United States Government Accountability Office

GAO Testimony before the Committee on

Homeland Security, Subcommittee on 

Transportation Security and Infrastructure 

Protection, House of Representatives

DEFENSE TRADE 

National Security Reviews 

of Foreign Acquisitions of 

U.S. Companies Could Be 

Improved 

Statement of Ann M. Calvaresi-Barr, Director 

Acquisition and Sourcing Management 

For Release on Delivery

Expected at 10:00 a.m. EDT 

Friday, March 23, 2007 

 

GAO-07-661T 
What GAO Found

United States Government Accountability Office

Why GAO Did This Study

Highlights

Accountability Integrity Reliability

March 23, 2007

DEFENSE TRADE

National Security Reviews of Foreign 

Acquisitions of U.S. Companies Could Be 

Improved 

Highlights of GAO-07-661T, a testimony 

before the House Committee on 

Homeland Security, Subcommittee on 

Transportation Security and Infrastructure 

Protection 

The Exon-Florio amendment to the 

Defense Production Act of 1950, 

enacted in 1988, authorized the

President to suspend or prohibit 

foreign acquisitions of U.S. 

companies that pose a threat to

national security. 

The Committee on Foreign 

Investment in the United States—

chaired by the Department of

Treasury with 11 other members,

including the Departments of 

Commerce, Defense, and 

Homeland Security—implements 

Exon-Florio through a four-step

review process: (1) voluntary 

notice by the companies of pending 

or completed acquisitions; 

(2) a 30-day review to determine 

whether the acquisition could pose 

a threat to national security; 

(3) a 45-day investigation period to

determine whether concerns

require possible action by the 

President; and (4) a presidential

decision to permit, suspend, or

prohibit the acquisition. 

Over the past decade, GAO has 

conducted several reviews of the 

Committee’s process and has found 

areas where improvements were

needed. GAO’s most recent work,

conducted in 2005, indicated 

concerns remained. 

What GAO Recommends

In 2005, GAO offered several 

matters for Congressional 

consideration aimed at improving 

the Committee’s process. The

Committee has taken some actions

to reform the process, but GAO has 

not examined these actions. 

Exon-Florio reviews are meant to serve as a safety net when other laws may 

be inadequate to protect national security. GAO found that several aspects of 

the review process may have weakened the law’s effectiveness. First, 

member disagreement about what defines a threat to national security may 

have limited the Committee’s analyses. Some argued that reviews should be 

limited to concerns about export-controlled technologies or items, classified 

contracts, or specific derogatory intelligence concerning the company. 

Others argued for a broader scope, one that considers potential threats to 

U.S. critical infrastructure, defense supply, and technology superiority. 

Committee members also differed on the criteria that should be used to 

determine when an investigation is warranted. Some applied essentially the 

criteria in the law for a presidential decision—that is, there is credible 

evidence that the foreign controlling interest may take action that threatens 

national security and that no other laws other than the International 

Emergency Economic Powers Act are adequate to protect national security. 

Others argued that these criteria are inappropriate because the purpose of 

an investigation is to determine if credible evidence of a threat exists. 

While most cases can be completed within the 30-day review period, 

complex acquisitions may require more time. Concerned that an

investigation could discourage foreign investment, the Committee allowed 

companies to withdraw notifications rather than proceed to investigation. 

While this practice can provide additional review time without chilling 

foreign investment, it may also heighten the risk to national security in 

transactions where there are concerns and the acquisition has been 

completed or is likely to be completed during the withdrawal period. Finally, 

because few cases are investigated, few require a presidential decision, 

giving Congress little insight into the Committee’s process.

The Committee on Foreign Investment in the United States’ Review Process 

Company 

withdraws filing

Committee decides

not to investigate

15 days for 

presidential 

decision

Report to 

Congress

45-day 

investigation

Company 

voluntarily files

notification

Company 

withdraws filing

30-day

review Committee 

decides to 

investigate

Committee 

recommends

to the 

President

Source: GAO analysis based on 50 U.S.C. app. § 2170 and 31 C.F.R. Part 800 and case file reviews.

President decides not 

to take action, or to 

suspend or prohibit 

the transaction or 

order divestiture

www.gao.gov/cgi-bin/getrpt?GAO-07-661T.

To view the full product, including the scope 

and methodology, click on the link above. 

For more information, contact Ann CalvaresiBarr (202) 512-4841 or 

calvaresibarra@gao.gov. 
Madam Chairwoman and Members of the Subcommittee: 

I am pleased to be here today to take part in this hearing on issues related 

to foreign ownership of U.S. assets and potential effects on national 

security. As you know, U.S. export control laws, national disclosure 

policy, the National Industrial Security Program, and other processes and 

programs have been established to protect defense technologies and other

critical assets from falling into the wrong hands, and for other reasons. 

Similarly, the Exon-Florio amendment to the Defense Production Act of 

1950,

1

 enacted in 1988, authorized the President to suspend or prohibit 

foreign acquisitions, mergers, or takeovers2

 of U.S. companies that pose a 

threat to national security. Exon-Florio is meant to serve as a safety net 

when laws other than the International Emergency Economic Powers Act3

may be ineffective in protecting national security.

Exon-Florio is administered by the Committee on Foreign Investment in 

the United States, currently made up of 12 members: the Department of 

the Treasury, which serves as Chair; the Departments of Commerce, 

Defense, Homeland Security, Justice, and State; and six offices in the 

Executive Office of the President. On the surface, the Exon-Florio review 

process is fairly straightforward. According to regulations, after a 

company voluntarily files a notice of a pending or completed acquisition 

by a foreign concern, the Committee conducts a 30-day review to 

determine whether there are any national security concerns. If the 

Committee is unable to complete its review within 30 days, the Committee 

may either allow the companies to withdraw the notification and refile or 

initiate a 45-day investigation. If a case undergoes an investigation, the 

Committee submits a report to the President, including a recommendation 

for action. Cases that result in a presidential decision are reported to the 

Congress. 

 1

50 U.S.C. app. § 2170. 

2

In the remainder of this statement, acquisitions, mergers, and takeovers are referred to as

acquisitions. 

3

The International Emergency Economic Powers Act gives the President broad powers to

deal with any “unusual and extraordinary threat” to the national security, foreign policy, or

economy of the United States (50 U.S.C. §§ 1701-1706). To exercise this authority, however,

the President must declare a national emergency to deal with any such threat. Under this 

legislation, the President has the authority to investigate, regulate, and, if necessary, block

any foreign interest’s acquisition of U.S. companies (50 U.S.C. § 1702(a)(1)(B)). 

Page 1 GAO-07-661T 
As requested, my comments today will summarize our reports on 

weaknesses in the Exon-Florio process that GAO has identified over the 

past decade. Before I begin, however, it is important to provide some 

context to Exon-Florio. Specifically, implementing Exon-Florio can pose a 

significant challenge for the federal government because of the potential

for conflict with U.S. open investment policy—a policy that, in recognizing 

the economic benefits associated with foreign investments, calls for 

foreign investors to be treated no differently than domestic investors. This 

challenge has increased significantly since September 2001, when threats 

facing the nation were fundamentally redefined to include threats against 

the homeland, including those to our critical infrastructure. At the same 

time, the economy has become increasingly globalized, as countries open 

their markets and communicate regularly through the Internet. 

Government programs established decades ago are often ill-equipped to 

grapple with these emerging complexities. GAO, therefore, designated the 

effective identification and protection of critical technologies as a 

governmentwide high-risk area, which warrants a strategic reexamination 

to identify needed changes.4

 In terms of Exon-Florio, legislation has been 

introduced to reform the Exon-Florio process. 

Our understanding of the Committee’s process is based on our 2005 work 

but built on our review of the process and our discussions with agency 

officials for our 2002 report. For our 2005 review, and to expand our 

understanding of the Committee’s process for reviewing foreign 

acquisitions of U.S. companies, we met with officials from the 

Departments of Commerce, Defense, Homeland Security, Justice, and the

Treasury—the agencies that are most active in the review of acquisitions—

and discussed their involvement in the process. Further, we conducted 

case studies of nine acquisitions that were filed with the Committee 

between June 28, 1995, and December 31, 2004. We conducted our review 

from April 2004 through July 2005 in accordance with generally accepted 

government auditing standards. 

To summarize our work in this area, we have found that several aspects of

the Committee’s process for implementing Exon-Florio may have 

weakened the law’s effectiveness. First, we found a lack of agreement 

among Committee members about the scope of Exon-Florio—specifically, 

what defines a threat to national security. Neither the statute nor the 

implementing regulation defines “national security.” However, the statute 

 4

High Risk Series: An Update, GAO-07-310 (Washington D.C.: Jan. 2007). 

Page 2 GAO-07-661T 
provides factors that may be considered in determining threats to national 

security. Despite these factors, some Committee members argued to apply 

a more traditional definition—one limited to concerns about exportcontrolled technologies or items, classified contracts, and the existence of

specific derogatory intelligence on a foreign company. Other Committee 

members have argued that a broader view is warranted, and in analyzing

the effects of an acquisition, considered the potential vulnerabilities that 

an acquisition can create with regard to U.S. critical infrastructure, 

defense supply, and defense technology superiority. These disagreements 

may have limited the Committee’s analyses of proposed or completed 

acquisitions.

Second, Committee members also had differing opinions on the criteria 

that should be used to determine whether an investigation was warranted. 

The criteria used by Treasury as the Committee Chair and others were 

essentially the same criteria established in the current law for the 

President to suspend or prohibit a transaction, or order divestiture—that 

is, there is credible evidence that the foreign controlling interest may take 

action that threatens national security and that no laws other than ExonFlorio and the International Emergency Economic Powers Act are 

adequate to protect national security. Some Committee members have 

argued that applying these criteria is inappropriate because the purpose of

an investigation is to determine whether or not credible evidence of a

threat exists. 

Third, while most acquisitions are not problematic and the Committee’s 

review can be completed within the 30-day period allowed by Exon-Florio, 

some more complex acquisitions required more analysis or consideration 

than the 30-day review period could accommodate. However, the 

Committee has been reluctant to use the additional 45 days allowed by the 

legislation because it would require initiating an investigation. The 

Committee’s concern was that the negative perceptions surrounding an 

investigation could discourage foreign investment in the United States, 

thereby conflicting with U.S. open investment policy. To avoid

investigations, the Committee has in the past encouraged companies to 

withdraw their notifications of proposed or completed acquisitions and 

refile them at a later date. Between 1997 and 2004, companies involved in

18 acquisitions were allowed to withdraw their notification and refile at a 

later time. The new filing is considered a new case and restarts the 30-day 

clock. While withdrawing and refiling provides additional time for 

Committee members to review a foreign acquisition while minimizing the 

risk of chilling foreign investment, it may also heighten the risk to national

security in transactions where there are concerns and the acquisition has 

Page 3 GAO-07-661T 
been completed or is likely to be completed during the withdrawal period. 

This was the situation in 4 of the 18 acquisitions cited above. One company 

did not refile for 9 months, another did not refile for 1 year, and 2 had yet 

to refile at the time of our review.5

Finally, because very few cases required a presidential decision—the 

criterion for reporting to the Congress on specific cases—the Congress 

had little insight into the Committee’s process. Further, a 1992 amendment 

to the legislation requires a report to the Congress every 4 years on certain 

trends in foreign acquisitions. However, at the time of our work only one

report had been submitted, in 1994. I understand that another report, in 

response to that requirement, has been issued. 

Since our 2005 report, the Committee has taken some actions to reform 

the process, such as increasing communication to interested congressional 

committees. However, we have not examined how these changes are 

working. It should be noted that because the law provides for 

confidentiality of information filed under Exon-Florio, our ability to 

discuss details of cases we examined is limited. 

Enacted in 1988, the Exon-Florio amendment to the Defense Production 

Act authorized the President to investigate the effects of foreign 

acquisitions of U.S. companies on national security and to suspend or 

prohibit acquisitions that might threaten national security. The President

delegated investigative authority to the Committee on Foreign Investment 

in the United States, an interagency group responsible for monitoring and 

coordinating U.S. policy on foreign investment in the United States.6 Since 

the Committee’s establishment in 1975, membership has doubled, with the 

Department of Homeland Security being the most recently added member. 

In addition to the Committee’s 12 standing members, other agencies may 

be called on when their particular expertise is needed. 

Background 

 5

Given the immediacy of this hearing, we were unable to gather and verify data on the

disposition of these cases. However, even if the companies refiled subsequent to our 2005

reporting, the refilings were not timely. 

6

Executive Order 11858 (May 7, 1975), as amended by Executive Order 12188 (Jan. 2, 1980), 

Executive Order 12661 (Dec. 27, 1988), Executive Order 12860 (Sept. 3, 1993), and 

Executive Order 13286 (Feb. 28, 2003). 

Page 4 GAO-07-661T 
In 1991, the Treasury Department, as Chair of the Committee, issued 

regulations to implement Exon-Florio. The law and regulations establish a 

four-step process for reviewing foreign acquisitions of U.S. companies: 

(1) voluntary notice by the companies;7

 (2) a 30-day review to identify 

whether there are any national security concerns; (3) a 45-day 

investigation period to determine whether those concerns require a 

recommendation to the President for possible action; and (4) a 

presidential decision to permit, suspend, or prohibit the acquisition 

(see fig. 1). 

 7

Notification is not mandatory. However, any member agency is authorized to submit a

notification of an acquisition if the companies have not done so. As of our 2005 report, no 

agency has submitted a notification of an acquisition. Instead, member agencies have 

informed Treasury of acquisitions that may be subject to Exon-Florio, and Treasury has

contacted the company to encourage them to officially notify the Committee of the 

acquisition to begin a review. 

Page 5 GAO-07-661T 
Figure 1: Process Used by the Committee on Foreign Investment in the United

States to Implement the Exon-Florio Amendment 

Companies submit 

voluntary filing

(can be pre- or

post-acquisition)

Committee actions

completed and no 

national security 

concerns warrant 

investigation

30-day

review

45-day

investigation

President permits

acquisition by taking 

no action

President may suspend 

or prohibit transaction, 

or order divestiture or 

other action

15-day window for 

presidential decision

Companies

withdraw filinga

Committee 

recommendation to 

President

Report to

Congress

Companies

withdraw filinga

Decision to 

investigate

Source: GAO analysis based on 50 U.S.C. app. § 2170 and 31 C.F.R. Part 800 and case file reviews. 

a

At any point prior to a presidential decision, companies can request to withdraw a notification. 

In most cases, the Committee completes its review within the initial 

30 days because there are no national security concerns or concerns have

Page 6 GAO-07-661T 
been addressed, or the companies and the government agree on measures 

to mitigate identified security concerns. In cases where the Committee is 

unable to complete its review within 30 days, it may initiate a 45-day

investigation or allow companies to withdraw their notifications. The 

Committee generally grants requests to withdraw. When the Committee 

concludes a 45-day investigation, it is required to submit a report with 

recommendations to the President. If Committee members cannot agree 

on a recommendation, the regulations require that the report to the 

President include the differing views of all Committee members.8

 The 

President has 15 days after the investigation is completed to decide 

whether to prohibit or suspend the proposed acquisition, order divestiture 

of a completed acquisition, or take no action.9 Table 1 provides a 

breakdown of notifications and committee actions taken from 1997 

through 2004 (the latest date for which data were available at the time of 

our 2005 review). 

Table 1: Notifications to the Committee on Foreign Investment in the United States and Actions Taken, 1997 through 2004 

Year Notifications AcquisitionsaInvestigationsb

Notices 

withdrawn after 

investigation begun 

Presidential

decisions

1997 62 60 0 0 0

1998 65 62 2 2 0

1999 79 76 0 0 0

2000 72 71 1 0 1

2001 55 51 1 1 0

2002 43 42 0 0 0

2003 41 39 2 1 1

2004 53 50 2 2 0

Total 470 451 8 6 2c

Source: Department of the Treasury. 

a

Acquisitions that were withdrawn and refiled are shown in the year of initial notification. 

b

Investigations are shown in the year of their notification. 

c

In both cases the President took no action, thereby allowing the transaction, and sent a report to 

Congress. 

 8

31 C.F.R. § 800.504(b). 

9

In 1990, the President ordered a Chinese aerospace company to divest its ownership of a 

U.S. aircraft parts manufacturer. To date, this is the only divestiture the President has 

ordered. 

Page 7 GAO-07-661T 
Over the past decade, GAO has conducted several reviews of the 

Committee’s process and actions and has found areas where 

improvements were needed. In 2000, we found that gaps in the notification 

process raised concerns about the Committee’s ability to ensure 

transactions are notified.10 Our 2002 review, prompted by a lack of 

congressional insight into the process, again found weaknesses in the 

process. Specifically, we reported that member agencies could improve 

the agreements they negotiated with companies under Exon-Florio to 

mitigate national security concerns. We also questioned the use of 

withdrawals to provide additional time for reviews.11 While our most 

recent work indicated that member agencies had begun to take action to

respond to some of our recommendations, concerns remained about the 

extent to which the Committee’s implementation of Exon-Florio had 

provided the safety net envisioned by the law.12

In 2005, we reported that a lack of agreement among Committee members 

on what defines a threat to national security and what criteria should be 

used to initiate an investigation may have limited the Committee’s analyses

of proposed and completed foreign acquisitions. From 1997 through 2004, 

the Committee received a total of 470 notices of proposed or completed 

acquisitions,13 yet it initiated only 8 investigations. 

While neither the statute nor the implementing regulation defines “national 

security,” the statute provides a number of factors that may be considered

in determining a threat to national security (see fig. 2). 

Views Differed over 

What Constitutes a 

National Security 

Threat and When an 

Investigation Is 

Warranted

 10Defense Trade: Identifying Foreign Acquisitions Affecting National Security Can Be 

Improved, GAO/NSIAD-00-144 (Washington, D.C.: June 29, 2000). 

11Defense Trade: Mitigating National Security Concerns under Exon-Florio Could Be 

Improved, GAO-02-736 (Washington, D.C.: Sept. 12, 2002). 

12Defense Trade: Enhancements to the Implementation of Exon-Florio Could Strengthen

the Law’s Effectiveness, GAO-05-686 (Washington, D.C.: Sept. 28, 2005). 

13Nineteen of these notices were refilings. 

Page 8 GAO-07-661T 
Figure 2: Exon-Florio Factors That May Be Considered When Determining a Threat 

to National Security 

· Domestic production needed for projected national defense requirements.

· The capability and capacity of domestic industries to meet national defense 

 requirements, including the availability of human resources, products, 

 technology, materials, and other supplies and services.

· 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 the proposed or pending transaction on sales of military 

 goods, equipment, or technology to any country identified under applicable law 

as (a) supporting terrorism or (b) a country of concern for missile proliferation or

 the proliferation of chemical and biological weapons.

· The potential effects of the proposed or pending transaction on U.S. 

 international technological leadership in areas affecting national security.

Source: 50 U.S.C. app. § 2170(f).

Some Committee member agencies argued for a more traditional and 

narrow definition of what constitutes a threat to national security—that is, 

(1) the U.S. company possesses export-controlled technologies or items; 

(2) the company has classified contracts and critical technologies; or 

(3) there is specific derogatory intelligence on the foreign company. Other 

members, including the Departments of Defense and Justice, argued that 

acquisitions should be analyzed in broader terms. According to officials 

from these departments, vulnerabilities could result from foreign control 

of critical infrastructure, such as control of or access to information 

traveling on networks. Vulnerabilities can also result from foreign control 

of critical inputs to defense systems, such as weapons system software 

development

14 or a decrease in the number of innovative small businesses 

researching and developing new defense-related technologies. 

While these vulnerabilities may not pose an immediate threat to national 

security, they may create the potential for longer term harm to U.S. 

national security interests by reducing U.S. technological leadership in 

defense systems. For example, in reviewing a 2001 acquisition of a U.S. 

company, the Departments of Defense and Commerce raised several 

 14Defense Acquisitions: Knowledge of Software Suppliers Needed to Manage Risks, 

GAO-04-678 (Washington D.C.: May 25, 2004).

Page 9 GAO-07-661T 
concerns about foreign ownership of sensitive but unclassified technology, 

including the possibility of this sensitive technology being transferred to 

countries of concern or losing U.S. government access to the technology. 

However, Treasury argued that these concerns were not national security

concerns because they did not involve classified contracts, the foreign 

company’s country of origin was a U.S. ally, or there was no specific 

negative intelligence about the company’s actions in the United States. 

In one proposed acquisition, disagreement over the definition of national 

security resulted in an enforcement provision being removed from a 

mitigation agreement between the foreign company and the Departments 

of Defense and Homeland Security. Defense had raised concerns about the 

security of its supply of specialized integrated circuits, which are used in a 

variety of defense technologies that the Defense Science Board had 

identified as essential to our national defense—technologies found in 

unmanned aerial vehicles, the Joint Tactical Radio System, and 

cryptography and other communications protection devices. However, 

Treasury and other Committee members argued that the security of supply 

issue was an industrial policy concern and, therefore, was outside the 

scope of Exon-Florio’s authority. As a result of removing the provision, the 

President’s authority to require divestiture under Exon-Florio was 

eliminated as a remedy in the event of non-compliance.15

Committee members also disagreed on the criteria that should be applied

to determine whether a proposed or completed acquisition should be 

investigated. While Exon-Florio provides that the “President or the 

President’s designee may make an investigation to determine the effects 

on national security” of acquisitions that could result in foreign control of 

a U.S. company, it does not provide specific guidance for the appropriate 

criteria for initiating an investigation of an acquisition.16 At the time of our 

work, Treasury, as Committee Chair, applied essentially the same criteria 

established in the law for the President to suspend or prohibit a 

transaction, or order divestiture: (1) there is credible evidence that the

 15The regulations provide that the Committee may reopen its review or investigation 

and revise its recommendation to the President if it determines that the companies omitted 

or provided false or misleading material information to the Committee (31 C.F.R. 

§ 800.601(e)). 

1650 U.S.C. app. § 2170(a). Under the statute, investigations are mandatory in those cases in 

which the acquiring company is “controlled by or acting on behalf of a foreign government”

and the acquisition could result in control of the U.S. company and could affect the 

national security of the United States (50 U.S.C. app. § 2170(b)). 

Page 10 GAO-07-661T 
foreign controlling interest may take action to threaten national security 

and (2) no laws other than Exon-Florio and the International Emergency 

Economic Powers Act are adequate and appropriate to protect national 

security.17 However, the Defense, Justice, and Homeland Security 

Departments argued that applying these criteria at this point in the process 

is inappropriate because the purpose of an investigation is to determine 

whether or not credible evidence of a threat exists. Notes from a policylevel discussion of one particular case further corroborated these differing 

views. 

Committee guidelines required member agencies to inform the Committee 

of national security concerns by the 23rd day of a 30-day review—further 

compressing the limited time allowed by legislation to determine whether 

a proposed or completed foreign acquisition posed a threat to national 

security. According to one Treasury official, the information is needed a 

week early to meet the legislated 30-day requirement. While most reviews 

are completed in the required 30 days, some Committee members have 

found that completing a review within such short time frames can be 

difficult—particularly in complex cases. One Defense official said that 

without advance notice of the acquisition, time frames are too short to 

complete analyses and provide input for the Defense Department’s 

position. Another official said that to meet the 23-day deadline, analysts 

have only 3 to 10 days to analyze the acquisition. In one instance, 

Homeland Security was unable to provide input within the 23-day time 

frame. 

Committee Allowed 

Withdrawal of 

Notifications to Avoid 

Investigations 

If a review cannot be completed within 30 days and more time is needed to 

determine whether a problem exists or identify actions that would mitigate 

concerns, the Committee can initiate a 45-day investigation of the 

acquisition or allow companies to withdraw their notifications and refile at 

a later date.

18 According to Treasury officials, the Committee’s interest is 

to ensure that the implementation of Exon-Florio does not undermine U.S. 

open investment policy. Concerned that public knowledge of

investigations could devalue companies’ stock, erode confidence of 

foreign investors, and ultimately chill foreign investment in the United 

 1750 U.S.C. app. § 2170(e).

18Exon-Florio’s implementing regulations permit companies to request to withdraw

notifications at any time up to a presidential decision. After the Committee approves a 

withdrawal, any subsequent refiling is considered a new, voluntary notice. 

Page 11 GAO-07-661T 
States, the Committee has generally allowed and often encouraged 

companies to withdraw their notifications rather than initiate an 

investigation. 

While an acquisition is pending, companies that have withdrawn their 

notification have an incentive to resolve any outstanding issues and refile 

as soon as possible. However, if an acquisition has been concluded, there 

is less incentive to resolve issues and refile, extending the time during 

which any concerns remain unresolved. Between 1997 and 2004, 

companies involved in 18 acquisitions withdrew their notification and 

refiled 19 times. In four cases, the companies had already concluded the

acquisition before filing a notification. One did not refile until 9 months 

later and another did not refile for 1 year. Consequently, concerns raised 

by Defense and Commerce about potential export control issues in these 

two cases remained unresolved for as much as a year—further increasing 

the risk that a foreign acquisition of a U.S. company would pose a threat to 

national security. 

For the other two cases, neither company had refiled at the time we 

completed our work. In one case, the company had previously withdrawn 

and refiled more than a year after completing the acquisition. The 

Committee allowed it to withdraw the notification to provide more time to 

answer the Committee’s questions and provide assurances concerning 

export control matters. The company refiled, and was permitted to 

withdraw a second time because there were still unresolved issues. When 

we issued our report in 2005, 4 years had passed since the second 

withdrawal without a refiling. In the second case, the company—which 

filed with the Committee more than 6 months after completing its 

acquisition—was also allowed to withdraw its notification. At the time we 

issued our report, 2 years had passed without a refiling. 

In response to concerns about the lack of transparency in the Committee’s 

process, the Congress passed the Byrd Amendment to Exon-Florio in 1992, 

requiring a report to the Congress if the President made any decision 

regarding a proposed foreign acquisition. In 1992, another amendment also 

directed the President to report every 4 years on whether there was 

credible evidence of a coordinated strategy by one or more countries to 

acquire U.S. companies involved in research, development, or production 

of critical technologies for which the United States is a leading producer,

and whether there were industrial espionage activities directed or assisted 

by foreign governments against private U.S. companies aimed at obtaining

commercial secrets related to critical technologies. 

Lack of Reporting 

Contributed to the 

Opaqueness of the 

Committee’s Process 

and Diminished 

Oversight 

Page 12 GAO-07-661T 
While the Byrd Amendment expanded required reporting on Committee 

actions, few reports have been submitted to the Congress because 

withdrawing and refiling notices to restart the clock has limited the 

number of cases that result in a presidential decision. Between 1997 and 

2004, only two cases—both involving telecommunications systems—

resulted in a presidential decision and a subsequent report to the 

Congress. Infrequent reporting of Committee deliberations on specific 

cases provides little insight into the Committee’s process to identify 

concerns raised during investigations and determine the extent to which

the Committee has reached consensus on a case. Further, despite the 1992

requirement for a report on foreign acquisition strategies every 4 years, at 

the time of our work there had been only one report—in 1994. However, 

another report, in response to this requirement, was recently delivered to

the Congress. 

In conclusion, the effectiveness of Exon-Florio as a safety net depends on 

how the broad scope of its authority is implemented in today’s globalized 

world—where identifying threats to national security has become 

increasingly complex. While Exon-Florio provides the Committee on 

Foreign Investment in the United States the latitude to define what 

constitutes a threat to national security, the more traditional interpretation 

fails to fully consider factors currently embodied in the law. Further, the 

Committee guidance requiring reviews to be completed within 23 days to

meet the 30-day legislative requirement, along with the reluctance to 

proceed to an investigation, limits agencies’ ability to complete in-depth 

analyses. However, the alternative—allowing companies to withdraw and 

refile their notifications—increases the risk that the Committee, and the 

Congress, could lose visibility over foreign acquisitions of U.S. companies. 

The criterion for reporting specific cases to the Congress only after a 

presidential decision contributes to the opaque nature of the Committee’s 

process. 

Our 2005 report laid out several matters for congressional consideration to 

(1) help resolve the differing views as to the extent of coverage of ExonFlorio, (2) address the need for additional time, and (3) increase insight 

and oversight of the process. Further, we suggested that, when withdrawal 

is allowed for a transaction that has been completed, the Committee 

establish interim protections where specific concerns have been raised, 

specific time frames for refiling, and a process for tracking any actions 

being taken during a withdrawal period. We have been told that some of 

these steps are now being taken.

Page 13 GAO-07-661T 
Madam Chairwoman, this concludes my prepared statement. I will be 

happy to answer any questions you or other Members of the 

Subcommittee may have. 

For information about this testimony, please contact Ann M. CalvaresiBarr, Director, Acquisition and Sourcing Management, at (202) 512-4841 or 

calvaresibarra@gao.gov. Other individuals making key contributions to 

this product include Thomas J. Denomme, Gregory K. Harmon, Paula J. 

Haurilesko, John J. Marzullo, Russell Reiter, Karen Sloan, and Marie 

Ahearn. 

Our understanding of the Committee’s process is based on our 2005 work 

but built on our review of the process and our discussions with agency 

officials for our 2002 report. For our 2005 review, and to expand our 

understanding of the Committee’s process for reviewing foreign 

acquisitions of U.S. companies, we met with officials from the 

Departments of Commerce, Defense, Homeland Security, Justice, and the

Treasury—the agencies that are most active in the review of acquisitions—

and discussed their involvement in the process. Further, we conducted 

case studies of nine acquisitions that were filed with the Committee 

between June 28, 1995, and December 31, 2004. We selected acquisitions 

based on recommendations by Committee member agencies and the 

following criteria: (1) the Committee permitted the companies to withdraw 

the notification; (2) the Committee or member agencies concluded 

agreements to mitigate national security concerns; (3) the foreign 

company had been involved in a prior acquisition notified to the 

Committee; or (4) GAO had reviewed the acquisition for its 2002 report. 

We did not attempt to validate the conclusions reached by the Committee 

on any of the cases we reviewed. To determine whether the weaknesses in

provisions to assist agencies in monitoring agreements that GAO had 

identified in its 2002 report had been addressed, we analyzed agreements 

concluded under the Committee’s authority between 2003 and 2005. We 

conducted our review from April 2004 through July 2005 in accordance 

with generally accepted government auditing standards. 

Page 14 GAO-07-661T 

Scope and 

Methodology 

(120643) 
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