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Chairwoman Pryce, Ranking Member Maloney and other Members
of the Committee, I appreciate the opportunity to testify
before you today. I am a partner in the law firm of DLA Piper
Rudnick Gray Cary. From 2003-05, I served as the General Counsel
in the Office of the United States Trade Representative (USTR)
and represented the Office on the Committee for Foreign Investment
in the United States (CFIUS).
Based on this experience, I am pleased to testify on how
I believe H.R. 5337, Reform of National Security Reviews of
Foreign Direct Investments Act, could impact the twin goals
of protecting national security and promoting investment in
the United States. These comments also represent the views
of the Business Roundtable, the Organization for International
Investment, the Financial Services Forum, and the United States
Chamber of Commerce.
First and foremost, we appreciate the deliberative and bipartisan
manner in which this legislation has been developed.
The bill takes several important steps to protect against
foreign acquisitions that might threaten national security.
It creates a clear statutory role for the Director of National
Intelligence to review proposed acquisitions.
It provides for the ability to extend the investigation
period if security issues are not resolved.
It provides authority for CFIUS to reconsider previously
approved transactions if security agreements are seriously
breached.
And, it requires acquisitions by foreign state-owned entities
to undergo the 45-day investigation period.
We support strong measures to assure that national security
interests are protected. Some provisions in the bill, however,
add regulatory burdens that serve no national security interest.
These burdens have the potential to discourage investment
in the United States while providing no offsetting national
security benefit.
As the events of September 11, 2001 painfully demonstrated,
threats to our national and homeland security can lie in the
most unlikely of places. We need systems to effectively identify,
mitigate and counter these security threats.
A potential source of risk stems from the foreign acquisition
of U.S. companies. While it is wrong to presume that
foreign ownership is inherently a security threat, it is reasonable
for the government to undertake an analysis of whether such
risks exist.
No president should ever hesitate to block an acquisition
that truly threatens national security. But, it is important
that the process by which such risks are considered
does not hamper legitimate foreign investment.
Since its creation in 1975, CFIUS has been the inter-agency
committee charged with determining the national security risks,
if any, associated with foreign acquisitions.
In recent months, it has become clear that confidence in
the CFIUS process has waned and that legislation is needed
to make substantive changes that will enhance confidence.
While I believe CFIUS has adapted itself to the post-9/11
threat environment and for the most part has worked well,
I understand the need to make changes to restore public confidence
in CFIUS and appreciate the intent of H.R. 5337 in serving
this goal.
In legislating on CFIUS, it is important that we not lose
sight of four key factors:
First, national security is paramount, but it relies heavily
on economic security. All prudent steps must be taken to reduce
risk. But regulatory systems that overreach by imposing burdens
that serve no national security benefit undermine U.S. economic
competitiveness.
Second, it is important for CFIUS to focus on the risks
created by the acquisition. There is a baseline risk
associated with the misuse of any U.S. company or asset. The
essential question for CFIUS is whether foreign ownership
itself creates a new and specific risk. If not, there is no
basis to deny the transaction.
Third, the CFIUS process should provide sufficient time to
vet thoroughly any security risks associated with a transaction.
But it should also provide clarity and certainty for approving
transactions that pose no security threat. The vast majority
of CFIUS filings are -- and can be -- processed within the
initial 30-day review period.
It is important that non-controversial acquisitions be approved
on the same 30-day timeline as the Hart-Scott-Rodino regulatory
process for antitrust reviews. Otherwise, foreign investors
would be unfairly discriminated against and U.S. asset owners
would be denied the opportunity to get the best price for
their assets.
Great care has been taken over the years to allow CFIUS to
meet its national security mission without having a chilling
effect on legitimate foreign investment. Having a common timeline
for both CFIUS and Hart-Scott-Rodino has been an essential
element in achieving this goal. Losing this common timeline
would discourage foreign investment and serve no security
benefit.
Acquisitions that raise security concerns still unresolved
at the end of the 30-day review period can be further vetted
in the 45-day investigation period. As such, preserving the
30-day limit on non-controversial filings need not compromise
CFIUS' primary goal of protecting national security.
Fourth, CFIUS should not become politicized. Foreign direct
investment in the United States is important for job creation
and economic development. We should encourage rather than
discourage such investment. Efforts to unfairly restrict investment
at home will also hurt American interests abroad. The United
States - through pension funds and other vehicles -- is the
largest foreign investor in the world and has the most to
lose if protectionist forces overtake investment policy.
On balance, these factors were considered in drafting H.R.
5337. The legislation strengthens CFIUS' focus on national
security without causing the process to get side-tracked on
matters unrelated to security.
In particular, the bill preserves CFIUS' ability to dispose
of filings within 30 days if there are no outstanding security
matters. This will allow investors to make decisions with
confidence that the regulatory process will not become bogged
down on non-security matters. More importantly, it will allow
CFIUS to focus on the minority of cases that have unresolved
security issues at the end of the 30-day review period.
Unfortunately, the bill's preservation of the 30-day review
period could be undermined by the requirement that the Director
of National Intelligence (DNI) have no less than 30 days to
complete its security assessment. The DNI should certainly
have sufficient time to complete its work but, in cases where
the analysis can be done in less than 30 days, it should be
allowed. There is no security benefit in preventing the DNI
from completing its work as quickly as the facts and circumstances
of a case allow.
Mandating that certain classes of acquisitions must
go to the 45-day investigation phase is dangerous because
it will force CFIUS at times to spend additional resources
on matters where there are no outstanding security matters.
Such mandates detract from CFIUS' proper focus on transactions
that threaten national security.
We understand the committee's desire to insist that acquisitions
by foreign state-owned companies be subject automatically
to the 45-day investigation. However, we encourage the Committee
to distinguish companies wholly owned and controlled by a
foreign government from those where the foreign government
is simply a minority investor. If no security threat exists,
CFIUS should have the flexibility to approve transactions
as quickly as possible, notwithstanding some foreign government
ownership.
Finally, we recognize the desire in Congress to impose a
statutory requirement to notify relevant committees of CFIUS
filings. Extensive and detailed reporting on individual CFIUS
filings invites a politicization of the process and risks
the disclosure of highly sensitive proprietary information.
We encourage the committee to use great caution in imposing
notice and reporting requirements, as they can divert scarce
CFIUS resources away from their national security focus.
The Department of the Treasury has already taken steps to
address concerns with investigations of foreign state-owned
companies and to coordinate more closely with the Congress
on CFIUS filings. These are important steps in rebuilding
confidence in the CFIUS process.
To the extent that Congress believes that statutory changes
are necessary to codify these changes and rebuild confidence,
H.R. 5337 achieves this goal. It codifies a process to identify
and respond to security threats posed by acquisitions while
recognizing the economic benefits of foreign direct investment.
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