Once a sleepy, shadowy backwater of the federal government, the Committee on Foreign Investment in the United States (CFIUS)--the U.S. government's principal mechanism for screening foreign investment to assess and address its potential impact on U.S. national security--has hit the big time. In the last eighteen months, Congress passed sweeping reform of CFIUS through the Foreign Investment Risk Review Modernization Act of 2018 (FIRRMA), and CFIUS has received significant additional resources--ensuring that CFIUS work has become a cottage industry in Washington. In a demonstration of its new cultural status, CFIUS has even become a running thread in the current season of Silicon Valley, HBO's popular comedy on startup culture. As fascinating as it is to see core mergers and acquisitions regulations in popular media, a more interesting and salient legal and academic question is, Why does the United States have laws that regulate M&A activity from a national security perspective, and why are those laws getting more attention these days?
The Policy Issues Driving Regulations
Why does the United States regulate national security? It comes back to a simple point: the U.S. government, for the most part, does not hold an ownership stake, either wholly or strategically, in technologies, industries, infrastructure, resources, and businesses of national importance. U.S. telecommunications infrastructure is entirely in private-sector hands; our leading defense and aerospace suppliers are publicly traded entities, but not "public" entities in the sense of government ownership; and even our "national laboratories" are federally funded but managed principally by private-sector contractors.
This model served the United States well from the stance of innovation and economic efficiency, and, following the U.S. success, many Western democracies also privatized many of their national assets starting in the 1980s and continuing into the twenty-first century. Even where governments retained some minority interests or "golden shares," they effectively ceded control or management of day-to-day operations to private-sector managers that responded exclusively to commercial incentives.
This model has largely served the United States well from the standpoint of national security. A strong and dynamic economy based on private market ownership and principles has given us great power in the world and fueled the technological innovation that ensures the dominance of U.S. forces on the battlefield. This state of affairs, however, also leaves the United States potentially more vulnerable than other countries, because our national security, both defensively and offensively, is inherently more dependent on the private sector. That is, the United States relies on the private sector to protect assets of importance to national security and to develop critical capabilities that advance U.S. military and intelligence prowess. Hence, the federal government has the need and the desire to regulate commercial activities related to national security.
Dating to World War I--during which the United States expropriated German property and passed the Trading With the Enemy Act --the United States has experienced flurries of legislative and regulatory activity to address the national security implications of commerce. One of the most recent such periods emerged in the wake of 9/11, and the United States...