CFIUS’s 2020 Annual Report to Congress: A Better Look at the Process Under FIRRMA

The Committee on Foreign Investment in the United States (CFIUS) has just released the unclassified version of its annual report to Congress, covering CFIUS activities in 2020. During 2020, CFIUS issued regulations implementing most of the provisions of the Foreign Investment Risk Review Modernization Act of 2018 (FIRRMA). As a result, though the figures are skewed somewhat by the effects of the pandemic-driven economic slowdown - as well as the fact that the implementing regulations were not in force for the entire year - this year’s report and statistics offer a window into how the CFIUS process has changed under FIRRMA. Here are some takeaways from our analysis of the annual report:

Pandemic did not slow CFIUS down by much

CFIUS received a total of 313 filings (including full notices and short-form declarations) in 2020, versus 325 in 2019. After accounting for double-counted transactions (i.e., transactions for which notices were withdrawn and refiled, or for which a full notice was requested after CFIUS’s assessment of a declaration), as well as filings that were rejected and declarations that were withdrawn for non-CFIUS reasons, we estimate the number of distinct transactions reviewed or assessed by CFIUS to have been 262 in 2020, versus 279 in 2019.

The slight decrease in filings may have reflected a decline in M&A activity at the start of the pandemic - and CFIUS does acknowledge that M&A activity is often driven by broader economic conditions. We wonder, however, whether another factor may have played a role.

FIRRMA introduced the concept of mandatory pre-closing CFIUS filings; previously, nearly all CFIUS cases were the result of voluntary filings by the parties, with a handful of exceptions for CFIUS-initiated “agency filings.” We think many parties viewed the introduction of mandatory filings as an invitation not to submit voluntary filings, and that this may have contributed to the 2020 decline in CFIUS filings.

If so, this may prove to be a short-sighted approach. If CFIUS has jurisdiction over a transaction, that jurisdiction extends indefinitely after closing, giving CFIUS an opportunity to call in previously closed transactions. Anecdotally, CFIUS’s new Monitoring & Enforcement office had been casting a wide net for “non-notified” transactions (i.e., transactions for which the parties chose not to submit voluntary pre-closing filings), in some cases looking back several years. After questioning the parties, CFIUS will sometimes request the parties submit voluntary post-closing filings. These “requests” come with the implicit (or sometimes explicit) threat that CFIUS could self-initiate an agency filing if the parties do not file voluntarily. 

With the release of the 2020 annual report, we have more insight into the scope of this effort. During 2020, CFIUS evaluated 117 non-notified transactions. One out of every seven of these evaluations resulted in a request for a filing. The 17 requests for filings not only mitigated the pandemic’s effects on CFIUS’s 2020 caseload, but should also serve as a warning to parties of potential post-closing CFIUS risk.

Voluntary short-form declarations are increasingly popular and successful

FIRRMA authorized CFIUS to allow parties to file short-form declarations in lieu of full notices. Declarations were first introduced in late 2018 under CFIUS’s pilot program requiring mandatory pre-closing filings for investments in critical technology businesses. The pilot program ended in February 2020, after which declarations could be used for mandatory filings that include investments in critical technology, critical infrastructure, and sensitive personal data businesses, as well as for voluntary filings concerning U.S. businesses in any other sector and in certain real estate transactions.

As we noted in our March blog post, short-form declarations have become an increasingly viable alternative for parties seeking to address CFIUS risk prior to closing. The statistics released with the 2020 annual report support this (see table below). Declarations were the source of 48 percent of the distinct transactions for which CFIUS received filings during 2020, and 73 percent of the declarations were submitted voluntarily. The increased use of declarations likely reflects four factors:

  • Faster. Both the drafting of a declaration and CFIUS’s acceptance of a declaration can be completed in less than two months, versus a total of four months or longer for preparation, acceptance, and CFIUS consideration of a full notice.
  • Less burdensome. A declaration may be quite a bit longer than the five pages contemplated by FIRRMA, but it still requires far fewer disclosures than a full notice. Among the more burdensome disclosures not required for a declaration is personal identifier information (PII) for the directors, senior officers, and significant shareholders of the acquirer and certain parent entities. Collecting PII, especially for outside directors and individual shareholders, can sometimes be one of the more difficult parts of preparing a full notice.
  • Cheaper. A declaration, unlike a full notice, does not entail the payment of a filing fee of up to US$300,000. Moreover, the relative speed and brevity of a CFIUS declaration allow parties to save on legal fees when compared to the costs of a full notice.
  • Increasingly positive results. Unconditional CFIUS clearances of transactions for which declarations were filed increased from less than 10 percent in 2018, to 37 percent in 2019, to more than 64 percent in 2020. Adding the nearly 13 percent of 2020 declarations for which CFIUS was unable to clear the transaction but stopped short of requesting a full notice, more than 75 percent of declarations filed in 2020 received a response that generally could be viewed positively by the parties.
Infrequent filings for real estate transactions

FIRRMA authorized CFIUS to review various real estate transactions. Starting in February 2020, Part 802 of the CFIUS regulations implemented this provision, allowing for CFIUS reviews of real estate purchases, leases, and concessions if the subject properties are in or near facilities or activities that are sensitive for national security reasons (see our client alert on Part 802 for more details). In practice, however, Part 802 does not seem to be having a significant impact on CFIUS’s caseload:

  • Only two declarations were filed in 2020 under Part 802.
  • While CFIUS did not break out the number of full notices submitted under Part 802, the annual report does list three notices filed for businesses relating to real estate. What is not clear, however, is whether those were real estate transactions for which filings were made under Part 802, or traditional investment filings made under Part 800 of the CFIUS regulations.
Statistical summary of filings and outcomes

The annual report and statistical abstracts published separately by CFIUS include a variety of statistics addressing CFIUS’s caseload, the countries from which CFIUS cases originate, and the industrial sectors in which filers have sought to invest. We’ve compiled a comparison of CFIUS filings and outcomes in 2019 and 2020 which you can view below:

CFIUS filings and outcomes: 2019/2020 comparison
 Pilot program declarations Number % Number
Filed 10 100.0% 94 100.0%
Cleared 6 60.0% 35 37.2%
Notice requested 3 30.0%   26 27.7%
Unable to complete action 1 10.0% 32 34.0% 
Rejected 0 0.0% 0 0.0% 
Withdrawn 0 0.0% 1 1.1% 
Other declarations Number %
Filed 116 100.0%    
Mandatory 24 20.7%    
Real estate 2 1.7%    
Cleared 75 64.7%     
Notice requested 25 21.6%    
Unable to complete action 15 12.9%    
Rejected 0 0.0%    
Withdrawn 1 0.09%    
Total declarations  Number % Number  %
Filed 126 00.0% 94 100.0%
Mandatory 34 27.0% 94 100.0%
Real estate 2 1.6% 0 0.0%
Cleared 81 64.3% 35 37.2%
Notice requested  28 22.2% 26 27.7%
Unable to complete action  16 12.7% 32 34.0%
Rejected  0 0.0% 0 0.0%
Withdrawn  1 0.8% 1 1.1%
Notices Number % Number %
Filed  187 100.0% 231 100.0%
Withdrawn and refiled 21 11.2%  18 7.8%
Investigation stage 88 47.1% 113 48.9%
Rejected 1 0.5% 1 0.4%
Distinct notices reviewed 165 100.0% 212 100.0%
Cleared 156 94.5% 199 93.9%

    > Unconditional*

140 84.8% 171 80.7%
    > With mitigation conditions 16 9.7% 28 13.2%
Withdrawn and abandoned 8 4.8% 12 5.7%
    > CFIUS concerns 7 4.2% 8 3.8%
    > Other reasons 1 0.6% 4 1.9%
Presidential decision 1 0.6% 1 0.5%
Total transactions  Number Number %
Distinct transactions reviewed/assessed 262 100.0% 279  100.0%
     > Resolved via declaration** 97 37.0% 67 24.0%
     > Resolved via notice*** 165 63.0%  212  76.0%
Cleared 231 88.2% 199 71.3%
 Non-notified transactions Number  %    
Evaluated by CFIUS  117 100.0%
Filings requested  17 14.5% 

*Distinct notices less those cleared with mitiation conditions, those withdrawn and abandoned, and those resulting in a Presidential decision
**Declarations filed less those rejected, withdrawn, or for which full notices were requested
***Includes all distinct notices reviewed
Sources: CFIUS 2020 Annual Report to Congress; CFIUS Covered Transactions, Withdrawals, and Presidential Decisions 2008-2020; CFIUS Critical Technology Pilot Program Declarations 2018-2020; Linklaters calculations