CFIUS Sees Uptick in Investigations, Focusing on ‘More Recent’ Non-Notified Deals

The Committee on Foreign Investment in the U.S. continued to see an increase in notices last year and initiated the most investigations since 2017, CFIUS said in its annual report to Congress released this week. The committee received 286 notices during calendar year 2022, a slight increase from the 272 it received in 2021, and began 162 investigations into transactions, 32 more than in 2021 and close to double the amount from 2020.

The agency last year continued to “review record numbers of filings,” said Paul Rosen, who leads CFIUS as the Treasury Department’s assistant secretary for investment security. Rosen said the committee also “sharpened due diligence on investors, tackled sophisticated technologies and national security risks, and launched a number of reviews to assess potential non-compliance with CFIUS regulations.”

Of its 162 investigations into covered notices, 87 were withdrawn after the agency began a probe, CFIUS said in the 83-page report. In “most” of those cases, parties withdrew their notices after being informed the deal posed a U.S. national security risk and were given “additional time to consider CFIUS’s mitigation terms.” In 20 cases, CFIUS said the parties withdrew their notice and abandoned the transaction.

The committee also said it identified 84 non-notified transactions last year, a steep drop from the 135 it found in 2021. Of those 84, 11 led to a request for filing, more than the eight that led to a filing request from the year before. CFIUS said those numbers don’t “reflect the much larger number of transactions considered by the Committee -- including individual member agencies -- as potential non-notified transactions, which regularly number in the thousands.”

CFIUS also said the overall volume of non-notified transactions it identifies “may continue to decrease” as it “works through its consideration of transactions that pre-date the Committee’s current, increased level of resources.” About 80% of the committee’s non-notified work in 2020 focused on transactions that took place before the enactment of the Foreign Investment Risk Review Modernization Act (see 2002270049 and 2001140060), the report said, but that number dropped to 26% in 2021 and is now “less than one percent.”

“CFIUS is now primarily focused on monitoring more recent foreign investments for potential non-notified and nondeclared transactions,” the report said, “but will continue to assess pre-FIRRMA transactions as new information becomes available to the Committee.”

CFIUS said it took an average of 7.4 business days from the date it received a draft covered notice to the date when it provided written comments on the notice, slightly longer than the 6.2 days it averaged in 2021. The committee took an average of 46.1 days to close a review of a notice -- about the same as 2021 -- and an average of 80.5 days to close an investigation, a sharp uptick from the 65 days it averaged in 2021.

The committee also received 154 declarations, a slight drop from the 164 it received in 2021. Of the 154 declarations, 44 were subject to mandatory filing requirements. The committee said it asked filers of 50 of the declarations to file a written notice, was unable to conclude action on 14 declarations and didn’t reject any declarations submitted in 2022. CFIUS averaged 5.59 days from the date it received a declaration to the date when it accepted the declaration, the report said, and averaged 30 calendar days to complete reviews of declarations, about the same as 2021.

The committee received the highest number of declarations in 2022 from Canada (22) and said most declarations involved investments in the “Electric Power Generation, Transmission and Distribution” sector and scientific research sector. CFIUS said most of the non-real estate covered notices during 2022 involved Singapore (37) and China (36), and most involved the finance, information and services sector.

The committee said it reviewed 181 covered transactions involving acquisitions of American critical technology companies in 2022. Sixteen of those transactions involved acquirers from Japan, and eight involved buyers from China. Most involved companies in the “machinery manufacturing sector.”

CFIUS said it imposed mitigation measures in 52 instances last year, close to 20% of “the total number of 2022 notices.” Those measures included limits on transfers of intellectual property or trade secrets; guidelines and terms for handling certain sensitive information; steps to ensure only “authorized persons have access to certain technology”; steps to ensure that certain facilities, equipment and operations are located only in the U.S.; measures to require “prior notification to and non-objection by the U.S. Government regarding changes to data storage locations”; measures to “limit foreign influence”; and government approved security officers. Other conditions included audit requirements, exclusions of “certain sensitive U.S. assets from the transaction,” the “divestiture by the foreign acquirer of all or part of the U.S. business” and more.

The committee added that it's continuing to hire more employees to manage its increased responsibilities. Treasury’s Office of Investment Security is specifically “redoubling its efforts to grow its staff commensurate with the increased workload of the Committee across all functions since the passage of FIRRMA,” the report said. “In addition to growing the case officer and managerial ranks, Treasury for the first time is hiring individuals for their specific technical expertise across a variety of disciplines, such as cybersecurity, natural and formal sciences, and enforcement.”