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CFIUS Report Shows Trump Admin's Push to Curb Risky M&A

The latest annual report released by the Committee on Foreign Investment in the United States reflects a steep increase in notices and abandoned deals, highlighting how the national security-focused interagency committee has ramped up under the Trump administration.

The unclassified version of the report, which covers the 2016 and 2017 calendar years, was released Friday. It provides a rare glimpse into matters being fielded by CFIUS, which reviews certain inbound transactions for national security risks, and how review activity has evolved in recent years. The last report was released in 2017, and covered the 2015 calendar year. 

The latest report shows that the number of investigations by CFIUS and the number of transaction notices withdrawn from the review process during the investigation period both doubled in 2017. The uptick reflects the general feeling among many CFIUS-focused attorneys that the interagency committee doubled down on efforts to flag potentially risky transactions after President Donald Trump took office.

“In 2017, on both an absolute and relative basis, a greater number of notices were withdrawn and not refiled — in other words, frustrated — as compared to 2016 and 2015,” said Mario Mancuso, who heads Kirkland & Ellis LLP’s international trade and national security practice.

"The macro point is that, in the Trump era, CFIUS has swung for the fences — and has made solid contact on many transactions,” Mancuso said.

According to the latest report, CFIUS received 237 notices during 2017, which led to 172 investigations. There were 67 notices withdrawn during the investigation phase. That’s a clear jump from the 172 notices filed during 2016. Of the 79 investigations conducted that year, 67 notices were withdrawn during that phase.  

“This report shows what many of us following CFIUS activity for years have long known — oversight of foreign investments into U.S. companies is on the rise. It’s just another sign that U.S. companies considering any level of foreign investment must have CFIUS on their radar,” Anne Salladin, a Hogan Lovells international trade and investment partner, told Law360 in an email.

A supplementary table released alongside the report also shows that of the 74 total notices withdrawn in 2017, 24 were abandoned entirely due to concerns flagged by CFIUS. Another six notices were withdrawn for other, unspecified reasons. 

That compares to the 27 notices that were withdrawn in 2016, with only three abandoned due to CFIUS-related concerns.

The trend continued into 2018 as well. During that calendar year, 229 notices were filed, leading to 159 investigations and one presidential decision. Of the notices filed, 66 were withdrawn, 17 of which were abandoned because of issues highlighted by CFIUS. 

And CFIUS is not expected to see a lighter load anytime soon, regardless of whether or not Trump is reelected in 2020, given the bipartisan support the committee has.

"I think it’s clear that the Trump administration has made CFIUS very impactful; it’s also clear that CFIUS enjoys deep bipartisan support," Mancuso said.

Notices are also slated to rise further in 2020 and beyond, as the U.S. Department of the Treasury prepares to implement in the coming year new rules outlined by 2018's Foreign Investment Risk Review Modernization Act. FIRRMA broadens CFIUS' reach and makes filings in sensitive areas like critical technologies and infrastructure mandatory.

The latest annual CFIUS report also shows that of the transactions covered by CFIUS in 2017, most stemmed from the finance, information and services sector. 

According to the report, of the 237 notices filed, 108 were from the finance, information and services sector. That compares to the 68 notices filed in the sector the year prior.

The second-busiest sector for 2017 was manufacturing, with 82 notices filed compared to 67 the year prior. 

Not so surprising given all the chatter in recent years about concerns with Chinese buyers, deals hailing from China were reviewed more than those from any other country. According to the report, 60 notices concerned transactions with Chinese buyers, compared to the 22 filed by Canadian buyers and the 20 filed by Japanese buyers during 2017.

The activity from China, Canada and Japan was followed by the U.K. and France, where 18 and 14 deals were reviewed in 2017, respectively.

China has been a key point of concern for CFIUS and discussions about the country’s focused efforts to invest in technology elsewhere. Risks associated with China were highlighted as Congress worked to put together FIRRMA.

The latest report from CFIUS also shows that the buyer does not necessarily even have to be from a country considered higher risk for the interagency committee to have concerns with the transaction. 

According to the report’s discussion of the perceived adverse effects of covered transactions, CFIUS is also closely looking at the involvement of third parties involving certain technologies to see whether those third parties could access anything sensitive. 

The CFIUS report said potential concerns included that certain technologies could be transferred to third parties “not directly related to the buyer, to the detriment of national security.”

"That’s another way in which the China risk is made manifest. It’s not just that you have a Chinese buyer. [It’s] a German buyer or a French buyer or a British buyer, whatever the case might be, which has nontrivial, unrelated, independent value chain exposure in the Chinese market — that’s the risk,” Mancuso said. 

While it’s unclear when the full study of CFIUS activity in 2018 will be released, reviews are expected to trend upward as the rules called for by FIRRMA are positioned to go into effect in February.