CFIUS is an interagency committee, chaired by the U.S. Department of Treasury, which reviews foreign investments in U.S. businesses and real estate that implicate national security concerns. It was established by presidential order in 1975, and its powers were codified, refined, and expanded in 1988 under Section 721 Defense Production Act of 1950 (Section 721), the Foreign Investment and National Security Act of 2007 (FINSA), and the Foreign Investment Risk Review Modernization Act of 2018 (FIRRMA).

FIRRMA expanded CFIUS's jurisdiction to review foreign person acquisitions of certain non-controlling investments in U.S. businesses and real estate transactions that implicate national security concerns, added the option to file a short-form declaration for reviews, and introduced mandatory filing requirements for certain covered transactions that involve critical technology, critical infrastructure, or sensitive personal data on U.S. citizens.

Parties to covered transactions may and in certain circumstances are required to file a declaration or, in lieu of a declaration, can submit a more detailed notice to CFIUS with information on transactions subject to CFIUS jurisdiction. Although parties are free to select from either form of filing, declarations are not appropriate for transactions that present a national security vulnerability.

Declarations are subject to a 30-day review period, and notices are subject to 45-day review period. Following its review of a notice, CFIUS may initiate an investigation if it has national security concerns, and it has the power to suspend or modify a transaction or can refer a transaction to the president for an order to prohibit or unwind a transaction. It may also unilaterally review and act on transactions subject to its jurisdiction that are not submitted by parties for review (non-notified transactions).

CFIUS examines the threat, vulnerabilities, and consequences to U.S. national security posed by a transaction. Its reviews are guided by Section 721, which provides a non-exhaustive list of specific factors to be considered, to include the impacts of transactions on critical technologies, critical infrastructure, energy and other critical resources and material.

On Sept. 15, 2022, President Biden issued Executive Order 14083, which reiterated CFIUS's focus on the Section 721 factors and emphasized the need to consider additional factors, to include the aggregate effects of incremental investments, cybersecurity, access to sensitive personal data, and potential adverse impacts on sectors fundamental to national security. The Annual Report is the first to cover CFIUS's reviews following issuance of Executive Order 14083.

CFIUS can seek a broad range of mitigation measures to resolve national security concerns. These are typically imposed in the form of a national security agreement with terms that can prohibit or limit the sharing of certain technical information, prohibit the transfer of sensitive assets, require the establishment of a voting trust, or impose other mechanisms to address CFIUS's specific national security concerns.

Failures to make a mandatory filing or to comply with a mitigation measure are subject to civil penalty of up to $250,000 or the value of the transaction, whichever is greater, or liquidated damages, as may be provided in an agreement. CFIUS may also refer violations to other government agencies for enforcement of civil or criminal penalties, where appropriate.

The Annual Report shows the following key data and trends for investor filings and the CFIUS process in 2022:

•The number of covered transactions reviewed by CFIUS peaked slightly to 440 total transactions in 2022, comprised of 154 declarations and 286 notices — a 1% increase from the 436 total transactions reviewed in 2021.

•CFIUS evaluated 84 non-notified transactions in 2022. This is a substantial decrease from the 135 non-notified transactions evaluated in 2021. According to the Annual Report, this trend may continue as CFIUS works through a filing backlog.

•More transactions were mitigated. CFIUS adopted mitigation measures for approximately 18% of covered transactions in 2022, compared to 11% in 2021 and 12% in 2020.

•On average, CFIUS completed its review of declarations within 30 calendar days and completed its review of notices within 46 calendar days.

•There were no referrals for action by the president in 2022. However, 12 transactions were voluntarily withdrawn and abandoned by parties because CFIUS was unable to identify mitigation measures to resolve its national security concerns or because the parties did not accept mitigation measures proposed by CFIUS.

•Investors filed few real estate filings. Despite final implementation of CFIUS's expanded jurisdiction under FIRMMA in 2020, there were only six filings (five declarations and one notice) for foreign person acquisitions of rights to covered real estate in 2022. This number is likely to increase in future reports given CFIUS's May 5, 2022, addition of eight military installations to the list of sites subject to its real estate authority and pending congressional measures aimed at expanding the scope of CFIUS jurisdiction over farmlands.

•Actual enforcement of non-filers is slow to come. CFIUS did not report any enforcement actions that gave rise to penalties in 2022. However, it issued Enforcement and Penalty Guidelines on Oct. 20, 2022, is monitoring party compliance with the conditions of 214 mitigation agreements and, in 2013, there were reports of two unpublished enforcement actions under the new guidelines.

Declarations were established by FIRRMA as a less expensive, less burdensome, and quicker alternative to notices. A declaration does not require payment of a filing fee, requires less information than a notice, and is subject to a 30-day review period instead of the 45-day review and potential 45-day investigation period applicable to notices.

However, as shown in the Annual Report, there are significant drawbacks to filing a declaration instead of a notice.

•CFIUS cleared a lower percentage of declarations. CFIUS cleared 58% of the declarations reviewed in 2022, a decrease from the 73% cleared in 2021.

•An increased percentage of declaration parties needed to file notices for CFIUS to conclude all action. CFIUS informed parties that it was unable to conclude all action under Section 721 without a full notice in nearly 10% of the declarations reviewed in 2022, compared to 7% in 2021.

•CFIUS required an increased percentage of declaration parties to file notices. CFIUS requested parties to submit a notice in 32% of the declarations reviewed in 2022, a substantial increase from the 18% of the declarations reviewed in 2021 and 22% in 2020.

The less promising declaration trends may be the result of more complex transactions being submitted for review, higher-risk transactions better suited for notices, more stringent review standards, or overburdened staff pushing declarations out to meet the 30-day review deadline.

Notices offer a more certain path to CFIUS concluding all action under Section 721 for a transaction. As such, and unsurprisingly, the number of notices has significantly increased over the years, from 97 notices reviewed in 2013 to the 286 reviewed in 2022.

Parties also filed nearly twice as many notices as declarations in 2022, adding more quantitative significance to the following data and trends.

•The percentage of withdrawals increased. Parties withdrew 31% of the notices filed in 2022, 77% of which were later refiled, compared to 27% withdrawn in 2021 and 16% withdrawn in 2020.

•A greater percentage of notices resulted in an investigation. CFIUS initiated an investigation in 57% of the notices filed in 2022, compared to 48% in 2021 and 47% in 2020.

•Of the 285 non-real estate notices filed, 52% involved the finance, information, and services sector; 29% involved the manufacturing sector; 13% involved the mining, utilities, and construction sector, and; 6% involved the wholesale trade, retail trade, and transportation sector.

•The highest number of notices per country in 2022 were from investors in Singapore and China, accounting for approximately 13% of all notices each.

•The volume of notices involving Chinese investors continued to fluctuate, from 9% of notices in 2020, 16% in 2021, and 13% in 2022, but remains lower than its pre-FIRMMA level of 25% in 2017.

The Annual Report demonstrates a busy year for CFIUS with a steady increase in investor filings. As reflected in the percentage of requests for notices, withdrawals, refilings, and the increased use of mitigation measures, the review process has become lengthier and more complex. The Annual Report also underscores the need for sufficient party due diligence into the national security implications of a transaction and for parties to carefully select between filing options in planning a CFIUS strategy.

While the Annual Report reflects notable changes from prior years, it is important to note that CFIUS reviews are performed on a case-by-case basis and a variety of economic and other factors can affect the data presented. Accordingly, as with prior reports, it is important to note that some trends observed may not causally relate to a factor of concern.