development, production, generation, transmission, or exchange of power, through any means, including nuclear, thermal, and renewable energy sources.

General License No. 8I authorizes energy-related transactions through 12:01 a.m. EST, November 1, 2024. Certain dealings remain unauthorized under this general license and therefore require close analysis. For prior updates on this topic, see Updates dated October 25, 2023, December 15, 2022,  June 14, 2022, April 7, 2022, and February 28, 2022.

On April 30, 2024, the Department of Commerce’s Bureau of Industry and Security (BIS) issued an interim final rule (IFR) updating the Export Administration Regulations (EAR) to enhance the control structure for firearms and related items under BIS’s jurisdiction. This IFR will be effective on May 30, 2024, and public comment will be accepted until July 1, 2024. 

Background

In 2020, jurisdiction over the control of certain firearms and related items was transferred from the U.S. Department of State’s United States Munitions List (USML) to BIS. See Thompson Hine Update of July 10, 2020. On October 27, 2023, BIS announced an immediate pause on the issuance of new export licenses for certain firearms, related components and ammunition in order to conduct a review to reassess current firearm export control policies with a focus on U.S. national security and foreign policy interests. See Thompson Hine Update of November 1, 2023. The purpose of this review was to mitigate the risk of these firearms being misused in ways that could destabilize regions, violate human rights or fuel criminal activities. During this pause, BIS requested an assessment from the State Department as to whether there are specific destinations in which there is substantial risk of diversion or misuse adverse to U.S. national security and foreign policy interests. On April 8, 2024, the State Department provided BIS with such foreign policy guidance. 

This guidance focused on the risks associated with firearm exports to commercial distributors, civilians, and other non‐governmental end users. The State Department identified a set of risk factors, including such concerns as diversion risks, terrorism risks, corruption risks, human rights and political violence risks, state fragility risks, organized crime/gang risks, and drug trafficking risks. The State Department determined there are currently 36 countries where there is a substantial risk that lawful firearms exports to non‐governmental end users will be diverted or misused in a manner adverse to U.S. national security and foreign policy. These countries are: Bahamas, Bangladesh, Belize, Bolivia, Burkina Faso, Burundi, Chad, Colombia, Dominican Republic, Ecuador, El Salvador, Guatemala, Guyana, Honduras, Indonesia, Jamaica, Kazakhstan, Kyrgyzstan, Laos, Malaysia, Mali, Mozambique, Nepal, Niger, Nigeria, Pakistan, Panama, Papua New Guinea, Paraguay, Peru, Suriname, Tajikistan, Trinidad and Tobago, Uganda, Vietnam, and Yemen.

Interim Final Rule

In this IFR, BIS has revised the license requirements and review policies, as well as other aspects of the control structure (e.g., license exceptions eligibility and export clearance requirements) for firearms, shotguns and related items (e.g., discharge type arms, optical devices, ammunition, and related technology and software) controlled under certain Export Control Classification Numbers (ECCNs). Further, the IFR adds new ECCNs to the Commerce Control List controlling certain semi-automatic firearm products and parts. The IFR also makes revisions to BIS’ license review policies under the Regional Stability (RS) and Crime Control (CC) “reasons for control” under the EAR that will require that applications for exports for certain ECCNs be reviewed on a case-by-case basis to determine whether the transaction is contrary to the national security or foreign policy interests of the United States. Such applications will also be reviewed consistent with U.S. arms embargoes and whether the export or reexport could contribute directly or indirectly to any country’s military capabilities in a manner that would alter or destabilize a region’s military balance contrary to the foreign policy interests of the United States. Further, the IFR identifies the 36 destinations noted above (High-Risk Destinations for Firearms and Related Items) and notes that license applications to these countries will be reviewed under a “presumption of denial.” A policy of denial will also apply when BIS has reason to believe the transaction involves criminal organizations, rebel groups, street gangs, or other similar groups or individuals. The IFR also makes several changes to license requirements, exceptions and the validity period for firearm licenses issued by BIS.

Revocation and Modification of Existing Licenses

Based on the policy changes implemented by this IFR, BIS has announced that it will revoke or modify certain valid licenses for the export and reexport of firearms and related items to non-government end users in destinations identified as High-Risk Destinations for Firearms and Related Items as of July 1, 2024. In addition, on May 30, 2024, BIS will modify certain other valid licenses with validity periods that end more than one year from the effective date of this IFR by rendering them invalid one year from the effective date of this IFR.

For exporters or reexporters of firearms, this 130 page IFR contains detailed revisions and additions that will require a robust analysis in order to remain compliant with the EAR. Ultimately, BIS believes that these regulatory changes “will facilitate more robust data tracking capabilities for exports and re-exports of firearms and related items … [and] enhance the ability of BIS and its interagency partners to review and process license applications consistent with U.S. national security and foreign policy interests.” BIS is accepting public comment on this interim final rule until July 1, 2024. 

On April 24, 2024, President Joseph Biden signed into law emergency supplemental appropriations (Pub. Law No. 118-50) that, among numerous measures, included the Protecting Americans from Foreign Adversary Controlled Applications Act. This now enacted law is most widely known for its efforts to ban Chinese-owned TikTok and comes after prior attempts to address any potential national security concerns failed. For more details on these past actions see Thompson Hine Updates of August 7, 2020, August 17, 2020, October 5, 2020 and August 12, 2021.

The law makes it unlawful for an entity to distribute, maintain, or update (or enable the distribution, maintenance, or updating of) a foreign adversary controlled application by carrying out, within the land or maritime borders of the United States, any of the following:

  • Providing services to distribute, maintain, or update such foreign adversary controlled application (including any source code of such application) by means of a marketplace (including an online mobile application store) through which users may access, maintain, or update such application.
  • Providing internet hosting services to enable the distribution, maintenance, or updating of such foreign adversary controlled application for users.

The law defines a “foreign adversary” to included China, Iran, North Korea and Russia. The term “foreign adversary controlled application” means a website, desktop application, mobile application, or augmented or immersive technology application that is operated, directly or indirectly (including through a parent company, subsidiary, or affiliate), by: (i) ByteDance, Ltd., TikTok, and any of their subsidiaries or successors; and, (ii) any other covered company that is controlled by a foreign adversary and is determined by the president to present a significant threat to the United States. For any other “covered company,” the law establishes a process by the president in which any company that operates a website, desktop application, mobile application, or augmented or immersive technology application that permits a user to create an account or profile to generate, share, and view text, images, videos, real-time communications, or similar content, and has more than 1,000,000 monthly active users, can – after a public notice and public report to Congress – be determined to pose a national security threat. 

The law becomes effective in January 2025 for ByteDance and TikTok, and 270 days after any determination by the president on any other covered company. Failing any order by the foreign company to divest, it would be banned from web hosting sites and app stores. Further, any violations could subject an entity to investigation by the Department of Justice and potential enforcement of a civil penalty in an amount not to exceed the amount that results from multiplying $5,000 by the number of users within the United States determined to have accessed, maintained, or updated the foreign adversary controlled application.

On April 26, 2024, the Department of Commerce’s Bureau of Industry and Security (BIS) published a final rule introducing the new License Exception MED that enables delivery of humanitarian medical devices to the citizens of Russia, Belarus, and the Crimea region of Ukraine, and the occupied regions of Donetsk and Luhansk.  This license exception is an effort to formalize the U.S. policy of authorizing the export of medical devices to support civilian populaces.  Specifically, License Exception MED authorizes certain exports, reexports, and transfers (in country) of the following items that are designated as EAR99: low-level medical devices and related low-level parts, components, accessories, and attachments that are exclusively for use in or with such medical devices.  BIS notes that this license exception is intended to lessen the regulatory burden on both exporters and BIS on the export of medical devices “that are being regularly approved and that advance U.S. national security and foreign policy interests.”  This final rule is effective as of April 29, 2024.

To be eligible for export under License Exception MED, the medical device must be an item subject to the EAR that is not described on the Commerce Control List (CCL) in Supplement No. 1 to part 774 and, thus, is designated as EAR99.  The license exception does not authorize exports of medical devices to any prohibited persons/parties (such as persons on the Entity List or military end-users), to any “production” “facilities,” or when there is knowledge that the medical device, parts, components, accessories, and attachments are intended to develop or produce items.  Further, exporters making use of this license exception must maintain a verification system to ensure such medical devices are not delivered to prohibited persons/parties or those engaged in production of any product.  Such verification may include obtaining certain information (such as affirmations) from a consignee or conducting on-site spot-checks (including through an internationally accredited auditing firm or internationally recognized NGO).

The use of License Exception MED is nuanced and must be reviewed carefully prior to relying upon it for any export, reexport, or transfer (in-country) to Russia, Belarus, and the Crimea region of Ukraine, and the occupied regions of Donetsk and Luhansk.  While the license exception does authorize transactions involving items designated as EAR99 that would otherwise require a license pursuant to various EAR controls under 15 C.F.R. §§ 746.5, 746.6, or 746.10, it specifically does not exempt an exporter from any license requirements imposed under § 746.8 or any other EAR license requirements.

On April 18, 2024, the Departments of Commerce and the Treasury announced combined export control restrictions and economic sanctions against Iran for its attack on Israel on April 13, 2024. These actions are intended “to degrade and disrupt key aspects of Iran’s malign activity, including its UAV [Unmanned Aerial Vehicles] program and the revenue the regime generates to support its terrorism” and to further restrict Iran’s access to commercial grade microelectronics. This latest round of export controls on Iran also seeks to restrict items manufactured outside the United States that are produced using U.S. technology.

BIS Export Controls

The Department of Commerce’s Bureau of Industry and Security (BIS) imposed new export controls in a Final Rule to restrict Iran’s access to technologies, such as basic commercial grade microelectronics. The new controls expand the scope of two foreign direct product rules (FDPs) — the Russia/Belarus/Temporarily occupied Crimea region of Ukraine FDP rule and the Iran FDP rule under which certain foreign-made items located outside of the United States may be subject to the Export Administration Regulations (EAR). This rule became effective on April 18, 2024.

This final rule builds on BIS’s February 2023 action that targeted Iran’s involvement in supplying UAVs in support of Russia’s war in Ukraine. See Thompson Hine Update of February 27, 2023 for additional details. This new rule also expands the list of items included in Supplement No. 7 to Part 746 of the EAR to include additional items. This list now includes the entirety of the “Common High Priority List” (CHPL), a list prepared in coordination with the European Union, Japan and the United Kingdom, that identifies items used in Russian weapons development by Harmonized Tariff Schedule (HTS)-6 Codes. The CHPL List includes electronic components such as integrated circuits and radio frequency (RF) transceiver modules, items essential for the manufacturing and testing of electronic components, and computer numerically controlled machine tools. See Thompson Hine Updates of March 5, 2024 and September 26, 2023 for further details on these high priority items.

The 39 additional HTS- 6 Code entries are: 845710, 845811, 845891, 845961, 846693, 847180, 848210, 848220, 848230, 848250, 848610, 848620, 848640, 850440, 851769, 852589, 852990, 853400, 853669, 853690, 854110, 854121, 854129, 854130, 854149, 854151, 854159, 854160, 854320, 880730, 901310, 901380, 901420, 901480, 902750, 903020, 903032, 903039, and 903082. All items subject to the EAR that are classified under the newly added 39 HTS-6 entries already require a license for export, reexport, or transfer (in-country) to Russia and Belarus. In addition, Commerce Control List (CCL) and U.S.-origin EAR99 items classified under these HTS-6 entries are already prohibited for export or reexport to Iran. However, by adding these items to Supplement No. 7 to Part 746, BIS jurisdiction over foreign produced items in these categories will now be expanded, which will in turn expands license requirements for Russia, Belarus and Iran. Such foreign produced restrictions are intended to further undermine the ability of Iran and Russia to support the production of missiles, drones, and other military items for use against Israel and Ukraine. Now foreign produced items that are the direct product of U.S.-origin technology and classified under these HTS codes will be subject to the EAR and prohibited for export to Iran or Russia/Belarus/Crimea.

OFAC Sanctions

The Department of the Treasury’s Office of Foreign Assets Control (OFAC) imposed sanctions on Iran in response to its attack on Israel by designating and placing on the Specially Designated Nationals (SDN) List 16 individuals and two entities enabling Iran’s UAV production and who reportedly work on behalf of Iran’s Islamic Revolutionary Guard Corps-Qods Force (IRGC-QF), its UAV production arm, and other Iranian manufacturers of UAVs and UAV engines. OFAC also designated five companies in multiple jurisdictions providing component materials for Iranian steel production, and three subsidiaries of an Iranian automaker that continue to support the IRGC and other entities designated pursuant to OFAC’s counterterrorism authorities. Additional detail and identifying information on these individuals and entities is available here. A Treasury Department press release providing additional background on these entities and persons is available here. 

As a result of these OFAC actions, all property and interests in property of the persons and entities placed on OFAC’s SDN List that are in the United States or in the possession or control of U.S. persons are blocked and must be reported to OFAC. In addition, any entities that are owned, directly or indirectly, 50% or more by one or more blocked persons are also blocked. All transactions by U.S. persons or within (or transiting) the United States that involve any property or interests in property of designated or blocked persons are prohibited unless authorized by a general or specific license issued by OFAC, or exempt. These prohibitions include the making of any contribution or provision of funds, goods, or services by, to, or for the benefit of any blocked person and the receipt of any contribution or provision of funds, goods, or services from any such person.

On April 17, 2024, the Department of the Treasury’s Office of Foreign Assets Control (OFAC) issued Venezuela-related General License 44A, “Authorizing the Wind Down of Transactions Related to Oil or Gas Sector Operations in Venezuela.” This license replaces General License (GL) 44 that was issued in October 2023 allowing for certain activities in this sector, including those involving Petróleos de Venezuela S.A. (PdVSA) and its 50% or more owned entities (PdVSA Entities), otherwise prohibited under the Venezuela Sanctions Regulations. New GL 44A is significantly different in that it provides authorization for the wind down of such transactions related to oil or gas sector operations in Venezuela. Accordingly, all transactions previously authorized under GL44 must be wound down no later than 12:01 a.m. EDT, May 31, 2024.

As noted, this GL originally temporarily authorized transactions that are related to oil and gas sector operations in Venezuela that would otherwise be prohibited under the Venezuela Sanctions Regulations. This authorization was granted in October 2023, in response to a political agreement between Venezuelan President Nicolás Maduro’s representatives and the Unitary Platform as a step forward in restoring democracy in Venezuela. See Thompson Hine Update of October 24, 2023. At that time, OFAC made clear that the easing of these sanctions was conditional and could be rescinded if commitments were not met by Venezuela. On January 30, 2024, the Department of State announced the United States would be reinstating certain sanctions actions on Venezuela in light of activities by President Maduro that undermined these commitments. In this announcement, the State Department noted that “absent progress … [in] allowing all presidential candidates to compete in this year’s election,” GL 44 would not be renewed when it expired on April 18, 2024. See Thompson Hine Update of February 1, 2024. 

In a press statement on April 17, 2024, the State Department indicated that, “After a careful review of the current situation in Venezuela, the United States determined Nicolás Maduro and his representatives have not fully met the commitments made under the electoral roadmap agreement, which was signed by Maduro representatives and the opposition in Barbados in October 2023.” Thus, replacement Venezuela GL 44A, will allow for an orderly 45-day process to wind down any ongoing activities.

In a separate set of FAQs on this topic, OFAC made clear that entering into new business, including new investment, as of April 17, 2024, that was previously authorized under GL 44 is not considered wind-down activity. Further, U.S. persons unable to complete transactions previously authorized by GL 44 before May 31, 2024, are encouraged to seek guidance from OFAC on a case-by-case basis.

Finally, and for further clarity, OFAC notes that “U.S. persons may continue to rely on other OFAC authorizations related to Venezuela’s oil or gas sector operations in Venezuela, including GL 8M, “Authorizing Transactions Involving Petróleos de Venezuela, S.A. (PdVSA) Necessary for the Limited Maintenance of Essential Operations in Venezuela or the Wind Down of Operations in Venezuela for Certain Entities” and GL 41, “Authorizing Certain Transactions Related to Chevron Corporation’s Joint Ventures in Venezuela,” despite the issuance of GL 44A.” For details on these GLs, see Thompson Hine Updates of November 28, 2022 (for GL 41) and November 20, 2023 (for GL 8M).

To “further enhance defense industrial base cooperation and technology innovation with Australia and the United Kingdom,” the Department of Commerce’s Bureau of Industry and Security (“BIS”) issued an interim final rule (“IFR”) on April 18, 2024 to ease various licensing requirements prescribed by the Export Administration Regulations (“EAR”) for exports, reexports, or transfers (in-country) to or within the two countries.  The IFR, which takes effect April 19, 2024, bifurcates its amendments into “major” and “minor” policy changes, respectively, and essentially extends the same licensing treatment enjoyed by Canada under the EAR to Australia and the United Kingdom.  The changes thus directly support the stated goals of the AUKUS Trilateral Security Partnership “to deepen diplomatic, security, and defense cooperation in the Indo-Pacific region,” while also indirectly facilitating general defense trade, innovation, and information and technology sharing between and among the AUKUS nations.  Built upon longstanding and ongoing bilateral ties, AUKUS was established on September 15, 2021.

The most notable “major” policy change of the IFR is the removal of licensing requirements for national security column 1 (NS1), regional stability column 1 (RS1), and missile technology column 1 (MT1) reasons for control imposed on Australia and the United Kingdom in the Commerce Country Chart (see Supplement No. 1 to Part 738 of the EAR).  Considering Australia and the United Kingdom are already not subject to national security column 2 (NS2) and regional stability column 2 (RS2) reasons for control, the IFR thus eliminates all Commerce Country Chart-based NS and RS controls for both countries.  Correspondingly, certain provisions in Part 742 of the EAR specifying license requirements pursuant to NS, RS, and MT reasons will be removed for Australia and the United Kingdom, too.

Other noteworthy “major” policy changes of the IFR include the abolishment of licenses for “600 series” items destined to Australia or the United Kingdom, the elimination of licenses for many 9×515 satellite-related items destined to either AUKUS member, and the removal of military end-use and end-user-based license requirements for certain cameras, systems, or related components detailed in Part 744.9 of the EAR.

While the “major” policy changes thus broaden the alignment of controls on Australia and the United Kingdom with those in effect for Canada, most “minor” policy changes of the IFR simply update various clarifying phrases included in the EAR.

Perhaps the most notable “minor” policy change, though, is new text to be included in three license exceptions—Aircraft, Vessels and Spacecraft (AVS); Additional Permissive Reexports (APR); and Encryption Commodities, Software, and Technology (ENC)—explicitly expanding the applicability of all three for exports, reexports, and transfers (in-country) to Australia, Canada, and the United Kingdom.

The IFR is effective on April 19, 2024.  However, to ensure the export control revisions implemented by the IFR advance AUKUS objectives, BIS invites public comments on the impact of these changes, and welcomes comments for revisions, corrections, and clarifications too.  Comments must be received by BIS no later than June 3, 2024, and should be filed using the Federal rulemaking portal (www.regulations.gov).  The Docket ID No. for this IFR is BIS–2024–0019; commenters, however, should also reference RIN 0694–AJ58 in all comments.

Note: For more information on this topic, please see our client update of April 23rd.

On April 17, 2024, the Office of the U.S. Trade Representative (USTR) initiated an investigation targeting the acts, policies, and practices of the maritime, logistics and shipbuilding sectors of the People’s Republic of China (PRC). This action results from a March 12, 202 petition filed by five U.S. labor unions under Section 301 of the Trade Act of 1974 requesting such an investigation. See Thompson Hine Update of March 13, 2014 for more details on the scope of the petition. Section 301 allows the United States to respond to unreasonable or discriminatory foreign government practices that burden or restrict U.S. commerce. 

In determining to initiate an investigation, Ambassador Katherine Tai stated, “The petition presents serious and concerning allegations of the PRC’s longstanding efforts to dominate the maritime, logistics, and shipbuilding sectors, cataloguing the PRC’s use of unfair, non-market policies and practices to achieve those goals. The allegations reflect what we have already seen across other sectors, where the PRC utilizes a wide range of non-market policies and practices to undermine fair competition and dominate the market, both in China and globally.” In accordance with Section 301, USTR will request consultations with the Chinese government, accept public comments, and hold a public hearing on the matter.

Interested parties may submit written comments on any issue covered by the investigation, such as:

  • China’s acts, policies, and practices targeting the maritime, logistics, and shipbuilding sectors for dominance, and whether they are unreasonable and discriminatory;
  • China’s efforts to dominate the global maritime, logistics, and shipbuilding sectors, including the upstream and downstream supply chain, as well as shipping services;
  • Information on other acts, policies, and practices of China relating to the maritime, logistics and shipbuilding sectors, including political guidance, directives, and control within state and private enterprises, activities of state-owned or state-controlled enterprises, market access and investment restrictions, opaque regulatory preferences and discrimination, wage-suppressing labor practices, state support of industry (including government guidance funds), and forced technology transfer (including state-sponsored cyber theft of intellectual property), or other means employed by China to achieve its goals, which might be included in this investigation, or be addressed through other applicable mechanisms; and
  • Whether China’s acts, policies, and practices burden or restrict U.S. commerce, and if so, the nature and level of the burden or restriction.

Any comments must be received no later than May 22, 2024, and submitted on USTR’s electronic portal at https://comments.ustr.gov/s/ under Docket No. USTR-2024-0005, “Request for Comments on the Section 301 Investigation of China’s Acts, Policies, and Practices Targeting the Maritime, Logistics, and Shipbuilding Sectors for Dominance.” A public hearing will be held on May 29, 2024, beginning at 10 a.m. EDT. Persons wishing to appear at the hearing must notify USTR no later than May 22, 2024. For additional details on the request for public comments and procedures for the public hearing, see USTR’s Notice.

On April 15, 2024, the U.S. Department of the Treasury, as Chair of the Committee on Foreign Investment in the United States (CFIUS), issued a Notice of Proposed Rulemaking (NPR) to enhance certain CFIUS procedures. This proposed rule would modify certain provisions in the CFIUS regulations pertaining to: (i) penalties for violations of statutory or regulatory provisions or agreements, conditions, or orders issued pursuant thereto; (ii) negotiation of mitigation agreements; (iii) requests for information by CFIUS; and (iv) certain other procedures. 

The proposed rule would refine and expand CFIUS’ authorities as follows:

  • Expanding the types of information CFIUS can require transaction parties and other persons to submit when engaging with them on transactions that were not filed with CFIUS. The proposed rule would expressly provide CFIUS authority to request information from transaction parties and other persons related to whether a transaction may raise national security considerations and/or meets the criteria for a mandatory CFIUS declaration, even for non-notified transactions. As for compliance monitoring and review of potential violations, the proposed rule would further amend relevant regulations to require parties to provide information to the Committee upon request in these circumstances. Currently, CFIUS can request information in both circumstances, but the regulations do not expressly obligate parties to respond. Under these proposed amendments, parties would be obligated to respond to such requests, and if failing to do so, CFIUS could seek to compel responses through issuance of a subpoena to the parties to the transaction or other persons.
  • Instituting an extendable timeline for transaction parties to respond to risk mitigation proposals for matters under active review to assist CFIUS in concluding its reviews and investigations within the statutory time frame. CFIUS notes that the regulations require parties to respond to follow-up information requested by the Staff Chairperson in connection with a declaration or notice generally within two or three business days of the request, however, with regards to proposals of terms to mitigate any identified national security risks there are no such deadlines. This proposed rule seeks to establish a similar time frame in which parties are required to respond to follow-up information requests during the investigation phase, and would allow parties to seek extensions in certain circumstances.
  • Expanding the circumstances in which a civil monetary penalty may be imposed due to a party’s material misstatement and omission, including when the material misstatement or omission occurs outside a review or investigation of a transaction and when it occurs in the context of CFIUS’ monitoring and compliance functions. Currently, this penalty amount is set at a maximum of $250,000 per violation as established 15 years ago. CFIUS believes this current penalty maximum may not sufficiently deter or penalize certain violations. The proposed rule seeks to increase this maximum penalty to $5 million per violation or, for certain provisions of the regulations, the greater of $5 million or the value of the transaction.
  • Similarly, CFIUS also seeks to increase the maximum civil monetary penalty available for violations of material provisions of mitigation agreements, material conditions imposed by CFIUS, or orders issued by CFIUS. The proposed rule maximum penalty of the greatest, per violation, of (i) $5 million, (ii) the value of the violating party’s interest in the U.S. business (or covered real estate) at the time of the transaction, (iii) the value of the violating party’s interest in the U.S. business (or covered real estate) at the time of the violation or the most proximate time to the violation for which assessing such value is practicable, or (iv) the value of the transaction. CFIUS notes that this range of measurements for the maximum penalty would provide an additional deterrent or penalty in the case of certain transactions valued at less than $5 million.
  • Extending the time frame for submission of a petition for reconsideration of a penalty to the Committee and the number of days for CFIUS to respond to such a petition. Currently, upon receiving notice of a penalty to be imposed, the subject party may submit a petition within 15 business days of receipt of such notice and CFIUS has 15 business days to assess the petition and issue a final penalty determination. The proposed rule would extend both time frames to 20 business days. Parties would continue to be allowed to seek extension of time for submitting a petition.

Regarding the proposed increases in applicable penalties, CFIUS notes that “[f]or the avoidance of doubt, while the amendments provided for in the proposed rule pertain to the maximum penalty that may be imposed for certain violations, they would not affect the Committee’s discretion to determine the appropriate penalty in individual cases.” In assessing compliance and whether to bring an enforcement action and seek any penalties in a particular case, CFIUS will continue to evaluate the facts and circumstances surrounding the conduct including the aggravating and mitigating factors described in the CFIUS Enforcement and Penalty Guidelines.

CFIUS is accepting public comments on this proposed rulemaking until May 15, 2024.