The Committee on Foreign Investment in the United States (CFIUS) recently released its annual report to Congress, shedding light on key trends and developments in national security-focused transaction reviews. While the total number of filings decreased compared to previous years, the report highlights an increase in penalties and the use of enforcement tools by CFIUS.
Penalties for violations of CFIUS regulations or mitigation agreements have seen a notable uptick in 2023. The report indicates that the Committee imposed four civil monetary penalties for breaches of material provisions in mitigation agreements, a significant increase compared to previous years. Notably, this marks the first time CFIUS has issued a formal determination of noncompliance with mandatory filing provisions, underscoring the Committee’s commitment to enforcing national security regulations.
In 2023, CFIUS received 109 declarations of covered transactions, the lowest number since 2019. This decline is attributed to a decrease in global merger activity during the year. Additionally, the number of notices submitted to CFIUS decreased by over 18%, with a notable drop in voluntary filings. Mandatory filings accounted for a larger share of total filings in 2023, indicating a shift in the types of transactions being reviewed by CFIUS.
One of the key highlights of the report is the Committee’s improved efficiency in processing transactions. CFIUS reported a reduction in the withdraw and refile rate for the first time in five years, dropping from 23% in 2022 to 18% in 2023. Moreover, there was an increase in the number of transactions cleared in the initial review period, with 66% of transactions being approved within 30 or 45 days, depending on the format.
In 2023, CFIUS entered into 36 mitigation agreements and was actively monitoring 246 such agreements by the end of the year. These agreements involve steps such as on-site compliance inspections, reviewing reporting from transaction parties and third parties, investigating potential violations, and overseeing remedial actions. The report emphasizes CFIUS’s commitment to ensuring compliance with national security regulations through robust monitoring and enforcement efforts.
The increased focus on penalties and enforcement efforts by CFIUS underscores the importance of compliance for companies engaging in transactions with potential national security implications. As CFIUS continues to enhance its statutory authorities and policy role, parties involved in transactions should carefully consider these developments in their risk assessments and deal planning processes.
Enhanced Monitoring and Enforcement Efforts
CFIUS has been actively signaling its enhanced focus on monitoring and enforcement efforts through various channels. The report highlights public remarks by senior officials, private sector outreach, and recent uses of penalty authorities as key indicators of the Committee’s commitment to enforcing national security regulations. By engaging with stakeholders and implementing enhancements to its penalty authorities, CFIUS is working towards strengthening its oversight of covered transactions.
The Committee’s efforts to improve monitoring and enforcement are reflected in its increased use of mitigation agreements and civil monetary penalties. Mitigation agreements play a crucial role in overseeing post-closing business activities of transaction parties to ensure compliance with national security regulations. The imposition of civil monetary penalties for violations of CFIUS regulations or mitigation agreements serves as a deterrent against noncompliance and sends a clear message about the Committee’s enforcement capabilities.
Impact on Transaction Planning
The trends highlighted in CFIUS’s annual report have significant implications for companies engaging in transactions with potential national security implications. The increase in penalties and enforcement actions by CFIUS underscores the importance of thorough due diligence and compliance with regulatory requirements. Companies should carefully assess the risks associated with their transactions and take proactive steps to ensure compliance with CFIUS regulations and mitigation agreements.
As CFIUS continues to enhance its monitoring and enforcement efforts, parties involved in covered transactions should be aware of the potential consequences of noncompliance. The Committee’s expanded statutory authorities and policy role signal a more rigorous approach to national security reviews, necessitating a heightened focus on compliance and risk management in transaction planning.
In conclusion, CFIUS’s annual report highlights a shift towards increased penalties and enforcement actions in national security-focused transaction reviews. Companies engaging in covered transactions should closely monitor these developments and take necessary steps to ensure compliance with CFIUS regulations and mitigation agreements. By staying informed and proactive in their approach to transaction planning, companies can navigate the evolving landscape of national security reviews effectively.
