CFIUS Issues Its 2013 Annual Report to Congress

by Stoel Rives LLP

Number of Filings by Chinese Acquirers Increased Dramatically; First Transaction Blocked by Presidential Order Since 1990

The Committee on Foreign Investment in the United States (CFIUS), a multi-agency U.S. government committee charged with reviewing foreign acquisitions of U.S. businesses for national security implications, recently released its unclassified Annual Report to Congress regarding its activity during calendar year 2012. Although the unclassified version of the Annual Report contains no information concerning specific transactions, it does offer important insights for foreign companies that are considering investment and M&A transactions that could raise U.S. national security considerations.

Number of Filings up for Fourth Consecutive Year

The number of notices filed with CFIUS has increased 75% since 2009 (from 65 to 114), reflecting greater cross-border M&A activity following the 2007-2008 global financial crisis. Although the number of filings remains below the pre-recession high of 155 notices in 2008, the number of notices has continued to increase each year since 2009.

Percentage of Filings That Proceed to Investigation Stage Is Relatively Constant

The percentage of notified transactions proceeding to the full 45-day investigation stage has remained relatively constant since 2009 at approximately 38% of filings. Of the 114 notices filed in 2012, 45 transactions (or approximately 39%) proceeded into the investigation stage, compared to 40 transactions (or approximately 36%) of the 111 notices filed in 2011.

Number of Withdrawals During Investigation Phase up Sharply from 2011

Of the 45 notified transactions that were subject to investigation during 2012, nearly half (22 notices) were withdrawn voluntarily by the parties. Compared to 2011, when only five of 40 notices (12.5%) that went to investigation were withdrawn, this represents a sharp increase in the number of transactions in which parties decided to terminate the CFIUS process before completion of the investigation.

Although the Annual Report provides no information about the circumstances of the withdrawals, it is likely that most of the withdrawals resulted from national security concerns raised by CFIUS member agencies about the proposed transactions. Notified transactions that were withdrawn in these circumstances either were refiled and likely became subject to mitigation measures (see discussion below) or were terminated by the parties. Indeed, the Annual Report indicates that 10 of the 22 withdrawn transactions were "abandoned…for commercial reasons or in light of CFIUS's national security concerns."

Filings from Chinese Buyers Increased Significantly

Filings made by Chinese buyers increased significantly in 2012, more than doubling from 10 in 2011 to 23 in 2012. Of the 39 notices filed by Chinese buyers since 2010, 20 involved transactions in the manufacturing sector; 12 in mining, utilities, and construction; and seven in finance, information, and services. For the first time since CFIUS started publishing an annual report, CFIUS received more notifications from Chinese buyers than from buyers domiciled in any other country.

First Transaction Blocked by Presidential Order Since 1990

As we previously reported via a client alert and at our Renewable + Law Blog, in September 2012 President Obama determined that national security interests warranted blocking Chinese-owned Ralls Corporation's acquisition of wind farm projects in Oregon, and ordered the Chinese company to remove all property and installations and divest all of its interest in the projects. The Ralls divestment order was the first time a President has blocked a transaction since 1990, and only the second time since CFIUS's establishment in 1975 that a President has ordered divestment under CFIUS authority.

In discussing the order, the Annual Report noted the ownership of Ralls by Chinese nationals and the company's affiliation with a Chinese company. Additionally, the Annual Report highlighted that "the wind farm sites are all within or in the vicinity of restricted air space" around a U.S. Navy weapons systems training facility.

Mitigation Measures Imposed to Address National Security Concerns

From 2010 through 2012, 24 notified transactions (approximately 8% of filings) resulted in the imposition of "mitigation measures" as a condition to CFIUS clearance. Mitigation measures are conditions on a transaction that are negotiated between CFIUS and the foreign buyer and reflected in a "mitigation agreement." CFIUS requires mitigation measures to be adopted when it determines that national security concerns prevent clearance of a deal without mitigation of those concerns.

In 2012, CFIUS agencies negotiated, and parties adopted, mitigation measures for eight different covered transactions. These measures involved acquisitions of U.S. companies in the software, information, mining, energy, and technology sectors, and included:

  • ensuring that only authorized persons have access to specified technology and information;
  • establishing a Corporate Security Committee and other mechanisms to ensure compliance with required actions, including appointment of a U.S. government (USG) approved security officer or member of the board of directors, and requirements for security policies, annual reports, and independent audits;
  • establishing guidelines and terms for handling existing or future USG contracts, USG customer information, and other sensitive information;
  • ensuring that only U.S. persons handle certain products and services, and that certain activities and products are located only in the United States;
  • notifying security officers or relevant USG parties in advance of foreign national visits to the U.S. business;
  • notifying relevant USG parties of any awareness of any vulnerability of security incidents; and
  • termination of specific activities of the U.S. business.

Other Trends

By Sector

The notices of covered transactions filed with CFIUS during the 2009-2012 period involved a wide range of industrial subsectors. Broadly, nearly four in 10 notices during this period related to transactions in the manufacturing sector (151 notices, or 39%), while approximately one-third of notices were in the finance, information, and services sector (133 notices, or 35%). The remainder of notified transactions were in the mining, utilities, and construction sector (71 notices, or 19%) and the wholesale, retail, and transportation sector (28 notices, or 7% percent).

Within these broad sectors, the following subsectors represented approximately two-thirds of all filings between 2009 and 2012: 

CFIUS FILINGS (2009 – 2012)


Number of Filings

Percentage of All Notified Transactions

Computer and electronic products, including navigational, measuring, electromedical, and control instruments; communications equipment; and semiconductor and other electronic components



Professional, scientific, and technical services, including computer systems design and related services; management, scientific, and technical consulting services; and architectural and engineering services



Utilities, including electric power generation, transmission, and distribution



Transportation equipment, including aerospace products and parts



Publishing industries, except Internet related



Telecommunications, including satellite and wireless carriers



Companies domiciled in 29 countries filed CFIUS notices over the last four years. From 2009 to 2012, companies based in the United Kingdom accounted for 85 notices, or 22% of all CFIUS filings, the most by far from any country. China followed the United Kingdom with 43 filings, followed by Canada (40), France (35), and Japan (27).

For the first time since CFIUS has published its annual report, companies from China had the highest number of filings in 2012, at 23. The number of transaction notices involving U.K. companies decreased from 25 in 2011 to 17 in 2012. Canadian-based companies made 13 filings, followed by companies based in Japan (nine filings) and France (eight filings).

The CFIUS Annual Report for 2013 and prior years may be obtained here:

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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