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Foreign Direct Investment Vs. National Security Risk

October 10, 2014
Robert B. Crowe

As published by Law 360

On July 15, 2014, the U.S. Court of Appeals for the District of Columbia Circuit issued a decision in Ralls Corporation v. Committee on Foreign Investment in the United States,[1] which requires that CFIUS follow certain basic procedures with respect to its review of “covered transactions” to afford a non-U.S. acquirer or investor its procedural due process rights in order for the [resident to exercise his authority under the Exon-Florio Amendment to the Defense Production Act of 1950 (generally referred to as the Foreign Investment and National Security Act of 2007 (“FINSA”)) to prohibit or suspend such a transaction.

Although commentators differ as to their extrapolation of the impact of Ralls, there is consensus that the decision will result in greater transparency in the CFIUS review process. However, most commentators point out that the Ralls decision does not call into question the authority of the president to block covered transactions pursuant to FINSA, nor does it mean that the president must, in the future, disclose his decision-making on sensitive issues related to national security. Rather it supports the advisability to foreign investors taking a proactive approach of filing voluntary notices with CFIUS.

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