Uranium One And The Need To Reform CFIUS

Posted on Fri 11/03/2017 by

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By William R. Hawkins ~

The sale of Uranium One to Russia’s state-owned Rosatom energy agency in 2010, which gave Moscow what was then 20 percent of U.S. uranium production, has again become a political issue with two U.S. House committees announcing investigations of the deal. The allegation is that Russians with an interest in the transaction gave millions of dollars to the Clinton Foundation while Hillary Clinton was Secretary of State in the hopes of influencing approval of the sale by the Committee on Foreign Investment in the United States (CFIUS). The State Department is a member of this multiagency body. Also, during the time when the Uranium One issue was before CFIUS, former President Bill Clinton was paid $500,000 for a speech in Moscow; a fee paid by Renaissance Capital which has ties to the Kremlin and which was an advocate of the deal.

It is not unreasonable to suspect that Russian interests were trying to win favor with Secretary Clinton who was thought to be a critical voice in the CFIUS process. This does not mean, however, that this “pay to play” effort paid off. Further investigations may throw light on whether there was any solicitation of funds by the Clintons, which could indicate corruption. But the sad truth is that CFIUS would have likely approved the deal in any event because the process is inherently flawed.

CFIUS has nine members: the Secretaries of the Treasury, State, Defense, Homeland Security, Commerce and Energy; the Attorney General; and heads of two White House offices, the U.S. Trade Representative and the Office of Science and Technology Policy. The Director of National Intelligence is a nonvoting member of CFIUS, but has the duty to conduct an investigation into any case pending before the group. Other agencies can be invited to give input on a case by case basis. CFIUS can investigate any “covered transaction” defined by Section 721 of the Defense Production Act (DPA) of 1950, as amended by the Foreign Investment and National Security Act of 2007, as “any merger, acquisition, or takeover that is proposed or pending after August 23, 1988, by or with any foreign person which could result in foreign control of any person engaged in interstate commerce in the United States.” This is a very broad authority. Extra attention is to be paid to transactions conducted by “foreign government controlled” entities (like Rosatom), or involving critical infrastructure or critical technologies. This all sounds very vigilant, but in practice is has generally been a wave through.

The DPA is a marvelous law. It does not restrict itself to a narrow view of the defense industry. It states in its opening findings that “the security of the United States is dependent on the ability of the domestic industrial base” and includes all industrial “resources…. necessary for national defense and the general economic well-being of the United States;” Throughout the DPA the term “national security strategy” is used, which is broader than just military strategy. Indeed, in Section 702, Definitions the impact of “critical infrastructure” on national security includes, but is not limited to, “national economic security and national public health or safety.” Earlier, under Findings, the DPA “provides the president with an array of authorities to shape national defense preparedness and to take appropriate steps to maintain and enhance the domestic industrial base.” President Donald Trump has yet to make full use of these powers, which are already on the books, in his drive to rebuild American industry.

Unfortunately, where CFIUS is concerned, the law establishes the Treasury as the chair of the committee. This gives the process a bias towards approval. Treasury Secretaries in both the George W. Bush and Barack Obama administrations made speech after speech trying to assure foreign investors that CFIUS was not going to be a barrier to doing business in America. The U.S. runs massive trade deficits ($736.8 billion last year) and Treasury would like to see that money come home in the form of capital investments. China accounted for $347 billion of the 2016 deficit and the Obama Treasury was very keen in attracting Chinese investment. This was dangerous from a national security perspective. We have been very lucky that Beijing has parked most of its dollars in bonds rather than use these funds to buy productive assets. Bonds do not give China any ownership or control over American resources or enterprises, nor does it give any access to technology. Our policy should be to keep Chinese capital boxed in to bonds until the deficit which gives China its capital hoard can be ended though improved trade policy. We should not want bad trade policy to spiral into bad investment security policy as has been the case in recent years.

Uranium One is not the worst case in recent years. The sale by IBM of its “trusted” semiconductor production facilities, which supplied our defense industry with computer chips, to Global Foundries was approved by CFIUS in 2015. Global Foundries is owned by the Mubadala Development Company, a government wealth fund of Abu Dhabi in the United Arab Emirates. This holding company opened a new advanced semiconductor fabrication plant in China in 2017.

Executive Order 13456, issued by President Bush in 2008 amended how CFIUS would be administrated. Section 1, Policy stated “International investment in the United States promotes economic growth, productivity, competitiveness, and job creation. It is the policy of the United States to support unequivocally such investment, consistent with the protection of the national security.” This confirmed that business was the norm and security was an exception, a notorious flaw in establishment GOP thinking. A committee already composed mainly of agencies representing business was happy with this priority. And a State Department serving an administration inclined towards appeasement (like that of President Obama) was also likely to downplay security concerns that might upset relations even with (or especially with) strategic rivals like Russia and China.

A new Executive Order should be issued by President Trump. At a minimum, it should modify the Bush Policy statement by changing “promotes” to “can promote” (leaving open whether all foreign investment is good) and dropping “unequivocally” as that gives foreign investment too much of a priority over other concerns. An extra sentence setting the top priority could be added at the end, using language right out of the DPA. “Maintaining the vitality and integrity of a domestic industrial base that can fulfill all the objectives set out in the Defense Production Act.”

The U.S.-China Commission has recommended that “Congress amend the statute authorizing CFIUS to bar Chinese state-owned enterprises from acquiring or otherwise gaining effective control of U.S. companies.” A more effective way to accomplish this is through an executive order. Any covered transaction involving China should be investigated by CFIUS with the burden of proof falling on the Chinese entity to prove it does not pose a threat. Any transaction involving a state-owned enterprise should automatically lead to a recommendation to the President that the deal be blocked.

Such a targeted measure may well provoke a Chinese response, but one that could be beneficial to U.S. security policy objectives. Given the amount of effort past administrations have devoted to trying to get China to invest in America by downplaying CFIUS; a clear reversal in approach could serve as a deterrent to Chinese looting. If China retaliates symmetrically, by blocking Americans from investing in China, that would be welcome. We should not want to see American capital going to help enhance Chinese capabilities or closing the technology gap. Winston Churchill warned in 1934 against “rebuilding German industry with British and American money” but it was a warning that was ignored at the time with horrendous consequences. British business lobbyists continued to push for the appeasement of Nazi Germany right up to the outbreak of war. Today, American business lobbyists promote the appeasement of Communist China even as its military buildup and aggressive actions raise the prospect of conflict. Indeed, in a recent briefing to reporters traveling with Joint Chiefs Chairman Gen. Joseph Dunford, unnamed officials revealed that China has been practicing attacks on Guam. Is this in case North Korea misses?

Giving CFIUS a strong mandate to safeguard national security and the integrity of the American industrial base, in line with the intent of the DPA and the requirements of the United States in a contentious world, would be a vital part of a much needed reform of international economic policy across the government.

FamilySecurityMatters.org Contributing Editor William R. Hawkins is a consultant specializing in international economic and national security issues. He is a former economics professor and Republican Congressional staff member.

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