FACT SHEET | August 15, 2007
Democratic-Led Congress Strengthens the Nation's Security and Economy
Reforms Will Promote Foreign Investments Consistent with National Security Priorities
Following two years of debate about the need to reform the Administration’s national security review of foreign investment in the United States, the Democratic-led Senate Committee on Banking, Housing and Urban Affairs developed legislation that would make important reforms to ensure that the process is comprehensive, transparent, and credible. Signed into law by President Bush on July 26, the Foreign Investment and National Security Act of 2007 (P.L. 110-49) will go into effect in December.
Over the past few years, there has been increasing bipartisan concern over the operations of the Committee on Foreign Investment in the United States (CFIUS) and its lack of accountability to the Congress and to the public, and even within the Administration itself. This concern was spurred by the attempts by the government-owned China National Offshore Oil Corporation to acquire Unocal in 2005 and government-owned Dubai Ports World to acquire commercial terminal operations at six U.S. ports in 2006– proposed transactions that CFIUS had approved but that were ultimately abandoned. Based on a bipartisan consensus in the House and the Senate, the Foreign Investment and National Security Act of 2007 represents long-overdue, balanced reform. It will strengthen our nation’s security and provide for a more predictable, transparent review and investigation process that encourages job-creating foreign investment in the United States.
Specifically, by amending the Defense Production Act of 1950, the Foreign Investment and National Security Act of 2007:
·Formally establishes CFIUS, its membership, and specific agency roles. Previously the product of an Executive Order signed by President Ford in the 1970s, CFIUS is for the first time codified into law. The Act expands CFIUS membership to include the Secretary of Energy, and, on an ex officio basis, the Secretary of Labor.
The Act also requires the Treasury Secretary to designate a Lead Agency to negotiate and ensure compliance with any mitigation agreement or other conditions to ensure that national security is protected with respect to transactions falling within its jurisdiction (for example, the Department of Defense would be the Lead Agency in a review of a proposed defense acquisition). A mitigation agreement is a contract in which the foreign acquirer has agreed to mitigate national security risks short of abandoning the transaction altogether.
·Formalizes the role of the intelligence community inassessing and monitoring potential national security risks associated with foreign acquisitions of U.S. companies. The Act calls for a thorough national security threat analysis to be provided to CFIUS by all affected or appropriate intelligence agencies through the Director of National Intelligence.
·Establishes a predictable, more transparent process for the national security review of new transactions. The Act codifies the existing thirty-day CFIUS review of proposed acquisitions of businesses that potentially implicate security interests to determine the effects of the transaction on the national security of the Untied States. The Act makes clear that the national security of the United States also includes consideration of “homeland security” risks.
·Mandates a full national security investigation of foreign government-controlled transactions and proposed acquisitions of critical infrastructure in the United States. TheAct requires CFIUS to undertake a full investigation of a transaction if: 1) the review results in a determination that the transaction threatens to impair national security and that impairment has not been properly mitigated; 2) a transaction is a foreign government-controlled transaction; or 3) the transaction involves the proposed acquisition of critical infrastructure. “Critical infrastructure”includes “systems or assets, whether physical or virtual, so vital to the United States that the incapacity or destruction of such systems or assets would have a debilitating impact on national security.” The Act allows the Lead Agency and the Secretary of the Treasury to exempt a foreign-controlled transaction or transaction involving critical infrastructure from a full investigation, if they jointly determine that the transaction will not impair the national security.
At the end of an investigation, the President must decide within 15 days whether to take action to suspend, prohibit, or restrict the transaction, or take no action, taking into consideration mandatory factors that under previous authority had been discretionary.
·Ensures that high-level officials have approved CFIUS determinations. Any determination in a review or investigation that there is no threat to national security by the proposed transaction now requires the approval of high-level officials (Assistant Secretary or above) in each participating agency.
·Expands the factors that CFIUS must consider. Pursuant to the Act, CFIUS must now consider new factors in addition to the effects on U.S. national security. The new factors include the potential impact of a transaction on critical infrastructure, energy assets, and critical technologies. If the proposed acquisition involves a foreign government, CFIUS must consider the country’s compliance with U.S. and multilateral counterterrorism, non-proliferation, and export control regimes; and the potential for transshipment or diversion of technologies with military applications.
·Increases congressional oversight over the process. The Act requires CFIUS to report to Congress as soon as practicable after final action on a review or investigation. In addition, upon request, the Committee must report on a covered transaction, on a classified basis if necessary. CFIUS is also required to submit an annual report to specified committees of jurisdiction proving basic information related to the parties, transactions, CFIUS actions, cumulative and trend information, and an assessment of the vulnerability of critical technologies.
Due to the sensitive nature of the transactions and to encourage the voluntary submission of the transaction to CFIUS, the review and investigation process is confidential and is exempt from disclosure under the Freedom of Information Act. The Act makes clear that confidentiality protections will continue to be applied to CFIUS documents and information submitted to Congress.
·Enhances monitoring and authorizes the reconsideration of approved transactions to ensure ongoing compliance. The Act requires CFIUS to establish procedures to track transactions, to ensure that appropriate protections are in place. CFIUS must also monitor the implementation and fulfillment of any mitigation agreement. In addition, the Act authorizes CFIUS to reopen a prior review if: 1) false or misleading material information was submitted or material information omitted during the review or investigation; and 2) the Lead Agency certifies that the mitigation agreement was intentionally breached and CFIUS determines that no other remedies are available.
- Erika Moritsugu (224-3232)