The Committee on Foreign Investment in the United States (CFIUS) issued its Annual Report to Congress on December 9, 2011. The report reflects the US government’s intensified scrutiny of risks to US national security from foreign investment. CFIUS is an inter-agency US government body, chaired by the Department of the Treasury, that reviews foreign acquisitions of US businesses for national security issues. The Annual Report details CFIUS’s review of transactions covered by the Foreign Investment and National Security Act of 2007 (FINSA). 

According to the report, in 35 of the 93 transactions for which notices were filed in calendar year 2010, CFIUS extended the regular 30-day review to an investigation phase of up to an additional 45 days. This 38-percent rate of extended reviews is similar to the 2009 rate, but is roughly double the 2008 rate of 19 percent. As in the previous two years, there were no presidential decisions on transactions in 2010.

In 2010, CFIUS approved the withdrawal of 12 notices, including six after CFIUS began an investigation. Five of those withdrawn notices were abandoned by the transaction parties; another five of the notices were re-filed and CFIUS later concluded action (i.e., approved the transactions) in these cases. The remaining two withdrawn cases were re-filed in 2011. 

Mitigation measures were imposed more frequently in 2010 than in previous years. Mitigation agreements require transaction parties to make divestments, make modifications to acquisition agreements, or take other steps to address national security concerns. Parties adopted mitigation measures in nine of the transactions noticed in 2010. By contrast, 2008 and 2009 combined saw seven mitigation agreements. 

The primary sources of foreign investment in transactions subject to FINSA in 2010 were the United Kingdom, Japan, Israel, France, China, and Canada. The United Kingdom alone accounted for more than 27 percent of transactions. The leading sector for covered transactions in 2010 was manufacturing, followed closely by the combination of finance, information, and services.
Examining the 79 completed cross-border deals in 2010, CFIUS found unlikely any coordinated strategy by foreign governments to control US “critical technologies.” Critical technologies are defense-related articles or services, nuclear technology, and other items or technology subject to US export controls.

The CFIUS Annual Report demonstrates the US government’s continued focus on investigating potential national security threats from foreign investment. It shows that CFIUS examines a substantial share of noticed FINSA-covered transactions, and that CFIUS review frequently results in the delay, restructuring, or abandonment of a transaction, or the negotiation of a mitigation agreement with the US government. Understanding the CFIUS process, analyzing potential US government national security concerns, and engaging CFIUS on those concerns are therefore essential aspects of a cross-border acquisition of a US business, especially one involving a sensitive sector of the US economy. 

For more information on the CFIUS process and US foreign investment regulation more generally, please contact Timothy J. Keeler, Simeon M. Kriesberg, or Dave M. Wharwood.

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