In 1988, the Congress enacted the Exon-Florio amendment to the Defense Production Act, which authorized the President to investigate the impact of foreign acquisitions of U.S. companies on national security and to suspend or prohibit acquisitions that might threaten national security. The President delegated this investigative authority to the Committee on Foreign Investment in the United States. The Committee is an interagency group that was established by executive order in 1975 to monitor the impact of and coordinate U.S. policy on foreign investment in the United States. The Committee is chaired by the Secretary of the Treasury, and its membership includes representatives from executive branch departments and the Executive Office of the President (see table 1). The President added the Department of Homeland Security to the Committee in 2003, reflecting an increased focus on domestic security in the aftermath of the September 11, 2001, terror attacks and subsequent global war on terror. In 1991, the Treasury Department issued regulations to implement Exon- Florio. As shown in figure 1, Exon-Florio and the regulations establish a four-step process for reviewing a foreign acquisition of a U.S. company: voluntary notice, 30-day review, 45-day investigation, and presidential decision. Notifying the Committee of an acquisition is not mandatory. However, any member agency is authorized to submit a notification of an acquisition if the companies have not done so. To date, no agency has submitted a notification of an acquisition. Instead, when a member agency becomes aware of an acquisition that may be subject to Exon-Florio, the agency informs Treasury, as Chair, and Committee staff contact the companies to encourage them to officially notify the Committee of the acquisition to begin a review. Committee officials noted that companies have an incentive to notify the Committee prior to completing the acquisition because Exon-Florio provides the President with the authority to order companies to divest completed acquisitions found to pose a threat to national security. Under Exon-Florio, after receiving notification of a proposed or completed acquisition, the Committee begins a 30-day review to determine whether the acquisition could pose a threat to national security. The Treasury Department, as Committee Chair, forwards the notification documentation to the lead office in each of the member agencies. Lead offices forward the information to other offices within their agency. For example, the Defense Technology Security Administration, the lead office for the Department of Defense, forwards notification to 12 other offices within the department. These other offices may also forward the notification, as appropriate. In one case, the point-of-contact in the Office of the Under Secretary of Defense for Acquisition, Technology, and Logistics, one of the initial 12 offices, forwarded the notification to four other offices within that organization. In most instances, the Committee completes its review within the 30 days. However, if the Committee is unable to complete its review within 30 days, the Committee may either allow the companies to withdraw the notification or initiate a 45-day investigation. If the Committee concludes a 45-day investigation, it is required to submit a report to the President containing its recommendations. 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. Under Exon-Florio, the President has 15 days to decide whether to prohibit or suspend the proposed acquisition, order divestiture of a completed acquisition or take no action. The President may take action upon a determination that (1) there is credible evidence that leads the President to believe that a foreign controlling interest might take action that threatens to impair national security and (2) laws other than Exon- Florio and the International Emergency Economic Powers Act are inadequate or inappropriate to protect national security. Under the regulations, the President’s divestiture authority, however, cannot be exercised if (1) the Committee has informed the companies in writing that their acquisition was not subject to Exon-Florio or had previously decided to forego investigation or (2) the President has previously decided not to act on that specific acquisition under Exon-Florio. 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 information. In some cases, the companies will decide not to proceed with the transaction because of concerns that a presidential decision would be unfavorable. However, the President has ordered divestiture in only one case. In 1990, the President ordered a Chinese aerospace company to divest its ownership of a U.S. aircraft parts manufacturer. Under the original Exon-Florio law, the President was obligated to report to the Congress on the circumstances surrounding a presidential decision only after prohibiting an acquisition. In response to concerns about the lack of transparency in the Committee’s process, in 1992 Congress passed the Byrd Amendment to Exon-Florio, requiring a report to the Congress if the President makes any decision regarding a proposed foreign acquisition. Companies can request to withdraw their notification at any time prior to the President announcing a decision. A Treasury official told us that the Committee generally grants withdrawal requests. After the Committee approves a withdrawal, any prior voluntary notices submitted no longer remain in effect. Any subsequent refiling by the parties is considered as a new, voluntary notice to the Committee. The manner in which the Committee implements Exon-Florio may limit its effectiveness because (1) Treasury, in its role as Chair, has narrowly defined what constitutes a threat to national security and (2) the Committee is reluctant to initiate a 45-day investigation because of a perceived negative impact on foreign investment and a conflict with the U.S. open investment policy. As a result of the narrow definition, some issues that Defense, Homeland Security, and Justice officials believe have important national security implications, such as security of supply, may not be addressed. In addition, the reluctance to initiate the 45-day investigation compresses the time available to consider issues. This compressed time frame limits agencies’ ability to complete their analysis of some cases. The Committee encourages companies to request withdrawal of their notification to provide additional time to resolve issues and to avoid the need for investigation. However, when companies that have already completed the acquisition are allowed to withdraw, there is a substantially longer time before they refile, and in some cases they never do, leaving unresolved any outstanding concerns. Under the statute, the President or the President’s designee may make an investigation to determine whether a foreign acquisition might threaten the national security of the United States. Neither the statute nor its implementing regulations define national security. This permits a broad interpretation of the term. The statute does provide factors to be considered in determining a threat to national security; however, consideration of these factors is not mandatory. These factors include the following: 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 the requirements of national security. 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. Despite the broad coverage of the factors under the statute, Treasury and some other Committee member agencies have continued to view threats to national security in the traditional and more narrowly defined sense. That is, they based their definition on a U.S. company’s possession of export- controlled technologies or items, classified contracts, and critical technology; or specific derogatory intelligence on the foreign company. The Departments of Justice and Defense have applied a broader view of what might constitute a threat to national security. And since being added to the Committee, the Department of Homeland Security has begun to analyze acquisitions both in traditional terms and more broadly in terms of the potential vulnerabilities posed by the acquisition. According to Justice, Homeland Security, and Defense officials, vulnerabilities can 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 or a decrease in the number of innovative small businesses conducting research on developing 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. The agencies that favor applying the narrower, more traditional definition of what constitutes a threat to national security have resisted using Exon- Florio to mitigate the concerns being raised by the Department of Defense and others. For example, in reviewing a 2001 acquisition involving a U.S. company that produced precision optics and semiconductor manufacturing equipment, Defense and Commerce raised concerns about (a) foreign ownership of sensitive but unclassified technology used in reconnaissance satellites, (b) the possibility of this sensitive technology being transferred to countries of concern, and (c) maintaining U.S. government access to the technology. Treasury officials said that the concerns raised by Defense and Commerce were not national security concerns because they did not involve classified contracts, the foreign company’s country of origin was a U.S. ally, and there was no specific negative intelligence about the company’s actions in the United States. During a more recent review, disagreement over the scope of Exon-Florio resulted in a weakening of the enforcement provisions in an agreement. The Defense Department had raised concerns about the security of its supply of specialized integrated circuits as a result of a proposed acquisition. These unique integrated circuits are used in a variety of defense technologies, such as unmanned aerial vehicles, the Joint Tactical Radio System, and communications protection devices including devices used for cryptography.