National security concerns of U.S. regulators have caused two mergers in less than a year to be abandoned by their would-be Chinese buyers.

The deals were scrapped when talks with the Committee on Foreign Investment in the United States, or CFIUS, failed to negotiate changes that would assuage the concerns of U.S. officials at a time when they are giving increasing attention to the strategic intentions of China and another historic U.S. military rival, Russia.

The scuttled deals were an effort by China's Tangshan Caofeidian Investment Corp. to purchase a controlling share of New Mexico telecommunications and solar power technology firm Emcore Corp., and by China's Northwest Non-Ferrous International Investment Co. Ltd. to buy control of Firstgold Corp., a Nevada mining firm that may have access to tungsten and is located near U.S. military facilities.

There is also an ongoing flare-up over a proposed joint venture between China's Anshan Iron and Steel Group Corp. and Mississippi-based Steel Development Co. that calls for Anshan to invest in a new plant in Mississippi. Citing national security concerns, a bipartisan group of 50 U.S. lawmakers has called for CFIUS to "thoroughly investigate" the proposed deal.

Largely because of the economic slowdown, the number of CFIUS investigations dropped dramatically in 2009 after steadily increasing for the previous 10 years. Official data on 2009 filings are not yet available, but Mark Plotkin, a lawyer at Covington & Burling LLP, estimates in a client memo that CFIUS reviewed 70 to 75 transactions in 2009, fewer than half of the 155 acquisitions analyzed in 2008.

If Plotkin's estimate is accurate, last year's transaction number would be the lowest since 2005 and the first decline in nearly a decade.

Although submitting a proposed deal for CFIUS review is ostensibly voluntary, it is effectively mandatory for acquisitions of companies holding security clearances, says Farhad Jalinous, a lawyer at Kaye Scholer LLP. CFIUS is obligated to investigate any purchase of U.S. assets that has national security implications, and failure to submit an acquisition for any such company would alarm investigators.

The Foreign Investment and National Security Act of 2007 strengthened the CFIUS review process following the political uproar over United Arab Emirates-controlled DP World's attempt to acquire operations at six U.S. ports.

Through CFIUS the president is authorized to investigate transactions that would vest control of a U.S. business to a foreign interest. CFIUS is composed of officials from a number of federal agencies including the departments of State, Homeland Security and Defense; the Treasury Department chairs the committee. If a transaction could pose a threat to national security, the president may quash it unless CFIUS is able to wrest adequate constraints on the deal to alleviate government concerns.

If CFIUS advises the parties that a proposed transaction is unlikely to be approved because satisfactory mitigation measures cannot be negotiated, the parties customarily withdraw their application, skirting a formal rejection. Only one deal has ever been formally rejected by a president: In February 1990 President George H.W. Bush voided the acquisition of Boeing Co. supplier Mamco Manufacturing Co. by China National Aero-Technology Import and Export Corp.

Despite the diminished deal load, CFIUS is submitting a larger percentage of deals to more thorough second-stage 45-day investigations. "Investigation nearly became the rule rather than the exception in 2009," Plotkin says. He notes that through 2007 less than 2% of all cases reviewed by CFIUS had proceeded to the investigation phase, and in 2008, the year of the highest number of CFIUS filings ever, only about 15% of cases were delayed by 45-day reviews.

While U.K. and Canadian companies account for the lion's share of CFIUS reviews, Russian and Chinese companies are increasingly subjected to the process. CFIUS reviewed eight Russian transactions in 2008, compared with none in 2007 and only two in 2006. Similarly, six Chinese transactions were reviewed in 2008, versus three in 2007 and none in 2006.

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Cecile Kohrs Lindell covers antitrust for The Deal magazine.