The 2020 unclassified report published by the Committee on Foreign Investment in the United States (“CFIUS”) provides investors with information regarding the approval rate for the streamlined declarations review process and the number of non-notified transactions reviewed by the Committee. The 2020 annual report is the first report following publication of the updated CFIUS regulations in February 2020. CFIUS reviewed fewer “full” notices in 2020 compared to prior years but considered an increased number of declarations, which have a shorter review timeframe. Notably, CFIUS was willing to conclude action on a greater percentage of declarations than expected, which may provide a helpful avenue for parties to a transaction to obtain CFIUS approval in an expedited manner, particularly if the transactions are from partner or allied countries.
CFIUS continued to mitigate a similar number of transactions as in 2019 and the President blocked one transaction. CFIUS required mitigation terms in 2020 at a rate comparable to 2019, which indicates that CFIUS is adhering to its mandate to protect U.S. national security while maintaining an open foreign investment environment. Of note, seven transactions were abandoned as a result of CFIUS national security concerns, and the President blocked one transaction, the TikTok transaction.
Findings from the Annual Report
Importantly, in 2020, CFIUS completed action on 64 percent of the declarations filed compared to 37 percent in 2019.
CFIUS has aggressively used its new non-notified transaction process to search for historical transactions, yet this appears to have resulted in more limited requests for filing notices (17 out of 117).
Broader Implications for Transaction Parties
1 National Security Council. "Remarks by National Security Advisor Jake Sullivan at the National Security Commission on Artificial Intelligence Global Emerging Technology Summit," July 13, 2021, https://www.whitehouse.gov/nsc/briefing-room/2021/07/13/remarks-by-national-security-advisor-jake-sullivan-at-the-national-security-commission-on-artificial-intelligence-global-emerging-technology-summit/
In addition, Senators Bob Casey and John Cornyn have introduced an amendment to the United States Innovation and Competition Act that would establish an interagency review process to screen outbound investments and the offshoring of critical capacities and supply chains to foreign adversaries. The interagency committee would be led by the Office of the United States Trade Representative along with the U.S. Departments of Commerce and Defense. Office of Senator Bob Casey. "Casey and Cornyn Release a Joint Statement on National Critical Capabilities Defense Act," May 24, 2021. Casey and Cornyn Release a Joint Statement on National Critical Capabilities Defense Act | Senator Bob Casey (senate.gov)
2 Parties may request a withdrawal of a transaction for either commercial reasons or for CFIUS review-related reasons. The latter situation occurs when CFIUS informs the parties that it is unable to identify mitigation measures that would resolve the national security risk, or because the parties do not accept CFIUS' proposed mitigation measures. Due diligence and early consideration of potential CFIUS mitigation options helps parties understand which mitigation terms are acceptable from a deal perspective.
3 In 2020, conditions included: prohibiting the transfer or sharing of certain IP or technical knowledge, establishing access controls to prevent foreign access to certain technology or sensitive information, establishing Security Committees to ensure compliance with the terms of the NSA, including appointing a Security Officer approved by the USG, requiring supply assurances to the USG for defined periods, notification and consultation periods prior to taking certain business decisions, limiting foreign acquirer's ability to increase ownership or rights absent USG approval, and requiring that a foreign acquirer divest part or all of the U.S. business.