The Committee on Foreign Investment in the United States (CFIUS) recently released its 2019 annual report, which provides information and statistics regarding transactions reviewed by CFIUS during 2019. CFIUS released its 2018 annual report (as well as summary data for transactions reviewed in 2019) last month, which we wrote about here. The 2019 annual report confirms and expands on the more limited 2019 data released last month.
Key takeaways include: (i) the number of CFIUS notices has remained relatively consistent over the past three years; (ii) the percentage of notices that proceeded to a second-stage investigation decreased significantly from 69% in 2018 to 48.9% in 2019; (iii) the percentage of notices withdrawn and refiled decreased from 18.6% and 18.3% in 2017 and 2018, respectively, to 7.8% in 2019; and (iv) only 4.3% of transactions reviewed by CFIUS during 2019 were abandoned as a result of CFIUS issues, compared to 10.5% and 8.7% in 2017 and 2018, respectively.
In addition, the 2019 annual report indicates that transactions that received CFIUS clearance subject to mitigation agreements remained relatively flat in 2019 compared to prior years (12.1% in 2019, compared to 12.7% in 2018 and 12.2% in 2017). CFIUS also imposed mitigation conditions on companies involved in five abandoned transactions that CFIUS found presented “residual national security concerns.” CFIUS referred one notice involving a Chinese investor to the President in 2019, the acquisition of StayNTouch, Inc., a hotel management software company, by Beijing Shiji Information Technology Co., Ltd. The President issued an order prohibiting the transaction. Eight other transactions were abandoned because CFIUS was not able to mitigate national security concerns (or the parties did not want to accept the mitigation), and one notice was rejected because the parties refused to provide all information required.
In addition to reviewing 231 notices, CFIUS reviewed 94 mandatory declarations in 2019 under the critical technology pilot program. CFIUS cleared 35 of those declarations, requested a formal written notice in connection with 26, and determined that it could not conclude action on 32 (which leaves the parties free to proceed, but does not give them the benefit of a safe harbor against future review). One declaration was withdrawn for business reasons. In addition to investments in critical technology businesses, effective February 2020, some investments by foreign government owned investors now trigger a mandatory CFIUS notification requirement, and the applicability of the critical technology rules is expected to expand. Accordingly, the number of mandatory declarations may increase in 2020.
According to the 2019 annual report, on average, it took CFIUS approximately 10.6 business days to provide written comments on draft CFIUS notices. The Foreign Investment Risk Review Modernization Act (FIRRMA) and the associated regulations, which became effective in February 2020, require that CFIUS provide written comments on draft notices within 10 business days. CFIUS attributes the longer than 10-day average in 2019 to a few outliers resulting from the government shutdown from December 22, 2018 through January 25, 2019. CFIUS explained in the 2019 annual report that it has established processes to provide comments on draft notices within 10 business days as required under FIRRMA. On average, CFIUS accepted formal written notices approximately 7.8 business days after they were filed. Note that these timelines do not include time for revision of the draft notice or for multiple rounds of comments from CFIUS, which is not uncommon, and so the total time from submission of a draft to acceptance of a filing may well be longer than the approximately four weeks indicated.
In addition, for the first time since 2012, China was not the most reviewed country. Instead, during 2019, CFIUS reviewed the most filings from Japanese investors. The chart below shows the top ten countries by number of filings during 2019, together with those countries’ numbers of filings in 2017 and 2018. The statistics underscore the fact that CFIUS continues to regularly review investments from jurisdictions that are close U.S. allies.
|Country||Number of Filings|
If you have any questions about the above or foreign direct investment issues in the United States and elsewhere generally, please do not hesitate to contact the listed authors, our Foreign Investment Review group, or any of your regular Firm contacts.