Factbox: How U.S. monitors foreign influence on U.S. companies

Published October 07, 2012

| Reuters

The U.S. government has various means to monitor and deal with foreign ownership, control or influence of U.S. companies, including reviews by the Committee on Foreign Investment in the United States (CFIUS) and agreements that restrict those firms.

In the third quarter of 2012, the Pentagon's Defense Security Service (DSS) said it was overseeing 302 foreign ownership mitigation agreements at 839 facilities.

Following are some details about how the CFIUS process works, and other measures used by the U.S. government when foreign-owned companies seek to buy stakes in U.S. companies:

SPECIAL AGREEMENTS AND PROXIES

- If a foreign investor is seeking a minority stake in a company that does business with the Pentagon, the U.S. government can require a "special control agreement" (SCA), which requires appointment of at least one independent outside director to the company's board, who must be approved by DSS.

- If the foreign investor is seeking a majority stake, the U.S. government can require either a "proxy agreement" or "special security agreement".

- A proxy agreement bans foreign representatives on the company's board; has Pentagon-approved trustees in control of the company; and requires strict control of visits and communications between proxy company and parent company.

- DSS oversees 24 proxy agreements at 109 facilities.

- A special security agreement allows foreign executives on the company's board, but requires some independent American directors who must be approved by the Pentagon; requires the company to seek Pentagon permission for access to sensitive data; and sets rigid procedures for visits and communication between the company and its parent.

- DSS has 111 special security agreements at 346 facilities.

- DSS also oversees 139 other accords or board resolutions, which are used when the foreign entity does not own enough voting stock to have a representative on the company's board.

CFIUS

- CFIUS reviews apply to all foreign investments in defense and infrastructure-related firms, including port operators, regardless of whether the companies have classified contracts.

- The president has the authority to suspend or terminate such deals if they present "credible threats" to national security that cannot be adequately mitigated under other laws.

- The committee is chaired by a U.S. Treasury official and includes members from the U.S. departments of defense, state, commerce, justice, energy and homeland security, as well as the U.S. Trade Representative's office and the White House Office of Science and Technology Policy.

- The Labor Department and Director of National Intelligence also have non-voting representatives on the committee, while the White House National Security Council, Council of Economic Advisers, Office of Management and Budget and others observe and take part in the committee's work, as required.

- The committee conducts a 30-day initial review, but can launch a 45-day investigation too if the transaction involves a large number of classified contracts, or if it is considering recommending the deal be blocked.

- The committee can then require imposition of a proxy agreement or special security agreement, or divestiture.

-The case goes to the White House for a 15-day review if the committee is deadlocked or decides to recommend that the president block the deal.

- The 30-day clock starts all over if the requesting parties withdraw their application and refile. (Reporting By Andrea Shalal-Esa; Editing by Bernard Orr)

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