Top 10 Takeaways From the U.S. Treasury CY 2022 CFIUS Annual Report

On July 31, 2023, the U.S. Department of the Treasury released its CY 2022 Committee on Foreign Investment in the United States (CFIUS) Annual Report (Report) to Congress. This marks the second Report that captures a full calendar year of data after the CFIUS reform regulations became effective in February 2020.

Sidley’s CFIUS team, which includes Grigore Alexandru (author of the Department of Defense’s first-ever CFIUS Report), provides its Top 10 Takeaways from the Report.

1. Covered Transactions: “CFIUS conducted a ‘review’ with respect to the 286 notices of covered transactions that were accepted in 2022 … CFIUS conducted an assessment …  with respect to 154 declarations of covered transactions submitted in 2022.”
   • Takeaway: Although the 440 covered transactions reviewed by CFIUS in 2022 (154 declarations and 286 notices) represent a new record over the 436 covered transactions reviewed in 2021 (164 declarations and 272 notices), the numbers are largely similar. Two full years after the CFIUS reforms in 2020, CFIUS filings appear to have stabilized, and we expect these figures to remain stable in 2023. However, CFIUS filings could increase if certain legislative measures designed to increase the scope of CFIUS jurisdiction are passed (e.g., Real Estate Investments Proposal). 
2. Declarations: “CFIUS requested that the parties to 50 declarations file a written notice; CFIUS informed the parties to 14 declarations that the Committee was unable to conclude action; CFIUS notified the parties to 90 declarations that the Committee had concluded all action under Section 721.”
   • Takeaway: Notices (i.e., long-form filings) are the traditional way to file with CFIUS, but that process can take many months to complete. Declarations (i.e., short-form filings) require CFIUS to make a decision within 30 calendar days. At the end of assessment of a declaration, CFIUS could (1) clear the transaction, (2) issue a nondecision (colloquially known as a “shoulder shrug”), (3) request a notice, or (4) self-initiate a review. After logging their highest approval rate in 2021, declarations may no longer be seen as an easy way to gain CFIUS approval, as the declaration approval rate fell from 73% in 2021 to 58% in 2022.
     
     Although the “shoulder shrug” rate remained stable from 2021 (7%) to 2022 (9%), the rate at which CFIUS requested a notice nearly doubled from 18% in 2021 to 33% in 2022. Parties to a transaction should carefully consider whether their transaction would be a good candidate for a declaration. CFIUS clearance could be significantly delayed if the transaction parties are required to (or voluntarily choose to) submit a notice after they have gone through the declaration process. 
3. Investigations: “The proportion of notices proceeding to investigation in 2022 was approximately 57 percent.”
   • Takeaway: If the parties file a notice, and CFIUS cannot clear the transaction after an initial 45-day review period, CFIUS will initiate a 45-day investigation. Investigation rates (i.e., the percentage of notices that result in an investigation) jumped to 57% in 2022 from a rate of 48% in 2022. Since 2013, 53% of all CFIUS notices have proceeded to investigation. In 2022, 162 notices resulted in an investigation, which trails only 2017 (172) for the most investigations in a single year. The 2022 (57%) investigation rate is also the third highest since 2013, trailing only 2017 (73%) and 2018 (69%).
4. Singapore: “In 2022, the highest number of notices were from Singaporean investors, accounting for 12.9 percent (37 notices), followed by Chinese and British investors, accounting for 12.6 percent and 6.3 percent, respectively (36 and 18 notices).”
   • Takeaway: For many years, Chinese investors submitted the most notices of any nationality. Singaporean investors have now emerged as a major player on the CFIUS stage, accounting for not only the most notices (37) and fifth most declarations (9) but also the most CFIUS filings overall (46), which is nearly double the number from 2021 (24 total CFIUS filings from Singapore investors: 11 declarations and 13 notices). Although China is no longer the top CFIUS customer, Chinese CFIUS filings remained robust with 41 filings in 2022 (5 declarations and 36 notices). However, recent reporting has indicated that in 2023, Chinese investment in the U.S. has dropped to its lowest level in 17 years. Thus, next year’s Report may show a continued drop in the number of CFIUS filings from Chinese investors.
     
     Only one declaration in 2021 involved an investment by a Chinese investor. Surprisingly, five declarations involving an investment by a Chinese investor were filed in 2022. Typically, investments by Chinese investors are not good candidates for a declaration, as it is often assumed that CFIUS will simply ask for a notice, given the perceived high threat posed by Chinese investors.
5. Mitigation: In 2022, “CFIUS concluded action after adopting mitigation agreements with respect to 41 notices of covered transactions (approximately 23 percent of the distinct 2022 notices).”
   
   (Note that these “mitigation” figures include only transactions that resulted in National Security Agreements (NSAs) and do not include three transactions that were voluntarily withdrawn and abandoned, five that were withdrawn and abandoned with mitigating conditions imposed, and three that resulted in interim mitigation measures that were imposed while the CFIUS process was pending.
   • Takeaway: While the number of distinct notices in 2021 and 2022 were similar, CFIUS executed an NSA with respect to 41 notices in 2022 (approximately 23% of distinct notices) compared with only 26 notices in 2021 (CFIUS did not publish the number of distinct notices in 2021). The dramatic increase is likely due to a number of factors, including increased scrutiny by CFIUS, evolving threat profiles of foreign acquirers, and the nature of the transactions that CFIUS reviewed in 2022, which makes it difficult to compare two separate years. We will need a few more years of data to know whether the uptick in NSAs is a long-term trend or whether 2022 was merely an aberration.
6. Withdrawals: “88 of the 286 notices were withdrawn. In 68 of these instances, the parties filed a new notice. 53 were re-filed in 2022 and 15 in 2023. In 12 of these instances, 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. In eight of these instances, the parties withdrew their notice and abandoned the transaction due to commercial reasons.”
   • Takeaway: The 2022 withdrawal rate of 31% (i.e., withdrawals and refiles, withdrawals and abandonments) is up a bit from a rate of 27% in 2021 and a rate of 16% in 2020. The increased withdrawal rates likely directly correlate with the increase in the number of cases in which mitigation was required (in certain cases, parties to a transaction need more time to negotiate mitigation agreements with CFIUS, and the parties may request to withdraw and refile, or CFIUS may ask that they withdraw and refile).
7. Presidential Decisions: “There were no Presidential decisions issued in 2022.”
   • Takeaway: If CFIUS does not believe that a national security risk can be mitigated, and the transaction parties do not agree to withdraw their notice and terminate the transaction, CFIUS will send the matter to the President for a 15-day review. Presidential decisions are extremely rare. Since 2013, there has never been more than one presidential decision in any given year, and there hasn’t been such a decision since 2020. Typically, in instances in which CFIUS informs parties to a transaction that the Committee has identified a risk that cannot be mitigated, parties will request permission to withdraw the filing and abandon the transaction to avoid a public presidential decision. Historically, presidential decisions have not proved fruitful for parties as the President will almost always concur with CFIUS’s recommendation of a prohibition.
8. Penalties: “The Committee did not assess or impose penalties or initiate a unilateral review of a transaction pursuant to Section 721(b)(1)(D)(iii) during 2022.”
   • Takeaway: During the April 2022 ACI CFIUS Conference, Assistant Secretary Paul Rosen announced that CFIUS had carried out two recent enforcement actions under the new guidelines. However, because the Report confirms that those two penalties did not occur in 2022, we expect them to be included in next year’s Report.
9. Monitoring: “Of the mitigation agreements and conditions entered into by the Committee, 214 are currently being monitored. Twenty-two mitigation agreements and conditions were modified materially in 2022, including 16 of those that were terminated.”
   • Takeaway: It was expected that the number of active NSAs being monitored would continue to grow steadily. However, we should note that the 16 NSAs that were terminated in 2022, likely because the associated transactions no longer pose a national security risk, represented double the number terminated in 2021. As the number of actively monitored CFIUS NSAs continues to grow, we should expect that CFIUS will continue to make a concerted effort to terminate older NSAs.
10. Non-Notified: “There were 84 transactions identified through the established process in 2022 that were put forward to the Committee for consideration. Of those 84 transactions, 11 resulted in a request for filing. In addition to those 11 requests, eight non-notified transactions that were identified in prior calendar years resulted in a 2022 request for filing.”
    • Takeaway: Although the number of 2022 transactions identified through the non-notified process has decreased since 2021, the non-notified filing rate (i.e., the percentage of non-notified transactions put forward to the Committee that resulted in a filing) more than doubled from 6% (8 filings) in 2021 to 14% (11 filings) in 2022, which is closer to the 13% rate in 2020. We expect the volume of older transactions identified through the non-notified process to continue to decease as CFIUS appears to have worked its way through the backlog of transactions that predated the 2020 reforms. The Committee is expected to shift its focus to more recent non-notified deals.