[Senate Hearing 115-126]
[From the U.S. Government Publishing Office]
S. Hrg. 115-126
EXAMINING THE COMMITTEE ON FOREIGN INVESTMENT IN THE UNITED STATES
=======================================================================
HEARING
before the
COMMITTEE ON
BANKING,HOUSING,AND URBAN AFFAIRS
UNITED STATES SENATE
ONE HUNDRED FIFTEENTH CONGRESS
FIRST SESSION
ON
EXAMINING THE ROLE OF THE COMMITTEE ON FOREIGN INVESTMENT IN THE UNITED
STATES
__________
SEPTEMBER 14, 2017
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COMMITTEE ON BANKING, HOUSING, AND URBAN AFFAIRS
MIKE CRAPO, Idaho, Chairman
RICHARD C. SHELBY, Alabama SHERROD BROWN, Ohio
BOB CORKER, Tennessee JACK REED, Rhode Island
PATRICK J. TOOMEY, Pennsylvania ROBERT MENENDEZ, New Jersey
DEAN HELLER, Nevada JON TESTER, Montana
TIM SCOTT, South Carolina MARK R. WARNER, Virginia
BEN SASSE, Nebraska ELIZABETH WARREN, Massachusetts
TOM COTTON, Arkansas HEIDI HEITKAMP, North Dakota
MIKE ROUNDS, South Dakota JOE DONNELLY, Indiana
DAVID PERDUE, Georgia BRIAN SCHATZ, Hawaii
THOM TILLIS, North Carolina CHRIS VAN HOLLEN, Maryland
JOHN KENNEDY, Louisiana CATHERINE CORTEZ MASTO, Nevada
Gregg Richard, Staff Director
Mark Powden, Democratic Staff Director
Elad Roisman, Chief Counsel
John O'Hara, Chief Counsel for National Security Policy
Kristine Johnson, Professional Staff Member
Elisha Tuku, Democratic Chief Counsel
Laura Swanson, Democratic Deputy Staff Director
Dawn Ratliff, Chief Clerk
Cameron Ricker, Deputy Clerk
James Guiliano, Hearing Clerk
Shelvin Simmons, IT Director
Jim Crowell, Editor
(ii)
C O N T E N T S
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THURSDAY, SEPTEMBER 14, 2017
Page
Opening statement of Chairman Crapo.............................. 1
Opening statements, comments, or prepared statements of:
Senator Brown................................................ 2
WITNESSES
Clay Lowery, Managing Director, Rock Creek Global Advisors, and
Former Assistant Secretary for International Affairs,
Department of the Treasury..................................... 4
Prepared statement........................................... 29
Responses to written questions of:
Senator Brown............................................ 38
Senator Menendez......................................... 39
Kevin J. Wolf, Partner, Akin Gump Strauss Hauer & Feld LLP, and
Former Assistant Secretary for Export Administration,
Department of Commerce......................................... 6
Prepared statement........................................... 32
Responses to written questions of:
Senator Brown............................................ 40
Senator Menendez......................................... 43
James A. Lewis, Senior Vice President, Center for Strategic and
International Studies.......................................... 8
Prepared statement........................................... 34
Responses to written questions of:
Senator Brown............................................ 45
Senator Menendez......................................... 46
Additional Material Supplied for the Record
Statement submitted by the Rail Security Alliance................ 47
Letter submitted to the Trump administration on Chinese Equity
Caps Financial Services Sector................................. 54
China's Technology Transfer Strategy............................. 57
(iii)
EXAMINING THE COMMITTEE ON FOREIGN INVESTMENT IN THE UNITED STATES
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THURSDAY, SEPTEMBER 14, 2017
U.S. Senate,
Committee on Banking, Housing, and Urban Affairs,
Washington, DC.
The Committee met at 10:02 a.m., in room SD-538, Dirksen
Senate Office Building, Hon. Mike Crapo, Chairman of the
Committee, presiding.
OPENING STATEMENT OF CHAIRMAN MIKE CRAPO
Chairman Crapo. This hearing will come to order.
This morning, the Committee will receive testimony on the
role of the Committee on Foreign Investment in the United
States, or CFIUS, as it is known in the trade.
The role of CFIUS is to review certain types of foreign
investment transactions to determine if there is: a threat to
impair U.S. national security; a foreign investor present which
is controlled by a foreign Government, like a State-owned
enterprise; or something that can affect homeland security or
result in control of any critical infrastructure that might
impair our national security.
Yesterday's rejection of the acquisition of Lattice
Semiconductor by a Chinese consortium with a U.S. presence
provides a good example of that role.
According to press reports, the CFIUS review of the deal
revealed that Lattice had valuable intellectual property that,
if somehow transferred, would impair U.S. national security.
The purchaser was a Chinese consortium with strong ties to
the Chinese Government and its space program. Additionally, the
importance of the semiconductor supply chain integrity to
homeland security and the use of Lattice's products by the U.S.
Government was something that could further impair national
security.
The Lattice case sounds like it should be considered
textbook CFIUS, and it is reassuring that the President made
this decision based on the careful due diligence of the various
Government entities that comprise CFIUS.
Nonetheless, there are some congressional and
Administration concerns over a broad-based set of potential
risks arising from China's steadily increasing use of foreign
direct investment, or FDI, to acquire companies and their
sensitive technology in the United States.
We need to have a general discussion of whether or not the
CFIUS process is functioning appropriately, to the extent that
it has sufficient authority to look at the transactions that
are affected most by today's evolving national security
considerations.
I look forward to hearing from the witnesses to what extent
this concern is based on China's 2025 strategy and if there are
any specific instances where this strategy has threatened to
impair U.S. national security.
In that regard, I will be looking for the witnesses to
identify and articulate the potential national security
considerations at issue and their relevance to any attempt to
address them through reform of CFIUS legislative or regulatory
authorities.
If CFIUS is not looking at or is somehow missing
transactions worthy of its national security review, I would
also be interested in learning how many and what types of cases
it is missing beyond the 250 or so CFIUS filings this year and
what human financial resources would be necessary to review
such new cases.
We should also discuss whether CFIUS is even the right
agency to reform in order to address various complaints
associated with China's investment strategies today.
The magnitude of any problem with CFIUS is defined by the
intersection of U.S. national security with huge inflows of
foreign capital supported by a world-renowned U.S. open
investment policy.
The United States--with $7 trillion in total outward FDI
and $6.5 trillion in inward FDI--is the world's number one
investor overseas and the world's number one recipient of
foreign investment.
FDI plays an essential role in increasing U.S. economic
growth, creating highly compensated jobs, and spurring
innovation and promoting exports.
Generally, it is in the national interest of the United
States to sustain an open investment policy. The
administrations of Presidents Reagan, Bush, Clinton, Bush
again, and Obama have all reaffirmed the open investment policy
of the United States. Likewise, Congress is a firm believer, on
a bipartisan basis, in an open investment policy.
But with this unique position that the United States enjoys
in the world comes a responsibility to assure that the national
security of the United States is maintained against investments
that may seek to undermine it.
CFIUS plays a critical role and it is important to have a
Senate-confirmed individual to set policy and work with
Congress. The Senate needs to quickly confirm Heath Tarbert as
the Assistant Secretary of the Treasury for International
Markets and Development.
Mr. Tarbert, who was voice-voted out of the Banking
Committee in May, is the President's key person to oversee
national security policy at CFIUS and also maintain a healthy,
robust investment environment for the United States.
Senator Brown.
OPENING STATEMENT OF SENATOR SHERROD BROWN
Senator Brown. Thank you, Mr. Chairman, and I appreciate
your comments always, and this panel will be very helpful to
us. Thank you.
As you know, Mr. Chairman, I supported, as almost every
Member of this Committee did, Mr. Tarbert out of the Committee.
I hope, too, he can be confirmed quickly. I do want to remind
my colleagues, especially Senators like Senator Perdue and
Senator Schatz, who are newer to this Committee, that so far
this year the full Senate has already confirmed 11 times the
number of nominees from the Banking Committee as this Committee
confirmed in the last Congress. So we have confirmed 11 times
the number of nominees from this President than this Committee
did last session. Senator Tester remembers that well. Senator
Crapo remembers that. So just a note to make.
Mr. Chairman, as is evidenced by the Committee's focus on
Russia, Iran, and North Korea sanctions already this year,
national security issues are more important than ever.
It makes sense that we should take a look at other national
security issues in this Committee's jurisdiction, like CFIUS.
CFIUS is charged with reviewing certain foreign
acquisitions of U.S. companies that potentially pose national
security threats. It has been a decade since we have had a
hearing, so I am particularly grateful to Chairman Crapo on
this topic.
The U.S. continues to be one of the most attractive markets
for foreign investment. We know that. Our country welcomes
investment when it is part of a straightforward business deal.
When they are done right, these deals can create jobs; they can
grow American industries.
But we know it is not always that simple. Some transactions
have national security as well as commercial implications.
CFIUS has seen an increase in its reviews of Chinese
acquisitions of U.S. companies. In the three most recent
reported years, CFIUS reviews of Chinese acquisitions topped
the list every single time.
In 2016, Chinese companies invested a total of $51 billion
into the U.S. through 65 deals, a 360-percent surge from 2015.
This year, it is already clear that CFIUS's workload has
increased--with acquisitions from China and other Nations.
I have serious concerns about many of China's economic and
industrial policies. That is not to say that every Chinese
investment poses national security threats. Fuyao Glass
invested in Moraine, Ohio, where there was once a GM plant. It
is an example of a project which poses no such threat and is
creating jobs.
Some foreign investments pose national security threats,
such as intellectual property theft and espionage from U.S.
industries crucial to our Nation's defense, as well as threats
to the intellectual property of seeds potentially impacting the
global food supply, and transfers of critical technologies. We
have seen an increase in smaller private investments to obtain
access to new technological know-how.
We do not know yet who perpetrated the hack of Equifax--
exposing the personal information of 143 million Americans,
essentially half our population. It could be domestic, it could
be foreign criminals. But we do know that some foreign
Governments and companies have tried to gain access to
sensitive information about Americans and pose other
cybersecurity concerns. That has to be considered as well. I
will not even go into all the discussion about the Russians
last year. These are the types of threats we hear about from
the national security agencies and others.
Today we have three people before the Committee who have
extensive experience with CFIUS, with export controls, and with
the other tools our Government uses to address national
security threats. I look forward to their assessment how CFIUS
is working, if its scope is appropriate--considering shifting
national security threats--and if it has enough resources to
review an increasing number of transactions and thoroughly
investigate possible national security threats.
I would like the witnesses' opinions on the national
security risks that I highlighted earlier, whether they believe
it is, in fact, CFIUS's responsibility to try to address these
risks, or if there are programs at the other national security
agencies--DOD, Commerce, State, and others--that are better
able to do that.
I do not think that CFIUS reform is the answer to
addressing all of those national security risks, whether from
China or elsewhere. But I am open to considering improvements
to CFIUS if we believe there are resource concerns or gaps that
are allowing certain investments that pose real threats to
Americans to fall through the net, if you will.
Any solution is likely to be multifaceted, involving trade,
economic, and defense policies, export controls, some of that
in this Committee's jurisdiction, some of it outside.
Thank you, Mr. Chairman.
Chairman Crapo. Thank you, Senator Brown.
And we will now turn to our panel for their testimony. We
will hear from two former CFIUS officials: first, Mr. Clay
Lowery from the Treasury Department, and then Mr. Kevin Wolf
from the export control side of the Commerce Department. We
will then turn to Mr. Lewis, who has long studied technology
issues in the context of the CFIUS process at the Center for
Strategic and International Studies, which published its 2-year
review of the CFIUS process last December.
I remind our witnesses that we would like you to keep your
oral comments to 5 minutes so we have plenty of time for
questioning from the Senators, and your full written statements
are already made a part of the record.
With that, Mr. Lowery, please begin.
STATEMENT OF CLAY LOWERY, MANAGING DIRECTOR, ROCK CREEK GLOBAL
ADVISORS, AND FORMER ASSISTANT SECRETARY FOR INTERNATIONAL
AFFAIRS, DEPARTMENT OF THE TREASURY
Mr. Lowery. Thank you, Chairman Crapo, Ranking Member
Brown, and Members of the Committee. Thank you for letting me
testify today on examining CFIUS. In my testimony, I hope to
briefly just touch on the nature of CFIUS and its processes,
its performance over time, and some thoughts on CFIUS reform.
The easiest way to understand CFIUS is to know its mandate:
ensure national security while promoting foreign investment.
That is actually what the legislative language says. So when we
read news stories about CFIUS, as will be the case today
because of President Trump's blocking of a transaction
yesterday, we only hear about protecting national security. But
that is only part of the objective of CFIUS. Promoting foreign
investment is a part of our national security. It is core to
our economic growth. It is core to our increasing productivity
and for creating jobs. Thus, any reforms to CFIUS that are
being considered should be thought about in that context.
CFIUS is an interagency Committee, chaired by Treasury,
that includes a variety of members, including Defense, Justice,
Commerce, the Intelligence Committee. It investigates cross-
border mergers and acquisitions that could put our national
security at risk.
M&A parties file with CFIUS, and CFIUS determines whether
the acquirer will gain control of a U.S. business. If control
is determined, CFIUS does a three-part analysis:
First, does the acquirer pose a national security threat?
Second, does the asset that is being purchased make our
national security more vulnerable?
And, third, the consequences of permitting these threats
and vulnerabilities to come together through this transaction,
do they promote a specific risk to our national security?
CFIUS investigates this question for about 30 days. If at
the end of those 30 days CFIUS is not satisfied, they can go to
a second stage of investigation, which is up to 45 days, an
additional 45 days. If CFIUS is still not satisfied, it can
take the case to the President, who is the only one, not CFIUS,
that can actually prohibit an acquisition. In the past 30
years, this has happened only four times, including yesterday.
Why is it so rare that the President blocks transactions?
The first reason is most of these transactions do not raise
national security risks. The second is, if they do, CFIUS has
the ability to mitigate those risks. And the third is that if
the President makes a decision like he did yesterday, it
becomes public and puts the corporate reputation at risk, and
so sometimes if you know that it is going to be a negative
discussion by the President, you will withdraw and abandon your
transaction.
In terms of mitigation agreements, these were put in place
by Congress, and I view them as the pressure valve that enables
CFIUS to find solutions to much more difficult transactions and
to meet its mandate: welcoming foreign investment and
protecting national security. Since Congress strengthened CFIUS
10 years ago, it has performed in an exceptionally professional
and thoughtful manner. Scrutiny of cases is thorough. CFIUS
protects information as well as anyone in the U.S. Government.
And they have preserved the reputation of the United States to
being open to investment from around the world.
That said, there is little question that the investment
landscape has changed dramatically in 10 years. By far, the two
most important changes have been the rise of China, as the
Chairman said, and also the potential of new sensitive
technology being transferred. Both Mr. Lewis and Mr. Wolf will
elaborate on these issues.
These developments suggest that a close, sober evaluation
by Congress, the GAO, and the Administration are in order, and
as with any analysis, it is best to think of the potential
reforms in a cost-benefit analysis, including what are intended
and unintended consequences.
Beyond that, I would take three more steps.
First, the CFIUS process, as Ranking Member Brown
suggested, is currently under a lot of stress because of a
significant increase in cases--many of them are complex--
without a commensurate increase in resources.
Second, as Chairman Crapo mentioned, this Committee passed
through in its bill back in 2007 a new Assistant Secretary for
Treasury to oversee CFIUS. President Trump has nominated a
highly qualified individual in Heath Tarbert. He was approved
by this Committee with near unanimous support. He should be
supported by the full Senate and let him get to work.
And, third, we should adopt a set of guiding principles to
make sure that any CFIUS reform both safeguards our national
security and remains the destination--keeps the United States
the destination of choice for investment.
I have outlined a number of principles in my written
testimony. I would just say three right now: minimize the
opportunity for politicizing transactions; keep CFIUS narrowly
focused on national security; and, third, increase the scrutiny
of State-controlled cases.
Thank you very much.
Chairman Crapo. Thank you, Mr. Lowery.
Mr. Wolf.
STATEMENT OF KEVIN J. WOLF, PARTNER, AKIN GUMP STRAUSS HAUER &
FELD LLP, AND FORMER ASSISTANT SECRETARY FOR EXPORT
ADMINISTRATION, DEPARTMENT OF COMMERCE
Mr. Wolf. Thank you, Chairman Crapo, Ranking Member Brown,
and other Members of the Committee. Thank you also for
convening this hearing to discuss an important national
security topic.
I was last before this Committee in January of 2010 when
you confirmed me as the Assistant Secretary of Commerce for
Export Administration, which is a role I served in until
January 20, 2017. And in that role, I worked with my colleagues
primarily at the Departments of Defense and State in
shepherding the U.S. export control system. And I was also a
representative to CFIUS during that time.
Although I am now with a law firm, I am not speaking on
behalf of any particular change or on behalf of anyone else.
The views I discuss today are my own.
Mr. Lowery described well CFIUS and the background, so I
will get straight to my main point, which is that the U.S.
export control system and CFIUS complement each other. CFIUS
has the authority to regulate the transfer of technology when
there is a transaction, however you define ``transaction.'' The
export control rules have the authority to regulate the
transfer of technology regardless of whether there is a
transaction. This means that if there are specific concerns
about particular types of technology or information, whether
general or specific, whether as part or as a result of a CFIUS
review or from any other source, then the focus, I respectfully
submit, on addressing that national security issue should be on
the transfer of the technology to the destination in question.
The U.S. export control system is perfectly suited for
doing exactly that. Yes, I recognize it can be complex, but it
is specifically designed to constantly evolve to new threats as
they are identified, to change as a result of commercialization
of technology and realizations about the effectiveness of other
controls.
Now, in general, the most effective export controls are
those that are multilateral--those that our allies impose to
the same degree to accomplish a common objective. Unilateral
controls--controls that only one country imposes--tend to be
counterproductive because they create incentives for companies
to simply do the work outside the United States, thus outside
of U.S. control.
However, the temporary imposition of unilateral controls,
when there is a specific threat or a new threat or an evolving
threat identified, such as during a CFIUS review or in
connection with some sort of acquisition, can be and is a very
effective tool. And in the regulations administered by the
Commerce Department's Bureau of Industry and Security, in
coordination with the Departments of Defense and State, there
is the ability to move quickly to respond to some of these
threats, again, focusing on the technology itself to particular
tailored destinations with or without any particular
transaction, however you would define that.
These tools also can work very closely in connection with
law enforcement resources to identify situations when there is
a front company in the United States. And we can get into more
details on some of these tools as well as how they work with
the multilateral regime process.
So although I cannot get into specific cases, I can say
that other types of national security issues created by foreign
direct investment in my experience primarily were those
involved with colocation issues, that is, acquisitions next to
sensitive military facilities; those that create espionage
risks; those that reduce the benefit of Defense Department
technology investments; those that would reveal personal
identifying information; those that create security of supply
issues for the Defense Department and other parts of the U.S.
Government; and those that create potential exposures for our
infrastructure.
And so, in general, the CFIUS authorities in my experience
in the agencies were well suited and well equipped to deal with
these, its dedicated public servants working very hard. And
that last point is the key. As mentioned earlier, they are
stressed. They need help. They need assistance. And this is
important not only for national security, but for our economic
security so that the United States is known as a place that
welcomes direct investment and can review the safe harbor
process quickly and efficiently.
In my last couple of comments, it is focused on--when
thinking about potential legislative change, my suggestion
would be to first ask, What is there about the authority that
cannot be addressed through changes in regulations or internal
process, or if there is another area of law such as trade
remedies or export controls that could be more suited to
addressing the national security risks, or if the issue could
be resolved through merely an increase in resources or change
in resources in particular areas? If the answer is no to those
questions, then that is the sweet spot for statutory change.
Those who know me know I have a 3-minute and a 30-minute
and a 3-hour version of every topic, so I will stop here and
look forward to answering your questions.
Chairman Crapo. Thank you, Mr. Wolf.
Mr. Lewis.
STATEMENT OF JAMES A. LEWIS, SENIOR VICE PRESIDENT, CENTER FOR
STRATEGIC AND INTERNATIONAL STUDIES
Mr. Lewis. Thank you, Mr. Chairman, and I thank the
Committee for this opportunity to testify. You have heard about
how important CFIUS is, so I will not belabor the point. But
the Committee, while it has done well in the past few years,
faces a growing volume of cases, increased complexity of
transactions, and Chinese industrial policies that pose an
increasing challenge.
The U.S. created CFIUS in response to concerns that foreign
competitors were acquiring strategic industries. CFIUS
authorities were updated in 2007 in the Foreign Investment and
National Security Act. That was 10 years ago. And it created
new authorities for CFIUS and new timelines. FINSA is now 10
years old and faces challenges created by a changed global
environment.
The most important of these comes from China, as you have
noted. China seeks ways to circumvent CFIUS protections.
China's goal is to end its dependence on foreign technology and
to overtake the U.S.
If China followed international practices in trade, its
decisions to invest in domestic industries would be
unobjectionable. But China has not hesitated to extract
technology or concessions or to block competition to advance
its own firms. China has a strategy to build a high-tech
economy and is willing to spend heavily to acquire foreign
companies and the know-how they possess.
The fundamental issue for the U.S. is how to respond to a
managed economy with a well-financed strategy to create
domestic industries intended to displace foreign companies.
China appears to be attempting to circumvent CFIUS and
export controls. Some important ideas for CFIUS reform include
expanding the scope of covered transactions, particularly in
regard to what are called ``greenfield transactions,''
providing the Committee with extra flexibility for difficult
cases by giving it the resources or support to better identify
technology and business trends that create risk, finding ways
to cooperate with foreign partners, and it is an indicator of
how things have changed that now both Japan, Germany, and the
European Union are adopting their own CFIUS-like processes. The
Committee could use additional resources and information to
make timely decisions.
U.S. efforts to get China to follow global norms on trade
are long overdue, but it will not work without a strategy to
promote U.S. technology. Reports that the Trump administration
will challenge China over trade practices are good news, but it
needs to be part of a larger strategy that includes export
controls and investment in R&D.
It is important not to exaggerate China's strength. China
faces immense problems, including its huge debt burden,
pollution, and corruption, but it does have a strategy, as you
noted, in China 2025 to displace the U.S. and building globally
dominant high-tech industries. However, China's leaders are
practical, and their behavior can be changed if the U.S.
develops a coherent strategy in cooperation with key allies.
CFIUS is not the only tool we can use in this, but it is the
most important for dealing with foreign investment, and the
Committee could use additional authorities and resources.
I thank you for the opportunity to testify and look forward
to your questions.
Chairman Crapo. Thank you, Mr. Lewis, and I want to turn to
you first with a couple of questions. In your testimony, you
identify a number of concerns relating to China's industrial
policy and transfers of U.S. technology. You also discuss how
CFIUS may be improved to address some of the concerns while
others may be better handled by export controls.
In your opinion, what changes specific to CFIUS authority
are necessary to effectively protect U.S. national security?
And what changes to the export control regime do you find
necessary to prevent unwanted transfers of technology and know-
how?
Mr. Lewis. Thank you, Mr. Chairman. I think the most
important issue for me remains the way that China has changed
its investment policies to circumvent CFIUS, and the case that
we all know the best is, of course, what we call ``greenfield
investments,'' which is Chinese companies opening facilities or
subsidiaries in the United States. Those are not always
covered. The Department of Defense put a report out on this
some months ago. It was unclear to me why it was classified
since, when you go to Silicon Valley, it is sort of an open
secret that Chinese firms are all over the place trying to
acquire brains, technology, trying to get around export
controls and CFIUS. So I think the most important thing to look
at is what are we doing about the alternate methods China has
found to acquire technology.
Another good example might be Chinese companies, when they
come to the U.S., do not face the same restrictions that
American companies face when they attempt to do business in
China. A word that the Chinese dislike is ``reciprocity,'' so I
think looking at the ways they circumvent, looking at
greenfield investments, looking for reciprocity in investments
would be a good approach for CFIUS.
For export controls, I recently had an unusual experience.
I talked to one of the leading high-tech trade associations,
and at the end of their briefing on their technologies, they
said, ``And we would like to see export controls
strengthened.'' I said, ``Wait a minute. You guys usually say
the opposite. What is happening here?'' And they said in some
ways the control lists we have, both at State and Commerce,
have not kept up with developments in technology and need to be
updated. So I think the biggest change here would be to once
again take a step back and look at the munitions list, the
Commerce control list, and say, How do they need to be updated
to reflect the current technological environment? This would
help CFIUS as well.
Chairman Crapo. Thank you.
Mr. Wolf, expanding on Mr. Lewis' response, would you
please focus on any concern that transfers to China of
foundational technologies present and what Congress and the
Administration can do to address this?
Mr. Wolf. Sure, absolutely. The principal focus is to
aggressively and with will think creatively about how to
describe either in a unilateral fashion or a multilateral
fashion the types of technologies that warrant control to China
or other countries for these national security reasons. And the
reason I put my emphasis there is because one should not have
to wait for a transaction to occur, whether it is a covered
transaction in the traditional sense or whether it is a joint
venture or some other sort of arrangement. If there is a way in
which some sort of foundational technology, even if broadly
described, is going to be put to an end use or an end user of
concern, then I would suggest using the authorities that
already exist in the very flexible export control regulations
to identify those.
Now, that is very hard. That is very hard to do in many
situations because it may not be--one may not be able to
clearly articulate it. But that difficulty, frankly, is a check
on the system so that you do not inadvertently impose controls
that are broader than necessary and you thus affect collateral
controls.
By simply adding broader scopes to CFIUS to catch one
situation of one type of technology with respect to really only
one or a few countries of concern, you can end up harming the
image of the U.S. as a country open to foreign direct
investment more generally. So the direct answer is creative,
clever use and aggressive evolution of existing export control
rules.
Chairman Crapo. Thank you. And, Mr. Lowery, in your
opinion, does CFIUS lack authority to review any category of
transactions to fulfill its mandate? Or is it a resource
question?
Mr. Lowery. It is a good question. My own view is that
there is a significant resource question that they are going to
have to address. It is just becoming very difficult to look at
all the different transactions that are coming in and doing it
in an efficient and effective manner so that we are still open
to investment.
In terms of authorities, it depends. I mean, I think that
Jim Lewis talked about CFIUS does not have the ability right
now to look at greenfield investments. I am not sure that it
should because I think that the idea of CFIUS is to protect
national security with an investment that is buying actual U.S.
businesses. But if you wanted to go after greenfield
investments, it does not have that authority currently.
Beyond that, it does have most of the authorities. That
does not mean that you could not make the regulations stronger.
It also does not mean that they could--some of the guidelines--
CFIUS puts out guidelines about how they think filing parties
should be thinking about transactions. Those probably need to
be updated. It has not been done in 10 years. And that could
help make sure that we are capturing transactions that maybe we
were not already capturing. But I think that in terms of the
authority itself, it just depends on what you are trying to get
after. One that Mr. Lewis said, it would need legislative
authority to investigate greenfield investments.
Chairman Crapo. Thank you.
Senator Brown.
Senator Brown. Thank you, Mr. Chairman.
To begin with, I first want to apologize. I have, as a
number of people on this Committee have, conflicts today. We
are working on the farm bill in the Ag Committee. I need to go
there. And we are working on tax reform in the Finance
Committee, so I will not be sitting here as long as I normally
do with the Chair. Usually, we both sit through these hearings
for pretty much the whole time. I apologize for having to do
that.
Mr. Lowery and Mr. Wolf, I want to start with you. Earlier
this year, I raised concerns about potential conflicts of
interest in the CFIUS process posed by a number of
Administration officials with international business interests.
So far, two matters regarding the Administration officials have
come to light. It was reported in March that China's Anbang
Insurance Group, a company familiar with CFIUS reviews, as you
know, had ended its bid to buy the President's son-in-law's
Fifth Avenue property. Then in July, after Anthony Scaramucci
was announced as the new White House Communications Director,
it was revealed that his hedge fund--SkyBridge Capital I
believe was its name--was in the process of being acquired by
China's HNA Group, possibly for more than the company was worth
and was also under CFIUS review.
I am concerned, as I know all three of you are, and I think
most of the country is, about the national security
implications of foreign acquirers, but possibly and
particularly if they have ties to foreign Governments trying to
buy influence in this Administration. So I have a series of
questions, and, Mr. Wolf, I will start with you, and I will ask
the three, and then you can answer as a group, and then Mr.
Lowery.
Do you believe Treasury and other CFIUS member agencies
have a good understanding of Administration officials' business
interests and possible conflicts of interest? Is Treasury aware
of the range of business interests and possible conflicts of
interest? Could more be done to ensure that all those ties are
disclosed? And, third, are processes in place for officials
involved in CFIUS or the President himself to be recused if
necessary? And I will start with you, Mr. Wolf.
Mr. Wolf. Sure. On the first topic, Treasury as such, I do
not recall ever asking those questions. The responsibility for
compliance with conflict of interest rules are up to the
individual, and they work closely with their counsel at their
Department, and that was the primary driver.
With respect to the second question, it could not possibly
hurt for Treasury to collect that information and to ensure
that the same level of conflict of interest review that is
supposed to be done and was done with us in-house by our
Department counsel is also provided to the Treasury Department
as a double check on what should already be done internally
within the Department.
Senator Brown. And that is not being done, to your
knowledge?
Mr. Wolf. Again, the responsibility lies with the
individual and compliance with law, and we received regular
briefings from our ethics counsel within the Department of
Commerce, not just with respect to CFIUS but all matters that
we were involved in to ensure that we did not have conflicts of
interest both with respect to the annual disclosure process and
regular updates and ethics briefings that the attorneys would
give to us.
So, again, I do not know--I do not think that information
is generally shared with the Treasury Department, but it should
already exist within the Departments, and there could not be
anything harmful in doing so because it is already existing
information within the existing Department of the individual
employee.
Senator Brown. Mr. Lowery.
Mr. Lowery. To my knowledge--I agree with Mr. Wolf. When I
was working on this, I recall Secretary Paulson recusing
himself on specific transactions, or there were others--he was
not the only one--that sometimes it just happened to be
something that they had been working on in their private sector
career, and they saw a CFIUS transaction, and, you know, I
would go down the hallway and say, ``Hey, we have a CFIUS
transaction on this,'' and the next thing you know, he would
call the General Counsel and say, ``I have to recuse myself.''
To my knowledge, that still goes on. I cannot obviously speak
on the specific cases you mentioned, but I would assume that
the individuals, as Mr. Wolf said, would basically say, ``I
need to recuse myself. I have business interests here.'' And
they have disclosed that to their in-house counsel so the in-
house counsel can also advise them on those issues.
Senator Brown. And are you satisfied that the information
from the Administration and from the President's family, that
the information is available enough to you all--not to you all,
but to the people in place now?
Mr. Lowery. So CFIUS is a very--I mean, the people that
work on CFIUS transactions, they are very protective of the
information. So there are lots of people within the Government
that do not have much to do with CFIUS, and they do not
understand what is going on. There are two reasons for that.
One is the classified information. Obviously, there is lots of
classified information. There are national security issue at
stake here. But the second reason is because of a little bit
the issues you are getting at, but really it is proprietary
information. These companies are filing. They are putting
forward a lot of proprietary information. There are competitors
on the outside that are sometimes very interested. And so you
have to be very careful. That is why I think CFIUS over a 10-
year timeframe, over a variety of Administrations, has
basically been very protective of information. People call it
like a star chamber, and the reason they do that is because of
how well they protect their information, frankly, better than a
lot of other parts of our Government.
Senator Brown. Did you want to add something, Mr. Wolf?
Mr. Wolf. The issues you raise with respect to transparency
of information regarding conflicts of interest of political
officials and career employees is not unique to CFIUS because
every day--so there is nothing unique about CFIUS that
addresses your point, and the success in ferreting out any
concerns lies in the existing procedures within each of the
departments as opposed to something that is CFIUS qua CFIUS to
address.
Senator Brown. Did you want to add something?
Mr. Lewis. I would simply echo your point, Senator, that
most transactions are without risk to national security, and so
it is important to bear that in mind when we think about the
deals that are being looked at. We have seen movie theaters,
hotels, all bought by the Chinese, and that does not pose any
risk.
Senator Brown. So while there might be conflicts of
interest that might or might not disturb the American public,
they are not necessarily national security concerns.
Mr. Lewis. I think that would be correct.
Senator Brown. OK. Thank you, Mr. Chairman.
Chairman Crapo. Thank you.
Senator Perdue.
Senator Perdue. Thank you, Mr. Chairman. Thank you guys for
being here today.
Before I start my questions, I would like to make one
comment for the Committee since it was brought up earlier.
Senator Van Hollen, Senator Schatz, Senator Kennedy, Senator
Rounds, and I are new Members of this Committee, but we are
totally capable of understanding the full historical
perspective around confirmation of this Congress. I certainly
echo the comments that have been made this morning about
nomination and confirmation of this Committee, but I would like
to put into perspective that we are sitting in a period with
the slowest confirmation process in the history of our country
since George Washington put his first Cabinet together. I think
it is outrageous that the last day before we left for August
break we confirmed 65 nominations in 1 day because of a back-
room deal. Prior to that time, we had only nominated and
confirmed--we had only confirmed 48.
As we sit here today, this President has fewer than one-
third of the confirmations that the prior President had. So I
would like the record to show that some of us do have a full
perspective on where we sit today.
Mr. Lewis, thank you for being here today. I lived in
China--or I lived in Hong Kong, worked in China, lived in
Singapore, and the thing that always bothers me, China over the
last 10 years has a net outflow--an outflow of capital of about
$3.8 trillion, an inflow of about $1 trillion, 1.3, and then a
net--that is a net outflow of about $2.5 trillion. I cannot
track it. I have a feeling you cannot either.
In 2016, the Bureau of Economic Analysis estimated about
$10.3 billion of Chinese investment in the U.S., and yet AEI
and Heritage and others had it as high as 56. So that is a wide
range of estimate. And the reason is when you get under it, BEA
actually had Luxembourg as the top foreign investor in the U.S.
and China was 11th.
With the network of capital flows in the world, how in the
world are we able to track the overall net inflows from
particular players outside the U.S.?
Mr. Lewis. That is a great question, and it is a very
difficult problem. And as you noted, small Caribbean islands
tend to come at the top of the list for foreign investment, not
because they are wealthy but because they are vehicles for
money laundering. Chinese capital is seeking to leave the
country----
Senator Perdue. And that is--I am sorry to interrupt. That
is not just China. That is other people who have very nefarious
intentions for the money, too, right?
Mr. Lewis. Correct. But when you--that is true, and when
you try to follow the funding for some Chinese acquisitions, it
will lead you to some very strange places. So money laundering
is a problem.
There is a desire in China to move money out of the
country, which may be kind of a vote of confidence. So we see a
very large outflow into many, many sectors, most of which do
not cause strategic concern. It is difficult to track, and that
is one of the challenges for the Committee, is tracking the
money back to its source to see if it is the Chinese State.
Senator Perdue. Mr. Wolf, with regard to the specific China
investments that are of concern, obviously one reason we have
been dominant militarily is the size of our investment, but
China is now approaching that. So the technological innovation
that we have benefited from, from private sector and military
and academic research has always kind of kept us at the
forefront. One of the things I am concerned about is that
China, not only in the United States, but their investment in
infrastructure in Africa and other parts of the world, they are
leading toward investments of next-generation technologies, and
that is really concerning, things like artificial intelligence,
autonomous vehicles, augmented reality, blockchain, robotics.
They are recruiting actively kids that are graduating from our
colleges, our PhDs, our Master's candidates, our scientists,
our technicians, our engineers. And there is an immigration
issue. I do not have time to get into that today with you guys,
but what I would like to know is: How does CFIUS interact with
the military, commerce players, and so forth to make sure we
find the right balance of this foreign direct investment,
which, as Mr. Lowery talks about, is very critical? When you
have a $20 trillion debt, you better hope you can attract FDI.
And we are the largest recipient of FDI in the world. Thank
God. With the size of our economy, we need to keep that up. But
there has to be a balance, and I am looking for some input as
to things we need to be aware of as we consider this in any
potential legislation.
Mr. Wolf. Sure, happy to. With respect to the first topic
that you asked Mr. Lewis about, the answer, frankly, is
resources and aggressive use of intelligence resources to be
able to do the deep digging and the deep dives into
transactions. That was a critical part of every CFIUS case that
we reviewed. It is what was behind the fund, what was behind
the company, who were the parties behind it. And that is not
always obvious. And that is just a pure function of manpower
and attention and will to do the deep dive. And that is
critical to the outcome.
With respect to working with the military, the technical
experts at the Defense Department were a critical part of the
CFIUS and the export control process in terms of identifying
the types of technology that were of concern.
With respect to your concern about investment around the
world, that is why working with our allies in the multilateral
export control regimes is key, because the U.S. is not the only
target for the very anxieties that you raised. And the existing
export control system is precisely defined to do that.
With respect to the topics at issue, it goes back to my
main point. It requires the resources, the manpower, and the
will to focus not just on technologies of yesterday or what is
being used now, but creative thinking on all the topics that
you just listed to see if there is a way in which to identify
the sweet spot of that part of the technology that is of
concern without otherwise trying to interfere or get in the way
of commercial development.
Senator Perdue. Thank you.
Thank you, Mr. Chairman.
Chairman Crapo. Senator Van Hollen.
Senator Van Hollen. Thank you, Mr. Chairman. And I thank
all of you for your testimony here this morning.
I was recently on a bipartisan codel to China, Japan, and
South Korea, really focused on the North Korea situation. But
while we were in China, we heard from a number of American
businesses complaining a lot about the lack of reciprocity
generally, especially with respect to Chinese curbs that bar
American financial companies access, and that has been
referenced here this morning. And while I agree that CFIUS is
not the tool we use to respond to reciprocity issues, I do
think it is important that we continue to push China really
hard on that front.
Let me ask you, Mr. Lewis, you talked about how China--and,
look, we all agree that, overall, foreign direct investment has
benefited the United States, but we want to make sure that it
does not hurt us in our strategic interests, especially
national security. The question is how we may broaden that to
look at some key national economic security issues.
You mentioned China buying up small firms in the Silicon
Valley area, and my question for all of you is: When you have
one big purchase, you know, you may very clearly be able to
decide this is going to have an impact on national security or
not. But do we have the tools to look at sort of a pattern of a
purchase and say, hey, this one in and of itself, this purchase
may not trigger a national security problem. But China has the
ability, you know, it is not like a bunch of free market
companies that are out there purchasing. They have got a
strategy, you know, driven by the Government. Do we have the
capacity to say, OK, this one by itself may not be so bad but,
you know, if you go down the line, one, two, three, four, then
you are talking about a serious national security issue?
Mr. Lewis. I will start. Thank you, Senator. That is a
great question. One thing that has been touched on a couple
times in all of our remarks so far and in the questions is the
question of intelligence support for CFIUS. And to the extent
this can be discussed in an open hearing, it would be
beneficial if there were additional resources given to the
National Intelligence Council.
The U.S. relies on two sources of intelligence to track
both money laundering and the kind of activities you are
talking about: human intelligence, which faces grave problems
in China, as you know; and signals intelligence, which also is
pressed considerably by the Chinese. So we need to think of how
to make resources and collection priorities evolve to reflect
these kind of economic problems you have raised.
We do not have the ability yet to adequately track these
larger patterns, so CFIUS tends to be a transactional focus,
and it would be beneficial if the NIC or some other body had
the ability, the wherewithal to supply things on long-term
trends in semiconductors, artificial intelligence, cloud
computing, hypersonic strikes. There is a whole range of
things, so, yes, better intelligence support, better tracking
trends would be valuable.
Senator Van Hollen. All right. I would be interested in any
other comments, but also I would like to throw in there the
greenfields issue. I take it from your testimony, Mr. Lewis,
that you think we should expand the jurisdiction, the
authorities here to include greenfields. Is that right?
Mr. Lewis. Yes.
Senator Van Hollen. And as the others answer that earlier
question, if you could also respond to that issue.
Mr. Wolf. Sure. The issue with respect to trends was very
important to me when I was in the Government, and the first
direct answer that is not really a CFIUS issue is just a
straight up law enforcement effort. If there are a particular
series of individual acquisitions that are all on their face
benign but in the aggregate are used for an ulterior motive
such as creating front companies in order to hide the ultimate
objective, then using the existing domestic law enforcement
tools of getting to that motive and pursuing intellectual
property theft, espionage under existing statutes is absolutely
critical. And that can be done without CFIUS.
Within the CFIUS process, it is important that in the
intelligence estimate that is provided with respect to an
intelligence--or with respect to a particular case, an answer
given as to whether this is an individual transaction or part
of a trend or pattern, and that is absolutely something that we
reviewed, and I would want to make sure that the authority
exists to be able to block or deny or mitigate a case if the
information exists that this is only one part of a whole.
So your question and your concern about the trend is
absolutely valid and something that we spent a significant
amount of time looking into.
Mr. Lowery. The only thing I was going to add is that the
trend is something that CFIUS does look at. In fact, actually
in their annual report to Congress, CFIUS actually does try to
point out here is where a number of transactions have actually
happened, and we are now concerned that a specific country--and
it would be a classified report, so Congress could see it; I
could not see it--is able--is going after a certain technology.
So this is done with CFIUS, but it is usually--Treasury leads
the effort, but really it is the intelligence community and the
Commerce Department that does a lot of the heavy work, as well
as the Treasury Department. So there is a way of trying to get
at that through CFIUS, though I think Mr. Lewis makes a good
point about there are other things that need to go beyond that.
Senator Van Hollen. Thank you. I look forward to following
up with all of you.
Thank you, Mr. Chairman.
Chairman Crapo. Thank you.
Senator Rounds.
Senator Rounds. Thank you, Mr. Chairman. This has been an
interesting discussion, and it leads me back into another
responsibility. We all have multiple committees up here. I
serve on the Armed Services Committee, and as such, I also
serve as Chair of the Subcommittee on Cybersecurity. One of my
concerns about the increased foreign investment in the United
States is what kind of electronic and cyber-vulnerabilities
that increased foreign investment poses for our country. For
example, there is already significant concern in Congress and
the Administration that countries like China are acquiring
intellectual property from American companies. I am concerned
that foreign investment in our country would give potentially
malicious actors a back door into the United States and leave
us perhaps more vulnerable to IP theft or cyberattack.
My question for you is: Can you discuss the nexus between
cybersecurity and foreign direct investment? And is the CFIUS
review process robust enough to account for vulnerabilities in
this area? Or is it simply one part of a chain, and how does it
fit into that chain with other investigations as well? Mr.
Lewis.
Mr. Lewis. Thank you, Senator. That is a major concern, so
I am glad you raised it. Let me just talk about the potential
risk to cybersecurity.
You have supply chain risk, which is that the components or
the software that goes into critical infrastructure defense
products may be contaminated at the source, creating cyber-risk
for the U.S., military risk. This is no longer a hypothetical
concern, so there have been some incidents.
You have a critical infrastructure risk that the CFIUS
Committee has been good at blocking acquisitions of critical
infrastructure or in mitigating potential risk. So when you
think about, say, Alcatel-Lucent, the conditions that the
Committee imposed were sufficient to mitigate the risk. And
following up on these mitigation agreements is an important
part--an important improvement I have seen in the last few
years with CFIUS.
You have real estate concerns. That always sounds funny,
but we know about the potential of the wind farm to be next to
a Navy research facility. You have to think about real estate
now. Ten years ago, real estate was not on the CFIUS agenda.
And, finally, a new one is data. The access to huge swaths
of Americans' personal data by a foreign competitor could
create intelligence risk.
So I think there is a whole area where we need to think
about how an acquisition will affect or increase the risk to
cybersecurity.
Senator Rounds. Any other thoughts, gentlemen?
Mr. Wolf. Those are excellent points. Just to emphasize a
significant number of the cases that we have reviewed over the
years involved situations where the U.S. Government or its
contractors or suppliers were consumers of critical
infrastructure, telecommunications equipment, computers, et
cetera. And to the extent that there was a possibility of
foreign control over the content of the components or malicious
software being installed surreptitiously, that was factored
into our decision to either propose a block or aggressive
mitigation, such as a requirement to spin off the U.S. side of
the business for a certain number of years so that the U.S.
Government, Defense and other departments, could find other
alternative sources of supplies that were domestic. So that is
a critical part of the CFIUS review.
The other part of it, frankly, with or without an
individual transaction, is the regular cybersecurity work that
the Government and its contractors do in terms of knowing who
their suppliers are of their components and what the source of
the information is that they are receiving. And that is in
addition and separate to CFIUS, and, again, unrelated to
particular transactions. But it was one of the most
significant, most discussed, most critical elements of the
cases that we saw in the last several years. It is a key point.
Mr. Lowery. The only thing I would add, just as Mr. Wolf
and Mr. Lewis said, CFIUS has done this part extremely well, is
my view. But some of the aspects go beyond CFIUS, and that is
where there are other tools within the Government that we try
to work on, but remember, CFIUS has on its Committee the
Defense Department, Homeland Security, Justice Department, the
intelligence services across the Government, which include the
FBI, the CIA, the DIA, the Treasury Department's intelligence
services. So all of these folks are working together to try to
see whether or not there is an actual risk because of a
purchase of a U.S. business.
Senator Rounds. Do you find that the focus, which right now
is on the entity itself that may very well want to make a
purchase within the United States, is there adequate focus also
on the product itself or the different products, whether it be
data, whether it be a specific product that is vital within
another part of the chain? Do we have the ability right now and
are we focused enough on both--not just the entity itself but
the different products that may very well be the issue of
concern?
Mr. Lowery. My view is that is what CFIUS is at least
attempting to do the whole time, and I think that they have
done pretty well. So they look at the threat, which is the
entity that is purchasing. They look at the vulnerability, the
product that they are actually purchasing. What is that asset?
Does it have any nexus to national security or not? And then
trying to figure out is it OK for those two things, the threat
and the vulnerability, to come together? Or do you need to
mitigate it or do you need to block it? That is what CFIUS is
trying to do the whole time.
Senator Rounds. Yes, sir?
Mr. Lewis. Thank you. The two agencies that provide the
support to CFIUS in this regard are both the intelligence
community and DOD. So we really rely on them to be able to say
when a particular technology or product creates cybersecurity
risk or any other kind of risk.
Senator Rounds. Thank you. My time has expired.
Thank you, Mr. Chairman.
Chairman Crapo. Thank you.
Senator Warren.
Senator Warren. Thank you, Mr. Chairman. And thank you to
our witnesses for being here today.
CFIUS, the Committee on Foreign Investment in the United
States, is responsible for reviewing the acquisitions by
foreign companies to ensure that they do not threaten U.S.
national security. And, unfortunately, this applies only to
certain transactions, and our adversaries know that.
So according to news reports, an internal Pentagon report
issued last year found that China was making significant
targeted investments in cutting-edge American startups with
expertise in areas like autonomous vehicles, artificial
intelligence, robotics. These types of investments provide
access to potentially sensitive technology, but they do not
trigger CFIUS review.
The Pentagon is worried--and I think they should be
worried--about this. In June, Secretary Mattis told the Armed
Services Committee he thought CFIUS ``needs to be updated to
deal with today's situation.'' So I wanted to start by asking
you, Mr. Wolf, are you concerned about the national security
impacts of these early stage investments in sensitive
technology?
Mr. Wolf. Yes, I am, and that is why I would put a
particular emphasis on identifying what the technologies of
concern are, and in addition to the CFIUS authorities, making
sure that they are adequately described within the existing
export control system.
Senator Warren. Actually, can you just say a bit more about
what you would do by way of response? Can you expand on that a
little bit?
Mr. Wolf. Absolutely. So instead of waiting for a
transaction to occur, however it is defined, whether it is a
joint venture or a covered transaction or a greenfield
investment, the Department of Defense, working with its
colleagues in State, Energy, and Commerce, should identify the
key sweet spot of those types of technologies that you
described that are of national security concern and make sure
that our existing export control rules govern them and, to the
extent possible, work with our allies so that their regulations
control the same types of technologies. That magnifies the
benefit of the effort.
Senator Warren. Actually, that is very helpful. You know,
as you know, a lot of today's technologies look very different
from what the world looked like back when we built CFIUS
originally. And the defense technologies of tomorrow are going
to look even more different. So we need an approach to it that
keeps changing, iterating over time. And I think that means it
is time to expand CFIUS's mandate.
But before we do that, we are going to need to deal with
the fact that CFIUS has serious staffing and resource problems
already. In recent years the number of cases coming before the
Committee has skyrocketed. Both current and former Government
officials have argued that CFIUS must be strengthened, but so
far the opposite seems to be happening. President Trump has
failed to appoint certain key positions in the CFIUS process,
including the Director of the Office of Science and Technology
Policy, which is kind of important here. And the President's
budget proposes significant cuts at some of the CFIUS agencies,
including a 16-percent cut to the Commerce Department and a 32-
percent cut to the State Department.
So could I ask, what impact do budget cuts have on the
positions at non-DOD CFIUS agencies? What impact will this have
on the work of the Committee?
Mr. Wolf. It is potentially devastating. It is all a
function of resources and manpower and attention spent to
complex situations, complex technologies, and difficult
transactions. And you need lots of people or you need more
people than are there now in order to address all the issues
that you identified.
Senator Warren. Well, thank you. I think this is urgent. It
is about national security. We do not want to wake up one day
and discover that our adversaries have components of our
national security technology because Congress and the
Administration were asleep at the switch on this. We need to
modernize this process, but we also need to make sure it is
fully staffed.
Mr. Wolf. I agree.
Senator Warren. Thank you, Mr. Chairman.
Chairman Crapo. Thank you.
Senator Kennedy.
Senator Kennedy. Thank you, Mr. Chairman.
Tell me, gentlemen, what triggers CFIUS review?
Mr. Lowery. So CFIUS is technically a voluntary process, so
if you are in an M&A transaction and it is in the national
security realm and that realm is not defined, but there are a
number of factors in the law that suggest what those national
security issues are. So M&A transactions are voluntarily filing
transactions. That is how you trigger a review.
It is important to note that if the Government or CFIUS
sees that a transaction has not been filed, they do have the
power to compel a filing, if need be.
Senator Kennedy. What should trigger a review? How would
you change it?
Mr. Lowery. The only way I would change it--so I think that
that actually is a good approach, because there are lots of
transactions that happen--in fact, the bulk of the cross-border
mergers and acquisitions that happen are in areas that have
nothing to do with national security, and so we should not be
doing national security reviews of them because we just waste
resources by doing that.
But I think that it should be explored at least. One idea
is--so right now CFIUS does high, high scrutiny of State-owned
companies when they make a purchase in the United States. I
think that it might be worthwhile at least exploring the idea
of should those filings be mandatory as opposed to voluntary.
And then you could through the regulatory process try to narrow
that scope down because there could be State-owned cases or
State-controlled entities that buy something, again, that has
nothing to do with national security. So I think that is worth
something to explore. That is right now not in legislation, so
you would have to change the legislation for that.
Mr. Wolf. One additional idea would be with respect to
acquisitions or any kind of an arrangement next to a sensitive
facility. Right now, the colocation issue that I described only
gets triggered if it is a covered transaction as defined in the
legislation. And I do not have an exact answer for you, but to
the extent that there is a joint venture or a greenfield
investment or any other kind of investment near a facility,
there should be a Federal way in which to limit the access,
proximity next to a sensitive facility by a foreign entity.
Mr. Lewis. And perhaps a final point is that Wall Street
and the investment community knows in much greater detail the
transactions that are underway or being contemplated, and
particularly if it is a publicly traded transaction, we might
have a publicly traded company, we will get some regulatory
insight. But if it is not publicly traded, we may miss it. So
finding ways to better take advantage of the knowledge on Wall
Street and to look for private deals would be helpful.
Senator Kennedy. Well, what if it is not a merger and
acquisition? I think this is Senator Warren's point. Let us
suppose you have a startup developing a pharmaceutical drug,
and someone in China wants to put in $20 million for Phase I
trials. Is that something we ought to look at?
Mr. Wolf. Well, in general, that type of investment should
be welcome, and we want to make sure that the U.S. remains
welcoming to that. And the key goes back to the points that I
was raising earlier, which is: Is there something about that
investment that creates a national security issues or is it an
economic issue better left to bilateral deals or trade remedies
outside of CFIUS?
So in that type of fact pattern, I would think about it,
not waiting for a transaction, however you define it, whether
covered or joint venture or just a flow of money, but
identifying the information that is of concern and trying to
address the information in any setting.
Senator Kennedy. But how do you know? Let us suppose the
pharmaceutical drug is a vaccine for HIV, and it appears to
work, so the Chinese just keep pouring money into it, and they
get control of the company, and they take it back home, and
they keep the vaccine and say, ``We are not going to share it
with America.''
Mr. Wolf. Then that becomes economic and other issues. Then
it really is a function of what our intelligence agencies can
tell us about the intentions of the parties engaged in
particular transactions.
Senator Kennedy. They are not clairvoyant, though. They
cannot tell the future.
Mr. Wolf. No, they cannot. And we can do what we can do,
but there are a lot of very clever people who can think
aggressively and prospectively about the types of technologies
that, if cutoff or no longer able to be developed in the U.S.,
would create national security threats. And that should be the
emphasis of the thinking.
Senator Kennedy. Let me ask one other question quickly,
gentlemen, and any of you can jump in. When, if ever, should
CFIUS be used as a sword with respect to reciprocity? I do not
mean to pick on the Chinese. They are not the only ones. But
they are beating our brains out. They are stealing all our
technology. It is a condition of doing business there.
Mr. Lowery. So my own view on--should CFIUS be used as a
reciprocity tool? My own view is no, and I have a few reasons
for this. One is that if there is an investment that makes
sense that is coming into this country, but American firms
would not be allowed to invest in China, why should we penalize
the company that is receiving that investment, when it is not a
national security issue whatsoever, just because maybe some of
their competitors could not go out and buy something in China?
I think that, in essence, we would be importing the policies of
another country--China--as opposed to using our own--the
policies of what we want in this country, and the policies that
we want in this country are to welcome foreign investment. So I
do not think that CFIUS is the way to get at reciprocity. I
think there are trade tools that we can be using, and that is a
much better way of approaching the problem.
Mr. Lewis. I disagree with that a little bit. I think we
need a comprehensive strategy for approaching China on these
trade issues. They have gotten away with things for decades,
and you need to approach them thinking about CFIUS, foreign
investment, export controls, trade provisions. You have to have
the full package. And as a negotiator, you may not want to take
anything off the table until you see if it is worth doing. So
go in with the whole deck. See what they offer you.
Senator Kennedy. Gentlemen, I am out of time. Thank you.
Senator Scott [presiding]. Senator Donnelly.
Senator Donnelly. Thank you. And thanks to all of the
witnesses.
My home State of Indiana is home to a big portion of the
American steel industry, and it is an integral part of our
national defense manufacturing base. Increased levels of
foreign steel imports, particularly from China, and a lot of it
is with dumping, illegal Government subsidies, it has weakened
our domestic steel industry, and it has provided foreign
companies greater access to our markets. So this is to all of
you. When you review transactions, does CFIUS consider foreign
industrial policy that weakens U.S. industries vital to defense
manufacturing and critical infrastructure?
Mr. Lowery. So CFIUS would look at--if an investment, not
an export but an investment into a company in Indiana or any
company was actually harming maybe the supply chain for the
Defense Department on steel or could potentially--by getting
access to specific technology, could actually harm the United
States' national interest, that is what CFIUS would look at.
CFIUS would not look at whether or not a country is dumping.
That is something that would be done through trade remedies.
Mr. Wolf. He said it very well.
Senator Donnelly. OK. Let me ask you this: Are there U.S.
industries important to our national defense or critical
infrastructure that have been particularly challenged by
aggressive foreign trade policies? As you look at the national
defense area, obviously one of concern is steel. What are other
ones? And what do you see as the biggest challenges they face?
I know that is a little bit to the side of what we are doing
right now.
Mr. Wolf. Sure. Within the CFIUS context, the evidence
shows based on public filings of cases during the Obama
administration and now that the semiconductor industry is
obviously the hottest topic with respect to the issue that you
raised. To the extent that it is a trade remedy issue, that is
not the role nor does CFIUS have competence or expertise to be
able to focus on that. It is focused just on the national
security implications. But, you know, by the evidence, that
plus issues involving foundational technologies for aerospace
have been hot topics, absolutely.
Mr. Lewis. Generally, anything that you could label as high
tech is a concern, and so avionics, not only semiconductors but
the broad information technology industry, including robotics
and artificial intelligence, these are all places where we have
seen efforts by China and a few others to acquire U.S. know-how
in companies in ways that would harm our national security.
Senator Donnelly. Currently, CFIUS reviews foreign direct
investment transactions for national security implications. Do
you believe CFIUS or a process modeled off it should also
review the economic considerations of foreign investments to
see that the American economy actually benefits in any way,
shape, or form from the transaction?
Mr. Lowery. So I think that there is a portion of that that
CFIUS does, but not a big portion, and that is basically if
there is a mitigation agreement--the Department of Labor
actually sits as an ex officio member of CFIUS to make sure
that labor issues are looked at carefully. But in terms of do I
think that CFIUS should expand its mandate to go beyond
national security to kind of an economic benefits test, a
benefits-cost test, I do not. But that is because I think that
we are welcoming foreign investment and we have to be very
careful about how much we are dictating to companies about how
they handle things. As long as they treat their employees well
and follow the laws of the land, then that is not something I
think CFIUS should be looking at.
Mr. Wolf. I agree. I believe that CFIUS should continue to
be narrowly focused on national security implications. The
implications of expanding its scope to pure economic
considerations runs the risk of politicization and overall
harming the U.S. as a destination for foreign direct
investment. To the extent that there are economic harms with
respect to investment, there is an entire body of law dealing
with trade remedies that is much more tailored, much more
specific, much more robust to address that. CFIUS does not have
the history, the expertise, the personalities to be able to
address it, even if the authority were to expand.
Mr. Lewis. The dilemma of what you have raised is a serious
problem, and so we do need to address it. But CFIUS may not be
the right tool. There are other tools that we either have or
that we need to deal with this because it is something that
increasingly is affecting the American working population.
Senator Donnelly. You talked a little bit about the
stretches on the CFIUS tool as it is, as the volume increases
and complexity of transactions continues to increase. What
additional resources, if any, such as personnel and
information-sharing technology do you think CFIUS needs to
process a higher volume of transactions and to be able to make
sure they are covering what they need to do?
Mr. Wolf. A significant number of more people involved in
handling the mitigation agreements. After a deal is reached,
often there is a condition of the sale that requires a lot of
manpower, a lot of oversight. They last for a very long time,
and there are more every day. And so the number of people that
need to be focusing on that needs to be substantially higher.
Similarly, the number of people who spend their days
reviewing transactions, public and otherwise, to see if any of
them warrant being pulled before CFIUS for consideration, that
is a straight up issue of manpower and resources in reviewing
data. Those are the two biggest resource constraints right now.
Mr. Lowery. I would only add one, which is--I agree
totally, but it is important to get some of our political
officials confirmed, and the reason is because--look, the CFIUS
people doing their analysis do an excellent job. But they are
civil servants. These transactions by nature involve a lot of
risk. There is risk. And so taking that risk is something that
Senate-confirmed people are paid to do, to be frank. They are
the ones that have to come in front of this Committee and
answer to what decisions are made. It is much harder for the
civil servants, who are doing an excellent job, to do that, and
so sometimes having the resources to do mitigation agreements
so that you can actually welcome that foreign investment and
protect national security, but you then also need some of your
political appointees who can provide air cover and make the
tough calls.
Mr. Lewis. One agency we have not mentioned yet--and we
have mentioned a lot--is the Defense----
Senator Donnelly. Mr. Lewis, I apologize. I am out of time.
Mr. Lewis. Just let me say DSS, they are the ones who do
the mitigation agreements. Give them a little more help.
Senator Donnelly. OK. Thank you.
Thank you, Mr. Chairman.
Chairman Crapo [presiding]. Thank you, Senator Donnelly.
Senator Donnelly. See, I was doing your work for you there.
Chairman Crapo. I appreciate it.
Senator Scott.
Senator Scott. Thank you very much. Thank you to the panel
for being here this morning as well.
There is no question that South Carolina benefits from FDI.
In the past 5 years, our State's economic activity based on FDI
has increased by 30 percent. Over 130,000 South Carolinians are
employed as a result of global investment.
That said, it is clear to me that bad actors are taking
advantage of our system of trade. Senator Cornyn and others
have pointed to gaps in CFIUS around the purchase of
foundational technologies of AI and biotech. These gaps have
allowed the Chinese to strategically invest in key sectors of
our economy while stealing our intellectual property and
eroding our military superiority.
I will ask the panel and start with Mr. Lewis: What
techniques are the Chinese using to circumvent CFIUS? The
second question is: How can Congress fill these gaps in our
protections?
Mr. Lewis. So I think we have talked a lot about the
greenfield problem, which is that--this has come up a couple
times. Our regulations are post facto. So if you have not
invented the technology, it is not going to be caught. And so
how do we deal with that? And the Chinese are looking to buy
brains, right? And it is very hard to control brains,
especially if they are in the country. So we need to think
about how we track, monitor, and occasionally--not always but
occasionally, because of the benefits you cited, occasionally
block transactions where China is making bets in the future
technologies.
Mr. Wolf. On the intellectual property theft issue, that is
much more of a law enforcement issue and attention and
resources of the Justice Department to investigating whether it
is a sensitive technology or otherwise that is being stolen or
exfiltrated. So CFIUS may not be the best tool because if there
is going to be IP theft, there is going to be IP theft with or
without a transaction, however you define it, so focus the
resources on the theft of the technology in the traditional
way, and that would be my suggestion for an emphasis on that
question.
Senator Scott. Anything to add?
Mr. Lowery. The only thing I was going to add is that if
the technology is in an area that is concerning potentially for
export controls, that is when some of Mr. Wolf's comments from
earlier come into play, I think, where looking through what
powers and abilities through the flexibilities of our export
control laws as opposed to CFIUS, which is there to--if there
is an investment actually in a company or in a business that
actually gets some of those assets that could be a national
security concern, that is when CFIUS should play its role.
Senator Scott. Thank you.
Considering the topic of today's discussion, I want to
point something out that I think is very important. A majority
of Chinese deals make it through our approval process. Yet
American companies are not given that same courtesy in China.
In fact, China dramatically restricts our financial services
sector's presence in its country. That does not seem fair to
me, because it is not.
That is not a level playing field that our President is
advocating on behalf of. I was joined by Chairman Crapo--thank
you very much--and 14 other Senators in asking the
Administration to focus its efforts on the lack of reciprocity.
Mr. Lowery, can you discuss the hurdles that American
financial services firms face in China?
Mr. Lowery. Yes, this is something I had to work on when I
was in Government. So it has been a problem for a while. I was
glad to see the letter from the 14 Senators. I wish it was 100
Senators, because I think that it is a problem, which is that
U.S. firms cannot actually--there are equity caps in insurance
companies, there are equity caps for investment banks, there
are equity caps for banks. The way that we have made progress
on that in the past has usually been through dialogue, and so I
recall back in 2006, 2007, we were running into a lot of
problems. Through a dialogue that Secretary of the Treasury
Paulson set up at the time, we were able to make progress--not
as much as we should have. Under the Obama administration, they
also had a dialogue which also made even further progress on
getting these equity caps raised.
I think that that is something that the Trump
administration should work on, my guess is they are probably
starting to work on. But I think that that is a way to get at
it. But your point is exactly right. There is a problem when in
an area such as financial services where it makes very little
sense for them to have equity caps that China still has those.
But I think that through the force of our will and diplomacy,
that is the best way to get at that problem.
Senator Scott. Thank you very much, Mr. Chairman.
Chairman Crapo. Thank you.
Senator Tillis.
Senator Tillis. Thank you, Mr. Chairman. Gentlemen, thank
you for being here.
China, I think, constitutes about 1.6 percent of our total
inward foreign direct investment, so relatively small scale. A
lot of what we are talking about here are things that they have
done that are really outside of this that need to be dealt
with, and I think probably dealt with in a way that is perhaps
outside of CFIUS. One thing, Mr. Wolf and Mr. Lowery, you both
have said is that trying to keep the scope tight--I could be
concerned with CFIUS scope creep moving into other areas that
we probably should consider, but not necessarily within the
lanes of CFIUS.
Mr. Lewis, I want to talk about one of those. As China's
economy emerges and as it matures and as they try to build
infrastructure for things that are not related to national
defense--you know, pick an area, health care, insurance,
whatever--they are likely to look at Nations that have mature
platforms, the technology platforms that they would like to use
to accelerate, you know, really actually rounding out an
economy that is still growing. And if they do that, if they are
to acquire somebody--you made me think about this because of a
comment you made about maybe an acquisition would involve a
company that has a significant amount of data on U.S. citizens,
say health care information. How do we strike the balance
between allowing that investment to occur, which may be needed
by a technology provider that is in a mature market, to let
them leverage their technology for purposes that are purely,
you know, in this case let us say for the Chinese population,
how do you do that in a way that does not create an impediment
for companies that have data that we clearly want to protect
but not necessarily disadvantage them as having a large
platform and growth opportunity in a country like China?
Mr. Lewis. Thank you. Great question. China has gotten sort
of a pass on the trade rules ever since they joined the WTO,
and their argument was, ``Well, you know, we are small and we
are growing and we are poor, so it should not apply to us.''
And that just does not work anymore. So part of it is we need
to think about how do we get China to live up to its
commitments under international trade. I am optimistic that
they can do that. This Administration appears to be making an
effort. That is good. But it will take a long time because they
get so much benefit out of it.
In the near term and on specific cases, I think this is one
of the strengths of the CFIUS process, is the ability to impose
mitigation agreements on the acquirer that limit the risk, and
those have been relatively successful. There is this issue of
tracking them afterwards, and that is where----
Senator Tillis. On that, I have one other question I want
to direct specifically toward CFIUS. But I think that so much
of what we need to do to get China to a good place in behavior
is probably not something that would come through CFIUS but
would come through trade agreements, a number of other devices
that we can use to actually incent them to exhibit good
behavior.
Now, with respect to CFIUS, I have had this discussion in
Senate Armed Services on cyber. You know, what we seem to be
focused on are the--you know, it is an artificial intelligence
application, maybe it is next-generation communications
technology, biotech. But what about the risk of focusing on
those big rocks and missing some of the little rocks that if
China had significant investment in could be disruptive? I
always use the example of if I were trying to think about a way
to disrupt the U.S. economy or the DOD, the DOD would be the
last place I would attack. It would be their supply chain. And
it would be to the most vulnerable part of their supply chain,
and I am talking about a cyberthreat.
Well, similarly, I would make investments in companies that
could ultimately be disrupted. We think about the end product.
I think about the supply chain that gets to that end product.
So to what extent does CFIUS take into account maybe seemingly
innocuous minor investments in companies and technologies that
ultimately play a very important role in that supply chain link
to these other highly important technologies that we focus on?
Mr. Lowery. I think that the answer is that is exactly what
CFIUS is trying to look at, so----
Senator Tillis. How well do you think we are doing it for
the fully supply chain?
Mr. Lowery. I think that CFIUS does a very good job of
looking at companies that are part of the supply chain. The
reason is because the Defense Department, some of the officials
there--not just the Defense Department. It could be Homeland
Security or the Justice Department. They know kind of where the
supply chain exists, because actually some of the people that
work on CFIUS are some of their procurement experts. And so
they actually look at the supply chain and think--there are
transactions that I know CFIUS has looked at which were tiny
transactions, and no one would--they would never make it into
the newspapers. But CFIUS actually goes out and says, ``We need
to look at that because that is a small part of our supply.''
And that is something that--if it is a purchaser that is a
threat to our national security, that may make it--either block
it, get it to abandon the transaction, or as Mr. Lewis said,
come up with a mitigation agreement so that you might wall them
off from certain parts of that technology.
Senator Tillis. And, Mr. Chair, since I am the last one, I
want to ask just one more question, if I may. To what extent
does CFIUS--let us say that, again, with China only being 1.6
percent of the internal FDI right now, but they have great
relationships and growing relationships with many of our allies
that constitute a significant portion of that. To what extent
is CFIUS instructive by the nature of the relationships that
China has with other--let us say a company domiciled in
Australia that is making a significant investment in a
technology that would be subject to immediately flag if it
comes from China? Is that all instructive to the CFIUS process.
Mr. Wolf. It is, and it should be more so. One of the
changes I would recommend considering that we often discussed
is sometimes we were limited in our ability because of either
classified information or proprietary information issues from
sharing concerns we had with allies and getting information
from them with respect to similar concerns by similar
investments in their countries. And a serious topic, I would
think, for legislative consideration would be expanding the
ability of CFIUS to share information, both commercial as well
as intelligence, with allies for exactly the purpose that you
just described.
Mr. Lewis. That is an important area for reinforcement
because when you look now at our NATO allies, at Australia, at
Japan, they are all concerned about Chinese investment. They
are all looking to the U.S. to provide them at least an example
on how to regulate it, and CFIUS is an example. And they are
looking for the kind of information and intelligence support
that Mr. Wolf was discussing.
Senator Tillis. Thank you all.
Thank you, Mr. Chair.
Chairman Crapo. Thank you, and, Senator Tillis, I will take
one more question also.
This will be the final question, and it is for the whole
panel, if you have a response to it. In your opinion, are there
any instances where a gap in CFIUS authority either could have
or did result in a threat to U.S. national security? And if so,
please discuss the CFIUS shortcomings that led to such a
breach.
Mr. Lewis. So I believe the thing that we would all want to
look at is the Defense Department report that talked about--and
I hate to say it over and over again--greenfield investments in
Silicon Valley, looking at advanced information technologies
for robotics and artificial intelligence. The Chinese have been
able to acquire technology in a way that circumvented the
process.
Mr. Wolf. So in my 7 years, I am confident that there were
no unresolved national security risks with any case that we
addressed. I would go back to the point I made earlier about
activities outside of CFIUS authority with respect to
colocation near sensitive military facilities. And I do not
have visibility into that, but it would be something worthy of
further analysis along the lines of your question.
Chairman Crapo. Thank you.
Mr. Lowery.
Mr. Lowery. I am unaware of anything, any problem that has
existed. I think the DIUx report does some excellent analysis.
I think that some of their policy conclusions need more work.
Chairman Crapo. All right. Thank you. And, again, let me
thank each of you for your written testimony and for being here
and responding to the Senators today. This is a very critical
issue, and there is a significant amount of interest and
activity here on the Committee and outside the Committee here
in Congress, and we intend to explore it, and we want to get it
right. So we appreciate your help. Thank you for being here
today.
This Committee is adjourned.
I should have said for the record that questions from
Senators may come to you, and we urge you to respond to them
promptly, and the Senators have until the 21st to submit those
questions.
[Whereupon, at 11:28 a.m., the hearing was adjourned.]
[Prepared statements, responses to written questions, and
additional material supplied for the record follow:]
PREPARED STATEMENT OF CLAY LOWERY
Managing Director, Rock Creek Global Advisors, and Former Assistant
Secretary for International Affairs, Department of the Treasury
September 14, 2017
Chairman Crapo, Ranking Member Brown, and Members of the Committee,
I would like thank you for the opportunity to testify on Examining the
Committee on Foreign Investment in the United States (CFIUS). My name
is Clay Lowery and I am currently Managing Director of Rock Creek
Global Advisors, a consulting firm that advises clients on
international economic and financial policy matters. My testimony
should be considered my own views alone.
I served in the U.S. Government from 1994 to 2009, principally with
the Treasury Department, although I also had a stint at the National
Security Council. From 2005 to 2009, I served as the Assistant
Secretary of International Affairs for the Treasury Department, and one
of my primary responsibilities was overseeing CFIUS during the last
time substantial CFIUS reform occurred.
I am pleased to be testifying alongside Kevin Wolf and Jim Lewis,
both of whom I respect and of whose views and expertise I think highly.
In my testimony, I will discuss briefly (i) the nature of CFIUS and
its process, (ii) its performance, and (iii) some thoughts on CFIUS
reform.
CFIUS plays a critical role in protecting U.S. national security. I
recognize there are gaps in the current system that must be addressed,
but I would also counsel that CFIUS's objective is to protect
legitimate national security interests while promoting foreign
investment, and thus CFIUS should not be used as an economic,
protectionist, or overly broad tool.
The most important aspect of CFIUS is to understand what it is
trying to achieve: ensure national security while promoting foreign
investment. These words come directly from the legislation that created
CFIUS and has guided it for the last 30 years. When experts raise
concerns about national security issues that may have recently become
more prominent and recommend that the best--and sometimes only--tool to
address those concerns is CFIUS, my view is to evaluate those
recommendations against what CFIUS was designed to achieve.
Roughly 7 million American workers, or about 6 percent of total
U.S. private-sector workers, are employed directly through foreign
direct investment (FDI). These jobs are higher paying: providing
average compensation per worker 24 percent higher than U.S. private-
sector wages. These jobs are disproportionally in the manufacturing
sector: 20 percent of all manufacturing employment is due to FDI. And,
according to a recent Reuters analysis--two-thirds of the manufacturing
jobs created from 2010 to 2014 can be attributed to foreign direct
investment.
In short, FDI is in the national interest of the United States.
However, we should not be complacent. While the U.S. remains the
largest destination for FDI, our share of attracting such investment
has fallen about 40 percent in the past 16 years. \1\
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\1\ United Nations Conference on Trade and Development (UNCTAD)
World Investment Report 2017.
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Last, I want to note how this could be used against U.S. companies
overseas. The United States has always been the leader in defining
``national security'' in a reasonable and fair way. I would remind the
Committee that any actions we take are likely to be copied and used by
other countries, potentially to the detriment of U.S. interests abroad.
CFIUS Evolution
CFIUS is an interagency committee established by Executive Order in
1975 with the Secretary of the Treasury as its chair. Its central
purpose at that time was to monitor foreign direct investment in the
United States. In 1988, driven by concerns regarding growing Japanese
investment in the United States, Congress enacted the Exon-Florio
amendment that expanded these powers significantly, including (i)
giving CFIUS the responsibility to investigate foreign acquisitions of
companies engaged in business in the United States, and (ii) providing
the President the ability to suspend or prohibit a covered transaction
that, in the President's judgment, threatens the national security and
existing laws are not adequate or appropriate to address the threat.
\2\ In 2007, following concerns that had been raised over a Middle
Eastern investment in U.S. port facilities, Congress amended and
further strengthened CFIUS through the Foreign Investment and National
Security Act (FINSA).
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\2\ To be precise, the President delegated the investigative
functions to CFIUS by Executive Order.
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A new Executive Order directing CFIUS followed in early 2008 and
new regulations implementing FINSA were issued later that year. The key
reforms resulting from those efforts include:
Increasing accountability in the executive branch as
Senate-confirmed officials now must certify that CFIUS has
completed its work on each transaction;
Broadening the factors that CFIUS may consider in terms of
investigating cross-border M&A transactions, particularly in
areas such as critical technology, energy, and critical
infrastructure;
Raising the certification bar for cases in which the
acquirer is a State-controlled entity;
Increasing CFIUS interaction with Congress;
Providing for a more formal role for the intelligence
community; and
Clarifying CFIUS criteria for evaluating whether an
acquirer is obtaining control of a U.S. business.
CFIUS Process
CFIUS is chaired by Treasury and is comprised of the Departments of
Commerce, Defense, Energy, Homeland Security, Justice, and State as
well as the Office of the U.S. Trade Representative and the Office of
Science and Technology Policy. In addition, the Intelligence Community
under the leadership of the DNI and the Department of Labor serve as
nonvoting members of CFIUS. \3\
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\3\ Several offices in the Executive Office of the President also
serve as observers of CFIUS.
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Parties submit their transactions to CFIUS for review on a
voluntary basis, although CFIUS has the authority to compel a filing if
necessary. The statute prescribes strict timelines for CFIUS's review,
but parties are encouraged to pre-file with CFIUS to provide the
Government with an opportunity to begin its analysis before the ``clock
starts ticking.''
CFIUS officials are obligated by law, and subject to the
possibility of criminal or civil penalties, not to disclose information
regarding transactions. The rationale behind this rule is to protect
both proprietary and intelligence information.
Once a transaction has been filed, CFIUS first determines whether
it has jurisdiction to review the transaction--that is, does it involve
foreign control of a U.S. business in interstate commerce--and, if it
does, CFIUS then undertakes a three-part evaluation:
1. Does the acquirer pose a threat to national security? This
analysis is led by the Intelligence Community.
2. Is national security made more vulnerable by virtue of the
acquisition of the U.S. assets? This analysis tends to be
driven by the CFIUS agency with applicable subject-matter
expertise.
3. Do the consequences of permitting the threat and vulnerabilities
to be combined through a specific transaction risk impairing
national security?
CFIUS investigates these questions in the first 30 days after it
accepts the filing. If at the end of those 30 days, CFIUS is not
satisfied or in most transactions where the acquirer is State-
controlled, then CFIUS will undertake a second-stage investigation that
lasts up to an additional 45 days.
The process, the timelines, the composition of CFIUS, the
protection of information, and the reforms of 2007/08 have all been
designed by Congress and respective Administrations to protect national
security and to do so in the context of maintaining the United States'
long-standing policy openness to investment. In addition, knowing that
some transactions may raise national security issues, Congress has
expressly authorized CFIUS to enter into mitigation agreements with the
transaction parties to address those concerns. There are many different
types of methods of mitigating a transaction. Examples include
establishing special security procedures at facilities that can be
verified by the Government, implementing certain passivity mechanisms,
or even forcing a company to divest specific assets. In short, these
mitigation agreements impose measures on the parties that address
national security risks.
These mitigation agreements are the pressure valve that enables
CFIUS to find solutions to more difficult transactions--to welcome
foreign investment and protect national security.
If at the end of that 75-day period, CFIUS cannot make a decision
or recommends that a transaction should be prohibited--then the matter
is referred to the President who has 15 days to make a decision. Only
the President has the ability to block a transaction.
In the past 27 years, the President has prohibited or unwound only
three transactions. The primary reason that such activity by the
President is so rare is that most transactions do not pose a national
security risk or risks can be mitigated through diligent work by CFIUS.
The other reason is corporate concern about reputational risk. When the
President makes a formal decision on a transaction, that decision is
made public. Companies that believe the President could prohibit their
transaction are understandably reluctant to be subject to a public
rejection. Accordingly, most companies will withdraw from the CFIUS
process and abandon their transaction.
How CFIUS Has Performed
Since FINSA was enacted 10 years ago, CFIUS--in my opinion--has
performed in an exceptionally professional and thoughtful manner.
Congress and the American people should be proud of how well the group
of individuals across the Government have carried out their duties.
Their scrutiny of cases is thorough; they have protected national
security; they have protected information as well as anyone in the U.S.
Government; and they have preserved the reputation of the United States
as open to investment from around the world. CFIUS in many respects has
been a model not only within our Government but also for other
countries; various nations are now considering how they can emulate the
U.S. process.
That said, there is little question that the investment landscape
has changed substantially in those 10 years. By far, the most important
change has been the rise of China as a direct investor in the United
States. Ten years ago, CFIUS would review just one or two transactions
a year that had involved a Chinese acquirer--today, it is literally
dozens and dozens of transactions every year. While I believe we should
welcome Chinese investment and that each transaction should be judged
on its own merits, these transactions have more complex financial
structures, sometimes are more opaque, and come from a country where
the State plays a much larger role in the economy. Often, these factors
and others, raise the threats to national security. I know that fellow
panelist Jim Lewis is focusing his remarks on Chinese investment and
the threats it raises so I will not elaborate further.
The other development is the concern that technology is being
transferred that could make our national security more vulnerable. I
know that Kevin Wolf is an expert on export control laws so I'll let
him elaborate on the importance of these developments.
CFIUS Reform
As for me, these changes in the investment landscape as well as the
fact that it has been 10 years since CFIUS was reformed suggest that a
close, sober evaluation by Congress, by the GAO, and by the
Administration is in order. As with any analysis, it is best to think
of any potential reforms in terms of benefits and costs, including
intended and unintended consequences.
I would have three starting points beyond a cost/benefit analysis:
First, I want to note the importance of providing appropriate
resources to both Treasury and other agencies for CFIUS cases. The
CFIUS process is currently under stress because of a significant
increase in cases, without a commensurate increase in resources. While
I strongly believe that we should set good policy on the merits, we
also need to provide adequate resources to effectively carry out those
policies.
CFIUS reviewed over 170 transactions last year, which is the
highest number since CFIUS was strengthened 10 years ago. As mentioned
earlier, there is a much larger proportion of cases originating from
China and that are structurally more complex. In 2017, my understanding
is that CFIUS is on pace to investigate a much higher number than in
2016. There is little question in my mind that the individuals doing
their jobs are under too much strain--they need more resources before
we consider how to increase their work load.
I am very concerned that a significant expansion of CFIUS will
overwhelm the system and significantly impact its effectiveness and
ability to function. So while resources are not the issue on the table
today, I do not think you can separate them from the policy if you want
the system to function efficiently and effectively.
Second, as part of the new FINSA law of 2007, this Committee added
an Assistant Secretary of Treasury to oversee CFIUS. The Trump
administration has nominated a highly qualified individual in Heath
Tarbert. This Committee approved him with near unanimous support
roughly 4 months ago. Why he has not been confirmed is a mystery to me,
but at a time when CFIUS is under as much strain as it has ever been
and when Congress is considering reforms that would expand CFIUS--it is
past time to confirm the individual with the most direct responsibility
for overseeing the system.
Third, as we consider reforming CFIUS, we should adopt a set of
guiding principles to ensure that the United States both safeguards its
national security and remains the destination of choice for investment:
Minimize the opportunity for politicizing transactions.
Keep CFIUS narrowly focused on national security and resist
the impulse to use it for broader economic policy goals.
Ensure accountability of the executive branch for
protecting national security while welcoming foreign
investment.
This means that the executive branch should find
solutions by ``working a problem'' and use its authority to
craft appropriate mitigation measures, which may mean
additional resources--maybe paid by fees from the filing
parties--for monitoring and verification.
It also means providing filing parties an opportunity to
``make their case'' directly to Senate-confirmed individuals so
that parties to transactions are not faced with the situation
where staff-level officials are deadlocked or uncommunicative
and the next step is a decision by the President.
Maintain CFIUS's focus on--and review should be triggered
only by--foreign mergers and acquisitions of U.S. businesses,
and not broaden the scope to sweep in thousands of commercial
or licensing transactions.
Increase scrutiny over State-controlled acquirers,
including the possibility of making the filing of such
transactions mandatory.
Thank you and I'm happy to field any questions.
______
PREPARED STATEMENT OF KEVIN J. WOLF
Partner, Akin Gump Strauss Hauer & Feld LLP, and Former Assistant
Secretary for Export Administration, Department of Commerce
September 14, 2017
Chairman Crapo, Ranking Member Brown, and other distinguished
Members of the Committee. Thank you for convening this hearing and for
inviting me to testify on this important national security topic.
I was last before this Committee in January 2010 for my
confirmation hearing to be the Assistant Secretary of Commerce for
Export Administration, a position I held until January 20, 2017. In
that role, I worked closely with my colleagues within Commerce and many
other agencies in shepherding the U.S. export control system. I was
also a Commerce representative to the Committee on Foreign Investment
in the United States.
Although I am now a partner with Akin Gump Strauss Hauer & Feld
LLP, the views I express today are my own. I am not advocating for or
against any potential changes to CFIUS or its legislation on behalf of
another. Rather, I am here to answer your questions from the
perspective of someone who has been both a Government policymaker and a
practitioner for nearly 25 years in these critical and complex national
security areas. I am happy to help however you see fit.
My fellow panelists have already described well the content and
scope of CFIUS, so I will get straight to my main point, which is that
the CFIUS and export control systems complement each other. CFIUS has
the authority to control the transfer of technology of national
security concerns, but only if there is a covered transaction, however
defined. The export control rules regulate the transfer of specific
types of technology of national security concerns regardless of whether
there is a covered transaction. This means that if concerns arise about
specific or general types of technology--whether as part of a CFIUS
review or from any other source--then the focus, I respectfully submit,
should be on controlling the technology at issue to the destinations of
concern.
The export control system is already well developed and flexible
enough to address exactly this issue. Yes, it can be complex, but its
national security functions are not limited by the need for a
transaction. Moreover, the system is designed to constantly evolve as
new threats are identified, new technologies of concern are discovered,
and wide-spread commercialization makes existing controls unnecessary
or impossible to implement.
The most effective export controls are those that are
multilateral--those that our allies and other countries also impose for
common objectives. Unilateral controls--those that only one country
imposes--are generally counterproductive because they create incentives
for non-U.S. companies to develop the technology outside of U.S.
control. The imposition of unilateral controls, however, can be an
effective short-term technique for regulating the export of
technology--at any stage of its development--that is newly discovered
to be sensitive in general or with respect to a specific destination.
The Export Administration Regulations, implemented by the Commerce
Department's Bureau of Industry and Security, have the authority to
impose such controls in coordination with other departments, primarily
Defense and State. The descriptions of the technology can be as broad
or narrow as the national security requires. The descriptions are
generally connected to physical commodities, but do not need to be. The
controls can be tailored to specific countries and to nationals of
those countries. Law enforcement tools can be used with respect to
domestic transactions when there is a foreign party using a U.S.
company as a front. Using the export control process is also an
excellent check on unintended consequences because it forces
policymakers to describe clearly the information to be controlled. We
can discuss the details of these tools and how they fit into the
multilateral control regimes and the CFIUS process later as you like.
Although I cannot discuss specific cases, I can say that other
types of national security issues created by foreign direct investment
include primarily those that (i) have colocation issues (e.g.,
acquisitions next to military facilities); (ii) create espionage risks,
(iii) could reduce the benefit of Defense Department technology
investments; (iv) reveal personal identifying information of concern;
(v) create security of supply issues for the Defense Department, or
(vi) create potential exposure for critical infrastructure, such as
with the telecommunications or power grids.
In my experience, the existing CFIUS structure, authorities, and
internal procedures generally allowed for the resolution of these
issues quite well. The Treasury Department was an excellent honest
broker and well-facilitated consensus conclusions--often after lengthy
interagency discussion and always with the terrific support from the
intelligence community. The agencies were always respectful of the need
for a whole-of-Government decision that took into account the
particular equities and expertise of the other agencies. The career
staff were and remain talented, dedicated public servants.
This last point is key. Given the increase in filings, and the
increase in more complex cases, the staff was being stretched thin when
I was there, and I expect they are even more stretched now. They need
help. They need more resources, particularly with respect to those
involved in monitoring mitigation agreements and studying transactions.
I make this polite suggestion not only for their benefit but for the
sake of our national security. I also make the suggestion for our
economic security so that the U.S. remains known as a country that
welcomes foreign direct investment with the minimum necessary and
quickest possible safe-harbor review burden.
Thus, when considering changes to CFIUS to address apparent gaps in
national security controls associated with foreign direct investment,
the questions I would ask are (i) whether the statutory authority
already exists to address the issue through a regulatory or process
change; (ii) whether another area of law, such as trade remedies or
export controls, could address the issue more directly and without
collateral consequences on other investments; or (iii) whether the
solution lies in more resources to the agencies. If the answer to these
questions is ``no,'' then that is the sweet spot for consideration of
change to CFIUS legislation.
For each possible change in CFIUS's scope, however, it is vital to
weigh the costs. For example, if there is even a small expansion in the
scope of CFIUS's review authority, then some companies may be less
willing to invest in the United States with the actual or perceived
extra burden and time involved in closing a transaction, particularly
if there is not a significant expansion in staff. With every expansion
in scope, there will be a corresponding and exponential expansion in
burdens and costs generally--more regulations lead to more words, lead
to more analyses of those words in novel fact patterns, lead to more
filings, lead to more reviews, lead to more mitigation agreements, and
on and on. Also, if the legislation becomes too prescriptive, then it
may limit the ability of the Administration and staff to resolve novel
national security issues in a creative way. There were many such
situations over the course of the last seven years that I suspect could
not have been contemplated by the original drafters of the legislation
and the regulations.
On export control and CFIUS topics, I have a 3-minute, a 30-minute,
and a 3-hour version. So, I will stop here with these general opening
comments and look forward to answering your questions. Thank you again
for spending the time to think through this complex and important
national security issue.
______
PREPARED STATEMENT OF JAMES A. LEWIS
Senior Vice President, Center for Strategic and International Studies
September 14, 2017
I thank the Committee for this opportunity to testify. The
Department of Treasury's Committee on Foreign Investment (CFIUS) is one
of the most important tools for protecting national security while also
creating the conditions that enable a strong economy and an advanced
technological base. CFIUS is one of three activities that protect
national security related technology and the defense industrial base
along with export controls and Federal investment in research and
development (R&D). The CFIUS Committee has done well, but the growing
volume of cases, increased complexity of acquisition transactions, and
China's industrial policies pose an increasing challenge to the CFIUS
process.
The U.S. created the CFIUS process to regulate foreign acquisitions
of American companies in response to concerns that strategic industries
were being lost to foreign competitors. The goal is to maintain an open
investment environment while mitigating risk to national security.
CFIUS's authorities were updated in 2007 by the Foreign Investment and
National Security Act (FINSA), which expanded the Committee's remit to
include homeland security, created timelines for review, and gave the
President the authority to reopen and reexamine already completed
transactions (known as an ``Evergreen'' provision). FINSA is now 10
years old and faces challenges created by a changing global economic
environment.
The most important of these challenges comes from China. China is a
strategic competitor who seeks way to circumvent CFIUS protections.
China's industrial policies are the greatest challenge for CFIUS. The
laws, policies, and regulations that were adequate in the past, whether
for export control or for foreign investment, must be reviewed and
reconsidered to manage the challenge America faces from China's managed
economy. China's goal is to end its dependence on foreign technology
and overtake the U.S., as it has overtaken other Nations. \1\ This is
not a military conflict, but it has deep implications for American
security and for the prospects of an international system based on the
rule of law and democratic norms. The fundamental issue for the U.S.
and other Western Nations is how to respond to a managed economy with a
well-financed strategy to create domestic industries intended to
displace foreign suppliers.
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\1\ My colleague Scott Kennedy's research initiative ``Made in
China 2025'' explores this at greater length.
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Although it is a member of the World Trade Organization (WTO),
China does not follow WTO rules. Its public justification for this is
that China is still a developing economy and should not be held
strictly accountable, but this is nonsense for the world's second
largest economy. Compare the treatment of U.S. companies in China to
Chinese companies in the United States. When Alibaba built a data
center in Seattle, it was not forced to do this as a junior partner in
a joint venture, nor was it forced to provide source code, but U.S.
companies in China face these requirements. There are other countries
that want to challenge the global institutions created by the U.S. and
it allies after 1945, chief among them Russia, but the Russian economy
is in steady decline and while Russia is dangerous in many areas, it is
not an economic competitor.
One reason that China has gotten away with this for so long is that
many companies have been ambivalent about pushing back. They fear
retribution from China--a reasonable concern, since China is not shy
about retaliating against critics--and many do not believe the United
States will take action to support them against such retribution--also
a reasonable concern. China is a huge market that companies are
reluctant to risk, but as the consequences of China's industrial
policies become clearer, company attitudes have changed and there is
growing concern about unfair competition from the Chinese State.
If China followed international practices, its decisions to invest
in domestic industries would be unobjectionable. There would be
potentially profound effects on the global economy, but competition is
the nature of the market. But China has not hesitated to extract
concessions or block foreign competition in order to advance its own
firms. China's 5-year plans lay out the strategic economic and
technological goals that China will pursue and fund. These have had
mixed success in the past, but a steady, well-funded pursuit of its
economic and technological goals is one of the hallmarks of Chinese
policy. China is pulling ahead because it has a strategy to build a
high-tech economy and is willing to spend heavily and consistently to
achieve this. We do not always want to take Chinese propaganda
announcing technological success at face value, but China commits to
research and investment programs for decades, while our spending is
often limited to fits and starts.
China's announcement of an indigenously produced commercial
airliner illustrates Beijing's intent to ``move up the value chain,''
build industries, and displace Western firms. China's Soviet-supplied
aircraft factories made shoddy aircraft. When China opened its market,
Western firms rushed to sell aircraft. Part of the requirement for
market access was coproduction, where Chinese companies worked with
Western aircraft firms to make parts for Western commercial aircraft.
Coproduction, over 20 years, taught Chinese companies essential
production know-how, and the quality of Chinese aircraft has improved
markedly. Most of this transfer did not involve IP theft. However, the
Chinese Government will be tempted to use subsidies, pressure domestic
airlines to buy the new Chinese plane, and barriers to foreign
companies to give their manufactures an edge in China and in the global
market. These practices are not uncommon as Beijing seeks to promote
its domestic companies.
Semiconductors are another key industry for China and a major
concern for CFIUS. Since the 1960s, the United States has been the
leader in semiconductor manufacturing. A strong semiconductor sector is
crucial for growth in key high tech industries and will grow more
important as more devices are connected to the internet. Semiconductors
enable a broad a range of industries and serves a foundational role for
critical civilian and military digital technologies. Persistent Chinese
efforts to acquire semiconductor technology, combined with changes in
the industry, could create risks for the U.S. and opportunities for
potential attackers. In the last few years, there have been a number of
efforts by Chinese companies with links to the Government to buy
Western semiconductor firms, using a multi-billion-dollar acquisition
fund created by the Chinese Government. While the CFIUS process has
been successful in blocking many of these efforts, China's policy to
end its reliance on foreign semiconductors manufacturers by creating
its own companies has not changed and there will be continued pressure.
Chinese policy seeks to extract technologies from Western
companies; use subsidies and nontariff barriers to competition to build
national champions; and then create a protected domestic market for
these champions to give them an advantage as they compete globally.
Huawei is the best example of a now globally dominant Chinese company
built along these lines, but there are others. A senior Chinese
official once remarked that if China had not blocked Google from the
China market, there would be no Baidu. Various strategies are employed,
using barriers to trade, security regulations, procurement mandates,
acquisitions (both licit and illicit) of foreign technology, and
through strategic investments in or acquisition of foreign firms. In
addition, companies from the U.S. and other Western Nations have found
themselves under pressure to make long-term concessions in technology
transfer in exchange for market access.
Intellectual property (IP) theft is no longer the most important
problem. It is easy to overstate the cost of commercial cyber-
espionage. While China's policy has been to acquire Western IP from the
start of the opening of its market, and while the high point of IP
theft came from cyber-espionage between 2000 and 2015 (more a
reflection of our lax defenses than of Chinese skill), the situation
has changed considerably. Most of the estimates of the cost of Chinese
commercial espionage, however, are exaggerated. A country could steal
``$600 billion'' in IP and not gain $600 billion in value if it is
unable to turn the stolen IP into commercially valuable products. It
does little good to steal IP if you do not have the expertise to use
it, and until recently, this was true for China's espionage in advanced
technology. What has changed in the last decades is that in many cases,
China has the money and the skill to use much of the IP it has acquired
licitly or illicitly. In other cases, China has realized that acquiring
``know-hows'' is more important than acquiring IP, and has turned to
the purchase of Western companies as a key part of its new industrial
policies.
Because of past technology transfers through joint ventures and
coproduction, and in part because of heavy, sustained Government
investment in science and research, China has developed its own
innovation capabilities. In some technology areas, China may even be
the world leader. This is a good thing for the global market and
competition, and it should help spur a rethinking of America's relaxed
approach when it comes to technology and innovation. What is not good
is the Chinese Government's policy of using unfair business practices
to give Chinese companies an edge in marketing their innovations.
In the worst case, stolen IP means that the victim company faces a
new competitor. In China, this new competitor may have access to
Government subsidies or benefit from a protected domestic market built
with nontariff barriers to hobble foreign competition. Subsidized
Chinese companies have an immense advantage operating from a closed
domestic market and selling to an open international market.
Confronting China over these practices is long overdue, but the central
issue is not IP theft but the unfair treatment of U.S. companies in
China. The word that China fears is reciprocity--that they should be
treated in the United States the way American companies are treated in
China.
Concern over technology transfer has been an element of the U.S.-
China relationship for decades, but China's growing wealth and
sophistication poses a new kind of challenge U.S. regulation and
policy. Moreover, China's strategies for acquiring technology and,
perhaps, for circumventing FINSA, are relatively agile and attempt to
take advantage of this policy gap. The long-term viability of China's
managed economy model is an open question, but in the near term, it
creates new risks for U.S. companies and for national security.
One question for this hearing is whether the existing tools to
manage risk are adequate. These include export controls and foreign
investment reviews. Another question is whether a defensive strategy
that seeks to block Chinese acquisitions is enough. The answer is both
cases is that there is room for improvement. Improving the ability to
compete and to create new products in the United States is an essential
complement of maintaining U.S. national security and leadership in
technology.
We can review the question of the effectiveness of existing policy
tools like CFIUS by looking at some of the ideas for CFIUS reform. The
incentive for this review is that China appears to have looked for ways
around FINSA regulations. This needs to be addressed by expanding the
scope of covered transactions, by providing the Committee with
additional flexibility for review in difficult cases, by moving from a
transactional focus to better identify technology and business trends
that create risk, finding ways to cooperate with foreign partners, and
by ensuring it has the resources and information needed to timely
decisions.
Some recommendations, such as expanding CFIUS's jurisdiction to
review transactions that do not result in foreign control of a company
but still allow access to technology, or expanding CFIUS authority to
review overseas joint ventures, are better handled by export controls.
The same is true for having CFIUS create lists of critical technology.
The Departments of Defense, Commerce, and State already maintain such
lists for export control purposes and while in some cases these lists
need to be updated to focus on new and truly crucial technologies,
another list is unnecessary.
Similarly, while it may be helpful to the CFIUS committee to have
access to lists that identify countries of concern and broader
technology trends, these are competencies already found in the National
Intelligence Council (NIC), which already has a CFIUS support group and
is required by FINSA to review CFIUS applications. The NIC would
require additional resources if these tasks were added to its
portfolio, but one important goal for change should be to expand
CFIUS's current transactional focus.
FINSA gives the NIC a statutory role in the CFIUS process, but it
does not have a ``vote'' on the committee. This is appropriate and
should not change, both because of our long-standing principle of not
giving intelligence agencies a role in policy-making and because the
Departments of Defense and Justice, who are member of the intelligence
community (IC), already protect IC equities in the CFIUS process.
CFIUS already has an implicit policy of greater scrutiny of
transactions involving Chinese State Owned Enterprises (SOEs). These
transactions already face significant hurdles, but it may be worth
considering more explicit policies targeting SOEs.
Adding new Cabinet agencies that do not have a national security as
a primary mission to the CFIUS committee would be inadvisable. The net
effect would be to complicate a process and dilute its focus on
national security. Twelve years ago, the French Government blocked the
acquisition of the yogurt maker Danone (known in the U.S. as Dannon) by
an American company to protect a national champion. This sounds and was
ridiculous. We do not want to find ourselves in a similar situation,
nor would it be advisable to make the CFIUS process more complicated.
This applies to the question of mandatory filing as well. One authority
provided by FINSA was the ability of the President to return to any
foreign acquisition and reverse it. This ``evergreen'' provision
creates a powerful incentive for filing.
The most difficult issue in considering how to expand the scope of
covered transactions is whether to expand CFIUS authorities to cover
``Greenfield'' investments. This is a difficult issue because many
entrepreneurs, researcher and companies welcome Chinese investment in
advanced technology. American companies maintain many research
facilities in China. Finding a way to better grasp the potential risks
of Chines greenfield divestment would require knowing the extent to
which the source of Chinese investment was actually Beijing, ensuring
that export control regulations are being observed, and giving CFIUS
the scope to intervene if considered necessary for national security.
The U.S. would also benefit from a more formal cooperative
mechanism. Informal cooperation exists now but this could be
strengthened. Japan has adopted new regulations on ``inward
investment'' and the European Union is drafting regulation to provide
guidance to its members. All of them are motivated by the same
challenge (although they do not say it publicly), that challenge being
China's industrial policies. There is a good opportunity now to
increase formal information sharing and cooperation in these matters to
ensure that if an acquisition is denied on one country that others are
aware of the denial and the reasons for it.
The decision to locate CFIUS in the Treasury Department was made to
show that the goal is to encourage foreign investment while mitigating
any risk to national security. This decision remains sound. It would
not be useful to impose a ``net benefit'' or ``reciprocity'' test on
foreign investment. These considerations are best left to the market,
which takes these factors into account in its pricing mechanisms. The
goal in any measure to strengthen CFIUS should be keep this open
investment environment.
U.S. efforts to get China to follow global norms on technology,
trade, and investment is long overdue, but it will not work without a
strategy on how to move ahead in technology. The United States has
innate advantages, with the strongest scientific base in the world,
leading technology companies, and an innovative culture that others
find difficult to match. Strengthening and revitalizing the partnership
among companies, universities, and Government can reignite U.S.
innovation, but it will require a willingness to invest seriously in
growth.
Reports that the Trump administration will challenge China over
unfair trade practices are good news, but this needs to be accompanied
by policies to accelerate the creation of new goods and services in the
U.S. Innovation has become a buzzword and everyone is for it.
Innovation means creating new products and services, either by
improving existing products or by taking advantage of scientific
discoveries. Companies spend heavily on developing new products, but
very little on developing new ideas. A lack of support for research
limits American innovation and economic growth.
Everyone agrees that innovation is essential for America prosperity
and security, but America lives in a post-innovation environment of its
own making. The Nation that is coasting on the science investments of
the Cold War, and underinvestment in research slows growth in income
and productivity. For developed economies, innovation is the best way
to grow, by finding better ways to use existing resources to produce
goods and services. There are many reasons why productivity growth in
the United States is flat, but underinvestment in scientific research
is one of them, and this creates a self-imposed disadvantage in
military and economic competition with China.
The innovation ecosystem is complex, interconnected, and global,
but it is ``pay-to-play.'' Restoring U.S. strength in innovation
requires investment, both by encouraging private sector investment and
by Government spending in those areas, like basic research, where
private sector spending is likely to be insufficient. China has
allocated billions of dollars for investment for research in and
acquisitions of advanced technologies that are key to future economic
growth, including semiconductors, 5G telephony, artificial
intelligence, and super computers. The United States allocates millions
for the same efforts, meaning we are being outspent a thousand to one.
We do not want to take media hyperbole about a war over AI or
supercomputing too seriously, but we also do not want to watch as
others pass us.
There are other areas where policy changed could improve American
innovation and economic performance. The recommendations of the
International Monetary Fund for the U.S. economy include tax reform,
less regulation, increased infrastructure spending, deficit reduction,
educational improvements, and improved trade agreements. These can be
contentious issues, but a decision to match China in investment for
science and technology should not face the same debate.
It is important not to exaggerate China's strength. It faces
immense problems in Government debt, life-threatening pollution,
mismanagement, and corruption, but under its current leaders, it
intends to displace the United States and building globally dominant
high tech industries is a part of this strategy. China's leaders are
practical, however, and its behavior can be changed, however, if the
U.S. develops a coherent strategy in cooperation with key allies. CFIUS
is not the only tool we can use in this, but it is one of the most
important. I thank the Committee for the opportunity to testify and
look forward to any questions.
RESPONSES TO WRITTEN QUESTIONS OF SENATOR BROWN
FROM CLAY LOWERY
Q.1. In light of recent news that 143 million Americans'
personal information held by Equifax was hacked, and past
incidents, like the OPM breach, in which millions of Federal
employees' personal information was obtained by a foreign
State, it seems to me that protecting Americans from cyber-
related threats is more important than ever.
In your experience, if a foreign company that may have ties
to a foreign Government is trying to acquire a U.S. company
that has access to the personal data of millions of Americans,
what national security concerns CFIUS would consider? How would
CFIUS be able to mitigate those concerns?
A.1. When investigating a foreign direct investment (FDI),
CFIUS examines (i) the threat of the acquirer, including its
relationship to its home Government and (ii) the vulnerability
of the asset being purchased. Increasingly, a key vulnerability
for CFIUS to consider is the accumulation of substantial
personally identifiable data. In most cases, CFIUS should
generally be able to mitigate such concerns if they present a
risk to national security. In fact, I would argue CFIUS has the
obligation to try to find mitigation in such cases in order to
meet its dual mandate: protect national security and promote
foreign investment. In cases when the national security risks
cannot be mitigated, CFIUS should, if necessary, recommend to
the President that he block the transaction.
Q.2. As I mentioned in my opening statement, I think we need to
keep a close watch on how much of the research capabilities in
agriculture, particularly R&D relating to seeds, is owned by
our adversaries. I believe additional oversight of our
country's agricultural assets is critical to protecting our
Nation's food supply. Do you believe that agriculture and food
security are important to U.S. national security? In the case
of CFIUS reviews of foreign acquisitions of agricultural assets
for national security risks, is USDA appropriately included in
the process?
A.2. I do think food security issues can rise to the level of
being national security risks and transactions may need to be
reviewed by CFIUS. CFIUS has had the ability to bring
appropriate expertise throughout the Government, when
necessary. In my experience, USDA has been brought into CFIUS
transactions when necessary and appropriate. I would, however,
suggest caution with regards to the proposal to make USDA a
full member of CFIUS, primarily because the vast bulk of
current transactions that go through CFIUS have little to do
with USDA expertise and could be a poor allocation of scarce
resources.
Q.3. In your testimony and at the hearing, you suggest that
CFIUS could use more resources. If its resources were
increased, how could those resources be most effectively used
to better protect national security? Should it be allocated to
monitoring M&A activity, reviews, investigations, mitigation,
or something else?
A.3. CFIUS has been overloaded for the past couple of years and
this has harmed its ability to conduct its investigations in an
efficient and thorough manner. While having more resources for
mitigation monitoring is probably necessary, this could be
outsourced to trusted private sector service firms. The
investigation and disposition of transactions, however, must be
done by the Government and this seems to be the more immediate
need.
------
RESPONSES TO WRITTEN QUESTIONS OF
SENATOR MENENDEZ FROM CLAY LOWERY
Q.1. Last year, due to increasing pressure from Venezuela's
economic crisis, PdVSA, Venezuela's State-owned oil company
pledged 49.9 percent of its shares in U.S. oil company Citgo to
Russia's Government-owned oil company, Rosneft. Citgo is owned
by PdVSA, and it operates pipelines and oil refineries
throughout the U.S. It is my understanding that Rosneft may
have also acquired additional ownership shares of PdVSA on the
open market, which could bring their ownership potential to
more than 50 percent. Respected market analysts have predicted
that PdVSA could default on its debt to Rosneft in the near
future. If such a default were to occur, Rosneft would then
acquire at least a 49.9 percent ownership stake in Citgo.
If PdVSA defaults on its debt, Rosneft would acquire, at a
minimum, a near-majority ownership stake in Citgo, which has 48
petroleum product terminals, three refineries in Texas,
Louisiana, and Illinois, and nine pipelines throughout the
United States. In your opinion, would such an acquisition
generate national security concerns?
In your opinion, should CFIUS review any acquisition of
Citgo by Rosneft?
Are there any statutory limits that constrain CFIUS's
authority to review foreign acquisitions of U.S.-based
companies that are owned by foreign companies, as would be the
case if Rosneft were to acquire Citgo?
A.1. It is hard for me to comment on this transaction because I
do not have any insight into the specifics. In general,
however, under the regulations (see Section 800.303 and Section
800.304), CFIUS may find a convertible debt instrument to be an
instance of a ``covered'' transaction as defined in the
regulations.
Q.2. To my knowledge, CFIUS does not have a process requiring
members to recuse themselves from a review if they have
conflicts with a particular transaction.
Would it concern you if members of the CFIUS had prior
employment engagements, personal financial holdings, or other
interests that served to impede their ability to objectively
review transactions? In such cases, do you believe that CFIUS
members should recuse themselves?
In your opinion, should CFIUS establish a recusal process
governing member participation in the event of potential
conflicts?
A.2. CFIUS is essentially a committee of individual agencies in
which the Treasury Department chairs. It is not an established
bureau or other legal entity of the Treasury Department. The
ethics requirements and regulations of each agency are
applicable to the employees of those agencies so members should
be recusing themselves when appropriate under current law. In
my experience, individuals within CFIUS recused themselves from
transactions based--I believe--on the ethics rules and
commitments that they had with their respective agencies.
During my time at CFIUS, a number of officials from different
agencies did recuse themselves from transactions, even in cases
where the connection to the purchasing or targeted firm was
tenuous.
------
RESPONSES TO WRITTEN QUESTIONS OF SENATOR BROWN
FROM KEVIN J. WOLF
Q.1. In light of recent news that 143 million Americans'
personal information held by Equifax was hacked, and past
incidents, like the OPM breach, in which millions of Federal
employees' personal information was obtained by a foreign
State, it seems to me that protecting Americans from cyber-
related threats is more important than ever.
In your experience, if a foreign company that may have ties
to a foreign Government is trying to acquire a U.S. company
that has access to the personal data of millions of Americans,
what national security concerns CFIUS would consider? How would
CFIUS be able to mitigate those concerns?
A.1. I agree that foreign Government access to or control over
PII of U.S. persons, particularly Government employees, can
present national security concerns warranting CFIUS mitigation
or other action. If, for example, as part of its espionage
activities directed against the United States, a foreign
Government were to acquire large quantities of PII about U.S.
Government employees, it could mine such data for compromising
or embarrassing personal information that could be used to
coerce employees to engage in activities contrary to the
interests of the United States. Examples of such information
could be indications of a child's drug problem, extra-marital
affairs, gambling problems, or large financial debts. Often
people would like to keep such personal information
confidential. A foreign Government could trade on this general
desire to motivate such employees to engage in illegal or
unethical activities in exchange for a promise to not release
the comprising information. In my experience, CFIUS has been
able to mitigate such issues. Although the applicable laws
prohibit me from referring to any particular case, there are,
in general, ways of mitigating such concerns. For example,
CFIUS could require as a condition for clearance that a U.S.
company be created and then managed and controlled by U.S.
citizens. This would ensure U.S. person control over all U.S.
person PII involved in the transaction. The foreign buyer would
still receive financial gain from the transaction and engage in
other activities unrelated to the PII, but would not have the
ability to access the PII because of the U.S. person
intermediary that was established. Although every transaction
is different in terms of risk and financial considerations,
other mitigation efforts could include audits of how the PII is
being secured.
Q.2. Which agency, or agencies, are best equipped to identify
threats from the transfer of critical technology, dual-use
technology or early stage technology know-how, intellectual
property theft and espionage, and cyberthreats, to name a few?
A.2. No one agency is, could, or should be solely responsible
for identifying such technology and know-how. The technologies
are too varied. Issues warranting technology control range, for
example, from bird flu information to Artificial Intelligence
software to robotics technology to advanced semiconductor
production technology. There are hundreds of other examples.
Different agencies have different equities and expertise, which
makes them better able to identify more precisely technologies
and threats of particular concern.
The Commerce Department's Bureau of Industry and Security
(BIS) is, however, the best single agency to lead and
coordinate efforts to identify and control such technologies.
Indeed, the primary purpose for its existence and the
regulations it administers--the Export Administration
Regulations (EAR)--is to be responsible for such efforts. It
has a staff of experts in most areas of technology, a licensing
system to regulate the control of dual-use and commercial
technologies of concern, policy staff to revise and update the
controls, and, unlike any other export control agency, its own
enforcement officials.
The list of dual-use and commercial technologies, which
include know-how, that are now controlled for export is the
Commerce Control List (CCL). See: https://www.bis.doc.gov/
index.php/regulations/commerce-control-list-ccl. It is a
lengthy, complex list that is the result of decades of
interagency and allied efforts to identify dual-use and
commercial technologies that warrant control for national
security, foreign policy or other reasons. The list primarily
implements controls agreed to with our multilateral regime
partners to regulate the flow of commercial technologies and
other items that also have military, nuclear, biological/
toxicological, and missile applications. It also contains some
unilateral controls on items of particular concern to the
United States, such as commercial satellites and related
technology. It is relatively easy to update and can be revised
without the need for new legislation.
The difficult part is identifying new technologies of
concern, which is particularly challenging given the fast
evolution of commercial technologies. (This issue is a large
part of what is motivating consideration of whether to expand
the scope of CFIUS reviews.) During the Obama administration,
Commerce worked closely with the Defense Department, State
Department, and other departments to substantially revise and
update the list of military and space items warranting control.
This effort, which affected hundreds of thousands of military
and space items, took all available extra time of hundreds of
U.S. Government experts to complete over the course of 7 years.
Indeed, we only published our final military and space reform
regulations in the weeks prior to the end of the
Administration.
This reform effort was done on top of the existing and
generally well-run interagency effort to update annually the
existing lists of items controlled by the multilateral export
control regimes. Regardless of what happens with the FIRRMA
bill, I strongly believe that Congress should ask of, and
provide support to, a massive Administration effort to identify
the emerging critical technologies of concern that are not now
controlled but should be. No one knows precisely what these
technologies are, but BIS exists to lead such an interagency
and whole-of-Government effort to identify and control them.
There is no need to create whole new systems or agencies to do
exactly what BIS is already specially designed to do. BIS and
the agencies it works with will, however, need additional
resources to create the regular process for researching,
analyzing, and defining novel technologies identified in FIRRMA
that are of concern. They are not as easy to identify and
describe clearly as technology for use in traditional military,
nuclear, biological/toxicological, or missile applications.
With respect to the second part of your question, BIS is
not the right agency to lead efforts to stem the theft of
intellectual property, acts of espionage, or cyberthreats.
Although BIS can certainly provide support to such efforts in
several ways, such issues are better led by the Departments of
Justice and Homeland Security.
Q.3. If a foreign company is engaged in any of these activities
and is acquiring a U.S. firm, will CFIUS consider this as part
of the review or investigation?
A.3. CFIUS indeed considers export control, IP theft,
espionage, and cyber-issues when deciding whether to approve,
mitigate, or block a proposed transaction. If another area of
law can address the concern, such as export controls, then
CFIUS does not act. If another area of law cannot, then CFIUS
factors the threat into its analysis of what action it should
take.
Q.4. Are there areas were CFIUS should play a larger role or
have additional authority to address national security threats?
A.4. Yes. CFIUS should have more authority to: (1) control real
estate transactions near sensitive military or other Government
facilities; (2) share information with allies as part of its or
common considerations of transactions, taking into account
business proprietary and classified information sensitivities;
and (3) address changes in existing relationships, such as
through bankruptcies, that would create national security
concerns. More importantly, CFIUS needs massively more funding
and staffing to review a significant increase in covered
transactions--and covered transactions that are more complex.
The agencies can barely handle the workload they have now,
which harms both national and economic security because of the
uncertainty and delay it injects into the system. CFIUS also
needs more resources in various departments to research and
investigate covered transactions that are not filed with the
committee.
Q.5. As I mentioned in my opening statement, I think we need to
keep a close watch on how much of the research capabilities in
agriculture, particularly R&D relating to seeds, is owned by
our adversaries. I believe additional oversight of our
country's agricultural assets is critical to protecting our
Nation's food supply. Do you believe that agriculture and food
security are important to U.S. national security? In the case
of CFIUS reviews of foreign acquisitions of agricultural assets
for national security risks, is USDA appropriately included in
the process?
A.5. Yes. Without commenting on any particular case,
acquisitions in the agricultural sector generally do not create
national security threats. It is conceivable that a large
enough one or one with a hostile buyer though could present
national security issues. This is why CFIUS has the authority
to--and indeed does invite--agencies not normally part of CFIUS
to participate if they have particular equities in the matter.
In my experience, USDA and other similar agencies are routinely
invited to participate in cases involving agriculture or food
security, and their expertise is given great weight by the
committee as part of the CFIUS review process.
Q.6. In your testimony and at the hearing, you suggest that
CFIUS could use more resources. If its resources were
increased, how could those resources be most effectively used
to better protect national security? Should it be allocated to
monitoring M&A activity, reviews, investigations, mitigation,
or something else?
A.6. Yes. CFIUS needs help in all these areas. Each of the
agencies, particularly the economic agencies need more people
with business and national security backgrounds reviewing
transactions that occur but are not filed. They need an ever-
growing number of people to be involved in mitigation
arrangements. Without such staff, mitigation will not be
considered an option and the committee will effectively be
forced to recommend a block rather than a resource-consuming
mitigation arrangement. Every agency needs more subject matter
experts in business and the technologies at issue. Now, the
staff are taken from existing resources. As hiring freezes and
budget cuts delay the recruiting of new staff, the problems
compound. As the cases become more complex and more cases go to
investigation, more staff are needed. Treasury and the other
departments can give you a better assessment of resource needs,
but, in my Government and private sector experience, resources
for a significant number of new career officials is needed even
without an expansion of CFIUS' scope. If it is expanded, it
will take a significantly larger allocation and recruiting
effort to get the staff needed to handle the hundreds or
thousands of new cases that would come in.
------
RESPONSES TO WRITTEN QUESTIONS OF
SENATOR MENENDEZ FROM KEVIN J. WOLF
Q.1. Last year, due to increasing pressure from Venezuela's
economic crisis, PdVSA, Venezuela's State-owned oil company
pledged 49.9 percent of its shares in U.S. oil company Citgo to
Russia's Government-owned oil company, Rosneft. Citgo is owned
by PdVSA, and it operates pipelines and oil refineries
throughout the U.S. It is my understanding that Rosneft may
have also acquired additional ownership shares of PdVSA on the
open market, which could bring their ownership potential to
more than 50 percent. Respected market analysts have predicted
that PdVSA could default on its debt to Rosneft in the near
future. If such a default were to occur, Rosneft would then
acquire at least a 49.9 percent ownership stake in Citgo.
If PdVSA defaults on its debt, Rosneft would acquire, at a
minimum, a near-majority ownership stake in Citgo, which has 48
petroleum product terminals, three refineries in Texas,
Louisiana, and Illinois, and nine pipelines throughout the
United States. In your opinion, would such an acquisition
generate national security concerns?
A.1. I do not know enough about the financial arrangements to
be able to opine. My experience with complex cases such as this
is that they require a significant amount of analysis and
detail before coming to a conclusion that there are no
unresolved national security risks.
Q.2. In your opinion, should CFIUS review any acquisition of
Citgo by Rosneft?
A.2. I do not know, but, based on the information provided, it
seems as there would be foreign ownership or control of a U.S.
business.
Q.3. Are there any statutory limits that constrain CFIUS's
authority to review foreign acquisitions of U.S.-based
companies that are owned by foreign companies, as would be the
case if Rosneft were to acquire Citgo?
A.3. I do not believe so, but would need to research the issue
to be certain.
Q.4. To my knowledge, CFIUS does not have a process requiring
members to recuse themselves from a review if they have
conflicts with a particular transaction.
Would it concern you if members of the CFIUS had prior
employment engagements, personal financial holdings, or other
interests that served to impede their ability to objectively
review transactions? In such cases, do you believe that CFIUS
members should recuse themselves?
A.4. Yes, I would be concerned. The question describes a
conflict of interest. Yes, if such conflicts exist, they should
recuse themselves from the matter before the committee. If such
a person refused to recuse himself or herself, I would speak up
and ask that deliberations stop until the conflict issue was
resolved.
Q.5. In your opinion, should CFIUS establish a recusal process
governing member participation in the event of potential
conflicts?
A.5. Although the idea is worth discussing, it is probably more
efficient for the individual members to work with the ethics
counsel at the departments for which they work to ensure their
understanding of and compliance with applicable ethics rules.
CFIUS is a committee; it is not a stand-alone agency. Thus, it
does not have the infrastructure of a regular bureau, agency,
or department to provide support to the members. Also,
conflicts for Government officials do not potentially arise
only in CFIUS matters, but also in many other aspects of their
day-to-day work. Thus, it makes more sense for ethics education
and compliance to be a focus of the employee's department. That
said, your question suggests the existence of an issue that I
do not know about. A reasonable response by the Treasury
department CFIUS leaders if there is a possible issue would be
to remind the staff and political members of the committee of
their ethics obligations and that they should work with their
department's counsel to understand the scope of their
obligations.
------
RESPONSES TO WRITTEN QUESTIONS OF SENATOR BROWN
FROM JAMES A. LEWIS
Q.1. In light of recent news that 143 million Americans'
personal information held by Equifax was hacked, and past
incidents, like the OPM breach, in which millions of Federal
employees' personal information was obtained by a foreign
State, it seems to me that protecting Americans from cyber-
related threats is more important than ever.
In your experience, if a foreign company that may have ties
to a foreign Government is trying to acquire a U.S. company
that has access to the personal data of millions of Americans,
what national security concerns CFIUS would consider? How would
CFIUS be able to mitigate those concerns?
A.1. I have recently written a CSIS Commentary on the risks of
foreign access to data through the acquisition of American
companies. Here is the link: https://www.csis.org/analysis/
understanding-ant-big-data-and-cfius.
The gist of the essay is that CFIUS was created to protect
the defense industrial base; homeland security and critical
infrastructure were added by the FINSA reforms of 2007; now it
is time to add access to data as a consideration. Legislation
is not necessary to do this, but adding language on data to
legislation would send a clear signal.
Q.2. As I mentioned in my opening statement, I think we need to
keep a close watch on how much of the research capabilities in
agriculture, particularly R&D relating to seeds, is owned by
our adversaries. I believe additional oversight of our
country's agricultural assets is critical to protecting our
Nation's food supply. Do you believe that agriculture and food
security are important to U.S. national security? In the case
of CFIUS reviews of foreign acquisitions of agricultural assets
for national security risks, is USDA appropriately included in
the process?
A.2. That probability is very low that nations seeking to use
force or coercion against the U.S. does will exploit food as a
vulnerability. The one area where consideration of agriculture
may have merit is in the acquisition of advanced research or
genetic manipulation techniques. CFIUS, in these cases, could
consult with USDA to consider the risk from the potential loss
of intellectual property.
Q.3. In your testimony and at the hearing, you suggest that
CFIUS could use more resources. If its resources were
increased, how could those resources be most effectively used
to better protect national security? Should it be allocated to
monitoring M&A activity, reviews, investigations, mitigation,
or something else?
A.3. Better tracking of M&A activity in the U.S. and abroad,
including trends in research and development that could lead to
new companies or products, would be useful, as would additional
resources to the Intelligence Community entity that supports
CFIUS (which I occasionally advise). Monitoring of risk-
mitigation agreements are best performed by the Defense
Security Service (DSS) and an expanded workload would require
more resources.
------
RESPONSES TO WRITTEN QUESTIONS OF
SENATOR MENENDEZ FROM JAMES A. LEWIS
Q.1. Last year, due to increasing pressure from Venezuela's
economic crisis, PdVSA, Venezuela's State-owned oil company
pledged 49.9 percent of its shares in U.S. oil company Citgo to
Russia's Government-owned oil company, Rosneft. Citgo is owned
by PdVSA, and it operates pipelines and oil refineries
throughout the U.S. It is my understanding that Rosneft may
have also acquired additional ownership shares of PdVSA on the
open market, which could bring their ownership potential to
more than 50 percent. Respected market analysts have predicted
that PdVSA could default on its debt to Rosneft in the near
future. If such a default were to occur, Rosneft would then
acquire at least a 49.9 percent ownership stake in Citgo.
If PdVSA defaults on its debt, Rosneft would acquire, at a
minimum, a near-majority ownership stake in Citgo, which has 48
petroleum product terminals, three refineries in Texas,
Louisiana, and Illinois, and nine pipelines throughout the
United States. In your opinion, would such an acquisition
generate national security concerns?
In your opinion, should CFIUS review any acquisition of
Citgo by Rosneft?
A.1. CFIUS should review this acquisition.
Q.2. Are there any statutory limits that constrain CFIUS's
authority to review foreign acquisitions of U.S.-based
companies that are owned by foreign companies, as would be the
case if Rosneft were to acquire Citgo?
A.2. I do not believe there are limitations if some link to the
U.S. can be demonstrated. The legislation proposed by Senator
Cornyn would help make clear that CFIUS has the authority to
review such transactions.
Q.3. To my knowledge, CFIUS does not have a process requiring
members to recuse themselves from a review if they have
conflicts with a particular transaction.
Would it concern you if members of the CFIUS had prior
employment engagements, personal financial holdings, or other
interests that served to impede their ability to objectively
review transactions? In such cases, do you believe that CFIUS
members should recuse themselves?
In your opinion, should CFIUS establish a recusal process
governing member participation in the event of potential
conflicts?
A.3. CFIUS members represent agencies and do not act in their
individual capacity. Agency positions go through an internal
clearance process, and the CFIUS process itself works against
self-interest. If an individual representative has a conflict
of interest, he or she would normally be replaced by another
individual from the agency in question, but in general, what is
being presented is an agency view.
Additional Material Supplied for the Record
STATEMENT SUBMITTED BY THE RAIL SECURITY ALLIANCE
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
LETTER SUBMITTED TO THE TRUMP ADMINISTRATION ON CHINESE EQUITY CAPS
FINANCIAL SERVICES SECTOR
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
CHINA'S TECHNOLOGY TRANSFER STRATEGY
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]