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Keeping America Safe -- From Foreign Buyouts


A rare commodity on Capitol Hill -- bipartisanship -- is emerging within the Senate Banking Committee. And that has business worried. The reason? There is a budding consensus to tighten rules allowing U.S. companies to be sold to foreigners. That could nick corporate interests and damage relations with trading partners, particularly China, Congress's chief target.

Fueled by concern over China National Offshore Oil Corp.'s (CEO) aborted bid for Unocal Corp. (CVX) this summer and fear of widespread Chinese purchases of U.S. brands, GOP and Democratic lawmakers agreed at an Oct. 6 hearing that an obscure interagency panel, the Committee on Foreign Investment in the U.S. (CFIUS), needs more teeth and closer congressional scrutiny. "We cannot sacrifice our safety for economic gain," says maverick Banking Committee Chairman Richard Shelby (R-Ala.).

Critics say CFIUS, which reviews the national security impact of foreign bids for U.S. assets, lets too many deals through. It "looks like a doormat operation," fumes C. Richard D'Amato, chairman of the U.S.-China Economic & Security Review Commission, a congressional watchdog panel.

A Government Accountability Office report released in September found flaws in the system, from a narrow definition of national security to a reluctance to launch investigations that might drive down a company's stock and chill foreign investment. Lawmakers are mulling some fixes to the process, which is kept hush-hush to protect trade secrets. A bill introduced by Senator James M. Inhofe (R-Okla.) would prod the panel to consider a deal's effect on American economic security and the need for energy and other critical resources. Inhofe's bill also contains a controversial proposal to give Congress a veto over foreign mergers. On the House side, Armed Services Committee Chairman Duncan Hunter (R-Calif.) and ranking Democrat Ike Skelton (D-Mo.) have said they may want to strengthen CFIUS.

The bipartisan rumblings could easily rise to a roar. "It's a major economic issue that's bubbling below the surface right now and will burst forth on the next CNOOC deal that comes down the pike," says Todd M. Malan, president of the Organization for International Investment, which represents U.S. arms of foreign corporations. With Beijing awash in dollars from its trade surplus with the U.S. and in need of recycling those greenbacks, deals -- and conflict -- seem inevitable.

Changes will come over the opposition of business and the Bush Administration, which think the process works well now. Companies also fear retaliation against their U.S. operations overseas. A coalition of 11 major trade groups, from the American Petroleum Institute to the Securities Industry Assn., has written Shelby to argue that CFIUS thoroughly reviews deals and imposes conditions to protect national security needs. "If the U.S. is viewed as becoming hostile to foreign investment, we put at risk U.S. firms who operate in foreign markets and the 5.3 million jobs in America insourced by foreign companies," the September 27 letter said.

As globalization boosts the number of deals and the parameters of national security expand from weapons to Internet backbones and energy production, pressure will build on politicians to act. For foreign buyers of U.S. assets with any link to national security, life is about to get a lot harder. And that's making business queasy.

New details are emerging about Senate Majority Leader Bill Frist's financial transactions this year. The Tennessee Republican, whose sale of stock in the hospital corporation founded by his family is being investigated by the Securities & Exchange Commission, shuttered his own 2000 senatorial campaign account this summer after writing a check for $75,000 to cover losses the committee suffered when it invested much of its proceeds in the stock market, BusinessWeek has learned.

Frist's campaign lost a bundle when the tech bubble burst, and political adviser Alex Vogel acknowledges that its initial million-dollar mutual fund investment withered over the years. Frist backers say the senator's attempt to clean up the old mess is evidence that he was engaged in financial housecleaning in advance of a possible '08 Presidential race at the time he sold the HCA Inc. (HCA) stock -- not trying to dump HCA holdup in advance of a bad earnings report.

Lawmakers are permitted to gamble campaign cash in the market, but few do -- largely because campaigns put a premium on liquidity. And Vogel says a future Frist campaign may play the market again. "Senator Frist, like a lot of folks, believed, and continues to believe, that the stock market is a good investment," he says.


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