The committee charged with protecting national security from risky foreign investments is understaffed and besieged by a surge in cases.
- By David FrancisDavid Francis is a senior reporter for Foreign Policy, where he covers international finance. An award-winning journalist, David has reported from all over Europe, Nigeria, Kenya, Mexico, and Afghanistan on terrorism, national security, the geopolitics of energy, global economics, and the European financial crisis. His work has been published in outlets including the Christian Science Monitor, the Financial Times Deutschland, Slate, and SportsIllustrated.com.
Even as the Trump administration looks to strengthen government scrutiny of foreign investment, the panel responsible is stymied by a lack of staffing, according to multiple people familiar with the issue.
The Committee on Foreign Investment in the United States, known by the acronym CFIUS, is charged with making sure that foreign acquisitions of American firms do not present a threat to U.S. national security. CFIUS, in theory, could be a valuable tool to curb Chinese investments in America, a central concern for the current White House.
Yet those who have followed and worked with the committee see the CFIUS process faltering.
“I don’t know who’s in charge of CFIUS,” said Derek Scissors, a China expert American Enterprise Institute who regularly works for the committee. “I haven’t heard about CFIUS in any systematic fashion. I’ve seen no strategy or cohesion in the Trump administration” when it comes to running the committee.
In the past, CFIUS has found itself in the middle of controversies over foreign acquisitions of American companies. In 2006, the committee approved a deal that would have shifted management of six American ports to DP World, a state-owned Dubai company seeking to manage some terminal operations. The House of Representatives later rejected the transfer because it would have given oversight of important American infrastructure to an Arab country.
But in recent years, as Chinese investment in American companies has increased, its most high-profile cases have involved Beijing. Administration officials have recently indicated that might like to see CFIUS strengthened.
Administration officials have said they want the ability to more specifically target transactions from Russia and China. Defense Secretary James Mattis recently told the Senate Armed Services Committee that CFIUS is out of date and that change is needed to recognize China’s interest in American technology. “It needs to be updated to deal with today’s situation,” Mattis told lawmakers earlier this month.
Similarly, Commerce Secretary Wilbur Ross said at a Wall Street Journal-hosted event that CFIUS was “weak” in some areas, and the process needed to be strengthened to focus on critical technologies, like semiconductors. U.S. Treasury Secretary Steve Mnuchin has also talked about wanting to strengthen CFIUS.
Yet attorneys and former officials see a more fundamental weakness in CFIUS in the lack of staffing. The committee has nine members, including the secretaries of commerce, defense, energy, homeland security, state, and treasury; the attorney general; the U.S. trade representative; and the director of the Office of Science and Technology Policy. The last position is unfilled, as are many of the lower-level political appointees in other departments who would normally be involved in CFIUS.
Key positions, like the assistant secretary of the treasury for international markets and development, remain vacant; President Donald Trump has nominated Heath Tarbert for the position, but he’s yet to be confirmed.
The problem, according James Lewis, an expert on military technology at the Center for Security and International Studies, is that the positions needed to move cases along have yet to be appointed. “There is no one between the committee and the secretary,” Lewis said.
Without political leadership in place, there’s no place to get guidance from on issues that come up in reviews. “There is no one to go and say they need more resources,” he added. “There are no assistant secretaries, undersecretaries.”
With empty posts across the government, “it makes building the consensus tree much more difficult,” said a former Treasury Department official who worked at CFIUS in both Democratic and Republican administrations.
The committee did not return a call asking for comment.
In addition to the lack of support staff, the number of cases the committee is processing has gone up dramatically in recent years, according to Anne Salladin, an attorney who represents foreign and domestic clients before CFIUS at at Stroock & Stroock & Lavan LLP. “They have an extraordinary volume of filings,” Salladin said. “They are on track to process 250 to 300 cases this year. Last year it was a little over 170 cases.”
Many of these cases involve money coming from China, Trump’s longtime bogeyman. According to the American Enterprise Institute, China invested $140 billion between January 2005 and December 2016 in American companies and business ventures.
This makes the committee’s work more difficult, said Salladin, who used to work at the Treasury office. Chinese “cases can be more complicated to process because they can require a lot of research in certain areas, in particular, whether there is foreign government control of the transaction,” she said.
Failing to staff the committee may keep Chinese companies from buying up American firms, but it’s also a drag on legitimate transactions that could benefit American companies.
For instance, last November, Canyon Bridge Capital Partners, which is backed by Chinese state investors, agreed to buy Lattice Semiconductor for $1.3 billion. For the sale to go through, it would have to win approval from CFIUS.
The company has asked the committee to review the sale three times. In the interim, the Lattice stock has fallen as much as 17 percent. In a recent letter to employees, Lattice CEO Darin Billerbeck said he believed the transaction is “important and beneficial for our employees, shareholders, and customers.”
In another case, Chinese semiconductor investment fund Unic Capital Management agreed to acquire Massachusetts-based Xcerra Corp for $580 million in cash in April. The committee has yet to rule on that transaction. (The president has the power to block deals approved by CFIUS. But that’s only happened three times since the committee was created in 1975.)
Sen. John Cornyn (R-Texas), the second-most powerful Republican in the Senate, is drafting a bill that would give it more power to more closely scrutinize technology investment from China.
A Cornyn spokesperson said the senator would soon introduce legislation requiring CFIUS to maintain a list of “all countries of special concern” that are identified as a potential threat to U.S. national security interests, and heighten scrutiny on any buyers from those countries who seek to invest in a U.S. company. It would also expand the types of transactions that fall under CFIUS jurisdiction, to include technology joint ventures, real estate transactions in close proximity to military bases, and other sensitive national security facilities.
In the meantime, the Government Accountability Office, the nonpartisan investigative arm of Congress, is conducting its own review of CFIUS to determine if the United States has the proper legal powers needed to keep up with efforts by state-owned firms in Russia and China to buy strategically important American companies.
The investigation was prompted by lawmakers concerned about state-controlled enterprises in Russia and China buying U.S. firms. Among their specific examples was the Chinese conglomerate Dalian Wanda Group’s successful bid for Hollywood studios, like Legendary Entertainment and Paramount Studios.
Sen. Chuck Schumer (D-N.Y.), who is also reportedly drafting legislation to allow CFIUS to target nations hostile to the United States, has called for an investigation of the Dalian Wanda transaction.
“You can be certain that the new Congress in 2017 will work on legislation to further expand CFIUS oversight authority to reflect today’s challenges and look at other ways we can enforce reciprocity with China,” he wrote in November.
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