Treasury agreed with our recommendation. 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. 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. 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. 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 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. 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. 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. Federal internal control standards state that agencies  should establish policies and procedures to respond to risk and use  quality information to achieve its objectives. 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. 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. 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. 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. 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. 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 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.
Why GAO Did This Study

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.

What GAO Found

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.

What GAO Recommends

GAO is making eight recommendations, including that DOD assess resources needed to address workload, assess risks from foreign investment in emerging technologies and in close proximity to critical military locations, and update its policies and processes to better reflect the evolving national security concerns facing the department. DOD and Treasury agreed with GAO's recommendations, and have identified some actions to address them.