Alert January 29, 2008

President Bush Issues Amendment to Executive Order Regarding National Security Reviews of Foreign Acquisitions of Control of U.S. Businesses

President Bush issued an amendment (the “Amendment”) to Executive Order 11858 to provide procedures for implementation of the Foreign Investment and National Security Act of 2007 (“FINSA”).  FINSA, effective on October 24, 2007, strengthened national security reviews of foreign acquisitions of control of U.S. businesses and authorized the President to take remedial actions as necessary to address any potential national security threats.  FINSA amended the requirements in Section 721 of the Defense Production Act of 1950 (the “Exon-Florio Statute”), under which, in recent years, the President has vetted foreign direct investments.  The Amendment comes after a number of sovereign wealth funds, or government-controlled funds, agreed to take billion-dollar stakes in major U.S. financial institutions, such as Citigroup and Merrill Lynch. 

The Amendment provides a detailed description of the operation of President Bush’s delegatee, the inter-agency Committee on Foreign Investment in the United States (“CFIUS”) and the process for review of foreign acquisitions.  Among other things, the Amendment outlines more clearly the role of the director of national intelligence (the “DNI”) in providing CFIUS with threat assessments posed by a foreign transaction involving a U.S. company and how CFIUS will keep Congress informed of its decisions.  The Amendment also provides that CFIUS may impose conditions on a transaction to address any potential national security risks after a threat analysis by the DNI, including the use of “mitigation agreements” designed to reduce national security risks as a condition for CFIUS or presidential approval.  The order also enhances FINSA investigation requirements by requiring an investigation whenever any member of CFIUS believes that a transaction threatens national security.  Regulations to carry out FINSA are still being written by the Treasury Department, as provided in the Amendment, and are expected to be finalized by the end of April.