Increasing clearance rate for CFIUS declarations

For years, engagement with the Committee on Foreign Investment in the United States (CFIUS) meant completing a process that took several months, involving lengthy disclosures by the parties (including personal identifier information (PII) for directors, senior officers, and 5% individual shareholders of the investor) and - starting in 2020 - CFIUS filing fees.

But there’s now another, less burdensome way to submit CFIUS filings for parties who want CFIUS clearance but don’t want to deal with these issues. And its appeal has only grown as its applicability has been extended to all transactions and as it demonstrates increasingly greater utility. 

Short-form declarations – how do they work?

Starting in 2018, CFIUS allowed parties to submit short-form declarations in lieu of full notices for transactions subject to CFIUS’s “pilot program” requiring pre-closing filings for investments in critical technology companies. Declarations are much shorter, do not require the submission of PII, do not require the payment of filing fees, and are assessed by CFIUS in only 30 calendar days.

So why don’t all parties use declarations instead of full notices? The catch with declarations is that the outcome may not be conclusive. After its 30-day assessment of a deal, CFIUS’s options are limited to:

• A determination that CFIUS lacks jurisdiction;
• Unconditional clearance of the transaction;
• A request (that can often be read as a demand) that the parties file a full notice;
• A statement that CFIUS lacks sufficient information or time to clear the transaction on the basis of the declaration, but stopping short of a request for a full notice; or
• Unilateral initiation by CFIUS of a full notice process.

Wider applicability has led to increased usage and clearance rates

In 2018, only 21 declarations were filed, of which only 2 (or fewer than 10%), resulted in the transactions being cleared unconditionally. 

In 2019, a total of 94 declarations were filed, with unconditional clearances of 35 transactions (37%).

In February 2020, CFIUS began allowing parties to use declarations in lieu of full notices for all transactions. By October 2020, Tom Feddo, then serving as the Assistant Secretary of the Treasury responsible for CFIUS, reported that CFIUS was clearing approximately 2/3 of the transactions for which declarations were filed. (Full-year statistics for 2020 will be available when CFIUS releases its next annual report—watch this space for updates.)

He ascribed the increased clearance rate to (i) greater efficiency within CFIUS and (ii) a “positive feedback loop.” The first point meant that CFIUS staff is now more comfortable with the declaration process. The second highlighted that the CFIUS bar, and by extension the parties to transactions, has become more discerning. Parties are filing more declarations for transactions that appear to be less inherently risky, while submitting full notices for transactions that are more likely to invite CFIUS scrutiny and mitigation conditions.

Key takeaways

The short-form CFIUS declaration is therefore an increasingly viable option for parties who want to address potential CFIUS risks prior to closing in a more time- and cost-efficient manner. The key to success, however, will be an accurate pre-filing assessment of the potential national security concerns that CFIUS may associate with the transaction.