The Committee on Foreign Investment in the United States (CFIUS)
Congressional research reportFeb 26, 2020
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The Committee on Foreign Investment in the
United States (CFIUS)
James K. Jackson
Specialist in International Trade and Finance
Updated February 26, 2020
Congressional Research Service
7-....
www.crs.gov
RL33388
SUMMARY
The Committee on Foreign Investment in the
United States (CFIUS)
RL33388
February 26, 2020
James K. Jackson
The Committee on Foreign Investment in the United States (CFIUS) is an interagency body
Specialist in International
Trade and Finance
comprised of nine Cabinet members, two ex officio members, and other members as appointed
-redacted-@crs.loc.gov
by the President, that assists the President in reviewing the national security aspects of foreign
direct investment in the U.S. economy. While the group often operated in relative obscurity, the
For a copy of the full report,
perceived change in the nation’s national security and economic concerns following the
please call 7-.... or visit
September 11, 2001, terrorist attacks and the proposed acquisition of commercial operations at
www.crs.gov.
six U.S. ports by Dubai Ports World in 2006 placed CFIUS’s review procedures under intense
scrutiny by Members of Congress and the public. In 2018, prompted by concerns over Chinese
and other foreign investment in U.S. companies with advanced technology, Members of Congress and the Trump
Administration enacted the Foreign Investment Risk Review Modernization Act of 2018 (FIRRMA), which became effective
on November 11, 2018. This measure marked the most comprehensive revision of the foreign investment review process
under CFIUS since the previous revision in 2007, the Foreign Investment and National Security Act (FINSA). On February
13, 2020, the Department of the Treasury issued final regulations, including implementing key parts of FIRRMA concerning
how investments in “critical technologies,” “critical infrastructure,” sensitive personal data, and certain real estate and
noncontrolling investments will be scrutinized
Generally, efforts to amend CFIUS have been spurred by a specific foreign investment transaction that raised national
security concerns. Despite various changes to the CFIUS statute, some Members and others question the nature and scope of
CFIUS reviews. The CFIUS process is governed by statute that sets a legal standard for the President to suspend or block a
transaction if no other laws apply and if there is “credible evidence” that the transaction threatens to impair the national
security, which is interpreted as transactions that pose a national security risk.
The U.S. policy approach to international investment traditionally established and supported an open and rules-based trading
system that is in line with U.S. economic and national security interests. Recent debate over CFIUS reflects long-standing
concerns about the impact of foreign investment on the economy and the role of economics as a component of national
security. Some Members question CFIUS’s performance and the way the Committee reviews cases involving foreign
governments, particularly with the emergence of state-owned enterprises, and acquisitions involving leading-edge or
foundational technologies. Recent changes expand CFIUS’s purview to include a broader focus on the economic implications
of individual foreign investment transactions and the cumulative effect of foreign investment on certain sectors of the
economy or by investors from individual countries.
Changes in U.S. foreign investment policy have potentially large economy-wide implications, since the United States is the
largest recipient and the largest overseas investor of foreign direct investment. To date, five investments have been blocked,
although proposed transactions may have been withdrawn by the firms involved in lieu of having a transaction blocked.
President Obama used the FINSA authority in 2012 to block an American firm, Ralls Corporation, owned by Chinese
nationals, from acquiring a U.S. wind farm energy firm located near a Department of Defense (DOD) facility and to block a
Chinese investment firm in 2016 from acquiring Aixtron, a Germany-based firm with assets in the United States. In 2017,
President Trump blocked the acquisition of Lattice Semiconductor Corp. by the Chinese investment firm Canyon Bridge
Capital Partners; in 2018, he blocked the acquisition of Qualcomm by Broadcom; and in 2019, the Committee raised
concerns over Beijing Kunlun Company’s investment in Grindr LLC, an online dating site, over concerns of foreign access to
personally identifiable information of U.S. citizens. Subsequently, the Chinese firm divested itself of Grindr. Given the
number of regulatory changes mandated by FIRRMA, Congress may well conduct oversight hearings to determine the status
of the changes and their implications.
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Contents
Background ..................................................................................................................................... 1
The Foreign Investment Risk Review Modernization Act of 2018 (FIRRMA) ........................ 1
Foreign Investment Data ........................................................................................................... 2
Origins of CFIUS ............................................................................................................................ 4
Establishment of CFIUS .................................................................................................................. 5
The “Exon-Florio” Provision .......................................................................................................... 7
Treasury Department Regulations ............................................................................................. 9
The “Byrd Amendment” .................................................................................................................. 9
Recent Legislative Reforms .......................................................................................................... 10
FIRRMA Legislation: Key Provisions ..................................................................................... 11
CFIUS: Major Provisions .............................................................................................................. 13
National Security Reviews ...................................................................................................... 14
Informal Actions ............................................................................................................... 14
Formal Actions .................................................................................................................. 15
National Security Review ................................................................................................. 22
National Security Investigation......................................................................................... 22
Presidential Determination................................................................................................ 23
Committee Membership .......................................................................................................... 24
Covered Transactions .............................................................................................................. 24
Foreign Ownership Control..................................................................................................... 28
Factors for Consideration ........................................................................................................ 29
Confidentiality Requirements ................................................................................................. 32
Mitigation and Tracking .......................................................................................................... 32
Funding and Staff Requirements ............................................................................................. 33
Congressional Oversight ......................................................................................................... 33
Recent CFIUS Reviews ................................................................................................................. 34
Issues for Congress ........................................................................................................................ 39
Figures
Figure 1. Foreign Direct Investment, Annual Inflows, World and Major Country Groups ............. 3
Figure 2. Steps of a CFIUS Foreign Investment National Security Review ................................. 14
Tables
Table 1. Selected Indicators of International Investment and Production, 2011-2017 .................... 3
Table 2. Foreign Investment Transactions Reviewed by CFIUS, 2009-2017 ............................... 35
Table 3. Industry Composition of Foreign Investment Transactions Reviewed by CFIUS,
2009-2017................................................................................................................................... 36
Table 4. Country of Foreign Investor and Industry Reviewed by CFIUS, 2015-2017 .................. 36
Table 5. Home Country of Foreign Acquirer of U.S. Critical Technology, 2016-2017................. 37
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Contacts
Author Contact Information .......................................................................................................... 40
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The Committee on Foreign Investment in the United States (CFIUS)
Background
The Committee on Foreign Investment in the United States (CFIUS) is an interagency committee
that serves the President in overseeing the national security implications of foreign direct
investment (FDI) in the economy. Since its inception, CFIUS has operated at the nexus of shifting
concepts of national security and major changes in technology, especially relative to various
notions of national economic security, and a changing global economic order that is marked in
part by emerging economies such as China that are playing a more active role in the global
economy. As a basic premise, the U.S. historical approach to international investment has aimed
to establish an open and rules-based international economic system that is consistent across
countries and in line with U.S. economic and national security interests. This policy also has
fundamentally maintained that FDI has positive net benefits for the U.S. and global economy,
except in certain cases in which national security concerns outweigh other considerations and for
prudential reasons. The Committee’s annual report issued in December 2019 indicates that
CFIUS has increased the average annual number of investigations it has conducted.1
Recently, some policymakers argued that certain foreign investment transactions, particularly by
entities owned or controlled by a foreign government, investments with leading-edge or
foundational technologies, or investments that may compromise personally identifiable
information, are affecting U.S. national economic security. As a result, they supported greater
CFIUS scrutiny of foreign investment transactions, including a mandatory approval process for
some transactions. Some policymakers also argued that the CFIUS review process should have a
more robust economic component, possibly even to the extent of an industrial policy-type
approach that uses the CFIUS national security review process to protect and promote certain
industrial sectors in the economy. Others argued, however, that the CFIUS review process should
be expanded to include certain transactions that had not previously been reviewed, but that
CFIUS’ overall focus should remain fairly narrow.
The Foreign Investment Risk Review Modernization Act of 2018
(FIRRMA)
In 2018, Congress and the Trump Administration adopted the Foreign Investment Risk Review
Modernization Act of 2018 (FIRRMA), Subtitle A of Title XVII of P.L. 115-232 (August 13,
2018), which became effective on November 11, 2018.2 The impetus for FIRRMA was based on
concerns that ‘‘the national security landscape has shifted in recent years, and so has the nature of
the investments that pose the greatest potential risk to national security ....’’3 As a result, FIRRMA
provided for some programs to become effective upon passage, while a pilot program was
developed to address immediate concerns relative to other provisions and allow time for
additional resources to be directed at developing a more permanent response in these areas.
Interim rules for the pilot program developed by the Treasury Department covered two provisions
of FIRRMA. First was an expanded scope of transactions subject to a review by CFIUS including
noncontrolling investments by foreign persons in U.S. firms involved in critical technologies,
critical infrastructure, and personal data related to specified industries and industrial sectors. A
second part of the pilot program implemented FIRRMA’s mandatory declarations provision for
1 Annual Report to Congress, CY2016 and CY2017, The Committee of Foreign Investment in the United States,
December 2019.
2 Federal Register, vol. 83 no. 197, October 11, 2018, p. 51322.
3 Ibid, p. 51323.
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all transactions that fall within the specific scope of the pilot program. The pilot program became
effective February 13, 2020; provisions requiring a mandatory filing under the pilot program were
made permanent and the regulations provided for all firms to have the option of using the shortform voluntary declaration.4 Previously, the Treasury Department had issued final regulations,
which became effective February 13, 2020, concerning the review process for certain real estate
and noncontrolling investments.
Upon enactment, FIRRMA: (1) expanded the scope and jurisdiction of CFIUS by redefining such
terms as “covered transactions” and “critical technologies”; (2) refined CFIUS procedures,
including timing for reviews and investigations; and (3) required actions by CFIUS to address
national security risks related to mitigation agreements, among other areas. Treasury’s interim
rules updated and amended existing regulations in order to implement certain provisions
immediately. FIRRMA also required CFIUS to take certain actions within prescribed deadlines
for various programs, reporting, and other plans.
FIRRMA also broadened CFIUS’ mandate by explicitly including for review certain real estate
transactions in close proximity to a military installation or U.S. government facility or property of
national security sensitivities. In addition, FIRRMA provides for CFIUS to review: (1) any
noncontrolling investment in U.S. businesses involved in critical technology, critical
infrastructure, or collecting sensitive data on U.S. citizens; (2) any change in foreign investor
rights; (3) transactions in which a foreign government has a direct or indirect substantial interest
(defined below); and (4) any transaction or arrangement designed to evade CFIUS. Through a
“sense of Congress” provision in FIRRMA, CFIUS reviews potentially can discriminate among
investors from certain countries that are determined to be a country of “special concern”
(specified through additional regulations) that has a “demonstrated or declared strategic goal of
acquiring a type of critical technology or critical infrastructure that would affect U.S. leadership
in areas related to national security.”5
Foreign Investment Data
Information on international investment and production collected and published by the United
Nations indicates that global annual inflows of FDI peaked in 2015, surpassing the previous
record set in 2007, but has fallen since, as indicated in Figure 1. Similarly, from 2012 through
2014, international flows of FDI fell below the levels reached prior to the 2008-2009 financial
crisis, but revived in 2015. Between 2015 and 2017, FDI inflows fell by nearly $500 million to
$1.4 billion, largely reflecting lower inflows to developed economies as a result of a 22% decline
in cross-border merger and acquisition activity (M&As).
FDI inflows to developing economies also declined, but at a slower rate than among flows to
developed economies, while investment flows to economies in transition continued to increase at
a steady pace. Other cross-border capital flows (portfolio investments and bank loans) continued
at a strong pace in 2017, contrary to the trend in direct investment. Globally, the foreign affiliates
of international firms employed 73 million people in 2017, as indicted in Table 1. Globally, the
stock, or cumulative amount, of FDI in 2017 totaled about $31 trillion. Other measures of
4
Final Regulations on Expanded Authority of CFIUS to Review Foreign Investor Transactions Go into Effect,
National Law Journal, February 13, 2020. https://www.natlawreview.com/article/final-regulations-expanded-authoritycfius-to-review-foreign-investor-transactions.
5 Foreign Investment Risk Review Modernization Act of 2018 (FIRRMA), Subtitle A of Title XVII, Section
1702(c)(1).
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international production, sales, assets, value-added production, and exports generally indicate
higher nominal values in 2017 than in the previous year, providing some indication that global
economic growth was recovering.
Figure 1. Foreign Direct Investment, Annual Inflows, World and Major Country
Groups
($ in billions)
Source: World Investment Report, United Nations Conference on Trade and Development.
According to the United Nations,6 the global FDI position in the United States, or the cumulative
amount of inward foreign direct investment, was recorded at around $7.8 trillion in 2017, with the
U.S. outward FDI position of about $7.9 trillion. The next closest country in investment position
to the United States was Hong Kong with inward and outward investment positions of about onefourth that of the United States. In comparison, the 28 counties comprising the European Union
(EU) had an inward investment position of $9.1 trillion in 2017 and an outward position of $10.6
trillion.
Table 1. Selected Indicators of International Investment and Production, 2011-2017
($ in billions)
2011
2012
2013
2014
2015
2016
2017
FDI inflows
$1,700
$1,403
$1,427
$1,277
$1,921
$1,868
$1,430
FDI outflows
1,712
1,284
1,311
1,318
1,622
1,473
1,430
FDI inward
stock
21,117
22,073
24,533
25,113
25,665
27,663
31,524
FDI outward
stock
21,913
22,527
24,665
24,810
25,514
26,826
30,838
Cross-border
M&As (number)
556
328
263
432
735
887
694
6 World Investment Report 2018, United Nations, 2018.
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2011
2012
2013
2014
2015
2016
2017
Sales of foreign
affiliates
28,516
31,687
31,865
34,149
27,559
29,057
30,823
Value-added
(product) of
foreign affiliates
6,262
7,105
7,030
7,419
6,457
6,950
7,317
Total assets of
foreign affiliates
83,754
88,536
95,671
101,254
94,781
98,758
103,429
Exports of
foreign affiliates
7,463
7,469
7,469
7,688
NA
NA
NA
GDP
71,314
73,457
75,887
77,807
74,407
75,463
79,841
Employment by
foreign affiliates
(thousands)
63,416
69,359
72,239
76,821
69,683
71,157
73,209
Source: World Investment Report, United Nations Conference on Trade and Development, June 2018.
Origins of CFIUS
Established by an executive order of President Ford in 1975, CFIUS initially operated in relative
obscurity.7 According to a Treasury Department memorandum, the Committee was established in
order to “dissuade Congress from enacting new restrictions” on foreign investment, as a result of
growing concerns over the rapid increase in investments by Organization of the Petroleum
Exporting Countries (OPEC) countries in American portfolio assets (Treasury securities,
corporate stocks and bonds), and to respond to concerns of some that much of the OPEC
investments were being driven by political, rather than by economic, motives.8
Thirty years later in 2006, public and congressional concerns about the proposed purchase of
commercial port operations of the British-owned Peninsular and Oriental Steam Navigation
Company (P&O)9 in six U.S. ports by Dubai Ports World (DP World)10 sparked a firestorm of
criticism and congressional activity during the 109th Congress concerning CFIUS and the manner
in which it operated. As a result of attention from the public and Congress, DP World officials
decided to sell off the U.S. port operations to an American owner.11 On December 11, 2006, DP
World officials announced that a unit of AIG Global Investment Group, a New York-based asset
7 Executive Order 11858 (b), May 7, 1975, 40 F.R. 20263.
8 U.S. Congress, House Committee on Government Operations, Subcommittee on Commerce, Consumer, and
Monetary Affairs. The Operations of Federal Agencies in Monitoring, Reporting on, and Analyzing Foreign
Investments in the United States. Hearings. 96th Cong., 1st sess., Part 3, July 30, 1979. Washington: GPO, 1979. pp.
334-335. (Hereinafter cited as The Operations of Federal Agencies, part 3.)
9 Peninsular and Oriental Steam Company is a leading ports operator and transport company with operations in ports,
ferries, and property development. It operates container terminals and logistics operations in over 100 ports and has a
presence in 18 countries.
10 Dubai Ports World was created in November 2005 by integrating Dubai Ports Authority and Dubai Ports
International. It is one of the largest commercial port operators in the world with operations in the Middle East, India,
Europe, Asia, Latin America, the Caribbean, and North America.
11 Weisman, Jonathan, and Bradley Graham, “Dubai Firm to Sell U.S. Port Operations,” The Washington Post, March
10, 2006. p. A1.
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management company with large assets, but no experience in port operations, had acquired the
U.S. port operations for an undisclosed amount.12
The DP World transaction revealed that the September 11, 2001, terrorist attacks fundamentally
altered the viewpoint of some Members of Congress regarding the role of foreign investment in
the economy and the potential impact of such investment on U.S. national security. Some
Members argued that this change in perspective required a reassessment of the role of foreign
investment in the economy and of the implications of corporate ownership on activities that fall
under the rubric of critical infrastructure. The emergence of state-owned enterprises as
commercial economic actors has raised additional concerns about whose interests and whose
objectives such firms are pursuing in their foreign investment activities.
More than 25 bills were introduced in the second session of the 109th Congress that addressed
various aspects of foreign investment following the proposed DP World transaction. In the first
session of the 110th Congress, Congress passed, and President Bush signed, the Foreign
Investment and National Security Act of 2007 (FINSA) (P.L. 110-49), which altered the CFIUS
process in order to enable greater oversight by Congress and increased transparency and reporting
by the Committee on its decisions. In addition, the act broadened the definition of national
security and required greater scrutiny by CFIUS of certain types of foreign direct investment. Not
all Members were satisfied with the law: some Members argued that the law remained deficient
in reviewing investment by foreign governments through sovereign wealth funds (SWFs). Also
left unresolved were issues concerning the role of foreign investment in the nation’s overall
security framework and the methods that are used to assess the impact of foreign investment on
the nation’s defense industrial base, critical infrastructure, and homeland security.
Establishment of CFIUS
President Ford’s 1975 executive order established the basic structure of CFIUS, and directed that
the “representative”13 of the Secretary of the Treasury be the chairman of the Committee. The
executive order also stipulated that the Committee would have “the primary continuing
responsibility within the executive branch for monitoring the impact of foreign investment in the
United States, both direct and portfolio, and for coordinating the implementation of United States
policy on such investment.” In particular, CFIUS was directed to (1) arrange for the preparation
of analyses of trends and significant developments in foreign investment in the United States; (2)
provide guidance on arrangements with foreign governments for advance consultations on
prospective major foreign governmental investment in the United States; (3) review investment in
the United States which, in the judgment of the Committee, might have major implications for
U.S. national interests; and (4) consider proposals for new legislation or regulations relating to
foreign investment as may appear necessary.14
President Ford’s executive order also stipulated that information submitted “in confidence shall
not be publicly disclosed” and that information submitted to CFIUS be used “only for the purpose
of carrying out the functions and activities” of the order. In addition, the Secretary of Commerce
was directed to perform a number of activities, including
12 King, Neil Jr., and Greg Hitt, “Dubai Ports World Sells U.S. Assets—AIG Buys Operations that Ignited Controversy
As Democrats Plan Changes,” The Wall Street Journal, December 12, 2006. p. A1.
13 The term “representative” was dropped by Executive Order 12661, December 27, 1988, 54 FR 780.
14 Executive Order 11858 (b), May 7, 1975, 40 F.R. 20263.
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(1) Obtaining, consolidating, and analyzing information on foreign investment in the
United States;
(2) Improving the procedures for the collection and dissemination of information on such
foreign investment;
(3) Observing foreign investment in the United States;
(4) Preparing reports and analyses of trends and of significant developments in appropriate
categories of such investment;
(5) Compiling data and preparing evaluation of significant transactions; and
(6) Submitting to the Committee on Foreign Investment in the United States appropriate
reports, analyses, data, and recommendations as to how information on foreign investment
can be kept current.
The executive order, however, raised questions among various observers and government officials
who doubted that federal agencies had the legal authority to collect the types of data that were
required by the order. As a result, Congress and the President sought to clarify this issue, and in
the following year President Ford signed the
International Investment Survey Act of 1976.15
CFIUS Legislative History
The act gave the President “clear and
1975 CFIUS established by executive order.
unambiguous authority” to collect information
1988 “Exon-Florio” amendment to Defense Production
on “international investment.” In addition, the
Act. Codified the process CFIUS used to review
act authorized “the collection and use of
foreign investment transactions.
information on direct investments owned or
1992 “Byrd Amendment” to Defense Production Act.
Required reviews in cases where foreign acquirer was
controlled directly or indirectly by foreign
acting on or in behalf of a foreign government.
governments or persons, and to provide
2007 Foreign Investment and National Security Act of
analyses of such information to the Congress,
2007 replaced executive order and codified CFIUS.
the executive agencies, and the general
2018 Foreign Investment Risk Review Modernization
public.”16
Act of 2018 provided a comprehensive reform of the
CFIUS process.
By 1980, some Members of Congress raised
concerns that CFIUS was not fulfilling its
mandate. Between 1975 and 1980, for instance, the Committee met only 10 times and seemed
unable to decide whether it should respond to the political or the economic aspects of foreign
direct investment in the United States.17 One critic of the Committee argued in a congressional
hearing in 1979 that, “the Committee has been reduced over the last four years to a body that only
responds to the political aspects or the political questions that foreign investment in the United
States poses and not with what we really want to know about foreign investments in the United
States, that is: Is it good for the economy?”18
From 1980 to 1987, CFIUS investigated a number of foreign investment transactions, mostly at
the request of the Department of Defense. In 1983, for instance, a Japanese firm sought to acquire
a U.S. specialty steel producer. The Department of Defense subsequently classified the metals
produced by the firm because they were used in the production of military aircraft, which caused
15 P.L. 94-472, October 11, 1976; 22 U.S.C. 3101.
16 P.L. 94-472, October 11, 1976; 22 U.S.C. Section 3101(b).
17 U.S. Congress, House Committee on Government Operations, The Adequacy of the Federal Response to Foreign
Investment in the United States. Report by the Committee on Government Operations. H.Rept. 96-1216, 96th Cong., 2nd
sess., Washington: GPO, 1980. pp. 166-184.
18 The Operations of Federal Agencies, part 3, p. 5.
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the Japanese firm to withdraw its offer. Another Japanese company attempted to acquire a U.S.
firm in 1985 that manufactured specialized ball bearings for the military. The acquisition was
completed after the Japanese firm agreed that production would be maintained in the United
States. In a similar case in 1987, the Defense Department objected to a proposed acquisition of
the computer division of a U.S. multinational company by a French firm because of classified
work conducted by the computer division. The acquisition proceeded after the classified contracts
were reassigned to the U.S. parent company.19
The “Exon-Florio” Provision
In 1988, amid concerns over foreign acquisition of certain types of U.S. firms, particularly by
Japanese firms, Congress approved the Exon-Florio amendment to the Defense Production Act,
which specified the basic review process of foreign investments.20 The statute granted the
President the authority to block proposed or pending foreign “mergers, acquisitions, or takeovers”
of “persons engaged in interstate commerce in the United States” that threatened to impair the
national security. Congress directed, however, that the President could invoke this authority only
after he had concluded that (1) other U.S. laws were inadequate or inappropriate to protect the
national security; and (2) “credible evidence” existed that the foreign interest exercising control
might take action that threatened to impair U.S. national security. This same standard was
maintained in an update to the Exon-Florio provision in 2007, the Foreign Investment and
National Security Act of 2007, and in FIRRMA.
After three years of often contentious negotiations between Congress and the Reagan
Administration, Congress passed and President Reagan signed the Omnibus Trade and
Competitiveness Act of 1988.21 During consideration of the Exon-Florio proposal as an
amendment to the omnibus trade bill, debate focused on three controversial issues: (1) what
constitutes foreign control of a U.S. firm? (2) how should national security be defined? and (3)
which types of economic activities should be targeted for a CFIUS review? Of these issues, the
most controversial and far-reaching was the lack of a definition of national security. As originally
drafted, the provision would have considered investments which affected the “national security
and essential commerce” of the United States. The term “essential commerce” was the focus of
intense debate between Congress and the Reagan Administration.
The Treasury Department, headed by Secretary James Baker, objected to the Exon-Florio
amendment, and the Administration vetoed the first version of the omnibus trade legislation, in
part due to its objections to the language in the measure regarding “national security and essential
commerce.” The Reagan Administration argued that the language would broaden the definition of
national security beyond the traditional concept of military/defense to one that included a strong
economic component. Administration witnesses argued against this aspect of the proposal and
eventually succeeded in prodding Congress to remove the term “essential commerce” from the
measure and narrow substantially the factors the President must consider in his determination.
The final Exon-Florio provision was included as Section 5021 of the Omnibus Trade and
Competitiveness Act of 1988. The provision originated in bills reported by the Commerce
19 U.S. Congress, House Committee on Energy and Commerce, Subcommittee on Commerce, Consumer Protection,
and Competitiveness. Foreign Takeovers and National Security. Hearings on Section 905 of H.R. 3. 100th Cong., 1st
sess., October 20, 1987. Testimony of David C. Mulford. Washington: GPO, 1988. pp. 21-22.
20 P.L. 100-418, Title V, Section 5021, August 23, 1988; 50 U.S.C. Appendix §2170.
21 P.L. 100-418.
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Committee in the Senate and the Energy and Commerce Committee in the House, but the
measure was transferred to the Senate Banking Committee as a result of a dispute over
jurisdictional responsibilities.22 Through Executive Order 12661, President Reagan implemented
provisions of the Omnibus Trade Act. In the executive order, President Reagan delegated his
authority to administer the Exon-Florio provision to CFIUS,23 particularly to conduct reviews,
undertake investigations, and make recommendations, although the statute itself does not
specifically mention CFIUS. As a result of President Reagan’s action, CFIUS was transformed
from an administrative body with limited authority to review and analyze data on foreign
investment to an important component of U.S. foreign investment policy with a broad mandate
and significant authority to advise the President on foreign investment transactions and to
recommend that some transactions be suspended or blocked.
In 1990, President Bush directed the China National Aero-Technology Import and Export
Corporation (CATIC) to divest its acquisition of MAMCO Manufacturing, a Seattle-based firm
producing metal parts and assemblies for aircraft, because of concerns that CATIC might gain
access to technology through MAMCO that it would otherwise have to obtain under an export
license.24
Part of Congress’s motivation in adopting the Exon-Florio provision apparently arose from
concerns that foreign takeovers of U.S. firms could not be stopped unless the President declared a
national emergency or regulators invoked federal antitrust, environmental, or securities laws.
Through the Exon-Florio provision, Congress attempted to strengthen the President’s hand in
conducting foreign investment policy, while limiting its own role as a means of emphasizing that,
as much as possible, the commercial nature of investment transactions should be free from
political considerations. Congress also attempted to balance public concerns about the economic
impact of certain types of foreign investment with the nation’s long-standing international
commitment to maintaining an open and receptive environment for foreign investment.
Furthermore, Congress did not intend to have the Exon-Florio provision alter the generally open
foreign investment climate of the country or to have it inhibit foreign direct investment in
industries that could not be considered to be of national security interest. At the time, some
analysts believed the provision could potentially widen the scope of industries that fell under the
national security rubric. CFIUS, however, is not free to establish an independent approach to
reviewing foreign investment transactions, but operates under the authority of the President and
reflects his attitudes and policies. As a result, the discretion CFIUS uses to review and to
investigate foreign investment cases reflects policy guidance from the President. Foreign
investors also are constrained by legislation that bars foreign direct investment in such industries
as maritime, aircraft, banking, resources, and power. Generally, these sectors were closed to
foreign investors prior to passage of the Exon-Florio provision in order to prevent public services
and public interest activities from falling under foreign control, primarily for national defense
purposes.
22 Testimony of Patrick A. Mulloy before the Senate Committee on Banking, Housing, and Urban Affairs, October 20,
2005.
23 Executive Order 12661 of December 27, 1988, 54 F.R. 779.
24 Auerbach, Stuart. “President Tells China to Sell Seattle Firm,” The Washington Post, February 8, 1990, p. A1; and
Benham, Barbara. “Blocked Takeover Fuels Foreign Policy Flap,” Investor’s Daily, February 8, 1990. p. 1.
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Treasury Department Regulations
After extensive public comment, the Treasury Department issued its final regulations in
November 1991 implementing the Exon-Florio provision.25 Although these procedures were
amended through FINSA, they continued to serve as the basis for the Exon-Florio review and
investigation until new regulations were released on November 21, 2008.26 These regulations
created an essentially voluntary system of notification by the parties to an acquisition, and they
allowed for notices of acquisitions by agencies that are members of CFIUS. Despite the voluntary
nature of the notification, firms largely complied with the provision, because the regulations
stipulate that foreign acquisitions that are governed by the Exon-Florio review process that do not
notify the Committee remain subject indefinitely to possible divestment or other appropriate
actions by the President. Under most circumstances, notice of a proposed acquisition that is given
to the Committee by a third party, including shareholders, is not considered by the Committee to
constitute an official notification. The regulations also indicated that notifications provided to the
Committee would be considered confidential and the information would not be released by the
Committee to the press or commented on publicly.
The “Byrd Amendment”
In 1992, Congress amended the Exon-Florio statute through Section 837(a) of the National
Defense Authorization Act for Fiscal Year 1993 (P.L. 102-484). Known as the “Byrd” amendment
after the amendment’s sponsor, Senator Byrd, the provision requires CFIUS to investigate
proposed mergers, acquisitions, or takeovers in cases where two criteria are met:
(1) the acquirer is controlled by or acting on behalf of a foreign government; and
(2) the acquisition results in control of a person engaged in interstate commerce in the
United States that could affect the national security of the United States. 27
This amendment came under scrutiny by the 109th Congress as a result of the DP World
transaction. Many Members of Congress and others believed that this amendment required
CFIUS to undertake a full 45-day investigation of the transaction because DP World was
“controlled by or acting on behalf of a foreign government.” The DP World acquisition, however,
exposed a sharp rift between what some Members apparently believed the amendment directed
CFIUS to do and how the members of CFIUS interpreted the amendment. In particular, some
Members of Congress apparently interpreted the amendment to direct CFIUS to conduct a
mandatory 45-day investigation if the foreign firm involved in a transaction is owned or
controlled by a foreign government.
Representatives of CFIUS argued they interpreted the amendment to mean that a 45-day
investigation was discretionary and not mandatory. In the case of the DP World acquisition,
CFIUS representatives argued they had concluded as a result of an extensive review of the
proposed acquisition prior to the case being formally filed with CFIUS and during the thenexisting 30-day review that the DP World case did not warrant a full 45-day investigation. They
conceded that the case met the first criterion under the Byrd amendment, because DP World was
controlled by a foreign government, but that it did not meet the second part of the requirement,
25 Regulations Pertaining to Mergers, Acquisitions, and Takeovers by Foreign Persons. 31 C.F.R. Part 800.
26 31 C.F.R. Part 800, November 21, 2008.
27 P.L. 102-484, October 23, 1992.
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because CFIUS had concluded during the 30-day review that the transaction “could not affect the
national security.”28
The intense public and congressional reaction that arose from the proposed Dubai Ports World
acquisition spurred the Bush Administration in late 2006 to make an important administrative
change in the way CFIUS reviewed foreign investment transactions. CFIUS and President Bush
approved the acquisition of Lucent Technologies, Inc. by the French-based Alcatel SA, which was
completed on December 1, 2006. Before the transaction was approved by CFIUS, however,
Alcatel-Lucent was required to agree to a national security arrangement, known as a Special
Security Arrangement, or SSA, that restricts Alcatel’s access to sensitive work done by Lucent’s
research arm, Bell Labs, and the communications infrastructure in the United States.
The most controversial feature of this arrangement was that it allowed CFIUS to reopen a review
of a transaction and to overturn its approval at any time if CFIUS believed the companies
“materially fail to comply” with the terms of the arrangement. This marked a significant change
in the CFIUS process. Prior to this transaction, CFIUS reviews and investigations were portrayed
and considered to be final. As a result, firms were willing to subject themselves voluntarily to a
CFIUS review, because they believed that once an investment transaction was scrutinized and
approved by the members of CFIUS the firms could be assured that the investment transaction
would be exempt from any future reviews or actions. This administrative change, however, meant
that a CFIUS determination may no longer be a final decision, and it added a new level of
uncertainty to foreign investors seeking to acquire U.S. firms. A broad range of U.S. and
international business groups objected to this change in the Bush Administration’s policy.29
Recent Legislative Reforms
In the first session of the 110th Congress,
CFIUS Risk Assessment
Representative Maloney introduced H.R. 556,
In assessing the risk posed to national security by a
foreign investment transaction, CFIUS considers three
the National Security Foreign Investment
issues:
Reform and Strengthened Transparency Act of
1. What is the threat posed by the foreign investment
2007, on January 18, 2007. The House
in terms of intent and capabilities?
Financial Services Committee approved it on
2. What aspects of the business activity pose
February 13, 2007, with amendments, and the
vulnerabilities to national security?
full House amended and approved it on
3. What are the national security consequences if the
February 28, 2007, by a vote of 423 to 0. On
vulnerabilities are exploited?
June 13, 2007, Senator Dodd introduced
S1610, the Foreign Investment and National
Security Act of 2007 (FINSA). On June 29, 2007, the Senate adopted S. 1610 in lieu of H.R. 556
by unanimous consent. On July 11, 2007, the House accepted the Senate’s version of H.R. 556 by
a vote of 370-45 and sent the measure to President Bush, who signed it on July 26, 2007.30 On
January 23, 2008, President Bush issued Executive Order 13456 implementing the law.
28 Briefing on the Dubai Ports World Deal before the Senate Armed Services Committee, February 23, 2006.
29 Kirchgaessner, Stephanie, “US Threat to Reopen Terms of Lucent and Alcatel Deal Mergers,” Financial Times,
December 1, 2006. p. 19; Pelofsky, Jeremy, “Businesses Object to US Move on Foreign Investment,” Reuters News,
December 5, 2006.
30 The law is designated as P.L. 110-49.
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FINSA made a number of major changes, including the following:
Codified the Committee on Foreign Investment in the United States (CFIUS),
giving it statutory authority.
Made CFIUS membership permanent and added the Secretary of Energy, the
Director of National Intelligence (DNI), and Secretary of Labor as ex officio
members with the DNI providing intelligence analysis; also granted authority to
the President to add members on a case-by-case basis.
Required the Secretary of the Treasury to designate an agency with lead
responsibility for reviewing a covered transaction.
Increased the number of factors the President could consider in making his
determination.
Required that an individual no lower than an Assistant Secretary level for each
CFIUS member must certify to Congress that a reviewed transaction has no
unresolved national security issues; for investigated transactions, the certification
must be at the Secretary or Deputy Secretary level.
Provided Congress with confidential briefings upon request on cleared
transactions and annual classified and unclassified reports.
FIRRMA Legislation: Key Provisions
During the 115th Congress, many Members expressed concerns over China’s growing investment
in the United States, particularly in the technology sector. On November 8, 2017, Senators John
Cornyn and Dianne Feinstein and Representative Robert Pittenger introduced companion
measures in the Senate (S. 2098) and the House (H.R. 4311), respectively, identified as the
Foreign Investment Risk Review Modernization Act of 2018 (FIRRMA) to provide
comprehensive revision of the CFIUS process. On May 22, 2018, the Senate Banking and House
Financial Services Committees held their respective markup sessions and approved different
versions of the legislation. The Senate version of FIRRMA was added as Subtitle A of Title 17 of
the Senate version of the National Defense Authorization Act for Fiscal Year 2019 (S. 2987,
incorporated into the Senate amendments to H.R. 5515), which passed the Senate on June 18,
2018. The House version of FIRRMA, H.R. 5841 was passed as a standalone bill under
suspension vote on June 26, 2018. On August 13, 2018, President Trump signed FIRRMA,
identified as P.L. 115-232.
Similar to previous measures, FIRRMA grants the President the authority to block or suspend
proposed or pending foreign “mergers, acquisitions, or takeovers” by or with any foreign person
that could result in foreign control of any United States business, including such a merger,
acquisition, or takeover carried out through a joint venture that threaten to impair the national
security.31 Congress directed, however, that before this authority can be invoked the President
must conclude that (1) other U.S. laws are inadequate or inappropriate to protect the national
security; and (2) he/she must have “credible evidence” that the foreign interest exercising control
might take action that threatens to impair the national security. According to CFIUS, it has
interpreted this last provision to mean an investment that poses a risk to the national security. In
assessing the national security risk, CFIUS looks at (1) the threat, which involves an assessment
of the intent and capabilities of the acquirer; (2) the vulnerability, or an assessment of the aspects
31 The statute previously defined a person, or entity, as one engaged in interstate commerce, and did not include joint
ventures.
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of the U.S. business that could impact national security; and (3) the potential national security
consequences if the vulnerabilities were to be exploited.32
In general, FIRRMA:
Broadens the scope of transactions under CFIUS’ purview by including for
review real estate transactions in close proximity to a military installation or a
U.S. government facility or property of national security sensitivities; any
nonpassive investment in a critical infrastructure or critical technologies;
transactions that may result in compromising personally identifiable information
of U.S. citizens; any change in foreign investor rights regarding a U.S. business;
transactions in which a foreign government has a direct or indirect substantial
interest; and any transaction or arrangement designed to evade CFIUS
regulations.
Mandates various deadlines, including: a report on Chinese investment in the
United States, a plan for CFIUS members to recuse themselves in cases that pose
a conflict of interest, an assessment of CFIUS resources and plans for additional
staff and resources, a feasibility study of assessing a fee on transactions reviewed
unofficially prior to submission of a written notification, and a report assessing
the national security risks related to investments by state-owned or statecontrolled entities in the manufacture or assembly of rolling stock or other assets
used in freight rail, public transportation rail systems, or intercity passenger rail
system in the United States.
Allows CFIUS to discriminate among foreign investors by country of origin
in reviewing investment transactions by labeling some countries as “a country of
special concern”—a country that has a demonstrated or declared strategic goal of
acquiring a type of critical technology or critical infrastructure that would affect
United States leadership in areas related to national security.
Shifts the filing process for foreign firms from voluntary to mandatory in
certain cases and provides for a two-track method for reviewing investment
transactions, with some transactions requiring a declaration to CFIUS and
receiving an expedited process, while transactions involving investors from
countries of special concern would require a written notification of a proposed
transaction and would receive greater scrutiny.
Provides for additional factors for consideration that CFIUS and the President
may use to determine if a transaction threatens to impair U.S. national security, as
well as formalizes CFIUS’ use of risk-based analysis to assess the national
security risks of a transaction by assessing the threat, vulnerabilities, and
consequences to national security related to the transaction.
Lengthens most time periods for CFIUS reviews and investigations and for a
national security analysis by the Director of National Intelligence.
Provides for more staff to handle an expected increased workload and
provides for additional funding for CFIUS through a filing fee structure for
firms involved in a transaction and a $20 million annual appropriation.
32 See the CFIIUS website at https://www.treasury.gov/press-center/press-releases/Pages/jl0401.aspx.
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Modifies CFIUS’ annual reporting requirements, including its annual
classified report to specified Members of Congress and nonclassified reports to
the public to provide for more information on foreign investment transactions.
Mandates separate reforms related to export controls, with requirements to
establish an interagency process to identify so-called “emerging and foundational
technologies”—such items are to also fall under CFIUS review of critical
technologies—and establish controls on the export or transfer of such
technologies.
CFIUS: Major Provisions
As indicated in Figure 2 below, the CFIUS foreign investment review process is comprised of an
informal step and three formal steps: a Declaration or written notice; a National Security Review;
and a National Security Investigation. Depending on the outcome of the reviews, CFIUS may
forward a transaction to the President for a Presidential Determination. In some cases, FIRRMA
increased the allowable time for reviews and investigations: (1) 30 days to review a declaration or
written notification to determine if the transaction involves a foreign person in which a foreign
government has a substantial financial interest, defined as 25% ownership interest between a
foreign person and U.S. business and 49% ownership interest or greater between a foreign
government and foreign person; (2) a 45-day national security review (from 30 days), including
an expanded time limit for analysis by the Director of National Intelligence (from 20 to 30 days)
and (3) 45 days for a national security investigation, with an option for a 15-day extension for
“extraordinary circumstances;” and a 15-day presidential determination (unchanged).
FIRRMA provides a “sense of Congress” concerning six additional factors that CFIUS and the
President may consider to determine if a proposed transaction threatens to impair U.S. national
security. These include:
1. Covered transactions that involve a country of “special concern” that has a
demonstrated or declared strategic goal of acquiring a type of critical technology
or critical infrastructure that would affect U.S. leadership in areas related to
national security;
2. The potential effects of the cumulative control of, or pattern of recent
transactions involving, any one type of critical infrastructure, energy asset,
critical material, or critical technology by a foreign government or person;
3. Whether any foreign person engaged in a transaction has a history of complying
with U.S. laws and regulations;
4. Control of U.S. industries and commercial activity that affect U.S. capability and
capacity to meet the requirements of national security, including the availability
of human resources, products, technology, materials, and other supplies and
services;
5. The extent to which a transaction is likely to expose personally identifiable
information, genetic information, or other sensitive data of U.S. citizens to access
by a foreign government or person that may exploit that information to threaten
national security; and
6. Whether a transaction is likely to exacerbate or create new cybersecurity
vulnerabilities or is likely to result in a foreign government gaining a significant
new capability to engage in malicious cyber-enabled activities.
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Figure 2. Steps of a CFIUS Foreign Investment National Security Review
Source: Chart developed by CRS.
National Security Reviews
Informal Actions
Over time, the three-step CFIUS process has evolved to include an informal stage of unspecified
length of time that consists of an unofficial review by individual CFIUS members prior to the
formal filing with CFIUS. This type of informal review likely developed because it serves the
interests of both CFIUS and the firms that are involved in an investment transaction. According to
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Treasury Department officials, this informal contact enabled “CFIUS staff to identify potential
issues before the review process formally begins.”33 FIRMMA directed CFIUS to analyze the
feasibility and potential impact of charging a fee for conducting such informal reviews.
Firms that are party to an investment transaction apparently benefit from this informal review in a
number of ways. For one, it allows firms additional time to work out any national security
concerns privately with individual CFIUS members. Secondly, and perhaps more importantly, it
provides a process for firms to avoid risking potential negative publicity that could arise if a
transaction were blocked or otherwise labeled as impairing U.S. national security interests. For
some firms, public knowledge of a CFIUS investigation has had a negative effect on the value of
the firm’s stock price.
For CFIUS members, the informal process is beneficial because it gives them as much time as
they deem necessary to review a transaction without facing the time constraints that arise under
the formal CFIUS review process. This informal review likely also gives CFIUS members added
time to negotiate with firms involved in a transaction to restructure the transaction in ways that
can address any potential security concerns or to develop other types of conditions that members
feel are appropriate in order to remove security concerns.
According to anecdotal evidence, some firms believe the CFIUS process is not market neutral,
but adds to market uncertainty that can negatively affect a firm’s stock price and lead to economic
behavior by some firms that is not optimal for the economy as a whole. Such behavior might
involve firms expending resources to avoid a CFIUS investigation, or terminating a transaction
that potentially could improve the optimal performance of the economy to avoid a CFIUS
investigation. While such anecdotal accounts generally are not a basis for developing public
policy, they raise concerns about the possible impact a CFIUS review may have on financial
markets and the potential costs of redefining the concept of national security relative to foreign
investment.
Formal Actions
Part of FIRRMA directed Treasury to develop pilot programs to address concerns related to some
provisions and allow time for additional resources to be directed at developing a more permanent
regulatory response. The 2018 pilot program implemented authorities in two sections of FIRRMA
by (1) expanding the scope of transactions subject to a CFIUS review to include certain
investments involving foreign persons and critical technologies, and (2) implementing mandatory
declarations for transactions within the program’s scope, exclusive of real estate transactions.
On January 13, 2020, the Treasury Department issued final regulations for FIRRMA, which
became effective on February 13, 2020.34 According to Treasury, the final regulations differ from
the initial draft regulations by “defining additional terms, adding specificity to a number of
provisions, and including illustrative examples, among other things. The final regulations also
implement FIRRMA’s requirement that the Committee limit the application of its expanded
jurisdiction to certain categories of foreign persons.”35 The regulations expand and clarify new
authority for CFIUS to review certain real estate and other noncontrolling foreign investments on
33 Testimony of Robert Kimmett, Briefing on the Dubai Ports World Deal Before the Senate Armed Services
Committee, February 23, 2006.
34 CRS In Focus IF11334, CFIUS: New Foreign Investment Review Regulations, by Cathleen D. Cimino-Isaacs and
James K. Jackson.
35 Treasury Releases Final Regulations to Reform National Security Reviews for Certain Foreign Investments and
Other Transactions in the United States, January 13, 2020, https://home.treasury.gov/news/press-releases/sm872.
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the basis of threats, vulnerabilities, and consequences to national security. Reviews of
noncontrolling investments are limited to certain U.S. businesses (referred to as “TID businesses”
for Technology, Infrastructure, and Data) that: (1) produce, design, test, manufacture, fabricate, or
develop one or more critical technologies in 27 specified industrial sectors;36 or (2) own, operate,
manufacture, supply, or service critical infrastructure (28 areas specified);37 or (3) maintain or
collect sensitive personal data. One major aim of the proposed regulations reportedly is to
“provide clarity to the business and investment communities with respect to the types of U.S.
businesses that are covered under FIRRMA’s other investment authority.” The regulations limit
the application of the expanded review process to certain categories of foreign persons,
introducing new terms such as “excepted investor” and “excepted foreign state” for
noncontrolling transactions. On February 13, 2020, the Treasury Department designated
Australia, Canada, and the United Kingdom, defined as Great Britain and Northern Ireland, as
excepted foreign states. The Department indicated that it would publish at a later date the criteria
CFIUS will consider when making its determination to designate a country an excepted foreign
state.38
Critical Infrastructure / Critical Technologies
An element of the CFIUS process added by FINSA and reinforced by FIRRMA is the addition of
“critical industries” and “critical technologies” as broad categories of economic activity, in
36 The 27 critical sectors are (1) Aircraft Manufacturing; (2) Aircraft Engine and Engine Parts Manufacturing; (3)
Alumina Refining and Primary Aluminum Production; (4) Ball and Roller Bearing Manufacturing; (5) Computer
Storage Device Manufacturing; (6) Electronic Computer Manufacturing; (7) Guided Missile and Space Vehicle
Manufacturing; (8) Guided Missile and Space Vehicle Propulsion Unit and Propulsion Unit Parts Manufacturing; (9)
Military Armored Vehicle, Tank, and Tank Component Manufacturing; (10) Nuclear Electric Power Generation; (11)
Optical Instrument and Lens Manufacturing; (12) Other Basic Inorganic Chemical Manufacturing; (13) Other Guided
Missile and Space Vehicle Parts and Auxiliary Equipment Manufacturing; (14) Petrochemical Manufacturing; (15)
Powder Metallurgy Part Manufacturing; (16) Power, Distribution, and Specialty Transformer Manufacturing; (17)
Primary Battery Manufacturing; (18) Radio and Television Broadcasting and Wireless Communications Equipment
Manufacturing; (19) Research and Development in Nanotechnology; (20) Research and Development in Biotechnology
(except Nanobiotechnology); (21) Secondary Smelting and Alloying of Aluminum; (22) Search, Detection, Navigation,
Guidance, Aeronautical, and Nautical System and Instrument Manufacturing; (23) Semiconductor and Related Device
Manufacturing; (24) Semiconductor Machinery Manufacturing; (25) Storage Battery Manufacturing; (26) Telephone
Apparatus Manufacturing; (27) Turbine and Turbine Generator Set Units Manufacturing.
37 The 28 critical infrastructure areas are identified as (1) Internet protocol or telecommunications service; (2) Certain
internet exchange points; (3) Submarine cable systems; (4) Submarine cable landing systems; (5) Data center at a
submarine landing facility; (6) Satellite or satellite systems servicing the /Department of Defense; (7) Industrial
resources manufactured or operated for a Major Defense Acquisition Program; (8) Any industrial resource
manufactured pursuant to a “DX” priority rated contract; (9) Any facility that manufactures certain specialty metals,
chemical weapons, carbon. alloy and steel plates, and other specified materials; (10) Any industrial resource that had
been funded by the Defense Production Act, Industrial Base Fund, Rapid Innovation Fund, Manufacturing Technology
Program, Defense Logistics Warstopper Program, or the Defense Logistics Agency Surge and Sustainment program;
(11) Electric energy storage systems; (12) Any electric storage system linked to the bulk electric system;(13) Electric
energy generation, transmission or distribution for military installations; (14) Any industrial control system used by
bulk-power systems, or a facility directly supporting a military installation; (15) Certain refineries; (16) Certain crude
oil storage facilities; (17) Certain LNG import or export terminals or certain natural gas underground storage facilities;
(18) Systemically important financial market utilities; (19) Certain financial market exchanges; (20) Technology
providers in the Significant Service Provider Program; (21) Any rail line designated as part of the DOD Strategic Rail
Corridor Network; (22) Certain interstate oil pipelines; (23) Certain interstate natural gas pipelines; (24) Any industrial
control system utilized by interstate oil or natural gas pipelines; (25) Certain airports; (26) Certain maritime ports or
terminals; (27) Public water systems; (28) Any industrial control system utilized by public water systems or treatment
works.
38 See: https://home.treasury.gov/policy-issues/international/the-committee-on-foreign-investment-in-the-united-statescfius/cfius-excepted-foreign-states.
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addition to homeland security, that could be subject to a CFIUS national security review,
broadening CFIUS’s mandate. The precedent for this action was set in the Patriot Act of 2001 and
the Homeland Security Act of 2002, which define critical industries and homeland security and
assign responsibilities for those industries to various federal government agencies. FINSA
references those two acts and borrows language from them on critical industries and homeland
security. After the September 11th terrorist attacks, Congress passed and President Bush signed the
USA PATRIOT Act of 2001 (Uniting and Strengthening America by Providing Appropriate Tools
Required to Intercept and Obstruct Terrorism).39 In this act, Congress provided for special support
for “critical industries,” which it defined as
systems and assets, whether physical or virtual, so vital to the United States that the
incapacity or destruction of such systems and assets would have a debilitating impact on
security, national economic security, national public health or safety, or any combination
of those matters.40
This broad definition is enhanced to some degree by other provisions of the act, which identify
certain sectors of the economy that are likely candidates for consideration as components of the
national critical infrastructure. These sectors include telecommunications, energy, financial
services, water, transportation sectors,41 and the “cyber and physical infrastructure services
critical to maintaining the national defense, continuity of government, economic prosperity, and
quality of life in the United States.”42 The following year, Congress adopted the language in the
Patriot Act on critical infrastructure into The Homeland Security Act of 2002.43
In addition, the Homeland Security Act added key resources to the list of critical infrastructure
(CI/KR) and defined those resources as “publicly or privately controlled resources essential to the
minimal operations of the economy and government.”44 Through a series of directives, the
Department of Homeland Security identified 17 sectors45 of the economy as falling within the
definition of critical infrastructure/key resources and assigned primary responsibility for those
sectors to various federal departments and agencies, which are designated as Sector-Specific
Agencies (SSAs).46 On March 3, 2008, Homeland Security Secretary Chertoff signed an internal
DHS memo designating Critical Manufacturing as the 18th sector on the CI/KR list.
In 2013, the list of critical industries was altered through a Presidential Policy Directive (PPD21).47 The directive listed three “strategic imperatives” as drivers of the Federal approach to
strengthening “critical infrastructure security and resilience:”
39 P.L. 107-56, Title X, §1014, October 26, 2001; 42 U.S.C. §5195c(e).
40 Ibid.
41 42 U.S.C. §5195c(b)(2).
42 42 U.S.C. §5195c(b)(3).
43 6 U.S.C. §101(4).
44 6 U.S.C. §101(9).
45 The sectors include (1) Agriculture and Food; (2) Defense Industrial Base; (3) Energy; (4) Public Health and
Healthcare; (5) National Monuments and Icons; (6) Banking and Finance; (7) Drinking Water and Water Treatment
Systems; (8) Chemical; (9) Commercial Facilities; (10) Dams; (11) Emergency Services; (12) Commercial Nuclear
Reactors, Materials, and Waste; (13) Information Technology; (14) Telecommunications; (15) Postal and Shipping;
(16) Transportation Systems; and (17) Government Facilities.
46 Sector-Specific Agencies include the Departments of: Agriculture, Defense, Energy, Health and Human Services,
Homeland Security, Interior, Treasury, and the Environmental Protection Agency.
47 Presidential Policy Directive—Critical Infrastructure Security and Resilience, The While House, February 12, 2013.
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1. Refine and clarify functional relationships across the Federal Government to
advance the national unity of effort to strengthen critical infrastructure security
and resilience;
2. Enable effective information exchange by identifying baseline data and systems
requirements for the Federal Government; and
3. Implement an integration and analysis function to inform planning and operations
decisions regarding critical infrastructure.
The directive assigns the main responsibility to the Department of Homeland Security for
identifying critical industries and coordinating efforts among the various government agencies,
among a number of responsibilities. The directive also assigns roles to other agencies and
designated 16 sectors as critical to the U.S. infrastructure. The sectors are (1) chemical; (2)
commercial facilities; (3) communications; (4) critical manufacturing; (5) dams; (6) defense
industrial base; (7) emergency services; (8) energy; (9) financial services; (10) food and
agriculture; (11) government facilities; (12) health care and public health; (13) information
technology; (14) nuclear reactors, materials, and waste; (15) transportation systems; and (16)
water and wastewater systems.48 Under FIRRMA, the term “critical infrastructure” is applied
to 28 areas listed in an appendix (such as telecommunications, energy, and transportation), and
specific business functions (see footnote 37).
FIRRMA regulations elaborate a number of definitions that define and constrain the scope of
CFIUS’s reviews. The term, “critical technologies” reflects the definition provided in FIRRMA
that covers 27 industrial activities in which critical technologies may be developed or used,
including “emerging and foundational technologies,” which are or may be subject to export
controls, pursuant to the Export Control Reform Act of 2018. The term “critical technologies” is
defined by FIRRMA according to US-export-controlled technologies, and includes:
Defense articles and defense services included on the United States Munitions
List set forth in the International Traffic in Arms Regulations under subchapter M
of Chapter I of Title 22, Code of Federal Regulations.;
Civilian/military dual-use technologies included on the Commerce Control List
set forth in Supplement No. 1 to part 774 of the Export Administration
Regulations under subchapter C of Chapter VII of Title 15, Code of Federal
Regulations that are either: under multilateral regimes relating to national
security, chemical and biological weapons proliferation, nuclear nonproliferation,
or missile technology (i.e., excluding, for instance, “EAR99” items, as well items
controlled only for anti-terrorism reasons), or included for reasons relating to
regional stability or surreptitious listening;
Nuclear technologies covered by rules relating to foreign atomic energy activities
and export and import of nuclear equipment and materials, software, and
technology covered by part 810 of Title 10, Code of Federal Regulations (relating
to assistance to foreign atomic energy activities).;
Select agents and toxins covered by part 331 of Title 7, Code of Federal
Regulations, part 121 of Title 9 of such Code, or part 73 of Title 42 of such Code;
or
48 See http://www.dhs.gov/critical-infrastructure-sectors.
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Emerging and foundational technologies controlled pursuant to the Export
Control Reform Act of 2018 (not yet defined, but expected to be forthcoming
from the U.S. Commerce Department).
“Sensitive personal data” that may be exploited to threaten national security includes 10
categories of data maintained or collected by U.S. businesses that (1) “target or tailor” products or
services to “sensitive populations,” like U.S. government personnel; (2) maintain or collect data
on more than 1 million individuals; or (3) have a demonstrated objective to maintain or collect
data on more than 1 million individuals as part of its primary product or service. Notably, genetic
information is included in the definition, regardless of these parameters. Other types of data
include financial, geolocation, health, and others. Treasury emphasized that these parameters
were drafted to provide as much clarity and specificity as possible to businesses. These
specifications do not constrain CFIUS’s traditional review of any transaction resulting in foreign
control of a U.S. business.
The regulations do not target any particular country for greater scrutiny by CFIUS—a major topic
of congressional debate during consideration of FIRRMA. FIRRMA did however, mandate
criteria that exempts certain categories of foreign investors from CFIUS’s expanded jurisdiction.
These criteria include the principal place of business and incorporation, as well as ties to certain
eligible countries. Treasury is to publish a list of criteria for determining a limited number of
“excepted foreign states”—a status determined by the Treasury Secretary and a supermajority of
CFIUS member agencies. As previously indicated, on February 13, 2020, the Treasury
Department designated Australia, Canada, and the United Kingdom, defined as Great Britain and
Northern Ireland, as excepted foreign states. One major factor in determining an excepted state is
whether that country is “utilizing a robust process to assess foreign investments for national
security risks and to facilitate coordination with the United States on matters relating to
investment security.” Treasury delayed implementing this requirement to allow countries to
enhance their review processes. “Excepted investors,” however, would not be exempt from
CFIUS’s review of controlling-interest transactions.
CFIUS Filing Requirements
Under FIRRMA, the process of notifying a transaction to CFIUS remains largely voluntary, but
FIRRMA provided new authority to require a declaration, an abbreviated filing (not to exceed
five pages), with basic information on the transaction. A declaration is mandatory for transactions
in which a foreign person has a “substantial interest” in a U.S. business, and a foreign
government holds a “substantial interest” in the foreign entity making the investment. The
regulations specify a voting interest (direct or indirect) threshold for “substantial interest” of 25%
between a foreign person and U.S. business and 49% or greater between a foreign government
and foreign person. (Any voting interest of a parent entity in a subsidiary is deemed to be a 100%
voting interest.) The regulations also implement FIRRMA’s mandate that CFIUS take certain
actions in response to a declaration. FIRRMA also authorizes CFIUS to impose fees and to create
a mandatory filing process: those areas are expected to be covered in future proposed regulations.
Within the regulations, Treasury clarified that declarations and written notices are distinguished
according to three criteria: 1) the length of the submission; 2) the time for CFIUS’ consideration
of the submission; and 3) the Committee’s options for disposition of the submission. To qualify
for an expedited review declaration, the parties to a transaction can voluntarily stipulate that a
transaction is a covered transaction, whether the transaction could result in control of a U.S.
business by a foreign person, and whether the transaction is a foreign-government controlled
transaction. CFIUS would be required to respond within 30 days to the filing of a declaration,
whereas CFIUS would have 45 days to respond to a written notification. Regulations specify the
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content and filing processes for declarations and notices; misstatements or omissions are subject
to a fine of $250,000 per violation
CFIUS is required to respond in one of four ways to a declaration: (1) request that the parties file
a written notice; (2) inform the parties that CFIUS cannot complete the review on the basis of the
declaration and that they can file a notice to seek a written notification from the Committee that it
has completed all the action relevant to the transaction; (3) initiate a unilateral review of the
transaction through an agency notice; or (4) notify the parties that CFIUS has completed its action
under the statute.
Mandatory filings through declarations are required for some investments in certain U.S.
businesses that produce, design, test, manufacture, fabricate, or develop one or more critical
technologies in 27 specified industries (see footnote 36). Critical technologies are defined as
those that are (1) used in a U.S. business’s activity in the specified industries, or (2) designed by
the U.S. business specifically for use in those industries. The 27 identified industries are
characterized as those in which a “certain strategically motivated foreign investment” could pose
a threat to US technological superiority and national security and as “target industries that face
imminent threats of erosion of technological superiority from foreign direct investment,”
according to Treasury regulations.49 According to the Treasury Department,
....some foreign direct investment threatens to undermine the technological superiority that
is critical to U.S. national security. Specifically, the threat to critical technology industries
is more significant than ever as some foreign parties seek, through various means, to
acquire sensitive technologies with relevance for U.S. national security. Foreign
investment in U.S. critical technologies has grown significantly in the past decade, and an
enhanced framework is needed to address the potential impacts of this growth on U.S.
national security.50
Noncontrolling Equity Investments
CFIUS’s expanded authority under FIRRMA directs it to review investment transactions whether
or not the investment conveys a controlling equity interest in certain cases.51 In particular, this
review occurs where a foreign person has: (1) access to information, certain rights, or
involvement in the decisionmaking of certain U.S. businesses involved in critical technologies,
critical infrastructure, or sensitive personal data (i.e., TID businesses); (2) any change in a foreign
person’s rights, if such change could result in foreign control of a U.S. business or a covered
investment in certain U.S. businesses; and (3) any other transaction, transfer, agreement, or
arrangement, designed or intended to evade or circumvent the CFIUS review process.
Specifically, such noncontrolling investments are covered, or subject to a review, if they would
grant the foreign investor:
Access to any material nonpublic technical information in the possession of the
target U.S. business;
Membership or observer rights on the board of directors or equivalent governing
body of the U.S. business, or the right to nominate an individual to a position on
the board of directors or equivalent governing body of the U.S. business; or
49 Federal Register, vol. 83, no. 197, October 11, 2018, p. 51324.
50 Ibid.
51 31 CFR Part 800, Provisions Pertaining to Certain Investments in the United States by Foreign Persons, Department
of the Treasury.
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Any involvement, other than through voting of shares, in substantive
decisionmaking of the U.S. business regarding the use, development, acquisition,
or release of critical technology.
Additional regulations further define the terms “material non-public technical information” and
“substantive decisionmaking.” The regulations also clarify circumstances under which CFIUS
can review an indirect investment through investment funds. As indicated, this new authority is
limited to “TID U.S. businesses.” Prior to this change, a controlling interest was determined to be
greater than 10% of the voting shares of a publicly traded company, or greater than 10% of total
assets of a non-publicly traded U.S. company.
This change in coverage was precipitated by concerns that investments in which foreign firms
have a noncontrolling interest could nevertheless “affect certain decisions made by, or obtain
certain information from, a U.S. business with respect to the use, development, acquisition, or
release of critical technology.” Final regulations allow any firm the opportunity to file a shortform declaration, but CFIUS can require a longer-form filing if it determines that such a filing is
necessary. Mandatory declarations may be subject to other criteria as defined by regulations.
The chief executive officer of any party to a merger, acquisition, or takeover must certify in
writing that the information contained in a written notification to CFIUS fully complies with the
CFIUS requirements and that the information is accurate and complete. This written notification
would also include any mitigation agreement or condition that was part of a CFIUS approval.
At any point during the CFIUS process, parties can withdraw and refile their notice, for instance,
to allow additional time to discuss CFIUS’s proposed resolution of outstanding issues. Under
FINSA and FIRRMA, the President retains his authority as the only officer capable of suspending
or prohibiting mergers, acquisitions, and takeovers, and the measures place additional
requirements on firms that resubmitted a filing after previously withdrawing a filing before a full
review was completed.
Some stakeholders expressed concern over the potential impact of CFIUS’s expanded jurisdiction
on smaller U.S. businesses that rely on foreign investment. Treasury indicated that it could not
project the economic impact of reviewing certain real estate transactions, but it estimated that the
change was not expected to have a “significant economic impact on a substantial number of small
entities.” Similarly, regarding noncontrolling equity investments, Treasury concluded that less
than 1% of U.S. small businesses likely would be subject to a review.
Real Estate
CFIUS’s expanded jurisdiction over certain real estate (land and structures) transactions includes
the purchase or lease by, or a concession to, a foreign person of certain private or public real
estate located in the United States.52 Real estate transactions are defined as those that accord the
investor certain fundamental property rights. In particular, the provision focuses on real estate that
is in proximity of certain airports, maritime ports, and other facilities and properties of the U.S.
Government that are sensitive for national security reasons (military installations include 190
facilities located across 40 States and Guam). CFIUS additionally retains the authority to review
any transaction that raises national security concerns on the basis of proximity to sensitive sites
and activities.
The regulations specify various definitions, such as:
52 31 C.F.Rr Part 802, Provisions Pertaining to Certain Transactions by Foreign Persons Involving Real Estate in the
United States, Department of the Treasury.
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Stipulated airports: As defined by the Federal Aviation Administration (FAA),
major passenger and cargo airports based on volume and “joint use airports” that
serve civilian and military aircraft;
Close proximity: Areas within one mile of a relevant military installation or other
facility or property of the U.S. Government;
Extended range: Areas between one and 100 miles;
Facilities located within designated counties, according to Appendix A of the
proposed regulations; and
Off-shore ranges: Within 12 nautical miles of the U.S.
Excepted real estate transactions include: (1) certain real estate investors, defined as those with a
substantial connection to certain foreign countries and who have not violated U.S. laws; (2)
housing units; (3) urbanized areas and urban clusters (both defined by the Census Bureau); (4)
commercial office space (with some exceptions); (5) retail trade, accommodation, or food service
establishments; (6) lands held by Native Americans and some Alaskan Natives; and (7) certain
lending and contingent equity transactions. Requirements for filing a voluntary declaration or
written notice are similar to those for other investment transactions, except that a filing is not
mandatory for a real estate transaction. The regulations define an excepted foreign investor
through various criteria, including holding the right to 5% or more of the profit of the investing
foreign firm, or the ability to exercise control.
National Security Review
After a transaction is filed with CFIUS and depending on an initial assessment, the transaction
can be subject to a 45-day national security review (increased from 30 days by FIRRMA). During
a review, CFIUS members are required to consider the 12 factors mandated by Congress through
FINSA and six new factors in FIRRMA that reflect the “sense of Congress” in assessing the
impact of an investment. If during the 45-day review period all members conclude that the
investment does not threaten to impair the national security, the review is terminated.
During the 45-day review stage, the Director of National Intelligence (DNI), an ex officio
member of CFIUS, is required to carry out a thorough analysis of “any threat to the national
security of the United States” of any merger, acquisition, or takeover. This analysis is required to
be completed “within 30 days” (modified by FIRRMA from 20 to 30 days) of the receipt of a
notification by CFIUS. This analysis could include a request for information from the Department
of the Treasury’s Director of the Office of Foreign Assets Control and the Director of the
Financial Crimes Enforcement Network. In addition, the Director of National Intelligence is
required to seek and to incorporate the views of “all affected or appropriate” intelligence
agencies. CFIUS also is required to review “covered” investment transactions in which the
foreign entity is owned or controlled by a foreign government, but the law provides an exception
to this requirement. If the Secretary of the Treasury and certain other specified officials determine
that the transaction in question will not impair the national security, the investment is not subject
to a formal review.
National Security Investigation
If a national security review indicates that at least one of three conditions exists, the President,
acting through CFIUS, is required to conduct a National Security Investigation and to take any
“necessary” actions as part of an additional 45-day investigation, with a possible 15-day
extension for “extraordinary circumstances.” The three conditions are: (1) CFIUS determines that
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the transaction threatens to impair the national security of the United States and that the threat has
not been mitigated during or prior to a review of the transaction; (2) the foreign person is
controlled by a foreign government; or (3) the transaction would result in the control of any
critical infrastructure by a foreign person, the transaction could impair the national security, and
such impairment had not been mitigated. At the conclusion of the investigation or 45-day review
period, whichever comes first, the Committee can offer no recommendation, approve a mitigation
agreement, or it can recommend to the President that he/she suspend or prohibit the investment.
During a review or an investigation, CFIUS and a designated lead agency have the authority to
negotiate, impose, or enforce any agreement or condition with the parties to a transaction in order
to mitigate any threat to U.S. national security. Such agreements are based on a “risk-based
analysis” of the threat posed by the transaction. Also, if a notification of a transaction is
withdrawn before any review or investigation by CFIUS is completed, the amended law grants
the Committee the authority to take a number of actions. In particular, the Committee could
develop (1) interim protections to address specific concerns about the transaction pending a
resubmission of a notice by the parties; (2) specific time frames for resubmitting the notice; and
(3) a process for tracking any actions taken by any parties to the transaction.
Presidential Determination
As noted above, CFIUS authorities allow the President to block or suspend proposed or pending
foreign “mergers, acquisitions, or takeovers” that threaten to impair the national security. The
President, however, is under no obligation to follow the recommendation of the Committee to
suspend or prohibit an investment. Congress directed that before this authority can be invoked (1)
the President must conclude that other U.S. laws are inadequate or inappropriate to protect the
national security; and (2) the President must have “credible evidence” that the foreign investment
will impair the national security. As a result, if CFIUS determines, as was the case in the Dubai
Ports transaction, that it does not have credible evidence that an investment will impair the
national security, then it may argue that it is
not required to undertake a full 45-day
Transactions Blocked by Presidents
investigation, even if the foreign entity is
Since the creation of CFIUS, presidential action blocked
owned or controlled by a foreign government.
five transactions based on CFIUS recommendations:
After considering the two conditions listed
1. In 1990, President Bush directed the China National
above (other laws are inadequate or
Aero-Technology Import and Export Corporation
inappropriate, and he has credible evidence
(CATIC) to divest its acquisition of MAMCO
Manufacturing.
that a foreign transaction will impair national
2. In 2012, President Obama directed the Ralls
security), the President is granted almost
Corporation to divest itself of an Oregon wind farm
unlimited authority to take “such action for
project.
such time as the President considers
3. In 2016, President Obama blocked the Chinese firm
appropriate to suspend or prohibit any
Fujian Grand Chip Investment Fund from acquiring
covered transaction that threatens to impair
Aixtron, a German-based semiconductor firm with U.S.
the national security of the United States.” In
assets.
addition, such determinations by the President
4. In 2017, President Trump blocked the acquisition of
are not subject to judicial review, although the
Lattice Semiconductor Corp. of Portland, OR, for $1.3
billion by Canyon Bridge Capital Partners, a Chinese
process by which the disposition of a
investment firm.
transaction is determined may be subject to
judicial review to ensure that the constitutional 5. In 2018, President Trump blocked the acquisition of
semiconductor chip maker Qualcomm by Singaporerights of the parties involved are upheld, as
based Broadcom for $117 billion.
was emphasized in the ruling by the U.S.
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District Court for the District of Columbia in the case of Ralls vs. the Committee on Foreign
Investment in the United States.
Committee Membership
President Bush’s January 23, 2008, Executive Order 13456 implementing FINSA made various
changes to the law. The Committee consists of nine Cabinet members, including the Secretaries
of State, the Treasury, Defense, Homeland Security, Commerce, and Energy; the Attorney
General; the United States Trade Representative; and the Director of the Office of Science and
Technology Policy.53 The Secretary of Labor and the Director of National Intelligence serve as ex
officio members of the Committee.54 The executive order added five executive office members to
CFIUS in order to “observe and, as appropriate, participate in and report to the President:” the
Director of the Office of Management and Budget; the Chairman of the Council of Economic
Advisors; the Assistant to the President for National Security Affairs; the Assistant to the
President for Economic Policy; and the Assistant to the President for Homeland Security and
Counterterrorism. The President can also appoint members on a temporary basis to the
Committee as he determines.
FIRRMA did not alter the membership of the Committee, but added two new positions within the
Treasury Department. Both of the new positions are designated to be at the level of Assistant
Secretary, with one of the positions an Assistant Secretary for Investment Security, whose
primary responsibilities will be with CFIUS, under the direction of the Treasury Secretary.
Covered Transactions
The statute requires CFIUS to review all “covered” foreign investment transactions to determine
whether a transaction threatens to impair the national security, or the foreign entity is controlled
by a foreign government, or it would result in control of any “critical infrastructure that could
impair the national security.” A covered foreign investment transaction is defined as any merger,
acquisition, or takeover “that could result in foreign control of any United States business,
including such a merger, acquisition, or takeover carried out through a joint venture.” The term
‘national security’ is defined to include those issues relating to ‘homeland security,’ including its
application to critical infrastructure, critical technologies, and sensitive personal data. In addition,
in reviewing a covered transaction, Congress directed that CFIUS and the President “may”
consider the following:
the control of United States industries and commercial activity by foreign
persons as it affects the capability and capacity of the United States to meet the
requirements of national security, including the availability of human resources,
53 The United States Trade Representative and the Director of the Office of Science and Technology Policy were added
through E.O. 13456, issued January 23, 2008.
54 Executive Order 11858 of May 7, 1975, 40 F.R. 20263 established the Committee with six members: the Secretaries
of State, the Treasury, Defense, Commerce, and the Assistant to the President for Economic Affairs, and the Executive
Director of the Council on International Economic Policy. Executive Order 12188, January 2, 1980, 45 F.R. 969, added
the United States Trade Representative and substituted the Chairman of the Council of Economic Advisors for the
Executive Director of the Council on International Economic Policy. Executive Order 12661, December 27, 1988, 54
F.R. 779, added the Attorney General and the Director of the Office of Management and Budget. Executive Order
12860, September 3, 1993, 58 F.R. 47201, added the Director of the Office of Science and Technology Policy, the
Assistant to the President for National Security Affairs, and the Assistant to the President for Economic Policy.
Executive Order 13286, Section 57, February 28, 2003, added the Secretary of Homeland Security. P.L. 110-49
reduced the membership of CFIUS to six Cabinet members and the Attorney General, it added the Secretary of Labor
and the Director of National Security as ex officio members, and removed seven White House appointees.
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products, technology, materials, and other supplies and services, and in
considering ‘‘the availability of human resources,’’ should construe that term to
include potential losses of such availability resulting from reductions in the
employment of United States persons whose knowledge or skills are critical to
national security, including the continued production in the United States of items
that are likely to be acquired by the Department of Defense or other Federal
departments or agencies for the advancement of the national security of the
United States; and
the extent to which a covered transaction is likely to expose, either directly or
indirectly, personally identifiable information, genetic information, or other
sensitive data of United States citizens to access by a foreign government or
foreign person that may exploit that information in a manner that threatens
national security.
FIRRMA also expanded CFIUS reviews to include unaffiliated businesses that may be affected
by a foreign investment transaction if the business: (1) owns, operates, manufactures, supplies, or
services critical infrastructure; (2) produces, designs, tests, manufactures, fabricates, or develops
one or more critical technologies; or (3) maintains or collects sensitive personal data of United
States citizens that may be exploited in a manner that threatens national security. FIRRMA also
amended the existing CFIUS statute by mandating certain changes be adopted through new
regulations. Seven of 15 changes mandated through regulations concern the definition of a
covered transaction and broadening the scope of a CFIUS review. No deadlines were specified for
these regulatory changes. The regulatory changes mandated by FIRRMA include:
Definition of a foreign investment transaction.
Real estate. CFIUS can prescribe criteria for the definition of a covered
transaction beyond those specified in the statute that include certain real
estate transactions that are located in the United States. In order to qualify
under this provision, the real estate must:
be located within, or function as part of, an air or maritime port;
be in “close proximity” to a U.S. military installation or another facility
or property of the U.S. government that is sensitive for reasons relating
to national security;
reasonably provide the foreign person the ability to collect intelligence
on activities being conducted at such an installation, facility, or property;
or
otherwise expose national security activities at such an installation,
facility, or property to the risk of foreign surveillance.
CFIUS is also directed to develop regulations concerning the definition
of “close proximity” in describing real estate transactions subject to
review.
Unaffiliated business. CFIUS can promulgate regulations governing foreign
investments in an unaffiliated U.S. business that: owns, operates,
manufactures, supplies, or services critical infrastructure; produces, designs,
tests, manufactures, fabricates, or develops one or more critical technologies;
or maintains or collects sensitive personal data of U.S. citizens that may be
exploited in a manner that threatens national security.
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Changes in investor rights and other structures. Covered transactions also
entail any change in the rights that a foreign person has with respect to a U.S.
business in which the foreign person has an investment if that change could
result in foreign control of the U.S. business. It also includes any other
transaction, transfer, agreement, or arrangement that is designed or intended
to evade or circumvent the application of the statute, subject to regulations
prescribed by CFIUS.
Real estate exceptions. Changes by FIRRMA that broaden the scope of a
CFIUS review of certain real estate transactions do not include reviews of
single housing units or real estate in “urbanized areas,” subject to regulations
by CFIUS in consultation with the Secretary of Defense.
Material nonpublic technical information. CFIUS is directed to develop
regulations concerning the term “material nonpublic technical information,”
which is defined as “information that provides knowledge, know-how, or
understanding, not available in the public domain, of the design, location, or
operation of critical infrastructure; or is not available in the public domain,
and is necessary to design, fabricate, develop, test, produce, or manufacture
critical technologies, including processes, techniques, or methods.”
Critical infrastructure. CFIUS is directed to prescribe regulations
concerning investments in U.S. businesses that own, manufacture, supply, or
service critical infrastructure that limit the designation to critical
infrastructure that is likely to be of importance to U.S. national security (i.e.,
“systems and assets, whether physical or virtual, so vital to the United States
that the incapacity or destruction of such systems or assets would have a
debilitating impact on national security”).55
Indirect investment. CFIUS is directed to develop regulations concerning an
indirect investment by a foreign person in a U.S. business and exceptions for
“extraordinary circumstances.” CFIUS is also directed to develop regulations
concerning waivers for an investment fund that does constitute control of
investment decisions of the fund or decisions relating to entities in which the
fund is invested.
Foreign person. CFIUS is directed to define further the term “foreign
person” by specifying criteria to limit the application of the term to
investments by foreign persons that are in certain categories. The categories
can consider how a foreign person is connected to a foreign country or
foreign government, and whether the connection may affect U.S. national
security.
Substantial interest. Regarding covered transactions with foreign
government interests, CFIUS is directed to define the term “substantial
interest.” In defining the term, CFIUS is directed to consider the means by
which a foreign government could influence the actions of a foreign person,
including through board membership, ownership interest, or shareholder
rights. An interest that is excluded under indirect investment or less than 10%
is not considered a substantial interest.
Other provisions required by regulation.
55 Ibid.
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Transfer of assets pursuant to bankruptcy. CFIUS is required to prescribe
regulations for covered transactions that include any transaction that arises
pursuant to a bankruptcy proceeding or other form of default on debt.
Information required for a declaration. CFIUS is required to develop
regulations concerning the type and extent of information parties to an
investment transaction are required to provide when submitting a declaration
that should not exceed five pages. CFIUS also is required to develop
regulations specifying the types of transactions that are required to submit a
mandatory declaration.
Other declarations. CFIUS may develop regulations that require parties
with respect to any investment transaction to submit a declaration.
Cooperation with allies and partners. The CFIUS chairperson, in
consultation with other members of the Committee, is directed to establish a
formal process for exchanging information with governments of countries
that are allies or partners of the United States to protect U.S. national security
and that of the allies and partners. The process is required to be designed to
facilitate the “harmonization” of trends in investment and technology that
could pose risks to the national security of the United States and its allies and
partners; provide for sharing information on specific technologies and
entities acquiring technologies to ensure national security; and include
consultation with representatives of allied and partner governments on a
recurring basis.
Additional compliance measures. CFIUS is required to develop methods
for evaluating compliance with any mitigation agreement or condition
entered into or agreed relative to an investment transaction that allows
CFIUS to adequately ensure compliance without unnecessarily diverting
resources from assessing new transactions.
Filing fees. CFIUS is granted the authority to determine in regulations the
amounts of fees and to collect fees on each covered foreign investment
transaction for which a written notice was submitted to CFIUS; the amount
of fees collected are limited to the costs of administering CFIUS’s reviews.
CFIUIS can also periodically reconsider and adjust the amount of the fees to
ensure that the amount of fees does not exceed the costs of administering the
program.
Since the review process involves numerous federal government agencies with varying missions,
CFIUS seeks consensus among the member agencies on every transaction. Any agency that has a
different assessment of the national security risks posed by a transaction has the ability to push
that assessment to a higher level within CFIUS and, ultimately, to the President. As a matter of
practice, before CFIUS clears a transaction to proceed, each member agency confirms to
Treasury, at politically accountable levels, that it has no unresolved national security concerns
with the transaction. CFIUS is represented through the review process by Treasury and by one or
more other agencies that Treasury designates as a lead agency based on the subject matter of the
transaction. At the end of a review or investigation, CFIUS provides a written certification to
Congress that it has no unresolved national security concerns. This certification is executed by
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Senate-confirmed officials at these agencies at either the Assistant Secretary or Deputy Secretary
level, depending on the stage of the process at which the transaction is cleared.56
According to Treasury Department regulations, investment transactions that are not considered to
be covered transactions and, therefore, not subject to a CFIUS review are those that are
undertaken “solely for the purpose of investment,” or an investment in which the foreign investor
has “no intention of determining or directing the basic business decisions of the issuer.” In
addition, investments that are solely for investment purposes are defined as those (1) in which the
transaction does not involve owning more than 10% of the voting securities of the firm; or (2)
those investments that are undertaken directly by a bank, trust company, insurance company,
investment company, pension fund, employee benefit plan, mutual fund, finance company, or
brokerage company “in the ordinary course of business for its own account.”57
Other transactions not covered include (1) stock splits or a pro rata stock dividend that does not
involve a change in control; (2) an acquisition of any part of an entity or of assets that do not
constitute a U.S. business; (3) an acquisition of securities by a person acting as a securities
underwriter, in the ordinary course of business and in the process of underwriting; and (4) an
acquisition pursuant to a condition in a contract of insurance relating to fidelity, surety, or
casualty obligations if the contract was made by an insurer in the ordinary course of business. In
addition, Treasury regulations stipulate that the extension of a loan or a similar financing
arrangement by a foreign person to a U.S. business will not be considered a covered transaction
and will not be investigated, unless the loan conveys a right to the profits of the U.S. business or
involves a transfer of management decisions.
Foreign Ownership Control
The CFIUS statute itself does not provide a definition of the term “control,” but such a definition
is included in the Treasury Department’s regulations and enhanced through FIRRMA to include
reviews of transactions that do not involve a controlling interest. According to those regulations,
control is not defined as a numerical benchmark,58 but instead focuses on a functional definition
of control, or a definition that is governed by the influence the level of ownership permits the
foreign entity to affect certain decisions by the firm. According to the Treasury Department’s
regulations:
The term control means the power, direct or indirect, whether or not exercised, and whether
or not exercised or exercisable through the ownership of a majority or a dominant minority
of the total outstanding voting securities of an issuer, or by proxy voting, contractual
arrangements or other means, to determine, direct or decide matters affecting an entity; in
particular, but without limitation, to determine, direct, take, reach or cause decisions
regarding:
56 https://www.treasury.gov/press-center/press-releases/Pages/jl0401.aspx.
57 31 C.F.R. 800.302.
58 There are other statutes that do use numerical benchmarks. According to Section 13(d) of the Securities Exchange
Act of 1934 (15 U.S.C. Section 78m(d) any person who acquires 5% or more of the publicly traded securities of a U.S.
firm must report the acquisition of the shares to the Securities and Exchange Commission. For statistical purposes, the
United States defines foreign direct investment as the ownership or control, directly or indirectly, by one foreign person
(individual, branch, partnership, association, government, etc.) of 10% or more of the voting securities of an
incorporated U.S. business enterprise or an equivalent interest in an unincorporated U.S. business enterprise 15 C.F.R.
§806.15 (a)(1). This level of ownership requires foreign owners to file quarterly and longer annual reports with the
Department of Commerce as part of the quarterly and annual reports on the balance of payments and gross domestic
product (GDP).
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(1) The sale, lease, mortgage, pledge or other transfer of any or all of the principal assets
of the entity, whether or not in the ordinary course of business;
(2) The reorganization, merger, or dissolution of the entity;
(3) The closing, relocation, or substantial alternation of the production operational, or
research and development facilities of the entity;
(4) Major expenditures or investments, issuances of equity or debt, or dividend payments
by this entity, or approval of the operating budget of the entity;
(5) The selection of new business lines or ventures that the entity will pursue;
(6) The entry into termination or nonfulfillment by the entity of significant contracts;
(7) The policies or procedures of the entity governing the treatment of nonpublic technical,
financial, or other proprietary information of the entity;
(8) The appointment or dismissal of officers or senior managers;
(9) The appointment or dismissal of employees with access to sensitive technology or
classified U.S. Government information; or
(10) The amendment of the Articles of Incorporation, constituent agreement, or other
organizational documents of the entity with respect to the matters described at paragraph
(a) (1) through (9) of this section.
Treasury Department regulations also provide some guidance to firms that are deciding whether
they should notify CFIUS of a proposed or pending merger, acquisition, or takeover. The
guidance states that proposed acquisitions that need to notify CFIUS are those that involve
“products or key technologies essential to the U.S. defense industrial base.” This notice is not
intended for firms that produce goods or services with no special relation to national security,
especially toys and games, food products (separate from food production), hotels and restaurants,
or legal services. CFIUS has indicated that in order to ensure an unimpeded inflow of foreign
investment it would implement the statute “only insofar as necessary to protect the national
security,” and “in a manner fully consistent with the international obligations of the United
States.”59
FIRRMA defines the term control to mean: “the power, direct or indirect, whether exercised or
not exercised, to determine, direct, or decide important matters affecting an entity, subject to
regulations prescribed by the Committee.” Also, Congress added six additional factors through
FIRRMA that CFIUS and the President “may” consider in reviewing investment transactions,
including the fourth factor, as indicated in the section below on factors for consideration.
Factors for Consideration
The CFIUS statute includes a list of 12 factors the President must consider in deciding to block a
foreign acquisition, although the President is not required to block a transaction based on these
factors. Additionally, CFIUS members can consider the factors as part of their own review
process to determine if a particular transaction threatens to impair the national security. This list
includes the following elements:
1. domestic production needed for projected national defense requirements;
59 Ibid.
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2. 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;
3. control of domestic industries and commercial activity by foreign citizens as it
affects the capability and capacity of the U.S. to meet the requirements of
national security;
4. potential effects of the transactions on the sales of military goods, equipment, or
technology to a country that supports terrorism or proliferates missile technology
or chemical and biological weapons; and transactions identified by the Secretary
of Defense as “posing a regional military threat” to the interests of the United
States;
5. potential effects of the transaction on U.S. technological leadership in areas
affecting U.S. national security;
6. whether the transaction has a security-related impact on critical infrastructure in
the United States;
7. potential effects on United States critical infrastructure, including major energy
assets;
8. potential effects on United States critical technologies;
9. whether the transaction is a foreign government-controlled transaction;
10. in cases involving a government-controlled transaction, a review of (A) the
adherence of the foreign country to nonproliferation control regimes, (B) the
foreign country’s record on cooperating in counter-terrorism efforts, (C) the
potential for transshipment or diversion of technologies with military
applications;
11. long-term projection of the United States requirements for sources of energy and
other critical resources and materials; and
12. such other factors as the President or the Committee determine to be
appropriate.60
Factors 6-12 were added through the FINSA Act potentially broadening the scope of CFIUS’s
reviews and investigations. As previously indicated, instead of adding new factors to this section
of the statute, FIRRMA offered six new elements CFIUS and the President “may” consider as
part of their deliberations through a sense of Congress provision. Previously, CFIUS had been
directed by Treasury Department regulations to focus its activities primarily on investments that
had an impact on U.S. national defense security. The additional factors, however, incorporate
economic considerations into the CFIUS review process in a way that was specifically rejected
when the original Exon-Florio amendment was adopted and refocuses CFIUS’s reviews and
investigations on considering the broader rubric of economic security, although the term is not
specifically mentioned. In particular, CFIUS is required to consider the impact of an investment
on critical infrastructure and critical technologies as factors for considering a recommendation to
the President that a transaction be blocked or postponed. As previously indicated, critical
infrastructure is defined in broad terms as “any systems and assets, whether physical or cyberbased, so vital to the United States that the degradation or destruction of such systems or assets
would have a debilitating impact on national security, including national economic security and
national public health or safety.”
60 The last requirement under factor 4 and factors 6-12 were added by P.L. 110-49.
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The six factors added by FIRRMA through a sense of Congress that CFIUS and the President
may consider in evaluating the national security implications of an investment are:
1. a transaction involves a country of special concern that has a demonstrated or
declared strategic goal of acquiring a type of critical technology or critical
infrastructure that would affect United States leadership in areas related to
national security;
2. the potential national security-related effects of the cumulative control of, or
pattern of recent transactions involving, any one type of critical infrastructure,
energy asset, critical material, or critical technology by a foreign government or
foreign person;
3. whether any foreign person engaging in a covered transaction with a United
States business has a history of complying with United States laws and
regulations;
4. control of United States industries and commercial activity by foreign persons as
it affects the capability and capacity of the United States to meet the requirements
of national security, including the availability of human resources, products,
technology, materials, and other supplies and services, and in considering ‘‘the
availability of human resources,’’ should construe that term to include potential
losses of such availability resulting from reductions in the employment of United
States persons whose knowledge or skills are critical to national security,
including the continued production in the United States of items that are likely to
be acquired by the Department of Defense or other Federal departments or
agencies for the advancement of the national security of the United States;
5. the extent to which a covered transaction is likely to expose, either directly or
indirectly, personally identifiable information, genetic information, or other
sensitive data of United States citizens to access by a foreign government or
foreign person that may exploit that information in a manner that threatens
national security; and
6. a transaction that is likely to have the effect of exacerbating or creating new
cybersecurity vulnerabilities in the United States or is likely to result in a foreign
government gaining a significant new capability to engage in malicious cyberenabled activities against the United States, including such activities designed to
affect the outcome of any election for Federal office. 61
As originally drafted, the Exon-Florio provision also would have applied to joint ventures and
licensing agreements in addition to mergers, acquisitions, and takeovers. Joint ventures and
licensing agreements subsequently were dropped from the proposal because the Reagan
Administration and various industry groups argued at the time that such business practices were
deemed to be beneficial arrangements for U.S. companies. In addition, they argued that any
potential threat to national security could be addressed by the Export Administration Act62 and the
Arms Control Export Act.63 FIRRMA added joint ventures as a matter for consideration during a
CFIUS review or investigation.
61 Foreign Investment Risk Review Modernization Act, Section 1702.
62 50 U.S.C. App. Section 2401, as amended.
63 22 U.S.C. App. 2778 et seq.
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Confidentiality Requirements
FINSA codified, and FIRRMA maintains, confidentiality requirements that are similar to those
that appeared in the Exon-Florio amendment and Executive Order 11858 by stating that any
information or documentary material filed under the provision may not be made public “except as
may be relevant to any administrative or judicial action or proceeding.”64 The provision does
state, however, that this confidentiality provision “shall not be construed to prevent disclosure to
either House of Congress or to any duly authorized committee or subcommittee of the Congress.”
The provision provides for the release of proprietary information “which can be associated with a
particular party” to committees only with assurances that the information will remain
confidential. Members of Congress and their staff members are accountable under current
provisions of law governing the release of certain types of information. Current statute requires
the President to provide a written report to the Secretary of the Senate and the Clerk of the House
detailing his decision and his actions relevant to any transaction that was subject to a 45-day
investigation.65
Mitigation and Tracking
Since the implementation of the Exon-Florio provision in the 1980s, CFIUS had developed
several informal practices that likely were not envisioned when the statute was drafted. In
particular, members of CFIUS on occasion negotiated conditions with firms to mitigate or to
remove business arrangements that raised national security concerns among the CFIUS members.
Such agreements often were informal arrangements that had an uncertain basis in statute and had
not been tested in court. These arrangements often were negotiated during the formal review
period, or even during an informal process prior to the formal filing of a notice of an investment
transaction.
FINSA required CFIUS to designate a lead agency to negotiate, modify, monitor, and enforce
agreements in order to mitigate any threat to national security. Such agreements are required to be
based on a “risk-based analysis” of the threat posed by the transaction. CFIUS is also required to
develop a method for evaluating the compliance of firms that have entered into a mitigation
agreement or condition that was imposed as a requirement for approval of the investment
transaction. Such measures, however, are required to be developed in such a way that they allow
CFIUS to determine that compliance is taking place without also (1) “unnecessarily diverting”
CFIUS resources from assessing any new covered transaction for which a written notice had been
filed; and (2) placing “unnecessary” burdens on a party to an investment transaction.
If a notification of a transaction is withdrawn before any review or investigation by CFIUS is
completed, CFIUS can take a number of actions, including (1) interim protections to address
specific concerns about the transaction pending a resubmission of a notice by the parties; (2)
specific time frames for resubmitting the notice; and (3) a process for tracking any actions taken
by any party to the transaction. Also, any federal entity or entities that are involved in any
mitigation agreement are to report to CFIUS if there is any modification that is made to any
agreement or condition that had been imposed and to ensure that “any significant” modification is
reported to the Director of National Intelligence and to any other federal department or agency
that “may have a material interest in such modification.” Such reports are required to be filed
with the Attorney General.
64 50 U.S.C. Appendix Section 2170(c).
65 50 U.S.C. Appendix Section 2170(g).
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FIRRMA further authorizes CFIUS to:
conduct periodic reviews of mitigation agreements to determine if the agreements
should be phased out or modified if a threat no longer requires mitigation;
negotiate, enter into or impose, and enforce any agreement or condition with any
party to an investment transaction during and after consideration of a transaction
to mitigate any risk to the national security of the United States as a result of the
transaction; and
review periodically the appropriateness of an agreement or condition and
terminate, phase out, or otherwise amend the agreement or condition if a threat
no longer requires mitigation through the agreement or condition.
In agreeing to a mitigation agreement, CFIUS must determine that the agreement will resolve the
national security concerns posed by the transaction, taking into consideration whether the
agreement or condition is reasonably calculated to: be effective, verifiable, monitored, and
enforceable.
Funding and Staff Requirements
FIRRMA established a fund within Treasury and specified an appropriation of $20 million to
CFIUS for each of fiscal years 2019 through 2023. Of this amount, $15 million was transferred to
CFIUS within the Treasury Department and $5 million was appropriated to other agencies that
also assist in reviewing investment transactions, In addition, CFIUS received $22 million in
FY2020 and requested $24 million in FY2021 for Departmental Offices and Salaries. FIRRMA
authorizes CFIUS to develop a fee schedule, determined through regulation, for each transaction,
in addition to an expedited process for hiring additional staff. The fee is restricted to be 1% of the
value of the transaction, or $300,000. In developing regulations, CFIUS is also required to
consider the impact on small businesses, the expenses to CFIUS associated with conducting
reviews, and the impact on foreign investment. Also, the total amount of fees collected are limited
to not exceed the costs of administering the fees. FIRRMA also directs CFIUS to study the
feasibility of establishing a fee or a fee structure to prioritize a response to informal notices prior
to the submission of a formal written notice of an impending or proposed transaction.
FIRRMA also requires the President to determine whether and to what extent the expansion of
CFIUS’ responsibilities as a result of the additional duties designated by FIRRMA requires
additional resources. If additional resources are necessary, the President is required to make such
a request in the Administration’s annual budget.
Congressional Oversight
Both FINSA and FIRRMA increased the types and number of reports that CFIUS is required to
send to certain specified Members of Congress. In particular, CFIUS is required to brief certain
congressional leaders if they request such a briefing and to report annually to Congress on any
reviews or investigations it has conducted during the prior year. CFIUS provides a classified
report to Congress each year and a less extensive report for public release. Each report is required
to include a list of all concluded reviews and investigations, information on the nature of the
business activities of the parties involved in an investment transaction, information about the
status of the review or investigation, and information on any transactions that were withdrawn
from the process, any roll call votes by the Committee, any extension of time for any
investigation, and any presidential decision or action. In the classified report, FIRRMA imposed
new reporting requirements on CFIUS concerning:
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the outcome of each review or investigation, including whether a mitigation
agreement or condition was entered into and any action by the President;
basic information concerning the parties involved;
the nature of the business activities or products;
statistics on compliance plans and cumulative and trend information on
declarations and actions taken;
methods used by the Committee to identify nonnotified and nondeclared
transactions;
a summary of the hiring practices and policies of the Committee;
in cases where the Committee has recommended that the President suspend or
prohibit a transaction because it threatens to impair the national security, CFIUS
is required to notify Congress of the recommendation and, upon request, provide
a classified briefing on the recommendation;
not later than two years after enactment of FIRRMA, and every two years
thereafter through 2026, the Secretary of Commerce is required to submit to
Congress and CFIUS a report on foreign direct investment transactions made by
entities of the People’s Republic of China in the United States.
In addition, CFIUS is required to report on trend information on the numbers of filings,
investigations, withdrawals, and presidential decisions or actions that were taken. The report must
include cumulative information on the business sectors involved in filings and the countries from
which the investments originated; information on the status of the investments of companies that
withdrew notices and the types of security arrangements and conditions CFIUS used to mitigate
national security concerns; the methods the Committee used to determine that firms were
complying with mitigation agreements or conditions; and a detailed discussion of all perceived
adverse effects of investment transactions on the national security or critical infrastructure of the
United States.
The Secretary of the Treasury, in consultation with the Secretaries of State and Commerce, is
directed by FINSA to conduct a study on investment in the United States, particularly in critical
infrastructure and industries affecting national security, by (1) 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 (2) 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. In addition, CFIUS is
required to provide an annual evaluation of any credible evidence of a coordinated strategy by
one or more countries or companies to acquire U.S. companies involved in research,
development, or production of critical technologies in which the United States is a leading
producer. The report must include an evaluation of possible industrial espionage activities
directed or directly assisted by foreign governments against private U.S. companies aimed at
obtaining commercial secrets related to critical technologies.
Recent CFIUS Reviews
According to the annual report released by CFIUS in 2019,66 the number of foreign investment
notices and investigations conducted by CFIUS increased sharply in 2017, as indicated in Table
66 Annual Report to Congress, Committee on Foreign Investment in the United States, December 2019.
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2. During the nine-year period 2009-2017, foreign investors sent 1,179 notices to CFIUS of plans
to acquire, take over, or merge with a U.S. firm. In comparison, the Commerce Department
reports there were about 2,600 foreign investment transactions in 2017 and just over 2,000
transactions in 2018. In both years, foreign acquisitions of existing U.S. businesses accounted for
about 40% of the total number of transactions, while greenfield investments, comprised of new
businesses establishments and expansions of existing facilities, accounted for the majority of
transactions. By value, however, acquisitions accounted for 96% of the total annual value of
foreign direct investments.67 Of the investment transactions notified during the 2009-2017 period,
about 4% were withdrawn during the initial 30-day review; about 47% of the total notified
transactions required a 45-day investigation. Also, of the transactions investigated, about 12%
were withdrawn before a final determination was reached. As noted earlier in this report, but not
in the 2017 CFIUS report, a presidential decision was made in five cases to date.
Table 2. Foreign Investment Transactions Reviewed by CFIUS, 2009-2017
Notices
Withdrawn
During
Review
Number of
Investigations
Notices
Withdrawn
During
Investigation
Year
Number of
Notices
Presidential
Decisions
2009
65
5
25
2
0
2010
93
6
35
6
0
2011
111
1
40
5
0
2012
114
2
45
20
1
2013
97
3
48
5
0
2014
147
3
51
9
0
2015
143
3
66
10
0
2016
172
6
79
21
1
2017
237
7
172
67
1
Total
1,179
36
561
145
3
Source: Annual Report to Congress, Committee on Foreign Investment in the United States, CY 2016 and CY
2017, December 2019.
Note: Two additional foreign investment transactions have been blocked by presidential order.
The CFIUS report indicates that 40% of foreign investment transactions notified to CFIUS from
2009 to 2017 were in the manufacturing sector. Investments in the finance, information, and
services sectors accounted for another 36% of the total notified transactions, as indicated in Table
3. Within the manufacturing sector, 39% of all investment transactions notified to CFIUS between
2013 and 2017 were in the computer and electronic products sectors, a share that rose to 49% in
2015, but dropped to 33% in 2017. The next three sectors with the highest number of transactions
were the machinery manufacturing sector, which fell from 13% in the 2013-2017 period to 10%
in 2017, and the chemical manufacturing sector, which rose from 13% in the 2013-2017 period to
20% in 2017. In 2017 the transportation equipment sector accounted for 11% of transactions, on
par with the average over the 2013-2017 period. Within the finance, information, and services
sector, professional services accounted for 35% of transactions over the 2013-2017 period, which
67 Anderson, Thomas, New Foreign Direct Investment in the United States in 2018, Survey of Current Business, August
2019, p. 2.
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rose to 37% in 2017. Notified transactions in mining, utilities, and construction (16%), and
wholesale trade, retail trade, and transportation (9%) comprised the next most active sectors.
Table 4 shows foreign investment transactions by the home country of the foreign investor and
the industry composition of the investment transactions. According to data based on notices
provided to CFIUS by foreign investors, Chinese investors were the most active in acquisitions,
takeovers, or mergers during the 2015-2017 period, accounting for 26% of the total number of
transactions. The Canada and Japan join China as the top three countries of origin for investors
providing notifications to CFIUS. Chinese investments were concentrated primarily in the
manufacturing and finance sectors, while Canadian investments were concentrated in the mining
and finance sectors. The ranking of countries in Table 4 differs in a number of important ways
from data published by the Bureau of Economic Analysis on the cumulative amount, or the total
book value, of foreign direct investment in the United States, which places the United Kingdom,
Canada, Japan, the Netherlands, Luxembourg, Germany, and Switzerland as the most active
countries of origin for foreign investment in the United States.
Table 3. Industry Composition of Foreign Investment Transactions
Reviewed by CFIUS, 2009-2017
Year
Manufacturing
Finance,
Information,
and Services
Mining,
Utilities, and
Construction
Wholesale
and Retail
Trade
Total
2009
21
22
19
3
65
2010
36
35
13
9
93
2011
49
38
16
8
111
2012
47
36
23
8
114
2013
35
32
20
10
97
2014
69
38
25
15
147
2015
68
42
21
12
143
2016
67
68
18
19
172
2017
82
108
28
19
237
Total
474
419
183
103
1,179
Source: Annual Report to Congress, Committee on Foreign Investment in the United States, CY 2016 and CY
2017, December 2019.
Table 4. Country of Foreign Investor and Industry Reviewed by CFIUS, 2015-2017
Country
Manufacturing
Finance, Information,
and Services
Mining, Utilities, and
Construction
Wholesale Trade
and Retail Trade
Total
China
71
50
9
13
143
Canada
17
22
22
5
66
Japan
20
20
4
2
46
United Kingdom
15
22
0
8
44
France
13
11
3
3
30
Cayman Islands
9
8
1
2
20
Netherlands
8
4
3
0
15
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Germany
3
10
0
1
14
Australia
6
2
3
2
13
South Korea
5
4
2
2
13
Br. Vir. Islands
5
2
3
0
10
Israel
4
6
0
0
10
Sweden
8
1
0
1
10
Luxembourg
5
3
1
0
9
Switzerland
2
4
3
0
9
Total
217
218
67
50
552
Source: Annual Report to Congress, Committee on Foreign Investment in the United States, CY 2016 and CY
2017, December 2019.
Table 5 provides information on notified foreign investment transactions by in critical technology
classified by types of foreign investment. According to CFIUS, the Committee reviewed 178
transactions in 2016 and 2017 involving acquirers from 36 countries to determine if it could
detect a coordinated strategy. According to CFIUS, the largest number of transactions in critical
technology occurred in the Professional Services and Computer and Electronics sectors.
Table 5. Home Country of Foreign Acquirer of U.S. Critical Technology, 2016-2017
Country
2016
2017
Total
China
17
21
38
Japan
8
10
18
Canada
8
7
15
United Kingdom
3
12
15
France
5
9
14
Germany
3
4
7
Israel
3
3
6
Netherlands
2
4
6
Cayman Islands
2
3
5
Luxembourg
3
2
5
India
1
3
4
Singapore
0
4
4
Sweden
1
3
4
Total
73
105
178
Source: Annual Report to Congress, Committee on Foreign Investment in the United States, December 2019.
The CFIUS annual report also provides some general information on the total number of cases in
which it applied legally binding mitigation measures. The report did not list any specific cases or
measures, but it did indicate that CFIUS applied mitigation measures to 18 cases in 2016 and 29
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cases in 2017.68 These mitigation measures have included a number of different approaches,
including
Ensuring that only authorized persons have access to certain technologies and
information.
Establishing a Corporate Security Committee and other mechanisms to ensure
compliance with all required actions, including the appointment of a U.S.
government-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 U.S.
government contracts, U.S. government customer information, and other
sensitive information.
Ensuring 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 U.S. government 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 U.S.
Government.
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 U.S. Government or national security
considerations.
Exclusion of certain sensitive assets from the transaction.
Providing the U.S. Government with the right to review certain business
decisions and object if they raise national security concerns.
CFIUS also implemented procedures to evaluate and ensure that parties to an investment
transaction remain in compliance with any risk mitigation measures that were adopted to gain
approval of the investment. These procedures include the following:
Periodic reporting to U.S. Government agencies by the companies.
On-site compliance reviews by U.S. Government 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.
Assigning staff responsibilities to monitor compliance.
Designating tracking systems to monitor required reports.
Instituting internal instructions and procedures to ensure that in-house expertise
is drawn upon to analyze compliance with measures.69
68 Annual Report to Congress, December 2019.
69 Ibid., pp. 21-22.
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Issues for Congress
The U.S. policy approach to international investment generally aimed to establish an open and
rules-based system that is consistent across countries and in line with U.S. interests as the largest
global foreign direct investor and largest recipient of foreign direct investment. In addition, U.S.
foreign direct investment policy has been founded on the concept that the net benefits of such
investment are positive and benefit both the United States and the foreign investor, except in
certain circumstances concerning risks to national security and for prudential reasons. Even in
these cases, however, the U.S. approach generally has been to limit any market distorting impact
of the national security review process. Under the CFIUS statute, Congress set a legal standard
for the President to meet before he could block or suspend investment transactions: no other laws
apply, and he determines that there is “credible evidence” that the action does not simply affect
national security, but that it “threatens to impair the national security,” or that it poses a risk to
national security
In 2018, Congress and the Trump Administration amended the CFIUS statute through the Foreign
Investment Risk Review Modernization Act (FIRRMA) to address a broader range of issues
concerning foreign direct investment in the U.S. economy. In part, the motivation for the change
in the CFIS statute reflects differing views of the role CFIUS should play in overseeing foreign
investment transactions and the concept of national security, particularly as it relates to national
economic interests. In some ways, current discussions regarding the role of CFIUS mirror
previous debates over a working set of parameters that establish a functional definition of the
national economic security implications of foreign direct investment and expose differing
assessments of the economic impact of foreign investment on the U.S. economy and differing
political and philosophical convictions.
Previous congressional efforts to amend the CFIUS statute were driven in large part by national
security concerns related to a particular foreign investment transaction, such as the Dubai Ports
transaction. More recently, concerns have arisen from a combination of issues, including (1) an
increase in foreign investment activity by Chinese state-owned firms; (2) the perception that such
investment is part of a government-coordinated approach that serves official strategic purposes,
rather than purely commercial interests; and (3) that investments by Chinese firms are receiving
government support through subsidized financing or other types of government support that give
Chinese firms an “unfair” competitive advantage over other private investors.
While Members of Congress and others have expressed concerns over investments by Chinese
entities, the broader issue of the role of foreign investment in the economy and the interaction
between foreign investment and national security predate the creation of CFIUS. Such concerns
arguably are heightened by a changing global economic order that is marked by rising emerging
economies such as China and India that are more active internationally and changing notions of
national economic interests.70 Changes to CFIUIS through FIRRMA broaden CFIUS’ mandate
beyond the original narrow focus on the national security implications of individual investment
transactions to a more comprehensive assessment of the impact of a combination of transactions.
In addition, CFIUS is now required to analyze the impact of certain types of real estate
transactions and the potential impact of foreign investment in start-up companies with potentially
70 For instance, China’s One Belt, One Road initiative. Denyer, Simon, As U.S. Retreats in Asia Pacific, China Fills the
Void With an Ambitious Global Plan, The Washington Post, May 12, 2017. https://www.washingtonpost.com/world/
asia_pacific/as-us-retreats-in-the-asia-pacific-china-fills-the-void-with-an-ambitious-global-plan/2017/05/11/54771c0c3593-11e7-ab03-aa29f656f13e_story.html?hpid=hp_hp-more-top-stories_chinabelt-505am%3Ahomepage%2Fstory&
utm_term=.34b36c806ad1.
Congressional Research Service
39
The Committee on Foreign Investment in the United States (CFIUS)
foundational technologies. These issues and others raise questions for Congress to consider,
including the following.
Through FIRRMA, Congress expanded the role of CFIUS in protecting U.S.
national security interests. What rubric should CFIUS use to weigh national
security interests against economic interests, particularly at the state and local
levels that seek foreign investment to support local jobs and tax revenues?
The United States is the single largest recipient of foreign investment and the
largest overseas direct investor in the world. How should Congress assess the role
of CFIUS in protecting U.S. national security interests while supporting the
stated policy of the United States to support international efforts to maintain
policies that accommodate foreign direct investment?
In any year, the level of foreign investment activity is driven in large part by
broad economic fundamentals, including merger and acquisition (M&A) activity.
As a result, CFIUS’ activities could vary substantially from year to year,
depending on forces outside its control. How should Congress evaluate CFIUS’
activities given these circumstances?
Congress has expressed its concerns through FIRRMA about foreign access to
critical technologies through investments and acquisitions developed by U.S.
firms. How can CFIUS satisfy congressional concerns about the potential loss of
leading-edge technologies while avoiding potential conflicts that inhibit the
development of new technologies by start-up firms?
In response to FIRRMA, Treasury Department regulations identify 28 activities
as critical activities for consideration by CFIUS and the President in deciding to
block or suspend a foreign investment transaction. How should CFIUS weigh
concerns over foreign investments concentrated in certain industries relative to
capital needs and requirements in fast-growing industries that may rely on
foreign funds in order to expand? What rubric is CFIUS using to determine how
much foreign investment in an industry is considered too concentrated?
Without providing a definition of national security, Congress has directed CFIUS
to protect the United States against investments that threaten to impair the
national security. What rubric should CFIUS use to evaluate the national security
implications of such items as personally identifiable information?
Author Contact Information
James K. Jackson
Specialist in International Trade and Finance
/redacted/@crs.loc.gov
, 7-....
Congressional Research Service
RL33388 · VERSION 92 · UPDATED
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