An extract from The Foreign Investment Regulation Review, 8th Edition

Review procedure

This section discusses in more detail the sector-based and national security-based foreign investment review regimes outlined in Section II, and the interaction of these regimes with the US merger control regime. The US merger control regime does not treat foreign investment in the United States differently from domestic investment. Thus, the fact that the buyer is a foreign investor could lead to divergent outcomes under merger control and sector-specific review processes, in which foreign investment may be treated differently. However, this is not the only factor that could lead to divergent outcomes. Because the standards applied by sector-specific regulators (e.g., a public interest standard) are different from the standard applied by US antitrust regulators (e.g., a substantial lessening of competition), there could be divergent outcomes regardless of whether a foreign investor is involved. Nonetheless, there is typically some interface between the US antitrust review and sector-specific review processes, as the public interest standard applied by sector-specific regulators encompasses competition interests. In these cases, parties must consider strategically the interaction of the review processes in terms of timing and substance.

There is less interface between the US antitrust and national security review processes, as the antitrust regime does not take into account US national security interests, and vice versa, except to the extent that ensuring competition in the supply of goods and services to the US government acting as a consumer constitutes a national security interest. The national security review process itself, though, can involve concurrent reviews by several US government agencies, each tasked with administering laws governing foreign ownership of US businesses that hold certain security clearances, manufacture certain export-controlled goods, or both. In these cases, parties must coordinate their outreach to each relevant agency, as the national security-related review processes typically interface via the CFIUS review process.

i National security review process

The US national security review process is conducted pursuant to Section 721 of the Defense Production Act (DPA), previously called the Exon–Florio Amendment, and its implementing regulations. The statute grants the President the authority to review any transaction that could result in a foreign person having control (direct or indirect) over a US business (i.e., a covered transaction) and to suspend or prohibit that transaction if it threatens to impair the national security of the United States. The statute was amended by FIRRMA to expand its applicability , such that CFIUS now has authority to review: (1) covered control transactions, which are transactions that could result in foreign control of a US business, (2) covered investments, which are non-passive minority investments of any size in US businesses involved in critical technology, critical infrastructure or sensitive personal data (TID US Businesses), and (3) 'covered real estate investments', which are stand-alone acquisitions, leases or concessions of real estate in certain instances, even if the transaction does not involve the acquisition of an existing US business. CFIUS is charged with conducting the national security review on behalf of the President pursuant to the statute, taking certain remedial action, and, as appropriate, making a recommendation regarding presidential action.

Foreign persons include any foreign national, foreign government or foreign entity, or any entity over which control is exercised or exercisable by a foreign national, foreign government or foreign entity. Control turns on the ability to determine, direct or decide matters affecting an entity, and the regulations specifically recognise dominant minority control. In practice, CFIUS interprets control very broadly. Whether a foreign person is making a covered investment turns on whether the investment provides the investor with certain rights, such as board representation or certain governance or access rights.

Prior to FIRRMA, when the US national security regime was voluntary, counsel for the parties to a transaction typically consulted each other with respect to the national security profile of a particular transaction to determine whether a filing was warranted. That calculus is still relevant for transactions falling outside the newly implemented mandatory regime, but counsel additionally now must consider whether a filing is mandated as discussed in Section II above. Even when there is no legal obligation to file, a filing potentially offers several benefits:

  1. obtaining a clearance letter provides a safe harbour against future presidential action, provided parties comply with obligations under the statute;
  2. filing may ensure that relevant government security clearances and licences are not jeopardised, which otherwise would negatively affecting the US business's ability to do business;
  3. related regulations involving clearances and licences require parallel notifications that can be coordinated; and
  4. avoids CFIUS initiating its own review, pre- or post-closing.

Parties to a transaction subject to CFIUS jurisdiction have an option to submit an abbreviated notification in the form of a 'declaration' or to file a 'notice', each of which has its positives and negatives.

Submission of a declaration starts a 30-day assessment period. At the end of the 30 days, CFIUS can (1) request a full notice (discussed below) from the parties, (2) state that it is unable to complete its action, leaving the parties without a definitive outcome unless they choose to voluntarily file a full notice, (3) unilaterally initiate a review as if based on a full notice, or (4) inform the parties that it will take no further action, providing the parties with safe harbour for that transaction. Before submitting a declaration, parties need to consider on a case-by-case basis the likelihood of a non-definitive outcome, their comfort with closing over a non-definitive outcome, the risk of being required to file a full notice after spending the time taken to go through the declaration process, and whether it makes sense to skip the declaration and file a full notice in the first instance.

The notice process typically begins with the submission of a draft, which the regulations recommend be submitted at least five business days before formally filing. In practice, parties submit a draft notice a couple of weeks to a couple of months before submitting a formal filing, often to take advantage of pre-notification consultations before starting the clock (although sometimes the CFIUS caseload results in extended pre-notification periods).

Acceptance by CFIUS of a properly prepared notice triggers an initial 45-day review of the notified transaction. By the end of the 45-day period, CFIUS must decide whether to clear the transaction if it finds no national security concerns, or to initiate an additional investigation of up to 45-days. CFIUS may decide during either of the 45-day periods to issue a clearance letter, which provides safe harbour, or to require the parties to enter into a mitigation agreement to resolve any potential national security concerns. CFIUS may impose mitigation measures only after it has identified a specific risk in relation to US national security and determined that a mitigation measure is necessary to resolve that risk.

Alternatively, at the end of a 45-day investigation, CFIUS may refer the matter to the President. The President then has 15 days to take action. The President alone has the authority to suspend or prohibit a covered transaction. The Committee must therefore refer a transaction to the President if it wants to compel the parties to abandon the transaction. To exercise this authority, the President must find both that there is credible evidence that a 'foreign interest exercising control might take action that threatens to impair the national security', and that other laws do not, in the President's judgement, 'provide adequate and appropriate authority' to protect the national security.

Presidential action is rare, partly because mitigation measures often address national security concerns and partly because parties typically decide to abandon a transaction before CFIUS recommends that the President issue a blocking order. Determinations by the President are not subject to judicial review. This was affirmed by the US District Court for the District of Columbia.

The CFIUS process is confidential and third parties have no right to participate, although CFIUS recently set up a tip line for private parties to contact CFIUS about transactions that it should review. Nonetheless, members of Congress, trade or industry groups, and competitors regularly take a public position or write to CFIUS regarding the national security implications of specific transactions. As a result, parties sometimes elect to involve public relations or government relations firms, or both, to manage press regarding the transaction and congressional and executive branch outreach.

As a practical matter, the CFIUS process involves not only the review of a foreign investment by the Committee as a whole, but also a review of the foreign investment by each of the individual member agencies, some of whom independently administer reviews of foreign investment under separate authorities and to achieve separate objectives. For example, the DOD participates in the CFIUS process but also reviews proposed foreign investment in US businesses that hold security clearances. Thus, the review processes administered by the member agencies often interface with the CFIUS review process.

ii Sector-specific limitations on foreign investment

Federal limitations and restrictions on foreign investment focus on sectors that involve public interest and public services. Although not an exhaustive list, the industry sectors below illustrate some of the limitations the US federal government has imposed on foreign investment. Some states also impose limits on foreign investment in certain sectors.


Foreign investment in the US airline industry is heavily restricted and is subject to control by the US Department of Transportation (DOT). Under federal regulations, an aircraft must be registered before operating legally in the United States and registration is limited to US citizens, permanent residents, corporations and government entities.

In addition, all operating air carriers must obtain a certificate of public convenience and necessity when applying to operate in the United States and when there has been a substantial operational, ownership or managerial change. Only a citizen of the United States may obtain such a certificate. A 'citizen of the United States' is defined as a US citizen, a partnership of US citizens, or a corporation or association organised under US law, 'of which the president and at least two-thirds of the board of directors and other managing officers are citizens of the United States, which is under the actual control of citizens of the United States, and in which at least 75 per cent of the voting interest is owned or controlled by persons that are citizens of the United States'.

As a result, foreign investment in a US airline is limited to 25 per cent of the voting interests. Furthermore, when evaluating whether the corporation is under the 'actual control' of US citizens, the DOT considers factors such as the foreign entity's involvement in management and business decisions, and its influence and control over the board of directors. While the statute is silent with respect to non-voting interests, the DOT has interpreted the statute to limit a foreign non-voting interest to 49 per cent.


The US banking industry is heavily regulated at both federal and state level. Federal laws generally do not restrict foreign ownership or control of US banks, but the establishment or acquisition of a bank in the United States by a foreign entity may be subject to review by federal or state regulators.

A foreign bank may establish a branch, agency or commercial lending subsidiary in the United States, but it must seek approval from the Federal Reserve Board (FRB) to do so. The FRB evaluates several factors, including whether:

  1. the foreign bank's home country consents;
  2. the foreign bank is financially sound;
  3. the foreign bank provides adequate information and assurances;
  4. the foreign bank and its affiliates comply with US laws; and
  5. the home country's financial regulations can mitigate the risk to financial stability in the United States, should the foreign bank pose such a risk.

Under the Bank Holding Company Act (BHCA), FRB approval is also needed to operate as a bank holding company (BHC) in the United States or to acquire more than 5 per cent of the voting securities of a US bank or BHC. Once the FRB accepts an application for approval as complete, the board generally issues a decision within 60 calendar days. The FRB evaluates several factors when reviewing a foreign bank's application under the BHCA, including financial stability, competition, public convenience and whether the authorities in the foreign bank's home country exercise comprehensive consolidated supervision.


The Federal Communications Commission (FCC) is tasked with reviewing and authorising all radio and television broadcasting licences. The Telecommunications Act of 1996 restricts foreign governments and government representatives from holding a broadcast, common carrier or radio station licence in the United States, and limits the interest a foreign government or company may hold in a licensed US company.

Under the statute, foreign governments and their representatives may not obtain radio station licences. In addition, aliens, alien representatives and any corporation organised under the laws of a foreign government may not obtain a broadcast, common carrier, aeronautical en route or aeronautical fixed radio station licence.

Additionally, foreign governments, individuals and corporations are restricted from directly holding more than 20 per cent of the stock of a broadcast, common carrier or aeronautical radio station licensee. If the FCC determines that it would be in the public interest, it has the discretion to refuse or revoke a licence held by a corporation in which a foreign government, individual or corporation has an indirect investment of more than 25 per cent. The FCC typically will issue a public interest determination regarding the foreign investment in response to a petition for a declaratory ruling. A licensee must obtain FCC approval before direct or indirect foreign ownership exceeds 25 per cent of the licensee's US parent companies.

The FCC has traditionally referred applications for international telecommunications services (Section 214 applications); broadcast, common carrier, and aeronautical radio station licences (Section 310 applications); and applications related to cable landing licences to what was until April 2020 an informal group of agencies known as 'Team Telecom', including the Departments of Defense, Homeland Security, and Justice (including the Federal Bureau of Investigation). Team Telecom would provide a recommendation to the FCC concerning the national security and law enforcement issues associated with the particular application, including recommending conditions on approval of the licence application or recommending denial of the application in appropriate circumstances. On 4 April 2020, President Trump issued an executive order formalising the review body as the Committee for the Assessment of Foreign Participation in the United States Telecommunications Services Sector.


Federal and state law heavily regulates energy resources in the United States. Under the federal Mineral Lands Leasing Act (and other laws), only US citizens and corporations organised under US law may obtain particular mineral, gas and oil leases. However, federal laws may allow foreign investment if the investor's home country extends similar privileges to US citizens and companies.

Nuclear facility licences are also heavily restricted. Under the Atomic Energy Act, a nuclear facility licence may not be acquired by an alien or corporation owned, controlled or dominated by an alien, foreign government or foreign corporation. As a result, entities of this kind are not eligible to apply. The Nuclear Regulatory Commission has issued guidelines for determining whether an alien, foreign government or foreign corporation owns, controls or dominates a licence applicant. According to these guidelines, an applicant that is partially owned by a foreign entity may be eligible for a licence if it imposes certain conditions on the foreign investor, such as limiting nuclear material handling to US citizens.


Shipping between ports in the United States is limited to US-built, owned and registered vessels, with few exceptions. Only statutorily eligible entities can obtain a registration from the US Coast Guard to engage in this activity and a registration generally is limited to US citizens or entities in which US citizens hold at least 75 per cent of the interests.