Insights From The 2023 CFIUS Annual Report

On July 23, 2024, the Committee on Foreign Investment in the United States (CFIUS) released its Annual Report to Congress for 2023. CFIUS is the inter-agency body that conducts national security reviews of certain foreign investments in the United States. The annual report provides aggregate data on CFIUS activities and provides valuable insight into the Committee's activities and key trends.

Key Takeaways

• For the first time in several years, the Committee received fewer notices and declarations of covered transactions or covered real estate transactions than in the previous year. CFIUS received 23 percent fewer notices or declarations in 2023 compared to 2022 (we previously covered the 2022 annual report here). Although a decrease in global merger and acquisition activity in 2023 could be to blame, this downturn is worth noting.
• In keeping with enforcement as an increased point of emphasis, CFIUS assessed or imposed four civil monetary penalties for violations of material provisions of mitigation agreements, more than double the total number that CFIUS had previously imposed in its nearly 50-year history and the first under the regulations implementing the Foreign Investment Risk Review Modernization Act of 2018 (FIRRMA). Monitoring of compliance with mitigation agreements, even where no penalties were imposed, remained a high priority for the Committee in 2023.
• CFIUS also issued its first ever formal determinations of noncompliance in connection with a failure to submit a mandatory filing. Additionally, 2023 marked the first voluntary self-disclosure received by the Committee in connection with a potential failure to file a mandatory declaration.
• CFIUS improved its efficiency in several respects in comparison to 2022:
  • For transactions that did not require mitigation measures, CFIUS cleared 8 percent more transactions within the 30-day assessment period for a declaration or the initial 45-day review period for a notice.
  • CFIUS reduced its "withdraw and refile" rate (i.e., the number of cases that cannot be completed within the statutory time period) by 5 percent. However, it continued to see a significant number of withdrawals with a total of 57.
  • For covered transaction declarations, CFIUS concluded action with respect to the declaration at a rate 18 percent higher than in 2022.

Notifications by the Numbers

The Committee saw its first decline in the number of notices filed in the last three years. It reviewed 233 notices in 2023, which is a decrease from 286 notices in 2022 and 272 notices in 2021. CFIUS went in to the investigation phase with respect to 128 of the 233 notices. The rate of investigations (i.e., notified cases that could not be concluded within the initial 45-day review period) remained relatively consistent between 2023 (55 percent of notices) and 2022 (57 percent of notices). The Committee's use of mitigation measures continues to trend slightly higher annually. In 2023, CFIUS conditioned approval of 43 transactions (or approximately 18 percent of all notices) on the parties agreeing to some type of mitigation measure. By comparison, CFIUS imposed mitigation measures on 14 percent of notices in 2022, 10 percent of notices in 2021, and only 9 percent of notices in 2020.

In 2023, the Committee approved the withdrawal of 57 notices (or nearly a quarter of all notices). The withdrawal rate declined from 2022 in which about 31 percent of all notices were withdrawn, but it remains relatively high overall. Of the 57 withdrawals in 2023, 43 of those resulted in the filing of a new notice. This suggests that CFIUS and the parties ran out of time in the statutory investigation period to resolve the outstanding national security questions related to a transaction and elected to "withdraw and refile" in order to reset the statutory review deadlines. In nine instances, the parties withdrew their notice and abandoned the transaction after either the Committee informed the parties that it was unable to identify mitigation measures that would resolve the national security risk posed by the transaction or the parties declined the mitigation measures proposed by the Committee. In five instances, the parties withdrew their notice and abandoned the transaction due to commercial reasons.

The most common country of origin for acquirers was China with 33 notices filed. China retook the top spot in 2023 after falling to second place in 2022. However, the number of notices originating from China continues to decline on an annual basis. This trend is reflective of the sustained decline in Chinese foreign direct investment in the US in recent years, as well as the perception that CFIUS is particularly skeptical of Chinese investments. Notably, Singapore experienced a steep decline in notices filed from 40 notices in 2022 to 19 notices in 2023. In contrast, notices from the United Arab Emirates doubled from 11 in 2022 to 22 in 2023. The business sectors that were most commonly the subject of notices continue to be in finance, information, and services (50 percent of notices) and manufacturing (29 percent of notices). In particular, scientific research and development services (25 notices); software (19 notices); and semiconductor and other electronic component manufacturing (16 notices) continue to drive much of the inbound foreign investment to the US that results in a notice to CFIUS.

Declarations by the Numbers

The Committee reviewed 109 declarations in 2023, which is nearly a third fewer than the 154 declarations that it reviewed in 2022. The bulk of declarations continues to be concentrated among investors in countries that are close US allies, including Canada, France, Japan, and the United Kingdom. The most common business sectors among investors that filed declarations were: scientific research and development services (12 declarations); aerospace product and parts manufacturing (8 declarations); and navigational, measuring, electromedical, and control instruments manufacturing (8 declarations). Other common business sectors include semiconductor manufacturing, telecommunications, and electrical power generation and transmission.

CFIUS requested that 20 of the parties file a full notice and informed 6 parties that it was unable to conclude action based on the declaration alone. In the latter scenario, when CFIUS is unable to conclude action based on the declaration alone—a determination that is often called the "CFIUS shrug"—it does not approve the transaction, but it also does not seek to block the transaction, impose mitigation, or insist on the filing of a full-length notice. Overall, CFIUS cleared 83 declarations, or 76 percent of the total it received, which is a significant increase from 2022 and a return to the relatively high clearance rate of 2021.

Non-Notified Transactions

Since FIRRMA's enactment, CFIUS has prioritized identifying and initiating formal reviews of completed or in-progress transactions that appear to fall within its jurisdiction, but where no declaration or notice was filed by the parties. These "non-notified transactions" are identified by CFIUS in a variety of ways, including through interagency referrals, tips from the public, classified reporting, media reports, voluntary self-disclosures, congressional notifications, and commercial and proprietary databases. In 2023, the recent decline in identified non-notified transactions continued. Only 60 transactions were subject to non-notified inquiries in 2023, which is far less than the 84 transactions in 2022 and significantly below the total of 135 transactions in 2021. Of those 60 transactions, the Committee formally requested filings for 13 transactions and in three instances the transaction parties voluntarily filed a declaration or notice after receiving the initial non-notified inquiry from CFIUS.