2022 was a big year for the Committee on Foreign Investment in the United States (CFIUS)—notification filings as well as mitigation agreements were both trending up, adding to the already challenging landscape for cross-border transactions

EO 14083 clearly articulates national security risks that the Committee must consider when reviewing covered transactions. The five areas of focus are: supply chain resilience; impact on US technological leadership; assessment of aggregate investment trends in industries; cybersecurity risks; and sensitive data.

CFIUS activity was already on the rise before September 15, 2022, when President Biden signed the first-ever CFIUS executive order (EO 14083), the first of two milestones last year that increasingly sharpened the US foreign direct investment watchdog's teeth.

EO 14083 clearly articulates national security risks that the Committee must consider when reviewing covered transactions. The five areas of focus are: supply chain resilience; impact on US technological leadership; assessment of aggregate investment trends in industries; cybersecurity risks; and sensitive data.

The Committee chair (the US Department of the Treasury) takes the lead in each case, supported by a co-lead—the federal agency with the most appropriate expertise to review a particular case.

While the five areas identified by the recent EO have traditionally been championed by co-leads on a case-by-case basis, they are now indisputable codified areas of focus by CFIUS.

A good guide

A second milestone came on October 20, 2022, when the Department of the Treasury published the CFIUS Enforcement and Penalty Guidelines. These describe, for the first time, how CFIUS identifies, processes and assesses National Security Agreement (NSA) violations and imposes penalties.

The guidelines identify three acts or omissions that constitute a violation:

• Failure to file a mandatory declaration or notice
• Conduct that is prohibited or otherwise fails to comply with CFIUS mitigation agreements, conditions or orders
• Material misstatements or omissions relating to information filed with CFIUS, including false or materially incomplete certifications filed in connection with assessments, reviews, investigations or CFIUS mitigation

Together with the CFIUS EO, the guidelines are a clear signal that the Executive Branch, from the White House to the CFIUS member agencies, is committed to protecting US national security interests across the entire deal screening process, from case assessments to monitoring NSAs.

As a result, deal parties are increasing their scrutiny of covered transactions for any national security concerns that may draw the attention of CFIUS, motivated by the more central role that penalties may play in the future. To date, CFIUS has publicly announced only two instances of civil penalties, one valued at US$1 million in 2018 and a US$750,000 fine in 2019.

This will change as CFIUS increases its emphasis on enforcement. Indeed, the explicit inclusion of what constitutes a violation and the setting out of the penalty process is a sign that non-compliance is likely to be met with a more forceful response.

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