On July 26, 2007, President Bush signed into law the "Foreign Investment and National Security Act of 2007" (FINSA) which revamps the national security review process for foreign investment in U.S.-based entities. Such reviews are conducted by the Committee on Foreign Investment in the United States (CFIUS), which is an interagency panel of the Executive Branch that determines the national security risks posed by proposed foreign investments in U.S.-based entities.

The new legislation:

  • Grants CFIUS statutory authority to investigate and review proposed transactions and to negotiate, impose and enforce conditions necessary to mitigate potential threats to national security created by the transaction.
  • Keeps intact the current 30-day review and 45-day investigation timeline. CFIUS still has 30 days to review a transaction to determine whether it has the potential to threaten or impair U.S. national security. If the answer is affirmative, CFIUS conducts a 45-day investigation.
  • Directs a mandatory 45-day investigation (with certain exceptions) of covered transactions that threaten to impair national security, including transactions involving foreign state-owned companies and control of critical infrastructure, and for approval at the Deputy Secretary level that there is no threat to the national security by the proposed transaction. During this phase, the legislation requires an assessment of a country's compliance with U.S. multilateral counter-terrorism, non-proliferation, and export control regimes for acquisitions by state-owned companies.
  • Provides for written notice to Congress at the conclusion of the CFIUS process for both reviews and investigations containing details about the transaction, written assurance that the transaction does not threaten to impair national security or that any initial concerns have been mitigated through binding agreements between the parties and CFIUS (or the lead agency or agencies designated by the Chairman of CFIUS). Provides CFIUS with power to re-open cleared transactions if the parties have intentionally and materially breached a mitigation agreement and no other remedies are available or if information originally submitted was false or misleading.

Various governmental entities have voiced concern for the potential chilling effect that the new legislation may have on foreign investment into the U.S. At the same time, however, the new legislation may potentially provide foreign investors a greater degree of certainty and a more predictable CFIUS review process. During this time of change, practitioners should be mindful of mandatory CFIUS investigations, as such investigations could effect a transaction's closing date.