The Chinese government is a significant shareholder of Ant Financial, with an approximate 15% stake.
The failure is a setback to Ma's ambitions to expand into global markets.
The collapse is a blow to the ambitions of Alibaba's billionaire executive chairman Jack Ma, who had promised President Trump that he would create a million USA jobs.
"After almost a year of deliberations, CFIUS has scuppered [Ma's] plans - and delivered a bleak precedent for any future tilts at US assets", the FT said.
MoneyGram shares were down 9.1 percent. Bipartisan lawmakers have introduced legislation calling for greater scrutiny of Chinese investments in the United States. Calling off the deal means Ant Financial will pay a $30 million termination fee to MoneyGram, the statement said.
Last year, two House of Representatives members said the acquisition could allow "malicious actors" to obtain data on U.S. military personnel and their families who use the service.
The de facto veto is just the latest move by a Trump Administration that has shown it won't let United States companies in the strategic tech and financial industries be acquired by Chinese counterparts.
Versace Family Slams Second Season of American Crime Story
As the season has not yet aired, we can't say just how closely the show will adhere to the events as described in the book. Catch the premiere of The Assassination of Gianni Versace: American Crime Story on January 17 at 10 p.m.
MR JEREMY CHOY, head of mergers and acquisitions at China Renaissance.
MoneyGram and Ant Financial also announced that the two plan to work together on new initiatives in the digital payment market that will directly help achieve both their objective to gain worldwide consumers regardless of the merger.
"Technology companies understand the situation and are evolving in their approach. They are doing more things organically, they are doing more strategic alliances", Mr Jeremy Choy, head of mergers and acquisitions at China Renaissance, told Bloomberg Television.
"We don't think this is the start of a trend where people just won't do things in the US".
Ma and Alibaba executives own Ant Financial.
MoneyGram CEO Alex Holmes via a prepared statement said that despite the best efforts of everyone involved to work cooperatively with the government panel, it is clear at this point that CFIUS is not going to approve the merger.
"In the last 30 days of 2017, the USA government launched a Section 301 investigation into Chinese intellectual property and technology transfer, self-initiated probes into Chinese-made aluminum products, and rejected China's market economy status at the World Trade Organization", Xinhua said in a commentary on Wednesday.
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