By now, most have heard about Dubai Ports World, a foreign entity, assuming control of operations at various U.S. ports. The arguments around this transaction are predictable and uninteresting. One thing that is clear is that the Committee on Foreign Investment in the United States (CFIUS) is legally mandated to consider such deals. In fact, if their consideration extends beyond 30 days, a more comprehensive 45-day investigation is required, and if that elapses, the President must personally make the decision on the matter and report to Congress.
In reading about the operations of the CFIUS in Forbes, I was struck by the following:
Along with clearing up the law’s vagueness, there’s a strong case to be made that CFIUS should have more time to review a complex deal. At present, an investigation automatically kicks in at the end of 30 days. A September 2005 report from the Government Accountability Office found a concern among CFIUS members that the stigma of an investigation could dampen foreigners’ desire to invest in the U.S. In particular, if an investigation isn’t resolved by the end of the 45 days, the president must make a decision and deliver a report to Congress.
The fear of stigma creates a perverse incentive to squeeze perhaps the most complex reviews into a 30-day window. All told, only about 20 of the 1,500 companies reviewed by CFIUS have been given a 45-day investigation. Only twice since 1997 has the president reported to Congress on a CFIUS review.
That second paragraph says alot. People will not voluntarily act to make themselves look bad if they can avoid it inexpensively.
If I were writing a law about, say, security breach disclosure, I’d bear that lesson in mind.