The Exon-Florio National Security Test for
Foreign Investment

James K. Jackson
Specialist in International Trade and Finance
November 6, 2009
Congressional Research Service
7-5700
www.crs.gov
RL33312
CRS Report for Congress
P
repared for Members and Committees of Congress

The Exon-Florio National Security Test for Foreign Investment

Summary
The Exon-Florio provision 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. This provision came under intense scrutiny with the
proposed acquisitions in 2006 of major operations in six major U.S. ports by Dubai Ports World
and of Unocal by the China National Offshore Oil Corporation (CNOOC). The debate that
followed reignited long-standing differences among Members of Congress and between the
Congress and the administration over the role foreign acquisitions play in U.S. national security.
The public debate underscored the differences between U.S. policy, which is to actively promote
internationally the national treatment of foreign firms, and the concerns of some over the way this
policy applies to companies that are owned by foreign governments that have unlimited access to
the Nation’s industrial base. Much of this debate focused on the activities of a relatively obscure
committee, the Committee on Foreign Investment in the United States (CFIUS) and the Exon-
Florio provision, which gives the President broad powers to block certain types of foreign
investment.
In the first 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, who
signed it on July 26, 2007. It is designated as P.L. 110-49.
On January 23, 2008, President Bush issued Executive Order 13456 implementing the law. The
Executive Order also establishes some caveats that may affect the way in which the law is
implemented. These caveats stipulate that the President will provide information that is required
under the law as long as it is “consistent” with the President’s authority 1) to conduct the foreign
affairs of the United States; 2) withhold information that would impair the foreign relations, the
national security, the deliberative processes of the Executive, or the performance of the
Executive’s constitutional duties; or the President’s ability to supervise the unitary executive
branch. Despite the recent changes to the Exon-Florio process, some Members are questioning
the way in which the changes in the law are being interpreted by the administration and the way
in which the law is being used to address cases involving foreign governments, particularly with
the emergence of direct investments through sovereign wealth funds (SWFs).

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The Exon-Florio National Security Test for Foreign Investment

Contents
Background ................................................................................................................................ 1
The Exon-Florio Provision .......................................................................................................... 3
Treasury Department Regulations................................................................................................4
Transactions Not Subject to a Review ................................................................................... 5
Control ................................................................................................................................. 6
National Security .................................................................................................................. 7
The “Byrd Amendment”.............................................................................................................. 7
The Amended CFIUS Process ..................................................................................................... 8
Critical Infrastructure.......................................................................................................... 11
Procedures .......................................................................................................................... 13
Factors for Consideration .................................................................................................... 14
Confidentiality Requirements.............................................................................................. 15
Mitigation and Tracking ...................................................................................................... 16
Congressional Oversight ..................................................................................................... 17
Caseload ................................................................................................................................... 18
Conclusions .............................................................................................................................. 19

Figures
Figure 1. Foreign Direct Investment in the United States and U.S. Direct Investment
Abroad, Annual Flows, 1990-2008 ........................................................................................... 2

Tables
Table 1. CFIUS Notifications and Investigations, 1988-2005..................................................... 18

Contacts
Author Contact Information ...................................................................................................... 20

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Background
According to the Department of Commerce,1 foreigners invested $325 billion in U.S. businesses
and real estate in 2008, which represents a slight decrease from the amount invested in 2007, as
indicated in Figure 1. This amount represents a new record amount in nominal terms that foreign
investors have spent to acquire or open businesses in the United States during a year. Fluctuation
in foreign direct investment flows, although particularly sharp for the United States, is not unique.
According to the United Nation’s World Investment Report, global foreign direct investment
inflows fell by 14% in 2008 to $1.7 trillion, down from the record $1.98 trillion invested in 2007.
The United Nations forecasts that the global financial and economic crises will restrain
international foreign investment flows in 2009, with no recovery expected until 2010.2
The cumulative amount, or stock, of foreign direct investment in the United States on a historical
cost basis3 rose from $2.1 trillion in 2007 to about $2.3 trillion in 2008. This marked an increase
of 8.0%, below the 14.6% increase experienced in 2007.4 The United States is both the largest
recipient of foreign direct investment and the largest overseas direct investor. The rise in the value
of foreign direct investment includes an upward valuation adjustment of existing investments and
increased investment spending that was driven by the stronger growth rate of the U.S. economy,
the world-wide resurgence in cross-border merger and acquisition activity, and investment in the
U.S. financial and insurance industries.

1 Weinberg, Douglas B., Erin M. Whitaker, and Gregory A. Tenentes, U.S. International Transactions: Fourth Quarter
and Year 2008. Survey of Current Business, April 2009, p. 28.
2 World Investment Report 2009: FDI From Developing and Transition Economies: Implications for Development.
New York, United Nations, 2009, p. 1.
3 The stock, or position, is the net book value of foreign direct investors’ equity in, and outstanding loans to, their
affiliates in the United States. A change in the position in a given year consists of three components: equity and
intercompany inflows, reinvested earnings of incorporated affiliates, and valuation adjustments to account for changes
in the value of financial assets. The Commerce Department also publishes data on the foreign direct investment
position valued on a current-cost and market value bases. These estimates indicate that foreign direct investment
increased by $197 billion measured at current cost, but that the market value fell by $1.0 trillion in 2008. Both
estimates were valued at $2.6 trillion.
4 Ibarra, Marilyn and Jennifer Koncz, Direct Investment Positions for 2008: Country and Industry Detail, Survey of
Current Business
, July 2009. p. 34
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Figure 1. Foreign Direct Investment in the United States and U.S. Direct Investment
Abroad, Annual Flows, 1990-2008
(in billions of dollars)
Billions of dollars
$350
Foreign Direct Investment in
$300
the United S tates
$250
$200
$150
U.S . Direct Investment
Abroad
$100
$50
$0
1990
1992
1994
1996
1998
2000
2002
2004
2006
2008
Year

Source: CRS from U.S. Department of Commerce data.
Note: the drop in U.S. direct investment abroad in 2005 reflects actions by U.S. parent companies to take
advantage of a one-time tax provision.
With over $454 billion invested in the United States, the United Kingdom is the largest foreign
direct investor. Japan has moved into the position as the second-largest foreign direct investor in
the U.S. economy with about $260 billion in investments. Following the Japanese are the Dutch
($259.4 billion), the Canadians ($222), and the French ($163 billion).
In the first session of the 110th Congress, Members approved, and President Bush signed, P.L.
110-49, which alters the national security process authorized under the Exon-Florio provision.
The changes in the public law provide for greater oversight by Congress and increased reporting
by the Committee on its decisions. In addition, P.L. 110-49 ostensibly broadens the definition of
national security and requires greater scrutiny by the Committee on Foreign Investment in the
United States (CFIUS) of certain types of foreign direct investments. The law demonstrates the
concern that some Members have with the way in which the Exon-Florio provision is
administered. Some were also concerned with the perceived lack of transparency in the reviews
that are mandated under the Exon-Florio provision, which some Members believe hampered
Congress’s ability to exercise its oversight responsibilities. Not all Members were satisfied with
the law. Some Members argued that the law remained deficient in reviewing investment by
foreign governments through sovereign wealth funds (SWFs), an issue that was attracting little
attention when the law was adopted.
Members of Congress intended to have P.L. 110-49 address six perceived problems with the
statutes as they existed that Members had identified. These concerns include: 1) the principal
members of the interagency Committee on Foreign Investment in the United States (CFIUS) at
times seemed not to be well informed concerning the outcomes of reviews and investigations
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The Exon-Florio National Security Test for Foreign Investment

regarding proposed or pending investment transactions; 2) CFIUS had interpreted incorrectly the
requirements under the statutes for investigations of transactions that involve firms that are
owned or controlled by a foreign government; 3) reporting requirements had not provided
Congress with enough information about the operations and actions of CFIUS for Members to
fulfill their oversight responsibilities; 4) CFIUS had exercised too much discretion in choosing
which transactions it investigated; 5) the definition of national security used by CFIUS was no
longer adequate in a post-September 11th world; and 6) deadlines placed on CFIUS to complete
reviews and investigations of investment transactions did not provide adequate time in some
instances for the Committee to complete its reviews and investigations.
The Exon-Florio Provision
In 1988, amid concerns over foreign acquisition of certain types of U.S. firms, particularly by
Japanese firms, Congress passed and President Reagan signed the Omnibus Trade and
Competitiveness Act of 1988.5 The Exon-Florio provision, which was included as Section 5021 of
that act, fundamentally transformed CFIUS. This statute grants the President the authority to
block proposed or pending foreign “mergers, acquisitions, or takeovers” of “persons engaged in
interstate commerce in the United States” that threaten to impair the national security. Congress
directed, however, that before this authority can be invoked the President must conclude 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. This same
standard was maintained in P.L. 110-49.
Part of Congress’s motivation in adopting the Exon-Florio provision apparently arose from
concerns that foreign takeovers of U.S. firms could not be stopped unless the President declared a
national emergency or regulators invoked federal antitrust, environmental, or securities laws.
Through the Exon-Florio provision, Congress attempted to strengthen the President’s hand in
conducting foreign investment policy, while limiting its own role as a means of emphasizing that,
as much as possible, the commercial nature of investment transactions should be free from
political considerations. Congress also attempted to balance public concerns about the economic
impact of certain types of foreign investment with the nation’s long-standing international
commitment to maintaining an environment that is open and receptive to 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.6 Generally, these sectors were closed to
foreign investors prior to passage of the Exon-Florio provision in order to prevent public services

5 P.L. 100-418, title V, Subtitle A, Part II, or 50 U.S.C. app 2170.
6 CRS Report RL33103, Foreign Investment in the United States: Major Federal Statutory Restrictions, by Michael V.
Seitzinger.
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and public interest activities from falling under foreign control, primarily for national defense
purposes.
During consideration of the Exon-Florio proposal debate focused on three issues that generated a
clash of views: a) what constitutes foreign control of a U.S. firm?; b) how should national
security be defined?; and c) which types of economic activities should be targeted for a CFIUS
review? Of these issues, the most controversial and the most far-reaching was the lack of a
definition of national security. As originally drafted, the provision would have considered
investments which affected the “national security and essential commerce” of the United States.
The term, “essential commerce,” was the focus of intense debate between the Congress and the
Reagan Administration.
The Treasury Department, headed by Secretary James Baker, objected to the Exon-Florio
provision and the Administration vetoed the first version of the Omnibus Trade legislation, in part
due to its objections to the language in the measure regarding “national security and essential
commerce.” The Reagan Administration argued that the language would broaden the definition of
national security beyond the traditional concept of military/defense to one which included a
strong economic component. Administration witnesses argued against this aspect of the proposal
and eventually succeeded in prodding Congress to remove the term “essential commerce” from
the measure and in narrowing substantially the factors the President must consider in his
determination. According to one participant, Congress placed the Exon-Florio provision in the
statutes under Title VII of the Defense Production Act to indicate that the provision should be
interpreted “as dealing with the broad industrial base issues addressed by that statute, not the
more narrow national security controls dealt with in export control measures.”7
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,8 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.
Treasury Department Regulations
After extensive public comment, the Treasury Department issued its final regulations in
November 1991 implementing the Exon-Florio provision.9 Although these procedures were
amended through P.L. 110-49, they continued to serve as the basis for the Exon-Florio review and
investigation until new regulations were released on November 21, 2008.10 These regulations
created an essentially voluntary system of notification by the parties to an acquisition and they
allowed for notices of acquisitions by agencies that are members of CFIUS. Despite the voluntary
nature of the notification, firms largely comply with the provision, because the regulations

7 Ibid.
8 Executive Order 12661 of December 27, 1988, 54 F.R. 779.
9 Regulations Pertaining to Mergers, Acquisitions, and Takeovers by Foreign Persons. 31 C.F.R. Part 800.
10 31 CFR Part 800, November 21, 2008.
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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. The regulations make it clear that the President alone determines “whether a
transaction threatens national security.” Also, the regulations state that the Exon-Florio provision
will not be interpreted narrowly in a way that might preclude the ability of CFIUS to review any
transaction for its impact on national security. Treasury Department, however, as the lead agency,
indicated in the regulations that it would judge transactions to have “significant” importance for
national security if they “involve products, services, and technologies that are important to U.S.
national defense security requirements.11” 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.
Transactions Not Subject to a Review
Another aspect of the regulations that has come under increased scrutiny due to the sharp runup in
investments through sovereign wealth funds (SWFs) are the types of transactions that CFIUS
generally will not subject to a national security review. According to Treasury Department
regulations, investment transactions that are not considered transactions under the Exon-Florio
provision and, therefore, not subject to a CFIUS review. Treasury regulations also stipulate that
the extension of a loan or a similar financing arrangement by a foreign person to a U.S. business
will not be considered a covered transaction and will not be investigated, unless the loan conveys
a right to the profits of the U.S. business or involves a transfer of management decisions. The
main provisions are:
1) An acquisition of voting securities pursuant to a stock split or pro rata stock dividend
which does not involve a change in control.
2) An acquisition of any part of an entity or of assets that do not constitute a U.S. business.
3) An acquisition of securities by a person acting as a securities underwriter, in the ordinary
course of business and in the process of underwriting.
4) An acquisition pursuant to a condition in a contract of insurance relating to fidelity,
surety, or casualty obligations if the contract was made by an insurer in the ordinary course
of business
5) An acquisition in which the parent of the entity making the acquisition is the same as the
parent of the entity being acquired.
6) An acquisition of convertible voting securities that does not involve control.
7) A purchase of voting securities or comparable interests “solely for the purpose of
investment, ” or an investment in which the foreign investor has “no intention of determining
or directing the basic business decisions of the issuer.” In addition, investments that are
solely for investment purposes are defined as those: 1) in which the transaction does not
involve owning more than 10% of the voting securities of the firm; or 2) those investments
that are undertaken directly by a bank, trust company, insurance company, investment

11 31 CFR 800 Discussion of Final Rule.
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company, pension fund, employee benefit plan, mutual fund, finance company, or brokerage
company “in the ordinary course of business for its own account.”12
Foreign investors representing SWFs invested heavily in the mid to late 2007s in U.S. financial
institutions ranging from NASDAQ to Morgan Stanley, Merrill Lynch, and Citigroup as a number
of these financial institutions experienced a drop in the value of assets associated with the sub-
prime mortgage crisis. In some cases, the foreign investment has accounted for less than 10% of
the voting securities of the firm and were classified as investments only for the purpose of
investment apparently to avoid a CFIUS review or investigation.
Control
A key factor in the Exon-Florio process is applying the term “control” to evaluating the role of a
foreign investor in any proposed transaction. While the statute does not provide a definition of
this term, a definition is included in the Treasury Department’s regulations. According to those
regulations, control is not defined as a numerical benchmark,13 but instead focuses on a functional
definition of the term, or a definition that is governed by the influence the level of ownership
permits the foreign entity to affect certain decisions by the firm. According to the Treasury
Department’s regulations:
The term control means the power, direct or indirect, whether or not exercised, and whether
or not exercised or exercisable through the ownership of a majority or a dominant minority
of the total outstanding voting securities of an issuer, or by proxy voting, contractual
arrangements or other means, to determine, direct or decide matters affecting an entity; in
particular, but without limitation, to determine, direct, take, reach or cause decisions
regarding:
(1) The sale, lease, mortgage, pledge or other transfer of any or all of the principal assets of
the entity, whether or not in the ordinary course of business;
(2) The reorganization, merger, or dissolution of the entity;
(3) The closing , relocation, or substantial alteration of the production, operational, or
research and development facilities of the entity;
(4) Major expenditures or investments, issuances of equity or debt, or dividend payments by
this entity, or approval of the operating budget of the entity;
(5) The selection of new business lines or ventures that the entity will pursue;
(6) The entry into termination or non-fulfillment by the entity of significant contracts;

12 31 CFR 800.302.
13 There are other statutes that do use numerical benchmarks. According to section 13(d) of the Securities Exchange
Act of 1934 (15 U.S.C. Sec. 78m(d) any person who acquires 5% or more of the publicly traded securities of a U.S.
firm must report the acquisition of the shares to the Securities and Exchange Commission. For statistical purposes, the
United States defines foreign direct investment as the ownership or control, directly or indirectly, by one foreign person
(individual, branch, partnership, association, government, etc.) of 10% or more of the voting securities of an
incorporated U.S. business enterprise or an equivalent interest in an unincorporated U.S. business enterprise 15 CFR §
806.15 (a)(1). This level of ownership requires foreign owners to file quarterly and longer annual reports with the
Department of Commerce as part of the quarterly and annual reports on the balance of payments and gross domestic
product (GDP).
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(7) The policies or procedures of the entity governing the treatment of non-public technical,
financial, or other proprietary information of the entity;
(8) The appointment or dismissal of officers or senior managers;
(9) The appointment or dismissal of employees with access to sensitive technology or
classified U.S. Government information; or
(10) The amendment of the Articles of Incorporation, constituent agreement, or other
organizational documents of the entity with respect to the matters described at paragraph (a)
(1) through (9) of this section.
National Security
Neither Congress nor the Administration have attempted to define the term national security as it
appears in the Exon-Florio statute. Treasury Department officials have indicated, however, that
during a review or investigation each member of CFIUS is expected to apply that definition of
national security that is consistent with the representative agency’s specific legislative mandate.14
The concept of national security was broadened by P.L. 110-49 to include, “those issues relating
to ‘homeland security,’ including its application to critical infrastructure,” and “critical
technologies.”
The Treasury Department provides some guidance through its regulations to firms that are
deciding whether they should notify CFIUS of a proposed or pending merger, acquisition, or
takeover. The guidance states that proposed acquisitions that need to notify CFIUS are those that
involve “products or key technologies essential to the U.S. defense industrial base.” This notice is
not intended for firms that produce goods or services with no special relation to national security,
especially toys and games, food products, 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.”15
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.16

14 Senate Armed Services Committee, Briefing on the Dubai Ports World Ports Deal, February 23, 2006.
15 Ibid.
16 P.L. 102-484, October 23, 1992.
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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 are 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 have 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.”17
The intense public and congressional reaction that arose from the proposed Dubai Ports World
acquisition spurred the Bush Administration in late 2006 to make an important administrative
change in the way CFIUS reviews foreign investment transactions. CFIUS and President Bush
approved the acquisition of Lucent Technologies, Inc. by the French-based Alcatel SA, which was
completed on December 1, 2006. Before the transaction was approved by CFIUS, however,
Alcatel-Lucent was required to agree to a national security arrangement, known as a Special
Security Arrangement, or SSA, that restricts Alcatel’s access to sensitive work done by Lucent’s
research arm, Bell Labs, and the communications infrastructure in the United States.
The most controversial feature of this arrangement is that it allows CFIUS to reopen a review of
the deal and to overturn its approval at any time if CFIUS believes the companies “materially fail
to comply” with the terms of the arrangement. This marks a significant change in the CFIUS
process. Prior to this transaction, CFIUS reviews and investigations had been portrayed, and had
been considered, to be final. As a result, firms were willing to subject themselves voluntarily to a
CFIUS review, because they believed that once an investment transaction was scrutinized and
approved by the members of CFIUS the firms could be assured that the investment transaction
would be exempt from any future reviews or actions. This administrative change, however, means
that a CFIUS determination may no longer be a final decision and it adds a new level of
uncertainty to foreign investors seeking to acquire U.S. firms. A broad range of U.S. and
international business groups are objecting to this change in the Administration’s policy.18
The Amended CFIUS Process
In the first session of the 110th Congress, Congresswoman Maloney introduced H.R. 556, the
National Security Foreign Investment Reform and Strengthened Transparency Act of 2007, on

17 Briefing on the Dubai Ports World Deal before the Senate Armed Services Committee, February 23, 2006.
18 Kirchgaessner, Stephanie, US Threat to Reopen Terms of Lucent and Alcatel Deal Mergers, Financial Times,
December 1, 2006. P. 19; Pelofsky, Jeremy, Businesses Object to US move on foreign Investment, Reuters News,
December 5, 2006.
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January 18, 2007. The measure was approved by the House Financial Services Committee on
February 13, 2007, with amendments, and was approved with additional 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, who
signed it on July 26, 2007. It is designated as P.L. 110-49. On January 23, 2008, President Bush
issued Executive Order 13456 implementing the law. The Executive Order makes a number of
substantive changes to the law. This report incorporates the changes made by this statute and by
the Executive Order.
P.L. 110-49 establishes CFIUS by statutory authority and has the Secretary of the Treasury serve
as the Chairman of CFIUS. The measure follows the same pattern that was set by Executive
Order by allotting the Committee 30 days to conduct a review, 45 days to conduct 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 mergers, acquisitions, and
takeovers, and the measure places additional requirements on firms that resubmitted a filing after
previously withdrawing a filing before a full review could be completed.
Over time, the three-step Exon-Florio process apparently had evolved to include an informal
stage of unspecified length that consisted of an unofficial CFIUS determination prior to the
formal filing with CFIUS. This type of informal review developed because it likely served the
interests of both CFIUS and the firms that were involved in an investment transaction. According
to Treasury Department officials, this informal contact enabled “CFIUS staff to identify potential
issues before the review process formally begins.”19 This informal process is likely to continue
under the provisions of P.L. 110-49.
Firms that are party to an investment transaction apparently have benefitted from this informal
review in a number of ways. For one, it allowed firms additional time to work out any national
security concerns privately with individual CFIUS members. Secondly, and perhaps more
importantly, it provided a process for firms to avoid risking potential 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.

19 Testimony of Robert Kimmett, Briefing on the Dubai Ports World Deal Before the Senate Armed Services
Committee, February 23, 2006.
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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 transactions 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 was beneficial because it gave them as much time as
they have felt was necessary to review a transaction without facing the time constraints that arise
under the formal CFIUS review process. This informal review likely also gave the CFIUS
members added time to negotiate with the firms involved in a transaction to restructure the
transaction in ways that could have addressed any potential security concerns or to develop other
types of conditions that members felt are appropriate in order to remove security concerns.
On January 23, 2008, President Bush issued Executive Order 13456, which implemented P.L.
110-49 and made various changes to the law. The Treasury Department finalized its regulations
implementing the law on November 21, 2008.20 Presently, the Committee consists of nine
members, including the Secretaries of State, the Treasury, Defense, Homeland Security, and
Commerce; Energy; the Attorney General, the United States Trade Representative, and the
Director of the Office of Science and Technology.21 The Secretary of Labor and the Director of
National Intelligence serve as ex officio members of the Committee.22 The Executive Order
13456 also added five more members to CFIUS in order to “observe and, as appropriate,
participate in and report to the President:” These members include the Director of the Office of
Management and Budget, the Chairman of the Council of Economic Advisors, The Assistant to
the President for National Security Affairs, the Assistant to the President for Economic Policy,
and the Assistant to the President for Homeland Security and Counterterrorism. The President can
also appoint temporary members to the Committee as he determines.
The law now requires CFIUS to review all “covered” foreign investment transactions to
determine: 1) whether a transaction threatens to impair the national security; 2) the foreign entity
is controlled by a foreign government; or 3) the transaction would result in control of any “critical

20 31 CFR Part 800, November 21, 2008; Federal Register , November 21, 2008, p. 70702.
21 The United States Trade Representative and the Director of the Office of Science and Technology were added
through E.O. 13456, issued January 23, 2008.
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, February 28, 2003 added the Secretary of Homeland Security. P.L. 110-49 reduced
the membership of CFIUS to six Cabinet members and the Attorney General, it added the Secretary of Labor and the
Director of National Security as ex officio members, and removed seven White House appointees.
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infrastructure that could 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.” As previously indicated, the Treasury
Department’s regulations exclude certain types of transactions from being classified as covered
transactions and, therefore, not subject to a CFIUS review. Such transaction are specified as those
that are undertaken “solely for the purpose of investment, ” or an investment in which the foreign
investor has “no intention of determining or directing the basic business decisions of the issuer.”
Critical Infrastructure
A new element to the Exon-Florio process that was added by P.L. 110-49 is the addition of
“critical industries” and “homeland security” as broad categories of economic activity that could
be subject to a CFIUS national security review. Arguably, the events of September 11, 2001,
reshaped Congressional attitudes toward the Exon-Florio provision. This change became apparent
in 2006 following the public disclosure that Dubai Ports World23 was attempting to purchase the
British-owned P&O Ports,24 with operations in various U.S. ports. After the September 11th
terrorist attacks Congress passed and President Bush signed the USA PATRIOT Act of 2001
(Uniting and Strengthening America by Providing Appropriate Tools Required to Intercept and
Obstruct Terrorism).25 In this act, Congress provided for special support for “critical industries,”
which it defined as:
systems and assets, whether physical or virtual, so vital to the United States that the
incapacity or destruction of such systems and assets would have a debilitating impact on
security, national economic security, national public health or safety, or any combination of
those matters.26
This broad definition is enhanced to some degree by other provisions of the act, which identify
certain sectors of the economy that are likely candidates for consideration as components of the
national critical infrastructure. These sectors include telecommunications, energy, financial
services, water, transportation sectors,27 and the “cyber and physical infrastructure services
critical to maintaining the national defense, continuity of government, economic prosperity, and
quality of life in the United States.”28 The following year, Congress adopted the language in the
Patriot Act on critical infrastructure into The Homeland Security Act of 2002.29
By adopting the terms “critical infrastructure” and “homeland security,” following the events of
September 11, 2001, Congress demonstrated that the attacks had fundamentally altered the way
many in Congress view the concept of national security. As a result, some policymakers in

23 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.
24 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.
25 P.L. 107-56, title X, Sec. 1014, October 26, 2001; 42 U.S.C. Sec. 5195c(e).
26 Ibid.
27 42 U.S.C. Sec. 5195c(b)(2).
28 42 U.S.C. Sec. 5195c(b)(3).
29 6 U.S.C. Sec. 101(4).
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Congress and elsewhere have concluded that economic activities are a separately identifiable
component of national security and, therefore, should be protected from foreign investment that
transfers control to foreigners or shifts technological leadership abroad. This viewpoint, however,
was not shared by some policymakers within the Bush Administration, who argued that including
critical infrastructure and homeland security in P.L. 110-49 did not alter the overriding focus of
the Exon-Florio provision on investments that directly affect U.S. national defense security. As a
result, Congress and the various administrations have sparred at times over transactions that
CFIUS has approved over the objections of various Members of Congress. Some of these cases
include the following:
In May 2007, GE and Saudi Basic Industries Corporation (SABIC) announced that SABIC
would acquire GE Plastics for $11.6 billion. GE intended to use the proceeds from the sale to
buy back a large amount of its own stock to finance other projects and to improve its stock
price. SABIC, which is 70% owned by the Saudi Government, is the largest public company
in the Middle East and one of the 10 largest petrochemical manufacturers in the world. Some
in Congress objected to the acquisition because GE Plastics produces products that have
important defense applications, including such bullet resistant and bomb blast shielding
products as Armorgard, Suregard and Lexgard laminates. After a CFIUS review yielded no
opposition to the transaction, the acquisition was completed.
On November 27, 2007, Citigroup Inc. and the Abu Dhabi Investment Company (ADIC)
announced that ADIC would acquire 4.9% of Citigroup’s shares for an investment of $7.5
billion. The Abu Dhabi-Citigroup investment transaction involves a complex exchange of
cash and stock. For $7.5 billion, Citigroup will sell ADIA between 201 million and 235
million shares of Citigroup stock, depending on the value of Citigroup’s stock at the
predesignated time periods, at an interest rate of 11.00% on a complex hybrid security that is
comprised of mandatory convertible shares, which consist of a contract to purchase stock at
different purchase dates, and the payment of interest on each series of preferred securities
and a payment on the purchase contracts. The Abu Dhabi investment entity has stated that its
interests are purely economic and that it will have no role in the management or the
governance of Citigroup nor any presence on its board.30
On September 28, 2007, 3Com Corporation announced that it had agreed to be acquired by
Bain Capital Partners for $2.2 billion, or $5.30 per share. Bain Capital, is a privately-held
asset management and investment firm, and Huawei Technologies is the largest networking
and telecommunications equipment supplier in China. 3Com is a publicly held company that
specializes in networking equipment and in the Tipping Point network intrusion prevention
software. Such software is used by various U.S. defense firms to prevent outside groups from
accessing their confidential databases. In 2003, 3Com formed a joint venture with Huawei
Technologies, known as Huawei-3Com, to manufacture routers and switches for internet and
broadband uses. In November 2006, 3Com acquired the half of Huawei-3Com that it did not
own for $822 million. As part of the most recent transaction, affiliates of Huawei
Technologies would have acquired a minority interest in 3Com and would have become a
commercial and strategic partner of 3Com. On February 20, 2008, Bain Capital and Huawei
Technologies withdrew their offer to acquire 3Com, due to an inability to successfully
negotiate a mitigation agreement with members of CFIUS. Bain Capaital and Huawei
reportedly will restructure the deal and resubmit it at a later date in 2008.31

30 Timmons, Heather, and Julia Werdigier, For Abu Dhabi and Citi, Credit Crisis Drove Deal, The New York Times,
November 28, 2007.
31 US Insiders Point to Bain Errors Over 3Com, The Financial Times Limited, march 3, 2008.
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Some policymakers also perceive greater risks to the economy rising from foreign investments in
which the foreign investor is owned or controlled by foreign governments as a result of the
terrorist attacks. The Dubai Ports World case, in particular, demonstrated that there was a
difference between the post-September 11 expectations held by many in Congress about the role
of foreign investment in the economy and of economic infrastructure issues as a component of
national security. For some Members of Congress, CFIUS has seemed out of touch with the post-
September 11, 2001, view of national security, because it remains founded in the late 1980s
orientation of the Exon-Florio provision, which views national security primarily in terms of
national defense and downplays or even excludes a broader notion of economic national security.
Procedures
According to the amended Exon-Florio provision, the President or any member of CFIUS can
initiate a review of an investment transaction in addition to a review that is initiated by the parties
to a transaction providing a formal notification. As amended, CFIUS has 30 days to review a
transaction 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.” National security also
includes, “those issues relating to ‘homeland security,’ including its application to critical
infrastructure.” In addition, CFIUS is required to conduct an investigation of a transaction if the
Committee determines that the transaction would result in foreign control of any person engaged
in interstate commerce in the United States. During such a review, the members of CFIUS are
also required to consider the twelve factors that Congress has authored as a basis for assessing the
impact of the investment. 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.
During the 30-day review stage, the Director of National Intelligence, although not a member of
CFIUS, is required to carry out a thorough analysis of “any threat to the national security of the
United States” of any merger, acquisition, or takeover. This analysis is required to be completed
“within 20 days” of the receipt of a notification by CFIUS, but the statute directs that the DNI
must be given “adequate time,” presumably if this national security review cannot be completed
with the 20 day requirement This analysis would include a request for information from the
Department of the Treasury’s Director of the Office of Foreign Assets Control and the Director of
the Financial Crimes Enforcement Network. In addition, the Director of National Intelligence is
required to seek and to incorporate the views of “all affected or appropriate” intelligence
agencies.
CFIUS is also required to review “covered” investment transactions in which the foreign entity is
owned or controlled by a foreign government, but the law provides an exception to this
requirement. A review is exempted if the Secretary of the Treasury and certain other specified
officials determine that the transaction in question will not impair the national security. It is
somewhat unclear, however, how this requirement is meshing with the established process. The
measure does not amend or alter the current statute in the area that has been the source of
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, if
CFIUS determines, as was the case in the Dubai Ports transaction, that it does not have credible
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evidence that an investment will impair the national security then it argues that it is not required
to undertake a full 45-day investigation, even if the foreign entity is owned or controlled by a
foreign government.
As a result of a CFIUS review, the President, acting through CFIUS, is also required to conduct a
National Security investigation and to take any “necessary” actions as part of the 45-day
investigation if the review indicates that at least one of three conditions exists. These three
conditions are: 1) as a result of a review of the transaction, CFIUS determines that the
transactions threaten 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, or 2) the foreign person is
controlled by a foreign government; 3) the transactions would result in the control of any critical
infrastructure by a foreign person, the transactions could impair the national security, and that
such impairment had not been mitigated. 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.
During a review or an investigation, CFIUS and a designated lead agency have the authority to
negotiate, impose, or enforce any agreement or condition with the parties to a transaction in order
to mitigate any threat to 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
amended law grants the Committee the authority to take a number of actions. In particular, the
Committee could develop (1) interim protections to address specific concerns about the
transaction pending a 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 parties to the
transaction.
Factors for Consideration
The Exon-Florio provision includes a list of twelve factors the President must 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 transactions identified by the Secretary of Defense as “posing a
regional military threat” to the interests of the United States;
(5) the potential effects of the transaction on U.S. technological leadership in areas affecting
U.S. national security;
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(6) whether the transaction has a security-related impact on critical infrastructure in the
United States;
(7) the potential effects on United States critical infrastructure, including major energy
assets;
(8) the potential effects on United States critical technologies;
(9) whether the transaction is a foreign government-controlled transaction;
(10) 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 counter0terrorism efforts, (C) the potential for
transshipment or diversion of technologies with military applications;
(11) the long-term projection of the United States requirements for sources of energy and
other critical resources and materials; and
(12) such other factors as the President or the Committee determine to be appropriate.32
Factors 6-12 were added through P.L. 110-49 and potentially broaden significantly the scope of
CFIUS’ reviews and investigations. Previously, CFIUS had been directed by Treasury Department
regulations to focus its activities primarily around investments that had an impact on U.S.
national defense security. The additional factors, however, incorporate economic considerations
into the Exon-Florio process in a way that was specifically rejected when the measure initially
was adopted and refocuses CFIUS’s reviews and investigations to consider the broader rubric of
economic security. In particular, CFIUS is now required to consider the impact of an investment
on critical infrastructure as a factor for considering recommending that the President block or
postpone a transaction. Critical infrastructure is defined in broad terms within the measure as:
“any systems and assets, whether physical or cyber-based, 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.”
As originally drafted, the Exon-Florio provision also would have applied to joint ventures and
licensing agreements in addition to mergers, acquisitions, and takeovers. Joint ventures and
licensing agreements subsequently were dropped from the proposal because the Reagan
Administration and various industry groups argued at the time that such business practices were
deemed to be beneficial arrangements for U.S. companies. In addition, they argued that any
potential threat to national security could be addressed by the Export Administration Act33 and the
Arms Control Export Act.34
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

32 The last requirement under factor 4 and factors 6-12 were added by P.L. 110-49.
33 50 U.S.C. App. Sec. 2401, as amended.
34 22 U.S.C. App. 2778 et seq.
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judicial action or proceeding.”35 The provision does state, however, that this confidentiality
provision “shall not be construed to prevent disclosure to either House of Congress or to any duly
authorized committee or subcommittee of the Congress.” The provision provides for the release
of proprietary information “which can be associated with a particular party” to committees only
with assurances that the information will remain confidential. Members of Congress and their
staff members will be accountable under current provisions of law governing the release of
certain types of information. 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.36
Mitigation and Tracking
Following the implementation of the Exon-Florio provision in the 1980s, CFIUS had developed
several informal practices that likely were not envisioned when the statute was drafted. In
particular, members of CFIUS on occasion had negotiated conditions with firms to mitigate or to
remove business arrangement that raised national security concerns among the members of
CFIUS. Such agreements often were informal arrangements that had an uncertain basis in statute
and had not been tested in court. These arrangements often were negotiated during the formal 30-
day review period, or even during an informal process prior to the formal filing of a notice of an
investment transaction.
Presently, CFIUS must designate a lead agency to negotiate, modify, monitor, and enforce
agreements in order to mitigate any threat to national security. Such agreements are required to be
based on a “risk-based analysis” of the threat posed by the transaction. CFIUS is also required to
develop a method for evaluating the compliance of firms that have entered into a mitigation
agreement or condition that was imposed as a requirement for approval of the investment
transaction. Such measures, however, are required to be developed in such a way that they allow
CFIUS to determine that compliance is taking place without also: 1) “unnecessarily diverting”
CFIUS resources from assessing any new covered transaction for which a written notice had been
filed; and 2) placing “unnecessary” burdens on a party to a investment transaction.
If a notification of a transaction is withdrawn before any review or investigation by CFIUS can be
completed, CFIUS can take a number of actions, including 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. Also, any federal entity or entities that are involved in any
mitigation agreement to report to CFIUS if there is any modification that is made to any
agreement or condition that had been imposed and to ensure that “any significant” modification is
reported to the Director of National Intelligence and to any other federal department or agency
that “may have a material interest in such modification.” Such reports are required to be filed
with the Attorney General.

35 50 U.S.C. Appendix Sec. 2170(c)
36 50 U.S.C. Appendix Sec. 2170(g).
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Congressional Oversight
P.L. 110-49 significantly increased the types and number of reports that CFIUS is required to send
to certain specified Members of Congress. In particular, CFIUS is required to brief certain
congressional leaders if they request such a briefing and to report annually to Congress on any
reviews or investigations 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 is required to report
on trend information on the number of filings, investigations, withdrawals, and presidential
decisions or actions that were taken. The report must include cumulative information on the
business sectors involved in filings and the countries from which the investments originated;
information on the status of the investments of companies that withdrew notices and the types of
security arrangements and conditions CFIUS used to mitigate national security concerns; the
methods the Committee used to determine that firms were complying with mitigation agreements
or conditions; and a detailed discussion of all perceived adverse effects of investment transactions
on the national security or critical infrastructure of the United States.
The Secretary of the Treasury, in consultation with the Secretary of State and the Secretary of
Commerce, is required to conduct a study on investment in the United States, particularly in
critical infrastructure and industries affecting national security by: 1) foreign governments,
entities controlled by or acting on behalf of a foreign government, or persons of foreign countries
which comply with any boycott of Israel; or 2) foreign governments, entities controlled by or
acting on behalf of a foreign government, or persons of foreign countries which do not ban
organizations designated by the Secretary of State as foreign terrorist organizations. In addition,
CFIUS is required to provide an annual evaluation of any credible evidence of a coordinated
strategy by one or more countries or companies to acquire U.S. companies involved in research,
development, or production of critical technologies in which the United States is a leading
producer. The report must include an evaluation of possible industrial espionage activities
directed or directly assisted by foreign governments against private U.S. companies aimed at
obtaining commercial secrets related to critical technologies.
The Inspector General of the Department of the Treasury is required to investigate any failure of
CFIUS to comply with requirements for reporting that were imposed prior to the passage of P.L.
110-49 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.
The chief executive officer of any party to a merger, acquisition, or takeover is required to certify
in writing that the information contained in the written notification to CFIUS fully complies with
the requirements of the Exon-Florio provision and that the information is accurate and complete.
This written notification would also include any mitigation agreement or condition that was part
of a CFIUS approval.
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Caseload
As a consequence of the confidential nature of the CFIUS review of any proposed transaction,
there are few public 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
made by the companies involved in a transaction and not by CFIUS. Therefore, public
information concerning the outcome of CFIUS’s reviews is incomplete. As indicated in Table 1,
CFIUS has received more than 1,500 notifications, 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.37
The one transaction that was prohibited by the President involved the acquisition in 1990 of
Mamco Manufacturing Company by the China National Aero-Technology Import and Export
Corporation (CATIC). Mamco was an aerospace parts manufacturer. CATIC, which is owned by
the Government of the People’s Republic of China, acted as the purchasing agent for the Chinese
Ministry of Defense. President Reagan ordered CATIC to divest itself of Mamco under the
authority of the Exon-Florio provision because of concerns that CATIC might gain access to
technology through Mamco that it would otherwise have to obtain under an export license.38 One
recent case that involved a Chinese firm that was reviewed by CFIUS and approved was the
proposed acquisition of IBM’s Personal Computing Division to Lenovo Group Limited, a
Chinese manufacturing company. Apparently, CFIUS has approved any number of proposed
transactions if the parties involved agreed to certain conditions.
Table 1. CFIUS Notifications and Investigations, 1988-2005

Notifications
Investigations
Notices withdrawn
Presidential decision
1988 14
1
0
1
1989 204
5
2
3
1990 295
6
2
4
1991 152
1
0
1
1992 106
2
1
1
1993 82
0
0
0
1994 69
0
0
0
1995 81
0
0
0
1996 55
0
0
0
1997 62
0
0
0
1998 65
2
2
0

37 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.
38 Auerbach, Stuart. “President Tells China to Sell Seattle Firm.” The Washington Post, February 8, 1990, p. A1; and
Benham, Barbara. “Blocked Takeover Fuels Foreign Policy Flap.” Investor’s Daily, February 8, 1990. p. 1.
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Notifications
Investigations
Notices withdrawn
Presidential decision
1999 79
0
0
0
2000 72
1
0
1
2001 55
1
1
0
2002 43
0
0
0
2003 41
2
1
1
2004 53
2
2
0
2005 65
2
2
0
Total 1,593
25
13
12
Source: Graham, Edward M., and David M. Marchick, US National Security and Foreign Direct Investment. p. 57.
Conclusions
On July 26, 2007, President Bush signed P.L. 110-49, the Foreign Investment and National
Security Act of 2007. The Treasury Department released its regulations implementing this law on
November 21, 2008, as the global financial crisis was the focus of attention. In 2008, tight credit
conditions associated with the global financial crisis and the slowdown in the rate of growth in
the U.S. economy retarded merger and acquisition activities in the United States and abroad.
There has been no particular foreign acquisition that has provoked a public backlash comparable
to some acquisitions and the Obama Administration has not issued a formal statement on foreign
investment to assess areas of disagreement with the activities of the Bush Administration.
When Congress adopted P.L. 110-49, the Foreign Investment and National Security Act of 2007,
Members were concerned about six issues: 1) the seemingly lack of participation by principal
members of CFIUS; 2) CFIUS’s interpretation of requirements that it investigate transactions
involving firms that are owned or controlled by a foreign government; 3) reporting requirements
that have not provided Congress with enough information for Members to fulfill their oversight
responsibilities; 4) the discretion CFIUS exercises in choosing which transactions it investigates;
5) CFIUS’s definition of national security; and 6) CFIUS’s deadlines for completing reviews and
investigations. All of these issues were addressed to varying degrees in the law, but it likely will
take some time and experience with the new provisions for Members to determine if the changes
to the Exon-Florio process satisfy their concerns.
Since Congress passed P.L. 110-49, concerns among the public and Members of Congress rose
sharply for some time about firms that are controlled by foreign governments investing in
economic activities that some judge to be detrimental to the Nation’s homeland security and
critical infrastructure. Although P.L. 110-49 broadened the concept of national security to include
homeland security and critical infrastructure, it remains unclear how these concepts are being
incorporated into the Exon-Florio process and if those who administer the process have altered
their views to reflect the broadened concept of national security as it is specified in the statute. At
times, Members of Congress and officials within the administration have been at odds over the
way CFIUS has reviewed and approved of certain investments. These differences reflect a
disparity in political and philosophical viewpoints over the role of foreign investment in the
economy and over the nature of the risks the investments pose to the national economic security.
The occasional sparring over foreign investment between Congress and the administration reflect
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the fact that neither Congress nor the administration has been able thus far to define clearly the
national security implications of foreign direct investment.
The DP World transaction 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. If this assessment is correct, then the change in attitude will require 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. In addition, the DP World transaction
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 as a whole. Others may argue on non-economic
grounds that such firms pose a risk to national security or to homeland security.
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 measurable 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.

Author Contact Information

James K. Jackson

Specialist in International Trade and Finance
jjackson@crs.loc.gov, 7-7751


Congressional Research Service
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