CFIUS Provides Guidance on Enforcement of its Mitigation Agreements
The Committee on Foreign Investment in the United States (“CFIUS”) is cracking down on companies who fail to comply with CFIUS mitigation agreements and other legal obligations under section 721 of the Defense Production Act of 1950, as amended (codified at 50 U.S.C. 4565). On October 20, 2022, the Department of Treasury, chair of CFIUS, released its first Enforcement and Penalty Guidelines (“Guidelines”). The Guidelines “provide the public with important information about how CFIUS will assess whether and in what amount to impose a penalty or take some other enforcement action for a violation of a party’s obligation.” October 20, 2022 Treasury Press Release.
CFIUS is an interagency committee which reviews specific transactions involving foreign investment in the United States and real estate transactions by foreign persons for potential national security risks. CFIUS has jurisdiction over any transaction that would result in control of a U.S. business by a foreign person or involves foreign investment in certain US businesses. See Overview of CFIUS Laws and Guidance. CFIUS often requires mitigation agreements or imposes restrictions on parties to reduce potential national security risks that may arise from a transaction.
CFIUS can impose monetary penalties and seek other remedies for Section 721 violations. The Guidelines lists three major categories of conduct which may be considered a violation: (1) Failure to File; (2) Non-Compliance with CFIUS Mitigation; and (3) Material Misstatement, Omission, or False Certification. According to the guidelines, CFIUS will weigh aggravating and mitigating factors when determining any appropriate penalty for a violation. Among other mitigating factors, CFIUS will take into consideration a business’s sophistication and record of compliance, making it even more pertinent for companies to develop a robust compliance program.
We have expertise in assisting clients with CFIUS reviews and other foreign contracting issues. If you have any questions about compliance with CFIUS mitigation agreements or filing a mandatory declaration, please contact Ward and Berry.