How the United States Pioneered the Global Architecture for Screening Foreign Investment

The Story

In 1987, a quiet attempted transaction in the American semiconductor industry sparked a national reckoning. Fujitsu Ltd., one of Japan's largest electronics conglomerates, made a bid to acquire Fairchild Semiconductor — the Silicon Valley company that had given birth to the modern microchip. The deal seemed routine on its face. But within weeks, it ignited a political firestorm. Defense officials warned that foreign ownership of Fairchild would compromise U.S. chip supply chains critical to weapons systems. Congressional leaders demanded action. The Reagan Administration pressured Fujitsu to withdraw, and it did.

The episode crystallized a question that had no clean legal answer: when does a foreign investment cross the line from commerce into a national security threat — and who decides?

Congress answered two years later with the Exon-Florio Amendment to the Defense Production Act of 1950, granting the President authority to review — and block — foreign acquisitions of U.S. businesses that could threaten national security. The Committee on Foreign Investment in the United States, known as CFIUS (pronounced "SIF-ee-us"), had operated as an interagency body since 1975, but Exon-Florio gave it statutory teeth.

What began as a largely reactive tool would, over the next three decades, evolve into the most sophisticated foreign investment review regime in the world — and a template that nations from the European Union to Australia to Japan have since followed.

Where We Stand Today

Today, CFIUS operates under the Foreign Investment Risk Review Modernization Act of 2018 (FIRRMA), a sweeping overhaul that represents the most significant expansion of the committee's authority since Exon-Florio. The legislation was bipartisan — a rare feat in Washington — reflecting a broad consensus that the national security landscape had outpaced the legal framework inherited from the Cold War era.

CFIUS is chaired by the Secretary of the Treasury and draws membership from several federal departments and agencies, including Defense, State, Justice, Commerce, Energy, and the Director of National Intelligence. The Committee reviews "covered transactions" — mergers, acquisitions, and certain investments — by foreign persons that could result in foreign “control” (which is very broadly defined in the CFIUS regulations) of a U.S. business or that raise certain national security concerns.

FIRRMA expanded CFIUS jurisdiction in several critical ways. First, it extended mandatory filing requirements to transactions involving U.S. businesses in sensitive sectors — critical technology, critical infrastructure, and companies that handle sensitive personal data of U.S. citizens (each of these are defined terms in the CFIUS regulations). Second, it created a new category of jurisdiction over certain non-controlling investments in these sensitive businesses, closing a loophole that had allowed foreign actors to gain access to sensitive information and technology without technically acquiring “control.” Third, it extended CFIUS authority to review real estate transactions near military installations and sensitive government facilities.

The implementing regulations, found at 31 C.F.R. Parts 800 and 802, reflect a risk-based, transaction-specific approach. Parties may voluntarily notify CFIUS or, in covered mandatory filing cases, must submit a declaration or full notice before closing. The Committee operates on a 30-day initial review period, with the option of a 45-day investigation and, in exceptional cases, Presidential review.

Recent years have seen CFIUS flex its muscles with increasing boldness — and the Nippon-U.S. Steel saga stands as the most recent revealing episode of the modern era. In January 2025, President Biden issued a rare Presidential blocking order after CFIUS failed to reach consensus on whether to clear Nippon Steel's proposed $14.9 billion acquisition of U.S. Steel. The decision surprised many CFIUS practitioners because Japan is a strong U.S. ally with a long history of investing in the United States, and in similar previous transactions, CFIUS had been willing to mitigate concerns through national security agreements. The story did not end there. After a dramatic 18-month saga (including the commencement of litigation), President Trump reversed course and approved the acquisition in June 2025, contingent on Nippon Steel's commitment to invest $11 billion in U.S. Steel facilities by 2028. The deal also required Nippon Steel to agree that the government would hold a "golden share" in the firm, giving the White House input on key decisions such as the transfer of jobs or production outside the country. The case has informed – and reshaped – how practitioners think about CFIUS risk, Presidential discretion, and the political economy of national security review.

More broadly, scholars have begun to document a phenomenon they call "national security creep" — the growing tendency of governments (both the U.S. government and non-U.S. governments) to invoke security rationale to scrutinize an ever-wider range of commercial transactions. As Professors Kristen Eichensehr and Cathy Hwang argued in a 2023 essay in the Columbia Law Review, the global diffusion of CFIUS-like processes are causing national security reviews to expand in frequency and scope, causing numerous deals to be renegotiated or blocked. The Committee's soft power is equally consequential: parties increasingly conduct pre-filing risk assessments, engage in voluntary discussions with Treasury staff, and in some cases walk away from transactions to avoid protracted review. Both CFIUS and other FDI screening mechanisms worldwide have become a permanent feature of cross-border M&A due diligence.

Looking Ahead

The CFIUS framework faces several emerging challenges that will define its next chapter.

Outbound investment screening.  For most of its history, CFIUS has been an inbound control — scrutinizing what foreigners buy in America, not what Americans invest abroad. That changed in August 2023, when President Biden issued an Executive Order on Addressing United States Investments in Countries of Concern, restricting and monitoring outbound U.S. investment in certain Chinese sectors, including semiconductors, quantum computing, and artificial intelligence. The final rules, effective January 2025, mark a historic expansion of the national security investment toolkit — though whether this outbound regime will be extended, contracted, or reshaped under future administrations remains an open question, as does whether other countries will implement their own outbound regimes.

Artificial intelligence and emerging technology.  FIRRMA's "critical technologies" category incorporates export control classifications that have struggled to keep pace with the speed of AI development. As large language models, autonomous systems, and dual-use AI tools blur the line between commercial and defense applications, CFIUS will face growing pressure to develop new analytical frameworks for evaluating technology risk.

Allied coordination.  The United States has actively encouraged allies to build their own FDI screening mechanisms, and the results are evident — the EU's Foreign Direct Investment Screening Regulation entered into force in 2020, and the United Kingdom’s National Security and Investment Act entered into force in 2022. The next frontier is coordination: multilateral FDI governance is nascent but growing.

Due process and judicial review.  The Nippon-U.S. Steel litigation is one of the very few litigated CFIUS decisions in history, and the court rulings may affect procedural aspects of the CFIUS review process in future transactions. As CFIUS has grown more assertive, legal practitioners have raised legitimate questions about procedural protections for parties under review. The Committee's deliberations are largely non-public, mitigation agreements are confidential, and judicial review of Presidential divestiture orders is extremely limited. Balancing national security imperatives with rule-of-law norms will be an enduring tension for the regime.

As the United States marks its 250th year, the CFIUS framework stands as a distinctly American contribution to international economic law — pragmatic, adaptive, and consequential. Evolved from a semiconductor deal that never closed, it has grown into a global model for reconciling open investment with sovereign security. The next chapter is already being written.

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Disclaimer
The views expressed in this article are those of the author and do not necessarily reflect the views of the author's employer or any organization with which the author is affiliated.

Author Biography
Erica Hackett is an Associate at a large global law firm, where she focuses on National Security and Global Trade  law. She is a board member of the Washington Foreign Law Society. View her WFLS profile here.