Slowing Down in More Ways than One: CFIUS’s 2022 Annual Report to Congress

The Committee on Foreign Investment in the United States (CFIUS) has just released the unclassified version of its annual report to Congress, covering the Committee’s activities during 2022. We analyze the key takeaways from this year’s report.

The numbers

Between full notices and short-form declarations, CFIUS received 440 filings in 2022, slightly up from 436 in 2021. After accounting for double-counted transactions (i.e. where notices were withdrawn and refiled or a declaration led to a full notice), rejected filings, and filings withdrawn for non-CFIUS (usually commercial) reasons, we estimate that CFIUS reviewed or assessed 321 distinct transactions, down from 340 in 2021. These figures are inconsistent with recent experience in the United Kingdom and several European countries, whose new foreign investment regimes have quickly grown to where they are reviewing—both individually and collectively—many more transactions than CFIUS.

CFIUS’s Office of Monitoring & Enforcement (OME) continues to review “non-notified” transactions (i.e., transactions for which the parties chose not to submit voluntary pre-closing filings). During 2022, CFIUS evaluated 84 non-notified transactions referred to it by OME, down from 135 in 2021. Eleven of these evaluations resulted in a request for a filing, up from 8 in 2021. We note, however, that these figures do not reflect all of OME’s requests for information from parties concerning prior transactions - just responding to these requests can sometimes be costly and burdensome.

Declarations no longer a tool for all seasons

Declarations appear to be playing a much more limited role than previously. Last year, we remarked on the rising use of declarations as a faster, less burdensome, and cheaper alternative to full notices. Alongside the increase in clearance rates, it appeared then that both transaction parties and CFIUS staff were becoming more comfortable with the declaration process, resulting in less complex cases being cleared more frequently.

The 2022 numbers have proved less promising in this regard. Less than a third of the transactions reviewed by CFIUS were resolved by declaration this year, marking a decrease from both 2021 and 2020. Furthermore, clearances from declarations have been much less frequent; while over 70% of declarations were cleared in 2021, fewer than 60% were cleared at that same stage in 2022.

The decline in clearances based on declarations is offset by a marked increase in CFIUS requests for full notices at the end of the assessment period; in 2022, full notices were requested at the end of 32.5% of declaration assessments, versus 18.3% in 2021. In a similar vein, notice filers were more likely than before to go to investigation in 2022, with over 56% going beyond the review stage compared to less than 48% in 2021. In sum, parties are remaining under CFIUS review longer than they were before.

The new numbers suggest at least one of the following is occurring:

1. Transaction parties are taking a more aggressive approach and filing declarations when it is ill-advised to do so. Fewer clearances based on declarations is not the result of more assessments of Chinese transactions; the number of declarations for transactions originating in China increased in 2022 to a total of five—not enough to shift the length of the process so significantly.
2. CFIUS has taken a more aggressive approach in its evaluation of both declarations and notices. This may be reflected in the increase in transactions cleared subject to mitigation conditions (41 transactions, or 18.9% of notices in 2022, versus 26, or 12.4% of notices in 2021).
3. CFIUS’s internal processes are slowing and thus preventing cases from being cleared within the 30-day deadline. This is obviously not something easily confirmed from outside CFIUS, but the annual report comments a number of times to CFIUS’s increased staffing, so the opposite result would be expected.

Taking the new data into account, our view is that declarations are generally only appropriate for transactions in which the investor poses no perceptible threat and there is no apparent nexus between the target and U.S. national security. Otherwise, full notices are often more prudent for getting conclusive results in a relatively predictable timeframe.

Penalties

In its report, CFIUS states that it did not assess or impose penalties in 2022. Given that CFIUS only issued its CFIUS Enforcement and Penalty Guidelines in October 2022, the lack of enforcement may simply be happenstance. At a conference of CFIUS practitioners in April, Assistant Secretary Paul Rosen announced that CFIUS had already carried out two recent enforcement actions under the new guidelines. Based on the new report, we can now place those enforcement actions in 2023. As discussed in a previous post, we still do not know whether the recent enforcement actions concerned noncompliance with mitigation conditions or failure to submit a mandatory pre-closing CFIUS filing.

Statistical summary of filings and outcomes