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THE NEED FOR CFIUS TO ADDRESS

HOMELAND SECURITY CONCERNS

FULL HEARING

BEFORE THE

COMMITTEE ON HOMELAND SECURITY 

HOUSE OF REPRESENTATIVES

ONE HUNDRED NINTH CONGRESS

SECOND SESSION

MAY 24, 2006

Serial No. 109–79

Printed for the use of the Committee on Homeland Security 

Available via the World Wide Web: http://www.gpoaccess.gov/congress/index.html
COMMITTEE ON HOMELAND SECURITY

PETER T. KING, New York, Chairman 

DON YOUNG, Alaska 

LAMAR S. SMITH, Texas 

CURT WELDON, Pennsylvania 

CHRISTOPHER SHAYS, Connecticut 

JOHN LINDER, Georgia 

MARK E. SOUDER, Indiana 

TOM DAVIS, Virginia 

DANIEL E. LUNGREN, California 

JIM GIBBONS, Nevada 

ROB SIMMONS, Connecticut 

MIKE ROGERS, Alabama 

STEVAN PEARCE, New Mexico 

KATHERINE HARRIS, Florida 

BOBBY JINDAL, Louisiana 

DAVE G. REICHERT, Washington 

MICHAEL MCCAUL, Texas 

CHARLIE DENT, Pennsylvania 

GINNY BROWN-WAITE, Florida 

BENNIE G. THOMPSON, Mississippi 

LORETTA SANCHEZ, California 

EDWARD J. MARKEY, Massachusetts 

NORMAN D. DICKS, Washington 

JANE HARMAN, California 

PETER A. DEFAZIO, Oregon 

NITA M. LOWEY, New York 

ELEANOR HOLMES NORTON, District of 

Columbia 

ZOE LOFGREN, California 

SHEILA JACKSON-LEE, Texas 

BILL PASCRELL, JR., New Jersey 

DONNA M. CHRISTENSEN, U.S. Virgin Islands 

BOB ETHERIDGE, North Carolina 

JAMES R. LANGEVIN, Rhode Island 

KENDRICK B. MEEK, Florida 

II
(III)

C O N T E N T S

Page 

STATEMENTS

The Honorable Peter T. King, a Representative in Congress From the State 

of New York, and Chairman, Committee on Homeland Security: 

Oral Statement ..................................................................................................... 1

Prepared Statement ............................................................................................. 2

The Honorable G. Thompson, a Representative in Congress From the State 

of Mississippi, and Ranking Member, Committee on Homeland Security 

Oral Statement ..................................................................................................... 2 

Prepared Statement ............................................................................................. 3

The Honorable Donna M. Christensen, a Delegate in Congress From the 

U.S. Virgin Islands ............................................................................................... 21

The Honorable Peter A. DeFazio, a Representative in Congress From the 

States of California .............................................................................................. 24

The Honorable Charlie Dent, a Representative in Congress From the State 

of Pennsylvania .................................................................................................... 22

The Honorable Norman D. Dicks, a Representative in Congress From the 

State of Washington ............................................................................................. 16 

The Honorable Bob Etheridge, a Representative in Congress From the State 

of North Carolian ................................................................................................. 20

The Honorable Sheila Jackson-Lee, a Representative in Congress From the 

State of Texas ....................................................................................................... 49

The Honorable James R. Langevin, a Representative in Congress From the 

State of Rhode Island ........................................................................................... 25

The Honorable Bill Pascrell, Jr., a Representative in Congress From the 

State New Jersey ................................................................................................. 17

The Honorable Mike Rogers, a Representative in Congress From the State 

of Alabama ............................................................................................................ 16

The Honorable Loretta Sanchez, a Representative in Congress From the 

State of California ................................................................................................ 15 

The Honorable Rob Simmons, a Representative in Congress From the State 

of Connecticut .......................................................................................................

The Honorable Mark E. Souder, a Representative in Congress From the 

State of Indiana .................................................................................................... 13

WITNESSES 

PANEL I 

The Honorable Stewart Baker, Assistant Secretary for Policy, Planning, and 

International Affairs, Department of Homeland Security: 

Oral Statement ..................................................................................................... 9

Prepared Statment ............................................................................................... 10 

The Honorable Clay Lowery, Assistant Secretary for International Affairs, 

Department of Treasury: 

Oral Statement ..................................................................................................... 4

Prepared Statement ............................................................................................. 5

PANEL II 

The Honorable Stuart Eizenstat, Partner at Covington and Burling and 

Former Deputy Secretary of the Treasury: 

Oral Statement ..................................................................................................... 31

Prepared Statement ............................................................................................. 34
Page

IV

Ms. Daniella Markheim, Jay Van Andel Senior Analyst in Trade Policy, 

Center for International Trade and Economics, The Heritage Foundation: 

Oral Statement ..................................................................................................... 26

Prepared Statement ............................................................................................. 28

PANEL III 

The Honorable Roy Blunt, a Representative in Congress from the State of 

Missouri: 

Oral Statement ..................................................................................................... 42

Prepared Statement ............................................................................................. 44

The Honorable Carolyn B. Maloney, a Representative in Congress From the 

State of New York: 

Oral Statement ..................................................................................................... 45 

Prepared Statement ............................................................................................. 46

APPENDIX 

The Honorable Stewart Baker: 

Questions and Responses .................................................................................... 55

The Hononorable Clay Lowery: 

Questions and Responses .................................................................................... 58 

The Honorable Ginny Brown-Waite: 

Prepared Statement ............................................................................................. 55
(1)

THE NEED FOR CFIUS TO ADDRESS 

HOMELAND SECURITY CONCERNS 

Wednesday, May 24, 2006

U.S. HOUSE OF REPRESENTATIVES, 

COMMITTEE ON HOMELAND SECURITY, 

Washington, DC. 

The committee met, pursuant to call, at 1:38 p.m., in Room 311, 

Cannon House Office Building, Hon. Peter King [chairman of the 

committee] presiding. 

Present: Representatives King, Smith, Souder, Lungren, Gibbons, 

Simmons, Rogers, Reichert, McCaul, Dent, Thompson, Sanchez, 

Dicks, DeFazio, Lofgren, Jackson-Lee, Pascrell, Christensen, 

Etheridge, and Langevin. 

Chairman KING. [Presiding.] The Committee on Homeland Security will come to order. 

The committee is meeting today to hear testimony on the need 

for reforms to the Committee on Foreign Investments in the United 

States, or CFIUS, to adequately address homeland security concerns. 

Let me at the outset apologize to our witnesses for the delay. 

Certainly, the previous hearing went on longer than we expected, 

and I want to thank you for your patience and thank you for being 

here today, and also thank you for the service you give to our country. Because of the delays we have had, I will make my opening 

remarks very brief. 

All of us went to the Dubai ports issue, and on one side of the 

issue we happened to come out on, the reality was that it showed 

a need, I believe, for reform of the process to adequately take into 

account the unique homeland security concerns that we have in the 

post-9/11 era. There has been legislation introduced. We will be 

hearing from Congressman Blunt and Congresswoman Maloney 

who will be testifying on that legislation, in addition to other experts that we have here today. 

I will limit my remarks to again thanking the witnesses for being 

here today, expressing my belief that there is a need for legislation, 

and also to express to all the members of the CFIUS panel, even 

if it is reconstituted, we will be working closely with them. 

I now recognize the gentleman from Mississippi, the ranking 

member, Mr. Thompson.
2

PREPARED STATEMENT OF HON. PETER T. KING

Despite the horrific attacks of 9/11 being over four years behind us, we continue 

to find processes in government that fail to recognize the difference between threats 

to national security and threats to homeland security. 

These processes were created before 9/11, but have not yet transformed to acknowledge that we live in a new and different world. 

The Committee on Foreign Investment in the United States is such a process. 

When I first heard of the pending purchase of P&O by Dubai Ports World, I 

thought it was a joke. Who would allow such a purchase to go forward? Weren’t the 

United Arab Emirates one of only three nations to recognize the Taliban government of Afghanistan as legitimate? Didn’t the terrorists from 9/11 funnel their 

money through the UAE? It simply didn’t add up. 

I then learned of this mysterious entity called CFIUS, which it seemed few, if 

anyone, ever heard of. 

As we moved forward, I asked many questions about the Dubai Ports World acquisition, and slowly the information began to flow. 

Let me take a moment to recognize our first panel. This afternoon we have: 

Mr. Clay Lowery, Assistant Secretary for International Affairs at the Department of the Treasury; and 

Mr. Stewart Baker, Assistant Secretary for Policy at the Department of Homeland Security. 

I want to thank Assistant Secretaries Lowery and Baker for coming to testify on 

the record before my Committee. We first spoke in my office over three months ago 

when this issue first raised its ugly head during the Dubai Ports World acquisition, 

and I’m pleased to see that despite some heavy punches from Members of Congress, 

myself included, you both appear to be holding up rather well. 

Thank you for answering our Committee’s inquiries and providing the files I requested. After reviewing the intelligence data gathered by the Director of National 

Intelligence following his 4-week investigation, I can honestly say that I feel comfortable that the Dubai Ports World acquisition was not a threat to our national security. 

Unfortunately, it took a thorough assessment conducted by the Intelligence Community to convince me of this—an assessment that was not conducted to any great 

detail prior to April of this year. It begs the question, why wasn’t this thorough

investigation conducted beforehand? 

I am concerned that the current CFIUS process does not adequately consider 

homeland security threats and I support reforms that will address these CFIUS 

shortcomings. That said, I believe Congress must work to ensure that we do not 

deter foreign investment. I have always supported free trade and will continue to 

do so. However, in the post-9/11 world, there are other factors we must take into 

account. 

Since 1998, the Committee on Foreign Investment in the United States has conducted over 1,600 reviews, of which some 25 posed some level of national security 

concern. Of these 25, over half were withdrawn before the investigation was completed, and only one went to the President for a decision in accordance with the 

Exon-Florio provisions. 

How is it possible that only one purchase in 1,600 actually raised sufficient national security concerns to be forwarded to the President for action? 

I suspect much of it revolves around how you define national security. How does 

CFIUS define it? 

I look forward to your testimony this afternoon as I seek the answer to these and 

other questions.

Mr. THOMPSON. Thank you very much, Mr. Chairman. 

I, too, will limit my remarks in that we have three panels for this 

afternoon, and we are some 40 minutes late getting started. We all 

know that this process came to light because of the Dubai concerns 

as to whether or not the due diligence required under the existing 

legislation was performed. And what we all want at the end of the 

day is for any of these transactions, not only to have the financial 

security, but we want to make sure that from a terrorist standpoint 

or security standpoint also we have not created a vulnerability by 

approving these processes. 

So in the interest of time, I will submit my written statement for 

the record and yield back and I look forward to the testimony.
3

PREPARED STATEMENT OF HON. BENNIE G. THOMPSON

Good afternoon. 

I want to thank Chairman King for agreeing to hold these hearings. 

When I sent you that letter in February, the CFIUS process was just starting to 

come to light. Though CFIUS hasn’t been in the news a lot recently, I still believe 

that it’s a vital issue for this Congress and our Committee to consider, and I thank 

you for putting it on our agenda. 

Mr. Chairman, when Congress passed the Exon-Florio statute in 1988, we vested 

the authority to investigate and review mergers, acquisitions, and takeovers with 

the President of the United States. 

At the time, Congress believed that the President was the only one who could 

adequately balance the country’s need for foreign investment with our demands 

for national security. 

The President is in a unique position to be able to assess both sides and make 

a judgment about whether our national security will be threatened by such acquisitions. 

President Reagan designated CFIUS to be the Committee to review these deals. 

The Secretary of the Treasury became the enforcer of Exon-Florio. 

But it has become painfully clear that in the 18 years since Exon-Florio, the President’s designee has failed to conduct the kind of careful, thoughtfull review that the 

drafters of Exon-Florio envisioned. 

The President has ceded his authority to a Committee that has repeatedly violated 

the provisions of Exon-Florio. 

First, according to statute, CFIUS is required to conduct a mandatory investigation in any instance in which a foreign government acquires a company that affects 

national security. 

It is clear to me that the acquisition of 6 major ports by DP World, a UAEowned company, would meet that standard. 

Unfortunately, it was only after the CFIUS process became public and Congressional pressures were exerted upon the Committee that a more rigorous investigation began. 

We know from a GAO report that only 8 investigations have taken place since 

1997. Given the facts that have recently come to light over DP World, I wonder 

how many mandatory investigations has CFIUS failed to under take during 

these years? 

How many times has this Committee failed to undertake careful scrutiny if a acquisition affecting our national security? 

Second, CFIUS failed to comply with § 2170(k) of Exon-Florio which requires a 

quadrennial review to Congress. 

Only one report has ever been submitted under this provision, and that was 

back in 1994. 

How can this Congress or the American people trust CFIUS to do the kind of 

careful, intelligent review of these deals when the Committee has failed to live 

up to its statutory requirement? 

How do we know whether there has been a coordinated strategy by one or more 

countries or companies to acquire United States companies involved in research, 

development, or production of critical technologies? 

More importantly, how can the President—our Commander in Chief—trust this 

Committee as his designee to carry out the statutory demands of the ExonFlorio Act? 

Mr. Chairman, I want to be clear when I say that we need to have a fair and 

balanced policy when it comes to promoting foreign investment and ensuring our national security in this country. 

Foreign investment in this country drives our economy. Foreign nations have 

invested billions in America—it is neither sound economics nor sound politics 

to place blanket limitations on foreign investment. 

But foreign investors need to know that this country follows a fair but rigorous 

balancing test that ensures the safety of the American public, while promoting foreign investment in the United States. 

I have my doubts about whether it’s happening today. But I hope that we can 

come to some solution in the upcoming months as we consider legislation to reform 

the process. 

I’d like to thank the witnesses for appearing before us today, and I look forward 

to hearing their testimony. 

Chairman KING. The gentleman yields back. 
4

If we could just take a moment to recognize the first panel and 

to ask them to begin their testimony. First is Mr. Clay Lowery, the 

assistant secretary for international affairs at the Treasury Department, and Mr. Stewart Baker, the assistant secretary for policy at 

the Department of Homeland Security. 

Your statements will be made part of the record. If you could 

possibly limit your remarks to 5 minutes. As you can see, the committee runs very much on time, but we do ask our witnesses to. 

Mr. KING. But seriously, Secretary Lowery, you are recognized. 

STATEMENT OF THE HONORABLE CLAY LOWERY, ASSISTANT 

SECRETARY OF INTERNATIONAL AFFAIRS, DEPARTMENT OF 

TREASURY 

Mr. LOWERY. Mr. Chairman, Ranking Member Thompson and 

distinguished members of the Homeland Security Committee, first 

of all, I appreciate the opportunity to be here today. 

Secondly, I want to thank you for your indulgence and Secretary 

Baker for letting me go first. This is sort of the batting order we 

have been using for a while when our testimony is involved. It has 

not always been a lucky batting order, but it has been ours. 

I am here speaking on behalf of the administration, the Department of Treasury, and the Committee on Foreign Investments in 

the United States. While we do not have a formal administration 

position on pending CFIUS legislation, I will address the two principles that guide us as we work to update CFIUS process. 

We believe that reforms should address two broad principles. 

First, U.S. national security imperatives in the post-9/11 environment; and secondly, the need to continue welcoming investment in 

the United States, which creates good jobs for American workers. 

In that context, I would like to highlight some specific areas that 

we believe get at some of the concerns of Congress. 

First, the administration supports efforts to update CFIUS to reflect the post-9/11 security environment. Two factors that should 

always be taken into account in CFIUS assessments are the nature 

of the acquiring entity and the nature of the assets to be acquired. 

In other words, CFIUS must consider the ultimate ownership and 

control of the acquirer and the possible foreign acquisition of critical infrastructure or other sensitive assets when reviewing any 

transaction. 

Second, CFIUS’s focus must remain national security. A wide 

range of agencies comprise CFIUS and each brings its own unique 

expertise and perspective on national security. I want to be clear 

about how CFIUS operates. The initial 30-day review period is a 

thorough investigation in which a comprehensive threat and vulnerability assessment is conducted across agencies. If national security concerns are raised that cannot be addressed, CFIUS undertakes a 45-day extended investigation. 

However, many transactions do not raise national security issues 

and requiring extended investigations in such cases would divert 

resources and thereby diminish CFIUS’s ability to protect national 

security. 

Third, the administration believes we should strengthen the role 

of the intelligence community in the CFIUS process. We have formalized the role of the DNI, but we do not think that the DNI 
5

should vote on CFIUS matters because the DNI’s role is to provide 

intelligence support, not to make policy judgments. 

Fourth, we must also continue to emphasize the importance of 

preserving the attractiveness of the United States to overseas investors. FDI is critical to the U.S. economy. Majority-owned U.S. 

affiliates of foreign companies employ over 5 million Americans. 

These jobs on average are higher paying jobs and roughly 40 percent of these jobs are in the manufacturing sector, about four times 

the national average. 

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

oversight responsibilities. We are now promptly notifying Congress 

of every transaction upon completion and are committed to conducting quarterly briefings on CFIUS matters. 

While reforms of the CFIUS process should advance our shared 

goal of improved communication, we must always keep in mind 

that proprietary business information must be adequately protected. The integrity of the executive branch’s decision-making 

process must be preserved, and security reviews must not expose 

intelligence information or become politicized. 

Finally, we should look at ways to increase Congress’ confidence 

in the process by enhancing accountability in terms of CFIUS decisions and monitoring mitigation agreements. The administration is 

committed to ensuring that senior, Senate-confirmed officials play 

an integral role in examining every transaction. CFIUS agencies 

are now briefing transactions at the highest levels. However, requiring a Presidential determination or Cabinet-level certification 

on every transaction would introduce unnecessary delays and divert attention from transaction that raise possible national security 

issues. 

Mr. Chairman, I would like to reiterate in closing that the administration supports reforms of the CFIUS process. We believe 

that CFIUS can best serve U.S. interests through examinations 

that protect the national security, while maintaining the credibility 

of an open investment policy and the confidence that U.S. investors 

abroad will not be subject to retaliatory discrimination. 

I thank you for your time and would be happy to answer any 

questions. 

[The statement of Mr. Lowery follows:]

PREPARED STATEMENT OF HON. CLAY LOWERY

Mr. Chairman, Ranking Member Thompson, and distinguished members of the 

Homeland Security Committee, I appreciate the opportunity to appear before you 

today. I am here speaking on behalf of the Administration, the Department of the 

Treasury, and the Committee on Foreign Investment in the United States (‘‘CFIUS’’ 

or the ‘‘Committee’’) to discuss our work and ways to improve the CFIUS process.

Improving the CFIUS Process 

The Homeland Security Committee and CFIUS share the common objective to 

protect our national and homeland security. In my recent testimony before the 

House Financial Services Committee’s Subcommittee on Domestic and International 

Monetary Policy, Trade and Technology, I laid out the key principles that will guide 

CFIUS as we work with the Congress to integrate further America’s national and 

homeland security interests. Reforms should address two broad principles: U.S. national security imperatives in the post-9/11 environment and the need to continue 

welcoming investment in the U.S. and creating good jobs for American workers. 

To advance those principles, the Administration supports improving communications with Congress on CFIUS matters. The Administration also welcomes other re-
6

forms to the CFIUS process, including those that ensure due consideration of the 

nature of the acquirer and assets to be acquired, focus resources on transactions 

that present national security issues, strengthen the role of the intelligence community, improve CFIUS monitoring of mitigation agreements, preserve the 

attractiveness of the United States for foreign investment, and enhance accountability. The CFIUS process should first and foremost ensure U.S. national security 

but should not unnecessarily discourage legitimate investment in U.S. businesses 

that will provide income, innovation, and employment for Americans. In today’s testimony, I plan on addressing these reform principles. Of particular interest to the 

Homeland Security Committee will be our focus on those transactions that raise national and homeland security issues. The Administration looks forward to a dialogue 

with Congress regarding reforms to the CFIUS process. Let me first provide a paragraph or two on the historical context. 

The Committee examines foreign acquisitions of U.S. companies pursuant to section 721 of the Defense Production Act of 1950. Commonly known as the Exon-Florio 

Amendment, section 721 gives the President the authority to investigate such acquisitions and to suspend or prohibit a transaction if credible evidence leads him to 

believe that the acquirer might take action that threatens to impair the national 

security and if, in his judgment, existing laws, other than the International Emergency Economic Powers Act and the Exon-Florio Amendment, do not provide adequate and appropriate authority for him to protect the national security. After the 

enactment of the Exon-Florio Amendment, the President delegated certain of his authorities to the Committee. Pursuant to an Executive Order of the President and 

subsequent Treasury regulations, the Committee receives notices of transactions 

subject to the Exon-Florio Amendment and conducts thorough interagency reviews 

and investigations to identify potential national security issues. The President retains the authority to suspend or prohibit transactions.

Focusing on the Nature of the Acquirer and the Assets to be Acquired 

The Exon-Florio Amendment is nearly two decades old, and the Administration 

supports efforts to update it to reflect the post-9/11 security environment. The Committee considers a broad range of national security issues when reviewing transactions, and its assessment of threats and vulnerabilities should remain flexible in 

order to meet changing circumstances and conditions that relate to national security. Two factors that should always be taken into account in CFIUS assessments 

are the nature of the acquiring entity and the nature of the assets to be acquired. 

These are essential in weighing the national security implications of any acquisition. 

The Administration does and will continue to support the Committee’s consideration 

of the ultimate ownership and control of the acquirer and the possible foreign acquisition of sensitive assets when reviewing any transaction under the Exon-Florio 

Amendment, both of which are factors the Committee already considers when reviewing transactions.

Focusing on Transactions that Raise National Security Issues 

CFIUS’s appropriate focus is and will remain national security. One of the focuses 

of the Exon-Florio amendment is, indeed, on transactions that could impact the U.S. 

defense industrial base. There is a wide range of agencies involved in CFIUS, including DHS, each bringing its own unique perspective and its own definition of national security. This enables us to consider all aspects of transactions ranging from 

energy and transportation to information technology and telecommunications. The 

intelligence community also provides thorough threat assessments as part of its 

analysis. 

This process allows us to focus the most resources and highest level of oversight 

on those cases that pose the greatest potential threat to national security. Many 

transactions notified to the Committee do not raise national security issues. In other 

cases, the national security issues are mitigated by the end of the 30-day review 

so do not require an extended investigation. Requiring an investigation of every 

transaction involving a foreign government-controlled acquirer would result in 

scores of investigations each year in which no national security concerns are 

present. This would diminish the Committee’s ability to protect the national security 

and send the wrong message that the United States does not welcome foreign investment.

Strengthening the Role of the Intelligence Community 

The Administration also believes that the Committee can carry out its role more 

effectively by strengthening the role of the intelligence community in the CFIUS 

process, which is essential in a complex and changing national security environment. The Director of National Intelligence (DNI) has begun to do so by assigning 

an all-threat assessment responsibility to the National Intelligence Council and en-
7

suring that all relevant intelligence community agencies and activities participate 

in the development of final intelligence assessments provided to the Committee. The 

Committee recently formalized the role of the Office of the DNI, which plays a key 

role in all CFIUS reviews and investigations by participating in CFIUS meetings, 

examining every transaction notified to the Committee, and providing broad and 

comprehensive threat assessments. The DNI already contributed greatly to the 

CFIUS process through reports by the Intelligence Community Acquisition Risk 

Center concerning transactions notified to the Committee, but formalizing its place 

in the process—and strengthening the threat assessments provided to the Committee—represent an enhancement of the intelligence community’s role. The DNI 

does not vote on CFIUS matters and should not, because the role of the DNI is to 

provide intelligence support and not to make policy judgments based upon that intelligence.

Improving the Monitoring of Mitigation Agreements 

A further key to improving the CFIUS process is to strengthen the monitoring of 

mitigation agreements entered into between entities filing notice under the ExonFlorio amendment and members of the Committee. Typically, the members of the 

Committee with the greatest relevant expertise assume the lead role in examining 

any national security issues related to a transaction and, when appropriate, developing appropriate mechanisms to address those risks. Mitigation agreements implement security measures that vary in scope and purpose according to the particular 

national security concerns raised by a specific transaction. Monitoring parties’ adherence to mitigation agreements after the conclusion of the CFIUS process is an 

important part of protecting the national security. The Administration supports reforms that reinforce the authority and provide resources for agencies that negotiate 

mitigation agreements to improve existing enforcement practices.

Promoting Legitimate Investment in the United States 

The Administration also emphasizes the importance of preserving the 

attractiveness of the United States to overseas investors. The intent of the ExonFlorio Amendment is not to discourage foreign direct investment (FDI) generally, 

but to provide a mechanism to review and, if the President finds necessary, to restrict investment that threatens the national security. FDI is critical to the U.S. 

economy. Majority-owned U.S. affiliates of foreign companies employed 5.1 million 

U.S. workers in 2004. Capital expenditures in 2004 by these affiliates totaled $108 

billion and their sales totaled $2,302 billion. In 2003, these affiliates spent $30 billion on R&D and accounted for 21 percent of total U.S. exports. Roughly 40 percent 

of those jobs were in manufacturing, four times the national average. If foreign companies were to reduce their spending in the U.S. as a result of perceptions that the 

United States was less welcoming of FDI, lower investment would cost American 

workers good jobs, reduce innovation, and lower the growth of the U.S. economy. 

Reforms to the CFIUS process should send a signal that the United States is serious about national security and welcomes legitimate FDI. The Committee must examine each transaction thoroughly, but the timeframes for examination should not 

be unnecessarily long. In addition, the process should not require investigation of 

transactions that could not possibly impair the national security. Last year, the 

Committee received 65 notices of transactions under the Exon-Florio Amendment. 

This year, CFIUS filings are on a pace to total roughly 90. Improvements to the 

CFIUS process should promote filing of notice with respect to appropriate transactions but should not delay or deter FDI with no nexus to the national security. 

The Committee can best serve U.S. interests through thorough examinations that 

protect the national security while maintaining the credibility of the U.S. open investment policy for overseas investors and the confidence of U.S. investors abroad 

that they will not be subject to retaliatory discrimination.

Improving Communication with Congress 

It is clear that improvements in the CFIUS process are still required, particularly 

with respect to communication with Congress and political accountability. The Administration is committed to improving communication with Congress concerning 

CFIUS matters and shares the view that Congress should receive timely information to help meet its oversight responsibilities. Treasury is now promptly notifying 

Congress of every review upon its completion, and the Administration is working 

hard to be responsive to Congressional inquiries. The Administration has committed 

to conducting quarterly briefings for Congress on CFIUS matters. These quarterly 

briefings were scheduled to begin before the issues with respect to the DP World 

transaction became the subject of Congressional and media attention. The Administration is also actively preparing the 2006 quadrennial report on possible foreign efforts to conduct economic espionage in the United States or acquire critical U.S. 
8

technologies. We regret that a quadrennial report has not been prepared since 1994, 

and the Administration will issue the 2006 report in a timely and thorough manner. 

I look forward to your suggestions on how to foster better communication. 

While reforms of the CFIUS process should advance our shared goal of improved 

communication, they should also reflect the importance of protecting proprietary information and the integrity of the executive branch’s decision-making process. First, 

reforms to the CFIUS process should encourage companies to file with the Committee by ensuring that proprietary information they provide to the Committee is 

protected from public disclosure and will not be used for competitive purposes. Full 

disclosure of information by companies is critical to the Committee’s ability to analyze thoroughly the national security risks associated with a transaction. Second, it 

is important to protect both the executive branch’s deliberative process and classified methods and sources, and avoid possible politicization of CFIUS reviews and 

investigations for partisan purposes or at the behest of special interests. Third, reporting requirements should take into account the need for CFIUS member agencies 

to focus their limited resources on examining transactions notified to the Committee. I am confident that the Committee can provide Congress with the information it requires to fulfill its oversight role while respecting these important principles.

Enhancing Accountability 

The Administration supports a high level of political accountability for CFIUS decisions and is committed to ensuring that senior, Senate-confirmed officials play an 

integral role in examining every transaction notified to the Committee. Improvements to the CFIUS process should also ensure that senior U.S. officials are focused 

on national security issues. I know that CFIUS agencies are now briefing at the 

highest levels in their respective agencies. However, the President and Cabinet-level 

officials should focus their attention on the cases that merit the greatest scrutiny. 

The President should focus on transactions that at least one member of the Committee recommends he suspend or prohibit. Requiring the President to make a determination when all CFIUS members agree that a transaction does not threaten 

to impair the national security would potentially divert his attention from transactions that could pose security risks. 

Similarly, requiring Cabinet-level certification of CFIUS decisions on transactions 

that do not raise potential national security concerns would lengthen and delay the 

process, presenting an unnecessary impediment to legitimate investment. Such a requirement would also dilute the resources that the most senior U.S. officials could 

devote to transactions that do pose national security risks. This would impede the 

Committee’s ability to protect the national security as effectively as possible. I am 

confident that the Committee can carry out its obligations in a manner that guarantees high-level political accountability while focusing senior officials on transactions 

that raise possible national security threats.

Conclusion 

Mr. Chairman, the Administration appreciates your leadership and attention to 

the protection of America’s national and homeland security both in terms of the 

CFIUS role and more broadly. To reiterate, the Administration does and will continue to support CFIUS considering the ultimate ownership of the acquirer and the 

possible foreign acquisition of sensitive assets when reviewing any transaction, both 

of which are factors the Committee already considers when reviewing transactions. 

The Administration has taken a number of steps to improve the CFIUS process and 

to address concerns raised by Congress, and supports continued reforms to the 

CFIUS process. Sound legislation can ensure that the Committee reviews transactions thoroughly, protects the national security, conducts its affairs in an accountable manner, and avoids creating undue barriers to foreign investment in the 

United States. All members of CFIUS are committed to working with Congress to 

improve the process, understanding that their top priority is to protect our national 

security. 

I thank you for your time today and am happy to answer to any questions.

Chairman KING. Secretary Baker? 
9

STATEMENT OF THE HONORABLE STEWART BAKER, 

ASSISTANT SECRETARY POLICY, PLANNING, AND 

INTERNATIONAL AFFAIRS, DHS 

Mr. BAKER. Thank you, Chairman King, Ranking Member 

Thompson, members of the committee. It is a pleasure to be here 

to talk about this very important issue. 

We are the newest member of CFIUS, joining in March of 2003, 

but I think it is fair to say we have already carved out a unique 

role as the Department of Homeland Security in CFIUS. Just three 

points about that. 

First, given the origins of the department, the attacks of September 11, we have had to take a very different and untraditional 

view of what national security is. We have had to define it in terms 

of homeland security and in terms of unconventional threats. We 

have done that. We have looked very hard at a wide range of transactions. 

I think the second point that I would make is that we have been 

very aggressive compared to many members of CFIUS in saying we 

see a homeland security element to this transaction, and we want 

some kind of protection. Either we want to stop the transaction or 

more often we want to enter into some kind of mitigation agreement that addresses the concerns that we have. 

I think we have participated in about 170 transactions, and in 

more than 30 of them we have joined or been the sole parties participating in some form of national security agreements. So about 

one-fifth of them have led us to ask for additional protections for 

homeland security. 

The third point is that CFIUS is a very high priority for the Department of Homeland Security and has been since it started. As 

this committee knows quite well, our office, the policy office was 

just created in October. I just was confirmed in October. One of my 

highest priorities was to stand up a CFIUS policy office, and the 

first person that I hired to be a career employee in the policy department was someone who is a specialist in CFIUS. So we have 

made it a high priority within the department and within the policy office. 

Three additional points about CFIUS reform, very quickly. It is 

quite obvious from the House bill dealing with CFIUS that this 

committee and many of the members here are cosponsors have already had a substantial impact on that bill. We appreciate it. It is 

a responsible and thoughtful bill and we look forward to working 

with you as it moves through Congress. 

Two other points. I completely agree with Assistant Secretary 

Lowery about the principles that ought to govern CFIUS reform. 

We have had a very cooperative working relationship with the 

Treasury Department. We have gone through a lot together in the 

last several months. 

Finally, I would extend to this committee a pledge of all the cooperation you would like in terms of information about our practices under CFIUS or our views on details of the legislation as it 

moves through. 

Thank you very much. 

[The statement of Mr. Baker follows:]
10

PREPARED STATEMENT OF HON. STEWART BAKER

I thank Chairman King, Ranking Member Thompson, and all of the distinguished 

members of this Committee. 

I appreciate the opportunity to speak briefly today regarding the Department of 

Homeland Security’s role as a member of the Committee on Foreign Investment in 

the United States and DHS’s support for CFIUS reform.

DHS’s CFIUS Background 

The Department of Homeland Security is the newest member of CFIUS. We became a member in March 2003, soon after DHS began as an organization of 22 diverse agencies whose common mission is the protection and security of our nation 

and people. Since that time, we have participated in the review of more than 170 

foreign acquisitions involving some of the nation’s critical infrastructure, technology, 

and other assets vital to our national security. 

I mention our origins to stress what I believe is a key strength of the Department—we bring to the CFIUS a diversity of viewpoints, expertise, and skills. The 

government agencies from which we were formed give DHS a broad perspective, informed by an understanding of infrastructure threats, vulnerabilities and consequences. DHS generally leads CFIUS reviews of transactions involving critical infrastructure, and we also have entered into dozens of agreements to mitigate national security risks that may arise from CFIUS transactions. When we enter into 

these important agreements, DHS is careful to monitor compliance, and we do so 

in coordination with other CFIUS agencies who are parties to the agreements. 

I think my CFIUS colleagues will vouch for the fact that we take our role in 

CFIUS seriously and interpret our security mandate broadly. We ensure that components throughout DHS review each and every transaction. DHS’s forward-leaning 

stance on security issues sometimes gives rise to debate within CFIUS, but it is a 

healthy debate that ultimately enhances national security and investment. A substantial portion of DHS was formed out of the Treasury Department and we have 

no doubt our dual mission requires us to protect homeland security while maintaining an open investment policy. 

In case it is not clear from my remarks so far, I should say explicitly that the 

CFIUS process is one of DHS’s highest priorities, and senior officials in the Department are involved in every case. We are also cognizant of the fact that the number 

of CFIUS cases is on the rise, and our staffing plan is responsive to that fact. When 

I became Assistant Secretary for Policy, one of the first individuals I hired was 

someone whose primary responsibility is to help manage the Department’s CFIUS 

program, and we are continuing to build our CFIUS staff.

CFIUS Reform 

As to reform of the CFIUS process, I’ll briefly make three points. First, let me 

commend the members of this committee for your thoughtful and productive work 

in your efforts to balance national security and open investment principles. 

Second, DHS fully subscribes to the principles for further improvement that were 

articulated by my Treasury colleague. While DHS functions as an autonomous agency within CFIUS, the Treasury reform principles have our complete support. 

Third, DHS is pleased to be involved in this dialog about the reform of the CFIUS 

process and to lend our expertise and experience in the reform process. We hope 

that you will continue to reach out to us, and we stand ready to provide our technical expertise in helping to ensure that national security and open investment principles are balanced in a manner that benefits our nation.

Chairman KING. Thank you, Secretary Baker. 

Mr. Lowery, on February 21 of this year, I requested a copy of 

the CFIUS review relating to Dubai Ports. I received the documents yesterday. As I go through them, it was 500 pages of background material, but no actual report. 

Is that the way it is usually done? Is there no actual report done 

for the transaction, no official report? 

Mr. LOWERY. No, sir. The documents that you received are background on the filing itself, and the report is usually internal oral 

discussions and written discussions through e-mails between agencies, and then eventually a decision is made. 

The key issue was that there were some security concerns that 

were raised and the Department of Homeland Security had worked 
11

out an agreement between Dubai Ports World and the United 

States government. That was one of the key documents. After that, 

the CFIUS Committee decided that this transaction did not raise 

national security concerns that had not been addressed, and therefore there was a letter that basically told the companies that we 

were fine with the transaction. 

Chairman KING. Is that going to be the continued policy? There 

will be no reports made, no final reports, no official report? 

Mr. LOWERY. I think that basically one of the key things that we 

want to do going forward is to make sure that Congress does receive reports after transactions are completed. That is something 

that we are broadly supportive of. I mentioned it in my testimony, 

and we want to work very closely with this committee and other 

committees on how best to do that. 

Chairman KING. Thank you. 

Secretary Baker indicated that he has looked at legislation; the 

main sponsors are Congressman Blunt and Congresswoman 

Maloney. I would ask Secretary Lowery if he has had a chance to 

look at that legislation and what he thinks of it, and also compare 

it to the other two main pieces of legislation. Congressman Barrow, 

I believe, has legislation, and also Senator Shelby. 

So. Secretary Lowery, if you could comment on Congressman 

Blunt’s legislation, and if the two of you could then comment on the 

other two, Congressman Barrow’s and Senator Shelby’s. 

Mr. LOWERY. Yes, sir. We have not taken a specific position on 

each of the different pieces of legislation. I think there is some 

other legislation out there as well. I agree with Secretary Baker 

that the legislation that we have seen from Representatives Blunt 

and Maloney is very constructive. We look forward to working with 

the committees on that legislation. 

I actually have not read Congressman Barrow’s legislation. I 

have read Senator Shelby’s and we are also making sure that we 

are working very closely with the Senate. But in terms of comparison, I think what we have tried to do is lay out the different types 

of principles that we have. We would like to work with Congress 

through those principles, and what is the best way to structure legislation around them. 

Chairman KING. Secretary Baker? 

Mr. BAKER. Yes, I also would say that I would not like to get into 

the specifics of the other body’s legislation. We believe there are a 

lot of commonalities between that and the bill that was cosponsored by Mr. Blunt. We think that the commonalities in many 

cases are constructive. We would like to work with both committees 

to try to resolve them in a way that is workable for the future for 

CFIUS. 

We do have to have a functioning process that meets certain 

deadlines and is responsive to both Congress and to investors, as 

well as national security. 

Chairman KING. Thank you, Secretary. 

Now, I would recognize the gentleman from Mississippi, Mr. 

Thompson, who actually was one of the main impetus for this 

meeting and requested it several months ago. The gentleman from 

Mississippi? 
12

Mr. THOMPSON. Thank you, Mr. Chairman. I appreciate the opportunity to have the witnesses before us today. 

Mr. Pascrell raised a question about human capital and the fact 

that there is always this revolving door happening. Have you had 

that problem with your department, Mr. Baker? 

Mr. BAKER. I am too new to leave, so I have not seen a lot of 

departures. Inevitably in government, there is turnover. By and 

large, my experience has been very good in terms of people being 

willing to stay when we have asked them to stay. 

Mr. THOMPSON. Well, in respect to the CFIUS process, how many 

people in your office work on that process? 

Mr. BAKER. Of the staff, I would say three at this point are working on CFIUS principally. That is an increase from one a few 

months ago, so we have been increasing the staff. We have a request for 10 in the administration’s budget for next year, so this 

was something that we asked for even before the Dubai Ports 

World episode. So we have intended to expand that pretty substantially. 

Mr. THOMPSON. So how many compliance agreements does the 

department enter into with other companies? 

Mr. BAKER. We have entered into a little over 30 in the last 3 

years, so 10 a year. 

Mr. THOMPSON. Ten a year, using somewhere between one to 

three staffers? 

Mr. BAKER. Yes. Because my office didn’t exist prior to October 

of last year, much of the CFIUS work was done by other offices 

prior to the reorganization. But I think drawing on a couple of lawyers in the general counsel’s office, we probably have had three to 

six people working on CFIUS over the years. 

Mr. THOMPSON. So your testimony is based on budget requests 

and your own analysis that you really need more people than what 

you have right now to adequately do the job? 

Mr. BAKER. Yes. I think that that is right. 

Mr. THOMPSON. Thank you. 

Now, taking the chairman’s comment about this voluminous information we received at 4 o’clock yesterday afternoon, Mr. Lowery, 

it is very difficult for us to conduct oversight getting that much information less than 24 hours before a hearing. 

Mr. Chairman, I would hope that however we can enforce any 

rules that it really is not enough time for us to go through that 

much information, and then we find that it is not as complete as 

we need. 

So I am not certain how we work on that, but it limits our ability 

and effectiveness as members of Congress when we get it so late. 

Chairman KING. If the gentleman would yield? 

Mr. THOMPSON. Yes. 

Chairman KING. I would work with the ranking member to ensure that we get more compliance in the future, and also I would 

note that we made the initial request back on February 21. 

Mr. THOMPSON. That is correct. 

Mr. LOWERY. Can I comment? 

Chairman KING. Yes, sure, Secretary Lowery. 

Mr. LOWERY. We apologize for the delays in getting that documentation to you. Just to make sure that everyone is clear, we 
13

have to be very careful sometimes because of some of the proprietary information and the deliberative documents that were involved. So because of that, it was a fairly extensive process that 

was handled by the general counsel’s office. 

Because CFIUS is made up of 12 different agencies, we have to 

clear it with every single one of those agencies. That does take 

time. We apologize, though, for the delays. We should have gotten 

it up faster than we did. Just so you know, I received that telephone book full of information just last week, and I was traveling. 

I got back and got it soon as I possibly could. 

Mr. THOMPSON. Thank you very much, Mr. Chairman. 

I yield back. 

Chairman KING. The gentleman from Indiana, Mr. Souder? 

Mr. SOUDER. Perhaps one legislation we could look at is how to 

expedite executive branch clearance processes. Over in Government 

Reform, we very seldom get documents prior to the night before a 

hearing. Often, it is this multi-agency internal discussions. We deal 

with classified material all the time. If it needs to be classified, it 

should be classified. If it is proprietary, tell us it is proprietary. But 

we can’t do our work in oversight, and this is building to a crisis 

in multiple committees that I am part of. 

I have a more particular question. Does this cover leases and 

management, as well as purchase? 

Chairman KING. If the gentleman would yield? The gentleman 

from Washington actually asked the question. We can keep going 

with the questions, but so maybe we will go vote, and then we will 

come back and take the hearing back. We will have to move quickly on that. 

The gentleman from Indiana? 

Mr. SOUDER. Does the process include leases and management 

contracts, as well as purchases? 

Mr. LOWERY. To my knowledge, no. I think that it is about acquisitions. 

Mr. SOUDER. Because in Indiana, we are having a big discussion 

about Cintras and Macrey, Australian and Spanish companies, are 

managing the Indiana toll road for 75 years. They took a lease. 

They manage the Chicago Skyway. So for that infrastructure, none 

of the legislation, nor your process, would impact a lease arrangement? 

Mr. LOWERY. I am not an attorney, but to my knowledge, no, it 

would not. It is specifically about acquisitions. 

Mr. SOUDER. All right. So the similar thing would be if it is an 

airport, because the British are managing the Indianapolis Airport, 

looking at once again leasing it to a management. Would the Department of Homeland Security be looking at something like that? 

I don’t have a problem with it. I am thrilled that they are bringing investment to Indiana, quite frankly. I am just wondering what 

kind of process goes through lease management because particularly a major airport would be critical infrastructure. 

Mr. BAKER. Certainly the Department of Homeland Security 

would have an interest, particularly in who is operating airports, 

but I agree with Assistant Secretary Lowery that CFIUS would not 

by itself cover that unless the company that is actually administering that lease is then acquired by another foreign company. 
14

The question from our point of view would be what other legal 

authorities might we have to deal with a company that is running 

an airport, and typically to draw on the experience of the ports, we 

have some regulatory authority over security activities. That does 

not necessarily allow us to exclude a particular foreign company, 

but it can allow us to look closely at their security practices. 

Mr. SOUDER. General Electric, Magnavox, many American companies were downsizing over the years. In my district, BAE bought 

the GE aircraft controls that does defense contracting in the Air 

Force. USSI bought what was Magnavox-Raytheon-Sonavoys operation, which is a British company making defense parts, which conceivably, depending on how the structure goes, could be impacted 

here. 

Michelin is the largest employer in my district, which is French, 

making tires that go into all sorts of equipment, not to mention 

that I have Dreyfus building the largest biodiesel plant in the 

United States, second-largest in the world, in my district, which is 

also French, while Bruna Steel from Italy bought a company from 

Canada in my district that makes steel. 

Now, some of these companies are structured where they have an 

American division. Some of them are straight ownership. Could you 

explain a little bit where the lines here are on military, parts that 

go into military, steel that would go into military, or even energy 

structures there where Dreyfus is actually impacting. Because 

without this investment, we are going to really dry up American 

jobs. 

Mr. LOWERY. I don’t know all of those transactions, but many of 

them, I would guess, have actually gone through the CFIUS process. What happens is that companies, especially in the defense industrial base, but also in critical infrastructure, realize that they 

need to come in and do CFIUS. I know that BAE has come through 

CFIUS many times. I can’t speak for the specific transactions in 

your district. 

We agree with you. It is very important to the U.S. economy that 

we continue to get this foreign direct investment. That is why we 

have tried to keep the CFIUS process as professional and rigid 

with timelines as it possibly can be so that we can address these 

issues. If there is a national security concern with a CFIUS case, 

we can address those issues through means of the CFIUS process. 

But a lot of times, these transactions do not raise those national 

security concerns. We should look at them from the national security perspective and get them out of the system, quite frankly. 

Mr. SOUDER. Does steel qualify as a national security concern? 

Obviously military parts would directly, but what about the raw 

products that go into those parts? 

Mr. LOWERY. I think that it probably would. I know that in my 

time we have actually looked at some steel cases. 

Mr. SOUDER. In Homeland Security, do energy companies constitute something that Homeland Security would review? 

Mr. BAKER. Yes, sir, they do. They are part of the critical infrastructure. 

Mr. SOUDER. Okay. Thank you. 

I yield back. 

Chairman KING. The gentleman yields back. 
15

There is about 6 minutes to go on the vote, so the gentlelady 

from California can begin her questioning. The gentlelady is recognized for 5 minutes. 

Ms. SANCHEZ. Thank you, Mr. Chairman. 

This whole Dubai issue obviously brought this to the forefront. 

I think the really big issue of Dubai was what is so critical to the 

United States that we have to hold it in our own hands, and what 

is it of the assets that we hold that would be available for lease 

or operation or sale to foreign companies? 

This is an incredibly important issue, given the trade deficit and 

the desire of our American companies to own assets around the 

world. I think Europeans, well anybody, Asian, anybody is looking 

at this and saying, you know what, what is the United States going 

to do? So obviously, we have this process now. 

Under the critical infrastructure protection arena, as the law currently is, could you go through what would fall under that as far 

as a review process? 

Mr. BAKER. We define the critical infrastructure the way the 

Homeland Security Act does, which is very broadly. It includes agriculture, food production, power production, telecommunications, a 

wide variety of industries. We have tended to take the lead in taking a look at transactions that affect those sectors. 

When we find a transaction that falls into one of those sectors, 

the first question we ask is is there some other authority that 

would allow us to regulate the national security risks, the homeland security risks, without blocking the transaction? If there is, 

then we don’t need to use CFIUS. 

But if there isn’t, then if we see a risk in the transaction, what 

we will do is ask the companies that are engaged in it to come in 

and sit down with us and to negotiate an agreement in which they 

will agree to take actions that will minimize the risk that we see 

in the transaction. In fact, that is what we did in the Dubai Ports 

World case, where we identified some risks that we wanted to protect against. 

Ms. SANCHEZ. Let’s say a telecom company like AT&T or one of 

these, has a buy-out proposed. Would we look at that as a critical 

infrastructure piece? 

Mr. BAKER. We would indeed. We have and we have negotiated 

national security agreements with a number of foreign buyers of 

telecommunications companies. 

Mr. SANCHEZ. Okay. Do you have anything to add? 

Mr. LOWERY. I agree completely. 

Ms. SANCHEZ. Okay. After 9/11, the criteria changed for national 

security and what we were looking at in infrastructure. Right? Do 

you think that is adequate? Or do you think we have to look at one 

of these bills that would address a broader scope of what might be 

included as critical to our national security as far as assets, any 

type of assets? 

Mr. BAKER. DHS, working within the existing statute, has made 

it clear that we take a very broad view of what our national security requires. The bills that we are looking at tend to include homeland security as part of national security. We are fully supportive 

of that idea. So in our view, our current practice is that, but it 

would be very helpful to have the law match our practice. 
16

Ms. SANCHEZ. Thank you, Mr. Chairman. 

Chairman KING. Yes. The gentlelady yields back. 

I am going to call a recess of the committee for about 5 minutes. 

The committee stands in recess. 

[Recess.] 

Mr. ROGERS. [Presiding.] I would like to call the hearing back to 

order. 

At this time, I recognize Mr. Dicks for any questions he may 

have. 

Mr. DICKS. Let me ask you a question about this letter, Mr. Lowery, that you wrote to the committee. In the letter, it says, ‘‘CFIUS 

member agencies provide their position on a transaction to Treasury staff, informing Treasury whether the CFIUS member agency 

will request an extended investigation with respect to the reviewed 

transaction.’’

Is that done in writing? 

Mr. LOWERY. Yes, sir, usually via e-mail. 

Mr. DICKS. Is that part of the information that you sent to the 

committee? 

Mr. LOWERY. I don’t think so, sir. 

Mr. DICKS. Why is that? 

Mr. LOWERY. I would have to ask the general counsel, but I believe that there was some concern about deliberative process, sir. 

Mr. DICKS. So you are claiming executive privilege here, is that 

correct? 

Mr. LOWERY. I believe so, sir. 

Mr. DICKS. Mr. Chairman, I think the committee has a right to 

see this. I would hope that we would at least consider what ever 

steps we can. I think without that, all we have is a series of e-mails 

and documents that don’t seem to mean very much. 

I am also surprised, by the way, and we may have to change the 

legislation here, I think there ought to be a report written about 

the decision of the CFIUS group. The secretary or whoever is in 

charge of this should have to write a report that could be reviewed. 

Why is that not done? 

Mr. LOWERY. Sir, we actually think that that is a good thing to 

look at going forward. Right now, basically, the report that we 

would do to Congress would be in any cases that go to the president. There was a recent case where we did a report to Congress 

on a transaction. 

On a regular basis, we have not done that, but we think that it 

is something that should be explored because we do want to improve communications with Congress. We do realize that this has 

been a problem, and we need to correct it. That is one of the reforms that we are looking at very carefully. 

Mr. DICKS. I am trying to find my notes here. There is a report 

that you are supposed to do on a quadrennial basis, and there has 

only been one of them submitted, and that was in I believe 1994. 

Why is it that this quadrennial report has not been filed in the last 

12 years? 

Mr. LOWERY. Sir, we regret that the quadrennial report has not 

been filed in 1998 and 2002. We are committed to getting it done. 
17

Mr. DICKS. Then why isn’t it done, if you are committed to it? 

Did you just figure out before this hearing that it wasn’t done? You 

must have known it wasn’t done. 

Mr. LOWERY. Sir, basically we looked and found out that it 

hadn’t been done for all this time, and what we have done is put 

together an interagency working group, as well as working with 

the DNI. It is a very labor-intensive report to get a lot of data and 

do the analysis of that data. We are committed to getting that report done in 2006. 

Mr. DICKS. In the fiscal year or calendar year? 

Mr. LOWERY. This year, sir, as soon as possible. 

Mr. DICKS. Okay. So this in your mind is an oversight? 

Mr. LOWERY. Yes, sir. 

Mr. DICKS. Well, Congress should have maybe proper oversight, 

we should have asked for this report to be submitted. What kind 

of information would be in this report? Can you characterize it? 

Mr. LOWERY. Yes. There are two parts to the report. One is about 

counter-espionage issues, which actually is a report that has been 

picked up and been done on an annual basis by the national counterintelligence unit of DNI. So that actually has been going on on 

an annual basis. 

The part that has not been going on is analysis of trends in 

mergers and acquisitions to see if there has been anybody that has 

been specifically targeting. That part has not been happening and 

that is the part that we need to address during this quadrennial 

report, the one that we are working on right now. 

Mr. DICKS. Does the administration, even though they haven’t 

sent the report up, does the administration follow these trends, and 

what these other countries like the Peoples Republic of China and 

others? 

Mr. LOWERY. We do follow these trends in the general sense. We 

just haven’t done it with the type of data analysis that would be 

needed in order to do the quadrennial report. 

If you look over most of the transactions that have been done, 

some involve Japanese companies, but European and Canadian 

companies constitute the bulk of the transactions. We have not 

really found any definitive trends that show any targeting by specific countries. 

That said, we do need to do a deeper analysis than we have done 

before. That is why it is going to take us a while, but we are committed to getting it done this year. 

Mr. DICKS. I appreciate that. 

I thank you, Mr. Chairman, and I yield back. 

Mr. ROGERS. The gentleman yields back. 

The gentleman from New Jersey is recognized for any questions 

he may have. 

Mr. PASCRELL. Mr. Lowery, you mentioned in your testimony 

that typically the members of the committee with the greatest relevant expertise assume the lead role in examining any national security issues which are related to the particular transaction, and 

when appropriate, developing appropriate mechanisms to address 

those risks. 
18

Would the Department of Homeland Security not take the lead 

on many of these transactions? And do you think that they have 

the personnel capable to fulfill this duty? 

Mr. LOWERY. In terms of your question about lead agencies, 

there are a variety of agencies that take lead responsibilities. 

Sometimes it is the Department of Homeland Security; sometimes 

it is the Department of Defense; sometimes it is Justice; and sometimes it is the Energy Department, which is actually not a CFIUS 

agency, but we bring them in if there is an energy asset at stake. 

There have been times where others like Commerce or the Treasury Department will take some of the lead responsibilities, but it 

is usually those agencies. I would have to defer to Secretary Baker 

as to the abilities of the Department of Homeland Security to conduct their business. In the CFIUS process, they are always very active and very rigorous about their job, but in terms of all the follow-up, I would have to defer. 

Mr. PASCRELL. Do these members of the committee inquire? Do 

they ever discuss this with Homeland Security? Would they reach 

out, the members of the committee that are reviewing these transactions? Or are the members of the committee who are expert in 

the specific area, they are looked to examine the proper activities 

of the transaction? 

Mr. LOWERY. Each agency reviews the transaction. It is just that 

there is sometimes deference because of the specifics of a transaction. For instance, if there is a defense part that is being purchased by an acquisition firm, we are going to look to the Department of Defense because they are going to know things a lot better 

than the rest of us. 

However, Homeland Security, Justice and Treasury and others 

on the committee are also reviewing it and they are making sure 

that it addresses any concerns that they might have about that 

specific transaction. 

Mr. PASCRELL. Did Homeland Security review the Dubai transaction? 

Mr. LOWERY. Absolutely. In fact, they were the lead agency, basically. 

Mr. PASCRELL. And they concluded? 

Mr. LOWERY. It is probably better for Secretary Baker to speak 

on behalf of his group. 

Mr. BAKER. I am glad to. Thank you, Clay. 

We looked at that and for the first time in any port deal, we decided we wanted additional security guarantees from what we ordinarily would ask for in a transaction. We asked for assurances. We 

were able to get them from the company. 

So we did look at it closely. We did ask for assurances to go beyond what the other members of CFIUS would have asked for because it was a part of the critical infrastructure. 

Mr. PASCRELL. Reports have it, Mr. Secretary, that you were the 

sole dissenter in the beginning in reviewing the Dubai transaction. 

What made you change your mind to go along with the other members of the committee in unanimously accepting this transaction as 

not being in any manner, shape or form a reflection on the security 

of this nation? What is it that got you over the top? 
19

Mr. BAKER. I think the reports are a little misunderstood. We did 

not object to the transaction, but we did raise our hand and say 

we would like to look at this more closely. We believed that it 

would be appropriate to ask for additional assurances from the 

company. 

Mr. PASCRELL. Why? 

Mr. BAKER. Because we wanted to make sure, this was a government-owned corporation, we wanted to make sure that the companies which up to that point had a very good security reputation, 

didn’t change that policy later on. We wanted to lock them in in 

their current relatively high level of security. 

Mr. DICKS. Would the gentleman yield just for a brief moment? 

Mr. PASCRELL. Sure. 

Mr. DICKS. One of the things that, there was an unclassified 

Coast Guard report that said that there were intelligence gaps concerning the potential for DPW or PNO assets to support terrorist 

organizations, which preclude an overall threat assessment of the 

potential DPW and PNO merger. 

Were you concerned about this Coast Guard report? 

Mr. BAKER. The Coast Guard was asked for its evaluation of the 

transaction. The Coast Guard internally commissioned that intelligence report. It was not actually sent to DHS headquarters. It 

was for their own purposes in deciding how they would vote on the 

transaction. 

Once we had the assurances, with the assurances in hand, as 

well as that intelligence report, which actually came to the conclusion that while there were gaps, the transaction should go forward, 

the Coast Guard voted to let the transaction go forward. 

So I didn’t actually see the report. 

Mr. PASCRELL. Can I reclaim my time, Mr. Chairman? 

Mr. Secretary, I want to ask you a question. I want you to explain to everybody in this room what you see as the difference between a foreign company running the operations at any of our 

ports, which happens right now, and a foreign company owned by 

a foreign country running the operations of a port. 

Because the administration confused that and melded the two together in trying to defend their decision about Dubai. I want you 

to tell us if you see any essential, not quantitative differences, essential differences between the one and the other, and why we 

should be concerned in our oversight capacity. 

Mr. BAKER. I do see a difference. A foreign company is likely to 

be acting out of profit motivation most or the time, not always, but 

most of the time. You might still have concerns, but the profit motivation often allows you to predict how they will behave. 

When it is a foreign government-owned corporation, you sometimes worry that the government will take actions that are not 

profit-motivated. And so it is important to take a look at that particular risk. 

Mr. PASCRELL. How do you know if the country is not going to 

interfere in the operations of that particular company since they 

are on our soil? 

Mr. BAKER. One of the thing that we did in this transaction was 

to try to lock in some things that had been done by the companies, 

as private companies, to provide good security and to maintain 
20

high security standards so that if there were a change in policy 

that was not profit-motivated, but motivated by a government policy, we would be able to say that is a violation of the agreement. 

Mr. ROGERS. The gentleman’s time has expired. 

The gentleman from North Carolina is recognized for 5 minutes. 

Mr. ETHERIDGE. Thank you, Mr. Chairman. 

Mr. Baker, let me follow that line a little bit further because we 

were talking about foreign versus domestic, what works out. How 

do you evaluate the risk of a foreign-owned company when these 

days there is really no clear designation of what companies are foreign? 

Let me say what I am talking about, for instance, most large 

companies are multi-international today. I am told both ExxonMobil and BP have almost half of their ownership is American, is 

U.S. now, and a lot of it overseas. 

How does the department weigh the risk of these so-called foreign-owned companies? 

Mr. BAKER. I am not sure I would characterize Exxon-Mobil yet 

as foreign-owned. 

Mr. ETHERIDGE. But if you look at the ownership within the corporation? 

Mr. BAKER. Yes. There is no doubt that the long-term trend is 

toward a lot more confusion about what country a particular company is from. The number of governments who have the ability to 

influence the behavior of a company continues to grow. 

We are not the only ones who are seeing that. The Canadians, 

who used to have very aggressive inward investment programs, 

have begun to recognize that they can’t maintain that. So that confusion is going to continue to grow. 

Mr. ETHERIDGE. So how do you evaluate the risk? 

Mr. BAKER. We must nonetheless ask in particular transactions, 

is the risk so significant that even though it is harder to tell 

whether someone is influenced by foreign governments or an outsider, we can’t take the risk of letting the transaction go forward, 

perhaps because of tight relations between the buyer and a foreign 

government, so that we have every reason to believe that this particular company is very beholden to a foreign government, and they 

are buying into a particularly sensitive sector. 

So there are still cases where the risks and the relationship with 

the government is quite significant. In many cases, though, in fact 

almost all the time, it is better to rely on regulations than trying 

to block transactions. As we talked about earlier, there are many 

ways in which foreign companies can come to exercise control over 

assets in the United States without ever buying a U.S. company. 

So in most cases, having regulations such as our port security 

regulations is a better way to control what happens by way of port 

security than trying to block transactions on an individual basis. 

Mr. ETHERIDGE. That being said, then, I guess leads to the next 

question. Did you consider the UAE’s ties to the Taliban to be a 

red flag? Was that something you considered in the deal? 

Mr. BAKER. There is no doubt that before September 11 the 

United Arab Emirates did have close ties to the Taliban, or at least 

they recognized the government. We said at the time that we 

thought that was a very bad idea. We have reiterated that view 
21

since September 11. They did make substantial changes in policy 

after September 11 and they have been enormously helpful to the 

United States in a wide variety of ways on an international basis. 

Mr. ETHERIDGE. So the answer is yes? 

Mr. BAKER. We took that into account. It was not a positive factor, obviously. What that shows is they are not the United States 

and never will be, and we have to take that into account as one 

of the reasons we said that we want some assurances about the 

policies on security that you are going to follow up. 

Mr. ETHERIDGE. So do I gather from that that the answer is? 

Mr. BAKER. All I can say is, you have to take these things into 

account and make a decision after weighing all of them. 

Mr. ETHERIDGE. Are you telling me it was one of the factors that 

was considered? 

Mr. BAKER. Certainly. It was. 

Mr. ETHERIDGE. Okay. 

Thank you, Mr. Chairman. I yield back. 

Mr. ROGERS. The gentleman’s time has expired. 

The gentlelady from the Virgin Islands, Ms. Christensen, is recognized for any questions she may have. 

Mrs. CHRISTENSEN. Thank you, Mr. Chairman. 

I would like to ask a question based on the purpose of the program being to identify those foreign investments in U.S. critical infrastructure and industrial-based technology companies that may 

pose a national security risk. I have seen some of our early critical 

infrastructure lists, and then you would have been reviewing golf 

courses, country clubs and all of those kinds of things. 

Do you think we have sufficiently come to a point where our critical infrastructure is identified specifically enough and accurately 

in a relevant fashion so that it gives the proper guidance to this 

process? 

Mr. BAKER. I think that is a very good question. We have taken 

a very broad view of what is critical infrastructure. It depends on 

what purpose you are asking the question for, or what you want 

to put in there. We, for example, treat agriculture and food production as critical infrastructure, as they would be if someone wanted 

to insert ricin into the food supply. 

That does not mean that we should be reviewing every transaction in which a European buys a farm in Iowa. So how you define 

‘‘critical infrastructure’’ for purposes of reviewing an inward investment may be quite different from how you would interpret it if you 

were worried about a terrorist attack on a particular facility. 

So in this case, we keep the definition broad so that we can respond to new threats or particular intelligence that we may receive 

about a buyer, but generally we are focused on transactions that 

could give a foreign company or foreign government insight into 

very important technology or an ability to influence the way our infrastructure works in a fashion that could hurt us. 

Mrs. CHRISTENSEN. Okay. How do you evaluate the risk of a foreign company when these days sometimes there is not a clear designation of what companies are foreign? 

For example, large-scale companies are multinational. I could 

talk about Exxon-Mobil or I could talk about Hovensa in my district, which has half U.S. ownership, both of them. So how does the 
22

department weigh the risk of these kinds of so-called ‘‘foreignowned’’ companies? 

Mr. BAKER. Again, we try to leave ourselves a lot of room so that 

we have not locked out a case that we clearly want to meet. There 

are circumstances where just 25 percent ownership interest in a 

large publicly held company would be enough to give a foreign government or person control of the company. We would not want to 

say, well, it has to be 51 percent foreign before we decide that the 

transaction ought to be reviewed. 

But in many cases, all we have to decide in the end, if we think 

that there is not a risk to homeland security and national security, 

is that the transaction does not need to be further reviewed. We 

don’t say it is because you are not foreign. We simply say that is 

fine; we are not going to review this transaction further. And that 

allows us some discretion in a later case where we think there is 

a risk of abuse, to say this transaction needs to come in and be reviewed. 

Mrs. CHRISTENSEN. Mr. Lowery, would you have anything to add 

to this? 

Mr. LOWERY. No, I think the secretary described it very well. 

Mrs. CHRISTENSEN. I have no other questions of this panel, Mr. 

Chairman. Thank you. 

Thank you for your responses. 

Mr. ROGERS. The gentleman from Pennsylvania, Mr. Dent, is recognized for any questions he may have. 

Mr. DENT. Thank you, Mr. Chairman. 

Mr. Baker, my question is really directed to you. At what point 

in this process do you typically receive the intelligence review from 

the Community Action Risk Center? 

I noticed from the timeline on these yellow sheets that this assessment was completed on December 6, but the parties did not officially file until December 16. The question is, how is that possible? How does that process work? 

Mr. BAKER. That is a little unusual. It is a very good question. 

Typically, it will take the intelligence community several weeks, 3 

weeks to put together a report. 

We were actually lucky in the Dubai Ports World case because 

the company was well advised and they did something that we very 

strongly encourage companies to do, which is they came in well before they filed with CFIUS and said, ‘‘we are thinking about doing 

this transaction.’’ They briefed the transaction. They answered our 

questions. We were able to get the intelligence community started 

on the assessment well before the actual filing of the CFIUS petition. 

Usually, we don’t have that much time. And usually, if we don’t 

have too much time, it will take us until day 21, day 22, day 23 

in the 30-day process before we see the fruits of the intelligence 

analysis. 

Mr. DENT. Thank you. 

Mr. Lowery, do you have anything to add to that? 

Mr. LOWERY. No, I think that that is correct. I know that there 

was a lot of criticism of us in the Dubai Ports World case, that we 

didn’t take the extra 45 days. We actually took 75 days in the case 

of Dubai Ports World, or closer even to 90, just because they came 
23

in very early and gave us a lot of information, and then we just 

were able to get the intelligence people working in advance. 

This is something that we have been trying to get. There is kind 

of a small community of people that represent companies on these 

cases, and we have been trying to get the word out that coming in 

early helps the process along. I know that for instance in the last 

seven cases that have been filed with us, five of them have come 

in early. So we are able to get the intelligence community doing its 

work in advance because obviously their work is vital to us. 

Mr. DENT. And my follow-up question is this. Some legislation 

has been proposed limiting the time for the director of national intelligence to review these acquisitions to 15 days. Are you supportive of those proposals, and how would that improve or affect 

our national security? 

Mr. BAKER. I am not aware of proposals to limit it to 15 days. 

I would say that the intelligence community analysis of the transaction is vital, but it is only part of what we have to do. If we have 

a 30-day review window, and the intelligence community takes 29 

days, there really isn’t time for us to do the analysis that we need 

to do, or to ask for the protection measures that we need to take. 

So there is always a tension. I think it is probably a bad idea 

to try to set it legislatively. We push the intelligence community to 

give us preliminary or as much information as they can as early 

as possible so we can begin deciding whether we want to ask for 

additional assurances. But it is going to be a tension no matter 

how that particular issue is resolved, legislatively or administratively. 

Mr. DENT. And finally, what changes have been made to the 

CFIUS process since the post-9/11 world? I would just be curious 

to get your take on that. 

Mr. LOWERY. Yes, sir. I think there have been a few things, a lot 

of it based on the lessons we learned from 9/11 and then Dubai 

Ports World. The first big change was we added the Department 

of Homeland Security. 

Mr. DENT. Other than that. 

Mr. LOWERY. What we are now doing is we have much more formalized the process of using the intelligence community. They are 

at every meeting. They are observers. They are an input valve. It 

was always kind of an informal process that has become much 

more formalized. 

Secondly, I think each agency is briefing up at the highest levels 

of their agencies because of the concern that there was not as much 

accountability as there should have been in the Dubai Ports World 

case. 

Thirdly, we are trying to work with the oversight committees on 

keeping them informed about how the cases are coming out, with 

some notifications obviously. This is something that is in a variety 

of different legislative bills. We are going to work with Congress to 

try to keep you better informed about how the process works and 

also the results of the process. So those are a few off the top of my 

head. 

Mr. ROGERS. The gentleman’s time has expired. 

The gentleman from Oregon, Mr. DeFazio, is recognized for any 

questions he may have. 
24

Mr. DEFAZIO. Thank you, Mr. Chairman. 

I would assume on the list of critical infrastructure would be our 

airline industry. Would that be correct? 

Mr. BAKER. Which industry? 

Mr. DEFAZIO. Airline. 

Mr. BAKER. Yes, sir. 

Mr. DEFAZIO. Yes, especially since they provide the civilian reserve air fleet. What would trigger a review? 

The administration is currently proposing that foreign interests, 

despite the legal restrictions on ownership in the Federal Aviation 

Act, they want to creatively reinterpret the meaning of ‘‘control’’ to 

allow foreign interests to actually have a controlling interest in a 

U.S. airline, but somehow internally draw some firewalls and say, 

well, you can hire and fire the management; you can set the schedules; you can buy or sell equipment; choose routes; use your personnel, the existing personnel, foreign pilots, whatever. But we are 

going to wall off safety and security. 

Now, the most credible analysts say that doesn’t really seem like 

it is going to work too well, especially since we had the director of 

security from Continental say, well, look, I mean the President say, 

‘‘I hire the head of security and safety. The board of directors tells 

me they want something, I am going to deliver it. I will fire him 

and get someone who will do what I want.’’

So I guess the question is, if this rule goes through, they won’t 

technically be buying more than a 50 percent share, but they will 

be buying under the rules that are being proposed a controlling interest in a substantial portion of the airline through super-voting 

majorities of certain kinds of stock, otherwise they won’t make the 

investments. 

Would that trigger a review? 

Mr. BAKER. A couple of thoughts on that. 

The first, I think CFIUS, as I said earlier, is kind of a blunt instrument in that in this case it seems to me that we have a great 

deal of much more specific regulatory authority, including the authority under the provisions of law that you were just talking 

about. So that the debate will take place, rather than in CFIUS, 

about how to interpret and apply the airline-specific rules. 

We are aware of the proposal that you are talking about, and of 

the tensions that you just described, and are still examining that 

proposal to see whether we believe that it will protect homeland security and the security generally sufficiently. We are in the midst 

of that, so I would not like to comment in more detail. 

Mr. DEFAZIO. Okay. So you have been asked to review the proposed rule? 

Mr. BAKER. Yes. 

Mr. DEFAZIO. Okay. In what venue will that review be made 

available? Will it be made available to members of Congress on a 

need-to-know basis, on a secure basis? Is it being made public? 

What will you do with that? 

Mr. BAKER. The administration will arrive at a conclusion and 

then once that conclusion is arrived at, I am sure that we are not 

going to be the principal interlocutor on that issue because it is not 

our regulation, but I expect that it will then be explained in whatever supporting detail is necessary and made available. 
25

Mr. DEFAZIO. I mean, their attempt to end-run Congress has 

been very specific. They are saying the word ‘‘control’’ means, you 

know, something else, which means they are going to create this 

artificial fire wall. 

Are you saying, what about the idea that a foreign interest can 

appoint all the management; board of directors direct the company, 

and yet somehow internally within this corporate structure we are 

going to say, oh, safety and security are over here, don’t worry, despite what we have heard from airline execs saying that is not really the way an airline works. 

You are saying, what about this? Do you think this is? 

Mr. BAKER. If I said I was saying that, I would probably be making a decision. It is a little early. 

Mr. DEFAZIO. Well, it isn’t early. Any day, they could pop this 

rule out. They proposed it. They get a little flak. They just changed 

it cosmetically. It is still the same rule. They are trying to end-run 

Congress because they couldn’t get this in the last Federal Aviation 

reauthorization. And there is obviously somewhat of a reluctance 

on the part of the Republican leadership to challenge the White 

House on this issue, and some of the financial interests involved. 

But this would include any country with an open skies agreement, which just in case you don’t know that, it would include Indonesia, for instance. I don’t think that would be a really good idea. 

Mr. BAKER. I think we understand precisely the tensions you are 

describing, and are building those into our analysis of the proposal. 

Mr. DEFAZIO. Okay. And your analysis is only going to be available to the executive and not to Congress? Or if Congress asks? 

Mr. BAKER. I am not suggesting that we are writing a 500-page 

report. We are examining this and the legal and factual issues that 

go into it because we have been asked for our views. 

Mr. DEFAZIO. Thank you, Mr. Chairman. 

Mr. ROGERS. The gentleman yields back. 

The gentleman, Mr. Langevin, is recognized for any questions he 

may have. 

Mr. LANGEVIN. Thank you, Mr. Chairman. 

Actually, in addition to my committee work here, I also sit on the 

House Armed Services Committee. Mr. Lowery and Mr. Baker appeared before me there, and I have had the opportunity to question 

them. So I don’t have any questions for the panel at this time. I 

will hold those for the record potentially. 

I will just say that during the consideration of the SAFE Ports 

Act, I offered an amendment to require more transparency in the 

CFIUS process. The amendment that I offered would require 

CFIUS to notify congressional leaders of both parties of any foreign 

acquisition dealing with critical infrastructure. In addition, it 

would have ensured open lines of communication between Congress 

and CFIUS. 

So I am going to continue to work for those opportunities to enhance those reporting requirements, but at the time Chairman 

King had indicated that he would work with me to address this 

issue, and so I am proud to be a part of this hearing today and I 

want to thank the panel for their testimony. 

Thank you. I yield back. 

Mr. ROGERS. I thank the gentleman. 
26

Are there any additional questions by the Members? 

I want to thank both of you for your time. It has been very helpful. 

At this time, we will dismiss this panel and call up our second 

panel. 

Thank you very much. 

Joining us today is Daniella Markheim, the Jay Van Andel senior analyst in trade policy at The Heritage Foundation’s Center for 

International Trade and Economics; and Mr. Stuart Eizenstat, a 

legal expert on CFIUS and former deputy secretary of the Treasury. 

Welcome to both of you. We look forward to hearing your testimony. 

The chair now recognizes Ms. Markheim for any statement she 

may have. 

STATEMENT OF DANIELLA MARKHEIM, JAY VAN ANDEL 

SENIOR ANALYST IN TRADE POLICY, CENTER FOR 

INTERNATIONAL TRADE AND SECONOMICS 

Ms. MARKHEIM. Thank you, Mr. Chairman and distinguished 

members. I am honored to testify before the House Committee on 

Homeland Security today. 

In my testimony, I would like to describe the contribution of foreign investment to the U.S. economy, discuss the efficacy of the 

current foreign investment approval process, and recommend improvements to the CFIUS process to preserve both an open investment climate and America’s national security. 

Today, the United States is the world’s dominant economy. Because of the promise of America’s economic potential and the openness of its markets, the U.S. is a major destination for foreign direct investment or FDI. Foreign investment introduces new technologies and skills to America’s economy, helping to promote U.S. 

competitiveness abroad. 

FDI also supports over 5 million U.S. jobs from California to New 

York, and Texas to Ohio. Moreover, the benefits of FDI extend beyond the industries receiving investment and into the American 

economy as a whole. Increased investment and competition generate higher productivity and more efficient resource use. 

Ultimately, this culminates in greater economic growth, job creation and higher living standards for all. Any new rules that restrict, delay or politicize foreign investment will result in the loss 

of FDI as greater uncertainty and delays add to the cost of foreign 

firms doing business in the U.S. Consequently, America will pay 

for higher investment barriers with lower growth and fewer jobs. 

The CFIUS process serves as an objective nonpartisan mechanism to review, and if the president finds necessary, to restrict or 

prohibit foreign investment that may threaten America’s security. 

With a few exceptions, the current CFIUS process minimizes the 

cost of such legislation on the U.S. economy, while preserving the 

intent: protecting America from those that would cause the country 

harm. 

The process is effective in that it is nonpartisan and nonpolitical. 

It concludes its reviews in a timely manner, and because it extends 

an investigation only if merited, rather than as a rule or for bu-
27

reaucratic convenience. While today’s CFIUS process is generally 

effective, it could be improved. The recent Dubai Ports controversy 

is the latest example demonstrating that the investment approval 

process needs to be better defined and more transparent. 

First, successful congressional oversight of the CFIUS process relies in part on having reliable information describing the extent of 

foreign commercial misconduct in the U.S. As such, the administration should immediately resume the practice of providing quadrennial reports to Congress of credible evidence of foreign efforts to acquire critical U.S. technologies or commercial secrets. 

Second, CFIUS investigations that result in presidential action 

are also subject to reporting to Congress. However, because firms 

may withdraw and re-file notifications in order to avoid extended 

reviews, few reports are actually submitted. As a result, Congress 

has little insight into the effectiveness of the CFIUS process during 

investigations. To fill this gap, Congress should receive regular 

general reports of committee investigations in addition to the required case-by-case reports on any extended examinations. 

Third, while the option to withdraw and re-file provides additional time for companies to resolve national security concerns, the 

option may actually increase those risks if the transaction is completed during the withdrawal period and the foreign firm inappropriately gains control of a U.S. asset until it re-files with CFIUS. 

To mitigate this risk, provisions should be incorporated into the 

process that establish interim protections in cases where security 

issues have been raised, and to specify clear and reasonable time 

limits to limit the duration between withdrawal and re-filing. 

Finally, left undefined in the Exon-Florio provision, member 

agencies have generally determined that a risky transaction involves a U.S. company that possesses export-controlled technologies 

or products, a company that has classified contracts, or specific derogatory intelligence on foreign companies. This narrow definition 

of what is a threat should be more explicitly and firmly incorporated into the process. Leaving ‘‘threat’’ undefined in the legislation keeps the door open for mis-using the process to protect domestic industry from foreign competition. 

In conclusion, the notion that precluding foreign ownership of 

U.S. assets offers a measure of security or saves American jobs is 

flawed. Erecting barriers to foreign investment would stifle innovation, reduce productivity, undermine economic growth, and cost 

jobs, all without making America any safer. The government’s role 

is not to decide how the marketplace operates, but to perform due 

diligence to ensure that vital national interests are looked after. 

Thus, reform should address the heart of the CFIUS problem: appropriate reporting and transparent, well-defined rules, without 

opening the door to protectionism and without chancing the economic and political consequences of politicizing foreign investment 

in the U.S. 

A successful strategy for improving national security must include an ongoing commitment to free trade and investment policy. 

Thank you for the opportunity to address the committee. I do 

look forward to any questions you may have on this issue. 

[The statement of Ms. Markheim follows:]
28

1The Heritage Foundation is a public policy, research, and educational organization operating 

under Section 501(C)(3). It is privately supported, and receives no funds from any government 

at any level, nor does it perform any government or other contract work. 

The Heritage Foundation is the most broadly supported think tank in the United States. During 2005, it had more than 275,000 individual, foundation, and corporate supporters representing every state in the U.S. Its 2005 income came from the following sources: 

Individuals 63% 

Foundations 21% 

Corporations 4% 

Investment Income 9% 

Publication Sales and Other 3% 

The top five corporate givers provided The Heritage Foundation with 2% of its 2005 income. 

The Heritage Foundation’s books are audited annually by the national accounting firm of 

Deloitte & Touche. A list of major donors is available from The Heritage Foundation upon request. 

Members of The Heritage Foundation staff testify as individuals discussing their own independent research. The views expressed are their own, and do not reflect an institutional position 

for The Heritage Foundation or its board of trustees. 2 Bureau of Economic Analysis, U.S. International Transactions, at http://www.bea.gov/bea/

newsrel/transnewsrelease.htm (May 21, 2006). 3William J. Zeile, ‘‘U.S. Affiliates of Foreign Companies: Operations in 2003,’’ Bureau of 

Economic Analysis, at http://www.bea.gov/bea/ARTICLES/2005/08August/

0805lForeignlWEB.pdf (May 21, 2006). 4Organization for International Investment, Insourcing Statistics, at http://www.ofii.org/

insourcing-stats.htm (May 21, 2006). 5 Bureau of Economic Analysis, Balance of Payments and Direct Investment Position Data, 

at http://www.bea.gov/bea/international (May 21, 2006).

PREPARED STATEMENT OF DANIELLA MARKHEIM

Mr. Chairman, and other distinguished Members, I am honored to testify before 

the House Committee on Homeland Security today.1 In my testimony, I would like 

to (1) describe the contribution of foreign investment to the U.S. economy; (2) discuss the efficacy of the current foreign investment approval process; and (3) recommend improvements to the CFIUS process to preserve both an open investment 

climate and America’s national security. 

Foreign Investment in the United States 

Today, the United States is the world’s dominant economy. Because of the promise of America’s economic potential and the openness of its markets, the U.S. is a 

major destination for foreign investment. According to the Commerce Department’s 

Bureau of Economic Analysis, net inflows of foreign direct investment (FDI) increased by almost 50 percent between 1996 and 2005, growing from $86 billion to 

$128 billion. Between 2004 and 2005 alone, the level of FDI in the U.S. increased 

by $21.8 billion, or 20 percent.2

Foreign investment introduces new technologies and skills to America’s economy, 

helping to promote U.S. competitiveness abroad. About 20 percent of all U.S. exports 

originate from U.S. affiliates of foreign-owned companies.3

FDI supports about 5.3 million U.S. jobs from California to New York, and Texas 

to Ohio.4 U.S. subsidiaries support an annual payroll of $317.9 billion with average compensation per employee worth almost $60,000—more than one-third more than 

the average American salary. 

Moreover, the benefits of FDI extend into the American economy as a whole. Increased investment and competition generate higher productivity and more efficient 

resource use. Ultimately, this culminates in greater economic growth, job creation 

and higher living standards for all. 

Any new rules that restrict, delay, or politicize foreign investment, will result in 

the loss of FDI as greater uncertainty and delays in investment transactions add 

to the cost of foreign firms’ doing business in the U.S. Consequently, America will 

pay for higher investment barriers with lower growth and fewer jobs. FDI restrictions would undermine America’s chances of remaining an economic superpower in 

an increasingly competitive global economy. 

Moreover, there may be secondary consequences of enacting new foreign investment barriers. America could face less market access and opportunity abroad, as 

countries enact retaliatory policies that result in ever higher barriers to global investment. With over $2 trillion of direct investment abroad the U.S. is the world’s 

biggest investor—foreign retaliation to new U.S. investment restrictions would be 

costly for many Americans.5

The CFIUS Process Today 

The United States generally welcomes foreign investors and provides them equitable and nondiscriminatory access to investment opportunities. While the bulk of 
29

6 50 U.S.C. app 2170. 

7 Ibid.

foreign investment in America generates no threat to national security, the ExonFlorio provision was implemented in 1988 to insure that FDI remain benign.6 The 

intent of Exon-Florio is to provide an objective, non-partisan mechanism to review 

and, if the President finds necessary, to restrict or prohibit foreign investment that 

may threaten America’s security. 

The Exon-Florio provision is implemented by the Committee on Foreign Investment in the United States (CFIUS), an inter-agency committee chaired by the Secretary of Treasury. The Departments of Defense, Justice, Commerce, and Homeland 

Security are part of the 12 agencies that participate in CFIUS. The Committee’s 

task is ‘‘to suspend or prohibit any foreign acquisition, merger or takeover of a U.S. 

corporation that is determined to threaten the national security of the United 

States.’’ In 1992, Congress amended the statute through section 837(a) of the National Defense Authorization Act for Fiscal Year 1993, requiring CFIUS to also review transactions where the acquirer is controlled or acting on the behalf of a foreign government. 

Once notified of a potential transaction, the CFIUS process begins with a 30-day 

review of the planned foreign acquisition, followed by an additional 45-day review 

for exceptional cases. At the end of an extended review, a report is provided to the 

President, who then has up to 15 days to announce whether the investment is approved. In total, the process can not exceed 90 days. 

The amending legislation set in 1992 requires the President to report every 4 

years to Congress on whether there is credible evidence of foreign efforts to acquire 

critical U.S. technologies or commercial secrets. Additionally, a report is to be made 

to Congress regarding any transaction that required Presidential action. 

Through the Exon-Florio provision, CFIUS is directed to consider the following 

factors in evaluating the security risk of a foreign acquisition or merger: • domestic production needed for projected national defense requirements; • the capability and capacity of domestic industries to meet national defense requirements, including the availability of human resources, products, technology, 

materials, and other supplies and services; 

• the control of domestic industries and commercial activity by foreign citizens 

as it affects the capability and capacity of the United States to meet the requirements of national security; 

• the potential effects of the proposed or pending transaction on sales of military goods, equipment, or technology to any country that supports terrorism or 

proliferates missile technology or chemical and biological weapons; and, 

• the potential effects of the proposed or pending transaction on United States 

international technological leadership in areas affecting United States national 

security.7

A transaction may be voluntarily notified to CFIUS by the companies involved in 

the acquisition, or by CFIUS member agencies. The incentive for firms to voluntarily notify the CFIUS process is strong; firms that should, but do not notify 

CFIUS of an acquisition remain subject indefinitely to divestment or other negative 

actions by the President. In order to protect proprietary commercial data, notifications to CFIUS are confidential.

Balancing Act 

With a few exceptions, the current CFIUS process minimizes the cost of such legislation on the U.S. economy, while preserving the intent—protecting America from 

those that would cause the country harm. Favorably, the process:

• Is designed to be non-partisan and non-political because these decisions 

should not be based on political considerations, but solely on the merits of the 

transaction and appropriate security concerns consistent with U.S. policies. 

Congress does not receive comprehensive notification in any other administrative procedure. Congress sets the law, establishes procedures to implement and 

enforce the law, and oversees the successful fulfillment of those procedures. As 

such, Congress plays no collaborative role in anti-trust decisions, patent and 

trademark awards, or International Trade Commission reviews. Likewise, a successful CFIUS process depends on Congress playing its oversight role, without 

becoming a part of procedure. 

• Reduces the risk and economic cost of delayed foreign investment by concluding its reviews in as timely a manner as possible. 

• Subjects investment transactions involving foreign government-owned companies to additional investigation only if merited, rather than as a rule. Transactions involving companies where the foreign government is a minority share-
30

8 United States Government Accountability Office, ‘‘Defense Trade: Implementation of ExonFlorio,’’ GAO–06–135T, October 6, 2005. 9 Ibid, p.9. 10 Ibid, p.9. 11 Ibid, p.8. 

holder should not necessarily be evaluated with the same scrutiny as those 

transactions involving companies that are wholly owned and operated by foreign 

governments. Likewise, the potential threat to U.S. national security interests 

by foreign governments is not the same around the world. CFIUS is, and should 

remain, flexible enough to differentiate the level of investigation needed for 

each case. The foreign government-owned company headquartered in an ally 

country that competes fairly and according to market-based rules should not 

automatically face a more stringent investment approval process. 

• Relies on a traditional and narrow definition of what constitutes a threat to 

national security. Left undefined in the Exon-Florio provision, member agencies 

have generally associated risky transactions with those involving, (1) a U.S. 

company that possesses export-controlled technologies or items; (2) a company 

that has classified contracts and critical technologies; or (3) specific derogatory 

intelligence on the foreign companies.8 This narrow definition of what constitutes a threat reduces the likelihood that barriers will be erected, inappropriately protecting domestic industries from foreign competition. Investigations 

should remain focused on evaluating security concerns. 

While today’s CFIUS process is generally effective in balancing an open investment climate with national security, it could be improved. The recent Dubai ports 

controversy is the latest example demonstrating that the investment approval process needs to be better defined and more transparent. 

• Amendments to Exon-Florio set in 1992 require the President to provide 

quadrennial reports to Congress of credible evidence of foreign efforts to acquire 

critical U.S. technologies or commercial secrets. In 1994, the first and last 4-

year report was provided to Congress.9 Successful Congressional oversight of 

the CFIUS process relies, in part, on having reliable information describing the 

extent of foreign espionage and attempts to circumvent sensitive technology controls. The administration should immediately resume the practice of providing 

this report. 

• Any CFIUS investigations that result in presidential action are also subject 

to reporting to Congress; however, few reports are actually submitted.10 As a 

result, Congress has little insight into the CFIUS process and deliberations that 

occur during investigations. Few reports are made to Congress because firms 

are allowed to withdraw a notification that would result in an extended investigation. Companies may then refile the notification of acquisition after previously identified security concerns are addressed. Refiling restarts the clock on 

the duration of the investigation and reduces the chance that the transaction 

will fall under presidential review. While this allows greater flexibility in the 

process and promotes investment, it has resulted in less information reaching 

Congress about CFIUS operations. To fill this gap, Congress should receive regular, general reports of Committee investigations, in addition to the required reports on any extended investigations. The content of these reports should focus 

on CFIUS proceedings, without compromising confidential information. 

• While the option to withdraw and refile provides additional time for companies to resolve national security concerns pertaining to an acquisition, withdrawal may increase national security risks if the transaction is completed during the withdrawal period. In this scenario, a foreign firm may inappropriately 

gain control of a U.S. asset until it refiles a notification with CFIUS. To mitigate this risk, provisions should be incorporated into the process that, (1) establish interim protections in cases where security issues have been raised, (2) 

specify clear and reasonable time tables to limit the duration between withdrawal and refiling, and (3) establish penalties for non-compliance.11

• The current definition of what foreign investment may constitute a threat to 

national security should be formally incorporated into the CFIUS process. Leaving ‘‘threat’’ undefined in the legislation keeps the door open for misusing the 

process to erect protectionist barriers to foreign investment. The CFIUS process 

is solely concerned with identifying the national security risks of foreign investment. CFIUS should not be used as a vehicle for conducting industrial policy.

Conclusion 

A strong economy, bolstered by free trade and investment, is a pillar of national 

defense. The Bush Administration’s National Security Strategy correctly identifies 
31

12 James J. Carafano, Tim Kane, Dan Mitchell, and Ha Nguyen, ‘‘Protectionism Compromises 

America’s Homeland Security,’’ Heritage Backgrounder No. 1777, July 9, 2004. 

‘‘free markets’’ as the key to a secure America and a necessary component of our 

national security strategy. 

The notion that merely precluding foreign ownership of U.S. assets offers a measure of security or saves American jobs is flawed.12 Erecting barriers to foreign investment would stifle innovation, reduce productivity, undermine economic growth 

and cost jobs—without making America any safer. The government’s role is not to 

decide how the marketplace operates, but to perform due diligence to ensure that 

vital national interests are looked after. 

Thus, improving the transparency of the CFIUS process is appropriate; provoking 

a wave of anti-trade, anti-investment policy is not. Reform should address the heart 

of the CFIUS problem—appropriate reporting and consideration of investment by 

government-owned firms—without opening the door to protectionism and without 

chancing the economic and political consequences of politicizing foreign investment 

in the U.S. 

Protectionism would endanger U.S. prosperity—the very cornerstone of security—

as well as strain relationships with important allies in the war on terror, and make 

it more difficult to use open markets to spread American values and bolster U.S. 

interests around the world. A successful strategy for improving national security 

must include an ongoing commitment to free trade and investment policies. 

Thank you for the opportunity to address this vital issue.

Mr. ROGERS. I thank you, Ms. Markheim. 

The chair now recognizes Mr. Eizenstat for any statement he 

may have. 

STATEMENT OF THE HONORABLE STUART EIZENSTAT, 

PARTNER AT COVINGTON AND BURLING AND FORMER 

DEPUTY SECRETARY OF THE TREASURY 

Mr. EIZENSTAT. I appreciate the bipartisan way in which this 

committee is proceeding. We are at a strategic crossroads on international investment around the world, and we live in what threatens to be a protectionist era. 

There is a clear and present danger that the recent Dubai Ports 

World controversy will be used as a platform to fundamentally 

change the rules governing foreign investments in the United 

States in ways that will in my opinion threaten investments that 

are a lifeblood for a healthy economy. 

Little direct foreign investment comes from the Middle East. 

Ninety-four percent of the foreign assets in America are owned by 

the companies from 25 OECD industrialized democracies, and 73 

percent of all foreign investments in the U.S. are made by European companies. At a time when we are all concerned about 

outsourcing, foreign investment represents a vote of confidence, insourcing in the United States. 

In-sourcing foreign companies employ more than 5 million people, and at a time when our manufacturing employment is hemorrhaging, 35 percent of all foreign investment is in the manufacturing sector. When we have a 7 percent current account deficit, we 

need to keep the arteries of foreign investment open to fund this 

record deficit. 

As former ambassador to the European Union, under secretary 

of commerce, under secretary of state and deputy treasury secretary, I want to make one point very clear. That is, what you do 

in the next several weeks will reverberate around the world. It will 

not be isolated. Congressional action to tighten restrictions on for-
32

eign investment in this country will invite and encourage similar 

action abroad. This is not an idle concern. 

Already in response remarkably to PepsiCo’s attempt to buy 

Group Danone, which manufactures Dannon yogurt, the prime 

minister of France called the Dannon Group a jewel of French industry that had to be defended, and his government has proposed 

legislation establishing 11 strategic sectors to be shielded from foreign investment. 

France is not alone. Spain, Poland and Germany all have restrictions. President Putin has recently proposed a new law to protect 

what he called ‘‘strategic industries’’ in Russia from foreign investment, and China has many restrictions already in important sectors. 

We obviously should never compromise national security, but 

please realize that any restrictions you impose on foreign investments in the U.S. will invite similar restrictions on our companies 

investing abroad. 

I will also ask you to recognize as you look at the legislation that 

even now, because of the aftershocks from Dubai Port World, that 

the administration is changing in a profound way, as is the private 

sector, the way in which the CFIUS process is proceeding. Applications are being filed by companies that would have never thought 

that there was any national security concern. 

In addition, more of the CFIUS cases are going to the second 45-

day phase simply because of fear that there will be political criticism, even though few of them have national security implications. 

Senior officials are more directly involved now than ever before. 

I believe that the fundamental principle that should guide you as 

you look at the legislation is that CFIUS should be given by the 

Congress all the tools and all the time to identify, scrutinize and 

act upon the tough cases that present real national security issues, 

while ensuring that the overwhelming number who do not can proceed efficiently with a process that will not be clogged down. 

With few adjustments, I believe that the reform bill before the 

House Financial Services Committee that has been cosponsored by 

Chairman King and I believe Congressman Thompson has also 

been involved in this, but I know Congressman Crowley and 

Maloney have as well, will do much to restore confidence in the integrity of CFIUS, reassure our global allies, but at the same time 

keep America open for business. 

Having said that, permit me to briefly suggest a few modifications that the committee might consider if it gets a sequential referral from the Financial Services Committee to this legislation. 

First, I understand the political concerns about governmentowned companies, but all government-owned companies are not 

created alike. And yet this legislation, like the Senate legislation, 

lumps all government-controlled companies together and would impose additional time requirements upon them. 

Since time is money, it puts them at a disadvantage. Now, certainly there are certain government-controlled companies that are 

subsidized or from less friendly governments that should go into 

that type of extended process, but there are others from friendly 

governments which operate purely by market principles and 

shouldn’t be arbitrarily lumped together with government-owned 
33

firms that otherwise raise national security concerns. Therefore, 

optimally all transactions by companies that operate on market 

principles and don’t raise national security concerns, should go 

through a 30-day review. 

Second, I understand the desire for additional accountability. 

Having served at senior levels in three departments, may I say 

that the requirement that secretaries or deputy secretaries at 

Treasury and Homeland Security should personally approve and 

sign each and every review and investigation is unnecessary. It will 

create bureaucratic delays and overload CFIUS for those cases 

where it ought to be focusing senior-level attention. 

Third, CFIUS should never act if the director of national intelligence doesn’t have adequate time to analyze and correct intelligence relating to a particular transaction. However, by creating, 

as the legislation does, a 30-day minimum for the DNI’s intelligence review and requiring that the DNI review be completed no 

less than 7 days before the end of the CFIUS review period, the 

bill effectively establishes a de facto 37-day process even for transactions raising no national security issues, and I hope this can likewise be attended to in the legislative process. 

And last, I believe that the existing review and investigation periods are appropriate for CFIUS to do its work. If an extension is 

necessary, this bill gets it right. Instead of adding it to the front 

end, put it at the back end, and that is a better way of proceeding. 

The last point is critical infrastructure. This has become a very 

sensitive issue, and of course something that this committee is particularly concerned about. But what may be important to protect 

critical infrastructure from terrorism is a very different set of 

issues from what should be involved in the CFIUS process for foreign investment. 

There are three approaches. The first is offered by Chairman 

Hunter in H.R. 4881, which essentially would prohibit foreign investment in critical infrastructures defined so broadly that 25 percent of the entire U.S. economy would be walled off. This is a duplication of what French Prime Minister Villepin is doing. I cannot 

conceive that we would want to go down the French road. They 

have proven that they do not have the kind of viable, flexible economy we do, and we hardly should be emulating what the French 

prime minister is doing. 

The Senate bill, the Shelby-Sarbanes bill, creates a de facto presumption that all foreign investment in critical infrastructure creates a security risk and also should go to the 45-day period, and 

I think this is ill-advised. The bill that Chairman King and Congressman Crowley and others have cosponsored has it right. It requires CFIUS to consider whether a public transaction has a national security-related impact on critical infrastructure in the U.S. 

as a factor in deliberations, and that is the way it should go. 

I would also suggest to members of this committee that additional work needs to be done by this committee with the administration to define what is meant by ‘‘critical infrastructure.’’ There 

are varying definitions in the Patriot Act and by the Department 

of Homeland Security. Before one legislates in this area, we ought 

to make sure we know what we mean by ‘‘critical infrastructure.’’
34

1Stuart E. Eizenstat, was President Carter’s Chief White House Domestic Policy Adviser, and 

in the Clinton Administration was U.S. Ambassador to the European Union, Under Secretary 

of Commerce for International Trade, Under Secretary of State for Economic, Business & Agricultural Affairs, and Deputy Secretary of the Treasury, as well as Special Representative of 

President Clinton on Holocaust-Era Issues. He heads the international trade and finance practice at Covington & Burling, and has and continues to represent U.S. and foreign companies 

before CFIUS. Mr. Eizenstat is also co-chair of the European American Business Council, an 

organization with 58 American and European businesses committed to an open investment climate, and is appearing on the Council’s behalf.

So let me close by applauding your contribution to the process. 

I believe that Chairman King and Ranking Member Thompson 

have done a great service by taking a very careful bipartisan look, 

and I will be glad to take your questions. 

Thank you. 

[The statement of Mr. Eizenstat follows:]

PREPARED STATEMENT OF HON. STUART E. EIZENSTAT 1

Chairman King, Ranking Member Thompson and Members of the Committee: 

Thank you for the opportunity to testify today. It is a privilege to appear before 

you. I applaud your leadership, Mr. Chairman, and that of Ranking Member 

Thompson, on the vital issues affecting our nation’s homeland security. In particular, I want to thank you for your contribution to the careful, considered, prudent 

approach that the House of Representatives is taking towards reform of the ExonFlorio Amendment and CFIUS. This is a very heated political environment in an 

election year. Because of your leadership, I believe that the House is moving towards adopting tough, effective, and truly bi-partisan legislation that would restore 

Congress’s confidence in CFIUS, enhance protection of national security, and maintain the United States’ longstanding open investment policy. 

Importance of Foreign Direct Investment 

We live in what threatens to be a protectionist era. There is a clear and present 

danger that the recent Dubai Ports World controversy will be used as a platform 

to fundamentally change the rules governing foreign investments in the U.S., in 

ways that will threaten investments that are a lifeblood for a healthy economy. 

We need to be clear-eyed about our vital national interests. Little direct foreign 

investment comes from the Middle East: 94% of foreign assets in America are owned 

by companies from the 25 industrialized, democratic OECD member countries, and 

73% of all foreign investments in the U.S. are made by European companies. Our 

traditionally open investment climate has greatly benefited the American people. At 

a time when concerns are raised about the ‘‘outsourcing’’ of jobs abroad, foreign investment represents ‘‘in-sourcing,’’ a vote of confidence by foreign firms and investors in the openness, flexibility and strength of the U.S. economy. 

In-sourcing foreign companies employ more than five million Americans, some 5% 

of private industry employment. At a time when U.S. manufacturing employment 

is hemorrhaging, almost 35% of the jobs created by foreign firms in this country are 

in manufacturing. Foreign direct investment often saves a struggling American company, which might otherwise be shut down or moved abroad. Foreign-owned U.S. 

operations account for 21% of our total exports and in 2004 plowed $45 billion in 

profits back into the American economy. Foreign-owned affiliates purchase 80% of 

their intermediate components from U.S. firms; they also spend $30 billion on R&D 

and over $100 billion on plant and equipment annually in the U.S. 

Moreover, we also need to keep the arteries of foreign investment open to fund 

our record current account trade deficit, now at 7% of our GDP, and compensate 

for our low savings rates; foreign capital flows keep long-term interest rates lower.

Global Impact of CFIUS Reform 

As Congress looks at changing the rules for foreign investment I hope you will 

recognize that your actions will reverberate around the world. Congressional action 

to tighten restrictions on foreign investment in the United States could invite similar action abroad, limiting opportunities for outward investment by American companies. This is not an idle concern: 

• Last summer, French politicians reacted to mere rumors of PepsiCo’s potential interest in acquiring Danone, the French yogurt and water company. 

French Prime Minister Dominique de Villepin made the extraordinary statement that ‘‘The Danone Group is one of the jewels of French industry and, of 

course, we are going to defend the interests of France.’’ The French government 
35

2See Patrick Sabatier, Globalization a la carte, Int’l Herald Trib., May 18, 2006. 3 Id. 

4 Edward M. Graham and David M. Marchick, US National Security and Foreign Direct Investment 164 (2006). 

has followed up by publicly opposing the purchase of the steelmaker Arcelor by 

Mittal Steel, and pushing for the recent merger of the water utility Suez and 

the national gas company GDF to pre-empt an Italian energy company from acquiring Suez. Most recently, the de Villepin’s government has proposed legislation establishing a list of eleven ‘‘strategic sectors’’ that will be shielded from 

foreign investment.2 It is hard to see how yogurt is a strategic industry. 

• France is not the only European nation engaging in such protectionist machinations. Since the beginning of the year, the Spanish government has prevented 

a German company from taking over a Spanish energy concern; the Polish government has blocked Italians from acquiring several Polish banks, while Italy 

has done the same for some time; and Germany continues to insist on its 

‘‘Volkswagen law,’’, which insulates its auto industry from foreign competition.3

• In his State of the Union speech, President Putin called for a new law to protect ‘‘strategic industries’’ in Russia, including the oil sector. A draft of that law 

is expected to be put forward shortly. 

• The Canadian Parliament is now considering amendments to the Investment 

Canada Act to permit the review of foreign investments that could compromise 

national security. 

• China continues to restrict investment in a number of important sectors. 

Permit me to give you a recent, and more tangible, example in which a foreign 

government’s proposed restrictions on U.S. investors seems to be directly linked to 

security commitments imposed by CFIUS on a company from that country. Specifically, the Indian government, recently announced its intention to impose extremely 

broad security restrictions on foreign investments in the telecommunications sectors. 

These security restrictions were announced alongside a proposal to raise the ceiling 

on permitted foreign investment in the telecommunications sector, from 49% foreign 

ownership to 74% foreign ownership. In this case, it appears that the Indian government’s proposed new restrictions were provoked in part by the experience of an Indian company, VSNL, which itself had a difficult time clearing CFIUS, and ultimately signed a Network Security Agreement related to one of its investments in 

the United States. In a letter publicly filed with Indian regulatory officials, VSNL 

wrote, ‘‘[we] propose that TRAI [the Indian regulatory authority] consider whether, 

in the interests of a level competitive playing field as well as regulatory symmetry, 

a similar security agreement process should exist in India for U.S. and other foreign 

carriers who desire a license to provide domestic or international services.’’ VSNL 

further wrote, ‘‘While we certainly do not recommend that the Indian Government 

force foreign carriers to wait as long as VSNL has been made to wait for its license 

to enter the U.S. telecommunications market, we believe that the existence of these 

agreements in India and other countries will have a beneficial result by moderating 

the willingness of the U.S. government to impose burdensome conditions and requirements in their own security agreements, which of course hinder the ability of 

VSNL and other foreign carriers to compete fairly against U.S. carriers who are not 

subject to such requirements.’’ 4

Mr. Chairman, this letter proves the old maxim, ‘‘what goes around, comes 

around.’’ We should never compromise national security, but Congress needs to realize that restrictions imposed on foreign companies in the United States will invite 

similar restrictions in foreign countries against U.S. companies. We need to be careful not to encourage other countries to impose restrictions that hurt American investors, nor should we chill the foreign investment that is so vital to the American 

economy.

Comments on H.R. 5337 

I believe that the fundamental principle that should guide Exon-Florio reform is 

to ensure that CFIUS has all the tools and all of the time it needs to identify, scrutinize, and act upon the tough cases that present real national security issues, while 

ensuring that CFIUS has the necessary flexibility to recognize and efficiently process the majority of transactions that present no national security concerns. Ensuring 

that the overwhelming majority of transactions that do not raise national security 

issues can obtain Exon-Florio approval in 30 days is essential to avoid discriminatory treatment of foreign investors that would chill the investment our economy 

needs. American companies that make acquisitions need to secure antitrust approval under the Hart-Scott-Rodino Act, which also has an initial 30-day review period. Preserving two 30-day, parallel regulatory processes for both domestic and for-
36

eign acquisitions of U.S. companies ensures that foreign bids for U.S. companies are 

not discounted or ignored because of longer regulatory timeframes. 

With a few adjustments, I believe that the CFIUS reform bill currently before the 

House Financial Services Committee, and that you co-sponsored, Chairman King, is 

the right way to reform Exon-Florio. The bill will implement structural reforms that 

address Congress’s DP World-related concerns, restore confidence in the integrity of 

the CFIUS process, and reassure our global allies and partners that America is still 

open for business. Specifically, the bill facilitates identification of the tough cases 

by requiring CFIUS to consider additional factors during the review and investigation process, including whether a transaction has a security-related impact on critical infrastructure. 

The House bill ensures that CFIUS will have the information it needs by giving 

the Committee greater investigatory authority. It defines the appropriate role of the 

intelligence agencies as an information resource, as opposed to a policy role. It enhances accountability for both CFIUS and the transacting parties by requiring certification of notices, reports, and decisions, and by establishing procedures for control and continued monitoring of withdrawn transactions. The bill ensures CFIUS 

is focused and competent to fulfill its mission by maintaining Treasury leadership 

of the Committee and authorizing the designation of competent agencies to take the 

lead on particular transactions: investments in critical infrastructure, for example, 

should principally be reviewed by the Department of Homeland Security. It maintains voluntary, as opposed to mandatory, notices. And it enhances transparency of 

the process by requiring CFIUS to collect and share more data, on an aggregate 

basis, through semi-annual reports to Congress, without creating unduly burdensome notice and reporting requirements that will politicize the process or risk leakage of business proprietary data. Congress needs to recognize that imposing excessive reporting requirements on CFIUS may actually complicate and distract 

CFIUS’s focus from its principal mission of protecting U.S. national security through 

efficient review of foreign investments. The House bill’s provisions represent important substantive and procedural improvements to the CFIUS process. 

I do, however, have several concerns with specific provisions of the bill in its current form. 

First, I understand the dynamics that led to the provision in the bill tightening 

the so-called ‘‘Byrd Amendment’’ for government-owned companies, particularly in 

the wake of the Dubai Ports Controversy. In my view, acquisitions by some government-owned companies raise unique national security issues and should receive enhanced scrutiny. U.S. companies are put at a competitive disadvantage against 

those government-owned companies that receive subsidized or concessional government financing. But not all government acquisitions create the same national security risk, and CFIUS should have discretion to distinguish between transactions 

that raise issues and those that do not. Companies affiliated with friendly governments which operate by market principles should not be arbitrarily lumped together 

with government-owned firms that otherwise raise substantial national security concerns. Optimally, all transactions that involve parties that operate on market principles and do not raise national security concerns should be considered by CFIUS 

in the same, existing 30 day review period. But if political realities are such that 

mandatory investigations of all foreign government-controlled transactions are necessary, I think it would be useful for Congress to clarify the intent of the legislation, 

perhaps in its report, that CFIUS can allow such acquisitions to go straight to the 

investigation stage and that CFIUS has discretion to close the investigation if no 

real issues exist or if any national security concerns have been mitigated. 

Second, I also understand Congress’s desire for additional accountability. But the 

requirement that the Secretaries or Deputy Secretaries of both the Treasury and 

Homeland Security personally approve and sign each and every review and investigation may create bureaucratic delays and impede CFIUS’s ability to efficiently 

implement Exon-Florio. Perhaps the Congress could explore ways to require a highlevel sign-off for transactions that raise real national security issues, while allowing 

an Undersecretary or Assistant Secretary to approve other transactions. From my 

own experience in public service, very important decisions are regularly made at the 

Undersecretary and Assistant Secretary level. 

Third, CFIUS should never act if the Director of National Intelligence does not 

have adequate time to collect and analyze intelligence relating to a particular transaction. But again, the policy underpinning CFIUS reform should be to create a process that is tough enough for the complex cases and flexible enough for the easy 

cases. Some intelligence reviews might take 30, 45 or even 60 days. Reviews of companies that frequently go through the CFIUS process could simply be updated in 

a matter of days. But by creating a 30-day minimum for the DNI’s intelligence review, and requiring that the DNI review be completed no less than 7 days before 
37

the end of the initial CFIUS review period, the bill establishes a de facto 37 day 

process, even for transactions that raise no national security issues. Time is money; 

the longer a deal takes to approve, the more it costs and the more variables can 

affect the underlying transaction. I am confident that a provision can be fashioned 

to allow the DNI to do his job well without slowing down the entire process with 

a requirement for extended analysis of cases that present no national security concerns. 

Finally, I believe the existing review and investigation time periods are appropriate for CFIUS to do its work. But if some extension is inevitable, it is much preferable to add additional time to the end of the investigation period, as the bill does, 

rather than extending the process after the initial 30-day period. Thus, the Senate 

Banking Committee bill would extend the initial 30 day review period if only one 

CFIUS agency requests it. This House bill would allow an extension of the 45 day 

investigation period if requested by either the President or two-thirds of the agencies involved in the CFIUS process. Generally, CFIUS can determine in the initial 

30 day period if a transaction is likely to cause significant concerns from a national 

security standpoint.

Protection of Critical Infrastructure 

The final subject I would like to address is protection of ‘‘critical infrastructure.’’ 

I know that this is a topic that this Committee has a particular interest and expertise in, and that ‘‘critical infrastructure’’ has also become a significant issue in the 

debate over CFIUS reform. It will continue to be an important subject as any House 

bill moves into conference committee work with the Senate. The focus on protection 

of critical infrastructure is a relatively new and evolving national security objective, 

and may have different implications in different regulatory contexts. CFIUS needs 

the flexibility to focus its scarce attention, time, and resources on those foreign direct investments that create real national security risks. Forcing CFIUS to scrutinize every foreign investment in critical infrastructure will compromise CFIUS’s 

ability to focus on the transactions that matter from a national security perspective. 

Three different approaches have been proposed with respect to the protection of 

‘‘critical infrastructure.’’ 

H.R. 4881, offered by Chairman Hunter and other Members, would essentially 

prohibit foreign investment in critical infrastructure unless the particular investment is put in a ‘‘US Trust’’ run by American citizens and walled off from 

the foreign parent. If the Department of Homeland Security’s (DHS) current list 

of ‘‘‘critical infrastructure’’ activities were used, close to 25 percent of the U.S. 

economy would be off limits to foreign investment under this proposal. This bill 

is the mirror image of Prime Minister Villepin’s legislation shielding 11 sectors 

of the French economy from foreign investment, which I described earlier. I believe that the last thing we need to do with CFIUS reform is emulate the 

French government and move our economy closer to the French statist model. 

• The Senate bill, offered by Chairman Shelby and Senator Sarbanes, requires 

that foreign investments in critical infrastructure go to the ‘‘investigation’’ stage 

unless CFIUS determines that ‘‘any possible impairment to national security 

has been mitigated by additional assurances during’’ the review period. This approach creates a de facto presumption that all foreign investment in critical infrastructure creates a security risk because it must go to an ‘‘investigation’’ unless the risk is mitigated. In my view, some investments in critical infrastructure do create real national security risks; but other investments should not 

even be filed with CFIUS because they create no risk whatsoever. 

• The bill you co-sponsor, Mr. Chairman, requires CFIUS to consider whether 

a ‘‘covered transaction has a national security-related impact on critical infrastructure in the United States’’ as a factor in its deliberations. I think you have 

it right. It should be a factor CFIUS should consider. How significant a factor 

it should be will vary on a case-by-case basis. 

One of the reasons that your approach makes sense is because the focus on protection of critical infrastructure is a relatively new and evolving security objective. 

In contrast to the area of foreign investments in the defense sector, an area where 

DOD has extensive institutional experience and protocols dealing with what aspects 

of foreign investments present security issues (and which do not), ‘‘critical infrastructure’’ remains a relatively fluid regulatory concept. Additional work needs to 

be done, in my view, to define what exactly is meant by critical infrastructure. For 

example, the Patriot Act defines ‘‘critical infrastructure’’ to be 

‘‘[S]ystems and assets, whether physical or virtual, so vital to the United States 

that the incapacity or destruction of such systems and assets would have a de-
38

5Section 1016(e) of the Patriot Act, codified at U.S.C. 5195c. 

6See National Strategy for the Physical Protection of Critical Infrastructure and Key Assets, 

(February 2003), available at www.whitehouse.gov (last visited May 20, 2006); HSPD–7 (December 2003), available at www.whitehouse.gov (last visited May 20, 2006). 

bilitating impact on security, national economic security, national public health 

or safety, or any combination of those matters.’’ 5

This definition creates a high threshold and implies a relatively narrow list of assets that would ‘‘have a debilitating effect’’ on security. By contrast, the Department 

of Homeland Security has identified twelve extremely broad sectors that it considers 

to be critical infrastructure, including agriculture and food, water, public health, 

emergency services, the defense industry, telecommunications, energy, transportation, banking and finance, chemicals, postal services and shipping, and information technology.6 This definition may work for physical protection of critical infrastructure; it does not work for foreign investment considerations. 

But beyond specifying these sectors, the Department of Homeland Security has 

not publicly identified the types of companies, or even subsectors, for which acquisition by a foreign firm would be deemed a high risk to national security. Nor has 

anyone explained why foreign ownership of these sectors would necessarily create 

a national security risk. Thirty percent of value added in the U.S. chemical sector 

is already produced by U.S. affiliates of foreign owned firms. In the energy sector, 

it would seem fairly clear that foreign acquisitions of US nuclear energy companies 

should be reviewed by CFIUS. What about foreign acquisitions of US firms operating in other segments of the energy sector? Many foreign companies own electric 

distribution companies. Do these raise national security issues? What about foreign 

ownership of a wind farm? Similar questions certainly apply in the other sectors, 

including the food, transportation (including ports), and financial sectors, where foreign ownership of US firms is common. 

In my view, the Administration and Congress should work together to determine 

how best to protect critical infrastructure, regardless of who owns a particular company. Security policies and guidance could be developed on a sector-by-sector basis. 

A baseline level of security requirements should be established. If there are particular national security issues associated with foreign ownership in a particular 

asset, CFIUS is well equipped to mitigate that risk—or block the investment. 

In sum, until policies and doctrines with respect to critical infrastructure have 

been further developed, it is both unsound and unnecessary to do anything beyond 

adding ‘‘critical infrastructure’’ as a factor that CFIUS should consider. Creating an 

outright ban on foreign investment in ‘‘critical infrastructure’’ would both harm job 

creation and undermine national security, because foreign investment in these sectors has both increased research and development and spurred additional competition and innovation. Further, it would be unwise to create a presumption that foreign investment in critical infrastructure creates a national security risk. Rather, 

CFIUS should be given the discretion to deal with these issues on a case-by-case 

basis, examining both the trustworthiness of the acquirer and the sensitivity of the 

asset being acquired.

Conclusion 

Let me close by applauding your contribution to this reform process, Mr. Chairman and Ranking Member Thompson, along with the efforts of so many of your colleagues. Doing Exon-Florio reform right is critically important. The open character 

and continued vibrancy that define our national economy is at stake. These are 

among the fundamental characteristics of our great nation, which I know this Committee is dedicated to securing. The bi-partisan bill that you are co-sponsoring is 

the correct approach to the problem at hand. I am grateful for the opportunity to 

testify and look forward to working with you as you deliberate on this important 

subject.

Mr. ROGERS. I thank both of you. Those are very good opening 

statements. 

I would make the point that I agree wholeheartedly with your 

observation about the French. I don’t think we ought to be emulating France in anything. But I do want to talk a little bit about 

the length of the review period. 

In the previous panel, you heard Mr. Lowery talking about how 

there was a relatively small universe of folks that brought these 
39

petitions, and that they had been encouraging them to pre-file 

early. What do you think we can do to facilitate this pre-filing? 

Both of you have addressed this length of review as an issue. I 

would ask you, Mr. Eizenstat, what do you think we can do to encourage pre-filing? 

Mr. EIZENSTAT. It is already being encouraged, but certainly because all those representing companies before the CFIUS process 

now realize that if they don’t go through a pre-filing formula where 

they sit down before they file to find out where the kinks are, 

where the problems are, whether the transaction is likely to pass 

muster, they know that they face in this current environment the 

likelihood of rejection or at the very least going to the 45-day period. 

I certainly would have no opposition at all, quite the contrary, to 

committee report language or even bill language which would encourage companies to do this pre-filing so that you don’t jam the 

CFIUS process and force them to act within 30 days. The fact is, 

as Mr. Baker and Mr. Lowery said, that already most transactions 

go through a much longer pre-filing process before the first 30-day 

review process. But if you wanted to reinforce that and encourage 

it, it certainly would be a sound thing to do. 

Mr. ROGERS. In your opinion, if we did put in some bill language 

that required a pre-filing period, what would you think the appropriate time length would be? 

Mr. EIZENSTAT. I am not sure I would require a pre-filing period, 

because then you are adding additional time. If you give 30 days 

or 45 days, then the CFIUS process will take that long, and you 

don’t want to, again, have elongated processes for most of these 

cases which don’t really involve national security. So I would simply encourage the pre-filing with sufficient time for the intelligence 

agencies to make an initial determination. 

Mr. ROGERS. What is a sufficient time for the DNI? 

Mr. EIZENSTAT. It can vary. I think sometimes 30 days; sometimes 45 days; sometimes 15 days. It depends on the complexity of 

the issue. But again, what is happening now is many transactions 

are being filed simply out of fear that with the current political environment, the transaction is going to be turned down and unscrambled later on national security grounds when there is no national security interest. 

So rather than put a specific time, I would simply encourage the 

pre-filing to give the agency sufficient time before the 30-day review process starts. 

Mr. ROGERS. Ms. Markheim, I want to talk to you for a minute 

about congressional notification. In a recent Web note you coauthored with James Carafano, you argue that any congressional notification prior to approval of the acquisition would ‘‘politicize the 

approval process.’’

In the intelligence community, select Members are briefed on 

highly sensitive programs. What would the downside be to having 

a similar process in place whereby the chairmen and ranking members from select committees were briefed prior to approval? Your 

thoughts on that? 

Ms. MARKHEIM. The concern that we have with that is fairly simple. These are business transactions. And frankly, at time it might 
40

be the case that American firms, a U.S. firm has lost out in the 

fight to take over that transaction or what have you. By incorporating Congress into the process, by pre-notifying them or including them along with the investigation, that opens the door to allowing information, proprietary data, what have you, to potentially be 

leaked or be used in a way that would then be counterproductive 

to the most effective result for what we would hope for from foreign 

investment coming in. 

Our concern wasn’t so much that no one should be pre-notified. 

Our concern was that the breadth of or the amount of notification 

would extend such that it could actually cause a threat to allowing 

the investigation to be conducted appropriately. If the Congress 

were to become a part of the process, ideally the members that 

would be notified of this and briefed on this would be kept to an 

extreme minimum. 

Mr. ROGERS. That is my point. If it was chairmen and ranking 

members, that is pretty restrictive of select committees. What I 

found striking is you use the word that it would ‘‘politicize’’ the 

process. In my view, if that practice had been used in this Dubai 

Port situation, you would have defused a political problem. 

Ms. MARKHEIM. Aside from the Dubai Ports issue, in general this 

could politicize the problem simply because members are bringing 

in their own interests and their own incentives that are part of 

their agenda. By opening this door to allowing their input into the 

investigation, that might taint the overall objective way the CFIUS 

does handle investigations now. I am not saying that it would, but 

that it could. This is looking at the process over time, not just 

today and in one instance, but over all types of cases that could 

come up. 

So we could see down the road a reversal of what happened when 

we saw Pepsi Company looking at buying Danone in France. What 

if this were reversed? If there was some sort of concern of a French 

company buying Pepsi from America would be a problem, that 

could become an issue that it wouldn’t necessarily become had 

CFIUS remained external from Congress. 

Mr. ROGERS. I thank you. My time has expired. 

The Chair recognizes the Ranking Member of the Full Committee, Mr. Thompson of Mississippi. 

I just went blank. I am looking at your name. Thank you. 

Mr. THOMPSON. It might be that French wine. 

[Laughter.] 

Mr. ROGERS. That is right. 

[Laughter.] 

Mr. THOMPSON. Thank you both, witnesses. 

Mr. Eizenstat, you talked a little bit about how it might be necessary to have a parallel process going for the process of review of 

foreign and domestic acquisitions. Do you foresee the time, especially for foreign transactions, that we might need to provide a little more time for that process to take place? 

Mr. EIZENSTAT. No, sir, only if there is a national security threat 

and it goes into the second phase. Otherwise, the 30-day period 

should be the same. Under the Hart-Scott-Rodino, a domestic company has to go through that process with the Justice Department 

to see if there is any competition issues, any antitrust issues. 
41

The CFIUS process has been structured to try to give foreign 

companies that same window in most cases. In 90 percent, 95 percent of the cases, Congressman Thompson, that is sufficient. And 

that 10 or 15 percent where there is a sensitive issue, the additional 45 days is appropriate. 

I want to just make another point, if I may. With our current account deficit, that means that we are sending a tremendous 

amount of excess dollars abroad, petro-dollars to the Arab countries, additional dollars to the Chinese. What are they going to do 

with those dollars? There are two things they can do with them. 

One is they are investing them in treasury bills, and that helps 

lower our interest rates. 

It also means, however, that huge percentages of our debt are 

held by foreign countries that may decide to unload them at some 

point. It is far better to have them recycle those excess dollars that 

we are sending abroad for everything from T-shirts to cars, back 

into fixed assets in the United States where it actually creates jobs. 

That is why we have to be so careful not to have different processes 

for foreign acquisitions of U.S. assets, except again in the rare situations where there is a national security threat, than domestic acquisitions. 

Mr. THOMPSON. But you do see that the public would want to 

know that there is an assurance that this process takes into consideration any extenuating circumstances on the acquisition itself. I 

am talking about the Dubai dilemma that more or less precipitated 

a lot of discussion here on the Hill, and whether or not the process 

that was used in that situation provided as much transparency as 

was needed, because when questions started bubbling up, it was 

not as clear-cut in the eyes of the public as one would want. 

I think for whatever reason we have to have a process that is 

thorough and complete, but also has to stand the scrutiny of the 

public at some point. I think part of it is the public felt that the 

process was a little less transparent than perhaps one would want. 

Mr. EIZENSTAT. You are quite right. I think that the Treasury 

and other departments, and I say this in a completely bipartisan 

way because I sat in the same seat that they did, and I know the 

pressures that they were under. I think they realized that they 

didn’t do the kind of base-touching that they should of, and that 

had they done so, and had they explained the transaction; had they 

explained that this was not the ownership of a port; it was the 

ownership of a terminal, and done a more thorough education process, that we wouldn’t be sitting here today. 

So yes, the public has a right to be concerned about national security. The current CFIUS process provides for that. I think with 

the kinds of additional provisions that you have put in here, by and 

large in the House bill, you are giving an additional assurance 

without at the same time shutting down foreign investment in a 

way that I fear the Senate bill will do. 

Again, I think even here, as I have suggested with governmentowned companies, don’t consider all government-owned companies 

the same. If a British company is owned by the government, or 

from another ally, and they are run purely by private market principles, they shouldn’t be necessarily automatically extended into 

the 45-day period unless there is a real national security threat. So 
42

I think you are headed in the right direction. You are going to give 

more transparency to the process. 

But I want to say, as Ms. Markheim said, one has to be very 

careful about the notice requirements. What is good about the 

House bill is the notice requirements are given after the deal is 

done, so you could judge and then grill the agencies if they didn’t 

do their job. But by doing it, as the Senate bill does, before the 

deal, what it will encourage, and I can assure you as soon as I am 

sitting here that it will, the losing bidder in an acquisition will go 

to his member of Congress, his governor, and lobby you to try to 

block that deal. That politicizes the investment process in ways we 

don’t want. 

Mr. THOMPSON. Thank you very much. 

I yield back. 

Mr. ROGERS. We need to ask for unanimous consent to bring up 

Representatives Blunt and Maloney out of order. They are going to 

be out of here before 4 o’clock. I know we would like to hear their 

statements and ask them some questions before they have to leave. 

So I would ask unanimous consent to call them up out of order. 

Mr. EIZENSTAT. Should we stay, or are we excused? 

Mr. ROGERS. No, you are not excused. We would like for you to 

move back one row. We want to ask you some more questions. 

There being no objection, the next panel is called up. 

Thank you. The Chair now calls on Mr. Blunt from Missouri for 

any statement he may have. 

STATEMENT OF THE HONORABLE ROY BLUNT, A 

REPRESENTATIVE IN CONGRESS FROM THE STATE OF 

MISSOURI 

Mr. BLUNT. Mr. Chairman, thank you, and thank you for the 

consideration the committee, based on the other schedule we are 

on, and certainly I am appreciative of the assistance we are all getting from the testimony you heard and the questions being answered by the people who were at the table before and will be 

again. 

I am also very pleased to be here with Carolyn Maloney, who is 

the ranking member on the subcommittee in Financial Services. 

Ms. Maloney, along with the chairman of that subcommittee, Ms. 

Price, and Mr. Crowley and I, were the principal sponsors, are the 

principal initial sponsors of this legislation, but Chairman King 

and Chairman Hoekstra and others have joined us. I certainly appreciated the positive comments made about our legislation by the 

earlier witnesses. 

Obviously, this is a process where we want to have input from 

outside. I do think that the legislation we have filed is a good response to what we all saw happen, and I think was well-explained 

again by the earlier witnesses, in the Dubai Ports situation. I 

thought particularly at that time when the chairman of this committee, along with the president, appeared to learn the information 

he got from the news media that there needed to be a new look at 

this. Obviously, in a post-9/11 world, the world has changed. At the 

same time, protectionism is not the answer, getting into a situation 

where other countries decide they have to reciprocate by making it 
43

difficult for American companies to invest in their country is not 

the answer. 

I think that the work that Chairman Price and Congresswoman 

Maloney and Congressman Crowley and I have done is a reasonable response and meets the needs of a post-9/11 world without 

providing the troubles that we could get into if we go further than 

we need to to secure the country. 

Let me make three or four points here, and then I am sure we 

want to hear from Carolyn and have some time to answer questions. 

I think, as has been stated earlier today, our legislation really 

clarifies the so-called ‘‘Byrd rule’’ that was in CFIUS. I do think 

there is a difference in a government-owned entity and that that 

45 extra days is a reasonable thing to expect. Government-owned 

entities have many advantages in an acquisition. The extra 45 days 

may be a slight disadvantage to them, but I think generally they 

have advantages and this 45 days will not offset those advantages, 

and clearly would have provided the additional time that Dubai 

Ports World did not have or that deal didn’t take. 

Secondly, what happened exposed a lack of accountability. I 

think because of that, we maintained the structure where the secretary of the treasury is the chairman of CFIUS, but we have 

added to that as the vice chair the secretary of homeland security. 

We have required that that be delegated no lower than the deputy 

secretary level, so this is clearly a high-level of accountability in 

those two critical departments, and both of those individuals or 

their designee have to sign-off on the CFIUS process as it develops. 

We develop a regular order process for notifying CFIUS records 

and we record and monitor withdrawals from the process. Our legislation develops a process for any needed extension of an investigation. You have a process to extend an investigation. If there is 

an investigation, any member of the CFIUS panel can require the 

decision be made by the president. Any member on that panel can 

say, we don’t agree with the decision that has been made after the 

investigation, if that was triggered during the review, and the 

president has to look at this. I don’t think that will happen often, 

but clearly it is important that that capacity be there to happen. 

Our legislation establishes a formal analysis by the director of 

national intelligence for every transaction. There is a formal method for tracking and enforcing post-transaction compliance, where 

we have asked mitigation to occur. This legislation for the first 

time really develops a system where you follow that mitigation and 

see that it did occur. We give formal enforcement authority for 

compliance to the agreements in a way that allows that the committee members of the relevant committees keep track of the general trend. 

I do, as Mr. Eizenstat mentioned earlier, the idea that this is in 

virtually all cases post-decision, but very responsive to the committees so the committees have an opportunity if CFIUS is headed in 

the wrong direction to say, look, we don’t like the report that we 

received; we question these specific moves you are taking; and we 

want to have that explained to us further. I think that is the right 

way to approach that. 
44

Congressional oversight is more important than a congressional 

veto. Involving the Congress too early in this process I think would 

be a mistake, and I think the nature of that mistake has been well 

explained by the earlier panel already today. 

Lastly, the CFIUS process post-Dubai Ports World will create a 

degree of certainty that was not there. This bill creates statutory 

protection of proprietary business information and certainly has 

the potential to see an extended investigation when that is necessary. Chairman King and Mr. Thompson were both actively involved, particularly Chairman King, before the bill was finally 

filed. We benefited from having that input and hope that we continue to have that kind of a relationship with your committee as 

this bill moves forward. 

Thank you, Mr. Chairman. 

[The statement of Mr. Blunt follows:]

PREPARED STATEMENT OF HON. ROY BLUNT

Many Americans were outraged when they first learned of the Dubai Ports World 

(DPW) deal to take over the management of commercial operations at six ports 

along the Eastern seaboard and Gulf of Mexico. CFIUS, the Committee on Foreign 

Investment in the United States, an inter-agency panel designed to review and investigate mergers and acquisitions from foreign investors taking America’s national 

security into account, approved the Dubai Ports World acquisition on behalf of the 

Bush Administration, yet no cabinet officer was willing to be held accountable for 

the approval. Equally concerning, the President learned of the deal through press 

reports rather than agency briefings. No one in Congress seemed to have any answers either. When Homeland Security Committee Chairman King was caught off 

guard by the lack of coordination with Congress, it became clear to me that the 

CFIUS process needed to be updated. As you might expect, Congress reacted to 

their constituents concerns and voted to scuttle the deal by forcing a vote on a free 

standing amendment to the Emergency Supplemental Appropriations Act. 

The attacks of September 11th changed the world we live in. Any reform in 

CFIUS must take this into account. Congress has no more important duty than to 

ensure the security of our nation. However, protectionism is not the answer. Chairman Pryce, Congresswoman Maloney, Congressman Crowley and I have introduced 

a responsible bipartisan bill which addresses the problems exposed in the CFIUS 

process during the Dubai Ports World incident. Striking the right balance between 

protecting America from those who wish to harm us, while preserving our open engagement with the global economy was our goal. Avoiding unintended consequences 

by not creating new burdens for normal business acquisitions or new diplomatic or 

business problems for the United States is equally important. 

H.R. 5337 deals specifically with the main political issues the Dubai Ports World 

incident exposed. 

First, it reaffirms Congressional intent relating to the ‘‘Byrd Rule’’, which mandates a 45-day investigation for companies controlled by foreign governments. Any 

state owned enterprise will trigger an automatic CFIUS investigation. DPW a 

United Arab Emerites owned enterprise falls into this category. However, due to the 

Byrd loophole, the acquisition failed to trigger a more intensive investigation by 

CFIUS. Blunt, Pryce, Maloney, Crowley would solve this problem. 

Secondly, DPW exposed a lack of accountability. It was widely reported that President Bush, and Secs. Snow, Rumsfeld and Chertoff were all unaware of the CFIUS 

approval of DPW. H.R. 5337, our legislation establishes CFIUS in statute and adds 

the Secretary of Homeland Security as vice-chair. Additionally, the signature of the 

chair (Secretary of Treasury) and vice chair are required for all decisions. This signature requirement cannot be delegated below the Deputy Secretary level, ensuring 

accountability. Blunt, Pryce, Maloney, Crowley develops a regular-order process for 

notifying CFIUS; records and monitors withdrawals from the process; develops a 

process for any needed extension of investigation (roll-call votes of 2/3 of Committee); and after investigation sends the decision to the President with the dissenting vote of any single Committee member. 

Our legislation establishes a formal analysis by the Director of National Intelligence of every transaction. If for any reason the DNI is unable to complete its 
45

threat assessment within the 30 day review process, a 45-day CFIUS investigation 

is triggered.

Additional requirements relating to CFIUS accountability include: 

• A formal method for tracking and enforcing post-transaction compliance with 

mitigation agreements and for tracking any post-transaction changes in such 

agreements. 

• Gives formal enforcement authority for compliance with such agreements to 

Committee member with greatest expertise in subject. 

• Assures an objective review of a proposal, followed by certain notification of 

responsible presidentially-appointed officials. 

Thirdly, DPW highlighted the lack of Congressional oversight in the CFIUS process. I strongly feel that the CFIUS process should not be politicized by a Congressional veto. However, certain committees and Members need to be aware of the impact of foreign investment as it relates to our national security. H.R. 5337, ensures 

that notices be sent to bipartisan Members of leadership and to every committee 

with jurisdiction over any aspect of a transaction after each investigation. Any 

Member receiving such notice may request a classified briefing on the transaction. 

Blunt, Pryce, Maloney, Crowley requires thorough and regular (semi-annual) reporting to Congress on activities of CFIUS, including trend analysis of foreign investments and of industrial espionage or attempts to control a type of asset or sector. 

Lastly, the CFIUS process post DPW has created a lack of certainty and predictability for our potential global business partners. More than ever it is important 

that we provide clarity and regular-order certainty in consideration of applications. 

H.R. 5337 does exactly this by mandating statutory protection of proprietary business information and certainty on the potential for any extensions of CFIUS investigations. 

In sum, H.R. 5337 would have prevented the political fallout associated with the 

Dubai Ports World fallout. 

1. DPW a state owned enterprise would have automatically triggered an intensive 45 day investigation by the CFIUS panel. Unfortunately, no such investigation ever took place. 

2. As Chair and Vice Chair, Secs. Snow and Chertoff would have been required 

to sign a certification that CFIUS completed and approved of the DPW deal. 

The DPW acquisition only rose to the assistant secretary level. 

3. Had just one CFIUS member expressed concerns related to the DPW transaction, relevant congressional leaders and Committee Members would have received notification of the approved DPW deal 15 days prior to Presidential signature. This would have given Congress the ability to request classified briefings and learn of the intricacies of the transaction before jumping to conclusions. In the case of DPW, every Member learned more from press accounts 

than from the administration. 

Chairman King, thank you for taking a leadership role on this issue. I appreciate 

your support of H.R. 5337. Your contributions have made it much stronger legislation. I would also like to thank Ranking Member Thompson. It would be easy to 

allow CFIUS Reform to become a politically charged issue. It is my hope to continue 

to work with the Committee on Homeland Security in a bipartisan fashion to pass 

a bill the United States House of Representatives can be proud of.

Mr. ROGERS. I thank the gentleman from Missouri. 

The chair now recognizes the gentlelady from New York, Ms. 

Maloney. 

STATEMENT OF THE HONORABLE CAROLYN B. MALONEY, A 

REPRESENTATIVE IN CONGRESS FROM THE STATE OF NEW 

YORK 

Mrs. MALONEY. Thank you, Mr. Chairman and Ranking Member 

Thompson, for inviting us to testify before the committee today on 

the bipartisan CFIUS bill that we have introduced with Majority 

Whip Blunt and Representatives Price and Crowley. 

As a ranking member on the Financial Services subcommittee 

that has jurisdiction over the CFIUS process, we have held three 

hearings to date on it. At these hearings, we have heard from the 

administration, the business community, and experts in academia 
46

about the need to reform the process and their suggestions on how 

to accomplish it. 

At our hearings, especially the first hearing that focused on the 

Dubai Ports World transaction, it was astonishing how tone-deaf 

the CFIUS board was as they reviewed national security concerns 

related to this transaction. The fact that CFIUS did not consider 

critical infrastructure as a factor potentially impacting national security certainly does not represent a post-9/11 view of the world 

and backs up the GAO’s prior finding that CFIUS was too narrowly 

defined in what constitutes a threat to national security. 

In March following our first hearing, I introduced H.R. 4915. The 

Committee on Foreign Investment in the United States Reform 

Act. This legislation enacts reforms suggested by the GAO in a report they prepared before the Dubai Ports problem. So they were 

very concerned about the problem even before Dubai Ports. 

Following the introduction of this legislation, I was very pleased 

to work in a bipartisan manner with the chair of the committee, 

Deborah Price and Mr. Crowley and Mr. Blunt, on H.R. 5337, 

which is under consideration today. This legislation incorporates 

many of the provisions included in my first bill and the GAO report. 

I believe it is a very strong common sense approach that makes 

the process more transparent and accountable, while protecting our 

national security. I am pleased to note that one of my colleagues 

from New York, Chairman King, has joined as a cosponsor of this 

legislation. He has been deeply involved in the post-9/11 recovery 

of New York and the steps that we have taken as a state to become 

more secure, and 30 of our colleagues have joined us on this bill. 

The remainder of my testimony really went through the various 

provisions that ensures national security needs are met and restores accountability and transparency, and the bill improves congressional oversight, but my colleague Mr. Blunt went through 

those points. I don’t think I should go through them again. I will 

put them into the record. 

Dubai Ports surely showed that we need to reform the CFIUS 

process, and our legislation is a balanced and deliberative piece of 

legislation that will examine the national security risks of all 

transactions, while making sure we do not chill foreign investment 

in the United States. I believe that the bill strikes an appropriate 

balance of protecting our national security, while increasing transparency and accountability in the process. 

So I thank the committee for their concern and for having us 

today.

PREPARED STATEMENT OF HON. CAROLYN B. MALONEY

I would like to thank Chairman King and Ranking Member Thompson for inviting 

me to testify before the committee today on the bipartisan CFIUS (Committee on 

Foreign Investment in the United States) reform legislation that I have introduced 

with Majority Whip Blunt and Representatives Pryce and Crowley. 

As Ranking Member of the Financial Services Subcommittee on Domestic and 

International Monetary Policy, Technology and Trade, we have held three hearings 

into the CFIUS process. At these hearings we have heard from the Administration, 

the business community, experts and academia about the need to reform the CFIUS 

process and their suggestions on how to accomplish this. 

At our hearings, especially the first hearing that focused on the Dubai Ports 

World transaction, it was astounding how tone-deaf the CFIUS board was as they 
47

reviewed national security concerns related to this transaction. The fact that CFIUS 

did not consider ‘‘critical infrastructure’’ as a factor potentially impacting national 

security certainly does not represent a post-9/11 view of the world and backs up the 

GAO’s prior finding that CFIUS can too narrowly define what constitutes a threat 

to national security. 

In March, following our first hearing, I introduced H.R. 4915, the Committee on 

Foreign Investment in the United States Reform Act. This legislation enacts reforms 

suggested by the Government Accountability Office (GAO) in a report they prepared 

before Dubai Ports World was a household name. 

Following the introduction of this legislation, I was pleased to work in a bipartisan manner to develop H.R. 5337, the Reform of National Security Reviews of Foreign Direct Investments Act. This legislation incorporates many of the provisions included in H.R. 4915 and the GAO report. 

H.R. 5337 is common sense legislation that makes the CFIUS process more transparent and accountable while protecting our national security. 

Specifically, H.R. 5337:

Ensures that National Security Needs are met by: 

• Mandating a 45-day investigation for all transactions that would result in 

control by a foreign government. 

• Adding the Department of Homeland Security as the vice-chair of the CFIUS 

board. 

• Establishing a formal analysis by the Director of National Intelligence of 

every transaction. This legislation gives the DNI 30-days to complete his review, 

but requires the review to be completed 7-days before the end of the 30-day review. 

• Expanding the definition of homeland security by requiring the CFIUS board 

to consider ‘‘critical infrastructure’’ as a factor in any review.

This legislation also restores accountability and adds transparency to the 

process by: 

• Establishing CFIUS in statute. 

• Requiring the signature of the chair and vice chair on all decisions and only 

allows this authority to be delegated to the deputy secretary at each agency. 

• Requiring that withdrawal requests are in writing and that they receive the 

approval of the Chair in consultation with the Vice Chair. 

• Establishing a formal method for tracking and enforcing post-transaction 

compliance with mitigation agreements and for tracking any post-transaction 

changes in such agreements. 

• Providing specific funding to the process ($10 million over four years) to make 

sure that reviews are not abbreviated for lack of resources.

This legislation also improves Congressional Oversight by: 

• Requiring notice to bipartisan leadership and to every committee with jurisdiction over any aspect of a transaction after each investigation. 

• Allowing any Member receiving such notice to request that his or her chamber receive a classified briefing on the transaction. 

• Requiring thorough and semi-annual reporting to Congress on activities of the 

Committee, including trend analysis of foreign investments and of industrial espionage or attempts to control a type of asset or sector. These provisions strike 

the appropriate balance between proper oversight while not politicizing the 

process. 

As the Dubai Ports World deal showed, the CFIUS process is in desperate need 

of reform. It is our responsibility to ensure that this is done in a deliberative manner that will effectively examine the national security risk of all transactions, while 

making sure we do not chill foreign investment in the United States. 

As I said at the beginning of my testimony, I believe H.R. 5337 strikes the appropriate balance of protecting our national security while increasing the transparency 

and accountability of the CFIUS process. 

I thank the Committee for allowing me to testify, and I look forward to your questions.

Mr. ROGERS. I thank the gentlelady. 

I would like to state for the record how much I appreciate the 

bipartisan nature in which you have worked on building this piece 

of legislation, and note that the Chairman of this Committee, the 

Full Committee Chairman, who is not present, Mr. King, is a cosponsor. 
48

The fact that this Committee works on a regular basis in such 

a bipartisan nature, I know that everybody shares my view that it 

is good to see this come to us in this fashion. 

I have no questions. I would be happy now to call on the Ranking 

Member for any questions he may have. 

Mr. THOMPSON. Thank you very much, Mr. Chairman. 

I, too, want to thank the two witnesses for bringing their piece 

of legislation forward. I just wish we could do more things in a 

similar manner. 

I yield back. 

Mr. ROGERS. The Chair recognizes the gentleman from Washington, Mr. Dicks. 

Mr. DICKS. Do you want any questions or not? I am trying to get 

the read on this thing. I want to get back to Mr. Eizenstat. But 

let me ask you two quick things, since I can’t resist. 

You feel that there should be a 40-day additional investigation 

on all transactions where there is a foreign government involved. 

Shouldn’t there be some threshold? Shouldn’t there be some 

thought about if it doesn’t have anything to do with national security, why would you have an additional 45-day investigation? 

Mr. BLUNT. Yes. In response to your first question about whether 

we wanted questions or not, we only want easy questions and we 

will glad for Mr. Eizenstat and the other panel to take the hard 

questions. 

As I said, Mr. Dicks, the government-owned entities I think are 

harder in many ways to evaluate the impact that that governmental entity has in this kind of transaction. I think they have advantages in the process and this may in fact be a slight disadvantage, but I think it is only that. Frankly, this is I think almost a 

minimal response to the concern about a government-owned entity 

running a port, even though it was a terminal facility rather than 

owning the port, as has well been explained. 

I think it is a reasonable thing, and frankly as we look at the 

Senate alternative, I believe it is a step we need to take. 

Carolyn, do you have a comment? 

Mrs. MALONEY. I feel that when a foreign government buys the 

infrastructure of the United States, it should be held to a higher 

standard. The requirement really grew out of the Dubai World example where the committee made the decision that having the terminals owned and operated by a foreign government was not a national security concern. 

I would think that everyone on your committee and certainly on 

our committee believed that it was a national security concern and 

should have been reviewed the additional 45 days. So it takes out 

any decision-making and requires a 45-day review. 

Mr. DICKS. What if it was clearly not? What if it was something 

that was involved in an agriculture facility in Iowa? If I have an 

additional 45 days, you have two of these things every week and 

you have the top people in the government now you are going to 

make review them. I mean, there has to be some tie-in with national security, I think. 

Mrs. MALONEY. Mr. Dicks, that is why the CFIUS process is 

maintained as a voluntary process so that if you are buying an ice 
49

cream station, you obviously will not go before the CFIUS process. 

And 45 days is the maximum, not the minimum. 

Mr. DICKS. So what you are saying is if the company thinks 

there is a national security implication, that is the only reason they 

would go through the CFIUS process. 

Mrs. MALONEY. Yes. And also I think that businesses want certainty. By going through the CFIUS process, you have more certainty. They cannot dissolve it. They cannot revoke it. It is looked 

at. I think most businesses would like the stamp of approval from 

the government going forward with an investment. 

I must mention something that came out in Financial Services 

that was a concern to many members, which was the advantage 

that foreign-owned governments have in buying infrastructure. In 

this case they did 20 percent more than anyone else because they 

were a government; they could afford to do it. And so there was a 

sense that there should be a higher standard for a foreign-owned 

entity buying infrastructure. 

Mr. DICKS. What about critical infrastructure in the United 

States? How do you deal with that in your bill? 

Mrs. MALONEY. We very loosely define it because it is changing 

every day. One of the things that we do is we kick up the decisionmaking to the secretary of homeland security and treasury so that 

they are making the decisions, not assistant secretaries which was 

the case in the prior CFIUS decision with Dubai World Ports. 

Mr. BLUNT. I think the point to emphasize there, too, is that we 

specifically thought it was best not to try to define ‘‘critical infrastructure,’’ that that has such changing potential that the CFIUS 

board itself, particularly a board that includes the director of homeland security, as well as a representative of the Department of Defense and the others on the CFIUS board, are better at any moment to determine what is the current critical infrastructure of the 

country than a Congress might be trying to determine how that 

definition will work in the future. I would hope that the flexibility 

stays with the CFIUS board as opposed to be firmly defined in legislation, as some would argue. 

Mr. DICKS. Thank you. 

Thank you, Mr. Chairman. 

Mr. ROGERS. Do any other Members have questions for these 

Members? 

The gentlelady from Texas is recognized. 

Ms. JACKSON LEE. Thank you. 

Let me thank both of the members for their presence and also 

acknowledge that I think in this business it is necessary to be tedious and meticulous. And so the timeframe that you have, or the 

framework that you have, may in some instances seem to be prolonged, but I think it is crucial. I particularly think it is important 

that you have a balance between the flow of commerce, but also our 

security. 

The provisions that you have regarding inclusion of the Secretary 

of Homeland Security, does that then provide jurisdiction to the 

Homeland Security Committee? 

Mr. BLUNT. I would assume it does. I am not an expert on jurisdiction and don’t purport to be the parliamentarian, but I assume 
50

it does and I think it would be valuable for this committee to have 

a level of jurisdiction. 

Carolyn? 

Mrs. MALONEY. I believe there should be a level of jurisdiction 

from the Homeland Security Committee. 

Ms. JACKSON LEE. And with the provisions that deal with the 

signatures of both the Secretary of Treasury and Homeland Security, do you think those provisions are particularly secure enough? 

I don’t know if it is going out of Financial Services, but will they 

last the passage to the floor? If this bill gets to the floor, will those 

provisions stay in tact the dual signatures of the chair and the vice 

chair as you have constructed it? 

Mrs. MALONEY. I believe they will. Yes. 

Ms. JACKSON LEE. Okay. Let me just thank you. 

I do, Mr. Chairman, want to ensure Homeland Security jurisdiction. I think this is a very good effort, and I hope we will have the 

opportunity to mark it up and have the opportunity to support it. 

I yield back. Thank you. 

Mr. ROGERS. I thank the gentlelady. 

I thank the Members for this effort. I appreciate your time, and 

I am glad we were able to get you out of here before your 4 o’clock 

deadline. 

This panel is dismissed, and we re-call the second panel. 

The gentleman from New Jersey, Mr. Pascrell, is recognized for 

any questions he may have. 

Mr. PASCRELL. Thank you, Mr. Chairman. 

Ms. Markheim, Article I, Section 8 of the Constitution of the 

United States says that the Congress shall have the power to lay 

and collect the taxes, et cetera, to regulate commerce with foreign 

nations and among the several states and with Indian tribes. The 

Constitution is a very important document to you, to me, to everybody here in this room. I carry it with me at all times. 

But when I read your testimony, and particularly on page four, 

I am aghast. You say that this process is designed to be nonpartisan and nonpolitical because these decisions should not be 

based on political considerations, but solely on the merits of the 

transaction and appropriate security concerns consistent with the 

United States’ policies. Congress does not receive comprehensive 

notification in any other administrative procedure. This is what 

you wrote. 

I have to take exception with that because it would seem to me 

that we have relegated the potential of political interference with 

the Congress, while we have not even suggested the contrary with 

the administration. It is unacceptable. And unless the business 

community understands that we are all in this together trying to 

find ways for security as well as investment, and that we are not 

isolationist, those of us who ask questions about such things as the 

Dubai incident like we kind of disrupted business, when we have 

as our oversight capabilities, the entire Congress that is, a duty, 

in fact indeed an obligation and responsibility to check into these 

matters. 

The fact that so few of these transactions ever have come in front 

of us and that all of them except one have been rejected before us 

I find to be incredible. I think we have a right in this Congress to 
51

know what in God’s name is going on. And that is why we are having these hearings. 

If I take what you say, I would ask you this question. Foreign 

companies and CFIUS want the entire process to be settled in 30 

days, and usually settle matters in negotiations before the official 

review. I even heard that today. What kind of oversight can the 

Congress have over this process when there is such a lack of transparency? You tell us. 

Ms. MARKHEIM. I think Congress has not had the opportunity to 

have the appropriate level of oversight of these transactions. That 

is why we are here today. What is important here, and I think 

what I was trying to say in that particular memo and in the brief 

was that fundamentally Congress needs to have greater oversight, 

without however becoming part of the process itself. 

So the important thing is to determine where is the process and 

where does oversight begin. The problem is that over the years, 

oversight has not been facilitated by the CFIUS process. Congress 

has not received regular reports; has not received the quadrennial 

reports even. That is a problem, as I did state. 

What we would like to see and what we do recommend is that 

Congress do start receiving regular reports on these sort of nonspecial cases that don’t go before the president so that Congress 

does get some insight as to what does go on. 

Mr. PASCRELL. But wouldn’t you agree, Ms. Markheim, if we did 

not have the Dubai situation, we still wouldn’t know what was 

going on out there. This kind of crystallized it, and that is why we 

are having this hearing, or else we wouldn’t be having this hearing. 

Wouldn’t you agree? 

Ms. MARKHEIM. I do agree with that. However, I do think, again 

going back to a report that was referenced that was out in October, 

the problem with CFIUS transparency has been known and it has 

been something that has been discussed, but it certainly has not 

been the focus of attention that it is today. 

Mr. PASCRELL. When you understand that when we talk about 

port security, we are concerned about the relationships we have 

with other countries so that those items in those containers are 

checked before they leave the other country, before they leave the 

other ports, and before they come into the United States. It makes 

things a lot easier. 

So we have to have cooperation. We must have, all of us now, 

we are talking about a global strategy. You know, chapter 12 of the 

9/11 Commission report, we are talking about a global strategy. 

And we need to be very protective of the people in this country who 

are wondering what is coming into this country and what is coming 

over our borders. And that is why we want to take the extra added 

precaution of finding out what is in these containers and who is in 

charge. 

Now, when we said who is in charge of operations at the ports, 

the administration was very, very adamant in saying these companies owned by these countries don’t own the ports, we understand 

that, they control the operations and manage the ports, and they 

don’t even take care of security at the ports. But they do name who 

is in charge of security at the ports. 
52

If I may, Mr. Chairman, I have one more question, if I can ask 

it this go-round. I have to leave. 

Mr. SIMMONS. [Presiding.] I will yield 1 more minute, but mindful that Charlie Allen is also waiting to testify at the next hearing. 

Mr. PASCRELL. I am sorry? 

Mr. SIMMONS. Secretary Allen is waiting to testify for the next 

subcommittee hearing. So you are making excellent points. 

Mr. PASCRELL. There is another subcommittee after this? 

Mr. SIMMONS. Yes, there is. It was scheduled for 3:30, but we are 

postponing it, waiting to finish. 

Mr. PASCRELL. Okay. Just a quick question, Mr. Eizenstat. 

You mentioned in your testimony the difficulty in determining 

what is critical infrastructure in the United States, and how foreign investment in critical infrastructure should be determined you 

suggest by a case-by-case basis. Should the purchase of American 

port operations by a Dubai-owned company have received more intense scrutiny by CFIUS? And the second question is, should this 

deal have gone to the investigative level? 

Mr. EIZENSTAT. Let me answer two questions at once here, your 

last question and then the one you just asked. 

On the transparency, congressional oversight, H.R. 5337 goes a 

long way to accomplishing what you are properly concerned about, 

because it requires that CFIUS give the Congress a written report 

on any findings of actions that they make on any investigation they 

do. You can have personal briefings for the members who get that, 

and then there are semiannual reports that will have to be issued 

to the Congress on what has happened during the previous 6 

months, which transactions have been approved, what were they 

like and so forth. That will give you the opportunity to determine 

if you think CFIUS is doing the right job. 

Now, in terms of the DP World issue, optimally what should 

have happened, I believe, is that this should have raised a lot of 

red flags. I do not believe it was a national security threat. But I 

do believe that it would have been better to take to the 45-day investigation period. I think had that been done, it would have satisfied a lot of people in Congress who felt that by not taking it to 

the second phase, that the process was somehow rushed through. 

The fact is, it wasn’t because there was a long pre-application period, but in terms of optics, optics certainly for the public and for 

Congress which had no information about it, seemed to indicate 

that it was being rushed through. So I think in an optimal way, 

it might have gone to the 45-day period and diminished some of the 

political opposition. I think ultimately the result might have been 

the same from my perspective. 

Mr. PASCRELL. Thank you both. 

Mr. Chairman, I would contend that if it wasn’t for the Dubai incident coming before the Congress of the United States, that many 

in the Congress of the United States would not have known that 

countries like China control and operate many of our ports. Now, 

I will make that statement and I will stand by it unless I hear different information. 

So I am aghast when people talk about the possibilities of politics 

in these issues. 

Thank you. 
53

Mr. SIMMONS. I thank the gentleman for his questioning. For the 

record, I will yield my 5 minutes to him, and that 5 minutes has 

now expired. 

The Chair recognizes the distinguished gentlelady from the Virgin Islands, Dr. Christensen. 

Mrs. CHRISTENSEN. Thank you both, Ms. Markheim and Mr. 

Eizenstat, for your patience with us this afternoon. Mr. Eizenstat, 

it is nice to see you again. 

You noted in your testimony, Mr. Eizenstat, that the bill, H.R. 

5337, which requires that the secretaries or deputy secretaries of 

both Treasury and Homeland Security personally approve and sign 

each review and every review and investigation, that it could create 

bureaucratic delays and impede the CFIUS’s ability to efficiently 

implement Exon-Florio. 

So my question is, what would be the solution to the problem 

that we saw during the Dubai Ports World deal when no highranking official, Rumsfeld, Chertoff, claimed to have ever signed-off 

on the deal? They were where the buck stopped, but they didn’t 

sign off. So shouldn’t they have some show of having knowledge of 

the investigatory process and the outcome before it goes to the 

president? 

Mr. EIZENSTAT. That is a very good question. I would just start 

by saying that I have spent an enormous amount of time in the 

Virgin Islands. It is a wonderful part of the United States. 

A couple of things. First, if I may just say one way to deal with 

this government-owned company issue, permit the companies to try 

to go directly to the 45-day investigative process if they are going 

to be put into that. If you are going to insist that even a British 

government-owned company has to go through this, and I am urging you to distinguish between friendly governments with companies that are owned by those governments that operate on market 

principles from those that don’t. But if you have to insist on treating them all alike, let them go straight to the 45-day period rather 

than going to the 30-day period. 

Now, second, on the signature issue, one of the first things we 

learn on the first day of law school is bad facts make bad law. And 

we had a bad series of facts with the Dubai Ports World issue. This 

should have had more scrutiny. It should have gone to the secretary or deputy secretary level simply because of the optics, not 

the reality, of the deal. 

Had that been done, optimally the deputy secretary or secretary 

might have looked at it. But what I am urging is because of that 

one isolated issue, don’t require, as this legislation does, that every 

single one of these transactions has to be checked off by the deputy 

or the secretary. It will clog them down from doing much more important work. It only should be in the most sensitive cases where 

there is really a national security impact. This is much broader 

than that. It requires it in virtually every case. 

Mrs. CHRISTENSEN. Thank you. I don’t have any other questions. 

Thank you for the answer. 

Mr. SIMMONS. I thank the gentlelady for her questions. 

Do any other members have questions for this panel? 

Hearing none, I would like to thank the witnesses for their valuable testimony. 
54

And I thank the members, of course, for their questions. 

The members of the committee may have some additional questions for all of the witnesses, and I will ask that you respond to 

these in writing. The hearing record will be held open for 10 days, 

and again the chair thanks the members of the committee and our 

witnesses. 

Without objection, the committee stands adjourned. 

Mr. EIZENSTAT. May I just ask that my full testimony be put in 

the record? Thank you. 

Mr. SIMMONS. Without objection. 

[Whereupon, at 4:03 p.m., the committee was adjourned.] 
(55)

A P P E N D I X 

FOR THE RECORD

PREPARED STATEMENT OF THE HONORABLE GINNY BROWN-WAITE

Thank you Chairman King for holding this important hearing. Like many of my 

colleagues here today, I was appalled at the missteps in the recently failed Dubai 

Ports World transaction. A United Arab Emirates-owned company, DPW’s proposed 

buyout of the British-owned Peninsular Oriental Steamship Navigational Company 

(P&O) raised serious security concerns, not the least of which was that the UAE 

was one of the few governments to officially recognize the Taliban. Yet this proposed 

takeover somehow did not trigger the thorough 45-day investigation that should 

occur whenever there is a question of our nation’s security at critical infrastructure. 

To be perfectly frank, when I first read about this takeover in a news story, I 

thought it was a hoax. I could not believe that officials at the Department of Defense or Department of Homeland Security could be so careless as to play Russian 

roulette with port security for the sake of a smooth business transaction. I was further appalled to read that the Coast Guard expressed serious concerns in a report 

to DHS officials, yet even that did not jumpstart the additional investigation. 

At the time, I wrote to Department of Homeland Security Secretary Michael 

Chertoff, Department of Treasury Secretary John Snow, and President Bush to demand an immediate investigation. However, instead of assurances that they would 

carefully scrutinize the deal before continuing forward, I received bland letters. Congress had to rely on the Dubai Ports World company itself to ask for an investigation, and then to later stop the transaction. To me, that indicates something is 

wrong with our vetting system. 

As a member of this Committee I have a responsibility to keep Americans safe, 

and I take that responsibility very seriously. When our government makes poor decisions, I want an accounting. There is no excuse for ceding management of our 

ports to a foreign nation with as questionable of a record as the United Arab Emirates, despite their recent attempts to play nice. So today, I would like to hear from 

our witnesses how the CFIUS process has been improved to address these issues, 

as well as your thoughts on legislation to give homeland security a more prominent 

role in CFIUS deliberations. 

Thank you Mr. Chairman and I look forward to hearing from our witnesses today 

on this vital issue. 

QUESTIONS FROM HON. PETER KING

RESPONSES FROM HON. STEWART BAKER

1 You have described the Department’s engagement in the CFIUS process in previous hearings. You told the Senate Banking Committee that the Department analyzes each agreement to which it is a signatory and extracts the timetables, policies, 

and deliverables that must be tracked to determine the companies’ current compliance status. Unfortunately, we know from previous hearings that the Department 

has a serious human capital problem. The following questions are designed to address those concerns:

• How many people in your office work on CFIUS? 

Response: Under my supervision, there currently are six people who work on 

CFIUS matters full-time. Of these, three are contractors and two are temporary 

detailees. We are in the process of hiring three more government employees to work 

full-time on CFIUS matters. Others in my office provide CFIUS support as needed. 

Outside my office, the offices of Intelligence Analysis and Infrastructure Protection 

in their joint fusion center, the Homeland Infrastructure Threat and Risk Analysis 

Center (HITRAC), have another team of three full-time individuals analyzing the 
56

risks associated with CFIUS transactions and providing analytical support to my office. In addition, there are dozens of people throughout DHS who review and provide 

input on CFIUS transactions.

• How many compliance agreements does the Department enter into 

with other companies? 

Response: Since DHS began operations in 2003, DHS has entered into twenty 

CFIUS mitigation agreements and an approximately equal number of risk mitigation agreements in the context of the Federal Communications Commission’s telecommunications licensing process.

2. H.R. 5337 allows for the appointment of ‘‘an appropriate Federal department 

or agency’’ to negotiate, modify, monitor, and enforce any mitigation agreement 

reached by the Committee. Isn’t the Department of Homeland Security, given 

the breadth of its jurisdiction over domestic security concerns, the appropriate agency to take on this responsibility? 

Response: DHS believes that there is no single agency that can negotiate mitigation agreements for every case, and a legislative requirement that the negotiation 

and enforcement be carried out by a single agency would reduce the current protection for homeland and national security. For some national security concerns raised 

by a particular case, DHS may be the appropriate agency; for other national security concerns raised by the same case, other CFIUS agencies may be more appropriate. Accordingly, DHS believes that each agency, in consultation with CFIUS, 

should be authorized to negotiate mitigation agreements as each agency deems appropriate. This is consistent with past practice.

In your opinion, if, under H.R. 5337, the Department of Homeland Security becomes the Federal entity empowered with negotiating, modifying, 

monitoring, and enforcing, mitigation requirements reached by the committee, do they have adequate personnel and resources to effectively assume this additional responsibility? 

Response: As indicated above, DHS believes that no agency should be designated 

to negotiate mitigation agreements for every case; rather, each agency should be authorized to negotiate mitigation agreements, in consultation with CFIUS, as each 

agency deems appropriate. DHS is increasing its personnel and resources dedicated 

to negotiating, modifying, monitoring and enforcing the mitigation agreements to 

which DHS decides to become a party. To the extent DHS were required to assume 

responsibility for all mitigation agreements, contrary to views of what constitutes 

sound policy, substantial additional personnel and resources would be necessary.

What additional resources would the Department of Homeland Security 

require to undertake this potential additional responsibility? 

Response: As indicated above, DHS is increasing its personnel and resources 

dedicated to negotiating, modifying, monitoring and enforcing the mitigation agreements to which DHS decides to become a party. Additional resources beyond those 

already planned are not required for DHS to fulfill its responsibilities with respect 

to those mitigation agreements to which DHS decides to become a party.

3. You testified before the Senate Banking Committee that the Department implemented an early warning program soon after joining the CFIUS. You said that the 

purpose of the program is to identify those foreign investments in U.S. critical infrastructure and industrial base technology companies that may result in CFIUS filings or may pose a national security risk, and you share this information with 

CFIUS members. Unfortunately, as Mr. Eizenstat, a witness on the second panel, 

notes in his written testimony, ‘‘critical infrastructure’’ remains a relatively fluid 

regulatory concept, and very difficult to identify specific ‘‘critical infrastructure’’ that 

may pose a national security risk. For instance, the Department has identified 

twelve extremely broad sectors that it considers to be critical infrastructure, including agriculture and food, water, public health, emergency services, the defense industry, telecommunications, energy, transportation, banking and finance, chemicals, 

postal services and shipping, and information technology.

How can the Department really identify foreign investment in critical infrastructure when it has not yet publicly identified the types of companies, 

or even sub-sectors, for which acquisition by a foreign firm would be 

deemed a high risk to national security? How can you make a judgment 

about foreign ownership of these sectors? 

Response: An analysis of which transactions would pose a high risk to national 

security must be made on a case-by-case basis, given the number of factors involved 

in making such a determination. The current broad operational concept of ‘‘national 

security’’ gives DHS wide discretion to act in appropriate cases, and DHS does not 
57

believe it is practical or prudent to assess national security risk other than by casespecific examination. Creating abstract categories of critical infrastructure might 

unhelpfully narrow discretion to mitigate national security risks.

4. You told Reuters that the Department of Homeland Security could not find anything concrete that led you to believe that the transaction ought to be stopped for 

national security reasons. Yet according to news reports, you were originally the 

sole dissenting voice in the transaction. According to the AP, you eventually 

changed your mind and the Committee approved the deal without dissent after 

Dubai Ports World agreed to the security conditions that CFIUS negotiated.

How many other times have you voiced dissent on CFIUS only to change 

your mind later? Is it problematic for the current process that CFIUS tries 

to build universal consensus among all members? Do you ever feel pressured into changing your dissenting opinion? 

Response: The premise of the question is flawed: DHS did not change its views 

regarding the Dubai Ports World transaction. DHS determined that it should get 

certain risk-mitigating assurances from the companies and that, with those assurances, DHS would approve the transaction. DHS’s ability to obtain the assurances 

was never in doubt. 

Like each CFIUS agency, DHS determines for itself whether a transaction may 

adversely impact national security and whether to request risk-mitigating assurances.

5. How do you evaluate the risk of a foreign-owned company when, these 

days, there is no clear designation of what companies are foreign? For instance, most large-scale companies are multinationals—case-in-point: both 

Exxon-Mobil and BP have about half U.S. ownership. How does the Department weigh the risk of these so-called ‘‘foreign owned companies?’’ 

Response: The Treasury Department, as Chair of the CFIUS, is better positioned 

to explain the CFIUS determination of whether a company is or will be subject to 

foreign control so as to confer CFIUS jurisdiction over a transaction. As in other 

matters, the risk presented by companies that are partly foreign-owned and partly 

is analyzed on a case-by-case basis, taking into account factors such as the nature 

of the assets at issue and the nature of the foreign ownership and control, among 

other factors.

6. What changes have been made to the CFIUS process, aside from adding 

DHS as a member agency, to reflect the post-911 world? 

Response: In general, the level of scrutiny in the CFIUS process has increased 

in the post-9/11 world. The Treasury Department, as Chair of the CFIUS process, 

is better positioned to provide a detailed comparison between the pre-and post-9111 

eras, especially in light of the fact that DHS did not exist before 2003.

7. What changes have been made to the process following the DP World 

transaction? 

Response: Again, as CFIUS Chair, the Treasury Department is better positioned 

to discuss changes. Within DHS, we have hired (and are continuing to hire) more 

CFIUS staff and our review process has become more formal.

8. Considering that the proposed Congressional reforms would relegate 

information gathering to the Director of National Intelligence, would you 

plan on performing separate analysis on investigations through DHS? 

Response: DHS does not interpret any of the proposed Congressional reforms to 

relegate all information gathering solely to the DNI, and DHS would strongly oppose any effort to do so because such limitation would impede our ability to fulfill 

our departmental responsibilities. DHS does and, under virtually any conceivable 

circumstances, will continue to engage in substantial information gathering and 

analysis. 

DHS, through its Office of Intelligence and Analysis, is a key participant in the 

development of the Intelligence Community’s threat assessments, prepared by the 

Office of the DNI with input from all elements of the Intelligence Community. Although DHS does not develop an independent threat assessment as part of this 

process, information and analysis are fully considered. If DHS (or any other element 

of the IC) were to conclude, on the basis of its own analysis, that it should disagree 

with the position of the Intelligence Community, then it may state its dissent in the 

IC assessment. 

In addition to its participation in the development of the IC threat assessment, 

DHS, through its Infrastructure Protection and HITRAC components, performs vulnerability assessments and risk-mitigation assessments in support of CFIUS.
58

9. Under the current process, is the Director of National Intelligence 

given sufficient time to examine transactions pending before CFIUS? 

Response: The DNI is the appropriate entity to which this question should be 

addressed.

10. To what extent do you plan on integrating the policies of DHS in 

CFIUS? 

Response: DHS has integrated its CFIUS policy process. All DHS components receive notice of CFIUS transactions, and their analyses and concerns are consolidated by the DHS Policy Development office.

11. Does Congress have any concerns that an investigation process that 

involve Congress, the Senate, and the President, along with quarterly and 

semi-annual reports, will slow CFIUS down? 

Response: Congress, rather than DHS, is best positioned to determine whether 

‘‘Congress has any concerns. . .’’ To the extent the question is whether DHS has concerns, it is reasonable to think that additional reporting requirements, whether to 

the Congress, the Senate, the President, or any other body, will require resources 

that might otherwise be devoted to analysis of CFIUS cases, and that a possible resultant diminution of resources associated with such analysis would negatively impact the CFIUS process. In any case, reports to Congress should be provided only 

after a CFIUS case is completed. Pre-decisional reporting would impinge inappropriately upon the Executive Branch deliberative process. 

QUESTIONS AND RESPONSES FROM THE HON. CLAY LOWERY

1. Mr. Lowery, you say in your testimony that the Administration ‘‘supports improving communications with Congress on CFIUS matters.’’ Why did this Administration wait until recently to decide to improve its communications with 

Congress? What efforts have you made to engage in outreach with Congress? If communicating with Congress is a priority, why then has it taken 

so long to produce documents that have been requested by this Committee 

months ago? Would you support a statute that would increase reporting requirements from CFIUS to Congress? What would such a regime look like? 

Response: The Administration is committed to improving communications with 

Congress and agrees that Congress should receive timely information about CFIUS 

matters to help meet its oversight responsibilities. Indeed, CFIUS has met with 

Members and Congressional committee staff whenever requested to do so to answer 

questions about the CFIUS process. To ensure improved communications, Treasury 

is promptly notifying Congress of all CFIUS cases upon completion. Treasury is also, 

on behalf of CFIUS, briefing the Senate Banking and House Financial Services 

Committees quarterly on completed CFIUS cases. When appropriate, CFIUS suggests that its oversight committees invite other potentially interested members and 

committees with jurisdiction over areas affected by decisions under to attend these 

briefings. It should be noted that these briefings were scheduled to begin before the 

issues with respect to the DP World transaction garnered media attention. We believe that these steps will enable Congress to meet its oversight responsibilities. 

With respect to the provision of information to the committee on the DP World 

case, I spoke to this point during the hearing. As I noted, compiling the information 

and consulting interagency with those engaged in CFIUS, as well as providing for 

the clearance of our General Counsel’s office, takes a certain amount of time. This 

was also done in the context of an increasing CFIUS case load. We provided you 

with these documents as soon as was possible. I would further note that Treasury 

officials participated in 7 hearing with 7 committees and has conducted approximately 25 briefings with Congressional committees regarding DP World. 

The House CFIUS reform bill, H.R. 5337, would require that CFIUS provide semiannual reports to Congress. While we believe that an annual report would be more 

appropriate, as it will be more comprehensive and better identify the trends designated in the legislation, the reporting requirements would provide Congress additional information important to conducting its oversight responsibilities. However, 

to prepare such reports properly, the Administration needs sufficient time and resources to conduct a thorough interagency process.

2. During your testimony, Rep. Collins asked you whether an adequate review of 

DP World was done, given recently declassified portions of a Coast Guard report 

that highlighted ‘‘many intelligence gaps, concerning the potential for DPW or [its 

subsidiary] P&O assets to support terrorist operations.’’ According to the declassified portions of the report, those gaps precluded ‘‘an overall threat assessment of 

the potential DPS and P&O Ports merger.’’ How were you able to close those 

gaps so quickly? And how can the speed with which you apparently closed 
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those gaps square with the 2005 GAO report, which discussed the need for 

longer periods of time for CFIUS review because agencies could not conduct timely threat analysis? 

Contrary to many accounts, the DP World transaction was not rushed through the 

review process in early February. In total, members of CFIUS staff spent nearly 90 

days investigating this transaction due to early notification of the transition to 

CFIUS by the companies. National security issues raised during this process were 

addressed to the satisfaction of all members of CFIUS. 

During the investigation period, which lasted nearly 3 months, members of the 

CFIUS staff were in contact with one another and the companies. As part of this 

process, the Department of Homeland Security (DHS) negotiated an assurances letter that addressed port security concerns. The companies committed to maintain no 

less than their current level of membership in, cooperation with, and support for 

the Customs-Trade Partnership Against Terrorism, the Business Anti-Smuggling 

Coalition, and the Container Security Initiative (CSI). They also committed to their 

current level of membership in, cooperation with, and support for the March 2005 

Memorandum of Understanding with the U.S. Department of Energy to support CSI 

by cooperating with other signatories and restricting trafficking in nuclear and radioactive materials. The companies committed to provide advance written notice to 

DHS before making any material change with respect to their cooperation/membership support, and to meet with any DHS designated U.S. Government officials prior 

to implementation. In fact, the DHS agreement with DP World provides assurances 

with respect to law enforcement, public safety, and national security that DHS does 

not currently have with other terminal operators. 

The referenced concerns in the Coast Guard report must be placed in context. 

While this question is best addressed to the Department of Homeland Security, DHS 

considered not only the Coast Guard’s assessment, but also the assessment of the 

broader intelligence community as a whole. The U.S. Coast Guard resolved its initial concerns in the context of the broader dialog about this case; that dialog took 

place during the investigation of the transaction, which ended on January 17,2006.

3. You mentioned in your testimony that ‘‘Typically, the members of the Committee with the greatest relevant expertise assume the lead role in examining any 

national security issues related to a transaction and, when appropriate, developing 

appropriate mechanisms to address those risks.’’ Would DHS not take the lead 

on many of these transactions? Do you think that they have the personnel 

capable to fulfill this duty? 

Each CFIUS agency determines the resources to be dedicated to its CFIUS responsibilities and chooses its own staff. Depending on the nature of the transaction 

and the business of the U.S. target company, an agency may utilize resources several offices in its agency to investigate and analyze the national security implications from its agency’s perspective. 

Given DHS’s expertise, it takes the lead on many cases, as do the Departments 

of Defense and Justice. Questions as to the level of resources available in DHS to 

devote to its CFIUS responsibilities are best directed to DHS. However, DHS has 

been a valuable addition to CFIUS and performs its responsibilities thoroughly and 

diligently.

4. The Byrd Amendment—§ 2170(b) of the Defense Protection Act—States that 

‘‘The President or the President’s designee shall make an investigation. . .in any instance in which an entity controlled by or acting on behalf of a foreign government 

seeks to engage in any merger, acquisition, or takeover which could result in control 

of a person engaged in interstate commerce in the United States that could affect 

the national security of the United States.’’ Why didn’t CFIUS engage in an investigation of the Dubai Ports World deal—a foreign government-owned 

company engaged in port operations? By not conducting these investigations, aren’t you, in the words of the frustrating the intent of the legislation? 

In February, the State of New Jersey filed a lawsuit challenging CFIUS’s conclusion that the Byrd Amendment did not require a formal ‘‘investigation’’ of the DP 

World acquisition. The Department of Justice filed a responsive brief in the lawsuit, 

which set forth the Administration’s interpretation of the Byrd Amendment. The 

brief states that ‘‘(1) the Byrd Amendment requires an investigation only when the 

transaction at issue is determined to be one that ‘could affect the national security 

of the United States,’ and (2) the determination of whether a particular transaction 

‘could affect the national security of the United States’ is a determination that is 

anything but ministerial and non-discretionary—requiring as it does the collection 

and analysis of facts regarding both the proposed transaction and the nation’s security.’’ The brief further notes that ‘‘this textually compelled, commonsense reading 
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of the Byrd Amendment has been followed by the Executive Branch since that provision was first enacted’’ in 1992. 

The fact that the DP World case did not go into a 45-day extended investigation 

period did not affect ability to conduct a thorough investigation. There is a general 

misunderstanding that CFIUS conducts in-depth work only during the 45-day period. This is not the case. During the 30-day period, CFIUS thoroughly analyzes 

transactions for their effects on national security and carefully considers input from 

the intelligence community, other CFIUS agencies, and agencies with relevant expertise. Often a significant amount of analysis is performed even before the 30-day 

period begins. In the case of DP World, as previously noted, members of CFIUS staff 

spent nearly 90 days investigating this transaction, and a mitigation agreement was 

negotiated with DP World to provide assurances with respect to law enforcement, 

public safety, and national security.

5. If changes to CFIUS were made in light of September llth, then why 

did it take so long to begin enforcing the legislation, and why did it take 

such a case as DP World to jumpstart the legislation? 

Actually, CFIUS has reviewed 268 cases since September 11th, 2001, and made 

many important changes well before the DP World transaction. Since September 

11th, an important change to the CFIUS process was the addition of DHS to CFIUS 

membership. DHS brings to the CFIUS process its own unique perspective of the 

potential impacts of cases on our homeland security. Other efforts have been made 

to improve the CFIUS process, drawing on comments Members of Congress, the recommendations of the GAO, and the recommendations received from the member 

agencies of CFIUS.

Some of the changes I would note: • Accountability: All cases in CFIUS are being briefed at the highest levels at 

Treasury, and clearances on transactions are at the Senate-confirmed level. • DNI: The role of the intelligence community has been formalized. The Office of 

the Director of National Intelligence (DNI) plays a key role in all CFIUS cases by 

participating in CFIUS meetings, examining every transaction notified to the Committee, and providing broad and comprehensive threat assessments. • Communications with Congress: We are taking steps to improve communications with Congress, including promptly notifying Congress of every CFIUS case 

upon its completion, and committing to conducting quarterly briefings for Congress 

on CFIUS matters, which we recently conducted for oversight committees. • Pre-filing: CFIUS is encouraging pre-filings notifications; companies are more 

frequently informing CFIUS of transactions well before filing notice, which allows 

additional time for the Committee’s consideration.

6. Since your two primary goals are to (1) increase Congressional oversight of CFIUS and (2) maintain a friendly environment for foreign businesses, would it be possible to have CFIUS report all of its informal dealings with foreign businesses to Congress rather than deal away the entire 

process? 

The principles that guide CFIUS are protecting U.S. national security and maintaining an open investment policy. To advance those principles, the Administration 

supports improving communications with Congress on CFIUS matters, among other 

process reforms. 

We believe it is possible to have increased Congressional oversight of CFIUS without tightening the rules for foreign investment, if done correctly. We are taking 

steps to improve communications with Congress, including promptly notifying Congress of every CFIUS transaction upon its completion, and committing to conducting 

quarterly briefings for Congress on CFIUS matters. We have recently met with 

oversight committees to provide a quarterly report on cases. 

CFIUS does not notify Congress until a CFIUS case is complete in order to protect 

the Executive Branch’s deliberative processes, and also to avoid the disclosure of 

proprietary information that could undermine a transaction or be used for competitive purposes.

7. One of the major problems with the DPW transaction was that neither the relevant Secretaries nor the President were aware of the transaction. Yet in recent testimony before the House Financial Service Committee, you opposed Cabinet-level 

certification of transactions. If such certifications were allowed, then wouldn’t 

they ensure that the transaction receives the proper amount of scrutiny? 

The Administration supports the Secretary or the Deputy Secretary of the Treasury signing the report on a transaction at the conclusion of a 45-day extended investigation. Furthermore, at the conclusion of a CFIUS 30-day investigation, the Administration supports requiring the case to be approved by an official nominated by 
61

the President and confirmed by the Senate, with an assurance that appropriate senior agency officials received a briefing on the transaction. Mandating the personal 

involvement of department heads or deputies in order to finalize all 30-day investigations is not practical for a process that—while it needs to be thorough, responsible and accountable—also needs to be efficient and timely in the disposition of 

cases that may vary greatly in degree of complexity and significance to national security. Under this standard, foreign transactions that do not present national security issues will be approved in a manner consistent with our open investment policy, 

while CFIUS resources and attention will be focused where they are most needed. 

Presently, the Administration is ensuring high-level accountability in the CFIUS 

process. Treasury officials at the highest levels are briefed on a regular basis on all 

CFIUS cases. Presidentially appointed, Senate-confirmed officials are responsible for 

clearing transactions at the conclusion of CFIUS 30-day investigations. Officials at 

the Deputy level make decisions about putting cases into an extended 45-day investigation. Finally, transactions that need to go to the President are decided at the 

Principal level.

8. Considering that foreign firms acquiring US firms accounted for 13% 

of all mergers and transactions in 2005, how do you seek to maintain a 

friendly environment for foreign businesses, while mitigating the discretion of CFIUS? Is it possible to allow for increased oversight of CFIUS by 

Congress, but without tightening the rules for foreign investment? 

The Administration supports the efforts to improve the CFIUS process in a manner that protects national security and does not diminish national security by negatively impacting the nation’s economy. 

Reforms to the CFIUS process should send a signal that the United States continues to be serious about national security and welcomes legitimate foreign direct 

investment (FDI). CFIUS must examine each transaction thoroughly, but the timeframes for examination should not be unnecessarily long and should not be discriminatory. Therefore, the process should not require 45-day extended investigations of 

transactions that do not impair the national security. Improvements to the CFIUS 

process should promote filing of notice with respect to appropriate transactions but 

should not delay or deter FDI with no nexus to the national security. 

It is possible to have increased Congressional oversight of CFIUS without tightening the rules for foreign investment, if done correctly. We are taking steps to improve communications with Congress, including promptly notifying Congress of 

every CFIUS case upon its completion, and committing to conducting quarterly 

briefings for Congress on CFIUS matters. We have recently met with Congressional 

oversight committees to provide a quarterly report on cases. At the same time, reforms of the CFIUS process should also reflect the importance of protecting proprietary information and the integrity of the Executive Branch’s decision making process. 

9. Considering the fears that many businesses have of the public scrutiny 

that comes with being involved in a CFIUS investigation, what steps can 

Congress take to ease these concerns? 

Reforms to the CFIUS process should encourage companies to file with the Committee by ensuring that any information they provide to CFIUS is protected from 

public disclosure and will not be used for competitive purposes. Full disclosure of 

information by companies is critical to the Committee’s ability to analyze thoroughly 

the national security risks associated with a transaction. It is also important to protect the Executive Branch’s deliberative process and to avoid possible politicization 

of CFIUS cases. 

To keep Congress informed adequately and regularly about the CFIUS process 

without causing businesses undue concern, Treasury has offered, on behalf of 

CFIUS, to brief the Senate Banking and House Financial Services Committees quarterly on completed reviews. Treasury is also promptly notifying Congress of all 

CFIUS cases upon completion. Federal law prevents proprietary corporate information from being revealed to the public, and Congress and the Executive Branch have 

an excellent record of protecting this information and preserving confidence in the 

process. It is necessary that both continue to treat all such information as confidential.

10. How frequently are mitigation agreements used to quell national security concerns? What is the current procedure for monitoring mitigation 

agreements? 

Mitigation agreements and assurances letters are used on a fairly regular basis 

to address potential national security risks. 

Typically, members of the Committee with the greatest relevant expertise take 

the lead role, in consultation with CFIUS, in negotiating and ultimately concluding 
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mitigation agreements when appropriate or requesting assurance letters. Such 

agreements implement security measures that vary in scope and purpose according 

to the particular national security concerns raised by a specific transaction. 

There are remedies built into mitigation agreements to address concerns that 

arise after the case concludes. The ‘‘lead’’ agency or agencies are and should be responsible for monitoring the parties’ compliance, in consultation with CFIUS. Procedures for monitoring an agreement may, for example, include annual reporting by 

the company to the lead agency or the authority to conduct on-site visits by the lead 

agency. 

For a material breach of any representation or commitment in the mitigation 

agreement, the lead agency would, in consultation with be able to seek any available 

legal remedy.

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