The Committee on Foreign Investment in the United States (“CFIUS”) review process has long been a creature of the executive branch, but members of the House and Senate are increasingly trying to exert their influence over CFIUS in 2017—and it is Chinese and Russian investors who are first and foremost in Congress’s sights.

On April 10, a bipartisan group of senators urged Treasury Secretary Steven Mnuchin, who chairs the Committee, to conduct a “thorough, conflict-free and expedient review” of Russian energy giant Rosneft’s potential acquisition of part of Citgo’s Venezuelan parent company, Petroleos de Venezuela S.A. (PdVSA). Rosneft, which is majority-owned by the Russian government and run by Putin ally Igor Sechin, extended a $1.5 billion loan to PdVSA, but required that PdVSA put up as collateral a 49.9% share in Citgo’s US-chartered parent company, Citgo Holding. Sechin is currently on the Specially Designated Nationals and Blocked Persons List (“SDN”), meaning that he has been subject to US economic and travel sanctions in his individual capacity since April 2014 due to his role in “contributing to the situation in Ukraine.” The letter contends that, if PdVSA defaults and Rosneft acquires a stake in Citgo, it would “pose a grave threat to American energy security, impact the flow and price of gasoline for American consumers, and expose critical U.S. infrastructure to national security threats.”

This was just the latest development in a steady stream of CFIUS-related activity on Capitol Hill, where members recently proposed two bills that would change the composition of the Committee and enhance the legislative branch’s role in monitoring inbound foreign investment.

On March 7, California Republican Duncan Hunter, who has in recent years voiced loud concerns about Chinese investments in US defense contractors, introduced legislation that seeks to ban Chinese and Russian government ownership of US rare earth facilities. The Materials Essential to American Leadership and Security Act (H.R.1407), or “METALS Act,” proposes a number of measures aimed at securing U.S. access to rare earths and other “strategic materials,” but the CFIUS provisions may be most controversial. First, the bill would expand Congress’s CFIUS oversight powers by requiring the Committee to submit a certification to Congress prior to approving any transaction between any foreign government-controlled entity and a U.S. rare earth facility. Second, by expressly instructing CFIUS to reject any rare earths deal involving a China- or Russia-backed investor, the METALS Act would upend a longstanding convention: Until now, CFIUS policy has been to review every transaction on a case-by-case basis, under which no particular foreign investor or particular domestic industry is categorically “off limits.”

With China’s near-monopoly over certain rare earth minerals, coupled with the Trump administration’s more aggressive posture towards Beijing, we may see more legislation on this topic in the coming months.

A bipartisan pair of Midwestern senators has revived a proposal to add the Secretaries of Agriculture and Health and Human Services (“HHS”) to the already-long CFIUS membership list. Sens. Chuck Grassley (R-IA) and Debbie Stabenow (D-MI) proposed the Food Security is National Security Act of 2017 (S. 616), which would direct CFIUS to “consider the security of the food and agriculture systems of the United States as a factor” when reviewing transactions. Adding two additional political appointees to the Committee—bringing the total membership to 18—is viewed by many as an unnecessary step, and could gum up a CFIUS review process that is already hampered by resource constraints and an uptick in CFIUS filings. CFIUS already informally solicits views from the Department of Agriculture (“USDA”) and other agencies that are not represented on the Committee. Furthermore, “food security” issues are generally viewed as outside CFIUS’s traditional and narrowly-focused national security mandate.

These proposed bills came in the midst of a flurry of CFIUS chatter on the Hill, including rumors of more CFIUS legislation to come.

Senate Minority Leader Chuck Schumer (D-NY) and Sen. John Cornyn (R-TX) have both hinted that they will be introducing major CFIUS reform legislation in the near future. The Wall Street Journal reports that the Cornyn proposal would direct CFIUS to scrutinize Chinese technology-related investments more thoroughly, whereas the Schumer plan would require the Committee to consider economic factors alongside national security factors when reviewing transactions. Senators posed questions about CFIUS during the January confirmation hearings for both incoming Commerce Secretary Wilbur Ross and Secretary Mnuchin. In multiple congressional hearings in March, witnesses advocated for expanding CFIUS’s authority to address issues ranging from Chinese threats to U.S cybersecurity to the potential risks posed by potential Russian ownership of U.S. energy infrastructure.

Meanwhile, the Government Accountability Office (“GAO”), the auditing and investigation agency serving Congress, continues to undertake its periodic analysis of the efficacy of the CFIUS process. Sixteen House members wrote to the GAO Comptroller General last fall requesting that GAO consider whether CFIUS’s statutory and administrative authorities are still adequate to address “evolving nature of possible national security threats,” and proposed a number of potential legislative actions that would expand the Committee’s power to review transactions. The letter emphasized the growing foreign investment portfolios of Chinese and Russian state-affiliated enterprises and the increasing number of foreign acquisitions in the U.S. telecommunications, media, and agriculture sectors.

Steptoe attorneys have served on CFIUS as government officials and participated in hundreds of CFIUS reviews in government and in private practice. We will continue to monitor developments on Capitol Hill related to this important regulatory hurdle for inbound investments.