Key Takeaways

This Alert presents statistics and key takeaways from the Committee on Foreign Investment in the United States (CFIUS) Annual Report for Calendar Year (CY) 2022, released on July 31, 2023.

• Statistics and highlights are presented for declaration filings, joint voluntary notice (JVN) filings and “non-notified” filings.
• The reference in the Annual Report to a record number of filings in 2022 likely is a bit of an overstatement, as there also was a record number of withdrawals and refiles and requests for JVN filings after declaration assessments. Thus, the number of unique cases reviewed by CFIUS in CY 2022 was lower than reflected in the tables below.
• The Annual Report confirms more withdrawals and refiles (resulting in longer processing times), more rounds of post-filing questions, and an increase in the number of mitigation agreements.
• The vast majority of CFIUS filings are still cleared, and they are cleared without mitigation agreements or conditions being imposed. However, overall, the CFIUS process has become longer and tougher, and the risks associated with not filing with CFIUS have increased.

Declaration Statistics and Takeaways

Key Statistics

Takeaways

• Filing a declaration is often attractive due to the 30-day review period and lack of filing fees. Thus, it is not surprising that most of the declarations filed each year are from countries that are allies of the United States.
• The CY 2022 statistics suggest that the likelihood of getting CFIUS clearance based on a declaration has declined – only 90 declarations cleared in review (down from 120 in 2021), and the number of JVNs requested and the number of declarations for which CFIUS was unable to conclude action both increased.

Joint Voluntary Notice Statistics and Takeaways

Key Statistics

Takeaways

• The high numbers of withdrawals and refiles in CY 2022 and CY 2021 is significant and a clear reminder that the CFIUS process can be lengthy. As an example, more than 50% of the cases that went to investigation in CY 2022 and 2021 had at least one withdrawal and refile.
• Investors from Asian countries continue to account for most JVNs. The increase in JVNs from Singapore (37 filings in CY 2022 compared to 13 filings in CY 2021), notwithstanding a slight decrease in filings from Chinese investors (36 filings in CY 2022 compared to 44 filings in CY 2021), may be the reason for the higher percentage of cases subject to withdrawal and refile or withdrawal and abandonment.
• The top four industries generating JVN filings have remained the same from CY 2020 to 2022. They are: (1) Finance, Information, and Services (149, 52% in CY 2022); (2) Manufacturing (84, 29%); (3) Mining, Utilities, and Construction (36, 13%); and (4) Wholesale Trade, Retail Trade, and Transportation (16, 6%). The number of filings from each industry has slightly increased or decreased year to year, but consistency is apparent.
• The higher number of mitigation agreements and other conditions being placed on the parties in CY 2022, as compared to CY 2021, reflects an increasing emphasis by CFIUS on a “trust but verify” approach to national security oversight. In addition, CFIUS mitigation agreement requirements and/or conditions are generally more detailed and prescriptive than in recent years. Therefore, the burden of complying with a mitigation agreement is greater, including the need to commit more resources, comply with more reporting requirements, and incur increased expenses as well as the need for more continued engagement with CFIUS and the monitoring agency.

CFIUS Non-Notified Activities

CFIUS non-notified outreach to companies and investors remains strong. The term “non-notified” is a colloquial phrase that CFIUS uses to refer to its outreach to a company or investor who did not file with CFIUS in connection with a transaction that CFIUS believes may have fallen within its jurisdiction.

Key Statistics

Takeaways

• The significant decline in the number of non-notified cases in CY 2022 was a surprise, but the notable increase in the number of requested filings was not a surprise, given the intense focus of CFIUS on non-notified transactions and the continuing increases in the number of staff and resources it dedicates to this issue. Therefore, we expect non-notified transactions to remain prominently on CFIUS’ radar screen in CY 2023.
• While the number of requested filings remains relatively low, there are instances in which the parties voluntarily file after CFIUS’ initial outreach, and those filings are not included in the above statistics. Thus, the number of filings made as a result of the non-notified process are likely higher than the number reflected in the Annual Report.
• The Annual Report unfortunately does not identify the investor countries or the industries that were involved in non-notified transactions. We expect, however, that the affected investors and industries likely track the statistics for declaration and JVN filings, and many probably involve transactions with Chinese investors.

Penalties

• Assistant Secretary Paul M. Rosen stated in April 2023 that CFIUS penalties had been recently issued. The Annual Report did not mention any CFIUS penalties having been issued in CY 2022. While no penalties have been formally announced by CFIUS, we know that some have been imposed, and we expect an announcement by CFIUS on the imposition of penalties to be forthcoming.

Conclusion

CFIUS review remains a significant legal consideration for foreign investors contemplating investment in the United States. The scope of CFIUS jurisdiction is broad, and active regulatory oversight of foreign investment into U.S. businesses and real estate, including acquisition and leases of real estate near military installations and other critical U.S. government buildings, continues to increase. Even transactions involving investors from U.S. allied countries have been scrutinized much more closely in recent years, particularly if they have connections of any kind with China or other countries of concern, or if the U.S. business has sensitive technology or data.

CFIUS continues to update industry and the CFIUS bar on the nuances of its expansive jurisdiction. Recent updates include the May 2023 guidance regarding CFIUS jurisdiction over equity interests without corporate board membership or other control rights and the August 2023 final rule that expanded CFIUS’ jurisdiction over real estate transactions. As such, it is critically important for each foreign investor (and U.S. business being invested in or purchased by a foreign investor) to consider early on CFIUS jurisdiction whenever there is foreign financing or M&A activities involving any U.S. businesses or real estate.

[1] The percentages reflected in the tables in this Alert are approximate. To calculate the percentages, we used the number of filings in the CY as a proxy for the number of filings for which processing was concluded in the CY.

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