CFIUS Issues Enforcement and Penalty Guidelines

The Committee on Foreign Investment in the United States (“CFIUS”), which is responsible for reviewing foreign investments in U.S. businesses with potential national security implications, has issued Enforcement and Penalty Guidelines (“Guidelines”) explaining for the first time how the Committee assesses penalties for violations of the laws and regulations governing parties subject to CFIUS jurisdiction. The issuance of the Guidelines signals that the Committee’s Monitoring & Enforcement office intends to use the enhanced enforcement authorities conferred by the Foreign Investment Risk Review Modernization Act of 2018 (“FIRRMA”) to take action against parties that fail to comply with CFIUS-related legal obligations, in particular, violations of CFIUS mitigation agreements.

The Guidelines describe the types of conduct that may constitute a violation, the sources of information on which CFIUS relies for enforcement actions, the penalty process, and factors considered in determining whether to impose penalties.

Potential Violations of CFIUS Laws and Regulations

Under the laws and regulations governing the CFIUS process, there are three types of activities that can be subject to enforcement actions:

• Failure to File. Failing to timely submit mandatory notifications of transactions to CFIUS.
• Non-Compliance with CFIUS Mitigation. Violating material provisions of CFIUS mitigation agreements, conditions, or orders (“CFIUS Mitigation”).
• Material Misstatements, Omissions, or False Certifications. Submitting filings to CFIUS with material misstatements or omissions, or false certifications in connection with such filings.

Notably, the Guidelines’ description of the types of conduct that may constitute a violation appears to expand the scope of conduct beyond that found in the CFIUS regulations, though the Guidelines acknowledge the regulations are controlling where there are inconsistencies. For example, the Guidelines indicate that material misrepresentations or omissions provided during informal consultations or in response to requests for information may be subject to penalties, which is broader than the language of the applicable CFIUS regulations.

Penalties for submission of filings with material misstatements, omissions, or false certifications may be liable for civil penalties up to $250,000 per violation. Penalties for failure to file or violation of CFIUS mitigation may be the greater of up to $250,000 or the value of the transaction.

Sources of Information for CFIUS Enforcement Action

According to the Guidelines, CFIUS relies upon various sources of information to determine whether a violation has occurred, including publicly available information, information from transaction parties (whether in response to a request from CFIUS or self-disclosed), from sources “across the U.S. government,” and third-parties. In particular, the Guidelines encourage tips from anyone who believes a violation may have occurred.

Penalty Process

As described in the CFIUS regulations, prior to taking an enforcement action, CFIUS first sends the target a notice of penalty, with a written explanation of the violative conduct and the amount of penalty. 

Per the Guidelines, CFIUS will consider various case-specific factors in determining the appropriate penalty. These include: 

• Accountability for the violative conduct;
• Harm to national security caused by the violative conduct;
• Whether the violations were intentional;
• The frequency and duration of the violative conduct;
• Whether steps were taken to remediate the violation; and
• The party’s sophistication and record of compliance.

Following the issuance of a penalty notice, the recipient has 15 business days to submit a petition for reconsideration to the CFIUS Staff Chairperson. If CFIUS receives a timely petition, it will consider it before issuing a final determination within 15 business days of receipt of the petition. If no timely petition is received, CFIUS will issue a final penalty determination. 

Implications

The issuance of the Guidelines indicate that CFIUS intends to use the enhanced authorities it was granted by FIRRMA to enforce the CFIUS regime, in particular with regard to compliance with CFIUS Mitigation. While the number of CFIUS enforcement actions to date has been limited (according to publicly available data there were one each in 2018 and 2019), by publishing the Guidelines, CFIUS may be foreshadowing greater action in the future. The Guidelines highlight the need for parties to foreign investment transactions to ensure that they are mindful of the CFIUS rules and that those with mitigation agreements are dedicating the necessary attention and resources to ensure compliance so as not to fall afoul of their obligations.

This memorandum is a summary for general information and discussion only and may be considered an advertisement for certain purposes. It is not a full analysis of the matters presented, may not be relied upon as legal advice, and does not purport to represent the views of our clients or the Firm. Greta Lichtenbaum, an O’Melveny partner licensed to practice law in the District of Columbia, David J. Ribner, an O’Melveny counsel licensed to practice law in the District of Columbia and New York, and Damilola G. Arowolaju, an O’Melveny associate licensed to practice law in the District of Columbia, contributed to the content of this newsletter. The views expressed in this newsletter are the views of the authors except as otherwise noted.

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