U.S. GOVERNMENT PUBLISHING OFFICE

28–767 PDF WASHINGTON : 2018

S. HRG. 115–160 

CFIUS REFORM: ADMINISTRATIVE PERSPECTIVES 

ON THE ESSENTIAL ELEMENTS 

HEARING 

BEFORE THE

COMMITTEE ON 

BANKING, HOUSING, AND URBAN AFFAIRS 

UNITED STATES SENATE 

ONE HUNDRED FIFTEENTH CONGRESS 

SECOND SESSION 

ON 

EXAMINING THE ROLE OF THE COMMITTEE ON FOREIGN INVESTMENT 

IN THE UNITED STATES 

JANUARY 25, 2018 

Printed for the use of the Committee on Banking, Housing, and Urban Affairs 

( 

Available at: http://www.govinfo.gov/ 

COMMITTEE ON BANKING, HOUSING, AND URBAN AFFAIRS 

MIKE CRAPO, Idaho, Chairman 

RICHARD C. SHELBY, Alabama 

BOB CORKER, Tennessee 

PATRICK J. TOOMEY, Pennsylvania 

DEAN HELLER, Nevada 

TIM SCOTT, South Carolina 

BEN SASSE, Nebraska 

TOM COTTON, Arkansas 

MIKE ROUNDS, South Dakota 

DAVID PERDUE, Georgia 

THOM TILLIS, North Carolina 

JOHN KENNEDY, Louisiana 

JERRY MORAN, Kansas 

SHERROD BROWN, Ohio 

JACK REED, Rhode Island 

ROBERT MENENDEZ, New Jersey 

JON TESTER, Montana 

MARK R. WARNER, Virginia 

ELIZABETH WARREN, Massachusetts 

HEIDI HEITKAMP, North Dakota 

JOE DONNELLY, Indiana 

BRIAN SCHATZ, Hawaii 

CHRIS VAN HOLLEN, Maryland 

CATHERINE CORTEZ MASTO, Nevada 

DOUG JONES, Alabama 

GREGG RICHARD, Staff Director 

MARK POWDEN, Democratic Staff Director 

JOHN O’HARA, Chief Counsel for National Security Policy 

KRISTINE JOHNSON, Professional Staff Member 

ELISHA TUKU, Democratic Chief Counsel 

COLIN MCGINNIS, Democratic Policy Director 

DAWN RATLIFF, Chief Clerk 

CAMERON RICKER, Deputy Clerk 

JAMES GUILIANO, Hearing Clerk 

SHELVIN SIMMONS, IT Director 

JIM CROWELL, Editor 

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C O N T E N T S 

THURSDAY, JANUARY 25, 2018 

Page 

Opening statement of Chairman Crapo ................................................................. 1 

Prepared statement .......................................................................................... 27 

Opening statements, comments, or prepared statements of: 

Senator Brown .................................................................................................. 3 

WITNESSES 

Heath P. Tarbert, Assistant Secretary of the Treasury for International Markets and Investment Policy ................................................................................. 4 

Prepared statement .......................................................................................... 28 

Responses to written questions of: 

Chairman Crapo ........................................................................................ 37 

Senator Menendez ..................................................................................... 37 

Senator Warner ......................................................................................... 38 

Senator Cortez Masto ................................................................................ 42 

Richard Ashooh, Assistant Secretary of Commerce for Export Administration . 6 

Prepared statement .......................................................................................... 31 

Responses to written questions of: 

Chairman Crapo ........................................................................................ 45 

Senator Scott ............................................................................................. 46 

Senator Cotton ........................................................................................... 47 

Senator Menendez ..................................................................................... 48 

Senator Warner ......................................................................................... 49 

Senator Cortez Masto ................................................................................ 52 

Eric Chewning, Deputy Assistant Secretary of Defense for Manufacturing 

and Industrial Base Policy .................................................................................. 7 

Prepared statement .......................................................................................... 34 

Responses to written questions of: 

Chairman Crapo ........................................................................................ 54 

Senator Cotton ........................................................................................... 55 

Senator Menendez ..................................................................................... 55 

Senator Warner ......................................................................................... 56 

Senator Cortez Masto ................................................................................ 58 

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(1) 

CFIUS REFORM: ADMINISTRATIVE PERSPECTIVES ON THE ESSENTIAL ELEMENTS 

THURSDAY, JANUARY 25, 2018 

U.S. SENATE, COMMITTEE ON BANKING, HOUSING, AND URBAN AFFAIRS, Washington, DC. 

The Committee met at 10 a.m., in room 538, Dirksen Senate Office Building, Hon. Mike Crapo, Chairman of the Committee, presiding. 

OPENING STATEMENT OF CHAIRMAN MIKE CRAPO 

Chairman CRAPO. This hearing will come to order. This morning 

we will receive testimony for a third time this Congress on the role 

of the Committee on Foreign Investment in the United States, or 

CFIUS. 

The Committee held a general oversight hearing on CFIUS in 

September, and last Thursday the Committee began its review of 

S.2098, the Foreign Investment Risk Review Modernization Act of 

2017, or FIRRMA, a comprehensive reform that significantly expands the purview of CFIUS, which has been introduced by Senators Cornyn and Feinstein. 

CFIUS authorities cover transactions that result in foreign control of a U.S. business that may threaten the national security of 

the United States. The focus is currently on inbound investment 

and technology acquisition. 

Today’s hearing brings in witnesses from three of the nine Federal agencies and offices that comprise the full voting membership 

of CFIUS: the Department of Treasury, which chairs—which serves 

as the chair of the committee; the Department of Defense; and the 

Department of Commerce’s Bureau of Industry and Security, which 

administers and enforces the dual-use regulations of the U.S. export control regime. 

According to their testimony last week, Senators Cornyn and 

Feinstein, informed by their work on the Senate Intelligence Committee, introduced their bill because of growing concerns arising 

from China’s multilayered threat to U.S. national security, namely 

threats emanating from a weaponization of its foreign investment 

strategy to acquire, by design, dual-use technology and know-how 

from U.S. companies. Our colleagues believe that China has found 

gaps in both the existing CFIUS process and export control regime, 

and is exploiting each of them to the detriment of U.S. national security and the U.S. defense industrial base. 

To address these concerns, FIRRMA is specifically designed to 

broaden CFIUS’s jurisdiction to review certain high-technology 

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joint venture and related arrangements, minority position investments, and certain types of real estate transactions. 

At last week’s hearing, a consensus emerged that much of the 

bill is focused on national security threats that need to be addressed as China executes its policies borne of its unique civil-military integration that effectively blurs the lines between military 

and commercial activities. 

It is also important to note that the overwhelming majority of 

foreign investments and transactions provides significant benefit to 

the United States economy, including those Chinese investments 

that occur in most sectors of the U.S. economy and do not impact 

the national security of the United States. 

It is that point of inflection between the national security and 

economic growth realized from an open investment policy that the 

Banking Committee has been entrusted to debate and oversee 

throughout the now 42-year evolution of the CFIUS process. 

The challenge comes in the continued use of foreign investment 

to promote economic growth and the next-generation technologies, 

while shielding those very technologies from foreign threats. 

Last week, the panel of witnesses from the private sector offered 

their perspectives on the potential effects of FIRRMA. During the 

hearing’s question-and-answer period, there were several questions 

raised that merit feedback from today’s panel, including one, would 

the expansion of CFIUS authority to unwind or alter outbound 

joint venture-related international commercial activity duplicate or, 

in any way, undermine the current U.S. export control regime and 

end up chilling this type of commercial activity? 

Two, if there are gaps in the export control process, why should 

this Committee, which has jurisdiction over both the relevant parts 

of the U.S. export control regime and CFIUS, opt to create a new 

export control authority for CFIUS, a traditionally unilateral inward-bound review process? 

Three, what would the resource burden look like for each of your 

agencies for the type of expansion envisioned by this legislation, 

and what impact would it have on foreign investment if the review 

period were actually increased by 50 percent to accommodate these 

new reviews? The three Government agencies represented here 

today provide a spectrum of viewpoints necessary to understand 

where the United States must position itself with respect to 

CFIUS, to assure the national security of the United States. 

Given what we have heard in previous hearings, it is apparent, 

on national security grounds, that legislative fixes to the current 

system may be warranted, including expanding the authority of 

CFIUS to monitor certain additional transactions that are evading 

the process. Preservation of the U.S. defense industrial base, protection of U.S. critical technology, critical infrastructure, and even 

related American know-how are all legitimate areas of concern. 

It is not the intention of the Banking Committee to chill direct 

foreign investment into the United States, but neither can this Nation’s national security interests be subordinated to commercial interests. 

I am certain that these fixes can be made with the help of the 

Administration, the business community, and my colleagues from 

both sides of the aisle on the Banking Committee. 

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With that, Senator Brown. 

OPENING STATEMENT OF SENATOR SHERROD BROWN 

Senator BROWN. Thank you, Mr. Chairman. Thanks to our witnesses. Mr. Chewning, nice to see you. Welcome to the Committee. 

And Mr. Ashooh and Mr. Tarbert, welcome back to the Committee. 

Nice to see you. 

At last week’s hearing we heard several differing views on the 

advisability of making changes to CFIUS. All the witnesses agreed 

the current system is not working. As the people charged with 

making the system work, I look forward to hearing from today’s 

witnesses on whether they agree with that assessment and, if so, 

why the current system is not working. There is no way we can improve on the current system if we do not understand the reasons 

that it is failing today. 

Some of the questions go to jurisdictions. Senator Cortez Masto 

and others raised the issue of real estate transactions that might 

give rise to national security threats that are difficult to reach 

under the current law. Other issues have been raised about access 

to sensitive information that might stem from an ownership interest short of control. 

But even if we are all in agreement on how to redraw the proper 

jurisdiction, I think we would still face substantial issues around 

the appropriate mechanisms for preventing the transfer of sensitive 

technology and intellectual property. 

At last week’s hearing, every witness agreed that our adversaries 

use lawful and unlawful means to close the gaps where they exist 

between our technological capabilities and theirs. Every witness 

agreed that China is violating its trade commitments. When China 

cheats, there must be consequences. Rules mean nothing if they are 

not enforced. That is why I urge the Administration to take action 

on unfair dumping by LG and Samsung over the last number of 

years. Because of these steps, the Administration finally announced 

this week Whirlpool will add 200 more jobs in a small community 

south of Toledo, called Clyde, Ohio. 

China’s cheating also has an impact on our advanced technology 

companies. Not only do they have to compete in the marketplace 

against subsidized foreign competitors, they must also defend 

themselves from cyberattacks, industrial espionage, and a whole 

range of techniques to steal critical technology. 

Last week’s witnesses also agreed that the departments with us 

today are lagging in controlling the export of sensitive technology 

to our adversaries. As an example, they cited the lack of updates 

to the militarily critical technologies list, which apparently is not 

being updated by DoD. 

As I mentioned last week, I think our country faces a twofold 

problem. National security is threatened by the purchase and export of critical intellectual property and technologies. At the same 

time, our domestic economic security is threatened by foreign investment in the U.S. that falls outside the scope of CFIUS. 

I have introduced legislation with Senator Grassley—we both sit 

on the Finance Committee—called the Foreign Investment Review 

Act, that would require the Secretary of Commerce to review certain foreign investments. Just as we see in the national security 

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area, some of these investments, especially coming from Stateowned enterprises, are not in our long-term economic interest here 

in our country. 

I hope we can tackle both problems in this process, revising 

CFIUS to respond to the developments of the last decade, while we 

also respond to the threats of our economic security. 

Thank you. 

Chairman CRAPO. Thank you, Senator Brown. We will now proceed to the testimony of our witnesses. First will be The Honorable 

Heath Tarbert, Assistant Secretary of the Treasury for International Markets and Investment Policy. Following Mr. Tarbert we 

will hear from The Honorable Richard Ashooh, Assistant Secretary 

of Commerce for Export Administration. And then we will conclude 

by hearing from Mr. Eric Chewning, Deputy Assistant Secretary of 

Defense for Manufactured and Industrial Base Policy. 

Gentlemen, we appreciate each of you being here. We look forward to your statements. I encourage you to follow that 5-minute 

clock so the Senators will have time to engage with you with their 

5 minutes as well. And we look forward to learning much from you. 

With that, Mr. Tarbert, please begin. 

STATEMENT OF HEATH P. TARBERT, ASSISTANT SECRETARY 

OF THE TREASURY FOR INTERNATIONAL MARKETS AND INVESTMENT POLICY 

Mr. TARBERT. Chairman Crapo, Ranking Member Brown, and 

distinguished Members of the Committee, thank you for the opportunity to testify in support of FIRRMA. 

During my confirmation hearing, you asked what my top priority 

as Assistant Secretary would be. I will repeat now what I said 

then. My top priority is ensuring that CFIUS has the tools and resources it needs to perform its critical national security function. 

I believe FIRRMA, a bill introduced with broad bipartisan support, is designed to provide those tools and resources. FIRRMA will 

protect our national security and strengthen America’s longstanding open investment policy. 

The United States has always been a leading destination for investors. Alexander Hamilton argued foreign capital is a precious 

acquisition to economic growth. Foreign investment provides immense benefits to American workers and families, such as job creation, productivity, innovation, and higher median incomes. 

At the same time, we know that foreign investment is not always 

benign. On the eve of America’s entry into World War I, concerned 

by German acquisitions in our chemical sector, Congress passed 

legislation empowering the President to block investments during 

times of national emergencies. During the Depression and World 

War II, cross-border capital flows fell dramatically, and in the 

boom years of the 1960s and ’70s, investment in the U.S. was modest compared to outflows, and during that time, foreign investment 

also posed little risk. Our main adversaries, the Soviet Union and 

its satellites, were communist countries, economically isolated from 

our own. 

But when the postwar trend changed in the 1970s, CFIUS was 

born. The oil shock that made OPEC countries wealthy led to fears 

that petrodollars might be used to buy strategic U.S. assets. In 

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1975, President Ford issued an executive order creating CFIUS to 

monitor foreign investments. Then, in 1988, a growing number of 

Japanese deals motivated Congress to pass the Exon–Florio 

Amendment. For the first time, the President could block a foreign 

acquisition without declaring a national emergency. 

For the next 20 years, CFIUS pursued its mission without fanfare, but in the wake of the new Dubai Ports controversy, it became 

clear that CFIUS needed greater procedural rigor and accountability. In 2007, many of you helped enact FINSA, which formally 

established CFIUS and codified our current structure and process. 

Now we find ourselves at yet another historic inflection point. 

The foreign investment landscape has shifted more than at any 

point during CFIUS’s 40-year history. Nowhere is that shift more 

evident than in the caseload CFIUS now faces. The number of annual filings has grown within the last decade from an average of 

95 or so to nearly 240 last year. 

But it is the complexity, not simply the volume, that has placed 

the greatest demand on our resources. In 2007, about four cases 

went to the more resource-intensive investigations stage. In 2017, 

nearly 70 percent did. This added complexity arises from a number 

of factors: strategic investments by foreign Governments, complex 

transaction structures, and globalized supply chains. 

Complexity also results from the evolving relationship between 

national security and commercial activity. Military capabilities are 

rapidly building on top of commercial innovations, and what is 

more, the data-driven economy has created vulnerabilities we have 

never before seen. 

New risks require new tools. The administration endorses 

FIRRMA because it embraces four pillars critical to CFIUS modernization. First, FIRRMA expands the scope of transactions potentially reviewable by CFIUS, to include certain nonpassive investments, joint ventures, and real estate purchases. These changes lie 

at the very heart of CFIUS modernization. Right now we cannot review a host of transactions that present identical concerns to those 

we regularly examine. 

Second, FIRRMA allows CFIUS to refine its procedures to ensure 

the process is tailored, efficient, and effective. Only where existing 

authorities, like export controls, cannot resolve the risk will CFIUS 

step in. 

Third, FIRRMA recognizes that our closest allies face similar 

threats and incentivizes our allies to work with us to address those 

threats. 

And finally, FIRRMA acknowledges that CFIUS must be appropriately resourced. This last point bears emphasizing. Of course, 

modernizing CFIUS entails a cost. But any job really worth doing 

is worth doing right. Besides, we have also got to consider the cost 

of doing nothing: the potential to lose our military and technological edge, which could cost American lives. That is simply unacceptable. 

There is but one conclusion here. CFIUS must be modernized. In 

so doing, we must preserve our longstanding open investment policy. We must also protect our national security. These twin aims 

transcend party lines and demand urgent action. 

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I look forward to working with this Committee and improving 

and advancing FIRRMA. Thank you very much. 

Chairman CRAPO. Thank you very much. Mr. Ashooh. 

STATEMENT OF RICHARD ASHOOH, ASSISTANT SECRETARY 

OF COMMERCE FOR EXPORT ADMINISTRATION 

Mr. ASHOOH. Thank you, Mr. Chairman. I am grateful for the opportunity to testify in support of the Foreign Investment Risk Review Modernization Act, or FIRRMA, and the role the Department 

of Commerce plays in supporting U.S. national security, both as a 

member of the Committee on Foreign Investment in the United 

States, or CFIUS, and as an export control agency. 

I want to thank Senators Cornyn and Feinstein and Burr, and 

the other cosponsors for their strong leadership on this issue. The 

Commerce Department supports the modernization of the CFIUS 

process and we share Congress’ concern about China’s policies and 

activities. FIRRMA takes many positive steps in addressing those 

concerns. 

Within the Department of Commerce, the International Trade 

Administration and the Bureau of Industry and Security play important roles in Commerce’s review of CFIUS matters. BIS, as the 

administrator of the Export Administration Regulations, or EAR, 

has extensive experience in export controls, which are often a consideration in CFIUS deliberations. 

I would like to highlight a few specific provisions of the legislation. 

The Administration welcomes foreign investment in the United 

States, and the Department supports the affirmations in FIRRMA 

of that policy. We are supportive of the requirement for mandatory 

filings for certain transactions involving foreign Government-controlled activities. In fact, we encourage the Committee to consider 

a lower threshold. 

We appreciate that FIRRMA requires an assessment of the resources necessary for CFIUS to carry out its critical work and that 

the provisions which would expand CFIUS would not take effect 

until CFIUS has put in place the regulations and has the resources 

it needs to implement its expanded role. 

We encourage the Committee to consider that the provision on 

contributions of intellectual property and associated support to foreign parties may duplicate existing export control authorities, 

which I do not believe in the intent. 

We support the provisions of FIRRMA that would facilitate 

greater cooperation and information sharing with our allies and 

partners to permit increased coordination with like-minded countries. 

In our role administrating the EAR, BIS’s responsibilities encompass the entirety of the export control process. We write and implement the regulations, issue export licenses, and conduct compliance 

activities, including overseas end-use checks. We enforce regulations, which includes preventing violations and punishing those 

who violate. 

The EAR has traditionally been the regulatory authority for the 

control of dual-use items, which are items that have a civil end-use 

but can also be used for military or proliferation-related use. The 

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export control system administered by BIS is a process that, like 

CFIUS, involves multiple agencies. We work closely with the Departments of Defense, Energy, and State, and these agencies review and clear any changes to the EAR itself, as well as license applications submitted to BIS, and ensure that the export control system is robust. 

The export control system benefits from close cooperation with 

our international partners, through four major, multilateral export 

control regimes. Through these regimes, the United States and our 

partners coordinate on which items and technologies merit control 

and how those controls should be applied. 

The EAR’s authority covers a wide array of transactions and 

technology transfers and governs what are considered traditional 

exports of goods, software, or technology to foreign countries, but 

it also covers the transfers of controlled technology within the 

United States to foreign nationals, under what we call deemed exports. It differentiates between countries that range from our closest allies to embargoed countries, thus allowing the export control 

system to treat exports and technology transfers under different licensing review policies, depending on the level of concern with the 

recipient country. The EAR also includes list of end uses and end 

users of concern that trigger extraordinary licensing requirements. 

Finally, our export control system includes aggressive enforcement capabilities. BIS’s special agents are located across the 

United States and overseas with a sole focus on identifying violations of the EAR and bringing to justice domestic and foreign violators. In fact, last week, BIS, in conjunction with other Federal law 

enforcement agencies, announced a prosecution against two individuals conspiring to violate export control laws by shipping controlled semiconductor components to a Chinese company that was 

also on Commerce’s entity list. 

In sum, the export control system and CFIUS are both vital authorities and complementary tools that the United States relies 

upon to protect our national security. Strengthening CFIUS 

through FIRRMA, while ensuring that CFIUS and export control 

authorities remain distinct, will enable even stronger protections of 

U.S. technology. 

The Department of Commerce looks forward to working with the 

Committee and the bill cosponsors on this important effort, and I 

would be pleased to take your questions. Thank you. 

Chairman CRAPO. Thank you very much. Mr. Chewning. 

STATEMENT OF ERIC CHEWNING, DEPUTY ASSISTANT SECRETARY OF DEFENSE FOR MANUFACTURING AND INDUSTRIAL BASE POLICY 

Mr. CHEWNING. Mr. Chairman, Ranking Member Brown, and 

Members of the Committee, thank you for the invitation to share 

the Department of Defense’s role in CFIUS. The protection of our 

national security innovation base from strategic competitors, like 

Russia and China, is an increasingly important priority for the Department, and I appreciate the opportunity to speak with you this 

morning. 

The Department of Defense strongly supports the modernization 

of the CFIUS process to ensure the interagency committee has the 

8 

authorities required to address the evolving risks to our national 

security. We are thankful for the strong leadership of Senator Cornyn, Senator Feinstein, and Senator Burr on this issue, and appreciate the bipartisan support for the FIRRMA legislation. 

To quote Secretary of Defense Mattis, who stated this Department’s position in his letter of support to Senator Cornyn, ‘‘The 

DoD depends on critical, foundational, and emerging technologies 

to maintain military readiness and preserve our technological advantage over potential adversaries. FIRRMA would help close related gaps.’’ 

I have spent the last 17 years working at the intersection of national security, industry, and finance, in both the private and public sectors. It is important that this bill not be considered an additional regulation on business. Under this bill, the United States 

should and will likely continue to welcome the vast majority of foreign investment that does not present a threat to our national security. 

Rather, this bill should be considered a whole of Government response to a critical national security challenge, an insurance policy 

on the hundreds of billions of dollars per year we invest in our defense industrial base, but most importantly, this bill will help safeguard our sons and daughters who volunteer to step into harm’s 

way, armed with the weapons that our industrial base produces. 

Simply put, the United States military fights and wins wars 

through the unmatched performance of our men and women in uniform and through our superior military technology. Knowing this, 

our competitors are aggressively attempting to diminish our technological advance through a multifaceted strategy, by targeting and 

acquiring the very technologies that are critical to our military success, now and in the future. 

China, in particular, publicly articulates its policy of civil–military integration, which ties to its intention to become the world’s 

leader in science and technology and to modernize its military, in 

part, by strengthening its own defense industrial base. 

While some methods, like industrial espionage and cybertheft are 

clearly illegal, other approaches, including technology and business 

know-how, transferred through acquisition of U.S. companies, may 

not be. Acquiring or investing in U.S. companies offers an opportunity for our competitors to gain access and control over technologies with potential military applications, enabling them to create their own indigenous capabilities, eroding our technological 

edge, and ultimately, our military advantage. 

The current CFIUS authorities are limited to investments that 

would result in a foreign controlling interest. There are other nontransaction types, such as certain joint ventures and nonpassive, 

noncontrolling investments that could pose national security concerns. Additionally, the purchase of real estate by a foreign person 

provides opportunities to potentially establish a persistent presence 

near sensitive facilities, which would currently fall outside of 

CFIUS’s current scope of review. 

The Department of Defense does not view CFIUS as a panacea. 

Instead, it is a layered defense that can, along with export controls, 

stem the flow of critical technology to our competitors. In order to 

9 

do that, however, CFIUS authorities need to adjust to keep pace 

with the rapid pace of technology. 

Let me add one more point as I conclude my remarks. While the 

Department of Defense believes defensive measures like CFIUS 

modernization are important, they alone are not sufficient for winning a technology race. We must be proactive to ensure we improve 

our technology and innovation base, because our future economic 

security will be a key determinant of our national security. 

I would like to close with another statement from Secretary 

Mattis, in his letter of support to Senator Cornyn. ‘‘I strongly support FIRRMA. The Department of Defense continues to support foreign investment, consistent with the protection of national security. 

However, as the national security landscape changes, the existing 

processes and authorities must be updated.’’ 

Thank you very much for the opportunity to testify on this important topic. I look forward to working with this 

Committee on improving and advancing FIRRMA. 

Chairman CRAPO. Thank you very much, Mr. Chewning, and Mr. 

Ashooh, I am going to go to you first with my question. 

Many concerns have been raised around the need to safeguard 

critical technologies, in particular, those referred to as emerging or 

development technologies. Can you discuss to what extent our export control system is equipped to address these concerns? And 

what I am kind of getting at, specifically, is, does our system include controls on the export of development technology, which is 

the know-how or the secret sauce that allows for the development 

of critical capabilities of concern. 

Can Commerce, after identifying uncontrolled know-how of concern, control the release of such development information without 

the need of additional authority? 

Mr. ASHOOH. Thank you, Mr. Chairman. The short answer to 

your three questions is yes. Let me go into detail. 

Chairman CRAPO. OK. 

Mr. ASHOOH. Certainly the emerging technology issue is one that 

is the crux of this matter, and it is important to note that our export control system is not a new system. It has been in place 

throughout the cold war, and in technologies that we consider 

today to be widely available or commonly known were once emerging, and it has been our export control system that has gone a long 

way to maintaining U.S. technological leadership. 

Having said that, there is a challenge here, and the challenge is 

two-fold. One is identifying those emerging technologies, and that 

is not specifically relegated to one agency. That is a shared burden 

that the interagency faces. But once the technology is identified, 

the export control system can accommodate it and is flexible 

enough to deal with it. Let me speak in more detail about that. 

Under the current system, we can place controls on individuals, 

on uses, on technology. The Export Administration Regulation defines technology to include nontangible items that most of us would 

consider to be know-how, not just the product but the design that 

goes into the product, the design process, the research that goes 

into the design. So the nontangibles that we would consider knowhow are included in the EAR. 

10 

Where the challenge exists is that we identify those. Once we 

have identified them, we have many tools to apply, including almost immediate controls that we can place on technologies once 

they have been identified. 

Chairman CRAPO. So for export control purposes, we do not need 

to look at new legislative authorities. 

Mr. ASHOOH. I do not believe we need new legislative authorities, 

but I do not want to suggest any complacency here. The rapid pace 

of emerging technologies that we are seeing, predominantly in the 

private sector, requires us to be ever-vigilant to evolving threats, 

but I do not believe new authorities are necessary to do that. 

Chairman CRAPO. Thank you. Mr. Tarbert, there is some concern 

that CFIUS, under FIRRMA, could become a de facto, one-stop 

shop for all inbound and outbound investment activity. Can you 

think of any circumstances where a transaction is permitted under 

export control authorities but then should be prohibited by CFIUS? 

Mr. TARBERT. We have seen certain examples, even during my 

first 100 days there, where a specific technology may be EAR99, 

but in the hands of a specific threat actor that technology, along 

with the threat actor purchasing the U.S. business, raises significant national security concerns. 

Now at that point we have often seen the Commerce Department 

step in and issue an informed letter, but there have been situations 

where, at least not in advance, we have seen that need. So there 

is a current overlap but there are many situations where export 

controls are adequate and appropriate, and FIRRMA envisions 

that. 

Chairman CRAPO. And so you would not see FIRRMA has creating a complete overlap. 

Mr. TARBERT. Not at all. We view the two as very much complementary, and we view FIRRMA as strengthening export controls, and not substituting CFIUS for them. 

Chairman CRAPO. All right. Thank you. And Mr. Chewning, the 

Defense Department understandably has concerns with the current 

CFIUS process regarding the transfer of know-how pertaining to a 

wide range of emerging technologies, such as artificial intelligence, 

robotics, and driverless vehicle technology. The exists the OY521 

authority and the Export Administration Regulations that can control the export of previously uncontrolled technology, which can 

also be applied to know-how, at any stage of development, if there 

is a national security or foreign policy reason to do so, without a 

proposed rule or any agreement of our allies. 

Has Defense ever asked Commerce to use this authority to control the export of know-how of concern in emerging technologies? 

Mr. CHEWNING. Thank you, Senator. I think it raises a good 

point around the complementary nature of export controls and 

CFIUS, and my colleague from Commerce I think raised a good 

point in saying that export controls can step in once we have identified the threat. And I think it is important to understand, with 

the CFIUS process we identify a three-part litmus test for identifying threats. So it is understanding what the exact threat is, 

which is an assessment that is informed by the intelligence community, understanding the vulnerability, and then understanding the 

consequences. 

11 

And so if we are able to go through that process and identify 

what exactly we need export controls to step in and do, our colleagues from Commerce are able to do that. In the absence of having those authorities already in place, CFIUS becomes the last line 

of defense in order for us to stop a transaction. 

And so I think a useful frame for thinking about the interplay 

between CFIUS and export controls is export controls is the first 

line of defense, CFIUS is the last line of defense. 

Chairman CRAPO. All right. Thank you. Senator Brown. 

Senator BROWN. Thanks, Mr. Chairman. I would like to, Mr. 

Ashooh, go back to, on the Chairman’s first question, and ask you 

a little bit more about that. Explain how the identification process 

would differ from what you seek today through the Export Administration Regs. 

Mr. ASHOOH. The notification process? 

Senator BROWN. How—if you would explain how the identification process. The FIRRMA bill updates the definition of critical 

technologies, as you know. 

Mr. ASHOOH. Right. 

Senator BROWN. CFIUS is charged with identifying emerging 

technologies that could be important to maintaining our national 

security advantage. So how does the identification process—how 

would it differ from what you seek today through the Export Administration Regulations? 

Mr. ASHOOH. Well, again, I would suggest that that is another 

complementary area, because under the EAR, we are looking for 

emerging and critical technologies all the time, and we work 

through advisory committees to help us do that, and rely on industry to inform us as well. 

When CFIUS considers a case, Commerce, as the administrator 

of the EAR, we utilize that process to then inform our own processes and whether or not action needs to be taken under the EAR. 

And so that is the way that the processes complement each other, 

and any expansion of the number of transactions would, in fact, 

help us understand the landscape relative to emerging and critical 

technologies. 

Senator BROWN. OK. Mr. Chewning, you were nodding. When it 

was written a year ago—and I wanted to go somewhere else—the 

DIUx report made about a dozen recommendations for actions to 

be undertaken by DoD, apart from what we should do, what Congress might do legislatively. Describe what—could you describe 

what actions have been taken to date by Defense on these recommendations? 

Mr. CHEWNING. Yeah, happy to. So we are currently going 

through a broader understanding of how we need to approach the 

issues around countering China, with respect to access to our defense industrial base. The immediate set of recommendations that 

we have implemented has been strengthening what we have been 

able to do within the Department of Defense more broadly, in 

terms of our role within the CFIUS committee and resourcing of 

that effort. Then we are looking at how to evaluate the broader set 

of things that DIUx has looked at, as part of that broader campaign. 

12 

Senator BROWN. Thank you. Witnesses at last week’s hearing 

were critical of DoD’s failure to maintain the militarily critical 

technologies list, as you know, and I would like your view on 

whether that criticism last week was fair and why we should not 

use existing approaches to control technology rather than creating 

yet another new set of rules. 

Mr. CHEWNING. Sure. So my understanding of the criticism from 

last week focused on the munitions list, which was a State-derived 

list used for ITAR. The concerns here are primarily around emerging technologies, which are more appropriately handled under the 

Commerce authorities. And so the munitions list itself is not where 

we are seeing the threat right not. It is with the emerging technologies that would fall under the Commerce’s control of export 

controls. 

Senator BROWN. And their criticism was confined to the munitions list? 

Mr. CHEWNING. It is my understanding, Senator. 

Senator BROWN. OK. One more question, Mr. Chairman. Mr. 

Tarbert, you and your office work close with the FBI. Correct? 

Mr. TARBERT. Correct. 

Senator BROWN. Have you found the men and women of the FBI 

to be dedicated professionals performing a central role in our national security? 

Mr. TARBERT. I have. 

Senator BROWN. OK. Thank you. 

Chairman CRAPO. Thank you. Senator Shelby. 

Senator SHELBY. Thank you. Mr. Tarbert, welcome back to the 

Committee. You were here at a critical time a number of years 

back and we have missed you for a long time but we are glad you 

are back today in your present role. 

Could you describe how the evolution of many foreign Governments’ acquisition strategies has caused both the Congress and the 

Administration to want to reexamine and reform CFIUS? The 

world has changed. Manufacturing has changed. Our threats 

around the world have changed. 

Mr. TARBERT. That is absolutely right, Senator, and it is great 

to be back. 

We are seeing radical changes. I mentioned the shift in foreign 

investment that we have not seen, that is the largest shift in the 

40-year history of CFIUS, and one of the things we are seeing are 

State-owned enterprises that are funded and subsidized by the 

State specifically pursuing critical U.S. technologies that are meant 

to be deployed in either a very competitive way, and even, in some 

cases, for military means. 

We are also seeing, as of recently, and as the Defense Department mentioned the military–commercial fusion, that even non– 

State-owned enterprises are being called upon to purchase technology so they can share that technology at some point with their 

Government. 

Senator SHELBY. How do we challenge that, in legislation and in 

implementing the legislation, which all three of you all have been 

doing? 

Mr. TARBERT. As I just explained, there are gaps in CFIUS. 

Within CFIUS’s current jurisdiction, I think CFIUS is doing a fine 

13 

job and has done a fine job throughout the years, especially since 

the FINSA legislation. But there are key gaps where we cannot 

look at transactions. 

Senator SHELBY. That was 11 years ago, though. 

Mr. TARBERT. That was 11 years ago, and, in fact, Senator 

Shelby, if you look at the actual jurisdictional basis for CFIUS, 

that stems from the 1988 statute, Exon–Florio. So the fundamental 

jurisdiction of CFIUS has not been updated in 30 years. 

Senator SHELBY. Could you expand a few minutes on the challenge of joint ventures between companies overseas that would 

enter into a joint venture with some of our companies to get inside 

America? 

Mr. TARBERT. Sure. One of the things that I have noticed is people have been saying, ‘‘Well, CFIUS only looks at inbound investments.’’ That is actually technically not true. We have a provision 

right now that has existed for nearly a decade in our regulations 

that allows CFIUS to look at any situation where a U.S. business 

is taken out and deposited into a foreign joint venture, where that 

foreign person would have control over the U.S. business. So in 

many ways the FIRRMA bill simply modernizes that provision to 

address some other issues that we are seeing in joint ventures. 

But what we are seeing today is that the original statute of 1988, 

says merger, acquisition, or takeover resulting in foreign control of 

a U.S. business. So we can review those transactions, and we have 

had very specific circumstances where a party was going through 

a merger, acquisition, or takeover. It was very clear CFIUS was either going to impose mitigation or recommend that the President 

block the transaction, and those individuals have said, ‘‘Well, you 

know what we can do? We can take the important bits out of the 

business, so it is not a U.S. business we are putting in a JV, but 

the essential capabilities of the U.S. business. We will stick them 

in a foreign JV and they will be outside of your jurisdiction.’’ 

So it is very problematic, and then we are left with a situation 

where we have a national security mandate that we have to block 

or mitigate a certain transaction, but the parties themselves are 

saying, ‘‘We are going to do this because we know you do not have 

jurisdiction to stop it.’’ 

Senator SHELBY. I would like to move over to the Defense side 

of this for a minute. How important is critical infrastructure to us, 

and why would we not want somebody, that maybe not be our real 

friend and ally but a competitor, to be involved in that? 

Mr. CHEWNING. That is a terrific question, Senator. We would be 

concerned with potential foreign acquisition of critical use infrastructure, which is why, within the CFIUS process, we do a riskbased analysis, looking at the context of a specific transaction 

through three lenses, looking at the specific threat, the vulnerability, and the consequences associated with that. And after we 

have gone through that process, if we think that that risk cannot 

be unmitigated, that is when we would have a problem. 

Senator SHELBY. Commerce, you got anything to add to this? You 

agree with both of them? 

Mr. ASHOOH. Thank you, Senator. Yes, I do. Commerce spends 

so much time in the dual-use world, while we do not regulate—— 

14 

Senator SHELBY. Well, basically, we want to do business in the 

world. 

Mr. ASHOOH. Yes. 

Senator SHELBY. But we do not want to give away something 

that would do us harm—do harm to national security. Is not that 

the bottom line? 

Mr. ASHOOH. It is the bottom line, and our export control system 

is designed around that. It works best when it is very, very targeted, so that we are not over-controlling and restricting commerce 

where it needs to, but we are paying attention to the national security implications. 

Senator SHELBY. Thank you. My time is up. 

Chairman CRAPO. Thank you. Senator Warner. 

Senator WARNER. Thank you, Mr. Chairman. Let me thank you 

and the Ranking Member for taking on this issue. I think some of 

the—getting this right is one of the most important national security requirements we have. As Vice-Chair of the Intelligence Committee I have really seen, in a very comprehensive way, how some 

of our near-peer adversaries, specifically China and Russia, are 

using theft of intellectual property, use of joint ventures. They have 

a much, much more comprehensive approach than we have. And I 

think we have seen, in the past, where you would steal secrets and, 

mysteriously, a peer company would end up having that technology, mysteriously enough. 

You have got efforts that Mr. Tarbert made mention of, in terms 

of direct acquisition. But you have also seen now, with State enterprises and near-State enterprises, using our JV laws in ways that 

are pretty sophisticated, and I am not sure we have got—well, I 

conceptually am supportive of the reform legislation, whether we 

have got it fully right yet. 

I want to raise an area that I do not believe is covered. With our 

open markets, what happens when we have a, particularly in 

emerging technology fields, where we have a company that may 

enter into our market, in an open fashion, and it may not trigger 

any of the CFIUS or traditional export control or import control 

barriers. I would point out some that have received some attention. 

Kaspersky Labs, a Russian-based technology firm, that made its 

way all the way onto the select GSA vendor list, even though large 

swaths of the American Government realize that there was huge, 

huge potential problems. And we are now in the process of trying 

to disentangle with that entity. It will take us years and it will 

keep us vulnerable during those years. 

What I see is an issue that people are not speaking too much 

about is if you look in China right now, and with their remarkable 

investments in AI, machine learning, if you look at, just over the 

last 4 or 5 years the emergence of a dozen-plus Chinese tech companies that all have north of $10 billion valuations. We have heard 

of the Huaweis and the Alibabas. There are a dozen more that may 

not come off—maybe you guys know, but most of our colleagues do 

not know. 

And how are we going to ensure that as these companies, who 

are already starting to kind of be pervasive across Asia, as they 

enter into the American marketplace, with pricing that is lower 

than our competitors, because often times they have zero cost of 

15 

capital, they become ubiquitous. You know, they penetrate around, 

like, Internet of things where the next level of connectivity that is 

coming up. We could wake up and—my fear is that many of these 

companies, when push comes to shove, are not pure economic plays 

but directly or indirectly have ties back to the Chinese Government, yet none of the traditional regime of the last 60 years would 

address that issue. 

Does anybody want to take it on? Mr. Tarbert, do you want to 

take a shot? 

Mr. TARBERT. I would say it is a great point, Senator, and I think 

it highlights the need for a comprehensive approach to the strategic 

competition that we face. CFIUS deals with a certain set of issues. 

Export controls deals with complementary issues. But there are 

other tools available to the U.S. Government, from procurement, 

from other things, that should be considered in addressing the 

overall threat. I do not think we can look at specific threats in isolation. 

Mr. ASHOOH. Thank you, Senator. It is perhaps worth sharing, 

as someone who came into this job about 5 months ago, I spend the 

majority of my day, one way or the other, dealing with the threats 

you mentioned. They are first and foremost in what we are dealing 

with. And we need to be evolving with these threats. There is no 

question. And I really do reinforce Heath’s comments about it is a 

comprehensive solution. It is very important that we, in the agencies with varied responsibilities, not only work together but, in particular, with our Members of Congress where authorities fall short. 

I believe we have the authorities to tackle the challenges in front 

of us, but I do not want to suggest that that is somehow not attentive to the vigorousness of this challenge. China has publicly announced this strategy, and we need to be aggressive in responding 

to it. 

Senator WARNER. I want to make one last point. I know my time 

is up. I agree with Senator Shelby. We need to make sure America 

is open for business. But I do not think, over the last few years, 

I have come to understand, particularly in China and Russia, not 

only their whole of Government but their whole of society approach 

about how they intend to wage this economic warfare and competition, with a very different set of rules. And I am really concerned— 

I am glad to hear—I would love to follow up with each of you. 

But I know from the intel community side, I do not feel that 

there is appropriate responsibility in any single entity that the 

number of folks I have sat in SCIFs with who say, ‘‘Yes, Senator, 

this is a problem but it is really not our area,’’ and sorting through 

not only the traditional intellectual property theft or traditional acquisition, or, you know, next-generation JV. But just through the 

normal course of business, companies that are entering into our 

marketplace that may have back doors, or that may have made— 

that may have made agreements with their host Government in a 

way that they come into this marketplace in a way that could be 

long-term compromising to our national security. We have to get to 

it in a much, much higher level of priority. 

Thank you, Mr. Chairman. 

Chairman CRAPO. Thank you, Senator Warner. Senator Tillis. 

16 

Senator TILLIS. Thank you, Mr. Chairman. Thank you, gentlemen, for being here. 

I have only a couple of questions. I have got several that I am 

going to submit for the record, because I think that they could go 

long and they could have details that I would like to get to. 

But one question that I have is, when we think about the global 

supply chains, the sort of global networks now that come into ultimately producing a technology or a finished good, how much insight do we have? If I were China and it looks like we are doing 

a good job of really tracking and identifying what may be a maligned intent in terms of some sort of a direct investment in the 

United States, I would go figure out how to get involved in the supply chain somewhere else, where tangentially I can benefit. How do 

we deal with that? 

Mr. CHEWNING. Senator, if you do not mind, I am happy to take 

a first cut at it, if you like. So right now we do not have a formal 

mechanism in place for international cooperation with allies. Per 

the 2017 National Defense Authorization Act, the Department of 

Defense was asked to establish the NTIB, or the National Technical and Industrial Base, which is a partnership with Canada, the 

U.K., and Australia. We are in the process of developing that 

framework, and one of the pathfinder projects we have identified 

for that is a thing you have identified, is a way we can jointly work 

through a protection regime around foreign direct investment into 

that collective industrial base. 

Senator TILLIS. Thank you. The concern that I have, if you take 

a look—we just passed tax reform, we are seeing economic activity. 

We are clearly making ourselves more attractive to build investment in the United States. I think we are somewhere around $7 

trillion foreign investment, maybe $6.5 trillion investment in the 

United States. I do not want the productive deal flow to slow down. 

I actually want it to increase. 

And so I think we have to be very careful, particularly with a 

Nation like China. I am not going to talk about the specific company but there was a proposed acquisition that ostensibly was to 

purchase a problem asset in the United States, not so much for the 

asset, because it is not performing, but because of the underlying 

infrastructure that applied to areas of the Chinese infrastructure 

that they needed help on. And this had to do with a financial services instrument. 

But it sounded like they were getting pushback because they 

would have majority ownership in a company that also managed 

personal information of American citizens. So it was not necessarily 

a national security threat, in terms of defense systems or military 

applications, but information about our citizens. 

How are we going to strike the balance, over time, when China 

is going to look around and realize that as their economy continues 

to modernize and grow that they have still got these underlying infrastructures, things like insurance and other infrastructures that 

they are going to build on. It is easier to buy than build. And how 

do we make sure that we do not disadvantage a very large base 

of proven capabilities from being able to fill that need in China? 

How do we do that right, versus having people say, ‘‘We are not 

even going to pursue any kind of discussion with a Chinese firm 

17 

on this sort of acquisition because we do not think we could actually get the deal done’’? 

Mr. TARBERT. I will comment from the Treasury perspective. 

First of all, we totally agree. We have no intention of stopping deal 

flow. We would like to see it increased. 

Senator TILLIS. And I am going to submit some questions for the 

record on the deal flow, specifically to you. 

Mr. TARBERT. Last year, even from a country like China, dozens 

of transactions were, in fact, cleared through CFIUS. So I think 

that is an important point. When we see a national security issue, 

in most circumstances we can figure out a way to mitigate that and 

get the transaction through. So again, we very much favor foreign 

investment. 

Senator TILLIS. And I want to talk more about some the—the 

ones that you would never see because they just think that it could 

either be costly or get caught up. So it is really the—it is not—you 

can tell me about the ones that came through. What we need to 

do is figure out what ones are not even being discussed because 

they think it would wade into this area and the deal is just not 

such that they want that—to me it is another regulatory burden. 

A lot of M&A activity never occurs because of the anticipated regulatory burden and the time to execute the deal. 

And so I am trying to get a better sense of, you know, how we 

can actually promote more. I want more foreign direct investment 

from all countries. I want you all to do a good job of tracking down 

the maligned intent. 

Mr. TARBERT. On that note, Senator Tillis, one of the things that 

I think FIRRMA does that we at Treasury really like is this idea 

of the short-form declaration. So if there are people out there that 

want to do a deal, they can file, probably on a computer data base, 

something around five pages instead of the long notice, to just get 

a sense as to whether this is something where we would want to 

require notice or we could approve it—the committee could approve 

it within 30 days. So that is a way to streamline the process to encourage more deals coming through CFIUS. 

Senator TILLIS. And I am going to submit several questions for 

the record around FIRRMA and kind of get a good, the bad, and 

the ugly response on some of the attributes and some of the problematic provisions of FIRRMA. 

I am sorry. Were you going to comment? 

Mr. ASHOOH. No. I would only say that with us, I think the way 

we should approach it, in all things, Senator, is to focus on the specific area of concern and tailor our system to do that so that we 

leave unencumbered the very large segment of the economy that is 

not an area of concern. 

Senator TILLIS. The key here is we need lean regulations everywhere. We need to make sure that we got to addressing the problem or the risk, like any regulatory risk, even outside of this subject, but we need to do it in the leanest manner possible so that 

we are attracting as much foreign direct investment as possible, because it is key to actually driving the GDP growth that we need 

to get our economy back on sound footing. 

Thank you, Mr. Chair. 

Chairman CRAPO. Thank you. Senator Cortez Masto. 

18 

Senator CORTEZ MASTO. Thank you. Thank you, gentlemen, for 

being here. Thank you, Chair and Ranking Member for this important discussion. 

Let me start with this perspective. I come from Nevada, and in 

Nevada, as you well know, Mr. Chewning, we have Naval Air Station. We have Nellis Air Force Base. We have Creech Air Force 

Base. We have Hawthorne Army Depot. And I have been to all of 

those facilities. Born and raised there. Live there, grown up with 

them. 

One of the things I hear constantly from many there, both at 

Creech and Nellis, and Naval Air Station, is the concern, national 

security concerns, because if you have been there you know they 

are in the middle of the desert, and there is property being purchased near those military installations by foreign nationals, and 

the concerns that that impact has on our national security. 

So I know you talked a little bit about this, but could you also 

talk about—and I am curious, all three—in the current law, the 

way it stands, is it—can you prevent somebody from coming in— 

and this is vacant land that is being purchased. No businesses 

being put on it. It is vacant land, near a military installation, for 

purpose of obtaining, I believe, and I think they have concerns 

about, some of our national security assets and information about 

it. Can, under the current law, that type of acquisition be stopped? 

Mr. TARBERT. Senator, I can speak to CFIUS, and the answer is 

no. In fact, even during my first 100 days on the job we saw an 

example. I cannot get into specifics but it was in a rural area and 

there was vacant land, and, therefore, CFIUS did not have jurisdiction. Now if someone had put a farmer’s market on that land, then 

it would have been a U.S. business, so we could assert jurisdiction. 

But I think the fact that you could have put a farmer’s market on 

it and had jurisdiction, but the fact that it was vacant, you could 

not review it, points out one of the concerns we have about the current jurisdiction. 

Senator CORTEZ MASTO. And that is true for—— 

Mr. CHEWNING. Yes, Senator, and just to build on the point, it 

is great, wide-open country there, and it provides terrific observation to certain sensitive military activities that we may not want 

observed by certain actors, and that is definitely a concern of ours. 

Senator CORTEZ MASTO. And under FIRRMA, this is covered, this 

would be covered. You would be able to prevent that type of acquisition. Is that correct? 

Mr. CHEWNING. Yes, Senator. Yes, it is my understanding. 

Senator CORTEZ MASTO. OK. And let me just say, this is not 

something that happens sporadically. I was literally there over the 

summer, at Creech. We were just having this conversation. And if 

you know where Creech Air Force Base is, it is in the middle of 

nowhere. But at the entrance of Creech there was a number of foreign nationals that had stopped, trying to access, and with cameras. This happens all the time. And so it is a concern, I think, for 

our national security. 

At the same time, I think we need to balance that. I hear this 

conversation where we need to balance, I believe—and I echo my 

colleagues—this national security with our economic security. And 

I know last week, at the CFIUS hearing with businesses, investors, 

19 

a witness from IBM said, ‘‘If FIRRMA passes, IBM would move its 

labs outside the U.S.’’ And I am curious. What is your response to 

industry’s concern that FIRRMA would make it more difficult to finance their operations? And I will start with you, sir. 

Mr. TARBERT. I do not think that is what the industry argues. 

In fact, many in industry support this bill because they understand 

that it helps to protect both American national security but also intellectual property. We have had a CFIUS regime now, as I mentioned, for close to 40 years, and we continue to be an innovation 

hub. People still want to do business here. They want to innovate 

here, because we protect intellectual property and we have a number of legal safeguards. 

Senator CORTEZ MASTO. And so let me ask you this question, because I think that balance is important. But, more importantly, to 

achieve that balance, we have to have all of the agencies and actors 

that are looking at this in an oversight coordinating and working 

together. And because there is not one agency looking at all of 

these, I think our concern is how do we ensure that there is that 

coordination, that collaboration, and that something is not falling 

through the cracks here? And I think my concern, like many of my 

colleagues, is how do we ensure that happens? 

Mr. TARBERT. CFIUS was created to bring to bear all of those resources throughout the Government, and one of the great things 

about CFIUS is because it is not a singular agency, but rather a 

committee of 16, effectively, at least 11 but 16 when you include 

all the observers, it brings to bear all of that expertise. So if we 

see a transaction that requires experts at the Department of Energy, at our laboratories, we can bring them in. 

So I think CFIUS is really meant to do exactly that, and we 

value that close coordination. We have weekly meetings, monthly 

meetings at various levels within the organization, where all of 

those departments and agencies are represented. 

Senator CORTEZ MASTO. And do you feel the same way, gentlemen? 

Mr. ASHOOH. Yes, and Senator, I might add, our export control 

process also is interagency. In fact, we work very closely with the 

Department of Defense and Department of State in processing our 

license applications. 

But I think that one of the positives about FIRRMA that I do 

think bears mentioning is, certainly from an export control perspective we are living in a global environment, and it is important that, 

under this legislation, we are allowed to collaborate more than we 

are currently with friendly Nations. That is something we do in the 

export control world. We have multilateral regimes that work all 

the time, because when we get together on things it is far more 

impactful. That needs to apply in CFIUS as well. 

Senator CORTEZ MASTO. OK. 

Mr. CHEWNING. Yes, Senator. We support the committee approach as being holistic. 

Senator CORTEZ MASTO. Thank you. I notice my time is up and 

I have gone a little bit over. Thank you very much for your being 

here today and, Chair, for the Committee hearing. 

Chairman CRAPO. Thank you. Senator Tester. 

20 

Senator TESTER. Thank you, Mr. Chairman, and Ranking Member, for the recognition, and I want to thank you all for being here. 

I just—I guess I will start out with a general question since we 

are working something not CFIUS related but something I think 

deals with national security, and that is the Farm Bill. Would you 

agree that food security and national security are connected? Any 

one of you. 

Mr. TARBERT. Yes. 

Mr. ASHOOH. Yes. 

Senator TESTER. Did CFIUS play a role in Bayer’s purchaser of 

Monsanto? 

Mr. TARBERT. By law we are unable to talk about any particular 

transaction publicly, but we can provide briefings to any Member 

of Congress. 

Senator TESTER. Can you give me a nod of the head, then, if you 

cannot talk about it? 

Mr. TARBERT. I am not sure if we are permitted, under the statute, to speak publicly about anything, but what we can provide a 

confidential briefing on any particular case. 

Senator TESTER. Well, let me ask this. 

Mr. TARBERT. Sure. 

Senator TESTER. Do you believe that CFIUS—and this can be for 

anybody up there—do you believe that CFIUS currently has 

enough power to protect the food system here in the United States, 

currently? 

Mr. TARBERT. I would say that it has enough for those transactions that implicate the food system under its jurisdiction. So 

cases that would implicate food security that come before CFIUS, 

I would say yes. What I do not know, Senator, is whether there are 

issues with respect to food security that fall outside the kinds of 

transactions that we look at. 

Senator TESTER. Do you—would the Cornyn bill have an effect on 

agribusiness transactions? 

Mr. ASHOOH. It could, possibly. 

Senator TESTER. OK. Well just—I do not—it is kind of odd in this 

Committee. I mean, it is odd in any committee when we cannot 

talk about the kind of transactions that you guys deal with. I 

mean, I do not understand—I get it if you are talking about a potential military conflict, but if you think food security is national 

security, to ask if you dealt with the Bayer–Monsanto merger and 

to say you cannot respond to any specific cases, that tells me you 

dealt with it. Otherwise you would say no, because you did not deal 

with that case. Enough said. 

Mr. TARBERT. I am just going to smile. 

Senator TESTER. OK. That is good. Well, I will just tell you that 

I really—I think one of the reasons we have a Farm Bill and we 

put out billions of dollars in subsidies is for food security, and I 

think food security is critically important in this country, and I 

think it is a national security issue. And I will also tell you that 

Bayer is a big dog, internationally, and so is Monsanto, and for 

them to be able to combine, I would really love to know the thought 

process that went into that, because from a national security standpoint, I think it makes us less secure. It gives control of our food 

to a select few people. 

21 

Mr. TARBERT. And just to be clear, Senator, we are not permitted 

to speak publicly about a particular transaction, but every Member 

of Congress and your staff has the ability to request a briefing on 

a transaction. 

Senator TESTER. I got it. 

So let us talk about the Chicago Mercantile Exchange. I know 

that the SEC plays a role. Potentially the Department of Agriculture would play a role in that kind of deal. Maybe the Department of Agriculture would play a role in the Bayer–Monsanto deal. 

I guess the question is, do you get enough support from agencies 

in your decision making? Is there adequate reason to adding more 

input from agencies as you guys make your administrative decisions? 

Mr. TARBERT. Sure. On transactions, at least during my first 100 

days, there—— 

Senator TESTER. Yes. 

Mr. TARBERT. ——where we have seen cases, let us say, that 

have dealt with food security issues—— 

Senator TESTER. Yes. 

Mr. TARBERT. ——we have always involved the Department of 

Agriculture. 

Senator TESTER. OK. So you do not—is there any downside to 

adding more administrative agencies to CFIUS? 

Mr. TARBERT. Here is what I would think. 

Senator TESTER. Yeah. 

Mr. TARBERT. If we added—so, basically, any transaction that 

comes through CFIUS—and keep in mind we had nearly 240 last 

year—— 

Senator TESTER. Right. 

Mr. TARBERT. ——every single agency has to review the transaction and sign off, a Senate-confirmed official. So if we have only 

three cases per year, let us say—— 

Senator TESTER. Yeah. 

Mr. TARBERT. ——that deal with food security—— 

Senator TESTER. Yeah. 

Mr. TARBERT. ——we would be asking the Department of Agriculture to commit all sorts of resources and their time and effort 

to deal with a bunch of cases that have nothing to do with food security. 

Senator TESTER. I got you. 

Mr. TARBERT. So that would be the only—— 

Senator TESTER. So you think it is much more effective to bring 

them in on an ad hoc basis. 

Mr. TARBERT. They absolutely should be brought in when food security is an issue, and we do. 

Senator TESTER. OK. And the same thing with agencies like the 

SEC and things like that. 

Mr. TARBERT. Yes, sir. 

Senator TESTER. OK. Very good. I have got more questions for 

the record. Thank you, Mr. Chairman. 

Chairman CRAPO. Thank you. Senator Menendez. 

Senator MENENDEZ. Thank you. Mr. Secretary, last year, NeST 

Technologies, a New Jersey-based company, had agreed to be purchased by HNA, a Chinese conglomerate, on the condition that the 

22 

transaction received approval from CFIUS. According to a lawsuit 

filed last month by NeST Technologies, the deal fell apart because 

HNA, the Chinese conglomerate, provided knowingly false, inconsistent, and misleading information about its ownership and ties to 

the Chinese Government during the CFIUS review of the acquisition. 

But HNA’s interest in the United States is not limited to the 

New Jersey company. They have received CFIUS approval to purchase a California technology distributors, they are actively working to purchase a controlling stake in Skybridge Capital, the investment firm owned by Anthony Scaramucci. 

So should not there be severe consequences for parties that either mislead or fail to provide accurate information to CFIUS? 

Mr. TARBERT. Yes, there should be. If there are situations where 

we see a notice that is filled with misleading statements, there is 

the ability to take action. FIRMA specifically requires a certification for that very—— 

Senator MENENDEZ. And in that respect, then, should not consequences flow to any previously approved or pending transactions? 

For example, should CFIUS reopen previously cleared HNA transactions or modify their approach to reviewing pending transactions 

involving companies like HNA, in light of the information? If they 

have shown themselves to be a bad actor, and they move from one 

transaction to the other, should not there be a heightened scrutiny 

of their efforts to acquire U.S. companies that would fall under the 

rubric of the CFIUS review? 

Mr. TARBERT. I will not specifically—talk to any specific case, but 

what I will say is—— 

Senator MENENDEZ. I am not asking about any specific case. I 

am asking about any other follow-on, regardless of what the transaction is. 

Mr. TARBERT. Yes. 

Senator MENENDEZ. Should not—whether it is HNA or a similarly situated foreign company that is, in essence, seeking to deceive, because their real purpose is not for a commercial transaction but to create a transfer to the Government that they are ultimately backed by. Should not that raise a higher scrutiny for 

you? 

Mr. TARBERT. Well, it definitely raises scrutiny when you look at 

the specific tests we use, threat plus vulnerability equals consequence. That plays into the threat issue. If they are materially 

misleading and misrepresenting who they are, and there are ties 

to a Government, for example, if we see a company doing that, then 

that would play into our analysis. 

Senator MENENDEZ. Well, I certainly am glad to hear that, and 

I hope—commend to your attention that this is one company that, 

in fact, seems to be doing that. 

Mr. ASHOOH. Senator, if I might—— 

Senator MENENDEZ. Yes. 

Mr. ASHOOH. ——and again, not to speak to a specific case, but 

Bureau of Industry and Security within Commerce routinely uses 

information gleaned from CFIUS process to provide appropriate follow-up for our separate authorities, under the export control regime, but that is a common occurrence. 

23 

Senator MENENDEZ. Let me ask, Mr. Secretary, I have been 

closely following, and raised in this Committee several times, a situation in Venezuela, particularly the loan, in 2016, by the Russian 

State oil company, Rosneft, to Venezuela State-owned oil company, 

PDVSA. As collateral for the loan, PDVSA pledged a nearly 50-percent ownership stake in U.S.-based Citgo to Rosneft. And I remain 

deeply concerned about the potential for a hostile adversary like 

Russia to have ownership of critical U.S. energy infrastructure. 

Last May, Secretary Mnuchin told me, in a hearing, that any 

Rosneft acquisition of Citgo would be reviewed by CFIUS. I followed up in an inquiry to Treasury in September of last year, but 

4 months later I have not had a response. 

In your opinion, does CFIUS require any additional statutory authorities to conduct a thorough review of this possible acquisition? 

Mr. TARBERT. I will not speak to the specific case, but I will say 

that FIRRMA has a couple of provisions in there that would ensure 

that any similar type of transaction would be covered. For example, 

it specifically talks about assets purchased in bankruptcy, and it 

also has a provision that addresses nonpassive investments. So if 

you had a situation where bonds were being converted but there 

was not control, I believe that FIRRMA would address that situation. 

Senator MENENDEZ. Oh, if I took Rosneft out and I just described 

the nature of the possibility, would you say that you have the authorities necessary, under CFIUS, to review such a transaction? 

Mr. TARBERT. I would say that just on the facts provided, I am 

not able to say that we do. 

Senator MENENDEZ. Well, you need to tell the Committee that. 

You need to let us know. 

Mr. TARBERT. Well, again, not the specific, but just based on—— 

Senator MENENDEZ. Mr. Secretary, please do not play word 

games with me. I am asking you whether you have the authorities, 

under any such transaction, whether it be a bankruptcy someplace 

else, where shares are held, to any critical infrastructure in the 

United States. If you do not have the authorities then you need to 

tell—— 

Mr. TARBERT. No, I would say if it results in a situation where 

there is not control, then we do not have the authority, and we 

would need it. 

Senator MENENDEZ. Where there is not control. 

Mr. TARBERT. Where there is not control. 

Senator MENENDEZ. So if—so their pledge, 50 percent, it would 

have been easy for them to get another percent or two on the open 

market so they would be over 50 percent and, therefore, a controlling interest. In that case, you are saying you do have the authority. 

Mr. TARBERT. If that—if they had—if they had—— 

[Overlapping speakers.] 

Mr. TARBERT. ——that allows them to—— 

Senator MENENDEZ. ——less than a controlling authority, you 

need new authority. 

Mr. TARBERT. Exactly. That is exactly right. 

Senator MENENDEZ. I appreciate that. Yeah, I have other questions but I will submit them. 

24 

Mr. TARBERT. And we can—for specific inquiries, again, we make 

ourselves available to Members of Congress, where we cannot 

speak publicly on—— 

Senator MENENDEZ. OK. Well, I hope my request of 4 months ago 

eventually gets an answer. Thank you. 

Chairman CRAPO. Senator Warren. 

Senator WARREN. Thank you, Mr. Chairman, and thank you to 

our witnesses for being here today. 

So we are here to talk about CFIUS, which reviews acquisitions 

by foreign companies to ensure that they do not threaten our national security, because we know that our adversaries are particularly interested in acquiring emerging, early stage technologies and 

they may be structuring their transactions in order to avoid CFIUS 

review. 

So to prevent that from happening, we have to be able to identify 

what are our most critical technologies. But GAO found that the 

Pentagon is no longer updating the military critical technologies 

list that has the technologies listed that we need to maintain our 

military superiority. 

The CFIUS reform bill that we are discussing would significantly 

expand the category of covered transactions to include ‘‘other 

emerging technologies that could be essential for maintaining or increasing our technological advantage.’’ I know that both the Chair 

and the Ranking Member talked a little bit about this, but I want 

to dig in just a bit more and ask the question, given how rapidly 

technology is advancing, how do you think your agencies should 

identify emerging technologies and identify the transactions involving these technologies for CFIUS review? 

If you could all just give me a short bite on this it would be helpful. Maybe I could start with you, Secretary Tarbert. 

Mr. TARBERT. I think we would want to rely on the interagency 

process and particularly those experts on all those individual technologies by sector, to really get a thorough idea. 

Senator WARREN. So you say go to the experts, ask the experts, 

and develop a list out of that? 

Mr. TARBERT. As well as making use of the notice and comment 

rulemaking process, after which time we would update the list frequently. 

Senator WARREN. OK. It sounds like it is further on down the 

list, though. 

Mr. Ashooh, could you add more? 

Mr. ASHOOH. I take your question to be how do we identify—— 

Senator WARREN. Right. 

Mr. ASHOOH. ——those emerging technologies, and—— 

Senator WARREN. Right. How do you know an emerging technology to know to watch out? That is what I am really trying to 

ask. 

Mr. ASHOOH. That is certainly the crux—emerging technology, 

especially critically technology used to be led by the national security establishment. It is not now, so it is a challenge, so there is 

no one way. 

I will tell you, within Commerce, we lean heavily on what we call 

technical advisory committees, which are made up of the folks who 

are representative of where those emerging technologies come from. 

25 

And one of the priorities of the Under Secretary of BIS has been 

to revisit those advisory committees, to make sure they are fresh, 

they have got the right people. But that is not the only way. 

Senator WARREN. Right. 

Mr. ASHOOH. It is just one key way that I thought I would mention. 

Senator WARREN. And I worry about it not being systematic, that 

they are more episodic rather than regularly built in, so that they 

are alert to the fact that they are the ones that you are counting 

on. 

Mr. ASHOOH. We share that. Yeah, we share the systematic need 

to do this, and it has to be regimented and are working on ways 

to do that. 

Senator WARREN. Good. And, Mr. Chewning, would you like to 

add anything to that? 

Mr. CHEWNING. Yes, Senator. I think I would just say that the 

lists are important. They need to be updated. I also would like to 

point out the complementary nature of the list with the CFIUS 

process that takes a holistic view on risk, based on threat, vulnerability, and consequence. I think that is a nice interplay between 

the two, because there are some threats we may not know, that 

would not be on a list, and that we would want to be able to catch 

through the RBA process, as well. 

Senator WARREN. Fair enough. I am just trying to get this back 

so you know even the areas to be alert in, and I would be interested in any follow-up you have on that—— 

Mr. CHEWNING. I would be happy to provide that. 

Senator WARREN. ——about how we might be doing this. 

I think it is really important for CFIUS to be proactive and not 

just reactive in identifying these emerging technologies, and the 

foreign adversaries, I guarantee, are looking at and trying to figure 

out how they might be able to acquire. 

I also would emphasize that if we are going to expand CFIUS 

mandate for 21st-century economy and the security environment 

we now face, we have to make sure it has a 21st-century level of 

resources available to you, to effectively handle the growing volume 

and complexity of these transactions. You have to grow along with 

the threat here. 

The discussion of CFIUS focuses on protecting our national security while preserving foreign investment, but I want to touch on 

one other issue that I think affects both priorities, and that is our 

investment in basic research. Jim Lewis, a former official with the 

Department of State and Commerce, testified in this Committee 

last year that CFIUS reforms should be paired with policies that 

drive innovation here at home, and that means investing in research that helps our economy and helps our military. 

He said, our underinvestment in scientific research creates a selfimposed disadvantage in military and economic competition with 

China, and that maintaining our economic and military superiority 

requires investment both by encouraging private-sector investment 

and by governing in those areas, like basic research, where the private sector spending is likely to be insufficient. 

So let me just ask this in the quickest possible way, and I will 

start with you, Mr. Chewning. Would more Government investment 

26 

in scientific research support the core objectives of CFIUS in protecting strategic industries from foreign competition and maintaining our technological—— 

Mr. CHEWNING. Absolutely, Senator, yes. 

Senator WARREN. And would you agree with that? 

Mr. ASHOOH. Yes. 

Senator WARREN. And would you agree with that, Secretary 

Tarbert? 

Mr. TARBERT. Yes. 

Senator WARREN. Thank you very much, Mr. Chairman. I appreciate it. I hope that we will push hard on this research point as 

well, when we are talking about revisions to CFIUS. 

Chairman CRAPO. That is an excellent point, and thank you very 

much for focusing on that. 

That concludes the questioning. I have a couple of quick announcements for those Senators who want to ask questions, to follow up on this for the record. Those questions will be due by Thursday, February 1st. And, witnesses, you will be probably asked some 

follow-up questions too. I ask you to respond to them promptly. 

And I am going to take the Chairman’s prerogative and give you 

the first one to put on your list right now. It is one we did not get 

to. It is one that Senator Warren just alluded to. This question, 

which I would like you to put first on your list to respond to, is 

that the legislation, FIRRMA, authorizes CFIUS to impose filing 

fees on transactions to cover the committee’s funding needs. Will 

these fees be sufficient to address the increased caseload anticipated with FIRRMA, and what new resources will your agencies 

need to carry out these reforms? How many more cases do you anticipate CFIUS would review as a result of FIRRMA? 

So there is your first question. 

Senator SHELBY. Mr. Chairman? 

Chairman CRAPO. Yes. I do not want to start too much here, but 

go ahead. 

Senator SHELBY. No, no. I hope they have sufficient funds. If 

they do not have sufficient funds—I am putting on my appropriator’s hat now—we will get you the sufficient funds, because I congratulate you and Senator Brown for bringing this hearing together. This is of utmost importance to this country, what you guys 

do, and you have got to have the resources to do it. Thank you. 

Chairman CRAPO. Thank you, Senator. And with that, this hearing is adjourned. Thank you again for being here. 

[Whereupon, at 11:19 a.m., the hearing was adjourned.] 

[Prepared statements, responses to written questions, and additional material supplied for the record follow:] 

27 

PREPARED STATEMENT OF CHAIRMAN MIKE CRAPO 

This morning, we will receive testimony for a third time this Congress on the role 

of the Committee on Foreign Investment in the United States, or ‘‘CFIUS’’. 

The Committee held a general oversight hearing on CFIUS in September, and last 

Thursday, the Committee began its review of S. 2098, the Foreign Investment Risk 

Review Modernization Act of 2017, or FIRRMA, a comprehensive reform bill that 

significantly expands the purview of CFIUS, introduced by Senators Cornyn and 

Feinstein 

CFIUS’s authorities cover transactions that result in foreign ‘‘control’’ of a U.S. 

business that may threaten the national security of the United States. The focus 

is currently on inbound investment and technology acquisition. 

Today’s hearing brings in witnesses from three of the nine Federal agencies and 

offices that comprise the full voting membership of CFIUS: the Department of the 

Treasury, which serves as Chair of the Committee; the Department of Defense; and 

the Department of Commerce’s Bureau of Industry and Security, which administers 

and enforces the dual use regulations of the U.S. export control regime. 

According to their testimony last week, Senators Cornyn and Feinstein, informed 

by their work on the Senate Intelligence Committee, introduced their bill because 

of growing concerns arising from China’s multilayered threat to U.S. national security. 

Namely, threats emanating from a weaponization of its foreign investment strategy to acquire, by design, dual-use technology and know-how from U.S. companies. 

Our colleagues believe that China has found gaps in both the existing CFIUS 

process and export control regime, and is exploiting each of them to the detriment 

of U.S. national security and the U.S. defense industrial base. 

To address these concerns, FIRRMA is specifically designed to broaden CFIUS’s 

jurisdiction to review certain high technology joint venture and related arrangements, minority-position investments and certain types of real estate transactions. 

At last week’s hearing, a consensus emerged that much of the bill is focused on 

national security threats that need to be addressed as China executes its policies 

born of its unique civil–military integration that effectively blurs the lines between 

military and commercial activities. 

It is also important to note that the overwhelming majority of foreign investments 

and transactions provide significant benefit to the U.S. economy, including those 

Chinese investments that occur in most sectors of the U.S. economy and do not impact the national security of the United States. 

It is that point of inflection, between national security and economic growth realized from an open investment policy, that the Banking Committee has been entrusted to debate and oversee throughout the now 42-year evolution of the CFIUS 

process. 

The challenge comes in the continued use of foreign investment to promote economic growth and next generation technologies while shielding those very technologies from foreign threats. 

Last week, the panel of witnesses from the private sector offered their perspectives on the potential effects of FIRRMA. 

During the hearing’s question and answer period, there were several questions 

raised that merit feedback from today’s panel: 

One, would the expansion of CFIUS authority to unwind or alter outbound joint 

venture-related international commercial activity duplicate or in any way undermine the current U.S. export control regime and end up chilling this type of commercial activity? 

Two, if there are gaps in the export control process, why should this Committee, 

which has jurisdiction over both the relevant parts of the U.S. export control regime 

and CFIUS, opt to create new export control authority for CFIUS, a traditionally 

unilateral, inward bound review process? 

Three, what would the resource burden look like for each of your agencies for the 

type of expansion envisioned by this legislation, and what impact would it have on 

foreign investment if the review period were actually increased by 50 percent to accommodate these new reviews? 

The three Government agencies represented here today provide a spectrum of 

viewpoints necessary to understand where the United States must position itself 

with respect to CFIUS to assure the national security of the United States. 

Given what we have heard in previous hearings, it is apparent on national security grounds that legislative fixes to the current system may be warranted, including expanding the authority of CFIUS to monitor certain additional transactions 

that are evading the process. 

28 

1See Nomination Hearing before the S. Comm. on Banking, Housing, and Urban Affairs, 

115th Cong. (May 16, 2017) (testimony of Dr. Heath P. Tarbert). 2 Alexander Hamilton, ‘‘Report on the Subject of Manufactures’’ (Dec. 5, 1791), available at 

https://founders.archives.gov/documents/Hamilton/01-10-02-0001-0007. 3See Mira Wilkins, ‘‘The History of Foreign Investment in the United States to 1914’’ (Harvard Univ. Press 1999). 4 U.S. Bureau of Economic Analysis, ‘‘U.S. Net International Investment Position at the End 

of the Period’’, Table 1.1. (Dec. 28, 2017), available at https://bea.gov/scb/pdf/2018/01-January/0118-international-investment-position-tables.pdf. 5 U.S. Dep’t of Commerce, Economics and Statistics Admin., ‘‘Foreign Direct Investment in the 

United States’’, ESA Issue Brief 06-17, Oct. 3, 2017, at 2. 6 Id. 

7 Id. 

8Wolfgang Keller and Stephen R. Yeaple, ‘‘Multinational Enterprises, Int’l Trade, and Productivity Growth: Firm Level Evidence From the United States’’, 91 Review of Economics & Statistics, November 2009, at 821, 828. 

Preservation of the U.S. defense industrial base, protection of U.S. critical technology, critical infrastructure, and even related American know-how are all legitimate areas of concern. 

It is not the intention of the Banking Committee to chill direct foreign investment 

into the United States, but neither can this Nation’s national security interests be 

subordinated to commercial interests. 

I am certain that these fixes can be made with the help of the Administration, 

business community, and my colleagues, from both sides of the dais, on the Banking 

Committee. 

PREPARED STATEMENT OF HEATH P. TARBERT 

ASSISTANT SECRETARY OF THE TREASURY FOR INTERNATIONAL MARKETS AND

INVESTMENT POLICY

JANUARY 25, 2018 

Chairman Crapo, Ranking Member Brown, and distinguished Members of the 

Committee, thank you for the opportunity to testify in support of the Foreign Investment Risk Review Modernization Act (FIRRMA), S.2098, 115th Cong. (2017). 

My top priority as Assistant Secretary is ensuring that the Committee on Foreign 

Investment in the United States (CFIUS) has the tools and resources it needs to 

perform the critical national security functions that Congress intended it to. 1 I believe FIRRMA—a bill introduced with broad, bipartisan support—is designed to provide CFIUS with the tools it needs to meet the challenges of today and those likely 

to arise in the future. FIRRMA will protect our national security and strengthen 

America’s longstanding open investment policy that fosters innovation and economic 

growth. 

Importance of Foreign Investment in the United States 

From the early days of our Republic, the United States has been a leading destination for investors, entrepreneurs, and innovators. In his famous Report on the 

Subject of Manufactures, Alexander Hamilton argued that foreign capital was not 

something to be feared or viewed as a rival to domestic investment, but was instead 

a ‘‘precious acquisition’’ in fostering our economic growth. 2 Throughout the 19th and 

20th centuries, capital from abroad funded the construction of America from our 

railways to our city skylines, while at the same time helping make such innovations 

as the automobile a reality. 3 Foreign investment has also brought significant benefits to American workers and their families in the form of economic growth and 

well-paid jobs. 

The same is true today, with a total stock of foreign direct investment in the 

United States standing at a staggering $7.6 trillion (at market value) in 2016. 4 Numerous studies have demonstrated that the benefits from foreign investment in the 

United States are substantial. Majority-owned U.S. affiliates of foreign entities accounted for over 23 percent of total U.S. goods exports in 2015. 5 They also accounted for 15.8 percent of the U.S. total expenditure on research and development 

by businesses. 6 They employed 6.8 million U.S. workers in 2015, and provided compensation of nearly $80,000 per U.S. employee, as compared to the U.S. average of 

$64,000. 7 One study estimated that spillovers from foreign direct investment in the 

United States accounted for between 8 percent and 19 percent of all U.S. manufacturing productivity growth between 1987 and 1996. 8 As Secretary Mnuchin—echoing his predecessor, Secretary Hamilton—has observed, ‘‘we recognize the profound 

economic benefits of foreign investment’’ today and place the utmost value on having 

29 

9Steven T. Mnuchin, Secretary, Dep’t of the Treasury, ‘‘SelectUSA Investment Summit Welcome Address’’ (June 20, 2017). 10 Edward M. Graham and David M. Marchick, Institute for Int’l Economics, ‘‘U.S. Nat’l Security & Foreign Direct Investment’’ 4-8 (2006). Prior to America’s entry into World War I, it was 

revealed that the German Government made a number of concealed investments into the United 

States, including establishment of the Bridgeport Projectile Company which ‘‘was in business 

merely to keep America’s leading munitions producers too busy to fill genuine orders for the 

weapons the French and British so desperately needed.’’ Ernest Wittenberg, ‘‘The Thrifty Spy 

on the Sixth Avenue El’’, American Heritage (Dec. 1965), available at http:// 

www.americanheritage.com/content/thrifty-spy-sixth-avenue-el. The company placed an order for 

five million pounds of gunpowder and two million shell cases ‘‘with the intention of simply storing them.’’ Id. The plot was revealed when a German spy inadvertently left his briefcase containing the incriminating documents on a New York City train, with the documents being returned to the custody of the Treasury Department. Id. 11 50 U.S.C. §4305. TWEA, originally passed in 1917, empowered the President to ‘‘investigate, regulate, direct and compel, nullify, void, prevent or prohibit, any acquisition holding, 

withholding, use, transfer, withdrawal, transportation, importation or exportation of, or dealing 

in, or exercising any right, power, or privilege with respect to, or transactions involving, any 

property in which any foreign country or a national thereof has any interest.’’ Id. §4305(b)(1)(B). 12Graham and Marchick, supra n. 10, at xvi, 14, 18. 13 Id. at 9. 14 Exec. Order 11,858, 40 FR 20,263 (May 7, 1975). 15Pub. L. 100-418, Title V, §5021, 102 Stat. 1107 (1988). 16Pub. L. 102-484, 106 Stat. 2315 (1992). 17Pub. L. 110-49, 121 Stat. 246 (2007). 

‘‘industrious and entrepreneurial foreign investors’’ continue to invest, grow, and innovate in the United States. 9

Evolution of CFIUS 

Despite its many benefits, we are equally cognizant that foreign investment is not 

always benign. On the eve of America’s entry into World War I, concerned by German acquisitions in our chemical sector and other war-related industries, 10 Congress passed the Trading with the Enemy Act, giving the President broad power to 

block investments during times of war and national emergency. 11

During the Great Depression and World War II, international investment flows 

dropped dramatically. 12 And in the boom years of the 1950s and 1960s—as many 

countries devastated by World War II were rebuilding their economies—investment 

in the United States from abroad was modest compared to outflows. Indeed, for the 

first time ever, America became a net source of investment capital instead of its destination. 13 And what foreign investment did exist posed little risk since our main 

strategic adversaries—the Soviet Union and its satellites—were communist countries whose economic systems were largely isolated from our own. 

When the post-war trend changed in the 1970s, however, CFIUS was born. The 

oil shock that made OPEC countries wealthy led to concern that petrodollars might 

be used to purchase key U.S. assets. In 1975, President Ford issued an Executive 

Order creating CFIUS to monitor and report on foreign investments, but with no 

power to stop those posing national security threats. 14 Then in the 1980s, a growing 

number of Japanese acquisitions motivated Congress to pass the Exon–Florio 

Amendment in 1988. 15 For the first time, the President could block the foreign acquisition of a U.S. company or order divestment where the transaction posed a 

threat to national security without first declaring an emergency. That law created 

Section 721 of the Defense Production Act of 1950, which remains the statutory cornerstone of CFIUS today. 

Subsequently, in 1992, Congress passed the Byrd Amendment which requires 

CFIUS to undertake an investigation where two criteria are met: (1) the acquirer 

is controlled by or acting on behalf of a foreign Government; and (2) the acquisition 

results in control of a person engaged in interstate commerce in the United States 

that could threaten our national security. 16 In the years that followed, it became 

evident that CFIUS and Congress did not share the same view on when a 45-day 

investigation period was discretionary rather than mandatory, a rift that was more 

clearly exposed in the wake of the Dubai Ports World controversy. In order to instill 

greater procedural rigor and accountability into CFIUS’s process, Congress enacted 

the Foreign Investment and National Security Act of 2007 (FINSA), which formally 

established CFIUS by statute and codified its current structure and processes. 17

Critical Need for CFIUS Modernization 

Now, more than a decade after FINSA and three decades after Exon–Florio, we 

find ourselves at another historic inflection point. Within the last few years, the national security landscape as it relates to foreign investment began shifting in ways 

that have eclipsed the magnitude of any other shift in CFIUS’s 40-year history. NoVerDate Nov 24 2008 09:50 Jun 04, 2018 Jkt 046629 PO 00000 Frm 00033 Fmt 6621 Sfmt 6621 L:\HEARINGS 2018\01-25 ZDISTILLER\12518.TXT JASON
30 

where is that shift more evident than in the caseload CFIUS now faces. The resources of CFIUS are challenged by increased case volume and complexity. The average volume of CFIUS cases has been growing steadily from fewer than 100 in 

2009 and 2010 (the 2 years following the financial crisis) to nearly 240 last year. 

While it is difficult to measure case complexity in real terms, one indicator is the 

rate at which cases have proceeded to CFIUS’s investigation stage, which is more 

resource intensive. In 2007, approximately 4 percent of cases went to investigation; 

in 2017, approximately 70 percent did. Another potential measure of complexity is 

the number of cases in which CFIUS determines that mitigation or prohibition is 

necessary to address national security concerns, which require significantly more 

time and resources. From roughly 2008 through 2015, such cases represented fewer 

than 10 percent of the total covered transactions CFIUS reviewed; this figure has 

risen to approximately 20 percent of total covered transactions CFIUS reviewed in 

2017. 

The added complexity CFIUS is confronting arises from a number of different factors, including: the way foreign Governments are using investments to meet strategic objectives, more complex transaction structures, and increasingly globalized 

supply chains. Complexity also results from continued evolution in the relationship 

between national security and commercial activity. Military capabilities are rapidly 

building on top of commercial innovations. Additionally, the digital, data-driven 

economy has created national security vulnerabilities never before seen. Today, the 

acquisition of a Silicon Valley start-up may raise just as serious concerns from a 

national security perspective as the acquisition of a defense or aerospace company, 

CFIUS’s traditional area of focus. 

CFIUS’s exposure to such cases has allowed it to play a critical role in protecting 

against threats to national security, but has at the same time highlighted gaps in 

our jurisdictional authorities. We continue to be made aware of transactions we lack 

the jurisdiction to review but which pose similar national security concerns to those 

already before CFIUS. These gaps are widening as more threat actors seek to exploit them. The problem lies in the fact that CFIUS’s jurisdictional grant is now 30 

years old, originating with the Exon–Florio Amendment and maintained in FINSA. 

Under current law, CFIUS has authority only to review those mergers, acquisitions, 

and takeovers that result in foreign ‘‘control’’ of a ‘‘U.S. business.’’ That made sense 

in the 1980s and even in the first decade of this century, but the foreign investment 

landscape has changed significantly, with noncontrolling investments and joint ventures becoming ever more popular. 

Consequently, certain transactions—such as investments that are not passive, but 

simultaneously do not convey ‘‘control’’ in a U.S. business—that the Committee has 

identified as presenting a national security risk nonetheless remain outside its purview. Similarly, CFIUS is also aware that some parties may be deliberately structuring their transactions to come just below the control threshold to avoid CFIUS 

review, while others are moving critical technology and associated expertise from a 

U.S. business to offshore joint ventures. While we recognize there can and should 

be space for creative deal-making, purposeful attempts to evade CFIUS review put 

this country’s national security at risk. Finally, we regularly contend with gaps that 

likely never should have existed at all. For example, the purchase of a U.S. business 

in close proximity to a sensitive military installation is subject to CFIUS review, but 

the purchase of real estate at the same location (on which one could place a business) is not. These gaps can lead to disparate outcomes in transactions presenting 

identical national security threats. 

Support for FIRRMA 

The Administration endorses FIRRMA because it embraces four pillars critical for 

CFIUS modernization. First, FIRRMA expands the scope of transactions potentially 

reviewable by CFIUS, including certain nonpassive, noncontrolling investments, 

technology transfers through arrangements such as joint ventures, real estate purchases near sensitive military sites, and transactions structured to evade CFIUS review. The reasons for these changes are twofold: (1) they will close gaps in CFIUS’s 

authorities by expanding the types of transactions subject to CFIUS review; and (2) 

they will give CFIUS greater ability to prevent parties from restructuring their 

transactions to avoid or evade CFIUS review when the aspects of the transaction 

that pose critical national security concerns remain. 

Second, FIRRMA empowers CFIUS to refine its procedures to ensure the process 

is tailored, efficient, and effective. Under FIRRMA, CFIUS is authorized to exclude 

certain noncontrolling transactions that would otherwise be covered by the expanded authority. Such exclusions could be based on whether the foreign investors 

are from a country that meets specified criteria, such as having a national security 

review process for foreign investment. FIRRMA also allows CFIUS to identify speVerDate Nov 24 2008 09:50 Jun 04, 2018 Jkt 046629 PO 00000 Frm 00034 Fmt 6621 Sfmt 6621 L:\HEARINGS 2018\01-25 ZDISTILLER\12518.TXT JASON
31 

cific types of contributions by technology, sector, subsector, transaction type, or 

other transaction characteristics that warrant review—effectively excluding those 

that do not. Additionally, CFIUS can define circumstances in which certain transactions can be excluded because other provisions of law—like export controls—are 

determined to be adequate to address any national security concerns. Only where 

existing authorities cannot resolve the risk will CFIUS step in to act. 

Third, FIRRMA recognizes that our own national security is linked to the security 

of our closest allies, who face similar threats. In light of increasingly globalized supply chains, it is essential to our national security that our allies maintain robust 

and effective national security review processes to vet foreign investments into their 

countries. FIRRMA gives CFIUS the discretion to exempt certain transactions from 

review involving parties from certain countries based on such factors as whether the 

country has a mutual defense treaty in place with the United States; a mutual arrangement to safeguard national security with respect to foreign investment; and 

a parallel process to review the national security implications of foreign investment. 

FIRRMA will also enhance collaboration with our allies and partners by allowing 

information sharing for national security purposes with domestic or foreign Governments. 

Fourth, FIRRMA requires an assessment of the resources necessary for CFIUS to 

fulfill its critical mission. FIRRMA would establish for the first time a ‘‘CFIUS 

Fund’’ (Fund), which would be authorized to receive appropriations. Under 

FIRRMA, these funds are intended to cover work on reviews, investigations, and 

other CFIUS activities. FIRRMA also authorizes CFIUS to assess and collect fees, 

to be deposited into the Fund, for any covered transaction for which a notice is filed. 

Once appropriated, these funds could also be used by CFIUS. Although the exact 

amount will be set by regulation, it would be capped at 1 percent of the value of 

the transaction or $300,000 (indexed for inflation), whichever is less. Finally, 

FIRRMA grants the Secretary of the Treasury, as CFIUS chairperson, the authority 

to transfer funding from the CFIUS Fund to any member agencies to address 

emerging needs in executing requirements of the bill. This approach would enhance 

the ability of agencies to work together on national security issues. 

Modernizing CFIUS entails a cost, and FIRRMA does not (and cannot) fully address the resource needs of CFIUS and its member agencies. But the cost of funding 

a modernized CFIUS is not the only consideration. We must all consider the cost 

of doing nothing: the potential loss of America’s technological and military edge, 

which will have a real cost in American lives in any conflict. That is simply unacceptable. 

In sum, CFIUS must be modernized. In doing so, we must preserve our longstanding open investment policy. At the same time, we must protect our national 

security from current, emerging, and future threats. The twin aims of maintaining 

an open investment climate and safeguarding national security are the exclusive 

concern of neither Republicans nor Democrats. Rather, they are truly American 

aims that transcend party lines and regional interests. But they demand urgent action if we are to achieve them. I look forward to working with this Committee on 

improving and advancing FIRRMA, and I am hopeful the bill will continue to move 

forward on a bipartisan, bicameral basis. 

PREPARED STATEMENT OF RICHARD ASHOOH 

ASSISTANT SECRETARY OF COMMERCE FOR EXPORT ADMINISTRATION

JANUARY 25, 2018 

Chairman Crapo, Ranking Member Brown, and Members of the Committee: I appreciate the opportunity to testify before the Committee today in support of the Foreign Investment Risk Review Modernization Act (FIRRMA) (S.2098). I would also 

like to highlight the critical roles the Department of Commerce plays in supporting 

U.S. national security—both as a member of the Committee on Foreign Investment 

in the United States (CFIUS) and as an export control agency. 

Committee on Foreign Investment in the United States 

Let me start by thanking Senator Cornyn, Senator Feinstein, Senator Burr, and 

the other cosponsors for their strong leadership and dedication on this very important issue. We appreciate the work Senator Cornyn and Congressman Pittenger 

have done on FIRRMA. The Commerce Department supports the modernization of 

the CFIUS process to ensure that it has the authorities and capacity required to 

address risks to our national security from foreign investment. The Department also 

shares Congress’ concern about China’s industrial policies and activities. We believe 

FIRRMA takes many positive steps in addressing those concerns. 

32 

I have now had experience with the CFIUS review process in the public and private sectors. Since becoming Assistant Secretary of Commerce for Export Administration last year, I have reviewed almost 100 CFIUS cases and participated in policy 

deliberations on many sensitive and complex transactions. While in the private sector, I worked for a defense company owned by a foreign company, whose acquisition 

by the foreign parent was reviewed by CFIUS. Based on my experience, it is clear 

that CFIUS plays an important role in protecting our national security. Together 

with the International Trade Administration (ITA), my organization, the Bureau of 

Industry and Security (BIS), play important roles in Commerce’s review of CFIUS 

matters, reviewing every transaction and bringing different expertise to CFIUS’s deliberations. ITA has extensive expertise on U.S. and global market conditions and 

provides insights into how the foreign investments reviewed by CFIUS fit into the 

overall market. BIS, on the other hand, as the administrator of the Export Administration Regulations (EAR), has extensive experience in export controls, which are 

often implicated in CFIUS reviews. 

I would like to highlight a few specific provisions in the legislation: 

• As you are aware, the Administration welcomes foreign investment and the Department of Commerce houses SelectUSA, which helps promote foreign investment in the United States. The Department welcomes the affirmations in 

FIRRMA of that policy. As we consider how to modernize CFIUS, we should be 

careful that the U.S. Government not send a signal that we have changed our 

policy of encouraging foreign direct investment. However, we are also very attuned to the need to protect U.S. national security and feel that CFIUS has an 

important role to play in that regard. 

• We are supportive of the requirement for mandatory filings for certain transactions involving foreign Government-controlled entities. However, we are concerned that the 25-percent threshold in FIRRMA is too high and that transactions could easily be structured to evade it. We encourage the committee to 

consider a lower threshold. 

• We appreciate that FIRRMA requires an assessment of the resources necessary 

for CFIUS to carry out its critical work, and would both establish a CFIUS 

Fund and permit filing fees to help achieve that end. We also appreciate that 

the bill states that the provisions which would expand CFIUS authorities will 

not take effect until CFIUS has put in place the regulations and has the resources it needs to implement its expanded role. 

• Additionally, we support the provisions of FIRRMA that would facilitate greater 

cooperation and information sharing with our allies and partners. This would 

permit increased coordination with like-minded countries, particularly on acquisitions that cross borders, as we attempt to address national security concerns. 

The Department of Commerce looks forward to working with the Committee as 

it continues its CFIUS modernization efforts. 

Administering Export Controls 

As this Committee well knows, BIS addresses the challenges that arise where 

business and national security intersect. Our mission is to advance U.S. national security, foreign policy, and economic interests by ensuring an effective export control 

and treaty compliance system and promoting continued U.S. strategic technology 

leadership. 

In our role administering the Export Administration Regulations (EAR), BIS’s responsibilities encompass the entirety of the export control process—we write and implement the regulations, issue export licenses, conduct compliance activities (including overseas end-use checks), and enforce the regulations, including by preventing 

violations and punishing those who violate. 

The EAR has traditionally been the regulatory authority for the control of ‘‘dualuse’’ items, which are items that have a civil end use but can also be used for a 

military or proliferation-related use. However, in recent years some less sensitive 

military items previously controlled under the International Traffic in Arms Regulations (ITAR) have been transferred to the EAR. The dual-use items subject to control and these less sensitive military items are listed on the Commerce Control List 

(CCL) within the EAR. Additionally, commercial items that are not determined to 

merit control on the CCL as dual-use items are still subject to the EAR and are 

controlled to sanctioned destinations and parties as well as to prevent sensitive end 

uses such as those relating to developing weapons of mass destruction. We refer to 

such items as EAR99 items. 

It is important to note that the export control system administered by BIS is an 

instrument of national security that, like CFIUS, involves multiple agencies. We 

33 

work closely with the Departments of Defense, Energy, and State and these agencies review and clear any changes to the EAR itself as well as license applications 

submitted to BIS. The different equities, viewpoints and technical expertise that our 

four agencies bring to the table ensure that the export control system is robust and 

that national security remains at the forefront. 

The EAR’s authority covers a wide array of transactions and technology transfers. 

The goods, software, and technology listed for control on the CCL are set by using 

specific technical parameters. The interagency decisions on where to set these parameters are national security determinations that define when particular items become sufficiently applicable to a military end-use to warrant control. The EAR governs what are considered traditional exports of goods, software or technology to foreign countries, but the EAR also covers the transfers of controlled technology within 

the United States to foreign nationals under what we call ‘‘deemed exports.’’ It is 

also important to note that the EAR differentiates between countries that range 

from our closest allies to embargoed countries. This differentiation allows the export 

control system to treat exports and technology transfers under different licensing review policies depending on the level of concern with the recipient country. The EAR 

also includes lists of end-uses and end users of concern that trigger extraordinary 

licensing requirements if an export is in support of or destined for such an end-use 

or end user. 

In addition to being an interagency national security process, our export control 

system benefits from close cooperation with our international partners through the 

four major multilateral export control regimes. Through these regimes—the 

Wassenaar Arrangement, the Nuclear Suppliers Group, the Missile Technology Control Regime, and the Australia Group—the United States and our partners agree 

on which items and technologies merit control and how those controls should be applied. It has long been our position that export controls are significantly more effective when they are implemented multilaterally. This helps ensure that these sensitive technologies are controlled by all countries that are capable of producing them 

to make it more difficult for them to be acquired by parties of concern. 

The export control system and CFIUS are complementary tools that we utilize to 

protect U.S. national security, with CFIUS addressing risks stemming from foreign 

ownership of companies important to our national security, and export controls dealing with transfer of specific goods and technologies out of the United States or to 

foreign nationals, regardless of mode of transfer. Some risks, such as the potential 

transfer of sensitive technology from a United States firm by a new foreign owner, 

could fall under the purview of both mechanisms. Each mechanism has its 

strengths, and it is important that each be applied in ways that complement, and 

not duplicate, the other. If implemented appropriately, FIRRMA will strike this important balance. 

One issue that has received a lot of attention in recent months is the concept of 

‘‘emerging’’ technologies that may not yet be well understood but could potentially 

be sensitive and present national security concerns. Our export control system has 

been addressing technological innovation for decades in light of the rapid pace of 

innovation and the increased overlap between civil and military technologies. Moreover, BIS has existing tools to identify and deal with emerging technologies through 

its specialized expertise and the EAR. One way that BIS seeks to keep as updated 

as possible on emerging technologies is through our technical advisory committees 

(TACs), which are our primary vehicle for interacting with industry in technical 

areas impacted by our export controls. These TACs cover various technology sectors 

including transportation, information technology, and sensors. 

The export control system is flexible and able to address concerns about emerging 

technologies, and the agencies involved in that process have experience with these 

issues. CFIUS deals with individual transactions that come before the committee for 

review. BIS, with the interagency, can prohibit the export of specific controlled technologies from anywhere in the United States and block their access by almost any 

foreign national. 

Finally, the Bureau of Industry and Security contributes to the national security 

of the United States through its aggressive enforcement of the EAR. Our Special 

Agents are located in 20 cities across the United States with a sole focus on identifying violations of the EAR and bringing to justice domestic and foreign violators. 

In addition we have export control officers stationed abroad who conduct end-use 

checks. Our enforcement efforts have included everything from the successful prosecution of individuals illegally shipping components for Improvised Explosive Devices (IED) into Iraq and illegal sales of U.S. technology to Iran, to stopping the illegal shipment of shotguns, jet engines, night vision equipment, and integrated circuits to prohibited end users or for prohibited end uses. 

34 

We in BIS are committed to continuing to identify and control sensitive emerging 

technologies and to ensuring that the export control and CFIUS processes relevant 

to managing security challenges presented by emerging technologies are systematic, 

proactive, and institutionalized. We are currently undertaking a review to better 

utilize our authorities to combat threats arising from this kind of technology. 

Summary 

In sum, CFIUS and export controls are both vital and robust authorities the 

United States relies upon to protect our national security. It is important that they 

remain complementary and not overlap unnecessarily, as that has the potential to 

overburden the CFIUS process and partially duplicate the more comprehensive coverage of technology transfer under the export control system. Commerce looks forward to working with the Congress on the technical aspects of FIRRMA to ensure 

it achieves the intended effect. Commerce is committed to working in both forums 

to protect sensitive U.S. technologies and assets that provide key advantages to our 

industrial base and national security. 

The Department of Commerce looks forward to working with the Committee and 

bill sponsors on advancing and improving FIRRMA. 

Thank you. 

PREPARED STATEMENT OF ERIC CHEWNING 

DEPUTY ASSISTANT SECRETARY OF DEFENSE FOR MANUFACTURING AND INDUSTRIAL

BASE POLICY

JANUARY 25, 2018 

Mr. Chairman, Ranking Member Brown, and Members of the Committee, thank 

you for the invitation to share the Department of Defense’s role in the Committee 

on Foreign Investment in the United States (CFIUS) and the national security risks 

to America arising from inbound foreign direct investment. The protection of our national security innovation base from strategic competitors, in the national security 

realm like China and Russia, is an increasingly important priority of the Department and I appreciate the opportunity to speak with you this morning. 

The Department of Defense strongly supports modernization of the CFIUS process 

to ensure that the interagency Committee has the authorities required to address 

the evolving risks to our national security from transactions that are currently uncovered. We are thankful for the strong leadership of Senator Cornyn, Senator Feinstein, and Senator Burr on this issue and appreciate the bipartisan support for the 

Foreign Investment Risk Review Modernization Act (FIRRMA), S.2098, 115th Cong. 

(2017). The Department shares Congress’ trepidations about strategic competitors’ 

use of predatory economics and believes FIRRMA will take many positive steps to 

address these concerns. To quote Secretary of Defense Jim Mattis, stating this Department’s position, in his letter of support to Senator Cornyn, the ‘‘DoD depends 

on critical, foundational, and emerging technologies to maintain military readiness 

and preserve our technological advantage over potential adversaries. FIRRMA 

would help close related gaps . . . .’’ 

As the National Security Strategy and the National Defense Strategy make clear, 

the Department’s direction is to compete, deter, and win alongside our allies and 

partners in conflict and preserve peace through strength. Our defense industrial 

base is an extension of our military force structure. Only a defense industrial base 

that is robust, secure, and resilient, is able to support the needs of our military, innovate to retain our technological edge, surge when necessary, and keep our systems 

safe in cyberspace. As the Deputy Assistant Secretary for Manufacturing and Industrial Base Policy, my role within the Department of Defense is to ensure the United 

States maintains a superior industrial base that supports the Secretary’s three priorities, namely (1) enhancing warfighter lethality, (2) strengthening alliances and 

attracting new partners, and (3) reforming the Department’s business practices. In 

this capacity, I represent the Department in the interagency CFIUS process. 

I’ve spent the last 17 years working at the intersection of national security, industry, and finance, in both the private and public sectors. It is important that this 

bill not be considered an additional regulation on business. Under this bill, the 

United States should and will likely continue to welcome the vast majority of foreign investment that does not present any threat to our national security. Rather, 

this bill, should be considered a whole-of-Government response to a critical national 

security challenge—an insurance policy on the hundreds of billions of dollars per 

year we invest in our defense industrial base. Most importantly, this bill will help 

safeguard our sons and daughters who volunteer to step into harm’s way, armed 

with the weapons that our industrial base produces. 

35 

1Please see China’s ‘‘Report on the Work of Government, 2016’’. 

2 ‘‘Ensuring Long Term U.S. Leadership in Semiconductors’’. Executive Office of the President, 

President’s Council of Advisors on Science and Technology, January 2017. Retrieved at https:// 

obamawhitehouse.archives.gov/sites/default/files/microsites/ostp/PCAST/pcastlensuring— 

long-termluslleadershiplinlsemiconductors.pdf. 3Michael Brown and Pavneet Singh, ‘‘China’s Technology Transfer Strategy: How Chinese Investments in Emerging Technology Enable a Strategic Competitor To Access the Crown Jewels 

of U.S. Innovation’’, Defense Innovation Unit Experimental, January 2018. 

Challenge to Technological Advantage 

Simply put, the United States military fights and wins wars through the unmatched performance of our men and women in uniform and our superior military 

technology. Knowing this, our competitors are aggressively attempting to diminish 

our technological advantage through a multifaceted strategy by targeting and acquiring the very technologies that are critical to our military success now and in 

the future. China, in particular, publicly articulates its policy of civil–military integration, which ties into its intentions to become the world leader in science and 

technology and to modernize its military in part by strengthening the industrial 

base that supports it. 1 These plans are backed by hundreds of billions of dollars in 

Chinese State funding. For example, China’s efforts to create an indigenous semiconductor capability alone enjoy approximately $150 billion in State-connected funding. 2 In addition to semiconductors, our long-term strategic competitors have a clear 

focus in investing in the critical future technologies that are foundational for both 

commercial and military applications: artificial intelligence, autonomous vehicles, 

robotics, augmented reality, directed energy, and hypersonics. We see a notable increase in Chinese interest in each of these nascent technology areas, with Chinese 

entities participating in about 16 percent of all U.S. venture deals in 2015, up from 

a 6-percent average participation rate during 2010–2015. 3

While some facets of our competitors’ strategy, like industrial espionage and 

cybertheft, are clearly illegal, other approaches, including technology and business 

know-how transferred through acquisition in U.S. companies, may not be. Acquiring 

or investing in U.S. companies offers an opportunity for our competitors to gain access and control over technologies with potential military applications, enabling 

them to create their own indigenous capabilities, eroding our technological edge, and 

ultimately our military advantage. Additionally, some investments in the U.S. may 

also limit the availability of certain capabilities within the U.S. industrial base, potentially depriving our warfighters of access to important technological solutions 

needed to maintain our overmatch on the battlefield. We believe that the loss of critical technology to a competitor can inflict irreparable damage on our national security in the long term. 

Department of Defense Role in CFIUS 

CFIUS is designed to address the national security risks arising from foreign investments that could result in foreign control of a U.S. business. Of the defined factors to be considered when determining the requirements of national security under 

the current Foreign Investment and National Security Act (FINSA) statute, several 

are directly related to defense, military requirements, and technological leadership 

as it relates to national security. In addition, seven of the fifteen coordinators of the 

National Security Threat Assessment (NSTA), which is relied upon in every CFIUS 

case, are DoD intelligence organizations. Moreover, the Defense Intelligence Agency 

(DIA) makes the statutorily required assessment of the risk of diversion of defense 

critical technology. 

As one of nine voting members of CFIUS, DoD provides significant input related 

to the impact of foreign investment on U.S. defense requirements and readiness, 

military competitiveness, and critical technology development, among other things. 

As such, DoD has been the co-lead alongside the Department of Treasury on a yearly average of 44 percent of all CFIUS cases filed since 2012, the highest percentage 

of any committee member other than Treasury. 

Examples of Limitations of CFIUS 

Since CFIUS was first instituted in the 1970s, our competitors have discovered 

methods beyond the committee’s authorities and successfully acquire U.S. technologies and critical business know-how. Our national security competitors’ ability 

to evolve, outpaces our ability to adapt under the current statutory and regulatory 

system. What’s more, the current CFIUS authorities only cover some of the relevant 

transactions because deals that do not result in a foreign controlling interest are 

beyond its jurisdiction. There are other transaction types, such as certain joint ventures, and nonpassive, noncontrolling investments, that can pose national security 

concerns, such as transferring technology and critical capabilities. Additionally, the 

36 

purchases of real estate by a foreign person provides opportunities to potentially establish a persistent presence near sensitive facilities, which would currently fall outside of CFIUS’s scope to review. 

CFIUS Modernization Needed 

The Department of Defense does not view CFIUS as a panacea. Instead, it is part 

of a layered defense that can, along with export controls and other regulatory mechanisms, stem the flow of critical technologies to our competitors. In order to do that, 

however, CFIUS’s authorities need to adjust to keep pace with the rapid change of 

technology and nimble, long-term competitors. 

The Department is particularly supportive of the proposed adjustments in the 

FIRRMA legislation that gives CFIUS the discretion to broaden the scope of covered 

transactions to include certain contributions of intellectual property with associated 

support by a U.S. critical technology company to a foreign person through a joint 

venture or other similar arrangement. In addition, the Department appreciates the 

inclusion of foreign purchases or leases of certain real estate located in close proximity to sensitive facilities and the bill’s recognition that enhanced international cooperation is necessary to ensure important technology does not flow to our competitors through our allies and partners. 

Conclusion 

Let me add one important point as I conclude my remarks. While the Department 

of Defense believes defensive measures like CFIUS modernization are necessary, 

they alone are not sufficient for winning a technology race with our long-term strategic competitors. We must be proactive to ensure we improve our technology and 

innovation base because our future economic security will be a key determinant of 

our national security. 

I would like to close with another statement from Secretary Mattis in his letter 

of support to Senator Cornyn. ‘‘I strongly support the Foreign Investment Risk Review Modernization Act of 2017 (FIRRMA). The Department of Defense (DoD) continues to support foreign investment, consistent with the protection of national security. However, as the national security landscape changes, the existing process and 

authorities must be updated.’’ 

Thank you very much for the opportunity to testify on this important topic. I look 

forward to working with this Committee on improving and advancing FIRRMA. 

37 

RESPONSES TO WRITTEN QUESTIONS OF CHAIRMAN CRAPO 

FROM HEATH P. TARBERT 

Q.1. The legislation FIRRMA authorizes CFIUS to impose filing 

fees on transactions to cover the committee’s funding needs. 

Will these fees be sufficient to address the increased case load 

anticipated with FIRRMA and what new resources will your agencies need to carry out these reforms? 

A.1. The largest portion of increased work burden resulting from 

FIRRMA is likely to be in connection with transactions that are 

much smaller than the mergers and acquisitions currently within 

the scope of CFIUS. These transactions may generate little, if any, 

revenue. Thus, while fees may offset some of the costs of administering the CFIUS process, they are unlikely to cover the increased load across the committee. The funds derived from the filing fees are more likely to serve as a supplemental funding source 

that would enable CFIUS to be better positioned to deal with unexpected increases in case volume, along with ensuring CFIUS’s additional functions of monitoring of mitigation agreements and transactions that are not voluntarily notified with CFIUS are sufficiently resourced. 

Q.2. How many cases do you anticipate CFIUS would review as a 

result of FIRRMA? 

A.2. The total number of cases under FIRRMA is hard to estimate, 

but it could be several multiples of CFIUS’s current caseload. 

FIRRMA provides several mechanisms to ensure that the process 

remains efficient. For example, FIRRMA would give CFIUS the authority to issue regulations to focus the expanded jurisdiction on 

the technologies and sectors that most warrant application of 

CFIUS authorities. It also creates a streamlined ‘‘declarations’’ 

process, which would lower the burden on many parties seeking review of transactions and allow CFIUS to calibrate the resources 

that it devotes to a transaction based on the likelihood that a particular transaction may pose a national security risk. 

RESPONSES TO WRITTEN QUESTIONS OF 

SENATOR MENENDEZ FROM HEATH P. TARBERT 

Q.1. At the CFIUS hearing on January 18, a witness raised the 

concern that the committee should also consider the national security implications of investments by foreign companies that are not 

technically owned by a foreign Government, but perhaps show 

other signs of Government influence—such as loans from Stateowned banks, close ties between corporate management and political leaders, or other methods that Governments use to influence 

corporate behavior. 

What are reforms that you would advise the Committee to consider so that we account not only for the national security risks of 

investments by overtly State-owned companies, but also from foreign firms that may be otherwise influenced or controlled by foreign Governments? 

A.1. You raise an important point: foreign firms may not be Stateowned but are nonetheless influenced or controlled by foreign Governments. While this is an issue that regularly confronts CFIUS, 

38 

we believe that CFIUS has the authority necessary now to consider 

any factors relevant to assessing whether a particular covered 

transaction poses a national security risk. This includes consideration of formal and informal ways in which a foreign Government 

or possible threat actor, even beyond actual ownership, may be able 

to influence a foreign person that is acquiring a U.S. business. Factors such as prior Government affiliations of corporate management, Government financing, and Government practices of compelling private company cooperation with strategic State interests, 

among other factors, are regularly considered in the assessment of 

the threat posed by acquirers. CFIUS will continue to be able to 

consider these same analytical factors when reviewing transactions 

under FIRRMA. Moreover, FIRRMA’s coverage of nonpassive investments would give CFIUS the authority to review some investments that do not meet the current threshold for control. 

RESPONSES TO WRITTEN QUESTIONS OF SENATOR WARNER 

FROM HEATH P. TARBERT 

Q.1. As we search for the most appropriate remedy to the very real 

problem of foreign countries gaining access to critical U.S. technologies, there are some suggesting that we should be pursuing 

other changes instead of or in addition to the CFIUS reform. 

What role should export controls play in addressing this problem? 

A.1. Treasury believes that CFIUS and export controls both play 

a role in addressing this problem. CFIUS and export controls are 

complementary and mutually reinforcing processes. Even today, 

CFIUS does not act when it determines that the national security 

risk posed by the transaction can be adequately addressed by other 

laws, including export control laws. 

This would continue to be the case under FIRRMA. In circumstances where export controls prove adequate and appropriate 

to address risks that FIRRMA would allow CFIUS to cover (e.g., 

involving a specific license granted by the Department of Commerce following appropriate disclosure of information related to the 

transaction), we would expect to carve those circumstances out of 

CFIUS’s jurisdiction via rulemaking. 

Q.2. Could the export control system be modified to address the 

concern that know-how—not just intellectual property—is being 

transferred through joint ventures and other partnerships? 

A.2. Treasury defers to the export control agencies regarding the 

extent to which export controls could be modified to address some 

of the types of risks that the joint venture provision of FIRRMA is 

intended to address. 

Q.3. Are there other changes outside of CFIUS and export controls 

that should be considered to address this security challenge? 

A.3. Ensuring that we have the tools necessary to protect national 

security is only one element of what is necessary to address this 

security challenge. As I stated during my testimony, the United 

States has been a leading destination for investors, entrepreneurs, 

and innovators. It is important that this remains the case and that 

we continue to invest in our companies and innovators. The PresiVerDate Nov 24 2008 09:50 Jun 04, 2018 Jkt 046629 PO 00000 Frm 00042 Fmt 6602 Sfmt 6602 L:\HEARINGS 2018\01-25 ZDISTILLER\12518.TXT JASON
39 

dent’s National Security Strategy specifically identifies in Pillar II 

that we must promote American prosperity, which includes leading 

in research, technology, invention, and innovation, along with promoting the U.S. national security innovation base. One of the 

strengths of the United States is our ability to foster innovation 

and develop new technologies. 

Q.4. One of the strengths of the U.S. is our ability to foster innovation and develop new technologies. 

Would increasing filing times and additional fees for expanded 

CFIUS jurisdiction, as proposed by the Foreign Investment Risk 

Review Modernization Act (FIRRMA) significantly inhibit venture 

capital investments and hurt entrepreneurship by creating excessive barriers, such as prolonged wait times, to foreign investment? 

A.4. The United States has remained a leading destination for foreign investment, notwithstanding a robust CFIUS process. Treasury does not anticipate that the addition of 15 days to the firststage ‘‘review’’ period or an optional one time extension of 30 days 

in extraordinary circumstances would be a material deterrent to 

foreign investment. In fact, these changes may allow more transactions to be cleared in the initial ‘‘review’’ period, which would create additional predictability in the process, and still would keep the 

duration of the CFIUS process well below the duration of similar 

processes in most other countries. What is more, the option for filing short ‘‘declarations’’ of transactions and the ability of CFIUS to 

clear a transaction within 30 days based on such a streamlined 

submission would likely reduce the burden that many investors 

currently face under the CFIUS process. Finally, CFIUS does not 

expect to set filing fees in regulations at a level that is likely to 

have a material impact on investment decisions. 

Q.5. Would significantly expanding CFIUS’s jurisdiction negatively 

affect our investment relationship with Europe and other traditional economic allies, who could get caught up in an expansion of 

CFIUS’s scope of review? 

A.5. As noted above, CFIUS’s current ability to review transactions 

involving Europe and our other traditional economic partners for 

national security concerns has not affected the long-standing status 

of the United States as a leading destination for foreign investment. Today, transactions from these countries that do not warrant 

CFIUS review are either not filed with CFIUS or, if they are, are 

cleared by CFIUS within the initial review period. FIRRMA generally maintains the voluntary filing system and provides companies with the option for a more streamlined declarations process in 

the event they would like formal clearance from CFIUS. FIRRMA 

also gives CFIUS the discretion to exempt certain transactions 

from allied countries in certain circumstances. 

Q.6. Do you think that significantly expanding CFIUS’s jurisdiction 

and identifying ‘‘countries of particular concern’’ for purposes of 

CFIUS review could be considered a discriminatory measure by 

trade partners? 

A.6. FIRRMA would not require CFIUS to identify ‘‘countries of 

special concern,’’ and the legislation expressly states that CFIUS is 

not expected to maintain such a list. Nor would FIRRMA mandate 

40 

any outcome with respect to countries of special concern or alter 

CFIUS’s existing practice of reviewing each transaction on its merits and solely for national security purposes. CFIUS would continue 

to exercise its authority consistent with existing trade agreements. 

Therefore, we do not believe FIRRMA would be considered a discriminatory measure for trade law purposes. 

Q.7. What would be the potential consequences of doing so from a 

trade perspective? 

A.7. Please see the previous answer. 

Q.8. Should we expect retaliation? 

A.8. CFIUS can reduce the chances of any retaliation by continuing 

its focus exclusively on national security risks, examining only 

those risks posed by the transaction under review, and clearing 

transactions, regardless of origin, that do not pose national security 

concerns. 

Q.9. What forms could that retaliation take? 

A.9. Please see the previous answer. 

Recent proposed legislation, the Foreign Investment Risk Review 

Modernization Act (FIRRMA), broadens the Committee on Foreign 

Investment in the United States’ (CFIUS) purview so that the 

Committee would review transactions that involve critical technologies. According to the bill’s definition of ‘‘critical technologies’’, 

this includes ‘‘emerging technologies that could be essential for 

maintaining or increasing the U.S. technological advantage with 

respect to national security.’’ And there is an open question as to 

whether widely available advanced technology made by multiple 

companies, in many different countries should be covered by this 

definition given that CFIUS is a unilateral, not multilateral, tool. 

I have heard from some that this definition may be too broad a category, effectively forcing hundreds, if not thousands, of transactions 

to be subject to CFIUS review. A related concern is that the term 

‘‘U.S. business’’ is not defined, and it is unclear whether a wholly 

owned foreign subsidiary of a U.S. headquartered company would 

be considered a ‘‘U.S. business’’ and whether CFIUS would apply 

to transactions between the U.S. company and its foreign subsidiary. 

Q.10. Recent proposed legislation, the Foreign Investment Risk Review Modernization Act (FIRRMA), broadens the Committee on 

Foreign Investment in the United States’ (CFIUS) purview so that 

the committee would review transactions that involve critical technologies. According to the bill’s definition of ‘‘critical technologies’’, 

this includes ‘‘emerging technologies that could be essential for 

maintaining or increasing the U.S. technological advantage with 

respect to national security.’’ And there is an open question as to 

whether widely available advanced technology made by multiple 

companies, in many different countries should be covered by this 

definition given that CFIUS is a unilateral, not multilateral, tool. 

I have heard from some that this definition may be too broad a category, effectively forcing hundreds, if not thousands, of transactions 

to be subject to CFIUS review. A related concern is that the term 

‘‘U.S. business’’ is not defined, and it is unclear whether a wholly 

owned foreign subsidiary of a U.S.-headquartered company would 

41 

be considered a ‘‘U.S. business’’ and whether CFIUS would apply 

to transactions between the U.S. company and its foreign subsidiary. 

Is there a way to narrow the scope of the definition so that it becomes more manageable for CFIUS to monitor? 

A.10. Yes. FIRRMA explicitly provides CFIUS with the authority, 

through the rulemaking process, to narrow the scope of certain 

definitions and create exemptions, which would ensure that the 

number of transactions reviewed by CFIUS is manageable. The 

declarations process included in FIRRMA would also permit 

streamlined filings that can be reviewed more efficiently, thereby 

enabling CFIUS to focus its resources on the transactions most 

likely to raise concerns. 

Q.11. Or do you believe that it should be this expansive? 

A.11. Treasury believes that there are certain clarifications that 

can be accomplished through revisions to FIRRMA, and we look 

forward to working with this Committee on such clarifications. 

However, Treasury believes that the rulemaking process is a necessary tool in ensuring that the process remains efficient and effective over time. 

Q.12. Do you have a sense of how many transactions this legislation would bring into CFIUS’s scope? 

A.12. The total number of cases under FIRRMA is hard to estimate, but it could be several multiples of CFIUS’s current caseload. 

As mentioned above, FIRRMA offers a number of mechanisms by 

which CFIUS can ensure that the process remains administrable. 

Q.13. And how many new employees you would need? 

A.13. We are working to estimate the resource requirements under 

FIRRMA, but will not have firm estimates on the overall cost or 

number of covered transactions until any required implementing 

regulations have been formulated. While there are many unknowns 

about the impact of the proposed bill, Treasury expects the number 

of covered transactions to increase significantly. However, certain 

efficiencies will be gained over time in the processing of cases, partially offsetting the additional resource requirements through a reduction in the per-case processing cost. I will keep you updated on 

the development of our estimates and look forward to working with 

you to strengthen and modernize CFIUS. 

Q.14. And how much that would cost? 

A.14. As mentioned above, Treasury will not have firm estimates 

on the overall cost or number of covered transactions until any required implementing regulations have been formulated. 

Q.15. How long do you think it would take to get that many employees in place? 

A.15. As currently drafted, FIRRMA includes direct hiring authority to allow agencies to resource the CFIUS function quickly. This 

authority will be critical for agencies to implement FIRRMA in a 

timely manner. Given the unknowns surrounding the number of 

covered transactions and therefore the number of new employees 

required, it is difficult to provide a specific timeframe. However, we 

expect that recruiting would begin immediately upon the enactVerDate Nov 24 2008 09:50 Jun 04, 2018 Jkt 046629 PO 00000 Frm 00045 Fmt 6602 Sfmt 6602 L:\HEARINGS 2018\01-25 ZDISTILLER\12518.TXT JASON
42 

ment of FIRRMA and hiring would commence as soon as appropriations are available. 

RESPONSES TO WRITTEN QUESTIONS OF 

SENATOR CORTEZ MASTO FROM HEATH P. TARBERT 

Q.1. Gaming and Tourism—Foreign companies are beginning to 

expand into new industries, including gaming and tourism in the 

State of Nevada. As an example, foreign companies have been investing in and developing properties on the Las Vegas Strip. In the 

context of CFIUS reviews, hotel deals previously examined by the 

committee include the acquisition of New York’s Waldorf-Astoria 

Hotel by Anbang Insurance group in 2014. 

Given the importance of the tourism industry to Nevada, could 

you elaborate on the concerns associated with foreign acquisition of 

hotels or tourism companies in the United States? How does 

CFIUS review such transactions, and what is the committee’s track 

record on approving or denying these types of deals? 

A.1. An acquisition of land or a building is currently reviewable by 

CFIUS if it involves the acquisition of a ‘‘U.S. business,’’ as defined 

in CFIUS’s regulations. As it pertains to CFIUS’s review of any 

specific transaction involving one or more hotels, Treasury can provide a classified briefing to answer your questions. However, as a 

general matter, in reviewing such transactions, CFIUS considers 

the national security ‘‘vulnerabilities’’ related to activities that 

occur at the property (e.g., does the hotel house or host sensitive 

U.S. Government operations?) or near the property (e.g., is the 

hotel near a sensitive training facility?). CFIUS also considers the 

threat posed by the foreign party (i.e., the capability and intent of 

the foreign acquirer to harm the national security of the United 

States) and the national security consequences should a threat 

actor exploit the vulnerabilities. If CFIUS identifies a risk, then it 

can seek to enter into an agreement with the parties to mitigate 

the risk and allow the transaction to proceed. If the risk cannot be 

mitigated, then it would recommend to the President that he prohibit the transaction. 

FIRRMA would expand CFIUS’s jurisdiction to allow it to look at 

certain real estate acquisitions even if a given transaction does not 

involve the acquisition of a ‘‘U.S. business.’’ As was highlighted 

during our colloquy in the hearing, the proximity risk associated 

with vacant land that can be rapidly developed is not necessarily 

significantly different than the risk associated with land that already houses a business. As a reflection of its general ‘‘track 

record,’’ however, CFIUS has historically cleared the majority of 

transactions that it has reviewed. 

As mentioned above, I would be happy to provide you with a classified, confidential briefing on specific transactions. 

Q.2. Greenfield Acquisition—In Nevada, we’re home to a number of 

technology startups, including drone technology. 

Can you discuss the potential positive and negative consequences 

of expanding CFIUS review to ‘‘greenfield’’ projects—or those involving start-ups? 

43 

A.2. Your question raises an important distinction regarding 

CFIUS’s authority to review ‘‘greenfield’’ projects versus investments in ‘‘start-ups.’’ 

First, CFIUS currently has the authority to review the foreign 

acquisition of a U.S. business, which includes acquisitions of earlystage start-ups. However, CFIUS cannot review a non-controlling 

foreign investment in such a company, even if the foreign investor 

is not passive and can influence or gain access to the company in 

ways that pose national security concerns. FIRRMA would address 

this issue by providing CFIUS the authority to review such transactions. 

Second, FIRRMA would allow CFIUS to review certain real estate transactions based on proximity concerns even if there is no 

existing business. We believe that such broad authority is warranted by the current and expected investment landscape as it pertains to national security risks. FIRRMA would not, however, give 

CFIUS general authority to review the establishment of a new 

business (commonly referred to as a ‘‘greenfield’’) in the United 

States by a foreign person. 

Q.3. Can you discuss the use of ‘‘mitigation agreements’’—or conditions placed on acquisitions approved by CFIUS? 

A.3. Mitigation agreements are an important tool available to 

CFIUS to address identified national security concerns arising from 

a covered transaction that are not otherwise adequately or appropriately addressed by other provisions of law (e.g., export controls, 

Government procurement authorities). Consistent with the open investment policy of the United States, mitigation agreements enable 

CFIUS, in most instances, to allow a transaction in which CFIUS 

identifies national security concerns to proceed by addressing those 

concerns through tailored and effective mitigation measures in lieu 

of recommending to the President that he prohibit a transaction. 

Q.4. Are they being used appropriately? 

A.4. Yes. CFIUS accepts mitigation only if we think the measures 

will be (1) effective at addressing the national security risk(s) and 

(2) capable of being monitored and enforced. 

Q.5. Does CFIUS have the resources and staffing to ensure adherence to these mitigation agreements? 

A.5. Treasury is committed to ensuring that CFIUS has the resources necessary to fulfill its responsibilities to ensure compliance 

with mitigation agreements. Generally, compliance monitoring is 

performed by the co-lead agency (alongside Treasury) that negotiated the given mitigation agreement (e.g., the Department of Defense, Department of Homeland Security, etc.). 

Q.6. What are the pros and cons of making the filing of CFIUS reviews mandatory—rather than discretionary—for State-controlled 

acquiring firms? 

A.6. Treasury believes that CFIUS should remain a generally voluntary process. We believe that a mandatory process would likely 

divert CFIUS resources to transactions that do not warrant examination. As it is, CFIUS has the authority to initiate a review 

where warranted. However, transaction parties should be required 

to inform CFIUS about certain types of transactions before they 

44 

consummate the transaction. FIRRMA accomplishes this by requiring mandatory declarations in two circumstances: (1) certain covered transactions with foreign Government interests; and (2) other 

covered transactions identified by CFIUS in regulations. This ensures that CFIUS would be aware, in advance, of covered transactions that may be more likely to pose national security concerns 

or could cause national security harm that is more difficult to remediate after completion of the transaction. As you imply in your 

question, we believe that transactions involving State-controlled acquiring firms are of the kind that we would like to see subject to 

an advance notification process. CFIUS can then determine whether such transactions require a review. 

Q.7. Should they be reviewed differently than private-firm mergers 

or acquisitions, or firms that are in part-owned by Nation States? 

A.7. The Foreign Investment and National Security Act of 2007 

(FINSA), CFIUS’s current statute, establishes special procedures 

for CFIUS review of transactions that could result in foreign Government control of a U.S. business. Specifically, it requires that 

CFIUS proceed from the ‘‘review’’ stage (30 days) to the ‘‘investigation’’ stage (up to 45 additional days) for foreign Government-controlled transactions unless a determination is made at least at the 

Deputy Secretary level that the transaction ‘‘will not impair the national security of the United States.’’ FIRRMA also would establish 

a mandatory declaration requirement for certain transactions involving foreign Government investors, as noted above. Treasury believes that this framework provides appropriate authority for 

CFIUS to address national security risks posed by foreign Government investments. 

Q.8. It has been 10 years since Congress last comprehensively considered the statutory framework for CFIUS. As practitioners that 

have worked in this space for long tenures, has any consensus 

emerged about what budget, regulatory, or statutory changes may 

be needed? 

A.8. As I outlined in my testimony, the Administration endorses 

FIRRMA because it embraces four pillars critical for CFIUS modernization. First, FIRRMA expands the scope of transactions potentially reviewable by CFIUS, including certain non-passive, non-controlling investments, technology transfers through arrangements 

such as joint ventures, real estate purchases near sensitive military 

sites, and transactions structured to evade CFIUS review. 

Second, FIRRMA empowers CFIUS to refine its procedures to ensure the process is tailored, efficient, and effective. Under 

FIRRMA, CFIUS is authorized to exclude certain non-controlling 

transactions that would otherwise be covered by the expanded authority. 

Third, FIRRMA recognizes that our own national security is 

linked to the security of our closest allies, who face similar threats. 

In light of increasingly globalized supply chains, it is essential to 

our national security that our allies maintain robust and effective 

national security review processes to vet foreign investments into 

their countries. FIRRMA will also enhance collaboration with our 

allies and partners by allowing information-sharing for national security purposes with domestic or foreign Governments. 

45 

Fourth, FIRRMA requires an assessment of the resources necessary for CFIUS to fulfill its critical mission, so that Congress has 

full understanding of the needs required to fulfill CFIUS’s expanded scope. FIRRMA would establish for the first time a ‘‘CFIUS 

Fund,’’ which would be authorized to receive appropriations. 

FIRRMA also authorizes CFIUS to assess and collect fees, which 

would be set by regulation at a level we anticipate would not affect 

the economics of any given transaction. Once appropriated, these 

funds could also be used by CFIUS. Finally, FIRRMA grants the 

Secretary of the Treasury, as CFIUS chairperson, the authority to 

transfer funding from the CFIUS Fund to any member agencies to 

address emerging needs in executing requirements of the bill. This 

approach would enhance the ability of agencies to work together on 

national security issues. 

Q.9. Can you delineate the appropriate role for export controls 

versus CFIUS? 

A.9. CFIUS and export controls are complementary and mutually 

reinforcing processes. Even today, CFIUS does not act when it determines that the national security risk posed by the transaction 

can be adequately addressed by other laws, including export control 

laws. 

This would continue to be the case under FIRRMA. In circumstances where export controls prove adequate and appropriate 

to address risks that FIRRMA would allow CFIUS to cover (e.g., 

involving a specific license granted by the Department of Commerce following appropriate disclosure of information related to the 

transaction), we would expect to carve those circumstances out of 

CFIUS’s jurisdiction via rulemaking. 

RESPONSES TO WRITTEN QUESTIONS OF CHAIRMAN CRAPO 

FROM RICHARD ASHOOH 

Q.1. The legislation FIRRMA authorizes CFIUS to impose filing 

fees on transactions to cover the committee’s funding needs. 

Will these fees be sufficient to address the increased case load 

anticipated with FIRRMA and what new resources will your agencies need to carry out these reforms? 

A.1. The largest portion of increased work burden resulting from 

FIRRMA is likely to be in connection with transactions that are 

much smaller than the mergers and acquisitions currently within 

the scope of CFIUS. These transactions may generate little, if any, 

revenue. Thus, while fees may offset some of the costs of administering the CFIUS process, they are unlikely to cover the increased load across the committee. The funds derived from the filing fees are more likely to serve as a supplemental funding source 

that would enable CFIUS to be better positioned to deal with unexpected increases in case volume, along with ensuring CFIUS’s additional functions of monitoring of mitigation agreements and transactions that are not voluntarily notified with CFIUS are sufficiently resourced. 

Q.2. How many cases do you anticipate CFIUS would review as a 

result of FIRRMA? 

46 

A.2. The total number of cases under FIRRMA is hard to estimate, 

but it could be several multiples of CFIUS’s current caseload. 

FIRRMA provides several mechanisms to ensure that the process 

remains efficient. For example, FIRRMA would give CFIUS the authority to issue regulations to focus the expanded jurisdiction on 

the technologies and sectors that most warrant application of 

CFIUS authorities. It also creates a streamlined ‘‘declarations’’ 

process, which would lower the burden on many parties seeking review of transactions and allow CFIUS to calibrate the resources 

that it devotes to a transaction based on the likelihood that a particular transaction may pose a national security risk. 

RESPONSES TO WRITTEN QUESTIONS OF SENATOR SCOTT 

FROM RICHARD ASHOOH 

Q.1. On January 22, Secretary Ross stated that, ‘‘The CFIUS process must be strengthened to protect our national security, including 

expanding it to cover joint ventures, and respond to an unprecedented stream of investment from China.’’ My understanding is 

that CFIUS does not currently cover such joint ventures in places 

like China. 

Please answer the following with specificity: 

Do you agree with Secretary Ross’ view on the need to expand 

CFIUS’s jurisdiction to cover these joint ventures? Why or why 

not? 

A.1. CFIUS jurisdiction should be periodically reviewed, and if necessary, amended to allow CFIUS to address developments in global 

markets, in technology, in forms of investment, in foreign policy, 

and in threats to the national security. Commerce supports efforts 

to expand CFIUS’s visibility into a broader range of investments. 

At the same time, we are cognizant that other national security 

authorities, notably export controls, can also be used to address 

specific national security risks posed by specific transactions. For 

example, we believe that export controls are better positioned to 

address national security issues pertaining to technology transfers 

given that the export control system is a well-established interagency system that covers all modes of technology transfer. 

Q.2. Does the Foreign Investment Risk Review Modernization Act 

(FIRRMA) enact this expansion of CFIUS jurisdiction in a manner 

that balances national security and economic interests? 

A.2. I believe that it does. As I stated in my testimony, Commerce 

supports the statement in FIRRMA that the United States retains 

its longstanding policy of welcoming foreign investment. Even 

though FIRRMA would expand the scope of CFIUS, it is clearly intended to do so in a manner that maintains the United States’ position as a prime destination for foreign investment. Additionally, 

even with the expanded scope of FIRRMA, CFIUS will remain 

sharply focused on the small percentage of transactions that 

present national security concerns. 

Q.3. What unique challenges are posed to our export control system 

with China, a nonmarket economy? 

A.3. Many of China’s industrial policies pose challenges for the 

U.S. export control system. For instance, China’s policy of civilVerDate Nov 24 2008 09:50 Jun 04, 2018 Jkt 046629 PO 00000 Frm 00050 Fmt 6602 Sfmt 6602 L:\HEARINGS 2018\01-25 ZDISTILLER\12518.TXT JASON
47 

military integration is a particular concern. The agencies involved 

in our export control system take these policies into consideration 

when reviewing exports of controlled items to China. The agencies 

must balance these policies and the concerns they raise with the 

significant amount of legitimate commercial business that takes 

place in China when reaching decisions on such reviews. 

Q.4. What additional prudential and consumer protection requirements, if any, would you consider as part of the approval process 

of an ILC application from a FinTech company? 

A.4. Response not received in time for publication. 

RESPONSES TO WRITTEN QUESTIONS OF SENATOR COTTON 

FROM RICHARD ASHOOH 

Q.1. If someday, many years from now, there was a President (an 

American ‘‘Karl Marx’’) who actively sought to interfere in the U.S. 

investment climate, who considered Government involvement in 

private investment to be a virtue, what guardrails, if any, are written into the bill that would constrain such an anti–free market Administration? 

A.1. CFIUS by law is narrowly focused on national security issues 

and FIRRMA would maintain that focus. As a result, I believe that 

it would be very difficult for any President or Administration to be 

able to unduly intervene in the private sector as the national security focus that is part of CFIUS’s statutory mandate provides key 

limitations in that area. 

Q.2. Who involved in the CFIUS would lose their job, or at least 

have a poor annual review, if CFIUS unnecessarily interfered in 

private enterprise? 

A.2. One of the key aspects of CFIUS, an area that was specifically 

addressed by Congress in the FINSA legislation in 2007, is the requirement that political-appointee level officials engage in CFIUS’s 

review of each transaction. As such, an official appointed by the 

President, by and with the advice and consent of the Senate (i.e., 

at Commerce, an Assistant Secretary-level official) from each colead agency must sign and submit to Congress a certified notice at 

the completion of each CFIUS review stating that there are no unresolved national security concerns. If the case has included an investigation by CFIUS, the report on the investigation must be 

signed by the Secretary or Deputy Secretary, or a person serving 

in an equivalent position, from each lead agency. This ensures that 

there is accountability in the CFIUS process in all cases. 

Q.3. What automatic processes are in place to gather information 

on if the CFIUS process is outside its jurisdiction, is taking too 

long to look at transactions, or is unnecessarily taking up more of 

the private sector’s time and resources? 

A.3. I defer to the Department of the Treasury, as CFIUS chair, 

on this question. However, I will note that CFIUS endeavors in all 

cases to complete its review in the most expeditious manner possible. Further, CFIUS annually reports to Congress on its activities 

and is subject to its oversight. 

48 

Q.4. My understanding is that CFIUS typically does not cover joint 

ventures that are based overseas. The sponsors of this bill have circulated a list of endorsements of the bill, including one from Wilbur 

Ross, the Secretary of Commerce. Sec. Ross said that CFIUS must 

be strengthened to protect our national security ‘‘including expanding it to cover joint ventures.’’ 

Do you agree with Sec. Ross (quote below)? 

Secretary of Commerce Wilbur Ross (quote provided on 1/22/18): 

‘‘The CFIUS process must be strengthened to protect our national 

security, including expanding it to cover joint ventures, and respond to an unprecedented stream of investment from China. Senator Cornyn’s and Representative Pittenger’s FIRRMA legislation 

takes many positive steps in that regard, and I look forward to its 

eventual passage. FIRRMA envisions a robust CFIUS review process that complements our strong current export control regime. It 

is also important for Congress to fully fund CFIUS’s expanded responsibilities and provide a sufficiently stringent threshold of review of transactions that may threaten our national security.’’ 

A.4. CFIUS jurisdiction should be periodically reviewed, and if necessary, amended to allow CFIUS to address developments in global 

markets, in technology, in forms of investment, in foreign policy, 

and in threats to the national security. Commerce supports efforts 

to expand CFIUS visibility into a broader range of investments. 

RESPONSES TO WRITTEN QUESTIONS OF 

SENATOR MENENDEZ FROM RICHARD ASHOOH 

Q.1. Judging from the Committee’s previous CFIUS hearing on 

January 18, I sense that there is broad agreement among bipartisan members of Congress as well as industry stakeholders that 

investments by foreign State-owned enterprises in sensitive U.S. 

technologies warrant a higher level of scrutiny than similar investments made by private foreign companies. 

In your testimony, you stated that the 25-percent threshold that 

would require a foreign controlled entity to file a mandatory filing 

in the FIRRMA is too high, and that transactions could easily be 

structured to evade it. 

Could you expound on this thought? 

A.1. The Department of Commerce is supportive of the requirement 

in FIRRMA for mandatory filings for certain transactions involving 

foreign Government-controlled entities. Our concern over the 25- 

percent threshold in FIRRMA centers on Commerce’s belief that 

CFIUS must have enhanced visibility into transactions that could 

raise national security concerns. Under the existing statute, we 

sometimes see transactions in which the foreign acquirer obtains 

less than 25-percent ownership interest in the U.S. company but 

still obtains control through governance rights or other mechanism. 

In those cases, the transaction is appropriately subject to CFIUS 

review under existing law. Given the national security concerns 

that may arise from foreign Government ownership of a U.S. firm, 

it is important that CFIUS be made aware of foreign Governmentowned entities acquiring significant stakes in U.S. companies, particularly if those shares are so significant as to allow the foreign 

Government to control the U.S. company. We believe that requiring 

49 

mandatory filings for such transactions to be in the U.S. national 

security interest. 

Q.2. In your opinion, what would be an appropriate threshold? 

A.2. One way to address this concern would be to lower the mandatory filing threshold to 10 percent, which corresponds to U.S. Securities and Exchange Commission filing requirements under Section 

16 of the Securities Exchange Act of 1934. We are also open to alternative ways to meet the stated objective of strengthening 

CFIUS’s ability to learn of, and potentially review, the acquisition 

of significant interests in U.S. firms by foreign Government-owned 

entities, a type of transaction that can raise heightened national 

security concerns. 

Q.3. At the CFIUS hearing on January 18, a witness raised the 

concern that the committee should also consider the national security implications of investments by foreign companies that are not 

technically owned by a foreign Government, but perhaps show 

other signs of Government influence—such as loans from Stateowned banks, close ties between corporate management and political leaders, or other methods that Governments use to influence 

corporate behavior. 

What are reforms would you advise the committee to consider so 

that we account not only for the national security risks of investments by overtly State-owned companies, but also from foreign 

firms that may be otherwise influenced or controlled by foreign 

Governments? 

A.3. CFIUS considers all types of foreign Government influence 

and control in determining whether the transaction is subject to 

CFIUS review and in conducting its national security review, and 

should retain this ability. CFIUS has existing mechanisms to assess the extent and degree of foreign Government influence over a 

foreign acquirer, including through the support of the Intelligence 

Community. This information is considered as CFIUS makes the 

determinations described above and assesses whether the transaction is foreign Government controlled (a requirement under the 

Foreign Investment and National Security Act of 2007) and, thus, 

poses an attendant risk. 

RESPONSES TO WRITTEN QUESTIONS OF SENATOR WARNER 

FROM RICHARD ASHOOH 

Q.1. As we search for the most appropriate remedy to the very real 

problem of foreign countries gaining access to critical U.S. technologies, there are some suggesting that we should be pursuing 

other changes instead of or in addition to the CFIUS reform. 

What role should export controls play in addressing this problem? 

A.1. CFIUS and export controls are both vital and robust tools/ 

processes/systems the United States relies upon to protect our national security. CFIUS is a process to review whether certain business transactions present a risk to U.S. national security, with 

technology transfer being one of several possible factors which may 

be of concern. The export control system governs technology transfer itself, irrespective of mode of transfer, to protect sensitive U.S. 

50 

origin goods, software, and technology. As such, these two authorities are complementary and must continue to work in a parallel, 

coordinated fashion. 

Where technology transfers present concerns, the export control 

system is best designed to address those concerns. The Export Administration Regulations’ (EAR) authority covers a wide array of 

transactions and technology transfers. The EAR governs both traditional exports of goods, software, or technology to third countries 

as well as the transfers of controlled technology within the United 

States to foreign nationals under what we call ‘‘deemed exports.’’ 

The goods, software, and technology listed for control on the Commerce Control List (CCL) are set by using specific technical parameters. The interagency decisions on where to set these parameters 

are national security determinations that define when particular 

items become sufficiently applicable to a military end-use to warrant control. 

In addition to being an interagency national security process, our 

export control system benefits from close cooperation with our 

international partners through the four major multilateral export 

control regimes. Through these regimes—the Wassenaar Arrangement, the Nuclear Suppliers Group, the Missile Technology Control 

Regime, and the Australia Group—the United States and our partners determine which items and technologies merit control and 

how those controls should be applied. It has long been our position 

that export controls are significantly more effective when they are 

implemented multilaterally. This helps ensure that these sensitive 

technologies are controlled by all countries that are capable of producing them to make it more difficult for them to be acquired by 

parties of concern. 

Q.2. Could the export control system be modified to address the 

concern that know-how—not just intellectual property—is being 

transferred through joint ventures and other partnerships? 

A.2. The Export Administration Regulations (EAR), administered 

by the Department of Commerce, does control ‘‘technology,’’ including things like technical know-how, so the export of such technology to a foreign joint venture or partnership would be subject 

to the license requirements in the export control system. 

Our export control system is constantly reviewed and updated, 

particularly as it relates to the lists of items that are subject to 

control, to ensure that we are controlling the kinds of critical technologies that merit such measures. BIS is committed to continuing 

to identify and control sensitive emerging technologies, and ensuring that the process is systematic, proactive, and institutionalized. 

We are currently undertaking a review to better utilize our authorities to combat threats arising from this kind of technology. 

Q.3. Are there other changes outside of CFIUS and export controls 

that should be considered to address this security challenge? 

A.3. The export control system and CFIUS are likely the two authorities that address this security challenge most directly, although other authorities, such as cybersecurity, are also part of the 

challenge. 

51 

Q.4. One of the strengths of the U.S. is our ability to foster innovation and develop new technologies. 

Would increasing filing times and additional fees for expanded 

CFIUS jurisdiction, as proposed by the Foreign Investment Risk 

Review Modernization Act (FIRRMA) significantly inhibit venture 

capital investments and hurt entrepreneurship by creating excessive barriers, such as prolonged wait times, to foreign investment? 

A.4. FIRRMA recognizes that certain complex transactions take 

longer to review than the current timelines allow. It is our hope 

that an increased review period will allow CFIUS to conclude its 

review of transactions in response to the initial filing in the vast 

majority of cases, rather than requiring multiple re-filings, as often 

happens now. This will provide greater predictability and certainty 

to the investment community. Similarly, the fee authority will help 

agencies hire and maintain adequate staff to review transactions, 

which in turn should lead to greater assurance that transactions 

will not be subject to re-filings. 

Q.5. Would significantly expanding CFIUS’s jurisdiction negatively 

affect our investment relationship with Europe and other traditional economic allies, who could get caught up in an expansion of 

CFIUS’s scope of review? 

A.5. Even with the expanded scope of FIRRMA, CFIUS will remain 

sharply focused on the small percentage of transactions that 

present national security concerns. Investments from our allies traditionally have not presented serious national security concerns, 

and the increased jurisdiction of CFIUS post-FIRRMA would not 

change that underlying reality. 

FIRRMA would also allow CFIUS to develop regulations to exempt transactions from CFIUS review in appropriate circumstances if the foreign persons are from an allied country. It is 

worth noting as well that several of our allies are also considering 

strengthening their investment security review processes in response to current global economic trends and security concerns. 

FIRMMA’s provisions to allow increased cooperation with allies 

will support CFIUS efforts to encourage a coordinated and 

likeminded approach to investment security reviews. 

Q.6. Do you think that significantly expanding CFIUS’s jurisdiction 

and identifying ‘‘countries of particular concern’’ for purposes of 

CFIUS review could be considered a discriminatory measure by 

trade partners? 

A.6. FIRRMA defines ‘‘country of special concern’’ to mean ‘‘a country that poses a significant threat to the national security interests 

of the United States.’’ In conducting its national security reviews, 

CFIUS is acutely aware that the country of origin of an investor 

has an impact on the potential threat to the national security arising from the transaction. That said, CFIUS does not make arbitrary distinctions between countries, and treats each transaction on 

a case-by-case basis. FIRRMA states expressly that CFIUS would 

not be required to maintain a list of countries of special concern. 

Q.7. What would be the potential consequences of doing so from a 

trade perspective? 

52 

A.7. CFIUS identifies national security concerns with only a minority of investments that it reviews. Even with an expanded scope 

post-FIRRMA, we anticipate that CFIUS would only need to mitigate or recommend a prohibition on a small percentage of overall 

investment. Commerce will work with the other CFIUS agencies as 

we prepare implementing regulations to ensure that CFIUS review 

is focused on transactions that are of genuine national security concern and that we continue to welcome foreign investment. 

Q.8. Should we expect retaliation? 

A.8. It is reasonable to assume that certain Governments may not 

support an expanded CFIUS mandate, to the extent that such a reform may directly impact their companies or their stated industrial 

policies. However, it is difficult to predict how specifically they may 

respond. The United States will continue to push other countries 

to ensure that trade and investment is fair and reciprocal. The U.S. 

investment regime is already much more open than many foreign 

countries’ regimes. 

Q.9. What forms could that retaliation take? 

A.9. It is difficult to speculate on specifically what form retaliation 

could take. The United States will continue to push other countries 

to ensure that trade and investment is fair and reciprocal. 

RESPONSES TO WRITTEN QUESTIONS OF 

SENATOR CORTEZ MASTO FROM RICHARD ASHOOH 

Q.1. Can you discuss the use of ‘‘mitigation agreements’’—or conditions placed on acquisitions approved by CFIUS? 

Are they being used appropriately? 

Does CFIUS have the resources and staffing to ensure adherence 

to these mitigation agreements? 

A.1. The Department does believe that CFIUS mitigation agreements are being used effectively. CFIUS works diligently to ensure 

that the mitigation measures enacted as part of a CFIUS transaction are effective and targeted at addressing the specific national 

security risks arising from the transaction so that they are not 

overly broad or burdensome. CFIUS also takes care to ensure that 

CFIUS mitigation agreements do not overlap or duplicate other existing authorities (such as Commerce and State’s export control 

and Defense’s National Industrial Security Program authorities), 

but are instead focused on areas that are not adequately or appropriately covered by such authorities. 

As the Department of Commerce is not a signatory to any CFIUS 

mitigation agreements at this time, I would defer to my colleagues 

at agencies that are responsible for the monitoring of CFIUS mitigation agreements on whether they have adequate resources to effectively monitor them. 

Q.2. What are the pros and cons of making the filing of CFIUS reviews mandatory—rather than discretionary—for State-controlled 

acquiring firms? 

A.2. As I stated in my testimony, the Department of Commerce is 

supportive of the requirement in FIRRMA for mandatory filings for 

certain transactions involving foreign Government controlled entiVerDate Nov 24 2008 09:50 Jun 04, 2018 Jkt 046629 PO 00000 Frm 00056 Fmt 6602 Sfmt 6602 L:\HEARINGS 2018\01-25 ZDISTILLER\12518.TXT JASON
53 

ties. However, we are concerned that the 25-percent threshold in 

FIRRMA is too high and that transactions could easily be structured to evade it. 

We are interested in ensuring that CFIUS has full visibility into 

transactions that could raise national security concerns. Under the 

existing statute, we sometimes see transactions in which the foreign acquirer obtains less than a 25-percent ownership interest in 

the U.S. company but still obtains control through governance 

rights or other mechanisms. In those cases, the transaction is appropriately subject to CFIUS review under existing law. Given the 

national security concerns that may arise from foreign Government 

ownership of a U.S. firm, it is important that CFIUS be made 

aware of foreign Government-owned entities acquiring significant 

stakes in U.S. companies, particularly if those shares are so significant as to allow the foreign Government to control the U.S. company. We believe that requiring mandatory filings for such transactions to be in the U.S. national security interest. 

Q.3. Should they be reviewed differently than private-firm mergers 

or acquisitions, or firms that are in part-owned by Nation States? 

A.3. CFIUS reviews each case on a fact-specific, case-by-case basis. 

However, under existing law, some transactions are subject to 

heightened scrutiny based on a number of different factors, including whether it is a foreign Government-controlled transaction. 

Transactions involving a foreign Government-controlled acquirer 

deserve additional scrutiny because of the foreign Government’s 

ability to influence conduct by the acquirer and potentially the U.S. 

target. For instance, a foreign Government-controlled entity could 

be considered more likely than a private company to act on behalf 

of the foreign Government and take actions in furtherance of the 

Government’s policies, which may be counter to U.S. national security interests. 

Q.4. It has been 10 years since Congress last comprehensively considered the statutory framework for CFIUS. As practitioners that 

have worked in this space for long tenures, has any consensus 

emerged about what budget, regulatory, or statutory changes may 

be needed? 

A.4. As I stated in my testimony, the Department of Commerce 

supports FIRRMA and its modernization of CFIUS. The national 

security and economic landscape have changed significantly since 

CFIUS was last updated and those changes require that CFIUS be 

able to respond accordingly to protect U.S. national security. 

FIRRMA would provide the necessary statutory changes to 

CFIUS’s authorities so that it can address risks arising from a 

wide variety of transaction types—not just ones where a foreign 

person gains ‘‘control’’ over a U.S. business, as is currently the 

case. The expanded scope of CFIUS envisioned by FIRRMA may require additional resources, and Commerce is supportive of FIRRMA 

delaying the effective date for many provisions until regulations, 

organizational structure, personnel, and other resources are in 

place. This will help ensure that CFIUS agencies are prepared to 

implement its expanded scope. 

54 

Q.5. Can you delineate the appropriate role for export controls 

versus CFIUS? 

A.5. CFIUS and export controls are both vital and robust tools/ 

processes the United States relies upon to protect our national security. CFIUS is a process to review whether certain business 

transactions present a risk to U.S. national security, with technology transfer being one of several possible factors which may be 

of concern. The export control system governs technology transfer 

itself, irrespective of the mode of transfer, to protect sensitive U.S. 

origin goods, software, and technology. As such, these two tools/ 

processes are complementary and must continue to work in a parallel, coordinated fashion. It is important, as Congress reviews both 

processes (a review that Commerce supports), that they remain 

complementary as their authorities are modernized and potentially 

expanded. 

Under the BIS-administered export control system, we work 

closely with the Departments of Defense, Energy, and State. These 

agencies review and clear any changes to the Export Administration Regulations—including identifying and controlling emerging 

technology. Those agencies also have a role in reviewing license applications submitted to BIS. The different equities, viewpoints, and 

technical expertise that these four agencies bring to the table ensure that the export control system is robust and that national security concerns are thoroughly considered for any technology transfer of concern. 

RESPONSES TO WRITTEN QUESTIONS OF CHAIRMAN CRAPO 

FROM ERIC CHEWNING 

Q.1. The legislation FIRRMA authorizes CFIUS to impose filing 

fees on transactions to cover the committee’s funding needs. 

Will these fees be sufficient to address the increased case load 

anticipated with FIRRMA and what new resources will your agencies need to carry out these reforms? 

A.1. We do not anticipate that the filing fees will generate sufficient revenue to adequately fund CFIUS activities throughout the 

interagency process. The large volume of additional, small transactions which FIRRMA would subject to CFIUS review are likely 

to generate very little additional revenue. Instead, the filing fees 

are likely to provide a supplemental funding source that would better position CFIUS to handle unexpected increases in case volume. 

Therefore, DoD will certainly need additional resources to accomplish its CFIUS mission. We foresee using those resources to fund 

additional personnel to manage CFIUS reviews in DoD, as well as 

a modern, interagency case management and big data analytics 

platform for processing and triaging CFIUS cases. 

Q.2. How many cases do you anticipate CFIUS would review as a 

result of FIRRMA? 

A.2. Precise estimates of the anticipated caseload under FIRRMA 

are elusive because the bill assigns to implementing regulations 

significant elements of the covered transaction definition. We believe the annual case volume under FIRRMA, however, could be 

several multiples of the current caseload. 

55 

RESPONSES TO WRITTEN QUESTIONS OF SENATOR COTTON 

FROM ERIC CHEWNING 

Q.1. Last year Cosco Shipping Lines (Cosco), a State-owned entity 

of the Chinese Government, acquired Hong Kong based Orient 

Overseas Container Line (OOCL). Among other things, the acquisition includes the Long Beach Container Terminal. Strategic seaports in the United States are designated by DOD because of their 

ability to support U.S. force and materiel deployments in times of 

war and national emergency. Long Beach seaports is designated as 

strategically important. 

Chinese investment occurs throughout the United States and, in 

fact, Cosco already has as presence in a marine terminal in Long 

Beach. However, that terminal is 100-percent operated by a separate, unaffiliated, American owned company. 

It seems logical that the operations of strategic assets at seaports 

be performed by a company owned, operated, and controlled by 

U.S. citizens. 

Do you believe it is reasonable that this criterion, that operations 

of foreign-owned shipping apparatuses are operated by a separate, 

unaffiliated, American-owned company, be part of the CFIUS analysis of foreign acquisitions within strategically important U.S. 

ports? 

A.1. DoD carefully reviews each CFIUS case for national security 

risks arising from that transaction. Whenever DoD identifies a national security concern, we evaluate possible risk mitigation options 

in coordination with subject matter experts across DoD. In some instances, the best mitigation tool may be requiring that certain company operations be assigned to an unaffiliated, U.S.-owned company. 

RESPONSES TO WRITTEN QUESTIONS OF 

SENATOR MENENDEZ FROM ERIC CHEWNING 

Q.1. As we look at ways to protect critical technologies from falling 

into the hands of foreign Governments, we need to pay equal attention to the investments we have to make so that the U.S. retains 

technological superiority and continues to enjoy the economic 

growth that comes with robust innovation. Earlier this month, 

Bloomberg released its 2018 Innovation Index, which ranks countries based on research and development spending, value-added 

manufacturing, educations, and other factors. For the first time in 

the 6 years since the index began, the U.S. dropped out of the top 

10 most innovative economies. You ended your testimony by saying 

that while defensive measures like CFIUS modernization are necessary, they are not sufficient for keeping America as a technological leader. 

What steps should Congress consider in conjunction with CFIUS 

reform to ensure that we continue to foster an innovation-intensive 

economy that strengthens our national and economic security? 

A.1. As it pertains to foreign investment, we approach this problem 

with two broad solution strategies: protect and promote. FIRRMA’s 

modernization of CFIUS is part of our protect strategy. The promote strategy identifies relevant, innovative technology companies 

and funnels the capital to those companies necessary to foster and 

56 

sustain innovation. This capital can, in some instances, originate 

from U.S. Government sources, like grants. Other U.S. Government 

sources of capital, such as U.S. Government credit facilities, can 

also support innovation long-term. 

More broadly, an innovation-intensive economy requires investments in the workforce and industrial base that can develop and 

commercialize emerging technologies. Those investments include, 

for example, funding for U.S. science, technology, engineering, and 

math education and programs that promote advanced U.S. manufacturing, like DoD’s Manufacturing Innovation Institutes. 

RESPONSES TO WRITTEN QUESTIONS OF SENATOR WARNER 

FROM ERIC CHEWNING 

Q.1. As we search for the most appropriate remedy to the very real 

problem of foreign countries gaining access to critical U.S. technologies, there are some suggesting that we should be pursuing 

other changes instead of or in addition to the CFIUS reform. 

What role should export controls play in addressing this problem? 

A.1. The National Security Strategy and National Defense Strategy 

highlight protecting our warfighters’ technological superiority as a 

national priority. Export controls and CFIUS are complementary 

aspects of a layered defense to accomplish this goal. Export controls 

function as a first line of defense to counter threats associated with 

technology transfer to our competitors. Export controls protect both 

military and dual-use (military and civilian use) technologies that 

are categorized by way of interagency deliberations, discussions 

with industry, and in many cases, international negotiations with 

other participating members of the multilateral export control regimes. 

CFIUS is a critical second line of defense. This second line of defense addresses emerging and foundational technologies that may 

not be currently covered by export control. The second line of defense also enables us to protect the know-how, expertise, and industrial relationships that would enable a competitor to re-create 

a technology competency on foreign soil. Acting in concert, this layered defense identifies and controls transfers of new and emerging 

technologies, reviews transfers of sensitive information and capabilities through foreign acquisitions, and engages with foreign partners to ensure they protect the critical technologies we do share. 

We have seen examples of these two layers working together in 

the past. In one instance, CFIUS prevented a country from acquiring a U.S. company with sensitive technology after the export control regime denied export licenses for the same technology to that 

country. Given that our competitors will continue using all available avenues to fill gaps in their military requirements, we need 

both strong export controls and a modernized foreign investment 

review process to maintain our technological advantage. 

Q.2. Could the export control system be modified to address the 

concern that know-how—not just intellectual property—is being 

transferred through joint ventures and other partnerships? 

57 

A.2. For those technology areas where export controls are currently 

in place, a license is usually required for foreign nationals seeking 

access to U.S. technology (including know-how), whether outside 

the United States, as an export, or inside the United States, as a 

‘‘deemed export.’’ U.S. Government licensing authorities have the 

ability to require export licenses and investigate compliance with 

export control laws and regulations. While these authorities are 

broad, defining a technology with sufficient clarity to control it pursuant to these authorities can be a lengthy processes that challenges efforts to protect emerging technologies. DoD is currently reviewing the recently introduced Export Control Reform Act of 2018 

(H.R. 5040) to confirm there is sufficient language to ensure an effective national security review of sensitive technologies. 

Q.3. Are there other changes outside of CFIUS and export controls 

that should be considered to address this security challenge? 

A.3. DoD, along with other U.S. Government agencies, is assessing 

a range of tools to prevent access to critical U.S. technology by foreign nationals from countries such as China and Russia, including 

more rigorous vetting of visa applications for work in certain technology sectors, cooperative research and development programs, 

and scientific exchanges. 

Q.4. One of the strengths of the U.S. is our ability to foster innovation and develop new technologies. 

Would increasing filing times and additional fees for expanded 

CFIUS jurisdiction, as proposed by the Foreign Investment Risk 

Review Modernization Act (FIRRMA) significantly inhibit venture 

capital investments and hurt entrepreneurship by creating excessive barriers, such as prolonged wait times, to foreign investment? 

A.4. DoD does not see the increased review times and the addition 

of filing fees as significant foreign investment inhibitors. FIRRMA 

would lengthen the current 30 day review period to 45 days. We 

do not expect the additional 15 days in review and the optional 

one-time 30-day extension in extraordinary circumstances to have 

a material impact on foreign investment rates. In fact, we anticipate these extensions would reduce the need for the parties to 

withdraw and refile more complicated transactions, adding clarity 

to the process and, overall, shortening timelines for final approval. 

We do not anticipate that the regulatory process would establish 

filing fees at a level likely to have a material impact on investment 

decisions. 

Q.5. Would significantly expanding CFIUS’s jurisdiction negatively 

affect our investment relationship with Europe and other traditional economic allies, who could get caught up in an expansion of 

CFIUS’s scope of review? 

A.5. Investors from our traditional economic partners have routinely filed cases with CFIUS for years, and the United States has 

long been a leading destination for foreign direct investment despite the CFIUS review. These investors are making a business calculation that trades a short, statutorily defined CFIUS review for 

the confidence that the United States will not seek to unwind their 

transactions at a later date. As FIRRMA generally maintains the 

voluntary filing system, we anticipate that investors will continue 

58 

to seek those safe harbor protections under FIRRMA just as they 

do today. When they do, we anticipate CFIUS clearing most of 

those transactions in the initial review period. 

Q.6. Do you think that significantly expanding CFIUS’s jurisdiction 

and identifying ‘‘countries of particular concern’’ for purposes of 

CFIUS review could be considered a discriminatory measure by 

trade partners? 

A.6. As FIRRMA does not mandate any outcome with respect to 

countries of special concern, CFIUS action on national security 

grounds cannot be considered discriminatory. CFIUS, focused exclusively on national security risk, operates pursuant to national 

security exemptions in existing trade agreements, and CFIUS is expected to continue to do so under FIRRMA. 

Q.7. What would be the potential consequences of doing so from a 

trade perspective? 

A.7. As DoD does not foresee FIRRMA as a discriminatory measure, we do not foresee consequences from a trade perspective. 

Q.8. Should we expect retaliation? 

A.8. DoD anticipates that CFIUS under FIRRMA would continue 

its current practices, which would reduce the chance of retaliation. 

Those practices are a continued, exclusive focus on national security risks posed by the specific transaction under review and a 

record of clearing transactions, regardless of the buyer’s country, 

that do not pose national security concerns. 

Q.9. What forms could that retaliation take? 

A.9. By continuing to follow current CFIUS practices, DoD does not 

anticipate increased retaliation risk under FIRRMA. 

RESPONSES TO WRITTEN QUESTIONS OF 

SENATOR CORTEZ MASTO FROM ERIC CHEWNING 

Q.1. Mining and Proximity to Military Installations—As you may 

know, in Nevada, we have had several concerning investments by 

Chinese companies near our Air Force and Navy bases. In fact, in 

2015, an Air Force commander explained concerns with building 

near Nellis Air Force Base in Las Vegas. 

Do you believe CFIUS’s current authorities and processes sufficiently address military concerns regarding Chinese investments 

near military installations? 

A.1. No, current CFIUS authorities and processes do not sufficiently address DoD’s concerns associated with foreign investment 

in proximity to sensitive military activities and installations. Current authorities fall short whenever a transaction involves the acquisition of real property interests, through a purchase or lease, or 

mineral rights, but does not constitute control of a U.S. business. 

In these circumstances, sensitive military activities and installations remain vulnerable to persistent observation and information 

collection. As introduced, FIRRMA addresses this weakness by including land purchases and leases by a foreign person in the definition of a covered transaction. 

59 

Q.2. Is CFIUS equipped to combat the most sophisticated techniques for information collection near these installations? 

A.2. The CFIUS process is not explicitly designed or intended to 

mitigate the most sophisticated techniques near sensitive military 

installations. Further, CFIUS currently has no authority to review 

foreign purchases or leases of land near these installations when 

the transaction does not constitute foreign control of a U.S. business. The FIRRMA bill, as introduced, would give CFIUS this authority. 

Q.3. What more can be done to mitigate the potential for information collection near these installations? 

A.3. We support the expansion of the definition of a covered transaction in the FIRRMA bill, as introduced, as a means of better addressing the risks associated with foreign investment in close proximity to military installations. FIRRMA would expand the definition of the term ‘‘covered transaction’’ under CFIUS to include the 

purchase or lease of real property in proximity to military installations. 

Q.4. Can you discuss the use of ‘‘mitigation agreements’’—or conditions placed on acquisitions approved by CFIUS? 

A.4. Whenever DoD identifies national security risks arising from 

a transaction, we explore risk mitigation measures that may reduce 

the risk to an acceptable level. Doing so is consistent with U.S. 

Government policy, articulated in Executive Order 11858, as 

amended, of supporting international investment in the United 

States consistent with the protection of national security. These 

mitigation measures typically oblige the parties to implement technical, personnel, and management controls. If DoD determines that 

a mitigation agreement would sufficiently reduce the risk, we, 

along with the Department of the Treasury, enter into agreement 

negotiations with the parties. If we cannot reach a mutually acceptable agreement, we prepare a recommendation to the President 

that he prohibit the transaction. If we do reach a mutually acceptable agreement with the parties, DoD recommends that CFIUS approve the transaction contingent on the parties’ compliance with 

the agreement. 

Q.5. Are they being used appropriately? 

A.5. Yes, the use of these types of mitigation agreements under the 

circumstances described above is an appropriate mechanism for realizing the benefits of foreign investment consistent with the protection of national security. 

Q.6. Does CFIUS have the resources and staffing to ensure adherence to these mitigation agreements? 

A.6. Monitoring the parties’ ongoing compliance with mitigation 

agreements is a critical part of the CFIUS lifecycle. These mitigation agreements are typically effective in perpetuity, absent a material change such as the sale of the mitigated company to a U.S. 

entity. The number of mitigation agreements that require monitoring increases each year, and the resources necessary to monitor 

them increases proportionally. Rather than asking the U.S. taxpayer to bear these increasing costs, DoD is exploring how to shift 

60 

the burden to the foreign acquirers. We could accomplish that shift 

by requiring the parties to employ company-compensated, trusted 

third-party monitors with specific expertise in the necessary mitigation fields. 

Q.7. What are the pros and cons of making the filing of CFIUS reviews mandatory—rather than discretionary—for State-controlled 

acquiring firms? 

A.7. The current CFIUS statute establishes a higher standard for 

clearance for transactions in which the buyer is determined to be 

foreign Government-controlled. The higher standard reflects 

Congress’s recognition that a foreign Government-controlled transaction is likely to present an elevated threat, and therefore an elevated risk, in comparison to a similar transaction in which the 

buyer is purely commercial. Making reviews mandatory for foreign 

Government-controlled transactions guarantees that CFIUS reviews these transactions that are likely to pose an elevated national security risk. Such a guarantee is especially important in the 

context of venture capital investments in startup companies. Information about these small, private investments is not always readily available, hamstringing CFIUS efforts to identify and review 

them. 

The potential disadvantage of this kind of obligatory filing is that 

it may bring certain benign transactions before CFIUS that would 

not have been filed under a strictly voluntary system. This potential disadvantage is unlikely to create significant problems for 

CFIUS or the parties because the declaration process described in 

FIRRMA enables CFIUS to triage these transactions rapidly. 

Q.8. Should they be reviewed differently than private-firm mergers 

or acquisitions, or firms that are in part-owned by Nation States? 

A.8. As described above, the CFIUS statute currently prescribes a 

higher standard of clearance for transactions in which the buyer is 

determined to be foreign Government-controlled. In that sense, foreign Government-controlled transactions are reviewed differently. 

In another sense, however, CFIUS reviews all cases similarly by 

applying the same analytical framework to all cases to identify national security risks arising from the transactions. DoD supports 

the application of a consistent risk analysis methodology to all 

cases, while holding foreign Government-controlled transactions to 

a higher standard for clearance. 

Q.9. It has been 10 years since Congress last comprehensively considered the statutory framework for CFIUS. As practitioners that 

have worked in this space for long tenures, has any consensus 

emerged about what budget, regulatory, or statutory changes may 

be needed? 

A.9. DoD views FIRRMA as the best expression of interagency consensus regarding the changes necessary to modernize CFIUS. 

Q.10. Can you delineate the appropriate role for export controls 

versus CFIUS? 

A.10. The National Security Strategy and National Defense Strategy highlight protecting our warfighters’ technological superiority 

as a national priority. Export controls and CFIUS are complementary aspects of a layered defense to accomplish this goal. Export 

61 

controls function as a first line of defense to counter threats associated with technology transfer to our competitors. Export controls 

protect both military and dual-use (military and civilian use) technologies that are categorized by way of interagency deliberations, 

discussions with industry, and in many cases, international negotiations with other participating members of the multilateral export control regimes. 

CFIUS is a critical second line of defense. This second line of defense addresses emerging and foundational technologies that may 

not be currently covered by export control. The second line of defense also enables us to protect the know-how, expertise, and industrial relationships that would enable a competitor to re-create 

a technology competency on foreign soil. Acting in concert, this layered defense identifies and controls transfers of new and emerging 

technologies, reviews transfers of sensitive information and capabilities through foreign acquisitions, and engages with foreign partners to ensure they protect the critical technologies we do share. 

We have seen examples of these two layers working together in 

the past. In one instance, CFIUS prevented a country from acquiring a U.S. company with sensitive technology after the export control regime denied export licenses for the same technology to that 

country. Given that our competitors will continue using all available avenues to fill gaps in their military requirements, we need 

both strong export controls and a modernized foreign investment 

review process to maintain our technological advantage.