Exon-Florio Amendment to the Defense Production Act of 1950 And Foreign Investment and National Security Act of 2007
Congress passed the 1988 Exon-Florio Amendment to the Defense Production Act of 1950 (Exon-Florio) to give the President broad authority to review and block foreign direct investments that threaten U.S. national security. This authority was delegated by the President to the Committee on Foreign Investments in the U.S. (CFIUS), an interagency committee, chaired by the U.S. Secretary of the Treasury. In 2007, Congress passed the Foreign Investment and National Security Act of 2007 (FINSA), further amending the Defense Production Act of 1950 to codify and change certain aspects of the CFIUS review process.
CFIUS has specific authority to review any “merger, acquisition, or takeover by or with any foreign person which could result in foreign control of any person engaged in interstate commerce in the United States.” The parties to a proposed acquisition involving a foreign person may initiate the review process by submitting a notice of the transaction to CFIUS. After it receives the notice, CFIUS has 30 days to review the transaction to determine the national security implications. It may decide that further investigation is necessary, in which case it has an additional 45 days to complete such investigation and to submit the results to the President. The President then has 15 days in which to decide whether there is credible evidence that the transaction threatens national security. If he decides that there is and that the provisions of law do not provide adequate and appropriate authority to protect U.S. national security, he can take any action that he deems appropriate to suspend or prohibit the transaction.
The statute does not define the term “national security.” However, FINSA enumerates certain factors that CFIUS must consider in determining the national security implications of a transaction. The factors include degree of ownership by a foreign government, levels of domestic production needed for national defense, potential for transfer of military-related technology, and implications for critical infrastructure assets. In the case of foreign government transactions, CFIUS must also consider the relevant country’s compliance with U.S. and multilateral counter-terrorism, non-proliferation, and export control regimes.
The giving of a notice of a transaction to initiate a review by CFIUS is voluntary. However, if an acquisition involving a foreign party is not disclosed to CFIUS, then the government can initiate a review on its own at any time, even well after the transaction is fully consummated. If the President then determines, as a result of the review, that the transaction poses a threat to national security, he may order appropriate relief, including a forced divestiture or other unwinding of the transaction. Because this could cause huge disruptions to business, all transactions that might have a potential impact on U.S. national security should be submitted to CFIUS for review.
CFIUS has specific authority to review any “merger, acquisition, or takeover by or with any foreign person which could result in foreign control of any person engaged in interstate commerce in the United States.” The parties to a proposed acquisition involving a foreign person may initiate the review process by submitting a notice of the transaction to CFIUS. After it receives the notice, CFIUS has 30 days to review the transaction to determine the national security implications. It may decide that further investigation is necessary, in which case it has an additional 45 days to complete such investigation and to submit the results to the President. The President then has 15 days in which to decide whether there is credible evidence that the transaction threatens national security. If he decides that there is and that the provisions of law do not provide adequate and appropriate authority to protect U.S. national security, he can take any action that he deems appropriate to suspend or prohibit the transaction.
The statute does not define the term “national security.” However, FINSA enumerates certain factors that CFIUS must consider in determining the national security implications of a transaction. The factors include degree of ownership by a foreign government, levels of domestic production needed for national defense, potential for transfer of military-related technology, and implications for critical infrastructure assets. In the case of foreign government transactions, CFIUS must also consider the relevant country’s compliance with U.S. and multilateral counter-terrorism, non-proliferation, and export control regimes.
The giving of a notice of a transaction to initiate a review by CFIUS is voluntary. However, if an acquisition involving a foreign party is not disclosed to CFIUS, then the government can initiate a review on its own at any time, even well after the transaction is fully consummated. If the President then determines, as a result of the review, that the transaction poses a threat to national security, he may order appropriate relief, including a forced divestiture or other unwinding of the transaction. Because this could cause huge disruptions to business, all transactions that might have a potential impact on U.S. national security should be submitted to CFIUS for review.