Last week, the Committee on Foreign Investment in the United States (CFIUS) released the public version of its annual report to Congress on activities during calendar year 2021. It comes as no surprise that the report shows another increase in activity. 2021 was the first full calendar year following the implementation of the Foreign Investment Risk Review Modernization Act of 2018 (FIRRMA), which expanded CFIUS’s jurisdiction and allowed for the submission of short-form Declarations, among other measures. As a result, the annual report provides the first full set of data on FIRRMA’s effects on foreign investment reviews.
Use of the Declaration process continued to grow in 2021, with 164 Declarations evaluated over the course of the year. By comparison, CFIUS conducted assessments of 126 Declarations from mid-February 2020 (when the FIRRMA regulations went into effect) through the end of that year.
The intent behind the introduction of Declarations in FIRRMA was to provide a shorter evaluation process for transactions that are less likely to present a national security risk. According to the data, the Declaration process appears to be functioning as intended: Of the 164 Declarations submitted in 2021, CFIUS concluded all action and approved a transaction in response to 120 Declarations, approximately 73% of the time. CFIUS responded to 30 Declarations by requesting that the parties file a long-form Notice and notified the parties that it was unable to complete action in response to just 12 Declarations (CFIUS rejected the remaining two Declarations submitted). These figures also mean that CFIUS took more decisive action in response to Declarations than in 2020—while CFIUS was unable to complete action in response to approximately 13% of Declarations in 2020, that figure fell to approximately 7% in 2021.
CFIUS reviewed a record 272 Notices for covered transactions in 2021, an increase of almost 15% over the previous annual high. Of these, almost half—130—progressed to the investigation phase, a percentage that is roughly on par with previous years. Interestingly, CFIUS reviewed more Notices involving Chinese investors in 2021 (44 Notices, approximately 17% of the Notices reviewed) than investors from any other country. However, part of this increase may be due to a change in the way transactions involving investors from Hong Kong were reported; due to a July 2020 executive order that eliminated certain differences in the ways that Hong Kong and China were treated, transactions involving investors from Hong Kong were reported as involving Chinese investors in the 2021 report. As in previous years, CFIUS also reviewed a large number of Notices involving Canadian and Japanese investors in 2021, with each accounting for approximately 10% of those reviewed (28 Notices involving Canadian investors and 26 Notices involving Japanese investors).
According to the report, CFIUS’s imposition of mitigation measures in 2021 remained relatively consistent with previous years. CFIUS required mitigation measures with respect to 26 Notices filed in 2021 (approximately 11% of the Notices filed). In 2020, this figure was approximately 9%. Not surprisingly, CFIUS used its broad authority with respect to mitigation to require a range of such measures, including prohibiting the sharing of technical information; limiting access to technology, systems, facilities, or sensitive information; requiring the appointment of CFIUS-approved security officers; limiting physical visits to facilities; requiring security protocols to ensure product integrity; requiring supply assurance agreements; and requiring the use of only authorized vendors by US businesses.
Since the passage of FIRRMA, CFIUS has also bolstered its monitoring and investigation of non-notified transactions—transactions for which the parties did not submit a Declaration or Notice. CFIUS identified 135 such transactions in 2021, an increase of approximately 15% from the 117 identified in 2020.
It is evident from the 2021 annual report that CFIUS saw record activity in 2021—and such activity is likely to continue apace in 2022. To the extent they are not doing so already, both foreign investors and US businesses seeking foreign investment should carefully consider CFIUS at all steps of the process.