    [House Hearing, 110 Congress]
    [From the U.S. Government Publishing Office]

                        COMMITTEE ON FOREIGN INVESTMENT

                         IN THE UNITED STATES (CFIUS),

                        ONE YEAR AFTER DUBAI PORTS WORLD

    =======================================================================

                                    HEARING

                                   BEFORE THE

                        COMMITTEE ON FINANCIAL SERVICES

                         U.S. HOUSE OF REPRESENTATIVES

                           ONE HUNDRED TENTH CONGRESS

                                 FIRST SESSION

                                   __________

                               FEBRUARY 07, 2007

                                   __________

           Printed for the use of the Committee on Financial Services

                                Serial No. 110-2

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                     HOUSE COMMITTEE ON FINANCIAL SERVICES

                     BARNEY FRANK, Massachusetts, Chairman

    PAUL E. KANJORSKI, Pennsylvania      SPENCER BACHUS, Alabama
    MAXINE WATERS, California            RICHARD H. BAKER, Louisiana
    CAROLYN B. MALONEY, New York         DEBORAH PRYCE, Ohio
    LUIS V. GUTIERREZ, Illinois          MICHAEL N. CASTLE, Delaware
    NYDIA M. VELAZQUEZ, New York         PETER T. KING, New York
    MELVIN L. WATT, North Carolina       EDWARD R. ROYCE, California
    GARY L. ACKERMAN, New York           FRANK D. LUCAS, Oklahoma
    JULIA CARSON, Indiana                RON PAUL, Texas
    BRAD SHERMAN, California             PAUL E. GILLMOR, Ohio
    GREGORY W. MEEKS, New York           STEVEN C. LaTOURETTE, Ohio
    DENNIS MOORE, Kansas                 DONALD A. MANZULLO, Illinois
    MICHAEL E. CAPUANO, Massachusetts    WALTER B. JONES, Jr., North
    RUBEN HINOJOSA, Texas                    Carolina
    WM. LACY CLAY, Missouri              JUDY BIGGERT, Illinois
    CAROLYN McCARTHY, New York           CHRISTOPHER SHAYS, Connecticut
    JOE BACA, California                 GARY G. MILLER, California
    STEPHEN F. LYNCH, Massachusetts      SHELLEY MOORE CAPITO, West
    BRAD MILLER, North Carolina              Virginia
    DAVID SCOTT, Georgia                 TOM FEENEY, Florida
    AL GREEN, Texas                      JEB HENSARLING, Texas
    EMANUEL CLEAVER, Missouri            SCOTT GARRETT, New Jersey
    MELISSA L. BEAN, Illinois            GINNY BROWN-WAITE, Florida
    GWEN MOORE, Wisconsin,               J. GRESHAM BARRETT, South Carolina
    LINCOLN DAVIS, Tennessee             RICK RENZI, Arizona
    ALBIO SIRES, New Jersey              JIM GERLACH, Pennsylvania
    PAUL W. HODES, New Hampshire         STEVAN PEARCE, New Mexico
    KEITH ELLISON, Minnesota             RANDY NEUGEBAUER, Texas
    RON KLEIN, Florida                   TOM PRICE, Georgia
    TIM MAHONEY, Florida                 GEOFF DAVIS, Kentucky
    CHARLES WILSON, Ohio                 PATRICK T. McHENRY, North Carolina
    ED PERLMUTTER, Colorado              JOHN CAMPBELL, California
    CHRISTOPHER S. MURPHY, Connecticut   MARSHA BLACKBURN, Tennessee
    JOE DONNELLY, Indiana                ADAM PUTNAM, Florida
    ROBERT WEXLER, Florida               MICHELE BACHMANN, Minnesota
    JIM MARSHALL, Georgia                PETER J. ROSKAM, Illinois
    DAN BOREN, Oklahoma

            Jeanne M. Roslanowick, Staff Director and Chief Counsel

                                C O N T E N T S

                                  ----------
                                                                       Page
    Hearing held on:
        February 7, 2007.............................................     1
    Appendix:
        February 7, 2007.............................................    61

                                   WITNESSES
                          Wednesday, February 7, 2007

    Bartlett, Steve, President and CEO, Financial Services Roundtable    45
    Heyman, David, Director, Homeland Security Program, Center for
      Strategic and International Studies............................    52
    Lowery, Hon. Clay, Assistant Secretary, U.S. Department of the
      Treasury.......................................................     5
    Malan, Todd M., President and CEO, Organization for International
      Investment.....................................................    46
    Marchick, David, partner, Covington and Burling..................    48
    Nichols, Robert S., President and COO, Financial Services Forum..    50
    O'Hanlon, Michael, senior fellow, Foreign Policy Program,
      Brookings Institution..........................................    47

                                    APPENDIX

    Prepared statements:
        Brown-Waite, Hon. Ginny......................................    62
        Cleaver, Hon. Emanuel........................................    63
        Putnam, Hon. Adam H..........................................    65
        Pryce, Hon. Deborah..........................................    67
        Waters, Hon. Maxine..........................................    69
        Bartlett, Steve..............................................    74
        Heyman, David................................................    83
        Lowery, Hon. Clay............................................    88
        Malan, Todd M................................................    93
        Marchick, David..............................................   104
        Nichols, Robert S............................................   132
        O'Hanlon, Michael............................................   163

                        COMMITTEE ON FOREIGN INVESTMENT

                         IN THE UNITED STATES (CFIUS),

                        ONE YEAR AFTER DUBAI PORTS WORLD

                                  ----------

                          Wednesday, February 7, 2007

                 U.S. House of Representatives,
                               Committee on Financial Services,
                                                       Washington, D.C.
        The committee met, pursuant to notice, at 10 a.m., in room
    2128, Rayburn House Office Building, Hon. Barney Frank
    [chairman of the committee] presiding.
        Present: Representatives Frank, Waters, Maloney, Gutierrez,
    Velazquez, Watt, Sherman, Meeks, Moore of Kansas, Capuano,
    Clay, Baca, Green, Cleaver, Bean, Davis of Tennessee, Ellison,
    Klein, Mahoney, Wilson, Perlmutter, Donnelly, Wexler, Marshall,
    Boren; Bachus, Castle, Lucas, Paul, Jones, Biggert, Capito,
    Feeney, Hensarling, Garrett, Neugebauer, Davis of Kentucky,
    McHenry, Putnam, Blackburn, Bachmann, and Roskam.
        Also present: Representative Crowley.
        The Chairman. Today's hearing of the Committee on Financial
    Services will now come to order. This is a hearing on the
    legislation that will establish statutorily the Committee on
    Foreign Investment in the United States.
        Let me ask unanimous consent that we limit opening
    statements to two and two. Two and two does not make three.
    There are three members of the committee here.
        We will limit opening statements, if there is unanimous
    consent, to no more than the chairman and the ranking member of
    the full committee, and the ranking member of the subcommittee
    or their designees.
        Is there any objection?
        The Chair hears none. In light of the sparsity of the other
    attendees--I think we may have worn out members' capacity to
    sit in hearings, having sat from 10 a.m. to 6:30 p.m. yesterday
    on New Orleans--I would ask unanimous consent that our former
    colleague, who has moved on to better things, but decided to
    slum today and re-join us, be allowed to participate in the
    hearing, the gentleman from New York, Mr. Crowley
        Is there any objection?
         Hearing none, Mr. Crowley will be allowed to participate.
        With that, I'm going to turn to the ranking member, not of
    this subcommittee, but of the Subcommittee on Financial
    Institutions, Mrs. Maloney, who was the ranking member last
    year of the appropriate subcommittee. She has done major work
    on this. I will turn to her for an opening statement.
        Mrs. Maloney. I want to thank the chairman and ranking
    member for holding this hearing and for making it a priority,
    which it should be. I am delighted that we are moving forward
    with the bipartisan CFIUS reform bill, which protects national
    security and grows our economy by encouraging safe foreign
    investment.
        This bill, which I introduced in the last Congress with
    Representatives Price, Crowley, and Blunt, has strong
    bipartisan support, including the chairman and ranking member
    of this committee, as well as Chairman Thompson and Ranking
    Member King of the Homeland Security Committee.
        The Committee on Foreign Investment in the United States or
    CFIUS, an interagency group of 12 agencies headed by Treasury,
    were thrown into the spotlight by the Dubai Ports World debacle
    almost a year ago.
        Suddenly, Congress found out that management of six of our
    largest ports had been sold to the Government of Dubai without
    any senior political officer knowing anything about it.
        Clearly, the process by which foreign acquisitions in this
    country were reviewed lacked transparency and accountability.
    Our national security was not getting proper attention.
        At the same time, I, and the other sponsors of this bill,
    believed strongly in the benefits of safe foreign investment,
    jobs in the United States, and greater opportunities for
    American business abroad.
        The process for vetting foreign investments must not become
    so unwieldy or so uncertain that valuable foreign investment is
    needlessly discouraged, hampering economic growth.
        Many observers, both domestic and foreign, think our bill
    has struck this balance successfully. This legislation proposes
    several important changes to the current regulations governing
    foreign investment to improve national security.
        First, it will ensure that foreign-government-controlled
    entities will get special scrutiny. As we saw with Dubai Ports
    World, government-controlled entities may have agendas other
    than profit and may have access to funds far beyond those
    available to private companies to accomplish them.
        Second, it will ensure that the top level political
    appointees in each participating department review and sign off
    on transactions so that there is a better opportunity for the
    exercise of judgment and more accountability.
        There are also several aspects of the bill that provide
    greater certainty to the process, to improve the climate for
    safe foreign investment.
        First, we have preserved the 30-day timeline, which is
    similar to other reviews, such as the anti-trust reviews, which
    industry regards as critical for most deals.
        Second, the bill provides very restrictive rules for any
    re-opening of the CFIUS process.
        Finally, the bill requires greater reporting to Congress,
    but only of all completed actions by CFIUS. The bill does not
    require reporting during the process since that injects
    unnecessary political risk and would severely chill safe
    foreign investment.
        In sum, this bill is a sensible balanced approach to making
    sure foreign acquisitions do not jeopardize our national
    security while providing greater certainty and predictability
    to encourage safe foreign investment.
        I urge my colleagues to support H.R. 556, and I look
    forward to the testimony and welcome today Mr. Lowery.
        The Chairman. The Chair now recognizes the ranking member,
    the gentleman from Alabama.
        Mr. Bachus. Thank you, Chairman Frank. I certainly
    appreciate you scheduling this important hearing. Let me also
    thank Representative Maloney for introducing this legislation
    so early in the 110th Congress, and Representative Deborah
    Pryce, a member of our committee, for serving as an original
    co-sponsor.
        Chairman Frank and I are also original co-sponsors of H.R.
    556, which is identical to the legislation that passed the
    House by a margin of 424-0 last year. I think some changes we
    will make next week will even strengthen that bill.
        Reform of the Nation's foreign investment vetting process
    became an issue last year when the Committee on Foreign
    Investment in the United States received criticism for failing
    to question the safety and security implications stemming from
    Dubai Ports World's purchase of commercial operations at
    several American ports.
        Mr. Chairman, the key issues we face transcend the Dubai
    Ports World deal or CFIUS. H.R. 556 meets our challenges by
    advancing three important objectives.
        The first objective is to encourage foreign investment in
    our economy. Legislation should do nothing to slow that
    investment or discourage it. The surest way to ensure that
    America remains strong and secure is to strengthen our economy
    and maintain global competitiveness.
        While we should never underestimate the threat to U.S.
    interests from economic espionage or from critical technologies
    falling into the wrong hands, we must also recognize that
    discouraging intentionally or unwittingly foreign investment or
    otherwise restricting global capital flows poses a serious
    threat to our economic security and prosperity.
        The second objective is transparency. Many Members of
    Congress learned of the Dubai Ports World situation from
    newspapers. This bill will ensure that as a matter of policy,
    CFIUS keeps Congress in the loop.
        Third, we need empowerment of experts best qualified to
    assess national security issues. To that end, this bill ensures
    that the Director of National Intelligence can provide
    important and timely input to CFIUS based on the most current
    intelligence available, and guarantees that the Department of
    Homeland Security will be a full participant in the process.
        Mr. Chairman, the world is a lot different than it was in
    1975, when President Ford first created CFIUS. It is far
    different than in 1988, when the outline of the current review
    process was established.
        Terrorism requires us to exercise increased vigilance while
    the demands of a global economy necessitate that America
    compete aggressively for foreign investment capital.
        The ``siren song'' of protectionism is one that must be
    resisted if we are serious about maintaining America's
    competitive standing in the world.
        This bill modernizes the way CFIUS does business, ensuring
    that both our security and economic needs are met.
        Once again, I congratulate the sponsors of this bill and
    look forward to working with them to move the legislation
    through our committee and through the House.
        Thank you.
        The Chairman. I'm a very strong supporter of this bill. I
    think it is a good thing that we have this bipartisan
    consensus. Foreign direct investment is a good thing for our
    economy.
        There has been some confusion. Unfortunately, in the
    current context, the word ``foreign'' sometimes gets people a
    little jittery. That is an indication of why we need to make
    progress in dealing with excessive inequality. This should not
    be at all controversial, but I can understand why some people
    fear it.
        If they look specifically at what we are talking about, it
    should be very clear that we are talking about people who do
    not live in America putting money here in direct investments,
    i.e., things that will create jobs.
        It is true that we had a problem with the Dubai Ports
    situation. That was due to a lapse in judgment on the part of
    people in this Administration. Someone should have said to the
    people from Dubai that they are very nice people with whom we
    have no particular quarrel, but they should not take it
    personally if we explain to them that in the current context in
    the world, having people from their part of the world
    controlling shipping was likely to cause more trouble than it
    was worth. They should have been steered into other
    investments.
        We should not allow that political misjudgment at the
    Administration level to cause us to skew a process which is on
    the whole good for us. Yes, there will be exceptional cases of
    national security, but they are exceptional.
        I must say that many of the arguments I have seen based on
    national security result from particular groups in society
    understandably, but inaccurately, identifying their own
    economic wellbeing with national security.
        We all like to think that our prosperity is somehow
    important, not just to us, but to society as a whole. That
    isn't always the case. What we now have is a good set of rules
    that will allow us--the general rule will be to allow things
    in.
        It is also obviously the case that if someone were
    investing money in America, the notion that your investment is
    going to have to sit and become a political football before
    some Congressional committee or somebody else for some period
    of time, it is unlikely to encourage you to invest here. We do
    not want to interfere with that process.
        There have been amendments suggested that we are talking
    about. People should be on notice that we plan to mark up this
    bill in committee next week and have it on the Floor soon, I
    would hope, either next week or as soon as we come back from
    recess.
        We hope to send the rest of the world a signal that we
    regard this as a place where they should feel comfortable in
    investing. Our message to others in the world is bring us your
    money to create jobs and we will treat you and your money very
    nicely. That is the essential message of this legislation.
        Mr. Bachus. Any members who wish to make an opening
    statement?
        The Chairman. We have one more statement available for the
    minority if anyone would like to make one, but it is not
    obligatory.
        We will now proceed with our witnesses. We will begin with
    the representative of the Treasury. Let me say that I have
    spoken to Secretary Paulson and Undersecretary Kimmitt. We
    understand this is something that is being considered at the
    highest levels at Treasury, and we appreciate that.
        The Treasury is represented here today by Clay Lowery, who
    is the Assistant Secretary for the Department of the Treasury.
    Mr. Lowery, please proceed. Your full statement will be,
    without objection, put into the record.

     STATEMENT OF THE HONORABLE CLAY LOWERY, ASSISTANT SECRETARY,
                    U.S. DEPARTMENT OF THE TREASURY

        Mr. Lowery. Thank you very much, Mr. Chairman, Ranking
    Member Bachus, Congresswoman Maloney, and the other
    distinguished members of the committee.
        Your opening statements are actually very close to my
    statement. I will try to be very brief.
        Today I am here to update the committee on the changes that
    we have made--
        The Chairman. That is probably a good model for Treasury to
    follow for the future. I mean the similarity, not the brevity.
        Mr. Lowery. I want to update the committee on basically the
    process changes we have already made in the past year and how
    many of them reflect, actually, what is in the House bill.
        In the last Congress, this committee was instrumental in
    shaping a CFIUS reform bill which passed the House unanimously.
    We believe the goals of this bill, ``to ensure national
    security while promoting foreign investment and the creation
    and maintenance of jobs'', are consistent with the goals that
    the Administration has pursued in trying to strengthen the
    CFIUS process.
        Based largely on concerns that were raised by the Congress,
    the Administration has made a number of changes in the past
    year, and while the list of changes is too many to go through
    in my oral testimony, I would like to highlight three of them
    in particular that came out of the Dubai Ports World
    transaction.
        First, we have improved our communications with Congress.
    CFIUS now provides briefing materials on every single case for
    which action is concluded under the Exxon-Florio amendment. In
    addition, CFIUS provides periodic briefings to its oversight
    committees describing the cases investigated.
        Second, to strengthen accountability, every case is now
    briefed up to the highest levels within CFIUS agencies, and
    only individuals who have been presidentially appointed and
    Senate confirmed can certify the conclusion of a CFIUS
    investigation.
        Third, the role of the intelligence community has been
    formalized and enhanced. The Director of National Intelligence,
    using the 16 different intelligence agencies, examines every
    transaction, participates in all CFIUS meetings, and provides a
    broad and comprehensive threat assessment to the committee.
        The legislation introduced by Congresswomen Maloney and
    Pryce and others covers many of these reforms. Last year in its
    newsletter, the Administration outlined concerns with the House
    and Senate bills, and my written testimony covers many of those
    issues.
        Overall, we were very impressed by the efforts of the House
    in structuring a balanced bill that was done in such a
    bipartisan manner.
        In my oral testimony, I would only want to point out two
    concerns that we have. As you will hear from your next panel,
    investors like clarity and certainty, which this bill helps
    provide.
        However, some specific provisions could cause unnecessary
    bureaucratic delays that would extend investigations beyond the
    timeline set in the legislation.
        For instance, not allowing the delegation of authority
    beyond the top two officials in an agency to conclude
    transactions on even the most routine cases is a recipe for
    delaying investigations based more on the rigidity of clearance
    processes than on the merits of a case.
        In addition, such a formula will focus the attention of the
    most senior level officials on everything as opposed to having
    them focus on those priority cases that are of most concern.
        Secondly, we agree that foreign-government-controlled cases
    should be given higher scrutiny by CFIUS. By requiring a
    potential 75-day investigation on all foreign-government-
    controlled cases, the legislation could take routine
    transactions that have little to do with national security and
    subject them to a drawn out process that could divert resources
    from other cases that need attention.
        As members of this committee know, it is important that we
    get this right. Today, many firms and countries in the world
    are watching this process, and they are asking: ``Is the United
    States closing its borders to investment and competition?
    Should we put our money and talent elsewhere? If the United
    States has a high process barrier to investment, we certainly
    can make ours even more onerous, or should we even take
    retaliatory action against U.S. firms in our countries if they
    take action against ours?''
        We all realize that our primary goal is to protect national
    security, but we also need to protect open investment in the
    United States.
        Traditionally, the United States has been one of the most
    open and attractive climates for investors to put their money.
    This openness creates competition, jobs, and wealth, and is the
    underpinning of our economic success.
        To sum it up, we should never forget that a domestic
    climate conducive to foreign investment is also one of the keys
    to strengthening our national security.
        Thank you very much. I will take any questions you have.
        [The prepared statement of Hon. Clay Lowery can be found on
    page 88 of the appendix.]
        The Chairman. Thank you, Mr. Lowery. We appreciate the
    conversations we have been having about those amendments. I
    believe we are going to be able to work out agreements on many
    of these issues.
        I will now turn to Mrs. Maloney to begin the questioning.
        Mrs. Maloney. I appreciate your testimony, your meetings,
    the meeting of Secretary Paulson and others on this issue. I
    join the chairman in wanting to respond and work with you.
        This bill was originally introduced because we were
    concerned that the CFIUS process did not adequately protect
    national security. I want to talk about national security just
    for a moment.
        The Washington Post reported last Friday that Dubai Ports
    World, through its subsidiary, had bought the Hotel Washington
    on 15th Street. As you know, if you have been to the roof, it
    is only a stone's throw from the second floor residence of the
    White House.
        I was struck by this because this is exactly the scenario
    that the Administration used last year as an example of a
    foreign government purchase that would be outside of CFIUS'
    review.
        When I was urging them to take a broader view of the
    national security right after the Dubai Ports World, they said,
    well, we will look at ports, but we will not look at hotels.
    Yet this hotel is very close to the White House.
        To my mind, I think this example illustrates exactly the
    criticism that the GAO has leveled at CFIUS in its October 5th
    report. They said that CFIUS took too narrow a view of national
    security by only focusing on defense-related sectors.
        I am concerned that attitude encouraged companies not to
    submit deals to CFIUS, including deals that should have been
    reviewed. For example, when I urged CFIUS to review the
    purchase of the second largest voting machine company in the
    United States by a Venezuelan company, the company, SmartMatic,
    publicly took the position that they did not have to go through
    the CFIUS review, because a deal involving voting machines just
    was not a CFIUS issue period. I feel otherwise. I feel voting
    machines are part of our national security. As you know, this
    went on for months.
        In this day and age, there are really no sectors that we
    can rule out as never posing a national security issue. I was
    glad to see that CFIUS gave the SmartMatic deal a careful
    review and the company has withdrawn its application and is
    selling Sequoia.
        I am not saying that the Hotel Washington deal does pose an
    issue. I am sure you are on top of it. I think it does show
    that we need to have a broad and flexible definition of
    national security and not exclude any specific sector.
        My question is what approach is CFIUS taking to this issue
    now? How does the committee define ``national security'' for
    purposes of its review? Are there any sectors that you now
    consider that are out of bounds?
        Mr. Lowery. Thank you for the question. The GAO, in 2005,
    part of its study, they believed that the CFIUS body and
    actually particularly the Treasury Department, was defining
    ``national security'' way too narrowly, and just doing it on
    defense issues.
        We think the GAO had some points there. We are not sure we
    completely agree. Right now, if you look at the cases that
    CFIUS has taken on over the last year, there were 113 filings
    last year, which is basically the most since 1991, of those
    cases, roughly 25 percent of them were in the defense industry.
    About 60 percent probably were in what would best be described
    as a broad category of critical infrastructure, including
    things like voting machines, ports, energy companies, and so
    forth.
        We actually have tried to take a fairly flexible view. I
    can honestly say that in terms of national security, since the
    definitions of ``national security'' have clearly changed over
    time, 9/11 showed how much it can change, I think CFIUS has
    tried to change with that.
        I think the GAO study was a good point of reference for us
    to make sure that we look at our procedures as carefully as
    possible.
        We agree with you that a broad and flexible view of
    national security is necessary, and that is how we are trying
    to do things within CFIUS.
        Mrs. Maloney. What is Treasury's view of the evergreen
    provisions?
        Mr. Lowery. I think the evergreen provision, which you will
    hear about clearly a lot on your next panel, is quite
    controversial.
        I think our view is just like the legislation has,
    basically there needs to be procedural hurdles to putting
    something like that in place. It is a tough provision. I think
    that the legislation tries to get at that fairly well. That is
    how we are trying to view it within the Administration, which
    is it should be used in very rare circumstances.
        I think that what we need to keep in mind is the importance
    of a good open investment climate, and I think the business
    community can talk about that better than I can.
        Thirdly, and we do really need to reflect on this, what
    does it mean for our companies abroad. There are countries that
    look at certain provisions that we put in place or certain
    processes that we put in place and do they then submit our
    companies through the same processes.
        I think our overall view is it should be used rarely and
    make sure that we have procedural steps to put a high hurdle in
    the legislation attempts to get at most of those issues.
        The Chairman. The gentlewoman's time has expired. The
    gentleman from Alabama.
        Mr. Bachus. Thank you, Assistant Secretary.
        Looking at this bill, it is the same text that was
    introduced and went to the Floor and passed last year. Are you
    aware that at least two of the sections dealing with the
    Director of National Intelligence--one seems to give 30 days
    and one seems to give a different time period?
        Have you corresponded about what you think would be the
    right approach on that?
        Mr. Lowery. We think that the bill did a good job of making
    sure that we formalize the process of the Director of National
    Intelligence. The Director of National Intelligence provides
    input into every single CFIUS transaction.
        The only place we are worried about it is if it starts
    stepping into the policy role. I do not think the intelligence
    community thinks that is appropriate, and I do not think we
    think it is appropriate.
        The second area is there is a provision in the bill about
    having a minimum of 30 days for the intelligence community to
    look at the reviews. I think this was an important attempt by
    Congress, and I know the Homeland Security Committee, in
    particular, was interested in this issue.
        The only problem with it, it was the right thing to do, the
    right attempt, but the only problem with it was that by putting
    in that minimum 30 days, you actually could undermine the
    structure of the bill, which is to try to clear out
    transactions within 30 days.
        We have talked to the intelligence community. They actually
    right now are providing--it takes them roughly about 20 days to
    provide their intelligence assessment. Sometimes, a little
    less. Sometimes, a little more. That allows the CFIUS people to
    review what the intelligence community looks at, which is the
    threats of a transaction.
        I think if we can provide a little more flexibility on
    that, that would be helpful, and we would be happy to work with
    the committee on that.
        Mr. Bachus. Take out one of the sections?
        Mr. Lowery. Yes. We would be happy to work with you on how
    to structure that better.
        Mr. Bachus. In the past, there have been concerns from some
    that the Treasury Department has ignored security related input
    from other CFIUS agencies in favor of encouraging foreign
    investment.
        Was that ever true? Is it possible for the Department of
    the Treasury to overrule the views of the Defense Department?
    It's been reported.
        Mr. Lowery. The answer is no, in terms of overruling the
    Defense Department. Each agency basically can continue the
    investigation of a transaction if they have any concerns with
    that transaction, whether it is Defense, Justice, Homeland
    Security, or Treasury, for that matter.
        Treasury takes national security concerns very seriously.
    Obviously, we want open investment in this country. I think
    people at the Department of Defense would say they want open
    investment in this country.
        When I heard about this, I found it almost laughable that
    this was being applied, given the fact that a bunch of people
    at the Treasury Department are going to explain to the
    Secretary of Defense or the Defense Deputy Secretary what
    ``national security'' means.
        It's incomprehensible. I do not know how we would be able
    to do it.
        Instead, what we tried to do is chair the committee, but
    work as a team, together with Defense.
        Mr. Bachus. It seems like some of the legislation that was
    proposed last year is more protectionism than it is security
    related. It almost was trying to turn CFIUS into protectionist
    legislation as opposed to security related legislation.
        Mr. Lowery. That is our greatest concern. I will say that I
    felt the House did a very good job of trying to balance those
    issues. Obviously, we have a few small concerns. In general, I
    think the House tried to, in my view at least, stay away from
    those protectionist sentiments that could be there. I
    understand them.
        You are right. National security is what we should be
    focused on, not protectionism.
        Mr. Bachus. There was a dramatic increase in CFIUS filings
    in 2006. Were all those necessary? Was there an unnecessary
    strain on your resources from all these filings?
        Mr. Lowery. I think the answer is that probably not all of
    them were necessary. I think there was an increase in the case
    filings for a few reasons.
        First, frankly, the U.S. economy is going pretty well and
    people want to invest in the United States. Second, it kind of
    goes to Congresswoman Maloney's point, which is that we have a
    more flexible and broad definition of ``national security.''
        Third, obviously, Dubai Ports World brought in a lot of
    attention to the CFIUS process, which increased a lot of
    filings, and finally fourth, by the nature of your question,
    you are right. There were some filings that were probably more
    defensive than anything else, filing for the sake of filing.
        Obviously, that does stretch the resources more just
    because you have to look at every single case. We are trying to
    address that by increasing our resources. That is a concern and
    hopefully as we provide more clarity and certainty through a
    legislative process and through an executive order process at
    some point, that will help firms.
        Mr. Bachus. I do think the key is that Dubai really threw
    the foreign investment community into a lot of uncertainty. I
    think it restricted investment in the United States.
        Mr. Lowery. I agree with you. That is something that we
    have to be very careful about.
        The Chairman. Thank you. There are three seats in the front
    row, and I am very much in favor of the public being able to
    sit. Since we do not expect to get any more witnesses, if
    people who are standing up want to come sit down, please feel
    free to do so. I regret the fact that the size of this
    committee restricts the availability of seats for the public.
    Essentially, given the way we finance the Congress, I will
    quote Ronald Reagan, ``You paid for these chairs, you the
    taxpayers, you might as well sit in them.''
        Now I will go to the gentlewoman from California.
        Ms. Waters. Thank you very much, Mr. Chairman, members, and
    Congresswoman Maloney. I came over today, even though I have
    two committee hearings, because I wanted to make sure that I
    heard everything about this investment oversight, and whether
    or not Congress is doing enough to ensure that we are protected
    against terrorist threats.
        I am particularly concerned about this issue. I think it
    was just yesterday that it was revealed that one of the members
    of the Iraqi Government was discovered to have been involved in
    terrorist activities.
        What does that have to do with this? It simply says that if
    we are to fight terrorism, and if this is the number one issue
    of this Administration, we have to do it in every way possible,
    and we have to consider all that we do in terms of making our
    ports and any of our assets available in any way to any other
    countries, and any other investment opportunities.
        I just want to make sure that we are doing our job and that
    we are raising the right kinds of questions. For example, is
    what we are doing adequate and will this bill that is being
    proposed close the loopholes?
        Mr. Lowery. Let me try to answer that. We think that we
    have improved the process and strengthened it enormously over
    the last year. We think that the bill tries to draw the right
    balance between making sure that we protect national security
    and that we have an open investment process.
        As to some of the holes that you mentioned, we think we
    have filled them pretty well. We are addressing a lot of the
    issues that Congresswoman Maloney raised in her points earlier
    about having a broad and flexible definition of national
    security.
        I think the answer is yes, obviously, we need some tweaks
    here or there, but I think in general, we are filling the holes
    that you have identified.
        Ms. Waters. Let me just say that in reading over parts of
    your testimony, you indicate that foreign investment is key to
    our economic expansion and development. I want to make sure
    that foreign direct investment does not trump safety.
        Mr. Lowery. We agree completely.
        Ms. Waters. When you consider that we need, we want, and we
    encourage foreign investment, how far are you willing to go?
        Mr. Lowery. I think that is the process that CFIUS tries to
    address. We try to view the transactions that are of a national
    security concern, and the ones that are of the most national
    security concern, we try to address through either a very, very
    rigorous investigation, tough mitigation agreements in cases
    where we are trying to take risks, or potentially even not
    allowing those transactions to happen.
        It is done on a case-by-case basis, which I think is best
    because otherwise you can get into an area where you start
    chilling foreign investment from coming into this country.
        Ms. Waters. Mr. Chairman, it appears that our ports are the
    most vulnerable in this war on terrorism and that the
    containers that come into this country are still not examined
    either in our ports or foreign ports. It is still a very, very
    limited operation.
        How do we view foreign investment in relation to the lack
    of the technology and the ability to x-ray these containers?
        Mr. Lowery. You are probably going a little beyond my
    expertise. In terms of doing security on ports, that is the
    responsibility of our Port Authority, Customs, and Coast Guard.
    It actually is not the responsibility of investors.
        The investors obviously have to do security at their fence
    line and things like that. I think what our Homeland Security
    Department is trying to do is trying to make sure that security
    does not start just at the U.S. border, but overseas.
        I know they have worked very hard around the world with a
    number of countries, including the United Arab Emirates, to try
    to make sure that we have as secure a system as possible to
    prevent those very dangers that you are worried about.
        Ms. Waters. Thank you very much, Mr. Chairman.
        The Chairman. Mr. Neugebauer.
        Mr. Neugebauer. Thank you, Mr. Chairman.
        I was glad to hear you talk about the impact of foreign
    investment on our country. Secretary Lowery also talked about
    the impact on investment that U.S. companies are making in
    other countries.
        I think it is important for us all to remind ourselves that
    those create jobs in the United States in both ways. A lot of
    companies that are investing in foreign countries make those
    U.S. companies grow and certainly in the investment here.
        Certainly, we want to make sure that this process does
    protect our national security, but also our economic security,
    and hopefully, I think this bill does it.
        Mr. Secretary, I want to go to a point that you made, a
    couple of points you made. One was that you were concerned
    about the process that the top two agency folks had to be
    involved in that process.
        Does this bill require them to be involved in it or just
    sign off on it? Would you elaborate on that a little bit?
        Mr. Lowery. Yes. That is a good question. The Secretary of
    the Treasury and the Deputy Secretary of Treasury, who are
    obviously my bosses, are involved in every single transaction.
    They are briefed. They are provided information.
        What the bill does is go one step beyond that, and
    basically make them certify when we close out a transaction;
    they need to certify it. That is the only part we are a little
    worried about. The reason is because 30 days is a tight
    timeframe. We have always said that. That is what the GAO said
    in 2005.
        We need to work through those processes as best we can, and
    keep the highest level officials informed, but we think that we
    can still get the accountability that Congress wants by having
    Senate confirmed officials, assistant secretaries,
    undersecretaries, and sometimes deputy secretaries sign off on
    all the transactions.
        Our major focus is that we want to make sure that, in my
    case, my secretary and deputy secretary's time is most focused
    on those transactions that rise up to the largest concern, and
    not the routine cases.
        We think a small adjustment could be made in the bill which
    allows for that to happen, but at the same time, makes sure
    that our highest level officials are still informed about what
    is going on.
        Mr. Neugebauer. Have you submitted some proposed language
    for that?
        Mr. Lowery. I am not sure if we have, but we would be happy
    to.
        Mr. Neugebauer. If you would, either to the ranking member
    or myself, we would be glad to take a look at that.
        The reason I think that was important--I was wondering if
    in that language, it would be appropriate for the CFIUS Board
    itself to develop some criteria of when they think it is
    necessary that the higher level windows review those cases that
    are more routine.
        I guess the second part of my question is, once a company
    has gone through that process, would you not think that would
    lower the--not necessarily lower the standard but in other
    words, streamline, I would call it a repeat customer.
        Is that built into the flexibility in this bill, do you
    think?
        Mr. Lowery. Yes, actually, I do think that is the case. We
    do have a number of companies around the world that make a lot
    of investments in the United States and in areas--there are a
    number of U.K. firms, for instance, that invest in what I would
    say is defense production issues around the country.
        They come through CFIUS on numerous occasions. They know
    the process very well. They understand it. I think all they
    want to do is make sure there is as much certainty as possible
    so they can understand why concerns arise, and as long as we
    can talk to them about it. I think the bill does build that in
    already; yes.
        Mr. Neugebauer. One of the things we were talking about a
    while ago is that one of the concerns is if we make our process
    too onerous, some countries might take an attitude that maybe
    they need to make it just as difficult for us to invest in
    their countries.
        Have you seen since this whole Dubai Ports World thing,
    some other countries take--maybe not retaliatory--just stepping
    up their processes in some ways?
        Mr. Lowery. Yes. I think the next panel will be able to
    address it better than me. I do know that a number of countries
    around the world started looking at their own processes and
    actually, frankly, making them slightly more onerous.
        I know that Russia has been basing some of its legislation
    on what has been going on in Congress, as well as Mexico,
    India, and a number of others. Even Canada, which is a country
    that is very open to investment, has been looking at some of
    its legislation.
        As I said in my opening statement, the world is watching
    us. There is no question about that.
        Mr. Neugebauer. Thank you.
        The Chairman. Next, Ms. Velazquez.
        Ms. Velazquez. Thank you, Mr. Chairman.
        Mr. Secretary, while the CFIUS process is becoming more
    efficient, many cases have undergone long review time periods,
    including a few hot publicity cases, that lasted several
    months.
        Do you think small businesses involved with the process can
    survive lengthy review periods given the fact that more than
    one-third of the patents are held by small businesses in the
    area of high tech?
        Mr. Lowery. Actually, that is a very good point. We do have
    to be careful because some of these long reviews cost money.
    They cost money because the firms that are being acquired and
    the acquiring firms have to spend resources on attorneys. They
    have to spend resources on investment advisors. They have to be
    careful about when the transactions close.
        It falls upon us to make sure that we are doing our work as
    efficiently, effectively, and clearly as possible. I think that
    is what businesses want. They just want to know that what we
    are doing makes sense and does not sound arbitrary to them.
        I think that is what we are trying to strive for, but I am
    not sure we have completely gotten it right. That is what we
    are trying to strive for.
        Ms. Velazquez. Would you recommend any particular tools or
    policies that would expedite cases involving small businesses?
        Mr. Lowery. I think that the main thing we need to do is
    have a set process for everyone, and that process needs to have
    as little chance for bureaucratic delays as possible.
        I think you will see the changes that we have suggested to
    the House bill try to get at that issue, to try to get rid of
    the bureaucratic delays while at the same time meet the goals
    that the Congress has set out.
        Ms. Velazquez. Thank you, Mr. Chairman.
        The Chairman. The gentleman from Oklahoma.
        Mr. Lucas. Thank you, Mr. Chairman.
        Mr. Secretary, considering the challenging world we live in
    at the present time, remind me for just a moment, if you would,
    about some of the factors that CFIUS typically considers when
    analyzing these transactions we have been talking about?
        Mr. Lowery. The first factor we look at is--we look at it
    from two forms. One, the threat of the actual investment. You
    are really looking at the nature of the acquirer, what is their
    link to the government they are coming from? What is the
    government's position on things like non-proliferation or on
    export controls, or on terrorism, and what is the company's
    relationship to those issues? A lot of them have obviously
    history here in the United States.
        The second thing we try to look at is the vulnerabilities
    of the transaction itself, so we look at the assets that are
    being purchased. Are those assets in any way--can they
    undermine our national security?
        Then we combine that together to figure out what is the
    overall risk of the transaction and can that risk be mitigated
    or not mitigated. That is what we are doing during our
    investigation process.
        The types of transactions we usually look at are defense-
    related, like production. Some of the critical infrastructure
    areas, ports, obviously being a recent example. Some investment
    technology and communications' areas, and sometimes energy-
    related assets.
        Mr. Lucas. The reason I asked that, since the companies
    voluntarily seek this process, and we have had examples here
    today of the potential voting machine companies and hotels and
    those sorts of things, I guess my question is how many people
    does it take to provide the kind of scrutiny that we have
    touched on briefly at different times today, what kind of
    resources do you have now and with the increase in filings, are
    you able, in a timely fashion, under present law to do what you
    are doing, and where does this take us?
        Mr. Lowery. It is very tough. The number of filings rose by
    75 percent last year, and my prediction is that it will go up
    again this year.
        We want to look at transactions that are of the most
    national security concern. We need to be careful that we are
    not creating some sort of a screening process for foreign
    investors into areas that frankly do not raise national
    security issues.
        That is why we have tried to be as clear as possible when
    we can be on the process and what we are talking about in terms
    of the substance.
        In terms of our resources at Treasury, we have increased
    resources by, I would guess, threefold, in this area. What we
    have done is we have taken resources from other areas, but we
    wanted to make sure that we got this right.
        The Dubai Ports World was a problem. Frankly, we do not
    feel like we handled it very well. We have talked to Congress
    about that extensively, and we want to make sure we do it
    better.
        I know some of the other agencies, like Homeland Security
    and the Justice Department and Defense, have beefed up what
    they are doing as well.
        I think we are getting there, but at some point there might
    be a call for more resources.
        Mr. Lucas. Thank you, Mr. Chairman. I yield back the
    balance of my time.
        The Chairman. Next, the gentleman from Missouri, Mr.
    Cleaver.
        Mr. Cleaver. Thank you, Mr. Chairman. Mr. Secretary, thank
    you for being here.
        I have some concern over the fact that there are over
    80,000 Missouri jobs with subsidiaries that would fall in the
    category of overseas entities. It is a very difficult balancing
    act when you place national security alongside our economic and
    global interests.
        Can you give what you might view as an adequate balancing
    of those two? In addition to what you mentioned in your
    statement, the Congressional notification and working with the
    committees of jurisdiction and so forth.
        Mr. Lowery. I can try. I agree that foreign investment in
    this country is very important to job creation, and frankly, to
    greater productivity. The jobs usually have a much higher
    salary.
        What we have tried to do is to strive to keep those factors
    in mind while knowing that the most important factor is
    protecting our national security.
        I think what we have tried to do is put reforms in place
    that make sense from an Executive Branch point of view in terms
    of keeping up processes in 30 days, which I think basically
    allows foreigners to invest in our country without being
    discriminated against because they just happen to be
    foreigners.
        Basically, in the domestic sense, domestic investors have
    to invest--when they invest, they go through the Hart-Scott-
    Rodino process, which takes 30 days. Foreigners go through
    that, too, but now they also go through CFIUS.
        If we can keep them kind of linked up together, you do not
    have any discrimination against foreigners from a time
    perspective, which is obviously important for investors, but at
    the same time, we can still take a look at the national
    security.
        It is those types of balances we are trying to reflect. I
    think the House bill does a very good job of that. As I said in
    my statement earlier, we have a few tweaks that we think will
    help. I agree with you. It is a very tough balance and we want
    to get it right.
        Mr. Cleaver. You are comfortable with the direction we are
    moving?
        Mr. Lowery. Yes, sir.
        Mr. Cleaver. Hallmark Cards, Sprint, or corporations in my
    home district, headquartered in my home district, both of whom
    are involved worldwide, I think the Dubai situation poisoned
    the atmosphere so that my constituents are concerned now about
    everything. They want to have greeting cards inspected, to see
    if there are any hidden messages about Christmas.
        We have to win back the confidence of the American public
    with regard to this whole issue of foreign investment.
        Mr. Lowery. We agree. Actually, that is why I think we are
    very supportive of what the House and the Senate have been
    trying to do. We think, one, that will help win back the
    confidence.
        First, we have to win back our own confidence within the
    Executive Branch, then we have to win Congress' confidence that
    we are doing the right things, and then finally and most
    importantly, we have to win the American people's confidence
    that we are doing things right.
        I think that is why it is important that we continue to
    work with Congress on getting a very solid bill that protects
    national security but also ensures an open investment climate.
        I agree with you. I understand where your constituents are
    coming from. I think we can strike the right balance.
        Mr. Cleaver. I yield back the balance of my time.
        The Chairman. I waive my time but I will just take one
    minute of it now, because I was intrigued by one thing you
    said, namely the process of winning back your own confidence.
        Did you buy a lot of self help books? How did the White
    House win back--it is sort of like how you got your groove
    back. I am just interested in how you won back your own
    confidence.
        Mr. Lowery. Dubai Ports World, we did some things right but
    we clearly did some things wrong. It was tough. We went through
    that process. I think we wanted to make sure we put it--the
    reason why we reformed our internal processes, both within the
    Treasury Department and CFIUS as a body, was in many respects
    to get our own confidence back, so that we make sure that we
    are doing this right, so the President is confident that his
    people are doing the right things, so that the Cabinet members
    are confident.
        I stick by my statement even though it does sound a little
    strange.
        The Chairman. That is a more thoughtful answer than my
    question deserved, and I appreciate it.
        The gentlewoman from West Virginia.
        Ms. Caputo. Thank you, Mr. Chairman.
        Mr. Secretary, you sort of touched on this in your past
    statements. I think the reason that Members of Congress were so
    concerned about the Dubai Ports World was that the
    Administration seemed to be sort of back on their heels, and a
    lot of Members of Congress were caught unaware.
        I know you have made some changes in your remarks to try to
    alleviate that. What kind of changes have been made? Is it more
    communication with Congress? More public statements?
        Mr. Lowery. There have been a number of changes. I think
    the three key ones that were probably the biggest criticism of
    Dubai Ports World, first, our communications with Congress were
    not there. They did not really exist. I think that we tried to
    improve that by making sure Congress is informed on every
    single transaction we do, and that we do periodic oral
    briefings. We have tried very hard to increase our
    communications.
        Secondly, to make sure that the accountability was right.
    One of the concerns was, in my case, Secretary Snow did not
    know about this transaction. We make sure that Secretary
    Paulson and Deputy Secretary Kimmitt are aware of every single
    transaction, and that a presidentially appointed Senate
    confirmed person has signed off and closed out a transaction.
        So that Congress knows it has accountability because those
    are the people who are most accountable to Congress, frankly.
        Third is getting the intelligence community involved. The
    intelligence community has always been involved in CFIUS but
    what we did was formalize the process, made sure they are
    involved in every transaction, and then we broadened it.
        By having the Director of National Intelligence bring in
    all the intelligence agencies, we think that we have made that
    process even more robust than it was before.
        Those are the three key ones. We have a bunch of other ones
    that are a little more procedural, but I think those are the
    key concerns that came out of the Dubai Ports World
    transaction.
        Ms. Caputo. Thank you. I have one additional question as to
    the process. When you are doing your reviews and you find you
    need to go to a second review, do you go back to the foreign
    investor and say there are certain mitigating issues here that
    you need to change or clarify?
        How does that procedure move forward?
        Mr. Lowery. The way it works is basically we do an
    investigation during the first 30-day process. That includes
    the intelligence community looking at the threats for us, and
    all the agencies, particularly the ones with specific
    expertise, like if it is a defense production issue, the
    Department of Defense is going to play much more of a strong
    role, looking at the vulnerabilities.
        If at the end of that 30 days, we have not been able to
    answer all of our questions or there are concerns we have that
    frankly, we have not figured out how to address, that is when
    you will see us going into the second stage of the
    investigation.
        During that second stage, sometimes all it is, is just
    asking a lot more questions to make sure we are comfortable. A
    lot of times what it is, is that one of the lead agencies, like
    Defense or Homeland Security, will take a negotiating role with
    the companies on doing mitigation agreements, because they see
    a risk and they want to figure out how do you mitigate that.
    That is what those mitigation agreements are all about.
        That is basically what happens.
        Ms. Caputo. Thank you. Thank you, Mr. Chairman.
        The Chairman. Mr. Davis.
        Mr. Davis of Tennessee. Thank you, Mr. Chairman.
        I live in rural central Tennessee and part of east
    Tennessee. We have had a lot of investment there in
    manufacturing that is certainly welcomed.
        When the Dubai Ports World situation arose, it became
    pretty much a political issue in our State, as well as in all
    States across this Nation, and a concern, were we really
    guarding the hen's nest from the fox?
        When I look at that investment, I sometimes wonder exactly
    how many dollars are flowing into America percentage-wise of
    investment, job creation, real estate assets of America, and
    then I wonder also how much investment are we making as
    Americans in other countries, how much are we investing of our
    dollars into foreign assets in other countries? I have never
    been given a figure. Could you somehow relate to me
    approximately what percentage of investment in America is being
    made by foreign investors?
        I know when you look at debt, we have a lot of investment
    being made by several countries into our debt in this country,
    which kind of frightens me a little bit.
        I also have a concern in exactly how much assets
    percentage-wise of America assets are owned by foreign
    investors, and then on the other hand, how many dollars do we
    have, how much do we invest in other countries percentage-wise
    from corporate America?
        Mr. Lowery. Off the top of my head, there are different
    ways of investing, obviously. There is foreign direct
    investment and there is portfolio investment and investing in
    debt markets.
        I do not have all the numbers off the top of my head.
    Frankly, we can get those for you. Right now, there is probably
    $100- to $150 billion of foreign direct investment that comes
    into the United States. This goes in bits and pieces. It is
    much more than it was at earlier points in the 1990's. It
    increased as the stock market increased back in early 2000. You
    kind of see flows that go up.
        Overall, the United States' firms on a stock basis, I
    believe, have $2.5 trillion, I want to say, of assets abroad,
    and foreigners have, I think, about $1.9- or $2 trillion of
    assets here in the United States. That is on a stock basis.
        We can get you some of the numbers. There are different
    ways of measuring it, FDI, equity investments, and then debt
    investments.
        Mr. Davis of Tennessee. Roughly $1.9 trillion of
    investments in the country and we invest roughly $2.5 trillion
    outside of our country?
        Mr. Lowery. On a stock basis, direct investment.
        Mr. Davis of Tennessee. What are our total assets in the
    country?
        Mr. Lowery. That is where I need to get back to you on that
    one. The answer is foreign companies employ in the United
    States about, I think, 5 percent of our workforce through
    direct investment. That kind of gives you a rough idea of what
    is going on.
        Mr. Davis of Tennessee. I have been reading lately where
    many investment firms, some that deal with pensions and
    otherwise, have been investing more in foreign investments from
    our country assets here, the stock market in New York.
        Do we have something to fear there, what is happening
    there? Do you have an answer on how we reverse that?
        Mr. Lowery. I think having foreigners invest in our stock
    market or in our debt markets is an important thing. Our
    markets are extremely deep, very liquid. There has sometimes
    been concern about whether or not foreign governments own too
    many T-bills.
        I think if you look at the numbers, the numbers are pretty
    overwhelming on how much is going actually on, on a daily
    basis, in terms of turnover, so that it is very hard to see how
    any country could cause major disruptions.
        At the same time, it is something that we keep an eye on
    very closely at the Treasury Department. It is not my area, but
    we do have people at Treasury who look at it very carefully.
        In the end, it is good that people invest in this country.
    That is why we have a fairly large capital accounts surplus.
        Mr. Davis of Tennessee. In the last 6 years, a $3.7
    trillion increase in national debt, a lot purchased by foreign
    countries, and that does frighten me. I think it does a lot of
    people who live in this country who are following what is going
    on in the country.
        I have also always been concerned that when I look at the
    auto industry, for instance--we are able to build an automobile
    in America, make a profit, whether it is Nissan, that is in my
    district, very welcome, do a wonderful job, and employees are
    excited about having a great job with them.
        Is there some way you can enlighten me? How can foreign
    automobile manufacturers and in high tech come to this country,
    pay roughly the same for jobs, earn a profit, continue to sell
    automobiles, and America automobile companies cannot?
        Is there something I am missing there? Are there some
    breaks for foreign investors? What is going on?
        Mr. Lowery. I think you are getting beyond my expertise. I
    think a lot of companies that have invested in your district
    and other districts and have brought their expertise and their
    technology over here, they make products that are good
    products, and people in the United States want to consume those
    products.
        I am not saying that--Ford and GM also make very good
    products, but different tastes and things like that.
        I do not think that if somebody buys a Nissan car from your
    district, I do not think they are necessarily making a judgment
    that they like Japan greater than the United States. They just
    happen to think that car is a better car than whatever the
    other cars were they were looking at.
        Mr. Davis of Tennessee. Thank you, Mr. Chairman. Thank you,
    Mr. Lowery.
        The Chairman. I would just ask unanimous consent that the
    ranking member and I may speak out of order for a minute. With
    no objection, Ranking Member Bachus.
        Mr. Bachus. Thank you. If I could just ask for a unanimous
    consent request. I would like to say for the record, someone
    needs to say during this hearing that Dubai, the country of
    Dubai, in fact the United Arab Emirates, the Emirates are our
    allies. They are our strong allies.
        They are our allies at great risk to their own national
    security. I, for one--I cannot speak for the other members of
    this committee--strongly welcome and encourage their
    investments in the United States.
        In our attempts to maintain--my third point--in our
    attempts to maintain friendly and good relations with the
    Middle Eastern countries, I believe their investments in the
    United States are key and are very beneficial.
        One of my regrets in the Dubai Ports' deal is there are
    some, not only in the Arab countries, but around the world, who
    are questioning our commitment to open investment and to a
    cooperative spirit and a competitive environment.
        Thank you.
        The Chairman. I would just join the gentleman in that my
    own view was that it was a mistake to let Dubai purchase ports,
    but in fact, they should be encouraged to buy other things. I
    would say personally myself, I would have no objection to them
    buying a hotel.
        A reasonable question, we should be clear. Nothing in our
    law gives foreign direct investment any advantage or exemption
    from American law. If you are a foreign company and you invest
    in America, you are clearly governed by every law, every
    environmental regulation, and every State law. There is no
    exemption in that regard.
        We are not talking about a policy which gives any favored
    treatment to foreign investment. They are fully covered by
    every local, State, and Federal statute and regulation. There
    is no diminution of the reach of American law.
        Now we go to the gentlewoman of Tennessee.
        Ms. Blackburn. Thank you, Mr. Chairman. Mr. Secretary,
    thank you for your time. I appreciate your succinct responses
    to the questions, whether they pertain to the legislation or
    not. I also appreciate your recognition of the fact that
    political freedom and economic freedom are inextricably linked.
    Indeed, in our constituents' minds, national security and
    economic security are linked.
        You answered one of my questions with Mr. Neugebauer. I
    will look forward to seeing the language that you submit.
        I will add just as a point of reference, I do agree with
    you that the world is watching what we do. I was talking with
    one of my constituent companies yesterday who is working to do
    something in another country. They noted to me the amount of
    due diligence that was now being required and that was indeed a
    change.
        I also think it is important to note that while we
    appreciate the involvement that is there from a committee and a
    panel, it is important to note that our constituents want our
    eyes on this matter because they do think that national
    security is of prime importance and protecting the environment
    that we have here, and hopefully, as you mentioned earlier,
    there will be additional clarity and also some certainty to the
    process as we go through codifying something and placing it
    into law.
        I want to give you an opportunity just to briefly make one
    statement, if you will; this is on recommendations. The process
    that we go through with CFIUS at this point, the President can
    still override that. You may want to talk about the difference
    between a recommendation and something that is binding.
        Mr. Lowery. Thank you. Yes. The way the process works is
    the only person who can actually order either the divestment or
    the blocking of a transaction is the President.
        Obviously, you want to use it in the most rare
    circumstances, where there is a national security threat that
    simply just cannot be addressed or mitigated.
        The bill has done a good job of structuring the process,
    kind of a layer of responsibility, which is in the 30-day
    process, that is where all the transactions will happen, and
    you should have accountability, but it does not have to be,
    obviously, the President. We would argue that it can be
    presidentially appointed Senate confirmed positions.
        However, it also does mean that all CFIUS agencies, not
    just the Treasury Department, have responsibilities to make
    sure if there are concerns that cannot be mitigated, they need
    to be prepared to put it into the second stage of
    investigation.
        In the second stage of investigation, we believe that you
    can have the deputy secretaries and the secretaries. That is
    where they need to focus their attention, if there were
    concerns about a transaction, and those are the ones that were
    having to scrub even harder than the first set.
        Finally, and the bill again does a good job on this, going
    to the President, you only go to the President basically in two
    types of circumstances.
        The first is if you are saying our recommendation to the
    President is that we divest this or block this transaction from
    happening, and the second is if there is a split vote, frankly.
    Some agencies believe this and some believe that. We just need
    the President to work that out.
        At that point, if the President gets involved and does
    that, there will be always a report sent to Congress at the end
    of his period of reflection. He is the one who makes the
    ultimate decision on the most difficult transactions. I do not
    know if I answered your question but I tried to.
        Ms. Blackburn. Yes, you did. I think it is important to
    note just for the understanding of our constituents who watch
    the hearing and are concerned about these issues that we are
    discussing a recommendation process.
        I thank you for the additional clarification. I yield back.
        The Chairman. I thank the gentlewoman. We now will
    recognize the gentleman from Florida, Mr. Klein.
        Mr. Klein. Thank you, Mr. Chairman. Thank you for being
    here today.
        I represent South Florida, which has two major ports in my
    district, and of course, the Port of Miami is in the region.
    There was a lot of concern last year about the impact of the
    Dubai Ports World transaction in that part of the State, that
    part of the country.
        A lot of the confusion, of course, came from ownership
    issues, operations issues, threat issues, and strategic
    assessments of exactly how this would play out and what impact
    it would have on port operations, what was coming into the
    port, what was going out of the port, and all those kinds of
    things.
        We understand that there is the foreign investment side,
    and obviously, we are an open country that does rely on this,
    and a lot of foreign companies operate in South Florida and
    other parts of the country, where they employ a lot of people.
        There is this balance. Again, what I would like is a little
    more information from you.
        If you can address us as to how the Administration is
    helping balance the concern for the foreign investment side
    versus what, in our local communities we believe are issues,
    whether it happens to be in Washington or in our home
    communities, when you have a port, a large port in a community,
    with fuel farms and lots of things coming and going, cargo is
    coming and going out of the ports and onto the highways, the
    rail systems, right in residential communities and businesses.
        How can we balance that, and how can we get to the point
    where people feel truly that there is an assessment going on
    that will not create a threat to the local communities?
        Mr. Lowery. That is an excellent question. It is the thing
    that we have to be most focused on. I actually hate saying that
    there is a balance between national security and foreign
    investment. I say it all the time. I hate saying it.
        There is no balance. It is national security as our
    foremost concern.
        I believe that open investment helps increase economic
    growth which I think is also in our national security interest,
    so it is not a balance, it is part of it.
        In terms of how we actually address security concerns,
    there are lots of different methods. CFIUS is only a small
    portion of them, frankly.
        For instance, let's talk about ports. Ports are secured not
    by the foreigners who invest in those ports. They cannot be,
    because if you look around the country, most ports have
    terminal operators that are foreign based. That is just a fact.
        That is because our ports are not secured by them. Our
    ports are secured by Customs, by the Port Authorities, and then
    by the Coast Guard. That is how we are trying to--I am not an
    expert on this. That is how you try to address the port
    security.
        You do not try necessarily to secure it through the CFIUS
    process, which is about mergers and acquisitions. Instead,
    CFIUS basically looks at a transaction that is going to happen
    and then takes a look and figures out if there is a national
    security concern, and if there is one, how do we address that
    national security concern.
        In terms of actual day-to-day security, that is being done
    by lots of different factors, but usually by local, sometimes
    by Federal or State Governments.
        Mr. Klein. Mr. Chairman and Mr. Lowery, the issue, I think,
    for many people is the sharing of information. We understand
    that whether it is the Coast Guard or whether it is other
    military services that are providing Customs or some of the
    strategic things, the issue is foreign companies, foreign
    interests, who may not necessarily--maybe today, they are in
    the right hands and maybe tomorrow you have interests that own
    these companies or have access to information from these
    companies that may be shared from the Port of Miami to
    somewhere overseas in terms of what is coming, what is going,
    what the assets are going in and out, and what the testing and
    the security procedures are.
        These are the breakdowns that I think people are concerned
    about. To the extent that this information could be shared,
    obviously, the Customs people are communicating with the port
    operators. It is not like they are doing it in a vacuum. They
    are communicating how it is working, what the processes are,
    and how we, as a Nation, are securing our ports.
        To the extent that this information is shared with
    interests that today may be favorable to the United States,
    tomorrow, you may have a group of people out there who are
    taking this information and using it against the United States
    and against our local security interests.
        It is the snapshot today that the CFIUS procedure looks at
    and that can change in a matter of days or months or years.
        Mr. Lowery. I think those are good questions. You are
    asking somebody, unfortunately, who does not know how
    completely Customs does its job and the Coast Guard does their
    job.
        I imagine that while they do share certain information,
    they have to talk to the port operators that are handling the
    business, they actually--because they are very security
    conscious or they mix things up, they make sure--they are only
    seeing a window of what is actually happening.
        I think that obviously these are questions that people at
    Customs can answer much better than I can.
        Mr. Klein. Mr. Chairman, my point would be that you and
    your colleagues should understand the process by which security
    works at the airports, what information is actually shared in
    terms of strategies of security with port operators.
        If you are considering a transaction and saying it is good
    or it is not good, and you do not understand what the
    procedures are for what information is actually shared and what
    could be at risk, I think we have a problem.
        That is where you need to be fully knowledgeable and the
    process we have needs to be one in which there is full
    knowledge before you can say this transaction should go forward
    or not.
        Mr. Lowery. That is a good question. That is why, by the
    way, CFIUS is an interagency process. You have 12 agencies. Six
    of them are the Commerce Department, the State Department, the
    Department of the Treasury, the Justice Department, the
    Department of Homeland Security, and the Defense Department.
    Let me just talk about Defense and Homeland Security for a
    second.
        The Chairman. Quickly.
        Mr. Lowery. The Defense Department actually takes every
    transaction and submits it to 22 different groups within
    Defense--all three of the Service branches plus all the
    different types of people who worry about things at Defense.
    Homeland Security, which looks over Customs and the Coast
    Guard, submits anything that has to do with a port to Customs
    and the Coast Guard. The idea is to have the real national
    security experts look at those transactions. I am a Treasury
    Department official.
        The Chairman. Mr. Lowery, we have a mark-up on this bill in
    a week. I think it would be very helpful if you and your
    colleagues would send to every member of this committee a mock-
    up of how a request that might implicate national security
    would be handled--give us all the process.
        Secondly, I am going to offer some free investment advice
    to foreigners. If somebody tries to sell you a port, save your
    time and money and go buy something else. Nobody is selling
    anybody any ports in America for a long time to come. Go buy
    something else.
        I think it would be helpful, as you were starting to
    explain orally, to show us how that would work. I think that
    would be very helpful to members of the committee.
        Mr. Roskam is next, the gentleman from Illinois.
        Mr. Roskam. Thank you, Mr. Chairman.
        Can you give me the benefit of the current criterion that
    you use in CFIUS and how that contrasts to the proposed bill?
        Mr. Lowery. The criterion for how we view a transaction?
        Mr. Roskam. Right. What would be a transaction that would
    rise to the level of concern?
        Mr. Lowery. What we try to do, as I said earlier, is try to
    focus on the threats of a transaction. What we do there is we
    are looking at who is acquiring it or what is their
    relationship to the government of that country. What is the
    government's relationship to the United States? Does this
    company or country have something in their past that gives us
    concerns in terms of things like non-proliferation, terrorism,
    or export control violations? That is where we use this
    interagency process that I was mentioning, plus our
    intelligence community to look at those types of things.
        Mr. Roskam. Is there a list? Is that an identified
    criterion, A, B, C, D, and E?
        Mr. Lowery. Some of the list is actually in the actual
    legislation. Some of it is in just the practice that we use,
    whether it is our intelligence community or whether it is the
    actual agencies and how they are looking at transactions.
        They are usually going through a set of criteria about, as
    I said, who is the acquirer, but also what are the assets that
    are being acquired, and what is the vulnerability of those
    assets.
        Each agency brings different types of expertise to the
    table, and it depends obviously on the specific transaction
    that is being done, as to which agency probably has the most
    types of expertise.
        If it was a port transaction, people at Customs are going
    to know a lot more than the rest of us are going to know, and
    the Coast Guard is going to know a lot more.
        Those are the type of criteria. In terms of the overall
    criteria, we are looking at many areas revolving around
    defense, plus some critical infrastructure areas, things like
    ports and energy assets, and then also things around
    telecommunications and information technology, just because of
    the way it works on such a global basis.
        Mr. Roskam. Things like food safety, for example? Is that
    in the mix?
        Mr. Lowery. I am trying to think if there has ever been
    something like that that I have seen. It could be technically.
    For instance, there are lots of purchases that happen of food
    manufacturers or frankly restaurants or something like that
    from abroad that probably would not go through CFIUS.
        If there was something that got into food safety, or if we
    saw a transaction that got into food safety, I could see us
    getting involved. That could be considered critical
    infrastructure.
        Mr. Roskam. Animal feed production, that kind of stuff.
        Mr. Lowery. I think so. It is rare. I remember a couple of
    times. One thing, CFIUS has 12 agencies, but we can bring other
    agencies with expertise to the table. I do know of a couple of
    times where we brought the Department of Agriculture in to take
    a look at something because we were not completely sure, or the
    Department of Health and Human Services because of those types
    of issues.
        Mr. Roskam. If CFIUS has been implemented, or being
    contemplated under this bill that we are discussing today, is
    there a review process, like a subsequent review process?
        In other words, I would assume, maybe I am incorrectly
    assuming, but I would assume that once somebody sort of gets
    the laminated get out of jail free card that says come on in,
    you are free to do whatever you want, do we review that? Do we
    audit that? Do we follow up at any level? How does that work?
        Mr. Lowery. If the transaction was passed through the
    system and closed, and there was no mitigation measures in
    place, then the review--there would not be further reviews and
    audits and things like that. That would take up a ton of
    resources.
        However, if there is a case where there was a risk that had
    been identified and one of the agencies had put in place a
    mitigation agreement to mitigate those risks, we do monitor
    those transactions.
        We are monitoring basically that mitigation agreement, to
    make sure that there are no violations of the agreement, that
    they are living up to what they are doing. That is done through
    audits and reports and spot checks and things like that.
        Mr. Roskam. Last question. Does it make any sense in the
    environment where there is not a mitigation agreement, let's
    say, you know, they connected all the dots, they crossed every
    ``t,'' they dotted every ``i,'', and they checked off every box
    and everybody said okay, but there is just something about it.
        Is there something, is there a process by which that can be
    reviewed or once it is gone, you sort of lose jurisdiction and
    it has to be subsequently renewed?
        Mr. Lowery. It goes to the chairman's point earlier, which
    is that the companies are still subject to all the U.S. laws
    and regulations if they are here in this country.
        If they get a get out of jail free card, you will hear
    people call it the safe harbor, then CFIUS is basically done.
        That does not mean that the companies are not subject to
    all the laws and regulations that still go on in this country
    and that all our enforcement agencies can do things depending
    on what happens with that company.
        Mr. Roskam. I understand. In terms of the purposes of
    CFIUS, it is over, and it is not going to be--there is not a
    reach back provision?
        Mr. Lowery. There is not a reach back provision except
    for--I cannot remember who asked me earlier, I think it was the
    ranking member--the evergreen provision. It is used in
    extremely rare circumstances, and there is a little bit of
    reach back in that.
        As you will hear from the business community, it is
    something that is very controversial and should be used in rare
    circumstances. I think the legislation has tried to address
    that circumstance.
        The Chairman. If the gentleman would yield. The other point
    would be this, and I think this is relevant, if in fact the
    later information led you to conclude there had been an
    incomplete furnishing of information originally, that would
    justify going back, that is you would then not be changing your
    position, but you would be able to assert that the original
    certification was invalid. I assume we have that power.
        Mr. Lowery. That is correct.
        The Chairman. If you found something out that they had not
    fully revealed or that would have been relevant at the time,
    then you would in fact have the right, I think, to invalidate
    the transaction without any liability.
        Mr. Roskam. This is all a voluntary filing right now; is
    that correct?
        Mr. Lowery. That is correct.
        Mr. Roskam. What is the hammer?
        Mr. Lowery. The hammer on not filing? The major hammer is
    the fact that you put at risk your own transaction, and the
    risk is that CFIUS--the Executive Branch has the ability to go
    to any particular transaction that did not go through the
    process.
        We follow the mergers and acquisitions press pretty
    carefully, but if there was a transaction that we did not
    catch, we can always go back to that transaction and basically
    pull them into CFIUS. Remember, at that point you have this
    kind of ultimate club of a potential divestment which for a
    company is extremely onerous.
        Mr. Roskam. Huge.
        Mr. Lowery. You always have that club. It is always in the
    best interest of companies to file. Obviously, if it has
    nothing to do with national security, it does not make sense to
    file. There are issues that evolve around national security
    which are mainly outlined in the legislation, which I think
    most companies understand.
        The Chairman. Will the gentleman yield? There is no right
    to buy. You do not have to file, but by not filing, you do not
    immunize yourself from a finding that the transaction could be
    canceled on security grounds.
        Mr. Roskam. By filing and getting a clean bill of health,
    so to speak, is there estoppel against subsequent action from
    an agency?
        Mr. Lowery. I'm sorry?
        Mr. Roskam. In other words--
        The Chairman. The gentleman from Illinois wants to hear you
    use a specific legal term, and we are going to provide him with
    an interpreter for non-lawyers. We are going to give him some
    help here.
        Mr. Roskam. Okay. Here's the question.
        The Chairman. Are you legally prevented from going back to
    it?
        Mr. Lowery. CFIUS would not go back to a transaction, but
    if there was something that was a problem--outside of what the
    chairman said about material omission or co-mission, then CFIUS
    could not go back to that transaction. However, again, other
    agencies might take an action against it for other enforcement
    reasons.
        Mr. Roskam. You answered that question. Here's the real
    question. If CFIUS signs off on it, if it is materially
    complete and there is no fraud, there is no deception, and
    CFIUS signs off on it, let's say you have some person 6 months
    later who is reviewing a transaction related to it at the
    Commerce Department, for example, who says, ``Oh, my goodness,
    I cannot believe this went through. This is outrageous.''
        Subsequently, it goes up the food chain. It is, in fact,
    outrageous. Does the fact that it has gone through CFIUS and it
    has the CFIUS intimater, does this prevent the Executive Branch
    from pursuing something, or does it just make it awkward?
        Mr. Lowery. No. It does not make it awkward nor does it
    prevent--
        Mr. Roskam. It would make it awkward but hopefully--
        Mr. Lowery. Not necessarily. It depends on what that issue
    was. If it is Commerce, and I know you are just using it as an
    example, it is more along the lines of an export control
    violation.
        Remember that CFIUS, the way the law reads is that CFIUS is
    actually kind of a stop gap. We should be using every single
    law and regulation that exists, and only if we don't have
    something do you use CFIUS.
        The Chairman. I appreciate these questions. I think the
    answer is that you can always run into the unscramble the egg
    question, but I think the fact that you have been through CFIUS
    in legal terms neither adds to nor detracts from a subsequent
    ability to deal with it.
        The other thing you said, would it be awkward? No, I think
    it would be one more occasion where they would get their
    confidence back and be able to recover.
        I think the gentleman's questions were quite helpful. Now
    we go to the gentleman from Colorado.
        Mr. Perlmutter. Thank you, Mr. Chairman. You answered a lot
    of my questions with your conversations with Representative
    Klein and Representative Roskam.
        I have a couple of questions. First, where are you in the
    chain of command in one of these processes?
        Mr. Lowery. I chair basically the committee on what we
    call--I do not know if it means anything--the policy level,
    which is basically the assistant secretary level.
        I report directly to the Deputy Secretary and the Secretary
    of Treasury.
        Mr. Perlmutter. Do you get involved in determining whether
    a transaction is appropriate or not appropriate? Are you in
    that decision process?
        Mr. Lowery. Yes, but I am one of hundreds.
        Mr. Perlmutter. I am on one of the committees in Homeland
    Security. We have had some questions on a number of toll roads
    across the country are in financial distress.
        There are various countries and companies from around the
    world looking at buying or managing or doing both with respect
    to the toll roads.
        Would that be a subject area for this process of review?
        Mr. Lowery. It could be. For instance, the Dulles Toll Road
    is owned or operated by an Australian firm. I do not think we
    looked at that; I do not think, frankly, that there was any
    reason for us to look at it.
        You could see something where there could be a national
    security reason.
        Mr. Perlmutter. It has come up in Homeland Security because
    a number of these toll roads, for instance, in my area in
    Colorado, one toll road is right near a big base that controls
    all our spy satellites. That would be the kind of thing that
    might trigger a review by your group?
        Mr. Lowery. That is correct. Homeland Security does look
    and think about those issues very carefully. All of the
    agencies are very involved in our process. Homeland Security is
    probably the most engaged agency by far.
        Mr. Perlmutter. Thank you, Mr. Chairman. I yield back my
    time.
        The Chairman. Thank you. Ms. Bachmann.
        Ms. Bachmann. Thank you, Mr. Chairman. Thank you, Mr.
    Secretary, for being here. I have learned a lot today. This has
    been wonderful and I appreciate your responsiveness to the
    questions.
        One question that I had is that it is my understanding that
    the Director of National Intelligence is not a member of CFIUS.
    Could you comment, Mr. Secretary, on the current role that the
    Director of National Intelligence plays and specifically, does
    he have sufficient time to be able to review some of the
    transactions that come before CFIUS?
        Mr. Lowery. It is a very good question. The Director of
    National Intelligence is involved in every transaction as what
    was best described as an input valve. They give us information
    on what the intelligence community believes are the threats of
    a particular transaction.
        They are not involved on the policy role and they are not
    making the final decisions. They would tell you, I think, not
    to speak for them, and I have talked to them about this, do
    they have enough time, and the answer is yes. There is a reason
    why.
        First, and this was actually before Dubai Ports, we made a
    change in our processes to go out to the community that kind of
    handles CFIUS--there is a kind of CFIUS community out there--
    and told them it makes the most sense to come in as early as
    possible to do filings and actually do pre-filings.
        In other words, you do not give us all the information but
    you give us a certain amount of information. That allows the
    intelligence community to start doing its process.
        The intelligence community just yesterday was telling me
    that they basically need 15 to 20 days of time to do a
    transaction. That way, they can go out to all 16 intelligence
    community agencies, and get input. Usually, they basically meet
    amongst themselves and discuss the case, and then provide the
    reaction to the committee as a whole.
        They are extremely well involved. I think they have enough
    time. We need to be careful, as I said in my testimony, one of
    the worries we had in the legislation is that there is a
    minimum requirement of 30 days. We do not think that is
    necessary, even though we agree with the intent of what the
    legislation was trying to do.
        Ms. Bachmann. That goes to my second question. I wonder if
    you could comment on the current legislation that is before the
    committee now, what you believe that process should be.
        The other thing I wondered is just on a pragmatic/practical
    point of view, do you feel that has been the best valve of
    information for you, the Director of National Intelligence? Do
    you feel that you have gotten everything that you need to have
    in order for CFIUS to make its best decision?
        The other question would be commenting on the current
    legislation before you. This is the best time to have input in
    the process. I think this committee would benefit from hearing
    what you have to say.
        Mr. Lowery. In terms of whether the intelligence community
    is the best valve, the answer is yes. Because the intelligence
    community has fingers in lots of different areas, they can give
    us great information on the country and the company that are
    involved in these transactions, and they can tell us about the
    threats of that transaction.
        They do not do figuring out the vulnerabilities of the
    assets that are being acquired. That is where the other
    agencies get involved, to the Congressman's question earlier,
    the expertise at Defense or Homeland Security, and that is why
    these agencies farm it out all over the place in their
    agencies, because they have expertise all over.
        In terms of the legislation, we thought that the
    legislation did a good job of formalizing the role of the DNI.
    We think the two areas that probably the legislation could be
    improved on, and I think we can work with the committee on
    this, is first it was the point I mentioned about the 30-day
    requirement.
        We do not think you need to have a minimum of 30 days
    because basically you can actually countermand the rest of the
    legislation about setting the process up.
        The second area is there is a small provision in there
    about where after the committee has acted, if the intelligence
    community, and I am not going to get the words wrong, basically
    thinks it should be sent into a second stage investigation,
    then it should do that.
        The only worry we have is that we have now moved the
    intelligence community from information and input into a policy
    level role. We would be a little concerned about that part.
        Other than that, we thought the legislation was very good
    on this.
        Ms. Bachmann. Mr. Chairman and Mr. Secretary, I am
    wondering if you could elaborate on your final point on moving
    the DNI, the Director of National Intelligence, from strictly
    information to policy.
        Could you make a recommendation to this committee so that
    the legislation--the premise of my question is this. I am just
    concerned that we are not creating additional bureaucracy so
    that we feel good about ourselves. I want to make sure that
    what we are doing actively is going to have a positive impact
    on national security.
        The American public are jittery after what happened with
    Dubai. We just want to make sure that we are doing our part,
    but that we are not overreacting, and we are not creating
    something that will actually end up having an inverse reaction
    on America's security.
        Mr. Lowery. I think the best thing for me to do is to get
    you some language changes which we think--we agree with
    everything you just said. I think the best thing for us to do
    is get you some language changes so I do not put my foot in it
    here.
        The Chairman. As a practical matter, I do not think anyone
    thinks that if the DNI were to tell you that this needs more
    information, that anybody would ignore that in this context.
    You might as well formalize that in some way.
        We all agree, as a practical matter, that if the Director
    of National Intelligence says, ``I am worried about this, you
    have to look at it again'', nobody is going to ignore that.
        Mr. Lowery. Agreed.
        The Chairman. Next we have the gentleman from Florida, Mr.
    Mahoney.
        Mr. Mahoney. I have no questions.
        The Chairman. The gentleman from Georgia, Mr. Marshall.
        Mr. Marshall. Thank you, Mr. Chairman.
        Have you had an opportunity to look at the written
    testimony submitted by Mr. Heyman with CSIS and Michael
    O'Hanlon with Brookings?
        Mr. Lowery. No, I have not. I'm sorry, sir.
        Mr. Marshall. There is an interesting tension that commonly
    exists here between the interests of the market and business
    community, etc., and the interests of those who are concerned
    about security.
        In 1988, 1990, and 1999, a couple of Chinese colonels,
    senior colonels, wrote a book called ``Unrestricted Warfare.''
    That book was obtained by us and translated. It is really an
    interesting read. It is tedious. It is too long. In sum, it
    covers a wide range of possible ways in which China,
    specifically, could go about hurting the United States,
    essentially bankrupting the United States.
        I know I am picking on China at the moment, but this would
    apply to any country or any non-nation state entity interested
    in harming us.
        The ways in which that can occur, and I know you all have
    thought about this, goes so far beyond what we thought about 20
    years ago. It is rather remarkable.
        I am wondering in light of the fact that we now are quite
    concerned about these non-nation state threats, what kind of
    adjustments has CFIUS made to its process, to its standards?
        I am not so much interested in the specific process that
    has been suggested by this particular bill; it seems reasonable
    to me. We could modify it. I am more interested in a broad
    brush, where are we now with regard to this on the one hand,
    and we do not want to undermine our economy.
        That steps right into one of the things that these Chinese
    colonels recommended--to attack the underlying economy of the
    United States.
        On the other hand, we do not want to make it easy for these
    non-nation state actors to hit the United States in ways in
    which we will be forced to take action that closes our borders
    and damages our economy and the world economy.
        Mr. Lowery. First of all, I am a Treasury official.
    Sometimes everybody thinks that all I care about is open
    investment. There is nothing further from the truth as far as I
    am concerned.
        What CFIUS has tried to do is basically improve its
    processes, but improve its substance over the last few years,
    frankly, a decade. With 9/11 came a different way of thinking
    about the world.
        Part of that is an answer that the Administration and
    Congress worked on, which is creating the Department of
    Homeland Security. The Department of Homeland Security was
    never part of, there was no department, it was not part of
    CFIUS. It is now a major part of CFIUS.
        When every transaction is looked at, the intelligence and
    national security experts from our Coast Guard, Navy, Army, and
    Air Force, plus all of the experts within the civilian branches
    of the Defense Department and Homeland Security, as well as
    people at the Justice Department, and the FBI, are taking very
    careful looks at these transactions.
        The Commerce Department--when CFIUS started, it was mainly
    about the commerce export controls and in the Defense
    Department, defense production. It is now much more about
    defense, but also critical infrastructure issues,
    telecommunications, which has become much more globalized than
    it was 10 years ago, and we look at those transactions very
    carefully and we have the right types of expertise.
        Some of the processes that are in the legislation and that
    we have been pushing are about making a more certain process so
    that we still take national security as our foremost concern,
    but at the same time, making it so it is not onerous on the
    business community.
        Mr. Marshall. I want to move away from the process here and
    just look at the substance of how we make our decisions.
        When CFIUS was first founded, and in its early years, a
    decade or so, the concern was losing control over natural
    resources that were critically important to our economy and to
    our defense, etc., and technologies. Those were the two
    principal focuses.
        Has that changed? One of the arguments, and apparently
    there is a little bit of a difference of opinion between
    O'Hanlon and Heyman, on whether or not ownership makes a
    difference.
        Heyman takes the position that ownership does not make a
    difference, period, end of discussion. Dubai Ports World was an
    absolute debacle, because it missed the appropriate focus.
        Are ownership concerns greater now?
        Mr. Lowery. I think that we do look at the ownership, and
    that is a concern. CFIUS came out of a variety of different
    reasons. It came out in the late 1980's because the Japanese
    were investing in a lot of transactions. The Japanese are not
    much of a major concern to the United States these days. We
    obviously are good friends and good colleagues with the
    Japanese.
        I have not read their testimony, so I cannot comment on
    that. I can comment on this. If we, in the United States, base
    our security on who owns and operates ports, then we are making
    a mistake. We do it instead on our Customs, our Coast Guard,
    and our Port Authorities. They are the ones that are securing
    the ports.
        That is what we should be doing. Those are the right
    officials to ask. I think they are doing a pretty good job.
        We cannot do it based on how somebody invests their money
    and which country they come from, because by doing that, I
    think that we would drive investors away. We have to be very
    careful.
        Ownership matters, and that is what CFIUS looks at, in the
    end, there is probably a balance between the two, but I have
    not read their testimonies.
        The Chairman. I certainly hope the Japanese will not be
    discouraged from coming back as in the 1980's and substantially
    overpaying us for trophy properties. We would offer them the
    chance once again to do that. I think we benefitted greatly
    from that.
        Mr. Lowery. I agree.
        The Chairman. The gentleman from Delaware.
        Mr. Castle. Thank you, Mr. Chairman.
        You made the suggestion, I think, Mr. Chairman, that it
    would be helpful if the Secretary sent us a summary of the
    process and how they review these transactions, with which I
    agree.
        I am also very interested in your views on the expertise of
    the various people at the table: I have a rough idea of who
    they are, but I think it would be helpful to know exactly what
    they each bring to the table.
        The one area or question I had was whether or not there is
    a definition of ``national security'' or if that is just formed
    by different decisions which have been made.
        It seems to me you could make the argument that almost any
    ongoing establishment, be it a business or a publicly owned
    circumstance, such as perhaps sports or whatever, in the United
    States, has some sort of national security.
        I think the gentleman from Illinois, Mr. Roskam, raised the
    issue about food, for example. I think General Foods is a
    possible transaction that may take place at some point.
        Would this be part of national security? How does one know
    that? How does a foreign entity trying to buy something in
    America make that definition? I realize it is a bit of a guess
    and it is on a voluntary basis.
        My question is what would they look to for that, and what
    should we think about in terms of what you believe ``national
    security'' is?
        Mr. Lowery. It is a very tough question and it does pop up
    a lot. It is hard for me to define ``national security.'' In
    the Executive Branch, we obviously have to start with the
    President defining ``national security'' for us.
        There is a reason why ``national security'' has never
    really been well-defined through legislation for a long period
    of time, and that is because it is an evolving concept.
        I think, probably, if you looked at September 10, 2001, and
    September 12, 2001, there are different definitions of what
    ``national security'' would actually mean.
        I think that what we are trying to do is define it as well
    as we can in that context, and avoid doing, I think, what your
    question I think is, which is creating a national screening
    process so that every foreign transaction has to be looked at.
    We just need to look at the ones that definitely rise to
    national security.
        I think most people think of national security and they
    think of defense. Obviously, there are critical infrastructure
    issues that can arise, and there are some telecommunications
    issues, as well.
        I think as case law--those are the wrong words because I am
    not a lawyer--as case precedents go on, I think the investment
    community gets a better understanding, and that is why
    legislation is helpful because it provides even more clarity to
    that community.
        In terms of what you asked about the expertise that people
    have--the main thing we try to do is to bring in experts from
    around our government who can have 10, 20, or 30 years of
    experience on national security type issues.
        We do that at the career level and then at the political
    level. My direct boss is a war hero, and he has been doing
    national security issues for the U.S. Government for 20 or 30
    years, I guess. That is Deputy Secretary Kimmitt.
        We bring very good expertise to the table. It does not mean
    we always get it completely right, but I think from a national
    security perspective, it is hard for me to think of a case
    where we have ever gotten it wrong.
        Mr. Castle. That is good to hear. To me, it is sort of
    indefinite. It seems to me that a lawyer worth his salt at all
    could make the argument that virtually anything is national
    security in this day and age, which may not be correct, or
    which may be, in some cases, correct.
        I think you do need to keep an eye on that in the balance,
    and I appreciate your answers. I yield back, Mr. Chairman.
        The Chairman. An important point I would say again de
    facto, that is the case. If you are a foreign entity with money
    to invest, legally challenging the designation of ``national
    security'' is probably not a very promising thing.
        If the U.S. Government were to invoke national security, I
    think the likelihood that you would go to court and have that
    overturned and buy the property anyway is nil. De facto. I
    think ``national security'' is whatever the people in charge
    say it is, and that would have the effect of canceling this
    particular transaction, which may be reassuring to people in
    that sense.
        Again, it is an unwinable lawsuit, I would think,
    especially since the government would then announce, as they
    often do when they have a weak case, that it is a big secret
    and they cannot tell the judge, and then the case has to be
    thrown out.
        We next have the gentleman from New York who has joined us.
        Mr. Crowley. I thank the chairman and I appreciate you
    allowing me to participate in today's hearing. I know, Mr.
    Chairman, you made reference to me ``slumming'' here at the
    committee today. I would never use that terminology, ``slumming
    here.''
        The Chairman. The slummer rarely does.
        Mr. Crowley. I'm moving back to the old neighborhood is
    what I am doing here. It is great to be back here with the
    chairman. Thank you for once again showing your leadership, and
    your commitment to this process.
        I think it is important to point out for historical
    purposes that last year, just about 90 days after what I call
    the debacle of the Dubai Ports' deal, this committee acted
    unanimously to support the same legislation we have before us
    today, as well as the House of Representatives supporting
    unanimously in both the committee and on the Floor, unanimously
    and in a bipartisan way this legislation to deal with what
    seemed at the time as the ceiling falling in on us.
        I think it showed how Congress can, even in an election
    year, work together in a bipartisan way when we understand the
    importance and the impact of our actions here in the House.
        I said back then and I say again today--no bill was better
    than passing the Senate bill. I think that we were working in a
    much better way and a more productive way of producing
    legislation that I think would have both the impact of creating
    better nets of security and at the same time keeping open the
    doors for foreign investment here in the States.
        Mr. Lowery, let me just ask you if you can give us your
    reason as to why you think there was such a dramatic increase
    in filings and withdrawings, investigations, and mitigation
    agreements last year?
        For example and specifically, DHS required more mitigation
    agreements last year than they did within the previous 3 years.
        Do you believe there was a dramatic increase in deals that
    raised national security issues last year, or was it just that
    the bureaucracy was just going into a hyper cautious mode?
        Mr. Lowery. I am trying to come up with the right answer. I
    think the reason why we have seen an increase in filings, and I
    kind of went through it before, but basically it is that a
    strong economy leads to more investment, which means it leads
    to a stronger economy.
        Secondly, there is no question the Dubai Ports World
    brought a lot of stature--that is not the right word--a lot
    of--
        Mr. Crowley. Notoriety?
        Mr. Lowery. Notoriety to the process. That probably led to
    more filings. Some were defensive.
        I think, in terms of the mitigation agreements, that
    Homeland Security takes its role very seriously. It goes to
    Congressman Marshall's points earlier. There has been an
    increase last year over the last few years, although if you go
    back and look, since Homeland Security came onto the committee,
    you have seen this steady increase. I think part of that goes
    to a lot of what has been discussed today, which is the
    flexible nature and broader nature of national security issues.
        It has gotten into areas that CFIUS really was not covering
    in the 1990's all that much. With Homeland Security there, I
    think what they see is risks that maybe others had not been
    able to see in the past, so they want to make sure they
    mitigate those risks and do it in a way that best protects the
    homeland.
        Probably part of that is a little bit of bureaucratic
    reflex, but I think a lot of that is just kind of the way and
    nature of national security in our country.
        Mr. Crowley. Mr. Lowery, what is the cost of deals that do
    not implicate national security but end up going through the
    entire CFIUS process, and can we end up having too many deals
    in the barrel, in the pipeline, that will be distracting to
    CFIUS and distracting CFIUS away from those deals that need the
    maximum amount of attention?
        Mr. Lowery. Yes. That is why you will see some of our
    issues to address in the bill to try to get at those issues, so
    we can make sure, especially my Secretary and Deputy Secretary,
    are most focused on issues that are of most concern and not
    just focused on every single transaction.
        It is something we have to be careful about. I think as we
    get more clarity in the process through legislation, through
    the Executive Branch doing its thing, we will see that level
    out.
        If you go back and look at CFIUS when it was first created
    in 1988 in terms of looking at transactions, there was a huge
    number of transactions every single year. I was not around,
    obviously. My guess is some of them were nonsense.
        Then you see this big tailing off during the 1990's and
    early 2000, and you saw a big giant increase last year, and I
    think that is revolving around certainty.
        I think as we get certainty, there is probably an increase
    over what used to be the case, but it will probably plateau
    out.
        Mr. Crowley. Thank you. Thank you, Mr. Chairman. I thank
    the gentlelady from New York for her leadership.
        The Chairman. The Chair is now pleased to recognize the
    gentleman from North Carolina to say whatever he wants for 5
    minutes.
        Mr. McHenry. Thank you, Mr. Chairman. I am sorry to hear
    that you are under the weather today. It would be very
    unfortunate if you lost your voice.
        The Chairman. I will not lose my gavel.
        Mr. McHenry. Nor your wit.
        Thank you for testifying. I am going to ask probably the
    same questions you have been asked 18 times, maybe 20.
        Let's go through the basic process here, just so we have a
    good understanding. The Committee on Foreign Investment, who is
    a member of the committee?
        Mr. Lowery. The committee is made up of 12 agencies. There
    are six departments: The chair is the Treasury Department, and
    the others consist of the Justice Department, the Homeland
    Security Department, the Defense Department, the Commerce
    Department, and the State Department. Then there are six White
    House agencies: the National Security Council, the National
    Economic Council, the Council on Economic Advisors, the Office
    of Management and Budget, the Office of Science and Technology
    Policy, and the U.S. Trade Representative.
        Mr. McHenry. They all sit on the committee?
        Mr. Lowery. That is correct.
        Mr. McHenry. Are they just designated by the agencies or is
    someone appointed by the President for that purpose?
        Mr. Lowery. Each particular agency assigns somebody to look
    at the case. A case comes in. What Treasury does is basically
    takes the case and just farms it out and tries to flag any
    specific issues that we see.
        Every now and then, there might be an energy issue, so we
    would invite the Department of Energy in. Then the intelligence
    community sits off to the side as sort of an input valve into
    this whole thing.
        Each department basically has sort of a lead CFIUS office
    that is responsible for making sure they come to the meetings,
    for farming it out within their departments because there is
    different expertise from each department, and then presenting
    the views that are provided.
        As cases rise up and get closer to the assistant secretary
    level, and then finally, every now and then, the deputy
    secretary level and then obviously, the most sensitive cases go
    to the Cabinet.
        Mr. McHenry. Roughly a dozen cases a month, let's say.
        Mr. Lowery. That is about right.
        Mr. McHenry. How many of these are actually seen by Cabinet
    level officials for sign off?
        Mr. Lowery. For sign off. I can speak for Treasury most
    easily, obviously. Every single transaction is seen by the
    Secretary or Deputy Secretary of Treasury on an information
    basis. On a closing out the transactions cases, that is done by
    a Senate confirmed official, which can be an assistant
    secretary or an undersecretary.
        Mr. McHenry. Since Treasury chairs CFIUS, I would like the
    answer for all the other agencies as well.
        Mr. Lowery. To my knowledge, each of the--I can speak
    easier for the departments than I can for the White House
    agencies, but the departments, to my knowledge, are briefing up
    to the highest levels on each case. Transactions are usually
    being cleared at Senate confirmed levels.
        We usually get an e-mail that says the Department of
    Homeland Security has cleared off on this transaction. That
    comes through a staff level contact, but that person has
    cleared it within their own building.
        In fact, we were sending out a weekly, within our building,
    and recently, we have started sending it out to other agencies,
    just to try to help.
        The Department of Defense and the Department of Justice got
    mad at us because they are like, look, we are briefing our
    deputy attorney general or the undersecretary or the Cabinet,
    and you are confusing them, because our briefings will say
    something slightly different than theirs.
        I know basically all the senior level officials are being
    briefed on each case.
        Mr. McHenry. I would hope so, especially after the
    publicity of really a boneheaded and ill-conceived process with
    the Dubai Ports, which I think burned a lot of people.
        It appeared to me that the process was handled at a staff
    level, with a number of e-mails being exchanged for sign-off,
    and there was actually no serious look at these roughly 100-
    some cases that flow through.
        What you have is staffers handling this process and then
    the President gets blamed. It seems also with 12 agencies being
    involved that no one is in charge, even though Treasury is
    supposed to chair this.
        Perhaps we have too many people sitting on this committee,
    and there is no responsibility falling on anyone.
        Mr. Lowery. We have said that we agreed that in Dubai
    Ports, agencies did not brief up well enough. Secretaries and
    deputy secretaries were not aware of these transactions or this
    transaction. That was a flaw on our part and we have corrected
    that.
        In terms of accountability, a number of us have testified
    over the last year many, many times on Dubai Ports, on CFIUS
    reform, and on other cases, so I think in terms of
    accountability, we are actually on top of this.
        We actually have our Senate-confirmed people looking at
    every single transaction, plus we have expertise within the
    Civil Service Branch, which in many respects are our real
    experts who are looking very carefully at transactions.
    Sometimes it is hundreds of people that look at a transaction.
        I think that is what the American people would want, which
    is to make sure that people who have real national security
    credentials are very much looking at these transactions.
        Mr. McHenry. Thank you, Mr. Chairman. In closing, I think
    it is important that we have a fair and open process, that we
    allow for foreign investment but we do not overburden the
    Administration with too many filings, and that we have an
    efficient process for the private sector to get the answers
    quickly and efficiently.
        Mr. Lowery. Thank you. We agree.
        The Chairman. The gentleman from California.
        Mr. Sherman. I know in the Federal Government, you cannot
    really lose your job for stupidity, but did anyone lose their
    job as a result of the mistaken initial approval of the Dubai
    Ports' deal?
        Mr. Lowery. Not to my knowledge.
        Mr. Sherman. I could only guess how big a mistake somebody
    would have to make.
        Mr. Lowery. Sir, the mistakes are--there were two mistakes.
        Mr. Sherman. Reclaiming my time. I think the American
    people are really clear that you made enormous mistakes.
        Mr. Lowery. I did not say that we did not.
        Mr. Sherman. I think the American people are really aware
    that incredible stupidity cannot get you to lose your job in
    the Federal Government, although sometimes it has that effect
    in elected service.
        Rube Goldberg used to do these great cartoons and he
    stopped publishing them. I thought that he had passed on.
    Apparently, the rumors of his death were exaggerated. He seems
    to have designed the current CFIUS system, as the gentleman
    from Florida pointed out.
        You have what, six agencies plus another six agencies, and
    you have testified with pride that sometimes hundreds of people
    look at a single transaction.
        I would venture to say that where hundreds of people are
    responsible, no one is responsible.
        I would like to shift to another issue. Last March, we had
    hearings at the subcommittee, and Mr. Manzullo pointed out that
    in the Dubai Ports' transaction, the Administration had simply
    ignored the law.
        I just got out of Foreign Affairs where it is apparent that
    the Administration simply ignores the Iran-Libya Sanctions Act,
    simply refuses.
        Is it the policy of this Administration to simply ignore
    laws that major economic interests feel are inconvenient? I
    will ask you to respond to that for the record. That was more
    of a rhetorical question.
        Mr. Lowery. No.
        Mr. Sherman. I would venture to say that the handling of
    Dubai Ports, the handling of the Iran-Libya Sanctions Act, now
    the Iran Sanctions Act, demonstrate convincingly to the
    contrary.
        Deciding whether we are going to allow foreign direct
    investment, particularly in the areas critical to our national
    security, I believe this investment is a privilege of the
    investor. You do not have a right to own American ports.
        Do we consider whether the entity involved is following the
    boycott against Israel and announced by several Arab states? Is
    that a factor?
        Mr. Lowery. We look at many factors. That could be a factor
    in specific transactions.
        Mr. Sherman. If it is not on the checklist, is it just a
    capricious decision by one of the people involved, or is it
    identified as a factor that is looked at?
        Mr. Lowery. What we do is the agencies with expertise,
    including in this case the State Department, is part of the
    CFIUS process and can weigh in.
        Mr. Sherman. As far as you know, there is not a single one
    of these thousands of transactions where that has ever been
    officially raised by State or any other agency. Had it been
    raised, had it been on the checklist for Dubai Ports, you would
    have saved yourself a lot of problems.
        Mr. Lowery. That would have been a dispositive factor, if
    that is what you are suggesting.
        Mr. Sherman. Not when you really look at their actions; no.
    You need to perhaps check with State as to what the Emirates
    actually does.
        I will yield back.
        The Chairman. The gentleman from Kentucky.
        Mr. Davis of Kentucky. Thank you, Mr. Chairman.
        The whole issue with Dubai Ports, I think, brings up some
    interesting questions. I think oftentimes, the governmental
    process and even the legislative process has been known to
    overreact or create more rules, to treat the symptom rather
    than the root cause.
        To your point on foreign investment, I think a proactive
    partner of foreign investment is very valuable in the creation
    of jobs and the perpetuating of our economy, particularly our
    export market.
        My district hosts the headquarters, the North American
    headquarters, of Toyota, which has been a tremendous benefit to
    the midwestern United States, certainly to Kentucky.
        They put their plant in shortly before the original CFIUS
    legislation came into being.
        One of the questions I would like to ask, because I think
    there can be an overreaction to have a narrow group of say
    deputy secretaries or secretaries to provide final review, they
    are ultimately going to be dependent on staff, but there is a
    bigger issue that I see in play in the Federal Government,
    particularly related to national security.
        That is, the interagency process is fundamentally broken.
    We have agencies, six agencies, multiplying staff, dead ends in
    communication, political agendas, surprisingly might intrude
    upon the decisions to efficiently process information.
        I am wondering if you might comment first on a need for,
    let's say, rejuvenation by statutory change to allow a more
    network-centric process to assess these needs.
        Dubai Ports, you know, showed this symptom. There were
    plenty of reasons to raise the question of no communication
    with Congress. I think a lot of that has been remedied.
        At the root of it, I wonder if we can do something in the
    issue of assessing trade in the interagency process along the
    lines of what we have done with the National Counterterrorism
    Center.
        We took agencies that did not communicate with each other,
    put them all at the table working together professionally
    incenting them, and have had a dramatic improvement in
    information security on that side.
        Would you comment on that from your seat there at Treasury?
        Mr. Lowery. I think what we try to do to build up good
    interagency communications is one, we have established this
    year just having frankly a weekly meeting where we discuss the
    cases that are before us, and then as cases rise up in the
    concern level, then frankly, those weekly meetings become
    frankly slightly more often, and also might get up to the
    highest levels of our government in terms of conference calls
    or what have you.
        We are trying to basically build the network by using what
    is available to us, which is bringing the agencies together.
        Congressman Sherman, I know, was complaining about hundreds
    of people looking at transactions. It is because you are trying
    to farm it out to the right experts.
        Mr. Davis of Kentucky. I would like to reclaim my time. He
    was a CPA. I came from the manufacturing process world. We
    encounter professionally both sides of the same thing.
        I think having a lot of people look at it does not
    necessarily make it a more effective process.
        Coming back to the issue, I go back to the NCTC example.
    They actually shrunk down dramatically the number of folks who
    looked at it and had less inventory in the process, if you
    will, 12 transactions a month is pretty minimal.
        They actually improved their productivity and were able to
    more quickly identify potential threats and deal with them.
        Mr. Lowery. I agree with the point that just having more
    people look at it does not mean anything. I think having people
    come together as representing an agency, which has different
    types of expertise within that agency, and providing a view of
    that agency, so that somebody from a Homeland Security
    department provides a view that this is Homeland Security's
    view on this specific transaction.
        The Treasury Department as chair is making sure they
    capture the different views that are out there.
        That is the type of process we have. I think we are open to
    other suggestions as to improvements on that process.
        I think that what we have tried to do is it sounds like
    semi-close to what you are doing on NCTC. I do not know the
    issue that well.
        We are bringing people together on a basis where they
    actually have to speak for their agencies as opposed to speak
    for specific parts of their agencies, which does lead to lots
    of confusion.
        Mr. Davis of Kentucky. The one concern that I have is that
    the people representing the agencies may be defending their
    agencies' interest, particularly watching in an election year
    last year. I think I have certainly seen this from a political
    perspective myself.
        One of the things that occurred was all of a sudden there
    were no more problems relating to CFIUS issues until after the
    election. Certain agencies can certainly slow the process down
    to assure there is not only risk but also a political situation
    can be over studied and mitigated at risk to legitimate
    investment for the Nation.
        I come back to the issue. I would like to correspond with
    you and suggest you talk to the Deputy Secretary about this. I
    have great personal respect for him. We have discussed the
    interagency issue a number of times, and perhaps adapt some
    form of that model to simplify the information process that
    addresses a legitimate security concern that many of us were
    aware of that apparently never got vetted in that process.
        At the same time, allow the proper oversight from Congress
    and also protecting our national security interests.
        I yield back my time.
        The Chairman. The gentleman from Texas.
        Mr. Green. Thank you, Mr. Chairman. Thank you, Mr.
    Assistant Secretary, for appearing today.
        Sir, the protocol having been established, please allow me
    to go right to a question. I am looking at section three of the
    bill. Section three, as I understand it, is being opposed by
    the Administration.
        Section three provides for the vice chairs of the committee
    to be the secretaries of Homeland Security, as well as
    Commerce. There is also a provision for executive office
    members.
        Can you explain why the Administration would be opposed to
    this, if indeed this is the circumstance?
        Mr. Lowery. I think the Administration just views that it
    is better to have flexibility than to put that into the
    statute.
        In terms of White House agencies, obviously, the Executive
    Office of the President should be run by the President's
    Office. In terms of the specifics of who should be the vice
    chair and who should be the chair, we just think that is
    something that the Executive Branch can work out, although
    obviously we respect very much the advice of Congress on those
    issues.
        I think that is our major issue.
        Mr. Green. While this may not be of paramount importance
    now, I am sure you agree that we live in a world where it is
    not enough for things to be right; they must also look right.
        The perception that the public has with this Dubai deal is
    that things just did not look right. They may have been right,
    but there was the appearance of something less than a perfect
    circumstance emerging from that transaction.
        How would you have us, without having some sort of
    opportunity prior to transactions, how would you have us
    maintain the public's trust and respect if we do not go to the
    extent that we are trying to with this legislation?
        Mr. Lowery. That is a terrific question. The chairman made
    fun of me earlier for kind of talking about getting our
    confidence back.
        Mr. Green. Do not feel badly about that. The chairman makes
    fun of me all the time.
        Mr. Lowery. That is what we are trying to do. First of all,
    let me just state that the legislation, we thought, was very
    good. There are some parts of it we would like to change, not
    surprisingly.
        We think that having that type of legislation will help
    build confidence with Congress that we are trying to do the
    right things. We are not sure it will help that this group or
    that group is the chair or vice chair, as long as Congress
    understands what the Executive Branch is doing in terms of how
    it is doing its work, and that is the only thing.
        We agree completely that we need to build your confidence
    up more so that you can help us make sure that the American
    people's confidence is built up.
        Mr. Green. Thank you, Mr. Chairman. I yield back the
    balance of my time.
        The Chairman. I appreciate it. I would just say to the
    gentleman, so he does not think I do not always respect his
    opinion, in regard to the first question he asked, I do not
    think the Administration's objections are going to carry an
    enormous amount of weight in this situation, so I think the
    provision the gentleman talked about is likely to remain in the
    bill.
        The gentleman from New Jersey.
        Mr. Garrett. Thank you, Mr. Chairman.
        Before I begin, just taking off the page of the gentleman
    from Texas' comment, I think you hit it on the nose as far as
    that perception is reality in these situations. Sometimes that
    is good and sometimes it can have the obvious difficulties that
    we have here.
        I come from the great State of New Jersey, where we live in
    the shadow of the Twin Towers. The various ports that we have
    that my constituents work for, whether it is across the river
    in New York, or here in New Jersey, although none in my
    district, but a number of our folks certainly make their
    livelihood out of them, and the goods that are shipped through
    them, and come through those ports obviously impact upon our
    economy.
        You can imagine the perception aspect of going back to the
    Dubai Ports' situation and how it would impact upon our
    district.
        I should say that was before the Dubai situation, and after
    I have had the opportunity both in my current capacity as a
    Congressman to visit the ports, and to meet with the folks who
    run them, both before 9/11 and after.
        I do just take this time to compliment the folks who are
    running these ports, both from a public perspective, the
    government officials, and also the private sector as well.
    Their heart and soul is on the same thing as the American
    public--the security of those ports.
        Some of that, I think, was lost to their detriment in the
    light of everything that came out in the media. Some of them, I
    think, got a sense that we were looking at them and the way
    they were performing their job, whether in the public sector or
    the private sector, and that really should not have occurred
    after that.
        That goes back to the comment that perception is reality.
        Just two comments. I have been listening to your testimony,
    and with regard to the number of people involved, I think I
    would just want you to elaborate, as far as the farming-out
    aspect to say, and correct me if I am wrong, you are really
    delegating it.
        We have 100 people here, but you are not saying you are
    going to have the 100 people here doing it, you are going to
    identify these 2, 6, or 12. Is that right, when you are making
    reference to hundreds of people?
        Mr. Lowery. Yes. I do not mean to cause confusion with
    that. Each agency has their own processes for trying to figure
    out a transaction. There are different experts within the
    agencies. What I mean by hundreds of people is that the
    Department of Defense, for instance, has 22 different agencies
    that look at these things. Not every one of them has expertise
    on a particular transaction.
        It is the ones that have expertise that are the ones that
    are going to be most important, and they are going to be the
    ones that inform the Department of Defense leader on this
    issue.
        The Department of Defense has to come with a view. That
    view is going to be briefed up within their department so that
    either the Secretary, Deputy Secretary, or Undersecretary of
    Defense is aware of the transaction, understands it,
    understands the concerns of his experts or not their concerns,
    and is able to give judgment.
        That is how we do things. I do not want to confuse people
    with the hundreds of people. It is just that we have lots of
    different experts within our government, and we want to make
    sure they have a chance to look at something, although the
    final decisions are being made at a presidentially appointed
    Senate approved level.
        Mr. Garrett. My second question goes to, I guess, what I
    will call the burden of proof. I think the gentleman on the
    other side of the aisle made the comment, if I am not mistaken,
    that companies and individuals do not have necessarily the
    right to come in and control these companies.
        In a court of law, obviously, you are presumed innocent
    until proven guilty in most instances, unless you are dealing
    with the I.R.S. You are innocent and the burden of proof is on
    the State or the government to prove it.
        Is it appropriate to attach that analogy to this situation
    as well, if a company comes in or an individual and wants to
    purchase this, where actually in the whole process is the
    burden of proof?
        In other words, is it on you and the government to say
    everything checks off, you are good, or is the burden of proof
    on them really to say well, we should be here because
    everything is appropriate? Where you have that burden of proof,
    I think, can affect potentially the outcome of these decisions.
        Mr. Lowery. That is a terrific question, but I am not sure
    how to answer it.
        Mr. Garrett. I hope the chairman notes that.
        Mr. Lowery. It is a terrific question because I think the
    burden of proof is on both. The burden of proof is on the
    Government of the United States because we have to show why
    there is a problem with this transaction.
        Remember, we are welcoming a foreign investment. It says in
    the law that we have to be looking at national security
    concerns and whether there is a threat. That seems like our
    burden of proof.
        On the other hand, we have to get the most up-to-date and
    honest trustworthy information from the companies themselves,
    so we ask a lot of questions. Sometimes these companies, and
    you will hear about this, do not like it.
        At the same time, we are trying to get as much information
    as we possibly can so we can answer the questions that have
    come up from our experts about a specific transaction.
        In many respects, the burden of proof is on both.
        The Chairman. I am going to give the gentleman a bonus
    question for his ``terrificness'', and he may ask another
    question if he would like.
        Mr. Garrett. May I reserve that for another time?
        The Chairman. No.
        Mr. Garrett. If I may just ask a follow-up question on
    that, since I cannot reserve that and carry that over, is that
    appropriate because they do not have the right to come in here,
    should not we be putting--this is what my constituents will ask
    me at my next town hall--should we not be putting the burden on
    them to be forthcoming, not only forthcoming, because I know
    that is part of the process, should not the burden be extra on
    their side as opposed to on both or one side or the other?
        Mr. Lowery. To a degree, yes. I think frankly there is a
    burden on them. If you were investing and you were born in a
    foreign country and you were investing in the United States in
    an area that raised national security issues, you have a
    greater burden on you than a domestic firm.
        The Chairman. As I said before, de facto. If you are a
    foreign investor thinking about putting your money here, if the
    U.S. Government opposes you, I do not care where the burden of
    proof is and what the likelihood is of you ultimately winning
    in court, that is the end of the deal.
        You can likely use your money to go to court and fight that
    fight, and we know there is the possibility that there might be
    a Congressional hearing on the investment, we are told, and I
    think accurately, is enough to discourage it.
        I think de facto the burden of proof is very much on the
    people who want to come here, and the very fact of a serious
    controversy will almost always put an end to the deal.
        The gentleman from Texas. I should explain to the gentleman
    from New Jersey that it is not reservable because we are
    probably not going to be on the same side that often.
        Mr. Garrett. You never know.
        Mr. Hensarling. Thank you, Mr. Chairman.
        I do think this is an important hearing, one that
    unfortunately I have missed much of due to appearing at a
    Budget Committee hearing. No matter how many terms I have
    served, I have yet to master being in three places at once.
        The Chairman. You should have been here. This one is going
    to be real.
        Mr. Hensarling. Mr. Chairman, given that your party is in
    charge now, I will share that.
        The concern I had as we approached this hearing was that
    this particular legislation, which may be good, it certainly
    has the goal of increased disclosure, and increased
    accountability, but since coming to Congress, I have seen very
    often where the cloak of national security is used to frankly
    hide a protectionist agenda.
        The debate about trade has been around since the dawn of
    man, and I have particularly strong opinions on one side. I
    believe it is the right of an American if he wants to purchase
    a shirt produced in Costa Rico, that ought to be part of his
    economic liberties. Clearly, there are people strongly on the
    other side.
        Having said that, like many issues we approach here, it is
    a question of balance. There are legitimate national security
    concerns. We may be plowing a little bit of old ground here.
        The first question I have, coming from the perspective of
    Treasury, under current law is, is it possible to override the
    concerns of the Pentagon, and of the Department of Homeland
    Security? How do we know that their voices are receiving the
    concern they are due?
        Mr. Lowery. No, it is not possible. As the chair of CFIUS,
    my folks do a very good job on some very tough issues, but in
    many respects, we serve largely as a secretariat function, to
    make sure that everybody is informed of every single
    transaction.
        The Departments of Homeland Security, Defense, Justice, and
    other agencies are very vigorous in how they submit their
    reviews.
        If there is a specific concern of the agencies on a
    transaction, the investigation will be extended. If that
    concern cannot be addressed at the end of the day and while
    other agencies, including Treasury, might have a different
    viewpoint, that could go to the President of the United States
    and only the President would make that decision.
        Mr. Hensarling. Right now, as part of this debate, there is
    a discussion as far as redefining the concept of ``national
    security.'' How does Treasury feel about that? Forgive me. I
    missed your testimony.
        Mr. Lowery. That is quite all right. It is very difficult
    to define ``national security'' because it is an evolving
    process. It is an evolving concept, actually.
        I think Congresswoman Maloney talked earlier about the idea
    of having broad and flexible definitions, and that is what we
    try to do.
        As I said earlier, if you looked at national security and
    thought about it on September 10, 2001, and then on September
    12, 2001, you would have come up with different definitions.
        I think that is how we have tried to evolve. When CFIUS was
    created, it was mainly about defense production issues and
    export controls. We now look at a lot more types of
    transactions, some of them are in critical infrastructure, and
    some of them are in telecommunications.
        It is an evolving concept and we are always being informed
    by people within the Executive Branch, but also people in
    Congress.
        Mr. Hensarling. Again, generally, I view direct foreign
    investment as tending to be a good thing. I believe that there
    are millions of American jobs that are dependant upon it, some
    of which are in my Congressional district. Those jobs tend to
    be at wage rates higher than the national median.
        There is some discussion in this debate about making CFIUS
    submissions mandatory as opposed to voluntary. What is
    Treasury's position on that and what impact might that have on
    increased direct foreign investment?
        Mr. Lowery. We think that is a terrible idea. The reason we
    think it is a terrible idea is because if it was mandatory,
    there are probably anywhere between, I do not know, 700 and
    1,100 transactions a year that happened in the United States
    from foreign acquisitions. They are very important to our
    growth. They are very important to job creation. They are very
    important to wealth creation.
        CFIUS looks at roughly 10 to 20 percent, which is basically
    reflective of what types of transactions are happening in the
    national security field.
        We want foreign investment to be open. We do not want to
    create a national screening process. If you move towards
    mandatory filings, you are moving much closer to a national
    screening process as opposed to a national security process.
        The Chairman. We have kept you, but we have another panel.
    I just want to thank the Assistant Secretary. You have been
    very forthright and patient, and the Department should be well
    pleased with your presentation.
        We have asked you for some further things which we think
    will be helpful, and you are now excused, and the next panel
    will please assemble quickly.
        We now have our second panel. We will begin. My advice to
    the panel would be that you might want to particularly address
    some of those issues that you heard being discussed.
        I think you have a generally favorable disposition on this
    committee. We passed this bill unanimously last year.
        If I were a witness, I would try to address some of the
    particular points. Whether or not all of the members are here,
    the information will get to them.
        We will begin with our former colleague, a former member of
    this committee from Texas, Mr. Bartlett, who is the president
    and CEO of The Financial Services Roundtable.

     STATEMENT OF STEVE BARTLETT, PRESIDENT AND CEO, THE FINANCIAL
                          SERVICES ROUNDTABLE

        Mr. Bartlett. Given the lateness of the hour, and the full
    and robust discussion by the previous panel and by the
    committee, I will submit my testimony for the record and offer
    just a couple of comments.
        First, The Financial Services Roundtable and our members
    support H.R. 556, and we urge its early passage into law. Given
    that there are both national security interests and
    international relations' interests, we urge that it be brought
    up under either a suspension or some form of restricted rule to
    avoid amendments that could damage national security or
    international relations.
        Second, we do urge two changes in the legislation as it is
    currently proposed. One is that there be no requirement of a
    mandatory review unless both it involves both a foreign
    government and a national security interest. We do not think it
    should be a simple test of either/or.
        We urge you to disallow the so-called ``evergreen'' action
    by CFIUS, in which an approval of a purchase could occur and
    then after the ownership has been transferred and the money put
    in the bank, if you will, then CFIUS reopened the process. We
    think there are adequate national security laws to protect
    national security and reopening an ownership that has
    previously been approved would not be in the best interests of
    the United States of America.
        In conclusion, we urge prompt passage of this legislation.
        [The prepared statement of Mr. Bartlett can be found on
    page 74 of the appendix.]
        Mrs. Maloney. [presiding] I thank the gentleman for his
    testimony. Going right along to Todd Malan, president and CEO,
    Organization for International Investment.

    STATEMENT OF TODD M. MALAN, PRESIDENT AND CEO, ORGANIZATION FOR
                        INTERNATIONAL INVESTMENT

        Mr. Malan. Good morning. My name is Todd Malan and I am the
    president and CEO of the Organization for International
    Investment.
        OFII is the organization that represents the largest group
    of foreign investors in the United States. We have 150 member
    companies who basically form the customer base of CFIUS.
    Therefore, I am very happy to be able to testify this morning.
        We talked a little bit about the benefits of foreign direct
    investment this morning and I wanted to go over some of the
    facts and figures about that.
        5.1 million Americans work for U.S. subsidiaries of
    foreign-based companies. Those companies pay on average about
    $64,000 in wages per employee, which is 32 percent higher than
    all other jobs in the United States.
        One fact that is sort of counter intuitive about these
    companies is they are not just here for this market. They are,
    in fact, exporting from the United States. About 19 percent of
    U.S. exports are created by foreign companies that have
    operations here in the United States.
        Two other facts that I think are interesting for the
    committee to consider: 94 percent of total assets owned by
    foreign companies are from OECD member nations, other countries
    that have similar standards as the United States; and 98
    percent of U.S. foreign direct investment is from private
    sector firms (and only 2 percent are from government-controlled
    companies).
        There are a number of things beyond statistics, the story
    about in-sourcing in the United States is compelling. We have
    done a study that looks at every State and how they benefit
    from foreign direct investment (FDI). If you would like to look
    at your State and how it benefits from FDI, go to ofii.org.
        One thing I felt would be beneficial is for me to reflect
    some of my member companies' concerns about the current CFIUS
    process after the Dubai Ports World situation that we have
    talked so much about this morning.
        I think it is important for members to think about it in a
    post-September 11th era; obviously, protecting national
    security is clearly the priority.
        When functioning properly, CFIUS should act as a triage
    doctor would in an emergency room, quickly analyzing and
    approving non-sensitive transactions in which the buyer does
    not pose a threat or the target does not involve national
    vulnerability. This leaves the process able to focus on
    transactions where the national security risk is significant.
    In other words, it is just as important that CFIUS clear
    transactions that do not implicate national security as it is
    that they drill down deeply into those that do.
        A recent study published by the National Foundation of
    American Policy showed that in the last year, the number of
    CFIUS filings has increased by 73 percent; the number of
    investigations jumped by 350 percent; and the number of
    companies withdrawing their filings from CFIUS grew by 250
    percent. Also, there were more second stage investigations last
    year than during the previous 5 years of the entire Bush
    Administration, and more than in 1991 to 2000.
        The number of mitigation agreements or conditions imposed
    on companies more than tripled in the year. More specifically,
    the Department of Homeland Security required an average of 4.5
    mitigation agreements per year between 2003 and 2005. Last
    year, DHS required mitigation agreements in 15 transactions.
        While unofficial data suggests there was growth in foreign
    investment in 2006, it is hard for me to imagine that in 2006,
    there was suddenly a much larger number of transactions that
    truly implicated national security. Rather, I suspect that
    CFIUS bureaucracy went into a hyper cautious mode. Caution is
    warranted in national security focus and cannot be compromised.
    However, we cannot let CFIUS get bogged down by transactions
    that do not have anything to do with an increased risk profile.
        OFII is also concerned that some agencies are taking undue
    advantage of the leverage inherent in CFIUS. CFIUS should not
    be a fishing expedition for a single agency to address
    comprehensive industry objectives on a ``catch is as catch
    can'' basis, merely because they have leverage over one
    industry participant.
        CFIUS should not be a way for the government to avoid open
    and deliberative processes of creating rules under normal
    rulemaking procedures in which public comment and Congressional
    accountability are present.
        For example, if the Department of Homeland Security
    perceives a vulnerability in our telecommunications
    infrastructure, it should address that vulnerability across the
    sector, without regard to the ownership of firms.
        We all know that large chemical plants present a possible
    risk of attack. Would it make sense for security standards or
    government protections to only apply to a Dupont facility but
    not to BASF? Of course not.
        We should not approach national security vulnerabilities in
    a piecemeal fashion.
        Mr. Chairman, we are very happy to support the legislation
    that the committee is considering. We have made a few small
    suggestions in regard to that.
        We look forward to working with you and the committee to
    advance that legislation.
        [The prepared statement of Mr. Malan can be found on page
    93 of the appendix.]
        The Chairman. Thank you.
        Mr. Michael O'Hanlon, senior fellow in the Foreign Policy
    Program, Brookings Institution.

     STATEMENT OF MICHAEL O'HANLON, SENIOR FELLOW, FOREIGN POLICY
                     PROGRAM, BROOKINGS INSTITUTION

        Mr. O'Hanlon. Thank you, Congressman. I will try to follow
    the example and be quick myself.
        I think it is important that there is this consultation
    with Congress that is being enhanced. Let me just say one word
    about why and leave it at that for my remarks.
        I think when you imagine the importance--we have not talked
    a lot about the substance of how you evaluate a proposed deal.
    We have talked a lot about process today.
        Congressman Marshall mentioned the need for focus on
    substance. You have to do scenario analysis. You have to
    evaluate what could go wrong with this deal and think it
    through in some level of detail, and it is going to be an
    inherently judgmental and subjective process in some cases,
    which is why I think Congress' opinion is always going to be
    worthwhile.
        I will just mention two very quick examples and be done.
    One was Dubai Ports World. The reason why I was skeptical of
    that deal at the time is because I took note of the fact that
    we did not allow citizens of the United Arab Emirates to come
    to the United States through the VISA waiver program at that
    time.
        We felt that the UAE's processes for evaluating its own
    citizens' trustworthiness to come to the United States, like
    with most countries in the world, were not good enough that we
    could simply give a blank check or a blind eye to whoever would
    be coming to the United States, and yet we were prepared to let
    this same country or a company from this same country have
    access to learn potentially about some of the strategic
    vulnerabilities in what I would call sort of part of our
    strategic national underbelly, the ports of our Nation.
        Scenario analysis led one to conclude there is a
    possibility that certain practices would become well known to
    citizens of the UAE and then they would realize what our
    strategic vulnerabilities were, therefore, I think it was
    appropriate that deal was scrutinized and in the end, opposed.
        You and Congresswoman Maloney talked about the hypothetical
    of a hotel near the White House being in the hands of a foreign
    government. I think you have to do scenario analysis on that,
    because I think there is the possibility of a worry in that
    kind of a situation myself.
        I have not thought through which one of you I agree with. I
    sensed a slight difference of opinion between the two of you.
        You need to have that kind of scenario analysis to figure
    out whether a deal makes sense or not, and simply constructing
    a process does not guarantee that the right judgment will be
    reached once you do that analysis.
        I want to commend Congress for the fact that this bill
    requires greater consultation. You are always going to need
    multiple smart people looking at the same deal and using their
    best judgment to know if it makes sense.
        Thank you.
        [The prepared statement of Mr. O'Hanlon can be found on
    page 163 of the appendix.]
        The Chairman. Thank you. Thank you for your directness.
        Mr. David Marchick, a partner with Covington and Burling.

      STATEMENT OF DAVID MARCHICK, PARTNER, COVINGTON AND BURLING

        Mr. Marchick. Thank you very much, Mr. Chairman. Thank you
    for the opportunity to be here. I will be very brief as well. I
    see that we are losing interest in this subject.
        The first point I would like to make is that the CFIUS
    process has already changed.
        The Chairman. It is not that people are losing interest. It
    is that they figure at this point, they may not be gaining
    knowledge.
        Mr. Marchick. Hopefully, I can add a little to the debate.
        The CFIUS process has changed and changed significantly.
    Todd went through the data. There was suddenly a huge increase
    in filings, withdrawals, investigations, and mitigation
    agreements in 2006.
        Some of it, I think, is that the bureaucracy took the wrong
    signal about Dubai Ports. Whereas the concern about Dubai Ports
    was in large part about communication with Congress, I think
    the bureaucracy has taken that signal and said that we need to
    scrutinize every single transaction when, in fact, the
    important thing is to scrutinize those transactions that really
    raise national security issues.
        The second point is that timing and certainty matter. The
    process and the political issues relating to Dubai Ports has
    created uncertainty in the marketplace. Uncertainty about when
    companies should file, uncertainty about how long the process
    should take, uncertainty about whether there will be a
    mitigation agreement, and with the Alcatel-Lucent transaction,
    uncertainty about whether a transaction will be reopened at
    some point in the future.
        Uncertainty in the timing to close is very important. I
    will just give you a quick example. If I were selling my house
    and Mr. Malan was bidding against Mr. Nichols, and Mr. Malan
    and Mr. Nichols both bid the same amount, but Mr. Malan could
    close in 30 days, and Mr. Nichols could close in 90 days, and
    the bank put all kinds of conditions on Mr. Nichols' bid, and
    on top of that, there was the possibility that the transaction
    could be unwound 3 years, 5 years, or 10 years in the future, I
    am going to go with Mr. Malan any time. That same concept
    applies to transactions going through the CFIUS process.
        The third issue is the bill. I really commend Ms. Maloney
    and the bipartisan team that put the bill together. It is a
    very good bill. I do recommend a few tweaks.
        One tweak would be the DNI provision, which has been
    discussed at length. I will not talk about that again.
        The second would be government ownership. There should be
    additional scrutiny of acquisitions by government-owned
    entities, but not all acquisitions by government-owned entities
    create a national security risk. The time for a review does not
    equal scrutiny or the level of scrutiny in a review.
        Just to give you a simple example. Late last year, the
    Ontario Teachers Pension Fund bought four or five ports in the
    United States. Some of those ports were exactly right next door
    to the ports that were going to be purchased by Dubai.
        It is hard to see how an acquisition by a bunch of Ontario
    teachers and their pension fund could raise national security
    issues. That transaction did not need to go through an
    investigation.
        If the bill were in place last year, that would have taken
    90 days, and that could have knocked their bid out and made it
    less competitive.
        If you force all of these transactions into the process,
    even if there are no national security issues related to them,
    then you are going to divert CFIUS' attention from those
    transactions that matter. I would encourage a few adjustments
    there.
        The final point is that on mitigation agreements, I would
    encourage some principle in the bill that mitigation agreements
    should only focus on the marginal increase in risk as a result
    of a transaction, as opposed to a general security issue that
    exists related to a particular sector, like the
    telecommunications sector.
        Finally, mitigation agreements should only be put in place
    if other laws or regulations do not adequately protect national
    security.
        The final point is that one never knows whether the bill,
    which is a very good bill, will become law. Last year, you
    passed this bill 434-0. The Senate had a different bill. The
    bills were not reconciled.
        I would hope that with your blessing, the Executive Branch
    could put out an Executive Order that adopts some of the
    concepts in the bill, just in case the bill does not become
    law, so there is something in place as an insurance policy in
    case this bill is not reconciled with the Senate and the
    President does not sign it.
        I think you have a very good bill. With a few tweaks, it
    will be a great bill. I really appreciate the opportunity to be
    here today.
        [The prepared statement of Mr. Marchick can be found on
    page 104 of the appendix.]
        The Chairman. Mr. Robert Nichols, president and chief
    operating officer of the Financial Services Forum.

     STATEMENT OF ROBERT S. NICHOLS, PRESIDENT AND COO, FINANCIAL
                             SERVICES FORUM

        Mr. Nichols. Thank you, Mr. Chairman. Thank you,
    Congresswoman, for introducing H.R. 556, and for your
    leadership both in this and the previous Congress.
        I am here representing the Financial Services Forum, which
    is an economic and public policy organization representing the
    CEOs of 21 of the largest financial services firms doing
    business in America.
        Today we are talking about two goals, protecting national
    security and encouraging vital foreign investment. These goals,
    we believe, are harmonious.
        The financial services industry is acutely aware of the
    serious threats faced by our Nation and the need for Congress
    to consider all aspects of national security in its
    decisionmaking.
        Addressing threats to U.S. national security must be
    undertaken with absolute resolve and come second to no other
    priority.
        We also strongly believe that protecting U.S. national
    security and advancing America's global economic leadership are
    compatible and reinforcing goals. Indeed, we cannot achieve one
    without pursuing the other.
        In an increasingly interconnected world, the health and
    vitality of the U.S. economy, and therefore American jobs,
    depends on open markets and the free flow of capital.
        U.S. investments abroad support economic growth at home,
    access to resources, and in turn, national security.
        Similarly, foreign investment in the United States brings
    trillions of dollars of capital, new ideas, and techniques and
    methodologies, all of which promote U.S. economic growth and
    enhance our competitive position in the global marketplace, and
    help create millions of American jobs, as Todd discussed.
        Unfortunately, in the wake of the Dubai Ports World
    controversy last year, securing approvals within the process of
    foreign investments, the CFIUS process of foreign investments,
    has become more difficult and is taking longer. That is not
    good news for the U.S. economy.
        Limiting the pool of potential investors in buying of
    American assets undermines the value of those assets, harming
    business owners, their workers, the interest of shareholders,
    and Americans with money invested in stocks, mutual funds, and
    401(k) retirement and pension funds.
        With these concerns in mind, we respectfully urge Congress
    to reject unwise and unnecessary new restraints on open markets
    and the free flow of capital, as it considers reforms to the
    CFIUS process.
        Any changes should result from a thoughtful, considerate,
    and fact-based assessment, and should seek to restore
    confidence, certainty, and predictability to the prospect of
    investing in America.
        Certainty and predictability are fundamental ingredients to
    the success of our capital markets. Your important legislation
    will help restore that needed certainty.
        Before I close, let me touch briefly on some brand new data
    regarding public support for foreign investment. When supplied
    with the facts, Americans clearly value the benefits of foreign
    investment, according to a survey we, at the Financial Services
    Forum, commissioned just 2 weeks ago.
        We found that support for foreign investment has risen
    since the Dubai Ports' controversy. Now, 51 percent of
    Americans have a favorable view of foreign investment compared
    to 47 percent last April. Americans also have a more favorable
    view of foreign investment when they know the facts. Sixty-one
    percent have a more favorable view when they understand that
    foreign investment creates 5 million jobs compared to 52
    percent in the previous survey. That number has grown.
        Knowing that, 57 percent of Americans we surveyed are
    concerned about legislation that might stifle foreign
    investment.
        Considering all of the rhetoric and debate surrounding
    foreign investment in the last 12 months, I think these figures
    suggest a pretty sophisticated American public when it comes to
    this issue.
        Speaking of surveys, when we asked our 21 member CEO's to
    rank 10 potential threats to the continued expansion of the
    U.S. economy, in a survey the Forum conducted this past
    October, they ranked protectionism as the most serious threat
    to continued economic expansion over terrorism.
        Mr. Chairman, as reform alternatives are further
    deliberated, we urge Congress to take a platform measured
    approach, and be mindful of the critical importance to America
    and to the world of thriving global trading relationships.
        We cannot expect other countries to keep their doors open
    to U.S. investment if we close our doors to foreign investment
    here. Keeping our country open for business is in the best
    interest of America, and to keep our doors open, we need to
    maintain predictability, as I said, and certainty, hallmarks of
    the U.S. capital markets.
        Thank you very much for your time. Mr. Chairman, Secretary
    Evans sends his regards.
        [The prepared statement of Mr. Nichols can be found on page
    132 of the appendix.]
        The Chairman. Mr. David Heyman, who is the director of the
    Homeland Security Program at the Center for Strategic and
    International Studies.

    STATEMENT OF DAVID HEYMAN, DIRECTOR, HOMELAND SECURITY PROGRAM,
             CENTER FOR STRATEGIC AND INTERNATIONAL STUDIES

        Mr. Heyman. Thank you, Mr. Chairman, Congresswoman Maloney,
    and Congressman Jones.
        I was asked to present a context from a national security
    and global terrorism perspective for which members might
    consider reforms to the CFIUS legislation, and to do that, I
    would like to make three main points.
        First, the security landscape has changed and we must
    understand the nuances of those changes to consider what should
    or should not change with regard to CFIUS.
        Second, in particular, we must understand al-Qaeda's
    interest in undermining the U.S. economy and bin Laden's ``lead
    to bankruptcy'' strategy.
        Third and finally, Dubai Ports. This was a transaction that
    finally put port security on the map, but from a national
    security perspective, it was in my mind a debacle. Nonetheless,
    the lesson should serve as a model for good and bad.
        Let me start with the considerable changes in the security
    landscape since 9/11. In terms of who we fight, how we fight,
    where we fight, and who does the fighting, we have come to view
    national security in a brand new light today.
        Let me elaborate on each of those briefly. First, our
    adversaries are no longer principally nation states but now
    include non-state actors or terrorists.
        Second, the front lines of war are no longer predominately
    trenches across political boundaries. They are in the streets
    and buildings of our cities and States, at curbside check in's
    at airports, at turnstiles in stadiums, and in emergency rooms
    in hospitals.
        Third, our battles are no longer fought solely by airmen,
    soldiers, sailors, and Marines. They are also fought by
    epidemiologists, fire fighters, citizens, and police.
        Fourth, the weapons we wield to wage war are not just
    tanks, missiles, and rifles, but also satellites, computer
    algorithms, vaccines, sensors, and databases.
        These changes raise a fundamental question about what
    constitutes national security concerns in the CFIUS national
    security review. This is the substance of the review.
        In particular, would, for example, foreign ownership of
    critical infrastructure of vital services that sustain our
    lives pose a new risk to national security in light of global
    terrorism? Are we at risk of handing terrorists the keys to
    securing our house by allowing foreign direct investment in
    critical infrastructure?
        This was in the end the fear and frankly the underlying
    question during the debate of Dubai Ports.
        We have to be careful here when we talk about risks, when
    we assess risks. There are components to it. There is a
    difference between a threat and a vulnerability. Threat has to
    do with the adversary's means and goals of the attack.
    Vulnerability is the target of attack and the protected means
    in place.
        In Dubai Ports, Dubai Ports was not a threat but the ports
    were extremely vulnerable. There is a difference there. CFIUS
    will not fix that vulnerability, only new safeguards will.
        The second point I want to make has to do with
    understanding that our economy is a target of a threat.
    Contrary to what most Americans believe, al-Qaeda's intent is
    not to destroy the United States through direct confrontation,
    through direct attacks, but rather to provoke America to
    destroy itself.
        Bin Laden's own words, which I will not go into because it
    is in my testimony, refer to his experience in Afghanistan
    against the Soviets, and he talks about bleeding Russia over 10
    years until it went bankrupt and was forced to withdraw.
        This is a model that he seeks to replicate with America.
    Yes, we must continue to protect against future attacks, no
    question, but we must also have an eye on the economy and avoid
    self-inflicted wounds, which brings us to Dubai Ports.
        Dubai Ports was a self-inflicted wound. In effect, we
    denied direct foreign investment to the United States by an UAE
    firm because of an unfounded fear of an unsubstantiated
    terrorist threat. Worse, we had a unique opportunity to improve
    national security and we lost it.
        By squashing the deal, what we got, and what we have today,
    is worse port security than it would have been had the deal
    gone through. I can elaborate in the questions.
        Four lessons of Dubai Ports and how the CFIUS process
    worked. Number one, foreign ownership does not and should not
    be assumed to automatically infer additional vulnerability on a
    business.
        Number two, a firm from a country where there has been
    known sources of terrorism should not automatically disqualify
    it from investing in the United States.
        Number three, the threshold tests for the CFIUS national
    security reviews should be based on two assurances. One, that
    security of business transactions meet U.S. standards, and two,
    that the U.S. Government has the ability and authority to audit
    and verify that security.
        The last point, the CFIUS process must remain confidential,
    but it must also become much more transparent to key Members of
    Congress who are responsible for oversight.
        I would like to revise and extend my comments.
        [The prepared statement of Mr. Heyman can be found on page
    83 of the appendix.]
        The Chairman. Thank you. Thank you all for the brevity. As
    you know, we now have about 18 or 20 minutes to get over there
    to vote. I think we can do the questions now.
        Mr. Nichols, one suggestion. I know all organizations do
    this. People spend money on polls and they come tell Members of
    Congress what the polls say. Members of Congress take their own
    polls. I do not know a single Member of Congress who cares what
    a national poll says; what we care about is what they say in
    our districts.
        The fact that you went from 47 to 51 percent, which may or
    may not be within a margin of error, is not going to buy us
    much. I hope you guys are doing other things to help us get the
    votes. I know you are.
        Secondly, to Mr. Heyman, I cannot resist, if you are going
    to pick a fight, you have to be careful. On page one, look at
    the third paragraph of your testimony, in which you say, ``So
    with all do respect to the members of the committee, it's the
    economy, stupid.'' That would have had more force if you had
    not misspelled ``due.'' When you misspell a three letter word,
    do not call people stupid. I think that is probably a good
    lesson for the future.
        With that, I will recognize the gentleman from North
    Carolina.
        Mr. Jones. Mr. Chairman, thank you very much. I am sorry I
    could not be here for the testimony of the witnesses before Mr.
    Nichols, I believe.
        My interest, and I want to thank the chairman for holding
    this hearing, is I realize that we live, as you said, and you
    said in your testimonies, we live in a global world, a global
    economy.
        When you come from a State like I do, North Carolina, where
    even as late as last week, hundreds of manufacturing jobs are
    going overseas, and I think Mr. Nichols, as the chairman made
    reference to, polling numbers.
        You might hear those polling numbers from the country club,
    but you are not hearing those numbers from the average working
    man or woman.
        When I look at the fact that prior to NAFTA, we did not
    have a trade deficit with Mexico, but since NAFTA, now the
    trade deficit is somewhere around $60 million.
        I know in this world we live in, there are people who have
    money and people who do not have money. At the level of many of
    those who support you and others, and I am not being critical,
    I wish I was there, but what I see, and I have been in Congress
    for 12 years, going on 13 years, and what I see happening every
    day is the rich and the have not's and the have not's have been
    working for 20 and 30 years of their life, the have not's are
    having less.
        What do you say to a Congressman who has had hundreds of
    jobs, not only from the State, but from his district, go
    overseas, and then as Mr. Frank said, it is God's will, the
    people's will, I can live with it.
        When I see what is happening to this great Nation because
    what I think the word is, is not from you gentlemen, I want to
    make that clear, ``greed'' is destroying this country. I know I
    have not asked a specific question, but I have put some
    thoughts out, maybe not worthwhile, but I put some thoughts
    out.
        I would like to hear you respond to my thoughts.
        Mr. Nichols. I take many of your points and I share many of
    them as well. One subject that I know the chairman will have
    other hearings about and that we have discussed participating
    in is talking about some of those who have been dislocated by
    globalization, talking about those who are not feeling the full
    benefits, and those who are not left behind.
        There are a lot of things that both the public and private
    sector need to do to help those people, your constituents and
    in other pockets of our country.
        While I am a passionate supporter of trade and the benefit
    it brings to the global economy, you make very, very thoughtful
    points that we will be exploring under the chairman's
    direction.
        The Chairman. If the gentleman would yield, I take it, and
    I share much of what the gentleman said, but when we are
    talking about foreign direct investment, we are talking about
    the flip side of that. That is, we are talking about money
    invested here, not in financial instruments, but in real
    things, so that the impact is job creating here as opposed to
    whatever you people might think in other places.
        Mr. Malan. I would just add to that. The flip side of the
    coin is exactly right. North Carolina, more than any other
    State, really is out there trying to attract more of my member
    companies to come into the State and operate in the State.
        198,000 people in the State work for U.S. subsidiaries of
    foreign-based companies. You have GlaxoSmithKline. You have
    companies like Kidde Aerospace, which just opened a new plant
    in the State--700 new jobs and a $40 million investment.
        That, to me, is this aspect of the global economy that your
    constituents can look at--bricks and mortar--and say ah, new
    plant, came in from the U.K., new people going to work there,
    that is part and parcel of having a rules based trading system
    that people will want to come to the United States and take
    advantage of what is a very solid workforce.
        North Carolina is as competitive as any State in attracting
    foreign direct investment.
        Mr. Jones. I appreciate that. I think I have a couple more
    minutes. I do not disagree with what you are saying or what the
    chairman is saying.
        I will tell you what is really missing. Maybe the chairman
    when he holds these hearings, maybe we will find a fix to it,
    but what is happening is yes, the Research Triangle is
    striving. Even the town in my district, Greenville, North
    Carolina, where East Carolina University is located, and some
    other towns, they are beginning to see the re-investment from
    other countries. There is no question about it.
        I do not know how we are going to address this. There is a
    growing gap. We have a great community college system in North
    Carolina. It has a great reputation. It does a lot of good, but
    some of these companies that are coming back, they cannot
    replace the job that has been lost. They can replace a job but
    cannot replace all the jobs.
        I am for the globalization. I understand we need to have
    this exchange in investment in other countries, but I think
    America quite frankly, and you cannot fix this, but when I
    looked at the fact that we are going to allow Chinese luxury
    cars to come into this country, and I put a bill in, Mr.
    Chairman, it was not going anywhere because of WTO, but we are
    going to charge them, and I might be a little bit off, to sell
    the Chinese cars in this country a tariff of about 2.5 percent,
    and yet we send our cars to China, and they are going to charge
    us 27 percent.
        This is where there might be some who benefit greatly from
    this exchange of investments. The average citizen in this
    country is not benefitting. Maybe he or she will in time. In my
    humble opinion, right now, they are not.
        The Chairman. Will the gentleman yield? I agree on most of
    that. We are going to be focusing--I think you have hit the
    number one issue that faces this country today, and that is
    disparity. We do intend to deal with it.
        Mr. Jones. Thank you, sir. I yield back.
        The Chairman. Mr. Malan, I was impressed with you telling
    him how many jobs there were in North Carolina. Do you have
    that for every member of the committee or do you have to look
    it up?
        Mr. Malan. I do not have it here, Mr. Chairman.
        The Chairman. Very impressive. The gentlewoman from New
    York, and then we are going to go vote.
        Mrs. Maloney. I thank the gentleman from North Carolina for
    his comments. I feel you made a very important statement.
        I thank our chairman for holding this hearing and really
    moving the CFIUS legislation forward as a priority of the
    Democratic Congress. I think it is very important to business,
    and I think it is very important to economic security and
    national security.
        It is one of his first hearings, and I appreciate it. We
    are having a mark-up so the chairman tells me next week, and I
    think that is important.
        I would like to quickly ask Mr. Bartlett, what is so
    magical about the 30-day review process? I have heard that from
    some of my constituents, stick to the 30 days, is if it is some
    type of magical number. I know it is the same as the anti-
    trust. Why is that number so important to business?
        Very quickly, I would like to ask Mr. Malan and Mr.
    Marchick, you mentioned that you want the transparency and the
    predictability, but you also mentioned that the current version
    of CFIUS should be amended so that the applications by
    government-owned entities that do not raise a national security
    issue can be dealt with quickly.
        I would like your ideas on how we do that. Some members of
    Treasury have suggested that a chair or deputy secretary sign
    off on it and move it forward. I would like your comments on
    that.
        I would like to come back, I think Mr. Bartlett and others
    have raised the question that you were in opposition to a
    provision in section six of the current CFIUS reform bill that
    would allow for a lead agency in monitoring the mitigation
    agreement, to make modifications to that agreement.
        I understand your arguments for predictability and
    certainty when it comes to the process, but if we do not allow
    for a modification to an agreement, how would we address
    situations where there is a substantial change in circumstances
    that some agency heads may feel is a problem?
        I would just open it up to all of you.
        The Chairman. I should note, she has really been a leader
    in this. We do think it is very important, particularly on our
    side of the aisle, to show that the concerns that many of us
    have over equity and protection of citizens' rights in society
    are fully compatible with support for the legitimate role that
    business plays in obviously creating prosperity.
        The time constraint is unfortunately not there, so I can
    insist that you speed up. Go right ahead.
        Mr. Bartlett. Mr. Chairman, I will speed up. The 30 days is
    important, first of all, because it is certain and it is so
    relatively quick. All of the agencies have testified they can
    meet the 30 days easily. In fact, the testimony was more that
    they would get their work done in 15 or 16 days, which gives
    some extra time.
        This legislation is a balance between national security
    interests and economic interests of Americans. Remember, direct
    investment creates jobs in the United States. Restrictions of
    direct investment, if you restricted it, by 60 days or 90 days,
    that means you would lose jobs and lose economic benefit to
    Americans.
        Second is the need for it to have a certainty to it.
    Whether it is 30 days or 29 days or 31 days, it should not be
    arbitrary. I think the committee knows what happens when the
    Executive Branch is given the ability to be arbitrary in their
    decisions, and then 10 years from now or longer, bad things
    will happen.
        As far as the modification, that really is a comment on
    arbitrariness. We are a nation of laws. If a company goes
    through a process, any process, that makes a determination that
    they are ``allowed'' to invest $10 billion, to pick a number,
    of their money to buy an asset, then that sort of provision
    should stand.
        There are adequate national security laws, environmental
    laws, all kinds of other laws on the books, if something
    changes in the national security area, to take care of it at
    that point, but I do not think you should have the uncertainty
    of an overhang of a transaction involving literally billions of
    dollars hanging over it indefinitely.
        There is also a provision in your legislation that does
    allow for the two parties to extend the time if they withdraw
    and then continue discussions, if more information is needed.
        If additional information crops up, then any of these
    agencies would be allowed to deal with it.
        Under the current provisions of section six, under the
    current provision of this modification or this ``evergreen,''
    the modification could be done by an individual agency, so it
    would not have to go back through the CFIUS process, which we
    think sort of doubles or trebles or quadruples the risk to the
    economic system.
        All and all, have the CFIUS review, either approve or
    disprove the deal, the transaction, and let it go forward.
        Mrs. Maloney. Would anyone else like to comment on the
    questions?
        Mr. Malan. Let me just point out that I think it goes back
    to the analogy of buying a house. We care about the 30 days
    because it would potentially disadvantage one of my member
    companies making a purchase in the United States vis-a-vis a
    U.S. company that would face a Hart-Scott-Rodino review of
    about 30 days.
        The reality of how it works is if there is a CFIUS agency
    that does not think they have enough time, they go to the
    company and say, guess what, we do not have enough time. We
    need more time.
        As a way for the market to look at the two systems and say
    30 days here, 30 days here, there is a parity there. That is
    kind of why we care about how the time is set.
        Rest assured, if an agency does not think they have enough
    time, they tell people to go back to the beginning or do not
    file or whatever. I think that is the real reason why we care
    so much about 30 days.
        Under government-owned companies, I think there is clearly
    a lot of concern among members of the committee and Congress
    that on government-owned entities, maybe we are going through
    the process a little bit too quickly post-Dubai Ports World.
        Obviously, you have moved to address that. I understand
    that. I think one thing you might want to think about doing is
    providing a little bit of a fast track for those government-
    owned entities that do not present a concern, and that would
    therefore not junk up the system.
        If VW, which is maybe 20 percent owned by the Bavarian
    state, would qualify as a foreign-government-owned entity,
    maybe you have some sort of device that allows them to get 30
    day review because they are not the same as CITGO Petroleum,
    which is an arm of the Venezuelan Government.
        Mr. Marchick. Let me just add a couple of quick points. On
    the government-owned company issue, I think one other concern
    is that foreign governments start discriminating against our
    government-owned entities, which include Calpers, which include
    pension funds in New York, Massachusetts, Alabama. Alabama's
    pension fund last year was the largest shareholder of U.S.
    Airways.
        If they bought a foreign airline in another country or if
    they bought an asset in another country and that process took
    longer than it would for a private sector company, that would
    be discriminating against them, and that would potentially kick
    them out of the bidding process.
        One possibility that we have discussed with you privately
    is the idea that if there is a government-owned transaction
    that does not raise a national security issue--take a Canadian
    pension fund buying a toll road, it is hard to imagine that
    Canadians are going to block someone from getting on a toll
    road. I do not know what the national security issue would be--
    you could have the Secretary or Deputy Secretary of Treasury or
    other agencies certify that they have looked at this and there
    is no national security issue. Put their name on the line.
    Create accountability.
        Timing does not equal scrutiny and not all transactions
    require 60 or 90 days.
        The only other thing I would add on the ``evergreen''
    provision is that if someone violates an agreement, they should
    be punished. If a foreign person uses a domestic company to
    spy, they should go to jail. We have very strong espionage
    laws.
        If they violate export control laws, there are criminal or
    civil sanctions. Those should be used and they should be tough
    as nails.
        The ``evergreen'' provision actually punishes passive
    shareholders, my 401(k), government pension funds, because it
    creates uncertainty.
        Let's say there is a problem with Alcatel-Lucent in 10
    years. There is a move to unwind. Even one agency proposing
    that, even if it is not a serious proposal. That stock is going
    to drop immediately. It is going to hurt passive shareholders.
    They should punish the individuals or punish the company if
    they do something wrong, but do not punish passive investors.
        Mrs. Maloney. Thank you very much. Thank you, Mr. Chairman.
        The Chairman. I want to thank you all. As you know, we plan
    to vote on this in committee in a week.
        Any particular further suggestions, and I know there have
    been some conversations about some changes, some of which were
    alluded to, but anything specific, obviously get them to us
    right away. I expect this to be voted on in committee next week
    and to be on the Floor when we come back from recess.
        People should be on notice that this is going to be moving
    along.
        Again, I will say to the gentlelady from New York that even
    though she has moved from one subcommittee ranking membership
    to the chairmanship of another, she has sort of taken this
    portfolio with her, and will continue to be our lead person on
    it.
        The hearing is adjourned.
        [Whereupon, at 1:09 p.m., the hearing was adjourned.]

                                A P P E N D I X

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