On October 20, the Committee on Foreign Investment in the United States (CFIUS or the Committee) issued a press release laying out new guidance to provide clarity about how the Committee assesses violations of the laws and regulations that govern transaction parties, including potential breaches of CFIUS mitigation agreements.
Penalties are possible for the following behavior:
- Failure to File – After the 2018 and 2019 amendments to the CFIUS rules, certain CFIUS filings are now mandatory, including those where the U.S. target makes or holds information related to making items that are controlled for export. Many companies (especially those that don’t export) are not aware that their products (or existing know-how) are controlled for export. Moreover, the scope of export controls has been expanding, which in turn expands the scope of covered CFIUS transactions.
- Non-Compliance with CFIUS Mitigation – When CFIUS has national security concerns about a transaction that it believes can be mitigated through restrictions on foreign national access to technology and via other limiting steps, it will sometimes agree to allow the transaction to proceed, but only if specific, agreed mitigating steps are are fully followed, often described in national security agreements. The new guidance emphasizes that CFIUS will be watching more carefully for compliance with those agreements and that penalties await companies that do not comply.
- Material Misstatement, Omission, or False Certifications to CFIUS during a Review Process – If a party to a CFIUS review makes material misstatements, omissions, and/or false certifications in their documentation filed with CFIUS, then that party could be seen as inhibiting the Committee’s ability to conduct a comprehensive review, and that risks imposition of a penalty.
After implementing its new regulations based on the 2018 amendments to its governing statute, the Committee has been busy processing an increased caseload. This new enforcement announcement is effectively a warning to parties planning submissions, and to parties that have gone through reviews, that the Committee is serious about its enforcement authorities. Those appearing before the Committee and those with existing national security agreements have been put on notice.
We expect to see announcements of penalties going forward.