December 21, 2012 12:11 am

US alarm at foreign state acquisitions

US intelligence officials found with “moderate confidence” that one or more foreign governments had directed companies to acquire critical American technologies in a “co-ordinated strategy”.

The conclusion in a report by the Committee on Foreign Investment in the US (Cfius), which vets sensitive acquisitions of US assets by foreign companies, is a sign of growing alarm in the Obama administration about the motives of foreign state actors in buying US companies.

It said evidence of such “suspect behaviour” could include patterns of actual or attempted takeovers and the provision of “narrowly targeted incentives by foreign governments”, such as grants, loans or tax breaks, to companies acquiring US targets.

The Treasury, which chairs Cfius, would not provide more details about any countries suspected by intelligence officials of co-ordinating with their companies. But it said a classified report delivered to Congress offered information supporting the conclusion.

“It is a shot across the bow. They’re saying ‘we know you are doing this and we are on the lookout for you’. Just know some of these are not going to get approved,” said Jamie Garelick, the former deputy attorney-general under the Clinton administration.

The report, covering deals in 2011, comes amid a flurry of activity at the secretive agency charged with oversight of foreign deals.

The Obama administration in October blocked for the first time in more than two decades a proposed takeover by a Chinese company, stirring accusations of political discrimination. The committee has yet to rule on the proposed takeover by Cnooc, the Chinese oil group, of Nexen, the Canadian company with US assets. A decision had been expected last month.

Nova Daly, a former George W. Bush administration official who worked on Cfius, said the finding was “fairly significant” and could mean the administration would increase the security-related conditions it put on certain transactions, and could be more inclined to block deals.

Another person familiar with the Cfius process added: “To the extent that people are wondering what drives the Cfius process, there is a concern by the intelligence community that is having an impact across the committee.”

According to the report, the originating countries that engaged in the most transactions involving critical technology in 2011 were the UK, with 30 such deals, followed by France, Japan, Canada, the Netherlands, Germany and Israel, with five transactions. China was linked to four such transactions.

The Obama administration has emphasised that it has an “open door” policy on cross-border transactions. Marisa Lago, an assistant secretary at the Treasury, said in Beijing in November 2011: “Our policy and our record are clear: the United States welcomes foreign investment from all countries, including China.”

She added: “We should not confuse fiction for fact, exceptions for the rule, criticisms of policy arguments with the actual policies, or the occasional deals that fall through with the reality that many more succeed.”

James Lewis, a senior fellow at the Center for Strategic & International Studies, said the new finding came at a time when Cfius was under more scrutiny and facing more pushback for its decisions, particularly around China.

“There is a lot of attention on China because they are so problematic [for the US] and a lot of that has to do with the [corporate] links to the Chinese government,” he said.

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