On July 31, 2023, the US Department of the Treasury-led Committee on Foreign Investment in the United States (CFIUS or the Committee) released its annual report for calendar year 2022 (2022 Report), which provides insight into CFIUS’ review of, and statistics relating to, covered foreign transactions that were filed in the previous year.
By way of background, CFIUS is the federal interagency committee with authority to review foreign investments to ascertain whether they raise national security risks and, if so, whether the transactions should be prohibited or whether mitigation agreements should be put in place to mitigate such risks. In effect, CFIUS sets the national policy for US tolerance of national security risks associated with foreign investment.
The following are some key highlights of and observations drawn from the 2022 Report on both the filings of “declarations” (effectively, short form filings subject to 30-day review) and longer form “notices” (with a 45-day initial review period followed by a 45-to-60-day investigation period, if necessary, and a 15-day Presidential decision process—again, if needed).
A record-breaking year
In 2022, CFIUS reviewed 440 covered transactions, representing the most reviews in its history in a given year—albeit only slightly higher than in 2021, the previous record holder, with 436 covered transactions. Out of the 440 transactions reviewed in 2022, 154 were submitted as declarations (down slightly from 164 in 2021) and 286 were filed as notices (up from the 272 filed in 2021). Table 1 provides relevant data on nine years’ worth of CFIUS reviews.
More agreements to mitigate national security risk – A lower risk tolerance?
Notably, the Committee concluded action after adopting mitigation agreements to resolve national security concerns in 41 cases—a considerably higher number than in previous years (i.e., 26 in 2021 and 16 in 2020). Moreover, CFIUS adopted mitigation agreements to address “residual national security concerns” with respect to three notices that were subsequently voluntarily withdrawn and abandoned.
The fact that CFIUS entered into mitigation agreements on 44 transactions overall appears to reflect stepped-up scrutiny of foreign investments and, at the margin, a higher level of national security prudence (i.e., a somewhat higher standard—or lower tolerance—for what risks require mitigation than in the past).
Moreover, in recent years, with more mitigation agreements cumulatively in force and effect, CFIUS has paid considerably more attention to the sustained effectiveness of these agreements.
Consistent with this trend, the 2022 Report reflects stepped-up monitoring of compliance with mitigation agreements by the CFIUS mitigation staff, which has also increased in size. Notably, all 41 of the mitigation agreements entered into by the Committee during 2022 included compliance plans, and monitoring agencies have reported that they conducted 44 site visits in 2022 to parties to such agreements.
More withdrawals for national security reasons – A changing risk tolerance?
While there were no Presidential decisions prohibiting or restricting a transaction in 2022, following a longstanding pattern there were a number of notice withdrawals, approved by CFIUS, where national security issues were involved. In other words, the parties elected to abandon the transaction rather than risk a Presidential veto.
Specifically, in 12 cases, the parties ultimately withdrew the notice and abandoned the transaction after either CFIUS informed the parties that it was unable to identify mitigation measures that would resolve its national security concerns or CFIUS proposed mitigation measures that the parties chose not to accept. The past three years (2020-2022) represent a slight upward trend in withdrawals, with seven in 2020, nine in 2021 and 12 in 2022. Again, at the margin, the cumulative level of recent withdrawals reflects a somewhat lower US tolerance for national security risk associated with foreign investment.
It should also be noted that withdrawals also occurred in a number of cases for commercial reasons, and, in other cases, withdrawals occurred after parties “pulled and refiled” their CFIUS notices in order to allow CFIUS more time to review the transaction.
Non-notified and non-declared transactions – Part of a pattern of greater national security scrutiny of foreign investment
In 2022, the Committee “enhanced its focus” on non-notified and non-declared transactions, which are those transactions that fall within CFIUS’ review authority but for which no declaration or notice was filed. CFIUS uses a variety of methods to identify such transactions, including interagency referrals, tips from the public, media reports, commercial databases and Congressional notifications. According to the 2022 Report, CFIUS continues to hire more staff dedicated to surveying and identifying non-notified and non-declared transactions.
The 2022 Report provides that such transactions “remain among the most complicated that CFIUS considers” and that such cases “often require mitigation measures to address national security risks.”
Viewed in context, the stepped-up review of such non-notified and non-declared transactions again appears to be part of a pattern of increased scrutiny and lower risk tolerance of security risks associated with foreign investment. This class of transactions undoubtedly includes a group of cases in which parties knowingly declined to submit transactions for review in order to avoid scrutiny—suggesting underlying national security risks exist.
Highlights of filed notices – More in-depth investigations of national security risk
As noted above, the large number (286) of notices filed with CFIUS in 2022—the most in history—continues a trend that began in 2021, when 272 deals were noticed to the Committee (see Table 1).
Notably, 162 of the notices filed (57%) resulted in 45-to-60-day investigations, meaning CFIUS could not conclude its review within the initial 45-day review period. The proportion of notices that proceeded to investigation is the highest since 2018 (69%). This discernable trend (see Table 1) reflects CFIUS’ stepped-up, more robust review of whether transactions raise national security risks and perhaps, at the margin, its lower tolerance of such risks.
More generally, the majority of the notices (52%) reviewed by the Committee fell within the finance, information and services sectors, followed by the manufacturing sector (29%); the mining, utilities and construction sectors (13%); and the wholesale trade, retail trade and transportation sectors (6%). Within the finance, information and services sectors, 44% of notices related to professional, scientific and technical services and 15% related to telecommunications. Within the manufacturing sector, 41% of notices reviewed related to computer and electronic product manufacturing and electrical equipment, appliance and component manufacturing.
Singaporean buyers and investors accounted for the most notices in 2022 with 37, followed by Chinese and British buyers and investors with 36 and 18 notices, respectively. From 2020 through 2022, Chinese buyers and investors have submitted the most notices (although considerably fewer than in prior years), accounting for 13% (97 notices), followed by Japanese and Singaporean buyers and investors with 8.1% each (60 notices each).
Thus, the data suggests that, despite significant tensions in the US-China relationship and the US policy of selective decoupling in certain areas, Chinese investments can, and are currently, getting cleared through CFIUS when they are outside the “sweet spot” of US national security concerns.
Highlights of filed declarations – More cases pushed to notices for more in-depth reviews
While, as noted above, the number of declarations filed in 2022 declined slightly from the 2021 level (154 in 2022 versus 164 in 2021), these levels are materially higher than the 126 filed in 2020 and 94 declarations filed under the FIRRMA Pilot Program in 2019.
What is most striking about the filed declarations is the higher number and percentage of cases in which CFIUS asked the parties to file notices after its 30-day review, which rose from lower levels in prior years—26 (28%) in 2019 under the Pilot Program, to 28 (22%) in 2020, to 30 (18%) in 2021—to a much higher number and percentage—50 transactions (32%)—in 2022. CFIUS generally asks the parties to file notices after its review of the declaration when it believes there is a national security risk involved and needs more time to reach a conclusion.
While time will tell whether the larger number and percentage of such requests in 2022 is an aberration or part of a trend, it does suggest a thrust for stepped-up review of a wider range of cases in order to evaluate national security risk.
The declarations reviewed by CFIUS within the 30-day statutory timeframe were widely dispersed throughout various industrial sectors, but a few sectors stood out. Notably, there were 15 covered transaction declarations in both the electric power, generation, transmission and distribution sector and the scientific research and development services sector; eight declarations in the software publishers sector; and six in each of the semiconductor and electronic component manufacturing, aerospace manufacturing, and data processing and hosting sectors.
Canadian buyers and investors led the way with the most declarations in 2022 with 22, followed by Japan (18), Germany (13) and South Korea (11). Historically, from 2020 through 2022, Canada, Japan and Germany have accounted for 34% of all declarations submitted.
1Data Source: CFIUS Reports for 2014-2022. Available athttps://home.treasury.gov/policy-issues/international/the-committee-on-foreign-investment-in-the-united-states-cfius/cfius-reports-and-tables.
2“National Security” Withdrawals includes those instances where the parties withdrew their notices and abandoned the transaction after either CFIUS informed the parties that it was unable to identify mitigation measures that would resolve its national security concerns or the parties chose not to accept mitigation measures proposed by CFIUS. Parties withdrew additional notices that were subsequently refiled or withdrew notices due for commercial reasons, which are not included here.
3Declarations filed in 2019 were submitted and reviewed under the Pilot Program established pursuant to the Foreign Investment Risk Reduction and Modernization Act of 2018.
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