Michael Oxley

Mr. OXLEY

Mr. OXLEY. Mr. Speaker, I yield myself such time as I may consume. Mr. Speaker, I rise today to urge all Members to support H.R. 5337, the National Security FIRST Act, which makes important reforms to the process by which the Committee on Foreign Investment of the United States scrutinizes purchases of U.S. businesses by foreign ones, to ensure that there is no threat to national security. As we consider this legislation, we must remember that the result of foreign investment in the United States has been spectacular. U.S. subsidiaries of foreign-owned companies employ nearly 5\1/2\ million Americans. The average salary for those workers is a healthy $60,000 and a third of those jobs are in manufacturing. At a time when we are concerned about our balance of trade, it is important to note that more than 20 percent of U.S. exports are produced by U.S. subsidiaries of foreign companies. Mr. Speaker, we all know why we are here today. Congress and the country went through a very difficult period this spring after we learned about the Dubai Ports sale. As a response, in one of the best examples of bipartisanship I have seen in my tenure here, H.R. 5337 was introduced by Majority Whip Blunt, Chairwoman Pryce, Mrs. Maloney and Mr. Crowley and now has nearly 90 cosponsors. It is a very good bill that addresses what some see as flaws in the CFIUS process without creating new problems or barriers to investment. I would particularly like to compliment Chairwoman Pryce for her leadership on this complex issue. In three very thorough hearings, she made certain,ky018 members were well-versed in the details of the CFIUS process before any legislating was done. The result was a unanimous 64- 0 vote for passage in the Financial Services Committee. The language we are considering today is nearly identical, with a manager's amendment that makes only a few changes made to further strengthen the process. Among those changes are the addition of Commerce Secretary as a second Vice Chair of CFIUS; the addition of the Energy Secretary to CFIUS itself; clarification that CFIUS reviews are to be done to determine the effects of a transaction on national security; the requirement that the 30-day review period end with a roll call vote, with any single dissenting vote sending the transaction into the 45-day investigative period; and further clarification of the role of the Director of National Intelligence in the CFIUS process. Mr. Speaker, what we need to accomplish is to strengthen the national security in two ways: by increasing administration accountability and by improving the ability of Congress to perform necessary oversight. This bill does both. The result will be a process that stops what should be disapproved and gives a green light to what should be approved, including, of course, any modifications needed to protect against the loss of the defense industrial base or a critical technology. This is a strong and effective bill here that corrects exactly what was wrong with the CFIUS process without overreaching and causing further problems. It continues to give CFIUS the flexibility to exercise discretion, allowing it to focus on investments that raise national security concerns. I do not and will not support some of the other proposals that have been put forward, such as any additional time delays or directly involving Congress in the decisionmaking process. I believe we need to take great care to refrain from inserting politics into the consideration process, and that goal has been achieved here. Mr. Speaker, we must protect our national security, but national security includes economic security. Let's remember that it is our economic security and prosperity that give us the resources to provide adequately for our internal and external defenses. We simply must not drive off those who want to make the wise investment in our great economy. Our friends in the other body should understand that no bill would be a preferable alternative to a bad bill, and we in the House will not sacrifice American prosperity and job growth when there is no real improvement to American security. Mr. Speaker, this is an excellent bill; and I think the CFIUS process and our national security would be improved by enacting it exactly as written. Mr. Speaker, I reserve the balance of my time.

Mr. OXLEY. Mr. Speaker, I am pleased now to yield 4 minutes to the gentleman from Missouri (Mr. Blunt), the majority whip and the lead sponsor of this important legislation.

Mr. OXLEY. Mr. Speaker, I yield 3 minutes to the gentlewoman from Ohio (Ms. Pryce), the chairman of the appropriate subcommittee who has shown enormous leadership on this issue.

Mr. OXLEY. Mr. Speaker, I am now pleased to yield 1 minute to the distinguished chairman of the Armed Services Committee, the gentleman from California (Mr. Hunter).

Mr. OXLEY. Mr. Speaker, I will be brief. I do not think anybody could have predicted, certainly not me, that a few weeks after the firestorm that came about with the announcement of the Dubai Ports deal that we would be on the floor today debating legislation that was considered by our committee and others and passed in our committee overwhelmingly with a 64-0 bipartisan vote, with cooperation on both sides of the aisle, to deal with a real problem. Even though I personally felt there was a great deal of overreaction about the Dubai Ports deal, the fact is that it revealed some very deep concerns that people like the gentleman from California had, and others, about how the CFIUS process works. We set about with great care, working with Mr. Frank, our ranking member, Mrs. Maloney and Mr. Crowley, to craft a bill under the guidance of Chairwoman Pryce and Mr. Blunt from Missouri, to craft a bill that met the balance, met the test of dealing with our very real concerns about national security and, at the same time, encouraging foreign investment into our country. I have to say that of all the bills I have been involved in since I have been chairman, and, frankly, all the bills I have been involved in since I have been here in 25 years, this was one that gave me a great deal of satisfaction because it showed the legislative process at its very best, with input from people who had a great deal of knowledge, who worked very hard on the issue, from the staff to the Members, to craft this legislation and stand here today, just a few weeks after that firestorm, with a product that is going to pass overwhelmingly in this House and that really says that this House, when we want to, can deal in a bipartisan way with some very difficult issues in a very professional manner.

Mr. OXLEY. I will be glad to yield to my friend from Massachusetts.

Mr. OXLEY. I can't match the eloquence of the gentleman from Massachusetts, so I yield back

Mr. OXLEY. Mr. Speaker, on that I demand the yeas and nays.

Mr. OXLEY

Mr. OXLEY. Mr. Speaker, I was absent from the House floor during today's votes on H.R. 3085, regarding the Trail of Tears National Historic Trail; H.R. 3496, the National Capital Transportation Amendments Act; and H.R. 3729, the Federal Judiciary Emergency Tolling Act. Had I been present, I would have voted in favor of each bill.

Mr. OXLEY

Mr. OXLEY. Mr. Speaker, recognizing the importance of America's longstanding free trade policies and the many benefits of direct foreign investment in our country, I commend to the attention of my colleagues this excellent Wall Street Journal piece by Douglas Holtz- Eakin. Mr. Holtz-Eakin rightly notes that congressional overreaction in the area of CFIUS reform would do great harm to our economy and result in protectionist retaliation by our trading partners. [From the Wall Street Journal, Jul. 13, 2006] You Can't Be CFIUS (By Douglas Holtz-Eakin) The ongoing legislative effort to reform the Committee on Foreign Investment in the United States (CFIUS) has suddenly been put on the fast track. In particular, Senate Banking Committee Chairman Richard Shelby is asking for unanimous consent by the full Senate to vote on his bill with no debate over whether key provisions are in the national interest. Unfortunately, there is a big downside risk in precipitous action. Earlier this year, international investors looked askance when an acquisition--the purchase by Dubai Ports World (DPW) of Peninsular and Oriental Steam Navigation Company (P&O)-- dissolved into political controversy because the deal included terminal operations at a number of U.S. ports. Yet even though this impasse came on the heels of heavy-handed congressional interference in Chinese National Offshore Oil Corporation's proposed purchase of American oil company Unocal, hope remained that this was all a brief departure from the U.S. tradition of open international investment. Hope took a hit in the solar plexus last month during the Senate debate over the U.S.-Oman free trade agreement. Sen. Byron Dorgan objected to an obscure provision covering ``land-side aspects of port activities,'' arguing that it would obligate the U.S. to turn over to Omani interests the same kind of port operations that were disputed in the DPW affair. The Oman agreement ultimately was approved by the Senate. But the eagerness of politicians to play the DPW card bodes ill for the future. Congress may not appreciate what is at stake. Far from being in continuous conflict, open capital markets and national security support one another. A strong economy is part of national security, and among developed economies the U.S. has experienced uniquely strong productivity growth in the past decade, A key ingredient for this success has been openness to global trade in goods, services and capital. Currently, U.S. subsidiaries of international companies have over five million employees and pay compensation of over $300 billion each year, or about $60,000 per employee. The vast bulk of these investments have come from countries belonging to the OECD (over 90%) and a small minority is undertaken by firms with government control. Congressional meddling will retard foreign investment Transactions do arise (and have arisen) in which security consideration overwhelm their financial desirability. To date, the CFIUS process has worked well to support well- functioning, open capital markets with specific carve-outs for transactions that pose a national security threat. CFIUS did its security job, but it failed miserably in other respects. Congress, which created the security-screening authority with the Exon-Florio legislation nearly two decades ago, was left too much in the dark. Suspicious of security gaps and frustrated by its inability to exercise appropriate oversight, Congress has seized the opportunity to revisit the entire issue. And therein lies a danger. While global investors watch nervously, the Senate has raised the specter of wholesale politicization of investment approvals--requiring notices to governors and congressional delegations of proposed purchases in their states; ranking countries by their cooperation in the war on terror and nuclear nonproliferation and basing the severity of security reviews on these published rankings; adding bureaucratic delays for investments that don't raise security concerns; and drawing Congress into the middle of the review process. The potential for damage to the U.S. investment climate is quite real. More productive would be to drop the legislative approach entirely. After all, what is the rush? Once our genuine national interests are clarified, the president can take advantage of Treasury Secretary Hank Paulson's 30 years of experience in cross-border transactions and issue an improved executive order revising the marching orders for CFIUS to include greater transparency, improved cooperation with Congress and improved monitoring of compliance. The Treasury has already appointed a new deputy assistant secretary position devoted to CFIUS reviews. It is important to eliminate any lingering threat of politically driven reviews that will boomerang and directly hurt U.S. global investments. The greatest danger lies in other countries using recent U.S. missteps as a pretext for protectionist rules draped in the guise of national security. Press reports indicate that China will tighten screening of deals, and impose new curbs oil foreign acquisitions by setting up a ministry-level committee to review controlling stakes in strategic industries including steel and the manufacturing of equipment for shipbuilding and power generation. A trend toward restricted capital markets would greatly damage the global economy, especially at a time when multilateral trade liberalization is losing steam. It would also directly hurt U.S. interests. To reduce this danger we need presidential leadership, and no more interference by Congress. Mr. Holtz-Eakin, director of the Maurice R. Greenberg Center for Geoeconomic Studies at the Council on Foreign Relations, was chief economist of the president's Council of Economic Advisers from 2001 to 2002.

Mr. OXLEY

Mr. OXLEY. Mr. Speaker, I am proud to announce that the Republican baseball team once again was victorious in the annual congressional game by a 12-1 score on June 29. I particularly want to thank our sponsors. We were able to raise over $100,000 for charities. Once again, the charities were the big winners, the Boys and Girls Clubs of the Washington area as well as the Adult Literacy Council. I want to also congratulate my counterpart, Mike Doyle, the manager of the Democrat team, Joe Baca, the pitcher and the most valuable player on the part of the Democrats, with Kenny Hulshof the MVP on the Republican side, and John Shimkus, our extraordinary pitcher, who came back from heart surgery this year to pitch a complete game. So congratulations to everybody for a wonderful evening of camaraderie and a good time and a nice victory as well. This is my last opportunity to do a little bit of bragging here as the manager. Also, I want to congratulate the long-time manager of the Democrats, Martin Olav Sabo, who is retiring this year. He turned over the reins to Mike Doyle, but he was inducted into the Roll Call Hall of Fame, well deserved for a great sportsman and a great individual, Martin Olav Sabo. Again, thank you, everybody. It was a great victory.

Mr. OXLEY

Mr. OXLEY. Mr. Speaker, I ask unanimous consent that all Members may have 5 legislative days to revise and extend their remarks and include extraneous matter on H.R. 2990, the Credit Rating Agency Duopoly Relief Act of 2006.

Mr. OXLEY

Mr. OXLEY. Mr. Chairman, I yield myself such time as I may consume. Mr. Chairman, in response to the largest corporate scandals in U.S. history, Congress passed the Sarbanes-Oxley Act strengthening the role of gatekeepers such as auditors, boards of directors, audit committees, and equity analysts. We now turn our attention to another gatekeeper, the credit rating agency, and Congressman Fitzpatrick's H.R. 2990, the Credit Rating Agency Duopoly Relief Act. Credit ratings serve a vital function in our capital market system, providing investors with an understanding of the creditworthiness of corporations and municipalities with respect to debt and other securities. As evidenced by the failures in the rating of Enron and WorldCom, who were given investment grade ratings by Moody's and Standard & Poor's just days before declaring bankruptcy, the credit rating industry is in drastic need of increased competition and improved transparency. Currently, the SEC designates ratings agencies as nationally recognized statistical ratings organizations, or NRSROs, through an opaque process that provides applicants little guidance on the substance and procedure by which they will be evaluated. Currently, only five rating agencies are designated as NRSROs by the SEC. Understandably, many more aspire to attain that designation, as NRSRO status confers a significant competitive advantage. However, new applications often languish for years without an up or down vote on admission into this elite club. In fact, the Department of Justice commented upon the SEC designation process in 1998, calling it a ``nearly insurmountable barrier to entry.'' The SEC's opaque designation process has created an artificial government-sponsored barrier to entry that has stifled competition and helped the two top rating agencies, Moody's and Standard & Poor's, garner some 80 percent of the market share. Without true competition of this industry, fees have skyrocketed and ratings quality has deteriorated. To put it mildly, this is not a transparent and efficient mark with robust competition. Wanting to understand an industry with such a significant impact on the markets, Congress directed the SEC to examine credit rating agencies as part of the Sarbanes-Oxley Act. Since the release of the SEC's report on rating agencies in January 2003, the Committee on Financial Services and its Subcommittee on Capital Markets, Insurance and Government-Sponsored Enterprises through its chairman, Richard Baker, have held five hearings on this subject, two of those hearings focused on H.R. 2990. Witnesses from the SEC, industry, academia, think tanks, and the rating agencies themselves echoed the problem areas highlighted by the SEC; namely, barriers to entry leading to a lack of competition, conflicts of interest, poor transparency of agencies' rating methodologies, and a lack of accountability. Mr. Fitzpatrick's bill is the product of this comprehensive examination. In his testimony of this past May before the Committee on Financial Services, our former colleague, SEC Chairman Cox, expressed support for the goals of H.R. 2990, and requested enhanced authority in this area. In a June 2006 letter to Ranking Member Kanjorski, Mr. Cox stated, ``You also asked whether the quality of credit ratings concerns me. My answer is most assuredly yes. In fact, transparency, competition, and greater oversight, the principles I mentioned during my testimony before the House Financial Services Committee on May 3, 2006, are, in my view, important means to achieve the end of ensuring the high quality of credit ratings.'' The principles cited by Mr. Cox are the very principles of Mr. Fitzpatrick's legislation before us. In addition, SEC Commissioners Paul Atkins and Cynthia Glassman have expressed their disapproval with the current designation system, and Mr. Atkins has expressed support for a registration approach like the one embodied in this bill. SEC Commissioner Roel Campos has also expressed a need for legislation that deals with conflicts, increased transparency, and provides for SEC examination. Mr. Fitzpatrick's bill follows the regulatory regimes applied to broker-dealers and investment advisors. In doing so, it rejects regulation controlled by the SEC in favor of the market-based approach that has driven our securities laws since the 1930s. H.R. 2990 removes the SEC's designation process, and in its place gives rating agencies who have issued ratings for 3 years the option of registering as NRSROs. A voluntary registration system will level the playing field for all rating agencies and inject much needed competition into this industry. As we have seen time and time again in other markets, true competition begets lower prices and better performance. When dealing with investor protection, it is all the more critical to ensure that healthy competition exists, yielding more accurate and reliable ratings. In addition, H.R. 2990 promotes transparency and empowers investors by requiring registrants to disclose the methodologies by which they generate ratings. It requires rating agencies to provide short, medium, and long-term performance statistics, and to make all information and documents submitted to the SEC publicly available. This will give the market a clearer understanding of the agencies that are rating debt. The bill also requires that rating agencies maintain a chief compliance officer to oversee compliance with the securities laws and protects market stability, providing that the voluntary regime will not go into effect until January 2008. To insulate the rating agencies from overreaching legislation, H.R. 2990 affirms that the Federal Government may not intrude into rating agencies' methodologies or the ratings process. Finally, I have concerns about the conflicts of interest which plague this industry. Ratings firms have expanded into new areas which, many commentators have suggested, further compromise their objectivity. In addition, it has been alleged that leading rating agencies engage in certain abusive practices to the detriment of smaller market players. H.R. 2990 requires disclosure of conflicts of interest and prohibits such anti-competitive practices. The many hours that the Committee on Financial Services and Mr. Fitzpatrick have spent on this issue have shown the problems cited by the SEC report are best rectified through a system of voluntary registration open to all eligible rating agencies. This will eliminate barriers to entry, promote competition, and do so using the least restrictive means of regulation. I urge all Members to support this important bill. Mr. Chairman, I reserve the balance of my time.

Mr. OXLEY. Mr. Chairman, I am now pleased to yield 2 minutes to the gentleman from Georgia (Mr. Price), a valuable member of the committee. (Mr. PRICE of Georgia asked and was given permission to revise and extend his remarks.)

Mr. OXLEY. Mr. Chairman, I yield 2 minutes to the gentlewoman from Pennsylvania (Ms. Hart).

Mr. OXLEY. Mr. Chairman, I yield 8 minutes to the author of the legislation, the gentleman from Pennsylvania (Mr. Fitzpatrick).

Mr. OXLEY. Mr. Chairman, I yield 3 minutes to the gentleman from Louisiana (Mr. Baker), the chairman of the Capital Markets Subcommittee.

Mr. OXLEY. Mr. Chairman, in closing, let me first of all recognize the gentleman from Pennsylvania, Mr. Fitzpatrick. He has been a real bulldog on this issue. The committee has worked its will passing this bill on a voice vote in the committee. His leadership has been extraordinary. The committee has had numerous hearings. We have had input from all of the usual sources, and then some, to craft this legislation. If somebody were to tell you or anybody in this body that there was an industry out there where 80 percent of that business was controlled by two companies, whether it was in the steel industry or the auto industry, the health care field, I would suggest that particularly my friends on the other side of the aisle would be particularly upset and call it restraint of trade and ask for all kinds of investigations and to try to induce more competition and new entries into that marketplace. And that is exactly what we have got here. We have got credit rating agencies that for the last 35 years have basically had a duopoly on this very lucrative business. And as in the case with any other kind of business, when you have a duopoly or an oligopoly, you have lack of competition. You have a situation where you have conflicts of interest almost guaranteed, and you have a lack of transparency at the same time. That is what we attack in the Fitzpatrick legislation. Now, I have been chairman of this committee for 6 years. Even before I was chairman of this committee this was an issue. The SEC would always come up before the committee, testify, well, we are working on it. We are trying to open this up. And yet, a frustrated member of the committee said, when are you ever going to get around to it? This legislation is a wakeup call to the SEC, to the industry that, at least from our perspective, we are tired of waiting for this to happen. Everybody likes competition, but nobody likes competitors. Everybody wants to go to heaven, but nobody wants to die. It is time that we provide the kind of competitive structure in this critical area that is long due coming. There is a reason why, Mr. Chairman, in the Sarbanes-Oxley Act that we requested this study, because we knew that part of the problem going forward with Enron and WorldCom and the like was lack of competition and the abysmal ratings effect that two members of the duopoly created right before Enron and WorldCom collapsed. Just think about the credit rating that they gave to Enron and WorldCom just weeks before they collapsed, and it tells you a lot about the lack of competition, the lack of transparency and a potential conflict of interest in the existing status quo. This bill is anti-status quo. It is far reaching. It is visionary, and Mike Fitzpatrick's leadership on this cannot be overestimated. And so I think that every Member should take a look at this. This is part of the ongoing process to make our markets more competitive, more transparent, and this bill is a natural follow-up on what this Congress and what this committee has done over the years to create better confidence in the markets by investors to provide more competition therein. This legislation gets the job done, and all Members should support it. Mr. Chairman, I yield back the balance of my time.

Mr. OXLEY. Mr. Chairman, I offer an amendment.

Mr. OXLEY. Mr. Chairman, I yield myself such time as I may consume. Mr. Chairman, I rise to offer an amendment to H.R. 2990, the Credit Rating Agency Duopoly Relief Act. This amendment makes certain clarifying and technical changes to Mr. Fitzpatrick's rating agency reform legislation. Specifically, the amendment clarifies that there is no private right of action for rating agencies registered as nationally recognized statistical rating organizations, or NRSROs, under the Securities Exchange Act of 1934. Neither is there an express or an implied private right of action with respect to rating agencies registered as NRSROs under the Securities Exchange Act. The Securities and Exchange Commission will retain its enforcement authority over registered rating agencies. In addition, the amendment allots to the Securities and Exchange Commission an additional 6 months, for a total of 1 year, to review and, if necessary, revise its regulations that use the term ``NRSRO.'' The additional time will allow the SEC and industry participants more time to properly assess regulations using the NRSRO technology. This amendment also makes a number of technical amendments, clarifying definitions, findings and disclosure requirements. I urge all Members to support this amendment. Mr. Chairman, I reserve the balance of my time.

Mr. OXLEY. Mr. Chairman, I have no further requests for time, and I yield back the balance of my time.

Mr. OXLEY. Mr. Speaker, I demand a recorded vote.

Mr. OXLEY

Mr. OXLEY. Mr. Speaker, I ask unanimous consent that in the engrossment of the bill, H.R. 2990, the Clerk be authorized to correct section numbers, punctuation, and cross-references and to make such other technical and conforming changes as may be necessary to reflect the actions of the House.

Mr. OXLEY

Mr. OXLEY. Mr. Speaker, I ask unanimous consent that all Members may have 5 legislative days to revise and extend their remarks and include extraneous material on H.R. 4411.

Mr. OXLEY

Mr. OXLEY. Mr. Speaker, pursuant to House Resolution 907, I call up the bill (H.R. 4411) to prevent the use of certain payment instruments, credit cards, and fund transfers for unlawful Internet gambling, and for other purposes, and ask for its immediate consideration.