[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
February 7, 2007
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