[Congressional Record (Bound Edition), Volume 153 (2007), Part 13]
[Senate]
[Pages 18064-18067]
[From the U.S. 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

[[Page 18065]]

     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 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,

[[Page 18066]]

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 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

[[Page 18067]]

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.

                          ____________________