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Table Ill-1. Aggregate Value of Transactions

Country Number of Transactions Kou fete Value:
United Arab Emirates 10 $3,380
Saudi Arabia 3 $273
Qatar 1 NIA
Kuwait 1 10
Venezuela 1 N/A
Total 16 $3,663

The 16 transactions represent several major sectors of the economy. Table III-2 shows the
various industries represented by the 16 transactions, noting both the number and aggregate
value of the transactions for each sector. Transactions in the Hotel and Lodging sector — the
largest category represented — include transactions in both the Media and Entertainment and
Financials industries.

Table Ill-2. Industries Represented

sector nel a | Ria eae
Finance, Information, and Services 8 $258
Wholesale, Retail, and Transportation 1 N/A
Mining, Utilities, and Construction 1 $25
Manufacturing 6 $3,380

Total 16 $3,663

2. National Security Effects of the Subject M&A Transactions

Each of the 16 transactions was either formally reviewed by CFIUS under section 721 or
pursuant to procedures followed by CFIUS and its member agencies regarding non-notified
transactions. According to these procedures, CFIUS agencies monitor M&A activity and identify
those transactions that have not been voluntarily notified to CFIUS, but which may present
national security considerations.

If CFIUS believes that a non-notified transaction may raise national security considerations and
may also be a covered transaction, CFIUS contacts the parties and requests additional
information regarding the transaction. If CFIUS determines, after evaluating this additional
information, that the transaction is covered and that it may raise national security
considerations, CFIUS requests the parties file a notice. In most instances in which CFIUS has
requested additional information regarding a transaction, the parties responded by filing a

35


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 use a range of collection
methods to obtain critical U.S. technologies.

A 2011 Office of the National Counterintelligence Executive report to Congress stated that the
pace of foreign economic collection and industrial espionage activities against major U.S.
corporations and USG agencies is accelerating. Furthermore, as the United States is a leader
in the development of new technologies and a central player in global financial and trade
networks, foreign attempts to collect U.S. technological and economic information will continue
at a high level and will represent a growing and persistent threat to U.S. economic security.
Sensitive U.S. economic information and technology are targeted by the intelligence services,
private sector companies, academic and research institutions, and citizens of dozens of
countries.

34


- 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 II

° Department of Commerce
° Bureau of Industry and Security
° International Trade Administration
° National Telecommunications and Information Administration
° Department of Defense - Defense Technology Security Administration
. Department of Justice
. Department of State
° Bureau of Economic and Business Affairs
° Bureau of Political-Military Affairs
° Bureau of International Security and Nonproliferation
. Department of the Treasury
° Intelligence Community Elements
° 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)

40



Mining, Utilities, and Construction Sector

The Mining, Utilities, and Construction sector accounted for 15 percent (21 notices) of all notices
filed with CFIUS during 2015. The Utilities subsector made up over half of this sector with 11
notices while still accounting for 52 percent of the total Mining, Utilities, and Construction sector
notices, the same percentage as 2014. The Forestry and Logging and Oil and Gas Extraction
subsectors experienced the largest percentage decreases of eight percent and six percent,

respectively.

Table I-5. Covered Transactions from the Mining, Utilities, and

Construction Sector, 2011-2015

Mining, Utilities, and NAICS | Number of % of Total MUC

Construction (MUC) Code Notices 2015 | 2045 | 2013-15 | 2012-14 | 2011-13
Forestry and Logging 113 0 0% 3% 3% 0%
Oil and Gas Extraction 211 3 14% 15% 15% 15%
Mining (except Oil and Gas) 212 3 14% 14% 15% 12%
Support Activities for Mining 213 2 10% 5% 4% 7%
Utilities 221 11 52% 55% 54% 56%
Construction of Buildings 236 1 5% 5% 3% 2%
Gonevuoton ee 237 1 5% | om | om | 5%
Specialty Trade Contractors 238 0) 0% 3% 3% 3%



Table I-9. Covered Transactions by Acquirer Home Country or Economy
and Target Sector, 2013-2015

Covered Transactions by Acquirer Home Country or Economy and Target Sector, 2013-2015
. Rinance) Luft Trade, Retail
Country/Economy | Manufacturing Information, Utilities, and Trade. and Total
and Services | Construction Transportation

Australia 1 2 4 1 8
Belgium 1 0 0 0 1
Bermuda 0 0 0 (0) 0
Brazil 0 4 0 0 4
British Virgin
Islands 0 0 1 0 4
Canada 9 9 19 12 49
Cayman Islands 6 3 2 0 11
Chile 0 0 fi 0 1
China 39 15 13 7 74
Denmark 0 0 0 4 1
Estonia 0 i) 0 0 0
Finland 1 1 4 0 3
France 8 9 1 3 21
Germany 9 5 i} 0 14
Hong Kong 6 3 0 0 9
India 4 4 0 () 3
Indonesia 0 2 1 0 3
Ireland 1 3 0 0 4
Israel v 2 0 0 9
Italy 2 0 0 0 2
Japan 20 12 5 4 41
Korea 4 0 0 0 a!
Kuwait 0 0 0 0 0
Liechtenstein (0) 0 0 4 1
Luxembourg 2 1 0 0 3
Malaysia 0 0 0 0 i)
Mexico 0 0 1 1 2
Netherlands 4 8 2 0 14
New Zealand 0 0 ) ie) 0
Norway 4 4 0 0 2
Portugal 0 0 41 0 41

18



voluntary notice. However, should the parties decide they will not file a notice after CFIUS
requests they do so, any CFIUS agency may initiate a review of the transaction.

36


This page intentionally left blank.



Country

Solo Deals

Joint Deals

Total Deals

France

wa

BR

Germany

Hong Kong

India

Ireland

Israel

Italy

Japan

Luxembourg

Malaysia

Netherlands

Russia

South Korea

Saudi Arabia

Singapore

South Africa

Spain

Sweden

Switzerland

Taiwan

Turkey

United Arab Emirates

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As shown in Figure |I-1 on the next page,® 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 Aerospace & Defense sectors.

® The number of transactions displayed in this chart is less than the total number of transactions reviewed because

54 transactions did not include a sector description.

29


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E. Mitigation Measures

From 2013 through 2015, 40 cases (ten percent) resulted in the use of legally binding mitigation
measures, in 2015, CFIUS concluded action after adopting mitigation measures with respect to
11 notices of covered transactions (eight percent of the total number of 2015 notices). Four
CFIUS agencies served as the 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 iead agencies for monitoring
mitigation compliance have implemented processes to carry out their responsibilities.

Mitigation measures negotiated and adopted in 2015 required the businesses involved to take
specific and verifiable actions, including, for example:

* Ensuring that only authorized persons have access to certain technology; that only
authorized persons have access to USG, company, or customer information, and that the
foreign acquirer not have direct or remote access to systems that hold such information.

¢ 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.

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

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

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

« Security protocols to ensure the integrity of goods or software sold to the USG.

« Notifying customers regarding the change of ownership.

¢ Assurances of continuity of supply for defined periods, and notification and consultation prior
to taking certain business decisions, with certain rights in the event that the company

decides to exit a business line. Established meetings to discuss business plans that might
affect USG supply or national security considerations.

21



Covered Transactions by Acquirer Home Country or Economy, 2013-2015
Country/Economy 2013 2014 2015 Total
Norway 1 4 0 2
Portugal 0 0 1 1
Qatar 0 1 0 1
Federstion i ‘ 0 2
Saudi Arabia 2 1 4 4
Singapore 3 6 3 12
South Africa 0 0 2 2
South Korea 1 7 4 9
Spain 1 2 2 5
Sweden 2 2 3 7
Switzerland 3 7 2 12
Taiwan 1 0 0 1
Turkey 0 0 2 2
as 2 :
United Kingdom 7 21 19 47
Grand Total 97 147 143 387

Table I-9 on the next two pages shows the concentration of notices by country in each of four
industry sectors from 2013 through 2015. Overall, Manufacturing accounted for 44 percent of
all notices from 2013 to 2015, the Finance, Information, and Services sector accounted for 29
percent, the Mining, Utilities, and Construction sector accounted for 17 percent, and the
Wholesale Trade, Retail Trade, and Transportation sector accounted for 10 percent. Notices
from China, the United Kingdom, and Japan, which accounted for 42 percent of the notices from
2013 to 2015, were generally consistent with this overall distribution across sectors.

By contrast, relative to the overall distribution across sectors, notices from Germany, Hong
Kong, Israel, and Switzerland were more heavily concentrated in the Manufacturing sector (64,
67, 78, and 83 percent, respectively). Notices from France, the Netherlands, Singapore, South
Korea, and Sweden were more heavily concentrated in the Finance, Information, and Services
sector (43, 57, 42, 38, and 57 percent, respectively). Notices from Australia and Canada were
more heavily concentrated in the Mining, Utilities, and Construction sector (50 and 39 percent,
respectively).

17



Figure Il-1: 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 II-2° displays the data with the following regional breakdown:

Figure Il-2. Completed transactions in critical technologies by regions

70
62
60
50
40
30 27
21
20
9
10
i Fo om
0 B= a _
Europe Americas East Asia Middle Eastand — Austrailia Other South Asia

North Africa

® The number of transactions based on region involvement is less than the total number of transactions due to some
involving acquirers of indeterminate origin.

30



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C. Covered Transactions by Business Sector and Country

1. Covered Transactions by Business Sector of U.S. Companies,
2009-2015

The notices of covered transactions filed with CFIUS during the 2009 to 2015 period involved a
wide range of industrial sectors.? Nearly three quarters of such notices were in the
Manufacturing (325, or 42 percent) and the Finance, Information, and Services sectors (243, or
32 percent). The remainder of notices were in the Mining, Utilities, and Construction sector
(137, or 18 percent) and the Wholesale Trade, Retail Trade, and Transportation sector (65, 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 on the next page provide a breakdown by sector and by year of the 770
notices of covered transactions cumulatively filed with CFIUS from 2009 through 2015. The
data below show that just as in 2013 and 2014, the greatest number of filings in 2015 occurred
in the Manufacturing sector followed by the Finance, Information, and Services sector. The
percentage of notices in the Manufacturing sector increased in 2014 (from 36 percent to 47
percent) and held constant in 2014 (from 47 percent to 48 percent). The percentage of notices
in the Finance, Information, and Services sector decreased from 2013 to 2014 (from 33 percent
to 26 percent), but increased in 2015 (from 26 percent to 29 percent). The percentage of
notices in the Mining, Utilities, and Construction sector decreased slightly from 2014 to 2015
(from 17 percent to 15 percent). The percentage of notices in the Wholesale Trade, Retail
Trade, and Transportation sector decreased to eight percent from a two year rate of 10 percent.

? 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.


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. § 4565(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 A addresses the requirement laid out in (i), and subsection B addresses 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 Appendix also
provides the definition of “coordinated strategy,” which for purposes of this section of the report,
describes the methodology and data sources used to identify transactions involving critical
technology companies (“critical technology transactions”), and describes the approach used to
conduct the analyses required by Section 721 related to critical technologies. Finally, it lists the
agencies and other entities that participated in preparing this section of the report.

27


engaged in the design, production, or provision of goods and services involving
network and data security. They have also included businesses that produce
semiconductor manufacturing equipment, design integrated circuits, and fabricate
integrated circuits, in light of the fact that semiconductors are an enabling technology
for a range of national security critical devices, systems, and functions. They have
also included businesses that are in the biotechnology sector, given the potential
military applications of such technology and the sensitivity of the information such
companies may collect.

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 a field with significant national security implications in which there are few
alternative suppliers or in which a loss in U.S. technological competitiveness would
be detrimental to national security.

Have operations or facilities that are in proximity to military or other sensitive USG
facilities.

Hold substantial pools of potentially sensitive data about U.S. persons and
businesses that have national security importance. Such businesses could be in any
number of sectors, including, for example, the insurance sectors, health services,
and technology services.

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.

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

Have a history of doing business in sanctioned countries.

CFIUS reviews all relevant national security considerations and the particular facts and
circumstances of a transaction 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) domestic production needed for projected national defense requirements;

2) 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;

24


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. § 4565), 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 ail 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.


The Committee on Foreign Investment in the United States (CFIUS)

CFIUS Authority and Composition

The Committee on Foreign Investment in the United States (CFIUS) is a government body authorized by law
to review any merger, acquisition, or takeover that could result in contro! of a U.S. business by a foreign
individual or entity. The review is solely to determine the effect of the transaction on the national security of
the United States.

CFIUS members include the Departments of the Treasury (chair), State, Defense, Justice, Commerce,
Energy, and Homeland Security; the Office of the United States Trade Representative; and the White House
Office of Science and Technology Policy. The Office of the Director of National Intelligence is an ex-officio
member, and five White House offices are observers. As needed to assess the national security effects of a
transaction, CFIUS involves other federal government agencies in its reviews, such as the Departments of
Transportation, Health and Human Services, and Agriculture.

CFIUS Process

Generally, parties voluntarily submit notices of transactions to CFIUS. By law, CFIUS does not publicly
disclose information provided to CFIUS by parties to a transaction, nor does it reveal the fact that the parties
have submitted the transaction for review. CFIUS also has the authority to review pending or completed
transactions even absent a voluntary notice, if CFIUS determines that the transaction could raise national
security concerns.

By law, CFIUS must complete a “review” of a notified transaction within 30 days. CFIUS may initiate an
“investigation” that may last up to 45 additional days if CFIUS determines that it needs additional time to
complete its assessment.

CFIUS will clear the transaction to proceed if it determines that the transaction does not pose any national
security concerns, that any national security concerns are adequately addressed by other laws, or that
mitigation measures agreed or imposed by CFIUS resolve any national security concerns. {f CFIUS
determines that the transaction poses national security concerns that cannot be resolved, it will refer the
transaction to the President, unless the parties choose to abandon the transaction. The President may
suspend or prohibit the transaction, including by requiring divestment. By law, the President has 15 days
after completion of CFIUS's investigation to decide. The President must publicly announce his decision.

CFIUS will seek mitigation measures or refer a transaction to the President only after such action is justified
in a detailed written analysis of the national security risk posed by the transaction. CFIUS determinations are
confirmed at senior levels by all CFIUS member agencies.

With limited exceptions, any transaction submitted to CFIUS for review that CFIUS then determines may
proceed receives “safe harbor.” This means that CFIUS and the President will not subject the transaction to
teview again.



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

In the years 2009 through 2015, companies filed 770 notices of transactions that CFIUS
determined to be covered transactions under section 721. About three percent (23 notices) of
such notices were withdrawn during the review stage, seven percent (57 notices) were
withdrawn during the investigation stage, and 40 percent (310 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 2015 in the number of notices
filed with CFIUS. As shown in Table I-1, the number of notices increased from 65 in 2009 to
143 in 2015. The trend peaked in 2014 with 147 notices, and decreased only twice, in 2013 and
2015. While the percentage of notices proceeding to investigation increased between 2014 and
2015 from 35 percent to 46 percent, the percentage of notices proceeding to investigation
remained below the historical high of 49 percent in 2013.

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.

Table |-1. Covered Transactions, Withdrawals, and Presidential Decisions, 2009-2015

Covered Transactions, Withdrawals, and Presidential Decisions*
2009-2015
Year | of | withdrawn | ,,Number ot | attercommencemant. | Presidential
Notices | During Review of Investigation
2009 65 5 25 2 0
2010 93 6 35 6 i)
2011 4414 1 40 0
2012 114 2 45 20 1
2013 97 3 48 0
2014 147 3 51 0
2015 143 3 66 10 0
Total 770 23 310 57 1

*See Section 1-D on page 20 for a discussion of reasons by which parties may seek to withdraw a notice.


Covered Transactions by Acquirer Home Country/Economy and Target Sector, 2013-2015

Finance, Mining, Wholesale,
Country/Economy | Manufacturing Information, Utilities, and Retail, and Total
and Services _| Construction | Transportation

Qatar 0 1 0 0 41
Russian Federation 0 4 0 4 es
Saudi Arabia & 1 0 0 4
Singapore 3 5 3 i 12
Spain 1 1 3 0 5
South Africa 1 0 4 0 2;
South Korea 2 3 2 1 8
Sweden 3 4 0 0 7
Switzerland 10 2 0 i) 12
Taiwan 4 0 0 0 4
Turkey 1 te) a 0 2
United Arab

Emirates 2 4 1 (0) 4
United Kingdom 25 45) 3 4 47
Total 172 112 66 37 387

19



COMMITTEE ON
FOREIGN INVESTMENT
IN THE UNITED STATES

ANNUAL REPORT

TO CONGRESS

Report Period: CY 2015

PUBLIC / UNCLASSIFIED VERSION



42

This page intentionally left blank.



Manufacturing Sector

Manufacturing accounted for 48 percent (68 notices) of all notices filed with CFIUS during 2015.
The Manufacturing subsector with the largest number of notices was again Computer and
Electronic Product Manufacturing with 33 (49 percent). Other significant subsectors were
Chemical, Machinery, and Transportation Equipment Manufacturing with eight notices each. Of
these three, the Chemical Manufacturing subsector experienced the largest increase in notices
from 2014 to 2015 (from 9 percent to 12 percent).

Table I-3. Covered Transactions from the Manufacturing Sector, 2011-2015

% of Total Manufacturing
Manufacturing polit Rumbenich
ode | Notices 2015 | 2015 | 2013-15 | 2012-14 | 2011-13
Food Manufacturing 311 0 0% 1% 1% 1%
Textile Mills 313 1 1% 1% 1% 0%
Textile Product Mills 314 1 1% 1% 1% 1%
Apparel Manufacturing 315 1 1% 1% 0% 0%
Leather and Allied Product
Manufacturing ais 9 bie on te Me
Printing and Related Support
Activities 323 te) 0% 1% 1% 0%
Petroleum and Coal Products 9 9
Manufacturing ot O% Ve th He
Chemical Manufacturing 325 8 12% 9% 7% 3%
Plastics and Rubber Products
Manufacturing 826 3 a 8h Sts 2%
Nonmetallic Mineral Product
Manufacturing _ ° a 1% We ie
Primary Metal Manufacturing 331 te) 0% 0% 0% 1%
Fabricated Metal Product 7 _ "
Manufacturing 882 LU is 4B 5% 8%
Machinery Manufacturing 333 8 12% 13% 13% 11%
Computer and Electronic Product 9)
Manufacturing 334 33 49% 43% 42% 46%
Electrical Equipment, Appliance,
and Component Manufacturing 236 2 3% 5% TM% likes
Transportation Equipment . 3) a
Manufacturing 336 8 12% 12% 11% 13%
Miscellaneous Manufacturing 339 2 3% 2% 1% 1%



Table I-2. Covered Transactions by Sector and Year, 2009-2015

Covered Transaction by Sector and Year, 2009-2015

Finance, rs
< Mining, Utilities, | Wholesale Trade,
Year Manufacturing yafermnation, and Retail Trade, and Total
Services 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
2015 68 (48%) 42 (29%) 21 (15%) 12 (8%) 143
Total 325 (42%) 243 (32%) 137 (18%) 65 (8%) 770
Graph I-1. Covered Transactions by Sector and Year (2009-2015)
Covered Transactions by Sector (2009-2015)
80

5 70

g VA

% 60

¢

E so =

8 a0 a VA

uv

2 -

: «0 . Pua

5 20 a i —_——

a ee

E 10 a)

2

0 T T v r T T
2009 2010 2011 2012 2013 2014 2015
—— Manufacturing — Finance, Information, and Services

——Mining, Utilities, and Construction | -==-Wholesale, Retail, and Transportation



31 C.F.R. § 800.209/a): 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
export or temporary import of a defense article or defense service controlled by the ITAR. This
approach enabled the Department of State to identify foreign acquisitions of U.S. critical
technology companies that produce defense articles or services covered under the ITAR.

31 C.F.R. § 800.209(b): 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 paragraph of 31 C.F.R. § 800.209 are
not required to register with the Department of Commerce, but in many cases, must obtain a
license from the Department of Commerce 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, the Department of Commerce analyzed a combination
of publicly available information regarding M&A transactions,® information regarding non-publicly
announced M&A transactions notified to CFIUS, and its internal agency records of export
license applications.

31 C.F.R. § 800.209(c): 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 the Department of
Commerce. This entailed comparing a list of publicly announced M&A transactions" against
export authorizations issued under 10 C.F.R. part 810 and export license requests issued by the
Nuclear Regulatory Commission under 10 C.F.R. part 110.

31 C.F.R. § 800.209(d): This paragraph pertains to 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).

° The M&A transactions were identified using the Thomson ONE database and S&P Capital IQ database.
‘© The Thomson ONE database and S&P Capital |Q database were used.

38



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, CFIUS 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 risks.

26





3)

4)

7)

8)

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(I) 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. (U) 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;

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

critical resources and materials; and

25


A. Information Regarding 2015 Covered Transactions

CFIUS determined that 143 notices of transactions filed in 2015 were covered transactions
under section 721.

* CFIUS conducted a “review’ with respect to the 143 notices of covered transactions
filed with CFIUS.

¢ CFIUS also conducted a subsequent “investigation” with respect to 66 of those 143
notices.

¢ CFIUS concluded action on 11 of the 143 notices after adopting mitigation measures
pursuant to section 721 to resolve national security concerns.

* Thirteen of the 143 notices were withdrawn. In eight of these instances, the parties
filed a new notice in 2015. in one instance, the parties filed a new notice in 2016. In
three instances, the parties withdrew their notice and abandoned their transaction
after CFIUS informed them that it was unable to identify mitigation measures that
would resolve its national security concerns or CFIUS proposed mitigation terms that
the parties chose not to accept. In one instance, the parties withdrew their notice
and abandoned the transaction for commercial reasons unrelated to CFIUS review.

* One of the 143 notices was rejected.



2. Covered Transactions by Country or Economy, 2013-2015

Table |-8 breaks down the notices of covered transactions from 2013 through 2015 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 (74 notices), the same percent of all
notices for the 2012 to 2014 period. Chinese investors also accounted for the most notices filed
each year from 2013 to 2015 (21, 24, and 29 notices, respectively). Investors from Canada and
the United Kingdom accounted for the second and third most notices filed from 2012 to 2015
with 12 percent (49 and 47 notices, respectively.) From 2013 to 2015, investors from Japan
accounted for 10 percent (40 notices) of the notices filed.

Table 1-8. Covered Transactions by Acquirer Home Country or Economy, 2013-2015

Covered Transactions by Acquirer Home Country or Economy, 2013-2015
Country/Economy 2013 2014 2015 Total
Australia 0 4 4 8
Belgium 0 0 1 1
Brazil 1 0 i} 1
—- 1
Canada 12 15 22 49
Cayman Islands 1 3 8 12
Chile 1 0 1
China 21 24 29 74
Denmark 0 0 1 1
Finland 0 1 2 3
France 7 6 8 21
Germany 4 9 1 14
Hong Kong 4 6 2 9
India 4 2 0 3
Indonesia 0 1 2 3
Ireland 1 1 2 4
Israel 1 5 3 9
Italy 0 te) 2 2
Japan 18 10 12 40
Liechtenstein i) 1 0 1
Luxembourg 1 0 2 3
Mexico 2 0 0 2
Netherlands 1 8 5 14
New Zealand 0 0 0 0

16


e The subject M&A transactions cover several economic sectors.

¢ With respect to each transaction contained in this study, CFIUS (i) reviewed and
concluded action under section 721 with no unresolved national security concerns;
(ii) previously reviewed and concluded action on a transaction that gave the foreign
acquirer control of the same U.S. business; or (iii) reviewed the transaction through
procedures that CFIUS and its member agencies follow regarding those transactions
that are not notified to CFIUS (non-notified transactions).

B. Study Methodology
1. Identification of Relevant Countries

To identify those countries that complied with any boycott of Israel in 2015, as required by the
statute, CFIUS examined the “List of Countries Requiring Cooperation with an International
Boycott,” published by the Department of the Treasury (pursuant to section 999 of the Internal
Revenue Code)’ and reports sent to Congress by the Department of State (pursuant to section
564 of the Foreign Relations Authorization Act, FY 1994-95), as well as public sources of
information describing the countries’ observance of a primary boycott of Israel. Based on these
sources of information, CFIUS interpreted 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 those countries that did not ban foreign terrorist organizations in 2015, CFIUS
interpreted section 7(c)(1)(B) of FINSA to apply to countries certified by the Department of State
as “not cooperating fully with United States antiterrorism efforts” (pursuant to section 40A of the
Arms Export Control Act, as amended.) Those countries were Eritrea, Iran, North Korea, Syria,
and Venezuela.

2. Scope of FDI

Mergers with and acquisitions of U.S. companies are the primary form of FDI into the United
States and the form of FDI that CFIUS is authorized under section 721 to review. Accordingly,
the following types of transactions are included in the study: (i) transactions notified to CFIUS
under section 721; (ii) M&A transactions that were not notified to CFIUS but that its member
agencies reviewed through procedures that each agency has adopted for this purpose; and (iii)
M&A transactions that resulted in an ownership stake in a U.S. company of at least 10 percent,®
as contained in the Thomson ONE database, which is a recognized financial database.

7 80 Fed. Reg. 17152 (Mar. 31, 2015), 80 Fed. Reg. 39,197 (Jul. 8, 2015), 80 Fed. Reg. 66,621 ~ 66,622 (Oct. 29,
2045), and 81 Fed. Reg. 4739 (Jan. 27, 2016).

® FDI 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 sources
did not always provide information regarding the acquirer's total ownership stake that it acquired in the U.S. company.
Therefore, some of the transactions analyzed in this study may be portfolio investments rather than FDI.

33



° Thomson ONE database: This database is a product of Thomson Reuters. The
transaction information contained in this database includes the date of the transaction,
the respective countries of origin of both the acquirer and the target company, and the
economic sector of the target company. For most transactions, the Thomson ONE
database provides the transaction value and the percentage of ownership rights
acquired.

CFIUS did not include in the study those transactions listed in the Thomson ONE database that
resulted in an ownership stake in a U.S. company of less than 10 percent, where data
concerning the interest acquired was available.

C. Detailed Findings of Study

1. Identification of the Subject M&A Transactions

The study identified 15 M&A transactions in CY 2015 involving investors from the United Arab
Emirates, Saudi Arabia, Qatar, and Kuwait, which are countries that comply with any boycott of
Israel.

The study did not identify any M&A transactions in CY 2015 involving investors from Eritrea,
Iran, North Korea, or Syria, which are countries identified as not cooperating fully with U.S.
antiterrorism efforts and which were subject to stringent economic sanctions. However, the
study identified one M&A transaction involving investors from Venezuela, a country that was
designated as not cooperating fully with U.S. antiterrorism efforts and which was subject to
stringent economic sanctions.

Five of the 16 identified transactions had reported values. The combined value of the reported
values is approximately $3.7 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 ten of the 16 transactions
analyzed in this section of the Annual Report. As a result, the value of the 16 total transactions,
therefore, is necessarily greater than $3.7 billion. Table Ill-1 on the next page shows the
number and aggregate value of the transactions for each of the relevant countries.

34


e Exclusion of certain sensitive assets from the transaction.

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:

e 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.

Due to 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 used to
analyze compliance with measures.

22


TABLE OF CONTENTS

Fact Sheet ~ The Committee on Foreign Investment in the United States 000.0... cece iii

Section |: Covered Transactions

Introduction .............
A. Information Regarding .

B. Specific, Cumulative, and Trend Data for Covered Transactions,

Withdrawals, and Investigations

C. Covered Transactions by Business Sector and Country

1. Covered Transactions by Business Sector of U.S. Companies, 2009-2015

2. Covered Transactions by Country or Economy, 2013-2015

D. Withdrawn Notices ....

E. Mitigation Measures ..

F. Perceived Adverse Effects of Covered Transactions .

Section Il: Critical Technologies
Introduction
Definitions and Methodologies .
A. Whether There Is Credible Evidence of a Coordinated Strategy to
Acquire Critical Technology Companies
1. Key Judgment «oo... eee
2. Summary of Foreign Merger and Acquisition (M&A) of U.S. Critical Technology
Companies
3. Frequency of Activity by Countries and Companies .
B. Whether Foreign Governments Used Espionage Activities to
Obtain Commercial Secrets Related to Critical Technologies.
1. Key Finding

Section IH: 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... eee
1. Identification of Relevant Countries
2. Scope of FDI
C. Detailed Finding:
1. Identification of the Subject M&A Transactions
2. National Security Effects of the Subject M&A Transaction:

Appendix
A. Definition of “Critical Technologies”

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 Report
E. Participating Agencies and Entities — Critical Technologies Section II



Executive Office of the President

°
oO
fe}

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

41



The agents and toxins specified in this paragraph are generally subject to export controls
administered by the Department of Commerce. Accordingly, the methodology used by the
Department of Commerce would be the same as that described above.

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. § 4565), as amended, by doing the following.

. Analyzing the pattern of M&A of U.S. critical technology companies during 2015, while
also considering transactions in prior years, as appropriate.

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

° 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.

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

° 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.

° In addition, 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 II of this Annual Report
CFIUS agencies continue to use the following definition of “coordinated strategy.”

. A plan 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.

° 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;

39



Wholesale Trade, Retail Trade, and Transportation Sector

The Wholesale Trade, Retail Trade, and Transportation sector accounted for eight percent (12
notices) of all notices of covered transactions filed with CFIUS during 2015. The Support
Activities for Transportation subsector experienced the largest decrease in the number of filings
from eight in 2014 (53 percent) to three in 2015 (25 percent). The Merchant Wholesalers,
Durable Goods subsector had the highest percentage increase at 25 percent as a result of three
notices being filed.

Table I-6. Covered Transactions from the Wholesale, Retail, and
Transportation Sector, 2011-2015

% of Total Wholesale Trade,
Wholesale Trade, . 4
Retail Trade, and NAICS | Number of Retail Trade, and Transportation
i Code | Notices 2015
Jraneporation 2015 | 2013-15 | 2012-14 | 2011-13
en Wholesalers, Durable 423 3 25% 14% 9% 23%
Merchant Wholesalers,
Nondurable Goods 424 2 17% 14% 15% 12%
Motor Vehicle and Parts Dealers 441 4 8% 3% 0% 0%
Air Transportation 481 0 0% 0% 0% 0%
Water Transportation 483 0 0% 3% 6% 8%
Truck Transportation 484 2 17% 5% 0% 0%
Transit and Ground Passenger -
Transportation 402 7 O% 0% % O
Pipeline Transportation 486 0 0% 5% 6% 8%
Support Activities for
Transportation 488 3 25% 46% 55% 50%
Couriers and Messengers 492 1 8% 3% 0% 0%
Warehousing and Storage 493 0 0% 5% 6% 4%
Accommodation 721 0 0% 3% 3% 0%



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SECTION I: 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 of Study

32

« Mergers with and acquisitions of U.S. companies, 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, 2015, and
December 31, 2015 (CY 2015) (“subject M&A transactions”), represent a small
percentage of the total number of such FDI flows into the United States.

e The value of subject M&A transactions with publicly reported values was $3.6 billion.
The total value of M&A transactions with publicly reported vaiues by aif foreign
investors during CY 2015 exceeded $80.4 billion.

« As described in subsection Iil.C below, not all publicly announced
transactions are reported with dollar values, so the actual value of subject
M&A transactions is greater than $3.6 billion.



D. Withdrawn Notices

Parties may withdraw an accepted notice of a transaction if the Committee approves a written
request for withdrawal from the parties. Over time, parties have requested withdrawals for a
number of reasons. For example, in some cases in which the parties are unable to address all
of the Committee’s outstanding national security concerns within the initial 30-day review period
or subsequent 45-day investigation period, the parties might request to withdraw and re-file their
notice to provide themselves with additional time to answer questions or to resolve the 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 2015, CFIUS approved the withdrawal of 13 notices. The parties withdrew three notices
during the 30-day review period and ten notices after the commencement of the 45-day
investigation period.

Of the 13 notices, in eight instances, the parties filed a new notice in 2015, and CFIUS
concluded action in those cases. In three instances, the parties withdrew their notice and
abandoned their transaction after CFIUS informed them that it was unable to identify mitigation
measures that would resolve its national security concerns or CFIUS proposed mitigation terms
that the parties chose not to accept. In one instance, the parties withdrew their notice and
abandoned the transaction for commercial reasons unrelated to CFIUS review. In one instance,
the parties filed a new notice in 2016, though that notice was subsequently withdrawn and the
transaction abandoned before CFIUS completed its national security assessment.

Additionally, CFIUS rejected one notice in 2015 pursuant to 31 C.F.R. § 403(a)(2)(ii). CFIUS
rejected this notice due to information available to the U.S. government (USG) that contradicted
information provided in the notice submitted by the parties. As a result of the rejection, CFIUS
did not complete its review of the transaction. The parties subsequently abandoned the
transaction.

As noted previously, the number of withdrawals in 2015 is a function of the specific facts and
circumstances of the particular transactions reviewed by the Committee.

20



CFIUS ANNUAL REPORT TO CONGRESS

Report Period: CY 2015


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

1. Key Judgments

A meaningful summary of the U.S. Intelligence Community (USIC) assessment cannot
be provided on an unclassified basis. However, the USIC considered the unclassified
data included in this section in conducting its analysis.

2. Summary of Foreign Merger and Acquisition (M&A) Activity in the
United States

Using the methodology described in the Appendix, CFIUS identified 130 completed foreign
mergers with or acquisitions of U.S. critical technology companies involving acquirers from 32
countries and territories. CFIUS agencies and the USIC evaluated all 130 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
2015:

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

Country Solo Deals Joint Deals Total Deals
Australia 3
Austria
Belgium
Brazil
BVI
Canada 20
Cayman Islands
Channel Islands
China

Denmark

RI]R [RIB
N JR IB] lw

Clofo]}R|rnlolRlololojo
nN
S

NIRlalole
Nie late lw

Finland

’ The number of transactions based on country involvement exceeds the total number of transactions (108) due to
some transactions involving more than one country.

4 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. For example, if a transaction involved the acquisition of a U.S.

company jointly by both a Russian and an Israeli company, the table reflects that both countries were a part of one
transaction each.

28



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, as they 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 contained in section 800.209 is specific to the CFIUS
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 this Annual Report, CFIUS agencies
responsible for administering U.S. export control regulations analyzed publicly available
information, non-public M&A transaction data obtained pursuant to CFIUS review, and their
agency's own internal records to identify those U.S. critical technology companies that were
acquired by, or received significant investments from, foreign investors in 2015. Because each
export control regulation applies to a specific type of critical technology, the amount of
information that could be analyzed for Section II of this Annual Report was limited.

37


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 USG, 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 equipment or components that have both commercial
and military applications. Such transactions have included, for example, businesses

23


Finance, Information, and Services Sector

The Finance, Information, and Services sector accounted for 29 percent (42 notices) of all
notices filed with CFIUS during 2015. Professional, Scientific, and Technical Services
continued to make up the majority of the notices filed in this sector (12 notices). The
Telecommunications subsector experienced the largest percent increase in filings (from eight
percent of total Finance, Information, and Services sector notices in 2014 to 17 percent in
2015). The Professional, Scientific, and Technical Services subsector had the largest percent
decrease (from 37 percent of the notices in this sector in 2014 to only 29 percent in 2015).

Table I-4. Covered Transactions from the Finance, Information, and
Services Sector, 2011-2015

. 7 % of Total Finance,
rae oon and peers ener ok Information, and Services
ete See ence 2015 | 2013-15 | 2012-14 | 2011-13
rmearnan Industries (except 511 9 21% 18% 12% 11%
Motion Picture and Sound 5
Recording Industries B12 9 Oe OF 8 ids
Telecommunications 517 ad 17% 13% 10% 13%
Data Processing, Hosting, and
Related Services £18 2 5% 4% 3% 2%
Other Information Services 519 0 0% 1% 2% 1%
Great Intermedialion and Related 522 0 0% 1% 2% 3%
Securities, Commodity Contracts,
and Other Financial Investments 523 0 0% 1% 1% 2%
and Related Activities
surance Carriers and Related 524 3 % 3% 0% 0%
Real Estate 531 4 10% 7% 8% 4%
Rental and Leasing Services 532 0 0% 6% 8% 6%
Professional, Scientific, and 9
Technical Services 541 12 29% 37% 47% 53%
Administrative and Support 561 3 % % 1% 5%
Waste Management and
Remediation Services S62 1 2% ah ie 1%
Ambulatory Health Care Services 621 1 2% 1% 0% 0%
Repair and Maintenance 811 0 0% 0% 1% 1%



Covered Transactions by Business Sector of
U.S. Companies, 2011-2015

Table |-7 on the following pages provides a breakdown by subsector and by year for the
covered transactions cumulatively filed with CFIUS from 2011 through 2015.

10