CFIUS Issues New Enforcement and Penalty Guidelines
October 20, 2022
On October 20, 2022, the US Department of the Treasury, as Chair of the Committee on Foreign Investment in the United States (“CFIUS”), released the first-ever CFIUS Enforcement and Penalty Guidelines (the “Guidelines”). The Guidelines provide insight into how CFIUS will assess violations of the laws and regulations that govern transaction parties subject to the CFIUS jurisdiction, and clearly signals CFIUS’s intention to increase its enforcement of both the mandatory filing requirement under FIRRMA and the terms of mitigation agreements. In particular, the Guidelines describe the types of conduct that may constitute a violation, the process CFIUS generally follows in imposing penalties, and a non-exhaustive list of aggravating and mitigating factors that CFIUS will consider.
Types of Conduct That May Constitute a Violation
The Guidelines enumerate three categories of acts or omissions that may constitute a violation:
The failure to file a mandatory declaration or notice in a timely manner;
Non-compliance with CFIUS mitigation agreements, conditions and orders; and
Material misstatements, omissions and false or materially incomplete certifications filed with CFIUS.
According to the Guidelines, a violation will not necessarily lead to penalties since CFIUS will exercise discretion in determining when penalties are appropriate. The Guidelines provide how CFIUS obtains information with respect to any potential violation, which includes but not limited to, obtaining information from the parties themselves (through voluntary self-disclosures or in response to CFIUS inquiries), monitors and auditors for CFIUS mitigation agreements, public tips, other government agencies, and publicly available information. In particular, the Guidelines provide the first formal discussion of voluntary self-disclosure to CFIUS. According to the Guidelines, CFIUS strongly encourages timely self-disclosure of potential violations and has indicated that self-disclosure may be a mitigating factor when determining its enforcement response to an alleged violation.
The Penalty Process
The Guidelines also outline the basic procedural process governing a potential enforcement or penalty action. Generally speaking, CFIUS will send the subject person a notice of penalty stating the basis for the penalty and penalty amount. The subject person may submit a petition to CFIUS for reconsideration within 15 business days, and CFIUS will issue a final penalty determination within 15 business days upon the receipt of such petition if such petition is timely filed. If no petition is timely filed, CFIUS will issue a final penalty determination in the form of a notice to the subject person.
Aggravating and Mitigating Factors
The Guidelines provide a non-exhaustive list of aggravating and mitigating factors that CFIUS will consider when determining the appropriate response to an alleged violation, including:
Accountability and future compliance by the parties;
Harm to US national security caused by the conduct;
Negligence, awareness and intent of the parties;
Persistence and timing of the violations;
Response and remediation by the parties, including whether the party submitted a self-disclosure and cooperated with CFIUS; and
The parties’ sophistication and record of compliance.