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The U.S. Department of Treasury recently released Enforcement
and Penalty Guidelines (Guidelines) that
outline conduct violating the Committee on Foreign Investment in
the United States (CFIUS or
Committee) regulations. Specifically, these
Guidelines, the first of their kind, outline CFIUS’ process and
practical considerations when deciding whether to impose penalties
and how severely to enforce a violation.
These Guidelines come several weeks after the
Administration’s release of Executive Order
(EO) 14083 “Ensuring Robust Consideration of
Evolving National Security Risks by the Committee on Foreign
Investment in the United States.” EO 14083 is notable as it is
the first presidential directive defining CFIUS security
considerations. That said, the order outlines many of the factors
that the Committee already considers when reviewing transactions
under its purview. EO 14083, defines five key national security
factors for CFIUS to consider when analyzing transactions for
potential violations:
- Effect on U.S. supply chain resilience, including those outside
the defense industrial base. - Effect on U.S. technological leadership in national security
sectors, including microelectronics, artificial intelligence,
biotechnology and biomanufacturing, quantum computing, advanced
clean energy, and climate adaptation technologies - Industry investment trends and possible national security
reverberations from the transaction - Cybersecurity risks threatening national security
- Risks to U.S. persons’ sensitive data
Central to both the Guidelines and EO 14083 are the importance
of voluntary self-disclosures and the consequence for failing to
make mandatory filings to the Committee. These two recent actions
highlight the significance the Biden Administration places on CFIUS
as a tool to combat national security threats.
CFIUS Enforcement and Penalty Guidelines
Under its mandate to review foreign investments in the United
States, CFIUS is tasked with determining whether and to what degree
a flagged transaction might jeopardize national security. These new
guidelines outline the process the Committee follows when making
those decisions. Specifically, it lays out the type of conduct the
Committee considers a violation, the review process for imposing
penalties, and the different factors that impact how severe of a
penalty is appropriate.
Under the Guidelines, there are three categories of conduct that
result in a violation:
- Failure to File applicable mandatory
declarations or notices - Noncompliance with CFIUS Mitigation
- Material Misstatements, Omissions or False
Certifications
While the Guidelines list several tools at the Committee’s
disposal to uncover one of the above violations—for example,
submitted tips and referrals, and information requests to support
mitigation efforts—voluntary self-disclosures by companies
are critical. The guidelines introduce a voluntary disclosure
process for self-reporting potential CFIUS violations similar to
what has historically been more common with export controls and
sanctions violations. The timeliness, nature and
scope of a disclosure are only a few of the
mitigating factors CFIUS will consider when
calculating a violation penalty.
Timeliness will be assessed on two primary
considerations: 1) was the conduct already discovered or about to
be discovered prior to the self-disclosure, and 2) has the
reporting party complied with any applicable CFIUS mitigation
(Mitigation) measures that would require
disclosing the conduct. The Guidelines do not replace or
modify any reporting or notification requirements tied to
Mitigation efforts.
Other aggravating and mitigating factors include:
- Accountability and Future Compliance,
including through self-disclosures - Degree of harm to U.S. national security
caused or threatened to cause - Negligence, Awareness, and Intent –
degree of negligence, efforts to interfere with information
sharing, and seniority of personnel who knew or should have
known - Persistence and Timing – duration of
conduct prior to CFIUS awareness, date of transactions (Failure to
File), and the amount of time elapsed since Mitigation was issued
or became effective - Response and Remediation –
self-disclosures (timeliness, nature, and scope), cooperation with
Committee investigations, promptness and completeness of
remediation measures, and whether an internal review was conducted
to prevent reoccurrence - Sophistication and Compliance Record –
history of dealings with CFIUS and other federal, local, or foreign
authorities, internal and external compliance resources, training
and procedures in place to prevent the conduct and stem the source
of the failure, consistency of compliance and internal compliance
culture
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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