As the presidential election approaches, the Committee on Foreign Investment in the United States (“CFIUS”) has increasingly come into the public spotlight. CFIUS, an interagency committee chaired by the Secretary of the Treasury, reviews the potential national security risks of certain foreign investments. At CFIUS’ recommendation, the President may suspend, prohibit, or unwind transactions that threaten to impair national security. Alternatively, CFIUS may approve transactions if the relevant parties agree to mitigate the risks identified by CFIUS. In addition, while CFIUS reviews transactions, it may impose interim restrictions on the relevant parties.

In the run-up to the election, much ink has been spilled about CFIUS’ review of Nippon Steel’s planned acquisition of U.S. Steel, a major issue in the swing state of Pennsylvania. But while the press and the presidential nominees have focused on this particular matter, the CFIUS bar has been grappling with an older jurisdictional issue: What are the limits of CFIUS’ jurisdiction, particularly with respect to businesses that engage in both interstate commerce in the United States and foreign commerce abroad? When CFIUS assesses the potential national security risks of a transaction involving such a business – and decides whether to recommend that the President block, suspend, or unwind the transaction – is CFIUS limited to considering the business’ activities in interstate commerce? Or may CFIUS also consider its foreign activities? Similarly, when CFIUS imposes interim restrictions on parties, is it limited to imposing restrictions on their activities in interstate commerce? Or may CFIUS instead impose restrictions on their entire global operations?

For instance, suppose an Indian company designs, manufactures, and sells cutting-edge A.I. chips. The Indian company owns some unrelated assets in the United States, but all its activities concerning the chips occur abroad. The Indian company agrees to merge into a Qatari company, which worries the United States because it fears the chips will be sold to its foreign adversaries following the merger. In reviewing the transaction, can CFIUS consider the risk that these chips will be sold to foreign adversaries? Or is CFIUS barred from considering this risk, as the chips have no connection to interstate commerce? Similarly, can CFIUS impose an interim restriction that bars the parties from selling or reselling the chips to U.S. foreign adversaries? Or is this interim restriction unlawful because it restricts conduct that has no nexus to interstate commerce?

This issue has long troubled the CFIUS bar, especially since 2021 when CFIUS concluded that it could assert jurisdiction over the entire global operations of businesses if they engaged in any interstate commerce – however minimal – in the United States. This essay reaches a different conclusion: that CFIUS’ jurisdiction over businesses is limited to their activities in interstate commerce. This conclusion is based on the relevant legislative and regulatory history, CFIUS’ own past interpretation of its jurisdiction, and the presumption against extraterritoriality.

Background on CFIUS 

CFIUS derives its authority from section 721 of the Defense Production Act of 1950, as amended, which is codified at 50 U.S.C. § 4565 (“Section 4565”), and its implementing regulations. In 2007, Congress passed the Foreign Investment and National Security Act of 2007 (“FINSA”), which formally gave CFIUS statutory authority. Then, in 2018, Congress amended Section 4565 through the Foreign Investment Risk Review Modernization Act (“FIRRMA”).

Under Section 4565(a)(4), CFIUS has jurisdiction over only “covered transaction[s],” which include: (1) mergers, acquisitions, and takeovers that could result in foreign control of a “United States business”; (2) certain non-controlling investments in “United States businesses” involving critical technology, critical infrastructure, or sensitive personal data; and (3) certain real estate transactions. CFIUS only had jurisdiction under the first category of transactions under FINSA, but FIRRMA expanded CFIUS’ jurisdiction to also cover the second and third categories.

Section 4565(a)(13) defines “United States business” as “a person engaged in interstate commerce in the United States.” The CFIUS regulations similarly define “U.S. business” as any entity “engaged in interstate commerce in the United States.”

The CFIUS regulations provide examples concerning the meaning of “U.S. business,” which confirm that the term “interstate commerce” does not include commerce between a foreign country and a U.S. state. For instance, Example 2 provides that a company incorporated abroad and owned by a foreign national is not a U.S. business – and thus does not engage in interstate commerce – even if it (1) exports and licenses technology to a company in the United States; and (2) provides remote technical support services to U.S. customers. Similarly, Example 3 provides that a company incorporated abroad is not a U.S. business even if it exports goods to its parent corporation and other unrelated companies in the United States. 

Legislative and Regulatory History

As set forth below, six aspects of the legislative and regulatory history confirm that CFIUS’ jurisdiction over U.S. businesses is limited to their activities in interstate commerce. 

First, under FINSA, CFIUS’ jurisdiction over U.S. businesses was limited to their activities in interstate commerce. The text of FINSA did not expressly contain this interstate-commerce limitation. But the implementing regulations for FINSA expressly recognized this limitation by defining “U.S. business” as any entity “engaged in interstate commerce in theUnited States, but only to the extent of its activities in interstate commerce.”

Second, when the U.S. House of Representatives passed the bill that ultimately became FIRRMA, the House of Representatives confirmed that “activities unrelated to interstate commerce would have no bearing on the concept of ‘U.S. business’ for the purpose of defining covered transactions.” This bill expressly stated that the term “United States business” means any entity “engaged in interstate commerce in the United States, but only to the extent of its activities in interstate commerce.” 

Third, during conference discussions for FIRRMA, the Treasury Department noted that the language bolded above “might not technically make sense when applying the term ‘U.S. business’ in contexts other than CFIUS’s jurisdiction over a covered transaction.” In addition, Congress recognized that “restricting covered transactions to activities in interstate commerce had previously served as the CFIUS standard,” even though FINSA did not expressly include such language. The Treasury Department confirmed that even absent such language, “CFIUS will continue to be limited to transactions involving a U.S. business only to the extent of its activities in interstate commerce,” and assured Congress that “CFIUS has no intention of altering” the interstate-commerce limitation. Congress therefore agreed, “based on discussions with the Administration,” to remove this language, “understanding that, as before, any nexus to a covered transaction apart from activities in interstate commerce was in no way envisioned.”

Fourth, after FIRRMA was enacted, the U.S. House of Representatives Committee on Financial Services wrote a letter to then-Treasury Secretary Mnuchin. This letter confirmed that the interstate-commerce limitation continued to bind CFIUS, and emphasized its importance.

Fifth, the Treasury Department subsequently issued a proposed rule that “revise[d] the [regulatory] definition for ‘U.S. business’ to conform to the definition in FIRRMA.” The House Committee on Financial Services submitted comments in support of the proposed rule, which emphasized that the interstate-commerce limitation would continue to bind CFIUS under this rule. The Treasury Department ultimately included this revision in the final rule, and again noted that the revised definition “tracks the language of FIRRMA.”

Lastly, during the rulemaking process and upon issuing the FIRRMA regulations, the Treasury Department explained the ways in which FIRRMA and these regulations had modified CFIUS’ jurisdiction. But the Treasury Department never claimed that FIRRMA or these regulations had lifted the interstate-commerce limitation.

CFIUS’ Prior Interpretation of Its Jurisdiction

CFIUS’ prior interpretation of its jurisdiction further confirms that the interstate-commerce limitation continues to bind CFIUS. After issuing the FIRRMA regulations, the Treasury Department published the following FAQ:

Q:        Do the FIRRMA regulations change CFIUS’s jurisdiction over transactions that could result in control of a U.S. business by a foreign person?

A:        No. CFIUS maintains its authority to review the potential national security effects of any transaction that could result in foreign control of any U.S. business. The regulations expand CFIUS’s jurisdiction over certain “non-controlling” transactions and real estate transactions.

Thus, the Treasury Department, on behalf of CFIUS, previously confirmed that the FIRRMA regulations did not modify “CFIUS’s jurisdiction over transactions that could result in control of a U.S. business by a foreign person.” Accordingly, CFIUS’ jurisdiction over U.S. businesses remains limited to their activities in interstate commerce, just as it was under FINSA.

The Presumption Against Extraterritoriality

The presumption against extraterritoriality also confirms that the interstate-commerce limitation continues to bind CFIUS. As the Supreme Court stated in RJR Nabisco, Inc. v. European Community, “[w]hen a statute gives no clear indication of an extraterritorial application, it has none.” Here, far from indicating that Section 4565 applies extraterritorially, Congress has indicated the exact opposite. Specifically, 50 U.S.C. § 4562, which is titled “Territorial application of chapter,” expressly states: “The provisions of this chapter [i.e., the Defense Production Act of 1950, as amended] shall be applicable to the United States, its Territories and possessions, and the District of Columbia.” Accordingly, CFIUS’ jurisdiction is limited to the borders of the United States, and thus does not reach the activities of U.S. businesses in foreign commerce. 

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In sum, contrary to CFIUS’ present view, CFIUS’ jurisdiction over U.S. businesses is limited to their activities in interstate commerce. This is clear based on the relevant legislative and regulatory history, CFIUS’ own prior interpretation of its jurisdiction, and the presumption against extraterritoriality.

Steven A. Levy is a Yale Law School graduate and a senior associate at White & Case LLP. He represents clients in a broad range of cases, including criminal trials and appeals, internal investigations, complex commercial disputes, and proceedings before the Committee on Foreign Investment in the United States. The views expressed in this essay do not necessarily reflect the views of the author’s employer or any of its clients.