WASHINGTON-A little known government panel could play a big role in the coming years as new trade rules free up foreign firms to buy U.S. wireless companies, a trend that some in Congress claim is a national security threat.
The U.S. Committee on Foreign Investment the United States (CFIUS), a governmental interagency unit headed by the Treasury Department, is suddenly in the spotlight as overseas firms-some majority owned by foreign governments-seek to acquire U.S. high-tech firms.
Last week, NTT Communications Corp. said it could proceed with its $5.5 billion purchase of Verio Inc., a Colorado Internet firm, after being notified by CFIUS that the deal did not pose a security risk.
Deutsche Telekom AG has offered $56 billion for VoiceStream Wireless Corp., the nation’s top provider of European-based GSM (Global System for Mobile communications) mobile phone service.
NTT DoCoMo, the world’s top mobile phone Internet carrier, reportedly is eying a minority stake-possibly worth $6 billion-in a proposed partnership with SBC Communications Inc. and BellSouth Corp.
All deals would have to be run by CFIUS as well as the Justice Department and the Federal Communications Commission.
CFIUS, chaired by Treasury and composed of ten other agencies including the departments of state, defense, commerce and justice, operates in virtual secrecy. Others on the panel include the director of the Office of Management and Budget, the U.S. trade representative and the chairman of the Council of Economic Advisers.
Indeed, a Treasury Department spokesman said he was prohibited from saying whether CFIUS had signed off on the NTT-Verio deal or from even disclosing the investigation of the transaction itself occurred.
Originally created by executive order in 1975, CFIUS took on greater prominence with the enactment of a 1988 law (the Exon-Florio provision) that gave the president-after a review-the authority to block foreign purchases of U.S. firms if “there is credible evidence that the foreign entity exercising control might take action that threatens national security, and the provisions of law, other than the International Emergency Powers Act, do not provide adequate and appropriate authority to protect the national security.”
After receiving notification of a transaction involving foreign investment, CFIUS reviews it. A more comprehensive investigation, if deemed necessary, must begin no later than 30 days after receiving notice of a proposed deal and must be completed with 45 days.
Sen. Ernest Hollings (D-S.C.), ranking minority member of the Senate Commerce Committee and a group making up nearly one-third of the chamber, assert current oversight of overseas purchases of U.S. firms does not adequately protect national security interests. They’ve communicated that view to Federal Communications Commission Chairman William Kennard.
Hollings and 17 cosponsors are backing legislation that would beef up existing laws that prohibit overseas firms more than 25 percent owned by foreign governments from buying U.S. telecom companies.
The gray area in the law involves the FCC’s ability to waive the 25 percent rule if the agency determines the deal is in the public interest. One factor in making the determination is whether a given foreign firm is from a country that’s a member of the World Trade Organization.
The Hollings bill would limit the FCC’s flexibility to waive the 25 percent rule. A variation of the Hollings bill is included in the Senate Commerce appropriations bill. The appropriations rider would ban the FCC from spending funds in fiscal 2001 to consider mergers between any firm 25 percent owned by a foreign government and a U.S. company.
Because the German government has more than a 25 percent stake in Deutsche Telekom, the Hollings legislation has the potential to kill the Deutsche Telekom-VoiceStream deal.
