White House plans to weaken CFIUS security review powers

Published 12 November 2007

DHS, Justice, the Pentagon, and the U.S. intelligence community oppose the merger of 3Com and Huawei Technology, arguing it will bolster Chinese military computer network attack operations; the White House plans to issue presidential order which would undermine the law designed to tighten security review of foreign companies, thus allowing the merger to go through

In early 2006 a firestorm broke over the planned sale to UAE-based Dubai Ports World (DPW) of management operations in leading U.S. ports. We have written about one of the consequences of that affair — the tightening of the review procedure through which foreign companies must go before they are allowed to buy U.S. critical assets. The Washington Times’s Bill Gerts writes that lawmakers from both parties last week challenged the Bush administration over a draft presidential order which, they say, will undermine a law designed to improve these very security reviews of foreign companies seeking to buy U.S. firms. Representative Carolyn Maloney (D-New York) said the draft executive order “seems to flatly contradict the law” passed to give security concerns more weight before the Treasury Department-led Committee on Foreign Investment in the United States (CFIUS). “Our bipartisan bill gave significant direction to the agencies, including Treasury, charged with implementing it to ensure that the voice of each agency received proper weight in the consensus process,” said Maloney, the bill’s sponsor. Her comments came in response to the disclosure of the order by the Washington Times, which would make the Treasury secretary the “sole authority” for CFIUS. Security officials said this provision would limit the authority of the Justice Department, DHS, and the Pentagon to require security “mitigation agreements.” Representative Peter Hoekstra (R-Michigan), who was active in the CFIUS reform legislation, said the draft order is “problematic” because of its lack of national-security focus. “This doesn’t mirror or follow the law,” Hoekstra said. “While the draft order is preliminary, if it comes out in this final format, I think there will be considerable issues [in Congress] with what they’re proposing.”

The draft executive order will provide implementing rules for the Foreign Investment and National Security Act. Justice, Defense, and DHS departments outlined their concerns that the draft order is not security-focused despite the requirement of the law. The three agencies listed eleven issues and recommendations to correct the draft order so it reflects national-security concerns. A Bush administration national security official said the new order, if signed by the president in its current form, would undermine the current CFIUS review of the planned merger of 3Com and Huawei Technology. Huawei, a Chinese firm that is linked to that country’s military, had been involved in violating U.N. sanctions against Iraq. Under the current process, Dan Price, the White House deputy national security adviser for economic affairs, would have the power to resolve all issues related to the 3Com-Huawei deal over any objections from security agencies, the official said. The 3Com deal was submitted to CFIUS and Defense, Justice, DHS, and the U.S. intelligence community, all of which are expected to oppose it, arguing that the merger will boost Chinese military computer network attack operations, defense officials said. Note that Secretary of the Treasury Henry Paulson recused himself from the CFIUS review of the merger, which also includes Bain Capital Partners, because Paulson’s former firm, Goldman Sachs, is advising 3Com.