Shielding Leaks that Damage the Economy

As we’ve noted previously here and here and here, media coverage of the debate over a federal media shield invariably depicts a battle between two forces: Journalists fighting to protect their sources and the free flow of information versus the Administration, warning against a law that will encourage leaks of national security and classified intelligence information.

But business, too, has a major stake in this legislation, which could shield crimes committed against companies, their executives and employees.

Treasury Secretary Henry Paulson raised one aspect of this illicit information spreading in a letter last month to Congress, noting the possible damage done to the CFIUS program — the national security reviews involved in major foreign investments in U.S.-based corporations. (CFIUS = Committee on Foreign Investment in the United States, a multiagency review panel.)

CFIUS review depends heavily on the voluntary submission of substantial information by the parties pertaining to their transaction. Regulations require that parties submitting a notice to CFIUS provide detailed information (personal and proprietary) about themselves and the transaction, including their businesses’ structures, commercial relationships and affiliations, transactional documents, market share and business plans. In recognition of the sensitivity of this information, section 721 prohibits public disclosure of such documents or information, except in the case of an administrative or judicial action or proceeding, and further exempts such documents and information from disclosure under the Freedom of Information Act.

In recent years, there have been several instances in which pending transactions and their related details have been leaked to and reported by the press. Unlawful media disclosure of information provided to CFIUS risks fundamentally undermining the critical national security review process. Companies could become reluctant to submit their transactions for review. Those that do file may become less forthcoming in the information they provide to CFIUS. Media leaks also undermine the integrity of the interagency deliberative process, chilling the full and open discussion that is essential to CFIUS’s decision making.

Breaches of confidentiality could also chill foreign investment. Firms otherwise willing to invest in the United States may become less inclined to do so if submitting to a national security review process risks public exposure of sensitive personal, proprietary, and business information. Also, repeated leaks may make other countries less inclined to provide robust protections for confidential information provided by U.S. companies, putting U.S. companies with international operations at a competitive disadvantage to local companies.

Perhaps a reporter could consider this angle.

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