"If that means buying stock in General Motors Corporation to get control of it, then nations like Saudi Arabia expect to be free to do it."

Mr. Chairman, the months have proved that the Nouveau Riche OPEC nations have a sense of reckless disregard for public responsibility. They are determined that with their wealth they will go where they want, and do what they please. As is so typical of the Nouveau Riche, they expect to use their wealth to exercise economic, political, and social pressure.

I therefore commend the Chairman in offering this bill. He has courageously moved into this area and gone one step further than the legislation I originally proposed. Originally I felt that it was not necessary to place any limitations on foreign investment in this country, and that making the information available to the public would be in and of itself sufficient. I no longer believe that to be the case. In examining the laws of other nations, it is obvious that those very nations that are throwing around their economic weight at the present time have not hesitated to place very restrictive legislation on their own law books. In that respect I specifically point out the laws of Iran, Iraq, Kuwait, Saudi Arabia, and the United Arab Emirates.

We have seen Iran move into Krupp, and Kuwait move into Daimler Benz, the latter action, as the Chairman pointed out in his statement, taking the German financial community and government by total surprise. The Arabs have already purchased in excess of one million shares of Occidental Petroleum Company. If they hadn't told the company President, Armand Hammer, the purchase had been made, there is no way under present American law that he or the head of any other corporation, or the U.S. Government, could learn the facts. That is incredible! And the Administration has failed to recognize the absurdity of this position. Under the Inouye-Culver bill a complete study of foreign investment in this country is authorized. But that study, which will not be completed for many months into the future, can't ascertain the true identity of foreign investors who use Swiss and Lebanese bank accounts, nominee accounts at our own major financial and investment banking institutions, and other legal ways of withholding the facts as to the beneficial ownership.

I don't believe that our nation need wait for that day when one morning we awaken to learn that one of our major industrial companies, or one of our companies controlling a substantial portion of our natural resources, has suddenly been acquired by a foreign nation. There has been much criticism of our Government in years past for intervening in the political affairs of other nations in which American corporations were involved. I hold no brief for that kind of intervention. In fact, I specifically disavow it. But in view of the public statements, and some of the actions already taken by the OPEC nations, it is my view that past actions of the United States Government would be little-league as compared to the future activities of some of the OPEC nations and their leaders. It wasn't many months ago that we read that one of the Arab nations had offered $400 million to Portugal if it would refuse our country renewal rights to air bases located in the Azores. More recently, we have learned that Saudi Arabia has caused our own Corps of Engineers to discriminate against members of the Jewish faith. The Arab nations have "black-listed" 1,500 American corporations that do business in Israel. And now the boycott has been extended beyond Israel. It is now being directed against Jews throughout the world. Arab bankers have excluded Jewish banking houses from participating in banking syndications.

Let us assume for the moment that Saudi Arabia, or Libya, or Kuwait, acquires control over General Motors, AT&T, IBM, or any one of a host of other companies. Would those companies then be told which banks they can deal with, whom they can employ, and will a new kind of invidious bigotry be brought to this nation? We have made progress in eliminating discriminatory practices in our country during the past 200 years-do we now need to import bias and prejudice from the Arab world?

Mr. Chairman, I support your legislation, but I suggest two modifications: 1. I do not believe that notice of the intention to acquire control, which is required under Section 13B. should be confidential, and submitted only to the SEC and the President. I would prefer to trust the pressure of public opinion that would come about if the entire nation knew that such action was contemplated. To those who might suggest that this might have an impact on the stock market price of the company's securities, I can only point out to you that when the SEC, its staff, the President, and his staff, know that such action is pending, it will be no longer be a secret. Other countries, such as Australia,

Canada, France, Germany, and Italy, require disclosure. Why not the United States? I think that there is a better chance of there being less impact on the marketplace if the matte is made entirely public, rather than purportedly limited to a few persons. I further point out that if the entire matter is kept confidential, I have difficulty in understanding how any stockholder would be able to obtain the necessary information to maintain an action against a foreign investor that has failed to comply.

2. Mr. Chairman, the President, under the proposed legislation, is authorized "as he deems app opriate for the national security," to "further the foreign policy of the United States, or to protect the domestic economy" to "prohibit the acquisition by the foreign investor." I believe this language should be broadened to permit the President to inquire into the intent of the purchaser. Will part or all of company's assets be moved? How will the foreign investor involve itself in management or on the Board of Directors? Will the fo.eign investor directly or indirectly involve the company in political matters, domestic and foreign? Will the company be expected or permitted to institute discriminatory policies, employment, banking, or just plain business decisions affecting any segment of American society? Other countries presenting have set criteria to use in evaluating the advantages and disadvantages of foreign investment. We should set forth those criteria in this legislative proposal. The President should be given some Congressional standards to follow. Congress should make it clear that this country welcomes foreign investment, provided that the fo eign investor seeks a safe investment in an economically and politically viable nation. If the foreign investor seeks to compromise our independence and integrity, let that foreign investor look elsewhere.

Senator WILLIAMS. We have 5 full minutes. Where is Mr. Pate?

STATEMENT OF JAMES L. PATE, ASSISTANT SECRETARY FOR ECONOMIC AFFAIRS, DEPARTMENT OF COMMERCE; ACCOMPANIED BY DANIEL ARRILL, OFFICE OF DOMESTIC AND INTERNATIONAL BUSINESS ADMINISTRATION, AND GEORGE R. KRUER, CHIEF OF THE INTERNATIONAL INVESTMENT DIVISION OF THE BUREAU OF ECONOMIC ANALYSIS

Senator WILLIAMS. You have 5 full minutes, Mr. Pate, if you could fast foot it up here.

Mr. PATE. Mr. Chairman, in view of the time limitations, if it is permissible, I would like to submit for the record my complete statement. I presume that this statement has been reviewed and perhaps in the short amount of time that we have available, it could be used as the basis for questions directed to me.

I have with me today Daniel Arrill who is sitting to my left, from the Office of Domestic and International Business Administration, and to my right is Mr. George Kruer, Chief of the International Investment Division of the Bureau of Economic Analysis.

[The complete statement is printed at p. 69].

Mr. PATE. As is apparent in my statement, we recognize the concern about foreign investment in the United States. We feel as though we need to more adequately develop the information pertaining to these investments; and as you know, the Congress did mandate, through the Foreign Investment Study Act of 1974, a survey of foreign investment in the United States.

The interim report is scheduled for presentation on October 26, 1975, and the complete study and final report is scheduled for completion on April 26, 1976. Mr. Kruer, to my right, is responsible to a very large extent for the foreign investment benchmark survey; and I also have some familiarity with it.

If you have any questions, sir, we would be happy to attempt to answer them.

Senator WILLIAMS. Thank you very much.

How are the Commerce Department's figures on direct foreign investment compiled?

Mr. PATE. We do not have complete data for 1974 on capital in flows. This will be available on March 19.

Senator WILLIAMS. How do you get that data?

Mr. PATE. Sir, at the present time we have a quarterly survey which requires every business firm that has a book value of at least $2 million of foreign investment and in which foreign persons own 25 percent or more (we are in the process of changing this to 10 percent) of the voting securities to report various investment transactions to the Bureau of Economic Analysis; and, of course, the requirement under the Foreign Investment Study Act of 1974 is that firms with foreign ownership of 10 percent or more of equity must report these investments. We are obtaining this information through the benchmark. survey.

Senator WILLIAMS. Now you have lost me.

You start with a survey.

Mr. PATE. Yes, sir.

Senator WILLIAMS. What is the nature of the survey?

Mr. PATE. The survey was mailed to approximately 11,000 firms that we had reason to believe, on the basis of our research and from various sources of information, have foreign ownership of 10 percent or more of the equity of the firm; and we are requiring that they report-and I believe

Senator WILLIAMS. Who is "they" with 10 percent?

Mr. PATE. The foreign investors in the firm.

Senator WILLIAMS. I am still lost.

This is a survey following the act of 1974?

Mr. PATE. That is correct, sir.

Senator WILLIAMS. No. I am referring to your regular figureshow did you get figures on direct foreign investment prior to this mail survey?

I have seen figures and I just wonder where you got them. Here is foreign direct investment in the United States, value by country of origin. Table 1, millions of dollars, goes back to 1950. Just how do you get those figures?

Mr. KRUER. OK. We send report forms out to approximately 450 companies each quarter.

Senator WILLIAMS. 450? This is without regard to the 1974 Act? Mr. PATE. That is correct.

Senator WILLIAMS. 450 firms each quarter?

Mr. KRUER. These are the ones with foreign investment in the company of greater than $2 million.

Senator WILLIAMS. How did you get that figure?

Mr. KRUER. Anytime we read of a foreign investment-and we go through trade journals daily, Moody's, everything we can, State Department cablegrams.

Senator WILLIAMS. What if the foreign investment should be in the name of Bank XYZ in Shanack, N.J.?

Mr. KRUER. If we don't know it, of course we can't get it.

Senator WILLIAMS. In other words, you have no way of knowing certainly all the benefical owners.

Mr. KRUER. No, not all of the foreign beneficial ownership. The bank itself knows the foreign owner. Some banks do, in fact, report these dummy companies, straw companies to us.

Senator WILLIAMS. What if it were a nominee, an American nominee for a foreign interest?

Mr. KRUER. Legally he should be reporting to us. The question, though, is quite correctly put: how do we get to them? If it is not a large enough transaction it generally is not reported in the press or elsewhere. We don't know unless they do come forward.

Senator WILLIAMS. I thought you said that periodical publications, journals, are your screening for who are the foreign owners of American companies; is that it?

Mr. KRUER. Yes.

Senator WILLIAMS. That's less than reliable, you have to agree.
Mr. KRUER. Right.

Senator WILLIAMS. Who is CEDE?

Mr. KRUER. That's a name used for-it is a street name used for holding securities for nominees. This is more properly covered under the portfolio survey being conducted by the Treasury Department.

Senator WILLIAMS. Underneath that name were all kinds of beneficial owners. But there is no way of reaching them now?

Mr. KRUER. For use, no. Treasury, in their portfolio survey pursuant to the 1074 act, will be going behind the CEDE name.

Senator WILLIAMS. Under present law does CEDE have to report? Mr. KRUER. Yes; whenever it is a foreign beneficial owner. They have to report holdings by a foreign beneficial owner to Treasury in their survey.

Senator WILLIAMS. That's a single report? It is not an ongoing requirement?

Mr. KRUER. It is a single report on a one time basis for 1974.

Senator WILLIAMS. I think this highlights our posture. We are without essential information about the owners of American companies. We don't know, certainly, who they are. Is that a conclusion that you must draw?

Mr. PATE. That is correct, sir. The information we have at the present time, of course, is inadequate. We are

Senator WILLIAMS. It is abundantly clear that that is so.

Mr. PATE. We are attempting, of course, through the 1974 Foreign Investment Study Act to get more reliable information and more complete information.

Senator WILLIAMS. Well, is there any demands now that-under law, that makes any beneficial owner come forward and disclose who he is? Under the 1974 Act?

Mr. PATE. Yes, sir, that is correct.

Senator WILLIAMS. Every beneficial owner of American corporations?

Mr. PATE. That is correct, sir.

Mr. KRUER. The problem here is with the foreign beneficial owner? If he is a resident abroad the U.S. law cannot reach him. The onus is on the U.S. company which is foreign owned, the real estate or the agent or the foreign person who is making the investment to report it.

Senator WILLIAMS. When the foreign owner comes up in a Swiss bank, who is he acting for?

Mr. KRUER. We are asking to go beyond that, but there is no way to do it.

Senator WILLIAMS. You do not have the authority. You would like to go behind the nominee name but you have no authority. That is, of course, what is included in this bill.'

Mr. KRUER. Yes.

Senator WILLIAMS. I just wanted to be very clear that we have a common understanding of what this bill does do and what it does not do. It certainly alters the present situation in terms of disclosure; a requirement that owners of American companies be known.

Is Mr. Bennett still present?

He came down very hard and crystal clear on that as a gap that should be closed in present authority-the knowledge of who the beneficial owners of American corporations are. Were you here? Mr. PATE. That is correct, sir, I was here.

Senator WILLIAMS. I don't think his testimony could have beenMr. PATE. I believe he also pointed out, sir, that this is what is intended by the interagency group and the new office that is being proposed; that is, the purpose would be to coordinate existing reporting requirements and to examine any gaps that might exist.

Senator WILLIAMS. Yes; that's true. He doesn't want to buy all of our bill, but he wants to buy that part of it now. That's the way I understood his testimony. Beneficial ownership should be fully disclosed.

Let me make sure I wasn't wishing it to be true. I think I made the comment earlier that this provision might end up being one of the most controversial parts of the bill.

Mr. PATE. Mr. Chairman, while we appreciate your concern, we do believe that at the present time there is sufficient reporting rquirements that while there might exist gaps in our knowledge

Senator WILLIAMS. There is certainly a gap there. There is not sufficient authority to know who the beneficial owners are.

Mr. PATE. That is correct, sir. There are areas where it is difficult to determine beneficial ownership. However, we believe that this situation should be studied on the basis of the results which are obtained from our foreign investment study and survey.

Senator WILLIAMS. That is one element that-it has been studied repeatedly and deeply and most have concluded that it would be desirable to have that information. We have no authority to get it now. Therefore, out of studies we have all undertaken, we, together with the Treasury, have come to that conclusion.

If you want to join us from Commerce, we would be happy to have you?

Mr. PATE. Sir, at the present time, we feel as though the establishment of an interagency task force and the establishment of an office to coordinate the reporting of this foreign investment, and to review the patterns and some of the underlying trends is sufficient. I can assure you that we would strongly favor new legislation if it should become apparent in the future that such legislation is needed.

However, on the basis of evidence at the present time, the Department of Commerce is not convinced that new legislation is necessary.