Order Code RL33388
CRS Report for Congress
Received through the CRS Web
The Committee on Foreign Investment in the
United States (CFIUS)
Updated July 28, 2006
James K. Jackson
Specialist in International Trade and Finance
Foreign Affairs, Defense, and Trade Division
Congressional Research Service ˜ The Library of Congress

---

The Committee on Foreign Investment in the United
States (CFIUS)
Summary
The Committee on Foreign Investment in the United States (CFIUS) is
comprised of 12 members representing major departments and agencies within the
federal Executive Branch. While the group generally operates in relative obscurity,
the proposed acquisition of commercial operations at six U.S. ports by Dubai Ports
World in 2006 placed the group’s operations under intense scrutiny by Members of
Congress and the public. Prompted by this case, some Members are questioning the
ability of Congress to exercise its oversight responsibilities given the general view
that CFIUS’s operations lack transparency. Other Members are revisiting concerns
about the linkage between national security and the role of foreign investment in the
U.S. economy. Some Members of Congress and others argue that the nation’s
security and economic concerns have changed since the September 11, 2001 terrorist
attacks and that these concerns are not being reflected sufficiently in the Committee’s
deliberations. In addition, anecdotal evidence seems to indicate that the CFIUS
process may not be market neutral, instead a CFIUS investigation of an investment
transaction may be perceived by some firms and by some in the financial markets as
a negative factor that adds to uncertainty and may spur firms to engage in behavior
that is not optimal for the economy as a whole.
Since some Members of Congress focused attention on the Dubai Ports World
transaction, more than two dozen measures on foreign investment have been
introduced. These measures reflect various levels of unease with the broad
discretionary authority Congress has granted CFIUS. As a result, most measures
would place new reporting requirements on CFIUS and strengthen Congress’s ability
to exercise oversight over CFIUS through the federal agencies that comprise the
Committee. Such measures as H.R. 4813 and H.R. 4917 would place new reporting
requirements on CFIUS to inform Congress when it initiates an investigation of a
proposed acquisition, merger, or takeover. Other measures would seek to reduce
CFIUS’s discretion in deciding whether to investigate a foreign investment
transaction. H.R. 4929 would limit CFIUS’s discretion by mandating that an
investigation must occur for any proposed or pending merger, acquisition, or
takeover. H.R. 5337 would make substantial changes to CFIUS and to the Exon-
Florio process. H.R. 5337 was approved unanimously, without amendment by the
full House, on July 26, 2006. S. 1797 would increase requirements for reporting to
Congress, and would require CFIUS to consider the long-term projections of the
United States requirements for sources of energy and other critical resources and
materials and for economic security. S. 2380 would add a new national security
review to the CFIUS process and add the Secretary of Homeland Security and the
Secretary of Defense as vice chairs of the Committee. S. 3549 would add to the list
of factors CFIUS and the President would consider in taking action against an
investment and it would provide for a system of assessing countries as a factor in
review or investigating investments. The measure was passed, with amendments, by
the full Senate on July 26, 2006.
This report will be updated as events warrant.

---

Contents
Background . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Establishment of CFIUS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
The “Exon-Florio” Provision . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Procedures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Factors for Consideration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Confidentiality Requirements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Treasury Department Regulations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
The “Byrd Amendment” . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
CFIUS Since Exon-Florio . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Impact of the Exon-Florio Process on CFIUS . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Actions in the 109th Congress . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
H.R. 4929 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
H.R. 5337 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
S. 1797 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
S. 2380 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
S. 2400 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
S. 3549 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
Conclusions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
List of Tables
Table 1. Merger and Acquisition Activity in the United States, 1996-2005 . . . . 10

---

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 investment in the economy. Since it was established by an
Executive Order of President Ford in 1975, the committee has operated in relative
obscurity.1 According to a Treasury Department memorandum, the Committee
originally was established in order to placate Congress, which had grown concerned
over the rapid increase in Organization of the Petroleum Exporting Countries
(OPEC) investments 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.2
Thirty years later, public and congressional concerns about the proposed purchase of
commercial port operations of the British-owned Peninsular and Oriental Steam
Navigation Company (P&O)3 in six U.S. ports by Dubai Ports World (DP World)4
sparked a firestorm of criticism and congressional activity concerning CFIUS and the
manner in which it operates. Some Members of Congress and the public argue that
the nation’s economic and national security concerns have been fundamentally
altered as a result of the September 11, 2001 terrorist attacks on the United States and
that these changes require a reassessment of the role of foreign investment in the
economy and in the nation’s security.
Members of Congress have so far introduced more than 25 bills in the 2nd
Session of the 109th Congress that would address various aspects of foreign
investment since the proposed DP World transaction These measures can be grouped
1 Executive Order 11858 (b), May 7, 1975, 40 F.R. 20263.
2 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, U.S. Govt. Print. Off.,
1979. p. 334-335. (Hereafter cited as, The Operations of Federal Agencies, part 3.)
3 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.
4 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 Carribean, and
North America.

---

CRS-2
into four major areas: those that deal specifically with the proposed DP World
acquisition; those that focus more generally on foreign ownership of U.S. ports,
especially if the foreign entity is owned or controlled by a foreign government; those
that would amend the CFIUS process; and those that would amend the Exon-Florio
process (explained below). Six bills focus primarily on CFIUS and display a range
of responses by some Members of Congress. These bills are examined in more depth
later in this report. The measures seem to indicate that some Members are concerned
over the way in which CFIUS operates and the lack of transparency in the process
that some Members believe has hampered Congress’s ability to exercise its oversight
responsibilities.
Establishment of CFIUS
President Ford’s 1975 Executive Order established the basic structure of CFIUS,
and directed that the “representative”5 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 investments in the United
States; (2) provide guidance on arrangements with foreign governments for advance
consultations on prospective major foreign governmental investments in the United
States; (3) review investments in the United States which, in the judgement of the
Committee, might have major implications for United States national interests; and
(4) consider proposals for new legislation or regulations relating to foreign
investment as may appear necessary.6
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:
(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) the close observing of foreign investment in the United States;
5 The term “representative” was dropped by Executive Order 12661, December 27, 1988,
54 FR 780.
6 Executive Order 11858 (b), May 7, 1975, 40 F.R. 20263.

---

CRS-3
(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 1976.7 The Act gave the President
clear and unambiguous authority” to collect information on “international
investment.” In addition, the Act authorized “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.”8
By 1980, some Members of Congress had come to believe that CFIUS was not
fulfilling its mandate. Between 1975 and 1980, for instance, the Committee had met
only ten 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.9 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?”10
From 1980 to 1987, CFIUS investigated a number of foreign investments,
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 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
7 P.L. 94-472, Oct 11, 1976; 22 USC 3101.
8 P.L. 94-472, Oct 11, 1976; 22 USC Sec. 3101(b).
9 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. House Report No. 96-1216, 96th Cong., 2d Sess. Washington,
U.S. Govt. Print. Off., 1980. 166-184.
10 The Operations of Federal Agencies, part 3, p. 5.

---

CRS-4
a French firm because of classified work engaged in by the computer division. The
acquisition proceeded after the classified contracts were reassigned to the U.S. parent
company.11
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 provision. This
statute grants the President the authority to block proposed or pending foreign
acquisitions of “persons engaged in interstate commerce in the United States”that
threaten to impair the national security. Congress directed, however, that before this
authority can be invoked the President is expected to believe that other U.S. laws are
inadequate or inappropriate to protect the national security, and that he must have
“credible evidence” that the foreign investment will impair the national security.
By the late 1980s, Congress and the public had grown increasingly concerned
about the sharp increase in foreign investment in the United States and the potential
impact such investment might have on the U.S. economy. In particular, the proposed
sale in 1987 of Fairchild Semiconductor Co. by Schlumberger Ltd. of France to
Fujitsu Ltd. of Japan touched off strong opposition in Congress and provided much
of the impetus behind the passage of the Exon-Florio provision. The proposed
Fairchild acquisition generated intense concern in Congress in part because of
general difficulties in trade relations with Japan at that time and because some
Americans felt that the United States was declining as an international economic
power as well as a world power. The Defense Department opposed the acquisition
because some officials believed that the deal would give Japan control over a major
supplier of computer chips for the military and would make U.S. defense industries
more dependent on foreign suppliers for sophisticated high-technology products.12
Although Commerce Secretary Malcolm Baldridge and Defense Secretary
Casper Weinberger failed in their attempt to have President Reagan block the Fujitsu
acquisition, Fujitsu and Schlumberger called off the proposed sale of Fairchild.13
While Fairchild was acquired some months later by National Semiconductor Corp.
for a discount,14 the Fujitsu-Fairchild incident marked an important shift in the
Reagan Administration’s support for unlimited foreign direct investment in U.S.
11 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, U.S. Govt., Print., Off., 1988. p. 21-22.
12 Auerbach, Stuart. Cabinet to Weigh Sale of Chip Firm. The Washington Post, March 12,
1987. p. E1.
13 Sanger, David E. Japanese Purchase of Chip Maker Canceled After Objections in U.S.
The New York Times, March 17, 1987. p. 1.
14 Pollack, Andrew. Schlumberger Accepts Offer. The New York Times, September 1,
1987. p. D1.

---

CRS-5
businesses and boosted support within the Administration for fixed guidelines for
blocking foreign takeovers of companies in national security-sensitive industries.15
In 1988, 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 1988.16 The Exon-Florio provision,
which was included as section 5021 of that Act, fundamentally transformed CFIUS.
The provision originated in bills reported by the Commerce Committee in the Senate
and the Energy and Commerce Committee in the House, but the measure was
transferred to the Banking Committee as a result of a dispute over jurisdictional
responsibilities.17
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 providing a cursory role for itself 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 maintain 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 investments 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 are also constrained by legislation that bars foreign direct
investment in such industries as maritime, aircraft, banking, resources and power.18
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.
15 Kilborn, Peter T. Curb Asked On Foreign Takeovers. The New York Times, March 18,
1987. p. D1.
16 P.L. 100-418.
17 Testimony of Patrick A. Mulloy before the Committee on Banking, Housing, & Urban
Affairs, October 20, 2005.
18 CRS Report RL33103, Foreign Investment in the United States: Major Federal
Restrictions, by Michael V. Seitzinger.

---

CRS-6
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,19 particularly to conduct
reviews, to undertake investigations, and to make recommendations, although the
statute itself does not specifically mention CFIUS. As a result of President Reagan’s
action, CFIUS was transformed from a purely administrative body with limited
authority to review and analyze data on foreign investment to one with a broad
mandate and significant authority to advise the President on foreign investment
transactions and to recommend that some transactions be blocked. Presently, the
Committee consists of twelve members, including the Secretaries of State, the
Treasury, Defense, Homeland Security, and Commerce; the United States Trade
Representative; the Chairman of the Council of Economic Advisers; the Attorney
General; the Director of the Office of Management and Budget; 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.20
Procedures
According to the Exon-Florio provision, CFIUS has 30 days to decide after it
receives the initial formal notification by the parties to a merger, acquisition, or a
takeover, whether to investigate a case as a result of its determination that the
investment “threatens to impair the national security of the United States.” If during
this 30 day period all of the members of CFIUS conclude that the investment does
not threaten to impair the national security, the review is terminated. If, however, at
least one member of the Committee determines that the investment does threaten to
impair the national security CFIUS can proceed to a 45-day investigation. At the
conclusion of the investigation or the 45-day review period, whichever comes first,
the Committee can decide to offer no recommendation or it can recommend that the
President suspend or prohibit the investment. The President is under no obligation
to follow the recommendation of the Committee to suspend or prohibit an
investment.
19 Executive Order 12661 of December 27, 1988, 54 F.R. 779.
20 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.

---

CRS-7
Factors for Consideration
The Exon-Florio provision includes a short list of factors the President may
consider in deciding to block a foreign acquisition. These factors are also considered
by the individual members of CFIUS 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;
(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 U.S. to meet the requirements
of national security;
(4) the 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
(5) the potential effects of the transaction on U.S. technological leadership in
areas affecting U.S. national security.
The first two factors emphasize the national defense aspects of foreign
acquisitions, while the other three factors highlight national security implications of
such investment. No clear definition is provided in the legislation for what
constitutes “national security” or foreign “control,” but CFIUS’ regulations state that
control is, “the power, whether or not exercised, to formulate, determine, direct, or
decide important matters relating to the entity.”21 While national security might be
interpreted broadly to include a range of economic issues, neither Congress nor the
Administration attempted to define the term. Treasury Department officials have
indicated that during an Exon-Florio review or investigation each CFIUS member is
expected to apply that definition of national security that is consistent with the
representative agency’s specific legislative mandate.22
The Treasury Department has provided some guidance to firms 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
21 Regulations Pertaining to Mergers, Acquisitions, and Takeover by Foreign Persons. 31
CFR Sec. 800.
22 Senate Armed Services Committee, Briefing on the Dubai Ports World Ports Deal,
February 23, 2006.

---

CRS-8
products, hotels and restaurants, or legal services. CFIUS has indicated that in order
to assure 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.”23
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 Administration and various industry groups argued that such
business practices are generally beneficial arrangements for U.S. companies. In
addition, they argued that any potential threat to national security could be addressed
by the Export Administration Act24 and the Arms Control Export Act.25
Confidentiality Requirements
The Exon-Florio provision also codified confidentiality requirements that are
similar to those that appeared in 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.”26 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 Exon-Florio
provision 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.27 As presently written,
there is no requirement for CFIUS or the President to notify or otherwise inform
Congress of cases it reviews or of the outcome of any investigation.
Treasury Department Regulations
After extensive public comment, the Treasury Department issued its final
regulations in November 1991 implementing the Exon-Florio provision.28 These
regulations created an essentially voluntary system of notification by the parties to
an acquisition and they allow for notices of acquisitions by agencies that are
members of CFIUS. Despite the voluntary nature of the notification, firms largely
comply 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
23 Ibid.
24 50 U.S.C. App. Sec. 2401, as amended.
25 22 U.S.C. App. 2778 et seq.
26 50 U.S.C. Appendix Sec. 2170(c)
27 50 U.S.C. Appendix Sec. 2170(g).
28 Regulations Pertaining to Mergers, Acquisitions, and Takeovers by Foreign Persons. 31
C.F.R. Part 800.

---

CRS-9
remain subject indefinitely to 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 indicate that
notifications provided to the Committee are considered to be confidential and the
information is not 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, the provision requires
CFIUS to investigate proposed mergers, acquisitions, or takeovers in cases where two
criterion 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.29
This amendment has come under intense 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 were interpreting 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
that they interpret the amendment to mean that a 45-day investigation is discretionary
and not mandatory. In the case of the DP World acquisition, CFIUS representatives
argued that 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 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, because CFIUS had concluded during the 30-day review that
the transaction “could not affect the national security.”30
29 P.L. 102-484, Oct. 23, 1992.
30 Briefing on the Dubai Ports World Deal before the Senate Armed Services Committee,
February 23, 2006.

---

CRS-10
CFIUS Since Exon-Florio
Recent information indicates that the number of cases reviewed by CFIUS has
declined since the late 1990s. In part, the decline reflects the slowdown in foreign
investment activity in the United States generally that occurred between 1998 and
2003, as indicated in Table 1. Based on the number of transactions per year,
acquisitions of U.S. firms by other U.S. firms has accounted for the largest share of
all merger and acquisition (M&A) transactions over the past ten years. This share
fell from 76% of all U.S. M&A transactions in 1996 to 72% in 2005, but that was up
from a low of 68% recorded in 2001. The share of M&A activity attributed to
foreign firms acquiring U.S. firms in 2005 accounts for 13% of all such transactions,
up from 9% in 1996.
In addition to a lower overall level of investment activity, the lower case load
experienced by CFIUS may reflect the impact of an informal CFIUS review process
that has developed over time. This process gives firms the opportunity to reconsider
their investments if they believe they could face a difficult CFIUS review or if they
believe the transaction could be subjected to a formal 45-day investigation with its
potentially negative connotations regarding national security concerns. In addition,
some observers argue that the case load diminished following the September 11th,
2001terrorists attacks on the United States due to the organization of the Department
of Homeland Security (DHS), which has participated actively in the CFIUS process
and has raised security concerns. These concerns may have caused some firms to
reconsider their investment transactions before they had progressed very far in the
formal CFIUS process in order to avoid a long and involved investigation by DHS.31
Table 1. Merger and Acquisition Activity in the United States,
1996-2005
Total Number
U.S. Firms
Non-U.S. Firms
U.S. Firms
of Mergers and
Acquiring
Acquiring
Acquiring
Acquisitions
U.S. Firms
U.S. Firms
Non-U.S. Firms
1996
7,347
5,585
628
1,134
1997
8,479
6,317
775
1,387
1998
10,193
7,575
971
1,647
1999
9,173
6,449
1,148
1,576
2000
8,853
6,032
1,264
1,557
2001
6,296
4,269
923
1,104
2002
5,497
3,989
700
808
2003
5,959
4,357
722
880
2004
7,031
5,084
813
1,134
2005
7,298
5,274
936
1,088
Source: Mergers & Acquisitions, February 2006.
31 Marchick, David. Testimony Before the House Financial Services Committee, March 1,
2006.

---

CRS-11
As a consequence of the confidential nature of the CFIUS review of any
proposed transaction, there are few official sources of information concerning the
Committee’s work to date. For the most part, information concerning individual
transactions that have been reviewed by CFIUS or any final recommendations that
have been issued by CFIUS have come from announcements released by the
companies involved in a transaction and not by CFIUS. According to one source,32
CFIUS has received more than 1,500 notifications since 1988, of which it conducted
a full investigation of 25 cases. Of these 25 cases, thirteen transactions were
withdrawn upon notice that CFIUS would conduct a full review and twelve of the
remaining transactions cases were sent to the President. Of these twelve transactions,
one was prohibited.33
Impact of the Exon-Florio Process on CFIUS
The DP World case has exposed a number of important aspects of CFIUS’
operations that apparently were not well known or understood by the public in
general. As already indicated, the Exon-Florio provision stipulates a three-step
process: the formal notification to CFIUS and a 30-day review; a 45-day
investigation for those transactions that raised national security concerns during the
30-day review and for those in which the concerns were not resolved during the
review period; and a 15-day Presidential determination stage for those transactions
that were determined after the 45-day review to pose an impairment to national
security. Over time, however, this process apparently has evolved to include an
informal fourth stage of unspecified length of time that consists of an unofficial
CFIUS determination prior to the formal filing with CFIUS. This type of informal
review has developed because it likely serves the interests of both CFIUS and the
firms involved in an investment transaction. According to Treasury Department
officials, this informal contact enables “CFIUS staff to identify potential issues
before the review process formally begins.”34
Firms that are party to a 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 the
potentially negative publicity that could arise if a transaction were to be 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.
32 CFIUS, The Washington Post, July 3, 2005. p. F3.
33 Auerbach, Stuart. “President Tells China to Sell Seattle Firm.” The Washington Post,
February 3, 1990. p. A1; and Benham, Barbara. “Blocked Takeover Fuels Foreign Policy
Flap.” Investor’s Daily, February 8, 1990. p. 1.
34 Testimony of Robert Kimmett, Briefing on the Dubai Ports World Deal before the Senate
Armed Services Committee, February 23, 2006.

---

CRS-12
After a lengthy review by CFIUS in 2000 of Verio, Inc., a U.S. firm that
operates websites for businesses and provides internet services, was acquired by NTT
Communications of Japan. Verio’s stock price reportedly fell during the CFIUS
investigation as a result of uncertainty in the market about prospects for the
transaction. The CFIUS review was instigated by the FBI, which had expressed
concerns during the initial review stage that the majority interest of the Japanese
government in NTT could give it access to information regarding wiretaps that were
being conducted on email and other Web-based traffic crossing Verio’s computer
system. After completing its investigation, however, CFIUS did not recommend that
President Clinton block the transaction.
The potentially negative publicity that can be associated with a CFIUS
investigation of a transaction apparently has had a major impact on the transactions
CFIUS has investigated. Since 1990, nearly half of the transactions CFIUS
investigated were terminated by the firms involved, because the firms decided to
withdraw from the transaction rather than face a negative determination by CFIUS.
In 2006, for instance, the prospects of a CFIUS investigation apparently was the
major reason the Israeli firm Check Point Software Technologies decided to call off
its proposed $225 million acquisition of Sourcefire, a U.S. firm specializing in
security appliances for protecting a corporation’s internal computer networks. In
addition, the decision by the China National Offshore Oil Company (CNOOC) to
drop its proposed acquisition of Unocal oil company in 2005 was partly due to
concerns by CNOOC about an impending CFIUS investigation of the transaction.
For CFIUS members, the informal process is beneficial because it gives them
as much time as they feel is necessary to review a transaction without facing the time
constraints that arise under the formal CFIUS review process. This informal review
likely also gives the CFIUS members added time to negotiate with the firms involved
in a transaction to restructure the transaction in ways that address any potential
security concerns or to develop other types of conditions that members of CFIUS feel
are appropriate in order to remove security concerns.
The DP World acquisition demonstrates how this informal CFIUS process can
operate in reviewing a proposed foreign investment transaction. According to
officials involved in the review, DP World officials contacted the Treasury
Department in early October 2005 to informally discuss their proposed transaction.
Treasury officials directed DP World to consult with the Department of Homeland
Security and in November the Treasury officials requested an intelligence assessment
from the Director of National Intelligence. Staff representatives from all of the
CFIUS members met on December 6, 2005 to discuss the transaction, apparently to
determine if there were any security concerns that had not been addressed and
resolved during the two-month long informal review of the proposed transaction.
Ten days after that meeting, DP World filed its official notification with CFIUS,
which distributed the notification to all of the CFIUS members and to the
Departments of Energy and Transportation. During this process, the Department of
Homeland Security apparently negotiated a letter of assurances with DP World that
addressed some outstanding concerns about port security. On the basis of this letter
and the lack of any remaining concerns expressed by any member of CFIUS or other
agencies that were consulted, CFIUS completed its review of the transaction on

---

CRS-13
January 17, 2006 and concluded that the transaction did not threaten to impair the
national security and therefore that it did not warrant a 45-day investigation.35
Actions in the 109th Congress
Following the public attention that focused on the DP World transaction in mid-
February 2006, Members of Congress introduced more than two dozen bills that
related directly or closely to the proposed transaction. The bills range in focus from
blocking the DP World transaction to revamping the CFIUS process. These
measures can be grouped into four major areas: those that deal specifically with the
proposed Dubai Ports World acquisition; those that focus more generally on foreign
ownership of U.S. ports, especially if the foreign entity is owned or controlled by a
foreign government; those that would amend the CFIUS process; and those that
would amend the Exon-Florio process. On the whole, a broad range of measures
would increase reporting requirements on CFIUS to keep key congressional leaders
apprised of the Committee’s actions. In some measures, Congress would have the
authority to intercede in a transaction that had been approved by CFIUS, to override
the CFIUS action, and to block a transaction.
The first measures that were introduced were directed at stopping the DP World
acquisition from occurring and at requesting CFIUS to undertake a full 45-day
investigation of the transaction. For instance, S.J.Res. 32, introduced February 27,
2006 and H.J.Res. 79, introduced February 28, 2006 express congressional
disapproval of the proposed acquisition and direct CFIUS to conduct a full 45-day
review of the transaction and to brief Members of Congress on the results of the
investigation.
On March 8, 2006, the House Appropriations Committee attached an
amendment (H.Amdt. 702) to a supplemental appropriations bill for defense
activities in Afghanistan and Iraq and emergency relief for the victims of hurricane
Katrina (H.R. 4939) that effectively would have nullified the actions of CFIUS
regarding the DP World transaction. The amendment would have withheld the use
of any funds to approve or “otherwise allow the acquisition of leases, contracts,
rights, or other obligations of P&O Ports by Dubai Ports World.” In addition, the
amendment would have prohibited Dubai Ports World from acquiring any leases,
contracts, rights, or other obligations in the United States of P&O Ports by Dubai
Ports World or “any other legal entity affiliated with or controlled by Dubai Ports
World.” The measure passed by a vote of 62 to 2 in the Committee.36 The following
day, DP World officials announced that they will sell off the newly-acquired U.S.
port operations to an American owner.37
35 Ibid.
36 Hulse, Carl, “In Break with While House, House Panel Rejects Port Deal,” The New York
Times, March 9, 2006. p. A1.
37 Weisman, Jonathan, and Bradley Graham, “Dubai Firm to Sell U.S. Port Operations,” The
Washington Post, March 10, 2006. p. A1.

---

CRS-14
On March 16, 2006, the measure passed the full House by a margin of 348 to
71 after an attempt the previous day failed by a vote of 377 to 38 to remove the ban
on Dubai Ports World from the measure.38 The measure is now awaiting Senate
action.
Such other measures as H.R. 4813 and H.R. 4917 would place new reporting
requirements on CFIUS to inform Congress when it initiates a 45-day investigation
of a proposed acquisition, merger, or takeover. H.R. 4917 also would express a
sense of Congress that CFIUS be moved from operating out of the Treasury
Department to the Department of Homeland Security. Since CFIUS is entirely a
creation of Executive Order and operates exclusively for and on behalf of the
President, it is unclear how much of an impact this measure would have on the
President.
Other measures attempt to address various concerns some Members of Congress
have expressed with the current CFIUS process. In particular, some Members have
voiced their dissatisfaction with the broad discretion CFIUS has to determine which
transactions it will subject to a 45-day investigation. Also, some Members
apparently are dissatisfied with the discretion CFIUS uses to interpret the Byrd
Amendment. Other measures have been introduced to shift the leadership of CFIUS
from the Treasury Department to the Department of Homeland Security and to limit
CFIUS’s discretion in investigating certain kinds of transactions, because some
Members argue that the Treasury Department has acted to limit the number of
transactions CFIUS investigates in order to promote the Department’s traditional
position of supporting an open and unobstructed investment process. Other measures
would leave unchanged the basic structure of CFIUS, but would institute CFIUS as
a matter of statute to strengthen Congressional oversight of the Committee’s
operations.
The following measures focus most specifically on the Committee on Foreign
Investment in the United States and propose various changes to the existing CFIUs
process.
H.R. 4929. H.R. 4929 was introduced by Representative Sabo on March 9,
2006. This measure would amend the Exon-Florio process to limit CFIUS’
discretion to investigate foreign investment transactions by mandating that an
investigation must occur for any proposed or pending merger, acquisition, or
takeover by any foreign person that could result in foreign control of any person
engaged in interstate commerce in the United States. This measure would establish
the Committee on Foreign Investment in the United States in statute and formally
make it responsible for conducting an investigation within 75 days of receipt of a
written notification of a proposed or pending merger, acquisition, or takeover. The
Committee would remain as presently constituted with 12 members and with the
Secretary of the Treasury as the Chairperson of the Committee. The Director of
National Intelligence would provide appropriate intelligence analysis and briefings
to the Committee.
38 Washington Trade Daily, March 17, 2006. p. 3.

---

CRS-15
The measure also attempts to prod the administration into investigating more
investment cases by requiring that the President must find that a transaction “will not
threaten” to impair the national security of the United States in order for any
proposed or pending merger, acquisition, or takeover of a person engage in interstate
commerce in the United States by a foreign person to occur. The measure would
limit somewhat the President’s discretion by amending the existing Exon-Florio
statute. Presently, the statute states that “the President may exercise the authority
...only if he finds that...” The measure would change the statute to indicate that the
President’s ability to act is based on findings that “shall be based on credible
evidence” that leads the President to believe that a) the foreign interest “might” take
action that threatens to impair the national security, and b) other provisions of law
are appropriate to protect the national security. During an investigation, the measure
would require that those factors that the President is required to consider in
investigating a proposed or pending transactions would be the same as those that
currently are specified in the Exon-Florio provision.
The measure also would increase reporting requirements on the CFIUS process
by requiring the President to transmit immediately a written notification to the
Secretary of the Senate and the Clerk of the House of Representatives containing a
detailed explanation of any determination by the President to approve or disapprove
of any merger, acquisition, or takeover by or with any foreign person which could
result in foreign control of any person engaged in interstate commerce in the United
States. Congress would have 30 days to enact a joint resolution of disapproval of a
transaction, which, if adopted, would then have the President “ take such action...as
is necessary to prohibit the merger, acquisition, or takeover.” The measure would
also require the President to provide a report to the Congress that evaluates whether
there is “credible evidence of a coordinated strategy by one or more countries or
companies to acquire U.S. companies that are involved in research, development, or
production of critical technologies for which the United states is a leading producer.”
The report would also be required to evaluate whether there are industrial espionage
activities that are directed or directly assisted by foreign governments against private
U.S. companies.
H.R. 5337. H.R. 5337 was introduced by Representative Blunt on May 10,
2006. The measure was approved unanimously by the full House without
amendment on July 26, 2006. The measure would establish the Committee on
Foreign Investment in the United States as a matter of statute and would amend the
current procedures for a CFIUS review and investigation. The measure would strike
out the first two sections of the current statute that deal with investigations and
replace them with provisions that would provide for the same 30-day review and 45-
day investigation stages that exist under the current provision, but alter the provision
in a number of ways. First, the measure would explicitly indicate that the
investigation would be conducted by the Committee on Foreign Investment in the
United States, which is referred to only as the President’s designee in the current
statute. Next, the measure would amend and broaden the language in the current
statute regarding national security by indicating that national security for this
provision would be construed “so as to include those issues relating to ‘homeland
security,’ including its application to critical infrastructure.”

---

CRS-16
The measure also would provide for a “National Security Review and
Investigation.” In those cases in which the Committee determined that the foreign
entity involved in a merger, acquisition, or takeover of any person engaged in
interstate commerce in the United States threatens to impair the national security of
the United States, the Committee would be required to (shall) review the transaction.
In addition, if the Committee determined that an entity was controlled by a foreign
government (with the term “control” to be defined by the Committee), the Committee
would be required to (shall) conduct an investigation of the transaction, without also
being required to determine during a 30-day review that the transaction threatens to
impair the national security. Any party to the transaction would be able to submit a
written notice to the Committee to initiate a review of a transaction. In a change,
however, a notification would not be able to be withdrawn unless a request had been
submitted by a party to the transaction and the request had been approved in writing
by the Chairperson of CFIUS in consultation with the Vice Chairperson.
In addition to any entity that is a party to a merger, acquisition, or takeover
being able to initiate a review, the President, the Committee, or any member of the
Committee would be able to require that a transaction be reviewed. These
individuals would also be able to initiate a review of a transaction that had been
reviewed but in which false or misleading information had been submitted to CFIUS,
or any transaction that had been reviewed in which it later was determined that any
party to the transaction had failed to adhere to any mitigating agreements or
conditions upon which the original approval had been granted.
The measure also would require the President, acting through CFIUS, to conduct
a National Security investigation of the effects of a transaction on the national
security of the United States and to take any “necessary” actions in connection with
the transaction to protect the national security of the United States under certain
conditions. These conditions would be: (1) as a result of a review of the transaction,
CFIUS determined that the transactions threatened to impair the national security of
the United States and that the threat had not been mitigated during or prior to a
review of the transaction; (2) the foreign person was controlled by a foreign
government; (3) the Director of National Intelligence had identified “particularly
complex national security or intelligence issues” that threaten to impair the national
security of the United States. The investigation would be required to be completed
within 45 days, but the measure would provide for an extension of the deadline of up
to an additional 45 days if the extension had been requested by the President or by
a roll call vote of two-thirds of the CFIUS members.
The measure also would require that both the Secretary of the Treasury and the
Secretary of Homeland Security approve and sign a determination on any review or
investigation for the CFIUS process to be considered final or complete. For those
cases in which the foreign entity was being controlled by a foreign government, the
CFIUS process would not be considered to be completed until a majority of the
members of CFIUS had voted their approval. In those instances in which at least one
member of CFIUS did not vote in favor of approval, the President, in addition to the
Chairperson and the Vice Chairperson of the Committee, would be required to sign
the Committee report to indicate his approval.

---

CRS-17
The bill would also require the Director of National Intelligence to carry out
“expeditiously” a thorough analysis of “any threat to the national security of the
United States” of any merger, acquisition, or takeover. This analysis specifically
would include a request for information be made from the Department of the
Treasury’s Director of the Office of Foreign Assets Control and the Director of the
Financial Crimes Enforcement Network. The Director of National Intelligence,
however, would not be included as a member of CFIUS and would be prohibited
from serving in a policy role within CFIUS other than to provide analysis in
connection with an investment transaction.
Firms would not be prohibited under this measure from submitting additional
information or modifying any agreement in connection with a transaction while the
transaction was being reviewed or investigated. Firms also would be able to request
a review or investigation after a review had been finalized if the firms believed that
they had additional information that would be material to the review that had not
been submitted to CFIUS, or if there had been material changes in circumstances that
would affect a review or investigation.
The measure would establish the members of CFIUS as a matter of statute,
compared with the present situation in which CFIUS is a creation of various
presidential orders. CFIUS would be composed of the same twelve members that
currently constitute the Committee, but they could be joined by “any other designee
of the President from the Executive Office of the President.” The Secretary of the
Treasury would continue to serve as the Chairperson of the Committee, but a new
Vice Chairperson position would be created and held by the Secretary of Homeland
Security and the Secretary of Commerce. The Committee would be empowered to
“take such testimony, receive such evidence, administer such oaths,” in order to carry
out a review or investigation. The Committee would also be able to require the
attendance and testimony of “such witnesses and production of such books, records,
correspondence memoranda, papers, and documents” as the Chairperson of the
Committee determines to be “advisable.”
The bill also would amend the current factors the President and the Committee
use to evaluate mergers, acquisitions, or takeovers. In particular, the statute would
change the status of the factors to be considered from being discretionary (may) to
being required (shall) in evaluating a transaction. Also, this measure would add three
more factors to the five that currently exist. These factors are: security-related impact
on critical infrastructure of an investment transaction; the entity involved was being
controlled by a foreign government; and such other factors as the President or his
designee “may determine to be appropriate, generally or in connection with a specific
review or transaction.” The bill would make the United States immune from any
liability for any losses or expenses incurred by the parties to an investment
transaction as a result of actions taken by CFIUS if the entities did not submit a
written notification to CFIUS or if the transaction was completed prior to the
completion of a CFIUS review.
The measure would also address one concern about CFIUS’s actions by granting
CFIUS the authority to negotiate, impose, or enforce any agreement or condition with
the parties to a transaction in order to mitigate any threat to the national security of
the United States. Such agreements would be required to be based on a “risk-based

---

CRS-18
analysis” of the threat posed by the transaction. Also, if a notification of a
transaction is withdrawn before any review or investigation by CFIUS can be
completed, the measure would grant the Committee the authority to take a number
of actions. In particular, the Committee would be able to develop (1) interim
protections to address specific concerns about the transaction pending a re-
submission of a notice by the parties; (2) a time frame for re-submitting the notice;
and (3) a process for tracking any actions taken by any party to the transaction.
CFIUS also would be granted the authority to designate an appropriate federal
department or agency to negotiate, modify, monitor, and enforce agreements in order
to mitigate any threat to national security. The agency or department would be
required to provide periodic reports to CFIUS and the parties to an agreement would
be required to report on the implementation of any material change in circumstances.
Furthermore, the federal entity would be required to report to CFIUS on any
modification to any agreement or condition that had been imposed and to ensure that
“any significant” modification was reported to the Director of National Intelligence
and to any other federal department or agency that “may have a material interest in
such modification.”
The measure also would increase oversight by the Congress. Not later than five
days after CFIUS completed an investigation, or 15 days after the end of an
investigation if the President had determined to take actions under the Exon-Florio
provision, the Committee would be required to provide a written report to leaders in
both Houses of Congress and to the Chairman and Ranking Member of committees
in both houses with jurisdiction over any aspect of the transaction and its possible
effects on national security. CFIUS would also be required to brief certain
congressional leaders if they request such a briefing. Members of Congress and their
staff would be subject to disclosure limitations and proprietary information would be
shared with congressional committees only under conditions that would assure the
confidentiality of the information.
CFIUS would be required to report semi-annually to Congress on any reviews
or investigations that CFIUS had conducted during the prior six-month period. Each
report would include a list of all reviews and investigations that had been conducted,
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 withdrawal from the process, any roll call votes by the
Committee, any extension of time for any investigation, and any presidential decision
or action taken under the Exon-Florio provision. In addition, CFIUS would be
required to report on trend information on the number of filings, investigations,
withdrawals, and presidential decisions or actions that were taken. The report would
also 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, and
a detailed discussion of all perceived adverse effects of investment transactions on
the national security or critical infrastructure of the United States.
Relative to critical technologies, the semi-annual CFIUS report would be
required to include an evaluation of any credible evidence of a coordinated strategy

---

CRS-19
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 would also 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.
The measure would require the Inspector General of the Department of the
Treasury to investigate any failure of CFIUS to comply with requirements for
reporting that were imposed prior to the passage of this measure and to report the
findings of this report to the Congress. The measure would also require the chief
executive officer of any party to a merger, acquisition, or takeover to certify in
writing that the information contained in the written notification to CFIUS fully
complied with the requirements of the Exon-Florio provision and that the information
was accurate and complete.
S. 1797. S. 1797 was introduced by Senator Inhofe on September 29, 2005.
This measure reflects long-standing displeasure with CFIUS that pre-dates the Dubai
Ports World transactions. The measure would amend the Exon-Florio process by
giving CFIUS 60 days instead of the present 30 days to decide if a pending
investment requires a mandatory 45-day investigation. In addition, the measure
increases reporting requirements by directing that the findings and recommendations
from any 45-day investigation would be sent immediately to the President and to the
Committee on Banking, Housing, and Urban Affairs of the Senate and the Committee
on Financial Services of the House. This measure would provide for a congressional
role in the CFIUS process by allowing the Chairman and Ranking Member of the
Senate Banking Committee and the House Financial Services Committee to request
a full 45-day investigation of investments that fall under the Byrd Amendment and
would provide that the results of any such investigation be sent to the President and
the Senate Banking Committee and the House Financial Services Committee.
This measure also attempts to limit CFIUS’ discretion by changing from
optional (may) to mandatory (shall) the factors that CFIUS considers in determining
if a transaction threatens to impair national security. It would also add a new factor
by requiring that CFIUS consider “the long-term projections of the United States
requirements for sources of energy and other critical resources and materials and for
economic security.” The measure also would require the Secretary of the Treasury
to provide a report quarterly to the Senate Banking Committee and the House
Financial Services Committee that contains a detailed summary and analysis of each
transaction that is being reviewed or was reviewed during the quarter. In further
broadening Congress’ role in the CFIUS process, a transaction that the President has
chosen not to suspend or prohibit would not be finalized for 10 legislative days after
the President notifies Congress during which if either House of Congress introduced
a joint resolution of disapproval, the transaction would be stopped for 30 legislative
days. If such a joint resolution were to be enacted into law, the transaction would
be blocked.
S. 2380. On March 7, 2006, Senator Dodd introduced S. 2380, which would
attempt to address concerns among some Members who argue that CFIUS has not

---

CRS-20
been viewing national security concerns broadly enough when reviewing and
investigating proposed investment transactions. As a result of these concerns, this
measure would restrict CFIUS’s discretion in investigating proposed investment
transactions by adding a new national security review. The measure would replace
the present leadership model with the Secretary of the Treasury as the lead official
with a troika leadership that would include the Secretary of Homeland Security and
the Secretary of Defense as vice chairs of the Committee. In addition, CFIUS
membership would expand to include the Directors of National Intelligence and
Central Intelligence. The measure would have the President establish a
Subcommittee on Intelligence within the CFIUS structure that would be chaired by
the Director of National Intelligence and would include the head of each member of
the intelligence community. The measure would amend the Exon-Florio process to
provide for a pre-investigation review by the Subcommittee on Intelligence of CFIUS
during a 15-day period that would begin following the receipt by the Committee of
any proposed merger, acquisitions, or takeover and before the commencement of any
45-day investigation and provide written comments on that review.
The measure would also amend the Exon-Florio process to require that only the
President or the Secretary of the Treasury, with the concurrence of the Secretary of
Homeland Security and the Secretary of Defense acting on the President’s behalf, can
determine that a proposed merger, acquisition, or takeover does not threaten to impair
the national security and, therefore, would not require a 45-day investigation. In such
cases, either the President or members of CFIUS acting on his behalf would be
required to certify this conclusion in writing. In addition, any person controlled by
or acting on behalf of a foreign government that is a party to a proposed merger,
acquisition, or takeover of any U.S. critical infrastructure (as defined in 42 U.S.C.
5195c(e)) would be required to notify the President or his designee. The Exon-Florio
provision would also be amended to require the President or his designee to notify
Congress not later than 15 days after he receives a written notification of a proposed
merger, acquisition, or takeover that could proceed to the 45-day investigation. The
measure would amend the Exon-Florio provision to specify that the President’s
designee named under the provision is the Committee on Foreign Investment in the
United States.
S. 2400. On March 13, 2006, Senator Collins introduced S. 2400 that would
appreciably alter the current Exon-Florio process and expand the current national
security review to include “homeland security.” Most importantly, the measure
would repeal that section of the Defense Production Act that is known as the Exon-
Florio provision and transfer the function for reviewing mergers, acquisitions and
takeovers to the Secretary of Homeland Security. The measure would establish the
Committee for Secure Commerce, which would be comprised of the heads of those
executive departments, agencies, and offices that the President determines to be
appropriate and would include the Director of National Intelligence. The chairperson
of the Committee would be able to seek information and assistance from any other
department, agency, or office of the Federal Government as the chairperson
determines is necessary or appropriate to carry out the duties of the Committee.
The Committee would be charged with conducting a review of proposed or
pending mergers, acquisitions, or takeovers within 30 days of being notified of such

---

CRS-21
a transaction, and could undertake an investigation of proposed or pending mergers,
acquisitions, or takeovers “to determine the effects on national security and
homeland security.” Such an investigation would need to be completed within 45
days of its commencement. Any investigation would require the Director of National
Intelligence to create a report that consolidates the intelligence findings, assessments,
and concerns of each of the relevant members of the intelligence community. The
intelligence report would be provided to all members of the Committee and would
be included as part of any recommendation by the President. An investigation would
be mandated in any instance in which an entity that is controlled by or acting on
behalf of a foreign government seeks to engage in any merger, acquisition, or
takeover which would result in the control of a person (entity) engaged in interstate
commerce in the United States.
The chairperson of the Committee would be responsible for establishing written
processes and procedures to be used by the Committee in conducting reviews and
investigations. In addition, the chairperson would be responsible for describing the
role and responsibilities of each member of the departments, agencies, and offices
that are involved in the investigation of foreign investment in the United States. The
head of each department, agency, or office that serves as a member of the Committee
would be required to establish written internal processes and procedures in
conducting reviews and investigations. Congress would be able to review such
written procedures as part of its oversight responsibilities.
Under the measure, the President would have the authority to “take such action
for such time as the President considers appropriate to suspend or prohibit any
acquisition, merger, or takeover.” The President would be required to announce his
decision within 15 days after the completion of the investigation by the Committee.
The President would be allowed to exercise his authority under this provision “only
if the President finds:” that there is credible evidence that leads the President to
believe that the foreign interest exercising control might take action that threatens to
impair the national security or homeland security; or that other provisions of law do
not provide adequate and appropriate authority for the President to protect the
national security or homeland security. In making his decision, the President would
be required (shall) to take into account the requirements of national security and
homeland security and consider among other factors the same set of factors that
currently exist under the Exon-Florio provision.
The measure also would require the President or his designee to report
immediately upon completion of an investigation to the Congress. This reporting
would comprise a written report of the results of the investigation and would include
a detailed explanation of the findings that were made; details of any legally binding
assurances that were provided by the foreign entity that were negotiated as a
condition for approval; and the factors that were considered in reaching the
determination. The President would also be required to transmit to certain Members
of Congress a report in both classified and unclassified form on a quarterly basis that
provides a detailed summary and analysis of each merger, acquisition, or takeover
that would be under review or investigation at the time of the report. In addition, the
measure would require the President to furnish to Congress on a quadrennial basis
a report that a) evaluates whether there is credible evidence of a coordinated strategy
by 1 or more countries or companies to acquire critical infrastructure within the

---

CRS-22
United States or U.S. companies involved in research, development, or production
of critical technologies for which the United States is a leading producer; and b)
evaluates whether there are industrial espionage activities directed or directly assisted
by foreign governments against private U.S. companies aimed at obtaining
commercial secrets related to critical technologies or critical infrastructure.
S. 3549. On June 21, 2006, Senator Shelby introduced S. 3549; the measure
was passed, with amendments, by the full Senate on July 26, 2006. This measure
would amend the Exon-Florio provision to provide for greater congressional
oversight over the review process and reduce the discretion of CFIUS to review
certain types of investments. The measure would require CFIUS to review any
proposed or pending transaction that results in a) the control of a person (business)
engaged in interstate commerce if the foreign person is a foreign government or is
acting on behalf of a foreign government or b) if the transactions could result in
control of any “critical infrastructure” if CFIUS determined that there would be “any
possible impairment to national security.” For this measure, critical infrastructure
would mean that provided by P.L. 107-56 (P.L. 107-56, USA PATRIOT Act; 42
U.S.C. 5195c) which means any system and assets, whether physical or cyber-based,
that are 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.
CFIUS would have the same 30 days and 45 days to complete a review and an
investigation, respectively, as under the current process, but any member of CFIUS
would be able to ask for an extension of the deadline up to 30 days for a review and
up to 45 days for an investigation. Once initiated, an investigation would have to
proceed until it is completed, even if the parties involved in the transaction withdrew
from the proposed investment.
The measure would replace the current system of voluntary notification with one
that would require certain entities to notify CFIUS. In particular, any entity that is
owned by or operated on behalf of a foreign government would be required to notify
CFIUS of any proposed or pending transaction that involved a U.S. entity that was
involved in “critical infrastructure” related to U.S. national security. The Secretary
of the Treasury would be required to promulgate regulations to implement this
provision.
S. 3549 also would establish CFIUS as a matter of statute in a manner that
closely resembles the current makeup of the Committee. The Secretary of the
Treasury would continue to serve as the chairman of the Committee with the
Secretary of Defense serving as the vice-chairman. The other members would include
the Secretaries of State, Homeland Security, and Commerce; the Attorney General;
the Director of the Office of Management and Budget; and the Director of National
Intelligence. The Committee would not expressly include 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 as exists
under the current system, but the President could appoint the heads of other executive
agencies or departments as he determines to be appropriate on a case-by-case basis
to serve on CFIUS. The measure also would direct staff members of CFIUS to report

---

CRS-23
directly to the Deputy Secretary of the Treasury and to perform no other official
functions other than as CFIUS staff.
The Director of National Intelligence (DNI) would be required to direct the
members of the intelligence community to collect and analyze information related to
the transaction and to report the findings to the members of CFIUS within 15 days
after beginning the review. After completing its initial report, The DNI would be
required to ensure that the intelligence community kept involved in the process by
continuing to analyze ans disseminate any additional information it collected during
the remainder of the review.
The chairman and vice-chairman of CFIUS, in consultation with the Secretaries
of State, Commerce, Energy, the Chairman of the Nuclear Regulatory Commission,
and the DNI would be required to develop and implement a system of assessing
individual countries according to three standards: 1) adherence to nonproliferation
control regimes, including treaties and multilateral supply guidelines; 2) record on
cooperating in counter-terrorism efforts; and 3) potential for transshipment or
diversion of technologies with military applications, including an analysis of national
export control laws and regulations. The measure also would direct that the
assessments and any information developed under this provision be used solely by
those agencies involved in reviewing and investigating investment transactions, not
be made publicly available, and be exempt from disclosure from Title 5 Section 552
of the U.S. Code regarding the public disclosure of information by Federal agencies.
Similar to the current statute, the measure would grant the President the
authority to take what action he deems to be appropriate to suspend or to prohibit any
transaction which would result in the control of any “critical infrastructure” of a
person (entity) engaged in interstate commerce in the United States by or with a
foreign person or government that threatens to impair the national security. The
President would be required to announce his decision within 15 days after CFIUS
completed an investigation of a transaction. Similar to the current Exon-Florio
provision, the President would be prohibited from exercising the authority granted
under this provision unless he determined: 1) that there “is credible evidence” that
the transaction “threatens to impair the national security;” and 2) provisions of law
other than the International Emergency Economic Powers Act do not provide
“adequate and appropriate” authority for the President to protect the national security.
The members of CFIUS and the President would be required (shall) to consider
a list of factors in determining to take action under this provision. The list includes
nine factors, including the five that exist under the current provision (listed on page
4). The four new factors that would be added by this measure are: 1) potential effects
on critical infrastructure, including major energy assets; 2) potential effects on
“critical technologies;” 3) the long term projection of United States requirements for
sources of energy and other critical resources and materials; and 4) the country
ranking system developed under this provision.
This measure would protect the confidentiality of the information by exempting
it from federal statutes that govern the public disclosure if information by federal
agencies. Nevertheless, CFIUS would be required to notify the governor of any State
regarding a transaction that involved critical infrastructure in order to discuss any

---

CRS-24
security concerns that arise or may arise from the transaction. Information provided
to a governor would not be made public, including under any law of a state that
pertained to freedom of information. This provision, however, would not prevent
disclosure to either House of Congress or to any duly authorized committee or
subcommittee of Congress.
The measure also would require that any assurances or other commitments
reached during a review or an investigation between CFIUS and the investing parties
be included in a formal agreement. The measure would regard the continued
observance of any such assurance or commitment as a necessary condition for the
investment and would be required to monitor the commitments to insure compliance.
Presently, such assurances are kept confidential and are not monitored after the
completion of the transaction. In addition, the measure would specify that the U.S.
District Court for the District of Columbia have jurisdiction to enforce any
agreements and would provide for such remedies as divestiture, injunctive relief,
enforcing the terms of such agreement, and monetary damages.
This measure also would require CFIUS to provide certain reports and notices
to Congress. CFIUS would be required to notify Congress within 10 days of the
initiation of a review of a proposed or pending foreign investment, including the
identities of all the parties involved and any foreign government ownership or
control. CFIUS would also be required to notify Congress when it initiates a full 45-
day investigation and the final results of the investigation, unless the investment
under investigation had been sent to the President. Each notice would be required
to include information on whether an investigation had occurred and had been
completed, a description of the actions that were taken by CFIUS, including details
of any legally binding assurances or commitments that were negotiated as a condition
for approval of the investment, and an identification of the factors specified in this
provision that CFIUS considered in reviewing or investigating the investment. The
notices and reports would be required to be sent to the Majority Leader and Minority
Leader of the Senate, the Speaker and the Minority Leader of the House, to the chair
and ranking members of the Committee on Financial Services of the House and any
other relevant committee. The notices and reports would also be required to be sent
to the Senators and Representatives from the states where the investments involved
critical infrastructures.
CFIUS would be required to provide an annual report to Congress on the U.S.
policy of preserving the nation’s defense production and critical infrastructure, and
the Secretary of the Treasury would be required to appear before Congress to provide
testimony on the report. Each annual report would be required to include information
on eight areas:
! 1) an analysis of each transaction that affects the national security,
including the nature of the investment and the effect or potential
impact of the investment on the U.S. defense industrial base and
critical infrastructure;
! 2) an updated analysis of any transaction that occurred during the
preceding four years, including an analysis of the impact of

---

CRS-25
transactions involving foreign governments or persons acting on
behalf of or in concert with foreign governments;
! 3) a detailed discussion of all the perceived risks to national security
or critical infrastructure that CFIUS would intend to consider in its
deliberations during the year;
! 4) a table showing on a cumulative basis, by sector, and country of
foreign ownership, the number of investments reviewed or
investigated by CFIUS to provide a census of production
“potentially relevant” to the Nation’s defense industrial base that is
owned or controlled by foreign persons or foreign governments;
! 5) an evaluation of whether there is credible evidence of a
coordinated strategy by one or more countries or companies to
acquire critical infrastructure of or within the United States or U.S.
companies involved in research, development, or production of
critical technologies in which the United States is a leading
producer;
! 6) an evaluation of whether there are industrial espionage activities
directed or directly assisted by foreign governments against private
U.S. companies aimed at obtaining commercial secrets related to
critical technologies or critical infrastructure; and
! 7) such other matters as are necessary to give a complete disclosure
and analysis of the work of CFIUS
The measure would allow for the evaluations provided in response to area 5 of
the annual report to be classified, but it would require an unclassified form of the
report to be provided to the public. In addition, the measure would allow CFIUS to
withhold any information from the pubic that it determines to be proprietary
information. This provision, however, does not apply to CFIUS in its requirements
to provide information to Congress.
Conclusions
The proposed DP World acquisition of P&O, while of arguably little economic
impact on the U.S. economy, could affect public policy on foreign investment that
relates to issues of corporate ownership, foreign investment, and national security in
the U.S. economy. The transaction revealed significant differences between
Congress and the Administration over the operations of CFIUS and over the
objectives the Committee should be pursuing. In addition, the transaction
demonstrated that neither Congress nor the Administration has been able so far to
define clearly the national security implications of foreign direct investment. This
issue likely reflects differing assessments of the economic impact of foreign
investment on the U.S. economy and differing political and philosophical convictions
among Members and between the Congress and the Administration.

---

CRS-26
The incident also focused attention on the informal process firms use to have
their investment transactions reviewed by CFIUS prior to a formal review.
According to anecdotal evidence, some firms apparently believe that the CFIUS
process is not market neutral, but that it 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 a considerable amount of resources to avoid a CFIUS investigation, or
deciding to terminate a transaction that would improve the optimal performance of
the economy in order to avoid a CFIUS investigation. While such anecdotal evidence
does not provide enough evidence to serve as the basis for developing public policy,
it does raise a number of concerns about the possible impact of the CFIUS process
on the market and the potential costs of redefining the concept of national security
relative to foreign investment.
The recent focus by Congress on the Committee has also shown that the DP
World transaction, in combination with other recent unpopular foreign investment
transactions, has exacerbated dissatisfaction among some Members of Congress over
the operations of CFIUS. In particular, some Members are displeased with the way
the Committee uses its discretionary authority under the Exon-Florio provision to
investigate certain foreign investment transactions. As a result, Congress could make
significant changes to the CFIUS process through legislation that has been proposed
in the 2nd Session of the 109th Congress. The changes could mandate more frequent
contact between the Committee, which generally operates without much public or
congressional attention, and the Congress. Other measures would enhance
Congress’s oversight role over the Committee. Other measures would give Congress
some form of a veto over aspects of the Committee’s investigations of foreign
investment transactions.
The DP World transaction also revealed that the September 11, 2001 terrorist
attacks may have fundamentally altered the viewpoint of some Members of Congress
regarding the role of foreign investment in the economy and over the impact of such
investment on the national security framework. These observers argue that this
change requires a reassessment of the role of foreign investment in the economy and
of the implications of corporate ownership of activities that fall under the rubric of
critical infrastructure. As a result, some Members of Congress are looking to amend
the CFIUS process to enhance Congress’s oversight role while reducing somewhat
the discretion of CFIUS to review and investigate foreign investment transactions in
order to have CFIUS investigate a larger number of foreign investment cases. In
addition, the DP World transaction has focused attention on long-unresolved issues
concerning the role of foreign investment in the nation’s overall security framework
and the methods that are being used to assess the impact of foreign investment on the
nation’s defense industrial base and homeland security.
Most economists agree that there is little economic evidence to conclude that
foreign ownership, whether by a private entity or by an entity that is owned or
controlled by a foreign government, has a measurable impact on the U.S. economy.
Others may argue that such firms pose a risk to national security or to homeland
security, but such concerns are not within the purview of this report. Similar issues
concerning corporate ownership were raised during the late 1980s and early 1990s
when foreign investment in the U.S. economy increased rapidly. There are little new

---

CRS-27
data, however, to alter the conclusion reached at that time that there is no definitive
way to assess the economic impact of foreign ownership or of foreign investment on
the economy. Although some observers have expressed concerns about foreign
investors who are owned or controlled by foreign governments acquiring U.S. firms,
there is little confirmed evidence that such a distinction in corporate ownership has
any effect on the economy as whole.
For most economists, the distinction between domestic- and foreign-owned
firms, whether the foreign firms are privately owned or controlled by a foreign
government, is sufficiently small that they would argue that it does not warrant
placing restrictions on the inflow of foreign investment. Nevertheless, foreign direct
investment does entail various economic costs and benefits. On the benefit side, such
investments bring added capital into the economy and potentially could add to
productivity growth and innovation. Such investment also represents one
repercussion of the U.S. trade deficit. The deficit transfers dollar-denominated assets
to foreign investors, who then decide how to hold those assets by choosing among
various investment vehicles, including direct investment. Foreign investment also
removes a stream of monetary benefits from the economy in the form of repatriated
capital and profits that reduces the total amount of capital in the economy. Such
costs and benefits likely occur whether the foreign owner is a private entity or a
foreign government.

---