Last month, the Committee on Foreign Investment in the United States (CFIUS) released its Annual Report to Congress covering 2021. The key takeaway is that CFIUS is more active than ever, subjecting a record number of transactions to scrutiny.
1. Despite an Increase in the Number of Declarations, CFIUS Is Becoming More Efficient at the Declarations Review Process
In 2021, CFIUS reviewed 164 declarations, a 23 percent increase from 2020. Despite the increase in declarations reviewed, CFIUS concluded its review of declarations within FIRRMA’s 30-day review period in 74 percent of cases—proof that declarations can be an effective and efficient tool for transaction parties. CFIUS’s increased efficiency in the review process would seem to reflect both an increase in the Committee’s resources and an improved understanding by transaction parties about the types of transactions that are best suited for declarations.
2. Highest Number of Notices Reviewed by CFIUS to Date
In 2021, CFIUS reviewed a total of 272 written notices, a significant increase from the 187 notices filed in 2020, and seemingly reflective of market conditions. CFIUS conducted an investigation of 130 notices, or about 48 percent, which is considerably lower than in 2017 and 2018, when 70 percent of notices entered into a second 45-day investigation period.
3. Mitigation Is on the Rise, Although CFIUS Completed Action on a Majority of Cases Without It
In 2021, CFIUS adopted or required mitigation measures for 31 notices, approximately 11 percent of the total number of notices. This is a slight increase from the number of notices cleared with mitigation in 2021. Of note, the Report also indicated that 187 mitigation agreements are currently being monitored by CFIUS and 12 mitigation agreements were modified materially in 2021 (including eight that were terminated). Although the majority of notified transactions continue to clear without mitigation measures, the Report indicates that mitigation remains a key focus for CFIUS. The Committee continues to work with transaction parties to remediate issues and concerns through the mitigation process rather than through punitive action.
The increase in withdrawn notices, however, appears to reflect the Committee’s inability to decide on mitigation terms or difficulties obtaining approvals across agencies prior to the statutory deadline. Of the 272 notices filed in 2021, 74 were withdrawn, a significant increase from the 28 withdrawn notices in 2020. The vast majority of withdrawn notices in 2021—63 out of 74—resulted in the filing of a new notice. Despite the additional time afforded under FIRRMA, CFIUS cases are not concluded within the 90-day statutory period nearly 25 percent of the time.
4. CFIUS Continues to Target Non-notified Transactions
CFIUS monitors transactions and the commercial marketplace to identify transactions that may be subject to its jurisdiction and may raise national security concerns. In 2021, 135 transactions were identified through the non-notified process, an increase from 117 in 2020.
In light of the increased number of transactions identified through the non-notified process, the Report indicates that CFIUS plans to continue improving and devoting resources to the non-notified process. Efforts highlighted in the Report include hiring staff and increased awareness and training for existing staff across CFIUS member agencies to help increase coordination and identification of transactions of interest. Given the current and future focus on the non-notified process, we anticipate this process will remain an area of focus and emphasis for CFIUS.
5. Chinese Investors Reappear as Prominent Filers with CFIUS
In 2021, Chinese investors accounted for the largest number of notices with 44, a drastic increase from 17 in 2020. The increase may indicate Chinese investors do not view the CFIUS process as an impediment to investment. It is also possible Chinese investors are more inclined to notify their transactions due to an awareness of CFIUS’s increased emphasis on the non-notified process and the U.S. government’s sensitivities to China. This awareness is bolstered by the fact that China filed just one declaration in 2021. Just as likely, parties may be more confident presenting lower-risk transactions involving Chinese investors. Because there was no corresponding spike in blocked transactions or mitigation despite an increase in Chinese investment, taken together with the fact that a total of 37 transactions were either abandoned or mitigated across all jurisdictions, the Report statistics indicate that some number of transactions involving Chinese investors were cleared by CFIUS.