(Archived Content)
FROM THE OFFICE OF PUBLIC AFFAIRS
HP-165Washington, D.C. –Mr. Chairman, Ranking Member Skelton, and distinguished members of the House Committee on Armed Services, I appreciate the opportunity to appear before you today. I am here speaking on behalf of the Department of the Treasury and the Committee on Foreign Investment in the United States (“CFIUS” or the “Committee”) to discuss the Committee’s investigation of the proposed merger of Lucent and Alcatel.
The House Armed Services Committee and CFIUS share the common objective of ensuring the protection of our national security.
Confidentiality
CFIUS agencies began examining this transaction immediately and in detail when it became public in late-March/early-April. At the current stage, I am limited in what I can say about the comprehensive process by which CFIUS conducted the investigation of the proposed merger of Lucent and Alcatel. I should state publicly the legal obligations as they relate to the disclosure of non-public information and in light of continued deliberative action being taken on this transaction:
Section 721 of the Defense Production Act of 1950 (the Exon-Florio provision) states that:
Any information or documentary material filed with the President or the President’s designee pursuant to this section shall be exempt from disclosure under section 552 of title 5, United States Code, and no such information or documentary material may be made public, except as may be relevant to any administrative or judicial action or proceeding.
That being said, I wish to be as detailed as possible in my testimony today on the thorough and detailed process by which CFIUS has investigated the proposed merger of Lucent with Alcatel to fully understand its implications for U.S. national security. I would also note that the companies themselves had stated publicly that they notified CFIUS of the proposed transaction.
CFIUS Reforms in Action
Mr. Chairman, as you know, on July 26, 2006, the House unanimously passed HR 5337 the National Security Foreign Investment Reform and Strengthened Transparency Act of 2006. The purpose and principles underlying the Bill were, and I quote from the Bill, “to ensure national security while promoting foreign investment and the creation and maintenance of jobs, [and] to reform the process by which such investments are examined for any effect they may have on national security…”.
While the House Bill has not been enacted into law yet, the Administration supports its underlying principles. To that end, the Administration supports and has implemented measures under CFIUS that 1) improve accountability, 2) strengthen the role of the intelligence community, 3) improve communications with Congress, 4) ensure due consideration of the nature of the acquirer and assets to be acquired, 5) focus resources on transactions that present national security issues, and 6) preserve the attractiveness of the United States to foreign investment. In our views letter, dated September 14, the Administration stated clearly that we join Congress in seeking to improve and strengthen CFIUS to ensure the protection of America’s homeland and the strength of America’s economy.
For the purposes of this public testimony, I would like to clearly articulate how these reforms were directly applied to CFIUS’s investigation of the proposed Lucent and Alcatel merger. I would also note that CFIUS is applying these reforms not only to the investigation of this proposed merger, but also to all cases that come before CFIUS.
Accountability
The Administration supports the goal of HR 5337 to ensure a high level of accountability for decisions by CFIUS and has committed to ensure that senior, Senate-confirmed officials play an integral role in examining every transaction notified to the Committee. The Administration has made a practice of ensuring that cases are briefed to the highest levels. For the investigation of the proposed merger of Lucent and Alcatel, I can assure you that the highest levels of the Administration are very aware of this transaction and its implications for national security and played an active role in the investigation of the proposed merger.
Role of the Intelligence Community
The Administration supports strengthening the role of the intelligence community in the CFIUS process and has supported its role in collecting and analyzing information relating to the proposed transaction for CFIUS. As you may know, the Director of National Intelligence (DNI) has assigned responsibility to the National Intelligence Council to ensure that all relevant intelligence community agencies participate fully in the development of final intelligence assessments that are provided to CFIUS. The intelligence community has been involved since the beginning of the CFIUS examination of the proposed Lucent and Alcatel merger and has provided intelligence analysis at all stages regarding the possible effects of this transaction on national security issues. However, the DNI does not take on the role of a CFIUS member or make policy judgments on an individual transaction. Rather, its role is to provide intelligence support to CFIUS (this role is institutionalized in HR 5337), on the basis of which each CFIUS member makes its own judgment of the risk to national security posed by the transaction.
Ensuring Congressional Oversight
The Administration is committed to improving communication with Congress concerning CFIUS matters and shares the view that Congress should receive timely information so that it can fulfill its oversight responsibilities regarding protection of national security. HR 5337 made it clear that CFIUS is expected to provide notification of cases under examination at the conclusion of the deliberative process. In this spirit, Treasury, as a matter of policy, is now promptly notifying Congressional committees with jurisdiction over foreign investment issues upon the completion of every case before CFIUS. As part of this process, it is imperative that we ensure the confidentiality of proprietary information that companies supply to CFIUS. Doing so is key to maintaining the confidence that companies place in the CFIUS process and is essential to the success of CFIUS in protecting national security by ensuring that companies are willing to file transactions with CFIUS voluntarily and to disclose all relevant information to CFIUS. For this transaction, immediately upon the completion of deliberative action, Congress will be notified and will receive the report from the President as per the statute. And as in all cases, we will be available to brief members on the matter.
Ensure Due Consideration of the Nature of the Acquirer and Assets to be Acquired
CFIUS considers a broad range of national security issues when reviewing transactions, and its assessment of relevant factors, as well as threats, vulnerabilities, and overall risks, is detailed and expansive. Lucent and Alcatel provide equipment and services, including research and development by Bell Laboratories (an R&D arm of Lucent), that are critical features of the United States telecommunication infrastructure. The protection of this infrastructure and these R&D capabilities are central considerations in the examination of this transaction. CFIUS put in place a rigorous, detailed and thorough process to evaluate all relevant national security risks related to this transaction.
Focusing Resources on Transactions that Present National Security Issues
The Administration believes that CFIUS should conduct a second-stage investigation of a transaction if it has identified national security concerns that have not been adequately mitigated during the first-stage investigation. We have taken this matter to heart. You should know that we have conducted seven second-stage investigations this year alone – this is two more than the number that reached the second stage from 1992-2000, and equal to the number that reached the second stage from 2001-2005. CFIUS actively encourages early engagement and scrutiny of the companies and pending transactions before there is even a formal filing. For this particular case, CFIUS had been in contact with the companies since April of this year when the proposed merger was announced. And, as I noted, CFIUS conducted one of the most rigorous and thorough investigations ever on a transaction before the Committee.
Conclusion
Mr. Chairman, the reforms to the CFIUS process that we have taken demonstrate our seriousness about updating the process to better reflect a post 9/11 national security environment while at the same time remaining mindful that we must continue to ensure U.S. global leadership for the policy of open investment. National security and open investment are not mutually exclusive propositions. Both must be given due attention. U.S. investors and our economic well-being depend on it. The U.S. is one of the largest beneficiaries of foreign direct investment – which supports over 5 million U.S. jobs – not only because of our large market and stable economy, but also as a result of our open investment policy.
Mr. Chairman this concludes my formal statement. Within the statutory constraints I described earlier, I would be happy to answer any further questions you may have regarding these matters.
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