August 11, 2022

National Security: CFIUS Flexes Its New Muscles

CFIUS recently released its latest Annual Report to Congress. The report covers calendar year 2021, which was the first full year during which FIRRMA was fully implemented. That statute significantly expanded CFIUS’s jurisdiction and resources, and this WilmerHale memo says that the report indicates that CFIUS wasn’t shy about flexing its newly acquired muscles:

The results of these changes are apparent in CFIUS’ 2021 Annual Report, which shows explosive growth in CFIUS reviews. During 2021, CFIUS reviewed 164 declarations and 272 JVNs, the largest number of transactions ever analyzed and amounting to year-over-year jumps of 30% and 45%, respectively.

Of those 272 notices, 130 (or 48%) led to an “investigation phase,” and 74 (27%) were withdrawn during the review or investigations phase. Of the 74 withdrawn notices, the parties in 63 instances filed a new notice, either in 2021 or in 2022. In nine of these instances, the parties withdrew the notice and abandoned the transactions either after CFIUS informed the parties that it was unable to identify mitigation measures that would resolve its national security concerns, or after the parties declined to accept CFIUS’ proposed mitigation measures. In two of these instances, the parties withdrew their notice and abandoned the transaction for commercial reasons.

CFIUS required mitigation measures to resolve national security concerns about 10% of the time (in 26 of 272 notices). CFIUS adopted mitigation measures to address residual national security concerns with respect to two notices that were voluntarily withdrawn and abandoned. There were no presidential actions taken on transactions in 2021.

CFIUS has the authority and the staff to review and investigate transactions that were not notified to the Committee and to require filings. In 2021, the Committee considered 135 transactions identified through the non-notified process and requested a filing in eight of them.

The memo says that investors from Britain, Canada, China and Japan were among the most common recent filers. Canadian investors filed 14% of 2021’s declarations, while Japanese and British investors accounted for 11% and 9% of declarations, respectively. Chinese investors filed the most joint voluntary notices (16%), while investors from Canada and Japan each accounted for approximately 10% of joint voluntary notice filings.

John Jenkins