The Committee on Foreign Investment in the United States (CFIUS or Committee) recently released its annual report for 2022. The report contains data that provides potentially useful insights into how CFIUS is functioning, the kinds of cases being submitted and reviewed, and the industries and countries that were either a focus for the Committee or more active in seeking approvals. The report also suggests some current trends in the recent national security focus for CFIUS.

For starters, although the Department of the Treasury states that CFIUS “continued to review record numbers of filings,” the total number of filings is almost exactly the same as in 2021—specifically, 440 total filings in 2021, which is four more cases than the 436 reviewed the previous year.

In the years leading up to the Foreign Investment Risk Review Modernization Act of 2018 (FIRRMA), CFIUS steadily increased its reviews year by year as the government heightened its focus on the national security risk posed by foreign direct investment (FDI), and staffing increased to match that effort.

In the immediate aftermath of FIRRMA, growth in filings continued, as more transactions became subject to CFIUS’s broader jurisdiction and budget allocations allowed for further staffing increases. However, the new 2022 metrics indicate that absent further expansions of CFIUS’s jurisdiction or some other change, it is possible that the Committee’s workload may have functionally levelled off for the time being.

MITIGATION

The annual report also highlights the increased number of cases clearing CFIUS review contingent on mitigation measures. In 2021, 10% of cases cleared with mitigation; but CFIUS reports that in 2022, that number was up to 23%. There is something curious about the math, however: In 2022, 41 cases resulted in mitigation agreements, out of a total of 286 Joint Voluntary Notices (JVNs), which comes out to a 14% mitigation rate, not the 23% mitigation rate stated in the annual report. One possibility is that CFIUS has changed its methodology for calculating the mitigation rate, which is hinted at by the fact that the annual report says that CFIUS mitigated 23% of “distinct” 2022 notices, but the qualifier of “distinct” does not appear in the 2021 annual report.

Although the annual report does not state how it defines “distinct” in the context of mitigation, elsewhere in the report (when counting transactions by country) CFIUS states that “distinct transactions” refers to counting only a single time those transactions that originated as a declaration and were then also filed as a JVN, and JVNs that are refiled. Regardless of the finer points, parties to a transaction should certainly anticipate that any modicum of potential national security risk may very well result in mitigation.\

OUTCOMES AND TIMING

CFIUS did not refer any transactions to the president for prohibition in 2022, but did effectively block 12 transactions, which were withdrawn and abandoned by the parties in the face of a threatened block or mitigation the parties were unwilling to accept. These numbers are similar to 2021, which also saw no presidential prohibitions and nine transactions withdrawn and abandoned in the face of a threatened block or mitigation the parties were unwilling to accept.

The numbers also indicate that fewer cases submitted as notices are clearing during the initial 45-day review period, instead extending into the second 45-day investigation period. Of the 286 JVNs, 162 extended into a second 45-day investigation period, which represents approximately 57% of the total. By contrast, in 2021, the majority of cases cleared in review, with 48% moving into investigation. Although that means plenty of cases are still clearing in review, the decrease is something companies and their counsel should factor in when considering deal timing issues.

Practically, the apparent increase in mitigation agreements likely accounts for some portion of this change, since few, if any, mitigation agreements are concluded without the need for an investigation period. The report also does not indicate whether these statistics include cases in which only a portion of the investigation period is needed. Occasionally, CFIUS’s work extends into an investigation period for a short period while the Committee ties up loose ends in the process.

Similarly, companies and their counsel should be mindful of the potential for CFIUS to find that the full 90-day statutory period may be insufficient to issue a decision, in which case the possibility of CFIUS requesting that parties withdraw and refile may create a deal timing issue. The withdraw and refile process restarts the clock and CFIUS is permitted another period of 90 to 120 days (the latter if CFIUS avails itself of additional time provided by statute for both extraordinary circumstances and presidential review) to review the transaction.

This can create concern in deals where timing and certainty of closure is essential. In 2022, parties withdrew and resubmitted a record number of transactions. JVNs were withdrawn on 88 occasions, up from 74 withdrawals in 2021. Of the 88 withdrawals, 68 were refiled; 12 were abandoned in the face of a threatened block or mitigation the parties were unwilling to accept; and eight were abandoned for commercial reasons.

DECLARATIONS PROCESS

The metrics also tell an interesting story about the declarations process. In 2021, the numbers were encouraging for parties electing to use the declaration path, as CFIUS cleared 73% of declarations during the statutory 30-day period. Although the total number of declarations in 2022 decreased—specifically, from 164 in 2021 to 154 in 2022—CFIUS’s clearance rate also dropped sharply to 58% (or 89 of 154) in 2022.

Further, while in 2021, 20 declarations resulted in a CFIUS request for a full JVN filing, in 2022 that number increased 150%, with 50 declarations resulting in a CFIUS request for a full JVN filing. The number of “unable to conclude action” determinations—i.e., the option for declarations whereby CFIUS neither provides a safe harbor through clearance nor requests a filing—stayed mostly constant, from 12 in 2021 to 14 in 2022.

Although filing a declaration should still be seriously considered by parties for low-risk transactions, companies should also be aware of what seems to be an increasing chance that after reviewing a declaration, CFIUS will still ask for a full filing— thereby potentially increasing the overall review time (if the JVN does not clear in review but rather goes into investigation).

NON-NOTIFIED TRANSACTIONS

Another striking metric is the steep decline in non-notified transactions—i.e., transactions not notified to CFIUS by the parties but which the Committee identifies on its own for potential action. CFIUS reports that in 2022 only 84 non-notified transactions were “put forward to the Committee” (meaning, formally brought forward by the non-notified team for Committee consideration), down from 135 in 2021.

Unfortunately, annual reports do not account for the many non-notified outreaches in which transactions are not “put forward” or where the parties voluntarily submit a JVN rather than continue the non-notified Q&A process.

One possible explanation for the drop (or some part of it) suggested in the report itself (page 52) is that CFIUS may be finishing its review of backlogged cases of pre-FIRRMA non-notified matters and may now be able to focus on more recent deals. The decline may also be partly attributable to parties structuring transactions in ways that deprive the Committee of jurisdiction, thereby making a non-notified outreach less likely. It also may be that the Committee is considering its long list of non-notified deals in a measured and deliberative manner, given the view that there is no statute of limitations that applies to a lookback into closed transactions.

Since CFIUS does not include certain types of non-notified activities in its numbers (i.e., “instances where the parties decide to voluntarily file a declaration or notice”), the report leaves a gap with respect to understanding why this activity has decreased—one which might draw attention through congressional oversight.

Although the number of non-notified transactions “put forward to the Committee” is down, the number of those that result in a request for a filing is up. Specifically, of the 84 transactions put forward to the Committee in 2022, 11 resulted in a request for a filing, along with eight from 2021 that resulted in a 2022 request for a filing. In comparison, in 2021, only eight non-notified transactions resulted in a request for a filing.

Compared to the lower number of 2022 non-notified transactions put forward to the Committee in the first place, the number extended into a formal review is all the more striking. For that reason, and because CFIUS continues to devote increased attention and resources to the non-notified program, companies should make careful decisions about whether or not to make a voluntary filing.

CFIUS also notes that “[t]ransactions that originate through the non-notified process remain among the most complicated that CFIUS considers” and that “[s]uch cases often require mitigation measures to address national security risks.” These two things do not automatically follow from not making a filing, and the report does nothing to address why this might be the case. In fact, most CFIUS practitioners likely would argue that truly “complicated” cases are most frequently submitted for consideration for exactly the reason that they are less predictable in their result.

GEOGRAPHY OF FILINGS

The geography of CFIUS filings bears mention. In 2021, surprisingly to some, Chinese companies filed more JVNs than companies of any other country—indeed, the 44 filings by Chinese companies were more than double the number in 2020. In 2022, the number of Chinese JVNs dropped only slightly, to 36, and yet China moved into second place due to a near tripling (to 37 filings) by Singaporean investors—up from only 13 the prior year.

Otherwise, there was relatively little change from the previous year, and in fact the top 10 countries in 2021 are also on the top 10 list in 2022 (the only difference being that in 2022, Sweden and Ireland joined the list, tying Israel for 10th place, which essentially puts 12 countries on the top 10 list).

Viewed a bit more broadly over the course of a three-year period, however, the CFIUS annual report indicates that in the period 2020-2022, China was still the top filer, followed by Japan, and then Singapore in third place.

With respect to declarations, Canada came in at first place in both 2022 and 2021, with the same number of CFIUS cases—22. Japan came in second in both 2022 and 2021, with 18 declarations in 2022 and 11 in 2021. Notably, although only one Chinese investor attempted to get a transaction through CFIUS as a declaration in 2021, in 2022 there were five.

CONCLUSION

It is important to note that the numbers only tell part of the story, and assessing the CFIUS landscape requires direct experience with the Committee and with specific transactions, in order to develop a holistic and nuanced understanding of the process that goes beyond metrics.

As Morgan Lewis’s own experience with CFIUS indicates and as the 2022 annual report confirms, although the Committee still generally works to maintain the US open investment climate, it also continues to review high numbers of deals; to block and mitigate deals that pose any level of national security risk; and to do its work on timeframes that, although mostly predictable, also involve a degree of uncertainty that needs to be carefully navigated.

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