The Treasury Department has issued guidelines on the imposition of penalties and other remedies for violations of Section 721 of the Defense Production Act, which authorizes the Committee on Foreign Investment in the U.S. to review, block, and even unwind certain transactions involving foreign investments in U.S. companies or operations that may jeopardize national security.
CFIUS’ powers were greatly expanded by the 2018 Foreign Investment Risk Review Modernization Act, which broadened the committee’s jurisdiction to include emerging and foundational technologies, added new national security factors for CFIUS to consider, and strengthened CFIUS’ ability to protect critical infrastructure from foreign government disruption. FIRMMA also created a requirement for parties to submit a mandatory declaration (essentially a prior notification filing) to CFIUS for certain investments by non-U.S. individuals in any U.S. business that produces, designs, tests, manufactures, fabricates, or develops one or more critical technologies.
CFIUS can impose monetary penalties and seek other remedies (e.g., directed notices, action plans) for violations of Section 721, associated regulations, or related mitigation orders, conditions, or agreements. Treasury has now issued guidelines that describe:
- the three categories of conduct that may constitute a violation (failure to timely submit a mandatory declaration or notice, non-compliance with CFIUS mitigation, and material misstatements, omissions, or false certifications);
- the sources of information on which CFIUS relies (requests for information, self-disclosures, and tips);
- the factors CFIUS considers in determining whether a penalty is warranted and the scope of any such penalty (e.g., negligence and intent, persistence and timing, response and remediation, and record of compliance); and
- the process CFIUS generally follows in imposing penalties (including issuing penalty notices and allowing petitions for reconsideration).
Treasury notes that CFIUS penalties may be issued in addition to civil or criminal penalties that may be applicable under other authorities.
For more information on CFIUS requirements and avoiding related penalties, please contact attorney Kristine Pirnia at (202) 730-4964 or via email.
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