New CFIUS Enforcement and Penalty Guidelines signal increased focus on enforcement

On October 20, 2022, the US Department of the Treasury released the Committee on Foreign Investment in the United States (CFIUS or the Committee) Enforcement and Penalty Guidelines (Guidelines) to provide the public with information regarding how CFIUS will assess violations of the laws and regulations that govern transaction parties subject to CFIUS jurisdiction.¹

The Guidelines send the message that CFIUS intends to increase its use of its enforcement powers regarding mitigation agreement compliance and compliance with mandatory filing regulations, which is consistent with CFIUS’s significant increase over the last few years in its staff personnel dedicated to monitoring and enforcement activities.² A Treasury press release accompanied the Guidelines, including a statement from Assistant Secretary Paul Rosen that “the Committee will not hesitate to use all of its tools and take enforcement action to ensure prompt compliance and remediation, including through the use of civil monetary penalties and other remedies.”³

The Guidelines include information on the types of conduct that may constitute a violation, the sources of information on which CFIUS relies to investigate a potential violation, the penalty process and specific factors CFIUS considers in determining if a penalty is warranted.  Of particular note, the Guidelines encourage for the first time the submission of voluntary self-disclosures of conduct that may constitute a violation of the CFIUS laws and regulations.

Violations such as failure to comply with a mandatory filing requirement and certain material breaches of mitigation agreements may result in significant penalties of up to $250,000 or the value of the transaction, whichever is greater.⁴ In the last few years, CFIUS has only imposed two civil monetary penalties – in 2018, for breaches of a CFIUS mitigation agreement, and in 2019, for violations of a CFIUS interim order.  However, the Guidelines, coupled with recent staff increases, appear to signal the Committee’s willingness to take a more aggressive approach to enforcement and the imposition of penalties.

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
• Non-compliance with CFIUS mitigation agreements, conditions and orders, and
• Material misstatements, omissions and false or materially incomplete certifications filed with CFIUS.

Sources of information

In addition to requesting information and reports from the parties themselves while monitoring compliance, CFIUS has invested significant time and resources to independently gathering information from dedicated resources within the US government, as well as from other available resources, such as publicly available information and databases, and third-party service providers, such as auditors and monitors. The Guidelines further encourage voluntary self-disclosures and tips.

Requests for information

CFIUS has significantly increased its efforts to identify transactions subject to its jurisdiction and to assess whether a filing was mandatory.  In 2021, CFIUS issued 135 requests for information to transaction parties in an effort to identify non-notified transactions for review.⁵ Per the Guidelines, CFIUS will continue to rely on requests for information to identify non-notified transactions that were subject to mandatory filing and take enforcement action where appropriate.  The Guidelines encourage parties to provide exculpatory evidence, as well as any defense, justification, mitigating factors or explanation for the conduct at issue, such as a failure to submit a mandatory filing.

Voluntary self-disclosures

The Guidelines also encourage parties that may have violated CFIUS laws and regulations to submit a timely self-disclosure in the form of a written notification.  While the concept of self-disclosure is commonly understood and utilized in other contexts, such as potential violations of economic sanctions administered by the Office of Foreign Assets Control (OFAC) or export controls administered by the Bureau of Industry and Security (BIS), this is the first time that CFIUS has publicly encouraged such submissions. The Guidelines note that CFIUS will consider the submission of timely and complete voluntary self-disclosures as a mitigating factor in determining its response to a potential violation.

Tips

The Guidelines encourage persons to submit tips, referrals or other relevant information to the Committee. In 2020, CFIUS established a mechanism on its website to submit tips and referrals with respect to non-notified transactions, violations of CFIUS mitigation measures and other matters that may raise national security concerns. CFIUS will continue to rely on public tips to identify non-notified transactions and in its enforcement efforts.

Aggravating and mitigating factors

The Guidelines enumerate a non-exhaustive list of aggravating and mitigating factors that CFIUS will consider in determining the appropriate penalty for a potential violation, including the following:

• 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 the Committee, and
• The parties’ sophistication and record of compliance.

Going forward

It is anticipated that CFIUS will materially increase its enforcement activity in line with the Guidelines. Parties to transactions that involve foreign investment in the US or other transactions subject to CFIUS jurisdiction are encouraged to carefully assess whether a filing is mandatory and implement robust compliance measures to satisfy the requirements of any CFIUS mitigation agreement to which they currently are, or become, a party.

DLA Piper will continue to monitor and report on the practical impacts of the Guidelines as CFIUS implements them into its enforcement process.

Our firm maintains a robust, cross-disciplinary CFIUS practice consisting of corporate, regulatory and government affairs professionals. Please contact any of our CFIUS attorneys should you have any questions.

_{¹ Treasury Releases CFIUS Enforcement and Penalty Guidelines, U.S. DEP’T OF THE TREASURY (Oct. 20, 2022),  https://home.treasury.gov/policy-issues/international/the-committee-on-foreign-investment-in-the-united-states-cfius/cfius-enforcement-and-penalty-guidelines.}

_{² CFIUS Annual Report to Congress Report Period: CY 2021, U.S. DEP’T OF THE TREASURY at 44 (Aug. 2022), https://home.treasury.gov/system/files/206/CFIUS-Public-AnnualReporttoCongressCY2021.pdf.}

_{³ Treasury Releases CFIUS Enforcement and Penalty Guidelines, U.S. DEP’T OF THE TREASURY (Oct. 20, 2022), https://home.treasury.gov/news/press-releases/jy1037.}

_{⁴ See 50 U.S.C. § 4565 (authorizing CFIUS to impose monetary penalties and seek other remedies for violations of Section 721 of the Defense Production Act of 1950, as amended, the implementing regulations, mitigation orders, conditions, or agreements pursuant thereto); see also 31 C.F.R. § 800.901.}

_{⁵ CFIUS Annual Report to Congress Report Period: CY 2021, U.S. DEP’T OF THE TREASURY at 45 (Aug. 2022), https://home.treasury.gov/system/files/206/CFIUS-Public-AnnualReporttoCongressCY2021.pdf; see also CFIUS Annual Report to Congress Report Period: CY 2020, U.S. DEP’T OF THE TREASURY (July 2021), https://home.treasury.gov/system/files/206/CFIUS-Public-Annual-Report-CY-2020.pdf.}