The recent $1 million fine by the Committee on Foreign Investment in the United States (“CFIUS”) reminds parties investing in the United States to continue to be diligent in reviewing the applicability of CFIUS to their transactions. During and after the review process, parties should also be mindful of the requirements of CFIUS review. Parties should ensure that all information provided to CFIUS is complete and accurate. Any parties that enter into mitigation measures should ensure that they take appropriate steps to comply with those requirements, which may require adding oversight staff or contracting with third parties.
CFIUS has long had the authority to impose fines on parties that do not appropriately disclose material information during a CFIUS review or fail to comply with mitigation measures agreed to by the parties and CFIUS as a condition of approval. However, historically, this authority appears not to have been used. In addition, the Foreign Investment Risk Review Modernization Act granted CFIUS the authority to mandate certain filings and impose fines on those that fail to comply. (The Pilot Program regulations state that penalties for failure to comply with mandatory filing requirements may be up to the value of the transaction.)
On April 12, 2019, CFIUS released a brief statement on its website that in 2018 it imposed a fine of $1 million on an unnamed company for failure to comply with a mitigation agreement. Specifically, the penalty was imposed for “repeated breaches of a 2016 CFIUS mitigation agreement, including failure to establish requisite security policies and failure to provide adequate reports to CFIUS.” This appears to be the first time CFIUS has used its penalty powers and a signal that it may do so more frequently. Part of this interest in penalties may be due to the recent creation within CFIUS of a team wholly dedicated to monitoring compliance with mitigation agreements.
In light of this and recent divestiture orders, it appears that CFIUS continues to become more active. Assessing what may concern CFIUS and how best to address that risk is an important step in any proposed acquisition or investment involving non-U.S. investors. Winston stands ready to assist with its active practice counseling clients on the CFIUS review process and national-security related risks posed by potential transactions.