The Foreign Investment and National Security Act of 2007 (FINSA), enacted six months ago, requires certain changes to the U.S. national security review process – the process by which certain acquisitions by foreign persons are vetted for national security implications and potentially recommended for Presidential action. As a result, the inter-agency committee charged with conducting national security reviews – the Committee on Foreign Investment in the United States (CFIUS) – is expected soon to release for public comment proposed changes to the regulations governing the review process. In the meantime, President Bush, pursuant to an Executive Order released last week (the Order), laid the groundwork for implementation of the changes.

The White House press release accompanying the Order states that it ‘reaffirms our commitment to open economies and our policy of welcoming foreign investment and the important economic benefits that such investment brings’.

While the Exon-Florio statute clearly gives the President the authority to review and block certain acquisitions by foreign persons deemed to threaten U.S. national security, the procedures and standards contained in the regulations governing the CFIUS review process have not been particularly well defined. It is expected that the changes called for by FINSA will bring greater clarity to the review process and the Order sets out some of the new ground rules.

The most important provisions of the Order relate to the respective roles of CFIUS members vis-à-vis one another and the President. The Order makes clear that the Treasury Department as the CFIUS chair generally is to serve as its public face, and is authorized to communicate on behalf of CFIUS with Congress and the public and to issue regulations.

The Order enables any one member agency to force CFIUS to undertake an extended investigation of a transaction. In the past, extension of the process generally required greater consensus among the CFIUS members. In contrast, the Order allows one member agency to lead efforts to negotiate remedial measures with the parties (a so-called mitigation agreement), but requires that agency to propose and obtain approval from all CFIUS members for the remedy to be accepted.

The Order also sets out more clearly than in the past the circumstances under which a Presidential determination regarding a transaction should be obtained, including: (a) when CFIUS recommends that the President suspend or prohibit a transaction; (b) when CFIUS is unable to reach a decision on whether to recommend that the President suspend or prohibit a transaction; and (c) when CFIUS requests that the President make a determination regarding a transaction.

Lastly, FINSA directed that certain agencies be members of CFIUS but gave the President discretion to appoint other members. The Order appoints the United States Trade Representative and the Director of the Office of Science and Technology Policy to be members and reserves the right to appoint others on a case-by-case basis. Other executive branch representatives were tasked with observing and participating as appropriate in CFIUS activities, many of whom had been members of CFIUS following a prior Executive Order.