On October 20, 2022, the U.S. Department of the Treasury (Treasury) released the Committee on Foreign Investment in the United States (CFIUS or the Committee) Enforcement and Penalty Guidelines (the Guidelines). The Guidelines describe (1) three categories of conduct that may constitute as CFIUS violations, (2) the Committee’s process for imposing penalties, and (3) factors the Committee considers when determining whether a penalty is warranted and the scope of such penalty. Since this is the first time the Treasury released guidance on enforcing CFIUS, contractors who have foreign investments, or are contemplating it, should review the main highlights of the Guidelines below to avoid potentially costly monetary penalties.
Three Categories of Conduct that May Constitute a Violation
The Committee exercises its discretion in determining whether, and to what extent, a penalty is appropriate. The Guidelines note that any of the below violations will not necessarily lead to a penalty, but may heighten the chances being sanctioned:
- Failure to timely submit a mandatory declaration or notice, as applicable.
- CFIUS non-compliance by participating in conduct that is prohibited by, or otherwise fails to comply with, CFIUS mitigation agreements, conditions, or orders.
- Material misstatement in, or omissions from, information filed with CFIUS.
- False or materially incomplete certifications filed in connection with assessments, reviews, investigations, or CFIUS mitigation, including information provided during informal consultations or in response to requests for information.
When determining whether a violation occurred, the Committee takes into consideration information sourced from across the U.S. government, publicly available information, third-party service providers, tips, transaction parties, and filing parties. The information is often obtained by request, self-disclosure by those who engaged in the conduct, and/or by referrals submitted to the CFIUS Monitoring & Enforcement webpage. CFIUS may use its subpoena authority under the Defense Production Act, as amended, if necessary and appropriate to gather information on a potential violation.
The General Process to Imposing Penalties
The process for considering and imposing penalties is reduced to the following timeline:
- The person being subject to enforcement (Subject Person) is sent a notice of the penalty, detailing the penalized conduct and the amount of any monetary penalties. The notice also includes the legal basis as to why the Subject Person’s conduct is deemed a CFIUS violation. CFIUS may provide the Subject Person an account of the aggravating and mitigating factors considered.
- The Subject Person is allotted fifteen (15) days from receipt of notice to submit a response (Petition for Reconsideration) to the CFIUS Staff Chairperson. The Petition for Reconsideration should include any defense, justification, mitigating factors, and/or explanation for the penalized conduct.
- If the Petition for Reconsideration is timely, the Committee will consider it before issuing a final penalty determination within fifteen (15) business days of receipt of the petition. If untimely, the Committee ordinarily will issue a final penalty determination in the form of a notice to the Subject Person.
Determining Whether a Penalty is Warranted and the Scope of Such Penalty
CFIUS engages in a fact-based analysis in which it weighs aggravating and mitigating factors related to the Subject Person’s conduct. The Guidelines provide a non-exhaustive list of factors that may be relevant, for example:
- Accountability and future compliance, focusing on the impact of the conduct on national security.
- Sophistication and Record of Compliance, considering the Subject Person’s history and familiarity with CFIUS and, if applicable, past compliance with CFIUS Mitigation.
- Response and remediation of the Subject Person, including, but not limited to, submission of a self-disclosure form and cooperation with the investigation.
The Guidelines bring to light what the Committee’s practice has been, providing a clearer picture of how violations are investigated and the process for determining the appropriate penalty. However, the Guidelines are non-binding and may not be relied upon to create any right or benefit, substantive or procedural, enforceable at law by any party in any capacity.
Attorneys in PilieroMazza’s Government Contracts Group are ready to assist contractors who have foreign investments, or are contemplating it, comply with CFIUS. If you have questions about the CFIUS Enforcement and Penalty Guidelines and its impact on your business, please contact Cy Alba, the author of this blog.
Special thanks to Ustina Ibrahim for her assistance with this blog.