DealLawyers.com Blog

Last month, CFIUS issued its 2023 Annual Report to Congress.  The report highlights key indicators of CFIUS’s activities and process, including the complexity and volume of its cases. The report says that there were 233 written notices of transactions filed with CFIUS in 2023 that it determined to be covered transactions, and that a subsequent investigation was conducted with respect to 128 of those 233 notices. The parties ultimately withdrew the notice and abandoned the transaction in 14 of these instances, either for commercial reasons or after being unable to identify mitigation measures acceptable to CFIUS and the parties involved.

There are a whole bunch of numbers in this report, and I could go on like this for quite a while, but that would be really tedious. Instead, I’m just going to point you in the direction of Davis Polk’s memo on the report and offer up an excerpt from that memo identifying some of the report’s key takeaways:

– Complex filings are not getting any easier (or shorter). As discussed above, the time to resolve investigations continues to increase, despite growth in CFIUS resources and staffing. In our experience, the increase in the number of questions from and information requested by the Committee during an investigation continues to drive longer timelines.

– Mitigation measures continue to expand. While the share of notices that resulted in the imposition of some form of mitigation measures remained the same as in 2022 (roughly 18%), it is significantly higher than in 2020 (12%) and 2021 (11%). Moreover, CFIUS’s indicative list of mitigation measures continues to expand, tracking changes to typical NSAs. Expansion has focused largely on data security and increased information and reporting requirements.

– Expect non-compliance with mitigation measures to be more heavily scrutinized and penalized. As discussed in our recent client update, CFIUS has increasingly focused on enforcement, and the Treasury Department issued a notice of proposed rulemaking earlier this year to amend its compliance and enforcement provisions to sharpen its enforcement authorities. Consistent with this trend, in 2023, CFIUS assessed or imposed four civil monetary penalties for noncompliance with material provisions of mitigation agreements, double the total number of previous penalties in the entire history of CFIUS, and issued its first formal finding of a violation of the mandatory filing requirements.7 The report notes that CFIUS member agencies increased investment in monitoring and enforcement resources in 2023.

– Shifting trends in non-notified transactions. CFIUS has made clear that investigating non-notified transactions is a priority of the Committee. As forecasted in the Committee’s 2022 report, though, the total number of non-notified inquiries has continued to decline, from 135 in 2021 and 84 in 2022 to 60 in 2023, as the Committee uses its increased investigative resources to work through a backlog of historical transactions.8 That said, the percentage of non-notified inquiries resulting in a formal request for a filing is trending upwards from ~6% in 2021 and ~13% in 2022 to ~22% in 2023, and we expect that CFIUS will continue to closely monitor for transactions of interest.

– John Jenkins