SL

SOMANY
payejay pue sjuaw}sanu| sasueyoxy
Jeloueuly 48410 pue ‘syoes}U0D €zs HEE %0S %0 %0 9 e€cs Ajpowwod pue saiynoas
Sal} POWWOs ‘saunas
SeRIARRY a8e1a401g
payejay pue sjuawysaAu| %o0t | %O0T L Tezs Ue UO!JEIPSWzU] $}De4JUOD,
Jefoueuly 4410 pue ‘syaeJ]U0D es wee %05 2000 eC p “
“ Aypowwos pue sainsas
salpowwog ‘saindas¢
SATAY parejay uonelpauiazul
pue uonelpauezuy 3pas9 ces 08: be w0Or | %0 9 fees UpasD 0} parejay saiwAnoy
SOMANY payejay
pue uoneipauuayuy paso ets %0S HEE %0 %0 0 T@7s uone|pawayul peasy Asoysodag
SOIIMIS UONEWIOJU] JB4IO 61S %00T %00T %0S %O 0 T6TS SBMS UONEWIOJU] JBYIO
saolasas payejay saoias payejay
pue ‘3ujsopH ‘Sulssad0/q e1eq sts %0 %00T %00T |) %00T v ests pue ‘3uljsoy “Bulssao0Jq e}eq
suoleouNWWOIa|3, LIS %ET %L %6 %EE T 6ZTS suofeo}uNWWOa/21 18410
SUOHEIUNWWOd3/9 |. LTS MBE KEV %8T %0 0 vLTS SUONEIUNWLUOIE|2| 9H/21€S
suoledUNWWODa|—_ 9» ry ry (au|ares ydeoxa) suate9
1291 121 LIS %8 %L %6 %0 0 ZLTS stioiyeanuntatuoo5ja] ssaialiM
suoneounwiwosa|a | LTS MLE MED %v9 =| %L9 z TLTS | dale suoesiunwiwosajal pall
salajsnpul Suipsosay 5 5 5 5 salisnpul
punos pue aunyaig UoOWy as %00T *00r *00T %0 o ters OapiA pue ainyoig UONOW,
feuseiul ts | woot | %00t | s%00t | %00t) 6 TTS suaysiiqnd aremyos
ydaoxa) salsnpuy Burysigng 7 ° 00) é usu 4
98e1035 pue asnoyaseM £60 %O %OOT %O0T | %00T T Te6y a8e1035 pue BusnoyaseM
Zb-OL0% | Eb-LL0Z | vL-ZL0z | voz | Loe
AMoBeye: 161q- SIVN STON: | eboo) aiqel 2 161q-
32D SIVN HBIG-€ uBia-e apo Jo SOIVN 12 @POD SIVN H6Id-p

SOIVN Bulpuodsaiog 3161G-¢ 30 %

4equinn



Sarton Number of Known Transaction
Transactions Value ($ millions)
Energy and Power 2 $2,143.1
Manufacturing 3 $60.7
Services 1 $518
Technology 2 $124
Total 8 $2,843.6

Table Ill-2: Industries Represented
2. National Security Effects of the Subject M&A Transactions

Each of the eight subject M&A transactions was either formally reviewed by CFIUS under
section 721 or considered as part of the non-notified transaction procedures of CFIUS and
CFIUS agencies. Pursuant to these procedures, CFIUS agencies monitor M&A activity, identify
transactions that have not been voluntarily notified to CFIUS but may present national security
considerations, and assess whether additional information regarding the transaction or the
authority of section 721 is required to identify or address any national security concerns.

When a CFIUS agency believes that a non-notified transaction may be a covered transaction
and may raise national security considerations, the agency may self-initiate a review of the
transaction under section 721. Alternatively, if CFIUS believes that the transaction may raise
national security considerations and may be a covered transaction, CFIUS may contact the
parties and request further information about the transaction, partly to help determine whether
the transaction is a covered transaction. If CFIUS makes such a determination, it may request
that the parties file a notice. In most cases in which CFIUS has made inquiries of parties to
transactions, the parties have responded by filing a voluntary notice. Consideration by CFIUS
agencies of the subject M&A transactions so far has not resulted in requests for further
information from or filings by the parties to the transactions.

36


II-B. Whether Foreign Governments Used Espionage Activities to
Obtain Commercial Secrets Related to Critical Technologies

1. Key Finding

The USIC judges that foreign governments are extremely likely to continue to use a range of
collection methods to obtain critical U.S. technologies.

32




Wholesale Trade, Retail Trade, and Transportation Sector

The wholesale trade, retail trade, and transportation sector accounted for 10 percent (15
notices) of all notices of covered transactions filed with CFIUS during 2014. The support
activities for the transportation subsector made up over half of this sector, with eight notices.
The water transportation and merchant wholesalers (nondurable goods) subsectors had the
highest percent increases at seven percent and eleven percent over 2013 levels. Merchant
wholesalers (durable goods) experienced the largest percent decrease at 18 percent (from 18
percent of total wholesale, retail, and transportation in 2013 to zero percent in 2014).

Wholesale, Retail, and | NAICS | Number of 25 RETNA
Transportation (WRT) Code | Notices 2014 | 2014 | 2012-14 | 2011-13 | 2010-12
a Wholesalers, Durable 423 0 0% 9% 22% 24%
Merchant Wholesalers,
Nondurables Goods 424 3 20% 15% 11% 12%
Air Transportation 481 0 0% 0% 0% 4%
Water Transportation 483 1 7% 6% 7% 8%
Transit and Ground Passenger
Transportation 485 0 0% 0% 0% 4%
Pipeline Transportation 486 1 7% 6% 7% 8%
Support Activities for
Transportation 488 8 53% 55% 48% 40%
Warehouse and Storage 493 1 7% 6% 4% 0%
Traveler Accommodation 721 1 7% 3% 0% 0%

Table I-7: Covered Transactions from the Wholesale, Retail, and Transportation Sector 2014

Covered Transactions by Business Sector of
U.S. Companies: 2010-2014

The table on the following page provides a breakdown by subsector and by year of the covered
transactions cumulatively filed with CFIUS from 2010 through 2014.


Covered Transactions by Acquirer Home Country/Economy, 2012-2014

Country/Economy 2012 2013 2014 Total
Australia 3 0 4 7
Brazil 2 1 to) 3
British Virgin Islands 0 0 1 1
Canada 13 12 15 40
Cayman Islands 0 1 3 4
Chile to) 1 0 af
China 23 21 24 68
Denmark 2 0 0 2
Finland 0 0 1 t
France 8 7 6 21
Germany 4 4 9 17
Hong Kong 2 1 6 9
India 4 1 2 Gs
Indonesia 0 0 1 1
Ireland 0 1 1 2
Israel 4 1 5 10
Italy 1 0 i) 1
Japan 9 18 10 37
Liechtenstein 0 0 1 ‘i
Luxembourg 0 1 0 i
Mexico 0 2 0 2
Netherlands 6 1 8 15
New Zealand 0 0 0 0
Norway 1 1 1 3
Qatar 0 0 1 if
Russian Federation 2 1 1 4
Saudi Arabia 0 2 1 3
Singapore z 3 6 1
South Korea 2 1 7 10
Spain 2 1 2 5
Sweden 2 2 2 6
Switzerland 5 3 7 15
Taiwan 0 1 0 1
United Arab Emirates 0 2 1 3
United Kingdom 17 7 2 45
Grand Total 114 97 147 358

Table I-9: Covered Transactions by Country or Economy: 2012-2014

19



APPENDIX

A. Definition of “Critical Technologies”

The Regulations Pertaining to Mergers, Acquisitions, and Takeovers by Foreign Persons (the
“CFIUS regulations”), published in the Federal Register on November 21, 2008, and codified at
31 C.F.R. part 800, defines “critical technologies” with reference to U.S. export control
regulations, which were determined to be the most reliable and accurate means of identifying
critical technologies:

“§800.209 Critical technologies.

The term critical technologies means:

(a) Defense articles or defense services covered by the United States Munitions List
(USML), which is set forth in the International Traffic in Arms Regulations (ITAR) (22
C.F.R. parts 120-130);

(b) Those items specified on the Commerce Control List (CCL) set forth in Supplement No.
1 to part 774 of the Export Administration Regulations (EAR) (15 C.F.R. parts 730-774)
that are controlled pursuant to multilateral regimes (i.e., for reasons of national security,
chemical and biological weapons proliferation, nuclear nonproliferation, or missile
technology), as well as those that are controlled for reasons of regional stability or
surreptitious listening;

(c) Specially designed and prepared nuclear equipment, parts and components, materials,
software, and technology specified in the Assistance to Foreign Atomic Energy Activities
regulations (10 C.F.R. part 810), and nuclear facilities, equipment, and material specified
in the Export and Import of Nuclear Equipment and Materials regulations (10 C.F.R. part
110); and

(d) Select agents and toxins specified in the Select Agents and Toxins regulations (7 C.F.R.
part 331, 9 C.F.R. part 121, and 42 C.F.R. part 73).”

B. Methodology and Data Sources Used to Identify U.S. Critical Technology Companies
Acquired by Foreigners

The definition of critical technologies used in the CFIUS regulations is specific to those
regulations. There is no single source that lists all U.S. critical technology companies acquired
by foreign persons. Therefore, for purposes of Section II of the Annual Report, CFIUS agencies
responsible for administering U.S. export control regulations used a combination of publicly
available information, non-public data on M&A transactions that CFIUS reviewed, and their own
internal records to identify the U.S. critical technology companies that were acquired by or
received significant investments from foreign investors in 2013. The specific data sources and
methodology used varied, depending on the records maintained pursuant to the particular
export control regulations that pertain to the different critical technology categories. The dataset
used for Section II of this Annual Report is therefore limited. The various methodologies are
described below.

31 C.F.R. § 800.209(a): (U) This paragraph pertains to defense articles or defense
services covered by the United States Munitions List (USML), which is set forth in the
International Traffic in Arms Regulations (ITAR) (22 C.F.R. parts 120-130).

Under the provisions of the ITAR, the Department of State regulates robust registration,
licensing, and compliance processes for any person, whether U.S. or foreign, involved in the

37


This page intentionally left blank.


Country Solo Deals Joint Deals Total Deals
United Kingdom 16 6 22
Canada 8 1 5
France 7 i) 7
Switzerland 6 2 8
China 6 1 7
Germany 6 1 7
Israel 6 0 6
Japan 5 ) 5
Netherlands 4 3 7
India 3 0 3
Korea 3 i) 3
Cayman Islands* 2 3 5
Australia 2 io) 2
Qatar 2 ) 2
Singapore 2 0 2
Sweden 2 0 2
Ireland 1 1 2
Argentina i 0 1
Mexico 1 i) 1
South Africa i i} 1
Spain 1 {} 1
Hong Kong 0 3 3
Guernsey 0 2 2
Italy 0 2 2
Luxembourg 0 2 2
British Virgin Islands i} 1 1
Finland ie) 1 1
Norway i} 1 1

Table Il-1: Home Country of Foreign Acquirers of U.S. Critical Technology”

As shown in Figure 1-28, the largest amount of M&A activity involving foreign acquisitions of
U.S. critical technology companies involved targets whose primary activities are in the
Information Technology and Electronics sectors.

4 The ultimate beneficial ownership could not be identified at the time of the publication.
The number of transactions in the table appears higher than the number of transactions reviewed for the annual
report. This is due to the nature of joint transactions.

30


OL

235 woddns pue aniesjsiuiuu| ¥ YX SOMES UOREAIESOY
HeIS SP PV T9S %0 %O %vT %0S T ST9S pue quawasuewy janes,
yeas Yoddns pue aanensiuwpy T9S HLT %0 %vT %0S T 79S saamas yoddns saiioe4
yeis yoddns pue aanensiuupy | 9S %O %O %O %O 0 TT9S SEOs aAI}eAISIUILUPY 294430

sadiMas jeauysas saoiMas jeajuysa
pue ‘dIyIWUaIdS ‘jeUOIssayO1d ys we cad wp %L T 6Tvs pue ‘dIJ1]UaI9S ‘jeUOISSajOld JOYIO
sadinas jeajuysay 9 5 5 5 SadIMas JUadojanaq
pue ‘d1IWUAalIdS ‘jeUOISsajO‘d ms %ET v1 #9 %vT é evs pue ydieasay dIJIWUaIIS
sadiasas jesjuysay. Sad|Alag BulyjnsuoD jes1uYyda 1
pue ‘oiUaldS ‘jeUdIssajoid Tes %ST #81 #vT %L T tvs pue ‘oMUAaIDS ‘jUaWaseUeW)
saoinas jeajuysas. sadlAas paejay
pue ‘oijUalds ‘jeuolssajoig Ts SE BE ee EC ¥ sT¥s pue uBisag sway}sAs sajndwo5
Seoyas [ealuyreL y y x %O sadlmlas usiIsaq pazijeised
pue ‘oyrqualss “Jeuolssayorg Tvs %E %e %e % 10) vIvs IMas UsIseq pazi|eiseds
SadIAJaS JeIUYyIAL SadIMas payejay
pue ‘dIJWUAIDS ‘jeUOIssaJO1dg 1s 8% wie 48% wey 2 ETS pue ‘Sujjaeulsuq ‘jeanqoayyosy
sulsea] pue
saolMlas Bulsee] pue jequay 7es %OOT %EB %88 %00T z ves lequay quawdinby pue Aaulyse
Je4ysnpuy pue jesauw09
sad|Alas Sulsea] pue |e U2} x suyse2
Mas dulsea] pue jejuay 7eS %0 LT %EL %0 1?) TES pue Jequay yuawdinby aaowoyny
9723s] [eeu TES %0 %0 %ET %ST T eLEes 97e4SJ /22y 0} payejay Sa!AlW
97eysq |eOy TES %00T %O0T %83 %SL € TTES 93€1Sq |P9Y JO S1OSS9]
SanAnoy
payejay pue syuawysanu| Salanoy
[eloueuly Jay10 pue ‘syes]U0D €cs a #0 %0 #0 ° SECS quawysaay| |e!ueUly JaYy1O
salpowwog ‘salindas
ZL-OL0Z | Eb-LLOZ | vL-ZLOoz | vLoz | voz
3 SIVN S90K0N | apoo .
MoBeyxed SIVN 316I0-€ y6i0-¢ pop yo | SOIWN 2142.1 8POD SIVN UBIG-y

SOIVN Buipuodsa.u0g ybig-¢ Jo %

4oquinn



D. Withdrawn Notices

Parties can withdraw an accepted notice of a transaction if the Committee approves a written
request for withdrawal from the parties. Parties have requested withdrawals for a number of
reasons over the years. For example, in some cases where the parties are unable to address
all of the Committee’s outstanding national security concerns within the initial 30-day review
period or 45-day investigation period, the parties might request to withdraw and re-file their
notice to provide themselves with additional time to answer remaining questions or to resolve
the remaining national security concerns. In other cases, the parties might request to withdraw
and re-file their notice because a material change in the terms of the transaction warrants the
filing of a new notice. In still other cases, the parties might request to withdraw their notice
because they are abandoning the transaction for commercial reasons, or because the parties do
not want to abide by CFIUS’s proposed mitigation, or in light of a CFIUS determination to
recommend that the President suspend or prohibit the transaction. When appropriate, the
Committee has established processes to track the status of a withdrawn transaction or interim
protections to address specific national security concerns identified during the review or
investigation of the withdrawn transaction.

In 2014, CFIUS approved the withdrawal of twelve notices. The parties withdrew three notices

during the 30-day review period and nine notices after the commencement of the 45-day
investigation period. In one of these cases, the parties filed a new notice in 2015.

22


2. Covered Transactions by Country or Economy: 2012-2014

Table |-9 breaks down the notices of covered transactions from 2012 through 2014 by country
or economy and year. Acquisitions by investors from China accounted for the largest share of
the notices filed for the three-year period with 19 percent (68 notices), up from 17 percent of all
notices for the 2011 to 2013 period. Chinese investors also accounted for the most notices filed
each year from 2012 to 2014 (23, 21, and 24 notices, respectively). Investors from the United
Kingdom (UK) were close behind with 13 percent (45 notices, including two notices from
acquirers with joint UK and U.S. owners), down from 15 percent of all notices for the 2011 to
2013 period. From 2012 to 2014, investors from Canada and Japan accounted for 11 percent
(40 notices) and 10 percent (37 notices) of notices filed with CFIUS. France accounted for six
percent over the period (21 notices). In 2014, notices from Germany, Israel, the Netherlands,
South Korea, Switzerland, and the United Kingdom at least doubled from their 2013 levels.

18


2 2
2 2
SF SF EF ¥
©
we Ss e

se Oa

yw s

Figure Il-2. Completed Transactions by Sector of U.S. Target Company

The data in this report can also be analyzed by the home region of the foreign acquirers. Figure
1-3” displays the data with the following regional breakdown:

60 60

50

40

30

20
20
11 11
10 8
|
0 = ma

Europe East Asia Americas Other Middle Eastand South Asia Australia
North Africa

Figure II-3. Completed transactions in critical technologies by regions

’ The number of transactions based on country involvement exceeds the total number of transactions due to some
transactions involving more than one country.

31


eb

SNOsUe||B9SI/\} 6€€ %OOT %00T %00T | %00T T 66Ee | SulinyeynueW snoaueljadsi| 19410
juawidinby uoneyodsues, 9EE %6 %CT HET %0 0 99EE Sulpling yeog pue diys
uawdinby uoleyodsues. ¥ ¥ Buynadeynuel|
q wnby uolzey aa 9EE %0 %0 %0 %0 ie) S9EE ypors Buijjoy peoujey
uawidinb3 uoneyodsues DY) % ¥ Y Buyimpeynuew
y wnby Uolze}. iL 9EE %OL %6S %6S %L9 9 VICE suleg pue ynpolg aoedsoiay
juawidinby uoneyodsues, 9EE %CT %ve %ve MEE € E9EE BuLN}IesnueY| Sed B[914aA JOJO,
juawidinby uoneyodsues, OEE %6 %8T %8T %0 0 TOEE BulunjoeynueV| 2[914aA JOJO
quauodwo9 pue Suynyejnueyy JuauodwoD
‘gouelddy “uawdinb3 je911393)9 see %UL %UL el SL € 6see pue quawdinb3 |e914393]3 42430

qwauodulo);pue 9 9 ¥ ¥ Sulnyoejnuej| JuaWdinby je911399,
‘gouelddy uawdinb3 je91199)3 SEE %6T MTZ %8T %ST T SEE I. JNU! INby |e}. [4
juauodwop pue 9 5 5 5 Suinqyoeynuew,
‘aouelddy “uawdinbg je011393)9 see %0 %L *6 %0 0 TSE quawudinby 8uysr 91499913
e1payy |e21do pue sausey
yonpold 21401393/q pue Jayndwog vEE He %e %0 %0 1?) OvVEE Supnposday pue Suyinyseynueyy
Suynpeynuew syuawn.ysu|
yonpodd 2!U0439a/9 pue JayndwoD vEE %8Z %TE %8T %TE 6 SvEE Jo4ju0D pue ‘jes1pawi0s92/3
‘Buunseay ‘jeuonesiaen
Suinyejnuey|
pNpo4d 2!U0439a/9 pue JayndwoD vee ME GEE %90 SID cL vee quauodwio) 21U04393/3
JayiO pue J0}9Npuos!Was
onpodd 91U04398|9 pue Jayndwo: ¥ x y y Buyunyoejnuewn
JONPodd 310043991] pI a 2) vee %0 %0 %0 %0 0 eves quawidinb3 oapia pue olpny
onposd 21U0139a)9 pue Jayndwio; y Buympesnuenn
PNpPold 3/U04399)9 p' ul 2) vEE %6T WET %8T %vT v CEE quawidinb3 suonesiunuwo05

Zb-OLO% | EL-LLOZ | 7L-ZLOZ | LOZ vLoe
S99I}0N | apoo
i jeL apo; 16
AroB23e9 SIVN UBIG-E apoa Jo SOIVN 81981 8pOd SIVN H5IG-y

SOIVN Bulpuodseo5 y1BIG-€ Jo %

sequinn



Number of Covered Transactions

Covered Transactions by Sector (2009-2014)

80

60

: L
VA

50

40

30

20

10

2009 2010 2011 2012 2013 2014

—— Manufacturing <= Finance, Information, and Services

——Mining, Utilities, and Construction © —=Wholesale, Retail, and Transportation

Covered Transactions by Sector 2009-2014



SECTION II: CRITICAL TECHNOLOGIES

Introduction

This section of the Annual Report to Congress has been prepared in accordance with section
721(m)(3) of the Defense Production Act of 1950 (50 U.S.C. App. 2170(m)(3)), as amended.
Section 721(m)(3) requires the annual report to include:

(i) an evaluation of whether there is credible evidence of a coordinated strategy by one
or more countries or companies to acquire United States companies involved in
research, development, or production of critical technologies for which the United States
is a leading producer; and

(ii) an evaluation of whether there are industrial espionage activities directed or directly
assisted by foreign governments against private United States companies aimed at
obtaining commercial secrets related to critical technologies.

Subsection Il-A provides the assessment of the U.S. Intelligence Community (USIC) addressing
the requirement laid out in (i), and subsection II-B provides the assessment of the USIC
addressing the requirement laid out in (ii).

Definitions & Methodologies

The definition of “critical technologies’, which includes technologies subject to certain U.S.
export controls, is set forth in 31 C.F.R. § 800.209, Regulations Pertaining to Mergers,
Acquisitions, and Takeovers by Foreign Persons (the “CFIUS regulations”), published in the
Federal Register on November 21, 2008. See the Appendix for this definition. “Critical
technology companies” are U.S. companies that CFIUS identified for this section of the report
involved in research, development or production of critical technologies. The definition of
“coordinated strategy” for purposes of this section of the report follows below and is provided in
the Appendix, which also describes the methodology and data sources used to identify
transactions involving critical technology companies (“critical technology transactions”), and the
approach used to conduct the analyses required by Section 721 related to critical technologies.
Finally, the Appendix lists the agencies and other entities that participated in preparing this
section of the report.

The following is the definition of “coordinated strategy” used in the Annual Reports:

e Aplan of action reflected in directed efforts developed and implemented by a foreign
government, in association with one or more foreign companies, to acquire U.S. companies
with critical technologies. The efforts of a single company in pursuit of business goals,
absent indications of specific government direction, were not considered to be a coordinated
strategy. Individual company strategies encompass such business goals as: entry into the
U.S. market; increased market share, increased sales, access to new technologies, and
diversification out of mature industries.

28


F. Perceived Adverse Effects of Covered Transactions

Section 721(m) requires that this Annual Report include a discussion of all perceived adverse
effects of covered transactions on the national security or critical infrastructure of the United
States that the Committee will take into account in its deliberations during the period before
delivery of the next report, to the extent possible. In reviewing a covered transaction, CFIUS
evaluates all relevant national security considerations identified by its members during the
review and does not conclude action on a covered transaction if there are unresolved national
security concerns.

As discussed in the Guidance Concerning the National Security Review Conducted by CFIUS,
which CFIUS published in the Federal Register on December 8, 2008, the transactions that
CFIUS had thus far reviewed presented a broad range of national security considerations.
CFIUS examines the national security considerations to determine whether, in light of the
specific facts and circumstances related to the transaction, the transaction would adversely
affect national security and pose a national security risk. Among the considerations presented
by transactions reviewed by CFIUS are the following:

e Foreign control of U.S. businesses that:

= Provide products and services to an agency or agencies of the U.S. Government, or
state and local authorities that have functions that are relevant to national security.

= Provide products or services that could expose national security vulnerabilities,
including potential cyber security concerns, or create vulnerability to sabotage or
espionage. This includes consideration of whether the covered transaction will
increase the risk of exploitation of the particular U.S. business's position in the
supply chain.

= Have operations, or produce or supply products or services, the security of which
may have implications for U.S. national security, such as businesses that involve
infrastructure that may constitute critical infrastructure; businesses that involve
various aspects of energy production, including extraction, generation, transmission,
and distribution; businesses that affect the national transportation system; and
businesses that could significantly and directly affect the U.S. financial system.

= Have access to classified information or sensitive government or government
contract information, including information about employees.

= Are in the defense, security, and national security-related law enforcement sectors.

= Are involved in activities related to weapons and munitions manufacturing,
aerospace, satellite, and radar systems.

= Produce certain types of advanced technologies that may be useful in defending, or
in seeking to impair, U.S. national security, which may include businesses engaged
in the design and production of semiconductors and other equipment or components
that have both commercial and military applications, or the design, production, or
provision of goods and services involving network and data security.

= Engage in the research and development, production, or sale of technology, goods,
software, or services that are subject to U.S. export controls.

= Are in proximity to certain types of USG facilities.

e Acquisition of control by foreign persons that:
= Are controlled by a foreign government.
= Are from a country with a record on nonproliferation and other national security-
related matters that raises concerns.

25


A. Information on 2014 Covered Transactions

The classified version of this report contains a table listing all 147 notices of transaction that
were filed with CFIUS in 2014 and that CFIUS determined to be covered transactions under
section 721. It sets forth information on the acquirer and the U.S. business acquired, including
the nature of their business activities or products, and details on any withdrawal.

e CFIUS conducted a “review” with respect to the 147 notices of covered transactions
filed with CFIUS.

e CFIUS also conducted a subsequent “investigation” with respect to 52 of those 147
notices.

e Twelve of the 147 notices were withdrawn. In one of these cases, the parties filed a
new notice, in 2015.

e One of the 147 notices was rejected during the review or investigation.


SECTION I: COVERED TRANSACTIONS

Introduction

This section of the CFIUS Annual Report to Congress has been prepared in accordance with
section 721(m) of the Defense Production Act of 1950 (50 U.S.C. App. 2170), as amended by
the Foreign Investment and National Security Act of 2007, or “FINSA” (Pub. L. No. 110-49).
Section 721(m)(2) requires the annual report on covered transactions to provide:

A. A list of all notices filed and all reviews or investigations completed during the
period, with basic information on each party to the transaction, the nature of the
business activities or products of all pertinent persons, along with information
about any withdrawal from the process, and any decision or action by the
President under this section.

B. Specific, cumulative, and, as appropriate, trend information on the numbers of
filings,’ investigations, withdrawals, and decisions or actions by the President
under this section.

C. Cumulative and, as appropriate, trend information on the business sectors
involved in the filings which have been made, and the countries from which the
investments have originated.

D. Information on whether companies that withdrew notices to the Committee in
accordance with subsection (b)(1)(C)(ii) have later re-filed such notices, or,
alternatively, abandoned the transaction.

E. The types of security arrangements and conditions the Committee has used to
mitigate national security concerns about a transaction, including a discussion of
the methods that the Committee and any lead agency are using to determine
compliance with such arrangements or conditions.

F. A detailed discussion of all perceived adverse effects of covered transactions on
the national security or critical infrastructure of the United States that the
Committee will take into account in its deliberations during the period before
delivery of the next report, to the extent possible.

‘For purposes of this Annual Report, “filings” means notices filed under section 721.


vb

uonewodsues, ’ > » quawasueuy
404 salwainoy ywoddns 88 OT %0 %0 %0 0 S88y uoneyvodsuels yy8Ia14
uonewodsues, » uoneyodsues
Joy saiwanoy ywoddns 88 Oe %8E %0s Ed s e8ay JayeM J0J SaAloy Yoddns
uoleyodsues, “629 °%0S 9 uonewodsuess
JO salpanoy woddns ald %OL % %0 %8E € T987 Aly 404 sanianoy woddns
uoneyodsues! aujadig 98 %0S %O %O %0 0 698r uonepyodsues! auljadid 42410
sep
uoneyod:
Weyodsues| aurjadid 980 %0S %0S %0S %00T T 7980 Jesnyen Jo uoeyodsues ausjadig
uoneyodsues) auljadid 98v %O %0S %OS %O 0 T98p | 110 apnig jo uoneyodsues auyjadid
uonevodsues, > 5 9 9 5 he
JaBuasseg punosg pue ysuedL S8v %00T %0 %0 %0 0 TS87 luaysAs ysues| UegIl)
uonewodsues sae
uonevodsuess 1312 €8v %O0T | %00T | %00T | %00T T TEBP | 5407 e0I9 pue erse09 “eas daag
uoneyodsued| ay T8v %00T %O %0 %O 0 z18v uoneyodsuess J1y pajnpayssuon
spooy sajqeunpuon SJa[esa}OUM JeYdIIA
‘ssajesajouM JUeYydJa/\ ven %L9 %L9 %09 %L9 z tye syonpoig wWinajosjadg pue wNajosjed
spooy sajqeunpuon Sda[esajOuM JeYydaI
‘siajesajouM JUeYydJa/\| ven EE EE 60h wee v sver Jevare mey jonposg wed
spooy suajesajoumM jueyday| saljddns
a]qeing ‘suajesajoymM jueyuE|\| _ #EE LT %0 %0 9 BECP pue “Wuawdinb3 ‘Aauiysey|
spoo5 ssajesajoyM JUeYydaAl
‘ ety HEE %0S ALI %O 0 9€tr SPOO9 3!U04}99/9 pue e914}99/9
ageing ‘suajesajoym queYyraA, pue seoueiiddly plouasnoy
spoop suajesajoum,
aiqeang ‘suajesajoum queyouay) ety %EE %EE HEE %0 0 veey queydiayyj saljddns pue yuawdinby
Jelo4aWWOD pue jeUdIssajsord
ZL-OL0Z | Eb-LLO% | pb-zboz | vloz | vb0e
Bid- SIVN S89I}0N | epoo s
MoBeyxe9 SIN uBIG-¢ ubia-¢ apoo 40 SOIWN 81421 @POD OIVN H6IG-y

SOIWN Bulpuodseus09 y161G-¢ 30 %

4equinn



C. Covered Transactions by Business Sector and Country
1. Covered Transactions by Business Sector of U.S. Companies: 2009-2014

The notices of covered transactions filed with CFIUS during the 2009 to 2014 period involved a
wide range of industrial sectors.? Nearly three quarters of such notices were in the
manufacturing (257, or 41 percent) and the finance, information, and services sectors (201, or
32 percent). The remainder of notices were in the mining, utilities, and construction sector (116,
or 19 percent) or the wholesale, retail, and transportation sector (53, or eight percent). These
figures, and those in the tables below and in Section |.C.2 of this report, reflect the number of
notices filed with CFIUS as required by statute and are not adjusted to account for the fact that
some transactions were the subject of more than one notice, where the original notice was
withdrawn and then re-filed, as discussed in Section |.D of this Annual Report.

The table and chart below provide a breakdown by sector and by year of the 627 notices of
covered transactions cumulatively filed with CFIUS from 2009 through 2014. The data below
show that just as in 2013, the greatest number of filings in 2014 occurred in the manufacturing
sector followed by the finance, information, and services sector. The percentage of notices in
the manufacturing sector decreased in 2013 (from 39 percent to 36 percent), but rose
significantly in 2014 (from 36 percent to 47 percent). The percentage of notices in the finance,
information, and services sector decreased from 2013 to 2014 (from 33 percent to 26 percent).
The percentage of notices in the mining, utilities, and construction sector decreased slightly
from 2013 to 2014 (from 21 percent to 17 percent), although the number of filings increased
(from 20 filings to 25). Wholesale, retail, and transportation remained constant at 10 percent of
notices, but the number of filings increased by five notices from 2013 levels.

Covered Transaction by Sector and Year, 2009-2014
Finance. crn
ct Mining, Utilities, Wholesale,

Year Manufacturing Promenon and Retail, and Total

Seniices Construction Transportation
2009 21 (32%) 22 (34%) 19 (29%) 3 (5%) 65
2010 36 (39%) 35 (38%) 13 (14%) 9 (10%) 93
2011 49 (44%) 38 (34%) 16 (14%) 8 (7%) 111
2012 47 (39%) 36 (33%) 23 (20%) 8 (7%) 114
2013 35 (36%) 32 (33%) 20 (21%) 10 (10%) 97
2014 69 (47%) 38 (26%) 25 (17%) 15 (10%) 147
Total 257 (41%) 201 (32%) 116 (19%) 53 (8%) _ 627

Table I-3: Covered Transactions by Sector and Year, 2009-2014

? Broad sectors are defined using 2012 North American Industry Classification System (NAICS) codes of the target
company. The NAICS code assigned to each target company is based upon information provided in the notice.


Table I-10 shows the concentration of notices by country in each of four industry sectors from
2012 through 2014. Overall, manufacturing accounted for 42 percent of all notices from 2012 to
2014, the finance, information, and services (FIS) sector accounted for 30 percent, the mining,
utilities, and construction (MUC) sector accounted for 19 percent, and the wholesale, retail, and
transportation (WRT) sector accounted for nine percent. Notices from China, Japan, and the
United Kingdom, which accounted for 42 percent of the notices from 2012 to 2014, were
generally consistent with this overall distribution across sectors.

By contrast, French, German, Israeli, and Swiss notices were more heavily concentrated in the
manufacturing sector (57, 59, 80, and 87 percent, respectively). Australian, German, Dutch,
and South Korean notices were more heavily concentrated in the FIS sector (43, 41, 60, and 40
percent, respectively). Australian and Canadian notices were more heavily concentrated in the
MUC sector (43 and 50 percent, respectively). Finally, Canadian and Singaporean notices were
more heavily concentrated in the WRT sector (25 and 27 percent, respectively).

20


COMMITTEE ON
FOREIGN INVESTMENT
IN THE UNITED STATES

ANNUAL REPORT

TO CONGRESS

Report Period: CY 2014

PUBLIC/UNCLASSIFIED VERSION



% of Total FIS

Finance, Information, and NAICS | Number of
Services (FIS) Code | Notices 2014 | 2944 | 2012-14 | 2011-13 | 2010-12

interned Industries (except 511 9 24% 12% 11% 16%
Motion Picture and Sound 512 0 0% 1% 1% 1%
Recording Industries
Telecommunications 517 3 8% 10% 13% 12%
Data Processing, Hosting, and 2) 5) 6) 9,
Related Services 518 4 $e ad 2h a
Other Information Services 519 1 3% 2% 1% 1%
Credit Intermediation and Related ij 5 3) 6
Activities 522 0 0% 2% 3% 2%
Securities, Commodities Contracts,
and Other Financial Investments 523 1 3% 1% 2% 3%
and Related Activities
Real Estate 531 11% 7% 4% 4%
Rental and Leasing Services 532 5% 7% 6% 1%
Professional, Scientific, and ny 9) 0 9
Technical Services 541 14 37% 46% 52% 54%
Administrative and Support Staff 561 2 5% 6% 5% 5%
Waste Management and 0) 4 ey 9
Remediation Services 562 1 3% 1% 1% 1%
Repair and Maintenance 811 1°) 0% 1% 1% 1%

Table I-5: Covered Transactions from the Finance, Information, and Services Sector 2014



Manufacturing Sector

Manufacturing accounted for 47 percent (69 notices) of all notices filed with CFIUS during 2014.
The computer and electronic products subsector continued to be the largest subsector of the
manufacturing notices with 29 (42 percent). Other significant subsectors were the machinery
and the transportation equipment subsectors with nine notices each. The chemical subsector
experienced a rise in notices of seven percent (from three percent of total manufacturing notices
in 2013 to 10 percent in 2014).

a é

peers NAICS Number of % of Total Manufacturing

a Code | Notices 2014 | 2014 | 2012-14 | 2011-13 | 2010-12

Food Manufacturing 311 0 0% 1% 1% 0%
Textile Mills 313 1 1% 1% 0% 0%
Textile Product Mills 314 0 0% 1% 1% 2%
Leather and Allied Product
Manufacturing 316 0 0% 1% 1% 1%
Printing and Related Support
Activities 323 1 1% 1% 0% 0%
Petroleum and Coal Products 324 t 1% 1% 1% 1%
Chemical 325 7 10% 7% 3% 5%
Plastics and Rubber Products 326 5 7% 5% 2% 0%
Nonmetallic Mineral Products 327 1 1% 1% 1% 0%
Primary Metal 331 0 0% 0% 1% 1%
Fabricated Metal Product 332 di 1% 5% 6% 3%
Machinery 333 9 13% 14% 12% 9%
Computer and Electronic Product 334 29 42% 44% 48% 50%
Electrical Equipment, Appliance, 4 6%
and Component 335 7% 11% 11%
Transportation Equipment 336 9 13% 11% 13% 18%
Miscellaneous 339 1 1% 1% 1% 1%

Table I-4: Covered Transactions from the Manufacturing Sector 2014

Finance, Information, and Services Sector

The finance, information, and services sector accounted for 26 percent (38 notices) of all
notices filed with CFIUS during 2014. Professional, scientific, and technical services continued
to make up the majority of the notices filed in this sector (14 notices). The publishing industries
subsector experienced the largest percent increase in filings (from six percent of total
manufacturing notices in 2013 to 24 percent in 2014) and the second largest number of notices
in 2014 (nine notices). The rental and leasing services had the largest percent decrease with
only two notices in 2014 (from 16 percent of total manufacturing notices in 2013 to only five
percent in 2014).


o CFIUS agencies concentrated on foreign direct investment through M&A of
companies involved in all critical technologies, regardless of industry.

o CFIUS agencies did not attempt to evaluate issues relating to other avenues of
foreign access to U.S. critical technologies, such as licensing, contracting, or
other arrangements that are not M&A transactions.

e Assessing illicit attempts by government intelligence services of major economic
competitors to obtain military and dual-use critical technologies.

o CFIUS agencies did not attempt to evaluate foreign espionage in areas other
than dual-use, military, or other U.S. critical technologies, or against companies
not headquartered in the United States.

o Inaddition, CFIUS agencies reviewed available information about other countries
that have historically sought information on critical technologies through the use
of those countries’ intelligence services.

D. Defining “Coordinated Strategy” for Purposes of Section Il of this Annual Report
CFIUS agencies continue to use the following definition of “coordinated strategy”:

e Aplan of action reflected in directed efforts developed and implemented by a foreign
government, in association with one or more foreign companies, to acquire U.S.
companies with critical technologies. The efforts of a single company in pursuit of
business goals, absent indications of specific government direction, were not considered
to be a coordinated strategy. Individual company strategies encompass such business
goals as: entry into the U.S. market; increased market share, increased sales, access to
new technologies, and diversification out of mature industries.

o Examples of suspect behaviors that could be evidence of a coordinated strategy
include:

= A pattern of actual or attempted acquisitions of U.S. firms by foreign
entities;

= Evidence that specific completed or attempted acquisitions of companies
with critical technologies had been ordered by foreign governments or
foreign government-controlled firms; or

= The provision of narrowly targeted incentives by foreign governments or
foreign-controlled firms (e.g., grants, concessionary loans, or tax breaks),
especially those that appear to market observers to be disproportionately
generous, to acquire U.S. firms with critical technologies.

E. Participating Agencies and Entities — Critical Technologies Section Il

e Department of Commerce

o Bureau of Industry and Security

o International Trade Administration

o National Telecommunications and Information Administration
e Department of Defense — Defense Technology Security Administration
e Department of Justice
e Department of State

o Bureau of Economic and Business Affairs

o Bureau of Political-Military Affairs

o Bureau of International Security and Nonproliferation
e Department of the Treasury

39


11) such other factors as the President or the Committee may determine to be appropriate
generally or in connection with a specific review or investigation.

In the transactions that CFIUS will review during the next reporting period, it will continue to take
into account the national security considerations noted above. CFIUS will consider whether the

transactions may have the above-listed or any other adverse effects in determining whether the

transactions pose national security risk.

27


= Have historical records of taking or intentions to take actions that could impair U.S.
national security.

CFIUS reviews all relevant national security considerations and the particular facts and
circumstances of transactions to determine whether the transaction will pose a national security
tisk. Among the factors that CFIUS takes into account are the following, listed in section 721(f)
of the Defense Production Act of 1950:

1)
2)

domestic production needed for projected national defense requirements;

the capability and capacity of domestic industries to meet national defense
requirements, including the availability of human resources, products, technology,
materials, and other supplies and services;

the control of domestic industries and commercial activity by foreign citizens as it affects
the capability and capacity of the United States to meet the requirements of national
security;

the potential effects of the proposed or pending transaction on sales of military goods,
equipment, or technology to any country —

a. identified by the Secretary of State —

i. under section 6(j) of the Export Administration Act of 1979, as a country
that supports terrorism;
ii. under section 6(l) of the Export Administration Act of 1979, as a country
of concern regarding missile proliferation; or
iii. under section 6(m) of the Export Administration Act of 1979, as a country
of concern regarding the proliferation of chemical and biological weapons;

b. identified by the Secretary of Defense as posing a potential regional military
threat to the interests of the United States; or

c. listed under section 309(c) of the Nuclear Non-Proliferation Act of 1978 on the
“Nuclear Non-Proliferation-Special Country List” (15 C.F.R. Part 778, Supplement
No. 4) or any successor list;

the potential effects of the proposed or pending transaction on United States
international technological leadership in areas affecting United States national security;
the potential national security-related effects on United States critical infrastructure,
including major energy assets;

the potential national security-related effects on United States critical technologies;
whether the covered transaction is a foreign government-controlled transaction, as
determined under subsection (b)(1)(B) of section 721;

as appropriate, and particularly with respect to transactions requiring an investigation
under subsection (b)(1)(B) of section 721, a review of the current assessment of—

a. the adherence of the subject country to nonproliferation control regimes,
including treaties and multilateral supply guidelines, which shall draw on, but not
be limited to, the annual report on “Adherence to and Compliance with Arms
Control, Nonproliferation and Disarmament Agreements and Commitments,”
required by section 403 of the Arms Control and Disarmament Act

b. the relationship of such country with the United States, specifically on its record
on cooperating in counter-terrorism efforts, which shall draw on, but not be
limited to, the report of the President to Congress under section 7120 of the
Intelligence Reform and Terrorism Prevention Act of 2004; and

c. the potential for transshipment or diversion of technologies with military
applications, including an analysis of national export control laws and regulations;

10) the long-term projection of United States requirements for sources of energy and other

critical resources and materials; and

26


B. Specific, Cumulative, and Trend Data on Covered Transactions,
Withdrawals, and Investigations

In the years 2009 through 2014, companies filed 627 notices of transactions that CFIUS
determined to be covered transactions under section 721. About three percent (20 notices) of
such notices were withdrawn during the review stage, eight percent (47 notices) were withdrawn
during the investigation stage, and 39 percent (244 notices) resulted in an investigation.
Withdrawals of notices are a function of the specific facts and circumstances of the particular
transactions reviewed by the committee and are not indicative of a trend.

There continues to be a general upward trend between 2009 and 2014 in the number of notices
filed with CFIUS. As shown in Table I-2, the number of notices increased from 65 in 2009 to
147 in 2014 and only decreased once, in 2013 with 97 notices. While the percentage of notices
proceeding to investigation increased between 2012 and 2013 from 39 percent to 49 percent,
due in part to a temporary suspension of government operations in October 2013, the
percentage of notices proceeding to investigation decreased to 35 percent during 2014.

Apart from the general correlation between the number of notices and macroeconomic
conditions, the information in the table below is not indicative of any discernible trends. CFIUS
considers each transaction on a case-by-case basis, and the disposition of any particular case —
be it withdrawal from review or investigation, closing in review or investigation, or Presidential
decision — depends on the unique facts and circumstances of that case.

Covered Transactions, Withdrawals, and Presidential Decisions*
2009-2014
Year [of | withdrawn | ,,Numberof | after Commencement | Presidential
Notices | During Review of Investigation
2009 65 5 25 2 0
2010 93 6 35 0
2011 111 1 40 5 0
2012 114 2 45 20 1
2013 97 3 48 0
2014 147 3 51 0
Total 627 20 244 47 1

*Please see Section 1-D below for discussion of reasons parties may seek to withdraw a notice.

Table I-2: Covered Transactions, Withdrawals, and Presidential Decisions 2009-2014


Zb

vL0z-0L0z ‘sejuedwiog *s'f Jo 10}98g ssoulsng Aq suooesUes) pasaAod :g-| B1Ge 1,

aoueuaquleyy pue
dieday (21U01399]9 pue aanowoyny
s0URUaIUIe| ue eda) 9 *
NeW pue sieday tre | oor | %oor | soot | %o | 0 | etre | ioe cowambs pue ounce
Jelaysnpuy pue jelnsauwo0>
UOHJEPOWWOIY JajaAes | TZZ %0 %0 %00T %OOT T REEL uolepowWwossy JajaAes]
S@dIMaS UOI]eIPaWaY
pue juaueSeuewy aisenn zos_| %0or | soot | %o0r |%oor| tT zz9s lesodsig pue quauneasy aisem,
yeis uoddns pue annensuiwpy | 19s | %es | oor | %TZ | %0 | 0 | 9195 | SaDinieg Atinoas pue uonesnsonu|
zi-ob0z | el-bvoz | ri-ztoz | vroz | _vboz
AoBeye9 OIVN WBIC-E hd @po9 Seager | Gaia 21ge1 POD SIVN IBIa-y

SOIVN Bulpuodsa.og 16IG-¢ 30 %

Jequinn



procedures that CFIUS agencies have put in place for transactions that are not
notified to CFIUS.

B. Study Methodology
1. Identification of Relevant Countries

To identify relevant countries that comply with any boycott of Israel, as required by the statute,
CFIUS considered the lists published by the Treasury Department in 2014 pursuant to section
999 of the Internal Revenue Code and the countries identified by the Department of State in
reporting to Congress during 2014 under section 564 of the Foreign Relations Authorization Act,
FY 1994-95, as well as information about the countries’ observance of a primary boycott of
Israel. Based on these considerations, CFIUS interprets the reporting requirement under
section 7(c)(1)(A) of FINSA to apply to the following countries: Algeria, Iran, Kuwait, Lebanon,
Libya, Qatar, Saudi Arabia, Sudan, Syria, the United Arab Emirates, and Yemen®

To identify relevant countries that do not ban foreign terrorist organizations, CFIUS interpreted
section 7(c)(1)(B) of FINSA to apply to countries that were certified in 2014 as “not cooperating
fully with United States antiterrorism efforts,” pursuant to section 40A of the Arms Export Control
Act, as amended. Those countries are Cuba, Eritrea, Iran, North Korea, Syria, and Venezuela.®

2. Scope of FDI

Mergers with and acquisitions of U.S. companies are the main form of FDI into the United
States and the form of FDI that CFIUS is authorized under section 721 to review. This section
of the Annual Report considers the following transactions: (i) transactions notified to CFIUS
under section 721; (ii) M&A transactions that were not notified to CFIUS (non-notified
transactions) that CFIUS agencies considered through procedures that each agency has
adopted for this purpose; and (iii) those M&A transactions that resulted in an ownership stake in
a U.S. company of at least 10 percent,"° as listed the Thomson ONE database, which is a
recognized financial database.

° Thomson ONE database: This database is a product of Thomson Reuters. The
information on transactions provided in the database includes the date of the
transaction, the respective countries of origin of the acquirer and the target company,
and the sector of the target company.

In most cases, the database provides the transaction value and the percentage of ownership
tights acquired through the transaction and, in some cases, the acquirer’s total ownership stake
after the transaction. The transactions considered for this section of the Annual Report

° Cuba remained on the list in 2014, the year covered by this report, even though it was not on the list published on
May 27, 2015.

'° EDI is generally understood to imply ownership of at least 10 percent, a benchmark used by many statistical
agencies around the world, including the Department of Commerce’s Bureau of Economic Analysis, the Council of
Economic Advisors (Economic Report of the President), the International Monetary Fund, and the Organization for
Economic Cooperation and Development. As noted in the description of the Thomson ONE database, these
information sources did not always provide information regarding the acquirer's total ownership stake in the U.S.
company after the transaction. Therefore, some of the transactions covered by this review may be portfolio
investments rather than FDI.

34


excluded those that the Thomson ONE database shows resulted in an ownership stake in a
U.S. company of less than 10 percent, where data on the interest acquired was available.

C. Detailed Findings

1. Identification of the Subject M&A Transactions

The study identified eight completed M&A transactions in CY 2014 by investors from countries
that comply with any boycott of Israel. These transactions involved investors from Bahrain,
Oman, Qatar, Saudi Arabia, and the United Arab Emirates.

The study did not find any subject M&A transactions by investors from Cuba, Iran, Syria or
Venezuela, which are countries identified in 2014 as not cooperating fully with U.S. antiterrorism
efforts and which were subject to stringent economic sanctions during the relevant period.

The combined value of the five identified transactions with reported values is approximately $2.8
billion. Thomson ONE reports M&A transaction value only in those cases in which the
companies announce the value publicly. Thomson ONE did not report, and Treasury staff was
unable to determine independently, values for three of the eight transactions analyzed in this
section of the Annual Report. The value of the eleven total transactions, therefore, is
necessarily greater than $2.8 billion. Figure IIl-1 shows the number and aggregate value of the
transactions for each of the relevant countries:

Country Number of Transactions Arena enliicas Malis
United Arab Emirates 3 $2,267.1
Qatar 2 $518
Saudi Arabia 1 $7.7
Bahrain 1 N/A
Oman 1 $53
Total 8 $2,845.8

Table Ill-1: Aggregate Value of Transactions

The subject M&A transactions span several major sectors of the economy. Figure IIl-2 shows
the industries represented by the eight transactions, noting both the number and value of
transactions for each sector. Transactions in the manufacturing sector — the largest category
represented — include transactions in the renewable energy manufacturing industry.

35


E. Mitigation Measures

From 2012 through 2014, 29 cases (eight percent) resulted in the use of legally binding
mitigation measures. In 2014, CFIUS mitigation measures were applied to nine different
covered transactions (six percent of total 2014 transactions). These measures involved
acquisitions of U.S. companies engaged in the software, services, and technology industries.
Five CFIUS agencies served as the U.S. Government (USG) signatories to these measures.

The Committee has adopted procedures to evaluate and ensure that parties to a covered
transaction remain in compliance with any risk mitigation measure under section 721 that
CFIUS negotiates with or imposes on the parties. For all mitigation measures executed since
FINSA became effective, Treasury, as Chair of CFIUS, has designated each USG signatory to a
mitigation measure as a lead agency for monitoring compliance with that measure. Lead
agencies carry out their monitoring responsibilities on behalf of the Committee and report back
to the Committee on at least a quarterly basis. In addition, signatories to mitigation measures
that were entered into before FINSA’s effective date also report to CFIUS quarterly on
compliance with those measures. As described below, all lead agencies for monitoring
mitigation compliance have implemented processes to carry out their responsibilities.

Mitigation measures negotiated and adopted in 2014 required the businesses involved to take
specific and verifiable actions, including, for example:

e Ensuring that only authorized persons have access to certain technology and
information.

e Establishing a Corporate Security Committee and other mechanisms to ensure
compliance with all required actions, including the appointment of a USG-approved
security officer or member of the board of directors and requirements for security
policies, annual reports, and independent audits.

e Establishing guidelines and terms for handling existing or future USG contracts, USG
customer information and other sensitive information.

e Ensuring only U.S. citizens handle certain products and services, and ensuring that
certain activities and products are located only in the United States.

e Notifying security officers or relevant USG parties in advance of foreign national visits to
the U.S. business for approval.

e Notifying relevant USG parties of any awareness of any vulnerability or security
incidents.

e Providing the USG with the right to review certain business decisions and object if they
raise national security concerns.

CFIUS agencies use a variety of means to monitor and enforce compliance by the companies
that are subject to the measures, including:

periodic reporting to USG agencies by the companies;

on-site compliance reviews by USG agencies;

third-party audits when provided for by the terms of the mitigation measures;
investigations and remedial actions if anomalies or breaches are discovered or
suspected.

23


TABLE OF CONTENTS

Section I: Covered Transactions
Introduction
A. Information on 2014 Covered Transactions
B. Specific, Cumulative, and Trend Data on Covered Transactions,
Withdrawals, and Investigations

C. Covered Transactions by Business Sector and Country
1. Covered Transactions by Business Sector of U.S. Companie:
2009-2014 7

2. Covered Transactions by Country or Economy: 2011-2014 18

D. Withdrawn Notices ....
E. Mitigation Measures ..
F. Perceived Adverse Effects o

Section Il: Critical Technologies
Introduction.
Definitions ani
A. Whether There Is Credible Evidence of a Coordinated Strategy to
Acquire Critical Technology Companies
1. Key Judgments...
2. Summary of Foreign
3. Frequency of Activity by Countries/Economies and Companies....

B. Whether Foreign Governments Used Espionage Activities to
Obtain Commercial Secrets Related to Critical Technologies.
1. Key Finding

Section Ill: Foreign Direct Investment in the United States by Countries that Boycott

Israel or Do Not Ban Terrorist Organizations

Introduction

A. Summary of Findings and Conclusions.

B. Study Methodology
1. Identification of Relevant Countries
2. Scope of FDI....

C. Detailed Findings.
1. Identification of the Subject M&A Transactions .

2. National Security Effects of the Subject M&A TrANSActions.....scccssssssssssssvssssensssenssseee 36
Appendix
A. Definition of “Critical Technologies” 0.0.0.2... cee eee eeeeeeseeeeeeseeeeeeeseeeseceeeeseeeetetageeneeeeneneneee 37

B. Methodology and Data Sources Used to Identify U.S. Critical

Technology Companies Acquired by Foreigners
C. Analyzing the Acquisitions of U.S. Critical Technology Companies
D. Defining “Coordinated Strategy” for Purposes of Section II of this Annual Repo:
E. Participating Agencies and Entities — Critical Technologies Section Il ..........c cece



Intelligence Community Elements

°

oo0000000000

ooo°0

Office of the Director of National Intelligence, National Intelligence Council

Air Force Office of Special Investigations

Army Counterintelligence Center

Central Intelligence Agency

Defense Intelligence Agency

Federal Bureau of Investigation, National Security Branch

Department of Energy, Office of Intelligence and Counterintelligence
Department of Homeland Security, Office of Intelligence and Analysis
Department of State, Bureau of Intelligence and Research

Department of the Treasury, Office of Intelligence and Analysis

Marine Corps Intelligence Activity

Office of the National Counterintelligence Executive, Community Acquisition Risk
Section

National Counterterrorism Center

National Geospatial-Intelligence Agency

National Security Agency

Naval Intelligence (Office of Naval Intelligence and Naval Criminal Investigative
Service)

Executive Office of the President

°
°
°

Council of Economic Advisors
National Security Council
Office of Science and Technology Policy

40


OL

Bununyoeynue|
onpoid paljiy pue ayeay Ole %00T %OOT %00T | %0 0 ZOE Buynjeynuep| 1eaMjoo4
SIMI NO, aXe L ve %00T %00T %O0T | %O 0 6vTE SII. YONpoAd AIx2 49410
SIN NO aAXeL ve %0 %0 %0 %0 0 Tle SI s8urysiusng 91x21
SI 219%21. ee %0 %0 %OOT | %OOT T eele pue susie nue 2 SL
Bulinqoejnue|| poo4 TLE %0 %00T %00T | %0 0 9TTE | Bulssad01q pue Susaiysnels jeUlUY
ssoqoesuoa apes Ayelsads Bez %OOT %OS %OS | %OOT T 78€Z $10y9eJUOD Juawdinby Bu!pling
$10y9e1]UOD apes Ayesads 8éz %0 %OS %0S %O () T8EZ | suipyng pue ‘a inne ‘uowepunes
uoljan4ysuoD uolqjanijsuo>y
Sulaeaulsuq |IAIp pue Aneay ez *SC %0 %0 %*0 0 LEC Bujsaaui3uq [AID pue Aneay 4JauioO
uolonsysuoz
Sun90uI3u3 [AID pue Aneay LEZ %SL %00T %O0T | %O 0 TLEZ uorjonsysuoy wayshs Aq
SBuIp|INg Jo UoINAysUOD 9€7 %0 %OOT %OOT | %OOT T 79EZ neanaieied
Sulpling jeuUapIsasUON
Te %L %2T %IT %8 T €Tzz | swayshs 19419 pue ademas ‘aie
Tez %1Z %6 %IT | %BE S 712z uornguasiq se jesnyen
vee | wre | vee | wee [ows | 2 | ree | Womtaila pve vossusue,
BULLI] 104 saIWANdy Yoddns €1z %OOT %OOT %OOT %0 0 TET? BuIUlI| 404 saiAnoy Yoddns
(sed pue [10 3daoxa) BUI, wz %OOT %00T %06 %LO z @Z1Z BULLI 210 [212
(se pue [10 3daoxa) SUI, wz %0 %O %OT WEE T TZ1Z BU!UII| [20D
WoNDeJ7Xy SED pue 10 TIZ %O0T %OOT %00T | %0OT S TILZ wonsesyxq Sed pue [10
sjonpodd Jaquil, Mey €IL %0 %0 %00T | %00T z TELT suonesedo y9e4) JOQuILL
ZL-OL0z | EL-LLOZ | vL-zL0z | voz | loz
AioBeye9 OIWN UBIC-£ rae poo eee ani 21921 @poD OIVN HBIG-y

SOIVN Bulpuodsaiog 3161G-¢ 40 %

sequinn



(a)

jonposg 3U0ND2I3 pue seyndwo | EE “8 %S ws | wet | ob Tee vleraudnca pu sayndiaes
Suiinyseynue
Aaulyoe, eee %8 %ET %0T %0 () 6EEE | Asuryoeyy asodung lelousy sotto
Bulnyoejnuey|
Maule eee xa %LY %62 | %2Z z 9Eee quawidinby uojss}wisues,
Jamog pue ‘auiquny ‘auiguq
Bununyoeyn
Asauiyoe eee %8 %ET %OT %0 0 GEeE Arauryew Supaomesya
Bununyoeynue|
uawdinby uolesa814J9)
Aauiyoew eee %O %0 %S IT I vEEEe rejosauswuos ue Guuonspue
aay ‘Buneay ‘uonejnua,,
Buynyoeynueyy A.
Aaulysew eee %ST HL wv %bv v eee Agsnput somaoe pue fepnauiuey
Suyunyoeyn
Asauiyse eee %LT %07 ve %CT a CEEE Aounpen Tempe
Suyinyoejnuew Asaulyseyy Bulut
Aaulysew eee %0 %0 %0 %0 10) TEE ‘ pue ‘uononneuon vaimnoudy
Suyunyoejnue|
JNpodg [EW pazeouge4 cee %ST %ET WET %O0T T 67EE yonpoug e219) poeenges tour
Bulnyoejnuey|
JNpodd |e) pazeouge4 cee %SL %ED REV %0 0 LUE 40g 9g “INN ‘Masog pue
Qonposdg pausny ‘sdoys auryseyw)
3
yNpodd [B19] payedugey tee %O %ET %vT %O0 0 vee Suiddjus pue “ques “saneq
ZL-OL0Z | EL-LL0z | vl-zL0z | Loz | vboe
fao6 : OIVN Seo}}0N | epoo
lobayed SIVN HOIG-€ uBia-¢ apo Jo SOIVN 81921 2POD SIVN UBIG-y

SOIVN Bulpuodsesog y61G-€ 10 %

4equinn



This page intentionally left blank.


SECTION |

: FOREIGN DIRECT INVESTMENT IN THE UNITED

STATES BY COUNTRIES THAT BOYCOTT ISRAEL OR DO NOT
BAN TERRORIST ORGANIZATIONS

Introduction

This section of the CFIUS Annual Report to Congress has been prepared in accordance with
section 7(c) of FINSA, which provides:

(1) STUDY REQUIRED.—Before the end of the 120-day period beginning on the date of
enactment of this Act and annually thereafter, the Secretary of the Treasury, in
consultation with the Secretary of State and the Secretary of Commerce, shall conduct a
study on foreign direct investments in the United States, especially investments in critical
infrastructure and industries affecting national security, by—
(A) foreign governments, entities controlled by or acting on behalf of a foreign
government, or persons of foreign countries which comply with any boycott of
Israel; or
(B) foreign governments, entities controlled by or acting on behalf of a foreign
government, or persons of foreign countries which do not ban organizations
designated by the Secretary of State as foreign terrorist organizations.

(2) REPORT.—Before the end of the 30-day period beginning upon the date of
completion of each study under paragraph (1) and thereafter in each annual report under
section 721(m) of the Defense Production Act of 1950 (as added by this section), the
Secretary of the Treasury shall submit a report to Congress, for transmittal to all
appropriate committees of the Senate and the House of Representatives, containing the
findings and conclusions of the Secretary with respect to the study described in
paragraph (1), together with an analysis of the effects of such investment on the national
security of the United States and on any efforts to address those effects.

A. Summary of Findings and Conclusions

33

e Mergers with and acquisitions of U.S. companies (M&A), the main form of foreign
direct investment (FDI) into the United States, by investors from the countries
described in section 7(c)(1) of FINSA that were completed between January 1, 2014,
and December 31, 2014 (CY 2014) (“subject M&A transactions”), represent a small
percentage of the total of such FDI flows into the United States.

e The value of subject M&A transactions with publicly reported values was $2.8 billion.
The total value of M&A transactions with publicly reported values by ail foreign
investors during CY 2014 exceeded $99.1 billion.

= As described in subsection III.C, not all publicly announced transactions are
reported with dollar values, so the actual value of subject M&A transactions is
more than $2.8 billion.
The subject M&A transactions spanned a number of economic sectors.

e With respect to each transaction covered by this report, CFIUS either reviewed and
concluded action under section 721 with no unresolved national security concerns;
had previously reviewed and concluded action on a transaction that gave the foreign
acquirer control of the same U.S. business; or considered the transaction through


Covered Transactions by Acquirer Home Country/Economy and Target Sector, 2012-2014

Finance, ining, Wholesale,
Country/Economy Manufacturing | Information, | Utilities, and Retail, and Total
and Services | Construction | Transportation
Australia 9 3 3 1 7
Brazil 9 2 0 1 3
British Virgin Islands oO 0 1 o 1
Canada 4 6 20 10 40
Cayman Islands 1 2 a 9 4
Chile 0 0 1 0 1
China 33 13 19 3 68
Denmark 9 0 1 1 2
Finland J 9 1 9 1
France 12 6 0 3 21
Genvany 10 7 0 0 47
Hong Kong 5 4 0 0 9
India 3 4 0 to) 7
Indonesia Q 9 L 9 1
Ireland 1 1 0 0 2
Israel 8 2 te) 0 10
Italy 1 0 0 0 1
Japan 18 10 5 4 37
Liechtenstein 0 S ° 1 1
Luxembourg 1 0 0 0 1
Mexico te) 0 1 1 2
Netherlands 4 8 2 o 15
New Zealand 9 o o 0 0
Norway 1 2 0 0 3
Qatar ) 1 C) C) 1
Russian Federation 1 2 0 1 4
Saudi Arabia 2 1 o 0 3
Singapore 2 3 3 3 1
Spain 2 2 1 to) 5
South Korea 4 4 2 0 10
Sweden 3 3 t) 0 6
Switzerland 13 2 0 0 15
Taiwan 1 t) 0 0 1
United Arab Emirates 1 4 1 i) 3
United Kingdom 20 16 5 4 45
Total 154 106 68 33 358

Table I-10: Covered Transactions by Country or Economy and Target Sector: 2010-2014

21



CFIUS ANNUAL REPORT TO CONGRESS

Report Period: CY 2014


= Examples of suspect behaviors that could be evidence of a coordinated strategy
include:

e A pattern of actual or attempted acquisitions of U.S. firms by foreign entities;

e Evidence that specific completed or attempted acquisitions of companies with
critical technologies had been ordered by foreign governments or foreign
government-controlled firms; or

e The provision of narrowly targeted incentives by foreign governments or
foreign-controlled firms (e.g., grants, concessionary loans, or tax breaks),
especially those that appear to market observers to be disproportionately
generous, to acquire U.S. firms with critical technologies.

ll-A. Whether There Is Credible Evidence of a Coordinated Strategy to
Acquire Critical Technology Companies

1. Key Judgments

Based on its assessment of transactions identified by CFIUS for purposes of this report, the
U.S. Intelligence Community (USIC) believes there may be an effort among foreign
governments or companies to acquire U.S. companies involved in research, development, or
production of critical technologies for which the United States is a leading producer. Information
supporting this assessment is provided in the classified version of this report.

2. Summary of Foreign M&A Activity in the United States

Using the methodology described in the Appendix, CFIUS identified 108 completed foreign
mergers with or acquisitions of U.S. critical technology companies involving acquirers from 28
countries and territories. CFIUS agencies and the USIC evaluated all 108 transactions for
indications of a coordinated strategy, as defined for this report, to acquire U.S. critical
technologies.

3. Frequency of Activity by Countries and Companies

Table II-1° lists the originating countries for acquisitions of U.S. critical technology companies in
2014:

° The number of transactions based on country involvement exceeds the total number of transactions due to some
transactions involving more than one country.

29


export or temporary import of a defense article or defense service controlled by the ITAR. This
approach assists in the identification of foreign acquisitions of U.S. critical technology
companies that produce defense articles or services covered under the ITAR.

31 C.ER. § 800.209(b): (U) This paragraph pertains to those items specified on the
Department of Commerce’s Control List (CCL), which is set forth in Supplement No. 1 to
part 774 of the Export Administration Regulations (EAR) (15 C.F.R. parts 730-774). The
items on the CCL are controlled pursuant to multilateral regimes (i.e., for reasons of
national security, chemical and biological weapons proliferation, nuclear nonproliferation,
or missile technology) as well as for reasons of regional stability or surreptitious
listening.

Firms producing items under the regulations specified in this paragraph of 31 C.F.R. § 800.209
are not required to register with the Department of Commerce (Commerce), but, in many cases,
must obtain a license from Commerce in order to export those items (including “deemed
exports” to foreign nationals in the United States). To identify acquisitions of companies
producing items that fall under this part of the definition, Commerce used a combination of
publicly available information on M&A transactions,"' information on non-publicly announced
M&A transactions notified to CFIUS, and its internal records of export license applications.

31 CFR § 800.209(c): (U) This paragraph pertains to specially designed and prepared
nuclear equipment, parts and components, materials, software, and technology specified
in the Assistance to Foreign Atomic Energy Activities regulations (10 C.F.R. part 810),
and nuclear facilities, equipment, and material specified in the Export and Import of
Nuclear Equipment and Materials regulations (10 C.F.R. part 110).

The Department of Energy used a similar approach to that adopted by Commerce, which
entailed checking a list of publicly announced M&A transactions"? against its records of export
authorizations under 10 C.F.R. part 810 and the Nuclear Regulatory Commission’s records of
export license requests under 10 C.F.R. part 110.

31 CFR. § 800.209(d): (U) This paragraph pertains to select agents and toxins
specified in the Select Agents and Toxins regulations (7 C.F.R. part 331,9 CFR
part 121, and 42 C.F.R. part 73).
The agents and toxins specified under these regulations are generally subject to export controls
administered by Commerce. To this extent, the discussion above regarding Commerce’s
methodology applies to transactions involving these critical technologies, as well.
C. Analyzing the Acquisitions of U.S. Critical Technology Companies

CFIUS agencies addressed parts (i) and (ii) of section 721(m)(3) of the Defense Production Act
of 1950 (50 U.S.C. App. 2170(m)(3)), as amended, by doing the following:

e Analyzing the pattern of M&A of U.S. critical technology companies during 2013, while
also considering transactions in prior years, as appropriate.

‘’ The M&A transactions were identified using the Thomson ONE database and S&P Capital |Q database.
" The Thomson ONE database and S&P Capital 1Q database were used.

38


In light of the number and complexity of mitigation measures implemented to date, individual
CFIUS agencies monitor compliance through a number of internal procedures, including:
e assigning staff responsibilities for the monitoring of compliance;
e designing tracking systems to monitor required reports;
e instituting internal instructions and procedures to ensure that in-house expertise is drawn
upon to analyze compliance with measures.

24


Mining, Utilities, and Construction Sector

The mining, utilities, and construction sector accounted for 17 percent (25 notices) of all notices
filed with CFIUS during 2014. Utilities made up over half of this sector with 13 notices. Other
significant subsectors include oil and gas extraction with five notices and mining (except oil and
gas) with three notices. The percentage of utilities notices slightly decreased, accounting for 52
percent of total mining, utilities, and construction notices filed in 2014, which is down from 60

percent in 2013.

% of Total MUC

Mining, Utilities, and NAICS | Number of

Construction (MUC) Code | Notices 2014 | 2014 | 2012-14 | 2011-13 | 2010-12
Raw Timber Products 113 2 8% 3% 0% 0%
Oil and Gas Extraction 211 5 20% 15% 15% 13%
Mining (except Oil and Gas) 212 3 12% 15% 12% 12%
Support Activities for Mining 213 0 0% 4% 7% 10%
Utilities 221 13 52% 54% 56% 54%
Construction of Buildings 236 1 4% 3% 2% 0%
Gonetucton cid 9 o% | o% | o% | om
Specialty Trade Contractors 238 1 4% 3% 3% 4%

Table |-6: Covered Transactions from the Mining, Utilities, and Construction Sector 2014


LL

yonpold [e12\\) payesuiges zee %0 %ET MT %0 0) T7ee Suidwieys pue Bulsu04
SUISSI01d
lea Avewtid TEE %00T %00T %O %O i) vIeE pue uononpodg (WnuIWNYy
ydaoxa) |e1a|\| SnoajuON
syonpodd |esaul d1]}e,@WUO} 9 9 Buynqoeynue
Pod | HWA N Lee %0 %OOT %0S %0 10) 6L7E Jonpodg [saul D1I]exaWUON Jay
syonpoig [ABU HyJeIBWUON | ZZE %0 %0 wos | %oot| tT zee BuynoeNueW
pena . % ws is yonpodd sse|[5 pue sse|5
Syonpodd Jaqqny pue soiyseid 97E %0 %0 %E67 %O0v z 79CE Bunyoeynue| JNposd Jaqqny
syonpodd Jeqqny pue saiseid 9zE %0 %00T MIL %09 € T9ZE BulNyeynue| JONPOAd $319Se|d
poral % 9 suunyoeynueyy uonesedaid
fes1ways Sze LT %ST %8T %vT T 6SZE pue yonpoig Jea1wayo Jau10
eoiwal y 9 y 9 Suynyoesnuew
feotwiays SZE %LT %ST %6 %0 (0) SSZE ansaypy pue ‘Bulje09 4uleg
6 9 Suunyesnuey|
Sze HLT %SZ %Sb | %LS v vSZE aurpipa pue jeonnasewueud
suunyoejnuel|
GZE %LT %O %6 %bT T €S7ve Jediwayo jesnynasy
JayO pue ‘4aziN484 ‘epionsed
Sunoeynue) syuawell4
jeorwayd Sze %LT %S7 %6 %0 0 zsze pue siaqiy sayUAS [eINYY
pue Yaqqny saUIUAs ‘uUIsaYy
fesiuay) S@E %LT %0 %6 %vt T TSZE Buinyseynue [es1Wway9 dIseg
syonpodd [20D pue winajouya, € 00 %00 %00° %00 Buynyoeynuel
Pod | pi I id ve %OOT %OOT %00T %OOT T Tree syonpoig [209 pue winajosyeq
SaINAnoy 5 5 9 5 sanianoy
yoddns pajejay pue 8unuig ECE %0 %0 %00T %00T z Tece yoddns pajejay pue 8uluig
Zb-OL02 | Eb-LLOz | wb-zboz | vloz | voz
Kuobeye: 161q- OIVN seon0n | epoo Gaecte i
32D SIVN ybIG-¢ uBia-e @pop Jo SOIVN 1921 8POD OIVN H6IG-p

SOIVN Bulpuodseii05 WB1G-¢ 40 %

4equinn