The Committee on Foreign Investment in the United States (CFIUS) has released its Annual Report for 2020 (Annual Report) as well as certain case statistics, providing insight into recent CFIUS trends. The data reflect a large number of CFIUS filings in 2020 despite the pandemic, the popularity and general success of the fast-track declaration filing option, a decrease in cases requiring mitigation measures for clearance, and CFIUS’s first official reporting regarding its increased efforts to identify non-notified transactions that may raise national security concerns. In general, the Annual Report reflects a number of positive trends for companies undergoing CFIUS review, while continuing to underscore the need for careful planning to successfully manage the CFIUS process.
The US Treasury Department has released the public version of the 2020 CFIUS Annual Report. CFIUS also published certain statistics regarding 2020 CFIUS reviews and declarations filed in 2020 under the CFIUS Critical Technologies Pilot Program (Pilot Program).1 The data in the Annual Report and statistics offer various insights into CFIUS trends in 2020, which are particularly notable since they are the first official data released since the new CFIUS regulations implementing the Foreign Investment Risk Review Modernization Act of 2018 (FIRRMA) took effect in February 2020. In particular, we note the following:
- There was a slight decrease in total filings in 2020, but the number of transactions CFIUS reviewed increased as investors utilized the new short-form declaration option. There were a total of 187 notices filed in 2020 compared to 231 in 2019, and 126 declarations filed in 2020 (including 10 declarations filed as part of the Pilot Program and two declarations under the real estate regulations), up from 94 in 2019. With the implementation of the FIRRMA regulations in 2020, any transaction subject to CFIUS review may be notified via a declaration, creating a potentially cheaper and faster option for certain transactions to complete the CFIUS process. Prior to February 2020, only transactions subject to mandatory filing under the Pilot Program were eligible to file via declarations. The data from 2020 show an increase in the number of declarations and a decrease in the number of notices, which likely reflects that investors for more benign transactions are availing themselves of the declaration option. Given that a number of cases get withdrawn and refiled each year (some more than once), it is always difficult to assess the actual number of transactions represented by the reported number of notices. CFIUS does not specify the number of transactions it reviews, but the Annual Report notes that “[w]hile the number of notices filed in 2020 decreased from 2019, the overall number of transactions reviewed or assessed by the Committee increased substantially, due to the introduction of declarations as a method for filing any type of transaction with the Committee.”
- There was a substantial increase in the percentage of declarations cleared by CFIUS. In 2020, approximately 64% of cases notified by declaration were cleared by CFIUS. This was a sharp increase from 2019, when approximately 37% of declarations resulted in CFIUS clearance. This increase was largely due to fewer cases receiving the “shrug” outcome, where CFIUS does not clear the transaction but also does not request the parties to file a notice. In 2020, only approximately 13% of declarations received the shrug, compared with approximately 34% in 2019. Notice requests following assessments of declarations also declined in 2020 to approximately 22% of cases compared with approximately 28% in 2019. As the 2019 data were limited to the Pilot Program—which mandated filings for transactions meeting certain criteria of heightened sensitivity—it is not surprising that the clearance rate has improved when parties can self-select to file via declarations for more clearly benign or straightforward transactions. Overall, the decision of whether to notify a transaction via a declaration or notice has become a key issue in CFIUS strategy planning, and a variety of factors must be weighed, including complexity and potential sensitivity of the transaction and timing considerations. For some transactions, declarations can provide a potentially cheap and effective way to complete the CFIUS process quickly, but for others it may be more efficient to file initially with a notice.
- CFIUS continues to clear most transactions without mitigation measures, and mitigation was required to clear fewer cases in 2020. In 2020, CFIUS cleared 16 notices on the basis of mitigation (approximately 9%), which was down from approximately 12% of cases clearing with mitigation in 2019.2 A total of seven notices (approximately 3.7%) were withdrawn and abandoned after either CFIUS informed the parties that it was unable to identify mitigation measures that would resolve its national security concerns and was prepared to refer the matter to the President for decision, or CFIUS proposed mitigation terms that the parties chose not to accept. This was consistent with the 2019 statistics, in which approximately 3.5% of notices were withdrawn and abandoned based on CFIUS concerns. Notably, the percentages reflected above are based on notices, meaning that the total number of CFIUS filings resulting in mitigation or CFIUS stopping the transaction is substantially less than 9% and 3.7%, respectively, given that just over 40% of transactions were notified via declaration and only about 22% of those resulted in a request for a notice. That said, while the vast majority of notified transactions ultimately clear without mitigation, cases that do raise national security concerns can present substantial challenges for transaction parties and need to be carefully managed.
- CFIUS is still mostly a voluntary process. One of FIRRMA’s most notable changes was introducing mandatory CFIUS filings for certain transactions involving a target that qualifies as a “TID US business,” i.e., certain businesses involved with critical technologies, specified critical infrastructure, or sensitive personal data of US citizens. The Annual Report advised that based on stipulations by parties, 34 of the 2020 declarations were subject to mandatory filing requirements. Excluding the two real estate declarations (since real estate transactions are not subject to mandatory filings), approximately 27% of declarations were mandatory filings. CFIUS did not specify how many notices were mandatory, but since the vast majority of transactions subject to CFIUS’s jurisdiction do not meet the mandatory filing criteria, it is unlikely the percentage was dramatically higher. Consistent with our experience, this reflects that parties in transactions that do not trigger mandatory filing requirements often still elect to voluntarily notify CFIUS where their transactions have an apparent nexus to US national security. Indeed, particularly given CFIUS’s increased pursuit of non-notified transactions, parties are often more comfortable seeking clearance at the outset of transactions.
- Canada was the lead investor country for declarations and Japan stayed on top for notices. Canada was the most-represented investor country filing declarations in 2020, with a total of 20 declarations, followed closely by Japan at 18 declarations. Given that Canada is a strong US ally, it is not surprising that a substantial number of parties in Canadian-based transactions elected to file via a declaration. Japanese investors filed the most notices in 2020, with 19, maintaining its lead for notices. In 2019, Japanese investors led for both declarations (under the Pilot Program) and notices. China remained the second most represented country in CFIUS notices with 17 filings in 2020, though given the overall decline in Chinese investment in the United States in recent years and the substantial focus of CFIUS’s non-notified process on Chinese investment, we expect that some of these notices were non-notified filings requested by CFIUS rather than new transactions.
- For the first time CFIUS reported data on non-notified transactions. As we reported in June, CFIUS has been actively using its FIRRMA-allocated resources by increasing its efforts to identify non-notified transactions of interest. This year’s Annual Report is the first time CFIUS has included a section on non-notified transactions. CFIUS considered a total of 117 identified non-notified transactions in 2020, and requested a notice in 17 of those cases. The Annual Report did not specify the extent to which CFIUS reached out to the parties in the other 100 cases, and it is possible that the parties to some of those transactions received notice requests in 2021 that were not captured by the Annual Report. The Annual Report notes that non-notified transactions are identified by interagency referrals, tips from the public, media reports, commercial databases, and congressional notifications. The Annual Report also notes ways in which CFIUS can improve the process for identifying non-notified transactions of interest. Overall, it is clear that CFIUS intends to continue its aggressive pursuit of non-notified transactions.
- FIRRMA improved CFIUS timelines in a number of ways, but investigations for notices remain common and withdrawals and resubmissions increased in 2020. Immediately following the enactment of FIRRMA in August 2018, the initial review period for notices increased from 30 days to 45 days. This resulted in a notable drop in notices going to the investigation phase in 2019 (down to approximately 49% from approximately 69% in 2018). The percentage of notices moving to the investigation period declined slightly further in 2020 to approximately 47%, but the 2020 data confirms that parties filing a notice should still plan for there to be an investigation period since that proves necessary nearly half of the time. The number of cases being withdrawn and resubmitted also increased in 2020—parties used this method to extend the CFIUS timeline in approximately 11% of notices, which was up from approximately 8% of notices in 2019. Both the investigation and the withdrawal and resubmission numbers may reflect that in general more complex cases are being filed via notices—either initially or in response to a CFIUS request following assessment of a declaration or pursuant to the non-notified process.
- CFIUS did not initiate any significant enforcement actions in 2020. The Annual Report noted that there are 166 mitigation agreements and conditions currently being monitored by CFIUS. CFIUS did not find any major violations of any mitigation agreements or conditions in effect during 2020, and CFIUS did not assess or impose any penalties or initiate a unilateral review of a cleared transaction due to a material breach. Remediation activities were instituted in three cases in 2020 for minor violations, but CFIUS did not take any other enforcement actions in 2020. CFIUS officials have previously advised the Committee is working on enforcement guidelines, but no estimate has been provided for when they will be issued.
1 The Critical Technologies Pilot Program ended when the FIRRMA regulations took effect in February 2020, so the 2020 reporting reflects statistics for the conclusion of the Pilot Program.
2 CFIUS also required mitigation in several cases that were withdrawn and abandoned as well as interim mitigation for one transaction that was ultimately withdrawn and abandoned.
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