Background CFIUS was established by executive order in 1975 to monitor the effect of  and to coordinate U.S. policy on foreign investment in the United States.  In 1988, Congress enacted the Exon-Florio amendment adding section  721 to the Defense Production Act of 1950, which authorized the  President to investigate the effect of certain foreign acquisitions of U.S.  companies on national security and to suspend or prohibit acquisitions  that might threaten to impair national security. The President delegated  this investigative authority to CFIUS. The Foreign Investment and  National Security Act of 2007 further amended the Defense Production  Act and formally established CFIUS in statute. CFIUS is responsible for reviewing and investigating covered transactions  to determine the effects of the transaction on national security. The  Foreign Investment and National Security Act of 2007 does not formally  define national security, but provides a number of factors for  consideration by CFIUS and the President in determining whether a  covered transaction poses a national security risk. These factors include  the potential national security effects on U.S. critical technologies and  whether the transaction could result in the control of a U.S. business by a  foreign government (for a full list of factors, see Appendix III). CFIUS may  also consider other factors in determining whether a transaction poses a  national security risk. Chaired by the Secretary of the Treasury, CFIUS includes voting  members from the Departments of Commerce, Defense, Energy, State,  Justice, and Homeland Security; the Office of the U.S. Trade  Representative; and the Office of Science and Technology Policy.  Treasury is responsible for a number of tasks. According to Treasury  officials, these tasks include coordinating operations of the committee,  facilitating information collection from parties involved in the transaction  (such as a foreign acquirer and U.S. business owner involved in an  acquisition), reviewing and sharing data on mergers and acquisitions with  member agencies, and managing CFIUS time frames. Treasury also  communicates with the parties on CFIUS’s behalf. The committee  generally has three core functions:  review and investigate transactions that have been voluntarily  submitted—or notified—to the committee by the parties to the  transaction and take action as necessary to address potential national  security concerns; monitor and enforce compliance with mitigation agreements; and  identify transactions of concern that have not been voluntarily notified  to CFIUS for review, referred to in this report as non-notified  transactions. The Foreign Investment and National Security Act of 2007 does not  require that parties notify CFIUS of a transaction. In examining covered transactions, CFIUS members seek to identify and  address, as appropriate, any national security concerns that arise as a  result of the transaction. CFIUS reviews notices that have been  voluntarily submitted—or notified—to the committee by parties to  potentially covered transactions. Notices to CFIUS contain information  concerning the nature of the transaction and the parties involved, such as  the business activities performed by the U.S. business and any products  or services supplied to the U.S. government. After receiving a notice,  Treasury drafts an analysis to assess whether the transaction submitted  is a covered transaction, meaning whether the transaction could result in  foreign control of a U.S. business. With limited exceptions, a transaction receives safe harbor—meaning the  transaction cannot be reviewed again—when the CFIUS process is  completed and the committee has determined that the transaction may  proceed. CFIUS does not review every transaction or investment by  foreign entities. According to Treasury officials, there are certain  transactions by foreign entities that CFIUS does not have the authority to  review. These non-covered transactions and investments include the  establishment of a business, referred to as a greenfield investment, and  acquisitions of assets—such as equipment, intellectual property, or real  property—if such assets do not constitute a U.S. business. If CFIUS member agencies become aware of a transaction that might be  covered that has not been voluntarily notified to the committee and may  raise national security considerations, CFIUS may invite the parties to the  transaction to submit a notice. CFIUS may choose to unilaterally review  any transaction that could be covered. Treasury, DOD, and several  other member agencies have processes for identifying non-notified  transactions for CFIUS to potentially review. CFIUS Process The CFIUS process for examining transactions that have been notified to  the committee is comprised of up to four stages: national security review (30 days), national security investigation (45 days), and presidential action. In some cases, before a transaction is accepted and reviewed by CFIUS,  Treasury may conduct a pre-notice consultation with parties to a  transaction. This is not a required part of the process. For the purposes of  this review, we focus on three stages—the national security review,  national security investigation, and presidential action. For each transaction accepted and reviewed by CFIUS, an agency or  agencies with relevant expertise are identified to act as a co-lead with  Treasury. Each agency in turn distributes the transaction to various  offices within its agency to provide an assessment of the transaction and  identify national security risks, which is then provided to CFIUS. For  example, the committee may reach consensus that no investigation is  required if it is determined that the covered transaction will not impair  national security or that the national security concerns are addressed  under existing authorities, such as export controls. If these conclusions  are reached, the national security review ends, and the transaction  proceeds. However, if, for example, an agency identifies an unresolved  national security risk, the agency may draft a risk-based analysis and  CFIUS may undertake a national security investigation. If during the  investigation the committee members reach consensus that a national  security risk exists, but the risks can be mitigated, mitigation agreement  measures are drafted to address those risks, and these measures are  negotiated with the other members of the committee and the parties to  the transaction. The CFIUS process may conclude after consensus is reached by all  agencies and the co-lead agencies certify to members of Congress that  there are no unresolved national security concerns, and the transaction  receives safe harbor. At the end of the national security investigation, if  the committee does not reach consensus that there are no unresolved  national security concerns or the committee concludes by consensus that  a foreign investment threatens to impair national security and the threat  cannot be mitigated, CFIUS elevates the transaction to the President. The  President may prohibit or suspend the transaction. At any point prior to  the conclusion of the process, parties may request to withdraw from the  CFIUS process. In some cases, the notice is resubmitted once the parties  believe that they have addressed the committee’s concerns; in other  cases, the companies may choose to withdraw and abandon their  transaction. See figure 1 for an overview of the CFIUS process for  reviewing and investigating selected transactions. DOD CFIUS Process DOD Instruction 2000.25, Procedures for Reviewing and Monitoring  Transactions Filed with the Committee on Foreign Investment in the  United States (DOD’s Instruction), provides policy and guidance on the  DOD CFIUS process and assigns responsibilities in that process. In  March 2011, DOD’s CFIUS responsibilities were reassigned from the  Defense Technology Security Administration to the Office of the Under  Secretary of Defense for Acquisition, Technology, and Logistics (OUSD  (AT&L)). The transfer of responsibilities, effective in fiscal year 2012,  was intended to better align CFIUS’s mission with the DOD office  responsible for industrial policy. Within OUSD (AT&L), MIBP serves as  the lead office for CFIUS, reviews transactions for DOD equities, and  distributes them to more than 30 organizations within DOD—referred to in  this report as DOD components —to determine whether the transaction  poses any national security concerns. These component reviewers  include organizations within the Office of the Secretary of Defense, as  well as the military departments, among others. For a full list of DOD  component reviewers, see appendix I. According to MIBP’s processes, it is responsible for reviewing and  compiling comments and input from all DOD component reviewers during  the 30-day national security review. When national security concerns  with a transaction are identified, MIBP is to coordinate with affected DOD  component reviewers to clarify issues and arrive at consensus on the DOD position for the transaction. DOD is typically designated as a co- lead agency for transactions where it has identified equities—such as  transactions involving companies that are DOD suppliers—or other  potential national security concerns. If no national security concerns are  identified by DOD, MIBP will recommend that the transaction proceed. However, if national security concerns are identified by DOD and the  committee requires additional time to complete its review, DOD  recommends that the transaction proceed to a 45-day national security  investigation period. During this period, MIBP coordinates with DOD  component reviewers to draft and deliver a risk-based analysis to  Treasury within the statutory investigation time frame. The assessment  provides a description of the risk—in terms of threat, vulnerability, and  consequence—arising from the covered transaction. If the risks can be  addressed, DOD develops measures to be included in the mitigation  agreement that it is then responsible for monitoring and enforcing as a  signatory agency to the mitigation agreement. DOD guidance identifies three basic types of mitigation measures:  1.  Technical mitigation measures, which seek to address risks related  to vulnerabilities or critical assets with sensitive source codes, cutting- edge technologies, and communications infrastructure.  2.  Personnel mitigation measures, which seek to address risks arising  from foreign personnel having access to sensitive technology or other  critical assets.  3.  Management control mitigation measures, which seek to oversee  companies’ ongoing implementation of mitigation agreements related  to technical or personnel mitigation measures. DOD, along with other lead agencies, carries out its monitoring  responsibilities on behalf of the committee and reports back to the  committee on the status of their responsibilities and company compliance  on at least a quarterly basis. DOD’s Instruction requires the  identification of feasible measures to mitigate or eliminate the risks posed  by a transaction and emphasizes that adequate resources, in terms of  personnel and budget, should be provided to DOD and the components  for monitoring and ensuring compliance with mitigation agreements. Our Prior Work on CFIUS We have conducted prior work related to CFIUS issues, including whether  CFIUS has the resources to address its current workload and whether  CFIUS is able to address national security concerns related to the  proximity of certain real estate transactions to defense test and training  ranges. In February 2018, we reported on CFIUS workload and staffing as  well as stakeholder perspectives on potential changes to CFIUS. We  found that as the volume and complexity of CFIUS reviews have  increased in recent years, member agency officials have expressed  concerns that current CFIUS staffing levels may not be adequate to  complete core functions of the committee. We recommended that  Treasury should coordinate member agencies’ efforts to better  understand the staffing levels needed to address the current and  projected CFIUS workload associated with core committee functions.  Treasury agreed with our recommendation. In December 2014, in reviewing DOD’s assessment of foreign  encroachment risks on federally managed land, we found that DOD  did not have the information it needed to determine whether activities  by foreign entities near test and training ranges, such as performing  certain sensitive training techniques, could pose a threat to its  mission. We also reported that CFIUS is the only formal option in  regard to transactions involving foreign companies or entities that  accounts for national security concerns related to proximity to military  test and training ranges. We recommended that DOD develop and  implement guidance for conducting an assessment of risks to test and  training ranges from foreign encroachment. We also recommended  that DOD collaborate with other federal agencies managing land and  transactions adjacent to DOD’s test and training ranges to obtain  additional information on transactions near these ranges. DOD agreed  with our recommendations and has begun collecting data to identify  locations the military services consider to be at risk from foreign  encroachment and collaborating with federal land management  agencies, as discussed later in the report. Resources and  Evolving National  Security Risks Pose  Challenges for  Identifying and  Addressing DOD’s  Concerns through the  CFIUS Process DOD has reviewed hundreds of transactions involving foreign acquirers  and U.S. businesses since 2012, but faces several challenges in  identifying and addressing national security concerns through the CFIUS  process. These challenges are: (1) resources not aligned with an  increasing workload; (2) some national security concerns not defined or  addressed in DOD’s Instruction; (3) some investments that pose national  security concerns not always able to be addressed through the CFIUS  process; and (4) current component reviewer responsibilities and CFIUS  processes not reflected in DOD’s Instruction. DOD Has Not Assessed  Resources to Address a  Substantially Increased  CFIUS Workload DOD faces challenges addressing an increasing CFIUS workload with its  current resources. For example, we found that the number of DOD  personnel with CFIUS responsibilities has not kept pace with the growing  workload. The number of transactions CFIUS reviewed from 2012  through 2017 more than doubled, increasing from 114 transactions to 238  transactions. During that time, the number of transactions DOD was  responsible for co-leading increased by about 57 percent, to 99  transactions in calendar year 2017. From 2016 through 2017 alone,  these increases resulted in DOD reviewing almost 65 additional  transactions, and co-leading about 30 additional transactions, a  substantial increase in workload in one year. DOD also experienced an  increase in the cumulative number of mitigation agreements it was  responsible for monitoring, more than doubling from 39 in 2012 to 84 in  2017. Figure 2 provides additional information on DOD’s workload and  authorized positions in MIBP—the lead DOD office for CFIUS. Based on our review of data on transactions reviewed by CFIUS, DOD’s  workload has also been affected by the volume and amount of time spent  on the transactions it has reviewed. We found almost half of DOD’s co-led  transactions from 2015 through 2016—83 of 136 transactions, or 61  percent—required 45-day national security investigations. According to  Treasury officials, the number of transactions requiring national security  investigations increases member agencies’ workload because these  transactions are usually more complex and require additional resources  to review. Further, 9 DOD co-led transactions from 2015 through 2016  were withdrawn and resubmitted to CFIUS, and another 7 were  withdrawn and abandoned because of national security concerns or  because the committee was going to recommend that the transaction be  prohibited. MIBP officials told us that withdrawn and resubmitted or  withdrawn and abandoned transactions indicate the complexity of their  workload, because a significant number of hours are spent either  reviewing resubmitted transactions or justifying the committee’s decision  to prohibit the transactions. Moreover, MIBP officials said that depending  on the scope and complexity of the national security concerns identified  within a transaction, they have had to redirect resources from other  functions to support their review responsibilities. As a result, the official  said there have been instances where MIBP has had to shift priorities and  delay performing other CFIUS tasks in order to assist with reviewing high  priority transactions. In addition to reviewing transactions, as a co-lead agency, DOD is also  responsible for negotiating any mitigation agreements or other conditions  necessary to protect national security, and monitoring compliance with  those agreements or conditions. However, according to DOD officials and  documents we reviewed, there are limited resources within MIBP and at  the DOD component level to do so. For example, MIBP officials said that  the volume and complexity of mitigation agreements have increased their  workload monitoring these agreements and strained their available  resources. Specific details on the effect of mitigation agreement workload  increases on MIBP’s resources have been omitted because that  information is considered sensitive. In addition, MIBP officials stated that because mitigation agreements  typically do not expire, the number of agreements MIBP will be  responsible for monitoring will continue to increase in the future. For  example, based on our review of MIBP mitigation agreement information,  6 transactions with active mitigation agreements that MIBP is monitoring  have been in place for 10 years or more. We also found that MIBP has limited personnel available to identify  transactions not voluntarily filed with CFIUS—non-notified transactions— that could pose national security concerns. In the absence of voluntary  reporting by the parties involved or independent discovery of the  transaction, it is possible that CFIUS may not review a non-notified  covered transaction that could pose a risk to national security. To address  this concern, MIBP officials began efforts to identify and research non- notified transactions in fiscal year 2016 and, at one point, had up to four  personnel involved in this effort. However, according to MIBP officials,  three of those personnel were reassigned to help conduct reviews of  notified transactions, leaving one person responsible for identifying and  researching non-notified transactions relevant to DOD. Specific details on  the effect of limited personnel on MIBP’s ability to identify non-notified  transactions have been omitted because the information is considered  sensitive. To perform its CFIUS responsibilities, OUSD (AT&L) began receiving  some funding for CFIUS in fiscal year 2014—on average about $2.4  million dollars a year. However, according to an MIBP official, the funding  MIBP receives for CFIUS is typically received after other priorities within  OUSD (AT&L) have been addressed. Further, OUSD (AT&L)’s funding  does not include CFIUS responsibilities being performed by the other  DOD components, which according to MIBP officials do not typically have  their own resources for performing CFIUS responsibilities. Among the  components we spoke with, the amount of time and personnel dedicated  to CFIUS responsibilities varies greatly. According to these components,  the amount of time and personnel reviewing transactions ranged from one  person dedicating a few hours a month at one component, to a full-time  responsibility for six personnel at another component. However, most of  the components we spoke with said that CFIUS is a part-time  responsibility, and only four of the nine components we spoke with had  dedicated personnel to support CFIUS responsibilities. MIBP officials  confirmed that the components often have limited personnel and funding  to perform CFIUS responsibilities, which can affect the level of  involvement components have in reviewing transactions, monitoring  mitigation agreements, and researching the non-notified transactions. Recognizing the resource constraints posed by its increased workload,  MIBP has taken some steps to assess and adjust its CFIUS resources.  For example, MIBP received an increase in its authorized positions in  fiscal years 2016 and 2017. Specifically, authorized positions increased  from 12 to 17, and according to MIBP officials, 16 of the 17 positions were  filled as of October 2017. In January 2017, MIBP requested that  component reviewers estimate their CFIUS resource needs to address  increases in CFIUS workload. According to an MIBP official, this  information was used to support a fiscal year 2019 request for additional  funding and personnel to perform CFIUS responsibilities department- wide, and for funding to further develop information technology solutions  for managing DOD’s CFIUS process. However, MIBP officials told us their  request was only partially funded by the department, and that MIBP would  have to determine how to distribute the funding received across the  various components to perform its CFIUS responsibilities. DOD’s Instruction states that DOD components shall ensure that  adequate resources, in terms of personnel and budget, are available for  statutorily required mitigation agreement monitoring and compliance  activities. Moreover, federal internal control standards state an agency  should establish the organizational structure necessary to achieve its  objectives and periodically reevaluate this structure. In this case, this  includes the resources needed to accomplish CFIUS responsibilities,  such as monitoring mitigation agreements and identifying non-notified  transactions. However, according to an MIBP official, prior increases in  authorized positions were not added based on any formal review or  analysis of resource needs or capability gaps. While MIBP has taken  some steps to address its resource limitations, MIBP and some other  DOD component officials we spoke with who have CFIUS responsibilities  continue to face resource constraints to address their growing workload.  Even after receiving approval for some additional funding across DOD to  support CFIUS responsibilities, DOD’s resource limitations could be  further exacerbated if the number of transactions continues to increase.  Without a formal analysis to assess and prioritize the resources  necessary for performing its current and future CFIUS responsibilities,  DOD will likely face challenges carrying out the duties and responsibilities  outlined in its CFIUS policy. In addition to keeping up with the workload  involved in reviewing notified transactions, the risks include not knowing  whether violations of mitigation agreements or non-notified transactions  are occurring that could pose risks to national security. National Security  Concerns for Some  Investments Are Not Well- Defined in DOD Policy DOD faces evolving national security concerns from foreign investments  in U.S. businesses developing emerging technologies and in proximity to  critical military locations, but there are inconsistencies in how DOD is  reviewing these investments. DOD’s Instruction identifies factors to  assess relevant to DOD national security interests, such as whether a  firm produces critical technologies or unique defense capabilities, or  whether a company being acquired is part of DOD critical infrastructure  that is essential to project, support, or sustain military forces. However,  DOD’s Instruction does not address the extent to which emerging  technologies and proximity to critical military locations are considered  under these factors, or whether and how components should review and  prioritize transactions for these concerns. Emerging Technology: Officials at several of the DOD components  we spoke with identified challenges addressing concerns related to  emerging technology, such as artificial intelligence and robotics,  through the CFIUS process and varied as to whether they elevate  concerns with transactions involving emerging technology. For  example, officials at four components said that it can be difficult to  explain the risks associated with foreign investment in U.S.  businesses developing emerging technologies, particularly if the  technology in question is not already being used in a defense program  or not being acquired through a traditional merger or acquisition.  Officials from another component noted that it can be difficult to  identify vulnerabilities and explain the need to protect early stage  technologies through the CFIUS process if the technology is not  advanced enough. DOD’s Instruction defines critical technologies  based in part on those items that are already subject to export  controls, but does not specify the types of emerging technologies that  could be of concern for the department. Officials at several  components noted that it can be difficult for them to identify which  emerging technologies are going to be important to DOD to know  whether transactions should be mitigated or prohibited. DOD has  several lists identifying critical technologies or assets, but does not  have an agreed-upon list of emerging technologies that should be  protected from foreign investment, making it difficult for components  to know which emerging technologies are of concern to the  department. A recent DOD report noted that having an agreed-upon list of critical  technologies would provide clarity on which transactions reviewed by  CFIUS should be prohibited or suspended. According to MIBP  officials, they recently initiated a study to identify leading companies  and technology areas critical to the department now and in the future.  They intend for the study, planned to be completed in spring of 2018,  to identify critical and emerging technology sectors and companies  not currently included in the defense industrial base. According to  DOD officials knowledgeable of the study, MIBP plans to use the  results to work with the department’s Office of Small Business and  others on ways to use internal DOD resources to protect emerging  technologies and intellectual property that are critical to DOD before  they are subject to foreign investment. However, officials did not state  how the study would help them address emerging technology through  CFIUS-related reviews or whether the results of the study would  inform changes to DOD’s Instruction or otherwise be used to help  guide components on which emerging technologies are critical to the  department. Proximity: Each of the military departments varies in how it reviews  transactions for proximity to critical military locations. According to  DOD reports, transactions near certain military locations can present  encroachment issues or opportunities for persistent surveillance and  collection of sensitive information of training procedures or of the  integration of certain technological capabilities into major weapon  systems. When asked about how transactions are reviewed for  proximity concerns, MIBP officials said they defer to the military  departments to identify what constitutes a concern and do not limit  proximity to certain locations. Moreover, MIBP officials stated that  depending on the transaction, proximity concerns can arise regardless  of distance to a critical location, and that the circumstances  surrounding a transaction should be reviewed on a case-by-case  basis to account for those concerns. Proximity is not defined in the current DOD Instruction or listed as a  factor that the military departments should consider when reviewing  transactions. Officials from two of the military departments we spoke  with review every transaction on a case-by-case basis for proximity  concerns. According to documentation from the third department, it  limits its reviews to acquiring companies from certain countries and  only assesses those transactions for proximity concerns if the target  location is within a certain distance of designated critical locations or  assets. These different approaches for reviewing transactions have  resulted in inconsistencies among the military departments in the  types of proximity concerns they elevate to CFIUS. For example, in  one transaction, we found that officials from the third military  department recognized a concern near a training range used by all  three military departments. While the transaction was ultimately  withdrawn because CFIUS planned to recommend that the President  prohibit or suspend the transaction, the third department did not  identify a national security risk because it did not meet its criteria.  Officials from this military department stated that greater clarification  on the types of proximity concerns DOD wants to elevate through the  CFIUS process, as well as criteria that component reviewers should  use to identify risks, would be helpful. Our prior work has identified challenges DOD faces in identifying risks  to foreign encroachment near defense training ranges. In a December  2014 report, we recommended that DOD develop and implement  guidance for assessing risks to certain test and training ranges from  foreign encroachment based on mission criticalities and level of  threat. According to DOD officials, they recently conducted a data  call to the military departments to identify the locations that they  consider to be at risk from foreign encroachment. DOD plans to use  this information to develop guidance, not related to the CFIUS  process, to assess the risks that test and training ranges face from  foreign encroachment. Federal internal control standards state that agencies should clearly  define objectives and risk tolerances; identify, analyze, and respond to  risks, and communicate necessary information to achieve their  objectives. DOD is taking steps to identify and assess areas of concern  related to emerging technology and proximity, but these efforts are not  specific to the CFIUS process and have not yet been completed or  communicated to components through DOD’s Instruction, or otherwise.  As a result, the components lack clear and consistent guidance on how to  review transactions for these specific types of national security concerns  facing the department. Without clarity on the types of transactions and  national security risks that should be addressed, for example by  incorporating the results of its efforts into DOD’s Instruction, component  reviewers will likely continue to be inconsistent in reviewing transactions  and identifying and prioritizing national security concerns. DOD Has Identified Some  Investments That Present  National Security  Concerns but Are Not  Addressed through the  CFIUS Process In addition to challenges identifying certain national security concerns  within DOD, CFIUS officials at Treasury and DOD indicated that national  security concerns for some foreign investments—such as those related to  critical and emerging technologies and proximity to certain military  locations—can arise that the committee does not have the authority to  review. For example, pursuant to CFIUS regulations, the purchase of  property that does not constitute a U.S. business by a foreign person or  the licensing of emerging intellectual property to a foreign person are not  covered transactions and therefore not addressed through the CFIUS  process. As shown in figure 3, while some foreign investments that may  result in national security concerns related to critical and emerging  technology and proximity are addressed through the CFIUS process,  others are not. According to DOD reports, CFIUS is one of the only tools  able to address foreign investment in the United States, but is limited in  its ability to address some investments in emerging technology and in  proximity to military locations. Without the ability to address national  security concerns arising from these investments, DOD is at risk of losing  access to technologies, assets, and locations critical to maintaining and  advancing U.S. technological superiority. A June 2017 DOD report found that although CFIUS is one of the only  tools available to address technology transfers as a result of foreign  investment, it is not effective at stopping technology transfer for  investments that are not addressed through the CFIUS process, like  certain joint ventures and other minority investments that do not result in  foreign control. However, according to DOD documents and officials,  these investments can result in technology transfers that threaten U.S.  national security. For example, according to the DOD report, Chinese  investors have been active in emerging technology sectors like artificial  intelligence, augmented and virtual reality, and robotics, and Chinese  investment in venture-backed start-ups is on the rise. The report also  found that China’s continued foreign investment in critical emerging  technology companies may have consequences for DOD’s ability to work  with these companies in the future and its ability to maintain U.S.  technological superiority. DOD officials cited concerns with their inability to address certain  investments through the CFIUS process that can result in technology  transfers or limit DOD access to emerging technologies. For example,  DOD officials from three components cited instances when companies  entered into joint ventures or other investment structures after  withdrawing their transaction from the CFIUS process. A DOD official at  one component cited a 2016 transaction where CFIUS planned to  recommend that the President prohibit the transaction to prevent the  transfer of a critical technology from a U.S. company to a foreign acquirer.  Following the companies’ subsequent withdrawal from the CFIUS  process, they entered into a joint venture. While CFIUS is aware of the  joint venture and that it could result in the same transfer of technology  CFIUS attempted to prevent by proposing to prohibit the original  transaction, the committee has not yet determined whether it can be  addressed through the CFIUS process because CFIUS is only able to  review certain types of joint ventures. According to Treasury officials,  when these circumstances arise they are sometimes able to review the  joint venture, depending on the structure of the investment and whether it  meets the definition of a covered transaction pursuant to law and  associated regulations. Yet, even if this joint venture is ultimately  reviewed as a covered transaction, the technology that DOD and CFIUS  were originally concerned with may have already been transferred to the  foreign acquirer. DOD and Treasury officials also identified concerns with broader foreign  investment trends in critical and emerging technology that may not be  addressed through the CFIUS process. For example, according to MIBP  officials, they are concerned about foreign-owned enterprises exploiting critical technologies by structuring investments to avoid the CFIUS  process, and noted that multiple investment structures exist that can allow  foreign acquirers to gain access and influence over critical capabilities.  DOD and Treasury officials acknowledged the importance of critical and  emerging technologies and the consequences to DOD’s technological  superiority if adversaries are able to use these technologies to advance  their own military capabilities. According to Treasury officials, determining  whether and how CFIUS should expand its scope to address these  concerns is one of the challenges they have encountered when they have  considered potential legislative changes to the CFIUS process. For  example, they said that if the scope of the law was expanded, it could  pose additional resource challenges, as CFIUS agencies would be  required to review an expanded number of potentially complex  transactions. According to federal internal control standards, agencies should identify,  analyze, and respond to significant changes that could affect their  operations. As noted earlier, DOD is in the process of identifying  emerging technologies that will be essential to the defense industrial  base, an important step towards informing future decision-making within  the department. However, according to MIBP officials, the study will  primarily be focused on identifying specific technology companies of  importance to the department. As noted earlier, the study is not specific to  CFIUS, and as a result plans for the study do not indicate that it will  identify and assess other limitations facing MIBP, like those encountered  addressing certain types of foreign investments that are not addressed  through the CFIUS process but that pose risks to DOD’s technological  and military superiority. Given the importance of critical and emerging  technology to DOD, assessing any challenges DOD faces addressing  certain foreign investments in critical and emerging technologies through  the CFIUS process, and considering whether additional authority is  needed, would better position DOD to address any unresolved national  security concerns associated with these types of foreign investments.  Without such an assessment, DOD remains at risk of not having the  necessary tools and authorities to prevent the transfer of critical and  emerging technologies to foreign acquirers, which is important for  maintaining a viable defense industrial base and U.S. technological  superiority. Some Foreign Investments Not  Addressed through CFIUS  Process Pose Proximity  Concerns near Critical Military  Locations Some proximity concerns near critical military locations can be addressed  by CFIUS, but DOD also identified challenges addressing proximity  concerns with investments that are not able to be addressed through the  CFIUS process. For example, the establishment of businesses (which  may include land purchases) in the United States that do not include an  existing U.S. business—referred to as greenfield investments—are not  considered covered transactions, but can pose proximity concerns when  near certain military locations. Officials at MIBP and several other  components expressed concerns with their inability to address proximity  concerns arising from these investments, which can pose significant  national security risks and limit DOD’s ability to perform necessary test  and training activities. We identified at least two greenfield investments  that have occurred since 2016 that have posed proximity concerns near  critical military locations, and were not able to be addressed through the  CFIUS process. One investment involving a purchase of land presented risks due to its  proximity to an Air Force base. According to DOD’s Report to  Congress 2017 Sustainable Ranges, the investment involved a U.S.  company with substantial foreign financing, potentially subjecting  training range missions performed at the base to persistent monitoring  by a foreign government. According to officials, although the Air  Force identified concerns with the investment, because it did not  result in foreign control of a U.S. business, it was determined to not be  a covered transaction. Officials from another military department identified an investment that  was not voluntarily filed with CFIUS and posed proximity issues near  a training range. According to military department officials, the  investment involved the same foreign acquirer that had been a source  of concern in other voluntarily filed CFIUS transactions. The military  department elevated its concerns to CFIUS through the non-notified  process, but, according to officials, Treasury ultimately determined  that it was not a covered transaction because there was no foreign  control over a U.S. business. Moreover, because the investment was  already completed, the company had started construction that  threatened to encroach upon a training range that is one of only two in  the country available to perform certain types of training. Military  department officials said it was too soon to determine the effect that  this investment would have on their ability to perform training, but  emphasized the criticality of protecting unique testing and training  range spaces. Our prior work on defense training ranges also identified limitations DOD  faces in addressing proximity and encroachment concerns from foreign  investment. For example, we found in 2014 that officials from the Navy  and Air Force, in particular, had concerns about the number of  investment-related projects by foreign entities near their ranges (such as  leases for mining or oil or natural gas exploration), which could pose  potential security risks. However, we reported that DOD does not have  access to the information needed to determine whether foreign  investment activities near testing and training ranges pose a threat  because other civilian federal agencies, such as the Departments of  Interior and Transportation, that are responsible for approving these  transactions face legal, regulatory, or resource challenges that prevent  them from collecting information unrelated to their missions. We found  that, although DOD has had some success obtaining information on  foreign investment near test and training ranges, these efforts have been  based on informal coordination between military liaisons at certain bases  and local Department of Interior representatives. In addition to our  recommendation that DOD develop and implement guidance for  assessing risks to certain test and training ranges from foreign  encroachment, we recommended that DOD collaborate with these other  federal agencies to gather additional information needed for transactions  in proximity to DOD test and training ranges, and seek legislative relief if  needed. DOD concurred with our recommendations and has taken some  steps to address them. For example, as noted earlier, DOD is in the  process of developing guidance to assess risks to test and training  ranges based on its identification of locations it considers to be at risk  from foreign encroachment. According to DOD officials, they have also  drafted legislative proposals to address limitations to their ability to gather  information from the land management agencies on foreign investments  in proximity to critical military locations. According to DOD officials, these  proposals have not been submitted to Congress due to concerns raised  by the federal land management agencies, but DOD continues to explore  the possibility of legislative action to address these concerns. We also reported that DOD uses multiple methods, in coordination with  other federal agencies, to identify potential business activities near DOD  test and training ranges. But CFIUS is the only formal option in regard to  transactions involving foreign companies or entities that accounts for  national security concerns. A 2015 DOD report to Congress on security  risks related to foreign investment in the United States found that there  are no authorities in the current federal land management framework that  would require federal land management agencies to prevent a transaction  from occurring if DOD identified a national security concern. The report  further states that CFIUS and the Foreign Investment and National  Security Act of 2007 are the only federal authorities available to DOD to  assess national security risks posed by foreign investment in the vicinity  of critical military locations, like DOD training and test ranges, but that the  CFIUS process is not intended to address such national security risks.  While CFIUS is able to address proximity concerns that arise through  covered transactions, DOD has reported that it has limited ability to  identify, assess, and mitigate national security concerns for investments  that are not considered covered transactions through CFIUS, such as  greenfield investments. However, DOD’s report does not identify, assess,  or make recommendations about what additional DOD authority, if any,  would be necessary to address these concerns, and as noted earlier,  DOD’s efforts to develop and implement guidance based on its  identification of locations that they consider to be at risk from foreign  encroachment are still in progress. According to federal internal control standards, agencies should establish  policies and procedures to respond to risks; and identify, analyze, and  respond to significant changes that could affect their operations. DOD is  in the process of identifying locations it considers to be at risk from  foreign encroachment, which can eventually be used to inform its review  of foreign investments for proximity concerns, but DOD states that it is  currently unable to address concerns related to greenfield investments  through the CFIUS process because they are not considered covered  transactions. Moreover, DOD reported that CFIUS is not a DOD-led  process, and DOD is just one of nine member agencies. Members of Congress have recently proposed legislation that would expand the  definition of covered transactions to include foreign acquisitions or leases  of real estate in proximity to U.S. military locations, but the legislation is  pending. Taking additional steps to assess what authority, if any, is  needed to address foreign investment in proximity to certain critical  military locations and raising these concerns to Congress, as necessary,  would better position DOD to address its concerns. Until DOD completes  efforts to develop and implement guidance assessing risks to critical  locations that should be protected from foreign encroachment, and  assesses what authority, if any, is necessary to independently address  concerns with investments near these areas, it remains at risk of not  protecting these locations from the national security risks posed by  foreign adversaries. Detailed Location Information  Not Included in Notices  Submitted to CFIUS Detailed location information is not always included in notices submitted  to CFIUS, which can affect DOD’s ability to review transactions for their  proximity to critical military locations. Some CFIUS transactions can  involve numerous properties or locations, and information on the  geographic coordinates of these locations is used by MIBP and the  components when determining if there could be national security  concerns with a transaction. Specific details on the use of geographic  coordinates to identify whether a transaction may pose proximity  concerns near critical military locations have been omitted because the  information is sensitive. According to Treasury officials, DOD often requests geographic  coordinates once a notice is submitted, and Treasury officials said they  have attempted to gather more detailed location information as part of  notices. However, officials at one military department said that while there  have been improvements in the availability of this information in notices,  there are still some companies that do not include the geographic  coordinate information. Treasury officials stated that CFIUS has the  authority to require this information from companies and has considered  revising its regulations to require this information. However, Treasury has  not yet done so. Federal internal control standards state that agencies  should establish policies and procedures to respond to risk and use  quality information to achieve its objectives. Requiring information on  geographic coordinates for all target locations in notices submitted to  CFIUS will improve DOD’s ability to more efficiently identify and address  proximity concerns with covered transactions. DOD Has Not Updated  Policy to Reflect Changes  in Components’ Review  Responsibilities and  Processes DOD’s Instruction identifies CFIUS-related responsibilities and processes  for reviewing transactions, but that policy has not been updated to reflect  current component reviewer roles and responsibilities or processes for  addressing non-notified transactions that may pose national security  concerns for the department. The current DOD Instruction was issued in  2010—prior to the transfer of CFIUS responsibilities from the Defense  Technology Security Administration to MIBP—but has not been updated  to reflect the change. Moreover, the Instruction includes a list of the types  of information components should provide to request a non-notified  transaction be submitted to CFIUS for further action but has no guidance  or expectations for whether or how components should identify and  research them. In addition to DOD’s Instruction, which is the guiding  policy for DOD’s CFIUS procedures, in June 2016, MIBP developed an  internal process document describing its process for reviewing CFIUS  transactions; developing and monitoring mitigation agreements; and  identifying and reviewing non-notified transactions. While MIBP officials  said the process document is based on the DOD Instruction and is more  up-to-date, it is intended to be an internal reference document for MIBP  employees and contractors, and it has not been distributed more broadly  to the components involved in reviewing transactions for CFIUS. Moreover, the DOD Instruction does not reflect the department’s  responsibilities for reviewing transactions. For example, MIBP’s internal  process document identifies advisory and primary reviewers who are  responsible for providing inputs on transactions. However, based on our  review of the DOD Instruction, advisory and primary component  responsibilities are not differentiated, and several of the advisory  reviewers that are identified in MIBP’s internal process document are not  listed as reviewers in the current Instruction. For example, according to  DOD documentation and officials, the Assistant Secretary of Defense for  Research and Engineering is an advisory reviewer for CFIUS cases and  coordinates input from several other reviewers—including the Defense  MicroElectronics Activity and Defense Advanced Research Projects  Agency—to determine if a transaction involves a critical technology.  However, the Assistant Secretary of Defense for Research and  Engineering’s responsibilities for coordinating these inputs are not  identified in the current DOD Instruction, nor is this office listed as a  reviewer. Our review of DOD’s Instruction, internal guidance, and other  documentation identified several other discrepancies between component  responsibilities identified in the Instruction and what is occurring in  practice. For example, the Under Secretary of Defense for Personnel and  Readiness, among other things, coordinates with OUSD (AT&L) and the  Director of Operational Test and Evaluation on the effects of  encroachment on DOD test and training areas. While MIBP officials  identified the Office of the Under Secretary of Defense for Personnel and  Readiness as a CFIUS reviewer, this office is not identified as a reviewer  in the DOD Instruction or internal MIBP process document. In addition to not having up-to-date information on reviewer roles and  responsibilities, the DOD Instruction does not include guidance on how  MIBP and the components should identify and research non-notified  transactions that may pose national security concerns. As discussed  above, because the CFIUS process is based on voluntary notices  submitted by parties to transactions, DOD and Treasury officials stated  that it is important to monitor foreign acquisitions of U.S. companies that  are not filed with CFIUS to determine if any may present national security  concerns. As shown in figure 4, there were approximately 1,680 mergers  and acquisitions involving foreign acquisitions of U.S. companies in  2016. While not all foreign acquisitions of U.S companies pose national  security concerns that would warrant them being reviewed by CFIUS,  DOD officials acknowledged challenges with their ability to identify and  research these transactions. Specific details on the challenges DOD  faces identifying non-notified transactions have been omitted because the  information is considered sensitive. In addition to challenges identifying non-notified transactions within MIBP,  DOD component reviewers’ awareness of the non-notified transaction  process varied across the components that we spoke with, and  participation in this part of the process is ad hoc. For example, five of the  nine components in our sample said they do not have processes in place  to identify transactions that have not been voluntarily filed but present  risks to national security that could warrant CFIUS review. Officials from  four components we spoke with said they have identified non-notified  transactions. However, officials from most other DOD components told us  they either are not involved or occasionally review non-notified  transactions once MIBP identifies them, and they do not proactively  perform non-notified transaction research, in part due to resource  constraints. Officials from some components were also uncertain about whether they  should elevate some non-notified transactions of concern. For example,  DOD’s Instruction does not explain when, pursuant to CFIUS regulations,  joint ventures are covered transactions. It also does not explain that, even  if a non-notified transaction has been completed—meaning a foreign  acquirer has already finalized the purchase of a U.S. company—CFIUS  can still recommend that the President suspend or prohibit the  transaction. Officials from two components said that they are aware of  completed joint ventures or other transactions that were of concern but  not voluntarily filed, and that they did not elevate them. According to  these officials, they assumed the joint ventures would not be covered or  that there was nothing CFIUS could do to address their concerns. In May 2017, the MIBP official responsible for non-notified transactions  began a DOD pilot working group for researching non-notified  transactions. According to the official, the working group is intended to  leverage component reviewer resources and involve them in performing  research on non-notified transactions identified by MIBP. However, as of  June 2017, participation in the group was limited to 5 of the more than 30  DOD component reviewers, and its processes for reviewing and  distributing transactions are still evolving. While this action represents a  positive step towards establishing and formalizing efforts to identify non- notified transactions, MIBP officials expressed concern that their ability to  identify transactions that may pose risks is not as developed as they  would like it to be. Specific details on MIBP’s ability to identify  transactions that may pose risks have been omitted because the  information is considered sensitive. In contrast to DOD’s limited non-notified guidance, the Department of  Homeland Security, another member agency of CFIUS, has guidance for  reviewing non-notified transactions in its Instruction for Department of  Homeland Security Participation in the Committee on Foreign Investment  in the United States. According to the Instruction, each week a digest of  non-notified transactions is to be sent to Department of Homeland  Security components for review, and selected components are required to  provide any concerns with the transaction within 7 days. The Department  of Homeland Security then determines whether to prepare a non-notified  request to forward the transaction on to CFIUS so that the committee can  determine whether the transaction merits further action. Federal internal control standards state that agencies should identify and  document agency responsibilities and processes in policy, and  periodically review and update policies based on changes. According to  MIBP officials, they have been revising DOD’s Instruction for over 3  years, and recently began the formal department-wide review process.  MIBP officials said they had not released updated guidance to reflect  changes in responsibilities and processes sooner because of challenges  with employee attrition and leadership changes, which have resulted in  multiple rewrites. However, several components we spoke with  referenced the need for updated or standardized guidance to inform their  CFIUS review responsibilities and the development of their own  component-level guidance. It has been over 5 years since MIBP was  assigned responsibility for CFIUS, raising questions about the  prioritization of CFIUS within the department. Without clear and updated  guidance on reviewer responsibilities and established processes and  guidance on the identification and review of non-notified transactions,  DOD is at risk of inconsistencies in its review of transactions, and it may  be unable to address non-notified transactions that pose national security  concerns in a timely and efficient manner. DOD Faces Several  Challenges  Developing and  Monitoring CFIUS  Mitigation  Agreements As noted above, mitigation agreements address any threats to national  security posed by a transaction. DOD is responsible for most of the  CFIUS mitigation agreements, but faces a variety of challenges when  taking action to mitigate national security concerns and ensure the  effectiveness of the agreements. These challenges relate to insufficient  personnel resources compared to MIBP’s workload, and unclear  communication about the delineation of responsibilities between MIBP  and the DOD components. Moreover, DOD has not reported to Congress  on its responsibilities for monitoring and enforcing mitigation agreements. DOD Is Responsible for  Most CFIUS Mitigation  Agreements DOD is responsible for more mitigation agreements than other CFIUS  member agencies, monitoring 84 of the total of 141 mitigation agreements  for CFIUS, or about 60 percent as of the end of calendar year 2017.  DOD’s responsibility for mitigation agreements more than doubled  between 2012 and 2017. Figure 5 shows how DOD’s CFIUS mitigation  agreement-related responsibilities have increased since 2000. We reviewed Treasury data on transactions from January 2015 through  December 2016 to identify the types of national security concerns DOD  mitigated through the CFIUS process. We found that the 22 mitigation  agreements implemented by DOD during this period included acquisitions  of U.S. companies in the aerospace, energy, real estate, and information  technology industries, among others. Seventeen of these agreements  were implemented to address either supply assurance—DOD’s access to  certain products or services—or proximity issues. Based on the Committee on Foreign Investment in the United States  Annual Report to Congress for Calendar Year 2015 and our review of  DOD documentation, the mitigation measures that have been negotiated  and adopted since 2015 may require the parties to the transaction to take  actions such as: Ensuring that only authorized persons have access to certain  technology and information; Appointing a U.S. government approved security officer; Providing annual reports and independent audits; Notifying security officers or relevant U.S. government parties in  advance of foreign national visits to the U.S. business for approval; Providing written notification when additional assets are purchased; Providing written notification and obtaining CFIUS approval of other  parties joining the joint venture; and Requiring supply assurance for products or services being provided to  the government. Based on our review of a non-generalizable sample of nine mitigation  agreements provided by one of the DOD component reviewers, mitigation  agreements typically have more than one measure. For example, there  were between 4 and 10 different measures in each agreement we  reviewed, and in one agreement, one measure required the submission of  more than 100 reports. While some of the mitigation measures require the  parties to the agreement to take action and report to DOD, MIBP also  monitors and enforces compliance with mitigation measures by  conducting on-site compliance reviews and investigations if violations are  discovered. If a company violates a mitigation agreement, CFIUS has the authority to  impose penalties, although, according to Treasury and DOD officials, the  committee has not taken action to enforce penalties for non-compliance  with a mitigation agreement. CFIUS regulations state that any person who  intentionally or through gross negligence violates a material provision of a  mitigation agreement may be liable for a civil penalty not to exceed  $250,000 per violation or the value of the transaction, whichever is  greater. DOD officials and the Deputy Assistant Secretary for  Investment Security at Treasury stated that the regulatory standard  regarding taking action against a company that has violated a mitigation  agreement is high. They noted it is difficult to prove that a company  violated a mitigation agreement intentionally or through gross negligence,  and that the national security effect may exist even if the cause of the  violation is ordinary negligence. In October 2017, MIBP officials  reported six instances since 2013 where companies were not in  compliance with their mitigation agreements, but stated that none of these  instances were the result of intentional or grossly negligent actions. They  told us that DOD has not recommended that CFIUS take action to impose  penalties in these cases. In general, according to Treasury and MIBP  officials, CFIUS member agencies work with companies to establish a  culture of compliance and correct violations of the mitigation agreements  as opposed to imposing fines or penalties. DOD Faces Challenges in  Developing and Monitoring  CFIUS Mitigation  Agreements MIBP and the DOD components face a variety of challenges, to include  developing and monitoring mitigation agreements as a result of limited  personnel resources compared to an increasing workload; and  communicating about mitigation agreement responsibilities between DOD  and the components. Some of the specific details on personnel resource  challenges and communication between MIBP and the components have  been omitted because the information is sensitive. In addition to resource challenges within MIBP, resources for mitigation  agreement-related activities within the DOD components are also limited  and can vary. Officials from at least one component stated that they are  not involved in developing or monitoring mitigation agreements because  they do not have the resources to do so. Further, citing concerns with  DOD’s ability to effectively oversee mitigation agreements, officials from  three DOD components stated that DOD should recommend prohibiting  transactions more often than imposing mitigation agreements. For  example, an official from one DOD component with CFIUS responsibilities  stated that it is not plausible that these agreements can be properly  executed because adversaries have the resources to conceal the fact that  they are not complying with the mitigation agreement. Officials from  another DOD component also expressed concerns with mitigation  agreement enforcement, and stated that they were likely to recommend  prohibiting transactions in the future instead of negotiating mitigation  agreements in transactions where a national security risk has been  identified. A June 2017 DOD report on technology transfer and emerging technology  found that given concerns about the cost and effectiveness of mitigation  agreements, if the mitigation agreements cannot be simple, CFIUS  should recommend that the President suspend or prohibit the transaction.  Similarly, officials at the Navy stated that mitigation measures are more  effective if they can be fully implemented before the transaction is closed,  as opposed to those that require ongoing monitoring. MIBP officials  stated that if resource shortfalls continue, they run the risk of having to  recommend that the President prohibit transactions because they are  unable to implement or monitor additional mitigation agreements. To bolster available DOD resources for monitoring mitigation agreements,  MIBP is in the process of expanding on a case-by-case basis its use of  third-party monitors—private auditing and consulting firms approved by  DOD and CFIUS but paid for by the foreign acquirer. In these instances,  the acquirer is responsible for contracting with qualified third-party  independent monitors, which MIBP officials stated they believe could  result in cost savings to the government by reducing the resources it uses  to respond to routine notifications and requests for approval. MIBP  officials stated that this concept would allow MIBP to better extend control  over the range of agreements by focusing on monitoring the third-party  monitors. However, these officials also acknowledged that the use of  third-party monitors can present an inherent conflict of interest by having  foreign acquirers funding their own compliance and mitigation agreement  monitoring. It is too soon to assess the effect of the expansion of third- party monitoring on improving MIBP’s ability to oversee compliance with  mitigation agreements. In addition, we found that MIBP has not clearly communicated  expectations and responsibilities for developing and monitoring mitigation  agreements to some DOD components. This has led to confusion about  what is expected of the components during this part of the process and  raised uncertainty within the components we met with about the  effectiveness of the mitigation agreements. For example, DOD’s  Instruction requires components to identify, as applicable, mitigation  agreement measures as part of their risk-based analysis and participate  in monitoring the mitigation agreements in instances when they have  identified a risk. However, officials from several DOD components said  that they either do not include mitigation measures in their risk-based  analysis or have been asked not to by MIBP. According to Treasury  officials, the CFIUS process has been updated and the proposal of  mitigation measures can occur before or during the development of an  agency’s risk-based analysis, but this information is not reflected in  DOD’s Instruction, and DOD officials could not identify whether or how  this change in process had been communicated to the components. In addition, officials at one DOD component cited examples of unclear  communication regarding their responsibilities for mitigation agreement  documentation. For example, these officials told us they requested, but  did not receive, documentation from MIBP to ensure compliance with four  of the nine mitigation agreements it is responsible for monitoring.  According to documentation from this component, it had not received  approximately 110 of 133 documents and other reporting requirements  that were necessary to determine whether the company was in  compliance with the mitigation agreement. According to MIBP officials,  they had received the required documentation from the company but did  not share it with the component because they were not related to the  mitigation agreement measures that the component was responsible for  monitoring. As a result of this miscommunication, the component thought  that it was responsible for reviewing the missing documentation. MIBP  officials stated that they plan to expand and improve their capability to  provide DOD components access to the necessary documentation in the  future. Officials from MIBP and the component said MIBP currently  maintains a shared drive where it stores mitigation agreement  documentation, but not all components have access to this  documentation. Additionally, while DOD’s Instruction states that DOD components that  propose mitigation measures should participate in overseeing those  measures, two of the nine components in our sample reported being  actively involved in ensuring compliance with mitigation agreements or  performing site visits. Two components have allocated several full-time  personnel to the task and another has guidance that directs its  involvement in CFIUS mitigation agreement monitoring. For example,  Navy officials said they have established an office to review transactions  that may pose proximity-related risks and monitor proximity-related  mitigation agreements, but they have not been given the authority by  MIBP to make a final determination regarding whether parties are in  compliance with the agreements or to participate in all discussions with  the parties. MIBP officials stated that they seek component input on all  mitigation agreements, but that MIBP has taken the lead in developing  and monitoring DOD mitigation agreements and ensuring compliance  because the DOD components have not historically had the resources to  dedicate to this responsibility. DOD’s Instruction identifies oversight and communication mechanisms  that have not been implemented, but could assist the department in  addressing challenges monitoring and ensuring compliance with its  CFIUS mitigation agreements. For example, DOD’s Instruction  establishes a CFIUS Monitoring Committee, made up of relevant DOD  component reviewers, to serve as the focal point for DOD monitoring.  Among other things, the CFIUS Monitoring Committee was intended to  meet quarterly. DOD’s Instruction also calls for the development of a  DOD CFIUS Strategic Mitigation Plan to include things such as:  identification of strategic policy for mitigation and monitoring efforts,  taking into account resource management and filing trends;  identification of methods to substantiate and document company  compliance with mitigation agreements and maintain records of that  compliance; and annual analysis of past mitigation in order to determine if past  approaches to monitoring and mitigation can be improved. However, according to MIBP officials, the CFIUS Monitoring Committee  and the Strategic Mitigation Plan were not implemented because MIBP  did not have the resources to do so. MIBP officials also said they did not  see the establishment of the CFIUS Monitoring Committee with relevant  DOD components as necessary because MIBP has taken primary  responsibility for monitoring mitigation agreements. In addition to not  implementing these oversight and communication mechanisms, MIBP  has not updated DOD’s Instruction to account for policies that are no  longer practiced, such as requiring proposed mitigation measures as part  of the risk-based analysis, or having components take responsibility for  monitoring the mitigation measures they recommend. According to  federal internal control standards, to achieve an entity’s objectives,  management assigns responsibility and delegates authority to key roles  throughout the entity. In addition, management should internally  communicate the necessary quality information to achieve the entity’s  objectives. Updated and improved guidance, including communication  about MIBP’s management of mitigation agreements and component  involvement in developing and monitoring them, could help provide  additional oversight of DOD’s mitigation agreements and address  resource challenges associated with an increasing workload. DOD Has Not Reported on  Review of Mitigation  Agreement Monitoring  Responsibilities DOD has not reported its findings to Congress on a review regarding  monitoring and enforcing mitigation agreements. A 2013 House Report  asked the Secretary of Defense to review the role of the Deputy Assistant  Secretary of MIBP in monitoring CFIUS mitigation agreements in which  DOD was the lead or co-lead and determine if the Defense Security  Service is suited to perform these functions, and report the findings. The  House Armed Services Committee noted concerns over whether MIBP,  as a policy organization, has the resources and technical expertise to  provide reasonable oversight of implementation and compliance with  mitigation agreements. The House Report stated that DOD may benefit  from leveraging the capabilities of the Defense Security Service, which  already reviews every CFIUS filing on behalf of the National Industrial  Security Program, and monitors compliance with its own mitigation  agreements as part of that program. DOD was to report on the findings on the review in 2013, but, according  to MIBP officials, it has been delayed because disagreement exists within  DOD regarding where responsibility for monitoring mitigation agreements  should reside. Both MIBP and Defense Security Service officials we  spoke with said that their office is the best equipped to perform CFIUS  mitigation agreement responsibilities. As a result, formal coordination of  the department’s response has not been completed. As of January 2018,  MIBP officials said that while they recognize the need to complete the  response, DOD has not committed to a specific time frame for the  response. Reporting the findings to the congressional defense  committees will facilitate the identification of current challenges related to  CFIUS mitigation agreement oversight, and could address questions  about the capabilities and responsibilities necessary to effectively monitor  and enforce CFIUS mitigation agreements. Conclusions Growing foreign direct investment in the United States provides important  economic benefits, but can also pose national security risks when that  investment comes from potential adversaries. Ensuring that DOD has the  resources, processes, and information necessary to perform its  responsibilities under CFIUS is essential at a time when the number and  complexity of transactions being reviewed by CFIUS has grown  significantly. According to officials, the types of investments that pose  risks have evolved, making questions about foreign control difficult to  determine and mitigate, including investments involving important  emerging technologies or real estate purchases in close proximity to  sensitive military locations. In light of these issues, assessing CFIUS resource requirements across  the department, completing efforts to identify and communicate critical  national security concerns, assessing whether DOD has the necessary  authority to address these concerns, and ensuring its policies and  practices reflect current DOD component reviewers and processes will be  essential to DOD’s ability to address the evolving risks it faces from  foreign investment. For national security concerns that DOD determines it  does not have the authority to address, it may be necessary for DOD to  seek legislative action. Further, without updating DOD’s CFIUS guidance  to reflect current requirements and reporting on reviews requested by a  committee of Congress on the department’s responsibilities for monitoring  mitigation agreements, DOD will likely continue to face challenges  facilitating intra-departmental communication and questions about the  prioritization of CFIUS within DOD. Recommendations for  Executive Action We are making a total of eight recommendations: four to the Secretary of  Defense, three to the Deputy Assistant Secretary of Defense for MIBP,  and one to the Secretary of the Treasury. Specifically:  The Secretary of Defense should assess CFIUS resource requirements  within MIBP and DOD component reviewers in light of increasing  workload, and prioritize personnel and funding resources accordingly to  review, mitigate, and monitor transactions that are of concern to the  department. (Recommendation 1) The Secretary of Defense, in coordination with the Deputy Assistant  Secretary of Defense for MIBP and Office of the Under Secretary of  Defense, Personnel and Readiness, should incorporate the results of its  efforts to identify, assess, and prioritize national security concerns related  to foreign investment in emerging technologies and in proximity to certain  critical military locations, into DOD Instruction 2000.25 and communicate  the results to DOD component reviewers. (Recommendation 2) Following the completion of its emerging technology study, the Deputy  Assistant Secretary of Defense for MIBP should assess what additional  authorities may be necessary to address risks related to foreign  investment in critical and emerging technologies, and seek legislative  action to address risks posed by these investments as appropriate.  (Recommendation 3) Following the department’s efforts to identify critical locations and develop  and implement guidance assessing risks to these locations from foreign  encroachment, the Secretary of Defense should assess what additional  authorities, if any, may be necessary to address national security risks  from foreign investments in proximity to these locations, and seek  legislative action as appropriate. (Recommendation 4) The Secretary of the Treasury should provide clarification to parties filing  a notice of a transaction with CFIUS that for filings involving multiple  locations, geographic coordinates are required to be part of the  notification. (Recommendation 5) The Deputy Assistant Secretary of Defense for MIBP should update DOD  Instruction 2000.25, to include additional guidance and clarification  regarding DOD component responsibilities during the CFIUS process and  DOD processes for identifying non-notified transactions.  (Recommendation 6) The Deputy Assistant Secretary of Defense for MIBP should update and  implement requirements identified in DOD Instruction 2000.25 regarding  management and oversight of mitigation agreements, such as taking into  account the resources needed to effectively monitor agreements,  improving communication methods between MIBP and the DOD  components, and clarifying component responsibilities in developing and  monitoring mitigation agreements. (Recommendation 7) The Secretary of Defense should submit the response to the House  Report reviewing the role of the Deputy Assistant Secretary of Defense  for MIBP in monitoring CFIUS mitigation agreements, and determining if  the Defense Security Service is suited to perform these functions.  (Recommendation 8) Agency Comments  and Our Evaluation DOD and Treasury provided written comments on a draft of the sensitive  report. These comments are reprinted in appendixes IV and V,  respectively. We also received technical comments from both agencies,  which we incorporated as appropriate. Both departments concurred with  our recommendations. In its written comments, DOD agreed to use a recent assessment of  CFIUS resource needs to inform its upcoming budget requests. We  acknowledge MIBP’s recent efforts to identify and prioritize resource  needs in support of its CFIUS responsibilities. As DOD develops its  budget request, we encourage the department to consider increases in  DOD’s CFIUS workload and the resources required to support essential  CFIUS functions, like monitoring mitigation agreements and identifying  non-notified transactions that may pose national security risks. DOD also  agreed to update its guidance related to CFIUS procedures and  responsibilities, and complete assessments about additional authorities  the department may need to address national security concerns related to  foreign investments in U.S. companies developing critical and emerging  technologies or in proximity to critical military locations. In its comments,  DOD stated it has identified over 40 critical military locations and expects  to develop guidance for assessing the risks posed by foreign investments  in proximity to these locations. DOD also agreed to complete its response  to the House Report reviewing MIBP’s role in monitoring CFIUS mitigation  agreements. In its comments, DOD stated it is continuing to explore the  implementation of third-party monitors as an alternative solution for  monitoring CFIUS mitigation agreements. In its written comments, Treasury concurred with our recommendation to  provide clarification that parties filing a notice with CFIUS should include  geographic coordinates as part of their notice. Treasury has updated  information on its website to clarify that addresses and/or geographic  coordinates are required for a CFIUS filing to be considered complete. We are sending copies of this report to the appropriate congressional  committees, the Secretary of Defense, the Deputy Assistant Secretary of  Defense for MIBP, and the Secretary of the Treasury. In addition, the  report is available at no charge on the GAO website at  http://www.gao.gov. If you or your staff have any questions about this report, please contact  me at (202) 512-4841 or makm@gao.gov. Contact points for our Offices  of Congressional Relations and Public Affairs may be found on the last  page of this report. GAO staff who made key contributions to this report  are listed in appendix VI. Appendix I: Department of Defense (DOD)  Offices and Organizations with Committee  on Foreign Investment in the Unites States  (CFIUS) Review Responsibilities Appendix II: Objectives, Scope and  Methodology This report assesses factors, if any, that affect the Department of  Defense’s (DOD) ability to (1) identify and address national security  concerns through the Committee on Foreign Investment in the United  States (CFIUS) process, and (2) develop and monitor mitigation  agreements through the CFIUS process. This report is a public version of a sensitive report that we issued on April  5, 2018. DOD and the Department of the Treasury (Treasury) deemed  some of the information in our April report to be sensitive, which must be  protected from public disclosure. Therefore, this report omits sensitive  information related to (1) DOD’s resources to perform certain CFIUS  functions, like monitoring mitigation agreements and identifying non- notified transactions; (2) the availability of location information as part of  notices that companies file with CFIUS; and (3) the resources and  communication required between DOD and the components to develop  and monitor mitigation agreements through the CFIUS process. Although  the information provided in this report is more limited, this report  addresses the same objectives and uses the same methodology as the  sensitive report. To assess what factors, if any, affect DOD’s ability to identify and address  national security concerns through the CFIUS process, we reviewed  relevant documentation, including: CFIUS-related laws and Department of  the Treasury (Treasury) regulations; DOD policies and guidance; and  DOD and CFIUS internal reports to identify DOD’s responsibilities and  processes for identifying and addressing national security concerns  through the CFIUS process. While there are other authorities, including  export controls such as the International Traffic in Arms Regulations and  Export Administration Regulations, which in certain circumstances may  be used to address national security concerns that arise through foreign  investment, our review focused on the DOD’s responsibilities addressing  national security concerns through the CFIUS process. To assess DOD’s  efforts to identify and address national security concerns it identified, we  gathered and analyzed data on transactions that DOD was responsible  for co-leading from January 1, 2012, through December 31, 2017, the  most recent data available. To identify resources dedicated to supporting  CFIUS activities within the Office of Manufacturing and Industrial Base  Policy (MIBP)—the DOD office responsible for coordinating the CFIUS  process on behalf of DOD—we analyzed MIBP data from 2012 through  2017 on DOD personnel resources, and reviewed budget amounts from  2012 through 2016 for DOD CFIUS activities from DOD budget  documents. To identify the outcomes of transactions not voluntarily filed  with CFIUS—known as non-notified transactions—we gathered and  analyzed data on the number of non-notified transactions MIBP has  identified and researched since the beginning of fiscal year 2016, when  they started formally tracking that information. Based on information on  the collection and management of Treasury and DOD transaction data,  our review of related documentation, and interviews with relevant  Treasury and DOD officials, we determined that these data were  sufficiently reliable for the purposes of this report. To identify challenges  DOD faces addressing certain national security concerns, such as  protecting emerging and critical technology and foreign investments in  proximity to certain critical military locations, we reviewed a non- generalizable sample of CFIUS case file information for seven  transactions. We selected these transactions based on examples  identified by DOD components, and the types of national security  concerns, including those related to emerging technology and proximity,  that DOD officials identified throughout the review. We interviewed  officials at Treasury, MIBP, and selected DOD component reviewers to  discuss DOD’s CFIUS workload and resources. In this report, we define  resources as the authorized positions, assigned personnel, personnel  performing contract services related to CFIUS functions, and CFIUS- related costs. We also discussed with these officials any limitations to  addressing certain national security concerns—like protecting emerging  technology and foreign investment in proximity to critical military  locations—through CFIUS, and guidance for the CFIUS process and  identifying non-notified transactions. Additional information on the DOD  components included in this review can be found below. To identify calendar year 2016 mergers and acquisitions involving U.S.  businesses, and the proportion of those mergers and acquisitions  involving foreign acquirers, we reviewed data available from the  Bloomberg Terminal, which is a commercial database containing data on  mergers and acquisitions. We gathered data on total 2016 mergers and  acquisitions involving U.S. companies that were announced, pending, or  completed. We also gathered data on 2016 mergers and acquisitions that  were announced, pending, or completed involving U.S. companies and  foreign acquirers to illustrate the number of potentially covered  transactions that may not be voluntarily notified to CFIUS. We assessed  the reliability of these data by reviewing relevant documentation and  ensuring the data gathered aligned with the search criteria identified. We  determined the data were sufficiently reliable for our purposes of  displaying total U.S. mergers and acquisitions and the proportion of those  transactions that involve foreign acquirers and thus could be potentially  covered transactions by CFIUS. To assess what factors, if any, affect DOD’s ability to develop and monitor  mitigation agreements through the CFIUS process, we reviewed CFIUS- related laws and regulations and DOD policies and guidance to identify  DOD and its component reviewers’ responsibilities and processes for  developing and monitoring compliance with mitigation agreements. We  also reviewed the Committee on Foreign Investment in the United States  Annual Report to Congress for Calendar Years 2014 and 2015. To  identify actions DOD has taken to mitigate national security concerns, we  analyzed data to identify the number of mitigation agreements DOD is  responsible for and actions DOD has taken to mitigate and monitor  transactions with national security concerns from January 1, 2012 through  December 31, 2017, the most recent data available. Based on information  on the collection and management of Treasury and DOD CFIUS  mitigation agreement data, our review of related documentation, and  interviews with relevant Treasury and DOD officials, we determined that  these data were sufficiently reliable for the purposes of this report. We  also reviewed executive summaries compiled by MIBP of the DOD-co-led  transactions with mitigation agreements, as well as selected CFIUS case  file documentation for seven transactions. We interviewed officials at  Treasury, MIBP, and DOD component reviewers to identify any  challenges they face developing and enforcing mitigation agreements. To  provide illustrative examples of the types of measures included in CFIUS  mitigation agreements, we reviewed all of the active mitigation  agreements from one component with responsibilities for monitoring  mitigation agreements involving proximity issues. These agreements are  not generalizable to other components. To gather a range of views on issues related to both objectives, we  selected a non-generalizable sample of nine DOD component reviewers  responsible for identifying, reviewing, and investigating transactions.  These components included officials from: the Departments of the Army,  Air Force, and Navy; the DOD Chief Information Officer, the Defense  Information Systems Agency; the Defense MicroElectronics Activity; the  Defense Advanced Research Projects Agency; the National Security  Agency; and the Office of Manufacturing and Industrial Base Policy,  Industrial Base Assessments. Our selection was based primarily on these components’ responsibilities  for reviewing and investigating transactions for key issues DOD identified  as relevant to its review of transactions, including risks related to  emerging technology and proximity risks. We also solicited MIBP’s  recommendations to identify components with varying levels of  participation and input into the CFIUS process. We interviewed all nine  components and in some cases also received written responses from  them to identify similarities and differences in their processes, any  challenges they face identifying and addressing national security  concerns through CFIUS, and their involvement and any challenges they  face developing or monitoring mitigation agreements. Findings based on  information collected from the nine components cannot be generalized to  all DOD components. In addition to the components included in our  sample, we also interviewed and received documentation from other DOD  organizations about the CFIUS process. These organizations included  officials from: the Defense Innovation Unit Experimental; the Defense  Security Service; the Defense Technology Security Administration; the  Assistant Secretary of Defense for Research and Engineering; and the  Office of the Under Secretary of Defense for Intelligence. We do not  include information gathered from these other components in statements  based on our non-generalizable sample. The performance audit upon which this report is based was conducted  from January 2017 to April 2018 in accordance with generally accepted  government auditing standards. Those standards require that we plan  and perform the audit to obtain sufficient, appropriate evidence to provide  a reasonable basis for our findings and conclusions based on our audit  objectives. We believe that the evidence obtained provides a reasonable  basis for our findings and conclusions based on our audit objectives. We  subsequently worked with DOD and Treasury from April 2018 to July  2018 to prepare this unclassified version of the original sensitive report for  public release. This public version was also prepared in accordance with  these standards. Appendix III: Factors the Committee on  Foreign Investment in the United States  Considers to Determine Whether Submitted  Transactions Pose a National Security Risk Appendix IV: Comments from the  Department of Defense Appendix V: Comments from the Department  of the Treasury Appendix VI: GAO Contact and Staff  Acknowledgments GAO Contact Staff  Acknowledgments In addition to the contact names above, W. William Russell (Assistant  Director), Katherine Trimble (Assistant Director), Meghan Perez (Analyst- in-Charge), and Heather B. Miller were principal contributors to this  report. In addition, the following people made contributions to this report:  Justin Fisher, Stephanie Gustafson, Kate Lenane, Alyssa Weir, and  Robin Wilson.
Foreign acquisitions of U.S. companies can pose challenges for the U.S. government as it balances the economic benefits of foreign direct investment with the need to protect national security. CFIUS is an interagency group, led by Treasury, that reviews certain transactions—foreign acquisitions or mergers of U.S. businesses—to determine their effect on U.S. national security and whether the transaction may proceed. GAO was asked to review DOD's ability, as a member of CFIUS, to address defense issues. This report assesses factors, if any, that affect DOD's ability to identify and address national security concerns through the CFIUS process, among other objectives. GAO analyzed data on DOD co-led transactions from January 2012 through December 2017, the most recent data available. GAO also interviewed DOD and Treasury officials and reviewed documentation to identify DOD's CFIUS processes, resources, and responsibilities and selected a non-generalizable sample of nine DOD component reviewers, based on their participation in the CFIUS process. The Department of Defense (DOD) faces challenges identifying and addressing evolving national security concerns posed by some foreign investments in the United States. Resources: DOD's Office of Manufacturing and Industrial Base Policy represents the department and coordinates DOD's participation on the Committee on Foreign Investment in the United States (CFIUS). As a committee member, DOD co-leads CFIUS's review and investigation of transactions between foreign acquirers and U.S. businesses where it has expertise. DOD co-led 99 transactions in calendar year 2017, or 57 percent more transactions than it co-led in 2012, while the annual authorized positions increased from 12 to 17 during that same time period. DOD's workload has also been affected by the volume and complexity of the transactions it is responsible for co-leading, in addition to other CFIUS responsibilities, such as identifying transactions that foreign acquirers do not voluntarily file with CFIUS. DOD has taken some steps to address its resource limitations, but has not fully assessed the department-wide resources needed to address its growing workload. Emerging Technology and Proximity: DOD officials identified some investments that pose national security concerns from foreign acquirers gaining access to emerging technologies or being in close proximity to critical military locations, which, according to officials, cannot always be addressed through CFIUS because the investments would not result in foreign control of a U.S. business. DOD and Department of the Treasury (Treasury) officials said addressing these investments may require legislative action. DOD is taking steps to identify critical emerging technologies and military locations that should be protected from foreign investment. However, DOD has not fully assessed risks from these types of foreign investment or what additional authorities, if any, may be necessary for it to address them. Policy: DOD's CFIUS Instruction does not clearly identify some reviewer responsibilities or processes for identifying transactions that foreign acquirers do not voluntarily file with CFIUS. The policy is also outdated and inconsistent with current practices. DOD's CFIUS Instruction and federal internal control standards emphasize the importance of assessing organizational structures, policies, and procedures to respond to risks. Without assessing resources needed to address its CFIUS workload and risks from foreign investment in emerging technologies or in proximity to critical military locations, and ensuring its policies and processes clearly reflect the issues facing the department, DOD is at risk of being unable to respond to evolving national security concerns. This is a public version of a sensitive report that GAO issued in April 2018. Information that DOD and Treasury deemed sensitive has been omitted.