Insights

The Committee on Foreign Investment in the United States (“CFIUS”) is a federal interagency committee tasked with determining the national security implications of certain transactions involving foreign investment in the U.S.

On July 29, 2021, CFIUS published its 2020 Annual Report summarizing CFIUS-covered transaction declarations and notices, outlining mitigation measures and conditions, demonstrating credible evidence of coordinated strategies by foreign actors to acquire critical U.S. technology companies, and reporting on foreign direct investment in the U.S. by countries that boycott Israel or do not ban terrorist organizations.

Some takeaways:

312 Transactions Reviewed

In 2020, CFIUS processed 126 covered declarations “short-forms,” of which one was withdrawn.

• Top five countries: Canada (20); Japan (18); UK (12); Germany (10); and Sweden (7)
• Top three sectors: Electric power generation, transmission, and distribution (13); computer systems design (11); and software publishing (10)

CFIUS also processed 187 covered transaction full notices, of which 29 were withdrawn.

• Top five countries: Japan (19); China (17); UK (14); Canada (11); and France (11)
• Top three sectors: Electric power generation, transmission, and distribution (18); semiconductor manufacturing (13); and software publishing (11)

Critical Technologies at Risk

In accordance with provisions of the Defense Production Act, CFIUS – with the help of the United States Intelligence Community (“USIC”) – determined there to be (1) credible evidence of a coordinated strategy by foreign governments or companies to acquire U.S. companies involved in the research, development, or production of critical U.S. technologies, and (2) a significant threat of industrial espionage activities directed or directly assisted by foreign governments against private U.S. companies intent on obtaining commercial secrets concerning critical U.S. technologies.

Specifically, CFIUS and the USIC reviewed 122 covered transactions involving acquisitions of U.S. critical technology companies for evidence of a coordinated strategy to acquire U.S. technologies. Their review included technologies in the computer and electronic product manufacturing, scientific and professional services, transportation equipment manufacturing, publishing, telecommunications, and chemical manufacturing sectors.

With regards to foreign industrial espionage, the USIC determined that federal research institutions, universities, and corporations are regularly targeted by cyber actors. 

Spotlight on Foreign Direct Investment from Countries that Boycott Israel or Do Not Ban Terrorist Organizations

In accordance with provisions of the Foreign Investment and National Security Act of 2007, CFIUS included in its 2020 Annual Report a study of foreign governments, entities controlled by or acting on behalf of a foreign government, or persons of foreign countries which (1) comply with any boycott of Israel, or (2) do not ban organizations designated by the Secretary of State as foreign terrorist organizations.

According to the study, CFIUS found that mergers with and acquisitions of U.S. companies by investors from the countries described in FINSA represented a small portion of the total number of foreign direct investment flows into the United States in 2020. CFIUS reported that the value of such M&A transactions was approximately $17.4 billion.

The study identified 101 M&A transactions in 2021 that involved investors from countries that comply with any boycott of Israel, including Kuwait, Lebanon, Saudi Arabia, and the United Arab Emirates. The study did not identify any M&A transactions in 2021 that involved investors from countries that do not cooperate with U.S. sanctions and counter-terrorism efforts, including Cuba, Iran, North Korea, Syria, or Venezuela.

Most of the M&A transactions evaluated in the study were comprised of transactions in the information technology sector, particularly transactions concerning application software.

For a copy of the full report, click HERE.