Exon-Florio Foreign Investment Provision: Comparison of H.R. 556 … · 2007. 7. 13. ·...

Order Code RL34082

Exon-Florio Foreign Investment Provision:Comparison of H.R. 556 and S. 1610

Updated July 13, 2007

James K. JacksonSpecialist in International Trade and FinanceForeign Affairs, Defense, and Trade Division

Exon-Florio Foreign Investment Provision: Comparison of H.R. 556 and S. 1610

Summary

During the First Session of the 110th Congress, several Members of Congresshave introduced measures in the House and the Senate to address various concernswith foreign investment, especially the proposed purchase of the British-owned P&OPorts by Dubai Ports World in early 2006. Congresswoman Maloney introducedH.R. 556, the National Security Foreign Investment Reform and StrengthenedTransparency Act of 2007, on January 18, 2007. The measure was approved by theHouse Financial Services Committee on February 13, 2007 with amendments, andwas approved with amendments by the full House on February 28, 2007 by a vote of423 to 0. On June 13, 2007, Senator Dodd introduced S. 1610, the ForeignInvestment and National Security Act of 2007. On June 29, 2007, the Senate adoptedS. 1610 in lieu of H.R. 556 by unanimous consent. On July 11, 2007, the Houseaccepted the Senate’s version of H.R. 556 by a vote of 370-45 and sent the measureto the President.

Both the House bill and the Senate bill attempt to address six perceivedproblems with the current statutes that many Members identified during the 109thCongress: 1) that the principal members of the interagency Committee on ForeignInvestment in the United States (CFIUS) at times seem not to be well informed of theoutcomes of reviews and investigations regarding proposed or pending investmenttransactions; 2) that CFIUS has interpreted incorrectly the requirements under currentstatutes for investigations of transactions that involve firms that are owned orcontrolled by a foreign government; 3) that reporting requirements under currentstatutes do not provide Congress with enough information about the operations andactions of CFIUS for Members to fulfill their oversight responsibilities; 4) thatCFIUS exercises too much discretion in its ability to choose which transactions itinvestigates; 5) that the definition of national security used by CFIUS is no longeradequate in a post-September 11th world; and 6) that deadlines placed on CFIUS tocomplete reviews and investigations of investment transactions do not provideadequate time in some instances for the Committee to complete its reviews andinvestigations.

This report provides background information on the Committee on ForeignInvestment in the United States and on the Exon-Florio provision. In addition, thereport provides an overview of H.R. 556 and S. 1610 and a side-by-side comparisonof the two measures. This report will be updated as warranted by events.

Contents

Overview . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1The Committee on Foreign Investment in the United States (CFIUS) . . . . . 2The Exon-Florio Provision . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3The “Byrd Amendment” . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4Exon-Florio Provision After September 11, 2001 . . . . . . . . . . . . . . . . . . . . . 6

Overview of H.R. 556 and S. 1610 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8

Side-by-Side Comparison of H.R. 556 and S. 1610 . . . . . . . . . . . . . . . . . . . . . . 11CFIUS National Security Investigations . . . . . . . . . . . . . . . . . . . . . . . . . . . 11Composition of CFIUS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23Presidential Actions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27Findings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28Factors Used in Findings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29Confidentiality . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32Mitigation and Tracking . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33Congressional Oversight . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37

Conclusions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46

1 Peninsular and Oriental Steam Company is a leading ports operator and transport companywith operations in ports, ferries, and property development. It operates container terminalsand logistics operations in over 100 ports and has a presence in 18 countries.2 Dubai Ports World was created in November 2005 by integrating Dubai Ports Authorityand Dubai Ports International. It is one of the largest commercial port operators in the worldwith operations in the Middle East, India, Europe, Asia, Latin America, the Carribean, andNorth America.3 For additional information, see CRS Report RL33614, Exon-Florio Foreign InvestmentProvision: Comparison of H.R. 5337 and S. 3549, by James K. Jackson; and CRS ReportRL33388, The Committee on Foreign Investment in the United States (CFIUS), by JamesK. Jackson.

Exon-Florio Foreign Investment Provision:Comparison of H.R. 556 and S. 1610

Overview

During the 109th Congress, numerous Members of Congress introduced over twodozen measures to address various concerns with foreign investment that arose fromthe proposed purchase of the British-owned P&O Ports1 by Dubai Ports World2 inearly 2006.3 In particular, the transaction spurred some Members to question theeffectiveness of the relatively obscure interagency group, the Committee on ForeignInvestment in the United States (CFIUS). The group has been charged withdeveloping and implementing the Administration's policy on foreign investment andwith conducting national security reviews under the Exon-Florio provision of theDefense Production Act (50 U.S.C. Sec. 2170). Of the measures that wereintroduced, H.R. 5337 and S. 3549 from the House and Senate, respectively,garnered significant support and passed their respective bodies on July 26, 2006. The109th Congress ended before a Conference Committee was convened on H.R. 5337or S. 3549 and both measures lapsed. So far in the 110th Congress, CongresswomanMaloney has introduced H.R. 556 (H.Rept. 110-24), the National Security ForeignInvestment Reform and Strengthened Transparency Act of 2007, which was adoptedby the full House on February 28, 2007. On June 13, 2007, Senator Dodd introducedS. 1610 (S.Rept. 110-80), the Foreign Investment and National Security Act of 2007.On June 29, 2007, the Senate substituted S. 1610 for H.R. 556 and adopted therevised measure by unanimous consent.

H.R. 556 and S. 1610 represent efforts to correct perceived problems with thecurrent process that arose during consideration of the Dubai Ports World transaction.In particular, many Members generally expressed concerns about six areas. First,some Members were concerned that the principal members of CFIUS at times seemnot to be well informed of the outcomes of reviews and investigations made byCFIUS regarding proposed or pending investment transactions, because the duty for

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4 Executive Order 11858 (b), May 7, 1975, 40 F.R. 20263.5 Executive Order 11858 of May 7, 1975, 40 F.R. 20263 established the Committee with sixmembers: the Secretaries of State, the Treasury, Defense, Commerce, and the Assistant tothe President for Economic Affairs, and the Executive Director of the Council onInternational Economic Policy. Executive Order 12188, January 2, 1980, 45 F.R. 969,added the United States Trade Representative and substituted the Chairman of the Councilof Economic Advisors for the Executive Director of the Council on International EconomicPolicy. Executive Order 12661, December 27, 1988, 54 F.R. 779, added the AttorneyGeneral and the Director of the Office of Management and Budget. Executive Order 12860,September 3, 1993, 58 F.R. 47201, added the Director of the Office of Science andTechnology Policy, the Assistant to the President for National Security Affairs, and theAssistant to the President for Economic Policy. Executive Order 13286, Section 57,February 28, 2003, added the Secretary of Homeland Security.

reviewing such transactions has been delegated in most agencies to lower-levelpersonnel. Second, some Members argued that CFIUS was interpreting incorrectlythe requirements under current statutes for investigations of transactions that involvefirms that are owned or controlled by a foreign government. Third, some Membersargued that the current statutes do not provide Congress with enough informationabout the operations and actions of CFIUS for them to fulfill their oversightresponsibilities. Fourth, some Members argued that CFIUS exercises too muchdiscretion in its ability to choose which transactions it investigates and that it needsto be held more accountable to Congress for its decisions regarding reviews andinvestigations of investment transactions. Fifth, some Members questioned thedefinition of national security used by the Committee as being too narrowlyinterpreted and out of sync with the post September 11th view of national security.Last, some Members expressed their concerns that the time constraints placed onCFIUS to complete reviews and investigations of investment transactions does notprovide adequate time in some instances for the Committee to complete its reviewsand investigations.

The Committee on Foreign Investment in the United States(CFIUS)

The Committee on Foreign Investment in the United States (CFIUS) is aninteragency committee that serves the President in overseeing the national securityimplications of foreign investment in the economy. CFIUS was established by anExecutive Order of President Ford in 1975 with broad responsibilities and fewspecific powers.4 The Committee is housed in the Department of the Treasury andhas generally operated in relative obscurity. Initially, CFIUS was established withsix members, but the membership has been expanded over time to twelve throughvarious Executive Orders. The twelve members include the Secretaries of State, theTreasury, Defense, Homeland Security, and Commerce; the United States TradeRepresentative; the Chairman of the Council of Economic Advisers; the AttorneyGeneral; the Director of the Office of Management and Budget; the Director of theOffice of Science and Technology Policy; the Assistant to the President for NationalSecurity Affairs; and the Assistant to the President for Economic Policy.5

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6 Congressional Record, Daily Edition, vol. 134, April 20, 1988. p. H2118.7 P.L. 100-418, title V, Subtitle A, Part II, or 50 U.S.C. app 2170.8 Executive Order 12661 of December 27, 1988, 54 F.R. 779.9 Regulations Pertaining to Mergers, Acquisitions, and Takeovers by Foreign Persons. 31C.F.R. Part 800.

The Exon-Florio Provision

The Exon-Florio provision (Section 2170 of the 1988 Defense Production Act)grants the President broad discretionary authority to take what action he considers tobe "appropriate" to suspend or prohibit proposed or pending foreign acquisitions,mergers, or takeovers "of persons engaged in interstate commerce in the UnitedStates” which “threaten to impair the national security.” The statute indicates thatthe President “may” make an investigation to determine the effects on nationalsecurity of such investments. Most importantly, however, Congress directed that thePresident can exercise this discretionary authority “only if” he determines that twoconditions exist: 1) other U.S. laws are inadequate or inappropriate to protect thenational security; and 2) that he must have “credible evidence” that the foreigninvestment will impair the national security. For the purposes of this legislation,Congress purposely did not define national security, but intended to have the terminterpreted broadly without limitation to a particular industry.6

In 1988, Congress approved the Exon-Florio provision as part of the OmnibusTrade Act.7 Through Executive Order 12661, President Reagan implementedprovisions of the Omnibus Trade Act, and he delegated his authority to administerthe Exon-Florio provision to CFIUS,8 particularly to conduct reviews of foreigninvestment, to undertake investigations, and to make recommendations, although thestatute itself does not specifically mention CFIUS. As a result of President Reagan'saction, CFIUS was transformed from a purely administrative body with limitedauthority to review and analyze data on foreign investment to one with a broadmandate and significant authority to advise the President on foreign investmenttransactions and to recommend that some transactions be suspended or prohibited.The Committee has 30 days to decide whether to investigate a case and an additional45 days to make its recommendation. Once the recommendation is made, thePresident has 15 days to act.

Regulations developed by the Treasury Department in November 1991implemented the Exon-Florio provision.9 These regulations created a system ofvoluntary notification by the parties to an investment transaction and they allow fornotices of acquisitions by agencies that are members of CFIUS. Despite thevoluntary nature of the notification, firms largely comply with these provisionsbecause the regulations stipulate that foreign acquisitions that are governed by theExon-Florio review process, but that do not notify the Committee, remain subjectindefinitely to divestment or other appropriate actions by the President. This processhas become one in a number of regulatory steps that firms consider as they undertakea merger, acquisition, or takeover.

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10 P.L. 102-484, October 23, 1992.

The “Byrd Amendment”

In 1992, Congress amended the Exon-Florio statute through section 837(a) ofthe National Defense Authorization Act for Fiscal Year 1993. Known as the “ByrdAmendment” after the amendment's sponsor, the provision requires CFIUS toinvestigate proposed mergers, acquisitions, or takeovers in cases where:

(1) the acquirer is controlled by or acting on behalf of a foreign government;and(2) the acquisition results in control of a person engaged in interstate commercein the United States that could affect the national security of the United States.10

This amendment came under particularly intense scrutiny by the 109th Congressas a result of the DP World transaction. Many Members of Congress and othersbelieved that this amendment required CFIUS to undertake a full 45-dayinvestigation of the transaction, because DP World was “controlled by or acting onbehalf of a foreign government.” The DP World acquisition, however, exposed asharp rift between what some Members apparently believed the amendment directedCFIUS to do and how the members of CFIUS were interpreting the amendment. Inparticular, some Members of Congress apparently interpreted the amendment torequire CFIUS to conduct a mandatory 45-day investigation without exception if theforeign firm involved in a transaction is owned or controlled by a foreigngovernment.

Representatives of CFIUS, however, argued that there were two factors thatcontrolled their decision not to conduct a 45-day investigation of the transaction.First, they argued that the requirements of the Exon-Florio provision itself precludedthem from engaging in a 45-day investigation, because their initial review did notfind “credible evidence” that the transaction would impair national security, a basicthreshold for CFIUS to meet in order to invoke the Exon-Florio provision. Secondly,representatives indicated that they interpret the amendment to mean that a 45-dayinvestigation is discretionary and not mandatory, again because of the requirementthat a transaction must be found to cause an impairment to national security beforethe Exon-Florio provision can be invoked.

CFIUS representatives also argued that their decision not to launch a full 45-dayinvestigation of the DP World was the result of an extensive informal review of thetransaction prior to the case being officially filed with CFIUS and as a result of aformal 30-day review. During these two reviews, CFIUS members believed that allconcerns that had been expressed by members of CFIUS had been adequatelyresolved so that by the time of the review no member of CFIUS had any unresolvedconcerns about the impact of the transaction on national security. They conceded thatthe case met the first criterion under the Byrd amendment, because DP World wascontrolled by a foreign government, but that it did not meet the second part of the

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11 Briefing on the Dubai Ports World Deal before the Senate Armed Services Committee,February 23, 2006.12 Weisman, Jonathan, and Bradley Graham, “Dubai Firm to Sell U.S. Port Operations,” TheWashington Post, March 10, 2006. p. A1.13 King, Neil Jr., and Greg Hitt, Dubai Ports World Sells U.S. Assets — AIG BuysOperations that Ignited Controversy As Democrats Plan Changes. The Wall Street Journal,December 12, 2006. p. A1.

requirement, because CFIUS had concluded during the 30-day review that thetransaction “could not affect the national security.”11

As a result of the attention by both the public and Congress, DP World officialsindicated that they would sell off the U.S. port operations to an American owner.12

On December 11, 2006, DP World officials announced that a unit of AIG GlobalInvestment Group, a New York-based asset management company with $683 billionin assets, but no experience in port operations, would acquire the U.S. port operationsfor an undisclosed amount.13

Through the Exon-Florio provision, Congress directed that the President or hisdesignee may consider a short list of factors in deciding whether to block a foreignacquisition, merger, or takeover. Again, the President has broad discretion under thecurrent statute to decide the basis on which he determines whether a transactionmight impair the national security. This list includes the following factors:

(1) domestic production needed for projected national defense requirements;

(2) the capability and capacity of domestic industries to meet national defenserequirements, including the availability of human resources, products,technology, materials, and other supplies and services;

(3) the control of domestic industries and commercial activity by foreign citizensas it affects the capability and capacity of the U.S. to meet the requirements ofnational security;

(4) the potential effects of the transactions on the sales of military goods,equipment, or technology to a country that supports terrorism or proliferatesmissile technology or chemical and biological weapons; and

(5) the potential effects of the transaction on U.S. technological leadership inareas affecting U.S. national security.

Part of Congress's motivation in adopting the Exon-Florio provision apparentlyarose from concerns that foreign takeovers of U.S. firms could not be stopped unlessthe President declared a national emergency or regulators invoked federal antitrust,environmental, or securities laws. Through the Exon-Florio provision, Congressattempted to strengthen the President's hand in conducting foreign investment policy,while providing a cursory role for itself as a means of emphasizing that, as much aspossible, the commercial nature of investment transactions should be free frompolitical considerations. Congress also attempted to balance public concerns aboutthe economic impact of certain types of foreign investment with the nation's long-

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14 CRS Report RL33103, Foreign Investment in the United States: Major FederalRestrictions, by Michael V. Seitzinger.15 P.L. 107-56, title X, Sec. 1014, October 26, 2001; 42 U.S.C. Sec. 5195c(e).

standing international commitment to maintain an open and receptive environmentfor foreign investment.

Furthermore, Congress did not intend to have the Exon-Florio provision alterthe generally open foreign investment climate of the country or to have it inhibitforeign direct investments in industries that could not be considered to be of nationalsecurity interest. The basic approach of the provision, therefore, was to presume thatforeign investment generally has a positive effect on the economy and that it shouldbe encouraged and restricted only in those cases in which a specific transaction hadmet a burden of proof that the proposed investor “might take action that threatens toimpair the national security.”

At the time the Exon-Florio provision was adopted, some analysts believed theprovision could potentially widen the scope of industries that fell under the nationalsecurity rubric. CFIUS, however, is not free to establish an independent approach toreviewing foreign investment transactions, but operates under the authority of thePresident and reflects his attitudes and policies. As a result, the discretion CFIUSuses to review and to investigate foreign investment cases reflects policy guidancefrom the President. In addition, Congress did not adopt a specific definition ofnational security when it approved the Exon-Florio provision. Instead, during areview or investigation of a foreign investment, each member of CFIUS is expectedto apply that definition of national security that is consistent with the legislativemandate of the CFIUS member. As a result, the CFIUS process relies on eachmember applying their own particular definition of national security and making anyconcerns that arise from such a review known to the other members of CFIUS.

Foreign investors are also constrained by legislation that bars foreign directinvestment in such industries as maritime operations, aircraft, banking, resources andpower.14 Generally, these sectors were closed to foreign investors, primarily fornational defense purposes, prior to passage of the Exon-Florio provision to preventthese areas from being subject to foreign control.

Exon-Florio Provision After September 11, 2001

Arguably, the events of September 11, 2001, have reshaped Congressionalattitudes toward the Exon-Florio provision and the manner in which it should beused. During discussion about the Exon-Florio provision prior to its passage in 1988,the Reagan Administration opposed a definition of national security that included“essential commerce and national security,” because the administration argued thatthe definition was too broad. Ultimately, the Reagan Administration succeeded ingetting the term “essential commerce” dropped from the provision. After theSeptember 11th terrorist attacks, however, Congress passed and President Bush signedthe USA PATRIOT Act of 2001 (Uniting and Strengthening America by ProvidingAppropriate Tools Required to Intercept and Obstruct Terrorism).15 In this act,Congress provided for special support for “critical industries,” which it defined as:

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16 Ibid.17 42 U.S.C. Sec. 5195c(b)(2).18 42 U.S.C. Sec. 5195c(b)(3).19 6 U.S.C. Sec. 101(4).

systems and assets, whether physical or virtual, so vital to the United States thatthe incapacity or destruction of such systems and assets would have a debilitatingimpact on security, national economic security, national public health or safety,or any combination of those matters.16

This broad definition is enhanced to some degree by other provisions of the act,which specifically identify certain sectors of the economy, therefore, as likelycandidates for consideration as critical infrastructure, including telecommunications,energy, financial services, water, transportation sectors,17 and the “cyber and physicalinfrastructure services critical to maintaining the national defense, continuity ofgovernment, economic prosperity, and quality of life in the United States.”18 Thefollowing year, Congress adopted the language in the USA PATRIOT Act on criticalinfrastructure into The Homeland Security Act of 2002.19

By adopting the terms “critical infrastructure” and “homeland security,”following the events of September 11, 2001, Congress demonstrated that the attacksfundamentally altered the way many Members of Congress and many in the publicview the concept of national security. As a result, many in Congress and in thepublic have come to believe that economic activities are a separately identifiablecomponent of national security. In addition, many in Congress and elsewhereapparently perceive greater risks to the economy arising from foreign investments inwhich the foreign investor is owned or controlled by foreign governments as a resultof the terrorist attacks. The Dubai Ports World case, in particular, demonstrated thatthere was a difference between the post-September 11 expectations held by many inCongress about the role of foreign investment in the economy and of economicinfrastructure issues as a component of national security and the operations ofCFIUS. For some Members of Congress, CFIUS seemed to be out of touch with thepost-September 11, 2001 view of national security, because it remains founded in thelate 1980s orientation of the Exon-Florio provision, which views national securityprimarily in terms of national defense and downplays or even excludes a broadernotion of economic national security.

Activity within Congress and the intense public and congressional reaction thatarose from the proposed Dubai Ports World acquisition spurred the BushAdministration in late 2006 to make an important administrative change in the wayCFIUS reviews foreign investment transactions. CFIUS and President Bushapproved the acquisition of Lucent Technologies, Inc. by the French-based AlcatelSA, which was completed on December 1, 2006. Before the transaction wasapproved by CFIUS, however, Alcatel-Lucent was required to agree to a nationalsecurity arrangement, known as a Special Security Arrangement, or SSA, thatrestricts Alcatel's access to sensitive work done by Lucent's research arm, Bell Labs,and the communications infrastructure in the United States.

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20 Kirchgaessner, Stephanie, US Threat to Reopen Terms of Lucent and Alcatel DealMergers, Financial Times, December 1, 2006. P. 19; Pelofsky, Jeremy, Businesses Objectto US move on foreign Investment, Reuters News, December 5, 2006.21 House Financial Services Committee Clears Amended CFIUS Reform Bill by VoiceVote, International Trade Daily, February 14, 2007.

The most controversial feature of this arrangement is that it allows CFIUS toreopen a review of the deal and to overturn its approval at any time if CFIUS believesthe companies “materially fail to comply” with the terms of the arrangement. Thismarks a significant change in the CFIUS process. Prior to this transaction, CFIUSreviews and investigations had been portrayed, and had been considered, to be final.As a result, firms were willing to subject themselves voluntarily to a CFIUS review,because they believed that once an investment transaction was scrutinized andapproved by the members of CFIUS the firms could be assured that the investmenttransaction would be exempt from any future reviews or actions. This administrativechange, however, means that a CFIUS determination may no longer be a finaldecision and it adds a new level of uncertainty to foreign investors seeking to acquireU.S. firms. A broad range of U.S. and international business groups are objecting tothis change in the Administration's policy.20

Overview of H.R. 556 and S. 1610

H.R. 556 was approved by the House Financial Services Committee on February13, 2007, with amendments. The amendment offered by Committee Chairman Frankand Representative Price included six changes to the bill as it was introduced onJanuary 18, 2007. These changes responded to concerns that were expressed by theBush Administration that some of the procedures that would have been establishedunder H.R. 556 would have created new levels of bureaucracy and administrativebottlenecks that potentially could have delayed and discouraged foreign investment.The changes would 1) allow a Deputy Secretary or an Under Secretary of an agencyto approve an investment transaction on behalf of the respective agency instead ofrequiring the Secretary to approve the transaction; 2) require the Deputy Secretary ofan agency to certify investment transactions by companies that are owned by aforeign government; 3) give the Director of National Intelligence “adequate time” toconsider national security implications instead of requiring a minimum of 30 days toexamine security implications; 4) clarify that agencies act on behalf of CFIUS inadministering agreements to mitigate security concerns that are raised about a foreigninvestor during a CFIUS review; 5) strike a provision that would have allowedCFIUS to reopen approvals; and would have required the Attorney General to reportto Congress.21

On February 28, 2007, H.R. 556 was approved with amendments by the fullHouse. The three amendments that were adopted clarified the language of themeasure in some cases and added a number of new sections. In particular, themeasure added a new factor that requires CFIUS and the President to consider theimpact of an investment transaction on U.S. efforts to curtail human smuggling inapproving a transaction. Another change would require CFIUS to notify Senatorsand Members of Congress if the Committee determines that the areas represented by

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the Senator or Member would be “significantly” affected by an investmenttransaction.

On June 13, 2007, Senator Dodd introduced S. 1610, which was referred to theSenate Committee on Banking, Housing, and Urban affairs. On June 29, 2007, thefull Senate considered S. 1610 and adopted the measure by unanimous consent as asubstitute for H.R. 556. On July 11, 2007, the House accepted the Senate’s versionof H.R. 556 by a vote of 370-45 and sent the measure to the President.

Both H.R. 556 and S. 1610 attempt to address congressional concerns byestablishing CFIUS by statutory authority, thereby giving Congress a direct role indetermining the make-up and operations of the Committee. The measures wouldhave the Secretary of the Treasury continue to serve as the Chairman of CFIUS,despite the misgivings of some Members. The House measure would have theSecretary of Homeland Security and the Secretary of Defense serve as ViceChairmen. In other respects, the House bill retains the basic structure of theCommittee as it presently exists, except that it would add the Secretary of Energy asa permanent member of CFIUS. The Senate measure would reduce the officialnumber of members of CFIUS, but grant the President the authority to appointtemporary members on a case-by-case basis.

According to the two measures, the Committee would operate under the sametime frame that currently exists with 30 days allotted for a review, 45 days for aninvestigation and 15 days for the President to make his determination. The Presidentwould retain his authority as the only officer with the authority to suspend or prohibitcertain types of foreign investments. The measures would also place additionalrequirements on firms that resubmitted a filing after previously withdrawing a filingbefore a full review is completed.

In H.R. 556, no review or investigation would be considered to be completeuntil it had been approved by a majority of the members of CFIUS and signed by theSecretary of the Treasury and the Secretary of Homeland Security to insure thatprincipal members of CFIUS were aware of all reviews and investigations completedby CFIUS. Both measures would require CFIUS to investigate all 'covered” foreigninvestment transactions to determine whether a transaction threatens to impair thenational security, or the foreign entity is controlled by a foreign government. Acovered foreign investment transaction is defined as any merger, acquisition, ortakeover which results in “foreign control of any person engaged in interstatecommerce in the United States.” S. 1610 would also require an investigation if thetransaction would result in control of any “critical infrastructure that could impair thenational security.”

Both measures place increased requirements on CFIUS to review investmenttransactions in which the foreign person is owned or controlled by a foreigngovernment. Both measures provide for exceptions from the requirement toinvestigate transactions in which the foreign party is controlled by a foreigngovernment. The measures would allow CFIUS to exclude a transaction from aninvestigation if the Secretary of the Treasury and certain other specified officialsdetermine that the transaction will not impair the national security. It is somewhatunclear, however, how this change will mesh with the current process. The measures

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seem to strengthen the role of CFIUS in determining which transactions it willinvestigate. The measures also do not amend or alter the current statute in the areathat has been the source of recent differences between CFIUS and Congress. Inparticular, the current statute states that the President, and through him CFIUS, canuse the Exon-Florio process “only if” he finds that there is “credible evidence” thata foreign investment will impair national security. As a result, CFIUS hasdetermined, as was the case in the Dubai Ports transaction, that if the Committeedoes not have credible evidence that an investment will impair the national securitythat it is not required to undertake a full 45-day investigation.

The extent to which CFIUS increases its investigations of transactions thatinvolve a foreign government may cause foreign investors to regard this as animportant policy change by the United States toward foreign investment. Aspreviously stated, the current system presumes that foreign investment transactionsare acceptable and that they provide a positive contribution to the economy. As aresult, the burden is on the members of CFIUS to prove that a particular transactionis a threat to national security. The measures, however, might be interpreted topresume that investment transactions in which the foreign person is owned orcontrolled by a foreign government are a threat to the nation's security simplybecause of the relationship to the foreign government and, therefore, might requirethe firms to prove that they are not a threat. Although the number of investmenttransactions a year in which the foreign investor is associated with a foreigngovernment is small compared with the total number of foreign investmenttransactions, foreign investors and foreign governments likely will view this as asignificant change in the traditional U.S. approach to foreign investment.

Both bills would increase the role of congressional oversight by requiringgreater reporting by CFIUS on its actions either during or after it completes reviewsand investigations and by increasing reporting requirements on CFIUS. H.R. 556would require the Secretary of the Treasury, the Secretary of Homeland Security, andthe Secretary of Commerce to sign and approve any review or investigation. In thosecases in which the foreign person involved in an investment transaction is owned orcontrolled by a foreign government, a majority of the members of CFIUS would berequired to approve the transaction and the President and the chair and vice chairs ofCFIUS would be required to sign off on investments in which at least one memberof CFIUS did not agree with the decision of the majority to approve the transaction. H.R. 556 would also require the President to approve of any review or investigationin which a foreign entity is from a country that has been determined to support actsof international terrorism.

Both measures would require CFIUS to provide Congress with a greater amountof detailed information about its operations. H.R. 556 would require CFIUS to notifyspecified Members at the conclusion of any investment investigation and to reportannually to Congress. Both measures would provide for greater reporting on andincreased authority for CFIUS to negotiate provisions with the foreign firms involvedin investment transactions to mitigate the impact of the transaction. Under currentstatutes, CFIUS has no authority to negotiate such agreements with firms and it is notclear that it has any authority to enforce such agreements. H.R. 556 and S. 1610provide for a process to track the agreements and to report the progress of such

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agreements and any changes to the agreements to the members of CFIUS and to thePresident.

The measures also would amend the current statute regarding the meaning ofnational security and would place additional requirements on CFIUS regardingnational security reviews. The bills would explicitly require the Director of NationalIntelligence to conduct reviews of any investment that posed a threat to the nationalsecurity. The bills also provide for additional factors the President and CFIUS wouldbe required to use in assessing foreign investments. In particular, the bills would addimplications for the nation's critical infrastructure as a factor for reviewing orinvestigating an investment transaction.

Side-by-Side Comparison of H.R. 556 and S. 1610

The following section provides a more detailed comparison of the two bills asthey passed their respective bodies and the current provisions.

CFIUS National Security Investigations

According to the Exon-Florio provision and subsequent regulations issued bythe Treasury Department, CFIUS has 30 days after it receives the initial formalnotification by the parties to a merger, acquisition, or a takeover, to decide whetherto investigate a case as a result of its determination that the investment “threatens toimpair the national security of the United States.” If during this 30-day period all themembers of CFIUS conclude that the investment does not threaten to impair thenational security or if the concerns of any member are resolved, the review isterminated. If, however, at least one member of the Committee determines that theinvestment does threaten to impair the national security and if those concerns are notresolved, CFIUS can proceed to a 45-day investigation. At the conclusion of theinvestigation or the 45-day review period, whichever comes first, the Committee candecide to offer no recommendation or it can recommend that the President suspendor prohibit the investment. The President is under no obligation to follow therecommendation of the Committee to suspend or prohibit an investment.

A subsequent amendment, the Byrd Amendment, requires CFIUS to conduct a45-day investigation of a transaction in any instance in which the foreign entity iscontrolled by or acting on behalf of a foreign government which could result in theforeign entity gaining control of the U.S. entity and that could affect the nationalsecurity of the United States. Such an investigation is required to begin no later than30 days after CFIUS receives written notice of the proposed or pending merger,acquisition, or takeover and be completed in no more than 45 days.

H.R. 556 and S. 1610 would establish the Committee on Foreign Investment inthe United States as a matter of statute and would amend the current procedures fora CFIUS review and investigation. The measures would strike out the first twosections of the current statute that deal with investigations and replace them withprovisions that would provide for the same 30-day review and 45-day investigationstages that exist under the current provision, but would alter the provision in a

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number of ways. First, the measures would explicitly indicate that the investigationwould be conducted by the Committee on Foreign Investment in the United States,which is referred to only as the President's designee in the current statute. Next, themeasures would amend and broaden the language in the current statute regardingnational security by indicating that national security for this provision would beconstrued “so as to include those issues relating to 'homeland security,' including itsapplication to critical infrastructure,” and “critical technologies,” in the case of S.1610.

The measures would provide for “National Security Reviews andInvestigations,” which are not a part of the current CFIUS process, although theDirector of National Intelligence often is asked to participate in CFIUS reviews andinvestigations. In an important departure from the current procedure, CFIUS wouldbe required (“shall”) to review any merger, acquisition, or takeover to determine theeffects of the transaction on the national security of the United States. In addition,CFIUS would be required (shall) to conduct an investigation of a transaction if theCommittee determines that the transaction would result in foreign control of anyperson engaged in interstate commerce in the United States. Currently, CFIUS hasbroad discretion to determine which cases it reviews and investigates, since itsdirective states that it “may” review or investigate a transaction. Once a review hasbeen initiated, a firm cannot withdraw its notice unless it provides a written requestfor such a withdrawal and the request is approved in writing by the Chairperson, inconsultation with the Vice Chairpersons of the Committee. The term “control” forthis section is defined in the Code of Federal Regulation (31CFR800.204) as thepower to affect the principal assets of the entity, the power to dissolve the entity, toclose and/or relocate the production or research and development facilities, toterminate contracts, or to amend the Articles of Incorporation.

In addition to any entity that is a party to a merger, acquisition, or takeoverbeing able to initiate a review, the measures would provide that the President, theCommittee, or any member of the Committee (H.R. 556) could request that CFIUSreview a transaction. This authority could not be delegated by any member of CFIUSto any person other than to an appropriate Deputy Secretary, Under Secretary, or theequivalent, in the case of H.R. 556. These individuals would be able to review atransaction that previously had been reviewed and approved under certaincircumstances: 1) a transaction in which it was later discovered that false ormisleading material information had been submitted to CFIUS; 2) or materialinformation, including documents, had been omitted from information submitted toCFIUS; 3) or if a party to a transaction had intentionally failed to adhere to anymitigating agreements or conditions upon which the original approval had beengranted and no other remedy or enforcement tool was available to address such abreach of the mitigating agreement.

The measures also would require the President, acting through CFIUS, toconduct a National Security investigation of the effects of a transaction on thenational security of the United States and to take any “necessary” actions inconnection with the transaction to protect the national security of the United Statesunder certain conditions. These conditions would be: (1) as a result of a review ofthe transaction, CFIUS determined that the transactions threatened to impair thenational security of the United States and that the threat had not been mitigated

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during or prior to a review of the transaction, or the foreign person was controlled bya foreign government. H.R. 556 would also require an investigation if: during a rollcall vote of the members of CFIUS at least one member voted against approving thetransaction; the Director of National Intelligence had identified “particularly complexnational security or intelligence issues” that threaten to impair the national securityof the United States and CFIUS members had not been able to develop and agree onmeasures to mitigate the threat during a review. S. 1610 would require aninvestigation if the transaction would result in the control of “any criticalinfrastructure” that would impair the national security. The investigation would berequired to be completed within 45 days, but the House measure would provide foran extension of the deadline of up to an additional 45 days if the extension had beenrequested by the President or by a roll call vote of two-thirds of the CFIUS members.

Both measures provide an important exception to the requirement that CFIUSconduct an investigation of any transaction if it determines during a review that aparty to a transaction is owned or controlled by a foreign government. Instead, themeasures would not require such an investigation, even if CFIUS had determinedduring a review that the party to a transaction was controlled by a foreign governmentif: it also determined that the transaction “will not affect” the national security of theUnited States. The House measure also waived the requirement for an investigationif no agreement or condition was required, relative to the transaction, to mitigate anythreat to the national security.

The House measure would require the approval of a majority of the membersof CFIUS and the approval of, and a signed determination by, the Secretary of theTreasury, the Secretary of Homeland Security, and the Secretary of Commerce on anyreview or investigation in order for the CFIUS process to be considered final orcomplete. In those cases in which the foreign entity was determined to be controlledby a foreign government and at least one member of CFIUS did not vote in favor ofapproval, the CFIUS investigation process would not be considered to be completeuntil the President and the Chairperson, and the Vice Chairperson of the Committeesigned the Committee report to indicate their approval.

H.R. 556 would also require action by the President in certain cases.Specifically, the measure would require the President to approve and to sign hisapproval of an investment transaction in which the party to a transaction is an entityor a country that has been determined by the Secretary of State under the ExportAdministration Act or other provisions of law repeatedly to have provided supportfor acts of terrorism. S. 1610, would require the Secretary of the Treasury to publishin the Federal Register guidance on the types of transactions that the Committee hadreviewed and that had national security considerations. The Senate measure wouldalso require the Committee to notify specified Members of Congress at thecompletion of a review or investigation of any foreign investment transaction.

Both bills would grant the Director of National Intelligence “adequate time” tocarry out a thorough analysis of “any threat to the national security of the UnitedStates” of any merger, acquisition, or takeover. This analysis specifically wouldinclude a request for information be made from the Department of the Treasury'sDirector of the Office of Foreign Assets Control and the Director of the FinancialCrimes Enforcement Network. In addition, the Director of National Intelligence

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would be required to seek and to incorporate the views of “all affected orappropriate” intelligence agencies. The Director of National Intelligence, however,would maintain a role that is independent from CFIUS by not serving as an officialmember of CFIUS and would not serve in a policy role other than to provide analysisin connection with an investment transaction. Firms would not be prohibited underthis measure from submitting additional information or modifying any agreement inconnection with a transaction while the transaction was being reviewed orinvestigated.

H.R. 556National Security Foreign InvestmentReform and StrengthenedTransparency Act of 2007

S. 1610Foreign Investment and NationalSecurity Act of 2007

Section 721 of the Defense ProductionAct of 1950 (50 U.S.C. App. 2170) isamended by striking subsections (a) and(b) and inserting the following newsubsections:

Same.

National security reviews andinvestigations.

The President, acting through the CFIUS,would be required to review a “covered”transaction (any merger, acquisition, ortakeover by or with any foreign personwhich could result in foreign control ofany person engaged in interstatecommerce in the United States) todetermine the effects of the transactionon the national security of the UnitedStates.

No comparable provision.

National security reviews andinvestigations.

Same.

Also specifically requires the President to consider the factors specified elsewherein this measure in the review andinvestigation, as “appropriate.”

Control by a foreign government.

CFIUS is required to conduct aninvestigation if the Committee determinesthat the investment transaction is aforeign government-controlledtransaction.

Control by a foreign government.

Same.

Written notice.

Any party to any covered transaction mayinitiate a review of the transaction bysubmitting a written notice of thetransaction to the Chairperson of the

Written notice.

Same.

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Committee.

Withdrawal of notice.

Written request must be 1) submitted byany party to the transaction; and 2) therequest is approved in writing by theChairperson, in consultation with theVice Chairpersons, of the Committee.

Withdrawal of notice.

Withdrawal notice must be submitted tothe Committee and approved by theCommittee.

Continuing discussions.Approval of a withdrawal request is notto be construed as precluding continuinginformal discussions with the Committeeor any Committee member regardingpossible resubmission.

Continuing discussions.Same.

Unilateral initiation of review.

The President, the Committee, or anymember of the Committee may move toinitiate a review of:

(i) any covered transaction;

(ii) any covered transaction that haspreviously been reviewed or investigatedunder this section, if any party to thetransaction submitted false or misleadingmaterial information to the Committee inconnection with the review orinvestigation or omitted materialinformation, including materialdocuments, from information submittedto the Committee; or `(iii) any coveredtransaction that has previously beenreviewed or investigated under thissection, if any party to the transaction orthe entity resulting from consummationof the transaction intentionally materiallybreaches a mitigation agreement orcondition described in subsection(l)(1)(A), and:

1) such breach is certified by the leaddepartment or agency monitoring andenforcing such agreement or condition asan intentional material breach; and

Unilateral initiation of review.

The President or the Committee mayinitiate a review of:

Same.

Same.

1) such breach is certified to theCommittee by the lead department oragency monitoring and enforcing suchagreement or condition as an intentionalmaterial breach; and

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2) such department or agency certifiesthat there is no other remedy orenforcement tool available to addresssuch breach.

2) the Committee determines that thereare no other remedies or enforcementtools available to address such breach.

Timing.

Any review under this paragraph shall becompleted before the end of the 30-dayperiod beginning on the date of thereceipt of written notice undersubparagraph (C) by the Chairperson ofthe Committee, or the date of theinitiation of the review in accordancewith a motion under subparagraph (D).

Timing.

Same.

Limit on delegation of authority.Authority of the Committee or anymember of the Committee to initiate areview may be delegated only to theDeputy Secretary or an appropriate UnderSecretary of the department or agencyrepresented on the committee or by suchmember (or by a person holding anequivalent position to a Deputy Secretaryor Under Secretary).

Limit on delegation of authority.Authority can be delegated only to theDeputy Secretary or an appropriate UnderSecretary of the department or agencyrepresented on the Committee.

National security investigation.

In each case in which a review of acovered transaction results in adetermination that:1) the transaction threatens to impair thenational security of the United States andthat threat has not been mitigated duringor prior to the review or2) the transaction is a foreigngovernment-controlled transaction;


A roll call vote results in at least 1 voteby a Committee member against

National security investigation.

Same.

Same.

Same.

3) the transaction would result in controlof any critical infrastructure that couldimpair the national security, and that suchimpairment has not been mitigated byassurances provided or renewed duringthe review period, the lead agencyrecommends, and the Committee concurs,that an investigation be undertaken.


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approving the transaction; or

The Director of National Intelligenceidentifies particularly complexintelligence concerns that could threatento impair the national security of theUnited States and Committee memberswere not able to develop and agree uponmeasures to mitigate satisfactorily thosethreats during the initial review period,the President would be required toconduct an investigation of the effects ofthe transaction on the national security ofthe United States and take any necessaryactions in connection with the transactionto protect the national security of theUnited States.


Timing.

Any investigation must be completedbefore the end of the 45-day periodbeginning on the date of the investigationcommenced.

Timing.

Same.

Extension of Time.

The period for any investigation may beextended by the President or by a roll callvote of at least 2/3 of the members of theCommittee by the amount of timespecified by the President or theCommittee at the time of the extension,not to exceed 45 days, in order to collectand fully evaluate information relating tothe covered transaction or parties to thetransaction; and any effect of thetransaction that could threaten to impairthe national security of the United States.


Exception.

An investigation of a foreigngovernment-controlled transaction is notrequired if the Secretary of the Treasury,the Secretary of Homeland Security, andthe Secretary of Commerce determinethat the transaction will not affect thenational security of the United States andno agreement or condition is required to

Exception.

An investigation of a foreigngovernment- controlled transaction or atransaction involving criticalinfrastructure is not required if theSecretary of the Treasury and the head ofthe lead agency jointly determine that thetransaction will not impair the nationalsecurity of the United States.

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mitigate any threat to the nationalsecurity (and such authority of each suchSecretary may not be delegated to anyperson other than the Deputy Secretary ofthe Treasury, of Homeland Security, or ofCommerce, respectively).

No comparable provision. Non-delegation of authority. Authoritywould be delegated only to the DeputySecretary of the Treasury or the deputyhead (or the equivalent thereof) of thelead agency, respectively.

Approval of Chairperson and ViceChairpersons.

A review or investigation can not betreated as final or complete until theresults of the review or investigation areapproved by a majority of the members ofthe Committee in a roll call vote andsigned by the Secretary of the Treasury,the Secretary of Homeland Security, andthe Secretary of Commerce.


No comparable provision. Guidance on certain transactions withnational security implications.

The Chairperson shall publish in theFederal Register guidance on the types oftransactions that the Committee hasreviewed and that have presented nationalsecurity considerations, includingtransactions that may constitute coveredtransactions that would result in controlof critical infrastructure relating toUnited States national security by aforeign government or an entitycontrolled by or acting on behalf of aforeign government.

Additional action required in certaincases.

In the case of any roll call vote inconnection with an investigation of anyforeign government-controlledtransaction in which there is at least 1vote by a Committee member against


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approving the transaction, theinvestigation shall not be treated as finalor complete until the findings and reportresulting from the investigation aresigned by the President (in addition to theChairperson and the Vice Chairpersonsof the Committee).

Presidential action required in certaincases.

The President would be required toapprove and sign the results of a reviewor investigation in any case in which anyparty to the transaction is:1) a person of a country the governmentof which the Secretary of State hasdetermined is a government that hasrepeatedly provided support for acts ofinternational terrorism;2) a government or person controlled,directly or indirectly, by any suchgovernment.


No comparable provision. Certifications to Congress.

Upon completion of a review thechairperson and the head of the leadagency would be required to transmit acertified notice to specified members ofCongress.

No comparable provision. Certified report after investigation.

As soon as is practicable after completionof an investigation the chairperson andthe head of the lead agency would berequired to transmit to specified membersof Congress a certified written report onthe results of the investigation, unless thematter under investigation has been sentto the President for decision.

No comparable provision. Certification procedures.

Each certified notice and report would berequired to include 1) a description of theactions taken by the Committee withrespect to the transaction; and 2)identification of the determinative

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factors.

No comparable provision. Content of certification.

Each certified notice and report would berequired to be signed by the chairpersonand the head of the lead agency, and shallstate that, in the determination of theCommittee, there are no unresolvednational security concerns with thetransaction that is the subject of thenotice or report.

No comparable provision. Members of Congress.

Each certified notice and report would berequired to be transmitted to: 1) theMajority Leader and the Minority Leaderof the Senate; 2) the chair and rankingmember of the Committee on Banking,Housing, and Urban Affairs of the Senateand of any committee of the Senatehaving oversight over the lead agency; 3)the Speaker and the Minority Leader ofthe House of Representatives; and 4) thechair and ranking member of theCommittee on Financial Services of theHouse of Representatives and of anycommittee of the House ofRepresentatives having oversight over thelead agency.

No comparable provision. Transmittal to other Members ofCongress.

The Majority Leader or the MinorityLeader in the Senate, and the Speaker orthe Minority Leader, in the House ofRepresentatives, may provide thecertified notices and reports regarding atransaction involving criticalinfrastructure: 1) in the case of theSenate, to members of the Senate fromthe State in which such criticalinfrastructure is located; and 2) in thecase of the House of Representatives, to amember from a Congressional District inwhich the critical infrastructure islocated.

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No comparable provision. Signatures, limit on delegation.

Each certified notice and report must besigned by the chairperson and the head ofthe lead agency, which may only bedelegated to an employee of theDepartment of the Treasury (in the caseof the Secretary of the Treasury) or to anemployee of the lead agency (in the caseof the lead agency) who was appointedby the President, by and with the adviceand consent of the Senate, or only to aDeputy Secretary of the Treasury (in thecase of the Secretary of the Treasury) or aperson serving in the Deputy position orthe equivalent thereof at the lead agency(in the case of the lead agency).

Analysis by director of nationalintelligence.

The Director of National Intelligencewould be required to expeditiously carryout a thorough analysis of any threat tothe national security of the United Statesof any covered transaction, includingmaking requests for information to theDirector of the Office of Foreign AssetsControl within the Department of theTreasury and the Director of theFinancial Crimes Enforcement Network.The Director of National Intelligence alsowould be required to seek andincorporate the views of all affected orappropriate intelligence agencies.

Analysis by director of nationalintelligence.

The Director of National Intelligencewould be required to expeditiously carryout a thorough analysis of any threat tothe national security of the United Statesposed by any covered transaction. TheDirector of National Intelligence wouldbe required to seek and incorporate theviews of all affected or appropriateintelligence agencies with respect to thetransaction.

Timing.

The Director of National Intelligencewould be required to provide adequatetime to complete the analysis requiredunder subparagraph (A).

Timing.

The analysis required undersubparagraph (A) must be provided bythe Director of National Intelligence tothe Committee not later than 20 daysafter the date on which notice of thetransaction is accepted by the Committeeunder paragraph (1)(C), but the Directormay begin the analysis at any time priorto receipt of the notice.

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No comparable provision.Interaction with intelligencecommunity.

The Director of National Intelligencewould be required to ensure that theintelligence community remains engagedin the collection, analysis, anddissemination to the Committee of anyadditional relevant information that maybecome available during the course ofany investigation.

Independent role of the director.

The Director of National Intelligenceshall not be a member of the Committeeand shall serve no policy role with theCommittee other than to provide analysisin connection with a covered transaction.

Independent role of the director.

The Director of National Intelligenceshall be an ex officio member of theCommittee, and shall be provided with allnotices received by the Committeeregarding covered transactions, but shallserve no policy role on the Committee,other than to provide analysis inconnection with a covered transaction.

Submission of additional information.

No provision of this subsection can beconstrued as prohibiting any party to acovered transaction from submittingadditional information concerning thetransaction, including any proposedrestructuring of the transaction or anymodifications to any agreements inconnection with the transaction, whileany review or investigation of thetransaction is on-going.

Submission of additional information.

Same.

No comparable provision. Notice of results.

The Committee would be required tonotify the parties to a covered transactionof the results of a review or investigation,promptly upon completion of all action.

Regulations.

Regulations prescribed under this sectionshall include standard procedures for:A) submitting any notice of a proposed orpending covered transaction to the

Regulations.

Same.

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22 Executive Order 11858 (b), May 7, 1975, 40 F.R. 20263.23 The term “representative” was dropped by Executive Order 12661, December 27, 1988,54 F.R. 780.24 Executive Order 11858 (b), May 7, 1975, 40 F.R. 20263.

Committee;B) submitting a request to withdraw aproposed or pending covered transactionfrom review; andC) resubmitting a notice of proposed orpending covered transaction that waspreviously withdrawn from review.

Same.

Same.

No comparable provision. D) providing notice of the results of areview or investigation to the parties tothe covered transaction, upon completionof all action under this section.

Composition of CFIUS

The Committee on Foreign Investment in the United States (CFIUS) was createdby Executive Order of President Ford in 197522 to serve the President in overseeingthe national security implications of foreign investment in the economy. PresidentFord's 1975 Executive Order established the basic structure of CFIUS, and directedthat the “representative”23 of the Secretary of the Treasury be the chairman of theCommittee. The Executive Order also stipulated that the Committee would have “theprimary continuing responsibility within the Executive Branch for monitoring theimpact of foreign investment in the United States, both direct and portfolio, and forcoordinating the implementation of United States policy on such investment.”24

Presently, the Committee consists of twelve members, including the Secretaries ofState, the Treasury, Defense, Homeland Security, and Commerce; the United StatesTrade Representative; the Chairman of the Council of Economic Advisers; theAttorney General; the Director of the Office of Management and Budget; the Directorof the Office of Science and Technology Policy; the Assistant to the President for

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25 Executive Order 11858 of May 7, 1975, 40 F.R. 20263 established the Committee withsix members: the Secretaries of State, the Treasury, Defense, and Commerce, and theAssistant to the President for Economic Affairs, and the Executive Director of the Councilon International Economic Policy. Executive Order 12188, January 2, 1980, 45 F.R. 969,added the United States Trade Representative and substituted the Chairman of the Councilof Economic Advisors for the Executive Director of the Council on International EconomicPolicy. Executive Order 12661, December 27, 1988, 54 F.R. 779, added the AttorneyGeneral and the Director of the Office of Management and Budget. Executive Order 12860,September 3, 1993, 58 F.R. 47201, added the Director of the Office of Science andTechnology Policy, the Assistant to the President for National Security Affairs, and theAssistant to the President for Economic Policy. Executive Order 13286, Section 57,February 28, 2003 added the Secretary of Homeland Security.

National Security Affairs; and the Assistant to the President for Economic Policy.25

Both H.R. 556 and S. 1610 would establish the members of CFIUS as a matterof statute, compared with the present situation in which CFIUS is a creation ofvarious presidential orders. Under the House measure, CFIUS would include thesame twelve members that currently constitute the Committee, and it would add theSecretary of Energy to CFIUS. S. 1610, would include the same cabinet membersas currently included as members of CFIUS, but it would not include the other sixmembers of the Administration. In addition, the Senate measure would add theSecretary of Labor and the Director of National Intelligence as ex officio members.In both measures, the Secretary of the Treasury would continue to serve as theChairperson of the Committee, but the House measures create a new ViceChairperson position that would be held by the Secretary of Homeland Security andthe Secretary of Commerce. The Senate measure also would require that a particularmember of CFIUS be designated as the lead agency in cases in which a mitigationagreement had been negotiated or in those cases in which CFIUS had determined tomonitor the conditions agreed to as part of a mitigation agreement to ensure that theconditions were being met. The House measure would empower the Committee to“take such testimony, receive such evidence, administer such oaths,” in order to carryout a review or investigation. The House measure also would empower theCommittee to require the attendance and testimony of “such witnesses andproduction of such books, records, correspondence memoranda, papers, anddocuments” as the Chairperson of the Committee determined to be “advisable.”



Statutory establishment of theCommittee on Foreign Investment inthe United States.

Section 721 of the Defense ProductionAct of 1950 (50 U.S.C. App. 2170) isamended

Statutory establishment of theCommittee on Foreign Investment inthe United States.

Same.

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Establishment.

The Committee on Foreign Investment inthe United States established pursuant toExecutive Order No. 11858 shall be amulti-agency committee to carry out thissection and such other assignments as thePresident may designate.

Establishment.

Same.

Membership.

The Secretary of the Treasury.The Secretary of Homeland Security.The Secretary of Commerce.The Secretary of Defense.The Secretary of State.The Attorney General.The Secretary of Energy.The Chairman of the Council ofEconomic Advisors.The United States Trade Representative.The Director of the Office ofManagement and Budget.The Director of the National EconomicCouncil.The Director of the Office of Science andTechnology Policy.The President's Assistant for NationalSecurity Affairs.Any other designee of the President fromthe Executive Office of the President.

Membership.

Same.Same.Same.Same.Same.Same.Same.The Secretary of Labor (ex officio).The Director of National Intelligence (exofficio).The heads of any other executivedepartment, agency, or office, as thePresident determines appropriate,generally or on a case-by-case basis.

Chairperson.

The Secretary of the Treasury shall be theChairperson of the Committee.

The Secretary of Homeland Security andthe Secretary of Commerce shall be theVice Chairpersons of the Committee.

Chairperson.

Same.


No comparable provision. Designation of lead agency.

The Secretary of the Treasury would berequired to designate another member ormembers, as appropriate, of theCommittee to be the lead agency oragencies on behalf of the Committee:A) for each transaction, and fornegotiating any mitigation agreements or

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other conditions necessary to protectnational security; andB) for all matters related to themonitoring of the completed transaction,to ensure compliance with suchagreements or conditions.

Other members.

The Chairperson of the Committee wouldbe required to involve the heads of suchother Federal departments, agencies, andindependent establishments in any reviewor investigation under subsection (b) asthe Chairperson, after consulting with theVice Chairpersons, determines to beappropriate on the basis of the facts andcircumstances of the transaction underinvestigation (or the designee of any suchdepartment or agency head).

Other members.

The chairperson would be required toconsult with the heads of such otherFederal departments, agencies, andindependent establishments in any reviewor investigation under subsection (a), asthe chairperson determines to beappropriate, on the basis of the facts andcircumstances of the transaction underreview or investigation (or the designeeof any such department or agency head).

Meetings.

The Committee shall meet upon thedirection of the President or upon the callof the Chairperson of the Committeewithout regard to section 552b of title 5,United States Code (if otherwiseapplicable).

Meetings.

Same.

Collection of evidence.

The Committee may, for the purpose ofcarrying out this section:A) sit and act at such times and places,take such testimony, receive suchevidence, administer such oaths; andB) require the attendance and testimonyof such witnesses and the production ofsuch books, records, correspondence,memoranda, papers, and documents asthe Chairperson of the Committee maydetermine advisable.


Authorization of appropriations.

There are authorized to be appropriated


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to the Secretary of the Treasury for eachof fiscal years 2008, 2009, 2010, and2011 expressly and solely for theoperations of the Committee that areconducted by the Secretary, the sum of$10,000,000.

Presidential Actions

H.R. 556 would leave unaltered the current Exon-Florio provision, which grantsthe President the authority to “take such action for such time as the Presidentconsiders appropriate to suspend or prohibit” any acquisition, merger, or takeover bya foreign entity of “persons engaged in interstate commerce in the United States” thatthreaten to impair the national security. The Senate measure similarly empowers thePresident to take such action as the President considers appropriate concerning “anycovered transaction by or with a foreign person or government” that threatens toimpair the national security of the United States. Both measures follow the currentprocedure, which requires the President to announce his decision within 15 days afterCFIUS completes its investigation of a proposed transaction. Both measures wouldalso follow current statute, which grants the President the authority to direct theAttorney General to seek appropriate relief, including divestment relief, in the districtcourts of the United States in order to implement and enforce this decision by thePresident.



No comparable provision. Action by the President.

The President may take such action forsuch time as the President considersappropriate to suspend or prohibit anycovered transaction by or with a foreignperson or government that threatens toimpair the national security of the UnitedStates.

No comparable provision. Announcement by the President.

The President must announce thedecision on whether or not to take actionnot later than 15 days after the date onwhich an investigation is completed.

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No comparable provision. Enforcement.

The President may direct the AttorneyGeneral of the United States to seekappropriate relief, including divestmentrelief, in the district courts of the UnitedStates, in order to implement and enforcethis subsection.

No comparable provision. Findings of the President.

The President may exercise the authorityconferred by paragraph (1), only if thePresident finds that:A) there is credible evidence that leadsthe President to believe that the foreigninterest exercising control might takeaction that threatens to impair thenational security; andB) provisions of law, other than thissection and the International EmergencyEconomic Powers Act, do not, in thejudgment of the President, provideadequate and appropriate authority forthe President to protect the nationalsecurity in the matter before thePresident.

No comparable provision. Factors to be considered.

For purposes of determining whether totake action, the President shall consider,among other factors each of the factorsdescribed in this measure.

Findings

Both measures would leave unchanged the current Exon-Florio provision, whichgrants the President the authority to block proposed or pending foreign acquisitionsof “persons engaged in interstate commerce in the United States” that threaten toimpair the national security. Congress directed, however, that before the Presidentcan invoke this authority he must believe that the case meets two tests, or findings.First, he must believe that other U.S. laws are inadequate or inappropriate to protectthe national security. Secondly, he must have “credible evidence” that the foreigninvestment will impair the national security. S. 1610 also indicates that the findingsof the President are not subject to any judicial review.

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No comparable provision. Actions and findings nonreviewable.

The actions of the President under thissubsection and the findings of thePresident are not subject to judicialreview.

Factors Used in Findings

As it is currently written, the Exon-Florio provision includes a list of five factorsthe President may consider in deciding to block a foreign investment. These factorsare also considered by the individual members of CFIUS as part of their own reviewprocess to determine if a particular transaction threatens to impair the nationalsecurity. This list includes the following elements:

(1) domestic production needed for projected national defense requirements;

(2) the capability and capacity of domestic industries to meet national defenserequirements, including the availability of human resources, products,technology, materials, and other supplies and services;

(3) the control of domestic industries and commercial activity by foreign citizensas it affects the capability and capacity of the U.S. to meet the requirements ofnational security;

(4) the potential effects of the transactions on the sales of military goods,equipment, or technology to a country as identified by the Secretary of Statesunder the Export Administration Act that supports terrorism or under the NuclearNon-Proliferation Act that proliferates missile technology or chemical andbiological weapons; and

(5) the potential effects of the transaction on U.S. technological leadership inareas affecting U.S. national security.

Both H.R. 556 and S. 1610 would amend the current factors the President andthe Committee use to evaluate mergers, acquisitions, or takeovers. In particular, themeasures would change the status of the factors to be considered from beingdiscretionary (may) to being required (shall) in evaluating a transaction. The Senatemeasure would add transactions identified under the fourth factor by the Secretaryof Defense as “posing a regional military threat” to the interests of the United States.Also, H.R. 556 would add four more factors to the five that currently exist. Thesenew factors are:

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(1) whether the transaction has a security-related impact on critical infrastructurein the United States;

(2) the potential effects of the transaction on the efforts of the United States tocurtail human smuggling and to curtail drug smuggling.

(3) whether the entity involved is being controlled by a foreign government;

(4) and such other factors as the President or his designee “may determine to beappropriate, generally or in connection with a specific review or transaction.”

S. 1610 would add seven new factors to the five that currently exist. These newfactors are:

(1) whether the transaction has a security-related impact on critical infrastructurein the United States:

(2) the potential effects on United States critical infrastructure, including majorenergy assets;

(3) the potential effects on United States critical technologies;

(4) whether the transaction is a foreign government-controlled transaction;

(5) in those cases involving a government-controlled transaction, a review of (A)the adherence of the foreign country to nonproliferation control regimes, (B) theforeign country's record on cooperating in counter0terrorism efforts, (C) thepotential for transshipment or diversion of technologies with militaryapplications,;

(6) the long-term projection of the United States requirements for sources ofenergy and other critical resources and materials; and

(7) such other factors as the President or the Committee determine to beappropriate.

Both bills would make the United States immune from any liability for anylosses or expenses incurred by the parties to an investment transaction as a result ofactions taken by CFIUS if the entities did not submit a written notification to CFIUSor if the transaction was completed prior to the completion of a CFIUS review orinvestigation.



Additional factors required to beconsidered.

Section 721(f) of the Defense Production

Additional factors required to beconsidered.

Section 721(f) of the Defense Production

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Act of 1950 (50 U.S.C. App. 2170(f)) isamended by making the factorsmandatory and by adding the followingfactors to be considered:

Act of 1950 (50 U.S.C. App. 2170(f)) isamended by adding


6) whether the covered transaction has asecurity-related impact on criticalinfrastructure in the United States;7) the potential effects of the coveredtransaction on the efforts of the UnitedStates to curtail human smuggling and tocurtail drug smuggling with regard to anycountry which is not described inparagraphs (1) and (2) of section 1003(a)of the Controlled Substances Import andExport Act;8) whether the covered transaction is aforeign government-controlledtransaction; and9) such other factors as the President orthe President's designee may determine tobe appropriate, generally or in connectionwith a specific review or investigation.

B) identified by the Secretary of Defenseas posing a potential regional militarythreat to the interests of the UnitedStates;

Same.

7) the potential effects on United Statescritical infrastructure, including majorenergy assets;8) the potential effects on United Statescritical technologies;9) whether the covered transaction is aforeign government-controlledtransaction, as determined undersubsection (b)(1)(B);10) with respect to transactions requiringan investigation under subsection(b)(1)(B) only, a review of the currentassessment of:A) the adherence of the subject countryto nonproliferation control regimes,including treaties and multilateral supplyguidelines, which shall draw on, but notbe limited to, the annual report on'Adherence to and Compliance with ArmsControl, Nonproliferation andDisarmament Agreements andCommitments' required by section 403 ofthe Arms Control and Disarmament Act;B) the relationship of such country withthe United States, specifically on itsrecord on cooperating incounter-terrorism efforts, which shalldraw on, but not be limited to, the reportof the President to Congress undersection 7120 of the Intelligence Reformand Terrorism Prevention Act of 2004;andC) the potential for transshipment ordiversion of technologies with militaryapplications, including an analysis ofnational export control laws and

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26 50 U.S.C. Appendix Sec. 2170(c)27 50 U.S.C. Appendix Sec. 2170(g).

regulations;11) the long-term projection of UnitedStates requirements for sources of energyand other critical resources and material;and12) such other factors as the President orthe Committee may determine to beappropriate, generally or in connectionwith a specific review or investigation.

Confidentiality

The Exon-Florio provision codified confidentiality requirements that are similarto those that appeared in Executive Order 11858 by stating that any information ordocumentary material filed under the provision may not be made public “except asmay be relevant to any administrative or judicial action or proceeding.”26 Theprovision does state, however, that this confidentiality provision “shall not beconstrued to prevent disclosure to either House of Congress or to any duly authorizedcommittee or subcommittee of the Congress.” The Exon-Florio provision requiresthe President to provide a written report to the Secretary of the Senate and the Clerkof the House detailing his decision and his actions relevant to any transaction thatwas subject to a 45-day investigation.27 As presently written, there is no requirementfor CFIUS or the President to notify or otherwise inform Congress of cases it reviewsor of the outcome of any investigation.

Both H.R. 556 and S. 1610 would provide for the release of proprietaryinformation “which can be associated with a particular party” to committees onlywith assurances that the information would remain confidential. Members ofCongress and their staff members would be accountable under current provisions oflaw governing the release of certain types of information.



Confidentiality provisions. Confidentiality provisions.

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The disclosure of information under thissubsection shall be consistent with therequirements of subsection (c). Membersof Congress and staff of either House orany committee of the Congress shall besubject to the same limitations ondisclosure of information as areapplicable under such subsection.

Same.

Mitigation and Tracking

Since the implementation of the Exon-Florio provision, CFIUS has developedseveral practices that likely were not envisioned when the statute was drafted. Forinstance, members of CFIUS negotiate conditions with firms at times either tomitigate or to remove matters that raise national security concerns among themembers of CFIUS. Such agreements often are informal arrangements that have anuncertain basis in statute and have not been tested in court. These arrangements havebeen negotiated during the formal 30-day review period, or even during an informalprocess prior to the formal filing of a notice of an investment transaction.

H.R. 556 and S. 1610 would address one concern about CFIUS's actions bygranting CFIUS, or any agency designated by the Chairperson and Vice Chairpersonof CFIUS according the House measure, and a designated lead agency according tothe Senate measure, the authority to negotiate, impose, or enforce any agreement orcondition with the parties to a transaction in order to mitigate any threat to thenational security of the United States. Such agreements would be based on a “risk-based analysis” of the threat posed by the transaction. Also, if a notification of atransaction is withdrawn before any review or investigation by CFIUS can becompleted, both measures grant the Committee the authority to take a number ofactions. In particular, the Committee would be able to develop (1) interimprotections to address specific concerns about the transaction pending a re-submission of a notice by the parties; (2) specific time frames for re-submitting thenotice; and (3) a process for tracking any actions taken by any party to thetransaction.

According to H.R. 556, CFIUS would designate one or more appropriate federaldepartments or agencies to negotiate, modify, monitor, and enforce agreements inorder to mitigate any threat to national security. In the Senate version, CFIUS woulddesignate a lead agency to negotiate, modify, monitor, and enforce agreements inorder to mitigate any threat to national security. H.R. 556 would require the agenciesor departments designated as the lead in negotiating mitigating agreements to reporton a half-yearly basis to CFIUS and the parties to an agreement would be requiredto report on the implementation of any material change in circumstances. Bothmeasures would require the federal entity or entities involved in any mitigatingagreement to report to CFIUS on any modification to any agreement or condition that

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had been imposed and to ensure that “any significant” modification is reported to theDirector of National Intelligence and to any other federal department or agency that“may have a material interest in such modification.” S. 1610 would also require suchreports to be filed with the Attorney General.

In addition, H.R. 556 and S. 1610 would require CFIUS to develop a method forevaluating the compliance of firms that had entered into a mitigation agreement orcondition that was imposed as a requirement for approval of the investmenttransaction. Such measures, however, would be required to be developed in such away that they would allow CFIUS to determine that compliance is taking placewithout also: 1) “unnecessarily diverting” CFIUS resources from assessing any newcovered transaction for which a written notice had been filed; and 2) placing“unnecessary” burdens on a party to a investment transaction.



Mitigation and tracking. Mitigation and tracking.

Mitigation.

The Committee or any agency designatedby the Chairperson and ViceChairpersons may negotiate, enter into orimpose, and enforce any agreement orcondition with any party to a coveredtransaction in order to mitigate any threatto the national security of the UnitedStates that arises as a result of thetransaction.

Mitigation.

The Committee or a lead agency maynegotiate, enter into or impose, andenforce any agreement or condition withany party to the covered transaction inorder to mitigate any threat to thenational security of the United States thatarises as a result of the coveredtransaction.

Risk-based analysis.

Any agreement entered into or conditionimposed under subparagraph (A) shall bebased on a risk-based analysis, conductedby the Committee, of the threat tonational security of the coveredtransaction.

Risk-based analysis.

Same.

Tracking authority.

If any written notice of a coveredtransaction that was submitted to theCommittee is withdrawn before anyreview or investigation by the Committeeis completed, the Committee would berequired to establish, as appropriate-1) interim protections to address specificconcerns with such transaction that havebeen raised in connection with any such

Tracking authority.

Same.

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review or investigation pending anyresubmission of any written notice underthis section with respect to suchtransaction and further action by thePresident under this section;2) specific time frames for resubmittingany such written notice; and3) a process for tracking any actions thatmay be taken by any party to thetransaction, in connection with thetransaction, before the notice referred toin clause (2) is resubmitted.

Designation of agency.

The Committee may designate 1 or moreappropriate Federal departments oragencies, other than any entity of theintelligence community as a lead agencyto carry out the requirements with respectto any covered transaction that is subjectto subparagraph (A).

Designation of agency.

The lead agency, other than any entity ofthe intelligence community shall ensurethat the requirements of subparagraph (A)with respect to any covered transactionthat is subject to such subparagraph aremet.

Negotiation, modification, monitoring,and enforcement.

The Committee shall designate 1 or moreFederal departments or agencies as thelead agency to negotiate, modify,monitor, and enforce, on behalf of theCommittee, any agreement entered intoor condition imposed under paragraph (1)with respect to a covered transactionbased on the expertise with andknowledge of the issues related to suchtransaction on the part of the designateddepartment or agency.

Negotiation, modification, monitoring,and enforcement.

The lead agency shall negotiate, modify,monitor, and enforce, on behalf of theCommittee, any agreement entered intoor condition imposed under paragraph (1)with respect to a covered transaction,based on the expertise with andknowledge of the issues related to suchtransaction on the part of the designateddepartment or agency. Nothing in thisparagraph shall prohibit otherdepartments or agencies in assisting thelead agency in carrying out the purposesof this paragraph.

Reporting by designated agency. Reporting by designated agency.

Implementation reports.

Each Federal department or agencydesignated by the Committee as a leadagency in connection with any agreemententered into or condition imposed withrespect to a covered transaction shall:


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1) report, as appropriate but not less thanonce in each 6-month period, to theChairperson and Vice Chairpersons ofthe Committee on the implementation ofsuch agreement or condition; and2) require, as appropriate, any party to thecovered transaction to report to the headof such department or agency (or thedesignee of such department or agencyhead) on the implementation or anymaterial change in circumstances.

Modification reports.

Any Federal department or agencydesignated by the Committee as a leadagency in connection with any agreemententered into or condition imposed withrespect to a covered transaction shall:1) provide periodic reports to theChairperson and Vice Chairpersons ofthe Committee on any modification toany such agreement or condition imposedwith respect to the transaction; and2) ensure that any significantmodification to any such agreement orcondition is reported to the Director ofNational Intelligence and to any otherFederal department or agency that mayhave a material interest in suchmodification.

Modification reports.

The lead agency in connection with anyagreement entered into or conditionimposed with respect to a coveredtransaction shall

1) provide periodic reports to theCommittee on any material modificationto any such agreement or conditionimposed with respect to the transaction;and

2) ensure that any material modificationto any such agreement or condition isreported to the Director of NationalIntelligence, the Attorney General of theUnited States, and any other Federaldepartment or agency that may have amaterial interest in such modification.

Compliance.

The Committee shall develop and agreeupon methods for evaluating compliancewith any agreement entered into orcondition imposed with respect to acovered transaction that will allow theCommittee to adequately assurecompliance without-1) unnecessarily diverting Committeeresources from assessing any newcovered transaction for which a writtennotice has been filed pursuant tosubsection (b)(1)(C), and if necessaryreaching a mitigation agreement with orimposing a condition on a party to suchcovered transaction or any covered

Compliance.

Same.

Same.

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transaction for which a review has beenreopened for any reason; or

2) placing unnecessary burdens on a partyto a covered transaction.

Same.

Congressional Oversight

In hearings that were held during the 109th Congress after the Dubai Ports Worldtransaction became public, various Members expressed concern that they wereprovided so little information under the current statutes that their ability to fulfilltheir oversight responsibilities was hampered. In addition, some Members apparentlybelieved that the current requirements do not provide Members with enoughinformation to address public concerns that occasionally arise concerning particularinvestment transactions, such as the Dubai Ports World transaction. Currently, thePresident is required to report to Congress on his determination to take action on aproposed investment transaction after CFIUS has completed a 30-day review and a45-day investigation of the transaction. The President's report is required to containa detailed explanation of the findings and of the factors the President used to makehis determination.

The President also is required to provide an assessment of the risk of diversionof defense critical technology posed by an investment transaction if such anassessment is performed and that the assessment be provided to any other individualresponsible for reviewing or investigating investment transactions under the Exon-Florio provision. In addition, the President is required to provide Congress with aquadrennial report which evaluates two issues: 1) whether there is credible evidenceof a coordinated strategy by one or more countries or companies to acquire U.S.companies involved in research, development, or production of critical technologiesfor which the United States is a leading producer; and 2) whether there are industrialespionage activities directed or directly assisted by foreign governments againstprivate U.S. companies aimed at obtaining commercial secrets related to criticaltechnologies.

Both H.R. 556 and S. 1610 would increase oversight by the Congress. H.R. 556would require that not later than five days after CFIUS completed an investigation,or 15 days after the end of an investigation if the President had determined to takeactions under the Exon-Florio provision, the Committee would provide a writtenreport to leaders in both Houses of Congress and to the Chairman and RankingMember of committees in both houses with jurisdiction over any aspect of thetransaction and its possible effects on national security, specifically, at a minimum,the Committee on Foreign Affairs, the Committee on Financial Services, and theCommittee on Energy and Commerce in the House. Both measures would require

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28 P.L. 94-282 (May 11, 1976) which states that the priority needs of the Nation relative toinvestment in science and technology are: (1) promoting conservation and efficientutilization of natural and human resources; (2) protecting the oceans and coastal zones; (3)strengthening the economy and promoting full employment; (4) assuring adequate suppliesof food, materials, and energy; (5) improving the quality of health care; and (6) improvingthe nation's housing, transportation, and communication systems.

CFIUS to brief certain congressional leaders if they requested such a briefing.Members of Congress and their staff would be subject to disclosure limitations andproprietary information would be shared with congressional committees only underconditions that would assure the confidentiality of the information.

H.R. 556 and S. 1610 would require CFIUS to report annually to Congress onany reviews or investigations that it had conducted during the prior year. Each reportwould include a list of all reviews and investigations that had been conducted,information on the nature of the business activities of the parties involved in aninvestment transaction, information about the status of the review or investigation,and information on any withdrawal from the process, any roll call votes by theCommittee, any extension of time for any investigation, and any presidential decisionor action taken under the Exon-Florio provision. In addition, CFIUS would berequired to report on trend information on the number of filings, investigations,withdrawals, and presidential decisions or actions that were taken. The report alsowould include cumulative information on the business sectors involved in filings andthe countries from which the investments originated; information on the status of theinvestments of companies that withdrew notices and the types of securityarrangements and conditions CFIUS used to mitigate national security concerns; themethods the Committee used to determine that firms were complying with mitigationagreements or conditions; and a detailed discussion of all perceived adverse effectsof investment transactions on the national security or critical infrastructure of theUnited States.

Relative to critical technologies, both H.R. 556 and S. 1610 would requireCFIUS to include in its annual report an evaluation of any credible evidence of acoordinated strategy by one or more countries or companies to acquire U.S.companies involved in research, development, or production of critical technologiesin which the United States is a leading producer. The report also would include anevaluation of possible industrial espionage activities directed or directly assisted byforeign governments against private U.S. companies aimed at obtaining commercialsecrets related to critical technologies. For the purposes of this section, the Housemeasure would define critical technologies as technology defined in the NationalScience and Technology Policy Organization and Priorities Act of 197628, or “othercritical technology, critical components, or critical technology items essential tonational defense or national security.”

In addition, both measures would require the Secretary of the Treasury, inconsultation with the Secretary of State and the Secretary of Commerce to conducta study on investment in the United States, particularly in critical infrastructure andindustries affecting national security by: 1) foreign governments, entities controlledby or acting on behalf of a foreign government, or persons of foreign countries which

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comply with any boycott of Israel; 2) foreign governments, entities controlled by oracting on behalf of a foreign government, or persons of foreign countries which donot ban organizations designated by the Secretary of State as foreign terroristorganizations.

Both measures also would require the Inspector General of the Department ofthe Treasury to investigate any failure of CFIUS to comply with requirements forreporting that were imposed prior to the passage of this measure and to report thefindings of this report to the Congress. In particular, the report would be required tobe sent to the chairman and ranking member of each committee of the House and theSenate with jurisdiction over any aspect of the report, including the Committee onInternational Relations, the Committee on Financial Services, and the Committee onEnergy and Commerce of the House.

H.R. 556 and S. 1610 also would require the chief executive officer of any partyto a merger, acquisition, or takeover to certify in writing that the informationcontained in the written notification to CFIUS fully complied with the requirementsof the Exon-Florio provision and that the information was accurate and complete.This written notification would also include any mitigation agreement or conditionthat was part of a CFIUS approval.



Increased oversight by the Congress. Increased oversight by the Congress.

Reports on completed investigations.

Not later than 5 days after the completionof a Committee investigation or, if thePresident indicates an intent to take anyaction with respect to the transaction,after the end of 15-day period referred toin subsection (d), the Chairperson or aVice Chairperson of the Committeewould be required to submit a writtenreport on the findings or actions of theCommittee with respect to suchinvestigation, the determination ofwhether or not to take action undersubsection (d), an explanation of thefindings under subsection (e), and thefactors considered under subsection (f),with respect to such transaction, to:1) the Majority Leader and the MinorityLeader of the Senate; 2) the Speaker andthe Minority Leader of the House ofRepresentatives; 3) the chairman andranking member of each committee of the



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House of Representatives and the Senatewith jurisdiction over any aspect of thecovered transaction and its possibleeffects on national security, including, ata minimum, the Committee on ForeignAffairs, the Committee on FinancialServices, and the Committee on Energyand Commerce of the House ofRepresentatives; and 4) Senatorsrepresenting States and Members ofCongress representing congressionaldistricts that would be significantlyaffected by the covered transaction.

Notice and briefing requirement.

If a written request for a briefing on acovered transaction, or on compliancewith a mitigation agreement or conditionimposed with respect to such transaction,is submitted to the Committee by anySenator or Member of Congress whoreceives a report on the transaction, theChairperson or a Vice Chairperson (orsuch other person as the Chairperson or aVice Chairperson may designate) shallprovide 1 classified briefing to eachHouse of the Congress from which anysuch briefing request originates in asecure facility of appropriate size andlocation that shall be open only to theMajority Leader and the Minority Leaderof the Senate, the Speaker and theMinority Leader of the House ofRepresentatives, (as the case may be) thechairman and ranking member of eachcommittee of the House ofRepresentatives or the Senate (as the casemay be) with jurisdiction over any aspectof the covered transaction and its possibleeffects on national security, including, ata minimum, the Committee on ForeignAffairs, the Committee on FinancialServices, and the Committee on Energyand Commerce of the House ofRepresentatives, and appropriate staffmembers who have security clearance.

Notice and briefing requirement.

The Committee shall, upon request fromany Member of Congress specified insubsection (b)(3)(C)(iii), promptlyprovide briefings on a coveredtransaction for which all action hasconcluded under this section, or oncompliance with a mitigation agreementor condition imposed with respect to suchtransaction, on a classified basis, ifdeemed necessary by the sensitivity ofthe information. Briefings under thisparagraph may be provided to thecongressional staff of such a Member ofCongress having appropriate securityclearance.

Annual report. Annual report.

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The Chairperson of the Committee wouldbe required to transmit a report to thechairman and ranking member of eachcommittee of the House ofRepresentatives and the Senate withjurisdiction over any aspect of the report,including, at a minimum, the Committeeon Foreign Affairs, the Committee onFinancial Services, and the Committee onEnergy and Commerce of the House ofRepresentatives, before July 31 of eachyear on all the reviews and investigationsof covered transactions completed undersubsection (b) during the 12-monthperiod covered by the report.

The chairperson would be required totransmit a report to the chairman andranking member of the committee ofjurisdiction in the Senate and the Houseof Representatives, before July 31 of eachyear on all of the reviews andinvestigations of covered transactionscompleted under subsection (b) duringthe 12-month period covered by thereport.

Contents of report. Contents of report.

1) A list of all notices filed and allreviews or investigations completedduring the period with basic informationon each party to the transaction, thenature of the business activities orproducts of all pertinent persons, alongwith information about the status of thereview or investigation, information onany withdrawal from the process, any rollcall votes by the Committee under thissection, any extension of time for anyinvestigation, and any presidentialdecision or action under this section.

1) A list of all notices filed and allreviews or investigations completedduring the period, with basic informationon each party to the transaction, thenature of the business activities orproducts of all pertinent persons, alongwith information about any withdrawalfrom the process, and any decision oraction by the President under this section.

2) Specific, cumulative, and, asappropriate, trend information on thenumbers of filings, investigations,withdrawals, and presidential decisionsor actions under this section.

Same.

3) Cumulative and, as appropriate, trendinformation on the business sectorsinvolved in the filings which have beenmade, and the countries from which theinvestments have originated.

Same.

4) Information on whether companiesthat withdrew notices to the Committeein accordance with subsection(b)(1)(C)(ii) have later re-filed such

Same.

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notices, or, alternatively, abandoned thetransaction.

5) The types of security arrangements andconditions the Committee has used tomitigate national security concerns abouta transaction, including a discussion ofthe methods the Committee and any leaddepartments or agencies designated undersubsection (l) are using to determinecompliance with such arrangements orconditions.

Same.

6) A detailed discussion of all perceivedadverse effects of covered transactions onthe national security or criticalinfrastructure of the United States thatthe Committee will take into account inits deliberations during the period beforedelivery of the next such report, to theextent possible.

Same.

Contents of report relating to criticaltechnologies.

In order to assist the Congress in itsoversight responsibilities with respect tothis section, the President and suchagencies as the President shall designateshall include in the annual reportsubmitted under paragraph (1) thefollowing:

Contents of report relating to criticaltechnologies.

Same.

1) An evaluation of whether there iscredible evidence of a coordinatedstrategy by 1 or more countries orcompanies to acquire United Statescompanies involved in research,development, or production of criticaltechnologies for which the United Statesis a leading producer.

Same.

2) An evaluation of whether there areindustrial espionage activities directed ordirectly assisted by foreign governmentsagainst private United States companiesaimed at obtaining commercial secretsrelated to critical technologies.

Same.

Critical technologies. No comparable provision.

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Critical technologies means technologiesidentified under title VI of the NationalScience and Technology Policy,Organization, and Priorities Act of 1976or other critical technology, criticalcomponents, or critical technology itemsessential to national defense or nationalsecurity identified pursuant to thissection.

Release of unclassified study.

That portion of the annual report underparagraph (1) that is required by thisparagraph may be classified. Anunclassified version of that portion of thereport shall be made available to thepublic.'.

Release of unclassified study.

That portion of the annual report underparagraph (1) that is required by thisparagraph may be classified. Anunclassified version of the report, asappropriate, consistent with safeguardingnational security and privacy, shall bemade available to the public.

Study and report.

Before the end of the 120-day periodbeginning on the date of the enactment ofthis Act and annually thereafter, theSecretary of the Treasury, in consultationwith the Secretary of State and theSecretary of Commerce, shall conduct astudy on investments in the United States,especially investments in criticalinfrastructure and industries affectingnational security, by-

Study and report.

Same.

A) foreign governments, entitiescontrolled by or acting on behalf of aforeign government, or persons of foreigncountries which comply with any boycottof Israel; or

Same.

B) foreign governments, entitiescontrolled by or acting on behalf of aforeign government, or persons of foreigncountries which do not ban organizationsdesignated by the Secretary of State asforeign terrorist organizations.

Same.

Report.

The Secretary of the Treasury shallsubmit a report to the Congress, for

Report.

Same.

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transmittal to all appropriate committeesof the Senate and the House ofRepresentatives, containing the findingsand conclusions of the Secretary withrespect to the study described inparagraph (1), together with an analysisof the effects of such investment on thenational security of the United States andon any efforts to address those effects.

Investigation by Inspector General.

The Inspector General of the Departmentof the Treasury shall conduct anindependent investigation to determineall of the facts and circumstancesconcerning each failure of theDepartment of the Treasury to make anyreport to the Congress that was requiredunder section 721(k) of the DefenseProduction Act of 1950 (as in effectbefore the date of the enactment of thisAct).

Investigation by Inspector General.

Same.

Report to the Congress.

Before the end of the 270-day periodbeginning on the date of the enactment ofthis Act, the Inspector General of theDepartment of the Treasury shall submita report to the chairman and rankingmember of each committee of the Houseof Representatives and the Senate withjurisdiction over any aspect of the report,including, at a minimum, the Committeeon Foreign Affairs, the Committee onFinancial Services, and the Committee onEnergy and Commerce of the House ofRepresentatives, on the investigationunder paragraph (1) containing thefindings and conclusions of the InspectorGeneral.

Report to the Congress.

Same.

Certification of notices. Certification of notices.

Certification of Notices andAssurances.

Each notice required to be submitted, by

Certification of Notices andAssurances.

Same.

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a party to a covered transaction, to thePresident or the President's designeeunder this section and regulationsprescribed under such section, and anyinformation submitted by any such partyin connection with any action for which areport is required pursuant to paragraph(3)(B)(ii) of subsection (l) with respect tothe implementation of any mitigationagreement or condition described inparagraph (1)(A) of such subsection, orany material change in circumstances,shall be accompanied by a writtenstatement by the chief executive officeror the designee of the person required tosubmit such notice or informationcertifying that, to the best of the person'sknowledge and belief — '(1) the notice or information submittedfully complies with the requirements ofthis section or such regulation,agreement, or condition; and'(2) the notice or information is accurateand complete in all material respects.’.

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Conclusions

The proposed DP World acquisition of P&O, while arguably of little economicimpact on the U.S. economy, could affect public policy on foreign investment thatrelates to issues of corporate ownership, foreign investment, and national security inthe U.S. economy. The transaction revealed significant differences betweenCongress and the Administration over the operations of CFIUS and over theobjectives the Committee should be pursuing. In addition, the transactiondemonstrated that neither Congress nor the Administration has been able so far todefine clearly the national security implications of foreign direct investment or thenational security implications of foreign investment activity in the economy. Theseissues likely reflects differing assessments of the economic impact of foreigninvestment on the U.S. economy and differing political and philosophical convictionsamong Members and between the Congress and the Administration.

The incident also focused attention on the informal process firms use to havetheir investment transactions reviewed by CFIUS prior to a formal review.According to anecdotal evidence, some firms apparently believe that the CFIUSprocess is not market neutral, but that it adds to market uncertainty that cannegatively affect a firm’s stock price and lead to economic behavior by some firmsthat is not optimal for the economy as a whole. Such behavior might involve firmsexpending a considerable amount of resources to avoid a CFIUS investigation, ordeciding to terminate a transaction that would improve the optimal performance ofthe economy in order to avoid a CFIUS investigation. While such anecdotal evidencemay not serve as the basis for developing public policy, it does raise a number ofconcerns about the possible impact of the CFIUS process on the market and thepotential costs of redefining the concept of national security relative to foreigninvestment.

The recent focus by Congress on the Committee has also shown that the DPWorld transaction, in combination with other recent unpopular foreign investmenttransactions, has exacerbated dissatisfaction among some Members of Congress overthe operations of CFIUS. In particular, some Members are displeased with the waythe Committee uses its discretionary authority under the Exon-Florio provision toinvestigate certain foreign investment transactions. As a result, some Members ofCongress are proposing changes to the CFIUS process through legislation that isprogressing through the 1st Session of the 110th Congress. The changes couldmandate more frequent contact between the Committee, which generally operateswithout much public or congressional attention, and the Congress and enhanceCongress’s oversight role over the Committee.

The DP World transaction also revealed that the September 11, 2001 terroristattacks may have fundamentally altered the viewpoint of some Members of Congressregarding the role of foreign investment in the economy and over the impact of suchinvestment on the national security framework. Some argue that this changedperspective requires a reassessment of the role of foreign investment in the economyand of the implications of corporate ownership of activities that fall under the rubricof critical infrastructure. As a result, some Members of Congress are looking toamend the CFIUS process to enhance Congress’s oversight role while reducing

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somewhat the discretion of CFIUS to review and investigate foreign investmenttransactions in order to have CFIUS investigate a larger number of foreigninvestment cases. In addition, the DP World transaction has focused attention onlong-unresolved issues concerning the role of foreign investment in the nation’soverall security framework and the methods that are being used to assess the impactof foreign investment on the nation’s defense industrial base, homeland security, andnational economic infrastructure.

Changes to the CFIUS process being proposed in the House and Senate billswould alter the current CFIUS process, but it remains to be seen how the changeswould affect the outcome of the CFIUS process. In the final analysis, the Presidentretains sole authority to apply the Exon-Florio provisions and he has completediscretion to accept or reject a CFIUS recommendation to block a proposed foreigninvestment transaction. As a result, CFIUS reflects the President’s priorities andpolicies relative to foreign investment. To date, Presidents have been highlyreluctant to use the authority of the Exon-Florio provision to block investmenttransactions, which has happened just once since the measure was adopted. In part,this reluctance may stem from the narrow range of policy options that are providedfor in the provision, which seems at odds with the often highly complex nature offoreign investment transactions. As a result, CFIUS has slowly developed aninformal process that essentially expands the policy options available to the Presidentby allowing CFIUS members to review proposed investment transactions ahead ofany formal review and, most importantly, to negotiate informal agreements thatmitigate aspects of the investment that otherwise would spur CFIUS members tooppose the transaction. By formalizing this process through proposed legislation,Congress likely would expand the range of policy options available to the Presidentand possibly broaden the scope of measures foreign firms may be asked to complywith in order to gain approval. Depending on how foreign firms view these changes,they may regard them as signaling a less tolerant attitude in the United States towardforeign investment and the changes potentially could add support to the renewedwillingness of some foreign governments to impose additional restrictions on foreigninvestors.

Most economists agree that there is little economic evidence to conclude thatforeign ownership, whether by a private entity or by an entity that is owned orcontrolled by a foreign government, has a measurable impact on the U.S. economyas a whole. Others may argue on non-economic grounds that such firms pose a riskto national security or to homeland security. Similar issues concerning corporateownership were raised during the late 1980s and early 1990s when foreigninvestment in the U.S. economy increased rapidly. There are little new data,however, to alter the conclusion reached at that time that there is no definitive wayto assess the economic impact of foreign ownership or of foreign investment on theeconomy. Although some observers have expressed concerns about foreign investorswho are owned or controlled by foreign governments acquiring U.S. firms, there islittle confirmed evidence that such a distinction in corporate ownership has anymeasurable effect on the economy as whole.

For most economists, the distinction between domestic- and foreign-ownedfirms, whether the foreign firms are privately owned or controlled by a foreigngovernment, is sufficiently small that they would argue that it does not warrant

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placing restrictions on the inflow of foreign investment. Nevertheless, foreign directinvestment does entail various economic costs and benefits. On the benefit side, suchinvestments bring added capital into the economy and potentially could add toproductivity growth and innovation. Such investment also represents onerepercussion of the U.S. trade deficit. The deficit transfers dollar-denominated assetsto foreign investors, who then decide how to hold those assets by choosing amongvarious investment vehicles, including direct investment. Foreign investment alsoremoves a stream of monetary benefits from the economy in the form of repatriatedcapital and profits that reduces the total amount of capital in the economy. Suchcosts and benefits likely occur whether the foreign owner is a private entity or aforeign government.

Exon-Florio Foreign Investment Provision: Comparison of H.R. 556 … · 2007. 7. 13. ·...

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Transcript of Exon-Florio Foreign Investment Provision: Comparison of H.R. 556 … · 2007. 7. 13. ·...