On July 23, 2024, the Committee on Foreign Investment in the United States (CFIUS or the “Committee”) released its Annual Report to Congress covering calendar year 2023. In a year that featured lower deal volume, CFIUS remained active, required mitigation at a higher rate than in previous years, and pursued an unprecedented number of enforcement actions for noncompliance with mitigation terms.
1. With Deal Activity Down, CFIUS Reviewed Fewer Transactions.
In 2023, CFIUS formally assessed or reviewed 342 transactions (down from 440 in 2022) comprising 233 notices (a 19% decrease from 286 in 2022) and 109 short-form declarations (a 29% decrease from 154 in 2022). Notably, of the 233 notices, 43 were withdrawn and refiled, which brings the total number of unique transactions covered by notices to approximately 180.
2. CFIUS Continued to Subject More Than Half of Notices to Extended Investigations.
CFIUS scrutiny is here to stay. Fifty-five percent of notices reviewed in 2023 extended beyond the initial review period, on par with last year. Although 2022 was the first year since 2018—when the initial review period was extended from 30 to 45 days—in which the percentage of cases subject to investigation exceeded 50%, 2023 shows that this was not aberration.
In 2023, transaction parties withdrew 57 notices, 24% of all notices filed, down from 31% in 2022. In 43 of those instances, the parties filed a new notice. Transaction parties abandoned the transaction in the other 14 instances (25% of withdrawn notices), either because CFIUS informed the parties that it was unable to identify mitigation measures that would resolve the national security risk or proposed mitigation measures the parties chose not to accept (nine instances), or the parties abandoned the transaction for commercial reasons (five instances). Transactions in these circumstances were abandoned at a slightly higher rate (25%) in 2023 than in 2022 (23%). And in one separate instance, Treasury took the rare step of filing an agency notice after parties declined to refile their rejected notice, a reminder of CFIUS agencies’ power to unilaterally initiate a review.
3. Mitigation Remains a Focus.
In 2023, CFIUS adopted or required mitigation agreements with respect to 35 notices. This represented 21% of all notices, slightly below the 23% of notices that involved mitigation in 2022 but well above the 10% and 9% of notices that required mitigation in 2021 and 2020, respectively.
4. Record Enforcement Actions.
The Committee assessed four civil monetary penalties in 2023 for breaches of material provisions in mitigation agreements. In CFIUS’s nearly 50-year history, the Committee had previously issued only two penalties. CFIUS has not published information concerning the finality of terms of the assessed penalties, which indicates the parties are still working with CFIUS through the administrative enforcement processes. These penalties signal to parties that CFIUS is monitoring mitigation more closely and taking compliance more seriously. This tougher enforcement posture comes as CFIUS seeks to bolster its enforcement authorities, including increasing the penalty amount from $250,000 per violation to $5,000,000.
5. The Declaration Process Regained Some of Its Appeal.
In 2023, the Committee cleared 76% of declaration filings, which was similar to the 74% cleared in 2021. The 2023 clearance rate represents a marked improvement over the 58% clearance rate in 2022. CFIUS also only requested that parties to 20 declarations (18%) file a joint voluntary notice—the more comprehensive and costly filing option—down from 32% in 2022 and on par with 2021. The average number of calendar days that elapsed between the date a declaration was submitted and the date on which the Committee determined that the declaration was complete and accepted the declaration also fell from 5.59 days in 2022 to 4.2 days in 2023. Though the impact will be transaction- and fact-specific, parties should take these potential benefits into account when deciding between filing a declaration or a full notice.
6. A Higher Percentage of Declarations Were Mandatory.
Thirty-six declarations filed in 2023 were mandatory, representing 33% of all declarations. In 2022, only 28% of declarations were mandatory. The Committee also received its first “voluntary self-disclosure” related to a potential failure to file a mandatory declaration. Parties should continue to take mandatory filing requirements laid out in 31 C.F.R. § 800.401 seriously.
7. Chinese Investors Remained Prominent Filers.
In 2023, investors from China filed the highest number of notices (33), accounting for 14% of all notices filed, roughly on par with 2022 (36 notices filed, representing 13%). Investors from China filed only two declarations, accounting for less than 2% of all declarations in 2023, down from five (3%) in 2022. These numbers suggest that investors from China understand that the U.S. government will closely scrutinize inbound investment from China, but also indicate that the CFIUS process is not necessarily a blanket impediment to such investment.
8. CFIUS Reviewed Fewer Non-notified Transactions but Requested Filings for a Higher Percentage.
In 2023, CFIUS analyzed 60 non-notified transactions, down from 84 in 2022 and 135 in 2021. The Committee, however, formally requested filings for a higher percentage (22%) compared to 2022 (13%) and 2021 (6%). This suggests that the Committee’s non-notified process is becoming more targeted. Parties that receive non-notified outreach should take it seriously, provide complete and accurate information about whether the transaction was covered, and start to plan for the possibility of submitting the transaction formally for CFIUS review.
The key takeaways from these trends are that CFIUS appears to be assessing and reviewing transactions more efficiently but keeping a closer eye on those that it identifies as requiring mitigation to address national security risks.
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