Foreign Investment in the United States: Major Federal Statutory Restrictions
Foreign Investment in the United States:
Major Federal Statutory Restrictions
Updated March 27, 2008
Michael V. Seitzinger
American Law Division
Foreign Investment in the United States:
Major Federal Statutory Restrictions
Foreign investment in the United States is a matter of congressional concern.
It is believed by some that the United States has an unusually liberal policy which
allows foreigners to invest in virtually all American businesses and real estate and
that these foreign investments undermine the American economy by making it
vulnerable to foreign influence and domination. These critics argue that there is even
foreign domination of some key defense-related industries and that the ability of the
country to protect itself in a time of national emergency could greatly suffer. These
critics further argue that extensive foreign investment in this country drives up prices
which Americans have to pay for investments and, even more importantly, for houses
and farmland in areas where there is a significant amount of foreign ownership.
However, others argue that the United States should welcome foreign
investment because the influx of foreign money contributes to the creation of jobs in
this country. Some also believe that the United States should be a kind of sanctuary
for foreign money because of the political and economic instability which
characterizes much of the rest of the world. It is also argued that, in this age of
globalization of the world’s economy, United States restrictions on foreign
investment will only impair this nation’s economy and cause us to appear isolationist.
This report takes a look at some of the major federal statutes which presently
restrict investment by foreigners. The report first gives a brief history of foreign
investment in the United States. It then reviews constitutional justifications and
constitutional limitations which exist concerning federal statutory restrictions on
foreign ownership of property. After that follows a discussion of some of the major
federal statutes which limit foreign investment in the United States. Some of these
statutes will be looked at in detail, but a detailed treatment of such other laws as the
tax laws, the antitrust laws, and the immigration laws is beyond the scope of this
The report will be updated as needed.
History of Foreign Investment in the United States........................1
Constitutional Justifications and Limitations............................3
Present Federal Restrictions on Foreign Investment.......................7
Investment Company Regulation.................................16
Committee on Foreign Investment in the United States...................17
Foreign Investment in the United States:
Major Federal Statutory Restrictions
History of Foreign Investment in the United States
Traditionally accepted principles of international law state that the sovereign
powers of a nation include the power to exclude alien persons and property.1
However, in most cases, so as to be mutually beneficial to commerce, nations usually
do not fully exercise this power of exclusion. Sometimes a nation writes the restraints
into its domestic law. For example, Clause XXX of the Magna Carta has the
All merchants, if they were not openly prohibited before, shall have their safe
and sure Conduct to depart out of England, to come into England, to tarry in, and
go through England, as well by land as by water, to buy and sell without any2
manner of (evil tolts) by the old and rightful Customers, except in time of war;
and if they be of a Land making War against Us, and be found in our Realm at
the beginning of the wars, they shall be attached without harm of body or goods,
until it be known unto Us, or our Chief Justice, how our Merchants be entered
therein the Land making War against Us; and if our merchants be well entreated
there, theirs shall be likewise with Us.
Treaties and other forms of bilateral and multicultural agreements have also restricted
foreign persons and property. For example, the Greek city-states formed agreements
which allowed the reciprocal entry of and ownership of property of foreigners from3
other contracting states.
The United States has through the years accepted both kinds of restraint.4 The
American colonies were formed to realize profits for their English and Continental
investors. After the War of Independence, the new government moved quickly to
resolve the outstanding foreign claims so as to assure creditworthiness and to provide
a favorable climate for foreign investment. The Jay Treaty, for example, stated that
1 See, e.g., Bouve, EXCLUSION AND EXPULSION OF ALIENS IN THE UNITED STATES 3 (1912);
United States ex rel. Knauff v. Shaughnessy, 338 U.S. 537 (1950); and The Schooner
Exchange v. McFaddon, 11 U.S. (7 Cranch) 116 (1812).
2 tolt: In Old English law, a writ whereby a cause depending in a court baron was taken and
removed into a county court. BLACK’S LAW DICTIONARY (6th ed. 1990).
3 Nussbaum, A CONCISE HISTORY OF THE LAW OF NATIONS 27 (1954).
4 Much of this historical discussion is based on chapter 1 of A GUIDE TO FOREIGN
INVESTMENT UNDER UNITED STATES LAW by the Committee to Study Foreign Investment
in the United States of the Section of Corporation, Banking and Business Law of the
American Bar Association (New York 1979).
the new United States government would compensate the British for any property
which had been seized or destroyed and for unpaid debts caused by the Revolution.
In his Report on Manufactures in 1791, Alexander Hamilton urged the new
nation to keep investment open to foreigners.
It is not impossible that there may be persons disposed to look with a jealous eye
on the introduction of foreign capital, as if it were an instrument to deprive our
own citizens of the profits of our own industry; but, perhaps, there never could
be a more unreasonable jealousy. Instead of being viewed as a rival, it ought to
be considered as a most valuable auxiliary, conducing to put in motion a greater
quantity of productive labor, and a greater portion of useful enterprise, than5
could exist without it.
Hamilton’s ideas prevailed. During the 18th and 19th centuries, foreign capital
contributed enormously to the nation’s development.
As the nation grew, its roads, bridges, canals, banks, and finally railroads were
largely financed by state bonds sold overseas. The Erie Canal, the first American
canal to achieve commercial success, was made possible by the first state bonds
to be quoted on the London market, in 1817. Europe was eager for investments
such as these, and a group of Anglo-American banking houses were established
in London — led by Baring Brothers — which specialized in American finance.
They bought up entire issues for resale in England. In their eagerness for foreign
capital, American states and private enterprises sent their agents to Europe.6
Generals and congressmen turned to bond selling....
By the middle of the 19th century, foreigners held half of the federal and state
and one-quarter of the municipal debts. The 1849 California Gold Rush sparked
even more foreign investment.
It is also interesting to note that American real estate was quite popular with
foreign investors. Europeans acquired substantial holdings in such states as New
York, Maine, Florida, West Virginia, and Iowa. The state of Texas granted an
English company 3 million acres in payment for building the state capitol building
in Austin. Some of the titled Europeans, including the German Baron von Richthofen
and the British Earl of Dunraven, attempted to create baronial estates in the West.
At the turn of the century, with the invention of the automobile and the
increasing importance of oil, foreign oil companies, such as Royal Dutch Shell,
began buying American properties. However, World War I made a drastic change
in the influx of foreign capital into the United States. The creditor countries of
Europe sold many of their American holdings in order to supply their wartime needs.
In just a few years, the United States shifted from a debtor to a creditor nation, a
position which it retained for a number of years.7
5 3 Annals of Congress 994 (1791).
6 Boorstin, Foreign Investments in America, 2 Editorial Research Reports 572-573 (1974).
7 A creditor nation may be defined as a country which exports more than it imports; a debtor
Throughout the nation’s history, there has been criticism of foreign investment
in the United States. When the first and second banks of the United States were
created in 1791 and 1816, their organic statutes barred the election of aliens as
directors. The Know-Nothing Party advocated discriminatory taxation of foreign
capital as early as the 1850s. The Alien Land Law of 1887 prohibited aliens from
owning land in federal territories.8 During the 20th century Congress passed a
number of statutes aimed at restricting foreign investment in certain industries such
as shipping, aviation, and communications. Nevertheless, by the early 1970s foreign
investment in the United States began to rise dramatically, and since then there has
been frequent congressional debate as to whether there should be more restriction on
investment by foreign citizens in American businesses.
Constitutional Justifications and Limitations
Federal constitutional provisions may be interpreted as legal validation of
federal statutes restricting investments by foreigners; other constitutional provisions
have to be adhered to by the states in imposing additional restrictions on foreign
The federal government is a government of limited powers. There is no express
constitutional provision permitting the regulation of foreign investment in the United
States. Thus, other federal powers mentioned in the Constitution must be looked at
to justify such regulation. Three constitutional bases for such legislation are the
federal powers over immigration and naturalization,9 the federal power to regulate10
interstate and foreign commerce, and the power to provide for the national
Congress has the exclusive power to establish naturalization and citizenship
requirements and to admit and expel aliens.
That the government of the United States, through the action of the legislative
department, can exclude aliens from its territory is a proposition which we do not
think open to controversy. Jurisdiction over its own territory to that extent is an
incident of every independent nation. It is a part of its independence. If it could
not exclude aliens, it would be to that extent subject to the control of another
power.... The United States, in their relation to foreign countries and their
subjects or citizens, are one nation, invested with powers which belong to
nation imports more than it exports. A creditor nation may also be defined as a country
whose domestic savings are greater than its domestic investment; a debtor nation is a
country whose domestic savings are less than its domestic investment.
8 Act of March 3, 1887, ch. 340, § 1, 24 Stat. 476.
9 Art. I, § 8, cl. 4.
10 Art. I, § 8, cl. 3.
11 Art. I, § 8, cl. 12.
independent nations, the exercise of which can be invoked for the maintenance of12
its absolute independence and security throughout its entire territory.
Congress has also been held to have the power to regulate the conduct of alien
residents and to prescribe the conditions for their admission and residency.13 Thus,
it is arguable that Congress can condition entry and residency of an alien upon his or
her not acquiring investments in the United States. Although this might be an extreme
condition to apply, no federal case appears to suggest limits to Congress’s ability to
place substantive conditions upon entry and residency of aliens.
Congress also has the exclusive power to “regulate Commerce with foreign14
Nations, and among the several States.” The Commerce Clause would appear to
give Congress the power to restrict the use of instrumentalities of interstate commerce
to transact the sale or exchange of property to a foreign citizen or to the representative
of a foreign citizen.15
Finally, Congress’s power to “raise and support Armies” would also appear to
be a constitutional basis for restricting foreign investment in the United States. If it
is determined that foreign investments impair national preparedness in the event of an
emergency, it appears that prohibition of foreign investments could on this basis be
construed as constitutional.
Further, it should be noted that the federal government has exclusive authority16
over foreign relations. In the case Zschernig v. Miller, the Supreme Court held
unconstitutional an Oregon statute which provided for the escheat to the state of
property which would otherwise pass to a nonresident alien unless the laws of the
foreign nation had reciprocal rights for United States citizens. The Oregon statute
required the local probate courts to inquire into:
the type of governments that obtain in particular foreign nations — whether aliens
under their law have enforceable rights, whether the so-called “rights” are merely
dispensations turning upon the whim or caprice of government officials, whether
the representation of consuls, ambassadors, and other representatives of foreign
nations is credible or made in good faith, whether there is the actual
administration in the particular foreign system of law any element of17
12 Chinese Exclusion Case (Chae Chan Ping) v. United States, 130 U.S. 581, 603-604
13 See Fiallo v. Bell, 430 U.S. 787 (1977).
14 Art. I, § 8, cl. 3.
15 See, e.g., North American Company v. Securities and Exchange Commission, 327 U.S.
16 389 U.S. 429 (1967).
17 Id., at 434.
The Court found the Oregon statute to be unconstitutional because it infringed upon
the exclusively federal authority over foreign relations.
On the other hand, it has been stated that:
The imposition of any significant investment controls would likely violate both
the spirit and the letter of more than forty bilateral treaties regulating trade and
investment relations, many of which laws have been signed within the last ten
years, as well as derogating our commitment to the OECD Code of Liberalization18
of Capital Movements.
The treaties mentioned in the above quotation are Treaties of Friendship, Commerce,
and Navigation which grant foreign countries the right to enter, trade, invest, or
establish and operate businesses in the other signatory country. Thus, any foreign
investment statute would need to take into account those Friendship, Commerce, and
Navigation Treaties to which the United States is a signatory.
Further, treaties such as the North American Free Trade Agreement (NAFTA)
among the United States, Canada, and Mexico provide for foreign investment
opportunities. Chapter 11 of NAFTA requires each party to “accord to investors of
another Party treatment no less favorable than it accords, in like circumstances, to its
own investors with respect to the establishment, acquisition, expansion, management,
conduct, operation, and sale or other disposition of investments.”
Other constitutional provisions may be interpreted to protect foreigners from
certain acts of state and local governments. Because the Due Process and Equal
Protection Clauses of the Fourteenth Amendment to the United States Constitution
apply to persons instead of to citizens, these provisions guarantee that states cannot
abridge the rights of foreign nationals within the United States.19 The Supreme Court
has in the past voided state laws which establish classifications in government actions
solely on the basis of citizenship. In doing so, the Court has stated that a classification
based solely upon citizenship or nationality is inherently suspect and subject to strict
scrutiny. For example, in Graham v. Richardson20 the Court held that state laws
which denied welfare benefits to resident aliens who had not resided in the United
States for a required number of years were unconstitutional because they deprived
these persons of equal protection of the laws.
Under traditional equal protection principles, a State retains broad discretion to
classify as long as its classification has a reasonable basis [citations omitted].
This is so in “the area of economics and social welfare” [citations omitted]. But
the Court’s decisions have established that classifications based on alienage, like
those based on nationality or race, are inherently suspect and subject to close
judicial scrutiny. Aliens as a class are a prime example of a “discrete and insular”
minority [citations omitted] for whom such heightened judicial solicitude is
appropriate. Accordingly, it was said in Takahashi, 334 U.S. at 420, that “the
18 Note, United States Regulation of Foreign Direct Investment: Current Developments and
the Congressional Response, 15 VA. J. INT’L L. 611, 621 (1975).
19 See Plyler v. Doe, 457 U.S. 202 (1982).
20 403 U.S. 365 (1971).
power of a state to apply its laws exclusively to its alien inhabitants as a class is21
confined within narrow limits.”
As mentioned in the Takahashi case22 in the above quotation, a state must be
careful in applying state laws exclusively to aliens. This case challenged a California
statute which barred the issuance of commercial fishing licenses to persons ineligible
for citizenship. The Supreme Court held that this statute violated the Fourteenth
Amendment’s Equal Protection Clause and the federal laws concerning citizenship.
Citizenship has also been rejected as a legitimate classification concerning
membership in a state bar,23 complete bans on employment of aliens in the state civil2425
service system, and the granting of educational benefits to aliens. Yet, the Supreme
Court has limited the application of these protections in other cases, one concerning
a New York statute limiting appointment to the state police force to United States
citizens,26 and another concerning a New York statute forbidding certification of a
non-citizen as a public school teacher unless the person had evidenced intent to
become a citizen.27 Therefore, there appears to be an exception to the general rule that
a classification based on citizenship is subject to strict judicial scrutiny in situations
where the classification relates to an essential governmental, political, or
constitutional function. In such situations the less strict, rational basis test may be
applied. From this discussion it may be concluded that state laws restricting28
investments by at least resident aliens may come under strict judicial scrutiny.
Yet, it must be remembered that, in contrast to the states, the federal government
has broad authority over naturalization and immigration.
For reasons long recognized as valid, the responsibility for regulating the
relationship between the United States and our alien visitors has been committed
to the political branches of the Federal Government. Since decisions in these
matters may implicate our relations with foreign powers, and since a wide variety
of classifications must be defined in the light of changing political and economic
21 Id., at 371.
22 Takahashi v. Fish and Game Commission, 334 U.S. 410 (1948).
23 In Re Griffiths, 413 U.S. 717 (1973).
24 Sugarman v. Dougall, 413 U.S. 634 (1973).
25 Nyquist v. Mauclet, 432 U.S. 1 (1977).
26 Foley v. Connelie, 435 U.S. 291 (1978).
27 Ambash v. Norwich, 441 U.S. 68 (1979).
28 It is also possible that nonresident aliens, such as a Japanese bank doing business in the
United States, are entitled to the same degree of equal protection under the Fourteenth
Amendment as resident aliens, but this is an issue which appears not to have been settled
by the courts. With respect, however, to actions by the federal government, it appears clear
that Congress can discriminate against nonresident aliens so long as the restriction is
reasonable and does not violate their procedural rights. See, e.g., statutes discussed later in
this report. No major cases challenging their constitutionality were found.
circumstances, such decisions are frequently of a character appropriate to either29
the Legislature or the Executive than to the Judiciary.
The Supreme Court has held, for example, that aliens can be denied Medicare
coverage30 and that the federal government can deny a visa to a Marxist invited to31
speak on world communism. The power of Congress to exclude aliens from the
United States and to prescribe the terms and conditions on which they enter is32
virtually absolute and is an attribute of the sovereignty of the United States.
Present Federal Restrictions on Foreign Investment
Four major federal statutes which have an impact upon foreign investment in the
United States are information-gathering and disclosure statutes, instead of actual
restriction statutes. One of these statutes is the International Investment and Trade in
Services Survey Act of 1976.33 Congress intended this act:
to provide clear and unambiguous authority for the President to collect
information on international investment and United States foreign trade in
services, whether directly or by affiliates, including related information necessary
for assessing the impact of such investment and trade, to authorize the collection
and use of information on direct investments owned or controlled directly or
indirectly by foreign governments or persons, and to provide analyses of such34
information to the Congress, the executive agencies, and the general public.
The President by executive order delegated responsibility under this act for studying
direct investment to the Commerce Department and portfolio investment to the35
Treasury Department. The act directs the President to conduct a benchmark survey
of foreign direct investment in the United States every five years.36 Amendments to
the act in 1990 direct the President to publish for the use of the general public and
federal agencies periodic information concerning foreign investment, including
information on ownership by foreign governments of United States affiliates of
business enterprises the ownership or control of which by foreign persons is more than
50% of the voting securities or other evidence of ownership of these enterprises, as
well as business enterprises the ownership or control of which by foreign persons is
29 Mathews v. Diaz, 426 U.S. 67, 81 (1975).
31 Kleindienst v. Mandel, 408 U.S. 753 (1972).
32 See Chinese Exclusion Case (Chae Chan Ping) v. United States, 130 U.S. 581, 603-604
33 22 U.S.C. §§ 3101 et seq.
34 22 U.S.C. § 3101(b).
35 E.O. 11961 (January 19, 1977), 42 Fed. Reg. 4321.
36 22 U.S.C. § 3103(b).
enterprises.37 The 1990 Amendments also provide that the President may request a
report from the Bureau of Economic Analysis (BEA) of the Department of Commerce
of the best available information on the extent of foreign direct investment in a given
Another federal statute having an impact upon foreign investment in the United
States is the Foreign Direct Investment and International Financial Data Improvements
Act of 1990.39 The purpose of this act is:
to allow the Department of Commerce’s Bureau of Economic Analysis (BEA)
access to information collected by the Bureau of the Census (Census). This access
will improve the accuracy and analysis of BEA’s reports to the public and to40
Congress on foreign direct investment in the United States.
This act, among other requirements, adds chapter 10 to title 13 of the United States
Code to provide that the Bureau of the Census shall exchange with the Bureau of
Economic Analysis of the Department of Commerce any information that is collected
under the census provisions and under the International Investment and Trade in
Services Survey Act that pertains to a business enterprise operating in the United
States if the Secretary of Commerce determines that the information is appropriate to
augment and improve the quality of the data collected under the Survey Act. The Data
Improvements Act of 1990 also requires that other reports be prepared by the
Secretary of Commerce and the Comptroller General and submitted to congressional
committees.41 The Bureau of the Census may provide business data to the Bureau of
Economic Analysis and the Bureau of Labor Statistics (BLS) if the information is
required for an authorized statistical purpose and the provision is the subject of a42
written agreement with that Designated Statistical Agency or its successors.
The third of these information-gathering and disclosure statutes is the
Agricultural Foreign Investment Disclosure Act of 1978.43 This act has the following
two major requirements: (1) any foreign person who acquires or transfers any interest,
other than a security interest, in agricultural land must submit a report to the Secretary44
of Agriculture not later than 90 days after the date of the acquisition or transfer; (2)
any foreign person who holds any interest, other than a security interest, in agricultural
37 22 U.S.C. § 3103(a)(5).
38 22 U.S.C. § 3103(h).
39 22 U.S.C. §§ 3141 et seq.
40 S.Rept. 101-443, 101st Cong., 2d Sess. 1 (August 30, 1990).
41 22 U.S.C. §§ 3142 and 3143.
42 13 U.S.C. § 402.
43 7 U.S.C. §§ 3501 et seq.
44 7 U.S.C. § 3501(a).
land on the day before the effective date of this act must submit a report to the
Secretary of Agriculture not later than 180 days after the effective date of the act.45
The fourth statute is also a disclosure statute. It is known as the Domestic and
Foreign Investment Improved Disclosure Act of 1977 and is a requirement added to
the Foreign Corrupt Practices Act of 1977.46 This provision amended section 13(d)
of the Securities Exchange Act of 193447 to require that anyone who acquires 5% or
more of the equity securities of a company registered with the Securities and
Exchange Commission must disclose certain specified information, including
citizenship and residence. Hearings indicate that this statute is directed at foreign
investors in order to improve the ability of the federal government to monitor foreign
investment in the United States.48
All of the statutes discussed above are information-gathering and disclosure in
nature. There are not across-the-board, blanket restrictions on foreign investment in
the United States. Instead, over the years Congress has believed that certain industries
which could affect national security should have limits on foreign investment. These
industries include the maritime industry, the aircraft industry, banking, resources and
power, and the various businesses which are parties to government contracts.
Laws that have provisions concerning barriers to foreign investment in the
maritime industry are dispersed throughout Title 46 of the United States Code.
In the area of merchant shipping, there are restrictions on foreign ownership of
ships which are eligible for documentation in the United States. Any vessel of at least
five tons that is not registered under the laws of a foreign country is eligible for
documentation if it is owned by: (1) a United States citizen; (2) an association, trust,
joint venture, or other entity, all of whose members are United States citizens and that
is capable of holding title to a vessel under the laws of the United States or of a state;
(3) a partnership whose general partners are United States citizens and whose
controlling interest is owned by United States citizens; (4) a corporation established
under federal or state laws whose chief executive officer and chairman of its board of
directors are United States citizens and no more of its directors are noncitizens than
a minority of the number necessary to constitute a quorum; (5) the United States
government; or (6) a state government.49
45 7 U.S.C. § 3501(b).
46 P.L. 95-213.
47 15 U.S.C. § 78m(d).
48 Hearings on S. 245, the Foreign Investment Act of 1975 Before the Subcomm. on
Securities of the Senate Comm. on Banking, Housing, and Urban Affairs, 94th Cong., 1st
49 46 U.S.C. § 12102(a).
Statutory restrictions bar a considerable amount of foreign investment in the
It is unlawful for any person to operate any aircraft unless it is registered.50 An
aircraft is eligible for registration only if it is: (1) not registered under the laws of a
foreign country and is owned by a citizen of the United States, a citizen of a foreign
country lawfully admitted for permanent residence in the United States, or a
corporation not a citizen of the United States when the corporation is organized and
doing business under the laws of the United States or a state and the aircraft is based
and primarily used in the United States; or (2) an aircraft of the United States
Government or a state, the District of Columbia, a territory or possession, or a
political subdivision of a state, territory, or possession.51 A citizen of the United
States is defined as: (a) an individual who is a citizen of the United States, (b) a
partnership of which each member is a United States citizen, or (c) a corporation or
association organized under the laws of the United States or of any state, the District
of Columbia, territory, or possession of the United States, of which the president and
two-thirds or more of the board of directors and other managing officers are United
States citizens, which is under the actual control of United States citizens and in
which at least 75 per cent of the voting interest is owned or controlled by persons who
are citizens of the United States.52
Foreign aircraft which are not a part of the armed forces of a foreign nation may
be navigated in the United States by airmen holding certificates or licenses issued or
rendered valid by the United States or by the nation in which the aircraft is registered
if the foreign nation grants a similar privilege concerning United States aircraft.53
Aircraft operators may be subject to restrictions based on citizenship. It is
unlawful for a person to operate an aircraft without an airman certificate.54 The
Administrator of the Federal Aviation Administration may restrict or prohibit issuing
an airman certificate to an alien or make issuing the certificate to an alien dependent
upon a reciprocal agreement with the government of a foreign country.55
The Secretary of Transportation is authorized to provide insurance and
reinsurance against loss or damage arising from the risk of operation of aircraft.56
Citizenship requirements may be important in obtaining this insurance. For example,
50 49 U.S.C. § 44101.
51 49 U.S.C. § 44102.
52 49 U.S.C. §40102(a)(15).
53 49 U.S.C. § 41703.
54 49 U.S.C. § 44711.
55 49 U.S.C. § 44703(e).
56 49 U.S.C. §§ 44301 et seq.
some air cargoes may be insured only if they are owned by citizens or residents of the
All valuable mineral deposits in lands belonging to the United States that are
open to exploration and purchase may be purchased by United States citizens and by
those who have declared their intention to become United States citizens.58 Proof of
citizenship may consist, in the case of an individual, of his affidavit; in the case of an
association of unincorporated persons, of the affidavit of their authorized agent or
upon information and belief; and in the case of a corporation organized under the laws
of the United States, a state, or territory, by the filing of a certified copy of their
charter or certificate of incorporation.59
Deposits of coal, phosphate, sodium, potassium, oil, oil shale, gilsonite, or gas
and lands containing these deposits owned by the United States, including within
national forests and in incorporated cities, towns, villages, and national parks and
monuments shall be subject to disposition in the approved manner to United States
citizens, associations of United States citizens, or any corporation organized under
United States, state, or territorial laws. Citizens of another country whose laws,
customs, or regulations deny similar privileges to citizens or corporations of the
United States shall not by stock ownership, stock holding, or stock control own any
interest in any lease concerning these mineral lands.60
The leasing of oil, natural gas, and other mineral deposits is allowed in the
submerged lands of the Continental Shelf.61 Regulations require that only United
States citizens, resident aliens, domestic corporations, or associations of one or more
of these groups may obtain these leases.62
Licenses for the construction, operation, or maintenance of facilities for the
development, transmission, and utilization of power on land and water over which the
federal government has control may be issued only to United States citizens and
57 49 U.S.C. § 44303.
58 30 U.S.C. § 22.
59 30 U.S.C. § 24.
60 30 U.S.C. § 181.
61 43 U.S.C. §§ 1331 et seq.
62 30 C.F.R. § 256.35.
63 16 U.S.C. § 797(e).
A license for nuclear facilities cannot be acquired by a foreign citizen or by a
corporation believed to be controlled by a foreign citizen or government.64
There appear to be few federal restrictions on the ownership of land by foreign
individuals or by foreign corporations. However, such past acts as the Homestead
Act65 required American citizenship in order to make claims on these lands. Today,
the Desert Land Act requires citizenship or a declared intention of citizenship in order
to make claims.66 Also, the Secretary of the Interior continues to require American
citizenship or a declared intention of citizenship for authorizing permits for grazing
on public lands,67 and, as discussed above, the Agricultural Foreign Investment
Disclosure Act requires the disclosure to the Secretary of Agriculture by foreigners of
agricultural land purchases in the United States. Further, public lands improved at the
expense of funds from a reclamation project can be sold only to United States
Federal statutes restrict foreign ownership and operation of mass
communications media in the United States. Radio station licenses shall not be
granted to or held by any foreign government or representative of a foreign
government.69 No broadcast or common carrier or aeronautical en route or
aeronautical fixed radio station license shall be granted to or held by any alien or the
representative of any alien, any corporation organized under the laws of a foreign
government, any corporation of which more than one-fifth of the capital stock is
owned or voted by aliens or their representatives or by a foreign government or
representative or by any corporation organized under the laws of a foreign country, or
by any corporation directly or indirectly controlled by any other corporation of which
any officer or more than one-fourth of the capital stock is owned or voted by aliens,
their representatives, or by a foreign government or representative, or by any
corporation organized under the laws of a foreign country if the public interest will be
served by the refusal or revocation of the license.70
There does not appear to be a federal statute prohibiting the investment by
foreign citizens in United States newspapers and magazines. However, the Foreign
64 42 U.S.C. § 2133(d).
65 Ch. LXXV, § 1, Stat. 392 (1862).
66 43 U.S.C. § 321.
67 43 U.S.C. § 315b.
68 43 U.S.C. § 375.
69 47 U.S.C. § 310(a).
70 47 U.S.C. § 310(b).
Agents Registration Act71 requires that agents of foreign principals must register with
the Attorney General of the United States, that informational materials for or in the
interests of a foreign principal must be labeled to show the relationship between the
agent and the foreign principal, and that the agent must file two copies of the printed
propaganda with the Justice Department.72 The statute defines foreign principal to
include (1) foreign governments and foreign political parties; (2) persons outside the
United States unless it is determined that the person is an individual and a citizen of
and domiciled within the United States or that the person is not an individual and is
organized under or created by the laws of the United States or a state and has its
principal place of business within the United States; and (3) a business organized
under the laws of or having its principal place of business in a foreign country.73
However, agent of a foreign principal does not include any news or press service or
association which is a corporation organized under United States or state law or any
newspaper, magazine, periodical, or other publication having on file with the United
States Postal Service required information so long as it is at least 80% beneficially
owned by United States citizens, its officers and directors are all United States
citizens, and the news or service or association, newspaper, magazine, periodical, or
other publication is not owned, controlled, subsidized, or financed and none of its
policies is determined by a foreign principal or its agent.74
The Bank Holding Company Act (BHCA)75 regulates as a bank holding company
(BHC) any company that controls a United States bank; i.e., a bank chartered by a
state or the federal government to do banking in the United States (as distinguished
from a foreign bank — a bank chartered by a foreign government and doing business
in the United States pursuant to the terms of the International Banking Act of 197876).
“Control” of a bank or BHC is defined in terms of: (1) acquiring a 25% share or more
of any class of voting securities of a bank or a BHC; (2) controlling the election of a
majority of the directors or trustees of the bank or BHC; or (3) having been
determined by the Board of Governors of the Federal Reserve System (FRB) to be
exercising a controlling influence over the management or policies of the bank or
BHC . 77
71 22 U.S.C. §§ 611 et seq.
72 22 U.S.C. § 614.
73 22 U.S.C. § 611.
74 22 U.S.C. § 611(d).
75 12 U.S.C. §§ 1841-1849.
76 12 U.S.C. §§ 3101-3111.
77 12 U.S.C. § 1841(a)(2).
The BHCA is administered by the FRB, which must solicit the “views and
recommendations” of the Comptroller of the Currency for national bank acquisitions
and the appropriate state bank supervisor for state-chartered bank acquisitions.78
The BHCA presumes that “any company which owns, controls, or has power to
vote less than 5 per centum of any class of voting securities of a given bank or [bank
holding] company does not have control over that bank or company.”79 Before any
company may take any action which would cause that company to become a BHC or
before any BHC may acquire a 5% share or more of the voting stock of any U.S. bank
or BHC, it must seek approval from the FRB.80 FRB’s implementing regulation
makes this requirement applicable to “foreign banking organizations.”81
The BHCA generally subjects BHCs to activity restrictions that essentially
confine their portfolios to banking and financial services. Under the BHCA, subject
to specified, limited exceptions, any company which controls a bank may engage only
in banking or managing or controlling banks and subsidiaries; specified, limited non-
banking activities; and activities that are financial in nature or incidental to such
financial activity as determined by the FRB and the Secretary of the Treasury.
Permissible banking activities are found in section 4(k) of the BHCA.82 A list of
permissible non-banking activities for BHCs is found at 12 C.F.R. section 225.28. A
further list of permissible non-banking activities for BHCs which have qualified as
Financial Holding Companies under section 4(l)(1) of the BHCA is found at 12 C.F.R.
section 225.86. In addition, the FRB has promulgated individual orders under the
BHCA determining that particular activities are “so closely related to banking as to
be a proper incident thereto.”83
The BHCA’s section 2(h)(2) states that a foreign company that acquires stock of
a U.S. bank or BHC is not subject to BHCA activities restrictions if: (1) it is organized
as a bank holding company under foreign law and is principally engaged in the
banking business outside of the United States.84 A further provision states that nothing
in the preceding provision authorizes such a foreign company to hold more than 5%
of the outstanding shares of any class of voting securities of a company engaged in
banking, securities, insurance, or other financial activities, as defined by the Federal
78 12 U.S.C. §1842(b)(1).
79 12 U.S.C. § 1841(a)(3).
80 12 U.S.C. § 1842; 12 C.F.R. § 225.11.
81 12 C.F.R. § 225.11(f).
82 12 U.S.C. § 1843(k).
83 See, e.g., Order Approving a Notice to Engage in Real Estate Title Abstracting, The First
National Company, Storm Lake, Iowa, effective June 30, 1995, 81 FRB 805 (August 1993);
Order Approving the Acquisition of a Title Insurance Agency, Norwest Corporation,
Minneapolis, Minnesota, effective March 8, 1993, 79 FRB 517 (May 1993); and Order
Approving the Acquisition of a Title Insurance Agency, Norwest Corporation, Minneapolis,
Minnesota, effective October 15, 1990, 76 FRB 1058 (December 1990).
84 12 U.S.C. § 1841(h)(2).
Reserve Board, in the United States.85 There is also authority for the Federal Reserve
Board to provide a foreign company which acquires the stock of a U.S. bank or BHC
an exemption from the activities restrictions if the Federal Reserve Board determines
“by regulation or order ... under circumstances and subject to the conditions set forth
in the regulation or order, [that] the exemption would not be substantially at variance
with purposes of [the BHCA] ... and would be in the public interest.”86
Corporations which are controlled or owned by foreign citizens can conduct
business with the federal government on generally the same basis as domestic
corporations which are owned completely by United States citizens. However, some
federal statutes restrict purchases of products by federal agencies to those
manufactured in the United States.
For example, the Buy American Act, enacted in the early 1930s,87 requires that:
[n]otwithstanding any other provision of law, and unless the head of the
department or independent establishment concerned shall determine it to be
inconsistent with the public interest, or the cost to be unreasonable, only such
unmanufactured articles, materials, and supplies as have been mined or produced
in the United States, and only such manufactured articles, materials, and supplies
as have been manufactured in the United States substantially all from articles,
materials, or supplies mined, produced, or manufactured, as the case may be, in88
the United States, shall be acquired for public use....
Although there have over the years been a number of exceptions to the Buy89
American Act, amendments in 1988 and 1993 attempted to strengthen its provisions.
For example, every contract for the construction or repair of a public building or
public work shall have a provision that the contractor or supplier shall use only
unmanufactured articles or materials mined or produced in the United States unless
the head of the department finds that this is impracticable or unreasonably increases
the cost.90 Further, if the Secretary of Defense, after consulting with the United States
Trade Representative, determines that a foreign country, which is a party to a
reciprocal defense procurement memorandum of understanding with the United States
concerning waiver of the Buy American Act for certain products in that country, has
discriminated against certain types of products produced in the United States that are
covered by the agreement, the Secretary of Defense shall rescind the blanket waiver
85 12 U.S.C. § 1841(h)(3).
86 12 U.S.C. § 1843(c)(9).
87 41 U.S.C. §§ 10a-10d.
88 41 U.S.C. § 10a.
89 P.L. 100-418, Title VII, and P.L. 103-139, Title VIII.
90 41 U.S.C. § 10b(a).
of the Buy American Act concerning those types of products produced in that foreign
Some of the exceptions to the Buy American Act should be noted. For example,
the Trade Agreements Act of 197992 gives the President the authority to waive
application of the Buy American restrictions on the products of our trading partners.
However, this does not authorize the waiver of any small business or minority
The National Industrial Security Program establishes a program to safeguard
federal government classified information that is released to contractors, licensees,
and grantees of the United States Government. This also covers foreign contractors.94
No entity controlled by a foreign government is allowed to merge with, acquire,
or take over a company engaged in interstate commerce in the United States which is
performing a Department of Defense (DOD) contract or a Department of Energy
(DOE) contract under a national security program that cannot be performed
satisfactorily unless that company is given access to information in a proscribed
category of information. Such a merger, acquisition or takeover is also not allowed
to occur if the company engaged in interstate commerce in the United States was
during the previous fiscal year awarded Department of Defense prime contracts in an
aggregate amount exceeding $500 million or Department of Energy prime contracts
under national security programs exceeding $500 million.95 This limitation shall not
apply if the merger, acquisition, or takeover is not suspended or prohibited under the
statutes carried out by the Committee on Foreign Investment in the United States, as
Investment Company Regulation
The Investment Company Act of 194097 requires registration with the Securities
and Exchange Commission (SEC) of an investment company which does business in
the United States. Only investment companies organized or created under the laws
of the United States or a state are allowed to sell their own securities in interstate
commerce in connection with a public offering unless the SEC finds that it is legally
and practically feasible to enforce the federal securities laws against the investment
91 41 U.S.C. § 10b-2(a).
92 19 U.S.C. §§ 2501 et seq.
93 19 U.S.C. § 2511(f).
94 48 C.F.R. § 4.402.
95 50 U.S.C. App. § 2170a(a).
96 50 U.S.C. App. § 2170a(b).
97 15 U.S.C. §§ 80a-1 et seq.
company and that the exemption from registration is consistent with the public interest
and the protection of investors.98
The Trust Indenture Act of 193999 prohibits the sale in interstate commerce of
certain securities which have not been registered under the Securities Act of 1933
unless the securities have been issued under an indenture.100 There must be at least
one or more trustees under the indenture, at least one of whom shall be a corporation
organized and doing business under the laws of the United States, a state, territory, or
the District of Columbia or a corporation or other person permitted to act as trustee
by the SEC which is authorized to exercise corporate trust powers and is subject to
supervision or examination by federal, state, territorial, or District of Columbia
Foreign Investment in the United States
The Committee on Foreign Investment in the United States (CFIUS) is a multi-
member board headed by the Secretary of the Treasury.102 CFIUS may review any
“covered transaction,” defined as any merger, acquisition, or takeover by or with a
foreign person which could result in foreign control of any person engaged in
interstate commerce in the United States,103 for its possible impact upon national
security. Factors to be considered in determining the impact upon national security
include domestic production needed for projected national defense requirements, the
capability and capacity of domestic industries to meet national defense requirements,
the control of domestic industries and commercial activity by foreign citizens as it
affects the capability and capacity of the United States to meet the requirements of
national security, and the potential effects of the proposed or pending transaction on
United States international technological leadership in areas affecting United States
national security.104 A mandatory investigation is required in any instance in which an
entity controlled by or acting on behalf of a foreign government seeks to engage in any
merger, acquisition, or takeover which could result in control of a person engaged in
interstate commerce in the United States that could affect the national security of the
United States. Among indicia of control is a purchase of voting securities or
comparable interests in a United States person greater than 10% of the outstanding
voting securities of a United States person.105
98 15 U.S.C. § 80a-7(d).
99 15 U.S.C. §§ 77aaa et seq.
100 15 U.S.C. § 77fff(a).
101 15 U.S.C. § 77jjj(a)(1).
102 50 U.S.C. App. §§ 2170 et seq.
103 50 U.S.C. App. § 2170(a).
104 50 U.S.C. App. § 2170(f).
105 See 31 C.F.R. § 800.302(d)(1).