On July 31, 2023, the Committee on Foreign Investment in the United States (“CFIUS” or “the Committee”) released its annual report to Congress of the Committee’s national security reviews and investigations of certain foreign investment transactions from the preceding year. The report offers valuable insight into the CFIUS review process and highlights the various foreign investment transaction elements that are coming under scrutiny.

CFIUS Jurisdiction, in brief

CFIUS is a U.S. interagency body, chaired by the Department of the Treasury, acting under authority granted under Section 721 of the Defense Production Act of 1950 (50 U.S.C. § 4565) and the Foreign Investment Risk Review Modernization Act of 2018 (“FIRRMA”), which authorize review of certain foreign investment and real estate transactions in the United States by foreign persons (known as “covered transactions”) to determine the effect of such transactions on U.S. national security. Where CFIUS identifies transaction elements warranting action, the Committee may enter into agreements with, or impose conditions on, the parties to the transaction. Some foreign investment transactions require mandatory filing with CFIUS; however, transacting parties submit most filings with the Committee as voluntary declarations or notices.

Key Takeaways

• Declarations:
  • The number of declarations submitted and reviewed by CFIUS for 2022 totaled 154, which is a slight decrease from 2021 declarations that totaled 164.
  • CFIUS requested that parties to 50 declarations submit a full notice, which is up from the 30 declarations that prompted a request for a notice in 2021.
  • Canadian investors filed the most declarations for 2022 with 22, followed by Japan with 18, and Germany with 13 declarations.
  • Two industry sectors stood out in the declarations -- Electric Power Generation, Transmission and Distribution; and Scientific Research and Development Services – both with 15 declarations, respectively.
• Notices:
  • 286 notices of transactions were filed with CFIUS in 2022 (compared to 272 in 2021). Only one of the notices filed was for a covered real estate transaction.
  • CFIUS conducted investigations on 162 of the notices.
  • National security concerns were resolved on 41 notices by adopting mitigation agreements.
  • 88 of the 286 notices were withdrawn. In 68 of these instances, the parties filed a new notice (53 were re-filed in 2022 and 15 in 2023).
    • Of the 88 notices withdrawn, 12 of the notices were withdrawn and the transactions abandoned due to: i) CFIUS informing the parties that no mitigation measures would resolve the national security risks identified in the transaction; or, ii) CFIUS presented mitigation measures that the parties chose not to accept.
    • Of the 88 notices withdrawn, eight of the transactions were withdrawn by the parties for other business reasons.
  • Processing Times: Reviews of notices closed in an average of 46 days; Investigations closed in an average of 80 days.
  • The industry sectors with the highest percentage of notices filed were Finance, Information and Services (52%) and Manufacturing (29%).
  • Singaporean investors filed the most notices for 2022 (37), followed closely by China (36), and then United Kingdom investors (18).
• Mitigation Measures:
  • In total for 2022, CFIUS adopted mitigation measures and conditions in 52 instances (41 notices of covered transactions; three to address residual national security concerns on notices voluntarily withdrawn and abandoned; interim risk mitigation on three notices; and conditions imposed separately by the Department of Treasury on five notices where withdrawal and abandonment were granted).
  • Notable mitigation measures:
    • restricting recruitment and hiring of certain personnel;
    • ensuring that certain facilities, equipment, and operations are located only in the United States;
    • establishing a corporate security committee, voting trust, and other mechanisms to limit foreign influence and ensure compliance, including the appointment of a U.S. Government-approved security officer and/or member of the board of directors and requirements for security policies, annual reports, and independent audits;
    • notifying customers or relevant U.S. Government parties when there is a change of ownership in the U.S. business; and,
    • assurances of continuity of supply to the U.S. Government for defined periods, notification, and consultation prior to taking certain business decisions, and reservation of certain rights for the U.S. Government in the event that the company decides to exit a business line.
• Critical Technologies:
  • For 2022, CFIUS reviewed 181 covered transactions involving foreign acquisitions of U.S. critical technology companies.
  • The originating countries, in order of volume of filings are: Japan (16), France (14), Canada and United Kingdom (13 each), notably all U.S. ally countries.
  • As in 2021, China is again the largest non-U.S. ally country attempting to acquire U.S. critical technology companies with eight filings submitted to CFIUS.

Overall, total filings with CFIUS slightly increased year over year from 436 filings in 2021 to 440 filings in 2022. Importantly, the percentage of declarations prompting a request for a full notice from CFIUS increased from about 18% in 2021 to over 32% in 2022. Additionally, the percentage of notices that led to a CFIUS investigation increased from about 48% in 2021 to nearly 57% in 2022. This data reflects additional scrutiny being applied by CFIUS to certain transactions, and foreign investors should continue to monitor these national security review trends.

Non-Notified Transactions

The Committee continues to use various methods to identify “non-notified transactions,” which are covered transactions for which no declaration or notice was filed with CFIUS. In 2022, CFIUS identified 84 non-notified transactions, resulting in the Committee requesting filings in 11 of the 84 transactions. Additionally, the Committee requested an additional eight filings of non-notified transactions that were identified in prior years, bringing the total to 19 non-notified transactions for which the Committee requested a filing in 2022.