On July 31, 2023, the Committee on Foreign Investment in the United States (CFIUS or the Committee), the interagency committee tasked with national security review of proposed foreign direct investments in the U.S., released the public version of its annual report to Congress for 2022. This 83-page document includes a summary of CFIUS actions for the prior year, broken down by type of filing, industry distribution of proposed transactions, country of investor and, of course, outcomes.
The report indicates that 2022 saw a continuation of the upward trend in filings since the 2018 enactment of the Foreign Investment Risk Review Modernization Act, and adoption of ensuing regulations, reaching a new high of 440 filings (notices and declarations) regarding covered proposed transactions (including real estate transactions). That number represents a slight uptick from the 436 reviews reported in 2021.
Worth noting is CFIUS’ increasing focus on pursuing so-called non-noticed transactions—foreign investments for which the parties initially failed to make filings, but which the Committee identifies (through a variety of methods) as requiring its review. According to Assistant U.S. Treasury Secretary Paul Rosen, in remarks made in a Treasury release accompanying publication of the report, these otherwise unreported transactions often end up requiring mitigation agreements to meet national security concerns. The report indicates that 84 such transactions were identified and reviewed in 2022.
Applicants for CFIUS review may opt, for a range of reasons, to avail themselves of the short-form declaration (with a 30-day review period) or instead file a full notice (with a 45-day review period; longer with extended investigation).
The report breaks down 2022 filings as follows:
Full Notices
Of the 286 notices, 162 resulted in further extended investigations—a proportionately significant increase from prior years—some culminating in the requirement of security agreements/mitigation measures. An additional 88 were withdrawn and 53 of those were refiled (15 of them in 2023). The remainder were abandoned, either for inability to resolve through mitigation measures, or for commercial reasons.
Once accepted (usually 4.5 days from filing), the average time for review/resolution for a notice was 46 days (a day past the regulatory period) for clearance; 80.5 days if subjected to further investigation.
Declarations
Of the 154 declarations (five of which were for covered real estate transactions), 90 were cleared and thus protected against further review; 50 resulted in a request for full notice filing; 14 were left without CFIUS concluding any action (often referred to as a “shrug,” allowing a transaction to proceed but without assurance against further review); none were rejected or withdrawn.
Once accepted (usually six days from filing), the average time for review/resolution for a declaration was 30 days.
Investor Distribution by Country
Top CFIUS filers (combined notices and declarations) in 2022 were Singapore (46), China (41) and Canada (39).
Transactions with investors from Singapore and China led the way on filing notices in 2022 with 37 and 36, respectively, followed by the U.K. with 18. Canadian-invested transactions led in filing declarations with 22, followed by Japan with 18. Chinese investors were party to only five declarations.
While no CFIUS matters reached President Biden’s desk in 2022, the Treasury release was at pains to point out the president’s role in issuing the September 15, 2022 Executive Order (EO)—the first such EO relating to CFIUS since the one establishing the Committee in 1975. The EO details specific national security concerns (supply chain resilience, technological leadership, Americans’ personal data) that the administration regards as of paramount importance in reviewing foreign investment in the United States.
The release also notes the new inclusion of New Zealand in the group of “excepted investor states,” joining Australia, Canada and the United Kingdom as countries from which qualified investors would be exempt from mandatory filing requirements for non-controlling minority investments in the specified “TID” businesses and properties noted above.
Finally, the report refers to the release from October 20, 2022, of CFIUS’ first-ever published guidelines regarding enforcement and penalties, listing decision-influencing factors.
Given its increased mandate and expanding jurisdiction under the regulations, CFIUS’ continuing aggressive pursuit of non-noticed transactions as well as intensifying scrutiny of supply chain and data enterprises may be anticipated. U.S. and foreign parties to transactions involving direct foreign investment in the U.S.—and their counsel—should carefully consider the potential involvement of CFIUS, and whether to build into transaction timelines adequate time and resources for possible review.
For further information regarding the proposed rule, the regulations (including available exemptions), or other matters regarding foreign investment, please contact James Kevin Wholey at (202) 617-2714, jwholey@phillipslytle.com; any member of the Phillips Lytle International Team; or the Phillips Lytle attorney with whom you have a relationship.
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