In 1988, the United States Congress enacted the Exon–Florio Amendment to authorize the executive branch’s review foreign investment within the United States. The amendment was passed into law under the Omnibus Trade and Competitiveness Act of 1988 and amended Section 721 of Defense Production Act of 1950. Generally, pursuant to this provision the President of the United States may block any foreign investments that may pose a threat to national security.
As a direct result of this law, President Reagan delegated the process of reviewing foreign investments to the Committee on Foreign Investment in the United States (commonly known under its acronym “CFIUS”).
CFIUS is an inter-agency committee authorized to review transactions that could result in control of a U.S. business by a foreign person (“covered transactions”), in order to determine the effect of such transactions on the national security of the United States. As mentioned above, CFIUS operates pursuant to section 721 of the Defense Production Act of 1950, as amended by the Foreign Investment and National Security Act of 2007 (FINSA) (section 721) and as implemented by Executive Order 11858, as amended, and regulations at 31 C.F.R. Part 800.
CFIUS review consists of a fairly complicated process, which has been the subject of significant reforms over the past several years (including numerous improvements in internal CFIUS procedures, enactment of FINSA in July 2007, amendment of Executive Order 11858 in January 2008, revision of the CFIUS regulations in November 2008, and publication of guidance on CFIUS’s national security considerations in December 2008).
CFIUS review can result from a voluntary notification by a domestic firm that is being acquired by a foreign firm or it can result from CFIUS’ own initiative. CFIUS reviews begin with a 30-day decision to authorize a transaction or begin a statutory investigation. If the latter is chosen, the committee has another 45 days to decide whether to permit the acquisition or order divestment.
While, most transactions submitted to CFIUS were approved without the statutory investigation, others were investigated by CFIUS. In some cases, CFIUS investigation had a material impact on proposed acquisitions.