Regulation of Foreign Direct Investment After the Dubai Ports ...

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300 The Journal of Corporation Law [34:1 obtain sensitive Western technology.‖ 51 This led to the Byrd Amendment, drafted by Senator Robert Byrd in response to a desire to ―tighten[] the CFIUS review process.‖ 52 4. Dubai Ports Scandal Congress passed FINSA in direct response to Dubai Ports World‘s (DP World) attempt to acquire operations of American ports. 53 The Dubai Ports scandal occurred in February 2006 when DP World attempted to purchase Peninsular and Oriental Steam Navigation Company (P&O), a British company that operated five U.S. ports. 54 DP World is a company owned in large part by the government of the United Arab Emirates (UAE), a U.S. ally located in the Middle East, through a holding company. 55 DP World voluntarily approached the CFIUS about a review to approve the buyout. 56 The CFIUS signed off within 30 days, as opposed to the 45 day period as required by the Byrd Amendment for foreign-government-owned businesses. 57 When the story reached the headlines, the American public and many members of Congress were openly critical of what they considered a ―rubber-stamping‖ by the CFIUS. 58 Critics believed DP World created a national security risk because of ―the UAE‘s history as an operational and financial base for the hijackers who carried out the Sept. 11, 2001, attacks.‖ 59 Amid backlash from Congress and the American public, DP World voluntarily divested their ownership in P&O. 60 Congress responded by approving FINSA, created by Senators Chris Dodd and Richard Shelby to ―overhaul how the government reviews foreign takeovers of U.S. companies.‖ 61 Congress designed FINSA to give more transparency to the CFIUS‘s review process. 62 51. Mostaghel, supra note 7, at 598. 52. Matthew R. Byrne, Protecting National Security and Promoting Foreign Investment: Maintaining the Exon-Florio Balance, 67 OHIO ST. L.J. 849, 868 (2006). 53. See Ed Mullane & Bhavna Kaul, Sovereign Wealth Funds Could Be Impacted by Upcoming FINSA Regulations, FT.COM, Feb. 4, 2008, http://www.ft.com/cms/s/2/d33cd7fc-d34b-11dc-b861- 0000779fd2ac,dwp_uuid=e8477cc4-c820-11db-b0dc-000b5df10621.html (stating that heightened attention was brought to foreign investments after 9/11 and DP World‘s attempt to acquire P&O). 54. GRAHAM & MARCHICK, supra note 3, at 139. 55. Mostaghel, supra note 7, at 606–07. 56. Id. at 606. 57. Id. 58. GRAHAM & MARCHICK, supra note 3, at 136–39. 59. Associated Press, Lawmakers Seek Review of Dubai Ports World Deal, NEWSMAX.COM, Feb. 16, 2006, http://archive.newsmax.com/archives/articles/2006/2/16/140709.shtml?s=1h. 60. DP World sold its complete ownership in P&O to the American company AIG Global Investment Group. Shakir Husain, DP World Completes P&O Unit Sale to AIG, GULFNEWS.COM, Mar. 17, 2007, http://archive.gulfnews.com/indepth/pando/more_stories/10111732.html. The companies completed the transaction in March 2007. Id. 61. Peter Kaplan, Senators Plan New Bill on Foreign Takeover Reviews, REUTERS, May 10, 2007, http://www.reuters.com/article/mergersNews/idUSN1028906020070510. 62. President Bush, supra note 31, at 3.
2008] Regulation of Foreign Direct Investment 301 C. The Current Look of the Exon-Florio Amendment After the Enactment of FINSA 1. CFIUS Membership According to FINSA, the CFIUS is statutorily required to have seven voting members: ―(1) The Secretary of the Treasury, (2) The Secretary of Homeland Security, (3) The Secretary of Commerce, (4) The Secretary of Defense, (5) The Secretary of State, (6) The Attorney General of the United States, [and] (7) The Secretary of Energy.‖ 63 FINSA also allows the President to appoint ―the heads of any other executive department, agency, or office, as the President determines appropriate, generally or on a case-by-case basis.‖ 64 FINSA specifies that the Secretary of the Treasury will serve as the chairperson of the CFIUS and creates the position of Assistant Secretary for the Department of the Treasury with ―duties related to the Committee on Foreign Investment in the United States, as delegated by the Secretary of the Treasury.‖ 65 Although FINSA statutorily mandates that the CFIUS have at least nine members, FINSA gives the President authority to increase the size of the Committee as appropriate. 66 Within the CFIUS, the Secretary of the Treasury will designate ―a member or members of the Committee to be the lead agency . . . on behalf of the Committee.‖ 67 This lead agency will be responsible ―(A) for each covered transaction, and for negotiating any mitigation agreements or other conditions necessary to protect national security; and (B) for all matters related to the monitoring of the completed transaction, to ensure compliance.‖ 68 2. The CFIUS Process Before FINSA was enacted, only the parties to the covered transaction initiated a review through the CIFUS. 69 Along with written notification from the parties of the covered transaction, FINSA also includes a section on unilateral initiation of a review by ―the President or [the CFIUS].‖ 70 Once written notification of a covered transaction is formally accepted, the CFIUS has 30 days to complete the review. 71 During the review process, a 45 day investigation of the covered transaction will begin if the CIFUS determines that: 63. 50 U.S.C.A. app. § 2170(k)(2) (West 2008). FINSA requires both the Secretary of Labor and the Director of National Intelligence to serve on the CFIUS as nonvoting, ex officio members. Id. 64. Id. 65. Id. § 2170(k)(3)–(4). 66. Id. § 2170(k)(2)(J). 67. 50 U.S.C.A. app. § 2170(k)(5). 68. Id. § 2170(3)(k)(5)(A)–(B). 69. Before FINSA, Exon-Florio allowed a member agency of the CFIUS to initiate a review. See 50 U.S.C. app. § 2170 (2000) (amended 2007). A member agency initiated only eight of the 470 notices from 1997 through 2004. U.S. GOV‘T ACCOUNTABILITY OFFICE, DEFENSE TRADE: ENHANCEMENTS TO THE IMPLEMENTATION OF EXON-FLORIO COULD STRENGTHEN THE LAW‘S EFFECTIVENESS 13 (2005) [hereinafter GAO REPORT], available at http://www.gao.gov/cgi-bin/getrpt?GAO-05-686. Instead, if a member agency became aware of a transaction subject to CFIUS review, the member agency would inform the Secretary of the Treasury (Chair of the CFIUS), who then would informally encourage the parties involved in the covered transaction to formally submit to a CFIUS review. Id. at 9. 70. 50 U.S.C.A. app. § 2170(b)(1)(D). 71. Id. § 2170(b)(1)(E).
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