US government steps up scrutiny of foreign investments |  Wilmer Hale

US government steps up scrutiny of foreign investments | Wilmer Hale

The Committee on Foreign Investment in the United States (CFIUS) is reviewing a record number of transactions for national security risks for calendar year 2021, according to a recently released annual report to Congress.

Amid a bipartisan focus on national security threats posed by foreign direct investment, resourced and staffed and given enhanced powers following the passage of a 2018 law, the committee has stepped up its scrutiny of transactions across the economy, with a particular focus on Companies in the financial, information and services sectors, and manufacturing, CFIUS told Congress.

The annual report, released in public on August 2, 2022, reviews the Committee’s activities for the first full year since the completion of the regulations implementing the Foreign Investment Risk Review Modernization Act of 2018 (FIRRMA), thereby expanding the mandate of CFIUS has been expanded.

The annual report comes as the White House announced its support for a bipartisan bill that would significantly expand the US government’s role in regulating private investment by establishing an interagency committee to review certain foreign investments, to complement the CFIUS , affecting supply chain security and domestic production and manufacturing capabilities.

Companies should expect increased government control of investments by and in foreign companies in the coming years.


CFIUS is an interagency committee chaired by the US Treasury Department that reviews certain foreign investments in the United States and certain real estate transactions by foreign persons to determine their impact on US national security. Except for certain transactions that are subject to mandatory filing requirements, transaction parties voluntarily submit short-form statements or long-form joint voluntary notices (JVNs) to CFIUS.

CFIUS will review the declarations during a 30-day evaluation period, after which the parties may be required to file a JVN. CFIUS reviews of JVNs can routinely take more than three months – a 45-day “review period” followed by a 45-day “investigation period” that the government can mandate. CFIUS may also review pending or completed transactions, even if the parties have not filed a notice, if CFIUS believes the transaction falls within its jurisdiction and may raise national security concerns.

At the end of the process, CFIUS can determine that there are no unresolved national security issues, allowing the investment to proceed without incident; it may recommend to the President that the President block the transaction; or it may order transaction parties to take mitigation measures to protect US national security interests.

With overwhelming bipartisan support (85 votes to 10 in the Senate and 400 votes to 2 in the House), Congress passed FIRRMA in 2018, significantly expanding CFIUS’s jurisdiction, including requiring mandatory filings when a transaction involved certain technologies, and supporting it a burgeoning bureaucracy in conducting these reviews.

Record breaking ratings in 2021

The results of these changes can be seen in the 2021 CFIUS Annual Report, which shows explosive growth in CFIUS reviews. In 2021, CFIUS reviewed 164 declarations and 272 JVNs, the largest number of transactions ever analyzed, up 30% and 45% year-on-year, respectively.

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

CFIUS required mitigation actions to address national security concerns in about 10% of cases (in 26 out of 272 communications). CFIUS took mitigation actions to address remaining national security concerns related to two notices that were voluntarily withdrawn and abandoned. No Presidential action was taken on transactions in 2021.

CFIUS has the authority and personnel to review and investigate transactions not reported to the Committee and to request filings. In 2021, the committee reviewed 135 transactions identified through the unreported process and requested filing for eight of them.

The committee reviewed transactions involving buyers from around the world, although recent applicants included investors from the UK, Canada, China and Japan. Canadian investors accounted for the most declarations filed in 2021, at 14% (54 declarations), and accounted for the largest share of declarations filed from 2019-2021. Japanese and UK investors submitted 11% (43 declarations) and almost 9% (33 declarations) of all submitted declarations from 2019 to 2021, respectively.

Chinese investors filed the most JVNs, totaling 44 (16%) in 2021, more than doubling the 17 filings by Chinese investors in 2020 (28 notices and just under 10% or 26 notices). For the three-year period from 2019 to 2021, the highest number of notifications came from Japanese investors (13% or 91 notifications), followed by Chinese and Canadian investors (13% or 86 notifications and 9% or 62 notifications, respectively). .

In 2021, similar to 2020, most transactions were made in the financial, information and services sectors, which accounted for more than half of the transactions (147 notifications or 55% of the notifications submitted). And as in 2020, the manufacturing sector accounted for the second highest number of notifications in 2021 (74 notifications or 28%).

Likewise, of the covered transaction reports filed with CFIUS over the last decade, from 2012 to 2021, about three quarters were in either the financial, information and services (726 reports or 40%) or manufacturing sectors Commercial (691 reports or 38%). The remaining notices were in the mining, utilities and construction sector (257 notices or 14%) and wholesale, retail and transport (149 notices or 8%).

The annual report notes that CFIUS has acted with zeal in examining many transactions. The Committee settled almost 60% of its cases (an all-time high) in either the 30-day evaluation period for a statement or the initial 45-day review period for a notice.

Increasing calls for outbound CFIUS screening

The CFIUS’ increased scrutiny of foreign direct investment comes as Congress and the White House are pushing for new legislation that would require US companies to notify the government before investing in certain critical sectors abroad, particularly in China.

Recent congressional efforts to create a so-called “reverse CFIUS” process are being led by US Senators Bob Casey (D-PA) and John Cornyn (R-TX) and Reps. Rosa DeLauro (D-CT), Bill Pascrell Jr .(D-NJ), Michael McCaul (R-TX), Brian Fitzpatrick (R-PA) and Victoria Spartz (R-IN). While their legislation, the National Critical Capabilities Defense Act of 2022, has yet to be formally introduced into Congress, a proposed bill would establish a “National Critical Capabilities Committee (NCCC) to conduct ongoing reviews of supply chain security, domestic manufacturing and… of manufacturing carry out capabilities of identified national critical capabilities,” reads a summary of the bill, which is set to replace an earlier bill introduced in 2021 (HR 6329).

The NCCC would be co-led by the Departments of Commerce and Defense and would include representatives from a wide range of federal agencies. It would define “national critical capabilities” as systems, services, and assets critical to U.S. national security, including agricultural security, health security, homeland security, energy security, infrastructure security, and natural resource security. It would consider “national critical capabilities” to be critical services and the manufacture of medical supplies, medicines, personal protective equipment, power grid materials and articles that are critical to infrastructure construction after natural or man-made disasters.

The bill would require companies operating in critical industries to report foreign investments in certain overseas markets, including China. Should the NCCC determine that a transaction would result in a national security risk, it would recommend that the President take remedial action, “including procurement, use of agencies to increase production, establishment of federal programs to support production, or other action.” “. Committee deems appropriate, which may include suspending the transaction,” the summary said.

While much remains to be clarified in the wake of this or similar legislation, the Biden administration has already expressed support for the underlying principle. “The administration supports bipartisan and bicameral efforts in Congress to increase transparency about US investments in China and other countries of concern, particularly transactions in critical sectors that could undermine America’s national security by protecting our technological… undermine our lead or undermine the resilience of our supply chain. National Security Advisor Jake Sullivan said in a July statement.

In summary, regulatory scrutiny of foreign investment in the United States has been increasing for several years, reaching new heights in the first year of the Biden administration. Businesses should prepare for ongoing screening of foreign transactions for national security threats and prepare for the possible establishment of a groundbreaking foreign investment screening process that will significantly increase regulatory risk.

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