Foreign Investment and National Security

The U.S. economy has historically been the largest recipient of foreign direct investment in the world—it received $373 billion in such investment in 2016.  This investment can often be beneficial to the economy.  However, ensuring that these foreign investments do not harm national security can be a challenge.

So, how does the federal government review foreign mergers and acquisitions that may pose national security risks? And what kinds of risks are we talking about?

Today’s Watchblog explores.

The Committee

The Committee on Foreign Investment in the United States (CFIUS)—led by the Department of Treasury—is a federal interagency group that reviews foreign acquisitions and mergers of U.S. businesses for national security concerns. Some of these transactions could result in a foreign government controlling a technology or business that is critical to national security (such as emerging technology).

If CFIUS finds a national security concern, it may work with parties to the transaction to mitigate its concerns, such as ensuring that only authorized persons have access to certain technologies. In rare cases, CFIUS may recommend that the President block or suspend a transaction. U.S. Presidents have blocked five acquisitions since CFIUS was established in 1975—including Singapore-based Broadcom’s bid to acquire Qualcomm earlier this year.

Stories about the proposed Qualcomm takeover and other China trade stories have received significant media attention this year. Congress just passed a bipartisan bill to modernize and expand CFIUS.

The workload

We found that the number of transactions CFIUS reviewed have already increased 55 percent between 2011 and 2016 (from 111 transactions to 172 transactions), with only an 11% increase in staff.

Figure showing total number of CFIUS member agency staff assigned to CFIUS activities, compared to the number of transactions reviewed, 2011-2016

Federal officials said that the complexity of CFIUS reviews has also increased in recent years, and that additional time and staff have been required to complete these reviews. For instance, one official told us that reviews of transactions from companies that use new and emerging technologies, such as artificial intelligence and robotics, typically require extra time and attention.

The future

Federal officials said they are worried that CFIUS staff levels may not be able to keep up with an increasing (and increasingly complex) workload.

We recommended that Treasury get a better understanding of the staffing levels needed to address the current and projected CFIUS workload. Without this information, CFIUS may be limited in its ability to make recommendations to allow or block transactions that threaten national security.

Want to know more? Check out the full report.

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Just Facts

A lot of time and attention to detail goes into every one of GAO’s non-partisan, fact-based reports. As a result, there may be a lot of interesting nuggets buried in each PDF, on page 10, 100, or even 300. We’d like to free those facts.

So starting today on the @USGAO Twitter account, we’ll start pulling some of those facts out and sending them off as part of our daily “Just Facts” series. You can look forward to one fact a day, every weekday morning.

Each year, we issue around 700-1,000 new reports and testimonies that investigate federal spending and performance—and help hold the federal government accountable. So there are a lot of facts to choose from and if they interest you, you can always read more.

For example, did you know…?

GAO Fact Card
GAO Fact Card
GAO Fact Card
Follow us on Twitter to hear about our latest reports and news—and keep up with #JustFacts.

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Is The Regulatory Environment Stifling Financial Innovation?

Financial regulatory oversight in the United States is complex and fragmented, with different rules across multiple regulators at both the federal and state level. And, while this is true for all financial institutions, new entrants known as financial technology (fintech) firms noted additional difficulty identifying the applicable laws and how their activities will be regulated.

Today’s WatchBlog explores our latest fintech report, particularly how the government oversees these products and services.  Listen to our podcast, then read on for more.

How do agencies regulate fintech?

Fintech refers to the use of technology and innovation to provide financial products and services—including payments, lending, wealth management, and distributed ledger technology. We’ve looked at benefits, risks, and protections for fintech users. And when it comes to oversight, fintech firms—often technology companies that aren’t financial firms—are regulated based on the types of activities they conduct. For example:

  • Robo-advisers (firms offering low cost investment advice provided solely by algorithms instead of people) are generally subject to the same federal oversight as traditional investment advisers.
  • Fintech firms that partner with banks and credit unions may be subject to indirect or limited federal oversight.
  • Some fintech firms may be subject to routine oversight by the Consumer Financial Protection Bureau, and Treasury’s Financial Crimes Enforcement Network (FinCEN) has authority to examine any fintech firms conducting money transmission.
  • Some fintech firms, such as certain payments providers, may not be subject to federal financial oversight if they do not meet the definition of a regulated business.

However, fintech firms that are not subject to routine federal oversight are generally subject to state oversight, such as licensing requirements and examinations of licensed payments and lending firms or other fintech firms that partner with banks. Also, federal regulators have taken enforcement actions against fintech firms that violate specific laws and regulations within their jurisdictions.

Does regulation pose challenges to fintech firms?

Fintech firms told us that complying with U.S. regulations is time-consuming and expensive, which can be a big burden for new firms. According to these firms, learning which laws and regulations apply can be difficult. Fintech payment services and lending firms also told us that they have to obtain licenses in each state in which they operate, which may cost $1 million to $30 million, and often cooperate with state regulators on multiple state exams per year.

Although these challenges are not unique to fintech firms, they may be more significant. Some existing regulations were developed before the types of products and services fintech firms now offer existed, which makes interpreting how regulations apply to fintech firms more challenging. Further, fintech firms generally seek to operate nationwide from their inception, which immediately requires licenses in all states and generates higher up-front compliance costs that may strain limited venture capital funding.

How can regulators help?

Federal and state regulators are taking steps to address these concerns. For example, federal regulators have issued rules and guidance to clarify requirements for fintech providers, the Office of the Comptroller of the Currency is considering a special purpose national charter for fintech firms, and state regulators are taking steps to standardize and coordinate oversight.

However, many market participants and observers think that better federal interagency collaboration could further improve fintech regulation and encourage innovation. Federal agencies collaborate on a variety of efforts to address fintech generally, as well as on specific topics like payments, lending, and account aggregation.

But these collaborative efforts do not always follow leading practices that can make them more effective. We recommended that federal agencies include all relevant participants, define desired outcomes, and clarify agency roles and responsibilities as they collaborate on regulating fintech.

To learn more, check out our full report, as well as our prior blog posts on fintech and small businesses, and virtual currencies.

  • Questions on the content of this post? Contact Lawrance L. Evans, Jr. at
  • Comments on GAO’s WatchBlog? Contact
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July Podcast Roundup – Podcasts You May Have Missed

Image of Watchdog Report LogoWe’ve been busy podcasting this summer!  And if you’re not subscribed on iTunes or our RSS feed, you’re missing out. Today’s WatchBlog catches you up on some of our recent podcasts.

Summer Meals Programs: During the school year, federal and other programs help provide meals to children from low-income families, and most of those meals are eaten on-site at schools. But as schools close for summer recess, losing a centralized place to give the meals is just one of the challenges these programs face. Hear Kathy Larin, a director in our Education Workforce and Income Security team, talk about our report on the Summer Food Service Program:


Photos Showing Children Eating Breakfast and Playing Ball at Summer Meal Sites

DOD’s CFIUS Role: The Committee on Foreign Investment in the United States is made up of federal agencies tasked with reviewing the national security implications of business deals with American companies with foreign involvement or ownership. The Department of Defense is a member of this committee, and Marie Mak, a director in GAO’s Contracting and National Security Acquisitions team, discusses our report on the challenges DOD faces in its CFIUS role:


Photograph of the Pentagon

IRS Authentication Efforts: In the wake of large-scale data breaches, hacks, and cyberattacks affecting both private and government organizations, the IRS must ensure they are dealing with actual taxpayers—not fraudsters—and stay current in a changing cyber environment. Listen to Jay McTigue, a director in our Strategic Issues team, talk about our report on IRS taxpayer authentication efforts:


Photograph of Jay McTigue

Keep an ear out for our next podcasts to keep up with the latest GAO interviews on significant issues and new reports.

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Medicare’s Financial Check-Up (video)

Thumbnail Health CareNearly 60 million elderly and disabled people count on Medicare for health care coverage. Without the program, they and their families could be responsible for billions of dollars of health care costs.

Medicare spent about $700 billion in 2017 and this amount is expected to grow substantially over time because the population is aging and health care costs are rising. What does that mean for Medicare’s long-term financial health? The video below shows the results of a “check-up” of the Medicare program based on findings from the Medicare Trustees’ June 2018 report and previous GAO work.

What can be done to improve Medicare’s financial health?

Further actions to ensure the program’s integrity and reduce improper payments could help. For example, we’ve recommended that the Centers for Medicare & Medicaid Services improve its audit process and help prevent improper payments by requiring prior authorization for certain services and taking steps to review claims more thoroughly before payments are made.

We have also highlighted the need for continued payment reform—how Medicare pays  hospitals, doctors and other medical providers and rewards them for quality care. For example, we recently recommended that Medicare change the way it pays for certain hospital inpatient and outpatient services to ensure that the program does not overspend for these services. In addition, Medicare has begun to transition from paying providers for the volume of services provided to paying for the quality and efficiency of care. As CMS makes this change, it will need to continue considering how to best measure the quality of care patients receive and how to better align health quality measures across public and private payers.

To learn more about the challenges facing Medicare, our recommendations to help, as well as our key reports on the issue, check out our Medicare High Risk area.

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Protecting Federal Whistleblowers

Photo of a whistleFederal whistleblowers—current, former, and prospective federal employees who allege wrongdoing—play a key role in saving taxpayer money and reducing fraud, waste, and abuse in the federal government. The Office of Special Counsel (OSC) is an independent body that reviews whistleblowers’ claims to see if they warrant a full investigation by the agency in question.

For National Whistleblower Day, today’s WatchBlog  explains how OSC reviews allegations of potential wrongdoing by federal agencies.

Continue reading

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Cybersecurity—New Risks and Threats

Tax ID theft, paying taxesPicture this:

  • Atlanta’s municipal information system was hit with a cyberattack that prevented customers from accessing multiple applications, including paying bills and viewing court-related information.
  • The Department of Justice reported indicting nine Iranians for a massive cybersecurity theft campaign on behalf of the Islamic Revolutionary Guard Corps. They allegedly stole more than 31 terabytes of documents and data from more than 140 American universities, 30 U.S. companies, 5 federal government agencies, and others.
  • A breach at Equifax resulted in the loss of personally identifiable information for an estimated 148 million U.S. consumers. According to Equifax, the hackers accessed people’s names, Social Security numbers, birth dates, addresses and, in some instances, driver’s license numbers.

Seems like a lot of cybercrime, doesn’t it? These were just the headlines from this past year.

Today’s WatchBlog highlights the testimony of U.S. Comptroller General Gene Dodaro on cybersecurity challenges that urgently require federal action. Continue reading

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How Can We Reorganize the Government Effectively?

Photo of the U.S. CapitolOn June 21, 2018, the administration released a plan to reorganize the federal government and improve efficiency and effectiveness. The Office of Management and Budget had earlier required agencies to develop proposals to improve performance, increase accountability, and reduce the size and cost of the federal workforce. But similar reform efforts in the past haven’t always succeeded.

We recently reported on the kind of questions Congress should ask to determine if federal agencies are on the right track in terms of reorganization efforts—and today’s WatchBlog explores. Continue reading

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Ensuring Balanced Financial Regulation

Photo of a business personCongress passed the Dodd-Frank Act 8 years ago in response to the worst financial crisis in more than 75 years. In May of this year, Congress passed the Economic Growth, Regulatory Relief, and Consumer Protection Act. Both the new law and the Dodd-Frank Act authorized or directed federal agencies to issue regulations that were aimed at improving financial regulation.

Generally, when agencies draft or implement regulations, they are required to analyze the potential impact of those regulations on small entities—such as community banks and credit unions. Today’s WatchBlog looks at our recent work on how regulators have been meeting the requirements to maintain a level playing field for small entities. Continue reading

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Updating Government Auditing Standards – The 2018 Yellow Book

Image of the U.S. GAO Yellow BookToday we issued a new revision of the Generally Accepted Government Auditing Standards, also known as the “Yellow Book,” which supersedes the 2011 revision of the standards.

What kind of training and experience make a competent auditor? How is audit quality control to be maintained? How can an auditor tell if he or she has come across material waste and abuse?

The Yellow Book has answers to these questions. Continue reading

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