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Treasury Publishes CFIUS Enforcement and Penalty Guidelines

On October 20, 2022, the US Treasury Department released the first Committee on Foreign Investment in the United States (“CFIUS”) Enforcement and Penalty Guidelines (the “Guidelines”). The Guidelines provide visibility into factors CFIUS considers when assessing violations of CFIUS laws and regulations, and determining potential penalties. The Guidelines are applied by the Monitoring and Enforcement office, which is part of the US Treasury Department’s Office of Investment Security.

The Guidelines apply when CFIUS assesses the following violations:

  • Failure to timely submit a mandatory filing with CFIUS regarding a proposed transaction
  • Failure to comply with CFIUS mitigation agreements, conditions, or orders
  • Failure to provide materially complete and accurate information to CFIUS in connection with a CFIUS filing or in the context of CFIUS mitigation

The Guidelines align with enforcement and penalty guidelines of the US Treasury Department’s Office of Foreign Assets Control (“OFAC”) and the US Commerce Department’s Bureau of Industry and Security (“BIS”) that have been in place for a number of years. In assessing violations, CFIUS will consider factors that echo OFAC and BIS guidelines, such as parties’ cooperation with government agencies, voluntary submission of a self-disclosure, the parties’ sophistication in terms of familiarity with the regulations, the seniority of the parties’ personnel who know or should have known about the violation, and any attempts to conceal information from CFIUS.  The Guidelines also address keys steps in the penalty process, which correspond to CFIUS’ regulations. 

Aggravating and Mitigating Factors

In determining whether to impose a penalty or another remedy, CFIUS may consider the following list of factors:

  • Accountability and Future Compliance – Whether the penalty would actually incentivize future compliance and protect US national security
  • Harm – The degree to which the violation created risks to national security
  • Negligence, Awareness, and Intent – The degree of knowledge and intent of the parties in committing the violation, which includes consideration of whether senior managers knew or should have known about the activity, and whether there were any attempts to conceal information from CFIUS
  • Persistence and Timing: The frequency and duration of the parties’ violation; the length of time before the parties informed CFIUS; the length of time since the mitigation agreement became effective (in the case of a violation of CFIUS mitigation); the date of the transaction (in the case of a failure to file).
  • Response and Remediation: Whether the parties submitted a voluntary self-disclosure and/or cooperated with CFIUS; the rigorousness of the parties’ remediation efforts
  • Sophistication and Record of Compliance: the parties’ history and familiarity with CFIUS and past compliance/non-compliance, including the existence and sufficiency of compliance policies and procedures

Viewed in the context of a significant increase of CFIUS monitoring resources in recent years, the release of these Guidelines highlights the importance of implementing effective CFIUS-related compliance measures as part of a regulatory strategy for transactions subject to CFIUS’ jurisdiction.  Such measures should help minimize a risk of running afoul of pre-closing filing requirements or  mitigation agreements post-closing.

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Author

Rod Hunter, a partner in the Washington, DC office, regularly advises on U.S. foreign investment regulation, including reviews conducted by the Committee on Foreign Investment in the United States (CFIUS) and procedures relating to mitigation of foreign ownership, control or influence (FOCI) under national industrial security regulations. He previously served as Special Assistant to the President for National Security Affairs and senior director for international economics at the National Security Council (NSC), the White House office that coordinates trade policy and supervises CFIUS. A recognized expert in the field, he has served as an expert witness on CFIUS in civil litigation and has testified before Congress during the legislative process leading to recent amendments to CFIUS’ authorizing legislation.

Author

Sylwia Lis is a partner in the Washington, DC office. She has extensive experience advising clients on national security reviews of foreign investments, including representation before the Committee on Foreign Investment in the United States (CFIUS). Sylwia also advises companies on US law relating to exports and reexports of commercial goods and technology (EAR), defense trade controls (ITAR), and trade sanctions (OFAC) - including licensing, regulatory interpretations, M&A due diligence and regulatory notifications (DDTC/ITAR notification process), compliance programs and enforcement matters.

Author

Callie is an Associate in Baker McKenzie's Washington, DC office in the International Commercial practice. She has experience advising on international trade law, particularly national security reviews of foreign investments and compliance with US export controls and trade and economic sanctions.

Author

Orfeh Vahabzadeh is an associate in the Washington, DC office where she is a member of the International Commercial Practice Group. Prior to joining Baker McKenzie as an associate, Orfeh worked as a summer associate in 2020. Orfeh also previously served as a political appointee for the White House at the US Department of Transportation.

Author

Caroline Howard is an associate in the Washington, DC office where she is a member of the International Commercial Practice Group. Her practice is focused on all aspects of international trade law, particularly compliance with US export controls, trade and economic sanctions, and US foreign investment restrictions. She represents clients in national security reviews before the Committee on Foreign Investment in the United States (CFIUS). Prior to joining the Firm, Caroline worked in telecommunications law. Specifically, she handled applications for international Section 214 authorizations, which included helping clients navigate Team Telecom's specific national security review for foreign participation in the US telecommunications sector.

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