FOREIGN DIRECT INVESTMENT in U.S.

1. CFIUS- Prior to FINSA, Exon-Florio gave the President the authority to investigate the impact of foreign acquisitions of U.S. companies on national security, and by executive order the President delegated the authority to the interagency CFIUS. FINSA also defines the membership of CFIUS, but allows the President to add the heads of other executive departments, agencies or offices. FINSA added the Secretary of Energy, Secretary of Labor (non-voting), and Director of National Intelligence (non-voting). The Amendment of Executive Order 11858, issued January 23, 2008, added the Assistant to the President for Homeland Security and Counterterrorism.
   
   
2. CRITICAL INFRASTRUCTURE - Although transactions involving U.S. critical infrastructure were reviewed and investigated by CFIUS in the past, Exon-Florio did not explicitly provide for reviews or investigations of critical infrastructure. FINSA specifically identifies critical infrastructure as an area of concern. For example, FINSA explicitly requires CFIUS to investigate transactions that involve critical infrastructure if the transaction could impair the national security of the United States and the impairment has not been mitigated. Also, FINSA specifically identifies the effect of a transaction on United States critical infrastructure as a factor that must be considered by CFIUS in conducting a national security review.
   
   
3. INVESTIGATIONS- Prior to FINSA, Exon-Florio provided for a 45-day investigation to determine the effects of a transaction on the national security of the United States, and for a mandatory investigation in those cases in which the acquiring company is controlled by or acting on behalf of a foreign government and the transaction could affect the national security of the United States. FINSA specifically provides for a 45-day investigation when:
   • The lead agency responsible for negotiating mitigation agreements and other conditions, and for monitoring compliance with mitigation agreements recommends an investigation and CFIUS agrees, or
   • Whenever a review results in a determination that
   • The transaction threatens national security and the threat has not been mitigated;
   • The transaction is a foreign government-controlled transaction; or
   • The transaction would result in control of critical infrastructure, CFIUS determines that the transaction could impair national security, and the impairment has not been mitigated.-
   However, FINSA also provides that an investigation is not required for foreign government-controlled transactions or transactions involving critical infrastructure if the Secretary of the Treasury and the lead agency jointly determine that the transaction will not impair the national security of the United States.
   
   
4. FACTORS TO BE CONSIDERED - FINSA has expanded the number of factors for CFIUS and the President to consider in conducting reviews and investigations and making determinations of whether a transaction poses a threat to national security. Under FINSA, CFIUS and the President must consider, as appropriate, the following additional factors:
   • The potential national security-related effects on U.S. critical infrastructure, including major energy assets;
   • The potential national security-related effects on U.S. critical technologies;
   • Whether the transaction is a foreign government-controlled transaction;
   • As appropriate, and particularly with respect to transactions requiring an investigation, a review of the current assessment of
     • The acquiring country’s adherence to nonproliferation regimes;
     • The relationship of the acquiring county with the United States, specifically on its record on cooperating in counterterrorism efforts ; and
     • The potential for transshipment or diversion of technologies with military applications, including an analysis of national export control laws and regulations.
   • The long-term projection of U.S. requirements for sources of energy and other critical resources and material; and
   • The potential effects of the transaction on sales of military goods, equipment, or technology to any country identified by the Secretary of Defense as posing a potential regional military threat to the interests of the United States.
   The original factors which still must be considered include (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 United States to meet the requirements of national security; (4) the potential effects of the transaction on sales of military goods, equipment or technology to any country identified under applicable law as (a) supporting terrorism or (b) a country of concern for missile proliferation or the proliferation of chemical and biological weapons; and (5) the potential effects of the transaction on U.S. international technological leadership in areas affecting national security.
   
   
5. MITIGATION AGREEMENTS- Prior to FINSA, neither Exon-Florio nor its implementing regulations addressed the issue of mitigation agreements-agreements between CFIUS or a member agency and the parties to the acquisition that are intended mitigate national security concerns. FINSA explicitly permits CFIUS or a lead agency, as designated by the Treasury Department, to negotiate, enter into, impose, and enforce any agreement or condition with any party to the transaction to mitigate any threat to U.S. national security that arises as a result of the transaction. FINSA also provides that a lead agency shall monitor and enforce, on behalf of CFIUS, any mitigation agreement.
   
   
6. TRACKING WITHDRAWN NOTICES- Prior to FINSA, Exon-Florio contained no provisions for actions to be taken in the event companies withdrew an official notification to CFIUS, although the implementing regulations provided procedures to companies on how to request a withdrawal. FINSA specifically provides for CFIUS to establish, as appropriate
   • Interim protections to address concerns raised during the review or investigation,
   • Time frames for the companies to resubmit notification to CFIUS, and
   • A process for tracking any actions the companies may take before the companies resubmit the notification.
   It has been reported that, in some instances, the parties to a transaction withdrew their notification to CFIUS during the 45-day investigation and refilled notifications, thus avoiding a presidential decision and the resultant report to Congress. As a result of this action, FINSA requires the tracking of the withdrawn notices.
   
   
7. REPORTING TO CONGRESS- FINSA has expanded Exon-Florio’s requirement for reports to Congress. Prior to FINSA, Exon-Florio required the President to submit a report to Congress only when the President made a determination whether or not to take action to block or suspend an acquisition using the authority of Exon-Florio. The report was required to address only the acquisition that was the subject of the presidential determination. FINSA requires annual reporting to specific congressional committees on all reviews and investigations completed by CFIUS during the preceding 12-month period, as well as a certified report on the results of any investigation shortly after CFIUS concludes the investigation, unless the transaction under investigation is sent to the President for a decision. FINSA also provides for CFIUS to provide briefings to specific Members of Congress on any transaction that has been concluded.