What is CFIUS?

Comes now, the news that Tsinghua, a Chinese tech company, has abandoned its $3.8 billion plan to become the largest shareholder in the U.S. data storage group, Western Digital.[1] Two months into 2016, this marks already the second time this year that a planned Chinese investment in a tech company has collapsed.[2]  In both cases, the precipitant has been the threat of action by the Committee on Foreign Investment in the United States (CFIUS).[3]

CFIUS, created by an Executive Order issued by President Ford in 1975, operates, according to a legislative report, “in relative obscurity.”[4]  Yet it is charged with a vital purpose:  to review transactions that might confer control of an existing company by a foreign interest – purportedly, to determine the prospective effect of such deals “on the national security of the United States.”[5] CFIUS was initially established in response to concern about increasing investment in American portfolio assets (Treasury securities, corporate stocks and bonds) by the Organization of Petroleum Exporting Countries (OPEC) countries.[6]

Chaired by a representative of the US Treasury and based in that Department, CFIUS is composed entirely of delegates selected from the Executive Branch.[7] It operates within the military-corporate nexus. The U.S. Department of Treasury states that “if CFIUS finds that a covered transaction presents national security risks and that other provisions of law do not provide adequate authority to address the risks, then CFIUS may enter into an agreement with, or impose conditions on, parties to mitigate such risks or may refer the case to the President for action.”[8] The mere threat of a CFIUS review often has been sufficient to put an end to an intended investment.

Which are the criteria that CFIUS relies upon to render its determinations?  What sorts of documentation does it deem to be dispositive? Does it adhere to due process procedures and norms of democratic accountability?  What conception of “security” does it follow? [9]   Why, in short, does CFIUS exist?  In the absence of answers to these basic questions, we are forced to rely on accessible documentation.

CFIUS is obligated to report to Congress annually.  However, full discussion of its activities remains secret:  only redacted versions are available to the public, and these are substantially belated.  From its most recent report, filed in 2015[10] but detailing its activities between 2009 and 2013, we glean that companies filed 480 notices of transactions that CFIUS determined were covered by its mandate. Among these, CFIUS investigated forty percent of the deals that entered its system – 193 transactions.  Its targets came from a range of industries.  More than one-third of them involved manufacturing; and an additional one-third covered companies based in finance, information, or services.  The computer and electronics subsector made up the largest portion of manufacturing notices; and the bulk of finance, information and services notices (over two-thirds of them) originated in professional, scientific and technical services – notably, computer system design; telecommunications; publishing; and data processing.  Acquisitions by investors from China accounted for the largest single share of CFIUS notices – though its attention was also drawn to transactions involving investors based in Britain, Japan, France, Canada, and Germany. Telecommunications, software, and technology transactions were among those sectors for which CFIUS’s review resulted in legally binding mitigation measures in 2013.[11]

What may we conclude?  Demonstrably, CFIUS is a major U.S. policymaker – meriting far more critical scrutiny than it has obtained.  Equally certain, CFIUS has granted a high priority to deal-making within the international information industry.  As those who keep up with the Information Observatory will recognize, information constitutes a rare growth pole in today’s depressed world economy; and CFIUS’s job has seemingly come to involve an effort to ensure that U.S. business interests retain a pole position with respect to this industry within the U.S. market.  No less evident, finally, CFIUS has been targeting China.  Going forward, the global contest to appropriate profits from information is all but certain to involve China more and more – and, again, CFIUS intends that the U.S. should retain its advantages.  CFIUS actually has played a significant background role in US tech policy for years.  The Internet equipment maker Huawei’s repeated unsuccessful attempts to penetrate the US market for network gear testify to its effectiveness.

A Committee on U.S. Foreign Investment, that is, on U.S. companies’ own deal-making outside the United States, might possess much greater relevance for the actual security of the U.S. populace than CFIUS. Under present political circumstances, of course, the establishment of such an agency seems unthinkable.  Circumstances, however, may change.

[1] Arash Massoudi, James Fontanella-Khan and Shawn Donnan, “Tsingua Pulls Western Digital Deal over US Scrutiny Fears,” Financial Times,  February 24, 2016.

[2]  See Don Weinland, Arash Massoudi and James Fontanella-Khan, “China deals collapse amid regulatory fears,” Financial Times, February 17, 2016,

[3] See James K. Jackson, The Committee on Foreign Investment in the United States (CIFUS), Congressional Research Services, February 19, 2016.

[4] Ibid.

[5] U.S. Department of the Treasury, “The Committee on Foreign Investment in the United States (CFIUS).”

[6] Jackson, “The Committee on Foreign Investment.”

[7] Consists of nine members: the Secretaries of State, Treasury, Defense, Homeland Security, Commerce, and Energy, the Attorney General, the United States Trade Representative, and the Director of the Office of Science and Technology Policy.

[8] Treasury Department, “Process Overview.”

[9] According to one legal scholar, “Neither the statute nor the implementing regulations provide a definition of “national security,” but they do contain a non-exhaustive list of factors that may be considered when determining whether a threat to national security exists. These factors include domestic production needed for projected national defense requirements, the capability and capacity of domestic industries to meet national defense requirements, the control of domestic industries and commercial activity by foreign citizens as it affects the capability and capacity of the United States to meet national security requirements, the potential effects of an acquisition on sales of military goods, equipment, or technology to countries supporting terrorism or raising proliferation concerns, and the potential effects on U.S. technological leadership in areas affecting national security.”  See George Stephanov Georgiev, “The Reformed CFIUS Regulatory Framework: Mediating Between Continued Openness to Foreign Investment and National Security,” Yale Journal on Regulation (25), 2008: 127-28.

[10] Committee on Foreign Investment in the United States, “Foreign Investment in the United States: Annual Report to Congress,” Issued February 2015.

[11] Ibid.

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