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OFAC Better Suited to Oversee Outbound Investment Regime, Republicans Say

The upcoming U.S. outbound investment restrictions (see 2308090066 and 2308100045) should be overseen by the Office of Foreign Assets Control, not the agency that heads the Committee on Foreign Investment in the U.S., Republicans said this week. Several lawmakers, including Patrick McHenry, the top Republican on the House Financial Services Committee, said the new outbound investment restrictions are similar to a sanctions program as opposed to the case-by-case review process overseen by CFIUS for inbound investments, and said OFAC is better suited to prevent China from benefiting from sensitive American investments.

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McHenry noted that OFAC already administers certain investment restrictions and “does that well.” The agency oversees the Chinese Military-Industrial Complex Companies List, which places restrictions on publicly traded securities involving certain Chinese companies with ties to the country’s military or surveillance technology sector.

“We have an agency, OFAC, that does this well. Yet we're trying to build a regime with an entity that doesn’t have that like-kind experience,” McHenry said during a Sept. 13 committee hearing with CFIUS head Paul Rosen. “Setting up this new expertise with this new approach” could be “tricky and cumbersome and time-consuming, when we should be using the time-tested tool of OFAC.”

Some experts have suggested Treasury utilize the CMIC List to implement the outbound investment restrictions, including by updating and expanding it to restrict artificial intelligence-related investments beyond publicly traded securities (see 2308300044). But McHenry and Andy Barr, R-Ky., went further, saying the Biden administration should also transfer all outbound investment authority away from the Office of Investment Security, which oversees CFIUS.

“We do believe that OFAC should be the primary point on outbound investment,” Barr told Rosen. The sanctions agency already operates a regime “where we identify companies and people and we target companies and people,” McHenry said. “It seems redundant to me.”

Rosen, the assistant secretary for the Office of Investment Security, said his agency “has important lessons learned from operating CFIUS” that can be applied to outbound restrictions. And while the lawmakers and at least one former CFIUS official have suggested the new outbound investment regime is structured to be more of a sanctions-type program (see 2308230028), Rosen noted the regime will include notification requirements that won’t block deals -- a departure from U.S. sanctions programs.

He also said his agency wants to specifically restrict investments that involve technologies “before they're on an export control list, before they're on a sanctions list.” But Rosen also acknowledged these are “all important questions that you raise, all questions that we have grappled with through implementation and working on the executive order.”

As CFIUS works to write outbound investment regulations, it’s also facing pressure from Congress to more actively intervene in American land purchases by certain foreign buyers, including China. Several lawmakers have called for USDA to be added as a permanent member of the committee, and the House recently introduced a bill that would give CFIUS the power to block all U.S. land purchases by entities from certain “foreign adversary” countries (see 2307180022). The Senate is exploring similar legislation (see 2306020027).

Democrats during the hearing called the approach -- which is being adopted by some state legislatures -- xenophobic. Maxine Waters of California, the committee’s top Democrat, said Republicans in Congress and in state governments are “jamming through” investment restrictions to prevent “certain groups of people with no connection to actual security risk from purchasing land.”

“Let me be clear: This approach would do nothing for national security. It would waste valuable resources, and in many cases, is simply racist,” Waters said. “CFIUS and its resources should be focused on actual, legitimate threats to our national security, not on barring individuals from economic opportunities on the sole basis of their national origin.”

Rep. Al Green, D-Texas, agreed, pointing to a bill he recently introduced that would restrict states from imposing certain prohibitions on real estate purchases by foreigners. He said allowing local governments “to enact laws regulating land purchases by foreign born persons puts our entire country at risk of retaliation.”

Several Republicans disagreed, including Rep. Bill Huizenga of Michigan, who said Americans are “concerned” about Chinese ownership of U.S. land. CFIUS recently faced criticism from lawmakers when it declined last year to intervene in China-based Fufeng Group's purchase of North Dakota farm land near the Grand Forks Air Force Base (see 2212150035 and 2302070028). The committee this month will add eight additional military bases to its jurisdiction, including the Grand Forks base (see 2308220019 and 2305040052).

But Huizenga and other lawmakers said CFIUS may need the authority to more proactively intervene in future cases. “If CFIUS cannot learn from past mistakes and fully understand the adversarial nature of the [Chinese Communist Party], I believe CFIUS needs to be modernized even further,” he said, “and we need to review that and meet our current national security risks and the challenges that we face today.”