Updated August 22, 2018
CFIUS Reform: Foreign Investment National Security Reviews
Overview
investments in U.S. firms, but increases the allowable time
Some Members of Congress, the Trump Administration,
for reviews and investigations: (1) a 45-day national
and some U.S. businesses have raised concerns over the
security review (from 30 days), including an expanded time
risks to continued U.S. technological leadership to support
limit for analysis by the Director of National Intelligence
national defense and economic security due to growing
(from 20 to 30 days); (2) a 45-day national security
foreign direct investment (FDI), primarily by Chinese
investigation, with an option for a 15 day extension for
firms, in U.S. high-tech companies. On August 13, 2018,
“extraordinary circumstances;” and (3) a 15-day
President Trump signed into law new rules governing
Presidential determination (unchanged). To date, prior to
foreign investment national security reviews. Known as the
FIRRMA, Presidents used CFIUS to block five foreign
Foreign Investment Risk Review Modernization Act
investment transactions.
(FIRRMA) of 2018 (Title XVII, P.L. 115-232), the
legislation amends the current process for the Committee on
Transactions Blocked by President
Foreign Investment in the United States (CFIUS) (under
1990: Acquisition of Mamco Manufacturing by China
P.L. 110-49) to review, on behalf of the President, the
National Aero-Technology Import and Export Corporation.
national security implications of FDI in the United States.
2012: Acquisition of Oregon wind farm project by Ralls
CFIUS is an interagency body comprised of nine Cabinet
Corporation, owned by Chinese company Sany Group.
members, two ex officio members, and others as appointed
that assists the President in overseeing the national security
2016: Acquisition of Aixtron, a German-based
risks of FDI in the U.S. economy. Since its inception in
semiconductor firm with U.S. assets, by Chinese firm Fujian
1975, CFIUS has confronted shifting concepts of national
Grand Chip Investment Fund.
security and a changing global economic order that is
marked by the rise of such emerging economies as China
2017: Acquisition of Lattice Semiconductor Corp. by
and state-led firms that are playing a more active role in the
Canyon Bridge Capital Partners, a Chinese investment fund.
global economy. The FIRRMA-amended CFIUS process
maintains the President’s authority to block or suspend
2018: Acquisition of semiconductor chip maker Qualcomm
proposed or pending foreign “mergers, acqui
by Singapore-based Broadcom.
sitions, or
takeovers” of U.S. entities, including through joint
ventures, that threaten to impair the national security.
FIRRMA broadens CFIUS’ role by explicitly including for
review certain real estate transactions in close proximity to
To exercise his authority under CFIUS, the President must:
a military installation or U.S. government facility or
(1) conclude that other U.S. laws are inadequate or
property of national security sensitivities; any non-
inappropriate to protect national security; and (2) have
controlling investment in U.S. businesses involved in
“credible evidence” that the foreign interest exercising
critical technology, critical infrastructure, or collecting
control might take action that threatens to impair U.S.
sensitive data on U.S. citizens; any change in foreign
national security. In addition, final determinations by the
investor rights; transactions in which a foreign government
President are not subject to judicial review.
has a direct or indirect substantial interest; and any
transaction or arrangement designed to evade CFIUS.
The Foreign Investment Risk Review
Modernization Act of 2018
While specific countries are not singled out, FIRRMA
FIRRMA aims to “strengthen and modernize” the current
allows CFIUS to potentially discriminate among foreign
CFIUS process for reviewing potential effects of foreign
investors by country of origin in reviewing certain
investment transactions on U.S. national security, last
investment transactions. Greater scrutiny could be directed
updated in 2007. Certain provisions are immediately to take
on transactions tied to certain countries, pending specific
effect, while others, including some related to the expanded
criteria defined by regulations.
scope of CFIUS, are to be subject to further regulations.
Some experts have suggested that the broad changes under
FIRRMA also shifts the filing requirement for foreign firms
FIRRMA could potentially lead CFIUS to take a more
from voluntary to mandatory in certain cases and provides a
assertive role that emphasizes both U.S. economic and
two-track method for reviewing transactions. Some firms
national security interests, particularly relative to the
are permitted to file a declaration to CFIUS and could
development of emerging or leading-edge technology.
receive an expedited review process, while transactions
involving a foreign person in which a foreign government
FIRRMA maintains core components of the current CFIUS
has, directly or indirectly, a substantial interest (to be
three-step process for evaluating proposed or pending
defined by regulations, but not including stakes of less than
10% voting interest) would require a written notification
https://crsreports.congress.gov
CFIUS Reform: Foreign Investment National Security Reviews
and receive greater scrutiny. Mandatory declarations may
more information on investment transactions,
be subject to other criteria as defined by regulations.
including specifically those involving China.
Export Controls. Mandates separate reforms
FIRRMA provides a “sense of Congress” concerning six
related to dual-use export controls, with
additional factors that CFIUS and the President may
requirements to establish an interagency process to
consider to determine if a proposed transaction threatens to
identify so-called “emerging and foundational
impair U.S. national security. These include:
technologies”—such items would also fall under
CFIUS review of critical technologies—and
1. Covered transactions that involve a
establish controls by the Department of Commerce
country of special concern that has a
on the export or transfer of such technologies.
demonstrated or declared strategic goal of
acquiring a type of critical technology or
Response by Other Countries
critical infrastructure that would affect
FIRRMA also recommends that CFIUS establish a process
U.S. leadership in areas related to
for exchanging information with U.S. allies and partners to
national security;
facilitate coordinated action with respect to trends in FDI
2. The potential effects of the cumulative
and technology that pose national security risks. The United
control of, or pattern of recent
States is not alone in adopting new regulations governing
transactions involving, any one type of
the review of foreign investment for national security
critical infrastructure, energy asset,
implications. Recent actions by other countries include:
critical material, or critical technology by
a foreign government or person;
In September 2017, the European Commission
3. Whether any foreign person engaged in a
proposed a new framework for the screening of
transaction has a history of complying
FDI in the EU, to build on national review
with U.S. laws and regulations;
mechanisms already in place in 12 member states.
4. Control of U.S. industries and
In May 2018, Canada blocked the Chinese
commercial activity that affect U.S.
acquisition of a Canadian construction company.
capability and capacity to meet the
requirements of national security,
In July 2018, the British government issued a draft
including the availability of human
paper proposing additional authority to review
resources, products, technology,
acquisitions and to “call in” previously-concluded
materials, and other supplies and services;
investments for national security reviews.
5. The extent to which a transaction is likely
In July 2018, Germany blocked the Chinese
to expose personally identifiable
takeover of a German machine tool manufacturer
information, genetic information, or other
and expanded its authority to block acquisitions of
sensitive data of U.S. citizens to access by
firms involved in “critical infrastructure.”
a foreign government or person that may
In July 2018, China proposed new draft
exploit that information to threaten
regulations to expand the foreign investments
national security; and
covered under its national security review process.
6. Whether a transaction is likely to
exacerbate or create new cybersecurity
Issues for Congress
vulnerabilities or is likely to result in a
The FIRRMA-amended CFIUS process for reviewing
foreign government gaining a significant
certain foreign investment transactions may raise a number
new capability to engage in malicious
of questions for Congress, including:
cyber-enabled activities.
How will Congress evaluate the success of the amended
Other Changes
review process in protecting U.S. national security?
FIRRMA also mandates other changes that would provide
Does the expanded CFIUS review process balance the
more resources for CFIUS, add new reporting requirements,
traditionally open U.S. investment climate with the
and reform export controls.
requirement to protect U.S. national security?
Resources. Provides for more staff and funding
How does CFIUS compare to other countries’ review
for CFIUS through authorization of a $20 million
processes, and to what extent will FIRRMA facilitate
annual appropriation and a filing fee for firms of
greater information sharing to advance national security?
1% of the value of the transaction, not to exceed
For more information see CRS In Focus IF10177, The
$300,000.
Committee on Foreign Investment in the United States, by
Risk-Based Analysis. Formalizes CFIUS’ use of
James K. Jackson.
risk-based analysis by assessing the threat,
James K. Jackson, Specialist in International Trade and
vulnerabilities, and consequences to national
Finance
security of transactions.
Cathleen D. Cimino-Isaacs, Analyst in International Trade
Reporting. Modifies CFIUS’ annual confidential
and Finance
report to specified Members of Congress and non-
confidential reports to the public to provide for
IF10952
https://crsreports.congress.gov
CFIUS Reform: Foreign Investment National Security Reviews
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https://crsreports.congress.gov | IF10952 · VERSION 3 · UPDATED