Foreign Investment Review and National Security Considerations in Texas Cross-Border Deals

Texas has long been a magnet for foreign investment across industries, from energy and real estate to technology and agriculture. This is because the state has a strong economy and is in a good location. In recent years, however, state policymakers have begun scrutinizing cross-border deals more closely for potential national security risks. This trend mirrors heightened concerns at the federal level and in other states, but Texas is carving out its own legal approach. This article provides a comprehensive look at how foreign investment review in Texas are review for national security considerations, focusing on key federal laws, state measures, and recent legislative developments shaping this changing situation.

Federal Framework: CFIUS and FIRRMA

Texas’s approach must be understood against the backdrop of U.S. federal law. Traditionally, national security review of foreign investments has been the purview of federal authorities. The Committee on Foreign Investment in the United States (CFIUS), an interagency body chaired by the U.S. Treasury is empowered to review certain foreign investments and real estate transactions nationwide. 

The 2018 Foreign Investment Risk Review Modernization Act (FIRRMA) gave CFIUS more power. It now covers not only deals that give foreigners control of U.S. businesses, but also some non-controlling investments in sensitive areas (known as “TID” businesses, which deal with critical Technology, critical Infrastructure, or sensitive personal Data.  

While CFIUS is officially country-agnostic, investments from “foreign adversaries” such as China, Russia, and Iran often receive heightened scrutiny. The committee can recommend that the President block or unwind deals or impose mitigation measures on transactions posing security risks.

Even though the federal framework is strong, not all foreign investments are subject to CFIUS review. CFIUS’s authority has clear limits. For real estate deals, it usually needs either a U.S. business to be involve or the property to be close to military or security installations. Many land purchases or minority investments don’t have to go through CFIUS. In addition, the CFIUS process is mostly voluntary (except in some cases involving important technologies or large stakes from foreign governments) and can be a bit of a “black box,” with secret meetings. Because of these gaps, states have taken action. In Texas, lawmakers have add their own measures to protect state interests on top of federal review because of high-profile deals.

Texas’s National Security Measures at the State Level

The Lone Star Infrastructure Protection Act (2021) 

Texas’s first significant foray into foreign investment regulation came with the Lone Star Infrastructure Protection Act (“LSIPA”) in 2021. LSIPA was enacted in response to mounting alarm over a Chinese-linked investment in a critical infrastructure project. 

In 2017, a Chinese billionaire and former military officer named Sun Guangxin bought about 130,000 acres of land in Val Verde County, Texas. This is about 7% of the county. He did this through an intermediary. The investor wantes to build a big wind farm on this land in West Texas and connect it to the state’s independent electric grid (ERCOT). Because the parcels were close to Laughlin Air Force Base, a training base, local conservationists and retired military officers were worried that the project could make it easier for spies or saboteurs to get into the power. 

In June 2021, Texas lawmakers moves swiftly: Senate Bill 2116 passed unanimously and was signed into law as LSIPA, effective immediately. If a contract would let a foreign company access important infrastructure in Texas, this law says that Texas government agencies and businesses can’t do business with companies owned by people or groups from certain “hostile” countries, like China, Russia, Iran, and North Korea. Critical infrastructure includes a wide range of systems, such as the electricity grid, water treatment plants, communications networks, and cybersecurity systems. 

In real life, LSIPA stopp Sun Guangxin’s company (GH America, a subsidiary of his Xinjiang-based company) from connecting its wind farm to the Texas power grid. The project couldn’t move forward because it couldn’t send electricity to ERCOT. 

LSIPA set an early example: Texas would not hesitate to keep foreign investors from hostile countries out of deals that could affect the state’s security and infrastructure.

Broad Real Estate Ownership Restrictions – Senate Bill 17 (2023–2025)

Building on that momentum, Texas lawmakers turned next to foreign ownership of land itself. Throughout 2022–2023, public discourse grew heated over reports of foreign buyers purchasing large tracts of agricultural land and real estate in various states. 

In Texas, Senator Lois Kolkhorst introduced a 2023 bill (S.B. 147) to bar citizens and entities of some countries from buying certain Texas lands. Although S.B. 147 failed to pass in 2023, the effort was revive in the next legislative session. The result was Senate Bill 17, passed by the Texas Legislature and signed by Governor Greg Abbott on June 20, 2025. S.B. 17 imposes sweeping restrictions on real property acquisitions in Texas by individuals or entities linkes to designated foreign adversary countries from directly or indirectly acquiring any real property interest in Texas.

The definition of real property is extremely broad, covering agricultural land, ranches and timberland, oil and gas mineral interests, residential and commercial real estate, industrial sites, mining claims, and even water and groundwater rights. covers not only outright purchases, but also other ways of getting interests, such as long-term leases (lasting one year or more), easements, and certain improvements.  

The law contains exceptions for foreign persons who also hold U.S. citizenship or lawful permanent residency, and it permits an individual from a designates country to purchase one residential homestead for personal use if they are legally residing in the U.S.

Importantly, the prohibition under S.B. 17 extends to indirect and minority foreign ownership as well. The statute does not define a minimum ownership threshold that would trigger the ban, meaning that even a small, passive investment from a foreign adversary (for example), a Chinese limited partner in a real estate venture, could potentially invalidate the entire transaction.

Texas regulators may later issue clarifications, possibly adopting a control threshold—for instance, the 20% benchmark informally use by the Electric Reliability Council of Texas (ERCOT) under LSIPA. But until those rules are published, practitioners must assume S.B. 17 applies to any level of foreign adversary ownership in an acquiring entity. This uncertainty poses significant challenges for investment funds, real estate partnerships, and cross-border investors active in the state.

Legal Challenges and Preemption Issues

S.B. 17 (like similar laws in other states) immediately drew legal challenges on constitutional grounds. Civil rights and industry groups have argued that these restrictions improperly discriminate base on national origin and intrude on federal authority over foreign affairs. 

In July 2025, a group of Chinese nationals living in Texas (organize as the Chinese American Legal Defense Alliance) filed a federal lawsuit seeking to block S.B. 17. The suit alleges that the Texas law violates the Equal Protection Clause by effectively targeting people base on citizenship from certain countries, and that it conflicts with federal law – namely, the CFIUS framework and FIRRMA – which Congress intendes as the exclusive means to address national security risks from foreign real estate purchases. 

The plaintiffs argue that federal law preempts Texas from creating its own foreign investment review system, especially one that could reach transactions CFIUS might choose to allow. 

Foreign Investment in Other Sectors

While real estate has been the primary focus of Texas’s recent legislation, cross-border business acquisitions in Texas also raise national security considerations. Texas is home to big companies in defense, aerospace, semiconductors, energy, and biotech, all of which could involve sensitive technology or data. Even before any Texas-specific review process, such deals already fall within CFIUS’s federal jurisdiction.

For instance, if a foreign company attempts to acquire a Texas high-tech firm that designs semiconductor chips or AI software, CFIUS would likely review it as a critical technology transaction. Likewise, an investment in a Houston-area petrochemical plant or pipeline by a state-own enterprise from a country of concern could trigger a CFIUS review as critical infrastructure. CFIUS has authority to mitigate or block transactions involving Texas businesses – and indeed has done so in the past.

Texas officials have grown concerned that solely relying on federal review might leave gaps, especially for transactions that do not obviously fall under CFIUS’s define jurisdiction or those that the federal government might overlook. As a result, Texas has explored establishing its own review mechanism for foreign investments in all sensitive sectors, not just land and infrastructure.

The “Texas Committee on Foreign Investment” (TCFI) has been suggested.

In 2025, Texas came close to creating a state-level counterpart to CFIUS. Early this year, legislators introduce Senate Bill 2117 and House Bill 5007, companion bills that would establish a “Texas Committee on Foreign Investment” (TCFI). 

This propose committee was base on CFIUS, but it would work at the state level. The TCFI would be empower to review a wide range of foreign “cover transactions” in Texas for national security implications – extending beyond land deals to include mergers, acquisitions, sales, leases, and other transfers of control or interest in any Texas business, property, or asset meeting certain criteria. 

Under the propose legislation, not every foreign investment would trigger TCFI scrutiny; the intent was to focus on significant transactions in sensitive areas. A “cover transaction” requiring notice to TCFI was define as one that: 

• Involves a foreign entity or person (broadly define to include any non-U.S. citizen or company organize abroad or controlled by foreign persons); 
• Meets certain thresholds set by the Texas Governor (for example, exceeding a dollar value or ownership percentage); and 
• Impacts a sensitive sector of Texas’s economy or security. Those sensitive sectors were outlined to include: critical infrastructure, agricultural land, the sensitive personal data of Texas residents, or any strategic industry or asset identified by the Governor. This mirrors the national CFIUS focus on TID businesses, but is tailor to state interests.

Despite strong support in the Texas Senate (S.B. 2117 sailed through that chamber 31-0 in April 2025), the clock ran out in the House. The legislative session end on June 2, 2025, with the House bill stale in committee and the Senate bill never reaching a floor vote in time. Thus, the Texas Committee on Foreign Investment was not enacted in 2025. Nonetheless, the effort signals a clear intent within Texas to become the first U.S. state to implement its ongoing foreign investment review program, going beyond one-off bans. 

Conclusion and Outlook

Foreign investment review in Texas has enter new era of heightened vigilance. What was once solely the domain of federal regulators is now increasingly a focus of state lawmakers and officials. For legal professionals at international lawyers network advising on cross-border deals, Texas presents a multifaceted regulatory environment: federal law (CFIUS and relate export control and sanctions rules) continues to govern national security reviews nationwide, but Texas-specific restrictions must also be navigated for deals involving this state. 

Going forward, we can expect continue interplay (and possibly tension) between state and federal authorities. It is no longer enough to only consider federal approval; one must also ask: Does this deal involve any land, infrastructure, or business in Texas that could invoke state law restrictions? If the answer is yes, then careful structuring or advance regulatory engagement may be necessary.

Finally, Texas’s focus on national security in investments resonates with a global trend: countries around the world have been tightening their foreign investment screening in sensitive sectors. What makes Texas unique is that this is happening at the sub-national level in a federal system. 

Texas may become a test case for how U.S. states can balance welcoming foreign investment review with protecting security interests. Multinational companies and cross-border dealmakers should watch Texas closely. The state’s policies could either foreshadow a more fragment regulatory landscape – where multiple states impose their own rules – or prompt a harmonizing response from Congress to clarify the limits of state authority in this field.