President Bush is expected to sign into law a bill (passed by Congress this week) enhancing government scrutiny of proposed sales of critical infrastructure businesses to foreign buyers. Under the bill, such transactions are subject to review by the multi-agency Committee on Foreign Investment in the United States (CFIUS), which reviews acquisitions by non-US persons for national security concerns. The bill is the result of more than a year of legislative efforts to reform the process after the controversy caused by the failed Dubai Ports World acquisition of several US port operations.

The bill clarifies that the scope of CFIUS reviews includes acquisitions involving "critical infrastructure" assets, which goes beyond traditional defense industry-related assets and can include transactions in such non-defense sectors as telecommunications, energy, transportation and other sectors where incapacity of the business may have a serious impact on national security.

Key provisions of the bill include:

  • Required investigations of every critical infrastructure transactions that "could impair national security," as opposed to the traditional, higher standard of "threatens to impair the national security," which continues to apply to defense industry transactions;
  • A requirement that CFIUS consult with the director of national intelligence;
  • A provision for automatic Congressional notification after each investigation;
  • A required investigation of acquisitions by foreign government-controlled entities unless the Secretary of the Treasury and the "head of the lead agency jointly determine ... that the transaction will not impair the national security of the United States."

Although the legislation is intended to strike a balance between homeland security and open markets, other countries have considered similar legislation. France has adopted new regulations requiring reviews of foreign investment on national security grounds. China, Russia, Canada and Germany are also considering similar restrictions on foreign investment.

The new law will take effect 90 days following its enactment. Implementation regulations and published guidance on the types of transactions considered to have national security implications are called for within 180 days of the effective date.