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Focus on Regulation

CFIUS Filings Jump By 50%

In 2014, the Committee on Foreign Investment in the United States (CFIUS), a U.S. Government interagency committee that conducts national security reviews of foreign investments, reviewed nearly 50% more transactions than it did in 2013, according to CFIUS’s recently published annual report to Congress. The dramatic increase likely reflects a combination of factors, including an increase in cross-border M&A activity, transactions involving sensitive industries or acquirers, and parties continuing to make filings with CFIUS across a broad range of industries.

Here are a few other highlights from CFIUS’s annual report:

China remains atop the list of CFIUS filers. For the third consecutive year, investors from China submitted more filings to CFIUS than any other country’s investors, with approximately 16% of all notices involving Chinese investors. In 2013, approximately 22% of CFIUS filings involved Chinese investors. Chinese investments continue to attract CFIUS scrutiny – with CFIUS focused not only on individual transactions but also on the broader impact of multiple transactions in particular sectors, such as the semiconductor industry. That said, CFIUS continues to clear many Chinese investments year after year.

Withdrawn cases suggest some deals abandoned for national security reasons. In 2014, parties to 12 transactions withdrew their CFIUS notices, but the parties to only one of these transactions re-filed in 2015. From 2012 to 2014, 42 CFIUS notices were withdrawn, with only 14 of those re-filed, suggesting that at least some of the underlying transactions raised significant national security issues that ultimately scuttled the deals.

CFIUS-imposed mitigation remains a consideration for certain transactions. The percentage of cases in which CFIUS imposed conditions to mitigate national security concerns fell from 11% in 2013 to 6% in 2014, but the percentage of cases involving mitigation in the most recent three-year period (2012-2014) remained steady at 8%. In 2014, CFIUS employed the same types of mitigation as in past years, including by imposing restrictions on access to technology, giving the U.S. Government the right to veto certain business decisions, and requiring third-party audits. Companies should be mindful that although a relatively small percentage of CFIUS cases involve mitigation, the cases in which CFIUS imposes mitigation and the types of conditions that CFIUS imposes can be difficult to predict.

Fewer cases going to investigation, but other delays are still possible. The number of cases proceeding to a second-stage investigation, which can extend CFIUS’s review up to 75 days, dropped from nearly 50 percent in 2013 to 35 percent in 2014. Nonetheless, in 2014 and 2015, due to a variety of factors, including CFIUS’s case load and CFIUS staff levels, in certain cases CFIUS took longer to review draft notices and to confirm that formal notices were complete, thereby extending the duration of the overall CFIUS process in ways not reflected in the Committee’s annual report. Given the increasing volume of CFIUS cases – the number of CFIUS cases filed in 2015 (although not yet publicly reported) was in the range of the number filed in 2014 – parties should ensure that they properly account for the multiple factors that can affect the duration of a CFIUS review.