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On October 20, 2022, the U.S. Department of the Treasury (“Treasury”), in its role as chair of the Committee on Foreign Investment in the United States (“CFIUS”), issued the first-ever CFIUS Enforcement and Penalty Guidelines (the “Guidelines”). The Guidelines apprise the public of CFIUS’s intention to penalize violations of the CFIUS regulations, emphasize the importance of voluntary self-disclosures of violations, and provide a basic overview of the penalty process.
As a threshold matter, it is important to clarify what constitutes a “violation” in the CFIUS context. The relevant regulations provide for CFIUS review of certain foreign investments in U.S. businesses and empower CFIUS to block or mitigate such investments on national security grounds. While CFIUS retains broad discretion to take such action in the context of transactions, “violations” punishable by monetary penalties only arise in specific circumstances.
A party can violate the CFIUS regulations by (1) failing to make a mandatory filing; (2) failing to comply with a CFIUS mitigation agreement, condition, or order; or (3) making material misstatements or omitting material facts before CFIUS. Failure to file and mitigation-related violations are punishable by penalties of up to the greater of $250,000 per violation or the value of the transaction (with liquidated damages available if specified in a mitigation agreement), while material misstatements/omissions are punishable by penalties of up to $250,000 per violation.
Notable aspects of the Guidelines include the following:
- Grounds for violation/penalty. The Guidelines make clear that the three grounds noted above are the grounds on which a violation is punishable by a civil penalty.
- Sources of information. The Guidelines indicate that CFIUS gathers information on potential violations through requests for information, voluntary self-disclosures, and tips.
- Self–disclosures. The Guidelines comment at length on the self-disclosure mechanism available to violators, noting, inter alia, that CFIUS will focus on the “timeliness” of disclosures and whether CFIUS already was aware of the conduct at issue, and that parties have the option to submit an initial disclosure and follow up with a more complete report.
- Penalty process. The penalty process begins with issuance of a notice of penalty, after which the recipient has 15 days to request reconsideration. CFIUS will issue a final penalty determination within 15 days of receipt of a petition for reconsideration (if any).
- Aggravating and mitigating factors. The Guidelines set out a range of aggravating and mitigating factors that CFIUS will consider, including the impact on national security, the violating party’s level of care and state of mind, the timing of the violation and of CFIUS becoming aware of the conduct, and the violating party’s response to the violation, remediation efforts, sophistication, and record of compliance.
Key takeaways of Treasury’s guidelines are as follows:
- Issuance of the Guidelines reflects CFIUS’s focus on punishing violations of the regulations, and it is important to understand what constitutes a violation.
- Companies that have violated the rules should consider whether to make a self-disclosure.
- Investors in companies that previously have taken on foreign investment should assess whether the target has violated the rules and, if so, what remediation would be appropriate.