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# Legislative Bulletin..............................................February 28, 2007

**Contents:**

**H.R. 556**---National Security Foreign Investment Reform and
Strengthened Transparency Act

H.R. 556---National Security Foreign Investment Reform and Strengthened
Transparency Act (*Maloney, D-NY*)

**[Order of Business]{.underline}**: The bill is scheduled to be
considered on Wednesday, February 28^th^, subject to a modified open
rule, which will allow any germane amendment to be offered, as long as
it is pre-printed in the *Congressional Record* by close of business on
Tuesday, February 27^th^. For instructions on how to pre-print an
amendment, visit this Rules Committee webpage:
<http://www.rules.house.gov/announcement_details.aspx?NewsID=2516>.

H.R. 556 is nearly identical to H.R. 5337 from the 109^th^ Congress, a
Rep. Roy Blunt bill that passed 424-0 on July 26, 2006:
<http://clerk.house.gov/cgi-bin/vote.asp?year=2006&rollnumber=404>.

**[Summary]{.underline}:** H.R. 556 would establish in law the Committee
on Foreign Investment in the United States (CFIUS), by amending the
Defense Production Act of 1950 (50 U.S.C App. 2170). CFIUS, established
by Executive Order 11858 in 1975 by President Ford, is the federal
committee that governs foreign direct investment (FDI) in the U.S.,
including acquisitions of U.S. companies by foreign entities. H.R. 556
would formalize and expand the review and investigation process under
which CFIUS currently operates. The specific provisions of H.R. 556 are
summarized below:

-   Defines various terms in law relating to the operation of CFIUS and
    foreign investments, such as: covered transaction (any merger,
    acquisition, or takeover by or with a foreign person that could
    result in foreign control of any person engaged in U.S. interstate
    commerce), foreign government-controlled transaction (a covered
    transaction involving a foreign government or entity controlled by a
    foreign government), and national security (construed to include
    homeland security and its application to critical infrastructure);

-   Directs CFIUS to [review]{.underline} any proposed foreign merger or
    acquisition (covered transaction) of a U.S. entity, upon written
    notification or a motion made by a CFIUS member (discussed below),
    to determine the effects of the transaction on the national security
    of the United States;

-   Requires CFIUS to conduct an [investigation]{.underline} of the
    relevant transaction, if it is determined that a covered transaction
    is foreign government-controlled;

-   Authorizes any party to a covered transaction to initiate a
    [review]{.underline} of the transaction by submitting a written
    notice to the CFIUS chairman;

-   Authorizes the President or any CFIUS member to initiate a
    [review]{.underline} of any covered transaction (including
    transactions that have previously been reviewed, under certain
    circumstances); requires a review to be completed within 30 days of
    receipt of the written notice;

-   Requires the President, acting through CFIUS, to conduct an
    [investigation]{.underline} of the effects of a transaction on the
    national security of the U.S. ***if during a covered transaction
    review it is determined that***:

    -   the transaction threatens to impair the national security of the
        U.S. and the threat has not been mitigated prior to completion
        of the review (or if the transaction is
        foreign-government-controlled);

    -   a roll-call vote within CFIUS on a covered transaction results
        in at least one vote by a CFIUS member against approving the
        transaction; or

    -   the National Intelligence Director identifies "particularly
        complex intelligence concerns that could threaten to impair the
        national security of the U.S." and CFIUS members were not able
        to agree upon satisfactory measures to mitigate those threats;

-   Requires the above [investigation]{.underline} to be completed
    within 45 days, with certain exceptions and requirements;

-   Requires that a covered transaction may not be approved (i.e. review
    or investigation treated as final or complete) until the
    review/investigation report and findings are approved by a majority
    of CFIUS members in a roll-call vote and are signed by the Secretary
    of the Treasury, Homeland Security, and Commerce Departments; the
    President, as well as the CFIUS Chair and Vice-Chair would have to
    sign the findings and report regarding any
    foreign-government-controlled transaction for which a roll-call vote
    yields at least one CFIUS member against approval;

-   Prevents a covered transaction involving a person of a country that
    has repeatedly provided support for international terrorism (or the
    government of such country) from being approved;

-   States that the National Intelligence Director may neither be a
    member of CFIUS nor serve any policy role, other than to provide
    analysis on covered transactions;

-   Defines CFIUS membership to be comprised of the following 14 people
    (or their designees): the Secretaries of the Treasury, Homeland
    Security, Commerce, Energy, State, and Defense Departments, the
    Attorney General, Chairman of the Council of Economic Advisors, the
    U.S. Trade Representative, Director of the Office of Management and
    Budget, Director of the National Economic Council, Director of the
    Office of Science and Technology Policy, the President's Assistant
    for National Security Affairs, and any other designee of the
    President from the Executive Office of the President; requires
    consultation with other federal departments, agencies, and
    independent entities, as appropriate;

-   Designates the Treasury Secretary as the Chairperson of CFIUS, and
    the Commerce and Homeland Security Secretaries as the Vice
    Chairpersons;

-   Authorizes \$10 million for each of fiscal years 2008-2011 for the
    Secretary of the Treasury to operate CFIUS;

-   Implements a non-waiver of U.S. sovereign immunity, declaring that
    the U.S. is not liable for losses or expenses incurred by a party to
    a covered transaction, if the party did not comply with the defined
    CFIUS review process, including failure to submit a written notice
    of the transaction, or failure to wait until the completion of a
    review or investigation before consummating the transaction; that
    is, submitting notice to CFIUS remains voluntary, but if the U.S.
    has to take action to dissolve, suspend, or modify a transaction,
    the U.S. is not liable for costs incurred by the affected parties;

-   Allows CFIUS to negotiate, enter into or impose, and enforce any
    agreement or condition with any party to a covered transaction in
    order to mitigate any threat to national security;

-   Directs CFIUS to designate a lead agency to monitor each approved
    transaction (such lead agency would have to periodically report to
    CFIUS on the implementation of the transaction and any modifications
    thereto);

-   Increases congressional oversight of CFIUS, including requiring
    CFIUS to submit reports to Senate and House leadership and the
    relevant congressional committees on each completed
    review/investigation of a covered transaction, directing CFIUS to
    provide classified briefings to Congress as requested, and
    instructing CFIUS to submit to Congress an annual report containing:

> \--A list of all notices filed and all reviews or investigations
> completed during the period with basic information on each party to
> the transaction, the nature of the business activities or products of
> all pertinent persons, along with information about the status of the
> review or investigation, information on any withdrawal from the
> process, any roll-call votes by CFIUS, any extension of time for any
> investigation, and any presidential decision or action under this
> section;
>
> \--Specific, cumulative, and, as appropriate, trend information on the
> numbers of filings, investigations, withdrawals, and presidential
> decisions or actions under this section;
>
> \--Cumulative and, as appropriate, trend information on the business
> sectors involved in the filings which have been made, and the
> countries from which the investments have originated;
>
> \--Information on whether companies that withdrew notices from CFIUS
> have later re-filed such notices, or, alternatively, abandoned the
> transaction;
>
> \--The types of security arrangements and conditions CFIUS has used to
> mitigate national security concerns about a transaction; and
>
> \--A detailed discussion of all perceived adverse effects of covered
> transactions on the national security or critical infrastructure of
> the United States that CFIUS will take into account in its
> deliberations during the period before delivery of the next such
> report, to the extent possible;

-   Directs the President to include, as part of the annual CFIUS report
    to Congress, an evaluation of whether:

> \--there is credible evidence of a coordinated strategy by one or more
> countries or companies to acquire U.S. companies involved in research,
> development, or production of critical technologies (technologies
> essential to for which the U.S. is a leading producer; and
>
> \--there are industrial espionage activities directed or directly
> assisted by foreign governments against private U.S. companies aimed
> at obtaining commercial secrets related to critical technologies;

-   Directs the Secretary of the Treasury, in consultation with the
    Secretaries of State and Commerce, to study and report to Congress
    within 150 days of this bill's enactment on investments in U.S.
    critical infrastructure and industries affecting national security
    by:

> \--foreign governments, entities controlled by or acting on behalf of
> a foreign government, or persons of foreign countries which comply
> with any boycott of Israel; or
>
> \--foreign governments, entities controlled by or acting on behalf of
> a foreign government, or persons of foreign countries which do not ban
> organizations designated by the Secretary of State as foreign
> terrorist organizations;

-   Clarifies that parties to a covered transaction must certify that
    the information they file with CFIUS is complete and correct;

-   Directs the President to issue regulations to carry out this
    legislation and specifies that, to the extent possible, the
    regulations minimize paperwork burdens and be made to coordinate
    with existing reporting requirements;

-   Clarifies that no portion of this bill should be construed as
    affecting or altering other existing law, regulation, authority,
    process, investigation, enforcement measure, or review; and

-   Makes the provisions of this legislation effective 90 days after
    enactment.

**[Additional Information]{.underline}:** CFIUS is a federal interagency
committee currently comprised of 12 members representing major agencies
and departments (including Treasury, Justice, Commerce and Homeland
Security Departments) within the federal executive branch. As defined by
the Treasury Department website, CFIUS serves the President in
overseeing the national security implications of foreign investment in
the economy. For summary information on the role of CFIUS, please visit
this Treasury website:
<http://www.treasury.gov/offices/international-affairs/exon-florio/>.
For additional information on the history of CFIUS, please view this
recent CRS Report: <http://www.congress.gov/erp/rl/pdf/RL33388.pdf>.

**[RSC Bonus Fact]{.underline}**: Four transactions submitted to CFIUS
have required investigations since September 11, 2001---more than the
previous 10 years combined.
<http://www.ofii.org/facts_figures/cfius.cfm>

**[Committee Action]{.underline}**: On January 18, 2007, H.R. 556 was
referred to the Financial Services, the Energy & Commerce, and the
Foreign Affairs Committees. On February 14, 2007, the Financial Services
Committee marked up and ordered the bill reported to the full House by
voice vote. The other two committees discharged the bill.

**[Administration Position]{.underline}**: A Statement of Administration
Policy is unavailable.

**[Cost to Taxpayers]{.underline}:** **CBO confirms that H.R. 556 would
authorize \$40 million over the FY2008-FY2011 period**. In addition, CBO
"expects that complying with the bill's provisions would increase the
administrative expenses of some federal agencies, but because of the
confidential nature of the CFIUS review process, the number of agencies
involved, and the confidential information needed to prepare an estimate
for some provisions of the legislation, CBO cannot determine a precise
estimate of the likely total costs of this bill."

**[Does the Bill Expand the Size and Scope of the Federal
Government?]{.underline}:** CFIUS currently exists and operates under an
Executive Order. This bill codifies its functions into law and expands
its reach and Congress' oversight function.

**[Does the Bill Contain Any New State-Government, Local-Government, or
Private-Sector Mandates?]{.underline}:** No.

**[Does the Bill Comply with House Rules Regarding Earmarks/Limited Tax
Benefits/Limited Tariff Benefits?]{.underline}**: An earmarks/revenue
benefits statement required under House Rule XXI, Clause 9(a) was not
available at press time.

**[Constitutional Authority]{.underline}**: The Financial Services
Committee, in House Report 110-24, cites constitutional authority in
Article 1, Section 8, Clauses 1 (the congressional power to promote the
general welfare of the United States) and 3 (the congressional power to
regulate interstate commerce).

**[Outside Organizations]{.underline}**: A variety of business
organizations have encouraged the passage of this bill without
amendment.

**[RSC Staff Contact]{.underline}**: Paul S. Teller,
<paul.teller@mail.house.gov>, (202) 226-9718