Committee on Foreign Investment in the United States (CFIUS)

What Is the Committee on Foreign Investment in the United States (CFIUS)?

Committee on Foreign Investment in the United States (CFIUS) is an inter-agency committee of the United States government that reviews financial transactions to determine if they will result in a foreign person controlling a U.S. business. CFIUS specifically focuses on transactions and business combinations where foreign control will result in a threat to national security. It is chaired by the U.S. Treasury Department and draws members from agencies such as the Department of State and Department of Defense.

CFIUS has its roots in the Defense Production Act of 1950 but became more active after President Gerald Ford signed Executive Order 11858 in 1975.

Understanding the CFIUS

The U.S. government considers several industries as vital to the nation’s security, including many relating to defense technologies and advanced computing. CFIUS is used to review acquisitions of American firms to determine if a foreign country can negatively impact the ability of the nation to defend itself.

Since its inception, CFIUS has operated at the intersection of national security and major changes in technology, especially that of national economic security in light of a shifting global economic order that is marked in part by emerging economies such as China that are playing a more active role in the global economy. As a basic premise, the U.S. historical approach to international investment has aimed to establish an open and rules-based international economic system that is consistent across countries and in line with U.S. economic and national security interests. 

Following the economic disruption and uncertainty following the COVID-19 pandemic, President Biden has considered expanding the purview and reach of CFIUS in order to prevent future global pandemics from putting the American scientific and economic status at risk. In addition, this expanded role hones in on China, with that country's concentration of production of semiconductors and electronics products, along with the penetration of Chinese social media and internet companies in the United States (e.g. TikTok), of particular concern. CFIUS will also have larger authority in approving or preventing acquisitions and mergers between U.S. and foreign companies, especially in the technology and biotechnology sectors.

The Committee's Role

While foreign companies interested in purchasing a U.S.-based firm are not required to submit plans to CFIUS, the committee can review any transaction regardless of submission. CFIUS is required to investigate any potential merger or acquisition in which the firm seeking to take over is acting on behalf of a foreign government, especially if the U.S. firm operates in a sensitive industry.

The agencies involved in CFIUS have changed over time, following legislative adjustments. The President of the United States is the only CFIUS officer with the ability to suspend transactions and can order foreign companies to divest holdings in U.S. companies. 

A law called the Exon-Florio Provision allows the president to suspend or block the foreign acquisition of a U.S.-based company for reasons of national security. The Exon-Florio provision only allows for the acquisition to be blocked if there is clear evidence that the foreign acquiring party could threaten national security through its control of the acquired company and the provisions of law don't provide adequate authority for the U.S. to protect national security.

The January 2014 sale of Motorola Mobility by Google to Chinese computer corporation Lenovo did go through after being scrutinized by the committee, but in January 2018 the panel blocked Xcerra Corp.'s $580 million sale to a Chinese state-backed semiconductor investment fund. Canyon Bridge Capital Partners LLC, a U.S.-based private equity firm funded by the Chinese government, saw its $1.3 billion acquisition of U.S. chipmaker Lattice Semiconductor Corp collapse in 2017 after it was blocked by CFIUS. In 2018, President Trump blocked the proposed acquisition of Qualcomm by China's Broadcom.