Tracking Benign and Malign Foreign Investment in the United States

Between 2017 and 2018, a single Chinese billionaire bought over 140,000 acres of land next to an American military base in southern Texas, and the government did not even know how many LLCs were initially involved in buying the land. It was not even the federal govern­ment that discovered these purchases originally, but a small group of conservationists who first sounded the alarm.

How can such a significant foreign investment in the United States escape detection? The incident points to a broader failure to track foreign investment competently, even as foreign ownership has become significantly more controversial in recent years. Senators are concerned about the threat of spying from property bought by Chinese companies next to military bases, the most recent example being the Fufeng Group’s purchases in North Dakota.¹ Foreign owners of dating apps have been forced to sell their stakes to Americans due to concerns about data being leaked to the Chinese government.² Increasingly, lawmakers want to know where investment is happening and whether it is in the national interest (in contrast to previous decades, when all investment was considered good investment).

Unfortunately, the United States is at present unable to answer these questions as effectively as it could. Relying on an inadequate data collection system for foreign investment, we have struggled to identify who owns what in sectors such as agriculture and energy. We are stuck asking basic questions over and over again. It is troubling, for example, that one must send a Freedom of Information Act request to the Department of Agriculture (USDA) to learn how many acres a foreign company owns in agricultural land; this information is not directly available to policymakers.

The problems we face collecting data on foreign investment are not new. In the 1970s, concerns about the Organization of Petroleum Ex­porting Countries (OPEC) prompted the federal government to investi­gate OPEC countries’ U.S. holdings. This episode, and the institutions the U.S. government built as a result, offers lessons for reforming the institutions that collect data on foreign investment today.

The Early Days

Before 1974, the federal government did not systematically collect data on foreign investment in the United States. In a 1974 memorandum to President Ford, Senator Daniel Inouye, a Hawaii Democrat, noted that the last time a major survey on foreign investment in the United States occurred was in 1959.³

The letter was prompted by concern in Congress about a range of potentially harmful foreign investments in the United States, including Japanese investment in the Hawaiian tourism industry, and purchases of large parts of American companies by British, Canadian, and other foreign entities.⁴ Another concern was that due to the increase in petro­leum prices, OPEC countries would have excess funds that they could deploy into foreign direct investment (FDI) in the United States.⁵ As Senator Inouye stated in his letter, the United States, unlike many other developed countries, had no investment screening mechanism for in­bound foreign investment.

Recognizing the potential for significant, harmful foreign investments, the 93rd and 94th Congresses responded with a wide-ranging set of measures. Across both Congresses, more than forty separate bills relating to foreign investment in the United States were introduced, but these were largely messaging, rather than substantive reforms.

Only two bills dealing with foreign investment were passed.⁶ First, the Foreign Investment Study Act of 1974 (FISA) directed the Department of Commerce to produce a series of reports on foreign investment in the United States. Second, an amendment to the Federal Energy Administration Act of 1974 required the Federal Energy Administration (FEA) to collect data on foreign investment in the American energy sector.⁷

Despite growing attention to these issues, Ford’s signing of FISA did not reflect a major change in policy.⁸ There were still no restrictions on investment in the United States. Nonetheless, FISA represented the first step toward a systematic study of inbound foreign investment.

The position of the American government during this time period is clearly summarized in a 1976 essay by Senator Inouye. He argued that while data on foreign investment started to be collected, foreign investors still largely faced the same treatment as domestic investors, with the important exception of areas critical to national security. Compared to its allies and peer countries, the United States was more open to foreign investment, with fewer prohibitions or monitoring capabilities. Further reforms would follow with varying levels of success.

CFIUS and OFIUS

A more systematic approach to tracking foreign investment in the United States came with the creation of the Committee on Foreign Investment in the United States (cfius) and its obscure companion, the Office of Foreign Investment in the United States (ofius). In 1975, President Ford created cfius by executive order, directing the secretary of commerce to analyze data on foreign investment in the United States. The original members of cfius were the Treasury, Commerce, Defense, Justice, and State Departments.

Cfius did not start out promisingly, meeting only ten times in its first five years. With limited authority, there was little else it could do besides hold meetings. Even worse, many of the department representatives did not even show up to the meetings.¹⁰

It was only in the late 1980s that cfius started to become more than just a meeting group, thanks to both legislative and executive actions. By this time, Japanese firms were trying to buy companies that were suppliers to the American military, and the president needed the author­ity to block certain transactions if they posed a national security risk. To that end, in 1988, an amendment to the Omnibus Trade and Competitiveness Act of 1988, updating the Defense Production Act, to­gether with an executive order from President Reagan, greatly expanded cfius’s powers, giving it the authority to perform reviews, undertake investigations, and make recommendations.¹¹

While cfius has endured to this day despite its rocky start, its analytical arm suffered a different fate. Ofius was intended to complement cfius by collecting information on foreign investment in the United States, and by serving as the clearinghouse on foreign investment data collection. It would attempt to wrangle data on foreign investment that other agencies, like the Bureau of Economic Analysis (BEA), collected.

Yet although ofius was supposed to collect data on foreign investment, it did not have the capability to go out in the world and collect this information. Instead, the BEA, through delegated authority from the president, had this power. Many of ofius’s problems stemmed from this organizational flaw.

For example, ofius would ask the BEA for data to analyze, and there would be a multi-month delay between the request for data and receiv­ing the data, limiting ofius’s ability to do timely analyses. Ofius did collect some foreign investment data, but it was from methods like reading newspapers, and frequently missed foreign investments that were not made public. Ofius also faced various operational issues, including bureaucratic inertia, frequent reshuffling of staff assignments, and sudden budget cuts.¹²

A Government Accounting Office (GAO) report on foreign direct investment in 1976 had other critiques of ofius: it did a poor job at collecting studies on foreign direct investment in the United States and maintaining contacts to academics and outside entities studying foreign investment.¹³ GAO ultimately suggested that ofius should try harder to become a data clearinghouse, yet throughout its existence ofius was far from successful at wrangling data from other agencies. It did not become the clearinghouse for FDI data that its creators intended for it to be.

Ofius died a quiet death, subsumed into the Office of Trade and Investment Analysis within the International Trade Administration.¹⁴ The idea of a companion agency for cfius disappeared with ofius. Thus, while cfius has become more powerful over the years, the loss of ofius meant there would be no single clearinghouse for data on FDI in the United States. This continues to be the case today.

Energy and Agriculture Data Collection Programs

Emerging at the same time as cfius and ofius were foreign investment data collection programs, in response to concerns about foreign invest­ment in industries including energy and agriculture. The Energy Information Administration (EIA) was one of the various agencies that started a foreign investment data collection program, even though EIA initially was not intended to collect this information.

The predecessor to EIA was created in 1974 as part of the Federal Energy Administration Act, which created the FEA to collect data on energy investment.¹⁵ The existence of many similar programs created a bureaucratic mess, as noted in a committee report on the Department of Energy Organization Act.¹⁶ Along with FEA, there was the Energy Research and Development Administration, the Federal Power Com­mission, and data collection efforts by the Department of the Interior, among other agencies. By 1977, there were over a hundred different energy data collection programs across multiple federal agencies.

There were various proposals to create an energy industry data collection system. The Senate version of a bill that extended the lifetime of FEA in 1976 included a provision to collect data on the performance of domestic and foreign energy companies.¹⁷ The provision did not survive the conference. FEA itself proposed a system in 1975 in the Federal Register with the goal of doing a comparative analysis of the oil industry.

The Department of Energy Organization Act resolved these pro­posals, rolling all the various energy-related data collection programs into a single agency, the EIA. The goal of this reorganization was to save money and have all these programs under one roof, instead of being scattered across different agencies. Additionally, inspired by previous proposals, EIA was required to send to Congress an annual report on foreign investment in the United States.¹⁸ It was known as the Form EIA-28 Financial Reporting System and produced reports with names like “Performance Profiles of Major Energy Producers 1995.”

The second major foreign investment data collection program was the foreign investment agriculture data collection program, created by the Agriculture Foreign Investment Disclosure Act (afida) in 1978. Before afida, the federal government did not collect data on foreign investment in U.S. agricultural land. In response to Senator Herman E. Talmadge, a Democrat from Georgia and the chairman of the Senate Committee on Agriculture, GAO published a report on the inadequacy of data collected on foreign ownership of U.S. agricultural land.¹⁹

While multiple states had laws that restricted foreign ownership of agriculture at the time, the lack of state-level data made it difficult to assess the situation at a national level. GAO noted that it was difficult to identify foreign owners as the various methods to do so—county land records, corporate registration records, and tax assessor records—each had drawbacks. The solution that GAO came up with to solve this problem would be the creation of a federal registration system.

In 1979, after the passage of afida, GAO released a report on the data collected at the request of the Senate Committee on Agriculture.²⁰ Despite Congress’s worries that OPEC countries were buying up Amer­ican farmland, the data showed this was not the case. The largest foreign affiliation was from the Netherlands Antilles, which led to a second and still persistent problem GAO noted. Due to the nature of Netherlands Antilles corporations, it is very difficult to identify the owner of the given corporation. Not giving USDA power to investigate LLCs would lead to prob­lems down the line, but the creators of the program likely thought they had accomplished their mission. The program was meant to track farmland purchases, not to act as an intelligence tool to track malign foreign influence.

The largest of the foreign investment data collection programs to come out of this period, however, were located within the BEA. These data collection capabilities were created through the International Investment Survey Act of 1976.

The Federal Investment Study Act of 1974 had authorized several studies on foreign investment in the United States, but the authority to do further survey work expired.²¹ The 1976 bill provided clear authority for the president to collect this type of information, as at the time it was unclear if the president could collect data on foreign investment. In response, the executive branch delegated certain data collection capabili­ties to the BEA.²² This led to two BEA surveys: a onetime survey to track new foreign direct investment in the United States, such as when a foreign business establishes a new facility or corporation in the United States, and a survey of all American businesses that are controlled directly or indirectly by foreign entities. Unfortunately, these data collection programs soon suffered from neglect. In one case, a program was completely disbanded.

Failures Then and Now

Soon after the creation of the Department of Energy, there were already suggestions for radical restructuring. A 1983 Joint Economic Committee report detailed one of them.²³ That year’s energy budget request pro­posed repealing the data collection and analytical functions that the EIA had. EIA-28 was one of the reports scheduled to be eliminated despite the fact that EIA-28 was established by Section 205(h) of the Department of Energy Organization Act. This part of the act requires the EIA to submit an annual report to Congress which includes data on foreign energy activities. Getting rid of this report would mean EIA would have been unable to fulfill its legal obligation to submit a report to Congress on this data. Consequently, the EIA-28 form survived, for a time.

In 1989, the GAO came out with a report surveying all known federal data collection programs on foreign investment.²⁴ The report identified problems with a variety of these programs. Regarding afida, GAO noted that there were cases of unreported purchases of foreign land in the state GAO audited. GAO also noted that 77 percent of the parcels of land owned by foreign investors were held by entities domi­ciled in the Netherlands Antilles, obscuring the actual identity of the beneficial owners. This would be the last time that afida would be audited.

The report also mentions the existence of foreign investment data collection by other departments.²⁵ As these programs were left unnamed, it is unknown what the data collected looked like or for what purpose they were collected. It is an open question, for example, why the Department of Interior was collecting data on foreign investment.

The largest failure would happen at the Department of Energy. The end of EIA-28 came in 2011, as a consequence of the 2010 budget sequestration, which imposed a $15.2 million cut to EIA’s budget.²⁶ One of the reports that was canceled as a result was EIA-28. Thus, since 2011, no data has been collected by EIA on foreign energy investment in the United States.

In the most recent year when budget data on the EIA-28 survey was broken out, 2005, the program that EIA-28 was under, EIA Periodic Analysis Products, had a total budget of $1.7 million.²⁷ For such a small budget, large amounts of information on the American energy industry was lost. No longer would the American public have easy access to financial performance and production data of foreign energy companies or data on acquisitions and divestitures. While this information is now available from private companies for a price, it used to be available for free.

Although the afida program was not cut, the program suffers from a different set of problems, mainly regarding administration. As a 2017 report from the Midwest Center for Investigative Reporting found, the program faces a crippling “lack of staff and resources.” In addition, data obtained through my own Freedom of Information Act request shows that the afida program has been much less active in recent years. Over the past twenty years, there have been over three hundred fines leveled by USDA, the majority of which occurred before 2010. Only thirteen fines happened after 2010, with several multiyear gaps. While the afida program does lack resources, it is unclear why the 2010s had far fewer fines than the start of the century. My own Freedom of Information Act request shows that the program has always had a small staff.

Before 2022, there were only two or three people, depending on the year, working on afida directly. In 2022, six people worked on the program, but three of them were temporary. In this period, however, foreign ownership of American agricultural land has gone up from 1.0 percent in 2000 to 2.9 percent in 2020. Foreign investors now own the equivalent of a parcel the size of the state of Georgia, and that is just in land we are certain that they own; the real figure could be higher.

There has also been a tendency toward massive fine reductions. For example, in the case of Brazos Highland Properties, the owners were originally fined $21 million in 2021, but the fine was eventually reduced to $120,000, 175 times smaller than the original fine.²⁸ The fine was imposed because the owners of the property did not even file with afida in the first place. It was reduced because afida regulations allow for downward adjustment of penalties. An explanation for why specif­ically the penalties were adjusted downward was not provided by the Farm Service Agency.

My own analysis of publicly available data also shows how foreign ownership is obscured. Investors under the code USDA uses for no foreign investor listed, 998-No Foreign Investor Listed, have acquired $6.1 billion dollars in American farmland during the 2010–20 period.²⁹ Out of all the transactions listed in the database, however, 49 percent of the parcels have a purchase price of zero.³⁰ LLC structures can also be used to obscure ownership. With USDA unable to look beyond the third level of ownership, there may be foreign-owned agricultural prop­erties that are not in the database due to obscure ownership.³¹ Chinese billionaire Sun Guangxin, for example, bought hundreds of acres on the Texas-Mexico border surprisingly close to Laughlin Air Force Base.³² While some of his properties, such as Brazos Wind and Brazos Highland Properties, are listed in the afida database, one of his known properties is not. Harvest Texas LLC, although listed in the land records for Val Verde County, is not tracked in the afida database.³³

In contrast to afida, the BEA’s foreign investment information programs have been better managed in terms of data collection, but have faced many problems related to data sharing. Much of the foreign investment data BEA provides, as authorized by the International Investment and Trade Services Survey Act, is aggregate data, and the individual line items are confidential. The confidentiality of BEA-13 data means that while top-line numbers are available, the individual reporters cannot be identified and BEA is even prohibited from sharing this data with other agencies due to privacy reasons.³⁴ For example, in the 1980s, BEA violated Congress’s right of access to information by refusing to share country-by-country FDI data from OPEC nations.³⁵

While this was resolved in later years, in 1980, the quality of the publicly available FDI data BEA collected was of even more limited detail than it is now. In an old report on FDI, for example, BEA reported on only five industries.³⁶ As of 2019, there are only nine industries listed in industry tables, with only manufacturing broken down into more detail.³⁷

In the cases of afida and EIA, the underlying reports that make up the respective data collection forms can be requested with a Freedom of Information Act request, but with the data collected by BA-13, this is not the case. In a 1987 court ruling, the underlying reports that make up BEA’s surveys were declared to be outside the Freedom of Information Act.³⁸

More recently, the BE-13 survey was canceled for the period between January 2009 and November 2014.³⁹ The cause of the cancellation was budget cuts at the BEA during 2009, but unlike EIA-28, the form got reinstated back in 2014.

The United States used to directly track people who collaborated on foreign investment with the BE-14 form, but this form no longer exists. The BE-14, according to the Federal Register, last appeared for review in 2006.⁴⁰ According to Amanda Budny, chief of the New Foreign Invest­ment Section for the BEA, the BE-14 survey is no longer collected. The same data is now collected as part of the BE-13 survey. While it is good that the data is still collected, it is rather useless if the data is only available internally within the BEA. If one wanted to identify, say, the key individuals involved with the 2021 Fufeng USA deal for land next to an American military base, it would be difficult without this data. Unfortunately, barring any policy changes, information on who facili­tates these deals will continue to remain hidden.

The BE-15 form was originally meant to collect information on foreign real estate investment as well. Unfortunately, the way the form was designed made it nearly useless for tracking this information. Specifically, there was a threshold of two hundred or more acres, which would exclude the majority of property bought in urban areas.⁴¹ The types of properties that do not get tracked range from apartment buildings to smaller leases in ports. Given that, like the rest of BEA data collection, the data are private, it is unknown whether BEA analyzes the real estate data that it does have.

Out of all these efforts, the one that is faring the best is the cfius enforcement mechanism. Cfius has not suffered from administrative or budget issues, and unlike other programs, it has undergone reforms in recent years to make it more effective at investigating foreign investment. Cfius’s public reports provide detail on what sector of the economy has covered transactions, along with the country and sector in which a covered transaction is being investigated. They have data from 2008 to 2020. Cfius data, however, do not explicitly name the specific companies investigated. Once it is known that a company is under investigation by cfius, as seen with Grindr or Fufeng Group, it tends to make national news. Thus publicizing who specifically is being investi­gated is a fraught endeavor that could lead to creating a larger controversy than necessary.

Cfius, of all the programs discussed above, is the only one that has been modernized in recent years. The Foreign Investment Risk Review Modernization Act of 2018 (firma) increased funding for cfius, re­quired more public information, included certain real estate transactions, and formalized the use of risk-based analysis for transactions. In 2022, an executive order by the Biden administration further broadened cfius’s power.⁴² The order directs cfius to look at factors regarding American supply chains, technical leadership, investment trends, cyber­security risk, and risks to individual personal data.

While cfius has a budget of $20 million, as of firma’s passage, the data collection programs run by individual agencies were not that expensive. Although budget summaries often do not provide the budget for these programs, the Office of Management and Budget, through the Office of Information and Regulatory Affairs, collects data on how much these programs cost the federal government.⁴³ For the data they collect, the EIA, BE-13, and FSA-153 programs are remarkably inex­pensive; each program only costs a few hundred thousand dollars per year.

What Can Be Learned?

For the programs that still exist, reforms are on the way. In the last week of July, the fiscal year 2023 appropriations bill for Agriculture, Rural Development, Food and Drug Administration, and Related Agencies included language that would modernize the collection and analysis of data collected under afida.⁴⁴ At the same time, Senators Chuck Grassley and Tammy Baldwin introduced a separate bill that would require releasing the parcel database to the public along with requiring USDA to come up with a report on how foreign ownership in agriculture affects the average American.⁴⁵

As for cfius, with firma and the latest executive order to broaden cfius’s scope, cfius has been given broader power to investigate foreign investment. The agency is also making efforts to be more transparent. In response to firma, cfius released its first ever enforcement and penalty guidelines to provide information to the public on how cfius assesses an investment.⁴⁶ Cfius even provides guidelines for voluntary self-disclosure of cfius violations, so individuals can work with cfius as a violation does not necessarily lead to a penalty.

Growing interest in modernizing data collection on foreign investment in the United States is welcome news, but more can be done to ensure these programs do not fall by the wayside, as they have in the past:

Mandatory audits. It is very easy for a program like afida to experience mission drift once the program is settled into the bureaucracy. All foreign investment data collection programs should be audited by a watchdog entity (GAO or a relevant agency’s inspector general) to ensure that they are collecting the data they should be collecting and that foreign entities are not finding ways to get around data collection.

A select committee on malign foreign investment. A select committee that could author a report on foreign investment in the United States, like the Cox Report did for security concerns with China in the 1990s, could be helpful in fully understanding how foreign investment can be used as a tool to wield influence in the United States.

More data access. For the public to fully understand foreign investment in the United States, the underlying datasets of these programs should be available. From foreign investment in agriculture to better data on how much foreign money is in venture capital, the United States should make it easier to get this information directly from the government versus having to rely on FOIA requests or third parties.

Getting better data on foreign investment in the United States is possible, and new legislative proposals are at least a step in the right direction. But there is a difference between rising interest and actually enacting policies that would provide clarity on these programs. If we want to talk seriously about foreign investment in the United States—without falling into indiscriminate fearmongering—we need to do a better job of collecting data on foreign investment so that we can begin to ask the right questions.

This article originally appeared in American Affairs Volume VII, Number 1 (Spring 2023): 100–12.

Notes