WASHINGTON — The federal government on Thursday revealed for the first time how it will determine penalties for foreign companies that violate agreements to protect America’s national security.
Some foreign companies enter into agreements with the Foreign Investment in the United States, a group of federal agencies, to mitigate national security concerns about new ownership when acquiring US companies. The commission, known as CFIUS, can impose fines on companies that violate contracts, some of which can be very expensive.
New guidelines issued Thursday give insight into how the committee, which wields considerable power over foreign trade but is often viewed as a black box, makes decisions. It forced a Chinese company to sell dating app Grindr and another Chinese company to sell it from a US hotel management software maker. The commission is currently negotiating an agreement with popular video app TikTok to resolve concerns raised by Chinese ownership.
According to the new guidelines, the commission could consider more severe penalties if a foreign company’s failure to comply with the agreement poses a particularly significant risk to national security. CFIUS will also consider whether the committee took a long time to learn of the foreign company’s failure to comply with the agreement. New non-binding guidelines also consider whether a company’s failure was intentional or simply negligent.
President Biden has sought to limit the influence of China and other adversaries on American businesses and consumers. Lawmakers and regulators have warned that China could use its proximity to major computer chip makers in Asia to influence the supply of core devices for a vast array of products, including consumer electronics and automobiles. There are also many concerns that Chinese-owned apps such as TikTok and WeChat will pass data of Americans to Beijing under Chinese law.
This month, the Biden administration issued restrictions barring Americans from working with Chinese semiconductor companies. Biden issued an executive order last month directing CFIUS to scrutinize whether corporate transactions involving foreign companies, including China, expose Americans’ personal data or involve important emerging technologies. signed.
The guidelines, issued Thursday, do not name specific foreign countries.
Paul Rosen, the Treasury Department’s undersecretary for investment security, which oversees CFIUS, said in a statement that most foreign companies comply with the treaty on national security. “Anyone who fails to comply with this mitigation agreement or other legal obligations will be held accountable.”
The commission has been busy in recent years, reviewing hundreds of business deals filed in 2021, according to a report the commission submitted to Congress. In some of these cases, the Commission has agreed to approve transactions only if the foreign company agrees to implement measures designed to mitigate its concerns.
Rosen said in a statement that the guidelines send a “clear message” that it is “not voluntary” for companies to follow agreements with governments.
Under federal law, the government can fine companies that violate agreements with the commission. Fines can be as high as the total value of the corporate transaction in question.
The guidelines also publicly explain how businesses can challenge penalties from the government and make it clearer how the commission will monitor violations. According to the memo, the government has knowledge of possible violations “from the entire U.S. government, publicly available information, third-party service providers (such as auditors and monitors), tips,” and from participants in the transaction itself.