Investing in the post 9/11 US: CFIUS reform

By Wayne Rogers, Sonnenschein Nath & Rosenthal LLP US trade and investment

The United States is the largest international investor in the world and the largest destination for foreign investment.

Foreign direct investment in the United States hovered around US$50 billion per year in the early 1990s and by 2000 had spiked to over US$300 billion. Then the tragic events of September 11, 2001 unfolded. Foreign investment in the US plummeted and attitudes toward foreign investment both in the Congress and among the public materially changed.

The effect of 9/11 was not revolutionary, rather it resulted in a large evolutionary step in a process that had been underway for over 30 years.

Wayne Rogers Partner Sonnenschein Nath & Rosenthal LLP US trade and investment
Wayne Rogers
Sonnenschein Nath & Rosenthal LLP
US trade and investment

The Committee on Foreign Investment in the United States (CFIUS) was born by an Executive Order of President Ford in 1975. The president acted in response to widespread concern in Congress over the rapid increase in US investment by OPEC members, flush with oil profits. Many in Congress believed OPEC investors were being driven by political considerations.

CFIUS, made up of representatives of 12 Cabinet departments, was directed, among other areas, to review investments with national security implications. At the time, this was commonly taken to mean defence-related industries. By 1980 Congress was unhappy with CFIUS. It had met only 10 times in five years and appeared unable to decide if its mandate was to respond to the economic or political implications of foreign investment.

From 1980 to 1987 the major investment investigations were at the request of the Defense Department, and involved Japanese acquisitions of metals, industrial defence products and defence related computer firms.

In 1988 Congress enacted the “Exon-Florio” provisions giving the president the ability to stop acquisitions that “threaten to impair national security”. This was a fundamental transformation of CFIUS. The president now had direct legal authority to block acquisitions, without the need to resort to other legal authority (e.g. securities or anti-trust laws). Congress fashioned very little role for itself, maintaining the view that the US encourages open foreign investment, free of political considerations.

Patriot Act

The “Patriot Act” passed in 2001 provided a broader definition of national security and identified protections for “critical infrastructure”. This broad definition includes telecommunications, financial services (including banks), energy, transportation (including airlines), water and “cyber and physical infrastructure”. This broad view of critical infrastructure was adopted into the Homeland Security Act in 2002.

Post 9/11 foreign investment in the US rebounded in 2006, reaching US$184 billion. Two major transactions in 2006 brought the foreign investment issue to the front pages of America’s papers and the notice of Congress. One was the proposed purchase of Unocal by the China National Offshore Oil Corporation. The other was the proposed purchase of the operations of six major US ports by Dubai Ports World (controlled by the United Arab Emirates and approved by CIFUS). The public and some members of Congress were very concerned with foreign government ownership of oil companies or operation of port facilities in a world of international terrorism. Both transactions failed, but the issue had been elevated.

The CFIUS process currently provides that upon notice by a party to a transaction or motion of a CIFUS member, CIFUS has 30 days to determine whether an investigation is warranted. If it decides to investigate, it must issue its final recommendation to the president in 45 days. The president then has 15 days to make a decision.

Many critics find this process totally inadequate, saying it lacks transparency, is unduly narrow (not considering the broad definition of critical infrastructure instead of national defence), and provides insufficient time to conduct a thorough investigation.

In the wake of the Dubai and Unocal deals, 25 bills were introduced in 2006
concerning foreign investment. They did not become law but set the stage for 2007, when the House of Representatives passed a bill by 423-0 to reform the CFIUS process. A Senate version of the bill takes some of the provisions of the House bill and includes some of its own from the 2006 session.

The bills include enacting CIFUS into statute, broad congressional reporting, extended review and incorporating the critical infrastructure concept. Other
provisions include a review of a country’s compliance on terrorism and non-proliferation for firms being acquired by government entities.

Regardless of whether the bills become law, it is clear that scrutiny of foreign investment in the US will increase. Foreign companies and governments contemplating a US acquisition should take it into consideration.

Wayne Rogers is a partner in the Washington DC office of Sonnenschein Nath & Rosenthal LLP. He can be reached at


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