On July 31, 2023, the Committee on Foreign Investment in the United States (CFIUS, hereafter “the Committee”) issued its 2022 Annual Report to Congress.
The CFIUS Annual Report highlighted another eventful year for the Committee. In addition to reviewing a record number of covered transactions, the Committee held its inaugural conference, identified New Zealand as an “excepted foreign state,” determined Australia and Canada will remain excepted foreign states, and released the first ever enforcement and penalty guidelines. Additionally, President Biden issued an Executive Order, which provided a look at several national security risk factors the Committee considers when reviewing transactions.
Here are the main takeaways from the 2022 CFIUS Annual Report.
- CFIUS received a record number of covered transactions filings. CFIUS reviewed 440 covered transactions, an increase of 4 from 2021. This number is comprised of 286 notices and 154 declarations. These numbers are not adjusted to account for transactions that were the subject of more than one notice, but rather the total number of notices filed.
- CFIUS took more filings into investigation. CFIUS took 162 of the 286 notices into investigation, approximately 57 percent. This is an increase of roughly 9 percent from 2021. The investigation phase begins on day 46 of the CFIUS process and is typically when the Committee negotiates mitigation measures and conditions with involved parties. If this trend continues, it is likely we will see more mitigation agreements.
- Nearly a third of declarations filed led to a request for a written notice filing. CFIUS reviewed 154 declarations. Of the 154, 44 declarations were subject to mandatory filing requirements. Upon the 30-day assessment, the Committee requested a written notice filing in 50 of the 154, or nearly a third of declarations filed. In 14 other instances, the Committee informed the parties that it was unable to conclude action. This action leaves the parties in an uncomfortable position—file a notice or proceed without having received a CFIUS “safe harbor” letter, which, except in limited circumstances, would preclude CFIUS from subsequently initiating a review of a transaction.
- CFIUS is still searching for non-notified transactions. CFIUS continued its efforts to identify and review non-notified transactions. The Committee identified and put forth 84 non-notified transactions for consideration. Of the 84 non-notified transactions, 11 resulted in a request for filing. The Committee did not give a specific number as to how many transactions it considers as potential non-notified transactions; however, CFIUS did acknowledge that member agencies consistently review thousands of transactions a year looking for potential non-notified transactions.
- CFIUS increased the frequency of mitigation measures. CFIUS adopted mitigation measures and conditions in 52 instances, approximately 18 percent of the total number of 2022 notices. Of the 52 instances, covered transaction mitigation agreements accounted for 41, approximately 23 percent of the distinct 2022 notices (the Committee distinguishes distinct notices as the actual number of individual filings that may have involved multiple notices due to withdrawal and refiling). This is a significant increase from the approximate 10 percent of notices filed in 2021. Mitigation measures and conditions adopted required the businesses involved to take specific and verifiable actions, including technology transfer limitations, access restrictions, recruitment and hiring prohibitions, corporate governance requirements, and vendor management.
- Compliance and Monitoring. CFIUS underscored its commitment to compliance and monitoring. In 2022, CFIUS entered into 44 mitigation agreements and terminated 16 of them. CFIUS ensured all 44 mitigation agreements had compliance plans. As of the report, CFIUS currently monitors 214 mitigation agreements. Additionally, the CFIUS monitoring agencies conducted 44 site visits to conduct on-site compliance reviews. While the Committee issued its first enforcement and penalty guidelines, it did not impose any penalties in 2022. This is likely to change next year.
Annual Report Takeaways for Businesses and Compliance Professionals
Given the findings outlined above, there are several implications for businesses and compliance professionals:
CFIUS reviews are taking longer. For 2022, the Committee reported an average of 80.5 calendar days for covered transactions to close in investigation. This is a significant increase, adding over two weeks to the 2021 average of 65 calendar days. Further, CFIUS is taking more than half of the notices into investigation, which is another increase from 2021.
Negotiating mitigation measures can take time and it does not always guarantee clearing the CFIUS process. In addition to longer investigation times, 68 covered transactions entered the investigation period and were withdrawn and refiled. CFIUS noted that most of the 68 withdrawals occurred when the Committee informed parties of national security risks arising from the transaction. Withdrawing and refiling allowed parties additional time to consider mitigation terms. This is again an increase from the 63 withdrawn and refiled cases for 2021.
Not all transactions withdrawn resulted in a refile to allow for additional time to consider potential mitigation terms. In 12 Covered Transactions, the parties withdrew the notice and abandoned the transaction after either CFIUS informed the parties that it was unable to identify mitigation measures that would resolve its national security concerns, or it proposed mitigation measures that the parties chose not to accept.
Avoiding a prolonged CFIUS process
Because of the key takeaways from the 2022 CFIUS Annual Report highlighted in this report, it is essential for companies to seek professional guidance to navigate the evolving regulatory landscape. If you find yourself considering the CFIUS process, or CFIUS reaches out to you regarding a non-notified transaction, there must be a plan. It is important to think through mitigation strategies and conduct meaningful due diligence prior to filing with CFIUS.
Control Risks is an experienced firm that can help you address your foreign direct investment-related regulatory compliance needs. Our expertise includes deal risk diligence, third-party auditing, third-party monitoring, and strategic mitigation advising. Contact the experts at Control Risks to discuss how we can help your company establish a culture of compliance. This type of preparation could save your company money and time, and ensure you are doing what is needed to not add delay to the already lengthy process.