Today we’re taking a closer look at an issue that has received a lot of notice in global finance circles. It’s also started to receive greater attention – and some apprehension – by those who are focused on U.S. foreign policy.
Sovereign Wealth Funds have been around for decades, but China’s recent entry into this field, together with investments in large Wall Street firms by the funds of Middle Eastern countries, have raised questions about the power that these massive funds may have over U.S. national security interests.
Part of the anxiety comes from the notion that the choices guiding Sovereign Wealth Funds – operated by governments that are sometimes unfriendly, sometimes untrustworthy – may well be based on strategic or political considerations, rather than purely economic ones. Since many of these funds lack transparency, legitimate concerns have surfaced about the motivations behind the investment decisions being made. If Russia’s fund decided to invest in energy assets in the United States – would they be able to use it to their political advantage as they have done in Europe? How would we react if China’s fund wanted to invest in a U.S. telecommunications company with access to critical national security technology?
The good news is that we have a process by which to guard against investments into the United States that have national security implications. Last year, this Congress revised the procedures by which the U.S. government conducts its investigations into all entities, including Sovereign Wealth Funds, wishing to make sensitive investments here. And by sensitive, I mean those investments that could potentially give these funds, and by extension their governments, controlling stakes in firms that are critical to U.S. national security. Such investigations are done through the Committee on Foreign Investment in the United States, known sometimes as CFIUS.
So while I absolutely advocate greater transparency, accountability, and consistency in the administration of these funds, we also have to be very judicious about any new regulation in this area.
There is also much to be said about the positive effects that an influx of foreign direct investment can have on foreign policy. I subscribe to the adage that when goods and capital are able to cross borders, it is more likely that tanks and missiles don’t. I also think the United States should retain its principles of free and open markets, and be very wary of what might happen if we start to close our borders to market-driven investment.
That’s why I advocate a balanced approach to Sovereign Wealth Funds. I support the work of the International Monetary Fund to create a set of “best practices” for such funds, and I look forward to its report on the matter later this year. Multilateral guidance from the IMF could help those who run Sovereign Wealth Funds create more transparency and clarify their investment objectives, which ultimately could provide greater comfort for those who might question their motives.
I’m very pleased that we have a distinguished panel of witnesses to help this committee understand the foreign policy and national security implications of the rise of Sovereign Wealth Funds. We’ll introduce the panel in just a moment, but first I’d like to turn to my good friend from Illinois, Mr. Manzullo, for any remarks he wishes to make.