US Congress tightens review of foreign investment

WASHINGTON: The US Congress agreed on Wednesday to tighten national security reviews of proposed foreign investment, a consequence of the uproar 18 months ago over a Dubai-owned company’s plan to manage six of the United States’ largest ports.

The bill, passed by the House of Representatives on a 370-45 vote, ensures that high-level officials, including the director of national intelligence, participate in decisions concerning the security implications of direct foreign investment.

It extends the scope of national security to cover deals involving critical infrastructure and energy, and requires a second-stage investigation of most proposed acquisitions by state-owned companies. The bill has its origins in the strong congressional objections to federal approval, in January 2006, of DP World’s running of US ports.

The deal fell through after lawmakers from both parties contended the Bush administration, and the agency responsible for reviewing security issues, made light of security concerns in signing off on the transaction. The bill gives legal status to the little-known Committee on Foreign Investment in the United States, or CFIUS, a multi-agency group formed in 1975 to monitor US policy on foreign investment.

A 1988 law gave the president authority to stop foreign acquisitions that pose a security threat, and the president in turn delegated investigative authority to CFIUS.

Lawmakers, in reacting to the DP World deal, complained both that CFIUS decisions were in the hands of lower level officials and that Congress was not kept informed. The legislation requires more reporting to Congress and says the CFIUS chairman and senior officials in the lead agencies must sign all decisions.

The president must approve all transactions subjected to a second 45-day investigation after the initial 30-day review.
The director of national intelligence, who will not be a member of CFIUS or have a policy role, will be tasked with conducting threat analyses.

Christopher Wall, an international trade attorney in the Washington office of Pillsbury Winthrop Shaw Pittman, said the legislation will mean that a lot more deals, such as those involving LNG plants, toll roads, bridges or power plants, will become subject to CFIUS review.

The United States remains among the most open markets for foreign investors, he said, but the new law will "close the door incrementally" to potential investors and may subject American investors to closer scrutiny abroad. But it also will "close the chapter, a really significant period of uncertainty" resulting from the Dubai controversy.

That dispute has already spawned changes. CFIUS considered 113 transactions in 2006, up 74% from the previous year, as companies seeking to avoid problems voluntarily submitted files. CFIUS conducted seven second-stage investigations in 2006, equaling the number of the previous five years combined.