Foreign-Investment Bill Advances

Proposal Tightening Scrutiny of Takeovers Heads to Senate

From left, Sens. Christopher J. Dodd (D-Conn.), Paul S. Sarbanes (D-Md.), and Richard C. Shelby (R-Ala.) after the Senate Banking Committee's markup of the Foreign Investment and National Security Act of 2006. (By Chris Kleponis -- Bloomberg News)

Seeking to apply lessons from the Dubai ports controversy, an influential Senate panel yesterday approved a bill that would tighten scrutiny of foreign takeovers while dropping several provisions that U.S. business leaders feared would dampen investment from abroad.

The bill, approved 20 to 0 by the Senate Banking Committee, would revamp the process by which an interagency panel reviews foreign purchases of U.S. companies for possible national security problems. Criticism of the panel, the Committee on Foreign Investment in the United States, erupted last month following revelations that it had approved a takeover by Dubai Ports World, a United Arab Emirates-based company, of a firm that manages significant operations at six East Coast ports. The uproar in Congress forced Dubai Ports World to promise to sell the U.S. port operations.

Sen. Richard C. Shelby (R-Ala.), chairman of the Banking Committee, led a chorus of panel members who cited the ports case as evidence that CFIUS needs fixing. Noting that the heads of the agencies represented on the foreign investment committee, such as the secretaries of the Homeland Security, Defense and Treasury departments, didn't know about the deal until it made headlines, he said that "demonstrates that the system is woefully short of transparency and has no recognizable requirements for accountability."

The bill, which now goes to the full Senate, would make it easier for individual agencies on the committee to extend the time required to complete a review of a transaction.

It would also require special scrutiny of deals in which the acquiring company is owned by a foreign government, as Dubai Ports World is. In those cases, the deal would undergo a 45-day investigation followed by a presidential decision on whether to allow the purchase. That would apply to many if not all Chinese takeovers of U.S. companies, since the government in Beijing still has major stakes in big Chinese corporations.

Still, the Banking Committee's action came as a relief to business groups that worried the ports flap would prompt lawmakers to adopt much more dramatic measures that could make the U.S. investment climate less appealing to buyers from overseas. The House is planning to start work on its own bill in a few weeks.

"Great outcome," said Todd Malan, president of the Organization for International Investment, a group representing the U.S. subsidiaries of foreign multinational corporations. "There are still things that are going to be on our wish list" as the bill moves to the Senate floor, "but they just don't amount to things that are so significant that they would be barriers to foreign investment."

Gone from the bill, for example, is a provision that would have required a 45-day investigation for any foreign purchase of "critical infrastructure." Industry representatives complained that the term was too broad and would hamper too many deals.

Some lawmakers had argued that Congress should have veto power over CFIUS decisions, but that provision never got into the version of the bill presented yesterday by Shelby and Sen. Paul S. Sarbanes (D-Md.), the Banking Committee's ranking minority member. Giving Congress such a big say would politicize the process and make investors skittish, critics warned.

Instead, the bill requires the foreign investment committee to notify certain congressional leaders of deals it is reviewing before it approves them. Many experts in foreign investment think such a procedure might have averted the Dubai ports fiasco because top lawmakers would have had the chance to make sure their concerns were addressed in the review.