[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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