From fretting takeovers to vetting CFIUS: finding a balance in U.S. policy regarding foreign acquisitions of domestic assets

Vanderbilt Journal of Transnational Law, Oct, 2006 by Gaurav Sud

In terms of precisely what CFIUS is supposed to address in its inquiry, the statute provides some guidance, but seems to allow for differing interpretations:

For the purposes of this section, the President or the President's designee may, taking into account the requirements of national security, consider among other factors--

(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 or 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 ...

(5) the potential effects of the proposed or pending transaction on United States international technological leadership in areas affecting United States national security. (95)

The third clause of this provision seems to be especially susceptible to multiple interpretations. (96) In any case, with or without concrete guidelines, CFIUS is to complete its inquiry and deliver a report to the President upon completion of its investigation, which begins the next step in the process, Presidential review. (97)

The President is given fifteen days in which to conduct his review and decide whether it is necessary to prohibit the transaction or appropriate to allow the transaction to go forward. (98) If the President finds that "(1) there is credible evidence ... to believe that a foreign controlling interest might take action that threatens to impair national security and (2) laws other than Exon-Florio and the International Emergency Economic Powers Act are inadequate or inappropriate to protect national security," a Presidential prohibition may be appropriate. (99) The President's authority to prohibit a transaction cannot be exercised, however, if "(1) the Committee has informed the companies in writing that their acquisition was not subject to Exon-Florio or had previously decided to forego investigation, or (2) the President has previously decided not to act on that specific acquisition under Exon-Florio." (100) The President has prohibited only one transaction from going forward, when Former President George H.W. Bush determined that a Chinese aerospace company should not be allowed to invest and gain part ownership in a U.S. aircraft parts manufacturer in 1990. (101) Thus, this provision for Presidential review has been, like much of CFIUS, more of a formality than an actual bar to cross-border transactions.

It is worth noting that the Exon-Florio Amendments do not explicitly define "national security," thereby evincing perhaps one of the most problematic features of the legislation, which will be dealt with later in this Note. (102) The only guidelines provided indicate that "companies providing technology to the military or to the defense industrial base may implicate national security concerns" and that "acquisitions of businesses in industries having 'no special relation to national security' would not ordinarily give rise to national security concerns." (103) The regulations go on to cite various examples of items that would not give rise to national security concerns (i.e., toys, games, hotels, food products, legal services, etc.) and also to state that certain transactions, including "purchases solely for purposes of investment by investors acting in the ordinary course of business and amounting to 10% or less of the stock of an entity," are exempted from CFIUS review. (104)