Policing of foreign tech investment in the US is broken. Here’s how to fix it.

The Committee on Foreign Investment in the U.S. has huge power and limited accountability — and it's time that changed, writes Stephen Heifetz.

Janet Yellen, the Treasury Secretary,

Janet Yellen, the Treasury Secretary, is technically the chair of the Committee on Foreign Investment in the U.S. But is she really accountable for it making balanced, timely decisions?

Photo: Matt McClain-Pool/Getty Images

Faced with a choice of whether to bend rules to achieve laudable ends, a British Lord in "Chariots of Fire" intones, "That's a matter for the Committee." Another Lord replies, "We are the Committee."

That accountability is lacking in an increasingly important committee: the Committee on Foreign Investment in the United States. Hundreds of times annually, this Committee faces choices about how to protect U.S. national security while ensuring the country maintains its appeal to entrepreneurs and investors.

Should the committee allow a foreign investor to buy a stake in an artificial intelligence company when that technology might one day guide battlefield robots? That's worthy of deliberation. But the committee's decision-making has run amok — no accountability leading to lengthy delays and lack of balance between security and economic concerns on too many deals — endangering the United States' reputation as a welcome home for foreign investment and the dazzling array of companies that investment supports.

Companies and investors can find fertile territory abroad now more than ever: In 2004, U.S. startups received 84% of global venture capital investment, but by 2019 that percentage had dropped to 52%, according to the National Venture Capital Association. This globalization of venture investment may be attributable to many factors, but accountability for committee decision-making is needed to ensure that investors and companies are not driven away. It would be ironic and perhaps tragic if the next great companies in the areas of, for example, biotech, autonomous vehicles or quantum computing — those merely illustrative of all the technologies that can make significant contributions to national security — choose to grow roots abroad because of the committee's efforts to protect national security.

The committee's published statistics indicate that in the last several years approximately half of its cases lasted more than three months. Some cases have taken more than a year to resolve. Many companies, particularly startups, require capital quickly, so this impediment is troubling. The story behind the statistics is even more worrisome.

The committee is comprised of personnel from many government agencies, including the Departments of Defense, Homeland Security, Justice and Treasury. The personnel are smart and hardworking, but the committee is a structural nightmare. No single agency controls the committee, which operates by "consensus," meaning the loudest voice often wins. Further, deliberations occur in secret, under a national security cloak. While the committee typically communicates through Treasury Department staff, no individual takes responsibility for decisions, the committee generally makes those decisions without providing specific reasons to affected parties and there is no oversight.

Even courts generally cannot review committee decisions. In 2014,a court found the committee was acting unfairly by not providing evidence supporting its decision, but despite that knock to the committee's process, the court's ruling effectively insulated from judicial challenge committee decisions regarding whether to approve foreign investments.

Given the lack of transparency and accountability, it is perhaps unsurprising that fear of political blame sometimes drives committee deliberations. That fear incentivizes creation of investment burdens: deals delayed, blocked or subject to conditions. Some burdens may be justified, but the field is tilted grotesquely.

The benefits of a vibrant economy are diffuse and less likely to garner support in the committee, whereas blame for a security problem often is more focused. If a supplier of electric grid equipment were acquired by a hostile foreign power, security officials would expect blame. But fear of blame often leads to gross exaggerations of risk, as officials consider nearly infinite "what if" permutations. Committee approvals often are delayed or denied for reasons that might make even the wildest conspiracy theorist blush, with committee personnel taking comfort because no named individual is responsible.

How did we get here? In 1988, following concerns about Japanese acquisitions of U.S. companies, Congress gave the president authority to prohibit foreign investment. The president then delegated that authority, formally to heads of cabinet agencies, a delegation subsequently ratified by Congress, and informally to hundreds of officials across the many agencies comprising the committee. Authority to interfere with investment on security grounds is now diffuse and commonplace, rather than rare and concentrated in the visible actions of the president.

With this diffusion of responsibility, Congress has given the committee broader authority. This broadening has followed waves of political concern about global competition or U.S. vulnerability: Angst about Japanese acquisitions was followed by concerns regarding post-9/11 terrorism and then Chinese technology competition, all driving growth in committee authority. The committee implemented the latest delegations of authority last year and has been making increasingly byzantine decisions.

The United States derives strength from being a magnet for the best minds in the world and the money to back them. That money is increasingly global in nature: Not only are many technology investors foreign, but even U.S. funds often draw on money from foreign parties or under foreign management. The committee has made clear that it may scrutinize these U.S. funds just as it does with any foreign investor. A rule of thumb that says developers of new technology should simply stay away from foreign investors is impractical.

That doesn't mean all investments should be welcome — hostile governments shouldn't be allowed to purchase the latest U.S. cybersecurity company, for example — but decisions to interfere with investment arrangements should be made by an identified senior official. That official should balance long-term economic implications of committee decisions with the security concerns that predominate, to reflect a reasonable public interest calculation.

There is an obvious candidate: Congress designated the treasury secretary as permanent committee chair. Unfortunately, this role has been honorific: Treasury secretaries generally have not had the personal involvement necessary to ensure an accountable committee.

Treasury Secretary Janet Yellen and her successors should make clear, following the lead of the British Lord in "Chariots of Fire," that she is "the committee" and is accountable for balanced, timely decisions. Secretary Yellen is an honorable public servant, by all accounts, but with regard to the committee, she and her predecessors have been derelict. That should not continue.

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