The Committee on Foreign Investment in the United States (“CFIUS”), the interagency panel at the Department of the Treasury that reviews transactions for potential national security risks, recently released the public version of its latest annual report to Congress.1 The report, which covers the period of calendar years 2016 and 2017, reflects on the committee’s reviews for that period, summarized below, and shows a marked increase in both notices of covered transactions filed with CFIUS as well as an increase in investigations by CFIUS. Despite such increases, the percentage of deals requiring mitigation measures remained relatively consistent.
In August of 2018, Congress enacted the Foreign Investment Risk Review Modernization Act (FIRRMA). Part of the act went into effect immediately, while enactment for the remaining portion was delayed into 2019. (See our note published Oct. 4 on the implementing regulations released by the U.S. Department of the Treasury in September of 2019). The period covered by the report predates the new legislation, which expanded the scope of CFIUS.
Covered Transactions, Withdrawals, and Presidential Decisions
CFIUS reports that the number of notices of covered transactions increased from 143 in 2015 to 172 in 2016, and to 237 in 2017. The number of investigations, which can follow the review period for a notice, increased from 66 in 2015 to 79 in 2016, and jumped to 172 in 2017. The increases in filings are consistent with the generally upward trend that started in 2009, which the report notes is correlative to macroeconomic conditions and a strengthening economy over the same period. Approximately three-fourths of the notices filed were either in the Manufacturing (40 percent) or Finance, Information and Services sectors (36 percent). Acquisitions by investors from China accounted for the largest proportion of notices filed for the period from 2015-2017 (25.9 percent). Similarly, Chinese investors filed the most notices each year for that period (29, 54 and 60 notices, respectively). Investors from Canada, Japan and the United Kingdom accounted for the second-, third-, and fourth-most notices in the window from 2015-2017 with 66 (12 percent) 46 (8.3 percent) and 44 (8.0 percent), respectively.
Top Filers By Country
The report also notes an increase of withdrawn transactions. Some of the withdrawn notices were refiled at a later time. In 2016, 27 withdrawal notices were filed, and 74 notices were withdrawn in 2017. The large majority of notices withdrawn were after the commencement of the investigation period, which follows the initial CFIUS review. In certain cases, the parties abandoned the transaction because CFIUS informed them it was unable to identify mitigation measures that would resolve national security concerns, or because CFIUS proposed mitigation measures the parties chose not to accept. In 2016, CFIUS adopted mitigating measures in 18 covered transactions—about 13 percent of the notices filed that year. In 2017, mitigation measures were adopted with respect to 29 notices, or approximately 12 percent of the notices filed in that year.
Under FIRRMA, CFIUS now has up to 45 days (instead of the previous 30) to complete its initial review of a notice. While we have been successful in helping clients clear transactions in fewer than 45 days in the post-FIRRMA world, as the number of notices continues to rise, we can expect CFIUS to take the full 45 days allowed for review, and, if necessary, to utilize the additional 45-day investigatory period. Clients should be aware of this time frame as they consider transactions under CFIUS Jurisdiction.
If you have any questions regarding this article or the CFIUS approval process, please contact the authors: Marcie Solomon (412-230-8981) and David Lavan (202-744-7599).
1 See Committee on Foreign Investment in the United States Annual Report to Congress available here.