Laws limiting review of foreign investors risky, senators told

Foreign investments in the U.S. that pose national security risks are evading scrutiny because of gaps in American law that limit reviews, a senior Treasury Department official said.

Overseas investors are exploiting restrictions on what kind of deals American officials have jurisdiction over, and some may be structuring transactions to avoid review, Heath Tarbert, the assistant secretary for international markets and investment policy, told U.S. senators Thursday.

“We are seeing a radical change, a shift in foreign investment we haven’t seen,” he told the Senate Banking Committee. “There are key gaps where we can’t look at transactions.”

Tarbert was testifying in support of legislation that would expand the scope of reviews by the Committee on Foreign Investment in the U.S., a panel of officials led by the Treasury Department that examines acquisitions of American businesses for possible national security risks. The bill would broaden reviews by the committee to include certain non-controlling investments and joint ventures.

Tarbert said there have been transactions the U.S. lacks the jurisdiction to review but which pose national security concerns. Some overseas investors have tried to “exploit” those gaps in juDALLAS

risdiction, he said. The committee currently looks into deals that give foreign investors control of a company, although that can include minority investments in some circumstances.

Investment from China has become a focus of U.S. lawmakers, who are expressing concern that Chinese buyers with links to the government are acquiring American assets without proper scrutiny. Democratic Sen. Mark Warner of Virginia said China and Russia are waging “economic warfare” to acquire U.S technology.

“Getting this right is one of the most important national security requirements we have,”

he said.

The proposal to expand foreign-investment reviews comes during heightened trade tensions between the U.S. and China. Several Chinese deals have fallen apart during President Donald Trump’s administration after encountering objections from the committee. On Wednesday, China’s Sinovel Wind Group Co., a wind-turbine maker, was convicted of stealing trade secrets from American Superconductor Corp.

The head of a top Chinese agency overseeing state assets valued at $24 trillion accused the Trump administration Thursday of discriminating against Chinese state-owned enterprises seeking to expand in the U.S. Chinese acquisitions

of U.S. companies dropped 56 percent in volume to $44.5 billion, dragged down by concerns about U.S. national-security deal reviews and shifts in China’s foreign-investment policies.

Among Chinese deals awaiting approval from the panel is HNA Group Co.’s proposal to buy a stake in SkyBridge Capital from former White House aide Anthony Scaramucci. HNA was accused in a lawsuit in December of giving false and inconsistent information to the committee about its ownership structure in another deal.

Sen. Robert Menendez, DN.J., asked Tarbert whether HNA should be subject to heightened scrutiny in deal reviews. Tarbert declined to discuss HNA specifically but

said a buyer that is “materially misleading and misrepresenting who they are and their ties to a government, for example, if we see a company doing that then that would play into our analysis.”

Sen. Thom Tillis, R-N.C., cautioned against discouraging overseas investments, particularly from China.

“I don’t want the productive deal flow to slow down. I actually want it to increase,” Tillis said. “To me, it’s another regulatory burden that a lot of [merger and acquisition] activities never occurred” because of the anticipated burden and time to execute the deal.

Tarbert replied, the Treasury Department has “no intention of stopping deal flow. We would like to see it increase.”