Order Code RL33388
The Committee on Foreign Investment in the
United States (CFIUS)
Updated July 23, 2007
James K. Jackson
Specialist in International Trade and Finance
Foreign Affairs, Defense, and Trade Division

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 of the 109th and
110th Congresses have questioned the ability of Congress to exercise its oversight
responsibilities given the general view that CFIUS’s operations lack transparency.
Other Members revisited concerns about the linkage between national security and
the role of foreign investment in the U.S. economy. Some Members of Congress and
others argued that the nation’s security and economic concerns have changed since
the September 11, 2001 terrorist attacks and that these concerns were not being
reflected sufficiently in the Committee’s deliberations. In addition, anecdotal
evidence seemed to indicate that the CFIUS process is not 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.
As a result of the attention focused on the Dubai Ports World transaction,
Members of Congress introduced more than two dozen measures on foreign
investment in the 109th Congress. These measures reflected various levels of unease
with the broad discretionary authority Congress has granted CFIUS. In the 1st
session of the 110th Congress, Congresswoman Maloney introduced H.R. 556, the
National Security Foreign Investment Reform and Strengthened Transparency Act
of 2007, on January 18, 2007. The measure was approved by the House Financial
Services Committee on February 13, 2007 with amendments, and was approved with
amendments by the full House on February 28, 2007 by a vote of 423 to 0. On June
13, 2007, Senator Dodd introduced S. 1610, the Foreign Investment and National
Security Act of 2007. On June 29, 2007, the Senate adopted S. 1610 in lieu of H.R.
556 by unanimous consent. On July 11, 2007, the House accepted the Senate’s
version of H.R. 556 by a vote of 370-45 and sent the measure to the President.
This report will be updated as events warrant.

Contents
Background . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Establishment of CFIUS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
The “Exon-Florio” Provision . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Procedures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Factors for Consideration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Confidentiality Requirements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Treasury Department Regulations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
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 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
H.R. 5337 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
S. 1797 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
S. 2380 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
S. 2400 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
S. 3549 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
Actions in the 110th Congress . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
H.R. 556 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
S. 1610 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
Conclusions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
List of Tables
Table 1. Merger and Acquisition Activity in the United States, 1996-2006 . . . . 11

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 during the 109th
Congress concerning CFIUS and the manner in which it operates. Some Members
of Congress and the public argued 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. As a
result of the attention by both the public and Congress, DP World officials
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
announced that they would sell off the U.S. port operations to an American owner.5
On December 11, 2006, DP World officials announced that a unit of AIG Global
Investment Group, a New York-based asset management company with $683 billion
in assets, but no experience in port operations, would acquire the U.S. port operations
for an undisclosed amount.6
Members of Congress introduced more than 25 bills in the 2nd session of the
109th Congress that would have addressed various aspects of foreign investment since
the proposed DP World transaction. The Congressional session ended before a
Conference Committee could be convened to work out differences between the
measures. Overall, the measures can be grouped into four major areas: those that
dealt specifically with the proposed DP World acquisition; those that focused 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 have amended the CFIUS
process; and those that would amend the Exon-Florio process (explained below). Six
bills focused primarily on CFIUS and displayed a range of responses by some
Members of Congress. These bills are examined in more depth later in this report.
In the 1st session of the 110th Congress, Members approved measures that will amend
the CFIUS process to provide greater oversight by Congress and increased reporting
by the Committee on its decisions. In addition, the measures broaden the definition
of national security and require greater scrutiny by CFIUS of certain types of foreign
direct investments. The measures demonstrate the concern that some Members have
with the way CFIUS has operated and with the lack of transparency in the CFIUS
review 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”7 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
5 Weisman, Jonathan, and Bradley Graham, “Dubai Firm to Sell U.S. Port Operations,” The
Washington Post
, March 10, 2006. p. A1.
6 King, Neil Jr., and Greg Hitt, Dubai Ports World Sells U.S. Assets — AIG Buys
Operations that Ignited Controversy As Democrats Plan Changes. The Wall Street Journal,
December 12, 2006. P. A1.
7 The term “representative” was dropped by Executive Order 12661, December 27, 1988,
54 FR 780.

CRS-3
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.8
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;
(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 1976.9 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.”10
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.11 One
8 Executive Order 11858 (b), May 7, 1975, 40 F.R. 20263.
9 P.L. 94-472, Oct 11, 1976; 22 USC 3101.
10 P.L. 94-472, Oct 11, 1976; 22 USC Sec. 3101(b).
11 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
(continued...)

CRS-4
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?”12
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
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.13
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
11 (...continued)
Government Operations. H.Rept. 96-1216, 96th Cong., 2nd sess., Washington, U.S. Govt.
Print. Off., 1980. 166-184.
12 The Operations of Federal Agencies, part 3, p. 5.
13 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.

CRS-5
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.14
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.15
While Fairchild was acquired some months later by National Semiconductor Corp.
for a discount,16 the Fujitsu-Fairchild incident marked an important shift in the
Reagan Administration’s support for unlimited foreign direct investment in U.S.
businesses and boosted support within the Administration for fixed guidelines for
blocking foreign takeovers of companies in national security-sensitive industries.17
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 1988.18 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.19
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-
14 Auerbach, Stuart. Cabinet to Weigh Sale of Chip Firm. The Washington Post, March 12,
1987. p. E1.
15 Sanger, David E. Japanese Purchase of Chip Maker Canceled After Objections in U.S.
The New York Times, March 17, 1987. p. 1.
16 Pollack, Andrew. Schlumberger Accepts Offer. The New York Times, September 1,
1987. p. D1.
17 Kilborn, Peter T. Curb Asked On Foreign Takeovers. The New York Times, March 18,
1987. p. D1.
18 P.L. 100-418.
19 Testimony of Patrick A. Mulloy before the Committee on Banking, Housing, & Urban
Affairs, October 20, 2005.

CRS-6
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.20
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.
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,21 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.22
20 CRS Report RL33103, Foreign Investment in the United States: Major Federal
Restrictions,
by Michael V. Seitzinger.
21 Executive Order 12661 of December 27, 1988, 54 F.R. 779.
22 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,
(continued...)

CRS-7
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.
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
22 (...continued)
February 28, 2003 added the Secretary of Homeland Security.

CRS-8
decide important matters relating to the entity.”23 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.24
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
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.”25
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 Act26 and the Arms Control Export Act.27
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.”28 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
23 Regulations Pertaining to Mergers, Acquisitions, and Takeover by Foreign Persons. 31
CFR Sec. 800.
24 Senate Armed Services Committee, Briefing on the Dubai Ports World Ports Deal,
February 23, 2006.
25 Ibid.
26 50 U.S.C. App. Sec. 2401, as amended.
27 22 U.S.C. App. 2778 et seq.
28 50 U.S.C. Appendix Sec. 2170(c)

CRS-9
any transaction that was subject to a 45-day investigation.29 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.30 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
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.31
This amendment came 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
29 50 U.S.C. Appendix Sec. 2170(g).
30 Regulations Pertaining to Mergers, Acquisitions, and Takeovers by Foreign Persons. 31
C.F.R. Part 800.
31 P.L. 102-484, October 23, 1992.

CRS-10
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.”32
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 71.7% in 2006, 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 2006 accounts for 14.6% 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 11,
2001 terrorists 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.33
32 Briefing on the Dubai Ports World Deal before the Senate Armed Services Committee,
February 23, 2006.
33 Marchick, David. Testimony Before the House Financial Services Committee, March 1,
2006.

CRS-11
Table 1. Merger and Acquisition Activity in the United States,
1996-2006
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
7,600
5,463
977
1,160
2006
8,203
5,853
1,074
1,276
Source: Mergers & Acquisitions, February 2007.
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,34
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.35
Impact of the Exon-Florio Process on CFIUS
The DP World case 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
34 CFIUS, The Washington Post, July 3, 2005. p. F3.
35 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.

CRS-12
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.”36
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.
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
36 Testimony of Robert Kimmett, Briefing on the Dubai Ports World Deal before the Senate
Armed Services Committee, February 23, 2006.

CRS-13
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 demonstrated 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
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.37
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
37 Ibid.

CRS-14
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.38 The following
day, DP World officials announced that they would sell off the newly-acquired U.S.
port operations to an American owner.39 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.40
Such other measures as H.R. 4813 and H.R. 4917 would have placed 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
have expressed 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 had on
the actions of the President.
Other measures addressed various concerns some Members of Congress
expressed relative to the current CFIUS process. In particular, some Members voiced
their dissatisfaction with the broad discretion CFIUS has to determine which
transactions it subjects to a 45-day investigation. Also, some Members apparently
were dissatisfied with the discretion CFIUS uses to interpret the Byrd Amendment.
Other Members introduced measures 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
argued that the Treasury Department 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 have left
unchanged the basic structure of CFIUS, but would have instituted CFIUS as a matter
of statute to strengthen Congressional oversight of the Committee’s operations.
38 Hulse, Carl, “In Break with While House, House Panel Rejects Port Deal,” The New York
Times
, March 9, 2006. p. A1.
39 Weisman, Jonathan, and Bradley Graham, “Dubai Firm to Sell U.S. Port Operations,” The
Washington Post
, March 10, 2006. p. A1.
40 Washington Trade Daily, March 17, 2006. p. 3.

CRS-15
The following measures focused most specifically on the Committee on Foreign
Investment in the United States and the proposed changes to the existing CFIUS
process.
H.R. 4929. H.R. 4929 was introduced by Representative Sabo on March 9,
2006. This measure would have amended 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. The measure also attempted 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 have limited somewhat the
President’s discretion by changing 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 have required 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.
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 have established the Committee
on Foreign Investment in the United States as a matter of statute and would have
amended the current procedures for a CFIUS review and investigation. The measure
would have amended the current statute regarding national security by indicating that
national security is construed “so as to include those issues relating to ‘homeland
security,’ including its application to critical infrastructure.” The measure also would
have provided for a “National Security Review and Investigation,” and would have
required the President to take any “necessary” actions in connection with the
transaction to protect the national security of the United States under certain
conditions. The measure also would have addressed 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.
S. 1797. S. 1797 was introduced by Senator Inhofe on September 29, 2005.
This measure reflected long-standing displeasure with CFIUS that pre-dates the
Dubai Ports World transactions. The measure would have amended 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 would have provided 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

CRS-16
of any such investigation be sent to the President and the Senate Banking Committee
and the House Financial Services Committee.
S. 2380. On March 7, 2006, Senator Dodd introduced S. 2380, which would
have addressed concerns among some Members who argued that CFIUS has not been
viewing national security concerns broadly enough when reviewing and investigating
proposed investment transactions. As a result of these concerns, this measure would
have restricted CFIUS’s discretion in investigating proposed investment transactions
by adding a new national security review. The measure also would have amended
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, could determine that a
proposed merger, acquisition, or takeover did not threaten to impair the national
security and, therefore, would not have required a 45-day investigation. In such
cases, either the President or members of CFIUS acting on his behalf would have
been 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 would have been required
to notify the President or his designee.
S. 2400. On March 13, 2006, Senator Collins introduced S. 2400 that would
have altered appreciably the current Exon-Florio process and would have expanded
the current national security review to include “homeland security.” Most
importantly, the measure would have transferred the function for reviewing mergers,
acquisitions and takeovers to the Secretary of Homeland Security. The measure
would have established the Committee for Secure Commerce, which was to be
comprised of the heads of those executive departments, agencies, and offices that the
President determines to be appropriate and would have included the Director of
National Intelligence. The President would have been 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.
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 have amended the Exon-Florio provision to provide for greater congressional
oversight over the review process and to reduce the discretion of CFIUS to review
certain types of investments. The measure would have required CFIUS to review any
proposed or pending transaction that resulted 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 have resulted
in control of any “critical infrastructure” if CFIUS determined that there would have
been “any possible impairment to national security.”
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 have been required to develop and implement a system of

CRS-17
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. Similar to the current
statute, the measure would have granted 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.
Actions in the 110th Congress
H.R. 556. Congresswoman Maloney introduced H.R. 556, the National
Security Foreign Investment Reform and Strengthened Transparency Act of 2007, on
January 18, 2007.41 The measure was approved by the House Financial Services
Committee on February 13, 2007 with amendments, and was approved with
amendments by the full House on February 28, 2007 by a vote of 423 to 0.
H.R. 556 attempted to address congressional concerns by establishing CFIUS
by statutory authority, thereby giving Congress a direct role in determining the make-
up and operations of the Committee. The measure would have had the Secretary of
the Treasury continue to serve as the Chairman of CFIUS, despite the misgivings of
some Members, and the Secretary Homeland Security and the Secretary of Defense
serve as Vice Chairmen. In other respects, the bill would have retained the basic
structure of the Committee as it presently exists, except that it would have added the
Secretary of Energy as a permanent member of CFIUS
According to the measure, the Committee would have operated under the same
time frame that currently exists with 30 days allotted for a review, 45 days for an
investigation and 15 days for the President to make his determination. The President
would have retained his authority as the only officer with the authority to suspend or
prohibit certain types of foreign investments. The measure also would have placed
additional requirements on firms that resubmit a filing after previously withdrawing
a filing before a full review had been completed.
In H.R. 556, no review or investigation would have been considered to be
complete until it had been approved by a majority of the members of CFIUS and
signed by the Secretary of the Treasury and the Secretary of Homeland Security to
ensure that principal members of CFIUS were aware of all reviews and investigations
completed by CFIUS. The bill would have required CFIUS to review all ‘covered”
foreign investment transactions to determine whether a transaction threatened to
impair the national security. A covered foreign investment transaction is defined as
any merger, acquisition, or takeover which results in “foreign control of any person
engaged in interstate commerce in the United States.”
41 For a more detailed presentation of this measure, see CRS Report RL33856, Exon-Florio
Foreign Investment Provision: Overview of H.R. 556
, by James K. Jackson.

CRS-18
The measure would have placed increased requirements on CFIUS to review
investment transactions in which the foreign entity is owned or controlled by a
foreign government. It is unclear, however, to what extent the bill would have
altered the current process. The measure would have explicitly required CFIUS to
review all investment transactions in which the foreign entity is owned or controlled
by a foreign government, but the measure would not have amended or altered the
current statute in the area that has been the source of recent differences between
CFIUS and Congress. In particular, the current statute states that the President, and
through him CFIUS, can use the Exon-Florio process “only if” he finds that there is
“credible evidence” that a foreign investment will impair national security. As a
result, CFIUS has determined, as was the case in the Dubai Ports transaction, that if
the Committee does not have credible evidence that an investment will impair the
national security that it is not required to undertake a full 45-day investigation. It is
possible that CFIUS could continue to operate in this manner, regardless of the
passage of the measure.
In addition, if CFIUS had investigated all foreign investment transactions in
which the foreign person is owned or controlled by a foreign government, foreign
investors may well have regarded it as an important policy change by the United
States toward foreign investment. As previously stated, the current system presumes
that foreign investment transactions are acceptable and provide a positive
contribution to the economy. As a result, the burden is on the members of CFIUS to
prove that a particular transaction is a threat to national security. H.R. 556, however,
might have been interpreted to presume that investment transactions in which the
foreign entity is owned or controlled by a foreign government are a threat to the
nation’s security simply because of the relationship to the foreign government and,
therefore, might have required the firms to prove that they are not a threat. Although
the number of investment transactions a year in which the foreign investor is
associated with a foreign government is small compared with the total number of
foreign investment transactions, foreign investors and foreign governments likely
would have viewed this as a significant change in the traditional U.S. approach to
foreign investment.
The bill attempted to increase the role of congressional oversight by requiring
greater reporting by CFIUS on its actions either during or after it completed reviews
and investigations and by increasing reporting requirements on CFIUS. H.R. 556
would have required the Secretary of the Treasury, the Secretary of Homeland
Security, and the Secretary of Commerce to sign and approve any review or
investigation. In those cases in which the foreign person involved in an investment
transaction is owned or controlled by a foreign government, a majority of the
members of CFIUS would have been required to approve the transaction and the
President and the chair and vice chairs of CFIUS would have been required to sign
off on investments in which at least one member of CFIUS did not agree with the
decision of the majority to approve the transaction.
The measure would have required CFIUS to provide Congress with a greater
amount of detailed information about its operations. H.R. 556 would have required
CFIUS to notify specified Members at the conclusion of any investment investigation
and to report annually to Congress. H.R. 556 also would have provided for greater
reporting on and increased authority for CFIUS to negotiate provisions with the

CRS-19
foreign firms involved in investment transactions to mitigate the impact of the
transaction. Under current statutes, CFIUS has no authority to negotiate such
agreements with firms and it is not clear that it has any authority to enforce such
agreements. H.R. 556 would have provided for a process to track the agreements and
to report the progress of such agreements and any changes to the agreements to the
members of CFIUS and to the President.
The measure also would have amended the current statute regarding the
meaning of national security and would have placed additional requirements on
CFIUS regarding national security reviews. The bill would have explicitly required
the Director of National Intelligence to conduct reviews of any investment that posed
a threat to the national security. The bill also provided for additional factors the
President and CFIUS would have been required to use in assessing foreign
investments. In particular, the bill would have added implications for the nation’s
critical infrastructure as a factor for reviewing or investigating an investment
transaction.
S. 1610. S. 1610, the Foreign Investment and National Security Act of 2007,
was introduced on June 13, 2007 by Senator Dodd. On June 29, 2007, the Senate
adopted S. 1610 in lieu of H.R. 556 by unanimous consent. On July 11, 2007, the
House accepted the Senate’s version of H.R. 556 by a vote of 370-45 and sent the
measure to the President. The measure establishes CFIUS by statutory authority and
has the Secretary of the Treasury continue to serve as the Chairman of CFIUS. The
measure reduces the official number of members of CFIUS, but grants the President
the authority to appoint temporary members on a case-by-case basis. The measure
has the Committee operate under the same time frame that currently exists with 30
days allotted for a review, 45 days for an investigation, and 15 days for the President
to make his determination. The President retains his authority as the only officer
with the authority to suspend or prohibit certain types of foreign investments, and the
measure places additional requirements on firms that resubmitted a filing after
previously withdrawing a filing before a full review is completed.
S. 1610 requires CFIUS to investigate all “covered” foreign investment
transactions to determine whether a transaction threatens to impair the national
security, or the foreign entity is controlled by a foreign government. A covered
foreign investment transaction is defined as any merger, acquisition, or takeover
which results in “foreign control of any person engaged in interstate commerce in the
United States.” The measure also requires an investigation if the transaction would
result in control of any “critical infrastructure that could impair the national security.”
The Senate measure places increased requirements on CFIUS to review
investment transactions in which the foreign entity is owned or controlled by a
foreign government, but it provides for exceptions from the requirement to
investigate transactions in which the foreign party is controlled by a foreign
government. S. 1610, similar to H.R. 556, allows CFIUS to exclude a transaction
from an investigation if the Secretary of the Treasury and certain other specified
officials determine that the transaction will not impair the national security. It is
somewhat unclear, however, how this change will mesh with the current process.
The measure does not amend or alter the current statute in the area that has been the

CRS-20
source of recent differences between CFIUS and Congress. In particular, the current
statute states that the President, and through him CFIUS, can use the Exon-Florio
process “only if” he finds that there is “credible evidence” that a foreign investment
will impair national security. As a result, CFIUS has determined, as was the case in
the Dubai Ports transaction, that if the Committee does not have credible evidence
that an investment will impair the national security that it is not required to undertake
a full 45-day investigation.
S. 1610 increases the role of congressional oversight by requiring greater
reporting by CFIUS on its actions either during or after it completes reviews and
investigations and by increasing reporting requirements on CFIUS. The measure also
requires CFIUS to provide Congress with a greater amount of detailed information
about its operations. It also provides for greater reporting on and increased authority
for CFIUS to negotiate provisions with the foreign firms involved in investment
transactions to mitigate the impact of the transaction. S. 1610 provides for a process
to track such mitigation agreements and to report the progress of such agreements
and any changes to the agreements to the members of CFIUS and to the President.
S. 1610 amends the current statute regarding the meaning of national security
and places additional requirements on CFIUS regarding national security reviews.
The measure explicitly requires the Director of National Intelligence to conduct
reviews of any investment that poses a threat to the national security and it provides
for additional factors the President and CFIUS are required to use in assessing
foreign investments. In particular, the bill adds implications for the nation’s critical
infrastructure as a factor for reviewing or investigating an investment transaction.
S. 1610 amends the current factors the President and the Committee use to evaluate
mergers, acquisitions, or takeovers. In particular, the measure changes the status of
the factors to be considered from being discretionary (may) to being required (shall)
in evaluating a transaction. S. 1610 add transactions identified currently under the
fourth factor by the Secretary of Defense as “posing a regional military threat” to the
interests of the United States.
In addition, S. 1610 adds seven new factors to the five that currently exist.
These new factors are:
(1) whether the transaction has a security-related impact on critical infrastructure
in the United States:
(2) the potential effects on United States critical infrastructure, including major
energy assets;
(3) the potential effects on United States critical technologies;
(4) whether the transaction is a foreign government-controlled transaction;
(5) in those cases involving a government-controlled transaction, a review of (A)
the adherence of the foreign country to nonproliferation control regimes, (B) the
foreign country’s record on cooperating in counter-terrorism efforts, (C) the
potential for transshipment or diversion of technologies with military
applications;

CRS-21
(6) the long-term projection of the United States requirements for sources of
energy and other critical resources and materials; and
(7) such other factors as the President or the Committee determine to be
appropriate.
S. 1610 makes 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 or
investigation.
S. 1610 grants CFIUS, and a designated lead agency, 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 are to be based on a “risk-based analysis” of the threat posed by the
transaction. Also, if a notification of a transaction is withdrawn before any review
or investigation by CFIUS can be completed, the measure grants the Committee the
authority to take a number of actions. In particular, the Committee could develop (1)
interim protections to address specific concerns about the transaction pending a re-
submission of a notice by the parties; (2) specific time frames for re-submitting the
notice; and (3) a process for tracking any actions taken by any party to the
transaction.
In S. 1610, CFIUS must designate a lead agency to negotiate, modify, monitor,
and enforce agreements in order to mitigate any threat to national security. The
measure requires the federal entity or entities involved in any mitigating agreement
to report to CFIUS on any modification to any agreement or condition that had been
imposed and to ensure that “any significant” modification is reported to the Director
of National Intelligence and to any other federal department or agency that “may have
a material interest in such modification.” S. 1610 requires such reports to be filed
with the Attorney General.
S. 1610 requires CFIUS to develop a method for evaluating the compliance of
firms that had entered into a mitigation agreement or condition that was imposed as
a requirement for approval of the investment transaction. Such measures, however,
are required to be developed in such a way that they allow CFIUS to determine that
compliance is taking place without also: 1) “unnecessarily diverting” CFIUS
resources from assessing any new covered transaction for which a written notice had
been filed; and 2) placing “unnecessary” burdens on a party to a investment
transaction.
S. 1610 requires CFIUS to report annually to Congress on any reviews or
investigations that it had conducted during the prior year. Each report must 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 must report on trend information on the

CRS-22
number of filings, investigations, withdrawals, and presidential decisions or actions
that were taken. The report also must include cumulative information on the
business sectors involved in filings and the countries from which the investments
originated; information on the status of the investments of companies that withdrew
notices and the types of security arrangements and conditions CFIUS used to mitigate
national security concerns; the methods the Committee used to determine that firms
were complying with mitigation agreements or conditions; and a detailed discussion
of all perceived adverse effects of investment transactions on the national security or
critical infrastructure of the United States.
Relative to critical technologies, S. 1610 requires CFIUS to include in its annual
report an evaluation of any credible evidence of a coordinated strategy by one or
more countries or companies to acquire U.S. companies involved in research,
development, or production of critical technologies in which the United States is a
leading producer. The report also must include an evaluation of possible industrial
espionage activities directed or directly assisted by foreign governments against
private U.S. companies aimed at obtaining commercial secrets related to critical
technologies.
In addition, the Senate measure requires the Secretary of the Treasury, in
consultation with the Secretary of State and the Secretary of Commerce to conduct
a study on investment in the United States, particularly in critical infrastructure and
industries affecting national security by: (1) foreign governments, entities controlled
by or acting on behalf of a foreign government, or entities of foreign countries which
comply with any boycott of Israel; (2) foreign governments, entities controlled by or
acting on behalf of a foreign government, or entities of foreign countries which do
not ban organizations designated by the Secretary of State as foreign terrorist
organizations.
S. 1610 also requires 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. In particular, the report must be sent to the chairman and
ranking member of each committee of the House and the Senate with jurisdiction
over any aspect of the report, including the Committee on International Relations, the
Committee on Financial Services, and the Committee on Energy and Commerce of
the House. S. 1610 also requires 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. This written
notification must also include any mitigation agreement or condition that was part of
a CFIUS approval.

CRS-23
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 thus 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.
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 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. Congress is changing the current
process to require more frequent contact between the Committee, which generally
operates without much public or congressional attention, and the Congress. Congress
also has expanded its oversight role over the Committee.
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, Congress amended the CFIUS process to enhance
Congress’s oversight role while it reduced 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

CRS-24
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
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.
crsphpgw