The Committee on Foreign Investment in the United States (CFIUS) is an interagency working group under the Treasury Department that reviews inbound FDI transactions. CFIUS makes recommendations to the president, who may block deals deemed to threaten national security. 

CFIUS examines the national security implications of large-scale foreign commerce acquisitions in the defense, technology, transportation, energy, and telecommunications sectors and may also review banking and agricultural transactions. 

The 12-person board is headed by the Secretary of the Treasury and asks to be notified of all mergers, acquisitions, and takeovers involving foreign companies. It has 30 days to review the case and either approve it or conduct an investigation over the subsequent 45 days. CFIUS then submits a report to the president on whether it believes giving control of crucial assets to a foreign entity would threaten national security. After 15 days, the president allows, suspends, or blocks the transaction. 

CFIUS is now required to investigate any transaction that could pose a national security threat or involves a foreign government.

Although this basic structure has been extant since 1988, CFIUS has seen recent changes in protocol. Following the 2006 controversy over United Arab Emirates–owned DP World’s bid to acquire six U.S. ports (which CFIUS approved), Congress passed the Foreign Investment and National Security Act (FINSA) in 2007. It requires CFIUS to investigate any transaction that either could pose a national security threat or involves a foreign government. Congress now monitors the progress of the investigation. 

Between 1988 and 2005, CFIUS only investigated 25 companies and blocked one company’s transaction (although several transactions folded during investigation). After the DP World controversy, CFIUS investigated 147 cases in 2007, formally blocking none but spurring nine companies to withdraw their bids. In 2008, Huawei  Technologies—a company with ties to the Chinese military—responded to CFIUS pressure and reconsidered an offer to buy a stake in 3Com, an American technology firm. 

Critics claim that the committee hinders foreign investment, either by making foreign investors wary of market interference or by slowing down transactions through reviews and investigations. They also argue that the inherent nature of CFIUS discriminates against foreign investors and distorts company values during transactions. Critics also say that other countries will pass retaliatory legislation if CFIUS becomes more aggressive, thus creating free-market barriers. 

Mihir Desai is a professor of business administration at Harvard Business School and a research associate at the National Bureau of Economic Research. Nihar Shah is an undergraduate at Harvard College.