Foreign Acquisitions and National Security

Legislation | Documents

In the spring of 2006, the American people were outraged to discover that management of our ports was sold to the government of Dubai by a secretive process, called the Committee on Foreign Investment in the United States (CFIUS). As Congress looked into the matter, it became clear that the Administration evaded the investigation of national security issues required by law and withheld information from Congress and the public. The Dubai port scandal highlighted the pressing need for reform of the process by which our government reviews important acquisitions by foreign interests to make sure they do not harm our national security.

In the 110th Congress I was proud to pass the National Security Foreign Investment Reform and Strengthened Transparency Act of 2007 (Public Law 110-49). This legislation strengthens and reforms the process by which the interagency Committee on Foreign Investment in the United States (CFIUS) reviews foreign direct investment for national security issues. The need for this reform was made evident in early 2006 when CFIUS failed to raise red flags about a deal that would have put commercial control of several key U.S. ports into the hands of a company owned by the government of Dubai. This Act establishes CFIUS in statute rather than as a creature of Executive Order, implements mandatory 45-day investigations for all deals involving foreign governments, requires high-level review of such transactions, gives the Director of National Intelligence a greater role in the CFIUS process, and improves congressional oversight, among other provisions. The National Security Foreign Investment Reform and Strengthened Transparency (National Security FIRST) Act is based on reforms advocated by the Government Accounting Office in an October 2005 Report on the CFIUS process. In their timely report, GAO found serious problems with CFIUS that were highlighted by the subsequent Dubai Ports World scandal.

The Act’s reforms include:

• Requiring an investigation of the national security impact of every acquisition by a foreign government. Companies owned by foreign governments are not subject to normal market limitations and therefore require special review.
• Requiring signoff of all completed reviews and investigations by CFIUS by the Secretary of the Treasury and Secretary of the Department of Homeland Security, or the Deputy Secretary. The Dubai ports deal was approved by low-level bureaucrats apparently without the knowledge of the relevant Cabinet officers.
• Requiring that all reviews and investigations be analyzed by the Director of National Intelligence.
• Requiring CFIUS to consider and respond to specified factors relating to national security concerns of each acquisition. The GAO report found that CFIUS lacked clear criteria for defining a national security risk. Both to ensure national security and to avoid arbitrary and unfair decisions, Congress should insist that key factors such as whether critical infrastructure is affected, or whether the acquiring company is owned by a foreign government, be expressly addressed.
• Requiring tracking of applications that are withdrawn to prevent evasion of the process. The GAO found that the Administration encouraged companies to withdraw their application if a national security concern surfaced. The companies often went ahead with the proposed deal anyway and no review was performed.
• Requiring full reporting to Congress on deals reviewed by CFIUS. CFIUS must report to Congress on deals reviewed. This bill mandates twice annual reporting to Congress of all actions by CFIUS; additionally, Congress would be notified within 5 days of any extensive investigation or deal with a foreign government entity. This ensures greater transparency in the system, while also preventing an over politicization of the CFIUS process.
• Improving compliance and enforcement of contracts between the US government and the foreign purchaser to ensure US government concerns regarding national security are met.

One of the key issues that Congress found in reviewing the CFIUS process was that the definition of “national security” used by CFIUS was extremely narrow and did not reflect the post 9/11 world. For example, it was brought to my attention that Smartmatic, a company linked in the press to the Venezuelan government of Hugo Chavez, had purchased Sequoia Voting Systems, one of the three major voting machine companies in the United States, with -- as far as we could tell -- no CFIUS review. I wrote to the Secretary of the Treasury as Chair of CFIUS informing him of the sale and asking him to initiate a CFIUS review. As I reiterated in a followup letter, given that electronic voting machines are reportedly subject to manipulation and given that the ownership of Smartmatic is opaque, CFIUS should conduct a review to be sure that there is no threat to the integrity of our elections. 

Legislation

 01/18/07 - H.R.556, National Security Foreign Investment Reform and Strengthened Transparency Act of 2007 [110th Congress]

5/10/06 - H.R. 5337, National Security Reform and Strengthened Transparency Act of 2006 (Lead Democrat) [109th Congress]

3/9/06 - H.R. 4915, Committee on Foreign Investment in the United States Reform Act [109th Congress]

Documents

 05/04/06 – Letter from Congresswoman Maloney to Secretary Snow on Smartmatic’s Acquisition of Sequoia

10/06/06 - Letter from Congresswoman Maloney to Secretary Paulson on Smartmatic’s Acquisition of Sequoia