The U.S. Treasury Department desires to strengthen the ability of a little-known, secret government committee that reviews deals between U.S. firms and foreign investors.
This comes as high-profile deals involving foreign investment within the US – comparable to Chinese company ByteDance’s ownership of popular social media app TikTok and Japanese company Nippon Steel’s bid to amass Pittsburgh-based US Steel Corp. to purchase – are facing increased scrutiny from lawmakers and even President Joe Biden.
A brand new rulemaking proposal would strengthen the authority of interagency agencies Committee on Foreign Investment within the United States – often called CFIUS – is tasked with investigating company transactions on national security grounds and has the ability to force the corporate to sell its ownership rights or change large parts of the corporate.
The settlement, if finalized, would expand the committee’s subpoena powers, allow the committee to request more information from the parties to a proposed sale and expand the circumstances under which fines might be imposed and their amount – from $250,000 to $5 million for misrepresentations and omissions and failure to file mandatory returns.
The proposed change comes because the convergence of national security concerns surrounding foreign investment has increased – as competition between the world’s biggest powers heats up and the US focuses on expanding its domestic supply chains.
President Joe Biden got here into opposition on the planned sale of US Steel to Japan’s Nippon Steel and said in March that the US must “maintain strong American steel companies powered by American steelworkers.” Japanese Prime Minister Fumio Kishida said during a news conference on the White House on Wednesday that he hoped discussions on Nippon would “develop in directions that would be positive for both sides.”
Nippon Steel announced in December that it will buy the Pittsburgh-based steelmaker for $14.1 billion in money, raising concerns in regards to the deal’s impact on unionized employees, supply chains and U.S. national security.
Assistant Treasury Secretary for Investment Security Paul Rosen said the rulemaking is meant to “more effectively deter violations, promote compliance and quickly address national security risks associated with CFIUS reviews.”
John Carlin, former head of the Justice Department’s national security division and a partner at law firm Paul Weiss, said the proposed rule shows how “companies are at the forefront of national security policy and how seriously the government takes foreign investment.”
“Today’s announcement is about adding tools to help them investigate and enforce more actively and aggressively,” he said. He added that this could “serve as an incentive for people to really weigh deals to see whether they need to apply or not.”
“It really makes CFIUS more of an enforcement agency” by expanding its subpoena powers, he said.
Another deal under review by CFIUS is the ownership of the favored social media app TikTok. CFIUS’ review of the social media app dates back to at the very least 2019, although no changes were made to that review. The US House of Representatives has now passed a bill That would force ByteDance to either sell the app or ban it within the US
Asked about TikTok at a news conference in Beijing on Monday, Treasury Secretary Janet Yellen said she supported the administration’s efforts to handle national security issues related to sensitive personal data. “It’s a legitimate concern,” she said.
“Many US social apps are not allowed to operate in China,” said Yellen. “We want to find a way forward.”
J. Philip Ludvigson, a partner on the law firm King & Spalding, said the proposed rules are “another indicator of an increasingly aggressive stance in protecting national security.” Ludvigson is the previous director of CFIUS Monitoring & Enforcement.
“CFIUS clearly intends to impose more and greater penalties than ever before and to resort to expanded subpoena power when necessary,” he said.
The US has also begun reviewing certain transactions between US firms and people in China.
President Joe Biden signed an executive order last August to dam and regulate US high-tech investments towards China.
