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31–039 PDF 2006

H.R. 5337, THE REFORM OF NATIONAL

SECURITY REVIEWS OF FOREIGN

DIRECT INVESTMENTS ACT

HEARING

BEFORE THE

SUBCOMMITTEE ON 

DOMESTIC AND INTERNATIONAL 

MONETARY POLICY, TRADE, AND TECHNOLOGY

OF THE

COMMITTEE ON FINANCIAL SERVICES

U.S. HOUSE OF REPRESENTATIVES

ONE HUNDRED NINTH CONGRESS

SECOND SESSION

MAY 17, 2006

Printed for the use of the Committee on Financial Services

Serial No. 109–93

(

(II)

HOUSE COMMITTEE ON FINANCIAL SERVICES 

MICHAEL G. OXLEY, Ohio, Chairman

JAMES A. LEACH, Iowa 

RICHARD H. BAKER, Louisiana 

DEBORAH PRYCE, Ohio 

SPENCER BACHUS, Alabama 

MICHAEL N. CASTLE, Delaware 

EDWARD R. ROYCE, California 

FRANK D. LUCAS, Oklahoma 

ROBERT W. NEY, Ohio 

SUE W. KELLY, New York, Vice Chair 

RON PAUL, Texas 

PAUL E. GILLMOR, Ohio 

JIM RYUN, Kansas 

STEVEN C. LATOURETTE, Ohio 

DONALD A. MANZULLO, Illinois 

WALTER B. JONES, JR., North Carolina 

JUDY BIGGERT, Illinois 

CHRISTOPHER SHAYS, Connecticut 

VITO FOSSELLA, New York 

GARY G. MILLER, California 

PATRICK J. TIBERI, Ohio 

MARK R. KENNEDY, Minnesota 

TOM FEENEY, Florida 

JEB HENSARLING, Texas 

SCOTT GARRETT, New Jersey 

GINNY BROWN-WAITE, Florida 

J. GRESHAM BARRETT, South Carolina 

KATHERINE HARRIS, Florida 

RICK RENZI, Arizona 

JIM GERLACH, Pennsylvania 

STEVAN PEARCE, New Mexico 

RANDY NEUGEBAUER, Texas 

TOM PRICE, Georgia 

MICHAEL G. FITZPATRICK, Pennsylvania 

GEOFF DAVIS, Kentucky 

PATRICK T. MCHENRY, North Carolina 

CAMPBELL, JOHN, California 

BARNEY FRANK, Massachusetts 

PAUL E. KANJORSKI, Pennsylvania 

MAXINE WATERS, California 

CAROLYN B. MALONEY, New York 

LUIS V. GUTIERREZ, Illinois 

NYDIA M. VELA ́ ZQUEZ, New York 

MELVIN L. WATT, North Carolina 

GARY L. ACKERMAN, New York 

DARLENE HOOLEY, Oregon 

JULIA CARSON, Indiana 

BRAD SHERMAN, California 

GREGORY W. MEEKS, New York 

BARBARA LEE, California 

DENNIS MOORE, Kansas 

MICHAEL E. CAPUANO, Massachusetts 

HAROLD E. FORD, JR., Tennessee 

RUBE ́ N HINOJOSA, Texas 

JOSEPH CROWLEY, New York 

WM. LACY CLAY, Missouri 

STEVE ISRAEL, New York 

CAROLYN MCCARTHY, New York 

JOE BACA, California 

JIM MATHESON, Utah 

STEPHEN F. LYNCH, Massachusetts 

BRAD MILLER, North Carolina 

DAVID SCOTT, Georgia 

ARTUR DAVIS, Alabama 

AL GREEN, Texas 

EMANUEL CLEAVER, Missouri 

MELISSA L. BEAN, Illinois 

DEBBIE WASSERMAN SCHULTZ, Florida 

GWEN MOORE, Wisconsin, 

BERNARD SANDERS, Vermont

Robert U. Foster, III, Staff Director 

(III)

SUBCOMMITTEE ON DOMESTIC AND INTERNATIONAL MONETARY POLICY, TRADE, AND

TECHNOLOGY

DEBORAH PRYCE, Ohio, Chair

JUDY BIGGERT, Illinois, Vice Chair 

JAMES A. LEACH, Iowa 

MICHAEL N. CASTLE, Delaware 

FRANK D. LUCAS, Oklahoma 

RON PAUL, Texas 

STEVEN C. LATOURETTE, Ohio 

DONALD A. MANZULLO, Illinois 

MARK R. KENNEDY, Minnesota 

KATHERINE HARRIS, Florida 

JIM GERLACH, Pennsylvania 

RANDY NEUGEBAUER, Texas 

TOM PRICE, Georgia 

PATRICK T. MCHENRY, North Carolina 

MICHAEL G. OXLEY, Ohio 

CAROLYN B. MALONEY, New York 

BERNARD SANDERS, Vermont 

MELVIN L. WATT, North Carolina 

MAXINE WATERS, California 

BARBARA LEE, California 

PAUL E. KANJORSKI, Pennsylvania 

BRAD SHERMAN, California 

LUIS V. GUTIERREZ, Illinois 

MELISSA L. BEAN, Illinois 

DEBBIE WASSERMAN SCHULTZ, Florida 

GWEN MOORE, Wisconsin 

JOSEPH CROWLEY, New York 

BARNEY FRANK, Massachusetts 

(V)

C O N T E N T S 

Page 

Hearing held on: 

May 17, 2006 ..................................................................................................... 1

Appendix: 

May 17, 2006 ..................................................................................................... 35

WITNESSES 

WEDNESDAY, MAY 17, 2006

Baker, Hon. Stewart A., Assistant Secretary for Policy, Planning and International Affairs, U.S. Department of Homeland Security ................................ 8

Fisher, Hon. Alice S., Assistant Attorney General, Criminal Division, U.S. 

Department of Justice ......................................................................................... 9

Flory, Hon. Peter C.W., Assistant Secretary for International Security Policy, 

U.S. Department of Defense ................................................................................ 10

Holtz-Eakin, Douglas, Director, Maurice Greenberg Center for Geoeconomic 

Studies, Council on Foreign Relations ............................................................... 18

Lowery, Hon. Clay, Assistant Secretary for International Affairs, U.S. Department of the Treasury ........................................................................................... 5

Marchick, David, attorney, Covington and Burling .............................................. 20

Veroneau, John K., partner, DLA Piper Rudnick Gray Cary .............................. 22

APPENDIX 

Prepared statements: 

Baker, Hon. Stewart A. .................................................................................... 36

Fisher, Hon. Alice S. ........................................................................................ 38

Flory, Hon. Peter C.W. ..................................................................................... 42

Holtz-Eakin, Douglas ....................................................................................... 45

Lowery, Hon. Clay ............................................................................................ 49

Marchick, David ................................................................................................ 53

Veroneau, John K. ............................................................................................ 62

(1)

H.R. 5337, THE REFORM OF NATIONAL 

SECURITY REVIEWS OF FOREIGN 

DIRECT INVESTMENTS ACT 

Wednesday, May 17, 2006

U.S. HOUSE OF REPRESENTATIVES, 

SUBCOMMITTEE ON DOMESTIC AND

INTERNATIONAL MONETARY POLICY, 

TRADE, AND TECHNOLOGY, 

COMMITTEE ON FINANCIAL SERVICES, 

Washington, D.C. 

The subcommittee met, pursuant to notice, at 2:00 p.m., in room 

2128, Rayburn House Office Building, Hon. Judy Biggert [vice 

chairwoman of the subcommittee] presiding. 

Present: Representatives Pryce, Biggert, Manzullo, Fossella, 

Campbell, Maloney, Lee, Sherman, and Crowley. 

Mrs. BIGGERT. [presiding] The Subcommittee on Domestic and 

International Monetary Policy, Trade, and Technology will come to 

order. Thank you all for being here. I will recognize myself for an 

opening statement. 

I would like to welcome everyone here to this hearing on H.R. 

5337, the Reform of National Security Reviews of Foreign Direct 

Investments Act. I want to thank Chairwoman Pryce for holding 

this hearing, and thank Majority Whip Blunt, Chairwoman Pryce, 

Ranking Member Maloney and Mr. Crowley for introducing the bill 

that provides commonsense reform of the CFIUS process. 

I am honored to be an original cosponsor of this bill, which is designed to strengthen national security while promoting foreign investment and the creation and maintenance of jobs. 

In order to enhance our members’ understanding of the current 

CFIUS process and determine how best to reform it, this subcommittee has already held two hearings on this issue. In those 

other hearings, one recurring theme was the need to reform the socalled ‘‘Byrd rule’’ which triggers whether transactions go to investigation. This legislation now requires the investigation of any 

transaction that is foreign-government-controlled. It also requires 

investigation where the threat to national and homeland security 

has not been mitigated during the 30-day review period. 

The subcommittee also has heard how important it is for senior 

officials within an Administration to be aware of transactions moving through the CFIUS process. This bill makes it clear that an investigation is not considered complete until the findings and reports are approved by a majority vote of the CFIUS members. FolVerDate 0ct 09 2002 14:10 Dec 13, 2006 Jkt 031039 PO 00000 Frm 00007 Fmt 6633 Sfmt 6633 F:\DOCS\HBA137.190 HFIN PsN: TERRIE
2

lowing that vote, the reports must be signed by the Chair and Vice 

Chair of CFIUS. 

Under this legislation, sitting members of CFIUS will be accountable and responsible. Language in the bill prohibits the Chair and 

Vice Chair from delegating the signing of these reports to any person other than the Deputy Secretary of those agencies. 

Currently, when a transaction moves through the CFIUS process, there is a lead agency assigned to negotiate assurance agreements and mitigate any security concerns. This legislation 

strengthens that process by increasing the enforcement responsibilities of the lead agency. 

In our previous hearings, Chairwoman Sue Kelly of the Oversight Subcommittee brought to our attention the need for codifying 

the process by which CFIUS checks in with the Financial Crimes 

Enforcement Network and the Office of Foreign Assets Control to 

ensure that a transaction isn’t just being funded with terrorist financing. This legislation includes a DNI directive to do just that. 

As for reporting to Congress, this legislation would require that 

CFIUS notify majority and minority leaders of the Senate, the 

Speaker and Minority Leader of the House, and the Chair and 

Ranking Member of the House and Senate of any committee with 

jurisdiction over any aspect of the covered transaction when an investigation has been completed. 

Any Senator or Member of Congress can receive a classified 

CFIUS briefing on a transaction. The bill requires a semiannual report to Congress on all reviews and investigations conducted during the previous 6 months. 

CFIUS was designed in our pre-9/11 world, and in this post-9/11 

environment, national and homeland security have never been 

more important. Under this legislation, the Vice Chair position is 

created and is designated by the Secretary of Homeland Security. 

And finally, this bill authorizes increased funding levels, and it 

gives CFIUS flexibility in the definition of critical infrastructure 

which is so important in a world of rapidly changing technologies. 

I look forward to hearing from our witnesses today on how this 

legislation reforms the process and what effects the changes will 

have on foreign investment and national and homeland security. 

And with that, I am happy to recognize Ranking Member 

Maloney for her opening statement. 

Mrs. MALONEY. I would like to thank Acting Chairwoman Judy 

Biggert for holding this hearing, and I welcome all of the witnesses. 

I am very interested to hear what you have to say today about H.R. 

5337, bipartisan legislation we have introduced to reform and 

strengthen the CFIUS process. 

From my perspective, this legislation is a commonsense approach 

that makes the CFIUS process more transparent and accountable. 

While protecting our national security, it strengthens the process 

without delaying or politicizing the decisions. 

Over the past several months, I have been pleased that this committee has taken a balanced and deliberative approach to drafting 

substantive bipartisan legislation, and I am very pleased that H.R. 

5337 builds on the legislation, H.R. 4915, that I introduced in 

March when our committee held our first hearing on CFIUS. 

3

Both bills are based upon recommendations made by the Government Accountability Office before the Dubai Ports fiasco. Specifically, H.R. 5337 will ensure that there will be a full review of any 

government-owned or -controlled company by mandating an additional 45-day review of any foreign government company going 

through the CFIUS process. 

And we expand and add to the role of the Director of National 

Intelligence. Our goal is to have a more timely and more completely reviewed process, and we require a formal analysis from the 

DNI. 

We increase the role of the Department of Homeland Security to 

really reflect 9/11 realities by designating the Secretary as the Vice 

Chair of the process, and we ensure proper tracking of mitigation 

agreements and withdrawals. This will make companies unable to 

just fly off the radar screen. 

There has to be an agreement between the Chair and the Vice 

Chair about how they are removed from the process and when they 

go back into the process. And we create the board and provide 

funding solely for the CFIUS process. We elevate certain decisions 

to the Deputy Secretary level and we increase the reporting requirements to Congress, striking, we hope, a better balance between exerting proper oversight while making sure that we do not 

politicize the process. 

Again, I thank the chairwoman for holding today’s hearing and 

I look forward to hearing from our witnesses. Thank you. 

Mrs. BIGGERT. Are there any other opening statements? 

The gentleman from New York is recognized for 3 minutes. 

Mr. CROWLEY. Thank you, Madam Chairwoman. 

First, I would like to thank the Chair, particularly the ranking 

member, my friend and colleague from New York, Mrs. Maloney of 

the subcommittee, not only for calling this hearing today on H.R. 

5337, but also for their hard work in helping to craft this bipartisan bill along with myself and Representative Roy Blunt. With 

the assistance of Chairman Oxley and Ranking Member Frank, we 

introduced H.R. 5337, the bill that we are discussing here today. 

I believe that this bill represents a commonsense solution to the 

concerns raised earlier this year regarding the CFIUS process. As 

we all know now, the CFIUS Committee on Foreign Investments 

in the United States was a little-known committee, operating under 

the Treasury Department, dealing with accruals of acquisitions of 

U.S. companies by foreign purchasers. This winter’s controversy 

over the Dubai Ports World’s deal brought this committee and the 

CFIUS process into daylight. 

I think most of us can agree that the actions taken by the Administration both leading up to and after the Dubai situation 

caused serious concern about the process and the secrecy that surrounded that process. Stating that we, the authors of H.R. 5337, 

also firmly believe that the CFIUS process has generally worked 

well and that while some legislative changes are necessary, the 

process by which foreign investors can purchase U.S. companies 

should not be completely derailed by this one case or by the select 

action of this Administration. 

The hearing today focuses on our bill, the Reform of National Security Reviews of Foreign Direct Investments Act, that will reform 

4

the CFIUS process while ensuring that our national security concerns are met and, at the same time, will not stop direct foreign 

investment into the United States. 

H.R. 5337 codifies the Committee on Foreign Investment into law 

and mandates that it ensures the protection of America’s national 

security. The bill mandates regular reporting to Congress, timely, 

but after-the-fact reporting so that we are knowledgeable in our 

oversight capabilities, but not involved in transactions’ specific decisionmaking. 

The bill also allows for a clean process for mitigation agreements 

to be monitored and enforced. This bill cleans up some of the problems of CFIUS, while not radically altering a committee that has, 

by and large, worked well for decades. 

I look forward to the testimony of our witnesses today. 

I thank the chairwoman for yielding time for my opening statement, and I yield back the balance of my time. 

Mrs. BIGGERT. Thank you. Does the gentlelady from California 

have a statement? 

Ms. LEE. Thank you very much. 

Mrs. BIGGERT. You are recognized for 3 minutes. 

Ms. LEE. Thank you very much, Madam Chairwoman. I want to 

thank you and our ranking member for holding this very important 

hearing and to thank our witnesses for being here today. 

The Dubai Ports deal really revealed a huge gap in Congressional oversight of the actions of this Administration. As elected 

Representatives, we have a very critical role to play in our system’s 

checks and balances, but ultimately without access to information, 

Congress really can’t fulfill its constitutional obligation. And unfortunately, I must say that this seems to be the way that this Administration really likes to play things around here, from WMD’s 

to faulty intelligence to NSA wiretapping, we really have been, 

quite frankly, left out in the cold. 

So I appreciate the fact that this subcommittee is willing to conduct its oversight role in this instance, and I hope that this is a 

sign of things to come. 

My concerns with the CFIUS process revolve around this critical 

issue, of course, of oversight and I look forward to hearing from all 

of you with regard to how H.R. 5337 addresses the question of 

oversight. 

Thank you and I yield the balance of my time. 

Mrs. BIGGERT. Does the gentleman from Illinois have an opening 

statement? 

Mr. MANZULLO. Yes, I do. Thank you. 

Mrs. BIGGERT. Three minutes. 

Mr. MANZULLO. Thank you. 

I would like to say welcome and thank you to our witnesses for 

appearing today as we continue our examination of CFIUS in 

terms of scope and extent of needed reforms to this critical process. 

It is my great pleasure to be an original cosponsor of the Reform 

of National Security Reviews of Foreign Direct Investments Act, 

H.R. 5337, introduced by Majority Whip Blunt, Chairwoman Pryce, 

Ranking Member Maloney and Congressman Joe Crowley. I now 

join this legislation because I firmly believe that it strikes the right 

balance between the need to encourage robust and welcoming enviVerDate 0ct 09 2002 14:10 Dec 13, 2006 Jkt 031039 PO 00000 Frm 00010 Fmt 6633 Sfmt 6633 F:\DOCS\HBA137.190 HFIN PsN: TERRIE
5

ronment for foreign investors and obligation, human assets, and resources. 

Our Congressional district has had several manufacturing facilities that have been saved by foreign direct investment from Germany, from Italy, and from Israel. Even a Chinese enterprise, 

which is remarkable, bought a manufacturing facility in our Congressional district that nobody else wanted and there was no other 

financing available and created new jobs. And also Great Britain, 

Cadbury Schweppes bought the doughnut factory in our district. It 

is the largest known sugar gum factory in the world. 

So, Madam Chairwoman, we are very much interested in maintaining full foreign direct investments in our State of Illinois, and 

I look forward to your testimony. Thank you. 

Mrs. BIGGERT. Thank you; 

At this time I would like to introduce our first panel of witnesses. 

First, we have Assistant Secretary Clay Lowery. Mr. Lowery advises the Secretary on international economic policy. Prior to his 

work with the Treasury Department, he worked as the Director of 

International Finance at the National Security Council. Welcome. 

Assistant Secretary for Policy for the Department of Homeland 

Security, Stewart Baker, is next in line. Mr. Baker also serves on 

the President’s Export Council Subcommittee on Export Administration and the Commerce Department’s Industry Trade Advisory 

Committee. Thank you for coming. 

Peter Flory, the Assistant Secretary of Defense—I have skipped 

over—for International Security Policy. Mr. Flory serves as the 

principal advisor to the Secretary of Defense on issues that relate 

to the development of security cooperation strategies with nations 

of Europe, Eurasia, and the North Atlantic Treaty Organizations. 

And then back to Mr. Flory’s right is Alice Fisher, who is the Assistant Attorney General for the Criminal Division, U.S. Department of Justice. Ms. Fisher supervises the enforcement of Federal 

criminal laws and policy. In addition, she supervises the prosecutors in the division on matters of national security and international affairs. Welcome. 

And we welcome all the witnesses to the hearing today and recognize a 5-minute summary of their testimony. 

We will start on the left with Mr. Lowery. 

STATEMENT OF THE HONORABLE CLAY LOWERY, ASSISTANT 

SECRETARY FOR INTERNATIONAL AFFAIRS, U.S. DEPARTMENT OF THE TREASURY 

Mr. LOWERY. Madam Chairwoman, Ranking Member Maloney, 

Representatives Lee and Manzullo, I appreciate the opportunity to 

appear before you today on behalf of the Administration, the Department of the Treasury, and the Committee on Foreign Investments in the United States. 

While we do not have a formal Administration position at this 

time on any pending legislation, I would like to lay out the key 

principles that would guide us as we work with the Congress to update the CFIUS process. 

We believe that reform should address two broad principles: U.S. 

national security imperatives in the post-9/11 environment and the 

need to continue investment in the United States that creates good 

6

jobs for American workers. In the context of these broad principles, 

we have listened carefully to the concerns of Congress, and I would 

like to highlight five specific areas that we believe address these 

concerns—most of these concerns and issues that you have raised 

in our opening statements. 

First, the Administration shares the view that we need to improve our communication with Congress to help Congress meet its 

oversight responsibilities. We are already taking steps to improve 

this process. For instance, we are now promptly notifying Congress 

of every transaction upon its completion, and we are committed to 

conducting quarterly briefings for any concern on CFIUS matters. 

The Administration is also actively preparing a 2006 quadrennial 

report on amendment. We regret a quadrennial report has not been 

prepared since 1994, and the Administration will issue the 2006 report in a timely and thorough manner. 

We are also open to other suggestions on how to foster better 

communication. 

While reforms in the CFIUS process should advance our shared 

goal of improved communication, we must always keep in mind 

that they should ensure that proprietary information will be adequately protected so that companies are encouraged to file with 

CFIUS; they should preserve the integrity of the Executive 

Branch’s decisionmaking process; and they should avoid possible 

exposure to politicization of intelligence and security reviews. We 

are confident that CFIUS can provide Congress with the information it requires to fulfill its oversight role while respecting these 

principles. 

Second, we should look at ways to increase Congress’s confidence 

in the process of enhancing accountability in terms of CFIUS decisions and in terms of monitoring mitigation agreements. The Administration is committed to ensuring that senior Senate-confirmed 

officials play an integral role in every transaction presented to the 

committee; we have already taken steps in this direction. 

For instance, I know that CFIUS agencies are briefing transactions at the highest levels in their respective agencies. However, 

requiring the Presidential determination or Cabinet-level certification with respect to every transaction would introduce unnecessary delays and divert high-level attention from the transactions 

that raise possible national security issues. It is these transactions 

that could pose security risks where we should be focusing our 

most senior officials’ enhanced detection. 

At the same time, CFIUS process agencies feel the need to put 

in place mitigation agreements to implement security measures 

that vary in scope and purpose according to particular national security concerns raised by the specific transaction. Monitoring parties’ adherence to mitigation agreements after the conclusion of the 

CFIUS process is an important part of protecting the national security. The Administration, therefore, supports reforms that reinforce 

the authority and provide resources for agencies to negotiate mitigation agreements to improve existing enforcement practices. 

Third, members of this committee know very well that we must 

also continue to emphasize the importance of preserving the 

attractiveness of the United States to overseas investment. Foreign 

direct investment is critical to the U.S. economy. Majority-owned 

7

U.S. affiliates of foreign companies employ over 5 million Americans. These jobs, on average, are higher-paid, and roughly 40 percent of these jobs are in the manufacturing sector, which is roughly 

4 times the national average. If the foreign companies were to reduce their spending in the United States as a result of perceptions 

that the United States was less welcoming of FDI, lower investment would cost American workers good jobs, reduce innovation, 

and lower the growth of the U.S. economy. 

Fourth, the Administration supports efforts to update CFIUS to 

reflect the post-9/11 security environment. The committee should 

continue to consider a broad range of national security issues when 

reviewing transactions. Two factors that should always be taken 

into account in CFIUS assessments are the nature of the acquiring 

entity and the nature of the assets to be acquired. The Administration supports requirements for CFIUS to consider ultimate ownership of the acquirer in the possible foreign acquisition of critical infrastructure or any other sensitive assets when reviewing any 

transaction. 

Let me be clear. There is a misperception about how CFIUS operates. The initial 30-day period is a thorough investigation in 

which a comprehensive threat vulnerability assessment is conducted by professionals across the agencies. If there are national 

security concerns raised that cannot be addressed during that time 

frame, extended investigation becomes necessary. However, requiring expanded investigations in which no national security concerns 

are present would divert resources and thereby diminish feasibility 

to protect national security. 

Fifth, the Administration also believes that CFIUS can carry out 

its duties more effectively by strengthening the role of the intelligence community in the CFIUS process. We have taken steps in 

this area by formalizing the role of the Office of the DNI which is 

participating in CFIUS meetings, examining every transaction notified to the committee, and provides broad and comprehensive 

threat assessments through the National Intelligence Council. The 

DNI does not, and should not, vote on CFIUS matters because the 

role is to provide intelligence support and not to make policy judgments. The DNI has already contributed greatly to the CFIUS 

process through threat assessment. 

Mrs. BIGGERT. Mr. Lowery, if you can sum up. 

Mr. LOWERY. Formalizing the process is vital to our national security interests. 

Madam Chairwoman, I would like to reiterate in closing that the 

Administration supports reforms to the CFIUS process and will 

continue to work with Congress toward that end. 

Thank you. 

[The prepared statement of Mr. Lowery can be found on page 49 

of the appendix.] 

Mrs. BIGGERT. Thank you. 

Before I forget, without objection, all of your written statements 

will be made part of the record. 

Mr. Baker. 

8

STATEMENT OF THE HONORABLE STEWART A. BAKER, ASSISTANT SECRETARY FOR POLICY, PLANNING AND INTERNATIONAL AFFAIRS, U.S. DEPARTMENT OF HOMELAND SECURITY 

Mr. BAKER. Thank you, Madam Chairwoman. 

Mrs. BIGGERT. If you could turn on your microphone and pull it 

a little bit closer. 

Mr. BAKER. Thank you, Madam Chairwoman, Ranking Member 

Maloney, distinguished members of the committee, I appreciate 

being here, having an opportunity to give an explanation of the Department of Homeland Security’s role in CFIUS. 

We are the newest member of CFIUS. We joined in March of 

2003. Since then, we have participated in about 170 transactions, 

and I think there are three or four things that you can say about 

the role that we have carved out for ourselves. 

First, we have taken the lead in addressing critical infrastructure, national security, and homeland security issues because that 

is one of our fundamental requirements as a department, to guarantee the safety of the critical infrastructure. 

But I think it is also fair to say that having been formed as a 

result of September 11th and the attacks on that day, we have had 

to be rather creative about the kinds of national security, homeland 

security concerns that we have tried to address, and that has led 

us to have a very broad view of what national security and homeland security requires in these circumstances. 

We have often used the authority to enter into mitigation or national security agreements. I think we have entered into more than 

30 already in the few years that we have been part of the CFIUS 

process, and I think it is also fair to say that we have been pretty 

aggressive in defining the kinds of threats that require some sort 

of action on the part of CFIUS. And while I think our forward-leaning stance on security issues sometimes gives rise to debate in 

CFIUS, I hope and believe that the other members of CFIUS believe that it has, in the end, contributed to better decisionmaking 

on CFIUS’s part. 

Just in case it is not clear from these remarks, the Department 

has made CFIUS one of its highest priorities. I became Assistant 

Secretary in the fall of last year and just about the first staff person that I went out to recruit was somebody to head up our CFIUS 

office. We have plans to substantially expand that office and continue to be very aggressive both in entering into agreements and 

in enforcing them. 

With respect to CFIUS reform, very briefly three points. First, I 

really want to thank this subcommittee for its engagement on this 

issue. You have produced a very responsible and thoughtful mission to the debate. We appreciate the opportunity to talk about it 

here today. 

Second, I fully subscribe to what Secretary Lowery said about 

CFIUS reform. We take it very seriously, and we want to make 

sure that it is handled in a responsible and careful way. 

And finally, we are really delighted to be part of this debate and 

we look forward to the opportunity to talk with the committee 

members and staff about ways to improve the bill. 

Thank you. 

9

[The prepared statement of Mr. Baker can be found on page 36 

of the appendix.] 

Mrs. BIGGERT. Thank you very much. 

And Ms. Fisher, you are recognized for 5 minutes. 

STATEMENT OF THE HONORABLE ALICE S. FISHER, ASSISTANT ATTORNEY GENERAL, CRIMINAL DIVISION, U.S. DEPARTMENT OF JUSTICE 

Ms. FISHER. Thank you, Madam Chairwoman, Ranking Member 

Maloney, and members of the committee. Thank you for inviting 

me here today on behalf of the Department of Justice, and thank 

you for your efforts to reform the CFIUS process. 

We appreciate all of the efforts that will ensure the confidence 

of both Congress and the public in the CFIUS process. Of course, 

the number one priority of the Department of Justice is ensuring 

national security and protecting national security; and that means 

to ensure public safety, both foreign—against threats foreign and 

domestic; and the Department is keenly aware of its role and its 

responsibilities under Exon-Florio as a member of the CFIUS process, and we work hard to meet these responsibilities. 

We are able to draw upon our resources throughout the Department, and have a lot of engagement with the FBI and other divisions throughout the Department. For example, the FBI will call 

on its resources for analysis in investigation, using all of its techniques to the counterintelligence section, the counterterrorism division, and the cyber division within the FBI and all of the expertise 

that they bring to bear with regard to these national security 

issues and the communications and cyber issues. 

In addition, we have experts within the Department in our Computer Crime Section on communications and infrastructure protection. We have a Counterespionage Section and a Counterterrorism 

Section also within the Department that will bring unique expertise to this process, and routinely does bring unique expertise to 

this process. 

We will call on other sections—whether it is the Antitrust Division, the Office of Intelligence and Policy Review—but the point is 

that whatever expertise we need, whatever information we need, 

we have that resource available within the Department, and we 

make sure that we collect that information and discuss it and bring 

it to the CFIUS committee to discuss as a whole. 

We also review the DNI threat assessments and vulnerability 

analyses that are submitted by the DNI, and if we have additional 

questions, we will go back and engage in that process as well. 

By bringing all these resources to bear, the Department of Justice has maximized its ability to participate in the effective implementation of Exon-Florio. 

And I would also like to comment on the importance of the security agreements that have been negotiated, and I know it is part 

of the legislation that you have been considering. We believe that 

the security agreements and the mitigation agreements are a very 

important part of the CFIUS process, and we look at them on a 

case-by-case basis. But the fact that we have that available, the 

fact that they are enforceable through our contract remedies and 

remedies in the agreements themselves—I know that you all are 

10

considering other things with regard to these agreements, and we 

do find that to be a very critical tool in the CFIUS process. 

We have also engaged using those agreements and audits, or 

third-party audits, on-site visits, and engage with the companies 

that sign up with these agreements. So I appreciate your deliberations and your consideration with regard to those agreements. 

We work with the other agencies through the CFIUS process, 

and where necessary, we enjoy a good debate with regard to the 

national security interest. 

At the end of the day, that is what we are there to protect, and 

we appreciate the opportunity to discuss that here with you today. 

Thank you. 

[The prepared statement of Ms. Fisher can be found on page 38 

of the appendix.] 

Mr. CAMPBELL. [presiding] Thank you, Ms. Fisher. 

Mr. Flory. 

STATEMENT OF THE HONORABLE PETER C.W. FLORY, ASSISTANT SECRETARY FOR INTERNATIONAL SECURITY POLICY, 

U.S. DEPARTMENT OF DEFENSE 

Mr. FLORY. Thank you, Mr. Chairman, Ms. Maloney, and members of the committee. I appreciate the opportunity to appear before you today. 

Assistant Secretary Lowery and my colleagues have laid out the 

principles that will guide our CFIUS reform and our review of the 

legislation proposed by the committee. The Defense Department 

shares these principles, and like the other agencies here today, we 

support reform of the CFIUS process. 

I would like to briefly discuss the Department of Defense’s role 

as a member of CFIUS, as well as a few improvements we have 

tried to make in the process within the Department as part of the 

broader interagency effort to look at this process and find ways to 

make it better. 

As a member of CFIUS, the Department of Defense weighs a 

number of factors when it considers foreign acquisition of a U.S. 

company. First and foremost, our objective in this process is to be 

sure that the proposed transaction does not pose risks to U.S. national security interest. To do this, the Department reviews several 

aspects of the transaction, including the importance of the firm 

being acquired to the U.S. defense industrial base, for example, 

whether it is a sole-source supplier. 

We also look at the question of whether the firm to be acquired 

has state-of-the-art or other military-critical technologies. We ask 

whether the company to be acquired is part of the critical infrastructure that the Defense Department relies upon to accomplish 

its mission. We ask, is the acquiring company involved in sensitive 

technology or weapons of mass destruction and their delivery systems? 

These are not all of the questions we might ask, but these are 

some of the questions we look at in the Department of Defense, and 

the bottom line is, if we find issues, we ask ourselves if any potential national security concerns posed by the transaction can be addressed by allocation of risk mitigation measures under the DepartVerDate 0ct 09 2002 14:10 Dec 13, 2006 Jkt 031039 PO 00000 Frm 00016 Fmt 6633 Sfmt 6633 F:\DOCS\HBA137.190 HFIN PsN: TERRIE
11

ment’s own regulations or through other aspects of the CFIUS 

process negotiations with the parties. 

Recently we have done a few things to incorporate some of the 

lessons learned from recent events. These have focused on several 

areas, one of which was a topic that members of the committee 

have mentioned—and we agree with the need for action here—

which is to ensure accountability in the CFIUS process at the senior leadership levels within the Defense Department and across the 

management of our reviewing organizations. 

Another step we have taken is to add the Assistant Secretary for 

Homeland Defense and the Chairman of the Joint Chiefs of Staff 

to our formal list of CFIUS case reviewers. 

We also bring in additional organizations and experts to augment 

the standard Defense Department review organizations. Our standard list, I should point out, is 19 different offices and organizations 

within the Department, but there are cases where we feel the need 

to bring in somebody else; and when we feel that need, we do so. 

To continue strengthening our internal CFIUS process, we are 

clarifying the authorities and detailing responsibilities of the Department’s CFIUS reviewing organizations in a DOD instruction. 

We think this is particularly important for us, given the size of the 

Defense Department and the number of reviewing organizations. 

As I just mentioned, there are 19 of them that play a role, and I 

believe this effort would be helpful in ensuring that we are allocating personnel with the appropriate programmatic, technical, 

operational, regional, and other expertise to the review of these 

transactions. 

Again, we are also working actively with other CFIUS member 

agencies represented here as well as others to develop and implement further improvements in the interagency review process. One 

important part of this has been the increased frequency of interactions at all levels amongst the CFIUS committee members. 

Mr. Chairman, the Department of Defense believes that the 

CFIUS process is working effectively to balance the important need 

for foreign investment in the United States with the critical need 

to protect our national security. This concludes my formal statement. 

I would be happy to answer any questions that you may have. 

[The prepared statement of Mr. Flory can be found on page 42 

of the appendix.] 

Mr. CAMPBELL. Thank you, Mr. Flory. And thank you, panel. 

Mr. Manzullo, do you have any questions for the panel? 

Mr. MANZULLO. I do. Thank you very much. 

I am concerned about several aspects of what CFIUS does. But 

let me just share with you—with regard to follow-up, you had mentioned something about that. Do reports exist on follow-up for compliance with CFIUS in particular situations? 

Ms. FISHER. I am sorry. Excuse me? Reports? 

Mr. MANZULLO. With regard to follow-up, to making evaluation 

and monitoring of the requirements that you may set forth, do reports exist? 

Ms. FISHER. Well, we have certainly engaged from time to time 

with companies on audits, on-site audits, third-party; we have inVerDate 0ct 09 2002 14:10 Dec 13, 2006 Jkt 031039 PO 00000 Frm 00017 Fmt 6633 Sfmt 6633 F:\DOCS\HBA137.190 HFIN PsN: TERRIE
12

sisted that companies hire third-party auditors to come in and 

audit pursuant to the agreement. 

So we have—the agreements themselves are written. We have 

audits that we have done from time to time. Most regularly we 

might—if something comes to our attention on the monitor and it 

is unfortunate, we are concerned about, we will engage directly 

with the company to try to get them to fix anything that we have 

concerns about. 

Mr. MANZULLO. Have there ever been any sanctions for noncompliance? 

Ms. FISHER. To date, I am not aware of any, certainly not during 

my period of time at the Department of Justice, where we have put 

a company in breach of a particular security agreement. 

The other members of the panel might have more information on 

that. I know that there are certain remedies within these agreements that we can enforce as part of the contract itself, and in addition, I know that this committee is considering other things to 

enhance and improve our efforts to remedy mitigation agreements. 

Mr. MANZULLO. The reason I ask that is, the present law requires reporting to Congress, and I just want to be very blunt with 

you—CFIUS, I asked them to come to my office to have a briefing. 

And these are rather junior people involved in the agencies, and 

they also said that—well, this is top secret, it is classified, and I 

heard nothing new. I mean, I received absolutely nothing in the 

briefing that CFIUS gave to Congress. 

I also expected that more high-level administrative officials 

would have been involved in this. At what level do you comprise 

your review of the different—19 different agencies that are involved? 

Mr. LOWERY. I am not sure about the particular briefing that you 

received. In terms of— 

Mr. MANZULLO. I will tell you, it was the one on IBM. 

Mr. LOWERY. Okay. Well, I wasn’t in my job at that time, but the 

way we are viewing—one, we believe that it is very important for 

us to increase our communication with Congress. If there have 

been mistakes— 

Mr. MANZULLO. I understand. My question is, at what level in 

each agency do you assign people to work on the CFIUS? 

Mr. LOWERY. Basically, each agency does things differently, but 

what I can say, what goes on in the Treasury—and I think I can 

speak for all agencies here—all transactions that are coming 

through CFIUS currently are being briefed up to the highest levels 

of the agencies. 

Mr. MANZULLO. I am sure they are now. 

Mr. LOWERY. Right. And what we are saying is that basically we 

believe that one of the criticisms—there were two criticisms that 

came up. 

Mr. MANZULLO. You are not answering the question. 

You know, are these deputy administrators, deputy secretaries, 

assistant secretaries? 

Mr. LOWERY. It depends on the initial transaction. But everybody 

can expect that the Deputy Secretary, Under Secretary and Assistant Secretary of the Treasury Department is being briefed on every 

single transaction. 

13

Mr. MANZULLO. Really? Every single one? 

Mr. LOWERY. Every single transaction is being briefed all the 

way up to the Assistant Secretary. 

Mr. MANZULLO. One of the problems when you tell—you are not 

presently following the law when it says to inform Congress. The 

people who came in to give this briefing were very sincere, but they 

were also very young in terms of actual experience. I mean, you 

have to be experienced to understand this stuff. 

As a Member of Congress, I want to be briefed by people who 

have a lot of authority, and I don’t think that you guys got the 

message that you don’t come in and say, this is top secret, and you 

tell me nothing I couldn’t read in the newspapers; and then you 

throw out half of my staff because they didn’t have a security clearance. And the people who did the actual briefing were not people 

who were high up the food chain in the different rounds. 

Mr. LOWERY. I am not sure about the specific briefing you are 

talking about. But if you would like, I will—we can have higherlevel briefings. Come anytime you would like. 

Mr. MANZULLO. It is kind of late now. 

Mr. LOWERY. Sir, I am trying to answer your question, which is 

basically—you asked who is clearing these transactions. 

Mr. MANZULLO. Right. 

Mr. LOWERY. And I have said that basically everybody, from the 

highest level of the Treasury Department; when we sign off on 

these transactions, the Assistant Secretary, which happens to be 

me, is signing off on those transactions. 

I am a Senate-confirmed position. That is a fairly high level, and 

I am more than willing to come down anytime and talk to you 

about each transaction after a transaction closes, because we have 

to be very careful about proprietary information and intelligence 

sources. 

Mr. MANZULLO. Well, nothing— 

Chairwoman PRYCE. [presiding] The gentleman’s time has expired. 

Mr. MANZULLO. Thank you. 

Chairwoman PRYCE. I want to thank the panel for being here. I 

am sorry for having missed your testimony. I will be sure to read 

it. I have started to read it. 

We are going to have a series of votes, about 50 minutes of votes, 

so we will try to finish with this panel before that. 

So at this time I will yield to my good friend, the gentlelady from 

New York, Mrs. Maloney. 

Mrs. MALONEY. I would like to ask Deputy Secretary Baker, Department of Homeland Security, you mentioned that Homeland Security had been part of 170 reviews of CFIUS. Was Homeland Security part of the review panel that did Dubai Ports? 

Mr. BAKER. Yes, we were. 

Mrs. MALONEY. You were. Well, one of the concerns that was 

raised by the General Accountability Office report on which we 

based a lot of our movement in this legislation before us today was 

the narrow definition that CFIUS had used to define homeland security. The fact that CFIUS did not consider critical infrastructure, 

i.e., in this case, ports, as part of their definition of homeland security, and the legislation that we put forth would require CFIUS to 

14

consider, quote, ‘‘critical infrastructure,’’ and what assurances do 

we have that this addition will correct the problem? 

Certainly the American people thought that 5 major ports, 20 

ports in total, was major critical infrastructure. Yet Homeland Security, even, did not consider it major critical infrastructure. 

And so what assurances do you have that the definition for 

homeland security will no longer be so narrow that obvious infrastructure, such as ports, rail, and voting machines, would not be 

considered part of the CFIUS definition? 

Mr. BAKER. I can assure you that we have always believed that 

critical infrastructure is part of the definition of national security, 

and even in the Dubai Ports case, although we ultimately agreed 

that transaction could go forward, we made it quite clear that we 

believed that national security was implicated. Which is why we 

entered into a national security set of assurances with Dubai Ports 

and PNO, so—we wouldn’t have had the authority to do that if we 

couldn’t have justified it under CFIUS. So the agreement that we 

entered into, I think, gives you some assurance that we have already been viewing critical infrastructure as part of homeland security, part of national security. 

We appreciate the clarification that the law will enact, which will 

make sure that everyone is in agreement on that, but I believe that 

the fact is, it will simply solidify our existing practice. 

Mrs. MALONEY. Some have suggested to us that we might broaden our legislation to include some guidance to businesses and Congress as to what type of transactions need to be reviewed. Do you 

believe—I will ask this to anyone at the desk—that we should have 

some type of guidelines developed by Treasury or CFIUS or Homeland Security or the National Intelligence Director as to what we 

should be reviewing? 

Obviously, buying ice cream stores does not need CFIUS review, 

but do you think that it would be helpful in helping the committee 

focus on what is truly a threat to homeland security, as opposed 

to reviewing absolutely everything? 

And also your comments on the fact that now it is voluntary, it 

is not a mandatory process, and do you believe it should, in some 

cases, be mandatory, say, for a foreign-controlled ownership? 

Mr. LOWERY. We think it is important that it maintain—that it 

continue to be a voluntary process. 

We do welcome foreign investment in this country, and we think 

that if there are transactions that are dealing with national security issues—and there are some things that we look at that are 

fairly clear, such as the defense industrial base, such as critical infrastructure. And any company that comes in looking at those type 

of transactions, as an acquirer, is going to realize that the best 

thing they can do is to go through the CFIUS process, so they can 

get basically the safe harbor at the end of the process, so that they 

are not open to the CFIUS process going back at a later point in 

time and saying, why didn’t you file, and you could overturn this 

transaction. 

So it is actually—we believe that if you keep it at a voluntary 

process, this is a way to encourage companies to actually file and 

not try to hide beyond the radar screen, and that, we think, is an 

important part of the process. 

15

Mrs. MALONEY. And secondly, do you think we should develop 

some type of guidance to businesses and Congress as to what type 

of transactions should go before CFIUS? 

Mr. LOWERY. I think we could look at that. We need to be very 

careful, because then you could create the wrong type of incentives, 

and you could actually—if you define it too narrowly, you might 

find that there were transactions that fell outside of it, outside of 

the CFIUS base. If you divide it too wide, you might be getting too 

many potato chip-type manufacturers. 

So I think putting the words ‘‘national security’’ could have an 

effect and basically explaining that we do need to take certain factors into consideration, such as critical infrastructure, such as defense issues, such as foreign government-controlled assets. Those 

are very important things that we should consider as factors. 

Mrs. MALONEY. Okay. My time is up. 

Chairwoman PRYCE. I would like to ask the panel, and especially 

Treasury and Homeland Security, if this CFIUS committee ends up 

with cochairs as opposed to Treasury chairing the body, do you believe there would be extra difficulty or extra bureaucracy or redundancy; or do you think that it would be a good idea, and we can 

just let go from there? 

Clay, you go first. 

Mr. LOWERY. We think that actually it is best left to the Executive Branch to figure out who is on the committee, who is chairing 

it, who is vice chairing it, if a vice chair is necessary. Having cochairs could help or harm the process. 

Let me tell you real quickly what the Chair does. The Chair—

the Treasury Department acts as an executive secretary, basically. 

It makes sure that all agencies are informed of what is going on 

in the process, makes sure that each agency has a chance to get 

its questions understood and answered, so I am not sure that having two chairs is going to help in that process. 

We basically act as a secretary. We make sure we pass on information to the companies, and we chair meetings. It is not a 

humongous role. It is the role of a secretary type. 

Mr. BAKER. I share some of those views. 

I think it is an understandable notion that Homeland Security 

should be cochair to balance out a national security interest with 

the investment interests that the Treasury has represented. 

The difficulty with assigning that role to any one agency is, there 

is no agency that encompasses all of the national security interests 

that might arise in a particular transaction. Many of the cases that 

arise are cases in which the Defense Department has great expertise and a strong interest, and the Homeland Security Department 

really quite properly takes a back seat to them. And so picking one 

of the agencies and saying, you will have national security responsibility, I think, creates some difficulties. 

Second, I think the national security interests, at least Homeland 

Security as represented in this process has generally flourished 

under what Secretary Lowery described as an executive secretariat 

in which the Treasury’s role is quite minimal. They move the paper 

around, make sure the meetings happen; they are keepers of the 

process. 

16

To the extent that the bill makes the cochair stronger or gives 

them a larger role, there is always the risk that whoever that is, 

the other members’ interests won’t be represented as effectively as 

they are today. 

Chairwoman PRYCE. But you both agree that currently it is more 

an administrative function than any kind of meaningful substance? 

Mr. LOWERY. Yes. 

Chairwoman PRYCE. In the interest of time and because there is 

a vote, I will yield back the balance of my time. 

And Ms. Lee from California. 

Ms. LEE. Let me say, first of all, I think all of you have indicated 

that the process could be enhanced and improved, and I am wondering if you could just go back to the Dubai Ports CFIUS process 

and tell me where you think the flaws were. That is the first question. 

And then, secondly, I know that the GAO raised the issue that 

the CFIUS felt that a 45-day formal investigation period—they 

would be reluctant to initiate this because it would discourage foreign investment. 

What is the—I mean, is that real or not? 

Mr. LOWERY. In terms of the deepwater case, we think that basically we had two major flaws, and when we think that—we tried 

to address this in forms we are looking at. 

First, our communication with Congress; that did not happen. 

And that was a mistake, and that was a problem on our part. And 

we need to improve on that, and we are trying to take steps to do 

that. 

Secondly is that there was not appropriate—to get to Congressman Manzullo’s point—high-enough-level attention. So we basically 

did probably a fairly good job of clearing this transaction on a horizontal basis across the different agencies and across all the professional experts, but we didn’t do a good enough job getting it up the 

line. So that has been something of a concern to us. 

Those are the two things that we feel like we have made a mistake on, and we think that some of the provisions of the bill help, 

some of the reforms that you all have suggested. 

In terms of the GAO’s point of view, or GAO’s point, I guess, 

about whether or not the 45-day investigative period creates a 

problem for investment, our view is that it creates discipline within 

the system to have timelines, and it is important because in any 

government action, timelines do create the discipline you sometimes need. 

What we would like: The vast majority of the transactions that 

we see can be cleared out in very timely fashion. Having a deadline 

helps us. If there is a concern regarding national security that cannot be addressed, then a 45-day extension of that investigative period is a good thing, and that helps us, and so our view is that basically—we can kind of clear out most of the transactions in a very 

timely fashion. 

But for the ones that do raise extra concerns, having that extended investigation period does help us. 

Ms. LEE. Thank you. 

Chairwoman PRYCE. Thank you. 

And Mr. Crowley, you do know there is a vote on? 

17

Mr. CROWLEY. Thank you, Madam Chairwoman. 

Mr. Lowery, you just voiced concerns about some of the mandates 

for allocating critical resources away from certain acquisitions that 

posed legitimate problems, as opposed to routine transactions with 

no potential for national security concerns. You state this with respect to mandatory investigation of acquisitions that do not present 

national security issues that require a Cabinet-level sign-off on 

transactions that do not raise potential national security concerns. 

With this concern, would resources also extend to the provision of 

the bill mandating 30-day-minimum DNI review of all transactions? 

Mr. LOWERY. I think that it is important for the Department of—

I mean, the Director of National Intelligence needs time to conduct 

its investigations and do its research work because it is a very important input valve into the whole CFIUS process in terms of figuring out what are the threats that are coming from specific transactions. 

So I think that the DNI, having some time to do its work is very 

important to us, and I think that it can do its work during a 30-

day review time. 

Mr. CROWLEY. Congresswoman Maloney’s question in regards to 

critical infrastructure and how this book defines that issue—this is 

for Treasury as well as DHS. Some of our colleagues in the House 

who are not necessarily on this committee have tried to craft definitions for ‘‘critical infrastructure’’ so broad as to encompass almost 

everything in our economy and then rule out these, quote, ‘‘critical 

infrastructures’’ to any foreign investment. 

I believe that the bill we have before us, H.R. 5337, establishes 

a more flexible definition for ‘‘critical infrastructure,’’ enough so 

that it is protected, but not overly broad as to limit our economy 

and stifle growth. 

I was wondering if you could give your thoughts on the best way 

to define critical infrastructure with respect to the CFIUS process. 

Mr. LOWERY. Well, I will defer to Stewart on defining ‘‘critical infrastructure’’ because he knows this a lot better than I do. 

But I think that it is important for the CFIUS process to look 

at and take as a factor critical infrastructure, because we should; 

but there are critical infrastructure issues as defined broadly that 

are owned by many different companies all over the world, and it 

does not create any concerns for national security, and so that is 

the key thing. 

We need to focus on what is the most important for national security, and we think that that can be done by making sure that all 

agencies— 

Mr. BAKER. I think the relatively broad definition of critical infrastructure that is referenced in this act is a useful one as long 

as it is not mandatory, so there is some room for good judgment 

on the part of both agencies and potential investors. 

Food and agriculture is obviously a critical infrastructure. We 

have to have that delivered, and it has to be free from terrorist attack. At the same time, we don’t want to do CFIUS whenever 

somebody buys a farm in Iowa, even if they are from Germany. So 

some good sense has to be exercised, even after a relatively broad 

definition of critical infrastructure has been properly adopted. 

18

Mr. CROWLEY. Even if they are from Germany? That is interesting. Thank you. 

Chairwoman PRYCE. All right. 

I want to thank the members for hurrying along here, and I 

want to thank this panel. We have about 50 minutes of votes; we 

will be in recess until 10 minutes after the beginning of the last 

vote. Thank you all very, very much. 

[Recess] 

Chairwoman PRYCE. All right. Thank you, gentlemen, so much, 

for your patience, but such is the way of the House. You have been 

waiting long, so without further ado, I would like to introduce our 

second panel. Mr. Douglas Holtz-Eakin, director of the Maurice 

Greenberg Center for—excuse me. We will have order in this hearing room—for Geoeconomic Studies, Council on Foreign Relations; 

Mr. David Marchick is an attorney with Covington and Burling; his 

practice focuses on international trade and investment, and he has 

advised numerous companies seeking approval for foreign investment under their Exon-Florio amendments. From 1993 to 1999, he 

served under the Clinton Administration. And Mr. John Veroneau 

is a partner with Piper Rudnick Gray Cary. He joined the firm 

after serving as General Counsel in the office of the U.S. Trade 

Representative, and as Assistant Secretary of Defense. 

Chairwoman PRYCE. We welcome the witnesses to the hearing 

today, recognize them for a 5-minute summary of their testimony, 

and without objection, your written statements will be made part 

of the record and we may proceed. We will start with you, Mr. 

Holtz-Eakin. 

STATEMENT OF DOUGLAS HOLTZ-EAKIN, DIRECTOR, MAURICE 

GREENBERG CENTER FOR GEOECONOMIC STUDIES, COUNCIL ON FOREIGN RELATIONS 

Mr. HOLTZ-EAKIN. Madam Chairwoman, members of the committee, thank you for the chance to be here to talk about H.R. 

5337. I think Congress is to be commended for its quick and timely 

actions in revisiting the national security issue in the inbound foreign investment, particularly after the Dubai Ports World transaction. I intend to make only four points. You are well familiar 

with the issues. 

Point number one is that national security is paramount, but it 

is often framed as a tradeoff with economic policy, and indeed, in 

the vast majority of instances, they go hand in hand. As I indicated 

in my written statement and, as the experience that the Congressional Budget Office indicated, the United States may place tremendous demands in the form of military spending and other national security imperatives on the U.S. economy, and even in the 

presence of doing that, they will consume an ever smaller fraction 

of the output under typical economic growth. So keeping growth 

going is actually something that is good for national security. 

And my second point is that financial markets are central to the 

prowess of the United States in superior economic growth. Post 

1995, the United States has been unique among developed economies in having an acceleration of productivity growth. There are 

many who point to the IT industries and the success of smart and 

crafty engineers in beating Moore’s law. I would point toward anVerDate 0ct 09 2002 14:10 Dec 13, 2006 Jkt 031039 PO 00000 Frm 00024 Fmt 6633 Sfmt 6633 F:\DOCS\HBA137.190 HFIN PsN: TERRIE
19

other set of imperatives central to that, the openness of the United 

States to global competition in goods, services, and capital, and the 

role of capital markets in funneling money to new technologies, 

new markets, and otherwise choosing wisely where to invest the 

Nation’s dollars to enhance productivity. 

For that reason, because financial markets are the nerve center 

of a modern economy, and permeate a vast fraction of the economy, 

the risk of policy mistakes in this area is quite real and very difficult to quantify. 

But my third point would be that given the past track record on 

economic and national security success, I don’t think that we 

should be too concerned. There are obvious places where new considerations have raised the importance of targeted and tougher 

forms in the CFIUS process, areas like transparency and monitoring and improving expertise. A concentration on those areas will 

minimize the risk of intended consequences. 

Point number four is because capital markets are allergic to uncertainty, it could very well be the case that a beneficial set of targeted reforms in this area would, in fact, improve overall capital 

market performance by removing the uncertainty that surrounds 

certain transactions at this time and allowing the business community to go forward in a more timely fashion on things that they 

would like to do anyway. 

So in looking at this bill in particular, and this important issue 

in general, I think that it is desirable for the Congress to focus on 

national security and to, where possible, keep that on a very targeted basis to find those situations where transactions impair our 

ability to defend ourselves against our enemies or enhance the ability of our enemies to do harm to us, and by taking that as the guiding principle, it will lead to areas of critical infrastructure, it will 

lead to areas of important technologies, and it will lead to defense 

production capabilities that are important for national security by 

itself, and broad definitions of economic security or broader definitions in national security will be unnecessary with that kind of a 

focus. 

I think it is entirely desirable to clarify timing so that parties to 

transactions know that for those without an essential national security component, they have a quick and timely exit from the process and can move forward, and it has been suggested this be parallel to the Hart-Scott-Rodino timing. I think that is entirely desirable. 

I think the part of H.R. 5337 that focuses on expertise, funding 

where it is actually available for staff, follow-up in the success and 

mitigation agreements and the development of expertise and a 

track record for those mitigation strategies that are effective is entirely desirable, and the notion of improving transparency to Congress with regular reporting after the fact, not during investigations, and by embedding in statute the CFIUS process itself so that 

it is transparent not to the United States, but to the entire world, 

that will be a desirable outcome of this process. 

In going forward, I think it is important to remember that the 

things that are done in the United States are important to global 

capital markets. Part of what is at stake here is the fact that our 

investments abroad are an important platform for U.S. exports. 

20

The acquisition of subsidiaries in other countries enhances the 

business communities in the United States. By undertaking targeted but tough desirable reforms here we will set the stage for our 

countries to do this in the same fashion and provide benefits on a 

global basis. 

Anyway, I thank you for the chance to be here today. 

[The prepared statement of Mr. Holtz-Eakin can be found on 

page 45 of the appendix.] 

Chairwoman PRYCE. Thank you. Mr. Marchick, welcome back. 

STATEMENT OF DAVID MARCHICK, ATTORNEY, COVINGTON 

AND BURLING; AND JOHN VERONEAU, PARTNER, PIPER 

RUDNICK GRAY CARY 

Mr. MARCHICK. Chairwoman Pryce, Ranking Member Maloney, 

and members of the committee, thank you for the opportunity to 

testify. Let me start by applauding your leadership, Madam Chairwoman and Ms. Maloney, as well as that of Chairman Oxley, 

Ranking Member Frank, and Representative Crowley, for offering 

this bill. 

I believe the committee is now considering a very tough but effective bill that will restore Congress’s confidence in the CFIUS process, enhance protection of national security, and at the same time, 

will maintain the United States’ longstanding commitment to open 

investment. 

I would like to cover three topics. First, the Exon-Florio process 

and your bill. The most important principle, in my view, that 

should guide Exon-Florio reform is to ensure that CFIUS has all 

of the tools and all of the time needed to scrutinize cases that 

present real national security issues while allowing the cases that 

do not raise national security issues to proceed through CFIUS in 

the initial 30-day period. 

With a few minor tweaks, Madam Chairwoman, I believe your 

bill meets these objectives. The bill requires CFIUS to consider additional factors, and it adds additional time to the end of the investigation period rather than at the initial 30-day period, as in the 

Senate bill. The bill enhances accountability for both the Government and CFIUS and for transaction parties; it appropriately 

maintains Treasury leadership of the committee; it clarifies the security agencies’ role in negotiating and enforcing security agreements; and it enhances transparency in the process, transparency 

that is much needed as your previous hearings have demonstrated. 

I would like to point out a few issues that I would encourage the 

committee to continue to consider. First, acquisitions by some government-owned companies unquestionably raise unique national 

security issues and should therefore receive heightened scrutiny. 

But not all government-owned acquisitions create the same national security risk, and CFIUS should have the discretion to distinguish between transactions that raise issues and those that 

don’t. 

I would encourage the committee to clarify that CFIUS can allow 

acquisitions by government-owned companies to go straight to the 

investigation stage, and also CFIUS has discretion to close an investigation if no real issues exists, or if any national security issues 

have been mitigated. 

21

Second, I also understand the committee’s desire for additional 

accountability; it is very important. But I urge you to consider 

whether every single transaction needs to be approved at the Secretary or Deputy Secretary level. Some that, frankly, are not very 

significant deals, probably don’t need secretarial level sign-off. 

Third, CFIUS should never act if the DNI does not have adequate time to collect and analyze intelligence related to a particular transaction. But by creating a 30-day minimum for intelligence reviews and requiring that the reviews be completed no less 

than 7 days before the end of the initial 30-day period, the bill creates a de facto 37-day process, even for transactions that raise no 

national security issues. 

I am confident that a provision could be fashioned to allow DNI 

to do its job well without slowing down the entire process. 

Second, the impact of Congressional scrutiny on CFIUS, on the 

operations of CFIUS. There should be, and frankly your leadership 

is important in this, additional Congressional oversight of, and 

transparency into, the CFIUS process, but too much scrutiny may 

result in paralysis of the process. In the current political environment, frankly, no agency official wants to be the person to sign off 

on the next Dubai Ports World transaction, and so there is real 

danger that deals that should be approved will be rejected or that 

unnecessary and burdensome conditions will be imposed on companies simply to provide cover for the bureaucracy. 

The private sector has already responded to this more cautious 

regulatory environment by filing many more cases. There have 

been 32 filings this year, and at this pace, there could be up to 85 

or 90 filings, a 30- to 40-percent increase. 

A few numbers will illustrate the danger of overwhelming the 

system. Since President Bush went into office, there have been 

some 285 or so filings, 52 of these involved foreign government-controlled acquisitions. Ten transactions went to the investigation 

stage or the extended phase, the second phase. With the tightening 

of the Byrd rule, which is done in both the House and the Senate 

bill, each of these 52 government-controlled acquisitions would 

have required a full investigation and on top of that, the Senate 

bill contains a provision that creates a de facto presumption that 

all foreign investments in critical infrastructure creates a national 

security risk. If that provision is adopted on top of the Byrd rule 

tightening, one can imagine a scenario where up to 60 percent of 

the filings have to go through the full investigation phase and this 

could completely overwhelm the system. 

Again, no one is arguing against tough scrutiny, it is critical for 

our national security, but it is just that allowing CFIUS to focus 

on those transactions that raise real issues is critical. 

Third, the protection of critical infrastructure. This is a very important issue, particularly as you move into the conference committee stage with the Senate. CFIUS should be given the flexibility 

to spend its scarce time and resources to focus on those transactions that create real risks. 

I think your bill, Madam Chairwoman, and Ms. Maloney, has it 

exactly right, that is, you have required critical infrastructure to be 

a factor to consider in the CFIUS consideration, but nothing more, 

nothing less. Creating an outright ban on foreign investment critVerDate 0ct 09 2002 14:10 Dec 13, 2006 Jkt 031039 PO 00000 Frm 00027 Fmt 6633 Sfmt 6633 F:\DOCS\HBA137.190 HFIN PsN: TERRIE
22

ical infrastructure, as Chairman Hunter’s bill would do, would both 

harm job creation and undermine national security. And it would 

similarly be unwise to create a presumption that all foreign investments in critical infrastructure pose a national security risk. 

Again, the important thing is to give CFIUS discretion to deal 

with those transactions on a case-by-case basis, focusing on those 

cases which raise real issues and dispensing of those that don’t. 

Let me close by applauding your work once again. This has been 

an extremely deliberate and careful process, one that you started 

with hearings. Your staff has been terrific and very diligent in 

seeking out advice and input on the issues, and it has been as bipartisan a process as I have seen in my 15 years in Washington, 

so I am grateful for the opportunity to testify before you today and 

look forward to working with you and your staff as you continue 

this process. 

Chairwoman PRYCE. Thank you very much. 

[The prepared statement of Mr. Marchick can be found on page 

53 of the appendix. 

Chairwoman PRYCE. Mr. Veroneau. 

STATEMENT OF JOHN K. VERONEAU, PARTNER, DLA PIPER 

RUDNICK GRAY CARY 

Mr. VERONEAU. Thank you, Madam Chairwoman, and Ranking 

Member Maloney. Before I offer my brief prepared remarks, let me 

just say how much we appreciate your commitment to getting this 

right. This is an important issue, and it is clear that you are both 

committed to getting this right. 

My testimony represents the views of the Business Round Table, 

the Organization for International Investment, the Financial Services Forum, and the U.S. Chamber of Commerce. First and foremost, we appreciate the deliberative and bipartisan manner in 

which this legislation has been developed. The bill takes important 

steps to protect against foreign acquisitions that might threaten 

national security including creating a clear statutory role for the 

DNI, extending the investigation period if necessary, and allowing 

CFIUS to reopen previously approved transactions if security 

agreements are seriously breached. 

We support strong measures to assure that national security interests are protected. We hope to work with the committee, however, to address concerns with certain regulatory burdens in the 

bill that may serve no national security interest. 

The Government has a duty to assess security risks of a transaction but should not presume foreign ownership to be an inherent 

threat. 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. 

While CFIUS has adapted itself to the post-9/11 threat environment, and for the most part has worked well, we appreciate the 

goal of this legislation to restore public and Congressional confidence in it. 

We believe that legislating in this area should be guided by four 

key principles. First, national security relies heavily on economic 

security. All prudent steps must be taken to reduce risk but reguVerDate 0ct 09 2002 14:10 Dec 13, 2006 Jkt 031039 PO 00000 Frm 00028 Fmt 6633 Sfmt 6633 F:\DOCS\HBA137.190 HFIN PsN: TERRIE
23

latory systems that impose burdens serving no national security 

purpose undermine U.S. competitiveness. 

Second, the focus of CFIUS must be risks created by the acquisition. There is baseline risk associated with the misuse of any company or its people. The essential question for CFIUS is whether 

foreign ownership itself creates new and definable risk. 

Third, CFIUS must have the time to vet thoroughly any security 

risk, but there should be clarity and certainty for approving in a 

timely manner transactions that pose no threat. Non-controversial 

acquisitions should be approved on the same 30-day time line as 

the Hart-Scott-Rodino process for anti-trust reviews; otherwise, foreign investors would be unfairly discriminated against and sellers 

would be denied the opportunity to get best value for their assets. 

Fourth, CFIUS should not become politicized. Foreign direct investment in the United States is an important engine for job creation; we should welcome it. 

On balance, we believe that these four principles were taken into 

account in drafting this legislation, and we appreciate you and your 

staffs’ commitment for this. The bill strengthens CFIUS’s focus on 

national security and excludes provisions like a legislative veto 

that, if enacted, would hurt investment and provide no security 

benefit. 

We do, however, hope to work with the committee in three areas. 

First, the bill’s preservation of the 30-day review period is undermined to some extent by the provision that prevents the DNI from 

completing its analysis in less than 30 days. The DNI must have 

sufficient time to complete its work, but in cases where this analysis can be done in less than 30 days, it should be allowed to do 

so. 

Second, mandating that certain classes of acquisitions must go to 

the 45-day investigation can be counterproductive by forcing 

CFIUS to spend time and resources on matters posing no security 

risk. For purposes of this mandate, we believe a distinction can be 

made between companies wholly owned and controlled by foreign 

government from those where the foreign government is simply a 

minority investor. 

Finally, we encourage the committee to use great caution with 

regard to notice and reporting requirements as they can divert 

scarce resources away from the national security focus. 

In recent months, the Administration has taken a number of 

steps to build confidence in the CFIUS process. To the extent that 

Congress believes that statutory changes are necessary to assure 

that CFIUS is protecting national security while maintaining an 

open investment policy, we believe this legislation achieves this 

goal. 

I thank the Chair and welcome any questions at the appropriate 

time. 

[The prepared statement of Mr. Veroneau can be found on page 

62 of the appendix.] 

Chairwoman PRYCE. Thank you very much to our panel. I would 

like you to talk to me a little bit about the timing, and not being 

a practitioner myself, how it works now and how the changes that 

we have made could affect it now. Does the committee ever release 

these cases before the time periods are up, or do they run their 

24

whole course? That is one question. Do you think that these time 

frames that were created with Hart-Scott-Rodino are at all arbitrary, do you think time should be the qualifying agent here, that 

we use time as opposed to thoroughness or—let’s just talk to that 

because it seems fairly arbitrary that we just decide these 15-day 

increments, and if they work, why do they work, and take it from 

there. Any of you. 

Mr. MARCHICK. That is an excellent question, and I would say 

that the issue that has been most intensively discussed in this 

whole CFIUS reform process are the time periods. It is an arbitrary 

number, 30 days, and one could easily pick 45 days, 60 days. There 

is no magic. But as John and Doug said, the Hart-Scott-Rodino 

process which applies for both domestic acquisitions and foreign acquisitions has a 30-day initial time period, and it is critical to create a parallel process so there is not discrimination against foreign 

acquisitions. 

The important thing in any process is to make sure that the 

process is flexible enough so that they can scrutinize, dissect, and 

work through the tough cases, and I have had cases that have 

taken up to 11 months, even though there is a 90-day clock. Frankly, if CFIUS wants you to push a case, if they don’t have enough 

time, they have lots of levers to force you to withdraw. And other 

cases where frankly they could complete the review in 15 days. 

So time periods are important to create discipline and to create 

a level playing field for foreign and domestic investors, but you also 

want enough flexibility for the tough cases, and I think your bill 

improves that process. 

Mr. HOLTZ-EAKIN. I think that is basically where I come down. 

I guess the things I would emphasize are, number one, the HartScott-Rodino timing is both arbitrary, but has also worked, and so 

to tie yourself to that has some merit. There is no great feeling out 

there that somehow those time frames, while arbitrary, are wrong. 

They seem to work just fine. I think there is some virtue to making 

it both parallel and picking something that has worked. 

The second thing is, I think, Assistant Secretary or Deputy Assistant Secretary Lowrey was pretty clear in saying that having a 

maximum time for reviews which are really going to be 

uncontested, there is no great national security threat, having 

something that drives the process to completion within a certain 

time frame, 30 days, is valuable. So framing it, it will take no more 

than 30 days for those reviews that are not controversial, I think, 

is important to make sure that the parties to the transaction have 

some clarity about what they are getting into when they start. I 

think that is important. I think—then I will stop. 

The real question is whether you want to have this big asymmetry between the different variations of government-controlled 

versus those which are not, and that is going to be the hard question on the timing. 

Chairwoman PRYCE. And you don’t think the increased scrutiny 

and the higher levels in each agency will require more time? You 

don’t think this is an unrealistic time as we—even if we don’t legislate it, it is required by the atmosphere. Comment? 

Mr. VERONEAU. Madam Chairwoman, from my perspective as 

someone serving on CFIUS, there were clearly times when there 

25

were complicated issues and we were all being pushed to sort of get 

our homework done, but I honestly never felt there was an instance 

where we were being forced to make decisions without the full benefit of being able to digest the information and the analysis. And 

as Dave alluded to, in those cases where the government just can’t 

get its work done, we tell parties that they need to withdraw, and 

we need more time on this, and it has worked. I think it has the 

benefit of providing flexibility to the system, but frankly, also discipline. You need a disciplined process, and you need deadlines. I 

know that in college, I got a lot more papers done by having a 

deadline than I would have otherwise. I think you need a deadline. 

Mr. HOLTZ-EAKIN. I think the way you structure the bill has 

some interactions that should be recognized. By having enhanced 

reporting of mitigation agreements and how successful they are, 

you build a track record internally to the CFIUS process so that 

when Administrations change and new people come to this, they 

can build on that expertise, and it won’t take as much time as it 

might have in the past. 

Even if the time frames might look optimistic at the moment, as 

you build expertise, they won’t be as hard to reach. 

Chairwoman PRYCE. Thank you. My time has expired. Ms. 

Maloney. 

Mrs. MALONEY. I want to thank all of you for your testimony. I 

believe in the Dubai Ports deal, one of the reasons we put the time 

frame requirement of 45 days is that the CFIUS board made a decision that it wasn’t a threat to national security and many Americans believe, and I believe also, that selling 20 ports and 5 major 

ports which the 9/11 Commission says are the most prone for terrorist activity, merited the 45 days. 

I think also there is a concern about a government-controlled acquisition and that they have certain advantages that really undercut the free market capitalistic system. They are able to pay more, 

they are able to control the finances, in many cases, of their country. By some accounts, Dubai Ports World was paying 20 percent 

more than anyone else, and some professionals were quoted as saying it was not a realistic amount that they were paying, it wasn’t 

tied to reality, it was tied more to the fact that a governmentowned entity could pay more. 

And so I personally believe that a government-owned situation 

should have greater scrutiny and we should look at it more carefully. My question is what is a government-controlled transaction? 

Obviously, in Dubai Ports, it was very upfront; this is United Arab 

Emirates, we are buying it. But oftentimes, the government may 

give to a private company 99 percent of their money, at which they 

are now, quote, ‘‘private’’ and they are out buying American firms 

and American infrastructure. 

So my question to you is what is your definition of a governmentcontrolled entity, or what definition do you think it should be and 

could you respond to the allegations that some governments are not 

upfront. What they do is they create a shell corporation, even put 

90 percent of the money into an American—to a shell company that 

is now ‘‘independent’’ and that company then goes and buys. 

What oversight do you think we should have for that type of situation? 

26

Mr. MARCHICK. It is an excellent question, and let me start by 

complimenting you for, first, introducing H.R. 4915 and for the 

work you have done, and I was pleased to see that Chairwoman 

Pryce incorporated a significant amount of that bill into your collective bill. 

First of all, from an economic perspective, I think that there 

should be a strong U.S. Government policy that encourages foreign 

governments to privatize state-owned companies. We have pursued 

that in trade agreements; we should continue to do that. 

Second, there are times when foreign government-owned entities 

do have access to preferential financing or subsidies that put U.S. 

companies at a disadvantage, and there should be a strong and robust economic approach to that. Whether that creates national security issues is another question. But there are times when foreign 

companies, foreign government owned companies do have benefits 

and advantages that frankly are discriminated against U.S. companies. 

The question of government control and when a company is controlled by the government is a very complicated one, it is a very 

difficult one. CFIUS has, in their regulations, a very expansive 

view of what control is. If there is an investment of over 10 percent, there is a presumption of government control, but there are 

times when they found government control even when there is less 

than 10 percent. For example, if there is a case where the government provides 99.9 percent of the financing, approves the CEO, has 

veto rights over significant corporation transactions, then it is clear 

that’s a government-controlled company. 

And so CFIUS has utilized a very expansive definition of control 

in which they look at the totality of the evidence, not just in terms 

of ownership stakes but also other indicia of control like the number of board seats, the type of contracts they have, and whether the 

government is the main customer, and I think that is an appropriate approach for it. 

Mrs. MALONEY. I would say that in trade, many American businesses have come to this committee and testified that they feel 

they are sometimes disadvantaged in our exports because other foreign countries will subsidize to a huge degree, even 50 percent, 

whereas they are a private company. They say when you are not 

subsidized, which they are not in our country, it puts them at a tremendous disadvantage. 

I am wondering if a totally subsidized government company is 

coming in to buy parts of America, should that be part of the process to point out the amount of subsidy from the government, if you 

follow my point. Because if the government decides they really 

want to buy something, they can totally subsidize it to a point that 

no one can compete. I mean, no foreign country can compete, no 

American company can compete. 

So do you think that the amount of government subsidy from a 

foreign country should be part of the decision in the CFIUS process. Because if it is heavily subsidized, there is no way any other 

country or American company can compete. 

Mr. VERONEAU. Ms. Maloney, if I can answer that. I think you 

raise an important policy question, and I would analogize it to, as 

you know, we have the trade remedy laws, the countervailing duty 

27

that allows us through the Customs Service to put additional duties on imports if they are coming from a subsidized source. 

So the theory that you mentioned, and the concern that you raise 

is one that has precedent in our trade laws. Personally, I would be 

concerned about blending some of those economic concerns, regardless of the merit, into the CFIUS process. I think the CFIUS process, since its origins in the mid 1970’s, has stayed true to its focus 

of national security. Now, reasonable minds can disagree as to 

whether CFIUS has come down on the right side of the line, but 

I do think there has been great effort and correct effort to make 

sure the focus of CFIUS remains security concerns, not other concerns, not economic concerns, regardless of their merit. 

Chairwoman PRYCE. The gentlelady’s time has expired. Mr. Manzullo. 

Mr. MANZULLO. Thank you very much. I am sorry I didn’t have 

an opportunity to listen to your testimony. I guess the question 

that Mrs. Maloney was asking, perhaps it has no answer, at what 

point does impaired economic status on behalf of a competitor of a 

CFIUS petitioner rise to the level of national security interests? If 

you have a company coming in that is a state-owned enterprise 

that say corners the market on a commodity, titanium, for example, copper, in the United States, I think we are reaching a point 

in this inquiry where there has to be some guidance from those of 

you who have been involved in this thing for years to try to address 

the question, at what point does economic security become a question of national security. 

If you don’t have the answer to it, I don’t expect it, but at least 

I would like to have your thoughts, because I know everybody is 

grappling with that question. 

Mr. HOLTZ-EAKIN. I think you should focus on national security 

and get the right answer. I think in the example you gave, the national security issue is defense production with a scarce material 

like titanium and the focus on that would lead you to be comfortable or not comfortable with the transaction, regardless of the 

level of subsidy. I think that there is an appropriate concern about 

level playing field in international investments, but that is not a 

problem for the CFIUS problem. 

It is a real problem, one that the United States needs to be constantly engaged in with other countries, and we can perhaps get 

level playing field rules across the globe, but that is not a CFIUS 

problem. The CFIUS problem is keeping us safe and keeping the 

eye on the ball there will get you the right answer. 

Mr. MANZULLO. Anybody else? 

Mr. MARCHICK. I agree with that, and I think the CFIUS process 

is equipped to deal with those issues through conditioning investments in materials or in technology that is critical for our national 

defense or for our national security. For example, you can go back 

to World War I and World War II when there was significant German investment in the chemical industry and other sectors, and 

there is actually evidence that shows the fact that the investment 

was here and the technology was here actually aided our ability to 

fight World War I and World War II. 

So I think CFIUS can look at if there are critical materials or 

technologies that need to stay in the United States, CFIUS can 

28

condition the approval of any investment on maintaining certain of 

those technologies, certain assets in the United States, which is 

how you approach it from a national security perspective. 

Mr. VERONEAU. I would just add, Mr. Manzullo, in agreeing with 

my colleagues here, that your question is precisely why we want 

to have a very broad and flexible definition of national security, because the hypothetical you posed, I think, would raise security 

issues and CFIUS needs to have the flexibility to look at that stuff. 

Mr. MANZULLO. Let me tell you what my concern is. As you 

know, foreign direct investment is down in this country. FDI has, 

as I said in my opening statement, it has saved huge numbers of 

manufacturing facilities in my district. For example, the Japanese 

purchased the last U.S. sewing machine company, Union Specialties. If the Japanese had not come in with their know-how and 

management skills, it wasn’t so much money, but they were the 

only ones who knew how to run that industry. 

And what my concern is, and what I like about Mrs. Pryce’s bill, 

I am the co-sponsor on that, is it really takes a good look at opening the process but not revealing trade secrets, and respecting the 

fact that without foreign direct investment, manufacturing in this 

country would be imperiled, and any attempts I think to, I don’t 

want to use the word ‘‘strengthen’’ the bill, but to make it more restrictive would scare away foreign direct investment. 

We are fighting now with the western hemisphere travel initiative. I voted against that bill. Our Congress mandates that people 

in the United States literally have to buy a $95 passport or a $50 

passport equivalent card just to go to Canada and back. And the 

Europeans and the Asians are noting with great interest, whether 

or not we work that out because if we don’t, that is another reason 

for them not to get involved in foreign direct investment. 

Mrs. Pryce has a lot of manufacturing in her district. Ms. 

Maloney, I don’t know if you have a lot of manufacturing where 

you are. But the largest county in my district has the second most 

dense manufacturing base of any county in the Nation, with a population in excess of 250,000. One out of four jobs is directly related 

to manufacturing. 

And so we are being very, very cautious on crafting that bill, and 

I want to be very careful to make sure that somebody doesn’t come 

in there and make it more difficult for foreign direct investment to 

come to this country. 

Mr. MARCHICK. May I respond to that briefly? First of all, Mr. 

Manzullo, I couldn’t agree with you more, and I applaud the work 

that you have done to essentially preserve our manufacturing base 

in the United States. I think, Mrs. Pryce, Mrs. Maloney’s bill does 

a lot to strike the right balance in terms of defensively dealing with 

foreign investment to make sure that foreign investment doesn’t 

compromise our national security, but there is a lot of work that 

we can do to have an offensive strategy to promote foreign investment. 

I can give you a few ideas. First, there is no Federal policy to 

promote foreign investment. President Reagan and President 

Carter before that had actually issued formal statements of policy 

to welcome foreign investment, and I would encourage you to encourage this Administration to do so, as well. 

29

Second, we have a huge expert promotion apparatus in the Commerce Department. You have done a lot of work on that, Mr. Manzullo. There is absolutely no intention at the Federal level to promoting inward investment. Every single Governor in the States 

that you represent takes missions and fights like the dickens to 

bring foreign investment in. We should be doing that at the Federal level. 

Third, we can be doing a lot of work in the G7 or G8 and the 

OECD and frankly Congressional commissions like the one that 

you have with China to say that we are open to foreign investment 

to develop global policies that will foster more foreign investment. 

I think the United States and this committee should consider 

both the defensive strategy with national security and an offensive 

strategy too. 

Chairwoman PRYCE. The gentleman’s time has expired. Mr. 

Sherman. 

Mr. SHERMAN. Thank you. A few general questions about the situation we find ourselves in, a few comments. We are running this 

huge deficit with the world because we have had failed trade policies, not under this Administration only but also under the prior 

administration. A huge amount of dollars that are used not to buy 

our products but rather to buy pieces of America and they are either going to buy our securities, which are indirect claims to pieces 

of America, or they are going to buy pieces of America directly at 

our factories or farms, etc. 

The second thing that led to the Dubai problem is that we have 

failed to get our share of the shipping business, and we have given 

it up, just as we have done everything, almost everything possible 

to lose all the jobs that pay between $20 and $40 or the $20 and 

$50 an hour. And so since foreign interests control all of the shipping that virtually comes in and out of our ports, or virtually all, 

they now want to control the ports themselves, and this whole 

transaction was one between the British and the United Arab 

Emirates company. 

The other reason this became a problem is the phenomenal tone 

deafness of those in the Administration who are handling this 

issue. They really thought that they could sweep it under the rug, 

or worse yet, they didn’t even think that Americans would care. 

There isn’t a single Member of this House who didn’t know this 

thing was going to explode the minute it became public, and yet 

dozens of people in the Administration couldn’t see it. 

For that reason they didn’t—the Administration did not quietly 

tell Dubai not to buy the ports. So instead of quietly disappointing 

them, we have now done irreparable harm to our position with the 

Arab world. 

One of the other reasons why Dubai was fooled into that they 

could go forward with this transaction until it blew up on them is 

that we don’t have clearer standards of what factors should be considered in determining whether to approve one of these deals. And 

the standards ought to include, and I hope to work with the authors of the legislation to achieve this, to look at whether the proposed owners themselves, in this case, the government was the 

owner or the ultimate owner, is the proposed owner of our sensitive 

assets cooperating with us in dealing with terrorism. 

30

Second, do they—and they may do this simultaneously, do they 

support terrorism? I think it is relevant to ask whether they support the international boycott of Israel. 

But looking at the United Arab Emirates, here that government 

controlled the Dubai Ports company, and at the same time that 

government supported entities on the U.S. terrorist list. The president of the country participated in telethons for terrorists. No one 

at Treasury or elsewhere even bothered to take note of this. Why? 

There is no standard in the statute. 

So to tell us that our ports are going to be controlled by a government that has telethons for terrorists flies in the face of everything 

that the American people are going to insist on. So I would hope 

that we would write a statute that looks at the host government 

of the proposed buyer in terms of cooperating in dealing with terrorism, not allowing its citizens to support terrorism, and international boycotts, and also looks at the owners and all of its affiliated entities, cooperation on the war on terrorism, absence of support for terrorism, and the international Israeli boycott. 

Here, that host government was the owner, as I pointed out, and 

that is a government that has supported Hamas and so many organizations that are on the terrorist list. 

My question for our panel here is you are familiar with the bureaucracies that signed off on this. How could they possibly have 

thought the American people would tolerate having a terrorist supporting government? Now I am not saying they don’t all cooperate 

at some times. This is a schizophrenic government to some extent. 

But to have a terrorist supporting government controlling so many 

of our major ports, how did they miss this one? 

Mr. HOLTZ-EAKIN. I am the economist, so I am the least well 

equipped to understand how everyone will think. I think the bill 

addresses this problem. I think it addresses it in a very sensible 

way, and that is by having the Chair and the Vice Chair sign off 

on all the transaction, you ensure that there is a pattern of tone 

deafness built into this system. 

I know Mr. Marchick disagrees with me, but I think that it 

should be the responsibility of the Chair and Vice Chair to ensure 

that their staffs take really ordinary and mundane transactions 

and get them to them in a timely fashion, they sign off, and that 

they place sufficient confidence in their staff. 

So I think the bill gets to this, it might like onerous on paper 

but— 

Mr. SHERMAN. I agree with you there, but can anybody on the 

panel explain how they blew the Dubai Ports deal? How could 

those bureaus and agencies, even if it wasn’t being signed off at the 

highest level, be just so completely ignorant of the views of the 

American people? 

Mr. VERONEAU. At the risk of walking into this hornets nest, and 

I speak here for myself, I think the case that was made in the Administration was that you have a country that has been cooperating since 9/11 with this Administration. 

Mr. SHERMAN. Did anybody in the Administration and this process point out the UAE was having, even after 9/11, telethons for 

terrorists? 

31

Mr. VERONEAU. I am obviously not privy to those questions, but 

I do think there was lots of cooperation with the Department of Defense and with DHS with this company and this country and there 

was another side of the argument that this didn’t pose a national 

security problem, putting aside the communications problem that 

obviously the company brought upon themselves. 

Chairwoman PRYCE. The gentleman’s time has expired. Mr. 

Crowley. 

Mr. CROWLEY. Thank you, Madam Chairwoman. I appreciate the 

questioning of my colleague from California. What I really want to 

do is for the record ask a couple of questions to get on the record 

some answers as pertains to the legislation before us now, H.R. 

5337. Mr. Marchick, there are concerns by some that allowing the 

CFIUS process to continue will weaken our national security and 

allow for more Dubai Ports deals. They argue the CFIUS process 

should be mandatory for all foreign investment in the United 

States. 

What are your thoughts on this, and do you think making CFIUS 

and its process mandatory for all foreign transactions in the United 

States, do you think that will strengthen national security, and if 

not, why not? 

Mr. MARCHICK. Thank you for the question, and thank you for 

your work with the Chair and with the ranking member on this 

bill. I really appreciate that. My view is the voluntary process and 

maintaining that approach strengthens national security and is 

good economic policy as well. It strengthens national security because it allows CFIUS to focus on those transactions that really 

raise national security issues as opposed to processing hundreds or 

even thousands of foreign acquisitions that are made every year. 

There are literally thousands of foreign acquisitions of pieces of 

real estate, farms, dry cleaners, you name the business, that don’t 

raise any national security issues and don’t need to be reviewed by 

the government. 

Second, from an economic policy point of view, the United States 

has literally, for decades, pushed other countries to dismantle their 

foreign investment review boards that are unrelated to national security, going back to Reagan and the U.S. Canada free trade agreement, all the way up to President Bush and the U.S.-Australia free 

trade agreement. 

So there are very, very strong incentives for those companies for 

which acquisitions could potentially affect national security to file. 

The potential negative ramifications of not filing are very, very severe. There is no statute of limitations, the transaction can be 

unwound at any time. There are very strong incentives and I think 

the voluntary filing system works and changing it to a mandatory 

filing system would so overwhelm the process that it would actually undermine national security. 

Mr. CROWLEY. Thank you. Mr. Marchick and Mr. Veroneau, in 

the testimony you both raise concerns about the mandatory minimum 30-day study for all CFIUS reviews of transactions. This provision appears to make all reviews of transactions by CFIUS equal 

in the eyes of the committee. 

I too have been hearing other concerns about this provision. 

Some argue that this provision mandates a thorough intelligence 

32

investigation of all CFIUS transactions which would benefit our national security. Your testimony makes me think you do not agree 

with this assessment and could you explain, and I would like to, 

if I can, I have one other additional question in case times runs 

out, I would like to ask the Chair for 1 additional minute. 

Chairwoman PRYCE. Go right ahead. 

Mr. VERONEAU. Mr. Crowley, I think clearly the legislation reflects a very legitimate concern that the intelligence analysis has 

to be thorough and there has to be time to do that. So I understand 

why the 30-day minimum was put in there. The only thing I would 

counsel is there are many times where that analysis can be done 

in a much shorter period of time because the transaction is not 

complicated, doesn’t raise serious issues, or more likely, it is with 

parties that have been through this process numerous times and 

are known entities to the intelligence agencies, et cetera. So there 

is no national security benefit to insisting that they couldn’t turn 

in their assignment before 30 days if the facts and circumstances 

allow it. 

Mr. MARCHICK. I agree 100 percent. 

Mr. CROWLEY. Again, with the Chair’s indulgence, the issue of 

over politicization of the process, it is my understanding the proposed mergers between the French telecommunications giant 

Alcatel and Lucent Technologies, as well as the Japanese conglomerate Toshiba and Westinghouse Companies, have raised a few eyebrows here in Congress. 

Do you trust the CFIUS process to fairly judge these possible 

mergers or should Congress have a say in these and every day controversial CFIUS committees before the committee can make a 

final recommendation, as some Members of Congress are demanding, or should it be as we have formulated in this bill, post-CFIUS 

decision. 

Mr. MARCHICK. I would just refer you back to a statement by 

Ranking Member Frank in one of the earlier hearings where I 

would fully endorse the comments that he made, that it is both 

dangerous and inappropriate for Congress to get too deeply involved in a transaction, in a review of a transaction while the review is pending. 

In my view, that invites politicization, it risks leakage of proprietary information. The mere fact that companies would know that 

significant amounts of transactions specific data would be flown to 

the Hill would actually chill investment itself, because they would 

want their proprietary data up on the Hill before the review or 

after the review. I have been involved in transactions where some 

of that data has gotten to the Hill, and then it has gotten to competitors and competitors have taken that data and gone to customers of my clients and other companies, and basically said this 

company creates a national security risk, CFIUS has concerns 

about it, you should stop buying from them because they are a national security risk, and that affects jobs, the stability of the company, and it tarnishes the acquiring company’s record. 

And so I think that you have—your bill has it right. It avoids notice of every transaction, it avoids transmission of transaction specific data to the Congress, and rather focuses on in a semiannual 

report aggregate and trend data, which is more appropriate and 

33

will allow to you do your important oversight function better than 

getting 85 briefings a year on 85 transactions. 

Mr. VERONEAU. The only thing I would add is if you look at the 

history of CFIUS as laid out in Mr. Marchick’s book, CFIUS is always one step away from being over-politicized and the process 

being, in my view, abused by someone who, for economic reasons, 

wants to queer a deal. I think the bill properly reflects that risk, 

and I think has it right in terms of trying to minimize the opportunity for politicization. 

Mr. CROWLEY. Mr. Holtz-Eakin. 

Mr. HOLTZ-EAKIN. I think on this one the Congress should stay 

out of individual deals, and the best way to see it hold the mirror 

up and think of the advice that we have been giving to other countries that want to duplicate our success in using private markets 

to generate good standards of living. We advise them to rely on 

capital flows and the government to allocate capital and to put in 

place rules of law, provide transparency and respect property 

rights. A bill of this type is supportive of that sort of environment, 

a bill that puts every transaction in the hands of the Congress is 

not. 

Mr. CROWLEY. Thank you, and I thank the Chair. 

Chairwoman PRYCE. I want to thank the committee and the 

panel very much. We may have members who have other questions. We will leave this record open for 30 days and if they do, we 

will submit them to you and you can get back to us in writing. We 

would appreciate that. And with that, the hearing is adjourned. 

Thank you very much. 

[Whereupon, at 5:04 p.m., the subcommittee was adjourned.] 

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A P P E N D I X

May 17, 2006

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