US government increases scrutiny of foreign investment | WilmerHale

The Committee on Foreign Investment in the United States (CFIUS) is reviewing a record number of transactions for national security risks, according to a recently released Annual Report to Congress for calendar year 2021.

Amid a bipartisan focus on national security threats posed by foreign direct investment, overwhelmed with resources and staff, and armed with expanded authority following the passage of a 2018 law, the Committee has increased its scrutiny of transactions in the entire economy, with a particular focus on businesses in the financial, information and services sectors, and the manufacturing sector, CFIUS told Congress.

Released publicly on August 2, 2022, the Annual Report reviews the Committee’s activities for the first full year since the finalization of regulations implementing the Foreign Investment Risk Review Modernization Act of 2018 (FIRRMA), which expanded the mandate of CFIUS.

The Annual Report comes as the White House has announced support for a bipartisan bill that would substantially deepen the U.S. government’s role in regulating private investment by creating an interagency committee to complement CFIUS to review certain foreign investments that affect supply chain security, domestic production. and production capacities.

Businesses should expect increased government scrutiny of investments by and in foreign entities in the coming years.


CFIUS is an interagency committee chaired by the US Treasury Department that reviews certain foreign investments in the United States and certain real estate transactions by foreign persons to determine their impact on US national security. Except for certain transactions that are subject to a mandatory filing requirement, the parties to the transaction voluntarily submit short-form statements or longer-form joint voluntary notices (JVNs) to CFIUS.

CFIUS reviews the statements during a 30-day evaluation period, after which time it may require the parties to submit a JVN. CFIUS reviews of JVNs can routinely take more than three months—a 45-day “review period” followed by a 45-day “investigation” period that the government can order. CFIUS may also review pending or completed transactions even where the parties have not filed a notice, if CFIUS believes the transaction is subject to its jurisdiction and may raise national security concerns.

At the end of the process, CFIUS may determine that there are no outstanding national security issues, allowing the investment to proceed without incident; he may recommend to the President that the President block the transaction; or may order mitigating measures to be taken by the parties to the transaction to protect US national security interests.

With overwhelming bipartisan support (an 85–10 vote in the Senate and 400–2 in the House), Congress passed FIRRMA in 2018 and substantially expanded CFIUS’ jurisdiction, including requiring mandatory filings if a transaction involves certain technologies , and provided support for a growing bureaucracy to carry out those reviews.

Record setting reviews in 2021

The results of these changes are evident in the 2021 CFIUS Annual Report, which shows explosive growth in CFIUS reviews. During 2021, CFIUS reviewed 164 statements and 272 JVNs, the largest number of transactions ever reviewed and amounting to a year-over-year increase of 30% and 45%, respectively.

Of those 272 notifications, 130 (or 48%) led to an “investigation phase” and 74 (27%) were withdrawn during the review or investigation phase. Of the 74 notices withdrawn, the parties in 63 cases filed a new notice, either in 2021 or in 2022. In nine of these cases, the parties withdrew the notice and abandoned the transactions or after CFIUS informed the parties that it was unable to identify measures mitigation that would address its national security concerns, or after the parties refused to accept mitigation measures proposed by CFIUS. In two of these cases, the parties withdrew their notice and abandoned the transaction for commercial reasons.

CFIUS required mitigation measures to resolve national security concerns about 10% of the time (in 26 of 272 notifications). CFIUS approved mitigation measures to address remaining national security concerns related to two notifications that were voluntarily withdrawn and abandoned. There was no presidential action on transactions in 2021.

CFIUS has the authority and staff to review and investigate transactions not reported to the Committee and to request records. In 2021, the Committee reviewed 135 transactions identified through the non-disclosure process and requested a deposition in eight of them.

The committee reviewed transactions involving buyers from around the world, although investors from Britain, Canada, China and Japan were among the most common recent depositors. Canadian investors accounted for the majority of returns filed in 2021 and the largest share of returns filed from 2019 to 2021, at 14% (54 returns). Japanese and British investors submitted 11% (43 statements) and almost 9% (33 statements), respectively, of all statements submitted from 2019 to 2021.

Chinese investors filed the most JVNs, totaling 44 (16%) in 2021, more than doubling the 17 announcements by Chinese investors in 2020. Investors from Canada and Japan submitted the second and third highest numbers of JVNs in 2021 (10% or 28 announcements and almost 10% or 26 announcements, respectively). For the three-year period from 2019 to 2021, the highest number of announcements was from Japanese investors (13% or 91 announcements), followed by Chinese and Canadian investors (13% or 86 announcements, and 9% or 62 announcements, respectively) . .

In 2021, similar to 2020, the largest number of transactions occurred in the finance, information and services sector, accounting for over half of transactions (147 notifications or 55% of those filed). And, as in 2020, the manufacturing sector in 2021 accounted for the second highest number of notices filed (74 notices, or 28%).

Likewise, of the covered transaction notices filed with CFIUS over the past decade, from 2012 to 2021, roughly three-quarters were in either the financial, information, and services sector (726 notices or 40%) or the of production (691 announcements or 38%). The rest of the announcements were in the mining, utilities and construction sector (257 announcements or 14%) and wholesale trade, retail trade and transport (149 announcements or 8%).

The Annual Report notes that CFIUS exercised discretion when reviewing many transactions. The Committee cleared nearly 60% of its cases (an all-time high) in either the 30-day review period for a statement or the initial 45-day review period for a notification.

Growing calls for external CFIUS scrutiny

CFIUS’s increased review of foreign direct investment comes as Congress and the White House push for new legislation that would require US companies to notify the government before investing in some critical sectors abroad, particularly in China.

The latest congressional effort to create what’s called a “reverse CFIUS” process is being led by U.S. Senators Bob Casey (D-PA) and John Cornyn (R-TX) and Representatives Rosa DeLauro (D-CT), Bill Pascrell Jr. . D-NJ), Michael McCaul (R-TX), Brian Fitzpatrick (R-PA) and Victoria Spartz (R-IN). While their legislation, the National Critical Capabilities Protection Act of 2022, has not yet been formally introduced to Congress, a draft under discussion would create a “National Critical Capabilities Committee (NCCC) to conduct ongoing security reviews of supply chain, domestic manufacturing and manufacturing capabilities of identified National Critical Capabilities,” according to a summary of the bill, which aims to replace an earlier bill introduced in 2021 (HR 6329).

The NCCC will be co-chaired by the departments of Commerce and Defense and will include representatives from a wide range of federal agencies. It would define “Critical National Capabilities” as systems, services and assets vital to US national security, including agricultural security, health security, homeland security, energy security, infrastructure security and natural resource security. It would consider as “National Critical Capabilities” critical services and production of medical supplies, medicines, personal protective equipment, power grid materials and critical items for infrastructure construction after natural or man-made disasters.

The bill would require firms operating in critical industries to report foreign investments in certain foreign markets, including China. If the NCCC found that a transaction would result in a national security risk, it would recommend that the President take corrective action “including procurement, use of authorities to increase production, creation of federal programs to support production, or any other action the Committee deems appropriate, which may include suspending the transaction,” according to the summary.

While much remains to be clarified as this or similar legislation moves forward, the Biden administration has already expressed support for the underlying principle. “The administration supports bipartisan and bicameral efforts in Congress to provide greater transparency on U.S. investments in China and other countries of concern, particularly for transactions in critical sectors that could undermine America’s national security by eroding our technological edge.” or undermining the resilience of our supply chain. National Security Adviser Jake Sullivan said in a July statement.

In summary, regulatory scrutiny of foreign investment in the United States has been increasing for several years and has reached new heights in the first year of the Biden administration. Businesses should prepare for ongoing scrutiny of foreign transactions for national security threats and prepare for the potential creation of an overseas investment review process, which will significantly increase regulatory exposure.

Leave a Comment

Your email address will not be published.