Strategy

Bill Would Broaden Scrutiny of Foreign Investments

Businesses are pleased with legislation that proponents say balance worries about national security with the need to keep markets open.
Alan RappeportJuly 12, 2007

If President Bush signs a bill to vet acquisitions by overseas companies that’s making its way to the White House, foreign companies could soon face greater scrutiny in the interests of national security when investing in the United States.

The legislation would overhaul the Committee on Foreign Investment in the United States, or CFIUS, which is charged with reviewing direct foreign investment for national security purposes. The need for the legislation was sparked last year during the controversial Dubai Ports World acquisition. That deal would have put a company from a country in the Middle East in control of U.S. ports. CFIUS approved the deal, creating an uproar that pushed DP World to sell its U.S. holdings.

The bill, which resolved differences between the House and Senate, was passed by the House by a vote of 370 to 45, clearing the way for enactment by the President. It would broaden the range of deals subject to review to include transactions involving toll roads, power plants, and critical infrastructure. It would also mandate an extended 45-day probe for most cross-border deals and include intelligence agencies in its investment-review process.

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“This bipartisan legislation will strengthen the current CFIUS and thereby provide greater security during this perilous time,” said Sen. Chris Dodd, chairman of the Senate Banking, Housing, and Urban Affairs Committee. “It also enhances the oversight role of Congress in monitoring foreign direct investment trends in the United States.”

American businesses should be pleased with the development. When the House passed the bill in February, the Business Roundtable, The Financial Services Forum, the Organization for International Investment, and the U.S. Chamber of Commerce issued a joint statement expressing their approval.

“This bill is a victory for the U.S. economy and the 5 million American workers whose jobs depend on foreign investment,” the groups said in another statement on Wednesday. “This action represents the final step in a bipartisan effort to improve the CFIUS process in a way that will protect our national security while keeping America open for business and restore predictability and certainty to the CFIUS process, which are prerequisites to attracting global capital.”

The bill has strong bipartisan backing but had previously raised some concerns among businesses and lawmakers that it could become unwieldy and bureaucratic, potentially scaring off foreign investors.

At a hearing in February, financial-services advocates said that Congress needs to ensure that the legislation doesn’t compel the hundreds of foreign acquirers that buy U.S. companies every year to endure a process of assessing national-security risk.

Further, the legislation should not extend to every government-owned entity, said Robert Nichols, president and chief operating officer of the Financial Services Forum. Nichols used the example of the Canadian-owned Ontario Teachers Pension Fund, which recently bought several U.S. ports and, according to Nichols, would not warrant a review for national-security risk. But under the new legislation, he maintained, the transaction could have been tied up for 90 days, hurting its chances to compete fairly against a U.S. acquirer.

The amended bill seems to have assuaged many of those concerns. It would give CFIUS the same time to examine a merger that other agencies are allotted to review antitrust cases.

“The Foreign Investment and National Security Act is a well-balanced bill, and I commend this bipartisan effort by the Congress,” said U.S. Treasury Deputy Secretary Robert Kimmitt. “This bill updates the Committee on Foreign Investment in the United States (CFIUS) and strikes the important balance between protecting national security in a post-9/11 world and advancing the open investment policy set out by President Bush.”

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