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Yellen Stresses 'Robust' Enforcement at Annual CFIUS Conference

Treasury Secretary Janet Yellen said the Committee on Foreign Investment in the U.S. is doubling down on enforcement, warning industry lawyers about potential subpoenas or penalties for violating the committee's rules or mitigation agreements. Yellen’s comments came one day after Paul Rosen, who heads CFIUS, said the committee recently hired additional enforcement officials and may add more.

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Yellen, speaking during CFIUS’ second annual conference in Washington, stressed that an “open investment climate is crucial to the U.S. economy,” but she also said national security is the committee’s “foremost priority.” CFIUS has “renewed our focus on enforcement” over the past year, she said, warning it will impose monetary penalties and “seek other remedies” for violations.

“While promoting compliance remains the goal,” Yellen said, “robust enforcement with cases of noncompliance is key.” CFIUS has only ever issued a handful of fines, but that number is expected to soon increase (see 2307120029).

Rosen, testifying before the House Financial Services Committee this week, said CFIUS has seen a spike in mitigation agreements over the past two years -- arrangements that impose conditions on investments before they can be cleared by committee -- and said his office is “taking a very, very close look at these transactions. We are not clearing them without mitigation or referral [to the president], when necessary.”

Although CFIUS has a “good solid track record of compliance,” he said the committee also is adding a “growing amount of enforcement and compliance personnel.” Enforcement “is a resource intensive issue,” Rosen said, “and we want to make sure that we maintain robust resources to do that. And it's an area that we're growing in right now.”

Yellen said she thinks CFIUS reviews and other investment restrictions, including future prohibitions of certain outbound investments in China, should be “carefully scoped and targeted.” But she also said the administration should constantly be looking at whether CFIUS needs expanded powers.

“CFIUS must also reflect a changing world,” Yellen said “As new threats and vulnerabilities emerge, our national security priorities shift in response, and CFIUS needs to evolve in parallel.”

She added: “We know there's more to do. As risks evolve, CFIUS and other investment security tools must too.”

Yellen also asked for closer cooperation from investors during CFIUS reviews. She said businesses should “brief the committee early" and "ask any questions they may have on the CFIUS process” before investors get too far into a deal. “We know that certainty matters to transaction parties, and their early engagement helps us,” she said.

Yellen’s remarks came about a month after CFIUS released its annual report to Congress (see 2308250009 and 2308010053), which showed it spent an average of 80.5 days to close an investigation in 2022 compared with 65 days the previous year. It also showed CFIUS is imposing more mitigation agreements, which Rosen said stems from CFIUS taking into account a broader “range of threats” when reviewing potential mergers.

“We're seeing a range of vulnerabilities that are evolving,” he said, adding that data and cybersecurity specifically are an “increasing challenge.”

Rosen also noted that CFIUS went another year without referring a deal to the president for a decision, but that doesn’t mean the committee didn’t come close to a referral. “Oftentimes when we assess that there's a risk or a concern and we are prepared to refer a matter to the president, the parties will just voluntarily withdraw” and either refile or abandon the transaction, he said. Companies would rather avoid a “public presidential order of divestment.”