CFIUS’s 2021 Annual Report to Congress: Busier Than Ever Before

The Committee on Foreign Investment in the United States (CFIUS) has just released the unclassified version of its annual report to Congress, covering CFIUS activities during 2021. Some takeaways from our analysis of the annual report:

The numbers

CFIUS received a total of 436 filings (including full notices and short-form declarations) in 2021, versus 313 in 2020. After accounting for double-counted transactions (i.e., transactions for which notices were withdrawn and refiled or for which a full notice was requested after CFIUS’s assessment of a declaration), as well as filings that were rejected and declarations that were withdrawn for non-CFIUS reasons, we estimate the number of distinct transactions reviewed or assessed by CFIUS to have been 340 in 2021, versus 262 in 2020.

CFIUS’s Monitoring & Enforcement office (M&E) has also stepped up its efforts into “non-notified” transactions (i.e., transactions for which the parties chose not to submit voluntary pre-closing filings). During 2021, CFIUS evaluated 135 non-notified transactions referred to it by M&E (up from 117 in 2020). Eight of these evaluations resulted in a request for a filing. What isn’t clear from these statistics, is whether they reflect all the parties to whom M&E is sending questions about their non-notified deals, or just those where the parties’ answers provided a sufficient basis for M&E to refer the transactions to CFIUS.

Voluntary short-form declarations continue to be all the rage

As we have previously noted, short-form declarations have become an increasingly viable alternative for parties seeking to address CFIUS risk prior to closing. Declarations were the source of almost 39 percent of the distinct transactions for which CFIUS received filings during 2021, and 71 percent of the declarations were submitted voluntarily. As we discussed during our commentary on last year’s annual report, the increased use of declarations likely reflects the fact that they are faster, less burdensome, and cheaper than full notices. In addition, declarations have been leading to increasingly positive results over the years: unconditional CFIUS clearances of transactions for which declarations were filed increased from less than 10 percent in 2018, to 37 percent in 2019, to 64 percent in 2020, and now to over 73 percent in 2021. Adding the 7 percent of 2021 declarations for which CFIUS was unable to clear the transaction but stopped short of requesting a full notice, more than 80 percent of declarations filed in 2021 received a response that generally could be viewed by the parties as positive.

China is back, baby! Along with a new kid on the block…

After a couple of years of decline, transactions involving Chinese investors are back to being the #1 source of notices (44), well ahead of the trailing countries of Canada (28), Japan (26), and the Cayman Islands (18, more on this below). China is still well down the list of declaration filers, with only 1 filed in 2021; for reference, Canada led for declarations filed with 22, followed by Germany, Japan, Singapore, and South Korea with 11 each, and the UK with 10. One additional note about China: 2021 is the first year that CFIUS’s statistical reports no longer distinguish between Hong Kong and mainland China. Experienced practitioners have seen this coming from a substantive perspective for a number of years.

We are interested in the number of filings from the Cayman Islands. CFIUS identifies the sources of filings as the filer’s “home country or geographic economy,” a descriptor that would seem to apply infrequently to the Cayman Islands, a jurisdiction better known for “brass plate” companies set up by offshore entities for tax benefits or other reasons. CFIUS usually puts considerable effort into identifying the ultimate beneficial owners of foreign filers; was it not able to do so for the 18 notices originating in the Cayman Islands, or are the CFIUS statistics more a reflection of legal domicile than of ultimate beneficial ownership? This is potentially an important issue, as 12 of the Cayman Islands cases reviewed by CFIUS during 2021 involved the acquisition of a U.S. “critical technology” business.

Finally, we note that in 2021, Russia was the source of a number of filings (7 notices and 1 declaration) after a couple of years of relative inactivity. Obviously, we expect this to be a temporary blip in light of the 2022 Ukraine invasion and the subsequent sanctions limiting cross-border economic activities.

Extended investigations—lightning strikes thrice?

One other surprise from the annual report is that on three occasions, CFIUS found it necessary to extend the length of the second-stage investigation phase by 15 calendar days. This authority is granted to CFIUS by the Foreign Investment Risk Review Modernization Act of 2018 (FIRRMA), but is to be used only in extraordinary circumstances. In its 2020 implementing regulations enacting FIRRMA, CFIUS makes clear that "extraordinary circumstances” include either “a force majeure event or to protect the national security of the United States.” Since it was not anticipated that this power would be used frequently, if at all, it would be helpful for CFIUS to explain the specific circumstances that led to its use three times in one year.

Still no traction for real estate transactions

While FIRRMA authorized CFIUS to review various real estate transactions involving proximity to sensitive government facilities or activities, Part 802 of the CFIUS regulations, which implements this authority, does not seem to be having a significant effect on CFIUS’s caseload:  Only 6 notices and one declaration were filed in 2021 under Part 802.

Statistical summary of filings and outcomes

CFIUS’s annual reports include a variety of statistics addressing CFIUS’s caseload, the countries from which CFIUS cases originate, and the industrial sectors in which filers have sought to invest. We’ve compiled the following comparison of CFIUS filings and outcomes in 2020 and 2021:

*Distinct notices less those cleared with mitigation conditions, those withdrawn and abandoned, and those resulting in a Presidential decision
**Declarations filed less those rejected, withdrawn, or for which full notices were requested
***Includes all distinct notices reviewed

Sources: CFIUS 2021 Annual Report to Congress, CFIUS 2020 Annual Report to Congress; Linklaters calculations