The US government is stepping up 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 the 2021 calendar year.

Amid a bipartisan focus on national security threats posed by foreign direct investment, fully resourced and staffed, and armed with expanded powers following the passage of a 2018 law, the Committee has strengthened its scrutiny of transactions across the economy, with a special focus on businesses in the financial, information and services, and manufacturing sectors, CFIUS told Congress.

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

The annual report lands just as the White House announced support for a bipartisan bill that would significantly deepen the U.S. government’s role in regulating private investment by creating, in addition to CFIUS, an interagency panel to review certain outbound investments that impact the security of the supply chain, local production and production facilities.

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 U.S. Treasury Department that reviews certain foreign investments in the United States and certain real estate transactions by foreign persons to determine their impact on U.S. national security. Except for certain transactions that are subject to a mandatory filing requirement, the parties to the transaction voluntarily file short statements or longer-form Joint Voluntary Notices (JVNs) with CFIUS.

CFIUS reviews the declarations during a 30-day evaluation period, after which it may require the parties to file a JVN. CFIUS reviews of JVN can routinely last 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 notice, if CFIUS believes the transaction is within 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; can recommend to the President that the President block the deal; or may order mitigating measures to be taken by the parties to the deal to protect US national security interests.

With overwhelming bipartisan support (85-10 in the Senate and 400-2 in the House), Congress passed FIRRMA in 2018 and significantly expanded CFIUS’ jurisdiction, including a mandatory filing requirement if a transaction involves certain technologies, and provided support for the growing bureaucracy to carry out these reviews.

Reviews for setting records in 2021

The results of these changes are evident in the 2021 CFIUS Annual Report, which shows explosive growth in CFIUS reviews. In 2021, CFIUS reviewed 164 declarations and 272 JVNs, the largest number of transactions ever analyzed and amounting to annual increases of 30% and 45%, respectively.

Of these 272 notifications, 130 (or 48%) resulted in an “investigation phase” and 74 (27%) were withdrawn during the review or investigation phase. Of the 74 withdrawal notices, the parties in 63 cases filed a new notice in either 2021 or 2022. In nine of these cases, the parties withdrew the notice and abandoned the transactions or after CFIUS informed the parties that it was not in able to identify mitigation measures that would address its national security concerns, or after the parties declined to accept CFIUS’ proposed mitigation measures. In two of these cases, the parties withdrew their notification and abandoned the transaction for commercial reasons.

CFIUS requires mitigation measures to resolve national security concerns about 10% of the time (in 26 of 272 notices). CFIUS adopted mitigation measures to address residual national security concerns with respect to two notices that were voluntarily withdrawn and abandoned. No presidential action was taken on transactions in 2021.

CFIUS has the authority and personnel to review and investigate transactions that have not been reported to the Committee and to require documentation. In 2021, the Committee reviewed 135 transactions identified through the non-notification process and requested filings for 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 filings. Canadian investors accounted for the most returns filed in 2021 and the largest share of returns filed from 2019 to 2021, at 14% (54 returns). Japanese and UK investors respectively filed 11% (43 returns) and almost 9% (33 returns) of all returns filed from 2019 to 2021.

Chinese investors filed the most JVNs, a total of 44 (16%) in 2021, more than double the 17 notifications filed by Chinese investors in 2020. Investors from Canada and Japan filed the second and third most -a large number of JVNs in 2021 (10% or 28 notifications and almost 10% or 26 notifications respectively). For the three-year period from 2019 to 2021, the largest number of notices came from Japanese investors (13% or 91 notices), followed by Chinese and Canadian investors (13% or 86 notices and 9% or 62 notices respectively).

In 2021, as in 2020, the largest number of deals were in the finance, information and services sector, which accounted for over half of the deals (147 notifications or 55% of submissions). And as in 2020, the manufacturing sector in 2021 accounted for the second largest number of notifications submitted (74 notifications, or 28%).

Similarly, of the covered transaction notifications filed with CFIUS over the past decade, from 2012 to 2021, approximately three-quarters were either in the financial, information and services sector (726 notifications or 40%) or in the manufacturing sector (691 notifications or 38%). The remaining announcements are in the mining, utilities and construction sector (257 announcements or 14%) and the wholesale, retail and transport sector (149 announcements or 8%).

The annual report notes that CFIUS has acted diligently in reviewing many transactions. The Committee resolved nearly 60% of its cases (an all-time high) during either the 30-day assessment period for a declaration or the initial 45-day notice review period.

Calls for CFIUS Outbound Screening Growing

CFIUS’s increased review of inbound foreign direct investment comes as Congress and the White House push for new legislation that would require U.S. companies to notify the government before investing in certain 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 McCall (R-TX), Brian Fitzpatrick (R-PA), and Victoria Spartz (R-IN). Although their legislation, the Protecting National Critical Capabilities Act of 2022, has yet to be formally introduced in Congress, the bill under discussion would create a “National Critical Capabilities Committee (NCCC) to conduct ongoing security reviews of the supply chain supply, domestic production and production capacity of identified national critical capabilities,” according to a summary of the bill, which aims to replace a previous 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 “National Critical Capabilities” as systems, services, and assets vital to U.S. national security, including agricultural security, health security, homeland security, energy security, infrastructure security, and natural resource security. It will consider “National Critical Capabilities” critical services and the production of medical supplies, medicines, personal protective equipment, electrical grid materials and items critical to building infrastructure after natural or man-made disasters.

The bill would require firms operating in critical industries to report outbound investments in certain foreign markets, including China. If the NCCC found that a transaction would pose a risk to national security, it would recommend that the president take remedial action, “including procurement, the use of manufacturing augmentation powers, the creation of federal manufacturing support programs, or any other action, The committee deems appropriate, which may include suspending the transaction,” the summary said.

While much remains to be seen 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 blunting our technological advantage or undermining the resilience of our supply chain,” National Security Adviser Jake Sullivan said in a statement in July.

In short, 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 must prepare for ongoing scrutiny of foreign transactions for national security threats and prepare for the eventual establishment of an innovative outbound investment review process that will significantly increase regulatory exposure.