23 May 2018 House, Senate Banking panels both advance legislation overhauling reviews of foreign investments in U.S. firms Senate Banking Committee approves amendment blocking President from easing penalties on Chinese firm ZTE Corp. The Senate Banking Committee and the House Financial Services Committee on May 22, 2018, both advanced legislation overhauling a key interagency panel that reviews mergers and other foreign investments in U.S. companies to ensure they don't compromise national security. Both bills are titled the Foreign Investment Risk Review Modernization Act (FIRRMA), and would make changes to the Committee on Foreign Investment in the United States (CFIUS). In both committees today, bill sponsors agreed to drop controversial language that would have given CFIUS authority to review joint ventures in which technology is transferred out of the U.S.; instead, such transfers would be reviewed under an updated export controls regime managed by the Commerce Department. The Senate committee approved its bill (S. 2098) by a unanimous vote of 25-0. The vote in the House Financial Services Committee on HR 5841 was also unanimous, 53-0. Attached with this Alert please find PDFs with the text of the manager's amendments approved in the Senate and House committees, as well as staff summaries for both bills. Concern over Chinese investments. The effort to update the authority of CFIUS, a multiagency committee led by the Treasury Department, has largely been driven by concerns that China is moving to acquire U.S. technologies through foreign investments. The bills as originally drafted would have expanded CFIUS's jurisdiction over cross-border technology deals for the first time; as currently structured, the committee focuses only on inbound investments in which a foreign company seeks control of a U.S. entity or its assets. Among other changes, the substitute amendments offered by bill sponsors in both the House and Senate stripped out the contentious language on technology-related joint ventures between U.S. firms and their overseas partners. The new versions of each bill, as modified by the substitute amendments, would update the Commerce Department's export control system and a new interagency process, led by the President, would identify emerging technologies that are not subject to export controls. The modified bills retain language that would allow CFIUS to review deals in which a foreign person seeks to purchase or lease real estate near a sensitive U.S. national security facility, and would require notification of any investment in which a foreign government has a substantial interest, with a penalty for failing to provide such notice. Among other provisions, the bills also would codify that cybersecurity issues must be taken into account when approving or rejecting foreign investment in U.S. technology firms. Sen. John Cornyn (R-TX), who serves as Whip in the Senate GOP leadership and is the lead sponsor of the Senate CFIUS bill (S. 2098), said he expects the bill to be added to the National Defense Authorization Act (NDAA) and considered on the Senate floor sometime this summer. The two bills, while virtually identical in most major areas, have some minor differences that will have to be reconciled. In a statement, Cornyn said, "The jurisdiction of CFIUS hasn't been updated in over 40 years, and bad actors like China continue to exploit gaps in the process to acquire sensitive national security know-how from U.S. companies. I appreciate Chairman Crapo and the Banking Committee's work on advancing this narrowly-tailored legislation to close those gaps and safeguard our national security." In his statement at the markup, Chairman Mike Crapo (R-ID) thanked Ranking Member Sherrod Brown (D-OH) for his partnership in drafting the substitute amendment. "The Crapo-Brown amendment leverages the natural jurisdiction and authorities of the CFIUS process with those of the U.S. and multilateral export control regimes to review certain inbound and outbound transactions that may involve acquisitions of emerging critical or foundational technologies to the detriment of the U.S. national security," Crapo said. "CFIUS authorities are expanded in significant ways to capture certain investors and buyers and fundamental changes are made to its review process." In addition to the updated export controls regime mentioned above, Chairman Crapo said, "Another interagency process led by the Commerce Department's Bureau of Industry and Security and informed by the intelligence community will classify and determine how, if at all, critical technology or know-how can be transferred by whatever means, including by joint venture or any other transaction." The committee approved, by voice vote, a 30-page manager's amendment (attached) by Sens. Crapo and Brown that made a number of changes to the underlying substitute, including: prohibiting penalties from being reversed for reasons unrelated to U.S. national security of the U.S.; requiring CFIUS to define circumstances under which a transaction is excluded from the definition of a "covered transaction"; and requiring a report on the total foreign direct investment from China and a breakdown of investments by value, type and other factors. ZTE Corp. amendment. Notably, the Banking Committee approved, by a vote of 23-2, an amendment by Chris Van Hollen (D-MD) that would prevent the President from changing any penalties on "Chinese telecommunication companies" unless the administration first certifies that the company has not violated any U.S. laws for a period of one year and is fully cooperating with any U.S. investigation. (The Trump Administration is reportedly considering loosening a seven-year ban on U.S. companies selling software and components to ZTE, a penalty that was levied after ZTE was caught violating a 2017 agreement in which it had agreed to pay more than $1 billion fines for making sales to Iran and North Korea in violation of U.S. sanctions.) Last week the House Appropriations Committee also approved a spending bill with a provision that would uphold sanctions against ZTE. The Financial Services Committee adopted a manager's amendment by sponsor Rep. Robert Pittenger (R-NC) whose changes related to joint ventures and export controls are similar to those in the Senate bill described above. Later Tuesday evening, after a series of votes on the House, the committee unanimously approved HR 5481 as amended, 53-0. Earlier in the day, the committee had: — Adopted, by voice vote, an amendment by Brad Sherman (D-CA) requiring the issuance of a report regarding foreign investment transactions with censorship implications in the entertainment and information sectors. — Adopted, by voice vote, an amendment by Carolyn Maloney (D-NY) establishing a fund in the Treasury to be called the CFIUS Fund, as well as an exception for investments involving an air carrier. — Adopted, by voice vote, an amendment by Denny Heck (D-WA) regarding suspension of transactions that "may pose a risk to the national security of the United States." — Adopted, by voice vote, an amendment by Rep. Sherman prohibiting transactions related to state sponsors of terror, with provisions on exceptions, waivers and enforcement. — Approved, by a vote of 39-19, HR 5735, the Transitional Housing for Recovery in Viable Environments Demonstration Program Act.
Document ID: 2018-1089 | |||||
