[House Hearing, 109 Congress]
[From the U.S. Government Publishing Office]



 
                     FOREIGN INVESTMENT, JOBS, AND
                  NATIONAL SECURITY: THE CFIUS PROCESS

=======================================================================

                                HEARING

                               BEFORE THE

                            SUBCOMMITTEE ON
                       DOMESTIC AND INTERNATIONAL
                 MONETARY POLICY, TRADE, AND TECHNOLOGY

                                 OF THE

                    COMMITTEE ON FINANCIAL SERVICES

                     U.S. HOUSE OF REPRESENTATIVES

                       ONE HUNDRED NINTH CONGRESS

                             SECOND SESSION

                               __________

                             MARCH 1, 2006

                               __________

       Printed for the use of the Committee on Financial Services

                           Serial No. 109-75



                    U.S. GOVERNMENT PRINTING OFFICE
30-179                      WASHINGTON : 2006
_____________________________________________________________________________
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                 HOUSE COMMITTEE ON FINANCIAL SERVICES

                    MICHAEL G. OXLEY, Ohio, Chairman

JAMES A. LEACH, Iowa                 BARNEY FRANK, Massachusetts
RICHARD H. BAKER, Louisiana          PAUL E. KANJORSKI, Pennsylvania
DEBORAH PRYCE, Ohio                  MAXINE WATERS, California
SPENCER BACHUS, Alabama              CAROLYN B. MALONEY, New York
MICHAEL N. CASTLE, Delaware          LUIS V. GUTIERREZ, Illinois
EDWARD R. ROYCE, California          NYDIA M. VELAZQUEZ, New York
FRANK D. LUCAS, Oklahoma             MELVIN L. WATT, North Carolina
ROBERT W. NEY, Ohio                  GARY L. ACKERMAN, New York
SUE W. KELLY, New York, Vice Chair   DARLENE HOOLEY, Oregon
RON PAUL, Texas                      JULIA CARSON, Indiana
PAUL E. GILLMOR, Ohio                BRAD SHERMAN, California
JIM RYUN, Kansas                     GREGORY W. MEEKS, New York
STEVEN C. LaTOURETTE, Ohio           BARBARA LEE, California
DONALD A. MANZULLO, Illinois         DENNIS MOORE, Kansas
WALTER B. JONES, Jr., North          MICHAEL E. CAPUANO, Massachusetts
    Carolina                         HAROLD E. FORD, Jr., Tennessee
JUDY BIGGERT, Illinois               RUBEN HINOJOSA, Texas
CHRISTOPHER SHAYS, Connecticut       JOSEPH CROWLEY, New York
VITO FOSSELLA, New York              WM. LACY CLAY, Missouri
GARY G. MILLER, California           STEVE ISRAEL, New York
PATRICK J. TIBERI, Ohio              CAROLYN McCARTHY, New York
MARK R. KENNEDY, Minnesota           JOE BACA, California
TOM FEENEY, Florida                  JIM MATHESON, Utah
JEB HENSARLING, Texas                STEPHEN F. LYNCH, Massachusetts
SCOTT GARRETT, New Jersey            BRAD MILLER, North Carolina
GINNY BROWN-WAITE, Florida           DAVID SCOTT, Georgia
J. GRESHAM BARRETT, South Carolina   ARTUR DAVIS, Alabama
KATHERINE HARRIS, Florida            AL GREEN, Texas
RICK RENZI, Arizona                  EMANUEL CLEAVER, Missouri
JIM GERLACH, Pennsylvania            MELISSA L. BEAN, Illinois
STEVAN PEARCE, New Mexico            DEBBIE WASSERMAN SCHULTZ, Florida
RANDY NEUGEBAUER, Texas              GWEN MOORE, Wisconsin,
TOM PRICE, Georgia                    
MICHAEL G. FITZPATRICK,              BERNARD SANDERS, Vermont
    Pennsylvania
GEOFF DAVIS, Kentucky
PATRICK T. McHENRY, North Carolina
CAMPBELL, JOHN, California

                 Robert U. Foster, III, Staff Director
Subcommittee on Domestic and International Monetary Policy, Trade, and 
                               Technology

                       DEBORAH PRYCE, Ohio, Chair

JUDY BIGGERT, Illinois, Vice Chair   CAROLYN B. MALONEY, New York
JAMES A. LEACH, Iowa                 BERNARD SANDERS, Vermont
MICHAEL N. CASTLE, Delaware          MELVIN L. WATT, North Carolina
FRANK D. LUCAS, Oklahoma             MAXINE WATERS, California
RON PAUL, Texas                      BARBARA LEE, California
STEVEN C. LaTOURETTE, Ohio           PAUL E. KANJORSKI, Pennsylvania
DONALD A. MANZULLO, Illinois         BRAD SHERMAN, California
MARK R. KENNEDY, Minnesota           LUIS V. GUTIERREZ, Illinois
KATHERINE HARRIS, Florida            MELISSA L. BEAN, Illinois
JIM GERLACH, Pennsylvania            DEBBIE WASSERMAN SCHULTZ, Florida
RANDY NEUGEBAUER, Texas              GWEN MOORE, Wisconsin
TOM PRICE, Georgia                   JOSEPH CROWLEY, New York
PATRICK T. McHENRY, North Carolina   BARNEY FRANK, Massachusetts
MICHAEL G. OXLEY, Ohio


                            C O N T E N T S

                              ----------                              
                                                                   Page
Hearing held on:
    March 1, 2006................................................     1
Appendix:
    March 1, 2006................................................    79

                               WITNESSES
                      Wednesday, January 00, 2006

Edelman, Eric S., Under Secretary of Defense for Policy, U.S. 
  Department of Defense..........................................    12
Ervin, Clark, Director, Homeland Security Initiative, The Aspen 
  Institute......................................................    63
Glassman, James K., Resident Fellow, American Enterprise 
  Institute......................................................    56
Jackson, Michael P., Deputy Secretary, U.S. Department of 
  Homeland Security..............................................    10
Kimmitt, Robert M., Deputy Secretary, U.S. Department of the 
  Treasury.......................................................     7
Malan, Todd M., President and CEO, Organization for International 
  Investment.....................................................    57
Marchick, David M., Partner, Covington and Burling...............    59
Reinsch, William A., President, National Foreign Trade Council...    61
Welch, C. David, Assistant Secretary, Bureau of Near Eastern 
  Affairs, U.S. Department of State..............................    15

                                APPENDIX

Prepared statements:
    Biggert, Hon. Judy...........................................    80
    Castle, Hon. Michael N.......................................    82
    Edelman, Eric S..............................................    84
    Ervin, Clark.................................................    91
    Glassman, James K............................................    94
    Jackson, Michael P...........................................   102
    Kimmitt, Robert M............................................   112
    Malan, Todd M................................................   118
    Marchick, David M............................................   128
    Reinsch, William A...........................................   139
    Welch, C. David..............................................   143

              Additional Material Submitted for the Record

Kimmitt, Robert M.:
    Responses to Questions Submitted by Various Members..........   144


                     FOREIGN INVESTMENT, JOBS, AND
                  NATIONAL SECURITY: THE CFIUS PROCESS

                              ----------                              


                        Wednesday, March 1, 2006

             U.S. House of Representatives,
         Subcommittee on Domestic and International
            Monetary Policy, Trade, and Technology,
                           Committee on Financial Services,
                                                   Washington, D.C.
    The subcommittee met, pursuant to notice, at 2:03 p.m., in 
room 2128, Rayburn House Office Building, Hon. Deborah Pryce 
[chairwoman of the subcommittee] presiding.
    Present: Representatives Pryce of Ohio, Biggert, Leach, 
Castle, Paul, Manzullo, Gerlach, Price of Georgia, Maloney, 
Sanders, Waters, Lee, Sherman, Gutierrez, Wasserman-Schultz, 
Moore of Wisconsin, Kelly, Garrett, Bachus, Ryun, Campbell, 
Barrett, McCarthy, Matheson, Cleaver, Davis of Alabama, Moxley, 
Meeks, and Scott of Georgia.
    Ex officio present: Representatives Oxley and Frank.
    Chairwoman Pryce. This subcommittee will now come to order. 
Pursuant to the notice given previously, the Chair announces it 
shall limit recognition for opening statements to the Chair and 
the ranking minority members of the subcommittee and the Full 
Committee. Without objection, the opening statements of all 
members will be included in the record. I appreciate everyone's 
consideration of this. We have a lot of members who want to 
participate today, and we would never get to the witnesses if 
we allowed full opening statements.
    At this time, the Chair recognizes herself for an opening 
statement.
    First of all, I am very pleased to welcome all of you here 
today to this hearing on the Committee of Foreign Investments 
in the United States, CFIUS. I would like to thank our 
witnesses for being here on such short notice. I know that we 
all appreciate the opportunity to discuss the CFIUS process, 
and hopefully answer some questions regarding recent 
transactions.
    The CFIUS process is not something that every American is 
aware of, or perhaps even every Member of Congress, until this 
past week. It is my desire to focus this hearing on how the 
Committee on Foreign Investment in the United States operates. 
I want the American people to have more information about the 
oversight and protections that are in place to determine if 
foreign investment is in the best interest of the United 
States' national security.
    I would like to hear from our witnesses today how each 
CFIUS member evaluates a proposed transaction, and especially 
how the process for the Dubai Ports World acquisition of the 
Peninsula and Oriental Steam Navigation Company's U.S. assets 
took place.
    I, for one, was alarmed by the comments of Secretary 
Chertoff made over the weekend that America must ``balance the 
paramount urgency of security against the fact that we still 
want to have a robust global trading system.'' To me, and to 
many Americans, that statement implied that there are aspects 
of our Nation's security that must be sacrificed at the altar 
of free trade. That is something that I fundamentally reject.
    Since 9/11, Congress has invested millions and millions of 
dollars to strengthen our Nation's seaports, and has called for 
comprehensive security improvements costing billions over the 
next decade. Selling the management rights of these ports to 
foreign interests undermines the confidence Americans have in 
their leaders.
    I am hoping you might reassure this subcommittee and the 
American public that there is no trade-off between 
participating fully in international trade, and ensuring the 
safety and security of our Nation.
    Each of the departments and agencies that comprise CFIUS 
plays a critical role in securing our Nation from threats, both 
foreign and domestic. I think we can all agree that feeling 
secure is as much a perception as it is something that can be 
empirically assessed.
    Therefore, I am hoping to learn today what, if any, 
consideration was given by CFIUS to the public's perception of 
the Dubai transaction, and how it might have weighted against 
the myriad of other factors the committee analyzed in reaching 
its conclusion.
    This subcommittee has jurisdiction over the Exon-Florio 
provision of the Defense Production Act, which includes CFIUS, 
and we should take our responsibilities seriously. That is why 
we are here.
    It is important during this period of concern for our 
security that we do not hinder future investment in the United 
States. That said, in this particular case, the DP World 
transaction, perhaps a little more forethought from our 
Administration and this committee would have helped to reassure 
our citizens that they will continue to be safe.
    CFIUS gives the President powers to block certain types of 
foreign investment. But in our post-9/11 America, we need the 
assurance that our President has seen the CFIUS review, and 
that department heads are aware of what is going on in their 
agencies.
    The Byrd Rule was instituted 13 years ago, 13 years before 
Osama bin Laden, 13 years before each American knew what a 
yellow, orange, or red elevated threat meant, and 13 years 
before there was a Department of Homeland Security. In a post-
9/11 world, Congress operates under heightened awareness when 
it comes to all aspects of national security. Perhaps it is 
time we bring the Byrd Rule and the CFIUS process into a new 
decade with greater transparency and accountability, and I 
pledge to you all that this committee will do its best to see 
that that happens.
    DP World has recently reissued its CFIUS request, and we in 
Congress welcome a thorough review of this company and this 
transaction. If DP World can effectively manage these ports 
without putting any aspect of American security at risk, then 
this 45-day review will bear that out. But should any aspect of 
the review leave continued questions or concerns, I believe 
that Congress should take swift measures to address the 
security of our people and our ports.
    My State of Ohio doesn't have any ports, but this issue 
goes beyond ports or railroads or airlines. This issue touches 
every American who wants to know that each day, they are safe. 
I hope that this hearing can begin to reassure our citizens, 
and I very much look forward to hearing our witnesses' 
testimony. And I will yield back the balance of my time and 
recognize my good friend, the gentlelady from New York, for her 
opening statement.
    Mrs. Maloney. I thank the gentlelady for yielding and for 
calling this important hearing.
    A great number of questions have been raised about the 
security of our ports and the secretive approval process that 
led to this deal. Unless the President and the Congress act 
promptly, in the next day or so, the Government of Dubai will 
buy, over the strong objection of the American people, the 
company that operates 20 U.S. ports, including 7 of our largest 
ports, among them the ports of New York and New Jersey, which 
remain key terrorist targets.
    The Administration hastily approved this deal, even without 
the 45-day investigation of national security concerns required 
by law. They approved this deal without consulting with or even 
informing the Congress, the American people, or the affected 
communities.
    The American people find this deeply troubling. Wherever I 
go in New York, I am stopped by people. They literally walk 
across the street and ask me, ``How can our government be so 
stupid?''
    Clearly, the Administration's approval process reflects a 
pre-9/11 mentality. Our country cannot afford it, and the 
underlying law needs to be updated to reflect the post-9/11 
world. We need to be focusing on how to improve national 
security at our ports and elsewhere, and not on how to do an 
end run around the national security reviews.
    The law requires a 45-day investigation whenever an 
acquisition by a foreign government--and I quote--``could 
affect national security.'' Neither the President nor any of 
the 12 agencies involved in the government approval process 
thought that this $6.9 billion transaction to a foreign 
government in any way ``could affect national security?'' At 
the very least, we need to change the Administration's 
definition of national security. We need to inform them that 
our ports and the country's infrastructure are terrorist 
targets and national security concerns.
    The 9/11 Commission Report concluded that terrorists have 
the opportunity--and I quote--``to do harm as great or greater 
in maritime and surface transportation as the 9/11 attacks.'' 
We need to ask probing questions today about a foreign 
government takeover of port management, and the process by 
which this decision was made. We need to see the objections of 
the Coast Guard or any other agency that raised questions.
    And I might add that we would be asking the same questions 
if this agreement involved other foreign countries, such as 
China, Russia, Venezuela, or Pakistan. This is not 
discrimination, as has been alleged by the President. It is 
about protecting our national security.
    I am not reassured by the new offer of a 45-day review. The 
President has made very clear that he will approve this deal no 
matter what any review shows. I am asking that this committee 
have access to all documents relating to the new investigation 
and to the prior review, every single bit of paper.
    I am particularly interested in any objections. In a $6.9 
billion deal to a foreign government, you would think there 
would be some objections somewhere, or some review, not a 
decision to just bypass the national security required 45-day 
review. So it is important that we see all of these documents.
    We need to reform the CFIUS process. We need to make it 
stronger and more open to Congressional review. We need to 
ensure that it reflects the risks of the post-9/11 world. And 
most of all, we need to make sure that the American people are 
protected in their ports and in their trains and anywhere in 
America.
    I yield back.
    Chairwoman Pryce. Thank you, Mrs. Maloney. The Chair now 
recognizes the Chairman of the Full Committee, the Honorable 
Michael Oxley, from the great State of Ohio.
    The Chairman. Thank you, Chairwoman Pryce, and thank you 
for your leadership to address the Dubai Ports World issue, as 
well as examining it in the larger context of the CFIUS process 
and port security in general. I think that over the next few 
hours, we're going to learn a lot for our committee about the 
process and how it works. And while many people had an initial 
strong reaction to the Dubai Ports World acquisition and the 
company's increased role in port management, we must view this 
in context. So if this additional 45-day review gives us the 
opportunity to reexamine the issue and look at the progress 
that has been made in this area, then that is all for the good.
    Certainly, we all welcome the added scrutiny, which will 
give everyone involved a chance to review the security issues 
and the status of the cargo shipping system. For instance, I 
have seen the press reports detailing the Coast Guard's 
reported concerns about the screening of cargo ship personnel 
and security of the cargo holds protection system. While they 
may or may not be directly related to the port management 
company, certainly we would be wise to give these specific 
issues further thought and evaluation. My own prediction is 
that this process eventually will reveal the merits of the 
President's position, and will show a system that is both 
efficient and seamless.
    The world's cargo shipping system is global and 
interdependent. We trust our allies and our trading partners, 
because we all share a mutual interest and a secure system. 
Great strides have been made in increasing the security and 
efficiency of the system, which were begun long before the age 
of terrorism.
    Much has been changed since I was on the docks of New York 
investigating organized crime as a young special agent of the 
FBI. After all, nearly one third of U.S. ports are managed by 
foreign-based companies. The role of the management company is 
to track where the cargo comes from and where it goes. The U.S. 
Coast Guard is in charge of port security. U.S. Customs Service 
is responsible for checking those cargoes. U.S. longshoremen 
handle the cargo and operate the cranes. To assume some 
connection between the port management company and the content 
of the cargo misses a great deal about how the system operates.
    As far as the CFIUS process is concerned, we should all be 
reminded that it is not, nor should it be, political in nature. 
That is a slippery slope, and it would be a mistake to take 
that step.
    In our discussions with the Treasury officials who 
administer CFIUS, they have expressed their willingness to 
communicate more effectively and more often with this committee 
and with Capitol Hill. We have discussed informal quarterly 
briefings, and we at the Financial Services Committee would 
welcome that.
    Now is a good time to think about the tremendous value of 
foreign investment for the U.S. economy and the message we want 
to convey to the world. According to the Organization for 
International Investment (OFII), U.S. subsidiaries of foreign-
based companies employ 5.3 million Americans and support an 
annual payroll of $318 billion, with an average worker's salary 
of more than $60,000 a year.
    Also, according to the OFII, U.S. subsidiaries of foreign-
based companies invest heavily in the manufacturing sector. In 
my own State of Ohio, 208,600 workers are employed by foreign-
based companies. We should be welcoming and encouraging foreign 
direct investment, not shutting it out.
    I recommend to the members columnist Thomas Friedman's New 
York Times column on this issue that he wrote recently. And I 
quote, ``The world is drifting dangerously toward a widespread 
religious and sectarian cleavage, the likes of which we have 
not seen for a long, long time. The only country with the power 
to stem this toxic trend is America.''
    Let's not be ruled by our worst fears. Let's not close off 
America, as the terrorists would hope we would. While 
protecting ourselves against any security threat, let's 
remember our American values of free trade and fairness and 
capitalism and the inherent worth of our relationships with 
other nations. Those are the American ideals we need to export 
to the rest of the world.
    Madam Chairwoman, I want to particularly welcome our first 
panel, all distinguished gentlemen, three former ambassadors, a 
former lead individual with the Transportation Department, all 
with great knowledge not only of the CFIUS process, but the 
port issues in general. And I can't think of a more qualified 
and strong group to head this first panel. And with that, I 
welcome them and yield back the balance of my time.
    Chairwoman Pryce. Thank you very much, Mr. Chairman. I'd 
now like to yield for opening statement to the ranking member 
of the Full Committee, Mr. Barney Frank.
    Mr. Frank. Thank you, Madam Chairwoman. I am not often 
moved to poetry in this forum. But a line from a British poem--
I regret that neither the author nor the title remains in my 
mind--is describing a seduction: ``Whispering she would ne'er 
consent, consented.'' And that appears to me to describe the 
process in which we are now engaged.
    There was a great deal of anger across the political 
spectrum when this was announced. Indeed, judging from the 
reactions my Republican colleagues have had on a wide range of 
other issues, it was not surprising that they reacted so 
negatively to this process.
    But the seduction process appears under way. And I must say 
that while this committee has usually functioned in a very 
bipartisan fashion, I am distressed that the request of our 
ranking member for a witness list that was not so 
overwhelmingly one-sided was rejected.
    We will have nine witnesses today, eight of whom will be 
ardent proponents of the deal. Now, we expect that from the 
Administration. What troubles me is out of the five non-
Administration witnesses, there are two who take intellectual 
positions, one on either side, and then three other witnesses, 
all of whom are professionally involved in advocating for 
foreign trade.
    Now, that is a perfectly reasonable thing to do, advocating 
for foreign trade. But if you're trying to have a reasonable 
hearing, then to have all three of those witnesses be people 
who have a professional interest in this, one an attorney. 
Again, perfectly honorable, but he practices before CFIUS. The 
likelihood that he would be at all critical seems to be rather 
low.
    Then we have the Foreign Trade Council and the Organization 
for International Investment. Frankly, I don't even think FOX 
News would claim that this was fair and balanced.
    So I really regret the one-sidedness of the witness list, 
and I know that our ranking member asked for some more balance.
    Secondly, I want to address the issue that well, this is 
going to cause us problems, some of this criticism, with our 
allies in Dubai and in the United Arab Emirates. Although I 
must say that the argument that we should not be treating the 
Emirates any differently than England seems to me to be totally 
fallacious. The President said that.
    Now, I am a strong supporter of the Visa Waiver Program. I 
fought hard to get Portugal involved. Britain, you can come to 
America from England without a visa. I don't want Dubai in that 
program. Does that make me a bad guy? I don't think I am 
prejudiced. I can think of a lot of other areas there. I am 
offended by their participation so eagerly in the boycott of 
Israel.
    And I think we have a right to differentiate, and maybe not 
in this particular case. But to treat all countries the same 
when they have very different policies? Frankly, I am 
particularly upset that right now, the United Arab Emirates is 
sending 12 men to jail because they happen to be gay. And that 
doesn't happen in England. Now, that may or may not in the end 
be relevant, but it is one of the things you take into account.
    But the central point I want to make here is that this 
seems to me, sadly, to be the latest example of incompetence on 
the part of this Administration. I agree it is regrettable that 
we are in this public debate involving the United Arab 
Emirates, which in some ways has been constructive and helpful, 
although they're subject to pressures. That is the President's 
fault. That is the fault of the people who let this go through.
    In October, when Dubai approached the United States and 
said, ``We want to buy the company that will run the ports,'' 
did none of you say, ``You know, this might not be the best 
time to do that''? This political furor was entirely 
predictable. It is regrettable, but it was predictable.
    And it is the incompetence of this Administration that has 
put us in this position. You should have told them back then, 
``You know what? There are a lot of things you can buy. We'd 
love to have the investment. Why don't you stay away from the 
ports for a while? We've had a lot of controversy over port 
security. We're worried about things being smuggled in. There 
is all this tension.''
    So yes, I think it is unfortunate we are in this situation. 
I think anyone with any sense last fall should have foreseen 
this. And again, it is not purely partisan. Didn't you have a 
sense that the Republican majority leader and the Republican 
speaker might be upset about this? Well, one reason perhaps you 
didn't is that there was no conversation, no consultation. I 
think that maybe this Administration will learn that doing 
these things without any kind of consultation is a mistake.
    So we have very serious questions. And the final thing I 
would say is this with regard to this procedure. The notion 
that the President of the United States and the people under 
him are now going to conduct an independent review of a 
decision which he says was absolutely correct fools nobody 
except those who are eager to be fooled, those who are 
whispering they will not consent are planning to consent.
    And here's the question I would have. If, in fact, the 45-
day review is now necessary, why didn't you do it in the first 
place? And if you didn't really think it was necessary in the 
first place and you still believe it, why should we put any 
credence in the fact that you're doing it now?
    So Madam Chairwoman, I am happy that we are having this 
hearing, but I would be happier if it was a better hearing.
    Chairwoman Pryce. The gentleman yields back, I assume. I'd 
now like to introduce our witnesses for today's hearing, and 
we'll hear from them as soon as the introductions are complete.
    We have with us today the Honorable Robert Kimmitt, who is 
the Deputy Secretary with the Department of the Treasury. 
Welcome. The Honorable Michael Jackson, Deputy Secretary with 
the Department of Homeland Security. Thank you for being here.
    Joining them is the Honorable Eric Edelman, Under Secretary 
with the Department of Defense. Thank you.
    And the Honorable David Welch, Assistant Secretary of Near 
Eastern Affairs with the Department of State.
    Thank you, gentlemen, all for being here. Thank you for 
your consideration of this issue, your preparation for it.
    We look forward to hearing your testimony today, and we 
will begin with the Honorable Robert Kimmitt. Thank you.

    STATEMENT OF ROBERT M. KIMMITT, DEPUTY SECRETARY, U.S. 
                   DEPARTMENT OF THE TREASURY

    Mr. Kimmitt. Thank you, Madam Chairwoman, Chairwoman Pryce, 
Ranking Member Maloney, Chairman Oxley, Ranking Member Frank, 
and members of the subcommittee and Full Committee.
    Thank you for the opportunity to appear before you this 
afternoon to address the Committee on Foreign Investment in the 
United States and its role in the review of DP World's 
acquisition of P&O.
    CFIUS is an interagency body comprised of the Departments 
of the Treasury, State, Defense, Justice, Commerce, and 
Homeland Security, and six White House offices: the National 
Security Council, the National Economic Council, the U.S. Trade 
Representative, the Office of Management and Budget, the 
Council of Economic Advisors, and the Office of Science and 
Technology Policy.
    The committee was established by executive order in 1975 to 
evaluate the impact of foreign investment in the United States. 
In 1988 and 1992, Congress passed legislation, now embodied in 
the Exon-Florio amendment, which empowered the President to 
suspend or prohibit any foreign acquisition of a U.S. 
corporation if the acquisition is determined to threaten U.S. 
national security.
    CFIUS has evolved over time to keep pace with changes to 
the concept of national security. For example, in 1998, the 
Intelligence Community Acquisition Risk Center, known by the 
acronym CARC, was created. This office is now under the 
Director of National Intelligence, and provides CFIUS with the 
threat assessment of the foreign acquirer.
    Further, following September 11, 2001, the newly-created 
Department of Homeland Security (DHS) was added to the 
committee, and DHS has played a primary role in reviewing many 
transactions, including the case at hand. Further, agencies 
that are not formal members of CFIUS are often called upon to 
lend their expertise.
    CFIUS operates through a process in which Treasury is a 
chair, receives notices of transactions, circulates these and 
other materials to members of the committee, and coordinates 
the interagency process. Upon receipt of a filing, CFIUS 
conducts a 30-day review during which each CFIUS member 
examines the national security implications of the transaction, 
including the CARC threat assessment.
    All CFIUS decisions are made by consensus. Any agency that 
identifies a potential threat to national security has an 
obligation to raise those concerns within the review process. 
If any member of CFIUS objects or raises a national security 
concern that cannot be satisfactorily addressed during the 
initial 30-day review period, then the case goes through an 
extended 45-day investigation period. The investigation period 
provides CFIUS and the transaction parties additional time to 
address security concerns that were identified but not resolved 
during the review period.
    Under the Exon-Florio amendment, upon completion of the 45-
day investigation, the Secretary of the Treasury, as chairman 
of CFIUS, forwards a recommendation and report to the 
President, who then has 15 days to take action. Upon making a 
determination, the President sends a report to Congress 
detailing his decision. The most recent such report occurred in 
September 2003, when the President reported to the Congress on 
his decision not to block the transaction between Singapore 
Technologies Telemedia and Global Crossing.
    Let me turn now to the DP World transaction. At the outset, 
let me note that in contrast to some accounts, this transaction 
was not rushed through the review process in early February, 
nor was it casual and cursory.
    On October 17, 2005, lawyers for DP World and P&O 
informally approached the Treasury Department's staff to 
discuss the preliminary stages of the transaction. This type of 
informal contact enables CFIUS staff to identify potential 
issues before the review process formally begins. In this case, 
Treasury staff identified port security as the primary issue, 
and immediately directed the companies to the Department of 
Homeland Security. On October 31st, DHS and the Department of 
Justice staff met with the companies to review the transaction 
and security issues.
    On November 2nd, Treasury staff requested an intelligence 
assessment from the Director of National Intelligence. Treasury 
received this assessment on December 5th, and it was circulated 
to staff members of CFIUS. On November 29th, DP World issued a 
press release concerning the transaction. On December 6th, 
staff from the CFIUS agencies met with company officials to 
review the transaction and review additional information.
    On December 16th, after almost 2 months of informal 
interaction and 45 days after CFIUS requested the intelligence 
assessment, the companies officially filed their formal notice 
with Treasury, thus beginning the 30-day process. Treasury 
circulated the filing to all CFIUS departments and agencies, 
and in this case also, the Departments of Energy and 
Transportation because of their statutory responsibilities and 
experience with DP World.
    During the 30-day review period, the CFIUS departments and 
agencies continued their internal departmental reviews, and 
were in contact with one another and the companies. As part of 
this process, DHS negotiated an assurances letter that 
addressed port security concerns that had been raised earlier 
in the process. The letter was circulated to the committee on 
January 6th for its review, and CFIUS concluded its review on 
January 17th. Far from rushing the review, members of CFIUS 
staff spent nearly 90 days carefully reviewing this 
transaction.
    Last Sunday, February 26th, DP World announced that it 
would make a new filing with CFIUS and requested a 45-day 
investigation. Upon receipt of DP World's new filing, CFIUS 
will promptly initiate the review process, including DP World's 
request for an investigation. The 45-day investigation will 
consider existing materials, as well as new information 
anticipated from the company. Importantly, the investigation 
process will also consider very carefully concerns raised by 
Members of Congress, State and local officials, and other 
interested parties. We welcome your input during this process, 
including issues that will be raised at today's hearing.
    Madam Chairwoman and members of the subcommittee, those of 
us sitting at this table this afternoon share with you one 
fundamental principle, that our highest responsibility as 
government officials is protecting the national security of the 
United States. The work done by our colleagues in the initial 
review was guided by this standard, as will be our further 
efforts during the 45-day review. I am sure it will also guide 
your review of the President's report to you at the end of the 
investigation.
    I thank you for your time this afternoon. I am happy to 
answer your questions after my colleagues make their 
statements.
    [The prepared statement of Mr. Kimmitt can be found on page 
112 of the appendix.]
    Chairwoman Pryce. Thank you, Mr. Secretary. And now we will 
hear testimony from the Honorable Michael Jackson, Deputy 
Secretary with the Department of Homeland Security.
    Mr. Secretary.

    STATEMENT OF MICHAEL P. JACKSON, DEPUTY SECRETARY, U.S. 
                DEPARTMENT OF HOMELAND SECURITY

    Mr. Jackson. Thank you, Chairwoman Pryce, Ranking Member 
Maloney, Chairman Oxley, Ranking Member Frank, and members of 
the subcommittee and the Full Committee. I am grateful to be 
here today. We hope to have a good conversation about the 
issues involved in this testimony, and look forward to your 
questions. I'll be as brief as possible by way of an 
introduction.
    I share the concerns and the assessments of Deputy 
Secretary Kimmitt about our commitment here to the process of 
working with the goal of defending the homeland. That is the 
touchstone against which the whole CFIUS process is graded, and 
it is the touchstone for us on all of our work in the CFIUS 
process. And I can guarantee you it will be our touchstone as 
we go forward in the 45-day review process.
    I'll say just a word about whether or not the process was 
adequate in its time and attention to the task at hand. And I 
totally agree with Deputy Secretary Kimmitt that we had an 
adequate amount of time, a fully structured and resourced 
review of this matter. It was in part due to the fact of the 
long lead prior to the formal filing that we were able to look 
at this transaction with care and in detail.
    Our Department, as Bob said, began on October 31st the 
formal work of meeting with the parties in this transaction, 
and it culminated in January with the determination that we had 
no objection to this transaction. Along the way, we reviewed 
all of the evidence available to us from the intelligence 
community and from our own resources within the Department, 
which we put against this task, and all of the Department's 
components concur in the conviction that the Department of 
Homeland Security should have no objection to this transaction 
moving forward.
    I would like to just say that this was made somewhat easier 
in our case at DHS because of the already strong relationships 
that we have with Dubai Ports World in our work with them in 
Dubai with various programs that are administered by Customs 
and Border Protection and by the Coast Guard. So we had a 
record of understanding the nature of this firm and its 
operation and its commitments to the security regime, which we 
are bringing to domestic maritime activities.
    I'd like to say just a little bit about the context for 
thinking about this transaction. The first views about this 
focused on, I think, misperceptions, and more information and 
more discussion is valuable here.
    This is not about buying ports. The ports are owned by the 
State and local authorities. There is already a very, very 
strong investment by foreign-owned corporations in terminal 
operations of two types. One, by the ocean carrier industry 
that services our ports. That industry is today almost entirely 
foreign-owned. Second, by operating companies who operate 
terminals. And there are many foreign terminal operators 
working today in the United States. This is a global supply 
chain business, and this transaction is not a dramatic new step 
in the profile of security management that we see in ports.
    Just a word about the framework, then, in particular on 
port security. It begins overseas. We have after 9/11 made 
transformational changes, and I would say substantial 
investments. From fiscal year 2004 through the proposed fiscal 
year 2007 budget, which we have recently submitted, the 
Department of Homeland Security alone will have invested $10 
billion in maritime security activities. This includes a 
variety of programs, but I'd like to highlight just a few.
    One is our Container Security Initiatives that are managed 
by the Customs and Border Protection. These begin with pushing 
our borders out to foreign ports, to our work to inspect in-
bound containers overseas before they leave. Approximately 80 
percent of the in-bound containers are in the so-called CSI 
initiative today, and our work overseas with ports, including 
Dubai's terminal operator here, DP World, is extensive.
    Similarly, when those containers come into the country, we 
have advance notice of the contents of those containers. They 
are run through a program of very intense analysis. We screen 
every single container in-bound through the United States. We 
then inspect 100 percent of all containers when they arrive 
that have any concern based upon our screening, our complex 
screening of the history of who's moving the container, what is 
in the container, who's receiving the container, who has 
touched the container, all the information that we have.
    So on the container side, it starts overseas. The terminal 
operator unloads the container and does not have knowledge and 
visibility into the contents of the container. The terminal 
operator has a very important role in the security regime for 
these containers, but they do not have access to the rules and 
the determinations made about the selection of which containers 
we believe to be meriting further scrutiny.
    In addition to the role of Customs and Border Protection, 
the Coast Guard has a preeminent role or protecting the 
maritime domain. This begins as well overseas in port 
inspections. It begins at the inspection and the review of in-
bound ships and the crews on those ships with advance notice, 
so that we have time to review the nature of the vessel and the 
people on the vessel. This is combined and coordinated with our 
Customs and Border Protection review of the contents of the 
vessel. The captain of the port and the Coast Guard has 
authority for a comprehensive security regime at the entire 
port operation.
    I am happy to answer further questions about that regime 
and the details of it. But we partner in this with our port 
authority partners, the public entities that own these ports. 
It is a water side and land side security regime. There are 
teeth in the regime for people who are scofflaws or who are not 
able to bring to bear the type of demands that we have for 
security. And we enforce those rules. The Congress has given us 
in recent years, in 2002, additional security challenges and 
authorities, and we are executing those responsibilities as 
well.
    So what I would like to leave, just by way of introduction, 
is the understanding that this is a company that got a thorough 
review. This is a company that we had prior knowledge of and 
had worked with before. This is a security regime in the 
maritime world which is a complex layered system of systems, a 
web of security. And the terminal operating company is one part 
of that, and it is a small part of a larger piece of the 
security puzzle.
    I am very comfortable that the review that took place was 
appropriate and fair. By the same token, I look forward to 
additional information that might be made available to the 
department as we participate in the 45-day review that is 
proposed. Thank you.
    [The prepared statement of Mr. Jackson can be found on page 
102 of the appendix.]
    Chairwoman Pryce. Thank you, Mr. Secretary. For the 
information of the members and the witnesses, we expect to have 
a Floor vote at about 3:00. It is the intention of the Chair to 
continue this hearing through that vote, or we'll be here all 
night. And so anybody who wants to leave and come back, feel 
free to do that, but we will continue the questioning of the 
witnesses through that 3:00 vote.
    With that said, joining us now is the Honorable Eric 
Edelman, Under Secretary for the Department of Defense. Thank 
you very much, Mr. Edelman.

 STATEMENT OF ERIC S. EDELMAN, UNDER SECRETARY OF DEFENSE FOR 
               POLICY, U.S. DEPARTMENT OF DEFENSE

    Mr. Edelman. Thank you, Madam Chairwoman, Congresswoman 
Maloney, Chairman Oxley, Congressman Frank, and members of the 
subcommittee and the Full Committee. Thank you for the 
opportunity to appear before you today to discuss the 
Department of Defense's role in the Committee on Foreign 
Investments in the United States and our review of the Dubai 
Ports World and Peninsula and Oriental Steam Navigation Company 
transaction.
    As a formal member of the CFIUS process, the Department of 
Defense weighs a number of factors when it considers any 
individual proposed foreign acquisition of a U.S. company. 
First and foremost, a primary objective--
    Chairwoman Pryce. Mr. Edelman, could you just move the mic 
a little bit closer? We're having a hard time hearing you.
    Mr. Edelman. How about that?
    Chairwoman Pryce. That is much better. Thank you.
    Mr. Edelman. As a formal member of the CFIUS process, the 
Department of Defense weighs a number of factors when it 
considers any individual proposed foreign acquisition of a U.S. 
company. First and foremost, our primary objective in this 
process is to ensure that any proposed transaction does not 
pose risks to U.S. national security interests.
    To do this, the Department of Defense reviews several 
aspects of the transaction, including the importance of the 
firm to the U.S. defense industrial base. That is, is it a sole 
source supplier, and if so, what security and financial costs 
would be incurred in finding and/or qualifying a new supplier 
if required? Is the company involved in the proliferation of 
sensitive technology or weapons of mass destruction? Is the 
company to be acquired part of the critical infrastructure that 
the Department of Defense depends upon to accomplish its 
mission? Can any potential national security concerns posed by 
the transaction be eliminated by application of risk mitigation 
measures either under the department's own regulations or 
through negotiation with the parties?
    Regarding this specific CFIUS transaction, the Departments 
of Treasury, Commerce, and Homeland Security met with legal 
representatives of Dubai Ports World and P&O for CFIUS pre-
filing notification consultations on October 31, 2005. On 
December 6, 2005, the companies held a pre-filing briefing for 
all CFIUS agencies. The Defense Technology Security 
Administration attended the meeting for DOD.
    On December 16th, the Department of the Treasury received 
an official CFIUS filing. And on that same day, Treasury 
circulated the filing to all CFIUS member agencies for review, 
and DTSA staffed the filing to 16 other Department of Defense 
elements or agencies for review and comment.
    The review conducted by the Department of Defense on this 
transaction was neither cursory nor casual; rather, it was in-
depth and comprehensive. The transaction was staffed and 
reviewed within the DOD by 17 of our agencies or major 
organizations. In this case, DOD agencies reviewed the filing 
for impact on critical technologies, the presence of any 
classified operations existing within the company being 
purchased, military transportation and logistics, as well as 
other concerns the transaction might raise.
    During the review process on December 21, 2005, through 
January 6, 2006, DOD did not uncover any national security 
concerns that warranted objecting to the transaction or 
requiring a 45-day investigation. The positions of the 
different agencies and elements were approved by staff who 
ranged from subject matter experts up to the Deputy Under 
Secretary of Defense as appropriate to the various offices 
undertaking the review. All who were consulted arrived at the 
same position: Do not investigate further.
    The DOD organizations that reviewed this and all other 
CFIUS transactions bring to bear a diverse set of subject 
matter expertise, responsibilities, and perspectives. The 
organizations include, for example, the Office of the Under 
Secretary for Intelligence; the Office of the Under Secretary 
for Acquisition, Logistics & Technology; the military 
departments--Army, Navy and Air Force; U.S. Transportation 
Command; the National Security Agency; and the Defense 
Intelligence Agency.
    The Army, for example, reviewed the case in the following 
manner. Army Material Command, Headquarters, and Assistant 
Secretary of the Army for Acquisitions, Logistics, and 
Technology staff gave a preliminary review immediately upon 
receipt of the case. AMC staffed the filing to their 
subordinate readiness commands responsible for acquisition and 
logistics, including the Military Surface Deployment and 
Distribution Command. For this case, the Army's review criteria 
included the question of assured shipping, and the Army's final 
position was ``No objection.''
    The Defense Technology Security Administration, which 
reviews, coordinates, and analyzes the recommendations from all 
the DOD components, as well as assessing export control and 
sensitive technology issues, ultimately signed off on the 
transaction for the Department. Therefore, we had a 
comprehensive and in-depth review of the transaction. No issues 
were raised by any agencies or departments within the 
Department of Defense. We remain comfortable with the decision 
that was made.
    I do want to provide a perspective from the Department of 
Defense regarding our relationship with the United Arab 
Emirates and their support as a friend and ally in the global 
war on terrorism. In the war on terrorism, the United States 
needs friends and allies around the world, and especially in 
the Middle East, to help in this struggle. A community of 
nations is necessary to win this long war.
    In our recently published Quadrennial Defense Review, we've 
highlighted that in conducting this fight to preserve the 
security of the American people and our way of life, it is 
important that we strengthen the bonds of friendship and 
security with friends and allies around the world. We must have 
the authority and resources to build partnership capacity, 
achieve unity of effort, and adopt indirect approaches to act 
with and through others to defeat common enemies.
    The United Arab Emirates is an outstanding example of the 
kind of partner we need in order to win this long war. Dubai 
was the first Middle Eastern entity to join the Container 
Security Initiative that Michael Jackson just described, a 
multi-national program to protect global trade from terrorism. 
It was also the first Middle Eastern entity to join the 
Department of Energy's Megaports Initiative, a program aimed at 
stopping illicit shipments of nuclear and other radioactive 
material.
    The UAE has also worked with us to stop terrorist financing 
and money laundering by freezing accounts, enacting aggressive 
anti-money laundering and counter-terrorist financing laws and 
regulations, and exchanging information on people and entities 
suspected of being involved in these activities.
    As you may know, the UAE provides the United States and our 
coalition forces with important access to their territory and 
facilities. General Peter Pace has summed up our defense 
relationship by saying that, ``In everything that we've asked 
and worked with them on, they've proven to be very, very solid 
partners.''
    The UAE provides excellent access to its seaports and 
airfields, like Dhafra Air Base, as well as overflight through 
UAE air space and other logistical assistance. We have more 
Navy port visits in the UAE than any other port outside the 
United States. Last year, U.S. Naval warships and Military 
Sealift Command ships spent over 1,400 days in the ports of 
Dubai, Jebel Ali, Abu Dhabi, and Fujairah. And by the way, the 
port of Jebel Ali, which is the only carrier-based port in the 
Gulf, is managed by Dubai Ports World.
    Coalition partnerships also used the UAE ports in this past 
year. The U.S. Air Force has operated out of Dhafra since the 
Gulf War in 1990. And today, Dhafra is an important location 
for air refueling and air reconnaissance aircraft, and for 
supporting operations in Iraq and Afghanistan.
    And we should note that our most important commodity, our 
military men and women, were frequent visitors to the UAE. In 
fact, over 77,000 military men and women were on liberty or 
leave in the UAE in 2005.
    So we rely on the Emirates for our security in their 
country, and I appreciate and would like to express my thanks 
to the government of the UAE for that.
    Our close military-to-military relationship with the UAE 
also includes the use of the UAE Air Warfare Center established 
in January 2004, where our pilots train with pilots from 
countries across the Middle East.
    Finally, the United Arab Emirates have been very supportive 
of our efforts in Iraq and Afghanistan. They've provided 
military and operational support to Operation Enduring Freedom 
in Afghanistan, and financial and humanitarian aid to 
Afghanistan and its people. The UAE has provided monetary and 
material support to the new Iraqi Government, including a 
pledge of $250 million in economic and reconstruction 
assistance.
    Madam Chairwoman, this concludes my formal statement. I'd 
be happy to answer any further questions you or your colleagues 
may have on this subject.
    [The prepared statement of Mr. Edelman can be found on page 
84 of the appendix.]
    Chairwoman Pryce. Thank you very much.
    And now we'll hear finally from the Honorable David Welch, 
Assistant Secretary of Near Eastern Affairs with the Department 
of State.
    Thank you very much for being with us this afternoon, Mr. 
Welch.

  STATEMENT OF C. DAVID WELCH, ASSISTANT SECRETARY, BUREAU OF 
         NEAR EASTERN AFFAIRS, U.S. DEPARTMENT OF STATE

    Mr. Welch. Thank you, Madam Chairwoman. I'll try not to 
repeat what my colleagues have already said in order that you 
and your colleagues may make the vote and expedite the hearing.
    Forgive me for my voice. The UAE is a longstanding friend 
and ally of the United States, and a key partner in the global 
war on terror. Secretary Rice reiterated this during a recent 
visit just last week to the United Arab Emirates.
    As Ambassador Edelman said, the UAE provides the U.S. and 
Coalition forces with critical support for our efforts in Iraq 
and Afghanistan, including unprecedented access to ports and 
territory, overflight clearances, and other critical logistical 
assistance.
    Furthermore, as a moderate Arab state, the UAE has long 
supported the Israeli-Palestinian peace process, and shares our 
goals of a stable economic, political, and security environment 
in the Gulf region, and in the Middle East more broadly.
    The UAE also cooperates with us on a host of non-
proliferation and law enforcement issues. It has enacted 
aggressive counter-terrorist financing and anti-money-
laundering laws, it has frozen accounts, and it has exchanged 
information with us on people and entities suspected of being 
involved in terrorist financing and proliferation activities.
    The UAE also provides substantial assistance to its friends 
around the world, including military support and financial 
support to the Iraqi Government; humanitarian relief for the 
people of Afghanistan; housing and hospitals for the 
Palestinian people; and $100 million for the victims of the 
recent Pakistani earthquake. The UAE was also one of the first 
nations to offer financial aid to the United States after 
Hurricane Katrina struck the Gulf Coast, and it provided one of 
the largest foreign donations of $100 million.
    As Deputy Secretary Jackson has mentioned, the UAE is an 
established partner in protecting America's ports. The purpose 
of the interagency CFIUS process, in which the Department of 
State is an active participant and reviews, is to establish 
whether a transaction could affect national security. And the 
fact that the United Arab Emirates is a friend and ally of the 
United States did not and will not diminish the rigor of that 
process. We're confident in the State Department that the 
additional time now available will provide an opportunity to 
review the concerns expressed over this transaction, and to 
confirm that it does not jeopardize in any way the national 
security of our country.
    Thank you very much.
    [The prepared statement of Mr. Welch can be found on page 
143 of the appendix.]
    Chairwoman Pryce. Well, thank you very much, gentlemen, for 
your testimony this afternoon. Let me just start off by asking 
all of you--and maybe one would prefer to answer first. Maybe 
our Homeland Security representative would like to go first. 
But I want to start out with the question that every American 
wants the answer to. Are we more or less safe if this deal goes 
through? Mr. Jackson, do you want to--
    Mr. Jackson. If this transaction goes through, we are no 
less safe tomorrow than we were today.
    Chairwoman Pryce. And you make the case that you can 
separate operations from security, but it just doesn't equate 
to me how that is possible. Won't there be some sharing of 
information and data in terms of logistics and escape routes 
and emergency measures, and just the basic things that working 
together require the sharing of?
    Mr. Jackson. Well, let's unpack this a little bit. First of 
all, in the global supply chain, there is widespread 
understanding of the nature of our security requirements, which 
this firm already enjoys by virtue of its participation in the 
Container Security Initiative today. There is the broader 
understanding that any member of the global supply chain marine 
industry has of our broad contours, which are written into law 
and published in regulations and explained very routinely and 
clearly, that describe security measures.
    There are certain things in the terminal operation which 
are simply not accessible to the terminal operator. For 
example, the terminal operator's main role is to unload 
containers, unload cargo, and to place them on trucks or trains 
for shipment into the United States, and similarly, to load 
cargo and freight leaving the country.
    In doing so, the content of those containers is simply not 
known to the men and women doing the daily work. This is the 
role of a different set of government actors. There are 
security requirements that we can audit and do audit on a 
routine basis that they're required to know. And so certainly 
there are facility security arrangements that are specific to a 
given terminal. And we have a capacity to come in and audit the 
people who are implementing them, and we have the capacity in 
this transaction, frankly, to draw more information about Dubai 
Ports World's employees in the United States more readily than 
we can at present with other terminal operators. And that is a 
feature of the assurances letter which they have provided us.
    So we believe that we can impose the right type of 
background scrutiny of employees and security arrangements at 
the terminal. And there are certain things that they will see 
by virtue of operating the terminal, but other security 
features are beyond their control, random in nature, and 
unknown to the terminal operators.
    Chairwoman Pryce. Well, let me take a different tack, then, 
on to a different subject. This 45-day investigation that will 
begin soon, once the filing is made, who will conduct the 
investigation and how is that different than the work that's 
already taken place? And to what end will it be shared with the 
public? Deputy Kimmitt, is that your bailiwick?
    Mr. Kimmitt. Yes, Madam Chairwoman. Once the company 
files--and it will be a new filing, a resubmission--the filing 
will, as I indicated earlier, be immediately circulated to all 
the agencies who comprise CFIUS. The policy level--that is, 
assistant secretary level--of the government that to some 
degree had been involved in the decision thus far will look at 
that new filing, determine what additional questions they might 
have, what additional information they may need, and then they 
will send it up to the deputies' level. That will be the 
commencement of the 45-day period.
    During that period, we at the deputies' level will be 
looking both at the information that had been originally filed 
and the new information, and listening, of course, very 
carefully, as I said, to concerns that had been raised by the 
Congress and other interested parties.
    During that period, we will then make a recommendation to 
the Cabinet Secretaries. And then no later than the 45th day, 
the Secretary of Treasury, as chair of the CFIUS committee, 
will send forward both a recommendation and a report to the 
President, who has 15 days to consider that submission. Once he 
makes his determination, a report will be sent to the Congress, 
as has been done in previous cases.
    Chairwoman Pryce. My time has expired. The gentlelady from 
New York.
    Mrs. Maloney. Thank you. Defense, you testified that you 
did not think that critical infrastructure was national 
security. And as we know, the law requires a 45-day review for 
any act that could affect national security.
    So my question--and I'd just like a yes or no answer, and 
just go down the line from Treasury to Homeland--would you 
accept a change in the CFIUS law that would have a broader 
definition of national security for the CFIUS process that 
would include critical infrastructure?
    Most national security experts, and certainly the 9/11 
Commission, wrote that our ports were part of our critical 
infrastructure and important to our national security. So 
Treasury, yes or no? Broader definition, yes or no?
    Mr. Kimmitt. Well, first, I think the current definition 
does encompass critical infrastructure. If I may?
    Mrs. Maloney. I want a--would you accept a broader 
definition that includes critical infrastructure? Yes or no? 
I've heard some reports and read reports that you're opposed to 
that.
    Mr. Kimmitt. No. I think there needs to be a broader 
definition.
    Mrs. Maloney. You think there needs to be one. Homeland.
    Mr. Jackson. We would have no objection.
    Mrs. Maloney. Defense?
    Mr. Edelman. Congresswoman Maloney, I'd just like to make 
clear that what I testified to was that whether or not a 
company is acquiring critical infrastructure is a consideration 
that the Department of Defense considers, critical 
infrastructure from the point of view of the Department of 
Defense--
    Mrs. Maloney. And would you accept a broader definition of 
national security to include--
    Mr. Edelman. Critical infrastructure is part of national 
security, from my point of view.
    Mrs. Maloney. Would you accept a broader definition? Yes or 
no?
    Mr. Edelman. I would accept that definition.
    Mrs. Maloney. You would? And State?
    Mr. Welch. No objection.
    Mrs. Maloney. No objection. Well, I am working on 
legislation to strengthen the CFIUS process, and certainly the 
American people believe, and I think they're correct, that our 
national infrastructure is part of national security and should 
have a higher level of oversight. I am--
    Mr. Jackson. Can I just assure you that in this process, we 
do that.
    Mrs. Maloney. May I--you've all agreed on that, so let's 
keep going. I'd like to go to the approval process that I found 
troubling when the President of the United States said he 
wasn't aware of this approval, and the head of Homeland 
Security said he wasn't aware of it. Defense said they weren't 
aware. Although there are 12 agencies that make this decision, 
the decision was made by mid-level or low-level people for a 
$6.8 billion agreement that included 20 key ports, and was a 
major change in that Dubai Ports World, is a foreign-controlled 
company, which is different from P&O, a British company that is 
privately owned.
    Treasury told me earlier that there are roughly 40 to 60 of 
these decisions in CFIUS every year, but most of the acquirors 
are privately owned. How many involve foreign government-owned 
companies? How many government-owned, such as Dubai Ports 
World?
    Mr. Kimmitt. Could you give me a time period?
    Mrs. Maloney. Within a year.
    Mr. Kimmitt. Within a year? Well, let's take 2005, for 
example, Mrs. Maloney. There were 65 notifications, of which 12 
were government-owned or controlled.
    Mrs. Maloney. Twelve. I would venture to say that 12 
decisions of this importance should be made at the cabinet 
level, not by low-level employees that people don't even know 
who they are. I've looked at the lists. I've never heard of 
them.
    But I just want to say there was a--and I would like to 
request copies of all of these leases and all the documents 
pertaining to those leases. And in this agreement process that 
we're going forward with, I would like to know, when the 
committee decided not to undertake a 45-day investigation, did 
it provide DPW with a document saying that? When you decided 
not to take the 45-day option?
    Mr. Kimmitt. At the point the 30-day period concluded, the 
company was notified of the results of that 30-day review.
    Mrs. Maloney. Could we get a copy of that notification, the 
committee?
    Mr. Kimmitt. We'll certainly provide it.
    Mrs. Maloney. And was this letter withdrawn as part of a 
new agreement to a 45-day review?
    Mr. Kimmitt. I am not sure of the form of communication, 
Mrs. Maloney. I'll find out what that is. And once the new 
filing takes place, we'll be dealing with a second separate 
case.
    Mrs. Maloney. And can we get a copy of the standstill 
agreement?
    Mr. Kimmitt. My understanding is that the company has 
provided that to Members of Congress. I've actually seen 
Members of Congress refer to it on television.
    Mrs. Maloney. Oh, I would love to see it.
    Mr. Kimmitt. We'll certainly--
    Mrs. Maloney. And they're new application? Is that out, 
their new application, a copy of that?
    Mr. Kimmitt. They have not yet filed that.
    Mrs. Maloney. They haven't filed it. Okay, thank you.
    Chairwoman Pryce. The gentlelady's time has expired.
    Mr. Kimmitt. Madam Chairwoman, may I please? With respect, 
Mrs. Maloney. The people who conducted this review are highly 
dedicated career professionals. These are the people we entrust 
to safeguard our security every day. I think there was clearly 
a problem here with the Congressional notification aspect of 
the process. I admit that. We at higher levels take 
responsibility for that.
    But I have to strongly support the professional work done 
by career professionals who day in and day out, through 
Administrations Republican and Democrat, are called upon to 
make sacrifices for their country to make tough decisions like 
this. And I know you weren't suggesting that this process be 
politicized.
    Clearly, we want the security review to be undertaken by 
the people best equipped to do that. I think we have to figure 
out how to take their good work and communicate with you to 
make sure that you can discharge your important oversight 
responsibilities.
    Mrs. Maloney. May I respond briefly, Madam Chairwoman? When 
we're talking about a $6.9 billion contract, and it is only a 
few contracts, I think that the head of the agency should be 
aware of it.
    And all of us bring our personal experience here. And one 
of my--part of my personal experience was one of the biggest 
scandals in New York City history was a $25 million contract--
millions, not billions--whereby the head of the agencies didn't 
approve it, but low-level, mid-level people. And the reform 
that came out of it is that the head of the agency, on 
something that involves that much money, that much real estate, 
20 ports, two of the highest terrorist targets in the United 
States, according to the CIA and FBI, the New York and New 
Jersey ports, that this warrants the review of the head of an 
agency that people know, people trust, and people--
    Chairwoman Pryce. In the interest of--
    Mrs. Maloney. It does not build my trust to hear that heads 
of agencies and the President are not aware of this agreement.
    Chairwoman Pryce. Members must get to their votes, Mrs. 
Maloney. We must proceed. All right. The gentleman from 
Delaware, Mr. Castle.
    Mr. Castle. Thank you, Madam Chairwoman. Mr. Kimmitt, I 
assume from your answer, and I'd like to ask the others as 
well, that the four of you were not involved in the initial 30-
day CFIUS review of this particular application; is that 
correct? Were any of you in the room during that review period?
    Mr. Kimmitt. No, that is correct. Generally, what would 
come to the deputies' level is any unresolved security concern 
that would have to be taken into an investigation.
    Mr. Castle. Did those types of security concerns come to 
the attention of any of you before this decision was actually 
made?
    Mr. Kimmitt. Not before me personally.
    Mr. Castle. Anybody? You're all shaking your heads no?
    Mr. Jackson. No, sir.
    Mr. Edelman. No, sir.
    Mr. Castle. Based on--when, then, did each of you find out 
about this? After the dust-up occurred and it started making 
the news? Or do you typically have a review at some point 
before that? Very quickly, how did each of you find out about 
the decision itself, and what occurred that made you find out 
about it? Or is it normal course, or something that happened?
    Mr. Kimmitt. I had it called to my attention by a member of 
my staff in February, several weeks after the decision had been 
made.
    Mr. Jackson. I had it called to my attention by Deputy 
Secretary Kimmitt giving me a call to alert me that this is 
something that he had had a question raised with him about.
    Mr. Edelman. I also learned about it from Deputy Secretary 
Kimmitt in a phone call.
    Mr. Welch. Sir, I learned as we were preparing for the 
Secretary of State's trip to Abu Dhabi and the UAE, and that 
would have been about 3 weeks ago.
    Mr. Castle. So a lot of this is pretty recent is what 
you're really saying. I mean--
    Mr. Welch. In my case, sir, perhaps I should explain a 
little bit.
    Mr. Castle. If you can do it quickly.
    Mr. Welch. The person responsible in the State Department 
is in a different office. He may well have learned earlier.
    Mr. Castle. Got you. You're in a different level. Got you. 
Or a different circumstance.
    My next question, then, is based on what you have learned 
since then, and if you put yourself back in the position of 
reviewing, in that 30-day period, would you have agreed with 
the decision that was made then, or do you think this is 
something that should have gone into the 45-day period and be 
reviewed by the President?
    And I've just looked at a CRS report, which indicates that 
doesn't happen very frequently. And I've listened to your 
testimony today, which indicates to me you're going to say no, 
you wouldn't change your minds. But there has been a heck of a 
lot of water that's gone under the bridge since this decision 
was made public. Some of it may be not totally credible. Some 
of it may be credible. And I don't know if it's brought any 
doubts. Do you wake up early thinking about this, that maybe 
somebody had made a wrong decision or whatever?
    I am not trying to impugn anyone's reputation or decision-
making. But do you think that in retrospect, perhaps this was 
not a correct decision to close it out on the 30 days and not 
extend it to the next cycle, for national security reasons?
    Mr. Kimmitt. I think the security review was conducted 
thoroughly and professionally, Mr. Castle. If I had learned 
about it before the decision was made, I would have come--after 
I apprised myself of the facts--I would have come very quickly 
into contact, as I did, with my colleagues at the deputies' 
level, assuming that they were as comfortable as I that the 
proper procedures had been followed and that the correct 
security experts had looked at it.
    I think that one of the things that we would have thought, 
not only of informing our bosses, but how best to notify the 
Congress. When I found out about this, I got the facts, I told 
my boss, and I said, ``Let's notify the Congress.''
    Mr. Castle. So you're sort of suggesting that you would 
have had sort of a political concern if you had known about it?
    Mr. Kimmitt. Well--
    Mr. Castle. Again, I am not trying to put words in your 
mouth here and suggest anyone was wrong in their decision. 
You're suggesting to me--
    Mr. Kimmitt. I would say it would have given us a better 
chance to present the facts that were before the security 
review. Our first obligation would have been to look at it, of 
course, to see if, in fact, the national security interests of 
the United States were protected. That is our first obligation, 
and certainly it was yours.
    But if we agreed, as we do in this case, that the people at 
that level acted professionally, consistent, I might say, with 
practices going back almost 20 years, then I think the question 
would have been how best to bring that to the attention not 
only of people more senior in the Administration, but to come 
into close contact with the Congress--
    Mr. Castle. Let me get--I only have a little bit of time. 
Could the others try to take a shot at answering that question?
    Mr. Jackson. But what I know right now, sir, I do not see 
evidence on the table that would make me feel concerned about 
changing the Department's vote on this issue. I will say that 
we have internally already re-racked the way that we manage 
inside DHS the discussions of this so as to make sure that they 
all come up to the front office for--
    Mr. Castle. What about just the plain political--I know I 
am running out of time--the plain political point of view in 
terms of the sensitivity of a Middle Eastern country, maybe an 
ally, but maybe not known to the public at large, maybe even to 
Members of Congress, in not having a more thorough public 
discussion of this in that kind of a decision-making? Was there 
some sensitivity with that, even if you agree with the 
decision?
    Mr. Jackson. I think that it is apparent we could have done 
better on communicating with Congress about this transaction. 
There were lots of reasons why we anticipated a process would 
brief in the normal course of events, and this one turned out 
not to be a normal event. There was also, I think, quite a bit 
of evidence about this transaction in the press prior to the 
conclusion of the transaction review, and that did not raise 
warning signs within the--
    Mr. Castle. Mr. Jackson, could I get a quick answer from 
the other two, and then maybe perhaps Mr. Kimmitt? But the 
Chair may cut me off at any moment here.
    Chairwoman Pryce. I am going to cut you off in a second. Go 
ahead. Secretary Kimmitt and--
    Mr. Kimmitt. Well, if I could, just one point before my 
colleagues answer Mr. Castle. Because you asked the question 
then about the public, if you look at the law, the law says 
that we are to hold confidential information provided to the 
committee during the pendency of a review. There is an 
exception for the Congress, but not for public disclosure.
    And remember the important reason for doing this, not just 
that classified information may be involved in the intelligence 
review, but you want these companies to feel comfortable filing 
with CFIUS and providing their most sensitive proprietary data. 
And frankly, a lot of these transactions don't go forward. We 
tell them it is not going to work, and they don't want to 
suffer the reputational risk of having CFIUS reject the deal.
    Mr. Castle. Not too many, though.
    Mr. Kimmitt. No. A good--
    Mr. Castle. About six or seven out of, what, 1,500 or so?
    Mr. Kimmitt. Well, I'd be glad to discuss longer. What you 
have seen are the ones where the company decides to take it all 
the way through the process. What we need to do is give you a 
lot more fidelity on the number that are withdrawn.
    The Chairman. [presiding] The gentleman's time has expired. 
The gentleman from Vermont.
    Mr. Sanders. You don't look like a Madam Chairwoman. Thank 
you, Mr. Chairman.
    Let me be very clear, and I want to thank our guests for 
being with us today. I have very strong concerns about this 
proposed agreement. And frankly, it is incomprehensible to me 
that a President who has talked so much about national security 
would allow this agreement to go through.
    At a time when we are spending billions of dollars trying 
to protect the American people from terrorism, I cannot 
understand how the Committee on Foreign Investments in the 
United States would okay a deal that would put the operations 
of major American ports into the hands of a company that is 
wholly owned by the United Arab Emirates Government. This is 
not a foreign company. This is a government-owned company.
    Several facts that I think we need to know about the United 
Arab Emirates, who, if this deal goes through, will own and 
control this company. And I say this, making clear that I am 
not a xenophobe, I am not anti-Arab, I am not an Arab basher. 
But I think it is important that we get some facts out.
    According to the 9/11 Commission, unlike Iraq, to whom we 
went to war, the United Arab Emirates Government had direct 
ties to Osama bin Laden, and was one of three countries in the 
world to recognize the Taliban Government of Afghanistan. At 
least two 9/11 hijackers came from the United Arab Emirates. 
According to the FBI, money was transferred to the 9/11 
hijackers through the UAE banking system. After 9/11, the 
Treasury Department reported that the UAE was not cooperating 
in efforts to track down Osama bin Laden's bank accounts. The 
UAE has been a key transfer point for illegal shipments of 
nuclear components to Iran, North Korea, and Libya.
    Further, there are, as I understand it, no Democratic 
institutions in the United Arab Emirates. There is no 
transparency. People cannot speak up, or else they go to jail. 
And yesterday, we learned that the parent company of Dubai 
Ports World is honoring an Arab boycott of Israel.
    Here are my questions. And given the time limitations, I 
would appreciate you guys being brief.
    Question 1: The 9/11 Commission reported that a United 
States missile strike intended for Osama bin Laden had to be 
called off in 1999 because members of the United Arab Emirates 
royal family and government officials were at bin Laden's 
hunting camp in Afghanistan. In other words, we could have 
killed Osama bin Laden over 2 years before 9/11 if we were not 
concerned about harming the royal family of the UAE.
    Can any of you tell the American people the names of the 
government officials or royal family who enjoyed hunting trips 
together with Osama bin Laden? Further, can you tell us that 
these very same officials will not be involved in the UAE 
Government-run Dubai Ports World, which will have ownership of 
six major American ports?
    That is my question. I would appreciate an answer.
    Mr. Kimmitt. I do not know the facts, Mr. Sanders, on the 
first part of your question. I will tell you that when we look 
at a company, we take a look at its management, its board, and 
so forth.
    Mr. Sanders. Which in this case is the Government of the 
UAE.
    Mr. Kimmitt. There are government representatives--
    Mr. Sanders. This is owned by the UAE Government; is that 
correct?
    Mr. Kimmitt. As the intelligence community takes a look at 
this, they take a look at the company. As you say correctly, in 
this case, it is both an operational company and the 
government.
    Mr. Sanders. Here's my question. According to the 9/11 
Commission, UAE top officials and royal family members 
associated with Osama bin Laden. Can you tell us absolutely 
that these very same people will not be running six major 
American ports in the United States? Can you tell me that?
    Mr. Kimmitt. I will pledge to get that information back to 
you, Mr. Sanders.
    Mr. Sanders. All right. Could any of you tell me? This is a 
government-run company, and government officials had a friendly 
relationship with Osama bin Laden. Can anybody else tell me 
that we will know for a fact that some of these very same 
officials will not be running this company? I am not hearing 
it. And to my mind, it is beyond comprehension that if you 
cannot answer that simple question, I cannot understand why we 
would go through with this transaction.
    Mr. Kimmitt. Mr. Sanders, I said I would get you the 
answer.
    Mr. Sanders. Please get it.
    Mr. Kimmitt. I just don't have the information. And what I 
will say--
    Mr. Sanders. I will be very surprised. And tell me what I 
am missing here. Government-run company, government officials 
associating with Osama bin Laden. And how do you know that 
tomorrow, new people will not be put in place? Can you tell me 
that?
    Mr. Kimmitt. Well, first, there have been some pledges made 
by the company.
    Mr. Sanders. By the government.
    Mr. Kimmitt. Right, by the government.
    Mr. Sanders. Yeah.
    Mr. Kimmitt. I would say on the fundamental point you've 
made, when the intelligence community makes its risk 
assessment, they are looking at all information available to 
them; certainly, what the 9/11 Commission has reported and what 
has come since.
    What I need to do is to go back and get you that answer, 
and I pledge to do it.
    The Chairman. The gentleman's time has expired.
    Mr. Sanders. Thank you very much.
    The Chairman. I'd take the priority of the Chair to ask a 
few questions.
    Ambassador Kimmitt, have you received a new filing from the 
Ports World?
    Mr. Kimmitt. We have not, Mr. Chairman. Their chief 
operating officer testified yesterday. My understanding is they 
are also in consultation with people on the Hill today. We 
anticipate receiving it very shortly, but we have not received 
the formal filing. We have received some of these documents 
referred to, one of which I said we would endeavor to get 
either from them or directly to Mrs. Maloney.
    But the actual CFIUS filing is still under preparation, and 
I think one of the things that has delayed it is listening to 
the concerns raised by the Congress.
    The Chairman. Would the trigger for the 45 days begin at 
the filing?
    Mr. Kimmitt. No. Mr. Chairman, when the filing comes in, it 
will be stamped in as a new case at the CFIUS staff level. It 
will then move to the policy, or assistant secretary, level. 
And only when it comes to the deputies' level does the 45-day 
clock begin.
    I would imagine that would be relatively quickly. But at 
each level, the staff needs to do its circulation of this new 
material. The policy level needs to look at whether there is 
any additional information they need to move it forward. So the 
actual 45-day clock begins when it has been passed from the 
policy level to the deputies' level.
    The Chairman. Thank you. The CFIUS process is under the 
jurisdiction of this committee, has been since the act was 
passed. And we've had numerous discussions, both informal and 
hearings and so forth on the CFIUS process. It is clear that 
the general public really doesn't know what CFIUS is.
    As a matter of fact, one of the writers, Homan Jenkins, for 
the Wall Street Journal, was--he said that CFIUS sounds like 
one of the hazards of a foreign holiday that your doctor warns 
you about.
    But anyway, what--and in my opening remarks, I made it 
clear that I felt that to politicize the process, the CFIUS 
process, would be a huge mistake. I meant that in the true 
sense. I didn't necessarily mean in terms of more openness and 
transparency.
    If you were to, in hindsight, now, advise this committee 
how we should proceed, if at all, with another look at the 
CFIUS process, what would you recommend?
    Mr. Kimmitt. Well, again, Mr. Chairman, I think the 
interagency aspect of the CFIUS process worked well. I might 
say this is one of hundreds of interagency committees in the 
government, and this is actually one that's been looked at 
probably more frequently by the GAO. We have public regulations 
out in the public domain.
    When it is referred to as secretive, it is just that when 
the committee meets, because we're dealing with proprietary 
information that we're barred by the law from discussing 
publicly, and sensitive, sometimes very sensitive, classified 
information, like any interagency process, the actual meeting 
itself is held behind closed doors.
    I think where we need to focus our attention, Mr. Chairman, 
is on determining the way that we can help you better exercise 
your important oversight functions. That means, as Deputy 
Secretary Jackson said, we need to make sure that, for example, 
in our departments, in addition to these highly professional 
security personnel who do the actual review, that we get both 
higher-level people involved, but also our legislative liaison, 
public affairs, and other people to determine how, as we come 
into contact with you, we can have an opportunity for the 
dialogue that ultimately will give you more visibility, and 
then ultimately determine how best to present it to the public.
    The Chairman. And would that be informally in the 
committee? Or how would that work? How would that interaction 
work? And particularly as it related to sensitive information, 
proprietary information, that kind of thing. Obviously, it is a 
very difficult--try to lead us through that, how that would 
work.
    Mr. Kimmitt. Well, Mr. Chairman, I think as you said in 
your comments, one of the concerns expressed in the GAO 
report--and I might say the GAO is as knowledgeable on this 
subject as anybody. They've done a very good job of looking at 
this. We may not agree with everything that they say, but I 
think they performed a real service.
    We talked both last fall and more recently, and one of the 
things that was pointed out was that we were not providing 
regular briefings to the committees of jurisdiction on cases 
that had closed. And so we were improving our process for 
briefing Congress.
    For example, we had, even before this case broke publicly, 
scheduled briefings on cases that had closed toward the end of 
2005, early 2006, this being one of those cases.
    I think now where we really need to focus our attention is 
how you and we interact on pending cases in a way that ensures, 
as you said, that people continue to look at the United States 
as a place they might want to invest. Because investment is a 
vote of confidence that is in our marketplace and our workers 
and their productivity. As you know, between 5 and 6 million 
Americans are employed by company's headquarters overseas. FOI 
accounts for 20 percent of our exports and $30 billion a year 
in R&D.
    But we have to protect the national security. And one of 
the ways you protect it is to get the companies to come in with 
exceptionally sensitive information during that review process. 
We also need exceptionally sensitive information from the 
intelligence community during the review process, particularly 
on government-owned and -controlled companies. In order for the 
security professionals to conduct their review, we must 
encourage people to still be as candid as we need. And at the 
same time, work with the Congress to help you perform your 
important functions. I think this is where we need to have the 
discussion. I'd rather leave the form until later, until we 
decide what goal it is we're pursuing.
    The Chairman. Thank you. And obviously, this committee has 
the same goals in mind, and we'll continue to work with all of 
you in the process.
    Let me just ask one question. I am over my time. But is 
there anyone--is there any agency not in the CFIUS process that 
ought to be, or have we pretty well covered the waterfront 
here?
    Mr. Kimmitt. Well, first, we have the 12 members outlined, 
and then we always look at each individual transaction at which 
other agency should be invited. Going to Mrs. Maloney's very 
good question, really, to a considerable degree, national 
security is defined based on the circumstances in which the 
transaction is presented, and each department and agency brings 
their important national security responsibilities to the 
table, which I would note does include critical infrastructure.
    There have been some suggestions recently that--for 
example, the DNI, rather than just providing a report, would 
sit at the table during the deliberations, as he does during 
other interagency meetings. I think that would be a good idea.
    I think that we should continue that discussion to make 
sure that we get every possible national security perspective 
that is needed during the course of that review.
    The Chairman. Thank you. My time has expired. The 
gentlelady from Wisconsin, Ms. Moore?
    Ms. Moore. Well, thank you, Mr. Chairman. And I want to 
thank the distinguished panel for coming and providing this 
testimony to us today.
    If I repeat things that others have asked, please forgive 
me, but this is very important to my constituents. I am feeling 
a little bit concerned. And perhaps given the dearth of time 
that I have, I'll focus my--I'll direct my questions toward 
Deputy Secretary Michael Jackson of Homeland Security.
    As I look through your testimony, you know, it kind of 
sounds good. But I am wondering about some of the assurances, 
the security plans. Aren't these basically paper security 
plans, and not really based on any physical inspections, like 
my saying, ``I'll tell you the manifest of stuff that's in my 
purse, and you've just got to believe me''?
    I also would like to know, you know, when you say things to 
us, like, ``We have increased the port security, cargo 
security, by more than 700 percent,'' I mean, no one could be 
more impressed by those kind of data. But doesn't that, in 
fact, depart from the wisdom of, say, the Coast Guard, where 
literally billions of dollars lacking in our ability to inspect 
these cargo adequately?
    And finally, there's been some concern, a lot of concern, 
by my constituents about the ownership arrangement where a 
foreign country actually owns the security company.
    Now, I am really, really pleased to hear reports that the 
United Arab Emirates are making really tremendous efforts to 
route out terrorism in their country, and that, in fact, after 
9/11, for example, they put in place laws, anti-money-
laundering money laws, that they have, in fact, tried to close 
some of the security gaps that resulted in, you know, 9 out of 
11 of the hijackers coming through there, through the UAE. I am 
happy to hear that they're making efforts to prevent nuclear 
material from coming through there.
    But the question that I have, really, is given their 5 
years--and this is the government that owns this company that 
would manage these terminals. Given their sincere effort over 
the course of the 5 years, combining that with our incapacity, 
really, to inspect these containers, when you say, for example, 
100 percent--100 percent--of all of the cargo that is 
suspicious is inspected, and that really represents only 2, 
maybe 4 percent of all the packages, that those confluence of 
forces are things that are making my constituents very nervous.
    Mr. Jackson. Let me see if I can try to unpack a couple of 
components of your questions, and then address them.
    First, one element of what you were asking about has to do 
with our physical inspections. And a couple of facts. Since 
2004, we have done compliance examinations and have detected 
over 700 violations in various different facilities. Forty-four 
resulted in termination of cargo operations and access until 
corrections were made, and the others were corrected based upon 
assurances provided and reinspection of the facilities in 
question. This is just one small element, and I'd love to give 
you a lot more data. But it shows you that we do have a 
significant force on board.
    In Dubai, where this firm that is proposing to purchase P&O 
operates, we have continuously had inspections examinations 
conducted by our people over there, and they have never had any 
intent or exercised any action to limit our access to a 
container that we wanted to open, inspect, or to look at a 
security plan.
    So in relation to the particular firm, there has been good 
access for inspections in their facilities overseas. We fully 
expect that cooperation here. But we have gone further in the 
assurances by both regulation statute and by the assurances 
getting guarantees that we can have access.
    Our record in the United States of access is very strong, 
and we have no real concern whatsoever that we will be able to 
do this. If we find a concern and have to shut down a terminal, 
that is the lifeblood of the terminal operator's business. That 
is a big stick, and we are not reluctant to wield it if it is 
necessary.
    Another cluster of questions has to do with inspections and 
our process of inspecting containers. This is a layered system 
of security. It begins when the supply chain starts with 
stuffing a container and moving it from another country into 
our Nation. And we are, through the so-called C-TPAT program, 
engaged with over 8,000 global shippers and their suppliers, 
which multiplies by manyfold the number of firms involved. And 
systematic requirements to impose security reviews of employees 
and physical facility measures to increase security. So far 
down the supply chain, this process of trying to bring greater 
discipline and visibility begins.
    Twenty-four hours before a container is loaded, the United 
States is given information about that container, and we can 
inspect it in our Container Security Initiative ports and have 
that container reviewed. If we have any concerns about the 
vessel, we also have advance notice of vessel arrival, we can 
look at the people, the crew, and the containers, so that if we 
need to do boardings, which we routinely do at the Coast Guard, 
we can do that as well.
    There is a system of systems, a layer of layers. It begins 
overseas. It comes to the terminal operator. The process is 
robust. Is it perfect? No, ma'am. Are we going to be better--
    Ms. Moore. And before my time expires, the money.
    The Chairman. The gentlelady's time has expired.
    Ms. Moore. The money.
    The Chairman. The gentleman from Illinois.
    Mr. Jackson. If I can just, Mr. Chairman, one thing on the 
money, just a punchline. This year, we are devoting $2.5 
billion at the Department of Homeland Security alone to 
maritime security. This does not include the commitments and 
the Megaport Program for radiation portal monitoring overseas 
or work that we do with the Defense Department and other 
agencies of the Federal Government. There is a very 
considerable, and I fear under-appreciated, investment that the 
U.S. Government is making in maritime security.
    The Chairman. The gentlelady from Illinois. Or the 
gentleman from Illinois.
    Mr. Manzullo. Thank you, Mr. Chairman. We have a lot of 
foreign-directed investment in my Congressional district and 
want to do everything we can to preserve it, because of over a 
quarter a million jobs in Illinois, most of those are 
manufacturing jobs that depend upon FDI.
    I do have some questions as to--and I think this is the 
problem that you ran into, and why you're under--the 
Administration is under fire on this issue. As I read the 
statute, if you have a foreign entity--and everybody agrees 
this is a foreign entity? This is a wholly-owned state 
enterprise; is that correct?
    Mr. Kimmitt. That is correct.
    Mr. Manzullo. That is correct. And, in fact, the New York 
Times was upset about it, because it said because they're a 
wholly-owned state enterprise, free enterprise companies did 
not have the ability to come in and meet the price. That was of 
no consideration to you.
    Mr. Kimmitt. I am sorry, sir. Could you repeat that as a 
question? I didn't understand.
    Mr. Manzullo. The New York Times said that because Dubai is 
a wholly-owned state enterprise, free enterprise companies were 
not in a position to come in and bid on the contract. Has that 
ever entered into your consideration?
    Mr. Kimmitt. Sir, I am not aware that there was any 
restriction whatever on who bid for this property.
    Mr. Manzullo. That is not the question. Let me go--
    Mr. Kimmitt. Then I am sorry. I guess I don't understand 
it, sir.
    Mr. Manzullo. Let me go on to another question, then.
    Mr. Jackson. Can I just try to answer, perhaps? The CFIUS 
process deals with transactions presented to us, and we do not 
go behind the transaction that is presented to stimulate 
competition in the--
    Mr. Manzullo. That answers my question. Thank you very 
much. And thank you for trying, Mr. Kimmitt.
    Mr. Kimmitt. I was going to say the only other bidder on--
    Mr. Manzullo. If I could go on, and then we could talk, 
perhaps, later on. But as I read the statute, amended in 1992, 
it said, ``The President or the President's designee shall make 
an investigation in any instance in which an entity controlled 
by or acting on behalf of a foreign government,'' which is this 
case, ``seeks to engage in any merger, acquisition,'' etc., 
``which could result in control of a person engaged in 
interstate commerce in the United States that could''--could--
``affect the national security,'' and that is what triggered 
the 45-day period. That is what the statute says.
    But the way you're interpreting it, according to your 
testimony, Mr. Kimmitt, on pages 2 and 3, it says that the 
CFIUS members, during the initial 30-day period of time, can 
resolve any national security concerns. And Mr. Jackson, you're 
saying on page 2 that the Department of Homeland Security has 
legal authority to eliminate any threat within the 30-day 
period of time.
    And the issue here is it isn't until the 45-day period has 
kicked in that people of higher level within the departments 
even have an opportunity to look at the file; isn't that 
correct?
    Mr. Kimmitt. That had been the practice, sir.
    Mr. Manzullo. And that is what happened here; isn't that 
correct?
    Mr. Kimmitt. That is correct.
    Mr. Manzullo. So the people at the lower level within the 
agencies took it upon themselves to say whether or not there 
was a national security threat when the statute is clear if it 
is foreign-owned, and there could be a national security 
threat, then you must go on to the 45-day period of time. How 
could you possibly misread that statute and show to the 
American people the fact that Americans as a whole picked up 
the security threat? In fact, the Coast Guard did initially 
too.
    That is why we're having problems. Because people with 
sufficient authority and sufficient levels of authority within 
the 12 or so departments didn't even know about the file; is 
that correct?
    Mr. Kimmitt. That is correct. I'll give you the legal 
answer, although I am a policy official. But the legal advice 
that policy officials going back to 1992 have received, so 
through both Republican and Democratic Administrations, is 
that--and the practice that is followed is that--if there are 
any security concerns that have not been resolved during the 
30-day period--
    Mr. Manzullo. The statute does not say that.
    Mr. Kimmitt. Well--
    Mr. Manzullo. You are reading that into the statute. The 
whole purpose of the Byrd amendment was simply to say if there 
could be a security threat. Could be. Not that you resolve it 
in 30 days. If there could be a national security threat, then 
it goes to a higher level for more review. That is why Members 
of Congress want you to take the statute--I don't think we can 
make this any clearer.
    Mr. Kimmitt. Well, I think, sir, one of the questions that 
has come up is why there is no period after ``shall conduct a 
review.'' And again, what I would like to do is to get the 
lawyers to explain their position.
    Mr. Manzullo. Lawyers could never explain--
    The Chairman. The gentleman's time has expired.
    Mr. Kimmitt. But if I--
    The Chairman. The gentleman's time has expired. The 
gentlelady from California, Ms. Waters.
    Ms. Waters. Mr. Chairman and members. To our panelists who 
are here today representing all of the agencies, it seems to me 
that there is some thought that we disrespect the work of 
professionals, and that you have got to come here and protect 
the reputations of the professionals who do this work, which 
means that you don't get it.
    You don't get that the President of the United States has 
made fighting terrorism the cornerstone of his presidency. I 
don't think that you understand that because of that, we have 
created a Homeland Security agency. We have Patriot Act I and 
II. We have invaded and occupied Iraq and Afghanistan. We have 
spent over $250 billion on this war. We have jailed suspects at 
Guantanamo without trial, without charge. We have a National 
Security Agency with technology that is scanning the 
conversations of Americans and picking up on key words, and 
thus following up with surveillance and wire tapping.
    You don't understand that our Nation has been damaged with 
the accusations of abuse of prisoners. I don't think you 
understand that right now, there's a civil war going on in Iraq 
between the Sunnis and the Shiites, and 2,295 American soldiers 
have been killed.
    We have been so at this war on terrorism, we have caused 
two historic enemies, Iraq and Iran, to come together. We have 
talked about the President, the axis of evil, and even Kim 
Jong-il is threatening us with his nuclear capability. We are 
less safe, the entire Middle East has been destabilized, and I 
think Israel is more at risk.
    And so when you and/or the President or anybody else 
wonders why we are raising questions about the decisions that 
are being made to allow our ports to be managed by a non-
democratic society, then I just don't think you get it. And, 
the least of which I expected from the President of the United 
States was to play the race card and accuse those who question 
the decision of discrimination.
    So this is not about whether or not your professionals are 
good, hard-working people trying to do their job. It is not 
even about whether or not the Emirates, or the United Arab 
Emirates, is capable of managing these ports.
    This is about a Nation that is on edge, a Nation which is 
on edge living under the threat of orange, yellow, and red 
alerts developed by this President because he said we were in 
danger. Osama bin Laden is still running around somewhere up on 
the border with Pakistan, maybe in Afghanistan. The poppy 
fields are flowing in Afghanistan, more drugs than ever are 
hitting the European markets, and you wonder why we question 
you; why a government-owned entity of an undemocratic country--
non-democratic, rather--country has been given a contract, or 
will be given a contract?
    Well, I just want to give you a little bit of that 
background so you can understand why the Members of Congress 
would question you, the secretaries of all the agencies, and 
the President himself. We don't care whether or not you are 
good professionals who just work at your job. What we care 
about is a Nation on edge that we all have to represent and we 
have to answer to. And we care about the fact that we have to 
say to people in our districts that we understand or we don't 
understand.
    And so it is not even whether or not you can make us 
believe that this is a good thing that you are doing. What we 
believe, because the President has been so good at what he has 
been doing, he's hyped it, he's worked it, he's turned his 
Administration into this machine to fight terrorism--we care 
that not only are we alerted and we're standing waiting for the 
orange, yellow, and red alerts every day, day in and day out, 
we care that we don't end up with anybody in control of our 
ports or any of our sensitive areas in this country that we 
would raise any questions about.
    Why would we raise questions about them? Let me show you 
what the New York Times said. ``But Dubai's record is hardly 
unblemished. Two of the hijackers in the September 11th attacks 
came from the United Arab Emirates and laundered some of their 
money through its banking system. It was also the main trans-
shipment point for Abdil-Kadir Khan, a Pakistani nuclear 
engineer who ran the world's largest nuclear proliferation ring 
from warehouses near the port, met Iranian officials there, and 
shipped centrifuge equipment, which can be used to enrich 
uranium, from there to Libya.''
    Did you investigate that? Did you investigate any of this? 
And if so, what did you find?
    Mr. Kimmitt. Ms. Waters, first, I do very much appreciate 
the complimentary words to the career professionals who have 
worked on this. I think all the facts that you brought up were 
looked at in the initial review period. Those certainly were 
available to the intelligence community. And I think both those 
facts and the other concerns you've expressed will also be 
looked at closely during this 45-day investigation.
    Ms. Waters. After the--thank you. I yield back.
    Chairwoman Pryce. The gentlelady from New York is 
recognized.
    Mrs. Kelly. Thank you very much. We have ports in New York. 
We're deeply concerned about this situation, and I think the 
Administration needs to give us better answers about the 
implications to our national security with this.
    Yesterday, President Bush advised Members of Congress to 
look at the facts. So in reviewing the port deal, I'd like you 
to characterize for us how you dealt with the many facts which 
show us that Dubai's territory and financial system has been a 
hornet's nest of activity for our enemies.
    For example, how did CFIUS deal with the fact that Dubai is 
currently being used by Iran to finance its acquisition of 
weapons of mass destruction? I held a hearing 2 weeks ago in 
which OFAC advised me that they were part of an interagency 
team that was recently sent to Dubai to discuss proliferation 
issues. Did the CFIUS consult with this interagency team? I 
asked the Director of OFAC. He said he didn't know. What is the 
answer? Yes or no?
    Mr. Kimmitt. The agencies who were involved in that team 
were all part of the CFIUS review, Mrs. Kelly.
    Mrs. Kelly. Well, the Director of OFAC said he didn't know 
if they were involved. So you're saying they were.
    Mr. Kimmitt. Well, inside the Treasury Department, as you 
know, because you've been a major supporter of Treasury's 
transformation into a Department that works very hard on 
terrorist financing, of which OFAC is a part--in fact, the 
gentleman you referred to is just now moving from OFAC to the 
Financial Crimes Enforcement Network--they were much a part of 
our internal review process, and they have been taking the lead 
also on working with the UAE on money laundering and other 
efforts.
    Mrs. Kelly. A man is currently under Federal indictment for 
allegedly selling missile-related equipment to the Iranians 
using the Dubai branch of Bank Saderat, the Export Bank of 
Iran. Was this discussed during your review? Does the Bank 
Saderat have a business relationship with the Dubai Islamic 
Bank, which helped structure that ports deal?
    Mr. Kimmitt. I'd have to get back to you on the facts. 
Again, I think that all the facts and intelligence throughout 
the intelligence community were available before the community 
assessment was given to the CFIUS--
    Mrs. Kelly. Could you give me an answer on--this is a fact. 
I have the indictment right here. I'd like an answer about 
whether or not that was--to that question.
    Mr. Kimmitt. Yes, Mrs. Kelly.
    Mrs. Kelly. At any point during your deliberations, was it 
discussed that international arms trafficker and U.S. 
designated terror financer Victor Bout appears to continue 
operating freely in the UAE, despite repeated U.S. requests 
that he not?
    Mr. Kimmitt. Again, I'd have to come back to you with that 
answer. What I will tell you is the departments and agencies, 
in addition to the intelligence community, who are responsible 
for both our counter-terrorism and counter-proliferation 
efforts were at the table when these issues were discussed.
    Mrs. Kelly. Can you explain how much the government knows 
about who's going to own the debt of this company, and what 
kind of influence they are going to be able to exert on the 
company through the debt ownership, or the name of the 
purchasers of the debt, both the traditional and the Islamic 
sukuk bonds run through the OFAC list? Was any effort made by 
the U.S. Government to acquire the names of the bond purchasers 
from Barclays or Dubai Islamic Bank?
    Mr. Kimmitt. I know some work was done on that, Mrs. Kelly. 
It may have been completed. I'd like to get you an answer to 
that, too.
    Mrs. Kelly. Okay. I've asked you three questions, and I 
really would--well, several others prior to that. I really 
would like those questions answered.
    Is it the case that if the company ever goes public, one 
third of the equity will go to the bondholders of Dubai Ports, 
thereby making them shadow partners? Is that true?
    Mr. Kimmitt. I'd have to look at the specific ownership 
structure. I know it was looked at during the course of the 
review, but I'd have to come back to you with that answer.
    Mrs. Kelly. It is my understanding that that is a mandate 
by law. The Dubai Islamic Bank ostensibly helped arrange the 
Islamic financing portion of this deal. The bank's Sharia Board 
has the responsibility to assure compliance with religious law 
and the implementation of all bank transactions, and correct 
any breaches that may occur. If this deal goes through, will 
the Dubai Islamic Bank's Sharia Board be obligated by Dubai law 
to enforce religious law with all the Dubai Ports World 
operations financed in the transaction? Do you have an answer 
for that?
    Mr. Kimmitt. I will get you an answer for that.
    Mrs. Kelly. I thank you, sir. I think we need to have 
answers like that before this committee and before Congress in 
general in order for us to have an informed view of the kind of 
background that the Dubai ports are going to be--their control 
over their ports will be for us who are concerned about our 
national security. Certainly I am concerned about our New York 
ports, and I``m hopeful that you will get back to me.
    Madam Chairwoman, I would hope that you would request 
officially that these questions be answered by the gentleman.
    Chairwoman Pryce. The gentleman has indicated that he will 
supply the committee with that information. And if it is not 
forthcoming, we'll get back to him. Thank you.
    Mrs. Kelly. Thank you very much.
    Mr. Kimmitt. We take very seriously the concerns you've 
raised. I think these are good questions. We owe you answers. I 
am sure that there are answers that I just don't have in front 
of me. We'll get you an answer to each of those questions.
    Mrs. Kelly. Thank you very much. I yield back the balance 
of my time.
    Chairwoman Pryce. Thank you, Mrs. Kelly. The gentlewoman 
from California, Ms. Lee, is recognized.
    Ms. Lee. Thank you, Madam Chairwoman. Let me just say how--
like the entire country, how disturbed I am about this, for 
many, many reasons. First of all, this war on terror. Domestic 
security, I would have hoped, was central to the war on terror 
in terms of Homeland Security and protecting this country, 
rather than waging illegal wars and unnecessary wars around the 
world. But obviously, now what is coming to surface is that 
really Homeland Security and domestic security really may or 
may not be that important in the scheme of things.
    And I ask you, when these deliberations were taking place, 
did you go back to the 9/11 Commission report and measure this 
deal as against what the 9/11 Commission suggested?
    In fact, I remember several months ago, I believe the 9/11 
Commission recommendations, as they were being implemented, 
were given probably D's and F's in terms of scoring. And that, 
to me, is very scary. So here we go again. I suspect that now 
every category would be an F.
    But let me just ask you, in the 9/11 Commission report, it 
concluded that ``Terrorists''--and this is directly from the 
report--``Terrorists have the opportunity to do harm as great 
or greater in maritime and surface transportation than the 9/11 
attacks.''
    Now, in your review of this deal, how did you look at that 
recommendation as it relates to this overall deal? And then 
secondly, let me just ask you, in terms of foreign companies 
operating terminals in the United States, how many are there? 
Where are they located? And what is the rationale for not 
making sure that ports comply with the same standards that our 
airline industry must comply with in our airports in terms of 
state-controlled and foreign-controlled companies? I'd ask, I 
guess, Mr. Kimmitt or Mr. Jackson if you could response do 
that, please.
    Mr. Kimmitt. I will start out by saying that both the 
information and intelligence that went into the preparation of 
the 9/11 report, certainly their recommendations and progress 
since then would have been taken into account both by the 
intelligence community in providing their assessment, and then 
each of the departments and agencies in making their own 
individual judgments on this case.
    I would say--I am sorry Mrs. Kelly has left--that one area 
in the 9/11 report that got a pretty good grade was on 
terrorist financing, having made progress on terrorist 
financing. Again, if you look at the report card. And I'll say 
that one of the countries that we've made considerable progress 
with in that region is the UAE. I'll turn to my colleague with 
regard to port security.
    Mr. Jackson. Regarding the 9/11 Commission report, let me 
just say that at Homeland Security, we take their work as a 
foundational document to help us understand what happened and 
what went wrong, and that is a series of observations and a 
series of findings that has been internalized within the 
department.
    We did a very substantial and comprehensive review of this 
transaction, and all of the lessons learned about our 
experience in the field and the work of many fine other 
analysts, including the 9/11 Commission, are part of the screen 
that we apply to making these security determinations. Security 
is the driver of this process.
    Let me just say a word about your specific question on 
ownership by foreign-owned corporations of port assets. If you 
look at the container ocean carrier industry, that is mostly 
all foreign-owned. Very little of that is U.S.-owned today. 
There has been a consolidation in the industry of very 
substantial means over the last 15 years, and there has been a 
consolidation principally in the hands of foreign owners. Those 
foreign-owned ocean carriers themselves operate terminals and 
terminal holding companies all across America in our ports. 
There are multiple different estimates on this, and we are 
actually trying to get some very detailed facts terminal by 
terminal by terminal which we will make available to the 
committee.
    But I would say that my rough estimate is well over half of 
those facilities in the container traffic world are foreign-
owned. In certain segments of the port business--for example, 
fuel terminal operations--some of that has a higher 
concentration of U.S.-owned businesses. And I'd be happy again 
to provide the committee with much more detailed information.
    On the question of is port security the same thing as 
aviation security, the answer is no. In one way, aviation 
security is much more simple, because it is a closed-loop 
system where everybody throttles through gates that we can 
inspect and manage in a different way than we do in ports. 
They're obviously vastly spread across the globe, and this is a 
system that has a different structure for its security. It is a 
more challenging structure. But I think that it is one where we 
have made phenomenal progress since 9/11. And I would be happy, 
again, to provide as much detail as you would like about the 
structure of these security arrangements.
    Ms. Lee. Madam Chairwoman, may I just--
    Chairwoman Pryce. Your time has expired. If you have one--
    Ms. Lee. Just very quickly. I'd just like to get an idea 
whether or not you believe that we need to increase our funding 
for port security efforts.
    Mr. Jackson. I think we are spending a very large sum of 
money on port security. Can we spend it smarter? Absolutely. We 
have more work to do here. But I think that this is all about a 
balance. And Madam Chairwoman, this was a question you raised 
earlier about Secretary Chertoff's use of the balance.
    When the Secretary was talking about a balance, he was 
trying to convey that we must be a realist in this world. All 
of our investments of our limited resources have to follow 
risk. And there is a balance that comes with finding ways to 
prioritize around the greatest risks.
    The maritime world poses some significant risk, and we are 
putting significant money in it. I don't want any of you to 
misunderstand that in trying to find the balance, we are in any 
way disdainful, and certainly not Secretary Chertoff, 
disdainful of this mission of protecting the homeland and 
guaranteeing that we find that right balance. And it is a 
balancing act.
    But I think we have substantial resources added, and we 
will continue to use them wisely. We will do it iteratively. 
The tools that we used right after 9/11 in the first days are 
growing in maturity and complexity. That is a good thing. 
They'll get better. Continuous innovation is the requirement in 
this world.
    Chairwoman Pryce. Thank you. The gentleman from New Jersey, 
Mr. Garrett, is recognized.
    Mr. Garrett. Thank you, Madam Chairwoman. And also, thank 
you, members of the panel. I appreciate you all coming here to 
enlighten not only this committee, but also the American public 
as well to some of the background information that I think a 
lot of people in this country are looking to hear and have 
fleshed out.
    I come from New Jersey. And just like Mrs. Kelly from New 
York, these issues hit home for us, because we're just in the 
shadows of 9/11. We lost more people in our district than 
anyone else. So anything to do with security hits home. And 
although I don't have the ports particularly in my district, 
but Port Newark, Port Elizabeth are right down the road, 
figuratively speaking, where we are in northern New Jersey. So 
it hits home for us.
    I won't be redundant on some of the question. Some have 
been answered, and others, I am looking forward to your 
answers. I think I have three specific questions, though.
    One is procedural. It is the notice requirement. Maybe you 
said it. If you did, just refresh me. At what point along the 
line, if at all, Congress is officially notified of this? 
Because I do know during this whole thing in the press, someone 
from the Administration said, ``Well, gee, it came out in 
Bloomberg on the wire, and Congress should have been aware of 
it back in October or November.'' And I know some people took 
offense that we had to look at it that way. So could you 
elaborate specifically at what point along the way we were 
notified?
    Mr. Kimmitt. The answer for the DP World case is that once 
they refile and we complete the investigation, the President 
will make a full report to you.
    In general, as I mentioned with Chairman Oxley, the 
practice had been to brief the Congress on a regular basis with 
regard to closed cases. We have to find a way consistent with 
the legal requirements to maintain confidentiality on the 
proprietary information that is given, I think, to share 
information with the Congress on these pending cases.
    Mr. Garrett. The proprietary information--just briefly on 
that--is merely on their filing of their, perhaps, private 
information. But the mere fact that a company is saying, ``We 
want to do X, Y, Z,'' purchase this company, or purchase this 
American company, is that private proprietary information that 
you really have to be concerned about, or is it something 
within the file itself?
    Mr. Kimmitt. I guess the answer is if they have, as in this 
case, made a public statement--
    Mr. Garrett. But if they haven't. I mean, other cases--
    Mr. Kimmitt. If they haven't? I think if they just made an 
approach to us and said, ``We're thinking of doing this. What 
is the process?'' Because that is information that they gave 
us, even the fact that they might be doing the deal is 
considered confidential business information that we have not 
affirmatively briefed the Congress on it. I think the question 
would be if you were also aware of that and ask us a question, 
could we respond? I think that what we would try to do is to 
suggest the company should come closely into contact with you.
    But to this point, when the information has not been 
publicly available, we haven't had a good process for 
discussing with the Congress these pending cases. And I think 
that is one place that we've got to turn. I think our first 
priority is to conduct this 45-day investigation thoroughly, 
rigorously, and professionally.
    Mr. Garrett. Right.
    Mr. Kimmitt. But I think beyond that, we have to find a 
way.
    Mr. Garrett. Thank you. And I am working on legislation to 
that end to see how we can get that information so we're not 
left in this after-the-fact situation here.
    Secondly, in the legislation that we're looking at, we're 
wondering whether or not it is able to change the burden of 
proof, if you will, in these cases, either in these cases or 
going forward as well. Here, it seems as though the burden of 
proof is on the Administration of the United States Government, 
to step in, review the matter, and say whether or not we're 
going to stop the proceeding, as opposed to when you're dealing 
with national security matters such as the ports or other ones, 
broader, as some of the members said earlier, whether or not 
the burden of proof should be basically on the other side.
    And just as in a court case when it is a criminal matter, 
who has the burden of proof going forward basically raises the 
bar. And I wonder if anyone has comments as to where we put 
that.
    Mr. Kimmitt. Well, I think burden of proof is a legal term. 
If I could just put it to the side.
    The way the process works is the company has to give very 
detailed information. If that information raises any security 
concern, then the burden is on the company to either assuage 
that concern through mitigation, or the deal is not going to go 
forward. And in this case, because security concerns had been 
raised and were not resolved to the satisfaction of the 
Department of Homeland Security, a letter of assurances was put 
together to help address that.
    So I think that, again, their responsibility is to give us 
the information. The responsibility of the CFIUS staff is to 
identify that concern. Then I think the burden does flow to 
them. And by the way, not just on port security, but on defense 
acquisitions and telecommunications cases, staff must address 
and mitigate that concern, or the deal doesn't go forward.
    Mr. Garrett. I didn't get to my third question. I'll submit 
that, then, if I may. Thank you.
    Chairwoman Pryce. All right. Mr. Sherman from California is 
recognized.
    Mr. Sherman. Thank you, Madam Chairwoman. I will use some 
of my 5 minutes to make an opening statement, as is the 
tradition before this subcommittee.
    The Administration was clearly incompetent, as Mr. Frank 
pointed out, for not simply quietly telling the UAE not to try 
to control American ports. The UAE has clearly lost far more in 
terms of its world standing and its standing with the American 
public than they are going to make by investing in our ports. 
They clearly could have spun off this business--creating a 
subsidiary-- and never had this controversy. And the damage to 
our relations with the Arab world clearly must be laid at the 
doorstep of an Administration that could have defused this 
situation before it went off.
    As Mr. Manzullo pointed out, this Administration chose to 
ignore our law. The easiest way to ignore American statutes is 
to twist them out of all conceivable shape. And when the 
Administration decides that a law that says if it could affect, 
just might possibly affect, our national security, you have to 
conduct a real review, and you reach the conclusion, ``Oh, this 
couldn't possibly affect our national security,'' then you've 
twisted law out of all recognizable shape.
    I would point out this is not unusual for the 
Administration. The Iran-Libya Sanctions Act is ignored again 
and again and again, to the point where the Administration 
takes the position in the case of a Japanese oil company that 
declares to its own shareholders it is making investments in 
Iran, that we, the United States, don't know whether they're 
making investments in Iran.
    This is an Administration that simply ignores the law again 
and again, because they think they know what is right, and they 
don't want Congress involved in our foreign policy. We're now 
engaged in a whitewash process. We're told, ``Don't worry about 
this. They're not going to own our ports. They're just going to 
control them.''
    Eight of nine--as Mr. Frank pointed out, eight of nine of 
the witness to come before this subcommittee are boosters of 
this transaction. But don't worry. Eight out of nine Americans 
know this is bad for our national security.
    I'll be introducing legislation to prohibit this 
transaction unless and until the UAE changes its policies. And 
let me make a prediction. My bill and similar bills will not 
get a vote in the 109th Congress. But let me make another 
prediction. In the 110th Congress, bills to reverse this 
whitewash transaction will get a vote on the floor, because the 
American people are going to demand that their representatives 
worry about American security.
    Now, I'll point out that this is not an ethnic issue. It is 
a matter of the policies of the owners of the company. APM is 
not a government-owned company, so we shouldn't hold its owners 
responsible for everything the Danish government does. APL is a 
government-owned company, and we ought to look at what the 
Singaporean government does. But the Singaporean government is 
a stalwart ally against terrorism compared to the UAE.
    DPW is part of the UAE government. And as several have 
pointed out, including Mrs. Kelly, it is hardly an ally in the 
war on terrorism. Don't just look at the mistakes they've made 
and the incompetence they've had in allowing nuclear materials 
to go through their ports, but look at their official policies.
    This is a government which was praised by Hamas officially 
in July of 2005 for the massive amount of money that is going 
from the UAE and its leading citizens, in full conformity with 
UAE government policy, to terrorists on the West Bank in Gaza. 
I don't know how you classify a country as an ally in the war 
on terrorism, and that same country and government is 
classified by Hamas as an aid to Hamas's terrorist activities.
    The father of the current president of the UAE gave 
millions of dollars to terrorist organizations, in full accord 
with UAE law. The current president sits on the board of a 
charity, a major charity, that provides millions of dollars to 
terrorists in the West Bank and Gaza. The UAE official 
government policy is to support a boycott of Israel. The 
princes of the UAE, several of them, have close personal 
relationships with bin Laden.
    And I'll ask the panel, particularly the gentleman on my 
left, how did you reach the conclusion that owners of this 
company, the UAE Government, could be relied upon to be allies 
in the war on terrorism when they are facilitating the funding 
of the bomb-makers?
    Mr. Kimmitt. Mr. Sherman, I'll give the answer from the 
point of view of the CFIUS committee, and then ask my 
colleague, Ambassador Welch, to talk about the specifics.
    The issues that you've raised would fall in the U.S. 
Government to those departments and agencies charged with the 
responsibility for counter-terrorism: the State Department, the 
Treasury Department--
    Mr. Sherman. Well, let's hear from State, then.
    Mr. Kimmitt. And what I would say is--
    Mr. Sherman. I have a limited amount of time. Let's hear 
from State.
    Mr. Welch. Sir, I've listed the things that you've 
mentioned. I am not aware of these contributions. I was just in 
Dubai.
    Mr. Sherman. How could you not be aware of these 
contributions? They're in the public domain. I am not leaking 
classified information here.
    Mr. Welch. I didn't say that. I am not aware of them.
    Mr. Sherman. You're not aware of the July Hamas press 
release praising the UAE?
    Mr. Welch. The United Arab Emirates Government does not 
have a relationship financially to Hamas.
    Mr. Sherman. Do they allow their leading citizens to give 
millions of dollars to Hamas--American citizens can't give 
money to Hamas. UAE citizens are encouraged to do so.
    Mr. Welch. Sir, I think that the United Arab Emirates is 
playing a convincing and important role in controlling 
financing to terrorist organizations, including Hamas. We just 
had the Secretary of State--
    Mr. Sherman. So when did they stop funding the terrorists?
    Mr. Welch. I am not sure they began, sir.
    Mr. Sherman. So millions of dollars did not go from the 
father of the president of the UAE to Hamas? Hamas didn't 
praise the UAE for its unstilting support? Couriers are not 
going from the UAE bringing cash to Hamas? None of that is 
happening.
    Mr. Welch. Sir, that is a broad mix of things. With respect 
to the activities of the government, per se, again, I am not 
aware of those--
    Mr. Sherman. When a government allows its leading citizens 
to send millions of dollars to terrorist organizations. When it 
allows a telethon for terrorists to be broadcast over the 
airwaves. A government is responsible for governing. It can't 
say, ``Well, we didn't send a check. We just encouraged our 
leading citizens to do so,'' and be called an ally on the war 
on terrorism, unless you're adopting a hear-no-evil, see-no-
evil policy toward defining who are our allies and who we have 
to be worried about.
    Mr. Bachus. [presiding] You can answer the question. But 
you're about 2 1/2 minutes over, but--
    Mr. Sherman. I understand.
    Mr. Welch. Again, we've taken note of the list of those 
concerns. Let me just say that the UAE has cooperated in trying 
to freeze accounts of a number of terrorist groups. We have a 
number of mechanisms whereby we pursue individual cases if we 
know of them.
    I am not aware of the ones you mentioned, again. They have 
a--we've just set up a Joint Terror Finance Coordinating 
Committee to look at increasing our efforts to combat this 
problem. The UAE is a major financial center, and of course, 
they have their responsibilities in that regard. We'll provide 
you information for the record in answer to your specific 
concerns.
    Mr. Sherman. The UAE seems to take a position that they're 
anti-terrorist, except if the terrorist organization focuses on 
killing Israelis. Then they're pro-terrorist. And these people 
you call allies in the war against terrorism? I yield back.
    Mr. Bachus. Thank you. Thank you, Mr. Chairman. Let me 
address this question to the panel, a follow-up of what Mr. 
Sherman said. You know, you're not aware of some of these other 
things that Mrs. Kelly or Mr. Sherman has said. You are aware 
of the boycott of Israel; are you not? And I'll ask Mr. Welch.
    Mr. Welch. Yes, sir.
    Mr. Bachus. Does the Dubai Government or UAE honor the 
boycott of Israel?
    Mr. Welch. Sir, first of all, the United States opposes the 
boycott of Israel.
    Mr. Bachus. I said does the UAE honor the boycott?
    Mr. Welch. It does.
    Mr. Bachus. Is that a security concern for you?
    Mr. Welch. I don't know if that was evaluated in the course 
of this process or not.
    Mr. Bachus. Well, let me ask you--no, I'll follow up on 
that. That is a good--the four of you are the Under Secretary--
or in your case, you're the Assistant Secretary for the 
Department. I think your appearance here conveys that you are 
aware of what went on in the vetting process. Am I wrong about 
that assumption? Were all of you all aware of what went on? 
You've come here to tell us what went on in the what is 
described as a robust debate and a full vetting process. Were 
you all involved in that process? Or is there someone else at 
your department that would be better able to testify?
    Mr. Kimmitt. Well, there were individuals, Mr. Bachus, at 
the assistant secretary level and below who did the actual 
vetting in this particular circumstance. We were asked by the 
subcommittee and the committee to come up to discuss the 
process in general and to give our perspective.
    Mr. Bachus. Who could give us--who at the department--would 
you supply names of the people who actually were engaged in the 
process?
    Mr. Kimmitt. Yes. That was one of the questions that Mrs. 
Maloney had asked. We know that answer. We'll be glad to do it.
    Mr. Bachus. Thank you. Do you know who was at the table, 
the individuals? Are you aware of--
    Mr. Kimmitt. We do. I'd have to come back to you with those 
names.
    Mr. Bachus. Are you aware of what they discussed? Whether 
or not they discussed, say, the boycott of Israel?
    Mr. Kimmitt. I am not aware of the specifics, but we can 
get you that information, which actually has been requested.
    Mr. Bachus. They're all under your supervision, though, or 
under your--you're their--
    Mr. Kimmitt. Well, either ours, or I would mention in this 
case, Mr. Bachus, the Commerce Department takes a--
    Mr. Bachus. Sir, the Commerce Department is not here. But 
in your four cases, they're all under your supervision. Each 
one of you, these individuals are under your supervision.
    Mr. Kimmitt. Who did participate. That is correct.
    Mr. Bachus. You only found out 21 days ago that this 
process had been going on for 130 days?
    Mr. Kimmitt. Well, the process ran about 90 days; 60 
informal, then the 30 formal days.
    Mr. Bachus. You had mentioned October 17th as the 
commencement.
    Mr. Kimmitt. Right.
    Mr. Bachus. That is 133 days ago.
    Mr. Kimmitt. I am sorry, sir. I was counting to the date on 
which the deal was--
    Mr. Bachus. Am I wrong when I say that the four of you all, 
although these were people under your supervision, and you were 
charged with supervision and oversight of them, that you were 
unaware of these negotiations until 21 days ago? Is that 
correct?
    Mr. Kimmitt. That is correct, sir, in my case.
    Mr. Bachus. And the other three of you, at least two of you 
learned of these negotiations when Under Secretary Kimmitt 
called you?
    Mr. Jackson. That is correct in my case, sir. It is not the 
routine. If there are reasons to elevate during the 30-day 
period, based upon concerns that the staff raises, it is quite 
routine that it gets up to the Deputy Secretary level or above.
    Mr. Bachus. So this was such a routine run-of-the-mill 
matter that you weren't brought into the negotiations?
    Mr. Jackson. It was a matter that yielded very, very 
substantial common agreement within the 12 agencies, plus the 
two additional invited--
    Mr. Bachus. Do you think that it would have been proper for 
you to be advised and be part of the negotiations as the under 
secretaries involved?
    Mr. Jackson. For my sake, I wish in hindsight that I had 
been.
    Mr. Bachus. Do you think that there could be a full vetting 
process or a full debate without the participation of the under 
secretary? Or if you weren't involved, was the secretary of 
your agency involved?
    Mr. Jackson. In my case, not, sir.
    Mr. Bachus. How about in your case?
    Mr. Kimmitt. No, sir. Well, not in this particular case.
    Mr. Bachus. Sure. Well, that is what we're talking about. 
How about in your case?
    Mr. Kimmitt. As the Deputy Secretary said, Mr. Bachus, the 
way the system has worked--
    Mr. Bachus. I understand that. I am saying--I know how it 
worked in this case. You weren't consulted, nor I suppose none 
of the secretaries were consulted. When did the White House 
learn? Did they know before you knew?
    Mr. Kimmitt. Well, as I said in my opening statement, Mr. 
Bachus, the White House has representation on the committee at 
the staff and policy level. In terms of when higher level 
people were advised, I'd have to speak with them.
    Mr. Bachus. So you and your secretaries were not aware of 
these negotiations. So it is probably fair to assume the 
President may not have found out about them until 2 or 3 weeks 
ago, about the time you were notified; is that correct?
    Mr. Kimmitt. I think that is correct. I'd defer to the 
comments made by the White House Press Secretary, sir.
    Mr. Bachus. Sure. The Commerce Department, were there--
other than national security issues, are there economic 
disadvantages that could be created by this; are they 
considered as national security, or is that not considered?
    Mr. Kimmitt. I would think that would be one of the issues 
that Commerce and perhaps others would bring to the table, sir.
    Mr. Bachus. Now that you've been advised what these 
hearings were like, the port operator can determine sailing 
times, berthing assignments, docking order, all of which can 
make a million dollars difference in the case of each, you 
know, ship. Are we turning over that authority to the Dubai 
ports? Does anyone know? Or was there maybe a mitigating 
agreement that took that away from--that duty away from them?
    Mr. Jackson. Sir, I am sorry. I was consulting with Admiral 
Bone. But is your question does the terminal operator schedule 
the arrival and departure times?
    Mr. Bachus. Yeah. No. You know, let's say two ships arrive 
at the same time. Who determines the docking order or the 
berthing assignments, which can be advantage to--
    Mr. Jackson. The pilots in the Coast Guard schedule those 
sequencing of the--
    Mr. Bachus. Not the port operator.
    Mr. Jackson. Admiral Bone says that they are consulted. But 
at the end of the day, the authority about docking the vessel 
is ultimately derived from the pilot's authority.
    Mr. Bachus. Do you know if lobbyists were retained by 
Dubai, and then were in these negotiations? Or do they have 
registered lobbyists?
    Mr. Kimmitt. I think the Government of the UAE does. I am 
not aware that they were involved in that process. We could 
certainly get that--
    Mr. Bachus. Will you find out if they were, and when they 
were involved, and if they were involved before you were 
involved?
    Mr. Kimmitt. All right, sir.
    Mr. Bachus. Thank you. And let me ask you this. Were there 
any agreements to mitigate national security concerns? The law 
provides that you can enter into agreements to mitigate any of 
those. And the Coast Guard said that some of their objections 
were met. Were these reduced to writings and mitigating 
agreements, as called for by the statute?
    Mr. Jackson. Yes, sir. There was an assurance letter that 
was negotiated by DHS, and all of our concerns were 
accommodated within the contours of that letter. We've provided 
that publicly and on behalf of--
    Mr. Bachus. Is that an agreement? Is that considered a 
mitigating agreement which would have legal--
    Mr. Jackson. It does have legal binding authority.
    Mr. Bachus. Could we have copies of those mitigating 
agreements?
    Mr. Jackson. Yes, sir. Absolutely. But I thought we had 
provided them already.
    Mr. Bachus. My last question, it is my understanding that 
there has been a nomination to the U.S. Maritime 
Administration--I don't know that it is the director or 
whatever--and that the gentleman was an official with the Dubai 
ports; is that correct?
    Mr. Jackson. Yes, sir. That is correct.
    Mr. Bachus. So the ports will be operated by the Dubai 
ports and the--if this administrator of the U.S. Maritime 
Administration is, in fact, appointed by the Senate, he will 
run the U.S. Maritime Administration; is that correct?
    Mr. Jackson. The nomination is to head the U.S. Maritime 
Administration.
    Mr. Bachus. Now that you all know that these ports will all 
be operated--or, you know, if there's no change by Dubai ports, 
does it bother you or concern you at all that the head of the 
U.S. Maritime Administration might be a former executive with 
Dubai ports?
    Mr. Jackson. Let me make a distinction here, sir. It is 
widely being misrepresented here that this transaction has 
something to do with controlling ports.
    Mr. Bachus. No, no, no. Just the operator. Just the 
operator of the port.
    Mr. Jackson. The terminal operators.
    Mr. Bachus. Terminal operator.
    Mr. Jackson. Yes.
    Mr. Bachus. But does the fact that they are--the terminal 
operator at all the ports, does that--and that is obviously a 
$6.6 billion deal, so it is not like they're having janitorial 
services. I mean, it is an important--
    Mr. Jackson. Sir, if you take a position like any of the 
gentlemen that I am sitting at this table with, you have to 
file a total disclosure. And this gentleman would be recused in 
his position from anything having to do with his former 
employer from at least--
    Mr. Bachus. No, I understand that. I understand that. I am 
not accusing the gentleman of anything. I am not--
    Mr. Jackson. Well, I can speak to this as a former deputy 
secretary of--
    Mr. Bachus. I am saying now that the port operation of the 
terminals has been turned over to Dubai Ports, is it wise to 
proceed, in your opinion, with the nomination of a former 
executive, or do you think that it would at least be something 
that should be looked at and reviewed?
    Mr. Jackson. It is certainly the prerogative of the Senate 
to take that into consideration as they see fit. But let me 
say, speaking as a former deputy secretary at the Department of 
Transportation, wherein the Maritime Administration resides, it 
is imperative that we bring people into the Administration to 
serve in these senior jobs who have had real experience in the 
real world, people with the highest degree of credibility and--
I have every reason to believe that this gentleman--
    Mr. Bachus. Let me close with this question. You know, the 
whole premise--and I know you all have stated this several 
times. And I agree with you. I just use your word. Unnecessary 
restrictions by the United States on foreign investment may 
encourage other governments to restrict foreign investment by 
U.S. firms.
    In other words, if we restrict them from being terminal 
operators, they may restrict us, or put restrictions on us. And 
that is one reason we have an open-door policy as far as 
foreign investment. And one of the reasons is we want to invest 
in those countries and their operations.
    So my question is does the UAE permit investment in the 
maritime sector to the extent the United States does?
    Mr. Kimmitt. I think that they do allow investment. I'd 
have to get you the detail as to what level of investment. But 
you're right, Mr. Bachus, that one benefit of an open 
investment policy is that it allows us, then, to use that to 
advocate on behalf of U.S. companies overseas.
    Having said that, the real question still is--has the 
national security been protected? That is certainly what was in 
the minds of the people who did this review, and it certainly 
is what will guide our 45-day investigation.
    Mr. Bachus. And the only reason I say that, it is my 
understanding they won't allow full investment. They would not 
allow a U.S. company to come in as a 100 percent owner of a 
terminal facility. The UAE just simply does not allow that. 
We're allowing them to do that, so I wondered if there was some 
maybe mitigating agreement that said, ``Okay. We're doing this 
with you all. You will allow U.S. companies 100 percent 
ownership of operations in the UAE,'' which would be important 
for our company.
    Mr. Kimmitt. My understanding, but I want to get this fact 
for you, is that they allow investment up to the 75 percent 
level.
    Mr. Bachus. But we're allowing it up to 100 percent.
    Mr. Kimmitt. 100 percent. But it is significant, Mr. 
Bachus, as you well know, any time you get above 50 percent--
    Mr. Bachus. Sure. I am just wondering if they won't allow 
us to get above 75 percent, should we allow them to get above 
75 percent?
    Mr. Kimmitt. Well, I'd like to get the facts and get back 
to you on that.
    Mr. Bachus. Sure. No, I think you're absolutely right. I've 
been told that they do allow 75 percent, but not 100 percent 
ownership by U.S. companies in their concerns.
    At this time, I recognize Mr. Frank.
    Mr. Frank. I apologize for having been drawn away. And I 
gather this didn't get to the highest levels. But I have to ask 
you, because I think it is unfortunate that we're in this 
situation where we have to make this public decision about the 
UAE.
    Let me ask all of you, were you surprised when the fact 
that the control of this part of the port business was going to 
be turned over to the UAE caused considerable political 
turmoil? Can I ask each of you? Were you surprised by that, Mr. 
Kimmitt?
    Mr. Kimmitt. I was not surprised. That is why, as I said 
earlier, as soon as I learned the facts on this and informed my 
boss, I said that we--
    Mr. Frank. When did you get the facts? I am sorry. When did 
you hear about it?
    Mr. Kimmitt. In February, after the approval--
    Mr. Frank. Mr. Jackson, were you surprised?
    Mr. Jackson. I had not contemplated the notification to 
Congress prior to this becoming public, and so I was, I would 
say, surprised by the degree of vehemence and intensity of--
    Mr. Frank. But you were surprised. Mr. Kimmitt wasn't. How 
about you, Mr. Edelman?
    Mr. Edelman. When the Deputy Secretary of Treasury called 
me to discuss this issue, Congressman Frank, I realized that 
there would be a certain amount of controversy associated with 
it. But I have to confess that, like Deputy Secretary Jackson, 
I was surprised by--
    Mr. Frank. How about you, Mr. Welch?
    Mr. Welch. Yeah, I'd have to say, sir, I was surprised.
    Mr. Frank. You were. Okay. I would recommend--I don't know 
if there is such a program--but antenna development for members 
of the Administration. Because I am surprised that some of you 
were surprised. I don't know where you've been for the past few 
years. And I don't agree with all the sentiments here.
    But frankly, I have to say this. For this Administration to 
complain that there was and has been an excessive outburst of 
too much skepticism, etc., etc., it is a little bit of not 
understanding what their own role has been. And I guess the 
fact that three of the four of you did not realize that making 
this public would cause this kind of concern does not speak 
well for the understanding of the political system. And part of 
good governance is understanding the political system.
    And I have another question.
    Mr. Jackson. Sir, can I just say that I said I was 
surprised by the depth and intensity. I was not surprised that 
there would be controversy and a lack of agreement about this.
    Mr. Frank. Well, okay. But I think you should have been--
that does not--I am sorry, guys. You can change that on the 
record. Frankly, I am surprised that you were surprised by the 
depth and the intensity.
    The 45 days. Exactly what is going to happen during these 
45 days? Let me put it this way. What subjects are going to be 
studied during the 45-day period that have not already been 
studied? Mr. Kimmitt?
    Mr. Kimmitt. Well, as I mentioned, Mr. Frank, we'll look 
at--
    Mr. Frank. No, specific question. What are you going to 
look at in the next 45 days that weren't already studied?
    Mr. Kimmitt. New information that will be brought to our 
attention by the company. We're awaiting the filing.
    Mr. Frank. New information from the company. So the company 
has information that they didn't give you in the first place? I 
mean--
    Mr. Kimmitt. No. The company, as part of its filing, has 
indicated that it is considering structural changes and other 
issues of that sort. That will be considered, measured against 
the security concerns that have been raised.
    Mr. Frank. Well, are these structural changes--why are they 
doing structural changes if they're not necessary? I mean, you 
did the study, and you said there's no problem. So are these 
structural changes that deal with security? In other words, are 
they more concerned than you guys were because they've now 
got--that you didn't have?
    Mr. Kimmitt. No. We will look at the information that was 
available. We'll look at new information that is available and 
the concerns you have raised. We're going to take your--
    Mr. Frank. Okay, I understand. So you're going to re-look 
at what was available.
    Mr. Kimmitt.--and take your views into account, sir.
    Mr. Frank. What is that?
    Mr. Kimmitt. And take your views into account, the issues 
that you've raised. But--
    Mr. Frank. My views were that you people need a political 
common sense transfusion. I don't know if you can fix that up 
in 45 days.
    But the issue is--well, let's be very clear. I don't know 
anybody who really believes that this 45-day review period is 
going to be anything more than a repeat of what we had, because 
you obviously didn't think it was necessary, and you completed 
this. And I would be interested to know what new information is 
going to be looked at. And you say, well, the company is going 
to give new information. I don't know whether that means that 
they didn't give us enough in the first place. But I really 
don't understand what the 45 days is going to be used for.
    Mr. Kimmitt. Well, again, Mr. Frank, we're going to take a 
look at any information available in making the determination 
that national security interests are protected.
    Mr. Frank. Are you going to go over your own work again and 
see if you made any mistakes, or are you going to look at the 
future?
    Mr. Kimmitt. We're going to look at the information that 
was available and information that will be made available.
    Mr. Frank. Okay. Let me ask, one of the things I saw the 
President said was that we shouldn't be treating Dubai and the 
Emirates any different than we treat England. I am making that 
statement. Now, it has been pointed out that P&O was not owned 
by the government, and that is one difference.
    But let me ask each of you. Let me start with Homeland 
Security. You have immigration and these other--do you in your 
Department treat the United Kingdom and the United Arab 
Emirates the same in every regard? And, you know, immigration, 
visas, etc.?
    Mr. Jackson. No, sir.
    Mr. Frank. Thank you. Mr. Kimmitt, did Treasury, when you 
do your international work, do we have the same exact set of 
procedures with the United Arab Emirates that we have with the 
United Kingdom?
    Mr. Kimmitt. Well, I don't think we have the same exact set 
of procedures with them.
    Mr. Frank. Okay. So we treat them differently in some ways.
    Mr. Kimmitt. Well, any two countries, sir.
    Mr. Frank. Well, no. I am--well, I agree with that. I mean, 
it is the President that is the problem. I mean, I do think 
that he said we shouldn't treat Dubai and England differently. 
I think we do in many respects.
    Let me ask Mr. Welch. Does the State Department treat--I 
mean, in terms of sharing of information and working together 
with the UN, is the United Kingdom and the United Arab 
Emirates, do we treat them pretty much the same?
    Mr. Welch. No, not at all, not--
    Mr. Frank. Okay, thank you. Well, I think--
    Mr. Jackson. Mr. Frank, I would like to say that I believe 
the President was making a basic equity argument. And 
obviously, we're looking at the differences between nations 
when we do the security review. But to give them the same type 
of level playing field for investment that we give Great 
Britain and other nations--
    Mr. Frank. Well, that is not what he said, Mr. Jackson. Let 
me say this, since you--obligated to respond. First of all, I 
mean, if you want to give advice to the White House on how the 
President should phrase his statements, you ought to do that. 
That is not what he said. And in fact--
    Mr. Jackson. I am not doing that. I am trying to help you 
understand the President's position, sir. I am just trying to 
help explain the Administration's position.
    Mr. Frank. No. I was talking about the President's 
statement. You were trying to suggest that the President said 
something other than what he meant. And I would say this. Yes, 
I know in this context. Frankly, one of the issues has to do 
with port security. One of the things I am going to ask for, 
would you please submit, whoever would be the appropriate one, 
a description of what it is that the people who are now going 
to be--if Dubai gets this--what do they do? What are their 
specific functions?
    Because if I listen to you guys, it sounds to me like the 
people who do what these people do essentially stand on the 
pier and wave bon voyage to people. I mean, there's been this 
diminution of what they do that, boy, they're just down there. 
They don't really have much to do with what is going on. I 
think you have under-described the potential.
    And here's the problem that many of us have. You have this 
government-owned company playing a major role in how the ports 
are run. It is a government in a tough part of the world. It is 
a non-elected government subject to a lot of pressures. It is a 
government that has to worry about fundamentalists, about angry 
anti-Americanism. It is not in the safest neighborhood in the 
world. It is not England. And the Government of Dubai has not 
got the freedom that the Government of the United Kingdom has 
in many ways. And the fear is that they could be pressured in 
some ways to allow some people into positions of responsibility 
that we'd rather wouldn't be there.
    So when the President said we shouldn't treat Great Britain 
any differently than we treat the United Arab Emirates, I think 
it was wrong, that, in fact, we do in a number of areas. And 
one of them is in the capacity to even talk about the good 
will. Although I share the gentleman from California's and 
others' unhappiness with that position on Middle Eastern 
affairs and the Israeli boycott, etc.
    But we are saying that there was a difference in the 
capacity of the Government of the United Kingdom and the 
government of the United Arab Emirates in their willingness and 
ability to withstand some of the pressures that would come for 
things to happen wrong. And for the President to say that the 
mistake is that we are treating Great Britain and the United 
Arab Emirates differently--except for that one is easier for me 
to pronounce--I think this is just an example of how he is not 
arguing this thing very effectively, and not making anybody 
feel more comfortable.
    And again, I don't know what you could do in the 45 days. 
But if this is the approach, I don't think you're going to be 
any further along 45 days from now than you are today.
    Thank you, Mr. Chairman.
    Chairwoman Pryce. The gentleman from South Carolina.
    Mr. Frank. Madam Chairwoman. I am sorry. May I--you're 
back, and I just want to--I complained about the witness list. 
I still don't like the composition of the witness list. But 
I've double checked, and it may--I and the people with me, we 
may not have been as clear about our concerns as we were 
before. So I should not have made any implication that we were 
unfairly treated. I do not think the witness list was the right 
witness list. But I double checked, and I should not have 
suggested that there was any problem in our communication. I 
don't like the result, but I don't mean to make any criticism 
of the process.
    Chairwoman Pryce. I appreciate the gentleman and your 
statement, because that was the first I was aware that there 
was any problem. And I certainly would have worked with the 
gentleman if I had known.
    Mr. Frank. No, I appreciate it. I just don't like eight-to-
one. But it was not a procedural problem.
    Chairwoman Pryce. Thank you. The gentleman from South 
Carolina.
    Mr. Barrett. Thank you, Madam Chairwoman. I appreciate 
that. Gentlemen, thank you. I am glad you have your steel 
underwear on today. I know it's been kind of tough.
    You know, we've had a lot of different questions from 
different people, but the same theme that I see keeps coming 
back time and time and time and time again. This is a different 
day that we're operating in. People are extremely concerned. I 
have not seen my constituents as mad about this one issue as 
anything I've seen since I've been in the United States 
Congress.
    So my question is very simple. Is CFIUS broken? Is this 
whole process--and I am not questioning--I am not trying to put 
blame, because I know that you are professional. I know that 
the people who are involved in this process did everything they 
felt like was correct by the letter of the law, but I think the 
process is broken. Because there's too many questions not being 
answered, too many people don't know what is going on, 
including possibly yourselves, especially late in the process.
    So I would like an answer from each one of you. Just tell 
me, is this process broken? If it is, would you or your 
agencies be willing to tell us how to fix it? And if it needs 
to be fixed, does it need to be fixed prior to making a 
decision on this sale? And we'll start here on the left.
    Mr. Kimmitt. Sir, I don't believe it needs to be fixed 
before the final decision is reached in this case. As I 
mentioned, after the 45-day review, after up to 15 days 
consideration by the President, a report will be sent to the 
Congress in detail. Going back to what Mr. Frank and others 
have said, we know that we'll be measured against, among other 
things, the concerns that you've raised, the factual questions 
that you've asked, the opinions that you've expressed. I think 
for the DP World case, the process will run to that conclusion.
    I think the process needs to be improved. The GAO report 
last fall talked about the fact that the security agencies were 
not having an opportunity to get their issues fairly addressed 
in the process. We at the deputies' level have worked very hard 
to make sure that every security professional, at whatever 
level, has the opportunity to get her or his views on the table 
to be fairly considered. There's no rush to judgment, in spite 
of a comment to the contrary. Anybody who had had a lingering 
concern among the literally hundreds of people who looked at 
this at the professional staff level, it would have gone into 
the 45-day period.
    So I think the process--that is, the interagency part of 
this CFIUS process--worked. I think in terms of notification 
within departments, particularly moving it further up in the 
departments, we've talked about the improvements that we need 
to make there. I think where we really need to focus our 
attention is the relationship between the executive and the 
Congress in this process. Although I think we've done a better 
job of telling you about cases that have been closed, I think 
we need to focus more on what we can do within the law or 
beyond to better apprise you on pending cases.
    Mr. Barrett. Would you be willing to give me some comments 
on how to improve that?
    Mr. Kimmitt. Oh, absolutely.
    Mr. Bachus. Okay, good.
    Mr. Jackson. Sir, I concur with Deputy Secretary Kimmitt 
that the process does merit consideration, specifically with 
the view to how we share information with the Congress. And our 
Department would be here to participate within the 
Administration and with Congress in any discussions of those 
issues.
    Mr. Edelman. Congressman, I can attest to the fact that 
very early in my tenure last August, Deputy Secretary Kimmitt 
called me and asked me to come over and talk with him at the 
Treasury about the GAO report and the issues that had been 
raised in it about the Department of Defense and other security 
agencies not being able to sufficiently raise their concerns 
about this. I think a number of steps have been taken to 
improve that process.
    I think all of us have learned some lessons. I won't speak 
for the others. But I think clearly, issues that are 
controversial, like this one, need to be raised to higher 
levels and policy and political levels earlier on in the 
process. We've taken some preliminary steps in the Department 
of Defense to try and remedy some of that.
    Mr. Welch. Sir, I agree with what they've said. And I am a 
little bit in a different position here, because within the 
State Department, our seat at the table is held by another 
bureau, a peer of mine. In that process, if there's an issue 
involving a country or firm within our region, we are 
consulted. We were consulted fairly and responsibly in this 
process. Though, as I said in an earlier answer, I was 
personally not aware of it until we began preparing for the 
Secretary of State's trip.
    Mr. Barrett. I would welcome you submitting any of your 
suggestions to help better this process, gentlemen, in a timely 
fashion too. Thank you, Madam Chairwoman.
    Chairwoman Pryce. Thank you. Ms. Wasserman-Schultz?
    Ms. Wasserman-Schultz. Thank you, Madam Chairwoman. My 
first brief question is who from the White House participated 
in the CFIUS process, and who did they report to?
    Mr. Kimmitt. There are, ma'am, six White House offices 
involved: the National Security Council, National Economic 
Council, Council of Economic Advisors, Office of Management and 
Budget, Office of Science and Technology Policy, and the U.S. 
Trade Representative. I don't know the reporting chains within 
the White House, but they have been members of the CFIUS 
process for some time.
    Ms. Wasserman-Schultz. There were six White House entities 
involved in this process, and the President didn't know 
anything about this before it was approved?
    Mr. Kimmitt. There have been six White House offices 
involved in consideration of CFIUS cases going back for a 
number of years.
    Ms. Wasserman-Schultz. I realize that. But when this first 
came to light, in fact, you acknowledged--each of you 
acknowledged that you only recently were aware of it. It seemed 
as though the White House alluded to the President being aware 
of it, especially because the law requires if there's a 
national security review for the President to sign off on it at 
the end of the process.
    Given the amount of alarm, and given that we're talking 
about a government-owned company where there are national 
security implications, how could there be six White House 
entities involved in the CFIUS process, and it didn't rise to 
the level of knowledge not just of the President, but even of 
your own awareness or the awareness of your superiors? That is 
just mind-boggling to most people.
    Mr. Kimmitt. As I said, there were in this case not just 
the normal 12 participants. We also had participants from two 
other departments and agencies involved in this process. I 
think that improvements are being made not just in the 
departments but elsewhere on making sure that even those not 
involved in the actual security analysis are advised of pending 
cases.
    Ms. Wasserman-Schultz. I think this might be the case of 
too many cooks spoiled the soup. Really, I've never had more 
constituents in as short a period of time, like the gentleman 
from South Carolina said, contact my office. And I've literally 
had senior citizens, little old ladies, calling my office 
crying about their concern.
    And I represent the State of Florida, and my district abuts 
the Port of Miami. I went to the Port of Miami last week, and I 
can tell you that when you walk through the Port of Miami 
Terminal Operating Company and see the potential for the 
national security implications that are here, how the CFIUS 
process could not have triggered a 45-day review is beyond me.
    But one of my greatest concerns stems from the fact that 
we're talking about a foreign government-owned company 
controlling the P&O company. There was really apparently a 
disconnect between the CFIUS process that made the decision and 
the fact that no national security implications were triggered.
    I don't know how the CFIUS process, given the UAE's 
involvement just 5 years ago, in spite of the fact that they 
may be our friend now and may have been cooperative since 9/11, 
and the fact that this is a government that recognized the 
Taliban, only one of three countries that recognized the 
Taliban, the fact that this is a country that supports the 
boycott of the state of Israel. I mean, the fact that you have 
financial involvement in the September 11th attacks and the 
transport of nuclear material through that country to the state 
of Iran, how could all of those facts, did they not come to 
light, or were they not raised during the CFIUS process? And if 
they were, then how could that not have triggered the 45-day 
national security review?
    Mr. Kimmitt. To the best of my knowledge, those facts and 
many others were taken into account during the process, both by 
the agencies charged with responsibility, but also by the 
intelligence community that would have looked both at 
historical and more current information and intelligence.
    Ms. Wasserman-Schultz. It is just--the most startling thing 
is the disconnect here, where--like I said, I was on the ground 
at POMTOC in the Port of Miami. The national security 
implications hit you in the face when you walk through that 
place. And virtually everyone I spoke to down at the port, 
including the people involved with POMTOC now, have national 
security concerns.
    Let me ask you another quick question. Because in October 
of 2005, the GAO report that came out said that of the 500 
notifications of acquisition between 1997 and 2005, CFIUS 
initiated only eight investigations. That is an alarming 
finding by itself. But the GAO report went on to say that CFIUS 
has frequently encouraged companies to withdraw from the 
process in order to address their security implications, 
really, I guess, so as not to trigger the 45-day review. You 
also in this process had a pre-CFIUS process, also seemingly to 
avoid triggering the 45-day review process.
    So can you explain how it is that you're not just following 
the law so that we can really figure out whether there are 
national security implications with a deal like this?
    Mr. Kimmitt. Well, I think the focus at every level is on 
determining whether there is a national security concern. If 
there is a national security concern that cannot be addressed, 
the deal will not go forward. If that concern cannot be 
addressed in the 30-day period, it will go to the 45-day 
period.
    If a company makes a voluntary decision to withdraw, they 
have to start the process again. It doesn't mean that the 
security concern isn't there. They might need more time to 
address it. They might go back and restructure the deal. They 
might put the U.S. operations under a separate ownership.
    And my feeling is that, again, our focus should be on 
whether the national security interests of the United States 
have been protected. If they haven't been, then those people in 
departments and agencies are not going to sign off on the deal 
going forward.
    Ms. Wasserman-Schultz. But the GAO report indicated that 
the CFIUS process has encouraged companies to withdraw when 
security implications have arisen, instead of allowing the 45-
day review to be triggered. So why would you do that? I mean, 
why wouldn't you just allow the process to go forward so that 
the people at the highest levels that are responsible for that 
review and for those final decisions are allowed to engage in 
those decisions?
    Mr. Kimmitt. Well, you go to the 45-day if an issue has 
been raised and has not been properly addressed. If a company 
says, ``I need more time to address your concerns,'' and 
withdraws, that is an independent decision on their part.
    Chairwoman Pryce. The gentleman's time has expired.
    Mr. Jackson. Can I just add one footnote to this?
    Chairwoman Pryce. Very briefly. We have a whole other panel 
that has been very patient, so please be brief.
    Mr. Jackson. Many people withdraw because the 30-day 
process has indicated that there will not be an approval no 
matter what. The nature of the objections are so structurally 
comprehensively laid out that people do withdraw, do not 
resubmit, and do not pursue the consummation of the 
transaction. So there are multiple explanations, and this is 
one of them, for a transaction being withdrawn.
    Chairwoman Pryce. The gentleman from Georgia, Mr. Scott, is 
recognized.
    Mr. Scott. I thank you, Madam Chairwoman. Let me just start 
very quickly by stating how important it is for us to register 
this one important point, and that is what the American people 
feel right at this moment. They don't want this thing delayed. 
They want it stopped. They want it stopped. They want all of 
our cargo checked at the ports, not 5 percent. Sort of like 
Ethan Hunt in Mission Impossible when he said, ``The knock list 
is out in the open.'' Well, this list is out in the open, and 
the world knows we only check 5 percent. We better go to work 
and hurry up and get 100 percent of our cargo checked.
    Now, I see some eyebrows being raised out there, and people 
kind of reacting. If Hong Kong can do it, why can't the United 
States? Hong Kong checks 100 percent of its cargo, and they're 
not even a terrorist threat. There's nobody wanting to blow 
them off the face of the earth. We're at war. This is a serious 
war. And this is a war against terror, against Islamic 
extremists, in the Arab part of the world. We're not using this 
as any discriminatory manner.
    But here are the facts, gentlemen. The facts are these. 
This is a government-owned company owned by a government that 
is one of only three other governments--Saudi Arabia and 
Pakistan--that even to this day recognizes the Taliban as the 
official Government of Afghanistan. Yes, they do. While our 
young men and women in uniform are over there dying, that is 
what this company does. This country owns this company that has 
been active in illegal transfers of nuclear material to Iran to 
help build an atomic bomb, whose president says his one aim is 
to wipe Israel off the face of the earth. And this is who we're 
turning our security of our ports over to? No wonder the 
American people are saying, ``No. We're not going to take 
this.''
    What this meeting ought to be about is not examining any of 
the intricacies here. This meeting ought to be about what steps 
and how quickly we can terminate this deal, and how quickly we 
can begin to rise up and get the can-do spirit in America to 
say, ``We need to protect our own securities at our ports.'' 
Why, the American people. And we need to start doing it at the 
point of origin, not wait until they get to the ports. By then, 
it is too late almost. We need to have Americans at each of 
these ports wherever their entry bringing materials into this 
country, checking not 5 percent, but 100 percent of them.
    Gentlemen, this is the same country that owns this company 
that transfers financial backing to Al Qaeda. Comes right 
through this country. Gentlemen, this is the country that owns 
this company, of which two of the hijackers that flew those 
planes into New York's Twin Towers. And you mean to tell me you 
didn't even tell the President of the United States? He said he 
didn't know nothing about it. But yet still, he says it is a 
good deal. He's shot all his credibility.
    It is up to this Congress of the United States, and the 
people of this country are looking to this Congress to finally 
stand up and do what we were elected to do, provide the 
oversight that is needed. It is shameful and a disgrace that 
such a decision was even thought about being made, to turn the 
security of our ports or the operations of our ports, whatever 
you want to say it is, this country owning this company has no 
business doing it.
    And we need to sit back from the table a bit. And maybe 
this is a Godsend that will force us to examine why we're in 
the shape we are in in terms of our weak homeland security. The 
American people deserve better than this.
    My first question that I want to ask is how can we stop 
this?
    Mr. Kimmitt. Sir, the way the process works, as I have 
explained it, is that after the 45-day review and the review by 
the President, a report will be sent to the Congress. And at 
that point, my assumption would be that in exercising the 
oversight responsibilities to which you referred, you would 
look very closely at the report and measure it against 
precisely the concerns you've raised--
    Mr. Scott. Let me ask you this question. Is it in your 
opinion that legislation is the only way of stopping this by 
the Congress? Because it is very important. Like I said at the 
outset, the American people want this stopped. And we need to 
tell them at this committee how it can be stopped.
    Chairwoman Pryce. The gentleman's time has expired. But the 
witnesses can answer this question, and then we'll proceed to 
the next panel.
    Mr. Kimmitt. I would say the same answer, Madam Chairwoman, 
and that is I think we owe you, Mr. Scott, the report that will 
be sent by the President. We will expect you to look at that 
against the parameters that arise from the security concerns 
you've raised, legitimate security concerns. And then you will 
make the judgment and exercise your constitutional 
responsibilities on how to respond.
    Chairwoman Pryce. The gentleman's time has expired. Mr. 
Davis from Alabama is recognized.
    Mr. Davis. Thank you, Madam Chairwoman. Let me ask you 
gentlemen a few quick questions, and then wrap up with an 
observation. Mr. Jackson, as a matter of curiosity, in how many 
other instances has the Department of Homeland Security raised 
concerns about a transaction that's been evaluated by CFIUS?
    Mr. Jackson. I'd have to get back in and look. We 
aggressively push it all the--
    Mr. Davis. You don't know that? Do you know if it's been 
done at all? Do you know if DHS has ever raised the kind of 
concern that was raised here about any other transaction?
    Mr. Jackson. Absolutely. I've been personally involved in 
some quite aggressive conversations in the--
    Mr. Davis. How many of those ended of being approved 
anyway?
    Mr. Jackson. Several since I've been confirmed a year ago.
    Mr. Davis. Several means two? Three? How many?
    Mr. Jackson. I'd have to go back and look.
    Mr. Davis. Did you identify those to the committee at some 
point?
    Mr. Jackson. I'd be happy to if it is allowed by law. And I 
think that it is, so I'd be happy to tell you about that.
    Mr. Davis. Well, certainly, we would request to see if 
there are any other instances where DHS has raised concerns, 
and somehow the transaction has gone forward.
    Mr. Jackson. To answer your question fully, sir--
    Mr. Davis. My time is limited, so I am going to move on to 
another question.
    Mr. Jackson. I know. But I would like to not make a 
misrepresentation here. We aggressively look at all the cases.
    Mr. Davis. No, no, you're not answering my question. Let me 
move on to something else. The second question I want to pose 
and make sure I understand this, there has been some testimony 
by you all and some question as to whether or not the UAE has 
done a better job of strengthening its money laundering laws. 
And, of course, we know at one point, the country was notable 
for its almost complete lack of laws related to money 
laundering. Has the Treasury Department or the Department of 
Justice done any analysis as to how many money laundering 
prosecutions have happened in the UAE since it changed its 
laws?
    Mr. Kimmitt. I would have to get that specific figure for 
you, but we are very directly engaged, Mr. Davis, with them.
    Mr. Davis. Okay. But once again, my time is limited. Just 
so I can--because my time is limited, do you know how many 
prosecutions have been waged in the UAE since they changed 
their laws? Because that would be one measurement of how 
seriously--
    Mr. Kimmitt. I will get that answer for you.
    Mr. Davis. Okay. Another question. Let me make a very 
general point, because my time is about to wrap up. And then 
obviously, you all have been here for a while. I recognize 
you're not here as political advocates, but I do hope you take 
this point back to your respective departments. This is what is 
interesting. I think when my party got in trouble, when people 
on my side of the spectrum got in trouble, was, frankly, back 
in the 1970's and 1980's when a lot of our leaders kind of got 
the attitude whenever the American challenged them, some people 
in my party would say, ``You know what? We know what is right. 
We have the facts. We're really smart. We're really dedicated. 
And don't challenge us, because we know better than you.''
    And I'd be the first to admit to you a lot of liberal folks 
did that for a while, and that kind of turned off the American 
people.
    I wonder if this doesn't become the turning point from the 
left and right kind of flip. And I'll tell you what I mean when 
I say that.
    The way the Administration has defended this deal is 
essentially to say, ``We have the facts. We know what is right. 
We have the country's best interests at heart. Don't challenge 
us. If you challenge us, you're being bigoted, you're being 
prejudiced, and you don't have all the information.''
    In other words, the people that you work for are starting 
to sound a lot like the people who got my party in trouble. And 
I think that there's going to be a price for that.
    The final point that I want to make, the President said a 
few days ago that if this deal does not go through, that it 
sends a signal to the Arab world that the United States is not 
open for business with them.
    I wonder if it doesn't send a different signal, gentlemen, 
if the deal goes through. I wonder if it doesn't send the 
signal to Arab nations that you can have any human rights 
practices that you want, that you can have almost no system of 
financial transparency, that you can be an opponent of one of 
the United States' strongest allies, that you can, in effect, 
have a deathbed conversion, and all of these things can happen 
overnight. I think that is the signal that we're sending, 
frankly. I think the signal that we're sending is that a 
country with a remarkably weak record and so many things that 
we care about can still do a multi-million-dollar deal with the 
United States.
    I think that is the wrong signal to be sending, and I think 
that is why you've heard so much outrage from so many people on 
both sides of the aisle today. And I yield back the balance of 
my time.
    Chairwoman Pryce. Thank you, gentlemen, very much for being 
with us this afternoon, for your candid answers, and for the 
information that you promised to provide in the future. You are 
now excused, and have a good night's rest.
    And we'll welcome our second panel, who has been very, 
very, very patient. You may want to wait to sit down, because I 
bet those are hot seats now.
    All right. We'll proceed now with the second panel of 
witnesses. And once again, gentlemen, thank you for your 
patience. We'll introduce them in order.
    Mr. James Glassman, a resident fellow with the American 
Enterprise Institute. Welcome, Mr. Glassman. Joining him is Mr. 
Todd Malan. Mr. Malan is president and CEO of the Organization 
for International Investment. And we have Mr. David Marchick, a 
partner at Covington and Burlington. Burling. Excuse me. And 
William Reinsch. Is that correct?
    Mr. Reinsch. Well done.
    Chairwoman Pryce. All right. President of the National 
Foreign Trade Council. And Mr. Clark Ervin, director of the 
Homeland Security Initiative at the Aspen Institute.
    Gentlemen, we welcome your testimony. You may summarize it 
and give your formal statements for the record, if you'd like. 
You each are welcome to 5 minutes. And that may seem very 
trifling compared to how long you have listened and waited. But 
we appreciate that patience, and you may begin, Mr. Glassman.

   STATEMENT OF JAMES K. GLASSMAN, RESIDENT FELLOW, AMERICAN 
                      ENTERPRISE INSTITUTE

    Mr. Glassman. Thank you, Madam Chairwoman and members of 
the committee. It is an honor to appear before you as a witness 
today.
    The intense reaction to the transfer of shipping terminal 
operations at six U.S. ports raises disturbing questions about 
national security priorities and about America's commitment to 
her allies and to the process of globalization.
    The response to the DP World-P&O deal has been wholly out 
of proportion to the possible risk involved. It has almost 
certainly damaged our relations not just with the UAE, but with 
Arabs and Muslims and others disposed to support American 
policies and values. That damage could hurt our overall 
national security efforts and threatens to disrupt capital 
flows to the United States at a time when those flows are 
desperately needed.
    In my written testimony, I seek to correct the many 
inaccuracies about this transaction that have been raised 
publicly. In my short time, however, I want to concentrate on a 
discussion of economic consequences.
    The United Arab Emirates has embraced the security and 
economic prescriptions of the United States. They've done what 
we want them to do. Our ships call at their ports. Our war 
planes use their airports. They turn over suspected terrorists. 
A news article in the Financial Times cited Dubai as ``a 
pragmatic pro-Western and free market exception in a region 
often bristling with hostility to America.''
    The overreaction to the terminal transactions, coupled with 
Congress's recent thwarting of the purchase of Unical by a 
Chinese company, cannot help but deter other investments, 
especially by developing nations in this country. xenophobia, 
as the Economist magazine puts it, seems to be creeping into 
American politics. And xenophobia hurts an economy.
    The arithmetic of foreign investment is not complicated. 
The current account deficit has been rising for the past decade 
and now is about $800 billion, indicating a wide gap between 
what we buy in goods and services from foreigners and what we 
sell to them. This deficit has not harmed the U.S. economy for 
a simple reason. The United States remains one of the best 
places in the world to invest, so dollars that flow abroad from 
our purchase of imports are recycled back to us as capital 
investments.
    In recent years, important capital flows are coming from 
emerging markets, including Asia and the Middle East. These 
flows are crucial, and Dubai has been among ``the most 
prominent recent buyers into the U.S. economy,'' as the 
Financial Times says. And I could give you a list of some of 
the properties that Dubai has bought.
    Now, however, the United States risks developing a 
reputation as a country that no longer welcomes some people's 
money. If that happens, other nations will attract capital that 
would have gone to the United States. The virtuous circle of 
global trade and investment risks being broken with disastrous 
consequences.
    As a news story in the Wall Street Journal stated, ``A 
successful move to block the ports deal could send a chilling 
signal about foreign investment in the United States at a time 
when such investment had been critical in sustaining growth.
    This episode has been a sad one in many ways, but it could 
have positive results by helping to revive interest among 
policy-makers in getting serious about reducing the threat of 
seaborne weapons of mass destruction. That threat must mainly 
be attacked at the source in foreign ports before the WMD get 
here. Would withdrawing the P&O leases from DP World help 
national security? To the contrary. It could jeopardize Dubai's 
role as a loyal American ally.
    Absolutely keep our ports safe. National security is job 
one. Trust our own law enforcement and military. They have not 
objected to this sale.
    The United States benefits mightily from a globalized 
world. Our ties through trade, in fact, have made us more safe 
as our trading partners become more prosperous, open, and 
democratic.
    But if we decide to deny firms from developing nations, 
Arab, Asian, and otherwise, from investing in the United 
States, those firms will go elsewhere. And we will pay the 
price in higher interest rates, higher mortgage rates, higher 
inflation, lower stock prices, and less participation in a 
world that is growing more and more creative and exciting.
    Those in the public eye, public officials, press, and 
academics have an obligation to discuss complicated issues like 
this one in a dispassionate way to avoid exploitation and 
distortion. Unfortunately, in this case, the temptation for 
some has been too great, and that is why this hearing is so 
important. Thank you.
    [The prepared statement of Mr. Glassman can be found on 
page 94 of the appendix.]
    Chairwoman Pryce. Thank you very much.
    Mr. Malan.

STATEMENT OF TODD M. MALAN, PRESIDENT AND CEO, ORGANIZATION FOR 
                    INTERNATIONAL INVESTMENT

    Mr. Malan. Thank you very much, Madam Chairwoman and 
Ranking Member Maloney. My name is Todd Malan. I am president 
and CEO of the Organization for International Investment. OFII 
is an association representing the interests of U.S. 
subsidiaries of companies based abroad, or what we call 
insourcing companies. OFII has 140 member companies which range 
from mid-sized businesses to some of the largest employers in 
the United States, such as Honda, HSBC, Sony, AEGON Insurance, 
Nestle, Unilever, and L'Oreal.
    As the representative of the largest collection of the 
companies that regularly seek review of acquisitions by the 
Committee on Foreign Investment in the United States, we very 
much appreciate the opportunity to participate in this 
important hearing.
    Some people view the business community skeptically when it 
comes to national security discussions. Unfortunately, this 
perspective ignores that the terrorists aim at our economic 
system, not just our political system. From the tragic events 
of September 11th to last week's foiled attack in Saudi Arabia, 
economic and business interests are prime targets.
    Companies and the people that run them understand this fact 
of life. The business community works hard to cooperate with 
governments on all aspects of national security. My member 
companies take this national security mandate very seriously.
    While national security is any nation's first priority, it 
must be maintained alongside other important national 
priorities. National security and economic strength are 
interdependent.
    When Congress enacted the Exon-Florio statute, it struck a 
balance between two interrelated priorities: national security 
protection and the economic benefits of an open investment 
policy. According to the most recent government figures, the 
benefits of insourcing into the U.S. economy are quite clear. 
U.S. subsidiaries employ 5.3 million Americans. U.S. 
subsidiaries support an annual payroll of nearly $318 billion. 
Average compensation per employee is about $60,000, 34 percent 
more than compensation at all U.S. firms.
    Contrary to many people's assumptions, these companies 
don't just invest here for our market. U.S. subsidiaries 
account for nearly 21 percent of U.S. exports.
    I'd like to also add that to put the particulars of this 
case in perspective that we're talking about today, 94 percent 
of total assets owned by foreign companies are from OECD member 
countries. Ninety-eight percent of U.S. FDI is from private 
sector firms. Only 2 percent of total direct investment are 
from companies controlled by foreign governments.
    In today's global economy, labels such as ``foreign'' or 
``domestic'' are less and less relevant. Millions of Americans 
are shareholders in foreign companies. American shareholders 
now hold over $2.9 trillion in foreign equities. Millions of 
Americans either directly, or through their mutual funds and 
pension funds, are owners of these firms. Within my membership, 
there are numerous examples where American shareholders hold a 
majority in a ``foreign company.''
    OFII believes that the Exon-Florio statute strikes the 
proper balance, and that CFIUS reviews are extremely rigorous 
procedures that yield important national security protections. 
However, we agree that there needs to be better mechanisms in 
place for consultation between the Congress and CFIUS. This 
process needs to be focused, perhaps, to committees of 
jurisdiction, as it is in other oversight responsibilities, and 
it needs to ensure that confidential business proprietary 
information is protected. There are numerous examples of other 
such procedures in monetary policy, trade policy, and trust 
review.
    My written statement includes specific comments regarding 
attributes of CFIUS process and the current law, and our 
concerns about various proposals for changing the law. I'd be 
happy to answer any questions about those perspectives.
    However, I'd like to leave you with a general observation 
about the relationship between national security and economic 
activity. When it comes to national security concerns arising 
from commercial operations of critical infrastructure, why 
should the nationality of the owners of the capital stock be 
the principal or sole concern? Certainly, there are many 
instances of foreign ownership that do raise special concerns, 
as in the case of government ownership of the acquirer, a 
situation where CFIUS already pays special attention.
    However, if we agree that there are vulnerabilities in a 
particular area, like critical infrastructure, then the 
solution is to address the risk comprehensively, and not take 
the view that the risk lies only with the ownership. Mere 
ownership of such facilities does not mean the risk has been 
mitigated.
    On the other hand, just because a firm is headquartered 
abroad doesn't mean it can't be a partner in national security. 
A disproportionate focus on nationality may, in fact, distract 
from accomplishing the real national security objectives.
    Madam Chairwoman, thank you very much for calling this 
hearing. We look forward to working with you, your colleagues, 
and the Administration to enhance Americans' national security, 
because a more secure nation is one that will attract 
investment, encourage capital accumulation, and realize long-
term economic growth. Thank you.
    [The prepared statement of Mr. Malan can be found on page 
118 of the appenidx.]
    Chairwoman Pryce. Thank you, Mr. Malan. And now we'll hear 
from Mr. David Marchick.

 STATEMENT OF DAVID M. MARCHICK, PARTNER, COVINGTON AND BURLING

    Mr. Marchick. Thank you, Madam Chairwoman, Ranking Member 
Maloney, and Mr. Scott. Thank you for the opportunity to be 
here today.
    I'd like to cover four points with your permission. First, 
the fact that it is in the United States' national security 
interest to encourage foreign investment in the United States. 
Today more than ever, foreign investment is crucial for the 
vibrancy and vitality of the U.S. economy.
    Second, the CFIUS process. I've frankly been struck by the 
assertions in the press and elsewhere that transactions breeze 
through CFIUS with alacrity. Nothing could be further from the 
truth. Just because a transaction is approved in the first 30 
days doesn't mean the review is cursory. Just because the vast 
majority of cases are approved by CFIUS doesn't mean the 
process isn't tough. Just because the process is confidential, 
or as the press has suggested, secret, doesn't mean that it is 
suspect. And just because the President doesn't personally get 
involved in a review doesn't mean that the review lacks 
credibility.
    The fact is that parties regularly consult and negotiate 
detailed security agreements with CFIUS well before the formal 
filing, which starts the 30-day process. In the vast majority 
of cases, this pre-filing period gives CFIUS ample time to 
review, analyze, and mitigate transactions within the first 30 
days. In fact, since September 11th, CFIUS has applied greater 
scrutiny to foreign investments, imposed even tougher 
requirements as a condition for approval, and enhanced 
enforcement of security agreements negotiated through the Exon-
Florio process.
    The third issue, transparency. The concerns voiced by 
Members of Congress over the Dubai port transaction make it 
clear that Congress has serious questions about the CFIUS 
process. My view is that if Congress had more visibility into 
the process, you would have greater comfort in it, and 
knowledge that the process is already rigorous.
    A few ideas for your consideration. First, the CFIUS 
agencies should spend more time on the Hill briefing you, your 
staff, and other committees on the activities, processes, and 
trends in filing. Second, the CFIUS agencies should issue 
regular reports to Congress regarding the number of cases 
filed, the sectors affected, the countries of origin of the 
investing parties, the number of withdrawals, and the number of 
proposed investments by foreign companies owned or controlled 
by foreign governments.
    Third, and perhaps more importantly, the CFIUS agencies and 
this committee could explore ways for this committee and the 
Senate Banking Committee to receive classified briefings on 
substantive decisions made by CFIUS. Such classified briefings 
could be modeled on the process currently used in the 
intelligence committees. Some briefings for the big four, 
others for members of the committee, others that include staff.
    However, given the national security and commercial 
sensitivity of the information that would be provided in these 
briefings, there need to be strict parameters. In addition, I 
would assume the criminal penalties, including SEC and insider 
trading sanctions, would apply for leaks of classified or 
confidential information.
    Each of these important steps to create more transparency 
and more comfort in the process could be accomplished under the 
current legislative framework.
    Let me also offer some ideas of what Congress should avoid 
doing. Congress should not create a public notice requirement 
for Exon-Florio reviews. A national security review process 
should, by its very nature, remain confidential. As part of 
virtually every CFIUS review, the Executive Branch conducts 
background checks on companies, on individuals, undertakes an 
intelligence assessment, and discusses highly classified 
national security issues.
    CFIUS filings also include highly sensitive proprietary 
company information, information that companies' competitors 
would love to have.
    A mandatory public notice requirement does not exist for 
Hart-Scott-Rodino processes. That is the anti-trust review 
process, as you know. The same rules should apply for Exon-
Florio.
    Second, Congress should not empower itself in the statute 
to vote on decisions made by CFIUS. Congress isn't organized to 
be a regulatory body. And in fact, if foreign investors thought 
that Congress would review each and every foreign investment, 
they simply would not make investments in the United States, 
period.
    Fourth, the global impact of Exon-Florio. Tightening Exon-
Florio could invite similar restrictions abroad. As we speak, 
Canada, Russia, and France are each considering new 
restrictions on investment. I want to give you one poignant 
example of this.
    Recently, a major Indian telecommunications company called 
VSNL, a government-owned company, was forced to accept 
extremely burdensome security conditions in order to obtain 
CFIUS approval for a transaction. What did it do? Well, it went 
to the Indian Government and suggested that, ``In the interest 
of a level competitive playing field, as well as regulatory 
symmetry, a similar security agreement process should exist in 
India for U.S. and other foreign carriers who desire a license 
in India.'' What did the Indian Government do? They issued 
draft regulations doing exactly that, which would impose 
burdensome regulatory restrictions on American companies 
investing in India.
    The Dubai Ports transaction has ignited a passionate debate 
about CFIUS. But as we all learned in law school, bad facts 
lead to bad laws and bad precedent.
    I hope this committee will take a deliberate measured 
approach in response to this controversy and refrain from 
amending Exon-Florio. Instead, I would recommend that the 
committee work with CFIUS agencies to improve any shortcomings 
or imperfections in the implementation of the agreement.
    Thank you once again for the opportunity to appear before 
you.
    [The prepared statement of Mr. Marchick can be found on 
page 128 of the appendix.]
    Chairwoman Pryce. Thank you.
    Mr. Reinsch, president of National Foreign Trade Council.

 STATEMENT OF WILLIAM A. REINSCH, PRESIDENT, NATIONAL FOREIGN 
                         TRADE COUNCIL

    Mr. Reinsch. Thank you, Madam Chairwoman. It is a pleasure 
to be here. It is late and I don't want to be redundant. I'll 
trust you to put my entire statement in the record, and make 
some brief comments.
    I am indeed one of the lobbyists that Mr. Frank referred 
to. But I think the other reason I am here is that I had some 
peripheral involvement in the statute when it was written when 
I was working on the other side of the Hill. And when I served 
in the last Administration, I had some involvement in 
administering it. And I am also really old, so I can take the 
long view on this and look not only at the pending case, but 
some others.
    Let me make several points. First, I think that CFIUS made 
the correct decision in the instant case. I think the 45-day 
process that they're going to undertake, which is wise, will 
confirm it. I hope they address a number of the concerns that 
were raised here, particularly those that Mrs. Kelly raised, 
because I think they were questions that deserved answers. I 
think there will be some, but that is what the 45 days is for.
    I also agree with the comments that a number of you made, 
particularly those most recently by Ms. Wasserman-Schultz about 
port security being a very serious issue. I think it is. I 
don't believe that ownership of terminal operators is the most 
important element of port security. There are a lot of other 
elements that make much more difference. And if you care, we 
can discuss that at a later point. But I think it is something 
that the Congress needs to look at, not only from the 
standpoint of resources, which is probably front and center, 
but also from the standpoint of some other legislation.
    I am particularly concerned, though, about the message we 
are sending moderate or cooperative Arab states through the 
actions on the Dubai Ports World case. I thought a good bit 
about the comments that Mr. Davis made a few minutes ago about 
that message. And I think where I disagree with him and what 
worries me about this is that we are, in attacking the proposed 
transaction, not distinguishing between Arab states that have 
been cooperative with the United States post-9/11, on the war 
against terrorism, terrorist financing, allowing our Navy to 
dock there and things like that, and states that have not.
    And if we're not prepared to make that distinction, if 
we're not prepared to acknowledge the progress that these 
states are making in cooperating with us, then I think we're 
sending a very difficult signal to everybody in the Middle East 
about what is the point of cooperating with the United States 
if we're going to treat you all the same at the end of the day?
    The UAE's record is not an unblemished one. There's no 
question about that. A lot of the information cited is pre-9/
11. We had gaps in our procedures pre-9/11 as well. We've come 
a long way. I think they've come some way too. I would like to 
see a policy that acknowledges that progress.
    Now, with respect to CFIUS reform, one of the issues that 
has not been extensively dealt with that my colleague Mr. 
Marchick just touched on is that the process is, in fact, more 
subtle and nuanced than it is being given credit for in this 
hearing. More often than not in these cases, the government and 
the acquiring party work out security arrangements that address 
the concerns that have been raised. There were some in this 
case that I think bear some study on the committee's part.
    I recall in the IBM-Lenovo case last year, for example, 
there was considerable discussion about security procedures 
that would guarantee the acquiring company could not access 
technology that was not part of the acquisition but which was 
located in the same physical area.
    In another earlier case that I was involved in, a separate 
board of directors was created to ensure continued American 
control of some sensitive military contracts that the acquiring 
company was taking over.
    In other words, there are solutions to these problems that 
are presented. CFIUS has been adept over the years at dealing 
with them, and I hope the committee will look at that nuanced 
element.
    Finally, let me comment on the question of transparency. 
CFIUS has historically made public very little information 
about its deliberations or decisions, and its record of 
consultation with the Congress is likewise limited, and I think 
it is fair to say that the process operated appropriately in 
this case. At this time, there's no question that CFIUS over a 
long period of time has demonstrated a tin ear for the politics 
of these cases.
    The issue of how to address that, though, is complicated. 
If you want to have a more consultative process with the 
Congress while a case is pending, that is something that you 
need to think through the implications of fairly carefully. On 
the one hand, failure to consult and provide information to 
Congress can lead to exactly what has happened in this case, 
and that is something I think we all would prefer to avoid in 
the future. On the other hand, providing information can often 
lead to leaks or to further Congressional demands for 
involvement in the decision-making process, which I think would 
be unwise.
    I would also not minimize the risk of leaks. The 
information reviewed in a case is often highly sensitive in 
that it reveals internal details of corporate operation and 
finance that could have significant value to competitors. In 
addition, the agreements that I just referred to that are 
reached between the government and the applicant addressing new 
security procedures to be put in place, can also be sensitive, 
and could compromise the very security they're designed to 
provide were they to become public.
    So I'd urge you to think long and hard about this before 
going down the road of more consultation, more transparency, 
and particularly more involvement in the decision-making 
process, which I think would be a level of micromanagement for 
the Congress that the framers of this provision back in 1986 
and 1987 were wise to avoid.
    I do have some other recommendations in my full statement, 
but I won't go into them at this time. Thank you, Madam 
Chairwoman.
    [The prepared statement of Mr. Reinsch can be found on page 
139 of the appendix.]
    Chairwoman Pryce. Thank you very much. We appreciate your 
insights and look forward to reading the rest of them.
    And now finally, we will hear from Mr. Ervin. You're next.

     STATEMENT OF CLARK ERVIN, DIRECTOR, HOMELAND SECURITY 
                INITIATIVE, THE ASPEN INSTITUTE

    Mr. Ervin. Thank you very much, Chairwoman and Ranking 
Member. Thank you very much for this opportunity to testify 
this evening on an issue that I believe is of profound 
importance to the security of our homeland, whether a foreign 
government with, at best, a mixed record on terror should be 
allowed to operate terminals at six major American seaports, a 
vulnerable strategic asset through which, experts agree, a 
terrorist would be most likely to smuggle a weapon of mass 
destruction into our country. The stakes could not be higher.
    Needless to say, a terrorist attack with a weapon of mass 
destruction could exceed the impact of 9/11 by several factors, 
resulting potentially in the deaths of millions of Americans, 
and bringing our economy to its knees.
    In the last few weeks, we Americans have learned a number 
of troubling things. I would wager that most Americans did not 
know until now that port terminals in this country have been 
operated by foreign companies for quite some time. Likewise, of 
course, most Americans did not know of CFIUS, the secretive 
interagency group that has the unilateral power to approve the 
acquisition by foreign companies of key U.S. strategic 
commercial assets after a mere 30-day review, without being 
obliged so much as to inform the President, much less the 
Congress.
    And I learned just today from testimony from the first 
panel, I was under the impression that the acquisition by 
foreign governments of key U.S. strategic assets was unique in 
this deal. If not that, then certainly unusual. But we heard 
today that if last year is representative, this happens rather 
regularly. We heard last year that there were 65 transactions 
subject to CFIUS review which were approved, 12 of which the 
acquirer was a foreign government.
    In this instance, the already unduly rushed and lax CFIUS 
procedures were not followed. Even though the control of key 
operations by foreign government was at issue here, there was 
no investigation, the committee made the decision to approve 
the deal on its own, and the President was not even informed of 
the decision.
    At a minimum, to talk about process to start, the CFIUS 
process has to be changed. The review period is too short, and 
the committee has too much unilateral power. Where the control 
of a component of the Nation's critical infrastructure or of a 
key strategic asset is concerned, and the acquirer is a foreign 
government, the law should require the committee to conduct a 
complete and lengthy investigation, which is to say more than 
45 days, to determine whether permitting the deal to go forward 
could compromise national security. The committee may make a 
recommendation to the President, but then he should make his 
own decision based on his own independent review after, in my 
judgment, longer than 15 days. Then--and this is the most 
important point--rather than simply notifying Congress of his 
decision as a fait accompli, the President, in my judgment, 
should have to seek and obtain Congressional approval for the 
deal to be finally approved.
    If treaties and trade agreements are important enough to 
require Congressional sign-off, as well as Presidential 
approval, certainly Congressional concurrence should be 
required before a foreign nation gains control of something as 
important as operating terminals at key seaports post-9/11.
    As I said, the foregoing goes to process. In terms of 
substance, this deal should not be approved under any 
circumstances, even if it had the support of both the President 
and the Congress. In the post-9/11 age, we should have learned 
by now that there is no margin for error when it comes to the 
security of the homeland. Under these circumstances, now that 
we know that operations at many other key ports are controlled 
by foreign companies, perhaps consideration should be given to 
prohibiting such control in the future, even if the company at 
issue is one based in a rock solid ally like Great Britain. But 
certainly, we should not hand over control of port operations 
to a nation that has strong links to terrorism.
    In the last few weeks--and I am closing--as this deal, the 
controversy over this deal has unfolded, I've listened 
carefully to the arguments of those who support this deal. 
Basically, they boil down to four. And over the course of the 
last 4 hours, we've heard all of them.
    One argument is that it is nativist, xenophobic, 
Islamophobic, and even racist to oppose this deal. In fact, 
opposition to this deal has nothing to do with UAE's being an 
Arab and a Muslim country. If the acquirer here were the 
Government of Japan, whose people are Asian and Buddhist, or 
the Government of Norway, whose people are Caucasian and 
Christian, and either of those countries had the same record on 
terror as the UAE, I for one would be as opposed to that deal 
as I am to this one. It is UAE's record that is at issue here, 
not the ethnicity or the religious affiliation of its people.
    Another argument is that if this deal goes forward, the new 
owners won't have anything to do with security. This is flat 
out untrue. Yes, it is true that the Customs Bureau will 
inspect cargo, but only 6 percent of cargo containers are 
opened. Yes, the Coast Guard will be in charge of port security 
still, but that simply means that it sets standards that are 
left up to the port terminal operators to comply with on a day-
to-day basis.
    Key things, like hiring security personnel, patrolling the 
perimeter, and overseeing the unloading of cargo, will be 
handled by a port operator that is owned by the Government of 
UAE.
    Third, UAE has been, at least recently, an ally in the war 
on terror. And that may well be true. But port terminals are 
not carrots that should be handed out as rewards for other 
nations' cooperation. If indeed our approval of such a deal is 
a quid pro quo for UAE's continued support in the war on 
terror, it seems to me that the price is too high, and we 
should not pay it.
    The final argument, to my mind, is the most dangerous, and 
we heard it just a second ago. It would be ludicrous, it seems 
to me, if it were not so disturbing. According to some, our 
ports are already vulnerable because too little money has been 
spent to secure them, too few cargo inspections are conducted, 
we have too little radiation detection equipment, and the 
equipment we have is not that good. This is all true. But 
instead of agreeing to something that might make our ports more 
vulnerable, shouldn't we address the vulnerabilities we already 
have?
    In closing, Chairwoman, you asked a very important 
question. I think it was the very first question. That was 
would this deal, if it goes forward, make our ports safer or 
less safe? No one on the other side of this question has been 
willing to say that this deal will make us more safe. Deputy 
Secretary Jackson's answer was, ``Well, we won't be any less 
safe. We won't be any worse off than we are now.''
    Because of UAE's record on terror, because UAE is in 
control of this company, and because of the key security tasks 
that port terminal operators provide, it seems to me that a 
very good case can be made that we will be less safe. But the 
standard in the post-9/11 world should be approval of deals 
like this only if it makes it safe. And this deal does not pass 
that common sense test. Thank you.
    [The prepared statement of Mr. Ervin can be found on page 
91 of the appendix.]
    Chairwoman Pryce. Thank you all very much, gentlemen. You 
all have shed great light on this issue. And I am not sure 
which one of you was so amazed by the fact that there was so 
much questioning about the CFIUS process, and that it wasn't 
thorough, and it wasn't tough. And perhaps it is. But the fact 
remains that Americans don't realize that about the process.
    And if you want to characterize this as a big PR bungle, 
you may, because that is about 50 percent of what has happened 
here. This all could have been much less devastating for 
America if they had been prepared for this, if it had been 
rolled out in a way that they could understand and appreciate.
    And the same is true for those of us here on Capitol Hill. 
I don't think anybody would argue with that. I think our first 
panel realizes that now. But the fact remains that perception 
is reality, and this has gotten bigger than anybody certainly 
wanted it to. This is a situation that it is very hard to find 
a win in the end of this, no matter what happens.
    And so I'd venture to guess that CFIUS will be reformed. We 
want to do that carefully. But I think that this--and some of 
you have suggested that should not happen at all. But it must 
be now. We have to. We're living in a post-9/11 reality, and 
these issues can't ever happen again. And we need to make sure 
that as oversight stewards that we're doing that right.
    And so I guess my question is how can we change the process 
to make it as transparent as we can, to regain the trust of 
America in this process. Because Americans don't trust this 
process, and it is only as good as the trust that our citizens 
have in it. So I don't know if there's any right or wrong 
answer to that or anything that you might be able to provide to 
us today. But we will be looking at this, and we will be 
looking to you for suggestions. So anybody have any of them 
now? Mr. Marchick?
    Mr. Marchick. Madam Chairwoman, thank you very much. I 
think there are improvements that can be made in the process, 
and I think that your comments hit the nail on the head in 
terms of creating more transparency and more openness so that 
you can do your job as an oversight chairman.
    A few ideas to improve the process. First, I think that 
national security is not defined under the statute. That was an 
intentional design of the drafters of the legislation in 1988. 
It leaves the national security decisions to the President and 
to the President's--to the agencies. And I think that is 
appropriate.
    What I do think could happen is that there could be 
guidance from Congress and greater clarity from the 
Administration as to the factors that the President and the 
CFIUS agencies will consider when evaluating a national 
security issue.
    There are five statutory criteria in the Exon-Florio 
statute dating back to 1988. They primarily focus on two 
issues. One is securing the supply chain for DOD, and second is 
control of export--export control technologies. I think in 
today's day and age, the issues that CFIUS look at are much, 
much broader. They include protection of critical 
infrastructure, protection against espionage from foreign 
agents, protection of the Department of Justice and the FBI's 
ability to conduct law enforcement investigations. There's a 
broad array of much more comprehensive factors that the CFIUS 
agencies do consider, and those could be better articulated 
either by Congress or by the Administration.
    Second is I think that there needs to be much more 
reporting to the Congress and to the public on the type of 
transactions that go through CFIUS, the type of mitigation 
measures that they use to address national security concerns, 
the number of transactions that are withdrawn or abandoned.
    Just to give you a couple examples, if you look at the data 
between 1988 and 2005, there were 1,593 transactions that went 
through CFIUS. Twenty-five of them went to investigation. 
Thirteen of them were withdrawn. Twelve of them were decided on 
by the President. That data obscures the real way that CFIUS 
works, which is a lot of transactions--and I've had clients 
that have had this experience--go to CFIUS. The parties go to 
CFIUS. They talk about the proposed transaction. And CFIUS will 
either say right up front, ``It's not going to happen.'' Or 
after spending a lot of time reviewing the transaction and 
trying to find ways to mitigate a transaction, mitigate the 
national security concerns of a transaction, they'll say, ``You 
can send this transaction to the President, but there's a 
unanimous view within CFIUS that the President will turn this 
down.''
    And it is pretty easy for a CEO of a company to make the 
decision ``Do I want to withdraw this thing and have it go away 
quietly, or do I want the President of the United States to 
make a public decision that my acquisition is a national 
security risk to the United States?''
    And so I think that much more detailed and comprehensive 
public data presented to you, Madam Chairwoman, would help the 
transparency of the process. And I would look to the type of 
reports the Department of Justice produces in Hart-Scott-
Rodino, where they produce a very thick annual report, and you 
can have more frequent reports if you'd like.
    Chairwoman Pryce. Yes, you may briefly--my time has 
expired.
    Mr. Ervin. Yes. I laid out my recommendations, basically, 
in my statement. I don't know, frankly, that in my judgment an 
expansion of the definition of national security to encompass 
in the post-9/11 world critical infrastructure is required. To 
me, that is obvious. But I certainly would have no objection to 
such an expansion of the definition.
    But I think the key thing, as I say, is certainly when the 
acquirer would be a foreign government, and perhaps even when 
the acquirer is a foreign company, and the asset to be acquired 
is a key element of our critical infrastructure, there should 
be a lengthier investigation conducted by CFIUS. The President 
should conduct his own lengthy investigation, longer than 15 
days. And then at the end of the day, it seems to me Congress 
must give its approval.
    I am quite confident if we had had that procedure here, the 
political pressures or such, that there would have been, just 
as there is now, bipartisan opposition to this deal such that 
it would not go forward.
    Chairwoman Pryce. Thank you. I recognize the gentlelady 
from New York.
    Mrs. Maloney. Thank you, and I thank all of the panelists. 
And I particularly want to welcome Clark Ervin. He served as 
the IG under the Bush Administration, the first appointee to 
the new committee that we formed for Homeland Security. And 
he's writing a book on the gaps in our national security, and 
he's a new father. So we welcome him and congratulate him on 
all these new events in his life.
    The GAO report came out with an extensive report that 
recommended steps to strengthen CFIUS. I'd like to place their 
report in the record, without objection. And I have authored a 
bill that embodies several of their recommendations, some of 
which have been mentioned by other panelists today.
    All of the panelists said on the earlier one that the 
definition of national security should be expanded. And they 
all agreed on that. But I agree with our last panelist, Clark 
Erwin, that it is very clear in the law now. And the law said 
that if it involved national security, there would be an 
automatic 45-day review. And they did not see that handing over 
20 ports of critical infrastructure importance involved 
national security, which is mystifying to me. Absolutely 
mystifying.
    So I would want to change it that if a foreign country is 
buying the management--there have been foreign managers, 
particularly for their own lines, but as I understand it, this 
is the first time that a foreign government has control of the 
management of an entire port in the United States--in this 
case, 20--that certainly this criteria should trigger a longer 
review. And I would like to ask Mr. Ervin if he agrees.
    Mr. Ervin. I certainly do. There's no question about that.
    Mrs. Maloney. And you mentioned you were writing a book on 
closing the gaps. And I understand that Hong Kong reviews every 
cargo coming into their port. And it is a substantial report. 
They X-ray it, they review it, they inspect it. And we in the 
United States are only inspecting 5 percent of our cargo, and I 
think we should have the same standard. If Hong Kong can review 
all of the cargo coming in, certainly the United States of 
America should.
    And I'd like to ask Clark Ervin, the report that came out 
from the Coast Guard, they came out with a report requesting 
$4.5 billion over the next 10 years for port security. And we 
put in the budget for this year roughly $175 million. Do you 
think that is an adequate commitment to port security in our 
country?
    Mr. Ervin. Well, I don't have a precise figure in my mind, 
Congresswoman--and by the way, thank you for your kind words--
as to what I think the Coast Guard budget should be, but I 
would certainly make the larger point that we have not funded 
port security to the level that we should. We've spent 
something between $18- and $20 billion since 9/11 to secure 
aviation, and it seems to me we should have done that. And that 
is all to the good.
    But as I said early on, it seems to me the most area of 
vulnerability is our ports. Everyone agrees. And the one thing 
that President Bush and Senator Kerry agreed on in the 2004 
Presidential debates was that that is the number one 
vulnerability. And everyone knows that terrorists are most 
likely to smuggle a weapon of mass destruction, or attempt to 
do so through our ports. So we need to spend substantially more 
money. There's no question about that.
    Mrs. Maloney. And I believe you raised some very important 
issues that even though they are managing the port, there still 
is the opportunity for activities that an American company 
would not allow. And I think we should have a higher standard. 
I look forward to this review. But it was testified by the 
former panel that there was absolutely nothing we could do 
about it, that if it was approved, it would go forward.
    And many of my constituents, of all the things that have 
happened, they feel deeply that we need greater port security, 
and they feel that this does not reach the level of common 
sense for the critical infrastructure of our country.
    Mr. Ervin. Well, I certainly agree with that. There's no 
question. If I might just expand on one point that I touched on 
in my remarks, which has not been remarked on very much here. 
It is very, very important to understand what words really 
mean. It is really important to understand exactly what role 
port terminal operators play in security. It is not sufficient 
to say, as I said in my statement, that the Coast Guard remains 
in charge of port security, and that Customs will continue to 
conduct inspections. Too few inspections are conducted.
    As you noted, Hong Kong is somehow capable of inspecting 
100 percent of cargo. Perhaps that should be done in this 
country. Certainly, more inspections should be conducted. But 
the point is right now, only 6 percent are.
    And it is one thing for Customs to set standards. The point 
is whether those standards are complied with. And whether those 
standards are complied with on a day-to-day basis, on an on-
the-ground basis, is largely up to the port terminal operators. 
I do not want a country with such a record in charge of hiring 
security personnel, being privy to what the port 
vulnerabilities are, and to what the plans against which the 
Coast Guard is measuring security are. Obviously, if that 
information were in the hands of a terrorist, it could be 
easily exploited to perpetrate murder and mayhem in our 
country, and that is something that, needless to say, all of us 
should want and work very hard to try to avoid.
    Mrs. Maloney. Thank you.
    Chairwoman Pryce. The gentlelady's time has expired. Ms. 
Lee?
    Ms. Lee. Thank you, Madam Chairwoman. Let me thank the 
panel again for being here. And I want to pose the same 
question I asked the previous panel. But first let me just once 
again remind you of what the 9/11 Commission said. The 9/11 
Commission report concluded that terrorists have the 
opportunity to do harm as great or greater in maritime and 
surface transportation than the 9/11 attacks.
    Several months ago, this report came out. And for the most 
part, the grades were primarily D's and F's in terms of the 
implementation of the follow-up. Given the fact that we all 
have to see domestic security, port security, and airline 
security as central in ensuring the protection of the American 
people from a terrorist attack, how do you see this deal in 
terms of the scoring now? Just a simple do we go from an F to a 
D, a D to a C, a C to a B, a B to an A? How would this fit now 
with the recommendations of the 9/11 Commission report? Because 
obviously, we need to do much more to enhance port security and 
airline security, and so we have to measure all of these 
transactions within the context of the world we live in now.
    And so I'd just like to start asking each of you to kind of 
comment on what this does to the overall scoring of the 
recommendations of the 9/11 Commission report.
    Mr. Glassman. Ms. Lee, are you referring to this impending 
sale?
    Ms. Lee. Yeah.
    Mr. Glassman. I think it has very little effect. This is a 
company that was just named the best container operator in the 
world last year by a peer group. It has a very good record. It 
is very well respected.
    The real problem in security, protection against a seaborne 
WMD, is at the source. My colleague at the American Enterprise 
Institute, the real expert on this, Veronique DeRugy, says, 
number one, stop terrorists from acquiring fissile material for 
building a bomb. We only spent $250 million to do that.
    Number two, stop such material from getting on the ships in 
the foreign ports. Last year, we only spent $139 million on 
that. And by the way, Dubai was--UAE was the first country in 
the Middle East to participate in the program that we do have, 
the Container Security Initiative. And third is protection in 
the ports itself, which is where we spend most of our money.
    You know, it doesn't help us to detect a bomb in the Port 
of Philadelphia a few minutes before it goes off. The place to 
detect it is before it's been put on a ship, and that is really 
where we need to put our efforts.
    Mr. Malan. Ms. Lee, I don't represent either of the parties 
in this transaction, and I don't have a lot of understanding of 
the details of the transaction. The one comment I'll make is 
that obviously, everybody at the hearing has pointed to the 
fact that port security is incredibly important. In my 
testimony, I pointed out that it may not relate 100 percent to 
the ownership of the company on the port side.
    Mr. Ervin pointed out that Hong Kong is screening 100 
percent of the packages that come through the port. That 
doesn't relate to the capital--that is their decision to screen 
every single one that comes through their port.
    So I would urge as we look at this that we not just look at 
ownership. We look at the vulnerability of the fact we've got 
vulnerabilities in our port, as you've pointed out, and as the 
9/11 Commission pointed out.
    Mr. Reinsch. Well, I think as far as U.S. ports are 
concerned, Ms. Lee, it wouldn't make a lot of difference. The 
important things for domestic port security are the 
recommendations that Mr. Ervin made, which I think are wise.
    One of my colleagues on the NFTC staff has seen the Hong 
Kong operation, and it is an impressive one, and I think it is 
a fair question why we can't or don't do something similar.
    I do think, however, that one of the things the committee 
might want to keep in mind with respect to this transaction is 
that, as Mr. Glassman said, a significant part of port security 
really is trying to stop things from being on-loaded at the 
port of embarkation, as well as checking them here when they 
come in. It is far better for us if we can catch people before 
they put bad things on board the ship. That demands a very high 
degree of cooperation, both with port authorities overseas and 
with terminal operators overseas. Hence, the Container Security 
Initiative that the Administration has talked about and 
Congress has supported, as well as some other initiatives.
    This company operates ports all over the world, not simply 
the ones they're going to acquire in the United States. In 
fact, these are the first facilities they'll have in the United 
States.
    To the extent that we can extend and enhance and deepen our 
cooperation with this company, that will help us in our ability 
to detect and deter the on-loading of dangerous things in other 
ports.
    Mr. Ervin. Ms. Lee, Chairman Kean has spoken to just that 
point. And he, like I, for what it is worth, thinks that if 
this deal goes forward, that would be a step back with regard 
to port security. I don't recall what grade the 9/11 Commission 
assigned to port security today. It was either a D or an F. And 
whatever the next letter grade is below would be the grade, it 
seems to me, that would be earned if this deal were to go 
forward.
    If I might just take 1 minute to just respond to the point 
that it is a good thing that the UAE is a participant, the 
first participant, as I understand it, in the Container 
Security Initiative. Everyone agrees, as has been said here, 
that it makes sense to push the borders out. It may well be too 
late to search a cargo container when it comes to the United 
States.
    But the GAO did a report on the Container Security 
Initiative just last year. They pointed out that 35 percent of 
cargo is not targeted, is not assessed to determine whether it 
should be inspected or not. So one third, we have no idea 
whether it should have been inspected. Of the remaining two-
thirds that might be inspected, the GAO reported that in these 
ports abroad, 28 percent of the time when we ask foreign 
inspectors to conduct inspections--and by the way, we don't do 
the inspections ourselves. We're dependent upon them to do it. 
Twenty-eight percent of the time, nearly one in three, they 
refused to do it.
    I don't know what the specific record of UAE is in this 
regard, but I would urge the committee to obtain that 
information from the Department of Homeland Security. It might 
come out--
    Chairwoman Pryce. The gentlelady's time has expired. Thank 
you. Mr. Bachus?
    Mr. Bachus. Thank you. Gentlemen, let me ask this one 
question. I just want to clarify. I want to see if I've got 
this right in my mind. How many of you were for the ports deal? 
You're satisfied that it is a good deal? So one out of four? Or 
two. Okay.
    Let me ask the two of you. I'll just address it to both you 
gentlemen. That is Mr. Glassman and Mr. Reinsch?
    Mr. Reinsch. Reinsch.
    Mr. Bachus. Reinsch? Okay. One difference that I see is 
that, you know, it's been said that this is a transfer from one 
foreign corporation to another foreign corporation? Is that 
what basically is your understanding, that one foreign 
corporation owns--I mean is the terminal operator, and it is 
transferring to another foreign corporation?
    Mr. Reinsch. That is factually correct in this case, yes.
    Mr. Bachus. You know, that is what I was--you know, to read 
the paper, that is what you would assume. But now, when you 
actually look at the legal documents, it appears to be that P&O 
Steam Navigation Company owns a wholly-owned U.S. subsidiary, 
P&O Ports North America. So really, the terminal operator right 
now is a wholly-owned American subsidiary. Is that not correct?
    Mr. Reinsch. I think that is why CFIUS would have 
jurisdiction over the case, because they're taking over an 
American--
    Mr. Bachus. Right. So, I mean--
    Mr. Reinsch. But the parent is British.
    Mr. Bachus. So right now, despite the fact that the press, 
I think, has pretty much said that this is, you know, a British 
company that is operating the ports, in fact, it is an American 
company, a wholly-owned United States subsidiary of a British 
company. But it is a U.S. entity, P&O Ports.
    Now, the purchaser is not really--it is not--it is PCFC, 
but it is a wholly-owned subsidiary of Dubai Ports. But unlike 
the fact that it is not a U.S. subsidiary, it is a Dubai 
corporation. So you're transferring ownership from a U.S. 
subsidiary of a company to a foreign subsidiary of a company. 
And is that not significant?
    Mr. Marchick. Sir, I am not familiar with the corporate 
structure, but I would be very surprised if Dubai goes forward 
with this deal that they would not set up their own U.S. 
subsidiary.
    Mr. Bachus. No, that is what they've done. It is Thunder--
it is called Thunder FZE, a Dubai Corporation.
    Mr. Marchick. And it is very common for--
    Mr. Bachus. And I am not even sure that it is a public 
corporation. I don't know. It may be a private corporation, 
which would even present problems that we don't have with--you 
know, obviously, there's control and visibility into a U.S. 
subsidiary that is not true of a private wholly-owned 
subsidiary, a foreign private-owned subsidiary of another 
foreign corporation.
    Mr. Marchick. Well, it is typical for foreign companies to 
create a U.S. subsidiary, to own 100 percent of that U.S. 
subsidiary.
    Mr. Bachus. Sure.
    Mr. Marchick. And the U.S. Government has jurisdiction over 
the entire U.S. subsidiary, whether the foreign company is 
public or private.
    Mr. Bachus. Exactly. And what Dubai Ports is doing is not 
creating a wholly-owned U.S. subsidiary. In fact, one of the 
mitigating agreements we could enter in is saying, ``Okay. If 
you want to operate--if you want to own the terminal operator, 
you will create a wholly-owned U.S. subsidiary.''
    Mr. Marchick. Sir, for tax reasons, for other reasons, they 
have to create a U.S. subsidiary. I don't think they can 
operate this company without creating a U.S. entity for tax 
purposes and organizational purposes. And that U.S. subsidiary 
will be the subsidiary over which the United States has 
jurisdiction and with which--
    Mr. Bachus. The British did it, though.
    Mr. Marchick. Yeah. I'd be surprised if the Dubai company--
    Mr. Bachus. Well, I'd be surprised too. But what I am 
saying to you is what seems to be missed in all this, and I 
have read in the paper today, yesterday, last week, that this 
is a British corporation, and a Dubai corporation is taking the 
place of a British corporation. And hey, you know, we let the 
British do it. Why don't we let UAE do it? That is not what is 
happening here. And I don't know why there hasn't been more 
focus on that.
    Now, I will say this. I come into this with a little 
different viewpoint. We have an Administration that has done 
everything right as far as terrorism in the last several years. 
So you can criticize them all you want to. We have not had a 
terrorist attack in our country, and I give the Administration 
an A-plus in that regard. And I think that we had a case here 
of the President not being fully advised by those around him. 
And that is just the opinion that I have. And I think that they 
were--
    Mr. Glassman. Mr. Bachus, could I just add to that?
    Mr. Bachus. Yes.
    Mr. Glassman. I completely agree with what you just said 
about the Administration, and I think we need to give the 
Administration the benefit of the doubt. They have a perfect 
record on security. And I think one of the reasons that the 
record is as good as it is on security is because after 9/11, 
the Administration put a lot of pressure on countries like the 
UAE. They said, ``You cooperate with us, or else.''
    And in my opinion, the UAE has cooperated. It hasn't been 
perfect. But my gosh, you know, there are more port visits to 
the UAE than to any other port in the world. We fly our U2's, 
our reconnaissance planes, out of there. They turn over 
terrorists to us. Certainly, they didn't have a great record 
before, but we put pressure on them. And so I think this is of 
a--frankly.
    Chairwoman Pryce. The gentleman's time has expired.
    Mr. Bachus. Can I--just to respond.
    Chairwoman Pryce. Very quickly, please.
    Mr. Bachus. I think it is absolutely correct that there are 
going to be some negative implications if Congress stops this 
deal. There will be some national security implications working 
the other way. And I think we just have to decide it is a 
balancing act. There are some definite negatives to saying to 
Dubai after this deal is moving forward, no. I mean, there's 
going to be some consequences.
    Chairwoman Pryce. The Chair recognizes Mr. Sherman.
    Mr. Sherman. Thank you. I would point out that we had a 
perfect record as far as preventing terrorists--for preventing 
international terrorism hitting the United States during the 
entire 1990's, at a time we were doing virtually nothing about 
terrorism and were absolutely awful in our national security. 
And the fact that we have not been hit again since 9/11 is, I 
think, if you look at the foreign policy situation, a case 
where bin Laden has decided that hitting America's allies 
better fits his strategy. In fact, hitting us on 9/11 increased 
our efforts against his operations. Hitting Spain decreased 
Spain's efforts against those who were allied with bin Laden.
    And so it is a political decision. You certainly can't say 
that a decade without a terrorism attack on U.S. soil is a 
decade of great national security enforcement. Otherwise, we 
have had virtually half a decade since 9/11. We had a whole 
decade in the 1990's, and we were spectacularly poor in our 
anti-terrorism efforts then.
    Mr. Glassman points out that it is important to prevent the 
terrorists from succeeding abroad, from getting their plans put 
together, from being able to bring in weapons of mass 
destruction and getting their hands on nuclear material, etc. 
But then goes on to talk about how cooperative the UAE has 
been.
    I would simply say--and I don't know if you were here to 
hear the first panel. But in July 2005, Hamas issued a press 
release thanking the UAE for its very generous financial 
support, its unstinting support, in the words of that press 
release. And, you know, the UAE didn't control that press 
release, but their response was to bask in the glory of 
associating themselves with Hamas, rather than to deny it.
    And as I said before, many of those very close to the 
current president of the UAE, including the current president 
himself, had been involved in providing funds to terrorist 
organizations like Hamas and Islamic Jihad. It is hard to see 
how allowing this transaction is consistent with the idea of 
stopping the terrorists from being able to build their bombs in 
their sanctuaries abroad.
    I've heard these comments about whether it is a separate 
corporation or not. I would point out that so far, Dubai Ports 
has simply said that it would be a separate business unit. And 
my guess is that once they talk to their tax lawyers, they'll 
set up a separate U.S. corporation. But I don't think we in the 
United States should be fooled that that which they do to dodge 
our taxes somehow makes us more secure.
    The key is ownership, and the ownership in this case is in 
the UAE Government, a government which basks in the praise it 
receives from Hamas for its generous contributions to that 
terrorist organization's activities.
    I don't know who to address this question to, but I'd want 
to shift gears to another issue, and maybe Mr. Ervin knows the 
answer. How do we finance our port security? Is it through fees 
on shippers, or is it from the general fund?
    Mr. Ervin. Well, I am not an expert in that particular 
aspect of port security, Congressman, but I believe it is a 
combination of things. But I believe that the lion's share of 
the financing comes from general appropriations to the 
Department of Homeland Security's component parts.
    Mr. Sherman. And I would say that this whole process 
illustrates the tremendous political power of importers. We now 
have the largest trade deficit in history. We lose all the good 
manufacturing jobs. The dollar is precarious. And the 
possibility of worldwide depression is all there because of 
that enormous trade deficit.
    But the power of the importers is not just here in 
Washington. It is at the ports, where we have under-funded port 
security, because we've been unwilling to impose fees on those 
bringing things in through our ports. Why? Not because we're 
doing a great job and we don't need to do anymore. Not because 
we've got all the money we need in the general funds, and we're 
happy to fund it that way. The reason we fail to collect fees 
adequate for a truly robust port security program, one that 
looks at the containers there as well as here, is the enormous 
political power of importers.
    I have yet to see a circumstance where the economic 
interest of importers has been subordinates to national 
security. I am sure there's one or two cases where that has 
happened. I am just not aware of any.
    It looks like my time has expired. Thank you.
    Chairwoman Pryce. The gentleman's time has expired. And Mr. 
Scott.
    Mr. Scott. Thank you. I want to deal with a couple of 
issues. First of all, I'd like to set the record straight once 
and for all. Because I think that it is disingenuous of this 
Administration and those of you who are supporting this deal to 
play the race card. That is absolutely wrong. There's nothing 
racist about protecting this Nation's ports and national 
security.
    We do business with Arab countries, Islamic countries. We 
do business with foreign countries. This is no direct attack on 
that, or indirect attack on this. We do so much business with 
investment from foreign countries that 90 percent of what we 
spend on our government comes from foreign investment. We 
borrow that money.
    And just on the interest we're paying these foreign 
countries is more than we're spending on our own homeland 
security. This has nothing to do with that. It has everything 
to do with a country that has, at best, an extraordinarily 
mixed and checkered past of soaring magnitude when it comes to 
financing terrorists, working with terrorist organizations. A 
country that has that kind of a history, it is not healthy for 
us to engage in this type business. Maybe some other business.
    And that needs to be put to rest. This Administration does 
itself a disservice, and it certainly does this country a 
disservice, to try to simplify this as being some kind of 
racist deal. And for the fact of them even bringing this up 
lets you know that this deal is very shallow.
    I am very concerned that there may be something else rotten 
in the cotton in this deal. I can't understand it, when it is 
just so obvious that it is not a deal that should have been 
going forward in the first place with all of these holes in it.
    And the President of the United States said many times in 
the war on terror, ``If I err, let me err on the side of 
caution.'' This ain't caution here. This is throwing our 
security to the wind. And American people see it very, very 
clearly.
    I want to talk about another point. I mentioned in my 
earlier points about Hong Kong and the fact that they check 100 
percent of their duty, their cargo. 100 percent. And they 
handle 22 million cartons per year, 22 million pieces that they 
check, whereas we handle only 11 million, 12 million. They 
handle almost twice as much, check 100 percent of it, and 
they're not even a target of terrorists. Here we are, a target 
of terrorists, the number one target, and we don't check 6 
percent of it.
    These are the questions that we need to be grappling with, 
gentlemen. Clearly, to me, our first order of business is to 
put this bad deal behind us and run very quickly to secure our 
ports and put forward a reform package for CFIUS--I guess that 
is the way you pronounce it. I may be butchering it a bit, but 
your organization--not in any way to be destructive of it, but 
to help this process.
    We need you. But there are some things broken here. And I 
think God works in strange and mysterious ways, and I think he 
sent this whole deal for us to wake this country up. I think 
this is a Paul Revere deal, an alarm bell. And I really thank 
God for it, because it is exposing us to a need that we need to 
rapidly deal with.
    Now, I just want to ask one point about a process within 
it, and I'll be brief, Madam Chairwoman. The critical point in 
the CFIUS process is this business of the mitigation. Once a 
deal, once something is happening, you see it, and it goes 
through this process. Then you have mitigation agreements or 
letters of assurance. They're negotiated between CFIUS and 
foreign companies to address the security concerns. But they're 
not monitored. They're not enforced. There's no agreement 
regarding which agency is responsible for monitoring these 
agreements. In addition, there's no mechanism for CFIUS to 
overturn a decision based on a failure to comply with the 
agreement.
    Chairwoman Pryce. The gentleman's time has expired. If you 
want to ask a brief question, please go ahead.
    Mr. Sherman. Exactly. I'd like to get somebody's comment of 
that. And Mr. Clark, I just want to state that as Humphrey 
Bogart said to the police captain in Casablanca, ``You got it 
right, my friend. You got it right.'' But could somebody just 
address the holes in the mitigation process, the point I just 
brought up? Thank you.
    Mr. Marchick. Thank you, Mr. Scott. And thank you for the 
opportunity to engage with you on this. And we'd be happy to 
work with you and your staff to talk about reform ideas and 
share our thoughts and input with you.
    First of all, I agree with you that there is good to come 
from this deal, and that there are two things. One is the focus 
on port security, and you and Mr. Ervin and the Chair have 
spoken eloquently about that. And I think this is a wake-up 
call, and I hope that we can use this to focus on strength in 
our ports.
    The second is that I think this brings focus on this 
process and greater transparency, which I think is helpful. And 
I think, hopefully, future oversight hearings by you will 
continue that process.
    The irony of this deal is that it has created a perception 
that CFIUS has too light a touch, that when they balance the 
security and economic factors, that the security factor is not 
given enough weight. In my experience--and I am not involved in 
this deal. I have no interest at all--since 9/11, the security 
side of the equation has so far outweighed the economic 
interest and the need for us to track foreign investment that 
it has created a process that is overbearing in many cases. And 
I'd be happy to brief you on the types of security requirements 
that have been imposed on foreign companies investing in the 
United States.
    The Congress has not given Homeland Security and other 
agencies the authority to regulate security in a lot of these 
areas: chemical security, port security, etc. And so any time a 
foreign company comes to the CFIUS process, there's piling on. 
That is all the ideas and all the concerns that the agencies 
have about a particular industry, they pile on security 
requirements on one particular company.
    Now, in terms of enforcement, the agreements--and I'd be 
happy to share with you some examples of agreements--are very 
clear in terms of who has the authorization and the 
responsibility to enforce them. It is typically the Department 
of Justice, the Department of Defense, or the Department of 
Homeland Security. They have very, very tough enforcement 
provisions, criminal and civil. They have very, very tough 
follow-up. We have had clients where the FBI calls and says, 
``We're sending four agents down there. We'll be there 
tomorrow,'' and they stay for 3 days doing an audit. Talk about 
scaring a corporation. Talk about making sure people are 
focused.
    Chairwoman Pryce. I am going to have to stop you there. We 
will have an opportunity, Mr. Scott and members of the panel, 
for additional questions or additional responses, if you so 
desire. Without objection, the hearing record will remain open 
for 30 days. Remember to submit those, or for you to augment 
your statements with further information for us.
    And with that, we have been at this very long and hard. 
Thank you very much for your insights and your perceptions and 
your patience, and we will be adjourned as this hearing 
concludes.
    [Whereupon, at 6:17 p.m., the subcommittee was adjourned.]


                            A P P E N D I X



                             March 1, 2006


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