Politicians are scrambling to catch up with the sudden rise in sovereign wealth funds at a time when the least transparent of these funds, the Abu Dhabi Investment Authority, has announced it is taking a 4.9% stake in one of the largest American banks, Citigroup.

“We have a sovereign nation, for all intents and purposes, that is coming in to bail out, or to keep alive, an American company that has become synonymous with financial services in this country,” Rep. Vito Fossella, a Republican representing Staten Island and parts of Brooklyn, said. “I don’t think it’s a bright day for the United States.”

Sovereign wealth funds are assets controlled by a government in another country’s currency. In Citigroup’s case, it is the Arab Emirate of Abu Dhabi, which is estimated to manage as much as $897 billion. Similar to foreign exchange reserves held by central banks, these sovereign funds — which are not required to publish annual reports, rarely discuss their investment strategies, and often avoid divulging even their size — have existed since the 1950s. It wasn’t until recently, however, with the rise in petrodollars and the ballooning strength of the Chinese economy, that these funds gained national attention.

In 1990, sovereign funds were thought to have totaled $500 billion. Today, they are estimated at $3 trillion, and are expected to top $10 trillion by 2012, according to the International Monetary Fund.

Citigroup’s $7.5 billion infusion from the Abu Dhabi sovereign fund comes just weeks after Congress approved legislation tightening standards on foreign investment. Now, however, some politicians are concerned this new legislation, the Foreign Investment and National Security Act of 2007, overlooked the increasingly significant role sovereign funds are playing in America. Several senators, including the chairman of the Senate Committee on Banking, Housing, and Urban Affairs, Senator Dodd, have asked that the Treasury Department clarify whether the legislation includes oversight of these funds. Meanwhile, the Treasury Department is looking for guidance elsewhere, asking that the International Monetary Fund and the World Bank create best practices to increase the transparency of these funds.

Earlier this fall, Mr. Dodd and the ranking member of the Senate Committee on Banking, Housing and Urban Affairs, Senator Shelby, the chairman of the Senate Subcommittee on Security and International Trade and Finance, Senator Bayh, and Senator Webb asked the Treasury secretary, Henry Paulson, “to take into account the possibility that in some cases passive foreign ownership interests in assets in the United States, including through sovereign investment funds may have national security implications.”

The senators ask Mr. Paulson to “promulgate regulations regarding … the Foreign Investment and National Security Act of 2007 broad enough to ensure that potential national security implications are appropriately assessed in the context of ongoing foreign investments in the U.S. economy.”

While the Treasury Department is sending signals that the new legislation does include oversight of these funds, according to sources familiar with their position, it is also looking for additional guidance from the IMF. Earlier this month, Undersecretary of Treasury for International Affairs David McCormick told the Senate Banking Committee, “Sovereign wealth funds could potentially distort markets.” For this reason, he said, the IMF, with support from the World Bank, should develop best practices. “These would provide guidance to new funds on how to structure themselves, reduce any potential systemic risk, and help demonstrate to critics that sovereign wealth funds can be responsible, constructive participants in the international financial system,” he said. Still, Mr. McCormick admitted, “it remains to be seen” whether such voluntary guidelines are sufficient.

While some politicians are looking for ways to control the influence of these sovereign funds in America, there is also a growing backlash against those who approved the Abu Dhabi deal, including the Citigroup chairman, Robert Rubin, and Senator Schumer, supported the transaction.

A study by a senior fellow at the Peterson Institute for International Economics, Edwin Truman, analyzed 32 sovereign funds and concluded that not only is Abu Dhabi’s fund the largest, it is also the least transparent.

“It is ironic that the politicians are so worried about transparency, yet they are welcoming this deal when we know less about the governance of this fund than any other,” he said.

With 4.9% of Citigroup shares owned by Abu Dhabi, and another 3.9% belonging to Saudi Prince Alwaleed bin Talal, “you have to wonder to what extent this is a business deal and to what extent it is a way to have even greater influence here in the United States by certain Saudi and other Arab entities,” the president of the Foundation for Defense of Democracies, Clifford May, said.