▶ 0:21:30is authorized. Hey, thank you. Subcommittee on national security, elicit finance and international institutions will come to order. Without objection, the chairman is authorized uh to declare a recess of the committee at any time. This hearing is titled US policy on Investment Security. Without objection, all members will have five legislative days within which to submit extraneous materials to the chairman for inclusion in the record.
▶ 0:21:54I now recognize myself for an opening I welcome our distinguished witnesses to today's hearing on US policy on investment security where we examine the committee on foreign investment in the United States, CPHAS, and its critical role in safeguarding our national Today's testimony will provide a comprehensive overview of CPHAS's authorities and operations to protect American interests from foreign investment risks.
▶ 0:22:20Established in 1975 under the Department of Treasury, CPHAS evaluates foreign investments posing a national security threat, the 2018 Foreign Investment Risk Review Modernization Act, otherwise known as FIRMA, expanded its jurisdiction to include non-controlling investments in critical technologies, infrastructure, and sensitive personal data.
▶ 0:22:43CPHAS must rigorously scrutinize foreign investments from any source that could undermine our technology, agriculture, energy sectors, and more while enabling beneficial investment inflows that actually strengthen our economy. I commend President Trump's February National Security Presidential Memorandum in SPM directing CPHAS to intensify oversight of adversarial investments while streamlining reviews for trusted allies.
▶ 0:23:12CPHAS must operate efficiently to neutralize threats without burdening American business. However, reviewing inbound investments alone cannot fully protect our national security. Congress needs to enact a robust outbound investment bill with severe sanctions to prevent US capital from supporting industries and adversarial nations that threaten our sovereignty.
▶ 0:23:35This legislation needs to provide clear, streamlined framework ensuring American companies can comply without overly burdensome bureaucratic uh obstacles. Such a bill will safeguard our innovation, farmland, infrastructure, and critical technologies while fostering domestic investments. This hearing will um hopefully help illuminate how CPHAS and an outbound investment regime could secure our nation's vital national interests.
▶ 0:24:04I urge my colleagues to support an outbound investment bill, provide their input so that we can have stringent sanctions, a transparent frame framework uh to protect our economic and security interests from all foreign threats. I yield back and I now recognize the ranking member for her Good morning and thank you, Mr. Chairman, for holding this hearing and thank you to our witnesses for appearing here today to discuss investment security.
▶ 0:24:33The committee on foreign investment in the United States or CPHAS plays a critical role in our national security framework conducting reviews of direct advancement investment transaction by foreign investors originating from both adversary and allied nations to identify potential national security risk.
▶ 0:24:55Although it's incredibly rare for CPHAS to recommend that the president block a transaction, only occurring 10 times to date, the committee's thorough vetting process is essential to ensure that foreign investment of all kinds in the United States do not endanger national security. Another critical area of focus is outbound investment, which I'm sure we'll talk about.
▶ 0:25:22flowing from the United States to foreign countries and companies of concern. The Biden administration took a significant first step two years ago by establishing the outbound investment security program at Treasury, which screens certain US investments in China involving sensitive technologies and products that pose an acute national security risk.
▶ 0:25:48While we are waiting to see what changes the current administration plans to make to the program, several actions taken by President Trump has raised serious A recent highprofile case, including Tik Tok and US Steel, have demonstrated that the president is willing to disregard CPHA's recommendations and instead leverage foreign investment transactions in unrelated trade negotiations.
▶ 0:26:18creating uncertainty for the private sector and a dangerous potential for abuse. Further, President Trump seems to be engaging in his own corrupt business deal deals with foreign investors.
▶ 0:26:31For example, Trump's stable coin is being used by Abu Dhabi investment firm to invest $2 billion into Binance, a crypto exchange that has pleaded guilty to money money laundering and sanctions violations.
▶ 0:26:50Look, this type of transaction is exactly why CPHAS exists and it's why we cannot afford to gut the very laws and resources that allows it to do its job. If my colleagues across the aisle are truly concerned about national security risk, they should be similarly outraged by the president's activities.
▶ 0:27:13Instead, they're trying to eliminate critical national security tools like the bipartisan, let me say that again, the bipartisan corporate transparency act, which President Trump signed into law during his first term.
▶ 0:27:28Gutting the CTA will hinder CPHA's ability to identify foreign threats by making it harder for the committee in the outbound security program, financial institutions, and national security agencies to properly assess who's who truly owns or controls a corporate entity. We simply cannot play politics with our national security. And I think we will all agree on that.
▶ 0:27:58Democrats are committed to resisting efforts that would either undercut CPHAS or distort its purpose. I look forward to learning more about how our investment security framework is operating and exploring ways that we can strengthen and not weaken it. And thank you again to our witnesses. I look forward to our dialogue and our questions with you. And Mr. Chairman, I yield back. Thank you. Uh today we welcome the testimony of Mr.
▶ 0:28:27Jonathan Samford, president and CEO of Global Business Alliance, Mr. Brian Rice House, senior adviser for national security at Mr. Benjamin Joselof, partner at Kravath Swain and Moore, and Dr. Sarah Bowerley, uh Bowley Dansman, associate professor of international studies at Indiana University. Uh we thank each of you for taking your time to be here.
▶ 0:28:56Each of you will be recognized for five minutes to give an oral presentation of your testimony. Without objection, your written statements will be made part of the record. Um I also ask unanimous consent uh to enter the ICI statement into the record without objection. Mr. Samford, you are now recognized for five minutes for your oral statement. Chairman Davidson, Ranking Member Batty, members of the committee, thank you very much for the opportunity to be here with you today.
▶ 0:29:26I'm Jonathan Sanford, president CEO of the Global Business Alliance. Uh GBA is the premier advocacy voice of international companies in Our members represent about 200 of the most well-known international brands in the world that are globally headquartered overseas, but are major US employers in their own right. On average, these companies employ about 12,000 US uh workers.
▶ 0:29:53And importantly, all of them are headquartered in countries that are longtime friends and allies of the United States. Across America, more than 8 million workers earn a paycheck from a company that made a deliberate decision to invest and create jobs in the United States. Global investment is a key pillar of America's economic strength. International companies have invested over $5 trillion into the US economy.
▶ 0:30:20They pay workers 7% more than the private sector average, drive 12% of all private sector R&D, and produce nearly a quarter of all US Manufacturing is the largest sector for investment, growing 29% over the past five years.
▶ 0:30:41In Ohio alone, given the representation of the Buckeye State, more than 320,000 Ohioans uh are employed by a global company and half of that is in the manufacturing sector. This isn't just about economics, though. It's also a strategic advantage. 75% of all investment in the United States flows from just eight nations.
▶ 0:31:04These investments build local supply chains, fuel innovation, develop stronger workforces, and tie our allies interests to our own. Meanwhile, Chinese direct investment in the United States is less than 1% in total and has declined since Congress on a bipartisan basis passed FRMA by about 15%. Global investment has long been a bipartisan priority.
▶ 0:31:33Every president's in the past 50 years has reaffirmed America's commitment to open investment. Congress did the same through Ferma in 2018, ensuring that CPHAS robustly protects national security while keeping the US open to trusted capital. Just last month, the House passed the Global Investment in American Jobs Act by unanimous uh support. The inbound business community strongly supports a vigilant national security focused CPHAS process.
▶ 0:32:01Zifas must stay squarely focused on genuine national security threats and not drift into broader industrial trade policy. When reviews become unpredictable, it def deters precisely the kinds of investments that grow American jobs and American updated public guidance, improved inter agency coordination, and a fasttrack pathway such as the known investor portal for trusted investors with proof and with proven compliance records would streamline
▶ 0:32:31the low-risk reviews, reduce administrative burdens, and allow CPHAS to prioritize high- risk reviews, enhancing both efficiency and investor CPHAS protects both our national security and our economic These are complimentary results that have been forged through decades of thoughtful bipartisan leadership.
▶ 0:32:54In that vein, I want to thank Chairman Hill, Representatives Bar, Aenclaus, and Strickland for leading the global investment American jobs caucus here in the House and for this committee for advancing policies that strengthen America's workers and communities. Thank you for this opportunity. I look forward to your questions. Thank you, Mr. Samford. Mr. Mr. Rice House, you are now recognized for five minutes for your oral statement. Mr.
▶ 0:33:20Chairman, ranking member Bey, members of the subcommittee, thank you for offering me the opportunity to appear before you today. My name is Brian Rice House. I'm a senior adviser at the law firm Fresh Fields in Washington, DC. My government experience spanning roughly 15 years in three administrations includes leading the executive branch's provision of technical assistance to Congress for the Foreign Investment Risk Review Modernization Act of 2018, serving as the senior career official for CPHAS from 2018 through 2023 and
▶ 0:33:50contributing to the development of the executive order that is the basis for the outbound investment security program. Before getting into the substance of my remarks, I want to say that the views I express here today are my own, not those of my employer or any clients of my employer. I'm not here representing the interests of any other party. I would like to offer some observations on US investment security policy.
▶ 0:34:14It is important to note that foreign investment overwhelmingly benefits the United States through creating jobs, funding innovation, and fostering economic growth. It also bolsters our national security. I witnessed this firsthand throughout my government service. At the Department of Defense, I oversaw foreignowned defense contractors that supply cutting edge technologies to our war fighters. And at Cphus, I reviewed transactions involving friendly foreign investors that provided capital that was essential to funding US innovation and emerging technologies.
▶ 0:34:44This has all been possible because of the long-standing bipartisan US open investment policy. However, Congress recognized that some foreign investment can pose national security risks to the United States. CPHAS serves as a critical safeguard against these risks.
▶ 0:35:01CPHAS does this through its singular focus on reviewing transactions for cognizable national security risks that could reasonably result from the transaction, which under the law requires CPHAS to identify credible evidence of a threat, a vulnerability, and the consequence. Certain principles of the CPHAS process are essential to maintaining an open investment environment while allowing CPHAS to fully resolve national security risks. These include statutory timelines that provide predictability to transaction parties.
▶ 0:35:31Evidence-based decisions that require credible evidence that a transaction poses a national security risk. The tool of last resort. CPHAS only acts when there are no other adequate or appropriate authorities that can address the national security risk. Proportionality. CPHAS's actions are tailored to the national security risk arising from the transaction, not issues unrelated to the proposed acquisition.
▶ 0:35:55Confidentiality that encourages transparency from transaction parties and ensures CPHAS can conduct an apolitical national security analysis. An accountability, congressional oversight that ensures CPHAS operates consistent with its statute. This framework has allowed CPHAS to adapt to emerging national security risks while providing transaction parties confidence that their fail their filings would be handled fairly and efficiently. The foreign investment landscape has shifted considerably since Congress passed Firma in 2018.
▶ 0:36:23At the time, Chinese investment was at its peak and CPHAS was grappling with an increasing number of transactions that raised national security risks yet were outside of its jurisdiction. This is not the case today. According to the American Enterprise Institute, the PRC spending here has been negligible since 2018. Chinese investment around the world was stable at historically low level in 2024 and barely visible in the United States.
▶ 0:36:48Despite the drop in Chinese investment, the number of CPHAS filings withdrawn and refiled increased to historic heights uh from 2021 to 2023, exceeding the previous highs when Chinese investment was at its apex from 2016 to 2018.
▶ 0:37:02One can infer from this data that investors from countries that our US partners and allies have been increasingly impacted by delays and As Congress did when it passed Furma, changes to the US investment security policy should go through a similarly rigorous process that is one based on evidence of a defined national security risk.
▶ 0:37:24Two assesses the impact of such changes will have on the investment that does not pose a risk to US national The outbound investment security program could benefit from such a process. As currently structured, the regulations pose ambiguities that complicate compliance. Better alignment between the national security risks it is intended to solve and the definitions for cover transactions would provide much neededed clarity to the private sector.
▶ 0:37:50Given the negligible volume of Chinese investment into the United States today, any expansion of CPHAS's jurisdiction is more likely to disproportionately impact benign foreign investment. It could blunt the effect CPHAS's effectiveness as a national security tool by reducing its ability to thoroughly review each Thank you for your interest in these issues and I look forward to your Thank you, Mr. Rice House, Mr. Joseph. You are now recognized for five minutes for your oral statement.
▶ 0:38:19Thank you, Chairman Davidson, Ranking Member Batty, and distinguished members of the subcommittee. Thank you for inviting me to testify today. It is an honor to join my fellow panel members in contributing to your work on US investment security policy. My name is Ben Joseloff. I'm a partner at the law firm of Kvath Swain and more. Today I am presenting my own views and not those of my firm or of any client of my firm.
▶ 0:38:42The perspectives I will offer today are informed by over 10 years of experience in both the public and private sectors working on matters relating to the Committee on Foreign Investment in the United States or The United States of America has long been known as one of the most welcoming economies for foreign direct investment. This is in large part because the US government through administrations of both parties has recognize the benefits that come with foreign capital. But not all foreign investment is benign.
▶ 0:39:09Malign actors can and do try to take advantage of our general openness by using foreign investment to harm US national and economic security. Thus, the United States has had for 50 years a mechanism to address harmful foreign direct investment. That mechanism is CPHAS. CPHAS operates within and as a part of the US open investment framework. This means that CPHAS should not be seen as an exception to US open investment policy.
▶ 0:39:37Rather, in my view, CPHAS is best understood as a mechanism that enables and perpetuates our commitment to an open investment environment. I believe that support for a robust, well-resourced, and efficiently run CPHAS not only helps preserve US national and economic security, but also enables the continuation of our nation's long-standing bipartisan open investment This is the theoretical underpinning of CPHAS. But how does CPHAS operate in practice?
▶ 0:40:06In my written testimony, I provide details regarding how the CPHAS process affects US businesses and their foreign investors. The key takeaway is that the CPHAS process can result in noteworthy timing and economic friction in crossber transactions and this friction has real costs and Of course, this is not necessarily inappropriate.
▶ 0:40:27As I noted earlier, CPHAS plays a critical role within the broader US open investment framework and some transaction costs are unavoidable in a system that relies on thorough casebycase assessments carried out by subject matter experts across the US To me, the real question then is the following. Can we be confident that we have reduced the transaction costs imposed by the CPHAS process to those that are necessary and appropriate to protect US national security?
▶ 0:40:56In my view, the short answer is not yet, but CPHAS is trying and they're making good progress. The longer answer is that in my 10 years of CPHAS related experience both in government and in private practice, my observation is that the individuals who administer the process are doing their best to accomplish their critical national security mission as efficiently as possible. This is true both for the dedicated career civil servants who undertake the day-to-day work of CPHAS as well as the political appointees who ultimately make the difficult decisions.
▶ 0:41:27To conclude, I know there are various legislative proposals relating to CPHAS that members of the subcommittee may be asked to consider. Rather than opining on any specific legislation, I would encourage members to ask two questions with respect to any CPHAS related bill that crosses your desk.
▶ 0:41:44First, will the legislation help the individuals who administer the CPHAS process increase efficiency without harming US national Second, if the legislation will create new economic friction, is that friction truly necessary in order for CPHAS to achieve its mission?
▶ 0:42:03With these questions as a guide, I believe that the members of the subcommittee will be well placed to ensure that we continue to have an inbound investment security regime that supports both American security and American prosperity and that CPHAS will continue to be regarded as the global glo gold standard for the national security regulation of foreign direct investment. Thank you again for the opportunity to participate today. I look forward to your questions. Thank you, Mr. Joseph. Um, Dr.
▶ 0:42:31Barrowly Dansman, you are now recognized for five minutes for your oral statement. Thank you, Chairman Davidson and Ranking Member Batty for inviting me to testify on evolving investment security issues cons of concern to the American people. It is an honor to speak with the subcommittee today. The views I express in my testimony are my own and do not necessarily reflect the views of Indiana University or of the Atlantic Council where I am a fellow.
▶ 0:42:58As Congress evaluates current national security regulation for inward and outbound investment, I encourage representatives to ensure that any additional congressional action aligns with the following five principles. First, investment security policy should be clear to US companies and foreign investors. The compliance burden of investment regulation has increased tremendously in recent years.
▶ 0:43:23Investors need to understand what their obligations are and believe these restrictions serve a legitimate public good. Frequent updates to investment rules make the policy environment unstable and expectations for the future regulatory landscape uncertain. Retroactive application of law generates concern over future respect for property rights and should be avoided. Second, investment security should be consistently applied.
▶ 0:43:51Investors and companies should not be differentially treated based on personal relationships with or connections to administration officials. For CPHAS, this means parties before the committee should not receive favorable treatment if they are well connected to the administration or to a member of Congress. for the outbound investment security program.
▶ 0:44:11This means that the process for receiving an exception to prohibition should be clearly publicized subject to a rigorous regularized review process and the outcome of such determination should be quickly notified to the public. In the absence of oversight, CPHAS and the outbound program could become the site of special dealing that is inconsistent with the rule of law or the foundations of a dynamic market-based economy.
▶ 0:44:37Third, investment security tools should be contained to a narrow set of clear national security concerns. Overregulation would reduce investment in the United States, negatively affecting jobs and innovation capacity. Congress should resist the urge to further expand CPHAS authorities to address broad national interest concerns.
▶ 0:44:59It should also reaffirm that mitigation agreements should be proportional to identified risks and should only be used to address national security concerns rather rather than expansive economic competitiveness issues. Any outbound legislation should focus on national security risks associated with a narrow set of technologies for which the US holds an innovation lead.
▶ 0:45:24The likely innovation costs of restricting outbound investment in other technologies is too high to entertain. Fourth, investment security policies should be collaborative. US power benefits from centrality in global innovation, finance, trade, and diplomatic networks and our strategies should function to further embed us in those networks rather than insulate us from them.
▶ 0:45:48Building multilateral support and coordination is necessary for effectively countering PRC efforts to gain access to western developed dual use technologies to modernize their military capabilities. Technology investment and knowhow are very hard to control unilaterally. Acting multilaterally also reduces the costs of monitoring and enforcement which saves US taxpayer money and frees additional resources for investments in American families, workers, and communities.
▶ 0:46:20Finally, investment security policy should be curious. Many of the investment security policies that the United States has implemented in recent years are addressing problems for which there remains a great deal of uncertainty about the size of the concern and the cost of potential solutions. Consequently, policies in this area area are risky. We have less certainty over their effect and their unintended consequences.
▶ 0:46:47Therefore, ongoing assessment of policy effectiveness is vital. Investment security policies should be subjected to costbenefit analysis at regular intervals to better understand the trade-offs to economic dynamism and technological innovation that investment restrictions induce.
▶ 0:47:06If measures of innovation drop, Congress should be prepared to work with industry to better understand why and should be willing to reverse course if it becomes clear that a policy has failed or has unacceptable unintended consequences. Thank you, Mr. Mr. Chairman, I look forward to answering your questions. Uh, thank you very much. We'll now turn to member questions. I now recognize myself for five minutes of questions.
▶ 0:47:31Um, I support President Trump's February National Security Presidential Memorandum, which encourages foreign investment while protecting national security. Specifically, it states that quote, "Chifas will be used to restrict Chinese investments in strategic US sectors like technology, critical infrastructure, healthcare, agriculture, energy, and raw materials." and that quote, "The United States will protect our farmland and real estate near sensitive facilities,
▶ 0:48:02strengthen CPHA's authority over green field investments, and restrict foreign adversary access to US talent and operations in sensitive You know, Mr. Mr. Rice House, in when your testimony, your opening statement, you said CPHAS only acts when other tools aren't available. Would you concede that tariffs uh can be used for national security Uh thank you Mr. Chairman for for the question.
▶ 0:48:32When CPHAS looks at a transaction and identifies a risk, it its first step is ultimately to look at those other authorities that are available and then determine whether they can actually address that concern. That could be something as simple as looking at export controls to determine whether that's sufficient to, you know, address the transfer of a particular piece of technology, but it could also be to look at other economic tools that may uh relate to the national security One of those tools would be tariffs, The
▶ 0:49:03during my time, I don't I had not seen tariffs used as a potential consideration. However, I think tools that address broader strategic issues can be an effective measure to avoid transactions that do present concern. Well, clearly President Trump views it as a national security thing. And when we design the tariffs, you have 232 and 302 and other provisions in tariffs because sometimes it is a very efficient tool. Um, and people can debate whether it should be used the way that it's being used, but clearly it is a tool that's available.
▶ 0:49:33Um, and I just think, you know, as we're looking at civious reviews, it's worth considering, hey, maybe a fast thing to do is get into a negotiation, use tariffs to get the attention and get the underlying issue addressed. And when you, as we're looking at CPHAS, you know, Mr.
▶ 0:49:48Stanford when uh you know your organization emphasizes the importment of foreign investments into our economy um you know how have CPHAS's expanded reviews under FMA impacted multinational companies investment decisions in the United thank you for the question Mr. Chairman, as uh you're well aware, since 2018, international investment has actually increased precipitously uh from uh friends and allies in the United States.
▶ 0:50:16You know, as I mentioned in my opening, eight countries constitute 75% of all investment in the United States. That's Japan, Canada, and European countries. All of them longtime friends and allies of the United States. the top investors in the Ohio in Ohio for instance uh reside from those countries as well. And so uh what we've seen through FMA is that Chinese investment in the United States has dropped about 15%.
▶ 0:50:43Uh since then uh the reviews are less through the CPHAS process around Chinese investment uh as was mentioned earlier. But I think that uh companies continue to value the United States economy, America's workforce, and the opportunities to build and create things here in the United States. Yeah, we've certainly seen a brisk pace this year. Hopefully, we keep building on it and we do it efficiently so that we can get it done. And I think, you know, the tailoring that you have all referenced uh has got the attention, I think, in a in a bipartisan way. Uh Mr.
▶ 0:51:13Rice House uh on the outbound investment security program. I strongly agree with you on how important clear definitions of covered transactions are in order to implement the program. Could you elaborate on how specific or narrow these definitions need to be for proper enforcement? Um for instance, what if a large corporation has some business that falls under covered transaction and some that doesn't? I mean, you can think about Amazon in the United States has AWS.
▶ 0:51:39that might be considered sensitive if it was a Chinese investment, but you might do their air cargo business and you're doing business with Amazon either way. So, how do you parse that? Mr. Chairman, that's an excellent question and I think that's the exact challenge that many private sector parties are dealing with right now under the outbound investment security program, which is trying to understand what activities may be captured, which ones are clearly the ones that the government is concerned about and needs to be addressed.
▶ 0:52:05And so I think the key thing that does need to happen with the outbound investment security program is for it to go through a process that Congress put Ferma through and and the key elements of that which allow FEMA to be successful in targeting the core national security issue is first defining what that is that needs to be solved and I think there's a lack of clarity uh in the private sector and amongst many to understand what exactly the problem is that's trying to be Yep. Thank you. And I'd submit that OFAC does get pretty precise.
▶ 0:52:35So we'll look at how we can do that. My time is expired and I now recognize the ranking member for her questions. Thank you, Mr. Chairman. Thank you to the witnesses. And thank you, Mr. Lamford, for uh acknowledging Ohio and the 300 and some thousand employees. I hope I get to talk to every one of them. Uh we like numbers like that and people being employed. Let me go to my first question uh for you uh Dr. Bowardly Dansman. And and I'm probably going to, if I have time, ask everybody else if they have an opinion on this.
▶ 0:53:05In your testimony, you address the need for consistency in the CPHAS review process. Can you address some of the concerns associated with President Trump's response to certain high-profile CPHAS cases, and what are the broader national security risks, which I'll ask everybody else, of this kind of approach to investment security? Thank you ranking member um Batty for your question.
▶ 0:53:33Uh I would start by saying that national security is not a bargaining chip in any um trade negotiation. If there's a national security problem, you need to address the national security problem and it should not be traded away for other unrelated um issues.
▶ 0:53:53The second thing I'll say without getting into specifics of any deal is that in general and I did work on the committee um in 2019 and 2020 is that um in CPHAS world any day in which a CPHAS transaction is in the news is a bad day for CPHAS. We want the committee to be able to employ a rigorous fact-based assessment of every single transaction.
▶ 0:54:20And the point of the CPHAS process is to do that rather than employ a politicized um uh review of the transaction. And so we should try as much as possible to keep the committee's work at the working level until it rises up to a presidential decision.
▶ 0:54:42Um and and we should refrain from situations in which elected officials are opining on deals before the committee before they are determined. Thank you. Anybody else have a comment that they want to ask on the broader national security risk of this kind of approach to investment security? Interesting experts in it. You have no comment either way. Okay. Let me go to my next question. I'll come back to you.
▶ 0:55:12Uh Dr. Bowerley Dansman. Um as as you know the outbound investment security program which has been active for six months, we don't have any reporting from Treasury on that process. Yes. Yet what factors or data would you expect to see demonstrate that the program has been successful?
▶ 0:55:31What questions should this committee ask of Treasury regarding the So, of course, we're in very early days of the outbound um program.
▶ 0:55:46I I think when when you think about the sorts of information that you'd like to uh have Treasury provide, that would be information on what types of transactions are going before the committee, how um well, actually, excuse me, for outbound, that's a notification and a prohibition.
▶ 0:56:06So understanding how many transactions are being notified, what is the process of looking for non-notified transactions that um should have been prohibitive, have any been found as the uh as the program matures, um how this is affecting things like innovation capacity is really important.
▶ 0:56:29So doing um reviews over time about um what is happening to the innovation ecosystem around these technologies that are scoped into review is an important thing that the committee should be Thank you. Let's try this again with the other members. Is there anything uh that this committee should be asking of treasury regarding activities?
▶ 0:56:55One recommendation I would have is trying to understand the number of transactions that Treasury is looking into from an enforcement matter and the percentage of those that end up being either failure to notifies or were violations of the prohibition. I think that would provide a clear indication of what is actually occurring or is this creating you know a significant burden on parties uh on the enforcement side despite the lack of evidence of non-compliance. Okay. Thank you. I yield back, Mr.
▶ 0:57:25Chairman. Thank you, Mrs. Batty. Now recognize the gentleman from Oklahoma, Mr. Lucas, who's also the chairman of the Monetary Policy Task Force. Thank you, Mr. Chairman. And I'd like to start with Mr. Joseph and Mr. Rice House. In your experience, would it be helpful to finally place the Secretary of Agriculture as a permanent member on CPHAS for a related transactions like my bill, the Agricultural Risk Review Act would?
▶ 0:57:54How does having subject matter expertise in specific industries help inform the CPHUS Review process? I'm happy to start. Uh, thank you for the question. I think it's absolutely critical that the Department of Agriculture be involved in cifhious reviews of transactions that involve agriculture or food security issues. Um in my experience when I was on uh when I was serving in government uh the department of agriculture was involved in transactions that raised those issues.
▶ 0:58:22I think the committee does a good job of recognizing the different subject matter expertise around the US government and calling in that expertise as appropriate in reviewing And I would agree with Mr. Joselof and in my experience the the Department of Agriculture not only was consulted on those transactions but often served as a co-lead so certified to Congress at conclusion of th those deals.
▶ 0:58:46And so it is very important that USDA is included in those matters and I think I understand there was anou signed between the Department of Treasury and the Department of Agriculture that memorializes the process to ensure that Absolutely. And I thank you both for those comments and my bill passed the house this month and based on your testimony maybe my friends our friends United States Senate will actually take it up. Uh Mr. Rice House, Mr.
▶ 0:59:12Samford has recommended a fasttrack pathway for trusted investors to go through the ciphus review process. What guard rails would be appropriate for a program like that so that we're reincentivizing the right type of investment? Thank you sir for your question. I think the first one is the committee needs the ability to still assess both the threat so receiving the intelligence community's uh assessment of the the particular investor and they still need to be able to look at the the context of the deal itself.
▶ 0:59:42So what is the US business and what does it do that's important uh for national security uh so that it can act if it needs to. I think what needs to be focused on though is how do you streamline the process so that the committee is focused on those narrow issues and isn't looking into unrelated matters. So how can it be more targeted in the questions that it poses parties?
▶ 1:00:05How can it streamline the submissions of information so that that can happen more quickly and how can it improve its decision making so that those timelines are much shorter to then facilitate that benign investment. Mr. Samford, in your view, are national security and an open investment climate inherently at odds? Or can we encourage foreign direct investment without compromising our security interest?
▶ 1:00:29And why is it important that we have policies that support both of those Absolutely, Congressman. Thank you for your leadership in this space. I think they are complimentary objectives and I think CPHAS is a good example over its uh uh transformation since its inception in the 70s to today.
▶ 1:00:50Congress has met the challenge through the framework of CPHAS as uh threats have emerged and changed and I think uh your leadership in this space is reflective of that with your your legislation. I think that uh it is important to remember that the vast majority of investment into the United States comes from longtime friends and allies and it's into uh sectors and businesses that are wholly unrelated to national security.
▶ 1:01:19Uh these are great paying jobs, many of them in the manufacturing sector. About 40% of all FDI jobs are in US manufacturing. And so having uh the ability to provide good quality jobs, high-paying jobs uh that don't require a mountain of debt uh and college debt is a benefit. You know, one of the things that international companies bring to the US is not just the capital they need to operate here, but they also bring world-class knowhow.
▶ 1:01:49And so importing that uh best practice is not only beneficial to the companies, but also the communities where they Thank you. And thank you to the panel and I yield back, Mr. Chairman. Thank you, Mr. Lucas. The gentleman from California, Mr. Licardo, is now recognized for five minutes. Uh thank you, Mr. Chair.
▶ 1:02:07Uh I uh represent uh significant portion of Silicon Valley and we've got an awful lot of folks who are very frustrated with the CPHUS process uh and would like to see uh many reforms aligned with what has been discussed here. So I appreciate the testimony of of of everyone here uh and particularly as we think about uh and some of the challenges Mr. Josh Laf referred to with regard to defining jurisdiction.
▶ 1:02:35And I understand something that consumes an awful lot of time uh and legal analysis and that creates a lot of sand and gears. And I I guess the question I have is really are there specific proposals out there either that have already been introduced or language that you see organizations working on like the land council or others that could help us better defined jurisdictions so at least uh parties can get to the question more quickly of whether
▶ 1:03:06this is governed by CPHAS or Thank you very much for the question. As I said in the written testimony that that I submitted, I I think one of the key things, one of the key improvements that could be made to the kind of jurisdictional process um would be a review of the definition of critical technology specifically as it applies in kind of mandatory filings um to see if there's a way to reduce the burden on companies of of having to perform export control analysis which can be timely and costly
▶ 1:03:36um on things that they don't actually export. So that's that's one concrete idea. Thank you. And do any other uh any other witnesses have any specific suggestions? Not necessarily from a a legislative standpoint, but I think what I from my experience, especially in the government, I I did recognize that there were challenges in the VC space because the need for companies to receive capital quickly.
▶ 1:04:00And so I think focusing on whether it's even from congressional oversight to ensure that the committee is processing transactions quickly so that essentially benign capital through VC investment can occur within the timelines that are often very short for those types of transactions is a way to kind of help ensure that the committee is not unnecessarily impeding I think that important investment. Thank you. Um I'm sorry Dr. I'll just add as well that um outreach is very important here.
▶ 1:04:30So, um there the Treasury already does outreach to the venture community, but I think continued outreach and really emphasizing um educating um venture on their obligations is an important part of the puzzle here. Thank you, Dr. Dansman. Since you just spoke, I'm curious to follow up on uh the concerns about consistency.
▶ 1:04:54Um, are there specific examples under this administration where you're seeing uh considerations outside of national security playing into a negotiation? Well, I am not um privy to the the inside negotiations on CPHAS. Uh but as and I hesitate to opine too directly on specific transactions.
▶ 1:05:21uh but I do think that there is a sense that in some transactions uh there has been a desire to uh also uh put in place obligations that have more to do with uh economic competitiveness as opposed to national security specifically and the use of uh mitigation agreements that have um a lot of um of various
▶ 1:05:51components to it that seem quite far away from national security, especially if a um transaction is not related to uh an entity that is directly integrated into the defense um industrial supply chain. And so I would be worried and cautious about those kinds of um of mitigation terms.
▶ 1:06:13And doctor, I know a colleague of yours, Atlantic Council, uh wrote a piece back in February uh specifically expressing concern about limitations in crossber investments imposed by the NSPM and this administration. Are there other elements that you would point to uh other concerns in addition to the ones you just raised? Um with respect to inbound or outbound, I'm sorry. Uh in in this case, uh it was well I guess it was crossborder.
▶ 1:06:42So that would be either. Yeah. So I think that there are two things. First is that we should be really cautious about putting too many restrictions on outbound investment in technologies for which the US is not at the cutting edge because by investing abroad that is a way for us to bring back technology to the United States that um that is important and that we could use. Thank you doctor. Um thank you Mr. Lucario.
▶ 1:07:11Uh the gentleman from Kentucky, chairman of the subcommittee on financial institutions, Mr. Bar, is now recognized for five minutes. I I want to start by picking up right where Mr. Licardo left off and where ranking member Batty uh uh where where she was in her line of questioning about the importance of keeping the cifhious process and a prospective outbound regime uh depoliticized.
▶ 1:07:38And um that's precisely why I was so concerned about the prior politicization of the Nippon Steel Deal. And I'm respectful of the fact that the ranking member represents Ohio where uh Cleveland Cliffs is.
▶ 1:07:54But this was a deal that was highly politicized right before a national election where the United Steel workers came in into the Oval Office and helped the pre the prior president kill a very beneficial investment that advanced American national security. Remember, Nippon Steel is a company, a very uh technologically advanced steel company uh uh doiciled in an ally nation, Japan.
▶ 1:08:22Uh this was an investment that was uh was uh providing competition and preventing a monopoly um uh in the United States on steel making. It's it it strengthened US steel and enhanced US national security.
▶ 1:08:40So the the this the fact that CPHAS did a rigorous re-review away from politics made the correct recommendation and then the president followed the career advice of CPHAS was a rectification of a politicization in the previous administration.
▶ 1:08:59So I think the points that that made by my friends on the other side of the aisle of keeping politics out is very very important and I think we should take a lesson from the politicization of CPHAS from the prior administration here. So I I appreciate the current administration fixing that.
▶ 1:09:15Um let let me um let me ask um uh a question about outbound outbound because we should learn from the the virtues of CPHAS and also maybe some of the shortcomings of CPHAS as we work on um uh an outbound uh regime. And so uh Mr. Rice House, let me ask you.
▶ 1:09:36Um, last year the select committee on the strategic competition with China found that five venture capital firms funneled more than$ 1.9 billion to AI companies supporting China's human rights abuses uh and military modernization. At least 1.2 billion went into the PRC semiconductor industry. Um, clear controls are needed uh in respect to outbound investments into Chinese entities. And that's why I appreciate President Trump's National Security Memorandum, America First Investment Policy.
▶ 1:10:06Uh, and it's why I introduced the Fight China Act, which takes both an entity and sensitive technologies base approach. Do you agree that using all of the tools in the toolbox, time- tested sanctions and forward-looking prohibitions on sensitive technologies, is the best way to ensure we are spreading the net wide enough to prohibit investments that progress Chinese military and surveillance ambitions, but not too much to impede benign and beneficial outbound outbound investment. Thank you, Congressman. Appreciate the question.
▶ 1:10:36It it is an important one and I think the the answer to understand whether or not you're using all of the tools necessary is first understanding what is the problem that needs to be solved. Is it the fact of an investment or is it I think what President Biden's order was attempting to address which was smart money and I think once we can understand what that is the appropriate tool or tools will then I think flow from that which is is it a sanctionsbased approach an entities based approach or is it a transactional approach that is was
▶ 1:11:06taken by the Biden Uh Mr. Samford. It's um as a fellow Kuckian, uh it's no surprise that a Center College graduate has risen to such uh influence as you. So, congratulations on your new position. You're going to do a great job there advocating for beneficial foreign investment in the United States that makes the United States uh competitive. How can we make it easier for us and as we think about the outbound uh investment regime?
▶ 1:11:33How can we make it easier for US investors um in terms of making these decisions uh through a red light green light system um easier than maybe even CPHAS is um for um uh companies to navigate the CPHAS process? um how important is it to have an a red light green light clarity uh as opposed to uncertainty that sometimes uh comes with CPHAS? Thank you for that question.
▶ 1:12:01Uh to be succinct, I think CPHAS provides a nice framework. CPHIS is designed to look at specific threats in specific circumstances. I think those same principles could be applied to the outbound. Obviously, the global business alliance, we represent US subsidiaries. Most of our focus is on the inbound business uh the insourcing of jobs to the United States. Uh very few of our companies outsource or or are investing abroad from the subsidiary here in the United States.
▶ 1:12:28But uh I think for those that are uh US companies investing abroad, it is uh CPHAS provides a framework in that it pro it looks at deals on a case-byase basis looking for specific threats and working to mitigate those specific concerns. Thank you. I yield. Thank you, Mr. Bar. The gentleman from Illinois, who's the ranking member of the financial institutions subcommittee, Mr. Foster, is now recognized for five Thank you, Mr.
▶ 1:12:56Chair, and I I appreciate the bipartisan concern over trying to keep to depoliticize the things that ought to be purely national security concerns. I think it's a very useful principle and I look forward to my colleagues public uh comments on on say the tariffing of Canadian steel and aluminum which doesn't seem like that is really which was done on allegedly national security grounds.
▶ 1:13:21Um and so this is uh it's something that we'll have to continue talking about and I think in the end Congress is going to have to be more explicit given the um given the behavior of the current administration. Um let's see one specific thing that came up. Are are China's capabilities in say integrated circuit manufacturer limited any way in any way by the amount of capital or is it simply technology that limits them right now? Is it my feeling it's just technology?
▶ 1:13:49They're putting so much capital that they don't know how to spend it sensibly. Does anyone agree or disagree with that? I'd say China is very good at um the extensive margin and less good at the intensive margin. And so yes, they can throw a lot of capital at a problem.
▶ 1:14:10Um, one of the points of the outbound program was that along with um along with capital at least outbound um foreign direct investment and venture capital comes with knowhow and technology alongside that capital and that is the reason why that is really what um China wants from US capital markets and US companies and that is the reason why outbound was focused not on portfolio flows. Yeah. No, I understand it.
▶ 1:14:39Just we should keep our eyes on the technology. It's not money that limits Chinese progress in many things. Uh you know, um let's see. Several members have emphasized the need for technical expertise both inside CPHAS and in the agencies it partnered with. Do you believe that the recent attacks on civil servants generally and steep budget cuts and staff of of CPHAS member agencies are going to support the efforts of this or is it going to be a negative in recruiting people going forward? uh comments from anyone.
▶ 1:15:11Dr. Barley Dansman, I guess I'll start by saying that it is always hard um to attract subject matter experts in emerging technologies to work in the US government and during my time on the committee.
▶ 1:15:25Um that was uh you know a a concern that came up um often and so uh we need to do more to attract those subject matter experts to be willing to um to bring their um bring their gifts, bring their talents to uh and their expertise to the US Any other comments?
▶ 1:15:47I'd like to point back to Furma and I think Congress did two really important things uh in 2018 that greatly expanded the committee's ability to address this issue. One is it provided direct hire authority. Uh so the committee and members could directly recruit these types of people and two it provided significant resources to do that.
▶ 1:16:06And so over the years what I saw was one the committee could leverage expertise from individuals within the department of defense that are very familiar with sensitive technologies experts and PhDs at national labs. But what you were seeing and I think you continue to see is there are more experts technical experts PhDs that work in for example the department of treasury uh because of these resources that congress provided. Yeah.
▶ 1:16:31And it, you know, I'm very familiar with National Labs, having worked there for 25 years, and I can tell you they're hemorrhaging talent because of the actions of this administration. It is really bad. And when you reach out to partner organizations, you will find in many instances that the the experts who used to deal with there have quit in disgust. It's really bad out there, at least in the uh for sure in the um Department of Energy that I'm very familiar with. Um now, Dr. Barley Dansman. Um, the US has long been an attractive location for foreign investment.
▶ 1:17:01I I believe this is in large part due to our stable economy and financial markets, talented workforce, and commitment to promoting fair and orderly business dealing. Uh, the US has been also historically a leader in anti-corruption efforts. The Corporate Transparency Act and the Foreign Corrupt Practices Act are two pieces of legislation that really aim to crack down on corporate on corruption, illusions.
▶ 1:17:23But since taking office, President Trump has demonstrated his willingness to backtrack on anti anti-corruption efforts and rolling back on enforcement of both the CTA and the FCPA. Is this going to cause long-term uh problems for uh the enthusiasm for just investment in the United States?
▶ 1:17:42Uh, so if we're talking specifically about the CTA, I think that the CTA um would pro provide really important information to investment screening professionals so that we could actually move forward um in uh with review in including by um increasing the pace of UBO um discovery and so forth. The gentleman's time has expired.
▶ 1:18:10I'd ask for further comments to be submitted for the record. Um, the gentleoman from California, Miss Kim, is now recognized for five minutes. Thank you, Chairman Davidson, and Ranking Member Batty for holding today's hearing. Thank you, witnesses, for joining us.
▶ 1:18:26Um, foreign direct investment has been a key part of making America one of the greatest countries in the world and it has ensured the Americans remain employed and FDI uh you know related uh employments in the United States uh is really um highest in the state of California with 15% uh related to that and uh I just uh appreciate the FDI uh coming into our country, but we
▶ 1:18:56also uh want to also ensure that our FDI's American direct investments going over abroad is also protected. Um but none of that could occur without the balanced role that the committee on foreign investment in the United States plays uh in shielding national security while still facilitating our foreign investment. Um so first question to you Mr. uh Joseph Love.
▶ 1:19:21Um for those who have not gone through that uh CPHUS process uh could you detail how that process works and how uh and what kind of information companies are expected to provide? Thank you. Yes, the the process usually starts uh at the very earliest stages of a transaction of a crossber transaction with the parties thinking about whether their transaction would be within the jurisdiction of CPHAS.
▶ 1:19:48um if so, whether it would trigger a mandatory filing requirement or if the parties are at liberty to choose whether to file voluntarily. Uh and then ultimately, you know, they they have to think about uh will their transaction likely raise national security concerns. Um if they do file with CPHAS, either because they have to uh or because they've chosen to do so voluntarily, um the committee requires a wide range of information from both the foreign investor and the US business.
▶ 1:20:16um that that information uh on the on the foreign investor side touches on you know who are the ultimate owners of the company what's their business where are they located uh what connections do they have to to other countries on the US business side it looks at what type of technology do they have uh do they have government contracts where are their facilities located a whole range of of information on both sides trying to get at this question of does a national security concern arise from the transaction thank you um I want do a follow-up
▶ 1:20:47uh question to you Mr. uh Sam for and ask if uh you know how what do you see uh the known investor pilot program fitting into the cifhous mandate of uh balancing national security while securing the greater investments from our allies and Thank you for that question Congresswoman. I think that uh this has tremendous potential.
▶ 1:21:10That was one of the facets of FRMA when it was passed in 2018 was to create a mechanism for those that are frequent filers of CPHASS to be able to expedite the process. There have been a couple of iterations on that. This proposal I think is still uh being worked through in terms of what it will look like but I think anything we can do to ensure that resources are used efficiently.
▶ 1:21:34That is to say that CPHAS is focused on the highest risk uh transactions and where you have wellestablished well-known investors uh frequent investors uh that those can be uh handled efficiently. improvements like that known investment program are what we need to continue to see cifhas to ensure the strong foreign investments and national security.
▶ 1:22:00that I fear that under the previous administration we saw the mission of CPUs thrown into the side and instead the committee was close to becoming a uh aolitical uh a political tool. So how does US become less competitive for foreign investments?
▶ 1:22:17The CPHUS uh you know when CPHAS become a a political Well, there's no doubt that the world watches what happens with CPHAS reviews and I think you're referencing the Nepon Steel US Steel acquisition. That was a situation where you had a well-known investor company that's operating in the United States from our largest uh country uh investing in you know Japan uh a country with whom we have a mutual defense treaty.
▶ 1:22:48Uh and so I think that deal uh was largely uh handled outside of the cipius process uh where you had the previous administration weighing in prior to a formal review taking place. Thank you. I do want to make uh you know last comment and highlight the uh outbound investment security program.
▶ 1:23:05when the president Xiinping first rose to power in China, he stated that the CCP's foundation within the private sector was weak and he outlined an economic philosophy where private sector existed to carry out the party's work and uh and enhance the party's philosophy.
▶ 1:23:22So I just wanted to uh you know point that out because in 2020 uh 17 nearly threearters of private enterprises had an established CCP cell and by 2021 the CCP achieved complete coverage of all 500 of the nation's largest firms. So as we consider investment security it is important that we not just look at the investment dollars that are coming into America but also the dollars going out to uh China. gentle lady's time is up.
▶ 1:23:51I just wanted to make that point and thank you so much for allowing me to go over time and I yel back. The gentleman from Texas and also the chairman of the small business committee, Mr. Williams, is now recognized for five minutes. Thank you, Mr. Chairman, and thank all of you for being here today. And as the global economy becomes more competitive, especially in advanced technologies like AI and semiconductors, American investors are trying to position a capital where it matters most.
▶ 1:24:16Under the Biden administration's outbound environ investment rule, US firms are now required to self-determine if a transaction might raise national security concerns without a clear guidance or a published list of restricted entities. This creates legal uncertainty, compliance risk, and could drive up the cost of doing business abroad. Meanwhile, statebacked competitors from China and the Middle East are face none of those constraints and aggressively expanding. So, Mr. Rice House.
▶ 1:24:42If uh if a Texas-based investor wants to put capital into a tech firm overseas to stay globally competitive, how do these new outbound rules impact that decision? And are we at risk of forcing American investors to sit on the sidelines while others move in? Congressman, thank you for your question. And I think the the challenge with the outbound investment security program as it's current currently been constructed is it didn't fully account for those types of cost considerations when the rules went into place.
▶ 1:25:08And so I think it's really important that a policy process and one that Congress could lead could consider these types of issues to ensure that the costs of implementing this type of regime doesn't you know make our businesses our US investors less competitive uh in the long run. Okay. Thank you. When US investors uh participate in overseas ventures such as emerging technologies, they often bring more than capital. They bring standards, accountability, and transparency to markets that we otherwise fall under the influence of authoritarian regimes.
▶ 1:25:38Again, we see that under the Biden administration's outbound investment framework, we may unintentionally undermine this leverage. So, we've already seen US firms spin off or walk away from foreign investments that once helped shape tech ecosystems. And in that vacuum, others like Saudi Arabia and China stepping in and aligning themselves markets win markets with their own values and strategic objectives. So again, Mr.
▶ 1:26:00Rice House with uh with the outbound rules tightening, are we giving up our ability to influence the standards, culture, and direction of foreign tech firms and letting regimes like China and Saudi Arabia uh take that seat at the table? I think that that is another key cost which is you know the ability for the US to project its values into into businesses uh when that when that is restricted. I think another piece of that is also uh our ability to learn things from those investments.
▶ 1:26:29I think a lot of investors are able to bring expertise back or get access to technology and that's equally potentially lost depending on how how broad the regime is. Okay, one more question. Does Texas uh Texas plays a massive role in US energy security as we know and from refining capacity and ex export terminals to pipeline systems and electric grid infrastructure. Those sites are critical not just for the state but for the entire country's energy independence with foreign back firms seeking to acquire assets or real estate near these facilities.
▶ 1:26:59The threat is real. I have it in my district. I see it. As our adversaries adversaries become more sophisticated and exploiting economic access points, we need to ensure our investment screening tools are capable of identifying acting on those risks early largely when the infrastructure in question supports national defense and economic resilience. So Mr. Rice House again, how is CPHAS adopting the growing risk of foreign actors seeking strategic footholds in our in our energy sector? Thank you, Congressman, for your question.
▶ 1:27:28I think first in my experience energy security has been a critical you know area of concern that the committee has focused on and in fact the department of energy leads a significant number of transactions to look at that specific issue. So trying to assess whether in any particular deal the transaction may pose a risk whether to energy production uh resource extraction uh or even present vulnerabilities to critical energy infrastructure whether it's supply of power or distribution of power and so
▶ 1:27:59you know DOE when it looks at this it's obviously looking for problematic investors but are trying to assess whether the transaction could result in vulnerabilities being inserted into those types of assets. and and protecting against that.
▶ 1:28:13And the Department of Defense also will look at those deals closely to assess whether or not proximity to defense facilities or test ranges is also factored in when a foreign investor acquires, say, an oil field and is looking to do resource Okay. Thank you for that. And uh with that, I yield my remaining time back. Thank you, Mr. Williams. I'd like to thank all our witnesses for your testimony today.
▶ 1:28:38Without objection, all members will have five legislative days to submit additional written uh questions to uh the chairman for the record. Questions will be forwarded to the witnesses for response. The witnesses, if you get them, please respond no later than August 21st. Uh this hearing stands adjourned.