The report stresses that a variety of economic factors affects the data included therein, which may make it difficult to extrapolate CFIUS trends year over year.

The Committee on Foreign Investment in the United States (CFIUS) recently published its annual report to Congress covering calendar year 2022. As discussed below, some important takeaways from the report include: a record number of submissions were filed with CFIUS in 2022; more mitigation requirements were imposed by CFIUS than ever before; and CFIUS has nearly completed its backlog review of pre-Foreign Investment Risk Review Modernization Act nonnotified transactions and is now able to focus on more recent foreign investments for potential nonnotified and nondeclared transactions.

Given these findings, entities should expect increased CFIUS scrutiny of M&A transactions.

Key Data Relating to Submissions and CFIUS’ Review of Them 

Declarations

In 2022, 154 declarations relating to covered transactions were submitted to CFIUS. Following a 30-day assessment of these declarations, which involves providing certain required information set forth in the CFIUS regulations, but are less onerous than filing full written notices:

• CFIUS requested that the parties to 50 declarations file a written notice;
• CFIUS informed the parties to 14 declarations that it was unable to conclude action;
• CFIUS notified the parties to 90 declarations that it had concluded all action under Section 721.

That CFIUS concluded all action for only 90 declarations, or about 58 percent of the 154 declarations filed, marks a significant decrease from 2021, when CFIUS cleared more than 70 percent of declarations. The business sectors with the highest numbers of covered transaction declarations in 2022 were electric power generation, transmission and distribution, and scientific research and development services, each with 15 declarations.

Notices

There were 286 written notices of transactions filed with CFIUS in 2022. CFIUS conducted a subsequent “investigation” for 162 of those 286 notices, meaning that approximately 57 percent of notices proceeded to the investigation phase.

The finance, information and services sector accounted for 52 percent or 149 of the CFIUS notices. Within this sector, professional, scientific and technical services continued to be the largest subsector, accounting for 44 percent or 66 notices. This subsector contains businesses such as scientific research and development services and computer systems design and related services.

The manufacturing sector had the next highest number of notices, accounting for 29 percent or 84 notices. Within manufacturing, the subsector with the most notices remained computer and electronic product manufacturing, accounting for 37 percent with 31 notices. This subsector includes the 14 notices filed regarding semiconductor and other electronic component manufacturing. The next highest subsector was transportation equipment manufacturing, accounting for 17 percent with 14 notices.

Eighty-eight of the 286 notices were withdrawn. In 68 of these instances, the parties later filed a new notice. In most instances, the notices were initially withdrawn after the committee informed the parties that the transaction posed a national security risk to allow the parties additional time to consider CFIUS’s mitigation terms. 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. Finally, in eight of these instances, the parties withdrew their notice and abandoned the transaction due to commercial reasons.

Increased Use of Mitigation Measures

In 2022, CFIUS adopted mitigation measures and conditions in 52 instances, accounting for approximately 18 percent of the total number of 2022 notices. CFIUS adopted or imposed mitigation measures as follows:

• CFIUS concluded action after adopting mitigation agreements to resolve national security concerns for 41 notices.
• CFIUS adopted mitigation agreements to address residual national security concerns for three notices that were voluntarily withdrawn and abandoned.
• Separately, in letters issued by the U.S. Department of the Treasury granting the withdrawal and abandonment for five notices, conditions were imposed. However, these did not involve mitigation agreements.
• Measures were imposed to mitigate interim risk for three notices filed in 2022.

The imposition of a national security agreement for 41 notices is a significant increase from 2021, when the committee imposed national security agreements for only 26 notices. Mitigation measures and conditions negotiated and adopted in 2022 required the businesses involved to take specific and verifiable actions, including, for example:

• Prohibiting or limiting the transfer or sharing of certain intellectual property, trade secrets or technical information;
• Establishing guidelines and terms for handling existing or future contracts with the U.S. government or its contractors that involve U.S. government customer information and other sensitive information;
• Ensuring that only authorized persons have access to certain technology, systems, facilities or sensitive information;
• Restricting recruitment and hiring of certain personnel;
• The exclusion of certain sensitive U.S. assets from the transaction.

Lessons to Be Learned from the Report

The report stresses that a variety of economic factors affects the data included therein, which may make it difficult to extrapolate CFIUS trends year over year. Further, CFIUS considers each transaction on a case-by-case basis, and the disposition of any particular case depends on the particular facts and circumstances of that case. However, if the data from 2022 is at all representative of future trends, parties should expect increased CFIUS scrutiny regarding upcoming foreign investment deals and the possibility that mitigation measures may be required. 

About Duane Morris

Attorneys in the firm’s Corporate Practice Group and International Group have considerable experience in assisting clients on a wide range of matters involving foreign direct investment (FDI) across the globe. Such assistance includes: assisting in determining the applicability of FDI control laws that are administered in various jurisdictions (e.g., the U.S., U.K., and EU); preparing and filing submissions with the entities responsible for administering those FDI control laws when required or warranted (e.g., CFIUS in the U.S.); and performing comprehensive due diligence relating to international M&A transactions.

For More Information

If you have any questions or comments about this Alert, please contact Geoffrey M. Goodale, Rebecca A. Guzman, Hope P. Krebs, Thomas R. Schmuhl, Lauren E. Wyszomierski, any of the attorneys in our International Practice Group, any of the attorneys in our Corporate Practice Group or the attorney in the firm with whom you are regularly in contact.

Disclaimer: This Alert has been prepared and published for informational purposes only and is not offered, nor should be construed, as legal advice. For more information, please see the firm's full disclaimer.