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Oversight of CFIUS and Other Efforts to Strengthen National Security

House Financial Services Committee
Oversight of the Committee on Foreign Investment in the United Stated (CFIUS) and Other Efforts to Strengthen National Security in the United States
Wednesday, September 13, 2023 

Topline

  • Democrats asked questions about the operations of CFIUS and the collaboration of its member agencies as it investigates more cases.
  • Republicans expressed concerns about Chinese ownership of agricultural land and popular online platforms and technologies, such as artificial intelligence, that are used by Americans.

Witnesses

  • Hon. Paul Rosen, Assistant Secretary, US Department of the Treasury

Opening Statements
Chairman Patrick McHenry (R-N.C.)
In his opening statement, McHenry reflected on CFIUS’s dual mandate to guard against foreign investments that pose national security risks without compromising the national interest in an open investment climate. He described the Foreign Investment Risk Review Modernization Act (FIRRMA) as a reform to CFIUS that followed the dual mandate and prior legislation. McHenry criticized the Biden Administration for proposing to use CFIUS to regulate Americans’ investments into China. He stressed that that national security risk arises when foreign investments enter the US. Indicating that instead, increased Western investments and American leadership in Chinese enterprises would be a more effective solution as Americans must comply with U.S. sanctions and export control laws.

Ranking Member Maxine Waters (D-Calif.)
In her opening statement, Waters noted that Democrats have worked strove for bipartisanship in protecting our national security interest by closely monitoring foreign investments. She said that CFIUS should be concerned with actual threats to national security, not barring individuals from economic opportunities on the sole basis of their national origin. Waters raised concerns among Democrats regarding the use of private equity funds to finance military and adversarial technology in the People’s Republic of China (PRC). She suggested that the Biden Administration review certain passive forms of investments, e.g., mutual funds and index investments, so Americans know whether and how their hard-earned savings support adversarial nations. She closed by saying that CFIUS member agencies must be adequately funded.

Subcommittee Chairman Blaine Luetkemeyer (R-Mo.)
In his opening statement, Luetkemeyer said that the Chinese Communist Party (CCP) poses a greater economic and military threat than ever to the US. He noted that based on wishful thinking, Americans have been told the rise of China would be peaceful, that trade would increase business, and American interests could coexist with the CCP. Luetkemeyer expressed concerns about worsening shortcomings in the national security screening process when, given the present risks confronting the US, these safeguards should be more effective and tougher. He criticized the Biden Administration for proposing to use CFIUS to regulate Americans’ investments into China. He closed by noting that Congress must ensure that CFIUS resources are focused on identifying and stopping investments dangerous to US national security, especially investments by the CCP.

Subcommittee Ranking Member Joyce Beatty (D-Ohio)
In her opening statement, Beatty noted that Congress must ensure that CFIUS member agencies remain fully funded, with access to sufficient resources to accomplish their vital mission. She also said that Congress must ensure that CFIUS remains a narrowly focused tool that protects the US from legitimate threats to national security. Beatty closed by noting that CFIUS is a critical tool in the US’s national security technology toolbox of unquestionable importance.

Testimony
Hon. Paul Rosen, Assistant Secretary, US Department of the Treasury
In his testimony, Rosen said that CFIUS is a critical national security tool that conducts reviews of foreign investment for national security risks. He noted that CFIUS’s risk analysis is robust and encompasses three factors: 1) the potential threat emanating from the foreign investor, 2) the national security vulnerabilities presented by the US business, and 3) the consequence of the transaction to national security.

Rosen said that CFIUS must, by mandate, resolve any identified foreign investment risk. Methods for resolving risks include threat mitigation by implementing enforceable restrictions on involved parties, or, as a last resort, recommending that the President block or unwind the transaction. Rosen said that when risks are identified, CFIUS is mandated to resolve the issues, whether by mitigating through enforceable restrictions on the parties, or, as a last resort, by recommending that the president block or unwind the transaction. He closed by thanking Congress for their continued bipartisan support for the mission of CFIUS, which has enabled its office to continue growing across all functions.

Question & Answer
Operations and Collaboration
McHenry asked if the Office of Investment Security has the same experience as other agencies. Rosen said that all agencies have different experiences in different ways.

Waters asked how CFIUS receives information from the USDA. Rosen said that the USDA is one of their closest partners and that a process is in place to ensure both agencies work closely.

Rep. French Hill (R-Ark.) asked why CFIUS is focusing on energy strategy. Rosen said that CFIUS looks at all actors that might impact US national security.

Rep. Al Green (D-Texas) asked Rosen if he thinks that CFIUS has sufficient authority to address national security concerns posed by foreign persons and entities investing in the US. Rosen said that CFIUS has sufficient authority.

Rep. Bill Foster (D-Ill.) asked Rosen whether CFIUS has been receiving adequate responsiveness and expertise from the agencies to accomplish its mission. Rosen agreed, indicating that it has.

Beatty asked how CFIUS is performing outreach to the business community to ensure cooperation with its rules and regulations. Rosen said that CFIUS spends a significant amount of time educating the business community about national security risks to promote understanding and compliance. Beatty also asked how CFIUS has worked with allies and partners to improve their coordination in information sharing or in investment screening efforts. Rosen said that an entire firm is dedicated to improving coordination with allies and partners.

Rep. Warren Davidson (R-Ohio) asked Rosen how CFIUS follows up on their investigations. Rosen said that matters that go into investigation occur when officials cannot determine that a clearance is appropriate at the 45-day mark.

Rep. John Rose (R-Tenn.) asked if it would be helpful for the Director of National Intelligence (DNI) to play a more active role in the CFIUS process. Rosen assured Rose that the DNI already plays a significant role in the process.

Agriculture and Real Estate
Rep. Pete Sessions (R-Texas) asked if CFIUS has jurisdiction and review over real estate and agricultural land purchases. Rosen said that they do.

Rep. Bill Posey (R-Fla.) asked Rosen why the Biden Administration filed an amicus brief describing a current Florida law as discriminatory because it prohibits Chinese nationals from buying agricultural land. Rosen said he was unable to answer that question and that the inquiry should be redirected to the Department of Justice, which oversees the matter.

Posey then asked Rosen whether he personally thinks that there are any benefits to allowing Chinese nationals to buy US land. Rosen said that CFIUS looks at the particular facts and circumstances of a transaction. He added that CFIUS takes a very close look at any known conduct involving US adversaries, including the CCP.

Rep. Roger Williams (R-Texas) asked Rosen to elaborate on the current process CFIUS uses to review agricultural land deals, and how it determines that a foreigner’s purchase of agricultural land is a national security risk. Rosen said that any person or entity that is trying to take part of or control of an American business or industry is subject to investigation.

Artificial Intelligence and Cybersecurity
McHenry asked what the differences are between AI that helps a drone operator identify a military target on an image and AI that helps a doctor identify cancer on an MRI. Rosen said that the executive order includes AI as a category of concern in so far as what AI technologies can identify.

Foster asked Rosen how CFIUS acquires the expertise needed to distinguish between investment in abstract or theoretical quantum computing technology versus an investment in quantum computing technology approaching near-term use. Rosen said that CFIUS leveraged subject-matter experts from across the federal government to support its determinations in this regard.

Rep. Ann Wagner (R-Mo.) asked if CFIUS has approved any Chinese access to any critical technologies. Rosen assured Wagner that CFIUS will never approve a transaction unless it resolves all national security risks that it identifies.

Rep. Sean Casten (D-Ill.) asked whether CFIUS knows North Korea is funding its nuclear program by stealing billions of dollars’ worth of cryptocurrency and using Chinese money laundering networks, and whether Rosen thinks North Korea’s actions pose a national security threat. Rosen said yes to both questions.

Rep. Will Timmons (R-S.C.) asked if CFIUS has placed an emphasis on cybersecurity safety. Rosen said that CFIUS has sharpened its focus on issues like cybersecurity.

 

For more information on this meeting, please click here.
For an archive of past SIFMA hearing coverage, please click here.