Order Code RL33103
CRS Report for Congress
Received through the CRS Web
Foreign Investment in the United States:
Major Federal Statutory Restrictions
September 21, 2005
Michael V. Seitzinger
Legislative Attorney
American Law Division
Congressional Research Service ˜ The Library of Congress

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Foreign Investment in the United States:
Major Federal Statutory Restrictions
Summary
For a number of years foreign investment in the United States has been a matter
of congressional concern. Although the issue has not recently received the media
attention that it did in the mid and late 1980's, it is an issue that remains. It is
believed by some that the United States has an unusually liberal policy which allows
foreigners to invest in virtually all American businesses and real estate and that these
foreign investments undermine the American economy by making it vulnerable to
foreign influence and domination. These critics argue that there is even foreign
domination of some key defense-related industries and that the ability of the country
to protect itself in a time of national emergency could greatly suffer. These critics
further argue that extensive foreign investment in this country drives up prices which
Americans have to pay for investments and, even more importantly, for houses and
farmland in areas where there is a significant amount of foreign ownership.
However, others argue that the United States should welcome foreign
investment because the influx of foreign money contributes to the creation of jobs in
this country. Some also believe that the United States should be a kind of sanctuary
for foreign money because of the political and economic instability which
characterizes much of the rest of the world. It is also argued that, in this age of
globalization of the world's economy, United States restrictions on foreign
investment will only impair this nation's economy and cause us to appear isolationist.
This report will take a look at some of the major federal statutes which presently
restrict investment by foreigners. The report will first give a brief history of foreign
investment in the United States. It will then review constitutional justifications and
constitutional limitations which exist concerning federal and state statutory
restrictions on foreign ownership of property. After that follows a discussion of
some of the major federal statutes which limit foreign investment in the United
States. Some of these statutes will be looked at in detail, but a detailed treatment of
such other laws as the tax laws, the antitrust laws, and the immigration laws is
beyond the scope of this report.
The report will be updated as needed.

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Contents
History of Foreign Investment in the United States . . . . . . . . . . . . . . . . . . . . . . . . 1
Constitutional Justifications and Limitations . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Present Federal Restrictions on Foreign Investment . . . . . . . . . . . . . . . . . . . . . . . 7
Shipping Industry . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Aircraft Industry . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Mining . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Energy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Lands . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Communications . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
Banking . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
Government Contracting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
Investment Company Regulation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
Presidential Review of Mergers, Acquisitions, and Takeovers . . . . . . . . . . . . . . 22

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Foreign Investment in the United States:
Major Federal Statutory Restrictions
History of Foreign Investment in the United States
Traditionally accepted principles of international law state that the sovereign
powers of a nation include the power to exclude alien persons and property.1
However, in most cases, so as to be mutually beneficial to commerce, nations usually
do not fully exercise this power of exclusion. Sometimes a nation writes the
restraints into its domestic law. For example, Clause XXX of the Magna Carta has
the following provision:
All merchants, if they were not openly prohibited before, shall have their safe
and sure Conduct to depart out of England, to come into England, to tarry in, and
go through England, as well by land as by water, to buy and sell without any
manner of (evil tolts)2 by the old and rightful Customers, except in time of war;
and if they be of a Land making War against Us, and be found in our Realm at
the beginning of the wars, they shall be attached without harm of body or goods,
until it be known unto Us, or our Chief Justice, how our Merchants be entered
therein the Land making War against Us; and if our merchants be well entreated
there, theirs shall be likewise with Us.
Treaties and other forms of bilateral and multicultural agreements have also restricted
foreign persons and property. For example, the Greek city-states formed agreements
which allowed the reciprocal entry of and ownership of property of foreigners from
other contracting states.3
The United States has through the years accepted both kinds of restraint.4 The
American colonies were formed to realize profits for their English and Continental
investors. After the War of Independence, the new government moved quickly to
resolve the outstanding foreign claims so as to assure creditworthiness and to provide
a favorable climate for foreign investment. The Jay Treaty, for example, stated that
1 See, e.g., Bouve, EXCLUSION AND EXPULSION OF ALIENS IN THE UNITED STATES 3 (1912);
United States ex rel. Knauff v. Shaughnessy, 338 U.S. 537 (1950); and The Schooner
Exchange v. McFaddon, 11 U.S. (7 Cranch) 116 (1812).
2 tolt: In Old English law, a writ whereby a cause depending in a court baron was taken and
removed into a county court. BLACK'S LAW DICTIONARY (6th ed. 1990).
3 Nussbaum, A CONCISE HISTORY OF THE LAW OF NATIONS 27 (1954).
4 Much of this historical discussion is based on chapter 1 of A GUIDE TO FOREIGN
INVESTMENT UNDER UNITED STATES LAW by the Committee to Study Foreign Investment
in the United States of the Section of Corporation, Banking and Business Law of the
American Bar Association (New York 1979).

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the new United States government would compensate the British for any property
which had been seized or destroyed and for unpaid debts caused by the Revolution.
In his Report on Manufactures in 1791, Alexander Hamilton urged the new
nation to keep investment open to foreigners.
It is not impossible that there may be persons disposed to look with a jealous eye
on the introduction of foreign capital, as if it were an instrument to deprive our
own citizens of the profits of our own industry; but, perhaps, there never could
be a more unreasonable jealousy. Instead of being viewed as a rival, it ought to
be considered as a most valuable auxiliary, conducing to put in motion a greater
quantity of productive labor, and a greater portion of useful enterprise, than
could exist without it.5
Hamilton's ideas prevailed. During the eighteenth and nineteenth centuries,
foreign capital contributed enormously to the nation's development.
As the nation grew, its roads, bridges, canals, banks, and finally railroads were
largely financed by state bonds sold overseas. The Erie Canal, the first American
canal to achieve commercial success, was made possible by the first state bonds
to be quoted on the London market, in 1817. Europe was eager for investments
such as these, and a group of Anglo-American banking houses were established
in London--led by Baring Brothers--which specialized in American finance.
They bought up entire issues for resale in England. In their eagerness for foreign
capital, American states and private enterprises sent their agents to Europe.
Generals and congressmen turned to bond selling....6
By the middle of the nineteenth century, foreigners held half of the federal and
state and one-quarter of the municipal debts. The 1849 California Gold Rush sparked
even more foreign investment.
It is also interesting to note that American real estate was quite popular with
foreign investors. Europeans acquired substantial holdings in such states as New
York, Maine, Florida, West Virginia, and Iowa. The state of Texas granted an
English company 3,000,000 acres in payment for building the state capitol building
in Austin. Some of the titled Europeans, including the German Baron von
Richthofen and the British Earl of Dunraven, attempted to create baronial estates in
the West.
At the turn of the century, with the invention of the automobile and the
increasing importance of oil, foreign oil companies, such as Royal Dutch Shell,
began buying American properties. However, World War I made a drastic change
in the influx of foreign capital into the United States. The creditor countries of
Europe sold many of their American holdings in order to supply their wartime needs.
5 3 Annals of Congress 994 (1791).
6 Boorstin, Foreign Investments in America, 2 Editorial Research Reports 572-573 (1974).

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In just a few years the United States shifted from a debtor to a creditor nation, a
position which it retained for a number of years.7
Throughout the nation's history, there has been criticism of foreign investment
in the United States. When the first and second banks of the United States were
created in 1791 and 1816, their organic statutes barred the election of aliens as
directors. The Know-Nothing Party advocated discriminatory taxation of foreign
capital as early as the 1850's. The Alien Land Law of 1887 prohibited aliens from
owning land in federal territories.8 During the 20th century Congress passed a
number of statutes aimed at restricting foreign investment in certain industries such
as shipping, aviation, and communications. Nevertheless, by the early 1970's foreign
investment in the United States began to rise dramatically, and since then there has
been frequent congressional debate as to whether there should be more restriction on
investment by foreign citizens in American businesses.
Constitutional Justifications and Limitations
Federal constitutional provisions may be interpreted as legal validation of
federal statutes restricting investments by foreigners; other constitutional provisions
have to be adhered to by the states in imposing additional restrictions on foreign
investment.
The federal government is a government of limited powers. There is no express
constitutional provision permitting the regulation of foreign investment in the United
States. Thus, other federal powers mentioned in the Constitution must be looked at
to justify such regulation. Three constitutional bases for such legislation are the
federal powers over immigration and naturalization,9 the federal power to regulate
interstate and foreign commerce,10 and the power to provide for the national
defense.11
Congress has the exclusive power to establish naturalization and citizenship
requirements and to admit and expel aliens.
That the government of the United States, through the action of the legislative
department, can exclude aliens from its territory is a proposition which we do not
think open to controversy. Jurisdiction over its own territory to that extent is an
incident of every independent nation. It is a part of its independence. If it could
not exclude aliens, it would be to that extent subject to the control of another
7 A creditor nation may be defined as a country which exports more than it imports; a debtor
nation imports more than it exports. A creditor nation may also be defined as a country
whose domestic savings are greater than its domestic investment; a debtor nation is a
country whose domestic savings are less than its domestic investment.
8 Act of March 3, 1887, ch. 340, § 1, 24 Stat. 476.
9 Art. I, § 8, cl. 4.
10 Art. I, § 8, cl. 3.
11 Art. I, § 8, cl. 12.

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power.... The United States, in their relation to foreign countries and their
subjects or citizens, are one nation, invested with powers which belong to
independent nations, the exercise of which can be invoked for the maintenance of
its absolute independence and security throughout its entire territory.12
Congress has also been held to have the power to regulate the conduct of alien
residents and to prescribe the conditions for their admission and residency.13 Thus,
it is arguable that Congress can condition entry and residency of an alien upon his or
her not acquiring investments in the United States. Although this might be an extreme
condition to apply, no federal case appears to suggest limits to Congress's ability to
place substantive conditions upon entry and residency of aliens.
Congress also has the exclusive power to "regulate Commerce with foreign
Nations, and among the several States."14 The Commerce Clause would appear to
give Congress the power to restrict the use of instrumentalities of interstate commerce
to transact the sale or exchange of property to a foreign citizen or to the representative
of a foreign citizen.15
Finally, Congress's power to "raise and support Armies" would also appear to be
a constitutional basis for restricting foreign investment in the United States. If it is
determined that foreign investments impair national preparedness in the event of an
emergency, it appears that prohibition of foreign investments could on this basis be
construed as constitutional. In the discussion which occurs later in this report, it will
be seen that such a basis provides support for the present restrictions concerning
government contracting.
Further, it should be noted that the federal government has exclusive authority
over foreign relations. In the case Zschernig v. Miller16 the Supreme Court held
unconstitutional an Oregon statute which provided for the escheat to the state of
property which would otherwise pass to a nonresident alien unless the laws of the
foreign nation had reciprocal rights for United States citizens. The Oregon statute
required the local probate courts to inquire into
the type of governments that obtain in particular foreign nations--whether aliens
under their law have enforceable rights, whether the so-called "rights" are merely
dispensations turning upon the whim or caprice of government officials, whether
the representation of consuls, ambassadors, and other representatives of foreign
nations is credible or made in good faith, whether there is the actual
12 Chinese Exclusion Case (Chae Chan Ping) v. United States, 130 U.S. 581, 603-604
(1889).
13 See Fiallo v. Bell, 430 U.S. 787 (1977).
14 Art. I, § 8, cl. 3.
15 See, e.g., North American Company v. Securities and Exchange Commission, 327 U.S.
686 (1946); and Electric Bond Company v. Securities and Exchange Commission, 303 U.S.
419 (1938).
16 389 U.S. 429 (1967).

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administration in the particular foreign system of law any element of
confiscation.17
The Court found the Oregon statute to be unconstitutional because it infringed upon
the exclusively federal authority over foreign relations.
On the other hand, it has been stated that:
The imposition of any significant investment controls would likely violate both
the spirit and the letter of more than forty bilateral treaties regulating trade and
investment relations, many of which laws have been signed within the last ten
years, as well as derogating our commitment to the OECD Code of Liberalization
of Capital Movements.18
The treaties mentioned in the above quotation are Treaties of Friendship, Commerce,
and Navigation which grant foreign countries the right to enter, trade, invest, or
establish and operate businesses in the other signatory country. Thus, any foreign
investment statute would need to take into account those Friendship, Commerce, and
Navigation Treaties to which the United States is a signatory.
Further, treaties such as the North American Free Trade Agreement (NAFTA)
among the United States, Canada, and Mexico provide for foreign investment
opportunities. Chapter 11 of NAFTA requires each party to "accord to investors of
another Party treatment no less favorable than it accords, in like circumstances, to its
own investors with respect to the establishment, acquisition, expansion, management,
conduct, operation, and sale or other disposition of investments."
Other constitutional provisions may be interpreted to protect foreigners from
certain acts of state and local governments. Because the Due Process and Equal
Protection Clauses of the Fourteenth Amendment to the United States Constitution
apply to persons instead of to citizens, these provisions guarantee that states cannot
abridge the rights of foreign nationals within the United States.19 The Supreme Court
has in the past voided state laws which establish classifications in government actions
solely on the basis of citizenship. In doing so, the Court has stated that a classification
based solely upon citizenship or nationality is inherently suspect and subject to strict
scrutiny. For example, in Graham v. Richardson20 the Court held that state laws
which denied welfare benefits to resident aliens who had not resided in the United
States for a required number of years were unconstitutional because they deprived
these persons of equal protection of the laws.
Under traditional equal protection principles, a State retains broad discretion to
classify as long as its classification has a reasonable basis [citations omitted].
This is so in "the area of economics and social welfare" [citations omitted]. But
17 Id., at 434.
18 Note, United States Regulation of Foreign Direct Investment: Current Developments and
the Congressional Response, 15 VA. J. INT'L L. 611, 621 (1975).
19 See Plyler v. Doe, 457 U.S. 202 (1982).
20 403 U.S. 365 (1971).

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the Court's decisions have established that classifications based on alienage, like
those based on nationality or race, are inherently suspect and subject to close
judicial scrutiny. Aliens as a class are a prime example of a "discrete and insular"
minority [citations omitted] for whom such heightened judicial solicitude is
appropriate. Accordingly, it was said in Takahashi, 334 U.S. at 420, that "the
power of a state to apply its laws exclusively to its alien inhabitants as a class is
confined within narrow limits."21
As mentioned in the Takahashi case22 in the above quotation, a state must be
careful in applying state laws exclusively to aliens. This case challenged a California
statute which barred the issuance of commercial fishing licenses to persons ineligible
for citizenship. The Supreme Court held that this statute violated the Fourteenth
Amendment's Equal Protection Clause and the federal laws concerning citizenship.
Citizenship has also been rejected as a legitimate classification concerning
membership in a state bar,23 complete bans on employment of aliens in the state civil
service system,24 and the granting of educational benefits to aliens.25 Yet, the Supreme
Court has limited the application of these protections in other cases, one concerning
a New York statute limiting appointment to the state police force to United States
citizens,26 and another concerning a New York statute forbidding certification of a
non-citizen as a public school teacher unless the person had evidenced intent to
become a citizen.27 Therefore, there appears to be an exception to the general rule that
a classification based on citizenship is subject to strict judicial scrutiny in situations
where the classification relates to an essential governmental, political, or
constitutional function. In such situations the less strict, rational basis test may be
applied. From this discussion it may be concluded that state laws restricting
investments by at least resident aliens may come under strict judicial scrutiny.28
Yet, it must be remembered that, in contrast to the states, the federal government
has broad authority over naturalization and immigration.
For reasons long recognized as valid, the responsibility for regulating the
relationship between the United States and our alien visitors has been committed
21 Id., at 371.
22 Takahashi v. Fish and Game Commission, 334 U.S. 410 (1948).
23 In Re Griffiths, 413 U.S. 717 (1973).
24 Sugarman v. Dougall, 413 U.S. 634 (1973).
25 Nyquist v. Mauclet, 432 U.S. 1 (1977).
26 Foley v. Connelie, 435 U.S. 291 (1978).
27 Ambash v. Norwich, 441 U.S. 68 (1979).
28 It is also possible that nonresident aliens, such as a Japanese bank doing business in the
United States, are entitled to the same degree of equal protection under the Fourteenth
Amendment as resident aliens, but this is an issue which appears not to have been settled
by the courts. With respect, however, to actions by the federal government, it appears clear
that Congress can discriminate against nonresident aliens so long as the restriction is
reasonable and does not violate their procedural rights. See, e.g., statutes discussed later in
this report. No major cases challenging their constitutionality were found.

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to the political branches of the Federal Government. Since decisions in these
matters may implicate our relations with foreign powers, and since a wide variety
of classifications must be defined in the light of changing political and economic
circumstances, such decisions are frequently of a character appropriate to either
the Legislature or the Executive than to the Judiciary.29
The Supreme Court has held, for example, that aliens can be denied Medicare
coverage30 and that the federal government can deny a visa to a Marxist invited to
speak on world communism.31 The power of Congress to exclude aliens from the
United States and to prescribe the terms and conditions on which they enter is
virtually absolute and is an attribute of the sovereignty of the United States.32
Present Federal Restrictions on Foreign Investment
Four major federal statutes which have an impact upon foreign investment in the
United States are information-gathering and disclosure statutes, instead of actual
restriction statutes. One of these statutes is the International Investment and Trade in
Services Survey Act of 1976.33 Congress intended this act
to provide clear and unambiguous authority for the President to collect
information on international investment and United States foreign trade in
services, whether directly or by affiliates, including related information necessary
for assessing the impact of such investment and trade, to authorize the collection
and use of information on direct investments owned or controlled directly or
indirectly by foreign governments or persons, and to provide analyses of such
information to the Congress, the executive agencies, and the general public.34
The President by executive order delegated responsibility under this act for studying
direct investment to the Commerce Department and portfolio investment to the
Treasury Department.35 The act directs the President to conduct a benchmark survey
of foreign direct investment in the United States every five years.36 Amendments to
the act in 1990 direct the President to publish for the use of the general public and
federal agencies periodic information concerning foreign investment, including
information on ownership by foreign governments of United States affiliates of
business enterprises the ownership or control of which by foreign persons is more than
50 percent of the voting securities or other evidence of ownership of these enterprises,
29 Mathews v. Diaz, 426 U.S. 67, 81 (1975).
30 Id.
31 Kleindienst v. Mandel, 408 U.S. 753 (1972).
32 See Chinese Exclusion Case (Chae Chan Ping) v. United States, 130 U.S. 581, 603-604
(1889).
33 22 U.S.C. §§ 3101 et seq.
34 22 U.S.C. § 3101(b).
35 E.O. 11961 (Jan. 19, 1977), 42 Fed. Reg. 4321.
36 22 U.S.C. § 3103(b).

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as well as business enterprises the ownership or control of which by foreign persons
is 50 percent or less of the voting securities or other evidence of ownership of these
enterprises.37 The 1990 Amendments also provide that the President may request a
report from the Bureau of Economic Analysis of the Department of Commerce of the
best available information on the extent of foreign direct investment in a given
industry.38
Another federal statute having an impact upon foreign investment in the United
States is the Foreign Direct Investment and International Financial Data Improvements
Act of 1990.39 The purpose of this act is
to allow the Department of Commerce's Bureau of Economic Analysis (BEA)
access to information collected by the Bureau of the Census (Census). This
access will improve the accuracy and analysis of BEA's reports to the public and
to Congress on foreign direct investment in the United States.40
This act, among other requirements, adds chapter 10 to title 13 of the United States
Code to provide that the Bureau of the Census shall exchange with the Bureau of
Economic Analysis of the Department of Commerce any information that is collected
under the census provisions and under the International Investment and Trade in
Services Survey Act that pertains to a business enterprise operating in the United
States if the Secretary of Commerce determines that the information is appropriate to
augment and improve the quality of the data collected under the Survey Act. The Data
Improvements Act of 1990 also requires that other reports be prepared by the
Secretary of Commerce and the Comptroller General and submitted to Congressional
committees.41 The Bureau of the Census may provide business data to the Bureau of
Economic Analysis and the Bureau of Labor Statistics if the information is required
for an authorized statistical purpose and the provision is the subject of a written
agreement with that Designated Statistical Agency or its successors.42
The third of these information-gathering and disclosure statutes is the
Agricultural Foreign Investment Disclosure Act of 1978.43 This act has the following
two major requirements: 1. Any foreign person who acquires or transfers any interest,
other than a security interest, in agricultural land must submit a report to the Secretary
of Agriculture not later than 90 days after the date of the acquisition or transfer.44 2.
Any foreign person who holds any interest, other than a security interest, in
agricultural land on the day before the effective date of this act must submit a report
37 22 U.S.C. § 3103(a)(5).
38 22 U.S.C. § 3103(h).
39 22 U.S.C. §§ 3141 et seq.
40 S. Rep. No. 101-443, 101st Cong., 2d Sess. 1 (Aug. 30, 1990).
41 22 U.S.C. §§ 3142 and 3143.
42 13 U.S.C. § 402.
43 7 U.S.C. §§ 3501 et seq.
44 7 U.S.C. § 3501(a).

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to the Secretary of Agriculture not later than 180 days after the effective date of the
act.45
The fourth statute is also a disclosure statute. It is known as the Domestic and
Foreign Investment Improved Disclosure Act of 1977 and is a requirement added to
the Foreign Corrupt Practices Act of 1977.46 This provision amended section 13(d)
of the Securities Exchange Act of 193447 to require that anyone who acquires 5
percent or more of the equity securities of a company registered with the Securities
and Exchange Commission must disclose certain specified information, including
citizenship and residence. Hearings indicate that this statute is directed at foreign
investors in order to improve the ability of the federal government to monitor foreign
investment in the United States.48
All of the statutes discussed above are information-gathering and disclosure in
nature. There are not across-the-board, blanket restrictions on foreign investment in
the United States. Instead, over the years Congress has believed that certain industries
which could affect national security should have limits on foreign investment. These
industries include the maritime industry, the aircraft industry, banking, resources and
power, and the various businesses which are parties to government contracts.
Shipping Industry
There are three major maritime laws which have provisions concerning barriers
to foreign investment in the maritime industry: Shipping Act of 1916, Merchant
Marine Act of 1929, and Merchant Marine Act of 1936, all dispersed throughout Title
46 of the United States Code.
In the area of merchant shipping, there are restrictions on foreign ownership of
ships which are eligible for documentation in the United States. Any vessel of at least
five tons that is not registered under the laws of a foreign country is eligible for
documentation if it is owned by: 1. a United States citizen; 2. an association, trust,
joint venture, or other entity, all of whose members are United States citizens and that
is capable of holding title to a vessel under the laws of the United States or of a state;
3. a partnership whose general partners are United States citizens and whose
controlling interest is owned by United States citizens; 4. a corporation established
under federal or state laws, whose chief executive officer and chairman of its board
of directors are United States citizens and no more of its directors are noncitizens than
a minority of the number necessary to constitute a quorum; 5. the United States
government; or 6. a state government.49
45 7 U.S.C. § 3501(b).
46 P.L. 95-213.
47 15 U.S.C. § 78m(d).
48 Hearings on S. 245, the Foreign Investment Act of 1975 Before the Subcomm. on
Securities of the Senate Comm. on Banking, Housing, and Urban Affairs, 94th Cong., 1st
Sess. (1975).
49 46 U.S.C. § 12102(a).

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Similarly, coastwise trade (trade between points in the United States) must be
performed by vessels built in and documented under the laws of the United States and
owned by United States citizens.50 A certificate of documentation may be endorsed
with a coastwise endorsement for a vessel that 1. is eligible for documentation; 2. was
built in the United States or, if not built in the United States, was captured in war by
United States citizens and lawfully condemned as prize; and 3. qualifies under other
federal laws to be employed in the coastwise trade.51
A vessel may be issued a certificate of documentation with a coastwise
endorsement if: 1. the vessel is owned by a not-for-profit oil spill response
cooperative; 2. the vessel is at least 50 percent owned by persons eligible to have a
vessel documented under United States laws; 3. the vessel otherwise qualifies to be
employed in the coastwise trade; and 4. use of the vessel is restricted to oil spill
issues.52
A certificate of documentation may be endorsed with a fishery endorsement for
a vessel that is: 1. eligible for documentation; 2. was built in the United States; 3. if
rebuilt, was rebuilt in the United States; 4. was not forfeited to the United States
Government after July 1, 2001, for a breach of the laws of the United States; and 5.
otherwise qualifies under the laws of the United States to be employed in the
fisheries.53
A certificate of documentation with a recreational endorsement may be issued for
a vessel that is eligible for documentation.54
A vessel shall have preferred mortgage status only if the mortgagee is a state, the
United States government, a federally insured depository institution, a United States
citizen, a person qualifying as a United States citizen under 46 U.S.C. section 802, or
a person approved by the Secretary of Transportation.55
The Secretary of Transportation is authorized to acquire any obsolete vessel in
exchange for credit towards new vessels.56 To qualify as obsolete, a vessel must have
been owned by a citizen or citizens of the United States for at least three years
immediately before the date of acquisition.57 In the case of a corporation, partnership,
or association operating a vessel on the Great Lakes or on bays, sounds, rivers,
50 46 U.S.C. App. § 883.
51 46 U.S.C. §§ 12106, 12107, and 12108.
52 46 U.S.C. § 12106(d).
53 46 U.S.C. § 12108.
54 46 U.S.C. § 12109.
55 46 U.S.C. § 31322(a)(1)(D).
56 46 U.S.C. App. § 1160(b).
57 46 U.S.C. App. § 1160(a)(1).

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harbors, or inland lakes of the United States, the amount of interest required to be
owned by a citizen of the United States shall not be less than 75 percent.58
The Secretary of Transportation is permitted to make construction-differential
subsidies to aid in the construction of vessels to be used in the foreign commerce of
the United States. Only United States citizens or shipyards of the United States are
eligible for these subsidies.59
The Secretary of Transportation may also award financial aid in the operation of
a vessel or vessels which are to be used in an essential service in the foreign
commerce of the United States or in authorized cruises.60
Federal ship mortgage insurance is available for vessels documented under
United States laws.61 War risk insurance can be obtained, but United States
citizenship is required in certain instances.62 For example, insurance may be provided
only on American vessels, foreign-flag vessels owned by United States citizens or
engaged in transportation in the water-borne commerce of the United States, or in
other transportation by water deemed to be in the interest of the national defense or
the national economy of the United States.63
Citizenship restrictions also apply to crew members of United States vessels.
Licenses and certificates of registry for persons on documented vessels may be issued
only to United States citizens.64 For a passenger vessel which has been granted a
construction or operation subsidy, at least 90 percent of the entire crew must be United
States citizens.65
It is unlawful without the approval of the Secretary of Transportation to sell,
lease, charter, deliver, or transfer to any person not a United States citizen any interest
in or control of a documented vessel owned by a United States citizen or the last
documentation of which was under United States laws.66 During war or national
emergency, it is unlawful to sell, mortgage, lease, charter, deliver, or transfer to any
person not a United States citizen any vessel or interest in a vessel, any vessel
documented under the laws of the United States, or any shipyard, dry dock, ship-
building, or ship-repairing plant or facilities.67
58 46 U.S.C. § 1244(c).
59 46 U.S.C. App. § 1151(c).
60 46 U.S.C. App. § 1171(a).
61 46 U.S.C. App. §§ 1271(b) and 1274.
62 46 U.S.C. App. §§ 1281 et seq.
63 46 U.S.C. App. § 1283(a).
64 46 U.S.C. § 7102.
65 46 U.S.C. § 8103(d).
66 46 U.S.C. App. § 808(c).
67 46 U.S.C. § 835(b).

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In most cases it is unlawful for any contractor receiving an operating-differential
subsidy or for any charterer of vessels or any holding company to own, charter, act as
agent or broker for, or operate any foreign-flag vessel which competes with any
American-flag service determined by the Secretary of Transportation to be essential.68
Upon completion of the construction of any vessel in which a construction-
differential subsidy is to be allowed, the vessel shall be documented under United
States laws. The vessel must remain documented under United States laws for not
less than twenty-five years or for so long as there remains due the United States any
principal or interest on account of the purchase price.69
Any officer or employee of the United States traveling on official business
overseas or to or from any possession of the United States shall travel and transport
his personal effects on ships registered under the laws of the United States when these
ships are available unless the necessity of the mission requires the use of a ship under
a foreign flag.70 Whenever the United States shall furnish equipment, materials, or
commodities for a foreign nation without provision for reimbursement, the appropriate
agency shall take the steps necessary to assure that at least 50 percent of the gross
tonnage of the equipment, materials, or commodities which may be transported on
ocean vessels shall be transported on privately-owned United States-flag commercial
vessels.71
It is unlawful for any vessel not wholly owned by a United States citizen and not
having a certificate of documentation to perform various escort functions or provide
towing assistance for any vessel other than a vessel in distress.72 No foreign vessel
shall engage in salvaging operations on the Atlantic or Pacific coast of the United
States or in other United States waters except when authorized by a treaty.73 A vessel
may engage in dredging in the navigable waters of the United States only if: 1. it
meets the requirements for engaging in the coastwise trade; 2. when chartered, the
charterer is a citizen of the United States; and 3. for a vessel that is at least five net
tons, the vessel is documented with a coastwise endorsement.74
No foreign fishing vessel is permitted to fish within United States waters unless
the vessel has a valid permit on board.75 Permits may be issued to vessels of a foreign
nation only in certain instances.76
68 46 U.S.C. App. § 1222(a).
69 46 U.S.C. App. § 1153.
70 46 U.S.C. App. § 1241(a).
71 46 U.S.C. App. § 1241(b)(1).
72 46 U.S.C. App. § 316a.
73 46 U.S.C. § 316(d).
74 46 U.S.C. App. § 292(a).
75 16 U.S.C. § 1824(a).
76 16 U.S.C. § 1821.

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Loans may be made for financing or refinancing the cost of purchasing,
constructing, equipping, maintaining, repairing, or operating new or used commercial
fishing vessels or gear.77 An applicant for a fishery loan must be a citizen or national
of the United States.78
Aircraft Industry
There appear to be fewer restrictions on foreign investment in the aircraft
industry than in the maritime industry. However, restrictions bar a considerable
amount of foreign investment in the aircraft industry.
It is unlawful for any person to operate any aircraft unless it is registered.79 An
aircraft is eligible for registration only if it is: 1. not registered under the laws of a
foreign country and is owned by a citizen of the United States, a citizen of a foreign
country lawfully admitted for permanent residence in the United States, or a
corporation not a citizen of the United States when the corporation is organized and
doing business under the laws of the United States or a state and the aircraft is based
and primarily used in the United States; or 2. an aircraft of the United States
Government or a state, the District of Columbia, a territory or possession, or a
political subdivision of a state, territory, or possession.80 A citizen of the United
States is defined as: (a) an individual who is a citizen of the United States, (b) a
partnership of which each member is a United States citizen, or (c) a corporation or
association organized under the laws of the United States or of any state, the District
of Columbia, territory, or possession of the United States, of which the president and
two-thirds or more of the board of directors and other managing officers are United
States citizens, which is under the actual control of United States citizens and in
which at least 75 per cent of the voting interest is owned or controlled by persons who
are citizens of the United States.81
Foreign aircraft which are not a part of the armed forces of a foreign nation may
be navigated in the United States by airmen holding certificates or licenses issued or
rendered valid by the United States or by the nation in which the aircraft is registered
if the foreign nation grants a similar privilege concerning United States aircraft.82
Aircraft operators may be subject to restrictions based on citizenship. It is
unlawful for a person to operate an aircraft without an airman certificate.83 The
Administrator of the Federal Aviation Administration may restrict or prohibit issuing
77 16 U.S.C. § 742c(a).
78 16 U.S.C. § 742c(b)(7).
79 49 U.S.C. § 44101.
80 49 U.S.C. § 44102.
81 49 U.S.C. §40102(a)(15).
82 49 U.S.C. § 41703.
83 49 U.S.C. § 44711.

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an airman certificate to an alien or make issuing the certificate to an alien dependent
upon a reciprocal agreement with the government of a foreign country.84
The Secretary of Transportation is authorized to provide insurance and
reinsurancce against loss or damage arising from the risk of operation of aircraft.85
Citizenship requirements may be important in obtaining this insurance. For example,
some air cargoes may be insured only if they are owned by citizens or residents of the
United States.86
Mining
All valuable mineral deposits in lands belonging to the United States that are
open to exploration and purchase may be purchased by United States citizens and by
those who have declared their intention to become United States citizens.87 Proof of
citizenship may consist, in the case of an individual, of his affidavit; in the case of an
association of unincorporated persons, of the affidavit of their authorized agent or
upon information and belief; and in the case of a corporation organized under the laws
of the United States, a state, or territory, by the filing of a certified copy of their
charter or certificate of incorporation.88
Deposits of coal, phosphate, sodium, potassium, oil, oil shale, gilsonite, or gas
and lands containing these deposits owned by the United States, including within
national forests and in incorporated cities, towns, villages, and national parks and
monuments shall be subject to disposition in the approved manner to United States
citizens, associations of United States citizens, or any corporation organized under
United States, state, or territorial laws. Citizens of another country whose laws,
customs, or regulations deny similar privileges to citizens or corporations of the
United States shall not by stock ownership, stock holding, or stock control own any
interest in any lease concerning these mineral lands.89
The leasing of oil, natural gas, and other mineral deposits is allowed in the
submerged lands of the Continental Shelf.90 Regulations require that only United
States citizens, resident aliens, domestic corporations, or associations of one or more
of these groups may obtain these leases.91
Only United States citizens; associations of United States citizens; corporations
organized under the laws of the United States, a state, or the District of Columbia; or
84 49 U.S.C. § 44703(e).
85 49 U.S.C. §§ 44301 et seq.
86 49 U.S.C. § 44303.
87 30 U.S.C. § 22.
88 30 U.S.C. § 24.
89 30 U.S.C. § 181.
90 43 U.S.C. §§ 1331 et seq.
91 30 C.F.R. § 256.35.

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governmental units may be granted leases for the development and utilization of
geothermal steam and associated resources.92
Energy
Licenses for the construction, operation, or maintenance of facilities for the
development, transmission, and utilization of power on land and water over which the
federal government has control may be issued only to United States citizens and
domestic corporations.93
A license for nuclear facilities cannot be acquired by a foreign citizen or by a
corporation believed to be controlled by a foreign citizen or government.94
Lands
There appear to be few federal restrictions on the ownership of land by foreign
individuals or by foreign corporations. However, such past acts as the Homestead
Act95 required American citizenship in order to make claims on these lands. Today,
the Desert Land Act requires citizenship in order to make claims.96 Also, the
Secretary of the Interior continues to require American citizenship for authorizing
permits for grazing on public lands,97 and, as discussed above, the Agricultural
Foreign Investment Disclosure Act requires the disclosure to the Secretary of
Agriculture by foreigners of agricultural land purchases in the United States. Further,
public lands improved at the expense of funds from a reclamation project can be sold
only to United States citizens.98
Some of the states, however, have more stringent laws. For example, Kentucky
permits aliens who have declared their intent to become citizens to acquire or inherit
land, but, if the alien has not become a citizen within eight years, the alien must
dispose of the land, under penalty of escheat. Any alien residing within the state may
purchase land for the purpose of residence, occupation, business, trade, or
manufacture for as long as he remains a resident of the state.99
There appears to be an ongoing dispute as to how far states may go in restricting
alien ownership of real property. In 1923 the Supreme Court upheld restrictions of
some West Coast states against land ownership by Asians on the basis of safety and
92 30 U.S.C. § 1015.
93 16 U.S.C. § 797(e).
94 42 U.S.C. § 2133(d).
95 Ch. LXXV, § 1, Stat. 392 (1862).
96 43 U.S.C. § 321.
97 43 U.S.C. § 315b.
98 43 U.S.C. § 375.
99 Kentucky Revised Statutes, §§ 381.300 and 381.320.

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sovereignty.100 However, a 1948 Supreme Court decision modified and perhaps
overruled these decisions by declaring unconstitutional a similar statute which
prohibited ownership of land by Asians.101 It should also be noted that treaty
provisions between the United States and foreign countries which assure the right of
foreign nationals to purchase and inherit real property would supersede any
inconsistent state statutes.102
Communications
Federal statutes restrict foreign ownership and operation of mass
communications media in the United States. Radio station licenses shall not be
granted to or held by any foreign government or representative of a foreign
government.103 No broadcast or common carrier or aeronautical en route or
aeronautical fixed radio station license shall be granted to or held by any alien or the
representative of any alien, any corporation organized under the laws of a foreign
government, any corporation of which more than one-fifth of the capital stock is
owned or voted by aliens or their representatives or by a foreign government or
representative or by any corporation organized under the laws of a foreign country, or
by any corporation directly or indirectly controlled by any other corporation of which
any officer or more than one-fourth of the capital stock is owned or voted by aliens,
their representatives, or by a foreign government or representative, or by any
corporation organized under the laws of a foreign country if the public interest will be
served by the refusal or revocation of the license.104
A 1981 case challenged on equal protection grounds the Federal
Communications Commission bar on issuing commercial operator licenses to
aliens.105 The challenge failed. Although the court did not address whether the federal
government could control the public media by franchising the airwaves to protect the
national interest, the court upheld the federal restriction on the basis of minimal
scrutiny because of the federal powers over immigration and naturalization.
There does not appear to be a federal statute prohibiting the investment by
foreign citizens in United States newspapers and magazines. However, the Foreign
Agents Registration Act106 requires that agents of foreign principals must register with
the Attorney General of the United States, that informational materials for or in the
interests of a foreign principal must be labeled to show the relationship between the
agent and the foreign principal, and that the agent must file two copies of the printed
100 Terrace v. Thompson, 263 U.S. 197 (1923); Webb v. O'Brien, 263 U.S. 313 (1923).
101 Oyama v. California, 332 U.S. 633 (1948).
102 See, e.g., Zschernig v. Miller, 389 U.S. 429 (1968); Kolovrat v. Oregon, 366 U.S. 187
(1961); and DeTenorio v. McGowan, 510 F.2d 92 (5th Cir. 1975), cert. den., 423 U.S. 877
(1975).
103 47 U.S.C. § 310(a).
104 47 U.S.C. § 310(b).
105 Campos v. FCC, 650 F.2d 890 (7th Cir. 1981).
106 22 U.S.C. §§ 611 et seq.

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propaganda with the Justice Department.107 The statute defines foreign principal to
include 1. foreign governments and foreign political parties; 2. persons outside the
United States unless it is determined that the person is an individual and a citizen of
and domiciled within the United States or that the person is not an individual and is
organized under or created by the laws of the United States or a state and has its
principal place of business within the United States; and 3. a business organized under
the laws of or having its principal place of business in a foreign country.108 However,
agent of a foreign principal does not include any news or press service or association
which is a corporation organized under United States or state law or any newspaper,
magazine, periodical, or other publication having on file with the United States Postal
Service required information so long as it is at least 80 percent beneficially owned by
United States citizens, its officers and directors are all United States citizens, and the
news or service or association, newspaper, periodical, magazine, or other publication
is not owned, controlled, subsidized, or financed and none of its policies is determined
by a foreign principal or its agent.109
Banking
Before the International Banking Act of 1978,110 foreign banks which operated
in the United States had to comply with a great deal of confusing regulation which
was not specifically addressed to them as foreign banks. The International Banking
Act allows a foreign bank to enter the United States market by establishing an initial
federal branch or agency.111
Except as provided in section 3103 of this title [dealing with interstate
banking by foreign banks], a foreign bank which engages directly in a banking
business outside the United States may, with the approval of the Comptroller,
establish one or more Federal branches or agencies in any State in which (1) it is
not operating a branch or agency pursuant to State law and (2) the establishment
of a branch or agency, as the case may be, by a foreign bank is not prohibited by
State law.112
In considering an application for approval of a branch or agency by a foreign bank, the
Comptroller of the Currency shall include any condition imposed by the Board of
107 22 U.S.C. § 614.
108 22 U.S.C. § 611.
109 22 U.S.C. § 611(d).
110 P.L. 95-369, 92 Stat. 607, codified throughout title 12 of the United States Code but
primarily at 12 U.S.C. §§ 3101 et seq.
111 "Agency" means any office or any place of business of a foreign bank located in any
State of the United States at which credit balances are maintained incidental to or arising out
of the exercise of banking powers, checks are paid, or money is lent but at which deposits
may not be accepted from citizens or residents of the United States. 12 U.S.C. § 3101(1).
"Branch" means any office or any place of business of a foreign bank located in any
State of the United States at which deposits are received. 12 U.S.C. § 3101(3).
112 12 U.S.C. § 3102(a)(1).

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Governors of the Federal Reserve System (Board).113 A foreign bank with a federal
branch or agency operating in any state may, (A) with the prior approval of the
Comptroller of the Currency, establish and operate additional branches or agencies in
the state on the same terms and conditions applicable to the establishment of branches
by a national bank if the principal office of the national bank were located at the same
place as the initial branch or agency in the state of the foreign bank and (B) change the
designation of its initial branch or agency to any other branch or agency subject to the
same limitations and restrictions applicable to a change in the designation of the
principal office of a national bank if the principal office were located at the same place
as the initial branch or agency.114
The Board may examine each branch or agency of a foreign bank, each
commercial lending company or bank controlled by one or more foreign banks or one
or more foreign companies that control a foreign bank, and other office or affiliate of
a foreign bank conducting business in any state.115
No foreign bank may establish a branch or agency or acquire ownership or
control of a commercial lending company without the prior approval of the Board.116
The Board may not approve such an application unless it determines that the foreign
bank engages directly in the business of banking outside the United States and is
subject to comprehensive supervision or regulation in its home country and the foreign
bank has furnished to the Board information needed to assess the application.117
A foreign bank or foreign bank holding company which enters the United States
by organizing or acquiring a national bank subsidiary or affiliate118 is regulated also
by the National Bank Act.119 These requirements appear to have discouraged foreign
entry by means of subsidiaries because since 1791 Congress had required that all
directors of national banks must be citizens of the United States.120 However, this
citizenship provision was amended to permit the Comptroller of the Currency to waive
the citizenship requirement for not more than a minority of the board of directors.121
Further, at least a majority of the directors of a national bank must have resided in the
state in which the association is located or within one hundred miles of the location
of the association for at least one year immediately preceding their election, and must
be residents of the state or within a one-hundred-mile territory of the location of the
113 12 U.S.C. § 3102(a)(2).
114 12 U.S.C. § 3102(h).
115 12 U.S.C. § 3105(c)(1)(A).
116 12 U.S.C. § 3105(d)(1).
117 12 U.S.C. § 3105(d)(2).
118 A subsidiary of a foreign bank is a bank owned by the foreign bank; an affiliate of a
foreign bank is a bank owned by the same parent holding company as the foreign bank.
119 12 U.S.C. §§ 21 et seq.
120 Chapter X, 1 Stat. 191 (1791).
121 12 U.S.C. § 72.

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association during their continuance in office. The Comptroller may waive the
requirement of residency.122
A foreign bank or foreign bank holding company that organizes or acquires a
national or state bank subsidiary must also comply with the Bank Holding Company
Act.123 The Bank Holding Company Act prohibits bank holding companies from
engaging in certain non-banking activities but provides some exemptions for foreign
bank holding companies.124 For example, with Federal Reserve Board approval, bank
holding companies may hold shares or engage in activities otherwise prohibited if the
shares are held or the activities are conducted by any company which is organized
under the laws of a foreign country and the greater part of its business is conducted
outside the United States.125 Exemption is provided also to shares or activities
conducted by any company which does no business in the United States except as an
incident to its international or foreign business.126
Government Contracting
Corporations which are controlled or owned by foreign citizens can conduct
business with the federal government on generally the same basis as domestic
corporations which are owned completely by United States citizens. However, some
federal statutes restrict purchases of products by federal agencies to those
manufactured in the United States.
For example, the Buy American Act, enacted in the early 1930's,127 requires that:
[n]otwithstanding any other provision of law, and unless the head of the
department or independent establishment concerned shall determine it to be
inconsistent with the public interest, or the cost to be unreasonable, only such
manufactured articles, materials, and supplies as have been mined or produced in
the United States, and only such manufactured articles, materials, and supplies as
have been manufactured in the United States substantially all from articles,
materials, or supplies mined, produced, or manufactured, as the case may be, in
the United States, shall be acquired for public use....128
Although there have over the years been a number of exceptions to the Buy
American Act, amendments in 1988 and 1993 attempted to strengthen its
122 12 U.S.C. § 72.
123 12 U.S.C. §§ 1841 et seq.
124 12 U.S.C. § 1843.
125 12 U.S.C. § 1843(c)(9). But note that the prohibitions of 12 U.S.C. section 1843 do not
apply to shares of any company organized under the laws of a foreign country that is
principally engaged in business outside the United States if the shares are held or acquired
by a bank holding company organized under the laws of a foreign country that is principally
engaged in the banking business outside the United States. 12 U.S.C. § 1841(h)(2).
126 12 U.S.C. § 1843(c)(13).
127 41 U.S.C. §§ 10a-10d.
128 41 U.S.C. § 10a.

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provisions.129 For example, every contract for the construction or repair of a public
building or public work shall have a provision that the contractor or supplier shall use
only unmanufactured articles or materials mined or produced in the United States
unless the head of the department finds that this is impracticable or unreasonably
increases the cost.130 Further, if the Secretary of Defense, after consulting with the
United States Trade Representative, determines that a foreign country, which is a party
to a reciprocal defense procurement memorandum of understanding with the United
States concerning waiver of the Buy American Act for certain products in that
country, has discriminated against certain types of products produced in the United
States that are covered by the agreement, the Secretary of Defense shall rescind the
blanket waiver of the Buy American Act concerning those types of products produced
in that foreign country.131
Some of the exceptions to the Buy American Act should be noted. For example,
the Trade Agreements Act of 1979132 gives the President the authority to waive
application of the Buy American restrictions on the products of our trading partners.
However, this does not authorize the waiver of any small business or minority
preference.133
The National Industrial Security Program establishes a program to safeguard
federal government classified information that is released to contractors, licensees,
and grantees of the United States Government. This also covers foreign contractors.134
An important federal statute concerning contracting with the federal government
prohibits the assignment of the duties of a contract.
(a) No contract or order, or any interest therein, shall be transferred by the party
to whom such contract or order is given to any other party, and any such transfer
shall cause the annulment of the contract or order transferred, so far as the United
States is concerned. All rights of action, however, for any breach of such contract
by the contracting parties, are reserved to the United States.
(b) The provisions of subsection (a) of this section shall not apply in any case in
which the moneys due or to become due from the United States or from any
agency or department thereof, under a contract providing for payments
aggregating $1000 or more, are assigned to a bank, trust company, or other
financing institution, including any Federal lending agency....135
Somewhat similar to an assignment is a novation, which is an agreement in
which a federal agency indicates that it is willing to recognize a successor in interest
129 P.L. 100-418, Title VII, and P.L. 103-139, Title VIII.
130 41 U.S.C. § 10b(a).
131 41 U.S.C. § 10b-2(a).
132 19 U.S.C. §§ 2501 et seq.
133 19 U.S.C. § 2511(f).
134 48 C.F.R. § 4.402.
135 41 U.S.C. § 15(a), (b).

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to a contract. A novation is feasible: 1. where the contractor disposes to a third party
all of his assets or all of the assets devoted to the performance of a particular
government contract; 2. where the contractor's assets are transferred in consequence
of a merger or consolidation of corporations; or 3. where a proprietorship or
partnership incorporates.136 In a novation agreement the assignor or transferor is not
relieved of liability because one of the conditions of a novation is that the transferor
will guarantee performance of the contract.137 Therefore, if a domestic corporation
with a government contract is to be taken over by a foreign company which is not
permitted to perform government contract work because of national security reasons,
it is possible that the domestic corporation will be unable to be a party to a novation
agreement, thus practically prohibiting the takeover, or at least a takeover of that part
of the corporation which has the government contract.
Investment Company Regulation
The Investment Company Act of 1940138 requires registration with the Securities
and Exchange Commission (SEC) of an investment company which does business in
the United States. Only investment companies organized or created under the laws
of the United States or a state are allowed to sell their own securities in interstate
commerce in connection with a public offering unless the SEC finds that it is legally
and practically feasible to enforce the federal securities laws against the investment
company and that the exemption from registration is consistent with the public interest
and the protection of investors.139
The Trust Indenture Act of 1939140 prohibits the sale in interstate commerce of
certain securities which have not been registered under the Securities Act of 1933
unless the securities have been issued under an indenture.141 There must be at least
one or more trustees under the indenture, at least one of whom shall be a corporation
organized and doing business under the laws of the United States, a state, territory, or
the District of Columbia or a corporation or other person permitted to act as trustee
by the SEC which is authorized to exercise corporate trust powers and is subject to
supervision or examination by federal, state, territorial, or District of Columbia
authority.142
136 McBride and Touhey, GOVERNMENT CONTRACTS, 2 § 16.100 (Matthew Bender & Co.
1987).
137 Id.
138 15 U.S.C. §§ 80a-1 et seq.
139 15 U.S.C. § 80a-7(d).
140 15 U.S.C. §§ 77aaa et seq.
141 15 U.S.C. § 77fff(a).
142 15 U.S.C. § 77jjj(a)(1).

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Presidential Review of Mergers, Acquisitions, and
Takeovers
Section 5021 of the Omnibus Trade and Competitiveness Act of 1988,143 often
called the Exon-Florio provision, amended section 721 of the Defense Production Act
of 1950 to allow the President or the President’s designee to make an investigation to
determine the effects on national security of mergers, acquisitions, and takeovers by
or with foreign persons which could result in foreign control of persons engaged in
interstate commerce in the United States.144
Section 837(a) of the National Defense Authorization Act for FY1993,145 called
the Byrd Amendment, amended Exon-Florio to require an investigation when an
“entity controlled by or acting on behalf of a foreign government seeks to engage in
a merger, acquisition, or takeover which could result in control of a person engaged
in interstate commerce in the United States that could affect the national security of
the United States.”
Exon-Florio lists the following factors that the President or the President’s
designee may consider in determining the effects upon national security:
(1) domestic production needed for projected national defense
requirements;
(2) the capability and capacity of domestic industries to meet
national defense requirements, including the availability of
human resources, products, technology, materials, and other
supplies and services;
(3) the control of domestic industries and commercial activity by
foreign citizens as it affects the capability and capacity of the
United States to meet the requirements of national security;
(4) the potential effects of the transaction on the sales of military
goods, equipment, or technology to a country that supports
terrorism, missile technology proliferation, or chemical and
biological weapons proliferation; and
(5) the potential effects of the transaction on United States
technological leadership areas affecting United States national
security.146
The President may take such action as deemed appropriate to suspend or prohibit
any acquisition, merger, or takeover of a person engaged in interstate commerce in the
143 50 App. U.S.C. § 2170.
144 50 App. U.S.C. § 2170(a).
145 50 App. U.S.C. § 2170(b).
146 50 App. U.S.C. § 2170(f).

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United States by or with foreign persons so that control will not threaten to impair the
national security.147
The Committee on Foreign Investment in the United States (CFIUS) was
originally established in 1975148 to monitor and evaluate the impact of foreign
investment in the United States. In 1988 the President delegated to CFIUS his
responsibilities under Exon-Florio.149 CFIUS is an inter-agency committee chaired
by the Secretary of the Treasury and having as members government officials
including the Secretary of State, the Secretary of Defense, the Secretary of Commerce,
the Attorney General, and the Secretary of the Department of Homeland Security.
CFIUS has the primary continuing responsibility within the executive branch for
monitoring the impact of foreign investment within the United States and for
coordinating the implementation of United States policy on this investment.
147 50 App. U.S.C. § 2170(d).
148 E.O. 11858 (May 7, 1975).
149 E.O. 12188 (Jan. 2, 1980).

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