On August 2, 2022, the Committee on Foreign Investment in the United States (“CFIUS” or “Committee”) released its statutorily required Annual Report to Congress for Calendar Year 2021. CFIUS is the inter-agency body charged with conducting national security reviews for certain foreign investments in the United States. While the CFIUS process is generally confidential, the annual report provides aggregate data on certain CFIUS activities and offers industry a window into current Committee trends.

Before summarizing some of the more interesting aspects of the data contained in the report, our key takeaways are as follows:

  • CFIUS may be losing deadline discipline, as it resorted to a “withdraw and refile” in 63 cases (representing nearly a quarter of all cases);
  • The uptick in Chinese cases appears to be a gamble on President Biden being more lenient with China than President Trump, which may be a dubious assumption given the large number of scuttled transactions, including those withdrawn and abandoned after the Committee threatened to recommend the President block the transaction;
  • The much-maligned declaration process may be hitting its stride (or the CFIUS bar is getting smarter in counseling clients on this issue), as it appears that only about a quarter of parties to declarations in 2021 were forced to submit a subsequent notice or received a “shrug” (i.e., no action taken; no safe harbor given); and
  • Despite all of the noise about a greater emphasis on pulling in non-notified transactions, there were only eight instances in 2021 (out of more than 100 such transactions that were identified) when a formal filing was requested, which suggests the increased risk of the worst-case scenario for transaction parties (i.e., the unwinding of a non-notified transaction) may be keeping parties on their toes and encouraging more filings on the front end.

Notifications by the Numbers

CFIUS had a particularly busy year in 2021, reviewing a record 272 notices, up from 187 in 2020. CFIUS conducted an “investigation” with respect to 130 of those 272 notices and utilized its authority to grant a 15-day extension in “extraordinary circumstances” for three cases. CFIUS approved 26 transactions (or approximately 10% of cases) after the parties agreed to implement various mitigation measures, similar to past years.

In 2021, CFIUS approved the withdrawal of 74 notices. That is a significant increase from 2020, when only 29 notices were withdrawn, and ties 2017 for the largest number of withdrawals on record. For 63 of the 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. CFIUS had been working to reduce the number of cases that are withdrawn and refiled, but the report suggests this practice continues to be alive and well. Another nine transactions were withdrawn and abandoned 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 two instances the parties withdrew after abandoning the transaction for commercial reasons.

Notices are typically submitted to CFIUS in draft to allow the Committee to review and comment on the notice. Parties will then incorporate the feedback from CFIUS and file a final notice, which CFIUS then formally accepts to start the first 45-day review clock. The report indicates that CFIUS provided comments on drafts in an average of 6.2 days (by law it has 10 days to do so). CFIUS averaged 6 days to formally accept a final notice after its submission (again, there is a 10-day statutory deadline for it to do so).

The most frequent country of origin for filed notices was China, with 44 notices filed. Canada and Japan were second and third with 28 and 26 notices, respectively. The number of Chinese filings marks a significant increase from 2020, when only 17 were filed, and 2019, when 25 were filed. While total filing numbers are driven by various factors, including general macroeconomic trends, the increase may reflect, in part, a view that the Biden administration is somewhat more hospitable to Chinese investors than the Trump administration.

Declarations by the Numbers

The Committee also reviewed a record 164 declarations, up from 126 in 2020, and a significant increase over the 94 submitted in 2019 and the 20 submitted in 2018. Unsurprisingly, declarations were more frequently used by acquirers from close U.S. allies, such as Canada with 22. Acquirers from countries viewed as presenting a more significant national security risk used the declaration process infrequently. For example, only one Chinese acquirer and one Russian acquirer filed a declaration.

Out of the 164 declarations, CFIUS requested that 30 parties file a full notice and informed 12 parties it was unable to conclude action based on the declaration alone. The low number of cases in this latter category marks a significant reduction in transactions in which CFIUS was unable to conclude action. In such situations, colloquially known as the “CFIUS shrug,” CFIUS does not approve the transaction (providing statutory safe harbor from later CFIUS interference), but does not seek to block the transaction or impose mitigation. This can leave the parties in a state of limbo without clear direction, and is a practice of which industry has been critical.

The report also indicates that 47 of the declarations were subject to CFIUS’s mandatory filing requirements, based on stipulations from the transaction parties.

Non-Notified Transactions

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.” This has been a policy priority for the Committee and a much-discussed aspect of its expanded resources and authorities under FIRRMA. As described in the annual report, CFIUS uses various methods to identify non-notified transactions, including interagency referrals, tips from the public, media reports, commercial databases, and congressional notifications. The report states that 135 non-notified transactions were identified in 2021. CFIUS made a request for a formal filing for 8 of those transactions. In some instances, CFIUS will reach out to the parties to ask questions and request information regarding the transaction, but will not require a formal filing be submitted. The relatively small number of non-notified transactions that received requests for a formal filing is an interesting data point, which seems to belie the emphasis placed on this category of transactions.

The report highlights that CFIUS plans to continue to enhance methods for improving the identification of non-notified transactions, including through increased hiring of dedicated non-notified process staff and increased training and attention of existing staff across CFIUS member agencies to help increase coordination and effective identification of transactions of interest. CFIUS also plans to increase public awareness of the CFIUS tip mailbox on the Department of the Treasury’s website.