ARTICLE
5 February 2025

CFIUS Changes Now Effective; Key Takeaways From The Nippon Steel Case

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On January 3, 2025, President Biden issued an executive order blocking the proposed $15 billion acquisition of United States Steel Corporation by Nippon Steel Corporation...
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On January 3, 2025, President Biden issued an executive order blocking the proposed $15 billion acquisition of United States Steel Corporation by Nippon Steel Corporation. This decision marks a significant intervention in the steel industry, emphasizing national security concerns and the importance of maintaining the U.S.'s domestically owned steel sector.

This move by the Biden administration is unprecedented, as it is the first time a U.S. president has blocked a merger between a U.S. and Japanese firm. The decision underscores the administration's commitment to protecting domestic industries and ensuring national security, even at the expense of foreign investment by a close U.S. ally.

In response, on January 6, 2025, Nippon Steel and United States Steel Corporation filed suit against President Biden, alleging undue political influence in the national security review proceedings. The merger had become highly politicized ahead of the November 2024 U.S. presidential election, with both President Biden and President-elect Donald Trump promising to block the deal in a bid to entice voters in the swing state of Pennsylvania where U.S. Steel is headquartered. The parties are seeking a new review by CFIUS under the incoming administration.

With this transaction making headline news, the inaugural edition of this newsletter provides a refresher on some of the regulatory changes from 2024 that are now in effect.

Overview of CFIUS

The Committee on Foreign Investment in the United States (CFIUS) is an interagency committee chaired by the U.S. Department of the Treasury, tasked with reviewing the national security implications of foreign investments in U.S. businesses. Established as part of the Defense Production Act of 1950, CFIUS has the authority to review and potentially block transactions that could result in foreign control of U.S. businesses, particularly those involving critical technologies, infrastructure, or sensitive personal data.

Recent Regulatory Changes

On November 7, 2024, the Treasury announced a final Rule to amend several provisions of CFIUS regulations. The key changes included:

  1. Enhanced Fact-Finding: CFIUS can now request more detailed information about transactions not officially filed for review ("non-notified transactions"), allowing for proactive investigation of potential national security risks.
  2. Faster Response on Mitigation: Companies must respond to CFIUS' proposed risk mitigation measures within three business days, with possible extensions.
  3. Increased Penalties for Misinformation: Higher fines for material misstatements or omissions, including outside of a review process.
  4. Higher Maximum Penalties: The maximum penalty for violating CFIUS regulations has increased from $250,000 to $5 million per violation.
  5. Expanded Subpoena Power: CFIUS has broader authority to use subpoenas to gather information from third parties involved in unreported transactions or relevant to national security concerns.
  6. More Time for Reconsideration: Extended time frame for companies to challenge penalties imposed by CFIUS.

Implications for Businesses

CFIUS has the authority to review foreign takeovers of U.S. businesses as well as minority investments made by a foreign investor into a U.S. company. Businesses involved in foreign investments should be aware of the following:

  • Mandatory Filings: Ensure compliance with mandatory filing requirements for transactions involving critical technologies, infrastructure, or sensitive personal data.
  • Due Diligence: Conduct thorough due diligence to identify potential national security risks and prepare for CFIUS review.
  • Timely Responses: Be prepared to respond quickly to CFIUS' proposed mitigation measures to avoid delays and potential penalties.
  • Accurate Disclosures: Provide complete and accurate information in all CFIUS filings to avoid increased penalties for misinformation.

Key Takeaways

Together, these recent CFIUS regulatory changes and the unfolding of the Nippon Steel case highlight the importance of understanding and complying with CFIUS requirements during any business merger or acquisition involving foreign investors. Businesses should consult with legal and compliance experts to navigate these complex regulations and mitigate potential risks.

Co authored by Heather Sanborn

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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