Stephanie Kirchgaessner reports: Congress set to reform takeover panel (Financial Times, July 9):
Lawmakers will on Tuesday seek to end lingering questions about US openness to foreign investment with a bill they say will both strengthen the national security vetting process and protect deals from being politicised.
The expected passage by the House of Representatives of the bill, which tweaks the Committee on Foreign Investment in the US (Cfius), the interagency panel that investigates deals on national security grounds, comes more than a year after a congressional furore scuppered a bid by state-owned Dubai Ports World from taking over five US port terminals.
The reform increases the transparency of the process to Congress, and may reduce attempts to exploit the process for competitive purposes or political mileage:
While Mr Frank [Barney Frank, Chairman of the House Financial Services Committee - Ben] acknowledged that it was possible that transactions by non-US companies could still create controversy on Capitol Hill, he expected that the new law, which enhances communication between the executive branch agency and relevant members of Congress, created a better procedure for the interagency panel to handle potential problems....
Nancy McLernon, senior vice president of the Organisation for International Investment, which lobbies on behalf of US subsidiaries of foreign companies, said the bill would take the process out of the “shroud of secrecy”.
“When a controversial deal comes along, there ... won’t be those calls to change the system, because there is a better understanding and a formalised mechanism to inform members of Congress.”
The result may be a more attractive U.S. environment for foreign investors:
“This is reality. It says you can invest in America with some degree of security,” Mr Frank told the Financial Times.
This press release (House of Representatives Expected to Vote for CFIUS Reform Legislation, July 9) from Pillsbury Winthrop Shaw Pittman LLP, a Washington firm practicing trade law also highlights hopes that the vetting process will be less susceptable to political manipulation, and that foreign investors will face less risk:
"Passage of the legislation should bring to a close a controversial period for foreign investors," says Christopher Wall, a noted international trade attorney in the Washington, D.C. office of Pillsbury Winthrop Shaw Pittman LLP. "After DPW [Dubai Ports World, February and March 2006 - Ben], the foreign investment review process became highly politicized and Congress' frequent and vocal criticism of the Administration's handling of national security reviews scared foreign investors, who feared they might become the target of the next uproar."
While Congress has been working on the new legislation, CFIUS has already tightened its procedures [see Tightening up the CFIUS Process, Jan 29 - Ben]. Wall notes that these changes have anticipated the requirements of the new law and the further procedural changes required by the legislation will be incremental. "Most importantly, however," Wall says, "the new law will give Congress greater confidence in the CFIUS review process, so future reviews will not be as political."
However foreign investors may see important changes:
Still, foreign investors will find that the new law will have a significant impact on transactions. It greatly expands the concept of national security to include critical infrastructure, homeland security and energy security. Consequently, many more types of transactions are potentially subject to review, such as acquisitions of ports and power plants, LNG terminals, toll roads and tunnels. Also, the new law provides for the more frequent use of so-called "mitigation agreements" to address perceived national security risks. Wall points out that such agreements can impose requirement that go beyond existing regulations and potentially discriminate against foreign investors....
Kirchgaessner notes that recent events show that the mood in Congress has changed somewhat since last year:
In a sign of how much the mood in Washington has changed since last year, two recent attempts by Democratic lawmakers that may have earlier created a political storm failed to gain much traction from lawmakers in Congress.
The interagency panel was raised in a letter by Senator Jim Webb at the end of last month when the Virginia Democrat called on the Treasury Department, which chairs Cfius, to embark on a full investigation of a $3bn investment by China into Blackstone, the private equity group. The investment fell below the 10 per cent threshold that would otherwise merit a review.
Former presidential hopeful and Massachusetts Senator John Kerry separately encouraged Attorney General Alberto Gonzales to share with Cfius any information the Justice Department had over allegations that BAE bribed officials in Saudi Arabia in connection to its Al-Yamamah deal.
Cfius was at the time Mr Kerry sent the letter reviewing BAE’s takeover of Armor Holdings, a transaction that was subsequently approved after a standard 30-day review.
Jim Snyder and Jeffrey Young treat the vote tomorrow as a victory for business interests (Business poised for CFIUS win , The Hill, July 10):
That the regulatory fallout [from the Dubai Ports World controversy - Ben] didn’t extend much beyond that [that=Dubai Ports World backing off from acquiring the U.S. port assets - Ben] is a testament to a coordinated lobbying effort by big business. In the rush to pass legislation, for instance, one bill was introduced that would have banned foreign-owned companies from owning American subsidiaries that had a role in overseeing a broadly defined national infrastructure.
“It was crazy,” said Nancy McLernon, a senior vice president at the Organization for International Investment (OFII), a business lobby.
The debate centered on a theretofore ignored interagency panel known as the Committee on Foreign Investment in the United States (CFIUS), which is responsible for reviewing national security issues raised when a foreign company buys a domestic one.
Business’s biggest worry became proposals that would lengthen the time CFIUS has to review the implication of a foreign acquisition, which lobbyists claimed would put foreign companies at a significant disadvantage when trying to expand.
A measure passed by the Senate last year would have lengthened the process too much, according to business groups.
OFII partnered with groups including the U.S. Chamber of Commerce, Business Roundtable and the Financial Services Forum to show members that they weren’t “just going after companies that don’t vote,” McLernon said.
OFII also made its own economic arguments, stressing the 5 million American jobs created by foreign companies.
Some of OFII’s 160 member companies warned they would stop expanding in the United States if the Senate measure passed.
“This was a big issue for us,” McLernon said.
The tide turned in the House despite its reputation for acting on impulse, which was why, as George Washington once explained to Thomas Jefferson, a Senate was needed. The lower chamber offered the more moderate approach that business groups favored, according to McLernon.
Time ran out before a law was passed, however.
As a measure of how far the issue has come, the House is set to take up the CFIUS bill as soon as today on suspension calendar. The Senate has passed the bill.
The bill gives CFIUS about the same amount of time to review a merger as other agencies have to examine antitrust issues, which was a key business priority.
Revised July 8.
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