The Committee on Foreign Investment in the United States (CFIUS) reviewed a record number of transactions for national security risks in 2022: 440 covered transactions, up from 436 transactions in 2021, according to its Annual Report to Congress for Calendar Year 2022, with a 36% increase in CFIUS-imposed measures to mitigate national security concerns compared to 2021.
The Annual Report lands amid continued intense scrutiny of foreign investments in the United States and demonstrates that the Committee has increased its review of transactions across the economy, with a particular focus on businesses in the finance, information and services sector and the manufacturing sector. The report also reveals that CFIUS processes are becoming more time consuming and more complicated. In introducing the report, Assistant Secretary of the Treasury for Investment Security Paul Rosen, who oversees CFIUS, emphasized that an “increasingly complex” caseload focused on advanced technologies led to an increase in CFIUS conditioning clearance on parties entering national security agreements to mitigate perceived national security risks.
In this regulatory climate, businesses should expect continued government scrutiny of investments by foreign persons into US businesses.
Record-Setting Reviews in 2022
Publicly released on August 1, 2023, the Annual Report reviews the Committee’s activities for 2022. Data of particular note include:
New Record for Total Declarations and JVNs. CFIUS’ 2022 Annual Report shows that the Committee has maintained a high rate of CFIUS reviews. During 2022, CFIUS reviewed 154 short-form declarations and 286 longer-form joint voluntary notices (JVNs). In 2021, the Committee reviewed 164 declarations and 272 JVNs, amounting to a decrease of roughly 6.5% in declarations and an increase of 5.1% of JVNs year-over-year.
Most Notices Go to Investigation. CFIUS reviews of JVNs can routinely last several months—a 45-day “review period” followed by a 45-day “investigation period” that the government can order. Of the 286 notices filed in 2022, 162 (or 56%) led to an “investigation” phase, and 88 (or 31%) were withdrawn during the review or investigation phase. Of the 88 withdrawn notices, the parties in 68 instances filed a new notice, either in 2022 or in 2023. In 12 of these instances, the parties withdrew the notice and abandoned the transactions either after CFIUS informed the parties that it was unable to identify mitigation measures that would resolve its national security concerns or after the parties declined to accept CFIUS’ proposed mitigation measures. In two of these instances, the parties withdrew their notice and abandoned the transaction for commercial reasons.
Increased Mitigations Imposed. At the conclusion of its process, CFIUS may (1) determine that there are no unresolved national security issues, permitting the investment to proceed without incident; (2) it can recommend to the president that the president block the transaction; or (3) it can order that mitigation measures be undertaken by the transaction parties to protect US national security interests. In 2022, CFIUS required mitigation measures to resolve national security concerns about 14% of the time (in 41 of 286 notices, or roughly 23% of the distinct 2022 notices). This represents a 36% year-on-year increase from the transactions reported in CFIUS’ 2021 Annual Report.
CFIUS adopted mitigation measures to address residual national security concerns with respect to an additional three notices that were voluntarily withdrawn and abandoned. Separately, the Treasury Department granted withdrawal and abandonment for an additional five notices, for which conditions were imposed. However, these did not involve mitigation agreements. Measures were imposed to mitigate interim risk with respect to an additional three notices filed in 2022. There were no presidential actions taken to block transactions in 2022.
The Annual Report outlines a variety of mitigation measures imposed on parties in 2022. These measures include restrictions on the sharing of intellectual property, technical information, the imposition of government contracting guidelines, as well as restrictions on locations of certain business operations, hiring, vendor requirements, various corporate security requirements, and governance requirements to limit foreign influence.
Reviews of Non-Notified Transactions. CFIUS has the authority and the staff to review and investigate transactions that were not notified to the Committee and to require filings. In 2022, the Committee identified 84 transactions through the non-notified process and requested a filing in 11 (13%) of them. In addition to those 11 requests, eight non-notified transactions that were identified in prior calendar years resulted in a 2022 request for filing.
Top CFIUS Filers by Country. The Committee reviewed transactions involving buyers from around the world, although investors from Britain, Canada, China, Japan, and Singapore were among the most common recent filers. Canadian investors accounted for the most declarations filed in 2022 and the largest proportion of declarations filed from 2020 to 2022, with 14% (64 declarations). Japanese and German investors filed 11% (47 declarations) and almost 8% (34 declarations), respectively, of all filed declarations from 2019 to 2021.
Singaporean investors filed the most JVNs, totaling 37 (12.9%) in 2022. Investors from China and Britain filed the second- and third-highest number of JVNs in 2022 (12.6%, or 36 notices, and almost 6.3%, or 18 notices, respectively). For the three-year period from 2020 through 2022, the highest number of notices were from Chinese investors (13%, or 97 notices), followed by Japanese and Singaporean investors (8.1% each, or 60 notices each). But the notices from Chinese investors dipped markedly from 2021 to 2022, from 44 to 36 submitted notices, a drop of 18% year-over-year, suggesting CFIUS’ scrutiny of China-based investments is deterring such deals.
Most CFIUS Filings in the Finance, Information, and Services Sector. In 2022, similar to 2021, the greatest number of transactions occurred in the finance, information, and services sector, accounting for over half of transactions (149 notices, or 52% of those filed). And, as in 2021, the manufacturing sector in 2022 accounted for the second-highest number of notices filed (84 notices, or 29%).
Likewise, of the notices of covered transactions filed with CFIUS over the past decade, from 2013 through 2022, approximately three-fourths were in either the finance, information, and services sector (839 notices, or 42%) or the manufacturing sector (728 notices, or 37%). The remainder of the notices were in the mining, utilities, and construction sector (270 notices, or 14%) and the wholesale trade, retail trade, and transportation sector (157 notices, or 8%).
Increasingly Active CFIUS Compliance and Enforcement Focus. The Annual Report notes that for each of the agreements monitored by the Committee, CFIUS has worked to ensure compliance and conducted 44 site visits in 2022. “Where monitoring agencies identified instances of noncompliance in mitigation agreements and conditions, they assessed the noncompliance and worked with the parties to achieve remediation, as appropriate” and did not impose penalties on the parties, the Annual Report says. In October 2022, the Treasury released its first ever enforcement and penalty guidelines, explaining how the Committee assesses violations of the laws and regulations that govern transaction parties, including potential breaches of CFIUS mitigation agreements. And Assistant Secretary Rosen has emphasized that “the Committee will not hesitate to use all of its tools and take enforcement action to ensure prompt compliance and remediation.”