Exon-Florio Foreign Investment Provision: Comparison of H.R. 556 and S. 1610

Congressional research reportAug 7, 2007

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Order Code RL34082

Exon-Florio Foreign Investment Provision:

Comparison of H.R. 556 and S. 1610

Updated August 7, 2007

James K. Jackson

Specialist in International Trade and Finance

Foreign Affairs, Defense, and Trade Division

Exon-Florio Foreign Investment Provision:

Comparison of H.R. 556 and S. 1610

Summary

During the First Session of the 110th Congress, several Members of Congress

have introduced measures in the House and the Senate to address various concerns

with foreign investment, especially the proposed purchase of the British-owned P&O

Ports by Dubai Ports World in early 2006. Congresswoman Maloney introduced

H.R. 556, the National Security Foreign Investment Reform and Strengthened

Transparency Act of 2007, on January 18, 2007. The measure was approved by the

House Financial Services Committee on February 13, 2007 with amendments, and

was approved with amendments by the full House on February 28, 2007 by a vote of

423 to 0. On June 13, 2007, Senator Dodd introduced S. 1610, the Foreign

Investment and National Security Act of 2007. On June 29, 2007, the Senate adopted

S. 1610 in lieu of H.R. 556 by unanimous consent. On July 11, 2007, the House

accepted the Senate’s version of H.R. 556 by a vote of 370-45 and sent the measure

to the President, who signed it on July 26, 2007. It is designated as P.L. 110-49.

Both the House bill and the Senate bill attempt to address six perceived

problems with the current statutes that many Members identified during the 109th

Congress: 1) that the principal members of the interagency Committee on Foreign

Investment in the United States (CFIUS) at times seem not to be well informed of the

outcomes of reviews and investigations regarding proposed or pending investment

transactions; 2) that CFIUS has interpreted incorrectly the requirements under current

statutes for investigations of transactions that involve firms that are owned or

controlled by a foreign government; 3) that reporting requirements under current

statutes do not provide Congress with enough information about the operations and

actions of CFIUS for Members to fulfill their oversight responsibilities; 4) that

CFIUS exercises too much discretion in its ability to choose which transactions it

investigates; 5) that the definition of national security used by CFIUS is no longer

adequate in a post-September 11th world; and 6) that deadlines placed on CFIUS to

complete reviews and investigations of investment transactions do not provide

adequate time in some instances for the Committee to complete its reviews and

investigations.

This report provides background information on the Committee on Foreign

Investment in the United States and on the Exon-Florio provision. In addition, the

report provides an overview of H.R. 556 and S. 1610 and a side-by-side comparison

of the two measures. This report will be updated as warranted by events.

Contents

Overview . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1

The Committee on Foreign Investment in the United States (CFIUS) . . . . . 2

The Exon-Florio Provision . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3

The “Byrd Amendment” . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5

Exon-Florio Provision After September 11, 2001 . . . . . . . . . . . . . . . . . . . . . 8

Overview of H.R. 556 and S. 1610 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10

Side-by-Side Comparison of H.R. 556 and S. 1610 . . . . . . . . . . . . . . . . . . . . . . 13

CFIUS National Security Investigations . . . . . . . . . . . . . . . . . . . . . . . . . . . 13

Composition of CFIUS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25

Presidential Actions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29

Findings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30

Factors Used in Findings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31

Confidentiality . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34

Mitigation and Tracking . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35

Congressional Oversight . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38

Conclusions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47

Exon-Florio Foreign Investment Provision:

Comparison of H.R. 556 and S. 1610

Overview

During the 109th Congress, numerous Members of Congress introduced over two

dozen measures to address various concerns with foreign investment that arose from

the proposed purchase of the British-owned P&O Ports1 by Dubai Ports World2 in

early 2006.3 In particular, the transaction spurred some Members to question the

effectiveness of the relatively obscure interagency group, the Committee on Foreign

Investment in the United States (CFIUS). The group has been charged with

developing and implementing the Administration's policy on foreign investment and

with conducting national security reviews under the Exon-Florio provision of the

Defense Production Act (50 U.S.C. Sec. 2170). Of the measures that were

introduced, H.R. 5337 and S. 3549 from the House and Senate, respectively,

garnered significant support and passed their respective bodies on July 26, 2006. The

109th Congress ended before a Conference Committee was convened on H.R. 5337

or S. 3549 and both measures lapsed. In the 110th Congress, Congresswoman

Maloney introduced H.R. 556 (H.Rept. 110-24), the National Security Foreign

Investment Reform and Strengthened Transparency Act of 2007, which was adopted

by the full House on February 28, 2007. On June 13, 2007, Senator Dodd introduced

S. 1610 (S.Rept. 110-80), the Foreign Investment and National Security Act of 2007.

On June 29, 2007, the Senate substituted S. 1610 for H.R. 556 and adopted the

revised measure by unanimous consent. On July 11, 2007, the House accepted the

Senate’s version of H.R. 556 by a vote of 370-45 and sent the measure to the

President, who signed it on July 26, 2007. It is designated as P.L. 110-49.

H.R. 556 and S. 1610 represent efforts to correct perceived problems with the

current process that arose during consideration of the Dubai Ports World transaction.

In particular, many Members generally expressed concerns about six areas. First,

some Members were concerned that the principal members of CFIUS at times seem

Peninsular and Oriental Steam Company is a leading ports operator and transport company

with operations in ports, ferries, and property development. It operates container terminals

and logistics operations in over 100 ports and has a presence in 18 countries.

Dubai Ports World was created in November 2005 by integrating Dubai Ports Authority

and Dubai Ports International. It is one of the largest commercial port operators in the world

with operations in the Middle East, India, Europe, Asia, Latin America, the Carribean, and

North America.

For additional information, see CRS Report RL33614, Exon-Florio Foreign Investment

Provision: Comparison of H.R. 5337 and S. 3549, by James K. Jackson; and CRS Report

RL33388, The Committee on Foreign Investment in the United States (CFIUS), by James

K. Jackson.

CRS-2

not to be well informed of the outcomes of reviews and investigations made by

CFIUS regarding proposed or pending investment transactions, because the duty for

reviewing such transactions has been delegated in most agencies to lower-level

personnel. Second, some Members argued that CFIUS was interpreting incorrectly

the requirements under current statutes for investigations of transactions that involve

firms that are owned or controlled by a foreign government. Third, some Members

argued that the current statutes do not provide Congress with enough information

about the operations and actions of CFIUS for them to fulfill their oversight

responsibilities. Fourth, some Members argued that CFIUS exercises too much

discretion in its ability to choose which transactions it investigates and that it needs

to be held more accountable to Congress for its decisions regarding reviews and

investigations of investment transactions. Fifth, some Members questioned the

definition of national security used by the Committee as being too narrowly

interpreted and out of sync with the post September 11th view of national security.

Last, some Members expressed their concerns that the time constraints placed on

CFIUS to complete reviews and investigations of investment transactions does not

provide adequate time in some instances for the Committee to complete its reviews

and investigations.

The Committee on Foreign Investment in the United States

(CFIUS)

The Committee on Foreign Investment in the United States (CFIUS) is an

interagency committee that serves the President in overseeing the national security

implications of foreign investment in the economy. CFIUS was established by an

Executive Order of President Ford in 1975 with broad responsibilities and few

specific powers.4 P.L. 110-49 established the Committee as a matter of statute,

rather than as a creation of various Executive Orders. The Committee is housed in

the Department of the Treasury and until recently generally has operated in relative

obscurity. Initially, CFIUS was established with six members, but the membership

was expanded to twelve through various Executive Orders. Under P.L. 110-49, the

Committee membership was reduced to seven members, including the Secretaries of

State, the Treasury, Defense, Homeland Security, and Commerce; Energy; and the

Attorney General. The Secretary of Labor and the Director of National Intelligence

serve as ex officio members of the Committee. The President can appoint temporary

members as he determines. Prior to passage of P.L. 110-49, seven other individuals

were permanent members of CFIUS: the United States Trade Representative; the

Chairman of the Council of Economic Advisers; the Attorney General; the Director

of the Office of Management and Budget; the Director of the Office of Science and

Technology Policy; the Assistant to the President for National Security Affairs; and

the Assistant to the President for Economic Policy.5

Executive Order 11858 (b), May 7, 1975, 40 F.R. 20263.

Executive Order 11858 of May 7, 1975, 40 F.R. 20263 established the Committee with six

members: the Secretaries of State, the Treasury, Defense, Commerce, and the Assistant to

the President for Economic Affairs, and the Executive Director of the Council on

International Economic Policy. Executive Order 12188, January 2, 1980, 45 F.R. 969,

added the United States Trade Representative and substituted the Chairman of the Council

(continued...)

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The Exon-Florio Provision

The Exon-Florio provision (Section 2170 of the 1988 Defense Production Act),

as amended by P.L. 110-49, grants the President broad discretionary authority to take

what action he considers to be "appropriate" to suspend or prohibit proposed or

pending foreign acquisitions, mergers, or takeovers "of persons engaged in interstate

commerce in the United States” which “threaten to impair the national security.” The

statute indicates that the President must make an investigation to determine the

effects on national security of such investments. Most importantly, however,

Congress directed that the President can exercise this discretionary authority “only

if” he determines that two conditions exist: 1) other U.S. laws are inadequate or

inappropriate to protect the national security; and 2) that he must have “credible

evidence” that the foreign investment will impair the national security. For the

purposes of this legislation, Congress purposely did not define national security, but

intended to have the term interpreted broadly without limitation to a particular

industry.6

In 1988, Congress approved the Exon-Florio provision as part of the Omnibus

Trade Act.7 Through Executive Order 12661, President Reagan implemented

provisions of the Omnibus Trade Act, and he delegated his authority to administer

the Exon-Florio provision to CFIUS,8 particularly to conduct reviews of foreign

investment, to undertake investigations, and to make recommendations, although the

statute itself does not specifically mention CFIUS. As a result of President Reagan's

action, CFIUS was transformed from a purely administrative body with limited

authority to review and analyze data on foreign investment to one with a broad

mandate and significant authority to advise the President on foreign investment

transactions and to recommend that some transactions be suspended or prohibited.

The Committee has 30 days to decide whether to investigate a case and an additional

45 days to make its recommendation. Once the recommendation is made, the

President has 15 days to act.

(...continued)

of Economic Advisors for the Executive Director of the Council on International Economic

Policy. Executive Order 12661, December 27, 1988, 54 F.R. 779, added the Attorney

General and the Director of the Office of Management and Budget. Executive Order 12860,

September 3, 1993, 58 F.R. 47201, added the Director of the Office of Science and

Technology Policy, the Assistant to the President for National Security Affairs, and the

Assistant to the President for Economic Policy. Executive Order 13286, Section 57,

February 28, 2003, added the Secretary of Homeland Security. P.L. 110-49 reduced the

membership of CFIUS to six Cabinet members and the Attorney General, it added the

Secretary of Labor and the Director of National Security as ex officio members, and

removed seven White House appointees.

Congressional Record, Daily Edition, vol. 134, April 20, 1988. p. H2118.

P.L. 100-418, title V, Subtitle A, Part II, or 50 U.S.C. app 2170.

Executive Order 12661 of December 27, 1988, 54 F.R. 779.

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Regulations developed by the Treasury Department in November 1991

implemented the Exon-Florio provision.9 These regulations created a system of

voluntary notification by the parties to an investment transaction and they allow for

notices of acquisitions by agencies that are members of CFIUS. Despite the

voluntary nature of the notification, firms largely comply with these provisions

because the regulations stipulate that foreign acquisitions that are governed by the

Exon-Florio review process, but that do not notify the Committee, remain subject

indefinitely to divestment or other appropriate actions by the President. This process

has become one in a number of regulatory steps that firms consider as they undertake

a merger, acquisition, or takeover.

According to the Exon-Florio provision, as amended by P.L. 110-49, CFIUS has

30 days to decide after it receives the initial formal notification by the parties to a

merger, acquisition, or a takeover, whether to investigate a case as a result of its

determination that the investment “threatens to impair the national security of the

United States.” National security also includes, “those issues relating to 'homeland

security,' including its application to critical infrastructure,” and “critical

technologies.” In addition, CFIUS is required to conduct an investigation of a

transaction if the Committee determines that the transaction would result in foreign

control of any person engaged in interstate commerce in the United States.

The President, acting through CFIUS, is also required to conduct a National

Security investigation of the effects of a transaction on the national security of the

United States and to take any “necessary” actions in connection with the transaction

to protect the national security of the United States under certain conditions. These

conditions would be: 1) as a result of a review of the transaction, CFIUS determined

that the transactions threatened to impair the national security of the United States

and that the threat had not been mitigated during or prior to a review of the

transaction, or 2) the foreign person was controlled by a foreign government. If

during this 30 day period all of the members of CFIUS conclude that the investment

does not threaten to impair the national security, the review is terminated. If,

however, at least one member of the Committee determines that the investment does

threaten to impair the national security CFIUS can proceed to a 45-day investigation.

At the conclusion of the investigation or the 45-day review period, whichever comes

first, the Committee can decide to offer no recommendation or it can recommend that

the President suspend or prohibit the investment. The President is under no

obligation to follow the recommendation of the Committee to suspend or prohibit an

investment.

The Director of National Intelligence, although not a member of CFIUS, must

be given “adequate time” to carry out a thorough analysis of “any threat to the

national security of the United States” of any merger, acquisition, or takeover. This

analysis would include a request for information from the Department of the

Treasury's Director of the Office of Foreign Assets Control and the Director of the

Financial Crimes Enforcement Network. In addition, the Director of National

Regulations Pertaining to Mergers, Acquisitions, and Takeovers by Foreign Persons. 31

C.F.R. Part 800.

CRS-5

Intelligence is required to seek and to incorporate the views of “all affected or

appropriate” intelligence agencies.

The “Byrd Amendment”

In 1992, Congress amended the Exon-Florio statute through section 837(a) of

the National Defense Authorization Act for Fiscal Year 1993. Known as the “Byrd

Amendment” after the amendment's sponsor, the provision requires CFIUS to

investigate proposed mergers, acquisitions, or takeovers in cases where:

(1) the acquirer is controlled by or acting on behalf of a foreign government;

and

(2) the acquisition results in control of a person engaged in interstate commerce

in the United States that could affect the national security of the United States.10

Under P.L. 110-49, these investigative requirements were strengthened. The

definition of national security was broadened by P.L. 110-49 to include, “those issues

relating to 'homeland security,' including its application to critical infrastructure,” and

“critical technologies.” In addition, CFIUS is required to conduct an investigation

of a transaction if the Committee determines that the transaction would result in

foreign control of an entity engaged in interstate commerce in the United States. The

President, acting through CFIUS, is required to conduct a National Security

investigation of the effects of a transaction on the national security of the United

States and to take any “necessary” actions in connection with the transaction to

protect the national security of the United States if the foreign party to an investment

transaction is controlled by a foreign government. CFIUS is not required to conduct

an investigation, even if it had determined during a review that the party to a

transaction was controlled by a foreign government, if: it also determines that the

transaction “will not affect” the national security of the United States.

This amendment came under particularly intense scrutiny by the 109th Congress

as a result of the DP World transaction. Many Members of Congress and others

believed that this amendment required CFIUS to undertake a full 45-day

investigation of the transaction, because DP World was “controlled by or acting on

behalf of a foreign government.” The DP World acquisition, however, exposed a

sharp rift between what some Members apparently believed the amendment directed

CFIUS to do and how the members of CFIUS were interpreting the amendment. In

particular, some Members of Congress apparently interpreted the amendment to

require CFIUS to conduct a mandatory 45-day investigation without exception if the

foreign firm involved in a transaction is owned or controlled by a foreign

government.

Representatives of CFIUS, however, argued that there were two factors that

controlled their decision not to conduct a 45-day investigation of the transaction.

First, they argued that the requirements of the Exon-Florio provision itself precluded

them from engaging in a 45-day investigation, because their initial review did not

find “credible evidence” that the transaction would impair national security, a basic

P.L. 102-484, October 23, 1992.

CRS-6

threshold for CFIUS to meet in order to invoke the Exon-Florio provision. Secondly,

representatives indicated that they interpret the amendment to mean that a 45-day

investigation is discretionary and not mandatory, again because of the requirement

that a transaction must be found to cause an impairment to national security before

the Exon-Florio provision can be invoked.

CFIUS representatives also argued that their decision not to launch a full 45-day

investigation of the DP World was the result of an extensive informal review of the

transaction prior to the case being officially filed with CFIUS and as a result of a

formal 30-day review. During these two reviews, CFIUS members believed that all

concerns that had been expressed by members of CFIUS had been adequately

resolved so that by the time of the review no member of CFIUS had any unresolved

concerns about the impact of the transaction on national security. They conceded that

the case met the first criterion under the Byrd amendment, because DP World was

controlled by a foreign government, but that it did not meet the second part of the

requirement, because CFIUS had concluded during the 30-day review that the

transaction “could not affect the national security.”11

As a result of the attention by both the public and Congress, DP World officials

indicated that they would sell off the U.S. port operations to an American owner.12

On December 11, 2006, DP World officials announced that a unit of AIG Global

Investment Group, a New York-based asset management company with $683 billion

in assets, but no experience in port operations, would acquire the U.S. port operations

for an undisclosed amount.13

Through the Exon-Florio provision, Congress directed that the President or his

designee must consider a short list of factors in deciding whether to block a foreign

acquisition, merger, or takeover. Again, the President has broad discretion under the

current statute to decide the basis on which he determines whether a transaction

might impair the national security. This list includes the following factors:

(1) domestic production needed for projected national defense requirements;

(2) 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;

(3) the control of domestic industries and commercial activity by foreign citizens

as it affects the capability and capacity of the U.S. to meet the requirements of

national security;

Briefing on the Dubai Ports World Deal before the Senate Armed Services Committee,

February 23, 2006.

Weisman, Jonathan, and Bradley Graham, “Dubai Firm to Sell U.S. Port Operations,” The

Washington Post, March 10, 2006. p. A1.

King, Neil Jr., and Greg Hitt, Dubai Ports World Sells U.S. Assets — AIG Buys

Operations that Ignited Controversy As Democrats Plan Changes. The Wall Street Journal,

December 12, 2006. p. A1.

CRS-7

(4) the potential effects of the transactions on the sales of military goods,

equipment, or technology to a country that supports terrorism or proliferates

missile technology or chemical and biological weapons; transactions identified

by the Secretary of Defense as “posing a regional military threat” to the interests

of the United States;

(5) the potential effects of the transaction on U.S. technological leadership in

areas affecting U.S. national security;

(6) whether the transaction has a security-related impact on critical infrastructure

in the United States:

(7) the potential effects on United States critical infrastructure, including major

energy assets;

(8) the potential effects on United States critical technologies;

(9) whether the transaction is a foreign government-controlled transaction;

(10) in those cases involving a government-controlled transaction, a review of

(A) the adherence of the foreign country to nonproliferation control regimes, (B)

the foreign country's record on cooperating in counter0terrorism efforts, (C) the

potential for transshipment or diversion of technologies with military

applications,;

(11) the long-term projection of the United States requirements for sources of

energy and other critical resources and materials; and

(12) such other factors as the President or the Committee determine to be

appropriate.14

CFIUS and a designated lead agency are authorized to negotiate, impose, or

enforce any agreement or condition with the parties to a transaction in order to

mitigate any threat to the national security of the United States. Such agreements are

based on a “risk-based analysis” of the threat posed by the transaction. Also, if a

notification of a transaction is withdrawn before any review or investigation by

CFIUS can be completed, CFIUS can take a number of actions, including 1) interim

protections to address specific concerns about the transaction pending a resubmission of a notice by the parties; 2) specific time frames for re-submitting the

notice; and 3) a process for tracking any actions taken by any party to the transaction.

In addition, CFIUS is required to develop a method for evaluating the

compliance of firms that have entered into a mitigation agreement or condition that

was imposed as a requirement for approval of the investment transaction. Such

measures, however, are required to be developed in such a way that they allow

CFIUS to determine that compliance is taking place without also: 1) “unnecessarily

diverting” CFIUS resources from assessing any new covered transaction for which

a written notice had been filed; and 2) placing “unnecessary” burdens on a party to

a investment transaction.

The last requirement under factor 4 and factors 6-12 were added by P.L. 110-49.

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Part of Congress's motivation in adopting the Exon-Florio provision apparently

arose from concerns that foreign takeovers of U.S. firms could not be stopped unless

the President declared a national emergency or regulators invoked federal antitrust,

environmental, or securities laws. Through the Exon-Florio provision, Congress

attempted to strengthen the President's hand in conducting foreign investment policy,

while providing a cursory role for itself as a means of emphasizing that, as much as

possible, the commercial nature of investment transactions should be free from

political considerations. Congress also attempted to balance public concerns about

the economic impact of certain types of foreign investment with the nation's longstanding international commitment to maintain an open and receptive environment

for foreign investment.

Furthermore, Congress did not intend to have the Exon-Florio provision alter

the generally open foreign investment climate of the country or to have it inhibit

foreign direct investments in industries that could not be considered to be of national

security interest. The basic approach of the provision, therefore, was to presume that

foreign investment generally has a positive effect on the economy and that it should

be encouraged and restricted only in those cases in which a specific transaction had

met a burden of proof that the proposed investor “might take action that threatens to

impair the national security.”

At the time the Exon-Florio provision was adopted, some analysts believed the

provision could potentially widen the scope of industries that fell under the national

security rubric. CFIUS, however, is not free to establish an independent approach to

reviewing foreign investment transactions, but operates under the authority of the

President and reflects his attitudes and policies. As a result, the discretion CFIUS

uses to review and to investigate foreign investment cases reflects policy guidance

from the President. In addition, Congress did not adopt a specific definition of

national security when it approved the Exon-Florio provision. Instead, during a

review or investigation of a foreign investment, each member of CFIUS is expected

to apply that definition of national security that is consistent with the legislative

mandate of the CFIUS member. As a result, the CFIUS process relies on each

member applying their own particular definition of national security and making any

concerns that arise from such a review known to the other members of CFIUS.

Foreign investors are also constrained by legislation that bars foreign direct

investment in such industries as maritime operations, aircraft, banking, resources and

power.15 Generally, these sectors were closed to foreign investors, primarily for

national defense purposes, prior to passage of the Exon-Florio provision to prevent

these areas from being subject to foreign control.

Exon-Florio Provision After September 11, 2001

Arguably, the events of September 11, 2001, reshaped Congressional attitudes

toward the Exon-Florio provision and the manner in which it should be used. During

discussion about the Exon-Florio provision prior to its passage in 1988, the Reagan

CRS Report RL33103, Foreign Investment in the United States: Major Federal

Restrictions, by Michael V. Seitzinger.

CRS-9

Administration opposed a definition of national security that included “essential

commerce and national security,” because the administration argued that the

definition was too broad. Ultimately, the Reagan Administration succeeded in

getting the term “essential commerce” dropped from the provision. After the

September 11th terrorist attacks, however, Congress passed and President Bush signed

the USA PATRIOT Act of 2001 (Uniting and Strengthening America by Providing

Appropriate Tools Required to Intercept and Obstruct Terrorism).16 In this act,

Congress provided for special support for “critical industries,” which it defined as:

systems 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 debilitating

impact on security, national economic security, national public health or safety,

or any combination of those matters.17

This broad definition is enhanced to some degree by other provisions of the act,

which specifically identify certain sectors of the economy, therefore, as likely

candidates for consideration as critical infrastructure, including telecommunications,

energy, financial services, water, transportation sectors,18 and the “cyber and physical

infrastructure services critical to maintaining the national defense, continuity of

government, economic prosperity, and quality of life in the United States.”19 The

following year, Congress adopted the language in the USA PATRIOT Act on critical

infrastructure into The Homeland Security Act of 2002.20

By adopting the terms “critical infrastructure” and “homeland security,”

following the events of September 11, 2001, Congress demonstrated that the attacks

fundamentally altered the way many Members of Congress and many in the public

view the concept of national security. As a result, many in Congress and in the

public have come to believe that economic activities are a separately identifiable

component of national security. In addition, many in Congress and elsewhere

apparently perceive greater risks to the economy arising from foreign investments in

which the foreign investor is owned or controlled by foreign governments as a result

of the terrorist attacks. The Dubai Ports World case, in particular, demonstrated that

there was a difference between the post-September 11 expectations held by many in

Congress about the role of foreign investment in the economy and of economic

infrastructure issues as a component of national security and the operations of

CFIUS. For some Members of Congress, CFIUS seemed to be out of touch with the

post-September 11, 2001 view of national security, because it remains founded in the

late 1980s orientation of the Exon-Florio provision, which views national security

primarily in terms of national defense and downplays or even excludes a broader

notion of economic national security.

P.L. 107-56, title X, Sec. 1014, October 26, 2001; 42 U.S.C. Sec. 5195c(e).

Ibid.

42 U.S.C. Sec. 5195c(b)(2).

42 U.S.C. Sec. 5195c(b)(3).

6 U.S.C. Sec. 101(4).

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Activity within Congress and the intense public and congressional reaction that

arose from the proposed Dubai Ports World acquisition spurred the Bush

Administration in late 2006 to make an important administrative change in the way

CFIUS reviews foreign investment transactions. CFIUS and President Bush

approved the acquisition of Lucent Technologies, Inc. by the French-based Alcatel

SA, which was completed on December 1, 2006. Before the transaction was

approved by CFIUS, however, Alcatel-Lucent was required to agree to a national

security arrangement, known as a Special Security Arrangement, or SSA, that

restricts Alcatel's access to sensitive work done by Lucent's research arm, Bell Labs,

and the communications infrastructure in the United States.

The most controversial feature of this arrangement is that it allows CFIUS to

reopen a review of the deal and to overturn its approval at any time if CFIUS believes

the companies “materially fail to comply” with the terms of the arrangement. This

marks a significant change in the CFIUS process. Prior to this transaction, CFIUS

reviews and investigations had been portrayed, and had been considered, to be final.

As a result, firms were willing to subject themselves voluntarily to a CFIUS review,

because they believed that once an investment transaction was scrutinized and

approved by the members of CFIUS the firms could be assured that the investment

transaction would be exempt from any future reviews or actions. This administrative

change, however, means that a CFIUS determination may no longer be a final

decision and it adds a new level of uncertainty to foreign investors seeking to acquire

U.S. firms. A broad range of U.S. and international business groups are objecting to

this change in the Administration's policy.21

Overview of H.R. 556 and S. 1610

H.R. 556 was approved by the House Financial Services Committee on February

13, 2007, with amendments. The amendment offered by Committee Chairman Frank

and Representative Price included six changes to the bill as it was introduced on

January 18, 2007. These changes responded to concerns that were expressed by the

Bush Administration that some of the procedures that would have been established

under H.R. 556 would have created new levels of bureaucracy and administrative

bottlenecks that potentially could have delayed and discouraged foreign investment.

The changes would 1) allow a Deputy Secretary or an Under Secretary of an agency

to approve an investment transaction on behalf of the respective agency instead of

requiring the Secretary to approve the transaction; 2) require the Deputy Secretary of

an agency to certify investment transactions by companies that are owned by a

foreign government; 3) give the Director of National Intelligence “adequate time” to

consider national security implications instead of requiring a minimum of 30 days to

examine security implications; 4) clarify that agencies act on behalf of CFIUS in

administering agreements to mitigate security concerns that are raised about a foreign

investor during a CFIUS review; 5) strike a provision that would have allowed

Kirchgaessner, Stephanie, US Threat to Reopen Terms of Lucent and Alcatel Deal

Mergers, Financial Times, December 1, 2006. P. 19; Pelofsky, Jeremy, Businesses Object

to US move on foreign Investment, Reuters News, December 5, 2006.

CRS-11

CFIUS to reopen approvals; and would have required the Attorney General to report

to Congress.22

On February 28, 2007, H.R. 556 was approved with amendments by the full

House. The three amendments that were adopted clarified the language of the

measure in some cases and added a number of new sections. In particular, the

measure added a new factor that requires CFIUS and the President to consider the

impact of an investment transaction on U.S. efforts to curtail human smuggling in

approving a transaction. Another change would require CFIUS to notify Senators

and Members of Congress if the Committee determines that the areas represented by

the Senator or Member would be “significantly” affected by an investment

transaction.

On June 13, 2007, Senator Dodd introduced S. 1610, which was referred to the

Senate Committee on Banking, Housing, and Urban affairs. On June 29, 2007, the

full Senate considered S. 1610 and adopted the measure by unanimous consent as a

substitute for H.R. 556. On July 11, 2007, the House accepted the Senate’s version

of H.R. 556 by a vote of 370-45 and sent the measure to the President, who signed

it on July 26, 2007. It is designated as P.L. 110-49.

Both H.R. 556 and S. 1610 (P.L. 110-49) attempt to address congressional

concerns by establishing CFIUS by statutory authority, thereby giving Congress a

direct role in determining the make-up and operations of the Committee. The

measures would have the Secretary of the Treasury continue to serve as the Chairman

of CFIUS, despite the misgivings of some Members. The House measure would

have had the Secretary of Homeland Security and the Secretary of Defense serve as

Vice Chairmen. In other respects, the House bill retained the basic structure of the

Committee as it presently exists, except that it would add the Secretary of Energy as

a permanent member of CFIUS. The Senate measure reduced the official number of

members of CFIUS, but grants the President the authority to appoint temporary

members on a case-by-case basis.

According to the two measures, the Committee operates under the same time

frame that currently exists with 30 days allotted for a review, 45 days for an

investigation and 15 days for the President to make his determination. The President

retains his authority as the only officer with the authority to suspend or prohibit

certain types of foreign investments. The measures place additional requirements on

firms that resubmitted a filing after previously withdrawing a filing before a full

review is completed.

In H.R. 556, no review or investigation would have been considered to be

complete until it had been approved by a majority of the members of CFIUS and

signed by the Secretary of the Treasury and the Secretary of Homeland Security to

insure that principal members of CFIUS were aware of all reviews and investigations

completed by CFIUS. Both measures require CFIUS to investigate all 'covered”

foreign investment transactions to determine whether a transaction threatens to

House Financial Services Committee Clears Amended CFIUS Reform Bill by Voice

Vote, International Trade Daily, February 14, 2007.

CRS-12

impair the national security, or the foreign entity is controlled by a foreign

government. A covered foreign investment transaction is defined as any merger,

acquisition, or takeover which results in “foreign control of any person engaged in

interstate commerce in the United States.” S. 1610 requires an investigation if the

transaction would result in control of any “critical infrastructure that could impair the

national security.”

Both measures place increased requirements on CFIUS to review investment

transactions in which the foreign person is owned or controlled by a foreign

government. Both measures provide for exceptions from the requirement to

investigate transactions in which the foreign party is controlled by a foreign

government. The measures would allow CFIUS to exclude a transaction from an

investigation if the Secretary of the Treasury and certain other specified officials

determine that the transaction will not impair the national security. It is somewhat

unclear, however, how this change will mesh with the current process. The measures

seem to strengthen the role of CFIUS in determining which transactions it will

investigate. The measures also do not amend or alter the current statute in the area

that has been the source of recent differences between CFIUS and Congress. In

particular, the current statute states that the President, and through him CFIUS, can

use the Exon-Florio process “only if” he finds that there is “credible evidence” that

a foreign investment will impair national security. As a result, CFIUS has

determined, as was the case in the Dubai Ports transaction, that if the Committee

does not have credible evidence that an investment will impair the national security

that it is not required to undertake a full 45-day investigation.

The extent to which CFIUS increases its investigations of transactions that

involve a foreign government may cause foreign investors to regard this as an

important policy change by the United States toward foreign investment. As

previously stated, the current system presumes that foreign investment transactions

are acceptable and that they provide a positive contribution to the economy. As a

result, the burden is on the members of CFIUS to prove that a particular transaction

is a threat to national security. The measures, however, might be interpreted to

presume that investment transactions in which the foreign person is owned or

controlled by a foreign government are a threat to the nation's security simply

because of the relationship to the foreign government and, therefore, might require

the firms to prove that they are not a threat. Although the number of investment

transactions a year in which the foreign investor is associated with a foreign

government is small compared with the total number of foreign investment

transactions, foreign investors and foreign governments likely will view this as a

significant change in the traditional U.S. approach to foreign investment.

Both bills increase the role of congressional oversight by requiring greater

reporting by CFIUS on its actions either during or after it completes reviews and

investigations and by increasing reporting requirements on CFIUS. H.R. 556 would

have required the Secretary of the Treasury, the Secretary of Homeland Security, and

the Secretary of Commerce to sign and approve any review or investigation. In those

cases in which the foreign person involved in an investment transaction is owned or

controlled by a foreign government, a majority of the members of CFIUS would have

been required to approve the transaction and the President and the chair and vice

chairs of CFIUS would have been required to sign off on investments in which at

CRS-13

least one member of CFIUS did not agree with the decision of the majority to

approve the transaction. H.R. 556 also would have required the President to approve

of any review or investigation in which a foreign entity is from a country that has

been determined to support acts of international terrorism.

Both measures require CFIUS to provide Congress with a greater amount of

detailed information about its operations. H.R. 556 would have required CFIUS to

notify specified Members at the conclusion of any investment investigation and to

report annually to Congress. Both measures provide for greater reporting on and

increased authority for CFIUS to negotiate provisions with the foreign firms involved

in investment transactions to mitigate the impact of the transaction. Under current

statutes, CFIUS has no authority to negotiate such agreements with firms and it is not

clear that it has any authority to enforce such agreements. H.R. 556 and S. 1610

provide for a process to track the agreements and to report the progress of such

agreements and any changes to the agreements to the members of CFIUS and to the

President.

The measures also amend the current statute regarding the meaning of national

security and place additional requirements on CFIUS regarding national security

reviews. The bills explicitly require the Director of National Intelligence to conduct

reviews of any investment that posed a threat to the national security. The bills also

provide for additional factors the President and CFIUS are required to use in

assessing foreign investments. In particular, the bills add implications for the nation's

critical infrastructure as a factor for reviewing or investigating an investment

transaction.

Side-by-Side Comparison of H.R. 556 and S. 1610

The following section provides a more detailed comparison of the two bills as

they passed their respective bodies and the current provisions.

CFIUS National Security Investigations

According to the Exon-Florio provision and subsequent regulations issued by

the Treasury Department, CFIUS has 30 days after it receives the initial formal

notification by the parties to a merger, acquisition, or a takeover, to decide whether

to investigate a case as a result of its determination that the investment “threatens to

impair the national security of the United States.” If during this 30-day period all the

members of CFIUS conclude that the investment does not threaten to impair the

national security or if the concerns of any member are resolved, the review is

terminated. If, however, at least one member of the Committee determines that the

investment does threaten to impair the national security and if those concerns are not

resolved, CFIUS can proceed to a 45-day investigation. At the conclusion of the

investigation or the 45-day review period, whichever comes first, the Committee can

decide to offer no recommendation or it can recommend that the President suspend

or prohibit the investment. The President is under no obligation to follow the

recommendation of the Committee to suspend or prohibit an investment.

CRS-14

A subsequent amendment, the Byrd Amendment, requires CFIUS to conduct a

45-day investigation of a transaction in any instance in which the foreign entity is

controlled by or acting on behalf of a foreign government which could result in the

foreign entity gaining control of the U.S. entity and that could affect the national

security of the United States. Such an investigation is required to begin no later than

30 days after CFIUS receives written notice of the proposed or pending merger,

acquisition, or takeover and be completed in no more than 45 days.

H.R. 556 and S. 1610 establish the Committee on Foreign Investment in the

United States as a matter of statute and would amend the current procedures for a

CFIUS review and investigation. The measures strike out the first two sections of

the current statute that deal with investigations and replace them with provisions that

would provide for the same 30-day review and 45-day investigation stages that exist

under the current provision, but would alter the provision in a number of ways. First,

the measures explicitly indicate that the investigation will be conducted by the

Committee on Foreign Investment in the United States, which was referred to only

as the President's designee prior to passage of P.L. 110-49. Next, the measures

amend and broaden the language in the current statute regarding national security by

indicating that national security for this provision is construed “so as to include those

issues relating to 'homeland security,' including its application to critical

infrastructure,” and “critical technologies.”

The measures provide for “National Security Reviews and Investigations,”

which are not a part of the current CFIUS process, although the Director of National

Intelligence often is asked to participate in CFIUS reviews and investigations. In an

important departure from the current procedure, CFIUS is required (“shall”) to

review any merger, acquisition, or takeover to determine the effects of the transaction

on the national security of the United States. In addition, CFIUS is required (shall)

to conduct an investigation of a transaction if the Committee determines that the

transaction would result in foreign control of any person engaged in interstate

commerce in the United States. Once a review has been initiated, a firm cannot

withdraw its notice unless it provides a written request for such a withdrawal and the

request is approved in writing by the Chairperson, in consultation with the Vice

Chairpersons of the Committee. The term “control” for this section is defined in the

Code of Federal Regulation (31CFR800.204) as the power to affect the principal

assets of the entity, the power to dissolve the entity, to close and/or relocate the

production or research and development facilities, to terminate contracts, or to amend

the Articles of Incorporation.

In addition to any entity that is a party to a merger, acquisition, or takeover

being able to initiate a review, the measures would provide that the President, the

Committee can request that CFIUS review a transaction. This authority could not be

delegated by any member of CFIUS to any person other than to an appropriate

Deputy Secretary or Under Secretary. These individuals would be able to review a

transaction that previously had been reviewed and approved under certain

circumstances: 1) a transaction in which it was later discovered that false or

misleading material information had been submitted to CFIUS; 2) or material

information, including documents, had been omitted from information submitted to

CFIUS; 3) or if a party to a transaction had intentionally failed to adhere to any

mitigating agreements or conditions upon which the original approval had been

CRS-15

granted and no other remedy or enforcement tool was available to address such a

breach of the mitigating agreement.

The measures require the President, acting through CFIUS, to conduct a

National Security investigation of the effects of a transaction on the national security

of the United States and to take any “necessary” actions in connection with the

transaction to protect the national security of the United States under certain

conditions. These conditions would be: (1) as a result of a review of the transaction,

CFIUS determined that the transactions threatened to impair the national security of

the United States and that the threat had not been mitigated during or prior to a

review of the transaction, or the foreign person was controlled by a foreign

government. H.R. 556 would have required an investigation if: during a roll call vote

of the members of CFIUS at least one member had voted against approving the

transaction; the Director of National Intelligence had identified “particularly complex

national security or intelligence issues” that threaten to impair the national security

of the United States and CFIUS members had not been able to develop and agree on

measures to mitigate the threat during a review. S. 1610 requires an investigation if

the transaction results in the control of “any critical infrastructure” that would impair

the national security. The investigation is required to be completed within 45 days,

but the House measure would have provided for an extension of the deadline of up

to an additional 45 days if the extension had been requested by the President or by

a roll call vote of two-thirds of the CFIUS members.

Both measures provide an important exception to the requirement that CFIUS

conduct an investigation of any transaction if it determines during a review that a

party to a transaction is owned or controlled by a foreign government. Instead, the

measures would not require such an investigation, even if CFIUS had determined

during a review that the party to a transaction was controlled by a foreign government

if: it also determined that the transaction “will not affect” the national security of the

United States. The House measure also would have waived the requirement for an

investigation if no agreement or condition was required, relative to the transaction,

to mitigate any threat to the national security.

The House measure would have required the approval of a majority of the

members of CFIUS and the approval of, and a signed determination by, the Secretary

of the Treasury, the Secretary of Homeland Security, and the Secretary of Commerce

on any review or investigation in order for the CFIUS process to be considered final

or complete. In those cases in which the foreign entity was determined to be

controlled by a foreign government and at least one member of CFIUS did not vote

in favor of approval, the CFIUS investigation process would not be considered to be

complete until the President and the Chairperson, and the Vice Chairperson of the

Committee signed the Committee report to indicate their approval.

H.R. 556 would have required action by the President in certain cases.

Specifically, the measure would have required the President to approve and to sign

his approval of an investment transaction in which the party to a transaction is an

entity or a country that has been determined by the Secretary of State under the

Export Administration Act or other provisions of law repeatedly to have provided

support for acts of terrorism. S. 1610, requires the Secretary of the Treasury to

publish in the Federal Register guidance on the types of transactions that the

CRS-16

Committee had reviewed and that had national security considerations. The Senate

measure also requires the Committee to notify specified Members of Congress at the

completion of a review or investigation of any foreign investment transaction.

Both bills grant the Director of National Intelligence “adequate time” to carry

out a thorough analysis of “any threat to the national security of the United States”

of any merger, acquisition, or takeover. This analysis specifically includes a request

for information be made from the Department of the Treasury's Director of the Office

of Foreign Assets Control and the Director of the Financial Crimes Enforcement

Network. In addition, the Director of National Intelligence is required to seek and

to incorporate the views of “all affected or appropriate” intelligence agencies. The

Director of National Intelligence, however, maintains a role that is independent from

CFIUS by not serving as an official member of CFIUS and by not serving in a policy

role other than to provide analysis in connection with an investment transaction.

Firms are not be prohibited from submitting additional information or modifying any

agreement in connection with a transaction while the transaction is being reviewed

or investigated.

H.R. 556

National Security Foreign Investment

Reform and Strengthened

Transparency Act of 2007

S. 1610

Foreign Investment and National

Security Act of 2007

Section 721 of the Defense Production

Act of 1950 (50 U.S.C. App. 2170) is

amended by striking subsections (a) and

(b) and inserting the following new

subsections:

Same.

National security reviews and

investigations.

National security reviews and

investigations.

The President, acting through the CFIUS,

would be required to review a “covered”

transaction (any merger, acquisition, or

takeover by or with any foreign person

which could result in foreign control of

any person engaged in interstate

commerce in the United States) to

determine the effects of the transaction

on the national security of the United

States.

Same.

No comparable provision.

Also specifically requires the President to

consider the factors specified elsewhere

in this measure in the review and

investigation, as “appropriate.”

Control by a foreign government.

CFIUS is required to conduct an

investigation if the Committee determines

Same.

CRS-17

H.R. 556

National Security Foreign Investment

Reform and Strengthened

Transparency Act of 2007

S. 1610

Foreign Investment and National

Security Act of 2007

that the investment transaction is a

foreign government-controlled

transaction.

Written notice.

Any party to any covered transaction may

initiate a review of the transaction by

submitting a written notice of the

transaction to the Chairperson of the

Committee.

Same.

Withdrawal of notice.

Written request must be 1) submitted by

any party to the transaction; and 2) the

request is approved in writing by the

Chairperson, in consultation with the

Vice Chairpersons, of the Committee.

Withdrawal notice must be submitted to

the Committee and approved by the

Committee.

Continuing discussions.

Approval of a withdrawal request is not

to be construed as precluding continuing

informal discussions with the Committee

or any Committee member regarding

possible resubmission.

Continuing discussions.

Same.

Unilateral initiation of review.

The President, the Committee, or any

member of the Committee may move to

initiate a review of:

The President or the Committee may

initiate a review of:

(i) any covered transaction;

Same.

(ii) any covered transaction that has

previously been reviewed or investigated

under this section, if any party to the

transaction submitted false or misleading

material information to the Committee in

connection with the review or

investigation or omitted material

information, including material

documents, from information submitted

to the Committee; or `(iii) any covered

transaction that has previously been

reviewed or investigated under this

section, if any party to the transaction or

the entity resulting from consummation

of the transaction intentionally materially

Same.

CRS-18

H.R. 556

National Security Foreign Investment

Reform and Strengthened

Transparency Act of 2007

S. 1610

Foreign Investment and National

Security Act of 2007

breaches a mitigation agreement or

condition described in subsection

(l)(1)(A), and:

1) such breach is certified by the lead

department or agency monitoring and

enforcing such agreement or condition as

an intentional material breach; and

2) such department or agency certifies

that there is no other remedy or

enforcement tool available to address

such breach.

1) such breach is certified to the

Committee by the lead department or

agency monitoring and enforcing such

agreement or condition as an intentional

material breach; and

2) the Committee determines that there

are no other remedies or enforcement

tools available to address such breach.

Timing.

Any review under this paragraph shall be

completed before the end of the 30-day

period beginning on the date of the

receipt of written notice under

subparagraph (C) by the Chairperson of

the Committee, or the date of the

initiation of the review in accordance

with a motion under subparagraph (D).

Same.

Limit on delegation of authority.

Authority of the Committee or any

member of the Committee to initiate a

review may be delegated only to the

Deputy Secretary or an appropriate Under

Secretary of the department or agency

represented on the committee or by such

member (or by a person holding an

equivalent position to a Deputy Secretary

or Under Secretary).

Limit on delegation of authority.

Authority can be delegated only to the

Deputy Secretary or an appropriate Under

Secretary of the department or agency

represented on the Committee.

National security investigation.

In each case in which a review of a

covered transaction results in a

determination that:

1) the transaction threatens to impair the

national security of the United States and

that threat has not been mitigated during

or prior to the review or

2) the transaction is a foreign

government-controlled transaction;

Same.

No comparable provision.

3) the transaction would result in control

Same.

CRS-19

H.R. 556

National Security Foreign Investment

Reform and Strengthened

Transparency Act of 2007

S. 1610

Foreign Investment and National

Security Act of 2007

of any critical infrastructure that could

impair the national security, and that such

impairment has not been mitigated by

assurances provided or renewed during

the review period, the lead agency

recommends, and the Committee concurs,

that an investigation be undertaken.

A roll call vote results in at least 1 vote

by a Committee member against

approving the transaction; or

The Director of National Intelligence

identifies particularly complex

intelligence concerns that could threaten

to impair the national security of the

United States and Committee members

were not able to develop and agree upon

measures to mitigate satisfactorily those

threats during the initial review period,

the President would be required to

conduct an investigation of the effects of

the transaction on the national security of

the United States and take any necessary

actions in connection with the transaction

to protect the national security of the

United States.

No comparable provision.

Timing.

Any investigation must be completed

before the end of the 45-day period

beginning on the date of the investigation

commenced.

Same.

Extension of Time.

No comparable provision.

The period for any investigation may be

extended by the President or by a roll call

vote of at least 2/3 of the members of the

Committee by the amount of time

specified by the President or the

Committee at the time of the extension,

not to exceed 45 days, in order to collect

and fully evaluate information relating to

the covered transaction or parties to the

transaction; and any effect of the

transaction that could threaten to impair

the national security of the United States.

CRS-20

H.R. 556

National Security Foreign Investment

Reform and Strengthened

Transparency Act of 2007

S. 1610

Foreign Investment and National

Security Act of 2007

Exception.

An investigation of a foreign

government-controlled transaction is not

required if the Secretary of the Treasury,

the Secretary of Homeland Security, and

the Secretary of Commerce determine

that the transaction will not affect the

national security of the United States and

no agreement or condition is required to

mitigate any threat to the national

security (and such authority of each such

Secretary may not be delegated to any

person other than the Deputy Secretary of

the Treasury, of Homeland Security, or of

Commerce, respectively).

An investigation of a foreign

government- controlled transaction or a

transaction involving critical

infrastructure is not required if the

Secretary of the Treasury and the head of

the lead agency jointly determine that the

transaction will not impair the national

security of the United States.

No comparable provision.

Non-delegation of authority. Authority

would be delegated only to the Deputy

Secretary of the Treasury or the deputy

head (or the equivalent thereof) of the

lead agency, respectively.

Approval of Chairperson and Vice

Chairpersons.

No comparable provision.

A review or investigation can not be

treated as final or complete until the

results of the review or investigation are

approved by a majority of the members of

the Committee in a roll call vote and

signed by the Secretary of the Treasury,

the Secretary of Homeland Security, and

the Secretary of Commerce.

No comparable provision.

Guidance on certain transactions with

national security implications.

The Chairperson shall publish in the

Federal Register guidance on the types of

transactions that the Committee has

reviewed and that have presented national

security considerations, including

transactions that may constitute covered

transactions that would result in control

of critical infrastructure relating to

United States national security by a

foreign government or an entity

controlled by or acting on behalf of a

CRS-21

H.R. 556

National Security Foreign Investment

Reform and Strengthened

Transparency Act of 2007

S. 1610

Foreign Investment and National

Security Act of 2007

foreign government.

Additional action required in certain

cases.

No comparable provision.

In the case of any roll call vote in

connection with an investigation of any

foreign government-controlled

transaction in which there is at least 1

vote by a Committee member against

approving the transaction, the

investigation shall not be treated as final

or complete until the findings and report

resulting from the investigation are

signed by the President (in addition to the

Chairperson and the Vice Chairpersons

of the Committee).

Presidential action required in certain

cases.

No comparable provision.

The President would be required to

approve and sign the results of a review

or investigation in any case in which any

party to the transaction is:

1) a person of a country the government

of which the Secretary of State has

determined is a government that has

repeatedly provided support for acts of

international terrorism;

2) a government or person controlled,

directly or indirectly, by any such

government.

No comparable provision.

Certifications to Congress.

Upon completion of a review the

chairperson and the head of the lead

agency would be required to transmit a

certified notice to specified members of

Congress.

No comparable provision.

Certified report after investigation.

As soon as is practicable after completion

of an investigation the chairperson and

the head of the lead agency would be

required to transmit to specified members

of Congress a certified written report on

the results of the investigation, unless the

CRS-22

H.R. 556

National Security Foreign Investment

Reform and Strengthened

Transparency Act of 2007

S. 1610

Foreign Investment and National

Security Act of 2007

matter under investigation has been sent

to the President for decision.

No comparable provision.

Certification procedures.

Each certified notice and report would be

required to include 1) a description of the

actions taken by the Committee with

respect to the transaction; and 2)

identification of the determinative

factors.

No comparable provision.

Content of certification.

Each certified notice and report would be

required to be signed by the chairperson

and the head of the lead agency, and shall

state that, in the determination of the

Committee, there are no unresolved

national security concerns with the

transaction that is the subject of the

notice or report.

No comparable provision.

Members of Congress.

Each certified notice and report would be

required to be transmitted to: 1) the

Majority Leader and the Minority Leader

of the Senate; 2) the chair and ranking

member of the Committee on Banking,

Housing, and Urban Affairs of the Senate

and of any committee of the Senate

having oversight over the lead agency; 3)

the Speaker and the Minority Leader of

the House of Representatives; and 4) the

chair and ranking member of the

Committee on Financial Services of the

House of Representatives and of any

committee of the House of

Representatives having oversight over the

lead agency.

No comparable provision.

Transmittal to other Members of

Congress.

The Majority Leader or the Minority

Leader in the Senate, and the Speaker or

the Minority Leader, in the House of

Representatives, may provide the

certified notices and reports regarding a

CRS-23

H.R. 556

National Security Foreign Investment

Reform and Strengthened

Transparency Act of 2007

S. 1610

Foreign Investment and National

Security Act of 2007

transaction involving critical

infrastructure: 1) in the case of the

Senate, to members of the Senate from

the State in which such critical

infrastructure is located; and 2) in the

case of the House of Representatives, to a

member from a Congressional District in

which the critical infrastructure is

located.

No comparable provision.

Signatures, limit on delegation.

Each certified notice and report must be

signed by the chairperson and the head of

the lead agency, which may only be

delegated to an employee of the

Department of the Treasury (in the case

of the Secretary of the Treasury) or to an

employee of the lead agency (in the case

of the lead agency) who was appointed

by the President, by and with the advice

and consent of the Senate, or only to a

Deputy Secretary of the Treasury (in the

case of the Secretary of the Treasury) or a

person serving in the Deputy position or

the equivalent thereof at the lead agency

(in the case of the lead agency).

Analysis by director of national

intelligence.

Analysis by director of national

intelligence.

The Director of National Intelligence

would be required to expeditiously carry

out a thorough analysis of any threat to

the national security of the United States

of any covered transaction, including

making requests for information to the

Director of the Office of Foreign Assets

Control within the Department of the

Treasury and the Director of the

Financial Crimes Enforcement Network.

The Director of National Intelligence also

would be required to seek and

incorporate the views of all affected or

appropriate intelligence agencies.

The Director of National Intelligence

would be required to expeditiously carry

out a thorough analysis of any threat to

the national security of the United States

posed by any covered transaction. The

Director of National Intelligence would

be required to seek and incorporate the

views of all affected or appropriate

intelligence agencies with respect to the

transaction.

Timing.

The Director of National Intelligence

The analysis required under

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Transparency Act of 2007

S. 1610

Foreign Investment and National

Security Act of 2007

would be required to provide adequate

time to complete the analysis required

under subparagraph (A).

subparagraph (A) must be provided by

the Director of National Intelligence to

the Committee not later than 20 days

after the date on which notice of the

transaction is accepted by the Committee

under paragraph (1)(C), but the Director

may begin the analysis at any time prior

to receipt of the notice.

No comparable provision.

Interaction with intelligence

community.

The Director of National Intelligence

would be required to ensure that the

intelligence community remains engaged

in the collection, analysis, and

dissemination to the Committee of any

additional relevant information that may

become available during the course of

any investigation.

Independent role of the director.

The Director of National Intelligence

shall not be a member of the Committee

and shall serve no policy role with the

Committee other than to provide analysis

in connection with a covered transaction.

The Director of National Intelligence

shall be an ex officio member of the

Committee, and shall be provided with all

notices received by the Committee

regarding covered transactions, but shall

serve no policy role on the Committee,

other than to provide analysis in

connection with a covered transaction.

Submission of additional information.

No provision of this subsection can be

construed as prohibiting any party to a

covered transaction from submitting

additional information concerning the

transaction, including any proposed

restructuring of the transaction or any

modifications to any agreements in

connection with the transaction, while

any review or investigation of the

transaction is on-going.

Same.

No comparable provision.

Notice of results.

The Committee would be required to

notify the parties to a covered transaction

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Security Act of 2007

of the results of a review or investigation,

promptly upon completion of all action.

Regulations.

Regulations prescribed under this section

shall include standard procedures for:

A) submitting any notice of a proposed or

pending covered transaction to the

Committee;

B) submitting a request to withdraw a

proposed or pending covered transaction

from review; and

C) resubmitting a notice of proposed or

pending covered transaction that was

previously withdrawn from review.

No comparable provision.

Regulations.

Same.

D) providing notice of the results of a

review or investigation to the parties to

the covered transaction, upon completion

of all action under this section.

Composition of CFIUS

The Committee on Foreign Investment in the United States (CFIUS) was created

by Executive Order of President Ford in 197523 to serve the President in overseeing

the national security implications of foreign investment in the economy. President

Ford's 1975 Executive Order established the basic structure of CFIUS, and directed

that the “representative”24 of the Secretary of the Treasury be the chairman of the

Committee. The Executive Order also stipulated that the Committee would have “the

primary continuing responsibility within the Executive Branch for monitoring the

impact of foreign investment in the United States, both direct and portfolio, and for

coordinating the implementation of United States policy on such investment.”25

Presently, the Committee consists of twelve members, including the Secretaries of

State, the Treasury, Defense, Homeland Security, and Commerce; the United States

Trade Representative; the Chairman of the Council of Economic Advisers; the

Attorney General; the Director of the Office of Management and Budget; the Director

of the Office of Science and Technology Policy; the Assistant to the President for

Executive Order 11858 (b), May 7, 1975, 40 F.R. 20263.

The term “representative” was dropped by Executive Order 12661, December 27, 1988,

54 F.R. 780.

Executive Order 11858 (b), May 7, 1975, 40 F.R. 20263.

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National Security Affairs; and the Assistant to the President for Economic Policy.26

Both H.R. 556 and S. 1610 establish the members of CFIUS as a matter of

statute, compared with the present situation in which CFIUS is a creation of various

presidential orders. Under the House measure, CFIUS would have included the same

twelve members that currently constitute the Committee, and it would have added the

Secretary of Energy to CFIUS. S. 1610, includes the same cabinet members as

currently included as members of CFIUS, but it does not include the other seven

members of the Administration. In addition, the Senate measure adds the Secretary

of Labor and the Director of National Intelligence as ex officio members. In both

measures, the Secretary of the Treasury would continue to serve as the Chairperson

of the Committee, but the House measure would have created a new Vice

Chairperson position that would have been held by the Secretary of Homeland

Security and the Secretary of Commerce. The Senate measure requires that a

particular member of CFIUS be designated as the lead agency in cases in which a

mitigation agreement has been negotiated or in those cases in which CFIUS has

determined to monitor the conditions agreed to as part of a mitigation agreement to

ensure that the conditions are being met. The House measure would have

empowered the Committee to “take such testimony, receive such evidence,

administer such oaths,” in order to carry out a review or investigation. The House

measure also would have empowered the Committee to require the attendance and

testimony of “such witnesses and production of such books, records, correspondence

memoranda, papers, and documents” as the Chairperson of the Committee

determined to be “advisable.”

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Security Act of 2007

Statutory establishment of the

Committee on Foreign Investment in

the United States.

Statutory establishment of the

Committee on Foreign Investment in

the United States.

Section 721 of the Defense Production

Act of 1950 (50 U.S.C. App. 2170) is

amended

Same.

Executive Order 11858 of May 7, 1975, 40 F.R. 20263 established the Committee with

six members: the Secretaries of State, the Treasury, Defense, and Commerce, and the

Assistant to the President for Economic Affairs, and the Executive Director of the Council

on International Economic Policy. Executive Order 12188, January 2, 1980, 45 F.R. 969,

added the United States Trade Representative and substituted the Chairman of the Council

of Economic Advisors for the Executive Director of the Council on International Economic

Policy. Executive Order 12661, December 27, 1988, 54 F.R. 779, added the Attorney

General and the Director of the Office of Management and Budget. Executive Order 12860,

September 3, 1993, 58 F.R. 47201, added the Director of the Office of Science and

Technology Policy, the Assistant to the President for National Security Affairs, and the

Assistant to the President for Economic Policy. Executive Order 13286, Section 57,

February 28, 2003 added the Secretary of Homeland Security.

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Establishment.

The Committee on Foreign Investment in

the United States established pursuant to

Executive Order No. 11858 shall be a

multi-agency committee to carry out this

section and such other assignments as the

President may designate.

Same.

Membership.

The Secretary of the Treasury.

The Secretary of Homeland Security.

The Secretary of Commerce.

The Secretary of Defense.

The Secretary of State.

The Attorney General.

The Secretary of Energy.

The Chairman of the Council of

Economic Advisors.

The United States Trade Representative.

The Director of the Office of

Management and Budget.

The Director of the National Economic

Council.

The Director of the Office of Science and

Technology Policy.

The President's Assistant for National

Security Affairs.

Any other designee of the President from

the Executive Office of the President.

Same.

The Secretary of Labor (ex officio).

The Director of National Intelligence (ex

officio).

The heads of any other executive

department, agency, or office, as the

President determines appropriate,

generally or on a case-by-case basis.

Chairperson.

The Secretary of the Treasury shall be the

Chairperson of the Committee.

Same.

The Secretary of Homeland Security and

the Secretary of Commerce shall be the

Vice Chairpersons of the Committee.

No comparable provision.

Designation of lead agency.

The Secretary of the Treasury would be

required to designate another member or

members, as appropriate, of the

Committee to be the lead agency or

agencies on behalf of the Committee:

A) for each transaction, and for

negotiating any mitigation agreements or

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other conditions necessary to protect

national security; and

B) for all matters related to the

monitoring of the completed transaction,

to ensure compliance with such

agreements or conditions.

Other members.

The Chairperson of the Committee would

be required to involve the heads of such

other Federal departments, agencies, and

independent establishments in any review

or investigation under subsection (b) as

the Chairperson, after consulting with the

Vice Chairpersons, determines to be

appropriate on the basis of the facts and

circumstances of the transaction under

investigation (or the designee of any such

department or agency head).

The chairperson would be required to

consult with the heads of such other

Federal departments, agencies, and

independent establishments in any review

or investigation under subsection (a), as

the chairperson determines to be

appropriate, on the basis of the facts and

circumstances of the transaction under

review or investigation (or the designee

of any such department or agency head).

Meetings.

The Committee shall meet upon the

direction of the President or upon the call

of the Chairperson of the Committee

without regard to section 552b of title 5,

United States Code (if otherwise

applicable).

Same.

Collection of evidence.

No comparable provision.

The Committee may, for the purpose of

carrying out this section:

A) sit and act at such times and places,

take such testimony, receive such

evidence, administer such oaths; and

B) require the attendance and testimony

of such witnesses and the production of

such books, records, correspondence,

memoranda, papers, and documents as

the Chairperson of the Committee may

determine advisable.

Authorization of appropriations.

There are authorized to be appropriated

No comparable provision.

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to the Secretary of the Treasury for each

of fiscal years 2008, 2009, 2010, and

2011 expressly and solely for the

operations of the Committee that are

conducted by the Secretary, the sum of

$10,000,000.

Presidential Actions

H.R. 556 would have left unaltered the current Exon-Florio provision, which

granted the President the authority to “take such action for such time as the President

considers appropriate to suspend or prohibit” any acquisition, merger, or takeover by

a foreign entity of “persons engaged in interstate commerce in the United States” that

threaten to impair the national security. The Senate measure empowers the President

to take such action as the President considers appropriate concerning “any covered

transaction by or with a foreign person or government” that threatens to impair the

national security of the United States. Both measures follow the current procedure,

which requires the President to announce his decision within 15 days after CFIUS

completes its investigation of a proposed transaction. Both measures also follow

current statute, which grants the President the authority to direct the Attorney General

to seek appropriate relief, including divestment relief, in the district courts of the

United States in order to implement and enforce this decision by the President.

H.R. 556

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No comparable provision.

Action by the President.

The President may take such action for

such time as the President considers

appropriate to suspend or prohibit any

covered transaction by or with a foreign

person or government that threatens to

impair the national security of the United

States.

No comparable provision.

Announcement by the President.

The President must announce the

decision on whether or not to take action

not later than 15 days after the date on

which an investigation is completed.

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No comparable provision.

Enforcement.

The President may direct the Attorney

General of the United States to seek

appropriate relief, including divestment

relief, in the district courts of the United

States, in order to implement and enforce

this subsection.

No comparable provision.

Findings of the President.

The President may exercise the authority

conferred by paragraph (1), only if the

President finds that:

A) there is credible evidence that leads

the President to believe that the foreign

interest exercising control might take

action that threatens to impair the

national security; and

B) provisions of law, other than this

section and the International Emergency

Economic Powers Act, do not, in the

judgment of the President, provide

adequate and appropriate authority for

the President to protect the national

security in the matter before the

President.

No comparable provision.

Factors to be considered.

For purposes of determining whether to

take action, the President shall consider,

among other factors each of the factors

described in this measure.

Findings

Both measures leave unchanged the current Exon-Florio provision, which

grants the President the authority to block proposed or pending foreign acquisitions

of “persons engaged in interstate commerce in the United States” that threaten to

impair the national security. Congress directed, however, that before the President

can invoke this authority he must believe that the case meets two tests, or findings.

First, he must believe that other U.S. laws are inadequate or inappropriate to protect

the national security. Secondly, he must have “credible evidence” that the foreign

investment will impair the national security. S. 1610 also indicates that the findings

of the President are not subject to any judicial review.

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No comparable provision.

Actions and findings nonreviewable.

The actions of the President under this

subsection and the findings of the

President are not subject to judicial

review.

Factors Used in Findings

As it was written, the Exon-Florio provision included a list of five factors the

President may have considered in deciding to block a foreign investment. These

factors were also considered by the individual members of CFIUS as part of their

own review process to determine if a particular transaction threatens to impair the

national security. This list included the following elements:

(1) domestic production needed for projected national defense requirements;

(2) 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;

(3) the control of domestic industries and commercial activity by foreign citizens

as it affects the capability and capacity of the U.S. to meet the requirements of

national security;

(4) the potential effects of the transactions on the sales of military goods,

equipment, or technology to a country as identified by the Secretary of States

under the Export Administration Act that supports terrorism or under the Nuclear

Non-Proliferation Act that proliferates missile technology or chemical and

biological weapons; and

(5) the potential effects of the transaction on U.S. technological leadership in

areas affecting U.S. national security.

Both H.R. 556 and S. 1610 amend the current factors the President and the

Committee use to evaluate mergers, acquisitions, or takeovers. In particular, the

measures changed the status of the factors to be considered from being discretionary

(may) to being required (shall) in evaluating a transaction. The Senate measure adds

transactions identified under the fourth factor by the Secretary of Defense as “posing

a regional military threat” to the interests of the United States. Also, H.R. 556 would

have added four more factors to the five that currently exist. These new factors are:

(1) whether the transaction has a security-related impact on critical infrastructure

in the United States;

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(2) the potential effects of the transaction on the efforts of the United States to

curtail human smuggling and to curtail drug smuggling.

(3) whether the entity involved is being controlled by a foreign government;

(4) and such other factors as the President or his designee “may determine to be

appropriate, generally or in connection with a specific review or transaction.”

S. 1610 adds seven new factors to the five that currently exist. These new

factors are:

(1) whether the transaction has a security-related impact on critical infrastructure

in the United States:

(2) the potential effects on United States critical infrastructure, including major

energy assets;

(3) the potential effects on United States critical technologies;

(4) whether the transaction is a foreign government-controlled transaction;

(5) in those cases involving a government-controlled transaction, a review of (A)

the adherence of the foreign country to nonproliferation control regimes, (B) the

foreign country's record on cooperating in counter0terrorism efforts, (C) the

potential for transshipment or diversion of technologies with military

applications,;

(6) the long-term projection of the United States requirements for sources of

energy and other critical resources and materials; and

(7) such other factors as the President or the Committee determine to be

appropriate.

Both bills make the United States immune from any liability for any losses or

expenses incurred by the parties to an investment transaction as a result of actions

taken by CFIUS if the entities do not submit a written notification to CFIUS or if the

transaction is completed prior to the completion of a CFIUS review or investigation.

H.R. 556

National Security Foreign Investment

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Transparency Act of 2007

S. 1610

Foreign Investment and National

Security Act of 2007

Additional factors required to be

considered.

Additional factors required to be

considered.

Section 721(f) of the Defense Production

Act of 1950 (50 U.S.C. App. 2170(f)) is

amended by making the factors

mandatory and by adding the following

factors to be considered:

Section 721(f) of the Defense Production

Act of 1950 (50 U.S.C. App. 2170(f)) is

amended by adding

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No comparable provision.

B) identified by the Secretary of Defense

as posing a potential regional military

threat to the interests of the United

States;

6) whether the covered transaction has a

security-related impact on critical

infrastructure in the United States;

7) the potential effects of the covered

transaction on the efforts of the United

States to curtail human smuggling and to

curtail drug smuggling with regard to any

country which is not described in

paragraphs (1) and (2) of section 1003(a)

of the Controlled Substances Import and

Export Act;

8) whether the covered transaction is a

foreign government-controlled

transaction; and

9) such other factors as the President or

the President's designee may determine to

be appropriate, generally or in connection

with a specific review or investigation.

Same.

7) the potential effects on United States

critical infrastructure, including major

energy assets;

8) the potential effects on United States

critical technologies;

9) whether the covered transaction is a

foreign government-controlled

transaction, as determined under

subsection (b)(1)(B);

10) with respect to transactions requiring

an investigation under subsection

(b)(1)(B) only, a review of the current

assessment of:

A) the adherence of the subject country

to nonproliferation control regimes,

including treaties and multilateral supply

guidelines, which shall draw on, but not

be limited to, the annual report on

'Adherence to and Compliance with Arms

Control, Nonproliferation and

Disarmament Agreements and

Commitments' required by section 403 of

the Arms Control and Disarmament Act;

B) the relationship of such country with

the United States, specifically on its

record on cooperating in

counter-terrorism efforts, which shall

draw on, but not be limited to, the report

of the President to Congress under

section 7120 of the Intelligence Reform

and Terrorism Prevention Act of 2004;

and

C) the potential for transshipment or

diversion of technologies with military

applications, including an analysis of

national export control laws and

regulations;

11) the long-term projection of United

States requirements for sources of energy

and other critical resources and material;

and

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12) such other factors as the President or

the Committee may determine to be

appropriate, generally or in connection

with a specific review or investigation.

Confidentiality

The Exon-Florio provision codified confidentiality requirements that are similar

to those that appeared in Executive Order 11858 by stating that any information or

documentary material filed under the provision may not be made public “except as

may be relevant to any administrative or judicial action or proceeding.”27 The

provision does state, however, that this confidentiality provision “shall not be

construed to prevent disclosure to either House of Congress or to any duly authorized

committee or subcommittee of the Congress.” The Exon-Florio provision requires

the President to provide a written report to the Secretary of the Senate and the Clerk

of the House detailing his decision and his actions relevant to any transaction that

was subject to a 45-day investigation.28 As presently written, there is no requirement

for CFIUS or the President to notify or otherwise inform Congress of cases it reviews

or of the outcome of any investigation.

Both H.R. 556 and S. 1610 provide for the release of proprietary information

“which can be associated with a particular party” to committees only with assurances

that the information would remain confidential. Members of Congress and their staff

members are accountable under current provisions of law governing the release of

certain types of information.

H.R. 556

National Security Foreign Investment

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S. 1610

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Security Act of 2007

Confidentiality provisions.

The disclosure of information under this

subsection shall be consistent with the

requirements of subsection (c). Members

of Congress and staff of either House or

any committee of the Congress shall be

Same.

50 U.S.C. Appendix Sec. 2170(c)

50 U.S.C. Appendix Sec. 2170(g).

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subject to the same limitations on

disclosure of information as are

applicable under such subsection.

Mitigation and Tracking

Since the implementation of the Exon-Florio provision, CFIUS has developed

several practices that likely were not envisioned when the statute was drafted. For

instance, members of CFIUS negotiate conditions with firms at times either to

mitigate or to remove matters that raise national security concerns among the

members of CFIUS. Such agreements often are informal arrangements that have an

uncertain basis in statute and have not been tested in court. These arrangements have

been negotiated during the formal 30-day review period, or even during an informal

process prior to the formal filing of a notice of an investment transaction.

H.R. 556 and S. 1610 address one concern about CFIUS's actions by granting

CFIUS and a designated lead agency the authority to negotiate, impose, or enforce

any agreement or condition with the parties to a transaction in order to mitigate any

threat to the national security of the United States. Such agreements are to be based

on a “risk-based analysis” of the threat posed by the transaction. Also, if a

notification of a transaction is withdrawn before any review or investigation by

CFIUS can be completed, the Committee the authority to take a number of actions.

In particular, the Committee can develop (1) interim protections to address specific

concerns about the transaction pending a re-submission of a notice by the parties; (2)

specific time frames for re-submitting the notice; and (3) a process for tracking any

actions taken by any party to the transaction. The federal entity or entities involved

in any mitigating agreement must report to CFIUS on any modification to any

agreement or condition that had been imposed and must ensure that “any significant”

modification is reported to the Director of National Intelligence and to any other

federal department or agency that “may have a material interest in such

modification.” Such reports must also be filed with the Attorney General.

In addition, CFIUS is required to develop a method for evaluating the

compliance of firms that had entered into a mitigation agreement or condition that

was imposed as a requirement for approval of the investment transaction. Such

measures, however, would be required to be developed in such a way that they would

allow CFIUS to determine that compliance is taking place without also: 1)

“unnecessarily diverting” CFIUS resources from assessing any new covered

transaction for which a written notice had been filed; and 2) placing “unnecessary”

burdens on a party to a investment transaction.

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Mitigation and tracking.

Mitigation.

The Committee or any agency designated

by the Chairperson and Vice

Chairpersons may negotiate, enter into or

impose, and enforce any agreement or

condition with any party to a covered

transaction in order to mitigate any threat

to the national security of the United

States that arises as a result of the

transaction.

The Committee or a lead agency may

negotiate, enter into or impose, and

enforce any agreement or condition with

any party to the covered transaction in

order to mitigate any threat to the

national security of the United States that

arises as a result of the covered

transaction.

Risk-based analysis.

Any agreement entered into or condition

imposed under subparagraph (A) shall be

based on a risk-based analysis, conducted

by the Committee, of the threat to

national security of the covered

transaction.

Same.

Tracking authority.

If any written notice of a covered

transaction that was submitted to the

Committee is withdrawn before any

review or investigation by the Committee

is completed, the Committee would be

required to establish, as appropriate1) interim protections to address specific

concerns with such transaction that have

been raised in connection with any such

review or investigation pending any

resubmission of any written notice under

this section with respect to such

transaction and further action by the

President under this section;

2) specific time frames for resubmitting

any such written notice; and

3) a process for tracking any actions that

may be taken by any party to the

transaction, in connection with the

transaction, before the notice referred to

in clause (2) is resubmitted.

Same.

Designation of agency.

The Committee may designate 1 or more

The lead agency, other than any entity of

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appropriate Federal departments or

agencies, other than any entity of the

intelligence community as a lead agency

to carry out the requirements with respect

to any covered transaction that is subject

to subparagraph (A).

the intelligence community shall ensure

that the requirements of subparagraph (A)

with respect to any covered transaction

that is subject to such subparagraph are

met.

Negotiation, modification, monitoring,

and enforcement.

Negotiation, modification, monitoring,

and enforcement.

The Committee shall designate 1 or more

Federal departments or agencies as the

lead agency to negotiate, modify,

monitor, and enforce, on behalf of the

Committee, any agreement entered into

or condition imposed under paragraph (1)

with respect to a covered transaction

based on the expertise with and

knowledge of the issues related to such

transaction on the part of the designated

department or agency.

The lead agency shall negotiate, modify,

monitor, and enforce, on behalf of the

Committee, any agreement entered into

or condition imposed under paragraph (1)

with respect to a covered transaction,

based on the expertise with and

knowledge of the issues related to such

transaction on the part of the designated

department or agency. Nothing in this

paragraph shall prohibit other

departments or agencies in assisting the

lead agency in carrying out the purposes

of this paragraph.

Reporting by designated agency.

Implementation reports.

No comparable provision.

Each Federal department or agency

designated by the Committee as a lead

agency in connection with any agreement

entered into or condition imposed with

respect to a covered transaction shall:

1) report, as appropriate but not less than

once in each six-month period, to the

Chairperson and Vice Chairpersons of

the Committee on the implementation of

such agreement or condition; and

2) require, as appropriate, any party to the

covered transaction to report to the head

of such department or agency (or the

designee of such department or agency

head) on the implementation or any

material change in circumstances.

Modification reports.

Any Federal department or agency

designated by the Committee as a lead

The lead agency in connection with any

agreement entered into or condition

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agency in connection with any agreement

entered into or condition imposed with

respect to a covered transaction shall:

1) provide periodic reports to the

Chairperson and Vice Chairpersons of

the Committee on any modification to

any such agreement or condition imposed

with respect to the transaction; and

2) ensure that any significant

modification to any such agreement or

condition is reported to the Director of

National Intelligence and to any other

Federal department or agency that may

have a material interest in such

modification.

imposed with respect to a covered

transaction shall

Compliance.

The Committee shall develop and agree

upon methods for evaluating compliance

with any agreement entered into or

condition imposed with respect to a

covered transaction that will allow the

Committee to adequately assure

compliance without1) unnecessarily diverting Committee

resources from assessing any new

covered transaction for which a written

notice has been filed pursuant to

subsection (b)(1)(C), and if necessary

reaching a mitigation agreement with or

imposing a condition on a party to such

covered transaction or any covered

transaction for which a review has been

reopened for any reason; or

Same.

1) provide periodic reports to the

Committee on any material modification

to any such agreement or condition

imposed with respect to the transaction;

and

2) ensure that any material modification

to any such agreement or condition is

reported to the Director of National

Intelligence, the Attorney General of the

United States, and any other Federal

department or agency that may have a

material interest in such modification.

Same.

2) placing unnecessary burdens on a party

to a covered transaction.

Congressional Oversight

In hearings that were held during the 109th Congress after the Dubai Ports World

transaction became public, various Members expressed concern that they were

provided so little information under the current statutes that their ability to fulfill

their oversight responsibilities was hampered. In addition, some Members apparently

CRS-39

believed that the current requirements do not provide Members with enough

information to address public concerns that occasionally arise concerning particular

investment transactions, such as the Dubai Ports World transaction. Currently, the

President is required to report to Congress on his determination to take action on a

proposed investment transaction after CFIUS has completed a 30-day review and a

45-day investigation of the transaction. The President's report is required to contain

a detailed explanation of the findings and of the factors the President used to make

his determination.

The President also is required to provide an assessment of the risk of diversion

of defense critical technology posed by an investment transaction if such an

assessment is performed and that the assessment be provided to any other individual

responsible for reviewing or investigating investment transactions under the ExonFlorio provision. In addition, the President is required to provide Congress with a

quadrennial report which evaluates two issues: 1) whether there is credible evidence

of a coordinated strategy by one or more countries or companies to acquire U.S.

companies involved in research, development, or production of critical technologies

for which the United States is a leading producer; and 2) whether there are industrial

espionage activities directed or directly assisted by foreign governments against

private U.S. companies aimed at obtaining commercial secrets related to critical

technologies.

Both H.R. 556 and S. 1610 increase oversight by the Congress. H.R. 556 would

have required that not later than five days after CFIUS completed an investigation,

or 15 days after the end of an investigation if the President had determined to take

actions under the Exon-Florio provision, the Committee would provide a written

report to leaders in both Houses of Congress and to the Chairman and Ranking

Member of committees in both houses with jurisdiction over any aspect of the

transaction and its possible effects on national security, specifically, at a minimum,

the Committee on Foreign Affairs, the Committee on Financial Services, and the

Committee on Energy and Commerce in the House. Both measures require CFIUS

to brief certain congressional leaders if they requested such a briefing. Members of

Congress and their staff are subject to disclosure limitations and proprietary

information would be shared with congressional committees only under conditions

that would assure the confidentiality of the information.

H.R. 556 and S. 1610 require CFIUS to report annually to Congress on any

reviews or investigations that it had conducted during the prior year. Each report

must include a list of all reviews and investigations that had been conducted,

information on the nature of the business activities of the parties involved in an

investment transaction, information about the status of the review or investigation,

and information on any withdrawal from the process, any roll call votes by the

Committee, any extension of time for any investigation, and any presidential decision

or action taken under the Exon-Florio provision. In addition, CFIUS must report on

trend information on the number of filings, investigations, withdrawals, and

presidential decisions or actions that were taken. The report also must include

cumulative information on the business sectors involved in filings and the countries

from which the investments originated; information on the status of the investments

of companies that withdrew notices and the types of security arrangements and

conditions CFIUS used to mitigate national security concerns; the methods the

CRS-40

Committee used to determine that firms were complying with mitigation agreements

or conditions; and a detailed discussion of all perceived adverse effects of investment

transactions on the national security or critical infrastructure of the United States.

Relative to critical technologies, both H.R. 556 and S. 1610 require CFIUS to

include in its annual report an evaluation of any credible evidence of a coordinated

strategy by one or more countries or companies to acquire U.S. companies involved

in research, development, or production of critical technologies in which the United

States is a leading producer. The report must include an evaluation of possible

industrial espionage activities directed or directly assisted by foreign governments

against private U.S. companies aimed at obtaining commercial secrets related to

critical technologies. For the purposes of this section, the House measure would

have defined critical technologies as technology defined in the National Science and

Technology Policy Organization and Priorities Act of 197629, or “other critical

technology, critical components, or critical technology items essential to national

defense or national security.”

In addition, both measures require the Secretary of the Treasury, in consultation

with the Secretary of State and the Secretary of Commerce to conduct a study on

investment in the United States, particularly in critical infrastructure and industries

affecting national security by: 1) foreign governments, entities controlled by or acting

on behalf of a foreign government, or persons of foreign countries which comply

with any boycott of Israel; 2) foreign governments, entities controlled by or acting on

behalf of a foreign government, or persons of foreign countries which do not ban

organizations designated by the Secretary of State as foreign terrorist organizations.

Both measures require the Inspector General of the Department of the Treasury

to investigate any failure of CFIUS to comply with requirements for reporting that

were imposed prior to the passage of this measure and to report the findings of this

report to the Congress. In particular, the report must be sent to the chairman and

ranking member of each committee of the House and the Senate with jurisdiction

over any aspect of the report, including the Committee on International Relations, the

Committee on Financial Services, and the Committee on Energy and Commerce of

the House.

H.R. 556 and S. 1610 also require the chief executive officer of any party to a

merger, acquisition, or takeover to certify in writing that the information contained

in the written notification to CFIUS fully complied with the requirements of the

Exon-Florio provision and that the information is accurate and complete. This

written notification includes any mitigation agreement or condition that was part of

a CFIUS approval.

P.L. 94-282 (May 11, 1976) which states that the priority needs of the Nation relative to

investment in science and technology are: (1) promoting conservation and efficient

utilization of natural and human resources; (2) protecting the oceans and coastal zones; (3)

strengthening the economy and promoting full employment; (4) assuring adequate supplies

of food, materials, and energy; (5) improving the quality of health care; and (6) improving

the nation's housing, transportation, and communication systems.

CRS-41

H.R. 556

National Security Foreign Investment

Reform and Strengthened

Transparency Act of 2007

S. 1610

Foreign Investment and National

Security Act of 2007

Increased oversight by the Congress.

Reports on completed investigations.

No comparable provision.

Not later than five days after the

completion of a Committee investigation

or, if the President indicates an intent to

take any action with respect to the

transaction, after the end of 15-day period

referred to in subsection (d), the

Chairperson or a Vice Chairperson of the

Committee would be required to submit a

written report on the findings or actions

of the Committee with respect to such

investigation, the determination of

whether or not to take action under

subsection (d), an explanation of the

findings under subsection (e), and the

factors considered under subsection (f),

with respect to such transaction, to:

1) the Majority Leader and the Minority

Leader of the Senate; 2) the Speaker and

the Minority Leader of the House of

Representatives; 3) the chairman and

ranking member of each committee of the

House of Representatives and the Senate

with jurisdiction over any aspect of the

covered transaction and its possible

effects on national security, including, at

a minimum, the Committee on Foreign

Affairs, the Committee on Financial

Services, and the Committee on Energy

and Commerce of the House of

Representatives; and 4) Senators

representing States and Members of

Congress representing congressional

districts that would be significantly

affected by the covered transaction.

No comparable provision.

Notice and briefing requirement.

If a written request for a briefing on a

covered transaction, or on compliance

with a mitigation agreement or condition

imposed with respect to such transaction,

is submitted to the Committee by any

Senator or Member of Congress who

receives a report on the transaction, the

Chairperson or a Vice Chairperson (or

The Committee shall, upon request from

any Member of Congress specified in

subsection (b)(3)(C)(iii), promptly

provide briefings on a covered

transaction for which all action has

concluded under this section, or on

compliance with a mitigation agreement

or condition imposed with respect to such

CRS-42

H.R. 556

National Security Foreign Investment

Reform and Strengthened

Transparency Act of 2007

S. 1610

Foreign Investment and National

Security Act of 2007

such other person as the Chairperson or a

Vice Chairperson may designate) shall

provide 1 classified briefing to each

House of the Congress from which any

such briefing request originates in a

secure facility of appropriate size and

location that shall be open only to the

Majority Leader and the Minority Leader

of the Senate, the Speaker and the

Minority Leader of the House of

Representatives, (as the case may be) the

chairman and ranking member of each

committee of the House of

Representatives or the Senate (as the case

may be) with jurisdiction over any aspect

of the covered transaction and its possible

effects on national security, including, at

a minimum, the Committee on Foreign

Affairs, the Committee on Financial

Services, and the Committee on Energy

and Commerce of the House of

Representatives, and appropriate staff

members who have security clearance.

transaction, on a classified basis, if

deemed necessary by the sensitivity of

the information. Briefings under this

paragraph may be provided to the

congressional staff of such a Member of

Congress having appropriate security

clearance.

Annual report.

The Chairperson of the Committee would

be required to transmit a report to the

chairman and ranking member of each

committee of the House of

Representatives and the Senate with

jurisdiction over any aspect of the report,

including, at a minimum, the Committee

on Foreign Affairs, the Committee on

Financial Services, and the Committee on

Energy and Commerce of the House of

Representatives, before July 31 of each

year on all the reviews and investigations

of covered transactions completed under

subsection (b) during the 12-month

period covered by the report.

The chairperson would be required to

transmit a report to the chairman and

ranking member of the committee of

jurisdiction in the Senate and the House

of Representatives, before July 31 of each

year on all of the reviews and

investigations of covered transactions

completed under subsection (b) during

the 12-month period covered by the

report.

Contents of report.

1) A list of all notices filed and all

reviews or investigations completed

during the period with basic information

on each party to the transaction, the

1) A list of all notices filed and all

reviews or investigations completed

during the period, with basic information

on each party to the transaction, the

CRS-43

H.R. 556

National Security Foreign Investment

Reform and Strengthened

Transparency Act of 2007

S. 1610

Foreign Investment and National

Security Act of 2007

nature of the business activities or

products of all pertinent persons, along

with information about the status of the

review or investigation, information on

any withdrawal from the process, any roll

call votes by the Committee under this

section, any extension of time for any

investigation, and any presidential

decision or action under this section.

nature of the business activities or

products of all pertinent persons, along

with information about any withdrawal

from the process, and any decision or

action by the President under this section.

2) Specific, cumulative, and, as

appropriate, trend information on the

numbers of filings, investigations,

withdrawals, and presidential decisions

or actions under this section.

Same.

3) Cumulative and, as appropriate, trend

information on the business sectors

involved in the filings which have been

made, and the countries from which the

investments have originated.

Same.

4) Information on whether companies

that withdrew notices to the Committee

in accordance with subsection

(b)(1)(C)(ii) have later re-filed such

notices, or, alternatively, abandoned the

transaction.

Same.

5) The types of security arrangements and

conditions the Committee has used to

mitigate national security concerns about

a transaction, including a discussion of

the methods the Committee and any lead

departments or agencies designated under

subsection (l) are using to determine

compliance with such arrangements or

conditions.

Same.

6) A detailed discussion of all perceived

adverse effects of covered transactions on

the national security or critical

infrastructure of the United States that

the Committee will take into account in

its deliberations during the period before

delivery of the next such report, to the

extent possible.

Same.

Contents of report relating to critical

technologies.

Contents of report relating to critical

technologies.

CRS-44

H.R. 556

National Security Foreign Investment

Reform and Strengthened

Transparency Act of 2007

S. 1610

Foreign Investment and National

Security Act of 2007

In order to assist the Congress in its

oversight responsibilities with respect to

this section, the President and such

agencies as the President shall designate

shall include in the annual report

submitted under paragraph (1) the

following:

Same.

1) An evaluation of whether there is

credible evidence of a coordinated

strategy by 1 or more countries or

companies to acquire United States

companies involved in research,

development, or production of critical

technologies for which the United States

is a leading producer.

Same.

2) An evaluation of whether there are

industrial espionage activities directed or

directly assisted by foreign governments

against private United States companies

aimed at obtaining commercial secrets

related to critical technologies.

Same.

Critical technologies.

No comparable provision.

Critical technologies means technologies

identified under title VI of the National

Science and Technology Policy,

Organization, and Priorities Act of 1976

or other critical technology, critical

components, or critical technology items

essential to national defense or national

security identified pursuant to this

section.

Release of unclassified study.

That portion of the annual report under

paragraph (1) that is required by this

paragraph may be classified. An

unclassified version of that portion of the

report shall be made available to the

public.'.

That portion of the annual report under

paragraph (1) that is required by this

paragraph may be classified. An

unclassified version of the report, as

appropriate, consistent with safeguarding

national security and privacy, shall be

made available to the public.

Study and report.

Before the end of the 120-day period

beginning on the date of the enactment of

Same.

CRS-45

H.R. 556

National Security Foreign Investment

Reform and Strengthened

Transparency Act of 2007

S. 1610

Foreign Investment and National

Security Act of 2007

this act and annually thereafter, the

Secretary of the Treasury, in consultation

with the Secretary of State and the

Secretary of Commerce, shall conduct a

study on investments in the United States,

especially investments in critical

infrastructure and industries affecting

national security, byA) foreign governments, entities

controlled by or acting on behalf of a

foreign government, or persons of foreign

countries which comply with any boycott

of Israel; or

Same.

B) foreign governments, entities

controlled by or acting on behalf of a

foreign government, or persons of foreign

countries which do not ban organizations

designated by the Secretary of State as

foreign terrorist organizations.

Same.

Report.

The Secretary of the Treasury shall

submit a report to the Congress, for

transmittal to all appropriate committees

of the Senate and the House of

Representatives, containing the findings

and conclusions of the Secretary with

respect to the study described in

paragraph (1), together with an analysis

of the effects of such investment on the

national security of the United States and

on any efforts to address those effects.

Same.

Investigation by Inspector General.

The Inspector General of the Department

of the Treasury shall conduct an

independent investigation to determine

all of the facts and circumstances

concerning each failure of the

Department of the Treasury to make any

report to the Congress that was required

under section 721(k) of the Defense

Production Act of 1950 (as in effect

before the date of the enactment of this

act).

Same.

CRS-46

H.R. 556

National Security Foreign Investment

Reform and Strengthened

Transparency Act of 2007

S. 1610

Foreign Investment and National

Security Act of 2007

Report to the Congress.

Before the end of the 270-day period

beginning on the date of the enactment of

this act, the Inspector General of the

Department of the Treasury shall submit

a report to the chairman and ranking

member of each committee of the House

of Representatives and the Senate with

jurisdiction over any aspect of the report,

including, at a minimum, the Committee

on Foreign Affairs, the Committee on

Financial Services, and the Committee on

Energy and Commerce of the House of

Representatives, on the investigation

under paragraph (1) containing the

findings and conclusions of the Inspector

General.

Same.

Certification of notices.

Certification of Notices and

Assurances.

Certification of Notices and

Assurances.

Each notice required to be submitted, by

a party to a covered transaction, to the

President or the President's designee

under this section and regulations

prescribed under such section, and any

information submitted by any such party

in connection with any action for which a

report is required pursuant to paragraph

(3)(B)(ii) of subsection (l) with respect to

the implementation of any mitigation

agreement or condition described in

paragraph (1)(A) of such subsection, or

any material change in circumstances,

shall be accompanied by a written

statement by the chief executive officer

or the designee of the person required to

submit such notice or information

certifying that, to the best of the person's

knowledge and belief —

'(1) the notice or information submitted

fully complies with the requirements of

this section or such regulation,

agreement, or condition; and

'(2) the notice or information is accurate

and complete in all material respects.’.

Same.

CRS-47

H.R. 556

National Security Foreign Investment

Reform and Strengthened

Transparency Act of 2007

S. 1610

Foreign Investment and National

Security Act of 2007

Conclusions

The proposed DP World acquisition of P&O, while arguably of little economic

impact on the U.S. economy, could affect public policy on foreign investment that

relates to issues of corporate ownership, foreign investment, and national security in

the U.S. economy. The transaction revealed significant differences between

Congress and the Administration over the operations of CFIUS and over the

objectives the Committee should be pursuing. In addition, the transaction

demonstrated that neither Congress nor the Administration has been able so far to

define clearly the national security implications of foreign direct investment or the

national security implications of foreign investment activity in the economy. These

issues likely reflects differing assessments of the economic impact of foreign

investment on the U.S. economy and differing political and philosophical convictions

among Members and between the Congress and the Administration.

The incident also focused attention on the informal process firms use to have

their investment transactions reviewed by CFIUS prior to a formal review.

According to anecdotal evidence, some firms apparently believe that the CFIUS

process is not market neutral, but that it adds to market uncertainty that can

negatively affect a firm’s stock price and lead to economic behavior by some firms

that is not optimal for the economy as a whole. Such behavior might involve firms

expending a considerable amount of resources to avoid a CFIUS investigation, or

deciding to terminate a transaction that would improve the optimal performance of

the economy in order to avoid a CFIUS investigation. While such anecdotal evidence

may not serve as the basis for developing public policy, it does raise a number of

concerns about the possible impact of the CFIUS process on the market and the

potential costs of redefining the concept of national security relative to foreign

investment.

The recent focus by Congress on the Committee has also shown that the DP

World transaction, in combination with other recent unpopular foreign investment

transactions, has exacerbated dissatisfaction among some Members of Congress over

the operations of CFIUS. In particular, some Members are displeased with the way

the Committee uses its discretionary authority under the Exon-Florio provision to

investigate certain foreign investment transactions. As a result, some Members of

Congress are proposing changes to the CFIUS process through legislation that is

progressing through the 1st Session of the 110th Congress. The changes could

mandate more frequent contact between the Committee, which generally operates

without much public or congressional attention, and the Congress and enhance

Congress’s oversight role over the Committee.

CRS-48

The DP World transaction also revealed that the September 11, 2001 terrorist

attacks may have fundamentally altered the viewpoint of some Members of Congress

regarding the role of foreign investment in the economy and over the impact of such

investment on the national security framework. Some argue that this changed

perspective requires a reassessment of the role of foreign investment in the economy

and of the implications of corporate ownership of activities that fall under the rubric

of critical infrastructure. As a result, some Members of Congress are looking to

amend the CFIUS process to enhance Congress’s oversight role while reducing

somewhat the discretion of CFIUS to review and investigate foreign investment

transactions in order to have CFIUS investigate a larger number of foreign

investment cases. In addition, the DP World transaction has focused attention on

long-unresolved issues concerning the role of foreign investment in the nation’s

overall security framework and the methods that are being used to assess the impact

of foreign investment on the nation’s defense industrial base, homeland security, and

national economic infrastructure.

Changes to the CFIUS process being proposed in the House and Senate bills

would alter the current CFIUS process, but it remains to be seen how the changes

would affect the outcome of the CFIUS process. In the final analysis, the President

retains sole authority to apply the Exon-Florio provisions and he has complete

discretion to accept or reject a CFIUS recommendation to block a proposed foreign

investment transaction. As a result, CFIUS reflects the President’s priorities and

policies relative to foreign investment. To date, Presidents have been highly

reluctant to use the authority of the Exon-Florio provision to block investment

transactions, which has happened just once since the measure was adopted. In part,

this reluctance may stem from the narrow range of policy options that are provided

for in the provision, which seems at odds with the often highly complex nature of

foreign investment transactions. As a result, CFIUS has slowly developed an

informal process that essentially expands the policy options available to the President

by allowing CFIUS members to review proposed investment transactions ahead of

any formal review and, most importantly, to negotiate informal agreements that

mitigate aspects of the investment that otherwise would spur CFIUS members to

oppose the transaction. By formalizing this process through proposed legislation,

Congress likely would expand the range of policy options available to the President

and possibly broaden the scope of measures foreign firms may be asked to comply

with in order to gain approval. Depending on how foreign firms view these changes,

they may regard them as signaling a less tolerant attitude in the United States toward

foreign investment and the changes potentially could add support to the renewed

willingness of some foreign governments to impose additional restrictions on foreign

investors.

Most economists agree that there is little economic evidence to conclude that

foreign ownership, whether by a private entity or by an entity that is owned or

controlled by a foreign government, has a measurable impact on the U.S. economy

as a whole. Others may argue on non-economic grounds that such firms pose a risk

to national security or to homeland security. Similar issues concerning corporate

ownership were raised during the late 1980s and early 1990s when foreign

investment in the U.S. economy increased rapidly. There are little new data,

however, to alter the conclusion reached at that time that there is no definitive way

to assess the economic impact of foreign ownership or of foreign investment on the

CRS-49

economy. Although some observers have expressed concerns about foreign investors

who are owned or controlled by foreign governments acquiring U.S. firms, there is

little confirmed evidence that such a distinction in corporate ownership has any

measurable effect on the economy as whole.

For most economists, the distinction between domestic- and foreign-owned

firms, whether the foreign firms are privately owned or controlled by a foreign

government, is sufficiently small that they would argue that it does not warrant

placing restrictions on the inflow of foreign investment. Nevertheless, foreign direct

investment does entail various economic costs and benefits. On the benefit side, such

investments bring added capital into the economy and potentially could add to

productivity growth and innovation. Such investment also represents one

repercussion of the U.S. trade deficit. The deficit transfers dollar-denominated assets

to foreign investors, who then decide how to hold those assets by choosing among

various investment vehicles, including direct investment. Foreign investment also

removes a stream of monetary benefits from the economy in the form of repatriated

capital and profits that reduces the total amount of capital in the economy. Such

costs and benefits likely occur whether the foreign owner is a private entity or a

foreign government.

This is a copy of a public record, reproduced as it was published. It is not legal advice, and it may not be the version a court would rely on. Check the official source before you cite it.