[Congressional Record Volume 153, Number 107 (Friday, June 29, 2007)]
[Senate]
[Pages S8749-S8755]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]
FOREIGN INVESTMENT AND NATIONAL SECURITY ACT OF 2007
Mr. REID. Madam President, I ask unanimous consent that the Senate
proceed to the consideration of Calendar No. 197, S. 1610.
The PRESIDING OFFICER. The clerk will state the bill by title.
The bill clerk read as follows:
A bill (S. 1610) to ensure national security while
promoting foreign investment and the creation and maintenance
of jobs, to reform the process by which such investments are
examined for any effect they may have on national security,
to establish the Committee on Foreign Investment in the
United States, and for other purposes.
There being no objection, the Senate proceeded to consider the bill.
Mr. DODD. Madam President, section 721 of the Defense Production Act,
also known as the Exon-Florio amendment, Exon-Florio, established a
statutory framework for the U.S. Government to analyze foreign
acquisitions, mergers, and takeovers of privately owned entities within
the United States to determine whether such transactions affect the
national security of the United States. The Foreign Investment and
National Security Act of 2007 amends section 721 for the purpose of
strengthening the process by which such transactions are reviewed and,
when warranted, investigated for national security concerns. In
addition, the act provides for a system of congressional notification
so that Congress is able to conduct proper oversight of the national
security implications of foreign direct investment in the United States
to ensure that it is beneficial and has no adverse impact on U.S.
national security.
Exon-Florio established a four-step process for examining a foreign
acquisition: (1) voluntary notice by the companies; (2) a 30-day review
to identify any national security concerns; (3) an optional 45-day
investigation to determine whether identified concerns require more
extensive mitigation efforts or a recommendation to the President for
possible action; and (4) a Presidential decision to permit, suspend, or
prohibit an acquisition in those instances where potential national
security concerns cannot be mitigated.
During the standard review period, CFIUS conducts a national security
analysis to determine whether any national security issues exist with a
particular transaction, and if so, whether those concerns can be
mitigated. In practice, companies sometime ``pre-file'' with CFIUS,
providing information about the transaction in order to ensure that
CFIUS has all necessary information during the formal review period.
Further, companies may withdraw from the formal review in order to
address concerns on the condition that they re-file promptly with CFIUS
or abandon the transaction.
Therefore, while the vast majority of CFIUS transactions are approved
by the end of the 30-day review, the total time devoted to transactions
is sometimes longer. If national security concerns have not been
resolved during the 30-day review, CFIUS can extend its review to a
second stage 45-day investigation. At the end of a 45-day
investigation, the transaction is sent to the President for a decision,
accompanied by a CFIUS report and recommendation. Any transaction that
goes to the President must be reported to Congress. Transactions that
enter investigation may also be terminated before reaching the
President, with the companies voluntarily withdrawing and abandoning
the investment. Presidential decisions are also avoided in cases where
a mitigation agreement has been reached during the investigation period
and the companies withdraw from investigation and immediately refile.
Mitigation agreements, which are contracts with CFIUS or CFIUS
agencies entered into by the parties to the transaction, are an
important element of the CFIUS review and investigation process. These
agreements are intended to mitigate possible national security threats
posed by a transaction short of requiring that the parties abandon the
transaction altogether. The Department of Defense, hereafter DOD, has
for many years used various types of mitigation agreements under
existing DOD authority and regulations such as the National Industrial
Security Program Operating Manual, NISPOM, to address the impact of
foreign ownership and control over companies that have classified
contracts with the Pentagon or intelligence agencies. In recent years,
the Departments of Justice and Homeland Security have also done so.
S. 1610 reinforces CFIUS's capacity to refuse, suspend, modify or
reverse any transaction if a written notice of such transaction is not
filed with CFIUS or if there is an intentional material omission or
falsehood in connection with a completed CFIUS review or investigation,
or an intentional material breach in any posttransaction mitigation
agreement, and establishes a formal requirement that all filings with
CFIUS must be complete and accurate to the best of the filing party's
ability. Thus, the committee establishes a
[[Page S8754]]
clear signal that all violations of such notice certification should be
considered in the context of title 18, section 1001, and all
intentional breaches or misstatements could also lead to severe
modification or divestment of an acquisition of a previously reviewed
transaction at any time.
The bill also establishes a mechanism by which CFIUS can unilaterally
reopen a transaction that had previously been approved. My expectation
is that this authority will only be used in exceptional circumstances
when no other remedies exist and where there has been an intentional
breach that affects national security. For that reason, the bill
requires important procedural safeguards to ensure that this authority
is not used lightly--among other safeguards, it requires, for example,
that the decision to reopen a case is made at the same level of
seniority as is required in the bill for the approval of transactions.
The bill makes clear that CFIUS can only reopen a transaction if these
threshold tests are met.
Of necessity, the reviews and investigations, which contain
classified evaluations of national security vulnerabilities as well as
extensive proprietary business information, remain highly confidential.
Given this lack of transparency, there have been concerns over the
years about CFIUS's accountability to Congress and to the public,
particularly with regard to fundamental questions of whether CFIUS
policies are consistent with the statute, executive orders, and
regulations that govern its operations and whether CFIUS policies are
applied consistently from transaction to transaction.
CFIUS has explicit authority in the regulations to open a case in the
event that CFIUS discovers there has been a material misstatement or
omission in the information provided by the parties to the transaction.
CFIUS agencies also have all of the remedies that are normally
available under a contract in order to enforce the terms of the
mitigation agreement. In addition, in a large number of CFIUS cases,
and particularly those involving the Defense Department, CFIUS
approvals can be effectively nullified simply by ending the federal
agency's contracting relationship with the company. Defense-related
contracts are often a central element of CFIUS transactions, so the
threat of being denied a contract going forward ensures compliance with
the terms of mitigation agreements or other conditions agreed to by the
foreign investor.
On October 6, 2005, under the leadership of then-Chairman Richard
Shelby, the Committee on Banking, Housing, and Urban Affairs conducted
a hearing into the findings of the GAO report. Discussion between the
GAO witnesses and Banking Committee members further highlighted
deficiencies in implementation of Exon-Florio and the level of
dissatisfaction with the lack of communication between CFIUS and the
appropriate oversight committees of Congress. That hearing was followed
on October 20, 2005, by another hearing that allowed the Banking
Committee to hear directly from many of the agencies that comprise
CFIUS, including the Department of the Treasury, which has the lead
role in implementing Exon-Florio, as well as private sector
representatives.
In late January 2006 congressional offices became aware of the
proposed acquisition of terminal operations at a number of U.S.
maritime ports by Dubai Ports World, hereafter DPW, an established port
operator owned by the government of the Emirate of Dubai. Concern
within Congress about a transaction that would transfer control of
terminal operations to a company owned by a Persian Gulf emirate
through whose financial system funds had been transferred to the
terrorists who carried out the September 11, 2001, attacks upon the
United States, and that had been a central conduit for nuclear weapons
components being smuggled to hostile regimes, provided further impetus
for review of the manner in which foreign transactions were being
analyzed by CFIUS.
That senior White House officials, and the Secretaries and Deputy
Secretaries of the Departments of the Treasury and Homeland Security
were unaware of the Dubai Ports World transaction, combined with the
fact this transaction was not subjected to a formal investigation in
violation of the Byrd amendment, compounded congressional concerns
about the nature of the underlying transaction.
In response to congressional criticism related to the DPW case in
2006, CFIUS agencies pledged to address flaws in the CFIUS process
identified by Congress. There were 113 transactions filed with CFIUS in
2006, up 74 percent from the previous year. Because companies seek
CFIUS consideration voluntarily, this increase reflected greater
sensitivity among foreign investors, which in turn may reflect a more
aggressive stance from CFIUS. CFIUS conducted seven second-stage
investigations, the same number of investigations that had been
conducted over the previous five-year period. There was also an
increase in the number of companies withdrawing from CFIUS reviews and
investigations, which suggests a higher degree of scrutiny: either
companies withdrew for the purpose of terminating the underlying
transaction or in order to restructure the transaction to address CFIUS
concerns.
The number of cases in which CFIUS approved transactions with
conditions attached through mitigation agreements also increased. CFIUS
has also increased its Congressional outreach, notifying the
Congressional leadership and committees of jurisdiction upon completion
of CFIUS action on each transaction. Treasury also finally produced the
long-overdue quadrennial report on CFIUS-related issues as mandated by
the Defense Production Act of 1950.
In response to continued concerns regarding implementation of Exon-
Florio, on April 30, 2006, the Committee on Banking, Housing, and Urban
Affairs reported an original bill, S. 109-264, which made significant
amendments to Section 721 to strengthen the review and oversight
process. Senate bill 109-264 passed the Senate on July 26, 2006. On the
same day the House passed its own reform legislation, H.R. 5337. No
further action occurred on the bills prior to the adjournment of the
109th Congress.
On February 28, 2007, The House once again passed legislation
amending section 721 to strengthen the foreign investment review
process, H.R. 556--The National Foreign Investment Reform and
Strengthened Transparency Act of 2007. On May 16, 2007, the Senate
Committee on Banking, Housing and Urban Affairs convened to consider
and report an original bill--the Foreign Investment and National
Security Act of 2007--Proposed by Chairman Christopher J. Dodd, working
closely with Ranking Member Richard Shelby and drawing upon the
extensive work that members of the committee had undertaken on this
subject in the 109th Congress.
Let me offer a brief summary of the most important provisions of the
bill.
The Foreign Investment and National Security Act of 2007--
Establishes the membership of the Committee on Foreign Investment in
the United States, CFIUS, in statute;
Strengthens the role of the Director of National Intelligence,
hereafter DNI, by making the DNI an ex-officio member of CFIUS and
requiring that the Director undertake a thorough analysis of the
transaction with respect to any national security implications, engage
the intelligence community, and report the DNI's findings to the
committee within 20 days of the commencement of the CFIUS review.
Requires the DNI to update CFIUS with any additional relevant
intelligence information that becomes available during the course of a
review and/or investigation;
Mandates the designation of a lead agency or agencies for each
covered transaction, in addition to the Treasury Department, charged
with negotiating any mitigation agreement or other conditions to ensure
that national security is protected, and for follow-up compliance with
the terms of the agreement after the transaction has been approved by
CFIUS;
Provides for the 30-day review of covered transactions by CFIUS to
determine its effects on national security, and for sign-off at the
assistant secretary-level, or above, that there is no threat to
national security by the proposed transaction;
Provides for the 45-day investigation of covered transactions that
threaten to impair national security, including transactions involving
foreign government-owned companies and control of
[[Page S8755]]
critical infrastructure, and for sign-off at the Deputy Secretary level
that there is no threat to the national security by the proposed
transaction;
Provides for certain exceptions for the requirement that a state-
owned entity automatically go to the investigation stage if the
Secretary or Deputy Secretary of the Treasury, and the equivalent level
official in the lead agency, determine after review of the transaction
that national security will not be impaired by the transaction;
Requires assessment of a country's compliance with U.S. and
multilateral counterterrorism, nonproliferation and export control
regimes for acquisitions by stateowned companies in the investigation
stage;
Provides authority to the President to suspend or prohibit a covered
transaction if there is credible evidence that such transaction
threatens to impair U.S. national security;
Provides authority to CFIUS, or the lead agencies acting on behalf of
CFIUS, to negotiate, impose and enforce conditions necessary to
mitigate any threat to national security related to a covered
transaction;
Adds to the list of factors that CFIUS should consider in the conduct
of its reviews and investigation to include among other things
consideration of the potential impact of a transaction on critical
infrastructure, energy assets, or critical technologies;
Provides for written notice, to the Congress at the conclusion of the
CFIUS process for both reviews and investigations, providing details
about the transaction, including written assurance that the transaction
does not threaten to impair national security or that any initial
concerns have been mitigated through binding agreements between the
parties and CFIUS, or the lead agency or agencies designated by the
Chairman of CFIUS;
Provides for detailed annual reports to Congress on the activities of
CFIUS, including information concerning the transactions that have been
reviewed or investigated during the previous 12 months;
Provides for an investigation by the Inspector General of the
Department of Treasury to determine why the department failed to comply
with provisions of the Defense Production Act with respect to certain
reporting requirements related to potential industrial espionage or
coordinated strategies by foreign parties with respect to U.S. critical
technology by foreign parties; and
Provides for the issuance of regulations and guidance to carry out
the provisions of the Act.
Madam President, Ranking Member Richard Shelby and I believe that
Senate passage of S. 1610 as amended by the Dodd/Shelby substitute
amendment, which is largely technical in nature, will not only
implement needed reforms and thereby strengthen national security, but
also provide more transparency and predictability to the CFIUS process
that is important to ensuring that the U.S. economy continues to
benefit from the fruits of foreign direct investment. We strongly urge
our colleagues to support this important legislation.
Mr. SHELBY. Madam President, I rise in support of the Senate's
passage of the Foreign Investment and National Security Act of 2007.
This important bill reforms the process through which the Committee on
Foreign Investment in the United States reviews foreign investment in
our country. It establishes a process for reviewing foreign investment
transactions that thoroughly examines issues relating to national
security, involves clear lines of responsibility, and is flexible to
meet the demands of the market.
I appreciate the leadership and hard work of Chairman Dodd on this
matter.
labor management rights
Mr. CRAIG. Madam President, I rise today to commend Chairman Dodd and
Ranking Member Shelby on their work regarding the Committee on Foreign
Investment in the United States, CFIUS.
Last year, a company called Dubai Ports World sought to purchase
labor management rights to several U.S. ports, a proposal that was
approved by CFIUS. However, numerous Members of Congress, the media and
the American public quickly and loudly voiced concerns over the way in
which the CFIUS process had occurred. Because of the enormous outcry,
Senator Shelby, then Chairman of the Banking Committee, worked with
then-Ranking Member Senator Sarbanes, to make the CFIUS process more
transparent and much more effective.
I want to commend both Senators for their work on this legislation,
and I believe that their hard work has produced legislation that will
bolster American support for foreign investments.
Many different agencies within the Federal Government have the
responsibility to investigate foreign investment proposals before they
can be approved. Those agencies, including our intelligence community,
have a serious responsibility to ensure that each proposed foreign
investment in our country will not jeopardize national security. It is
my understanding that currently, the Director of National Intelligence
has the authority to tap any of the intelligence agencies within our
Federal Government to conduct analysis of technology transfers and
economic impacts of any foreign investment proposals. Senator Shelby,
is that your understanding of the responsibilities held by the Director
of National Intelligence?
Mr. SHELBY. The Senator is correct. Currently the DNI can use
different intelligence agencies to conduct economic analysis, including
technology transfers, to ensure that such foreign investment proposals
will not jeopardize our national security.
Mr. CRAIG. I thank the Senator. Madam President, the reason I bring
up that concern is that I do not believe that such analyses are
occurring, or that very little economic analysis is being conducted by
our intelligence communities.
I am hopeful that this legislation crafted by Senators Shelby and
Dodd will pass the Senate quickly and that it can be signed into law,
because America should be a country that welcomes foreign investment.
However, we must be absolutely certain that any investment into our
country will not have a negative economic impact or impair our national
security. I sincerely hope that the Director of National Intelligence
will participate fully in the CFIUS process and use all available
resources to ensure that all foreign investment proposals receive very
thorough and timely analysis to ensure congressional and public support
for increased investment in our country, while at the same time ensure
our national security is not placed in jeopardy.
Again, I would like to commend the chair and ranking member of the
Senate Banking Committee for their hard work and dedication to this
legislation and I will strongly support its passage.
Mr. REID. Madam President, I ask unanimous consent that a Dodd-Shelby
substitute amendment, which is at the desk, be agreed to, the bill, as
amended, be read the third time; further, I ask unanimous consent that
the Banking Committee be discharged from the consideration of H.R. 556,
and the Senate proceed to its consideration; that all after the
enacting clause be stricken, and the text of S. 1610, as amended, be
inserted in lieu thereof; the bill, as amended, be read the third time
and passed, and the motions to reconsider be laid upon the table,
without any intervening action or debate; that S. 1610 be placed back
on the calendar; that any statements relating to the bill be printed in
the Record.
The PRESIDING OFFICER. Without objection, it is so ordered.
The amendment (No. 2002) was agreed to.
(The amendment is printed in today's Record under ``Text of
Amendments.'')
The amendment was ordered to be engrossed and the bill to be read the
third time.
The bill (H.R. 556), as amended, was read the third time and passed.
____________________