United States: CFIUS Report: Significant Increase In Scuttled Deals

A large number of attempted foreign acquisitions of US businesses ran into CFIUS trouble in 2012. That is the most striking fact revealed in the annual report by the Committee on Foreign Investment in the United States (CFIUS), which in late December 2013 issued a report on its activities during the 2012 calendar year. The Committee conducts national security reviews of inbound foreign investments, and 2012 was a very active year. (Steptoe attorneys have been involved in hundreds of CFIUS cases over the years, including some of the most prominent in the last several years.)

The report indicates that 10 of the 114 deals that CFIUS reviewed in 2012 failed to garner approval. Others required extensive negotiations with CFIUS before the Committee cleared the deals. While the report also indicates that Chinese investors filed far more cases than ever before, the rejected cases and other problem cases involved investors from several countries. CFIUS' annual reports do not identify the nationality of the foreign investors whose deals ran aground, but historically the countries besides China that have encountered CFIUS problems have included France, Israel, Russia, and India, among others.

Several CFIUS problems involved "non-notified" or "non-filed" deals – instances in which the parties notified CFIUS only after their transactions closed. As we have written previously, the Committee has pursued these non-notified transactions with increasing frequency and aggressiveness, compelling filings from the parties and then dealing with them harshly. Thus occasional CFIUS rejections – mostly of non-notified transactions for which CFIUS then compels filings – are to be expected. Even so, it is surprising for 10 cases to be unable to clear CFIUS in 2012. That number is at least twice the high-water mark from any previous year.

Parties involved in inbound foreign investments need to consider filing with CFIUS. They should do so if: (i) the transaction results in foreign "control" of a US business, with "control" defined broadly; and (ii) the transaction touches on national security, with security also defined broadly. Parties should err, if at all, on the side of filing. If they do not, there is a good chance they will end up as an unfortunate statistic in CFIUS' future annual reports.

What follows is a summary of key points from the most recent report.

A Continuing "Investigation" Trend, and a Large Increase in Problem Cases

In 2012, CFIUS reviewed 114 "covered transactions" – deals that would result in foreign "control" of a US business. The Committee clears many cases after 30 days, but of the 114 filed in 2012, CFIUS proceeded to "investigate" 45 of them – or about 40%. An investigation takes up to another 45 days. The fact that CFIUS investigated nearly 40% of cases in 2012, just a tick up from previous years, is a reminder that companies need to plan for a long CFIUS process.

Not all of these 45 investigated cases ran into significant problems, but a good number of them did. The report states that CFIUS required "mitigation measures" for eight cases. Mitigation measures are conditions on a deal that generally are negotiated between CFIUS and the foreign investor and that are memorialized in a written agreement. The Committee requires them when it has national security concerns that prevent it from clearing the deal without mitigation of those concerns. A broad array of mitigation measures can be used, such as limitations on who can access technology, requirements to provide the US government with access to books and records, and obligations to make reports to the US government. The eight mitigation agreements that CFIUS required in 2012 is a number roughly consistent with previous years.

What is not consistent with previous years, however, is the number of deals withdrawn from CFIUS review in 2012, and particularly the subset of those deals that were not refiled. A bit of explanation is warranted regarding the CFIUS withdrawal process. If CFIUS does not clear a case after the first 30 days, it must act by the end of 75 days (30 days for the initial review plus 45 days for the investigation). At the end of 75 days, CFIUS can clear the case without mitigation measures, clear the case with mitigation measures, or refer the case to the President. If CFIUS concludes that the national security risks cannot be mitigated then the Committee will refer the case to the President and recommend that the President block the deal. In such a case, the parties almost always withdraw the case from CFIUS review and walk away from the deal (or they agree to divest if the deal has closed), rather than inviting the President to issue a blocking or divestment order. That is one situation – walking away from the deal rather than facing adverse action by the President – that results in withdrawal.

In some cases, however, CFIUS and the parties may believe that the security risks can be mitigated, but they might run out of time to conclude mitigation negotiations before the 75 days have expired. In these circumstances, the parties may withdraw the case and refile it. This withdrawal/refiling starts the CFIUS clock anew, at the beginning of the 30 day review (which may be followed by another 45 day investigation).

Of the 114 filed cases in 2012, CFIUS has reported that 22 were withdrawn – suggesting that these 22 deals encountered significant problems. The report indicates that 12 of the 22 were refiled and eventually cleared by CFIUS. But 10 of them were never cleared. In contrast, 2011 saw only 6 withdrawals, and of those withdrawn cases 4 were refiled and eventually cleared. So in 2011, companies failed to obtain clearance in only 2 cases. It is particularly striking that in 2012, 10 of the 22 withdrawals failed to get clearance.

A Formal Presidential Blocking of a Deal in Proximity to a Sensitive Area

There is another development discussed in the new CFIUS report that is also significant, but has been widely reported for over a year. In 2012, the President formally blocked a CFIUS-reviewed transaction for the first time since 1990. In that case, the Chinese-controlled Ralls company acquired a wind farm that sat in close proximity to a US defense facility without notifying CFIUS. CFIUS compelled a filing from Ralls and recommended that the President order divestment. As discussed above, parties generally walk away from deals when there is a likely prospect of adverse presidential action, particularly because presidential action is public, whereas CFIUS actions are confidential. But Ralls did not walk away, and the President ultimately ordered divestment. This is one of several cases in which CFIUS has refused to clear Chinese acquisitions of assets located near defense facilities. That trend continued into 2013, and we commented on one of the most recent "proximity" cases here.

Increasing CFIUS Review of Purchases by Chinese Companies

As noted above, the problem cases in 2012 involved foreign investors from an array of countries. But CFIUS reviews of Chinese investments warrant special mention. In 2012, CFIUS reviewed 23 notices from Chinese companies, more than doubling 2011's total (10 notices), and nearly quadrupling 2010's (6 notices). This made 2012 the first year in which CFIUS received more notices from Chinese companies than from any other country in the world.

On some level this increase was expected. As Chinese investment in the United States increases, there are more transactions that fall within CFIUS' jurisdiction. The increase might also suggest that Chinese companies are becoming more familiar with the CFIUS process and confident that they will be treated fairly.

However, Chinese companies also should be aware that the US government often perceives significant national security risks in these deals, particularly when the deals relate to information and telecommunications technologies. Ultimately, CFIUS generally approves most Chinese investments (just as CFIUS approves most investments from companies of other nationalities), at least when the deals are filed with CFIUS before closing. But the level of scrutiny in these Chinese cases is often high, and mitigation measures are common. Accordingly, planning for the CFIUS review process is a particularly critical component for many China-US deals.

CFIUS Reverses Position on Whether Foreign Companies and Governments are Seeking to Acquire Critical US Technology Companies

A final fact worth noting from CFIUS' recent report is an interesting tidbit from the US Intelligence Community (USIC), which participates in CFIUS. The USIC concluded it is unlikely there exists a coordinated effort by foreign countries or governments to acquire US companies producing critical technologies. This is interesting because it is a reversal of the position from the previous year, in which the USIC concluded that it was likely such a coordinated strategy exists.

It is impossible to account for this change with confidence. The information on which the USIC bases its conclusions is classified, and the CFIUS report does not otherwise explore the reasons why it no longer believes such a coordinated effort is underway. Nevertheless, given that many viewed the USIC's previous conclusion as directed at China and Chinese companies, we can speculate that the reversal in the current report may indicate CFIUS is becoming more familiar with Chinese investment and less suspicious than in previous years, even as CFIUS continues to play a robust role in policing transactions between Chinese and US companies.


CFIUS' report on calendar year 2012 documents a continued aggressiveness in reviewing transactions between foreign and US companies that implicate national security concerns. The report provides ample evidence that failure to plan for CFIUS review can be highly disruptive and, in some cases, fatal to a deal.

We will continue to monitor developments relating to CFIUS reviews.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Stephen Heifetz
In association with
Related Video
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:
  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.
  • Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.
    If you do not want us to provide your name and email address you may opt out by clicking here
    If you do not wish to receive any future announcements of products and services offered by Mondaq you may opt out by clicking here

    Terms & Conditions and Privacy Statement

    Mondaq.com (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

    Use of www.mondaq.com

    You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about Mondaq.com’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.


    Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

    The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.


    Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

    • To allow you to personalize the Mondaq websites you are visiting.
    • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
    • To produce demographic feedback for our information providers who provide information free for your use.

    Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

    Information Collection and Use

    We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

    We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to unsubscribe@mondaq.com with “no disclosure” in the subject heading

    Mondaq News Alerts

    In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.


    A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

    Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

    Log Files

    We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.


    This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

    Surveys & Contests

    From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.


    If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.


    From time to time Mondaq may send you emails promoting Mondaq services including new services. You may opt out of receiving such emails by clicking below.

    *** If you do not wish to receive any future announcements of services offered by Mondaq you may opt out by clicking here .


    This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to webmaster@mondaq.com.

    Correcting/Updating Personal Information

    If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to EditorialAdvisor@mondaq.com.

    Notification of Changes

    If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

    How to contact Mondaq

    You can contact us with comments or queries at enquiries@mondaq.com.

    If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at problems@mondaq.com and we will use commercially reasonable efforts to determine and correct the problem promptly.

    By clicking Register you state you have read and agree to our Terms and Conditions