On July 31, 2023, the Committee on Foreign Investment in the United States (CFIUS) released its Annual Report to Congress for Calendar Year 2022. CFIUS is the inter-agency body charged with conducting national security reviews for certain foreign investments in the United States. The CFIUS process is generally confidential, but the annual report provides aggregate data on certain CFIUS activities and offers the private sector insight into current Committee trends.
- CFIUS continues to face challenges meeting statutory deadlines, as it resorted to a “withdraw and refile” in 68 cases (nearly a quarter of all cases).
- Transaction parties are still having trouble figuring out when to use declarations instead of full-length notices. Roughly 42 percent of parties to declarations in 2022 were forced to submit a subsequent notice or received a “shrug” (i.e., no action taken; no safe harbor given).
- Compared to 2021, filed declarations decreased approximately 6 percent (from a record 164 declarations to 154 filed declarations), perhaps reflecting the frequency with which declarations are simply a gateway to full-length notices. Well-advised parties may be avoiding declarations except for transactions presenting minimal national security risk or where the Committee is already familiar with the details of the transaction (e.g., with respect to repeat filers).
- Consistent with past years and the continued emphasis in this area, CFIUS identified and insisted on formal filings in a number of non-notified transactions. CFIUS identified 84 transactions where the parties did not file; it required full filings in 11 of them. That may be a Goldilocks number – low enough to suggest that most parties are complying with CFIUS rules, but high enough to suggest that one reason for the compliance is the existence of CFIUS’s independent capability to find and demand filings for non-notified transactions.
- The trends reflected in these numbers suggest that even though we are a few years in to the post-FIRRMA era, there is still a great degree of uncertainty for transaction parties regarding the question of whether to file with CFIUS and in what form (declaration v. notice), as well as potential disruptions to many types of deals involving foreign capital.
Notifications by the Numbers
CFIUS again had a record-setting year in 2022, reviewing 286 notices, up from 272 in 2021. The Committee conducted an “investigation” with respect to 162 of the 286 notices. In 2022, CFIUS slightly expanded its mitigation portfolio. It conditioned approval of 41 transactions (or approximately 14% of notices) on the parties agreeing to various mitigation measures. This compares to mitigation requirements in approximately 10% of notices in 2021 and 9% in 2021.
In 2022, CFIUS approved the withdrawal of 88 notices (constituting about 31 percent of all notices), a record-setting year for the Committee. For 68 of these withdrawals, the parties filed a new notice, suggesting CFIUS and the parties ran out of time in the investigation period and used a tactic known as “withdraw and refile” in order to restart the statutory review clock. In another 12 instances, the parties abandoned the transaction after CFIUS threatened to recommend the President block the transaction because it could not identify sufficient mitigation measures to resolve the national security concerns or it proposed mitigation the parties declined to accept. In eight instances, the parties abandoned the transaction for commercial reasons (or perhaps because they didn’t expect to get CFIUS’s approval but wanted to avoid a formal rejection).
The most frequent country of origin for filed notices was Singapore, with 37 notices filed. China and the United Kingdom were second and third with 36 and 18 notices, respectively. The number of Singapore filings marks a significant increase from 2021, when only 13 were filed, and 2019, when 10 were filed. The number of Chinese filings decreased from 2021 when 44 notices were filed. While total filing numbers are driven by various factors, including general macroeconomic trends, it is striking that overall filings increased even as investments and filings from China – always a source of CFIUS concern – were decreasing.
Declarations by the Numbers
The Committee also reviewed 154 declarations, down slightly from 164 in 2021. Unsurprisingly, declarations were more frequently used by acquirers from close U.S. allies, such as Canada with 22 and Japan with 18.
Out of the 154 declarations, CFIUS requested that 50 parties file a full notice and informed 14 parties it was unable to conclude action based on the declaration alone in what is colloquially known as the “CFIUS shrug.” In such instances, CFIUS does not approve the transaction (thereby providing statutory safe harbor), but does not seek to block the transaction, impose mitigation, or insist on the filing of a full-length notice.
CFIUS cleared 90 (or approximately 58 percent) of the 154 declarations, a significant decrease from the Committee’s 73 percent clearance rate in 2021 and 64 percent clearance rate in 2020.
The report also indicates that 44 of the declarations were subject to CFIUS’s mandatory filing requirements, based on stipulations from the transaction parties.
Since the enactment of the Foreign Investment Risk Review Modernization Act of 2018 (“FIRRMA”), CFIUS has been given additional resources to identify and, in certain instances, initiate formal reviews of so-called “non-notified transactions” (i.e., completed or in-progress transactions that appear to fall within CFIUS’s jurisdiction, but where no declaration or notice was filed by the parties). The report states that 84 non-notified transactions were identified in 2022, a significant decrease from the 135 non-notified transactions identified in 2021. Of the 84 non-notified transactions identified in 2022, CFIUS made a formal filing request for 11 transactions.
Of note, the annual report states that the volume of overall non-notified transactions identified may “continue to decrease as CFIUS works through its consideration of transactions that pre-date the Committee’s current, increased level of resources.” While in 2021 approximately 26 percent of non-notified transactions involved pre-FIRRMA transactions, that number was less than one percent in 2022.
For additional information regarding CFIUS or assistance with a CFIUS-related matter please contact a member of Steptoe’s National Security and CFIUS Practice.