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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