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The President has signed into law the National Security Foreign Investment Reform and Strengthened Transparency Act of 2007 (the Act), which amends the Exon-Florio Act (which itself amended the Defense Production Act of 1950).

Overall, the primary effect of the new legislation, signed into law on July 26, 2007, is to codify and clarify the current procedures and practices (based on Department of Treasury regulations) of “review” and “investigation” by the Committee on Foreign Investment in the United States (CFIUS) of acquisitions of “U.S. persons” by “foreign persons.”

A few noteworthy elements have been added to the existing notification-and-review regime:

The Act confirms that the purpose (and, significantly, the sole purpose) of the notification, review and investigation of acquisitions by foreign persons is to detect and protect against threats to the national security, including the homeland security.

The Act identifies two express factors (not previously specified in the regulations) that will trigger concern that an acquisition may pose a threat to national security:

a) acquisitions of control over “critical infrastructure” and

b) acquisitions of control over “critical technologies.”

(The Act also specifically identifies “foreign government-controlled transactions” as potentially posing threats to national security, but this factor is already well established in the current regulation-based CFIUS review.)

The Act now provides for an automatic and immediate (45-day) investigation of a transaction if it:

1. threatens to impair the national security;
2. is a foreign government-controlled transaction; or
3. would result in foreign control of products, services, or technology that involve critical infrastructure or critical technologies.

Parties can no longer unilaterally withdraw voluntary notices; they now need to submit a written request to CFIUS for approval.

The Act calls for CFIUS to promulgate new regulations to establish uniform procedures for

1. voluntary notice by parties; 
2. requests for withdrawal of voluntary notice; and 
3. CFIUS notice to parties of the results of its reviews and investigations.

Few substantive changes appear in the Act to the ways that the CFIUS currently conducts Exon-Florio reviews, but the Act has added several important new factors for foreign would-be acquirers to consider in deciding whether to submit the still-voluntary notifications. As noted, the Act now requires a second-phase 45-day investigation if a target is involved in critical US infrastructure or critical US technologies. Although definitions of these critical assets are provided, the definitions are still vague enough to leave acquirers uncertain as to whether a particular acquisition would receive heightened scrutiny. Except for specifying “major energy assets,” the meaning of critical infrastructure is left unclear: “systems and assets . . . so vital to the United States that the incapacity or destruction of such systems or assets would have a debilitating impact on national security.” It is possible that CFIUS will provide greater clarity and guidance in future regulations.

The regulations themselves may present new considerations for would-be acquirers. If the new regulations to establish standardized procedures for voluntary notification approach the complexity and rigidity of the Hart-Scott-Rodino regulations, parties may face significantly increased costs of regulatory compliance.

The Act retains the current 30-day period for CFIUS initial reviews, but there are several new considerations. For one, the review period only begins when CFIUS “accepts” a voluntary notification, not (necessarily) the next business day following submission. For another, the Act formalizes the participation of the Director of National Intelligence in the initial review, requiring the DNI to provide his/her views on the threat to national security 20 days after the 30-day period begins; the 20-day timetable for the participation of this high-level official could make CFIUS grants of “early termination” of the 30-day review period in noncontroversial transactions less likely.

Finally, the Act clarifies that CFIUS clearance of a voluntary notified acquisition does not guarantee that the transaction will never be revisited or challenged after consummation. Under certain new or newly discovered conditions, an Exon-Florio review can be reopened post-closing, and at that point all actions by the President to protect against national security threats are preserved.

The Act becomes effective 90 days from the date of enactment (July 26, 2007) and the new regulations must be promulgated 270 days from the date of enactment.