More foreign-investor reviews advised

The Pentagon needs to beef up personnel for national security reviews of foreign investments in U.S. companies, according to a new report by Congress’ auditing arm.

The declassified 66-page assessment released Tuesday by the Government Accountability Office also says “legislative action” may be needed to strengthen existing law.

The report is likely to bolster bipartisan efforts in Congress to expand oversight by the interagency Committee on Foreign Investment in the United States to more investments including Chinese investors taking stakes in U.S. technology companies even when they don’t take majority control.

“Our body of work in this area has identified progress in improving the effectiveness of the programs designed to protect technologies critical to U.S. national security interests, but government-wide challenges remain, including the need to address weaknesses in individual programs,” the accountability office said.

Since 2012, the Defense Department has reviewed hundreds of transactions involving foreign acquirers and U.S. businesses “but faces several challenges in identifying and addressing national security concerns,” the accountability office said.

Among challenges cited: Some national security concerns aren’t defined or addressed in Defense Department guidelines and investments that pose national security concerns can’t always be addressed through the committee process.

Bills pending in the House and Senate would expand the reach of the Committee on Foreign Investment in the United States into investments that don’t result in control. The Senate bill would expand the committee’s jurisdiction to investments that exceed a passive role in critical technology sectors, while allowing the committee to exempt some countries. The House bill would expand reviews to minority stakes by companies from a blacklist of countries of special concern. China and Russia would be expected to end up on that list.

The accountability office said that “the number of [Defense Department] personnel with [Committee on Foreign Investment in the United States] responsibilities has not kept pace with the growing workload.” The number of transactions the committee reviewed from 2012 through 2017 more than doubled, from 114 transactions to 238. During that time, the number of transactions the Department of Defense was responsible for coleading increased by about 57 percent, to 99, but manpower hasn’t kept pace, according to the report.

The Pentagon also “faces evolving national security concerns from foreign investments in U.S. businesses developing emerging technologies and in proximity to critical military locations,” the accountability office said.

The instructions Pentagon officials receive to help guide their review of pending transactions don’t address “the extent to which emerging technologies and proximity to critical military locations are considered under these factors,” the office said.

The military departments vary in how they review transactions near sensitive facilities. Such transactions “near certain military locations can present encroachment issues or opportunities for persistent surveillance and collection of sensitive information of training procedures or of the integration of certain technological capabilities into major weapon systems,” the accountability office said.

The Pentagon office that monitors the industrial base and foreign transactions “is in the process of expanding on a case-by-case basis its use of third-party monitors — private auditing and consulting firms approved by [the Defense Department] and [the Committee on Foreign Investment in the United States] but paid for by the foreign acquirer,” according to the report.