Fried Frank discusses Annual Report from CFIUS to Congress – Data Highlight Extent of CFIUS’ Reach

The Committee on Foreign Investment in the United States (“CFIUS”), a multi-agency U.S. regulatory body empowered to review transactions involving a foreign person and a U.S. business that may affect U.S. national security, recently delivered its unclassified Annual Report to Congress for the calendar year 2013 (“Annual Report”).[1] In accordance with the legal prohibition against public disclosure of such information, the Annual Report contains no information with respect to specific transactions. Nonetheless, it remains a remarkable window into the reach and operation of CFIUS, and its impact on transactions involving U.S. businesses.

As in previous years, and as required by the Foreign Investment and National Security Act of 2007 (“FINSA”), the Annual Report summarizes CFIUS’s activities during the covered period, including the number and disposition of CFIUS notices, the nature and prevalence of mitigation arrangements, and the geographic source and sector concentration of covered transactions. In addition, the Annual Report describes its 2013 calendar year activities in comparative and cumulative perspective for the years 2011-2013.

We have set forth below a brief summary of the key data points of the Annual Report, along with a discussion of emerging trends in the CFIUS review process.



In 2013, 97 CFIUS notices were filed and determined to describe “covered transactions,” or transactions within CFIUS’s regulatory purview. The number of notices filed in 2013 represents a decrease in filings as compared to the 114 such notices filed in 2012. This modest decrease is most likely not a shift in CFIUS’s regulatory vigor or private sector concern over adverse action under FINSA. Rather, this figure is consistent with the number of covered transactions filed prior to 2011-12, which were both busy years for CFIUS. However, as discussed below, the geographic shift in filings by acquirers from certain countries, including an increase in filings by acquirers from China and Japan and a decrease from the United Kingdom and the Netherlands, may suggest an appreciation for CFIUS’s concern with respect to transactions involving acquirers from those countries or changing economic conditions in various countries.

Withdrawn Notices

Of the 97 transaction notices filed, 3 were voluntarily withdrawn from CFIUS consideration during the initial 30-day review and 5 were voluntary withdrawn from CFIUS consideration during the subsequent 45-day investigation phase. According to the Annual Report, the parties resubmitted new notices in 1 case in 2013.

Investigations and Presidential Review

In 2013, 48 (or 49%) of the 97 notices for “covered transactions” went beyond the initial 30-day review and into the 45-day investigation phase.

  • The percentage of notices moving into the investigation phase increased from 2012 (39%) to 2013 (49%). This increase of notices moving into the investigation phase corresponded with the government shutdown in October of 2013, but also highlights a general trend we have noted previously— the incidence of investigations increasing each year since 2008.[2]
  • Unlike 2012, where the President took action to prohibit one transaction, the President did not block any transactions in 2013.
  • The Annual Report notes that one transaction was concluded during the government shutdown, but CFIUS notified the parties that the transaction was still subject to review. The parties later submitted a new filing after the end of the government shutdown.

Mitigation Measures

In 2013, 11 (or 11%) of the covered transactions were approved by CFIUS subject to the acceptance of mitigation arrangements, as a compared to 8 (or 7%) in 2012. These mitigation arrangements were negotiated by CFIUS in connection with transactions in the telecommunications, software, mining, oil and gas, manufacturing, consulting, and technology industries.

Pursuant to these arrangements, the parties are required to take one or more of the following actions:

  • Ensuring that only authorized persons have access to certain technology and information;
  • Establishing a Corporate Security Committee and other mechanisms to ensure compliance with all required actions, including the appointment of a U.S. Government (“USG”) approved security officer or member of the board of directors and requirements for security policies, annual reports, and independent audits;
  • Establishing guidelines and terms for handling existing or future USG contracts, USG customer information, and other sensitive information;
  • Ensuring that only U.S. persons handle certain products and services, and ensuring that certain activities and products are located only in the U.S.;
  • Notifying security officers or relevant USG parties in advance of foreign national visits to the U.S. business;
  • Notifying relevant USG parties of any awareness of any vulnerability or security incidents; and/or
  • Providing the USG with the right to review certain business decisions and object if they raise national security concerns.

The final measure of allowing the USG to review certain business decisions and object was not included in prior Annual Reports as a possible mitigation measure.

In addition, it is important to note that CFIUS member agencies have taken a number of steps to enhance their ability to monitor compliance with the mitigation arrangements they may require, including:

  • Periodic reporting to USG agencies by the companies;
  • On-site compliance reviews by USG agencies;
  • Third-party audits when required by the terms of the mitigation measures; and
  • Investigations and remedial actions if anomalies or breaches are discovered or suspected.

This continuing development and maturation of a CFIUS compliance infrastructure represents one of the least articulated and most significant developments since the passage and implementation of FINSA.

Industry Sectors

As in previous years, notices were filed in connection with transactions in a wide variety of sectors, with the bulk of transactions in the manufacturing, finance, information, and services sectors. The notices filed in 2013 were divided among four industry sectors as follows: manufacturing (36%); finance, information, and services (33%); mining, utilities, and construction (21%); and wholesale trade, retail trade, and transportation (10%). While still remaining the sector with the most filings, notices in connection with transactions in the manufacturing sector continued to decrease, from a high of 49 (or 44% of the filings) in 2011 to 35 (or 36% of the filings) in 2013. Within the manufacturing sector, computer and electronics products remained the largest subsector (53% in 2012 and 35% in 2013), with machinery and fabricated metal products the next two largest sectors (18% and 15%, respectively, in 2013). Notices in connection with the wholesale, retail, and transportation sector increased from 8 (or 7% of the filings) in 2012 to 10 (or 10% of the filings) in 2013, with over half of the filings in that sector related to support activities for transportation. This subsector includes air traffic control services, cargo handling, and motor vehicle towing, among other areas. Within the mining, utilities, and construction sector, 38 of the 59 filings made between 2011 and 2013 were from Canada and China (21 and 17, respectively).

Notices Filed by Country of Origin

Transaction notices were filed in 2013 by prospective acquirers from 26 different countries. In 2013, the following countries accounted for the highest number of notices:

  • China (21);
  • Japan (18);
  • Canada (12);
  • United Kingdom (7); and
  • France (7).

Filings were made by acquirers in the following countries that had not made filings in 2011 or 2012: Chile, Ireland, Luxembourg, Mexico, Saudi Arabia, and Taiwan. There was a sharp increase in notices filed by acquirers from Japan (9 in 2012 and 18 in 2013) and a significant decrease by filers from the Netherlands and the United Kingdom in 2013.


Acquisition of Critical Technology Companies

In a change from the previous year, the 2013 Annual Report noted that the U.S. Intelligence Community (USIC) found that there may be an effort among foreign governments or companies to pursue transactions with U.S. businesses “involved in research, development, or production of critical technologies for which the United States is a leading producer.” In the 2012 Annual Report, the USIC found that it was unlikely that there was a coordinated strategy among one or more foreign governments to acquire U.S. critical technology companies. Whether a U.S. business deals in critical technology is one national security factor that CFIUS must consider under FINSA. Consistent with the prior year’s Annual Report, the 2013 Annual Report again noted that the USIC believes that it is “extremely likely” that foreign governments will use espionage to obtain U.S. critical technologies.

Chinese Investment

Highlighting a trend that has continued since 2012, the number of covered transactions by acquirers from China again represented a plurality of notices filed with CFIUS in 2013. This increase in notices from China is consistent with the general findings of a recent report published by the U.S.-China Economic and Security Review Commission on February 26, 2015 (the “USCC Report”).[3] These findings include:

  • The Chinese government has limited restrictions on investment abroad, which could lead to higher levels of Chinese investment in the U.S.;
  • There is continued aggressive investment by Chinese individuals and entities in the U.S. commercial and residential real estate markets;
  • With increased Chinese investment in U.S. industries, there is a concern whether U.S. labor and environmental laws will be prioritized;
  • Outside of Lenovo’s investment in Motorola, real estate represents the largest investment sector for Chinese direct investment in the U.S; and
  • Highlighting that the number of CFIUS filings by Chinese acquirers will probably not decrease, the Chinese Investment Report notes that Chinese acquirers tend to lean toward acquisition of existing U.S. businesses through mergers and acquisitions, rather than investing through “greenfield” projects.


[1]       The CFIUS report is generally published in the final quarter of each year and summarizes activity in the prior calendar year. However, this year it was published months later.

[2]       Comm. on Foreign Inv. in the U.S., Annual Report to Congress 3 (2015), available at

[3]       Iacob Koch-Weser and Garland Ditz, U.S.-China Econ. Sec. Review Comm’n.,Chinese Investment in the United States: Recent Trends in Real Estate, Industry, and Investment Promotion (2015), available at

The full and original memorandum was published by Fried Frank LLP on March 2, 2015 and is available here.