21 octubre 2022 Jonathan Gafni  -  Anna Gooding  -  Ray Hou ForeignInvestmentLinks

Trick or Treat: CFIUS Issues First-Ever Guidance on Penalties and Enforcement

As a pre-Halloween treat, the Committee on Foreign Investment in the United States (CFIUS) released its first-ever CFIUS Enforcement and Penalty Guidelines on October 20. CFIUS is charged with identifying, and if possible mitigating, risks to U.S. national security arising from foreign investments in U.S. businesses. As part of its authority, CFIUS can impose penalties on the parties to a transaction for:

  • failure to submit a required pre-closing filing;
  • non-compliance with risk mitigation terms required by CFIUS as a condition for its clearance of a transaction; or
  • submissions to CFIUS that contain material misstatements or omissions or false certifications.

Either of the first two categories can result in a civil penalty of as much as US$250,000 or 100% of the value of the transaction, whichever is greater. The third category can lead to a civil penalty of up to US$250,000. In addition, agreements containing mitigation conditions can specify additional liquidated damages.

The new guidelines largely reflect information presented by CFIUS at its inaugural conference in June 2022. Although that information was instructive, it was otherwise unavailable to the public until publication of this guidance.

The guidelines mainly describe the process by which CFIUS learns of violations, and considers and imposes penalties, including the factors considered by CFIUS in determining whether a penalty is warranted and the size of the penalty. They also describe the process through which parties can seek reconsideration of penalties imposed by CFIUS.

CFIUS notes that this guidance document is not binding, creates no substantive or procedural rights, and “can and will be updated as circumstances require.” That said, the 2014 Ralls decision by the D.C. Circuit Court of Appeals confirmed that CFIUS needs to respect constitutional due process rights, so there do appear to be guardrails around future changes to the guidance. 

Finally, while the guidelines are mainly a treat, they may also represent a trick for violators of CFIUS’s rules. As discussed in our June podcast with Tom Feddo (former Assistant Secretary for Investment Security and head of CFIUS), publication of enforcement guidelines was unfinished business for CFIUS. CFIUS’s issuance of the guidelines after all this time may signal CFIUS’s intent to begin more frequent or aggressive enforcement actions.