Congress recently passed the Foreign Investment and National Security Act of 2007 to increase the scrutiny of foreign investment in the United States for potential national security threats. The legislation updates the Exon-Florio Amendment and clarifies the duties of the Committee on Foreign Investment in the United States (CFIUS), the interagency committee in charge of reviewing foreign transactions for potential threats.

Congressional action was prompted by a heightened concern over foreign control of sensitive US assets and the perceived shortcomings of CFIUS, most notably CFIUS’s January 2006 approval of a Dubai-owned company’s offer to acquire the operation of six significant US ports and China National Offshore Oil Corporation’s proposed 2005 acquisition of UNOCAL. The legislative changes provide greater accountability and transparency by implementing several notable changes, including requiring that a US government agency member of CFIUS (a lead agency) take responsibility for each transaction, requiring that the Director of National Intelligence analyze the national security implications of transactions, and giving more specific guidance on CFIUS’s reports to Congress.

A 30-day CFIUS review can be voluntarily initiated by a transaction party, or CFIUS can initiate its own review. Transactions most likely to be reviewed will involve a foreign government or an entity closely tied to a foreign government, as well as transactions involving US critical infrastructure, including major energy assets, or critical technology. A CFIUS investigation of transactions involving foreign governments or the control of US critical infrastructure is required, unless there is a joint, senior-level determination by the lead agency and the Department of Treasury that the transaction will not involve a national security threat. An investigation also is required for transactions involving a national security threat that has not been mitigated.

Careful strategic planning in the acquisition of US critical infrastructure and critical technology assets as well as acquisitions involving foreign governments, may mean communicating with CFIUS before the formal notification stage so as to provide a better understanding of potential problems, focusing sellers’ due diligence efforts on potential bidders, and planning for mitigation actions.

This article is a periodic publication of Holme Roberts & Owen LLP and should not be construed as legal advice or legal opinion on any specific facts or circumstances. Nor is it intended to address specific disclosure or compliance issues that may arise in particular circumstances or to provide an exhaustive discussion of the topics discussed herein. The contents are intended for general informational purposes only, and you are urged to consult counsel concerning your own situation and any specific legal questions you may have. For further information regarding the topics described herein, please contact any attorney by the telephone numbers or email addresses listed.