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[Senate Report 110-80]
[From the U.S. Government Publishing Office]

                                                       Calendar No. 197
110th Congress                                                   Report
                                 SENATE
 1st Session                                                     110-80

======================================================================

 
          FOREIGN INVESTMENT AND NATIONAL SECURITY ACT OF 2007

                                _______
                                

                 June 13, 2007.--Ordered to be printed

                                _______
                                

 Mr. Dodd, from the Committee on Banking, Housing, and Urban Affairs, 
                        submitted the following

                              R E P O R T

                         [To accompany S. 1610]

    The Committee on Banking, Housing, and Urban Affairs, 
having had under consideration an original 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, reports favorably thereon and recommends that the 
bill do pass.

                               I. PURPOSE

    Section 721 of the Defense Production Act, also known as 
the Exon-Florio Amendment (``Exon-Florio''), established a 
statutory framework for the United States Government to analyze 
foreign acquisitions, mergers, and takeovers (hereafter 
``transactions'') 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 (hereafter ``the Act'') 
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.

                             II. BACKGROUND

    In 1988, Section 721 of the Defense Production Act of 1950, 
Exon-Florio, was passed in response to congressional concerns 
about the impact on national security of certain foreign 
acquisitions of United States corporate entities. Exon-Florio 
established a process by which proposed foreign transactions 
would be analyzed by the Executive Branch of the United States 
Government (specifically, ``the President or the President's 
designee'') to determine whether such transactions could pose a 
threat to U.S. national security. Historically, U.S. Presidents 
have assigned the responsibility for implementing Exon-Florio 
to the Committee on Foreign Investment in the United States 
(hereafter, ``CFIUS''), a multi-agency organization established 
by Executive Order in 1975. Exon-Florio was amended in 1992 by 
the so-called ``Byrd Amendment'' to require that all foreign 
transactions involving a foreign government-owned or controlled 
entity would be subject to a more stringent analytical process.
    CFIUS Process.--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 
sometimes ``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 re-file.
    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.
    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 (31 CFR 
800.601(e)) to reopen 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.
    Congressional Oversight Difficult within Existing 
Procedures.--Since Exon-Florio went into effect, transactions 
have been reviewed in a highly confidential manner in part to 
prevent the public release of sensitive proprietary 
information. The practical effect of conducting transactional 
reviews in this manner, however, has made congressional 
oversight and public understanding of Exon-Florio extremely 
difficult.
    Recent Concerns about CFIUS Process.--In February 2004, 
after a series of specific transactions brought to the 
forefront the difficulty in conducting thorough oversight by 
Congress of the security review process, then chairman of the 
Committee on Banking, Housing, and Urban Affairs, Senator 
Shelby, and then Ranking Member of the Committee, Senator 
Sarbanes, requested a study by the Government Accountability 
Office of the implementation of Exon-Florio. That study was 
completed in September 2005.
    In its 2005 report, GAO offered a number of recommendations 
for congressional action. Those recommendations include more 
clearly delineating the factors to be considered in CFIUS 
reviews and investigations; addressing the time constraint 
problem by replacing the existing review and investigation 
phases; and providing for greater transparency by reviewing the 
existing Exon-Florio provision pertaining to notifications to 
Congress. Finally, to address congressional concerns regarding 
the status of cases withdrawn from CFIUS review for the purpose 
of ``stopping the clock,'' GAO recommended that Congress 
require the Secretary of the Treasury to establish more formal 
and stringent criteria to govern such withdrawals, including a 
process for tracking withdrawn cases.
    While GAO was conducting its examination, but prior to the 
release of its findings, the China National Offshore Oil 
Corporation (CNOOC) announced on June 23, 2005, its intention 
to acquire Unocal, a U.S. energy company. This announcement 
resulted in increased congressional concerns regarding foreign 
acquisitions of U.S. energy companies. While the CNOOC bid was 
withdrawn prior to that proposed transaction's review by CFIUS, 
the Chinese company's bid led many members of Congress to raise 
questions about the transfer of ownership or control of certain 
sectors of the U.S. economy to foreign companies, especially to 
foreign companies located within or controlled by countries the 
governments of which might not be sympathetic to U.S. regional 
security interests.
    On October 6, 2005, the Committee on Banking, Housing, and 
Urban Affairs conducted a hearing into the findings of the GAO 
report. Testifying on behalf of GAO were Ms. Katherine 
Schinasi, Managing Director for Acquisition and Management, and 
Ann Calvaresi, director of Industrial Base Issues. 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 that 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 5-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.
    Despite these changes after the DPW case, CFIUS has not 
fully addressed key problems identified by Congress. Key 
concerns raised by the DPW case included a lack of senior-level 
involvement in CFIUS decision-making, failures in 
communications to Congress, and ambiguity in the standards by 
which CFIUS determines the need for second-stage investigations 
as well as in the procedures for seeking, monitoring, and 
enforcing mitigation agreements.
    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, after 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.
    The Committee believes that Senate passage of the 
Committee's reported bill 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.

                   III. MAJOR PROVISIONS OF THE BILL

    The Foreign Investment and National Security Act of 2007--
    1. Establishes the membership of the Committee on Foreign 
Investment in the United States (CFIUS) in statute.
    2. 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.
    3. 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.
    4. 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.
    5. 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.
    6. 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.
    7. Requires assessment of a country's compliance with U.S. 
and multilateral counter-terrorism, non-proliferation and 
export control regimes for acquisitions by state-owned 
companies in the investigation stage.
    8. 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.
    9. 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.
    10. 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.
    11. 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.).
    12. 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.
    13. 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.
    14. Provides for the issuance of regulations and guidance 
to carry out the provisions of the Act.

                   IV. DESCRIPTION OF THE LEGISLATION

    The Committee's reported bill seeks to address legitimate 
concerns about CFIUS procedures and policies, while also 
providing statutory clarity so that a climate favorable to 
foreign investments is maintained. It enshrines in statute a 
process by which all transactions that have been temporarily 
withdrawn from CFIUS are closely monitored and establishes a 
clear process by which any potential national security issues 
can be addressed together with a clear and permanent process of 
post-transaction monitoring.
    The bill would strengthen the Administration's 
accountability, enhance Congress's ability to perform its 
necessary oversight of the CFIUS process, better protect 
classified and proprietary business information utilized by 
CFIUS--all without creating any unnecessary barriers to normal 
investment transactions in the United States. The bill mandates 
an intelligence assessment of each CFIUS transaction, led by 
the Director of National Intelligence (DNI)--who would serve as 
an ex officio member of CFIUS with no policy role. The 
Committee understands that CFIUS monitors the press and other 
sources for information on transactions and on occasion 
consults with parties about those transactions.
    The bill also provides for the designation of a lead agency 
for each transaction to oversee the process along with the 
CFIUS chairman--The Secretary of Treasury or his designee. The 
Committee expects the Treasury Department to make its 
designation of the lead agency or agencies for each transaction 
based upon the nature of the national security threat posed by 
the transaction and the expertise of the agency or agencies in 
understanding and mitigating such threat. The Committee expects 
CFIUS to continue to monitor covered transactions that may have 
national security implications. The Committee also expects all 
relevant government agencies to cooperate with the information 
collection process conducted by CFIUS and the DNI with respect 
to information that is relevant to CFIUS's national security 
analysis. When the original Exon-Florio analysis was enacted 
into law, Congress made clear that ``national security'' is to 
be broadly defined. Access to relevant sources of information 
within the United States Government is critical for the ability 
of CFIUS to protect United States national security.
    All approved CFIUS transactions must be certified by the 
CFIUS Chair (or designee) and designated lead agency head (or 
designee) to ensure that there is a clear and direct senior-
level responsibility for CFIUS decisions.
    Regarding the provision outlining the process for the 
development of the Director of National Intelligence's 
intelligence analysis, the bill reported by the Committee 
requires that the DNI provide its intelligence assessment to 
CFIUS members not later than 20 days from the commencement of 
the review of the transaction. The Committee expects that the 
DNI shall do a thorough job of providing CFIUS with 
intelligence analysis throughout the entire CFIUS process.
    The legislation 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 post-transaction 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 establishes a mechanism by which CFIUS can 
unilaterally reopen a transaction that had previously been 
approved. The Committee expects 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. The 
Committee also expects CFIUS to use the so-called ``evergreen'' 
provision in exceptional cases when national security concerns 
can be addressed in no other way.
    The Committee bill makes clear that national security 
encompasses national security threats to critical U.S. 
infrastructure, including energy-related infrastructure. The 
Committee expects that acquisitions of U.S. energy companies or 
assets by foreign governments or companies controlled by 
foreign governments--including any instance in which such 
foreign government has used energy assets to interfere with or 
influence policies or economic conditions in other countries in 
ways that threaten the national security of those countries--
will be reviewed closely for their national security impact.
    The legislation establishes a system of briefings and 
annual reporting to Congress. Both in briefings and reporting, 
the Committee recognizes that, in addition to Congressional 
leadership and the committees of jurisdiction named in the 
legislation, CFIUS will be obligated to brief, and report to, 
other committees that have ``jurisdiction over any aspect of'' 
the covered transactions which are the subject of the briefing 
and/or reporting. The Committee also expects CFIUS agencies to 
keep state governors informed of any relevant information 
related to a covered transaction, particularly those involving 
critical infrastructure, where a governor or state agencies 
under his direction would have interactions with such 
infrastructure as a normal course of carrying out its duties to 
protect its citizens.
    The Committee bill also establishes procedures for the 
creation, implementation, and monitoring of mitigation 
agreements. The Committee believes that mitigation agreements 
play a critical role in the CFIUS process, allowing CFIUS to 
fully address national security concerns arising from a 
transaction without resorting to an outright rejection of the 
transaction when concerns arise. The Committee believes that 
mitigation agreements should address national security threats 
that arise as a result of the covered transaction, when those 
threats can not be adequately addressed by other areas of law 
or regulation. Specifically, mitigation agreements should not 
be considered the first option for addressing more general 
national security concerns, but rather should be focused on 
threats that arise directly from the transaction in those cases 
where other areas of law or regulation cannot adequately 
mitigate those threats.
    The legislation mandates that heightened scrutiny be 
applied to transactions involving foreign government ownership 
and control. It requires either a second stage investigation 
for such transactions, or a Deputy Secretary level 
certification that the transaction poses no threat to national 
security. The Committee believes that acquisitions by certain 
government-owned companies do create heightened national 
security concerns, particularly where government-owned 
companies make decisions for inherently governmental--as 
opposed to commercial--reasons. But not all government 
acquisitions create the same degree of national security risk. 
This bill recognizes these differences by providing flexibility 
for the Executive branch to distinguish between foreign 
government investments. If a transaction by a state-owned 
entity either presents no threat to national security or when 
such threat can be addressed by a mitigation agreement, CFIUS 
has the flexibility to approve the transaction within the 
initial 30 days, subject to the procedural requirements 
described above. The Committee believes this flexibility is 
important in allowing CFIUS to focus its resources and efforts 
on those cases involving foreign governments that truly raise 
national security concerns.

                 V. SECTION-BY-SECTION ANALYSIS OF BILL

    Section 1--This section establishes the short title of the 
bill as the ``Foreign Investment and National Security Act of 
2007'' and sets forth the table of contents.
    Section 2--This section amends Section 721 of the Defense 
Production Act of 1950 to reform and strengthen the way that 
acquisitions by foreign companies of companies operating in the 
United States are analyzed for with respect to their impact on 
United States national security.
    Subsection (a) defines terms used throughout the bill: 
Committee, control, covered transaction, foreign government 
controlled transaction, critical infrastructure, critical 
technologies, and lead agency.
    Subsection (b) establishes the method by which covered 
transactions are reviewed and investigated by the Committee on 
Foreign Investment in the United States to determine if they 
threaten to impair United States national security; establishes 
that any transaction involving a foreign government-controlled 
company or critical infrastructure must undergo an 
``investigation'' by CFIUS unless the Chairman and designated 
lead agency head (or their designees) jointly determine that 
such transaction does not pose a national security threat; 
establishes the voluntary process for parties notifying CFIUS 
of a proposed transaction and a procedure for treating 
transactions that are withdrawn from the CFIUS process by the 
parties to a transaction; establishes a procedure for the 
President and CFIUS to unilaterally initiate a review of a 
transaction, and to initiate a review of a previously reviewed 
transaction in certain exceptional cases; makes clear that 
national security reviews of transactions shall take no longer 
than 30 days and, if necessary, investigations that follow 
reviews shall take no longer than 45 days; describes reasons 
for a transaction to undergo an investigation; establishes that 
no review or investigation is complete until the chairman and 
designated lead agency head (or their designees) sign a 
certified notice or report (in the case of an investigation); 
specifies who in Congress shall receive the certified notices 
or reports related to approved transactions; provides for a 
thorough intelligence analysis coordinated by the Director of 
National Intelligence (DNI) of any threat to national security 
by any covered transaction and for the findings to be made 
available to CFIUS not later than 20 days after the review 
process has commenced; provides that the DNI shall be an ex-
officio member of CFIUS with no policy role; and provides for 
notice of results of review or investigation to the parties by 
CFIUS; provides for regulations to implement changes to 
existing law.
    Section 3--This section formally establishes the Committee 
on Foreign Investment in the United States; establishes its 
membership; specifies that the Secretary of the Treasury shall 
be the chairman and specifies that a lead agency or agencies 
with relevant expertise be designated for each transaction; 
provides discretionary authority to the President to add 
additional departments, agencies or offices to the Committee.
    Section 4--This section amends Section 721(f) to add 
additional factors to be considered by CFIUS, including the 
impact of the transaction on the sale of military goods, 
equipment, or technology to any country identified by the 
Secretary of Defense as posing a potential regional military 
threat to the interests of the United States, the security 
related impact of a transaction related to critical 
infrastructure in the United States, potential effects on 
United States critical technology and major energy assets, and 
the adherence of the parent country to its international 
nonproliferation obligations and its record of cooperation in 
counterterrorism efforts for investigations of acquisitions by 
state-owned companies.
    Section 5--This section establishes that CFIUS, or lead 
agencies acting on behalf of CFIUS (which agencies may, like 
DOD or the Department of Commerce, have existing regulatory 
authority through which they can act independently of CFIUS) 
may enter into agreements with parties to a transaction to 
mitigate any threats to national security; establishes that 
CFIUS shall name appropriate lead Federal agencies to monitor, 
on behalf of CFIUS compliance with such agreements, negotiate 
any changes in such agreements on behalf of CFIUS and report 
back to CFIUS on compliance and modifications. This section 
also establishes a method of tracking transactions that are 
withdrawn from the review or investigation process as well as a 
process for setting interim protections on such transactions to 
address specific national security concerns.
    Section 6--This section amends subsections (d) and (e) of 
721 of the Defense Production Act related to actions by the 
President related to the CFIUS process. It provides broad 
authority to the President, subject to certain conditions, to 
take such action for such time as he considers appropriate to 
suspend or prohibit a transaction by a foreign person or 
government that threatens to impair the national security of 
the United States. It provides for the Attorney General, upon 
the direction of the President, to seek appropriate relief, 
including divestment by the foreign party if no other remedy is 
available to protect the national security of the United 
States.
    Section 7--This section establishes a broad new system for 
reporting information on CFIUS activities to Congress so that 
it may conduct appropriate oversight of the CFIUS. This 
includes a mechanism for Congress to request a detailed, 
classified briefing on a transaction; and affirmative 
protections for proprietary business information. The section 
requires CFIUS to file annual reports with Congress that 
contain information on transactions handled by the CFIUS, 
cumulative and trend analysis of transactions by business 
sector and country of origin, information on security and 
mitigation agreements. This section also incorporates into the 
annual reporting the contents of the previously required 
quadrennial reporting on foreign industrial espionage in the 
U.S. and on foreign attempts to control a particular U.S. 
business or industrial sector, and requires a report on 
investments in the U.S. by countries that do not ban foreign 
terrorist organizations and by countries that support the 
boycott of Israel. The quadrennial report is repealed as 
redundant.
    Section 8--This section makes clear that parties to a 
transaction must certify that the information they file with 
CFIUS is complete and correct.
    Section 9--This section directs the President to cause 
regulations to be issued to carry out the requirements of 
Section 721, and specifies that to the extent possible they 
minimize paperwork burden and coordinate new reporting 
requirements with existing ones.
    Section 10--This section clarifies that no portion of the 
bill should be construed as affecting or altering other 
existing law or regulation.
    Section 11--This section establishes an effective date 90 
days after enactment.

                              VI. HEARINGS

    The Committee on Banking, Housing, and Urban Affairs held 
the following public hearings on implementation of the Exon-
Florio Amendment to the Defense Production Act of 1950:
          October 6, 2005 A Review of the CFIUS Process for 
        Implementing the Exon-Florio Amendment
                  Witnesses: Ms. Katherine Schinasi, Managing 
                Director, Acquisition and Sourcing Management, 
                U.S. Government Accountability Office; Ms. Ann 
                Calvarese Barr, Director, Industrial Base 
                Issues, U.S. Government Accountability Office.
          October 20, 2005 Implementation of the Exon-Florio 
        Amendment and the Committee on Foreign Investment in 
        the United States
                  Witnesses: The Honorable James Inhofe, United 
                States Senator; The Honorable Robert Kimmitt, 
                Deputy Secretary, Department of the Treasury; 
                The Honorable David A. Sampson, Deputy 
                Secretary, Department of Commerce; The 
                Honorable Stewart Baker, Assistant Secretary 
                for Policy, Department of Homeland Security; 
                The Honorable E. Anthony Wayne, Assistant 
                Secretary for Economic and Business Affairs, 
                Department of State; The Honorable Robert 
                McCallum, Acting Deputy General, Department of 
                Justice; The Honorable Peter Flory, Assistant 
                Secretary for International Security Policy, 
                Department of Defense; The Honorable Patrick A. 
                Mulloy, U.S.-China Economic and Security Review 
                Commission; Mr. David Marchick, Partner, 
                Covington and Burling.
          March 2, 2006, Continued Examination of 
        Implementation of the Exon-Florio Amendment: Focus on 
        Dubai Ports World's Acquisition of P&O
                  Witnesses: The Honorable Robert Kimmitt, 
                Deputy Secretary, Department of the Treasury; 
                The Honorable Eric Edelman, Under Secretary for 
                Policy, Department of Defense; The Honorable 
                Robert Joseph, Under Secretary for Arms Control 
                and International Security, Department of 
                State; The Honorable Stewart Baker, Assistant 
                Secretary for Policy, Department of Homeland 
                Security.

                      VII. COMMITTEE CONSIDERATION

    The Committee on Banking, Housing, and Urban Affairs met in 
open session on May 16, 2007, and ordered the bill reported, 
without amendment.

            VIII. CONGRESSIONAL BUDGET OFFICE COST ESTIMATE

    Section 11(b) of the Standing Rules of the Senate, and 
Section 403 of the Congressional Budget Impoundment and Control 
Act, require that each committee report on a bill contain a 
statement estimating the cost of the proposed legislation. The 
Congressional Budget Office has provided the following cost 
estimate and estimate of costs of private-sector mandates.
                                     U.S. Congress,
                               Congressional Budget Office,
                                      Washington, DC, May 25, 2007.
Hon. Christopher J. Dodd,
Chairman, Committee on Banking, Housing, and Urban Affairs,
United States Senate, Washington, DC.
    Dear Mr. Chairman: The Congressional Budget Office has 
prepared the enclosed cost estimate for the Foreign Investment 
and National Security Act of 2007.
    If you wish further details on this estimate, we will be 
pleased to provide them. The CBO staff contact is Matthew 
Pickford.
            Sincerely,
                                           Peter R. Orszag,
                                                          Director.
    Enclosure.

Foreign Investment and National Security Act of 2007

    The legislation would amend the Defense Production Act of 
1950 to establish in law the Committee on Foreign Investment in 
the United States (CFIUS). The committee would consist of at 
least nine permanent members with seven full members, including 
the Secretaries of the Treasury, Homeland Security, Commerce, 
Defense, State, and Energy, as well as the Attorney General and 
two ex-officio members including the Secretary of Labor and the 
Director of National Intelligence to coordinate the review of 
foreign investment in the United States that involves national 
security or critical infrastructure. The legislation would 
formalize and expand the review and investigation process. In 
addition, the legislation would require specific reports by the 
Department of the Treasury on the previous work of CFIUS and on 
foreign investment in the United States.
    CBO expects that complying with the bill's provisions would 
increase the administrative expenses of some federal agencies, 
including the Department of the Treasury, 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. Additional costs over the 2007-2012 period, 
however, would generally come from agencies' salary and expense 
budgets which are subject to annual appropriation. Such costs 
would probably total at least a few million dollars per year.
    Enacting the legislation would likely increase collections 
of civil penalties for the violations related to the review 
process. Such collections are recorded in the budget as 
revenues and deposited in the Treasury. CBO estimates that the 
additional collections of civil penalties would not be 
significant because of the relatively small number of cases 
likely to be involved. Enacting the bill would not affect 
direct spending.
    The legislation contains no intergovernmental or private-
sector mandates as defined in the Unfunded Mandates Reform Act 
and would not affect the budgets of state, local, or tribal 
governments.
    On February 16, 2007, CBO provided a cost estimate for H.R. 
566, the National Security Foreign Investment Reform and 
Strengthened Transparency Act of 2007, as ordered reported by 
the House Committee on Financial Services on February 13, 2007. 
The two bills are concerned with CFIUS but have some different 
provisions. H.R. 566 would authorize the appropriation of $10 
million annually over the 2008-2011 period. The Senate 
legislation does not authorize the appropriation of a specific 
amount to implement the CFIUS responsibilities.
    The CBO staff contact for this estimate is Matthew 
Pickford. This estimate was approved by Peter H. Fontaine, 
Deputy Assistant Director for Budget Analysis.

                    IX. REGULATORY IMPACT STATEMENT

    In accordance with paragraph 11(b), rule XXVI, of the 
Standing Rules of the Senate, the Committee makes the following 
statement concerning the regulatory impact of the bill.
    The bill seeks to ensure that certain transactions 
involving companies owned or controlled by foreign governments 
undergo a thorough investigation to determine whether the 
national security would be impacted by the transactions. While 
the bill gives discretion to CFIUS to forego investigations 
under certain limited circumstances, it could nevertheless 
entail the production of more documentation by involved 
corporate entities than would otherwise have been required.
    The requirement established in the bill under (b)(2)(B) 
that foreign transactions involving U.S. critical 
infrastructure be subjected to an investigation unless national 
security concerns have been previously addressed through 
conclusion of a mitigation agreement could entail costs to both 
the government, charged with implementing the provisions of the 
bill, and the corporate entities charged with complying.
    The Congressional Budget Office Cost Estimate prepared for 
this bill notes that enactment of the legislation ``would 
likely increase collections of civil penalties for the 
violations related to the review process'' . . . ``CBO 
estimates that the additional collections of civil penalties 
would not be significant because of the relatively small number 
of cases likely to be involved.''

                                  
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