CFIUS 2023 Annual Report Shows Decrease in Filings, Continued Higher Pace of Mitigation, and CFIUS Issuing Penalties for Noncompliance

The Committee on Foreign Investment in the United States (“CFIUS”) recently published its Annual Report to Congress covering calendar year 2023 (the “Report”). The Report indicates a number of notable trends—some new and others a continuation of recent developments. CFIUS continues to clear the vast majority of transactions it reviews, blocks remain low, and efficiency has improved marginally. But it is also clear that CFIUS is leaning hard into its perceived role as a more active regulator: continuing to mitigate an elevated number of transactions, issuing four penalties last year (double the amount it has issued in the entirety of its history), and requesting more non-notified filings. Particularly as CFIUS continues to focus its efforts on monitoring and enforcement, it remains critical for parties to assess CFIUS issues early in the deal process and develop a clear CFIUS strategy.

The following are our key takeaways from the Report:

• The number of CFIUS filings declined significantly last year. CFIUS saw record filings in 2022 (154 declarations and 286 notices), up slightly from the nearly 40% leap in total filings seen in 2021, the first full year in which the new CFIUS regulations were implemented. In 2023, however, these numbers dropped to 109 for declarations and 233 for notices. The steeper drop in declarations was likely in part a reaction to the 2022 spike in CFIUS requesting full notices following declarations—as one out of every three declarations resulted in a request for a notice, parties likely grew more conservative in using declarations. These notice requests seem to have been effective since declaration statistics improved in 2023, with only 18% resulting in a request for a notice (down from 33% in 2022). The decrease in total notices was likely due in part to an overall decrease in withdrawals and refilings, as only 19% of notices were withdrawn and refiled in 2023, down from 24% the prior year. Overall, these trends indicate that while there is still a significant risk of a declaration resulting in a notice request, parties are generally improving in discerning which transactions are suitable for a notice at the outset. It is also possible that the decline in overall filings reflects, in part, parties generally being more hesitant to file transactions voluntarily given the combination of increased CFIUS messaging emphasizing enforcement and heightened percentage rates of required mitigation compared with prior years.

• CFIUS is continuing to require mitigation at much higher levels than it has historically. In 2023, 21% of notices for distinct transactions were cleared with mitigation, down slightly from 23% in 2022 (this was 18% of total notices, including withdrawals and refilings, in both years). This is notable, however, because 2022 saw the rate of mitigation being required nearly doubling from historical trends and the 2023 data indicates that this higher frequency of mitigation is holding. This is not surprising since as CFIUS has bolstered its monitoring and enforcement resources, it has more ability to mitigate perceived risks (i.e., CFIUS does not have to “pick and choose” which cases to mitigate as much as it did when it had fewer oversight resources available). Mitigation measures are tailored to the given risks identified in the transaction and can vary from being relatively minimal (e.g., supply assurances to continue providing certain products or services to the US Government) to covering a wide range of operational and/or governance requirements that can have an array of impacts on the parties and the transaction goals. As mitigation remains a significant risk in transactions—being required in approximately one in five notices—and CFIUS continues to emphasize monitoring and compliance, it is critical to assess substantive mitigation risks early in the deal process and manage those issues effectively to minimize surprises. This is especially important as CFIUS seeks to reduce the time parties have to respond to proposed mitigation terms during the CFIUS process.

• CFIUS is not stopping more deals. As the past two years have seen a jump in mitigation frequency, the rate of CFIUS stopping deals has been quite consistent. In 2023, 3.8% of notices were effectively stopped by CFIUS (i.e., withdrawn and abandoned based on CFIUS objections or burdensome mitigation requirements). This is consistent with the approximately 4% in 2022 and with general trends in prior years. There were no presidential blocks in 2023. Accordingly, while with increased resources CFIUS has become much more aggressive in mitigating identified risks in the past couple of years, it is not stopping more transactions under its review. This means that while parties need to increase mitigation risk due diligence more carefully in transactions across the board because mitigation is clearly higher overall, the generalized risk of a block has not meaningfully changed in recent years.

• After several years of CFIUS indicating enforcement is a high priority, 2023 brought the first penalties since 2019—and it issued twice as many penalties last year than it has in its entire history. CFIUS issued four civil monetary penalties in 2023. While not a big absolute number, these are the first penalties issued since CFIUS issued Enforcement and Penalty Guidelines in 2022. Moreover, prior to 2023, only two penalties had ever been announced by CFIUS since its establishment in 1975 (one in 2018 and one in 2019). The Report shares little detail on the 2023 penalties but says they all pertained to breaches of material provisions in mitigation agreements. Though no penalties were reported for failure to make mandatory filings, the Report also notes that CFIUS undertook “several” investigations relating to compliance with mandatory filing requirements, some of which resulted in issuances of formal determinations of noncompliance. The Report further notes that while no penalties were issued after considering the specific facts and circumstances in those mandatory filing cases, they did inform Treasury’s decision to issue the CFIUS FAQ guidance in 2023 that ended the widely used “springing rights” construct to forego the 30-day waiting period for certain mandatory filings. Senior CFIUS officials have been emphasizing their focus on enforcement, monitoring, and compliance for several years, and 2023 saw a significant step forward as CFIUS becomes more aggressive on this front. Indeed, CFIUS is also seeking to increase the amount of penalties it can levy. As of the end of 2023, CFIUS was monitoring 246 mitigation agreements and conditions, including 36 agreements newly entered into during 2023. Parties to mitigation agreements should expect active engagement by CFIUS’s monitoring team and focus carefully on compliance with mitigation requirements.

• CFIUS is pursuing more reviews of non-notified transactions. Consistent with our reporting in prior years (e.g., here and here), CFIUS’s non-notified team remains active and its efforts resulted in more filings in 2023. According to the Report, in 2023 CFIUS made 60 formal inquiries to parties that did not notify their transactions to CFIUS, which resulted in 13 filings being requested (22%) and 3 more being made voluntarily without a CFIUS request. Though fewer inquiries were made, the number of requests for filings increased compared to 2022 when CFIUS considered 84 non-notified transactions but only requested filings for 11 of them (13%) and 2021, when it considered 135 transactions but only requested 8 filings (6%). (Note that in 2022, CFIUS also requested 8 filings where non-notified inquiries were started in prior years.) The Report notes, as did 2022’s report, that CFIUS considered “thousands” of non-notified transactions in 2023, underscoring the elevated risk of a non-notified outreach. With a more active non-notified process, assessing the risk of non-notified outreach has become a critical factor in determining whether to notify transactions to CFIUS voluntarily.

• CFIUS continues to see modest improvements in efficiency, but the numbers don’t tell the full story. In 2023, the percentage of notices going to a second-stage investigation declined slightly from 57% to 55%. Though this is a small improvement, it is clear that parties submitting a full notice should still expect an investigation and plan for a full 90-day process for notices when managing deal timelines. Last year also saw withdrawals and refilings decline to 19% of notices from 24% in 2022. This largely reflects that more cases involving mitigation were resolved in a single review-and-investigation cycle. CFIUS has actively sought to start mitigation negotiations earlier with parties in the past couple of years, and this has been a positive development that has greatly increased the ability to resolve more mitigation matters in a single cycle. Another area of the Report that indicates an efficiency improvement is that CFIUS accepted declarations, on average, within 4.2 days from submission (as compared to 5.59 days in 2022). This number, however, is likely misleading in practice as in our experience CFIUS has unofficially implemented a prefiling-like process for declarations. This is not addressed in the regulations and to our knowledge has not been formally acknowledged by CFIUS, but it has now become standard process for CFIUS to provide comments on declarations that must be addressed before the declaration will be accepted. In our experience, this often includes comments listed as being necessary for “completeness” that do not track with the plain language of the regulatory requirements for the contents of declarations. As a result, despite the Report indicating that CFIUS is accepting declarations faster, in practice this unofficial prefiling comment process is consistently adding time before the 30-day assessment period for declarations begins—meaning that the fast-track declaration process is taking longer overall than it had in prior years. 

• China is the lead investor country for notices—but this is likely a function of withdrawals and refilings as it is again not in the top three countries for distinct transactions. China filed the highest number of notices in 2023, accounting for 14% (33 notices) of total notices, followed by investors from the United Arab Emirates (“UAE”) at 9% (22 notices). Investors from the United Kingdom (19 notices), Singapore (19 notices), and Canada (16 notices) rounded out the top five, respectively. China has been the top filer for notices overall for the last three years; however, as with the data in 2022, when looking at individual, distinct transactions China was not actually in the lead. In 2023, the top three countries represented in CFIUS filings for distinct transactions were Canada, Japan, and the United Kingdom. This continues to indicate that the number of notices for Chinese-based investments is inflated by cases requiring more withdrawals and refilings. The country-related data also showed other interesting developments. Most notably, investors from the UAE accounted for the second-most notices in 2023, up from ninth place in 2022 and having no notices in 2021. This also seemingly included some withdrawals and refilings since the UAE was not in the top three countries for distinct notices. This tracks with both increased UAE investment in recent years and generally increased sensitivity from CFIUS in certain transactions involving middle eastern investors. In declarations, investors from Canada again led (13 declarations), followed by investors from Japan and France with 11 each. This is not a major change from 2022, when the top three were Canada, Japan, and Germany, and it is unsurprising that investors from some of the United States’ closest allies would consider the fast-track declaration process an attractive and efficient method for clearing CFIUS.

• Real estate transactions remain a tiny fraction of CFIUS reviews, but CFIUS continues to expand its real estate jurisdiction. In 2023, three declarations and two notices were filed under CFIUS’s real estate regulations, which was not a significant change from 2022’s five declarations and one notice. That said, CFIUS continues to expand its real estate authorities by adding to the list of covered real estate, both with an update to the CFIUS real estate appendix in 2023 and a recently issued proposed rule that would add an additional 59 military installations to the real estate appendix and provide broader jurisdiction for 8 installations currently listed. Forty of the additions would be to the “close proximity” list, meaning CFIUS would have jurisdiction over certain real estate transactions within a one-mile radius of the listed sites. The remaining 19 additions would go on the “extended range” list, meaning CFIUS’s real estate jurisdiction would cover up to 100 miles from the listed sites. Additionally, the proposed rule would move 8 installations currently on the one-mile close-proximity list to the 100-mile extended-range list, giving CFIUS broader jurisdiction for real estate transactions near them. The CFIUS real estate regulations have largely been viewed as a net to provide additional review capabilities beyond traditional investment transactions, and it is clear that CFIUS is working to increase the scope of this authority. Indeed, earlier this year President Biden issued the first-ever presidential block under the CFIUS real estate authorities for a transaction identified pursuant to CFIUS’s non-notified process.

CFIUS remains largely a voluntary process and it continues to clear the vast majority of cases it reviews without mitigation. Nonetheless, both the Report and consistent messaging from CFIUS make clear that CFIUS is more active and empowered than perhaps any time in its history. Parties must work closely with expert CFIUS counsel at the outset of deals to ensure they are properly protected by fully considering and appropriately addressing the potential CFIUS risks of their transactions.

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