The Committee on Foreign Investment in the United States (CFIUS or the “Committee”), an inter-agency committee headed by the Department of the Treasury, has released its 2020 Annual Report to Congress (Report). CFIUS is authorized to review transactions that could result in the control of U.S. businesses by foreign persons or companies, as well as non-controlling investments by foreign persons or companies in certain U.S. businesses which are involved in critical technology, critical infrastructure, or the gathering of sensitive personal data, in order to determine the effect of such transactions on the national security of the United States. CFIUS is required to provide an annual report to Congress containing various cumulative and summary information related to transaction filings. This 2020 Report covers transactions filed with CFIUS in calendar year 2020, and is the first Report to describe the CFIUS process after full implementation of Foreign Investment Risk Review Modernization Act (FIRRMA).
The Report notes that in 2020, CFIUS conducted assessments of 126 “short-form” declarations of covered transactions. These assessments resulted in CFIUS directing 34 parties to file mandatory notices with the Committee, requesting 28 parties to file a full notice, and notifying 81 parties that CFIUS had completed all action thus, essentially, clearing the transaction. In 16 instances, CFIUS staff were unable to complete any actions, and in one instance the parties withdrew their filing. With the Pilot Program for filing declarations implemented in 2018 becoming a formal process as of February 2020, the number of such declarations has increased rapidly – in 2018, 20 declarations were filed; in 2020, 126 declarations were filed. The majority of these filings were in the (i) electric power and transmission, (ii) software, (iii) computer systems, (iv) aerospace, (v) semiconductor, and (vi) data processing industries. It is notable that more than 60% of the declarations resulted in clearance, as there had been some uncertainty over whether the declaration process was likely to lead to definitive decisions.
For full notices of covered transactions, the Report indicates that 187 reviews were conducted in 2020. Of these reviews, CFIUS conducted 88 second-stage investigations and concluded its review of 16 transactions after the adoption of various mitigation measures to address national security concerns. Twenty-nine notices were withdrawn by the involved parties and the Committee rejected one notice due a material change in the transaction.
Notably, in 2020, former President Donald Trump issued an order prohibiting the acquisition of Musical.ly by ByteDance, Ltd., a rare CFIUS occurrence. The majority of the 2020 notices involved the Finance, Information, and Services sector, accounting for 43% of covered transactions, and 36% of these filings pertaining the manufacturing sector. The remaining filings involved the manufacturing, mining, utilities, construction wholesale trade, retail trade, and transportation sectors.
For the first time in several years, China was not the top country involving the foreign investor. The Report notes that in 2020, the top five foreign investor countries were: (i) 19 notices for covered transactions involved Japan, (ii) 17 involved China, (iii) 14 were related to the United Kingdom, (iv) 11 involved foreign investment from Canada, and (v) 11 notices involved France.
In 2020, the Report notes that CFIUS approved the withdrawal of 29 notices. In 15 of these instances, the parties filed a new notice in 2020 and CFIUS concluded action in three of those cases. In seven reviews, the parties withdrew their notice and abandoned their transaction after either CFIUS informed them that it was unable to identify mitigation measures that would resolve the national security concerns or after the Committee proposed mitigation measures that the parties did not accept.
Finally, the 2020 Report provided information from the Committee regarding its efforts to identify and review “non-notified transactions” (i.e., where the involved parties moved forward with a covered transaction without notifying CFIUS). CFIUS staff identified 117 such transactions that were subsequently brought to the attention of the Committee for consideration. As a result, the parties in 17 of these transactions were requested to file post-transaction notices.