Lawmakers Gear Up to Tweak U.S. Vetting of Foreign Deals

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By Alexei Alexis and Liz Crampton

Legislation to beef up U.S. vetting of foreign investments is gaining steam even though some in the business community are worried that lawmakers will hurt U.S. firms in global deals.

Rep. Andy Barr (R-Ky.) said at a Jan. 9 hearing that he wants the bipartisan bill (H.R. 4311) to be on President Donald Trump’s desk by August. He chairs the House Financial Services Committee’s monetary policy and trade subcommittee that is considering the bill.

Bill sponsor Rep. Robert Pittenger (R-N.C.) said at the hearing that the measure has support from Attorney General Jeff Sessions, Defense Secretary Jim Mattis, and Treasury Secretary Steven Mnuchin.

This is the second hearing the subcommittee has held on the issue, and there will likely be others as members move toward a vote. The first was in December.

Lawmakers in both the House and Senate have proposed updating the regulations guiding the Committee on Foreign Investment in the United States (CFIUS) to make it harder for U.S. companies to merge with foreign companies in transactions where national security concerns are raised. The issue is gaining increased attention as lawmakers and administration officials question Chinese companies’ efforts to acquire U.S. firms and their technology.

The administration last week gave a thumbs down to the Chinese firm Ant Financial’s $1.2 billion proposed takeover of MoneyGram International Inc. Last September, Chinese investors led by digital map provider NavInfo Co. called off plans to buy a stake in counterpart HERE Technologies after U.S. authorities withheld approval. Major deals still under review by CFIUS include Genworth Financial Inc.’s $2.7 billion sale to China Oceanwide Holdings.

‘Emerging Technologies’

The bill would add “emerging technologies” to the CFIUS definition of “critical technologies.” The bill would require CFIUS to examine deals where foreign investors could wind up owning emerging technologies that could be essential for maintaining the U.S. technological advantage over countries that pose threats.

CFIUS now looks at foreign acquisition of existing critical technologies and “critical infrastructure” in the U.S.

The bill’s expansion of critical technologies “would open the door for CFIUS to consider economic and market impacts of Chinese technology investments across the board,” according to an analysis by the law firm Baker Botts LLC.

A Senate companion bill (S. 2098) is sponsored by Sen. John Cornyn (R-Texas).

Partial Solution

Members of the House Financial Services Committee’s subcommittee on monetary policy and trade heard business community’s concerns that an expansion of CFIUS authority would hurt dealmaking and the U.S. economy.

Scott Kennedy, director of the project on Chinese business and political economy at the Center for Strategic and International Studies, said foreign direct investment in U.S. companies could be helped by clarifying the definitions of what transactions CFIUS covers. But he said CFIUS needs more funding and shouldn’t be overburdened by adding cases that are better handled by export-import controls.

“The American economy benefits tremendously by being open,” he said. “We want to protect what’s best for our economy by making sure our national security is protected as well.”

Before the hearing, Kennedy told Bloomberg Law that overhauling CFIUS “is only part of the solution.”

“We have to be very practical and targeted about what we’re doing. Otherwise, we’re going to make ourselves feel safe without being safe, and we’ll also hurt the U.S. economy in the process,” he said.

Don’t Overburden

Former government officials with insight into CFIUS told House members that the CFIUS mandate should be clarified and expanded, but they cautioned against overburdening a resource-strapped committee with more responsibility.

A broader caseload would overwhelm a committee that is now stretching its resources, said Rod Hunter, an attorney at Baker & McKenzie and former senior director of the National Security Council.

“The ultimate consequence of a dramatic expansion of jurisdiction would be a poor performance of the committee in evaluating transactions,” Hunter told lawmakers. He said CFIUS review timelines have gotten longer, and resources are a key reason.

“I would be very cautious about what additional responsibilities are added to CFIUS,” he said.

Business Support Lukewarm

The bill has support from some people in the national security community, but the reception from industry groups so far has largely been lukewarm, according to a House Republican aide. “None of these businesses want to lose money,” the aide told Bloomberg Law.

Kennedy told Bloomberg Law that U.S. companies that invest globally are particularly worried about expanding CFIUS’s reach. “What I’ve been hearing is that there are industry concerns, particularly among companies that do business in China or that invest globally. They’re very worried about the type of constraints the bill, as currently structured, would place on them,” he said.

Barr said at the hearing that his subcommittee is exploring how to modernize CFIUS “to better address threats without harming U.S. economic interests.”

“Can we identify the techniques we need to protect, and can we do so without making the U.S. investment climate difficult, prompting companies to move overseas,” he queried.

To contact the reporters on this story: Alexei Alexis in Washington at aalexis@bloomberglaw.com, Liz Crampton at lcrampton@bloomberglaw.com

To contact the editor responsible for this story: Fawn Johnson at fjohnson@bloomberglaw.com

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