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


                         [H.A.S.C. No. 109-100]
 
 NATIONAL SECURITY IMPLICATIONS OF THE DUBAI PORTS WORLD DEAL TO TAKE 
                     OVER MANAGEMENT OF U.S. PORTS

                               __________

                                HEARING

                               BEFORE THE

                      COMMITTEE ON ARMED SERVICES

                        HOUSE OF REPRESENTATIVES

                       ONE HUNDRED NINTH CONGRESS

                             SECOND SESSION

                               __________

                              HEARING HELD

                             MARCH 2, 2006

                                     
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                   HOUSE COMMITTEE ON ARMED SERVICES
                       One Hundred Ninth Congress

                  DUNCAN HUNTER, California, Chairman
CURT WELDON, Pennsylvania            IKE SKELTON, Missouri
JOEL HEFLEY, Colorado                JOHN SPRATT, South Carolina
JIM SAXTON, New Jersey               SOLOMON P. ORTIZ, Texas
JOHN M. McHUGH, New York             LANE EVANS, Illinois
TERRY EVERETT, Alabama               GENE TAYLOR, Mississippi
ROSCOE G. BARTLETT, Maryland         NEIL ABERCROMBIE, Hawaii
HOWARD P. ``BUCK'' McKEON,           MARTY MEEHAN, Massachusetts
    California                       SILVESTRE REYES, Texas
MAC THORNBERRY, Texas                VIC SNYDER, Arkansas
JOHN N. HOSTETTLER, Indiana          ADAM SMITH, Washington
WALTER B. JONES, North Carolina      LORETTA SANCHEZ, California
JIM RYUN, Kansas                     MIKE McINTYRE, North Carolina
JIM GIBBONS, Nevada                  ELLEN O. TAUSCHER, California
ROBIN HAYES, North Carolina          ROBERT A. BRADY, Pennsylvania
KEN CALVERT, California              ROBERT ANDREWS, New Jersey
ROB SIMMONS, Connecticut             SUSAN A. DAVIS, California
JO ANN DAVIS, Virginia               JAMES R. LANGEVIN, Rhode Island
W. TODD AKIN, Missouri               STEVE ISRAEL, New York
J. RANDY FORBES, Virginia            RICK LARSEN, Washington
JEFF MILLER, Florida                 JIM COOPER, Tennessee
JOE WILSON, South Carolina           JIM MARSHALL, Georgia
FRANK A. LoBIONDO, New Jersey        KENDRICK B. MEEK, Florida
JEB BRADLEY, New Hampshire           MADELEINE Z. BORDALLO, Guam
MICHAEL TURNER, Ohio                 TIM RYAN, Ohio
JOHN KLINE, Minnesota                MARK E. UDALL, Colorado
CANDICE S. MILLER, Michigan          G.K. BUTTERFIELD, North Carolina
MIKE ROGERS, Alabama                 CYNTHIA McKINNEY, Georgia
TRENT FRANKS, Arizona                DAN BOREN, Oklahoma
BILL SHUSTER, Pennsylvania
THELMA DRAKE, Virginia
JOE SCHWARZ, Michigan
CATHY McMORRIS, Washington
MICHAEL CONAWAY, Texas
GEOFF DAVIS, Kentucky
                   Robert L. Simmons, Staff Director
                Roger Zakheim, Professional Staff Member
                         Julie Unmacht, Counsel
                    Brian Anderson, Staff Assistant





















                            C O N T E N T S

                              ----------                              

                     CHRONOLOGICAL LIST OF HEARINGS
                                  2006

                                                                   Page

Hearing:

Thursday, March 2, 2006, National Security Implications of the 
  Dubai Ports World Deal to Take Over Management of U.S. Ports...     1

Appendix:

Thursday, March 2, 2006..........................................   121
                              ----------                              

                        THURSDAY, MARCH 2, 2006
 NATIONAL SECURITY IMPLICATIONS OF THE DUBAI PORTS WORLD DEAL TO TAKE 
                     OVER MANAGEMENT OF U.S. PORTS
              STATEMENTS PRESENTED BY MEMBERS OF CONGRESS

Hunter, Hon. Duncan, a Representative from California, Chairman, 
  Committee on Armed Services....................................     1
Skelton, Hon. Ike, a Representative from Missouri, Ranking 
  Member, Committee on Armed Services............................     3

                               WITNESSES

Bilkey, H. Edward, Chief Operating Officer, Dubai Ports World; 
  George Dalton, General Counsel, Dubai Ports World; Michael 
  Moore, Senior Vice President, Commercial, Dubai Ports World; 
  and Robert Scavone, Executive Vice President, Security 
  Peninsular and Oriental Steam Navigation Company (P&O) 
  beginning on...................................................    41
Carafano, Dr. James Jay, Senior Research Fellow for National 
  Security and Homeland Security, The Heritage Foundation........     7
Edelman, Eric S., Under Secretary of Defense for Policy, 
  Department of Defense; Stewart Baker, Assistant Secretary, 
  Policy, Planning and International Affairs, Department of 
  Homeland Security; Clay Lowery, Assistant Secretary, 
  International Affairs, U.S. Department of the Treasury; Alan 
  Misenheimer, Director, Office of Arabian Peninsular and Iran 
  Affairs, Department of State; and Rear Adm. Thomas Gilmour, 
  USCG, Assistant Commandant for Marine Safety, Security and 
  Environmental Protection beginning on..........................    77
Flynn, Stephen E., Commander, U.S. Coast Guard (Ret.), Jeane J. 
  Kirkpatrick Senior Fellow, in National Security Studies........    10
Gaffney, Frank J., Jr., President and CEO, Center for Security 
  Policy.........................................................    14

                                APPENDIX

Prepared Statements:

    Baker, Stewart...............................................   160
    Bilkey, H. Edward............................................   146
    Carafano, Dr. James Jay......................................   125
    Flynn, Stephen E.............................................   133
    Gaffney, Frank J., Jr........................................   140
    Gilmour, Rear Adm. Thomas....................................   177
    Lowery, Clay.................................................   171
    Misenheimer, Alan............................................   170
    Scavone, Robert..............................................   156

Documents Submitted for the Record:

    Copyright 2000 Council on Foreign Relations, Inc. Foreign 
      Affairs, November 2000/December 2000, Beyond Border Control   183
    Testimony of the Department of Defense, Regarding the Dubai 
      Ports World CFIUS Case.....................................   193
    In the Name of Allah the Most Compassionate and Merciful, 14 
      May/June/2002..............................................   200
    Responses to al Qaeda's Initial Assaults.....................   190

Questions and Answers Submitted for the Record:
    Mr. Andrews..................................................   205
    Mr. LoBiondo.................................................   205
    Mr. Skelton..................................................   205
    Mr. Spratt...................................................   205
 NATIONAL SECURITY IMPLICATIONS OF THE DUBAI PORTS WORLD DEAL TO TAKE 
                     OVER MANAGEMENT OF U.S. PORTS

                              ----------                              

                          House of Representatives,
                               Committee on Armed Services,
                           Washington, DC, Thursday, March 2, 2006.
    The committee met, pursuant to call, at 1 p.m., in room 
2118, Rayburn House Office Building, Hon. Duncan Hunter 
(chairman of the committee) presiding.

OPENING STATEMENT OF HON. DUNCAN HUNTER, A REPRESENTATIVE FROM 
       CALIFORNIA, CHAIRMAN, COMMITTEE ON ARMED SERVICES

    The Chairman. The committee will come to order. The 
committee meets this afternoon to examine the national security 
implications of the Dubai Ports World, DP World, deal, to take 
over port terminal operations in ports in six American cities. 
Like many Americans and Members of Congress, I am deeply 
distressed by the national security implications of this deal.
    The controversy surrounding Dubai Ports World's acquisition 
has exposed the vulnerability of United States ports to 
security threats, the inadequacy of the so-called Committee on 
Foreign Investments in the United States (CFIUS) review 
process, that is, foreign investment process to address these 
threats, and it also raises a broader issue of whether the 
United States is taking adequate steps to protect our entire 
national critical infrastructure.
    It is my opinion that the U.S. Government needs to conduct 
wholesale reform as to how we protect the homeland and our 
critical infrastructure. This problem runs deeper than ports. 
Vulnerability to our maritime interests is only one example of 
many sectors that require increased protection and security.
    The post 9/11 world demands that in the realm of national 
security, we take nothing for granted.
    Voluntary compliance schemes, the method we currently 
employ to protect our key arteries of national and economic 
security, is necessary but not sufficient.
    Our government must take steps to enhance our security, not 
to run the risk of creating greater vulnerabilities. We seem to 
be our own worst enemies.
    We should require critical U.S. infrastructure to remain in 
U.S. hands.
    To those who say my views smack of protectionism, I say 
America is worth protecting.
    Yet today's hearing is also about a failed process.
    In my experience, a CFIUS scheme for reviewing national 
security implications of foreign investments in the United 
States consistently comes out on the wrong side of the issue. 
Not too long ago, this committee sat together to discuss a 
Chinese national oil offshore corporations' bid to merge with 
Unocal. In that instance, a CFIUS review did not belive that 
the merger deal warranted a 45-day investigation known as a 
Byrd Amendment.
    Once again, today we find ourselves in a similar situation 
where none of the participants in CFIUS believe that the DP 
World acquisition warranted a 45-day investigation.
    Well, I think everyone on this committee recognizes that 
government is imperfect and is prone to making mistakes. The 
Congress and the citizens of this country do not have to 
tolerate a process that repeatedly makes the same mistake.
    I might just say that I just reviewed the findings of Garry 
Milhollin, who has advised this committee for many years. And 
his recounting of the weapons of mass destruction materiel and 
machinery that has been routinely moved through Dubai, with the 
acquiescence of the Dubai government, including 66 triggers 
that can be used for nuclear detonators, heavy water coming out 
of Russia and China for Pakistan and India, nerve gas 
precursors bound for Iran--no problem there. And the idea that 
those things happened and were documented, in fact, some of 
them involved American protests, and that didn't perk up the 
ears of CFIUS, was quite remarkable.
    In fact, I think it is only the huge public outcry and the 
pressure from Congress that ultimately has lead to the this 
increased scrutiny of the DP World deal.
    Recently, the officers of DP World requested that CFIUS 
conduct a 45-day investigation. And while we all welcome this 
development, I am concerned it is too little and too late. It 
is my understanding that the $6.79 billion deal becomes final 
today.
    Moreover, the details of the DP World requested 45-day 
investigation is murky.
    Unanswered to date is how this investigation will be more 
comprehensive, more robust than the CFIUS 30-day review. Some 
have dismissed this review as a public relations scheme to pass 
it by the Congress. I hope this is not the case. And I look 
forward to hearing from our witnesses on this matter.
    The problem isn't going away. Today, The Washington Post 
reports how another Dubai-owned company, Dubai International 
Capital, is planning a $1.2 billion acquisition of a British 
company that owns U.S. subsidiaries that are part of our 
defense industrial base.
    And I might say to my colleagues, we have these repeated 
incursions by our British friends who, in fact, are allies with 
us in Iraq and other operations around the world to buy 
critical pieces of the military defense, or military industrial 
base, and we always looked, examined our relationship with the 
British, and concluded that the deal is a fine one.
    The problem is involved when the second step is taken, and 
that is when a Dubai-owned corporation, now, simply based on 
the fact that it has got lots of cash, ends up acquiring the 
British company and settles into the position that we never 
would have released to another country beyond Great Britain, 
and perhaps, Australia.
    So we all understand that that the United Arab Emirates 
(UAE) has been our ally. But we also know that they have been a 
point of transshipment, obviously, with their government's 
acquiescence, either their acquiescence, their informed 
involvement, or one of the greatest systematic cases of 
negligence that the world has ever seen, to become the 
transshipment point for all of these nuclear components to the 
point where their trademark, their advertising trademark is, we 
can move whatever you have got with very little hassle.
    So if you are a German company or a former Nazi who moved 
lots of heavy water out of China and Russia to various nuclear 
companies with nuclear ambitions, you want to move it through a 
transshipment point that is easy going, you move it through 
Dubai.
    And interestingly, also, the Malaysian company that was 
involved in one of the last transshipment scandals I think 
reflected well the Dubai government's policy of creating an 
environment of deniability. They said, we can't find any--we 
have no paper. This is the Malaysian Government. And I am 
paraphrasing. They said we have no paper that indicates 
anything about where this company moved its--moved this 
particular material.
    That is the nature of Dubai. It is a bazaar for terrorist 
nations to receive prohibited components from sources from the 
free world and from the nonfree world.
    And apparently--and it appears to me that the same 
government leaders who countenance that trans-shipment, in 
fact, probably have designed that transshipment because it 
makes them money--would be the same people overseeing America's 
ports.
    And the idea that CFIUS seemed to think that was okay or 
didn't look at it very closely is quite a remarkable thing.
    So the purpose of today's hearing is to examine this 
question of whether we should have this particular company or 
any foreign-owned company controlling or owning American 
critical infrastructure.
    And with us this afternoon to discuss these issues are 
policy experts, officers of DP World, and administration 
officials from the Department of Defense, Department of 
Treasury, Department of State and the Department of Homeland 
Security.
    So let's get to it, and before we go to our witnesses, I 
would like to turn to the ranking member, the gentleman from 
Missouri, Mr. Skelton, for any remark he would like to make.

STATEMENT OF HON. IKE SKELTON, A REPRESENTATIVE FROM MISSOURI, 
          RANKING MEMBER, COMMITTEE ON ARMED SERVICES

    Mr. Skelton. Mr. Chairman, thank you, and I welcome our 
witnesses, and I also thank you for calling this very important 
hearing. It is on the minds of--this issue is on the minds of 
so many people across the country.
    Today, we are to address the recently announced deal to 
hand over operations at six major American ports to Dubai Ports 
World, which is a company owned by the United Arab Emirates, or 
UAE.
    This is a significant deal that requires careful scrutiny.
    In addition, Mr. Chairman, today's press reports indicate a 
second deal by a Dubai firm under investigation by the 
Committee on Foreign Investment in the United States. This deal 
involves a proposed purchase of a British firm with U.S. 
subsidiaries that make military components. This second deal as 
much as the Dubai Ports World must be questioned to ensure that 
our national security is protected.
    Like many of my colleagues on both sides of the aisle, and 
a majority of the American people, I have some very, very 
serious concerns about the DPW deal. It would give ownership of 
some of our major national security assets to an agent of a 
foreign country with past connections to terrorist activity, at 
a time when security in airports is woefully inadequate.
    People back home understand this issue. Their family's 
safety is their first concern. They understand that our 
Nation's ports are vulnerable today as our airlines were before 
9/11. Our seaports handle more than 95 percent of our nation's 
foreign trade including trade insensitive technologies and the 
movement of critical materials for our military.
    Yet the bipartisan 9/11 Commission identified America's 
ports as particularly vulnerable to attacks because only 6 
percent of the cargo containers entering our country are 
screened.
    Experts have warned the most likely way a terrorist could 
get a nuclear weapon into the United States is in a cargo 
container ship.
    In 2003, the Coast Guard asked for $5.4 billion over the 
next 10 years to comply fully with the port security 
requirements, and yet, despite the efforts of many of our 
colleagues, the Congress has approved only $883 million, and 
the Administration, in this year's budget, is eliminating 
funding that goes directly for port security.
    People back home also have questions about Dubai Ports 
World and our relationship with the United Arab Emirates. We 
know that the UAE has been a recognized partner in the war 
against terror. At the same time, two of the hijackers of the 
9/11 attacks were from the UAE. The 9/11 Commission concluded 
that the vast majority for the financing for the attacks flowed 
through the United Arab Emirates. The UAE was one of three 
countries to recognize the Taliban as the legitimate government 
of Afghanistan, and it has also pledged support to Hamas. The 
UAE was a key transfer point for illegal shipments of nuclear 
components to Iran, North Korea and Libya.
    These are not cut and dried issues for our national 
security.
    It is then not surprising that the Coast Guard and the 
Department of Homeland Security raised red flags during the 
review process for the Dubai Ports World port deal which is 
conducted by CFIUS, the Committee on Foreign Investment in the 
United States.
    The Coast Guard's intelligence assessment found gaps in the 
intelligence by DPW's operations, personnel and foreign 
influence, all relating to the potential for the DPW assets to 
support terrorists' operations. This level of concern should 
have triggered full use of the CFIUS process.
    The law provides for an additional 45-day investigation to 
resolve these types of issues when American security is at 
stake. That was not done here.
    After little review, and without consultation with 
Congress, or input from the affected communities, the President 
approved the deal and threatened to veto any legislation that 
would oppose it. Only when Congress and the American people got 
involved is that process now being followed.
    For me, this situation comes down to three things: First, 
we have to take a careful honest assessment of this particular 
deal. Congress must be involved. That begins today with this 
hearing. What is the potential for the UAE's government to 
exert any influence over the company? What possible risks did 
our government agencies find that this company could pose to 
our national security? How are those risks being addressed?
    And although DPW has now voluntarily agreed to a 45-day 
investigation, the parties involved have already closed the 
deal. So what is the purpose of the investigation? What can be 
done under the party's agreement at this late stage? I hope the 
witnesses will be able to answer these questions.
    The bottom line is that we must make sure that this deal is 
right for American national security.
    Second, we must reform the CFIUS process for all 
transactions that affect national security.
    We must be able to reassure the American people in every 
case that we will not allow the fox to guard the chicken house. 
We need a CFIUS process for a post 9/11 world with national 
security at its center.
    The review should also include input from the affected 
communities at the local level.
    Third, and most important, we must take this opportunity to 
invest more money and to institute better policies to protect 
our ports. We must screen more cargo. We must know who is 
working in our ports, and who is working on the ships that 
enter them. And we must think creatively about how to stop a 
weapon of mass destruction from ever entering this Nation.
    We have been extremely deficient in the area of security. 
We are very lucky we have not had to face disastrous results to 
our failings. Our security shortfalls are being demonstrated as 
a result of a corporate sale, and not because of a terrorist 
attack. We still have time to get it right, Mr. Chairman, and 
we must. We must get it right. Thank you.
    The Chairman. Thank you, Mr. Skelton. I appreciate it. And 
I might just let you know, because you have mentioned these 
three major things that we have got to do, reforming CFIUS, 
blocking foreign ownership of critical U.S. Infrastructure and, 
requiring full inspection of cargo.
    And we have been drafting, for the last couple of days, a 
bill that does that, that I hoped to introduce on Tuesday. And 
I would hope that you would join with me and any interested 
members of the committee, and I remind my fellow members of 
this committee that it was this committee that blocked the 
acquisition of the U.S. naval base at Long Beach during the 
days of the Clinton administration from being purchased by 
KOSCO, which is the maritime arm of the People's Liberation 
Army.
    We did that, even though the deal had been approved and 
this particular legislation, even if this deal is approved, 
would roll it back and would also cause upon the identification 
of critical U.S. infrastructure by the Department of Defense 
and the Department of Homeland Security would require then that 
that infrastructure be owned by Americans, and that if it was 
not owned by Americans, would be divested in as painless a way 
as possible, but would be divested of foreign ownership, and a 
U.S. ownership would be established.
    So I say to my colleagues, I think this is an issue that we 
have worked on over the years. And we are the one committee 
that has actually been able to block foreign ownership of what 
we consider to be critical U.S. infrastructure. I think now is 
the time to address this problem in a fulsome way.
    Having said that, I think Mr. Saxton wanted to say a word 
or two. Let the gentleman say a word before our----
    Mr. Saxton. Mr. Chairman, thank you for the unusual 
recognition at this point. I think there is something here that 
needs to be made part of the record and part of this 
conversation. The administration is always proud of the United 
States policy of providing for fair play in trade matters.
    And there are some unusual restrictions that are pertinent 
to this issue as part of United Arab Emirates policy. And let 
me just say what they are for the purpose of beginning this 
discussion, because these are issues that go beyond the 
important matters that have been discussed by the chairman and 
the ranking member.
    The following foreign investment restrictions are listed in 
the United Arab Emirates chapter from the 2005 national trade 
estimate report on foreign trade barriers issued by the United 
States trade representative. First, a business engaged in 
importing and distributing a product in the UAE must be either 
a 100 percent UAE owned agency or distributorship or a 51 
percent UAE, 49 percent foreign limited liability company.
    Two, subsidies for manufacturing firms are only available 
to those with at least 51 percent local ownership.
    Three, non-Gulf Corporation Council (GCC) states nationals 
cannot own land, but the Emirate of Dubai, currently is 
offering a so-called freehold estate ownership for the limited 
non-GCC nationals within certain priorities. And these 
countries, the GCC countries are the UAE, Bahrain, Saudi 
Arabia, Oman, Qatar and Kuwait.
    Four, only 22 out of 53 stocks on the UAE stock market are 
open to foreign investment.
    Five, Ministry of Economy and Planning rules restrict 
foreign investors' ownership to no more than 49 percent of 
companies on the stock market, however, company bylaws in many 
cases prohibit foreign ownership.
    Finally, except for companies located in one of the limited 
free zones, at least 51 percent of a business establishment 
must be owned by the UAE national.
    These are matters which I think should be of economic 
concern to us in terms of the fair play that our government 
goes out of its way to provide for others. And so, as part of 
the record, and part of the conversation, I think these are 
important considerations for us, along with security matters 
that you both mentioned.
    The Chairman. Well, I thank the gentleman. And let me turn 
to our panel. We have with us Dr. James Carafano, Senior Fellow 
for National Security and Homeland Security the Heritage 
Foundation. Mr. Stephen Flynn, Senior Fellow Counsel on Foreign 
Relations, and Mr. Frank Gaffney, President Center for Security 
Policy.
    So, Mr. Carafano, good afternoon. Thanks for being with us 
and the floor is your, sir.

STATEMENT OF DR. JAMES JAY CARAFANO, SENIOR RESEARCH FELLOW FOR 
     NATIONAL SECURITY AND HOMELAND SECURITY, THE HERITAGE 
                           FOUNDATION

    Dr. Carafano. Thank you, sir. I submitted a formal 
statement for the record.
    The Chairman. Without objection, all written statements 
will be taken into the record.
    Dr. Carafano. First of all, I would like to commend this 
committee and the Congress for focusing on something which is 
an absolutely incredibly vital issue to this Nation, which is 
maritime security. A third of our economy approximately of 
trade is--a third of our economy is in trade.
    95 percent of our trade goes by sea. This is absolutely 
important. Our ports are vital. This is exactly the right 
issue.
    And I think the Congress's concerns are legitimate.
    And I think it is appropriate that Congress relook the 
CFIUS process. Congress has not done that since 9/11. We live 
in a different world than we did then. And I think it is very 
appropriately that Congress relooks at the process that is 
established to make sure that national security interests were 
appropriated vetted in foreign investments and commercial 
transactions. You know, I will say a fundamental to my approach 
to this is: How we do look at all these issues, I think, should 
be the same.
    And I think it is fundamental to do with the nature of the 
conflict we are in. And I think the President was correct in 
his State of the Union address when he called it a long war. I 
think the Department of Defense was accurate in their 
Quadrennial Defense Review when they talked about this. I think 
Franks book warfighting is laced around here. And you fight 
long wars differently because what is important in a long 
protracted conflict, whether it is a war on terrorism or the 
Cold War, is that it is essential to maintain the 
competitiveness and robustness of the society as it is to 
defeating the enemy and you have to do both simultaneously. And 
I have always talked about four essential requirements in 
fighting a long war.
    One is security. And the more and more I have looked at 
this, the more and more I look at how you get the best buck out 
of your security dollar, the more and more I am convinced is 
that is an offense, and taking out the word of the enemy, 
taking out the leadership, taking out the infrastructure, 
taking out the sources of recruiting, taking out sources of 
funding, that this is simply the biggest bang for the buck.
    Now having said that, we all know that you have to have an 
element of defense, because we live in a world that is united 
by networks that carry the free flow of goods, services, people 
and ideas, and that some day it is going to carry bad things to 
your shore. And you have to have some way to defend against 
that.
    Equally as important is protecting the privacy and liberty 
of our citizens and equally important is winning the war of 
ideas and our argument is simply that you need security 
solutions that do all four of these things. And if you don't, 
you have the wrong answer and you need to go back and start 
over.
    And I think that counts just as much in this issue of 
maritime security perhaps more than any other issue.
    Now, I will say with regard to security concerns about the 
Dubai Ports World deal, I don't find any compelling security 
concerns here. And I think it has to do with the nature of the 
way we do maritime security in the maritime domain. Most of the 
infrastructure in maritime domain upon which U.S. trade is 
dependent is foreign-owned, whether it is ships or port 
facilities. And that ownership changes quite frequently. Very 
frequently you go into a port and you can ask a union worker 
and say, who owns your company today and he doesn't know. Maybe 
a different guy owned it last year. But things at the port go 
on the same way as they did before, and that is because the 
maritime security architecture is not designed based on 
ownership. The security requirements are the same for whoever 
owns the companies.
    If we are concerned about Dubai Ports World specifically as 
a company, then we have got real serious issues. And it is 
irrelevant--the U.S. ownings are a small piece of that. Dubai 
as a port is the probably the most strategically vital port to 
the United States in the Middle East, it is what allowed us to 
do power projection in the Middle East, and it is owned by 
World Ports. Likewise, this company is now the third largest 
owner of port facilities around the world. Likely, it is 
anywhere U.S. interests are involved, anywhere U.S. goods are 
moved, anywhere the U.S. military deploys this company is going 
to be involved.
    So even if we disapprove this deal and don't let them own 
these U.S. facilities, the security relationship between the 
United States and Dubai Ports World is going to be inclusive 
and ongoing.
    And I think it is critically important that they have the 
things like Customs-Trade Partnership Against Terrorism (C-
TPAT), that they are involved in things like Container Security 
Initiative (CSI), that they are open to Coast Guard auditing. 
So I am not actually sure that excluding them from owning U.S. 
port facilities makes our ability to affect how they execute 
security around the world better or worse.
    I do think that while our ports are vulnerable, we miss the 
point if we think that we can make ports safe by somehow 
turning them into little Fort Knoxes or little Maginot Lines.
    You make ports safe by keeping terrorists out of the ports. 
And it is about making the maritime system safe. And it is the 
system that is the critical infrastructure, not the port. It is 
the system. And so we have to look at solutions that make the 
system overall better.
    And I will just end on this, since I have three areas I 
think that are particularly relevant to this committee, and if 
they are deeply interested in moving forward on improving 
maritime security and on making our ports safer, these are 
three I would commend to you.
    The first one is investing in the Coast Guard. The Coast 
Guard touches on every single aspect of maritime security. This 
committee has a vested interest in Coast Guard investments 
because the relationship between the Coast Guard and the Navy 
is essential. The national fleet is something we do in name 
only. There is very little real cooperation and collaboration 
to determining our future requirements and harmonizing what the 
Navy and Coast Guard does.
    And this committee could play a leadership role in making 
sure we have the Coast Guard we need for the 21st century, and 
it dovetails well with the Navy we need for the 21st century.
    Another issue I think you could look at is there was a very 
good initiative in Charleston called Sea Hawk, which is an 
intel fusion center. It was a model intel fusion center. It was 
absolutely the best thing we did in port security in terms of 
coordinating the assets at the port and making them effective. 
It was funded through the Department of Justice. I understand 
that funding is now dried up. It was a pilot project. It is not 
owned by Department of Homeland Security (DHS). It is going to 
die. I think this committee and the Department of Defense 
should have a vested interest in seeing that things this Sea 
Hawk are sustained and revitalized because quite frankly, any 
port in the United States that has a major U.S. defense outlook 
facility, there ought to be a Sea Hawk asset at that port doing 
intelligence and operations integration, because it is simply 
the best thing we have done in our ports to make them safer.
    And the third one has to do with fundamental science. There 
is one thing about the maritime world in that this is a true 
system of systems, and I think this committee understands that 
from all the work that you have done in terms of defense. This 
makes some of the military systems look pretty simple. This is 
a complex system of operators and conveyors. Nobody owns the 
system. It is a very rich complex environment. And it has kinds 
of second and third order effects.
    The irony is that though the United States is probably the 
world leader in systems integration, we fundamentally 
understand almost nothing about the underlying science of how 
complex systems works. And we really don't have quality science 
and knowledge in forming our decision makers. There is an 
argument for something called network science, which pulls 
together various disciplines, including network biology, 
infomatics, mathematics, physics pulling these disciplines 
together to give us understanding of how complex systems work, 
how we can make them more redundant, how we can make them more 
robust, how we can make decisions, how we can design them to be 
better, how we can reconstruct them after they are hit.
    And I think the Department of Defense and this committee 
should have a vested interest in seeing network science move 
forward because many of the problems that the military is 
trying to address in the battle field is how to create the 
military systems and the systems of the 21st century. The 
underlying science that we need to understand that and make 
good policy and build good systems and develop good 
requirements is much the same.
    So I think this committee should be a strong proponent of 
the--having the Department of Defense establish network science 
institutions, partnering with the Department of Homeland 
Security. I would commend to you an excellent report by the 
National Research Council on this issue I think outlines 
fundamental things we can do which in the long run is going to 
both make the United States more competitive and more safe. 
Thank you, Mr. Chairman.
    [The prepared statement of Dr. Carafano can be found in the 
Appendix on page 125.]
    Mr. Hefley [presiding]. Thank you, very much.
    Mr. Flynn.

 STATEMENT OF STEPHEN E. FLYNN, U.S. COAST GUARD (RET.), JEANE 
   J. KIRKPATRICK SENIOR FELLOW IN NATIONAL SECURITY STUDIES

    Mr. Flynn. Thank you, Mr. Chairman. I am delighted to be 
here today and thank you, distinguished members of the House 
Armed Services Committee, for inviting me to discuss this DP 
World controversy and my assessment of where we are and where 
we need to be with regard to port security. And let me say, I 
will talk more to port security than CFIUS process where I 
think there are other experts who could do that far more 
justice than I.
    The controversy surrounding the takeover to buy the 
American container terminals by Dubai Ports World has had 
certainly the salutary benefit of engaging Washington and the 
American people in a national conversation on the state of port 
security. This is long overdue, given the enormous national 
security and economic security stakes should the next 
catastrophic terrorist attack on U.S. soil involve the global 
maritime transportation system and America's waterfronts.
    My long-standing deep concern about this persistent 
vulnerability of America's homeland generally and the global 
supply chain and ports specifically is a matter of public 
record. This is my 16th time testifying before a House and 
Senate committee on these issues. And I am sorry to say that 4 
years and 4 months later from my first opportunity to do this, 
my assessment is that the security measures that are currently 
in place do not provide an effective deterrent for determined 
terrorist organizations intent on exploiting or targeting our 
maritime transportation system to strike the United States.
    At the Federal level, the primary front line agencies, the 
Coast Guard and Customs Border Protection Agency are grossly 
underfunded for what has become essentially a brand new 
mission.
    Let's be clear. The Coast Guard stopped doing port security 
after the Second World War. And then we give them this new 
mission and the resources simply are not there in the ports. 
The same is true with Customs in terms of we pulled them out of 
the ports for 20 years, and now we said do more for our 
national security and there are just not the numbers. There are 
not physically Customs agents and Customs officials in the 
terminals. And we rely heavily on terminal operators.
    Should terrorists strike in a major U.S. seaport today, 
Americans will experience a post Katrina sense of dismay and 
frustration at how little the Federal Government has been 
investing to effectively safeguard this critical national 
security and economic security asset.
    While it leaves a sobering assessment of where we are 
today, it may come has a bit of a surprise that my assessment 
of national security implications of the DP World purchase of 
Peninsular and Orient Steam Navigation System and the leases to 
its five container terminals on the east coast and New Orleans 
is that this commercial transaction will not qualitatively 
effect the overall state of global and maritime transportation 
security.
    The primary reason is the stage is so bad it isn't going to 
make a whole lot of difference. This is because the problem is 
less about who owns and operates U.S. container terminals than 
it is that we simply have not addressed far more serious supply 
chain maritime and port security issues that would dramatically 
reduce the terrorist risk to our homeland.
    To put this current controversy into a broader security 
context, let me share with you a terrorist scenario that most 
keeps me up at night and why I spend most of my days trying to 
convey a greater sense of urgency and have been working to try 
to design and help promote meaningful measures to address this 
issue.
    Based on my experience and research of this issue for 
nearly 15 years, I believe that the greatest vulnerability that 
will involve the maritime sector in our sea ports is overseas 
within the transportation system before a container reaches a 
loading port. Specifically, the biggest security gap is in the 
transportation system once the container leaves the factory. 
This has been for three reasons. First of all, local truck 
drivers are typically poorly paid and often belong to very 
small firms operating on very thin profit margin.
    Second there are no mandated standards for seals of locks 
on containers, typical one used is a 50 cent lead seal with a 
number on it.
    Third, the issue is the containers travel through often 
remote, and at times, dangerous jurisdictions before they get 
there. So here is the kind of scenario I am worried about, 
informed by Gary Gilbert, the Chairman of the Corporate 
Security Council and Senior Vice-President for the world's 
biggest container terminal operator, Hutchison Port Holdings.
    A container of athletic footwear for a name brand company 
is loaded in the manufacturing plant in Surabuya, Indonesia. 
The container doors are shut. In this case they go the extra 
mile to put the one dollar mechanical seal on it and into the 
door's pad eyes. These designer sneakers are destined for 
retail stores in malls across the America. The container and a 
seal number is recorded at the factory. Local driver turns out 
to be sympathetic to al Qaeda, picks up the container. But on 
the way to the port, he gets a bit lost. He pulls down an alley 
to a warehouse. There is a group of operatives inside. They pop 
the hinge on the door to not even mess with the seal. They open 
it up, take some sneakers out, put a dirty bomb in wrapped in 
lead so that it will defeat our radiation detection equipment.
    Then the dirty bomb is delivered to the port of Surabaya 
where it is loaded on a coaster feeder ship, which typically 
carry about 300 containers where it is dropped off in the port 
of Jakarta. Jakarta, in turn, will load it onto a inter Asia 
ship, where it goes on a container ship carrying 1,200 to 1,500 
containers destined for Singapore or Hong Kong. To make the 
journey across the Pacific Ocean, it will then go on a super 
container ship carrying 5,000 to 8,000 containers.
    In this case, it is going to Vancouver. And it is going to 
drop it off there. Now, the good news, we now have a Container 
Security Initiative team in Canada so we can expect an inbound 
container destined for the United States by a Canada Pacific 
railway. The bad news is the CSI team identifies this as a 
trusted shipper from a reliable company of designer sneakers 
who is a member of the Customs Trade Partnership Against 
Terrorism, and therefore is not screened or inspected. It is 
simply loaded on a rail chassis and sent to Chicago, where it 
moves from the rail yard to a distribution center.
    In the distribution center, a hapless warehouse employee 
opens the container setting off the triggering mechanism and 
exploding the dirty bomb.
    Now, what are the consequences of this? There are four and 
quite immediate. Obviously, the local deaths and injuries 
associated with the conventional explosive. Second, there is 
the environmental damage done as the radioactive material is 
spread over a vast area.
    Third, there will be no way to determine where the 
compromise in security took place. Did it take place in Chicago 
yard? Did it take place on the Pacific rail? Did it take place 
in Vancouver? Did it take place in Hong Kong or Singapore or 
Jakarta? We don't know. So we assume the whole thing is at 
risk. And worse in the port case here, all the current 
container and port security initiatives that we have currently 
in place are compromised as a result. Because this turns out to 
be a CT pack container going through an International Ship and 
Port Facility Security (ISPS) compliant port with ISPS 
compliant vessels through a CSI port on its way into the 
mainland and defeats our radiation portals because they are 
simply wrapped in lead. So not only the incident, but the 
entire regime crashes.
    And what happens? Well, immediately, of course, we are 
going to have to close our borders until we sort this out. 
Within two weeks, the global trade system essentially grinds to 
a halt. In the words of John Meredith, who runs Hutchison Port 
Holdings has moved over 50 million containers last year in a 
letter he wrote to Robert Barter, former Commissioner of Border 
Protection on January 20, 2004, I think the economic 
consequences could well spawn a global recession, or worse.
    That is what we are talking about. Enormous stakes. 
National security stakes.
    And what do we have? We have essentially an honor system. 
If you are a good company, and shipping terrorist-free, we 
basically delegate to you to figure out what minimum standards 
you think are basically appropriate and we provide virtually no 
oversight.
    The Coast Guard, by law, by the Maritime Transportation 
Security Act, for instance, has been charged by Congress to go 
assess whether or not these ports around the world are actually 
living up to international standards, to which you have 
allocated resources, 20, count them, 20 Coast Guard, 13 for 
Europe, Africa, Middle East, Latin America and Caribbean, and 
then seven for all of Asia.
    I saw more coming through La Guardia at the Transportation 
Security Administration (TSA) security check in point than the 
total number of inspectors we have assigned to oversee whether 
or not we have a regime.
    The important lessons to pull from the scenario I just laid 
out here today are, I think fourfold.
    First, the threat is not so much tied to seaports as it is 
to global supply chains that now operate on the honor system, 
the point I just made.
    Second, no container terminal operator within the United 
States or abroad really knows what is in the box. That is the 
problem. They are in the business of receiving and discharging 
these containers from ships to trucks to trains that converge 
on the terminals quickly efficiently at low cost.
    Third, as the engagement of John Meredith and Gary Gilbert 
on these issues--by the way, Hudson portals had no ports in the 
U.S. but had been working actively with the US Government, 
global terminal operators are deeply concerned about the 
terrorist threat that would essentially implode their 
enterprise with billions of dollars of capital investment.
    Basically, they are potential allies in this process.
    Fourth, the scenario I just laid out essentially involved 
Vancouver. It didn't involve any U.S. ports. This is a global 
network challenge.
    So where do go from here? I think the case that I just 
tried to make with my former boss, Admiral Jim Loy, who is the 
Commandant of the Coast Guard and former Deputy Secretary for 
Homeland Security, wrote for the Times on February 28, is let's 
think about using this opportunity with DP World to raise the 
bar on security.
    The way American people would truly benefit from what has 
become essentially a political food fight is that we actually 
improve security for this system.
    And the way to do that is to work with the terminal 
operators and go to a trust but verify system.
    Every container, before it is loaded and arrives in the 
terminal, goes through a screen of a radiation portal, an image 
of what is inside, and takes a picture of the container number 
that is successful and near realtime to an inspector here in 
the U.S.A.
    It is over there where we are worried about the problem in 
a place like Dubai with the kind of material that Chairman 
Hunter raises here.
    Now is this possible? The answer is yes. In Hong Kong 
today, one of world's busiest terminals, this demonstration of 
300 trucks an hour coming into the terminal, collecting this 
data has been done.
    Now, this isn't an inspection because nobody is looking at 
it. The pilot was showing it is possible. You don't have to 
rely on 5 percent. We could go to 100 percent, if we are 
willing to make the resources available to do this.
    And guess what? The terminal operators will put this 
equipment down and pay for it if they can do it because there 
is a standard back here for the use of that. There is an 
opportunity here, an opportunity to make a real difference in 
the American people to continue to stay engaged in the global 
economy and recognize this is a global network.
    Today, 90 percent of all the terminals in the West Coast go 
to foreign-owned companies, and they are the least of them. 
Also, the East Coast is a little less above the majority.
    Why is this happening? It is happening because we gave away 
our Merchant Marine about 30 years ago, and we are not going to 
get it back any time soon.
    Companies that ship want terminals on both sides, just like 
British Airways wants to have a jetway, they want to have some 
connection to it. Ships lose money unless they are at sea. They 
want to control the operations. The challenge here is can we 
set standards that assures, given this is not private hands and 
foreign-owned private hands that are high enough, according to 
our national security interests with sufficient oversight.
    And can we put in place smart technologies and processes 
throughout this global network to continue the benefit being a 
part of the global society but without putting us unnecessarily 
at risk.
    So thank you very much for the opportunity to speak with 
you about this critical issue. I commend the Congress for 
focusing on port security. Please don't accept that the current 
system in place is adequate for the threat that we are dealing 
with. Thank you.
    Mr. Hefley. Thank you, Mr. Flynn. And now Mr. Gaffney.
    [The prepared statement of Mr. Flynn can be found in the 
Appendix on page 133.]

 STATEMENT OF FRANK J. GAFFNEY, JR., PRESIDENT AND CEO, CENTER 
                      FOR SECURITY POLICY

    Mr. Gaffney. Mr. Chairman, members of the committee, it is 
a pleasure to be back with you. The last time I had a chance to 
talk to you was July of last year, when, you may remember, we 
were discussing another impending fire sale of an important 
American asset to a government-owned company from a country 
that we had some reason to believe might not have our best 
interest at stake.
    I am delighted to be here in the company of people who know 
a great detail more about port security than I do. And I think 
they have given you very good advice up to a point.
    It seems to me that much of what you have just been treated 
to by both of my colleagues is a pretty compelling argument for 
not making matters worse in our port facilities.
    And I think it is hard to argue that an arrangement that 
entrusts to a government-owned entity from a country that could 
not prevent acts of terror from being operationally organized 
and planned and financed from its soil, will not make matters 
worse, at least marginally and possibly quite a bit.
    And Steve Flynn has powerfully described how bad things are 
already, how easily those deficiencies could be exploited 
today. And I think it is simply begs the question, do you, do 
your colleagues, do the American people, do members of our 
executive branch, feel confident that we can take any further 
risk at all?
    And I would like to talk about two things with you here 
quickly this afternoon. One is that you cannot rely on the 
existing process as the chairman and ranking member have made 
clear. You cannot rely upon the Committee on Foreign Investment 
in the United States as it is presently constituted and as it 
has operated for approximately 18 years to evaluate those sorts 
of risks adequately and to come up with a conclusion that I 
think we can all say meets the common sense test.
    And I will explain that for a moment by and by.
    But I would also argue that there are very practical 
reasons why this deal should not only be everything my 
colleagues have argued, it is an opportunity, an opportunity, 
yes, to reform CFIUS, but also to focus the sort of attention 
that both Steve and James have been calling for for years, to a 
yawning vulnerability in this country and take corrective 
action. But I think starting with corrective action requires 
doing the common-sense thing with respect to the Dubai Ports 
World deal as well.
    The question that I have about CFIUS is you have, as has 
been noted, an interagency mechanism, that is, has lead and for 
those of you who follow closely the affairs of the executive 
branch, you know that means largely dominated by, the entity 
the United States Government relies upon to raise foreign 
investment in the United States.
    This is, to my way of thinking, the very definition of a 
conflict of interest.
    It is not to assign anybody impure motives, but it is to 
say that when people see it as their job to promote foreign 
investment, to ask them to interpose objections to it is to 
expect too much.
    And in this case, I think it is clear that the national 
security agencies who participate at some level in the CFIUS 
process, also had other considerations in mind. Yes, to be 
sure, they take seriously their national security or homeland 
security responsibilities. But let's be clear.
    This is a friendly government, a strategic valuable 
partner, at least at the moment, in a war we call the war for 
the free world.
    It is not likely to be given a front or to be alienated 
from us. And unfortunately that is precisely what this process 
has done, I think, unnecessarily so.
    There are certain issues here that specifically raise 
questions in my mind. One for starters is, how many ports are 
we talking about? We keep hearing that it is six, ports of New 
York, both in New Jersey and New York, Port of Philadelphia, 
Port of Baltimore, Port of Miami and the Port of New Orleans.
    And yet there are at least 2 others that the United States 
Army has contracted with P&O to move material through the Ports 
of Corpus Christi in Beaumont in Texas, and by at least the 
accounting of the P&O Web site, there are a total of some 22 
ports in this country ranging from Maine to Texas, that will 
have some relationship, some management functions performed if 
this deal does, in fact, go through. That is a lot of ports, 
ladies and gentlemen, including many of our most strategically 
important ones.
    I fear that as before, in fact, in every case but one, in 
the over 1,500 that the CFIUS process has formally vetted, that 
is to say, that somebody has formally submitted to the CFIUS 
process, only one has been formally rejected by this process.
    I think it is--I think the technical term is a lead pipe 
cinch that the 45-day review will be just another in that 
litany.
    Not only if you have the President of the United States 
affirm that it is the right answer, before the 45-day process 
begins again, but as best I can tell, all of the same people, 
all of whom have publicly said they came to the right answer 
the first time are going to be asked to revisit their earlier 
decision.
    In short, if you don't want exactly the same rigged game 
played on this deal again, I think the Congress is going to 
have to insist upon some changes.
    I have made some in my formal testimony. Some of the more 
obvious ones are to ensure that senior level people at the 
cabinet level for instance, are actively personally involved 
and responsible for this decision. You may still get the same 
outcome but it is clear that a number of them were not during 
the previous process.
    I would also suggest with great respect that the Secretary 
of Treasury should recuse himself from the deal.
    He, after all, in the previous incarnation, sold to DP 
World, ports that were owned by his company, CSX. That would 
seem to me, again, to be something of a conflict.
    I believe, in addition, that we need to have in this 
process a rigorous security assessment performed.
    And that is not simply one that factors most heavily, 
weights most heavily the idea that the UAE is a very important 
country to us. It has to take into account the sorts of 
considerations that Steve and James have just been talking 
about.
    What are some of those considerations? I would argue at 
least about three. That again, just, I think, trigger the 
common sense bewilderment factor for most Americans. The first 
is clearly, DP World is going to be responsible for hiring and 
vetting of some personnel.
    Now, Newsweek has said that ``the company has promised to 
leave the British appointed U.S. port managers in place for a 
time in a bid to ease the immediate political pressure.''
    Well clearly, there is no guarantee that once you or your 
constituents aren't applying political pressure that that 
process, that representation, on the docks or in the 
supervisory offices will remain. At the very least you are 
going to have attrition, people are going to have to be hired. 
They may be foreign nationals on which we may or may not have a 
good handle on who they are. They may be Americans. In Britain 
in July of last year, we discovered that citizenship is no 
impediment in people engaging in acts of terror against their 
own country.
    So personnel is one problem.
    Cargo is another. Steve has just provided expert testimony 
that we will rely heavily under the circumstances we find 
ourselves in on the cargo management firms to account for what 
is in these holds. We use certain rational but easily 
circumvented procedures to assign risk to certain cargo.
    Can a company that is responsible for the cargo management, 
even if it is at the end zone, as some people like to call it, 
be relied upon, if, in fact, it has, or its country at least, 
has been penetrated by terrorists in the past?
    And third, it does seem to me that at the very minimum, 
even if the personnel problem is not there, even if the cargo 
management problem is not there, you have to appreciate that 
this company is going to be read in on the security plans of 
the port. They are going to have to implement something.
    That gives rise, I believe, to yet another potential 
liability and opportunity for penetration. I take all these 
together, many of you are lawyers, I am not, but I think the 
term is attractive nuisance. It is like having a swimming pool 
without a fence. You are creating an opportunity for people to 
get into and make mischief. And that doesn't seem to be wise, 
especially since, as I would stipulate, things are as 
problematic already as these gentlemen have described.
    Finally, Mr. Chairman, let me just say, in addition to 
saluting your efforts to reform CFIUS, I hope this is the last 
of these processes. I hope that this one, that The Washington 
Post is reporting about today that several of you have made 
note of, in which American defense contractors, equipment 
precision, equipment is supposed to be supplied in the future 
by not a British-owned company, but by a UAE-owned company, 
will not be just the next of this litany of failed 
dysfunctional vetting of foreign investments with clear 
national security implications.
    I would also urge that the point that Congressman Saxton be 
given very serious consideration. Even if everything else were 
unexceptionable in these deals, it does seem to me outrageous 
that we as a country keep finding ourselves in a position where 
we play by one set of rules and other people play by a 
different set of rules, sometimes even in violation of our 
trade agreements with them. But this idea that you can have a 
company that wouldn't dream, or a country that owns it that 
wouldn't dream of having an American company own any of its 
critical infrastructure to say nothing of the U.S. Government 
operating it.
    And I am not speaking here about monitoring stations and 
that sort of thing. I am talking about owning physical plants, 
critical, physical plants, nonetheless should be given carte 
blanche to do the same here.
    I don't know where this ends. Does it include nuclear power 
plants and other instances of critical infrastructure? I should 
hope not.
    Finally, there are two other things. In addition, I hope to 
getting an independent second opinion, I don't think you have 
to rely on CFIUS. You are holding hearings, of course, but 
Congress has been known to do commissions. Normally, you can't 
appoint a commission, let alone get it going in 45 days. But I 
think given the consensus that exists in the Congress today 
about the saliency of these questions you might be able to pull 
one together and get something back before the CFIUS does 
whatever it is going to do this time around.
    But the last two points, Mr. Chairman, are one, we have got 
to find a way that allows, without undue politicization, 
Congress to provide adult supervision to the CFIUS process, 
however you perform it, it has to be made more accountable, 
somewhat more transparent so that you don't continue to find 
yourself presented with faits accompli which is, of course, 
what has happened in this instance.
    And second, I would just urge you and we had a conversation 
when I was last here, Mr. Chairman, and you were, as always, 
right on the money, we have to come to grips with the fact that 
as a nation, we are becoming essentially dependent for most 
things, most finished products, most raw materials, most 
services even now, on foreign suppliers.
    This is a matter of the utmost importance, I think, not 
only for our national security, the immediate objective and 
responsibility of this committee, but also think for all of us, 
as it such as touches upon not only our security, but our 
economic well being for the future.
    And so, Mr. Chairman, the last time we talked, you 
indicated a willingness to pick up the cudgel once again to 
hold hearings on this question of foreign dependency and its 
bearing on our national security, and I would urge that it be 
part of a larger effort by the Congress to address what is 
perhaps the inevitable outcome of the sorts of trade practices 
we have been engaged in for so long, and the failure of a 
process to provide real supervision within the executive 
branch, and arguably even within the Congress that will not 
only address some of these maritime security issues which are 
so important, but also the larger national economic and 
security considerations that attend them.
    Mr. Gaffney. I appreciate your giving me this opportunity 
to contribute to your deliberations, Mr. Chairman. Thank you.
    [The prepared statement of Mr. Gaffney can be found in the 
Appendix on page 140.]
    The Chairman [presiding]. Thank you, Mr. Gaffney, and 
thanks to all of you for laying out I think a very good 
foundation for discussion here.
    Mr. Gaffney, we did as a committee pass in our bill several 
years ago a requirement that all critical military components 
be built in the United States. We didn't get that one past the 
Senate, but perhaps we got their attention this year.
    Let me go to one of the statements that was made early on 
by Mr. Carafano and I think has been to some degree echoed by 
all of our witnesses. You have all described the UAE as being 
allies, and we can point to military operations where they 
accommodated us. We can point to accommodations to our security 
interests, but at the same point, at the same time, we can 
point to times when they absolutely stood against our security 
interests and took actions that hurt American security 
interests, and that implies to me that they are accommodators. 
They accommodate people that come to them with large amounts of 
cash, and they don't have a great deal of concern as to who it 
is, whether it is this former Nazi who was moving lots of heavy 
water from China and Russia through Dubai, and I am looking 
particularly at the 2003 incident in which the UAE, even after 
we protested, insisted on moving those 66 high speed electrical 
switches used for nuclear detonations to a Pakistani 
businessman with close ties to the Pakistani military, even 
against a backdrop in which we indicted the people that 
exported those switches. That is not the action of an ally. It 
sounds to me like the action of an international player, which 
can't be ignored because of its size and its money and the fact 
that it is strategically located and sometimes accommodates you 
but certainly the idea that the people in the UAE government 
who sat in a room and decided upon getting a communication from 
the United States, please don't turn over those nuclear 
switches to these people who may use it adversely, and they 
decided to go through with the deal despite America's protest; 
those are not people, I think, that you want to have anywhere 
close to the security apparatus of your own ports. Because it 
indicates not that they can't be accommodating to our interests 
if in fact it is their interest to accommodate us, but that 
they don't consistently accommodate our interests, and at times 
other people with money and influence overwhelm the American 
interests. If that translates into a cargo container that has a 
chem-bio weapon in it that is accompanied by large amounts of 
cash, then this history of accommodation of American interest 
doesn't mean anything.
    And we have this history that is laid out fairly clearly by 
Mr. Milholland. He goes back to the precursor for nerve gas 
which was being shipped to Iran, which was only stopped because 
the United States had a sting operation, but certainly not 
because Dubai wanted to stop it.
    You have got the heavy water situation. You have got the 
two containers of gas centrifuge parts from the doctor's labs 
that were shipped through Dubai from Iran for about $3 million 
worth of UAE currency. These people have a nightmare history. 
This is not a question of whether somebody has been tested or 
not. They have been tested, and they have gone the wrong way on 
this stuff.
    I guess, Mr. Carafano, to you, my question would be, how 
can you possibly say that you didn't see in this particular 
case, in this particular deal, a security problem?
    Dr. Carafano. That is an excellent question, and I 
certainly share your concerns. And I think that is something 
that the Congress should discuss and should take on and discuss 
with the Administration. I do think we need two separate 
debates here, however. We need to have a policy debate on how 
the United States wants to engage with the UAE. And all the 
issues about UAE's past behavior, foreign policies, strategic 
vision for the future should all be on the table. But I think 
that is separate from the security debate because, again, most 
of the infrastructure that the U.S. is dependent upon the 
maritime domain is foreign-owned. That is why our security 
systems are designed to be ownership independent. It doesn't 
matter who owns them, if it is a U.S. Company or a foreign 
company.
    The Chairman. Let me stop you on that. If you had--let's 
say you had the British ownership of this particular port, and 
you had people who had been strong allies of the United States 
and were people whom you felt you could trust, isn't that 
different from having an ownership which reflects basically the 
desire to do whatever it takes to acquire money, which I think 
is a good description of Dubai's foreign policy? Their foreign 
policy is, they will sell Winchesters to the good guys or the 
bad guys. They are not too interested who it is as long as they 
get to be the bazaar and they get to have the money. So are you 
sure you can say, from a security standpoint, that the 
ownership is irrelevant?
    Dr. Carafano. Congressman, I am with Ronald Reagan; I trust 
everybody, but I would verify. I don't trust anybody in the 
system. That is why the system is really ownership irrelevant. 
Dubai Ports World might turn around tomorrow and sell that 
company to somebody else. The point is the maritime security 
system can't be dependent on ownership as the guarantor of 
security. Security has to be the guarantor of security.
    The Chairman. Wait. You said ownership. I would ask you to 
address its relevancy. That means, if the information on the 
security plan for a particular port is elicited by the people 
that own the port operation, their employees will probably 
deliver it to them. I think you can be assured of that. That 
could be used to our detriment. Is that not true?
    Dr. Carafano. I would go back to Steve's scenario, which is 
plausible. I wouldn't argue it is the most likely, but it is 
plausible. And it is exactly how terrorists operate. You don't 
need to buy a $7 billion company to penetrate maritime 
security. As a matter of fact, it works to your disadvantage 
because, first of all, there is an audit trail as to who you 
are; and second of all, it is an enormous investment because 
all you are actually gaining access to is the vulnerabilities 
of your own company. It is much more likely if a terrorist 
attack occurs in the maritime domain, that terrorists are going 
to do what smugglers do. The Mafia doesn't buy FedEx to 
smuggle. They make low-level penetrations. If you look at the 
operations in the port, the management groups are relatively 
small. It is a small community; people know who each other are. 
The penetrations are most likely going to happen as janitors, 
short haul truck drivers, people that aren't highly checked, 
and they have access to the kind of information that they do. 
To do Steve's kinds of attack, you don't need to own the 
company.
    The Chairman. Mr. Flynn.
    Mr. Flynn. Well, there is little question that any time a 
foreign government is involved with buying critical assets, it 
deserves a thorough scrub. I hope that is what will happen as a 
result of this 45-day period. The people who are paid to worry 
about our security and access to intelligence do a thorough 
scrub. If, at the end of the road, the determination is, with 
your oversight, the company does not pose a threat in a way 
that other global companies do, I am still going to come back 
to, I want a verification system of how they operate. It is 
precisely because this is critical infrastructure and largely 
privately owned, and increasingly foreign privately owned, that 
we have to make sure the bar is high and the oversight is high.
    My concern is that while we have a framework for oversight, 
there is very little behind the curtain. So as I look at it 
from a security perspective, I don't see this place softer than 
anywhere else. The whole system is way too soft. It is a global 
network, and here are some of the complexities we are going to 
get into even pushing back this particular arrangement.
    Currently, P&O owns half the operations in Karachi. The 
other is by Hutchinson. You can't get a container out of 
Karachi to Dubai or Iran unless you go through one of those two 
terminals. Even if this deal is killed here in the U.S. side, 
this player will own that terminal. From a counter 
proliferation standpoint, we will want to have the ability to 
put in place a verification regime not just for stuff coming 
here, and you will have to work with the members of this 
community. So I think the challenge here is oversight, high 
standards and making sure when you pull back the curtain of 
where the money is and who is involved with it here, that you 
are not giving away the store. It is just, the bottom line is: 
This is a network. It is global. It is dominated by four 
players, and they are all foreign-owned. We need to bring them 
on board with our solution.
    The Chairman. Let me just say, if you look at the 
technology transfers, they were done, some of them, over the 
protest of the American Government. Involving things like 
nuclear weapons triggers, we didn't bring them on board. I 
would say the idea that having non-trustworthy people at the 
top, the people who have been tested and gone in the wrong 
direction, the idea that that is not relevant to me is not 
logical. It is true that the so-called privates in the 
operation, the taxicab driver, the guy who works as a 
stevedore, could be the bad player, as Mr. Carafano said. On 
the other hand, we had an incident not too long ago where we 
discovered millions of dollars in the bank account of the 
general in Mexico who was in charge of antinarcotics 
operations. In that case, the people that needed the buyoff 
didn't go to the bottom. They didn't go to a private, a 
sergeant who could avoid a marijuana field; they went to the 
top of the operation. So the point is, this is a system of 
opportunities, and the idea that having a government in control 
of our ports which has demonstrated that it will allow 
components for nuclear weapons to be transshipped, in fact, 
really the operation that they have in Dubai I think could be 
best described as a genius for masking the transshipment of 
illicit goods. That is their trademark. That is how they make 
their money. And the idea that that is irrelevant to the 
operation of the port to me is not a sensible judgment.
    Mr. Gaffney.
    Mr. Gaffney. Mr. Chairman, I think that James is right; you 
don't have to own the company. But I think what we are 
wrestling with here, does it help or does it at least help 
somebody who wants to exploit the fact that the company is not 
in U.S. control. Just so we are clear about this, I have 
exactly the same concerns about having communist China having 
this kind of control as I do about the United Arab Emirates. I 
think the track record is probably every bit as deplorable if 
you ask about what China has been allowing to move through.
    The Chairman. So would you agree with a new law that states 
that critical infrastructure that is identified by the 
Department of Defense and the Department of Homeland Security 
as critical infrastructure should be owned by Americans?
    Mr. Gaffney. That is my personal view, Mr. Chairman. I 
haven't a clue what the full implications of that are. But I 
will tell you, it does seem to me that the power that you are 
hearing in terms of the vocalized outrage of your constituents 
is practically none of them are aware that that isn't the case 
today. It is like Congressman Weldon and so many of you have 
been working on missile defense all these years. It was always 
the case the public thought we had one. This is the same sort 
of thing. It has been an epiphany, and I agree with my 
colleagues that it is very salutary that we are having this 
debate. I tend to agree that is where this debate should take 
us, but we are going to need to follow this debate through 
starting with, I hope, minimizing further damage with this 
relationship with the UAE.
    Going to your point, Mr. Chairman, there is no question, 
and I think it trumped all further considerations in the final 
analysis, there are things the United Arab Emirates are doing 
we are probably not all privy to but nonetheless that are very 
helpful in this war for the free world. It is just that they 
are doing things, and they are certainly capable of doing 
things or people are able to do things from their territory 
that could be very dangerous to this country.
    The Chairman. I thank the gentleman.
    The gentleman from South Carolina, Mr. Spratt.
    Mr. Spratt. Thank you all for your excellent testimony. Let 
me cut straight to the chase. CFIUS, we had Secretary England 
before the Budget Committee yesterday, and I asked him what 
national security concerns were raised in the review process. 
He freely couldn't cite any. He basically said these were 
homeland security and not national security concerns.
    I learned from reading the committee memo that the person 
in DOD who made this review is a Deputy Assistant Secretary for 
Defense, Technology and Security Administration, and we have an 
Assistant Secretary of DOD for Homeland Defense, but he was not 
consulted on the DP issue. Is it the opinion of your panel, all 
three of you, that CFIUS simply did not exercise due diligence 
to start with?
    Mr. Gaffney. That is my view. I think the point--it is very 
helpful that you have been able to extract from the system who 
did participate because, as you know, nominally it is supposed 
to be at the level of Cabinet officers. As I said in my 
testimony, they weren't read into it. The President didn't know 
anything about this. You are talking about Deputy Assistant 
Secretaries. It may even be there are career people who do this 
thing day in and day out, and it is no knock on them. But 
clearly there are aspects to this that transcend the 
perspective that somebody who may be an office director or at 
best a Deputy Assistant Secretary is going to have. And 
unfortunately, the process chronically sort of defaults to this 
kind of setting, especially when, as no fault of this 
committee, but your counterpart on the other side is 
responsible, I think, in some small measure for this. There are 
so many vacancies in senior level positions where I think this 
sort of broader perspective would properly reside and be 
brought to bear.
    Mr. Spratt. I hate to cut you off.
    Mr. Flynn.
    Mr. Flynn. I have not had access because of the lack of 
transparency to know whether there was an adequate review or 
not. I think it is worth asking the questions. I can say, the 
maritime transportation community is a pretty small world, and 
most people know each other by reputation. The DP World 
Company, the senior executives in that company are very well 
regarded international players in the shipping community. Many 
of them are Americans. The top nine managers of DP World, there 
is only one United Arab Emirates member and----
    Mr. Spratt. Are you suggesting it didn't get the depth of 
analysis it warranted?
    Mr. Flynn. Seems clear it has not; otherwise, we wouldn't 
be where we are--here--today. There is no question that 
something as critical as this deserves full scrutiny. The law 
for CFIUS was written in 1988. The thinking was not geared 
toward the kind of world we are in.
    Dr. Carafano. I don't think the CFIUS process gets to the 
national maritime security interests in the maritime domain. 
The CFIUS process looks at ownership. And what Steve and I have 
argued is that ownership does nothing for you. Only security 
provides security, and it is a global network, and most of it 
is foreign-owned. So just verifying ownership doesn't address 
security issues and threats.
    Mr. Spratt. What we see here is typical of immigration, 
other customs issues. I have followed this for years. I can 
tell you story after story of containers that weren't opened. I 
see here, I believe it is Dr. Flynn's testimony, that for all 
of the 58,000 exporters, shippers to be monitored, the Coast 
Guard has 80 inspectors.
    Mr. Flynn. The Coast Guard has 20 inspectors to verify all 
ports around the world are compliant with the International 
Ship Port Facilities Bill. The good news, Customs has four 
times as many to take on the CT path. By the way, there are 
over 11,000 companies in queue to get into that program. There 
is not staffing to do that job.
    Mr. Spratt. What would it take in your estimation?
    Mr. Flynn. One is, we should be moving to third party 
audits, and then you audit the auditors. We are talking about 
having to send Customs agents around the world; that is 
complicated. Just as in the maritime area, we often use 
professional classification societies like American Bureau of 
Shipping to check to see if things are compliant, and the Coast 
Guard oversees that.
    You have got to insist not purely voluntary and hope for 
the best. If you said, as a company, you are securing your 
supply chain, show us, have the certification for that and then 
we spot check it. No question we are talking about five-fold. 
We should be talking an office about 500 people for oversight 
for a program as complex as this one.
    Mr. Spratt. One final question, are you testifying, all of 
you, that the technology is there for far greater if not much 
better surveillance than we have got now that could be done in 
foreign ports? It will require a big commitment, but 
nevertheless, we could do this with much greater security than 
we are now achieving.
    Mr. Flynn. It is there, sir, and the global operators would 
be willing to put it in. They can get a cost recovery system 
through a fee; we don't have to pay for it if we have a system 
of how to use it. The problem is the Department of Homeland 
Security can't figure out how to integrate its operations. So 
we can go to 100 percent screening, non-intrusive, at loading 
ports with the cooperation of the terminals. We don't have to 
rely on a five percent, hope for the best intelligence-driven 
system when we all know our intelligence apparatus is broken. 
How is it Customs has gotten so good in the intelligence arena 
that it can spot 100 percent of the right 5 percent when we 
can't find the weapons of mass destruction and other problems 
we found out, which is a real problem with our intelligence 
community? You need to go to 100 percent.
    Dr. Carafano. I am less optimistic that there is a simple 
technological fix, that you can make a solid business case that 
will do this. I think screening is a nice measure, but you 
don't rely on screening to save your life. I think if we are 
relying on the people screening people on planes, then we are 
all going to die. Screening is good, but any screening system 
can be defeated. Steve's scenario is great, and the fact is, 
with all the technology in the world, a smart terrorist, smart 
smuggler can find a way around that. One guy can find a $5 
solution on a multibillion dollar system and kill you.
    I think it is a question of where you put the balance of 
your investments. I think you put them, your investments, on 
the offensive capabilities. That is why I agree the Coast Guard 
is an enormous investment, grossly underfunded; kids running 
around in ships that are eligible for Social Security. They 
have missions that span the entire maritime domain. Not just 
the auditing issue but also on the proliferation security 
initiative, maritime domain, which looks in the commercial and 
noncommercial system, and we have grossly underfunded them. So 
if you have got a couple million dollars to throw at something, 
throw it at the Coast Guard first.
    I would agree with Steve, if there is a global business 
case for a technological security solution that somebody can 
produce, then that is fine; I would accept that. I am a little 
skeptical that it is out there.
    Mr. Flynn. It is right now in Hong Kong. It is not perfect 
in lots of ways, but one of the things it does, it gives you a 
forensic capability. Just like those closed circuit TV's in 
London didn't stop the attack but allowed us to pull back and 
find who the operators are. As we build greater visibility, we 
raise the deterrent level. It could take them 2 to 3 years to 
acquire a weapon of mass destruction. You put it in the system 
where everything is being screened, and if you find out the 
problem, you can isolate where the problem came from so you 
don't have a wholesale shut down of the system. It is not just 
technology; it is layers of security. We don't have to rely 
solely on trying to find all the bad guys and leaving the 
system wide open.
    Mr. Gaffney. Mr. Spratt, I think technology is part of the 
answer. It is like a fence along our southern border. Seems to 
me that is part of the answer to the immigration problem, too. 
But you have to appreciate that you are up against determined 
adversaries. They are going to try to end run it, find new 
openings and opportunities, and it is one of the reasons why I 
come down differently than my colleagues by saying, shut down 
other opportunities where you see them possibly being opened 
up, including the case of this port acquisition.
    Mr. Spratt. Can't this be paid for by levying fees. There 
are huge flows of commerce. Can't small fees produce 
substantial funds to buy much better technology?
    Mr. Flynn. The pilot in Hong Kong will come in at $6 to $8 
a container. We can move a 40-foot container with up to 32 tons 
of material from Asia to the West Coast about average rates, 
$1,850, which makes a postage stamp seem a little overpriced. 
They carry about $66,000 dollars of retail goods on average for 
Target and Wal-Mart. You are not going to see that. Those rates 
go up and down based upon availability. You want to layer it 
throughout the system. I want it in Singapore, Jakarta, so I 
can spot things along the way. They need to put the system in 
place, the terminal operator, if they do it altogether and come 
up with a common fee structure and make the data accessible to 
Customs agents, not just us but to the British. There are 
export control issues.
    So there is a lot of promise here without solely relying on 
a system either focused on ownership or hoping and praying our 
intelligence is so good we can narrow down the universe and 
check the right thing.
    Dr. Carafano. I am skeptical. This to me is the TSA 
solution. We spent $6 billion a year on a system which was 
defeated by $20 dollars worth of razor blades. The global 
security screening solution, I think, there may be a business 
case for some measures, and I am all for that. And I agree with 
Steve, the global movers of systems have a vested interest in 
making sure that this system keeps going. They realize if there 
is a 9/11 in the maritime domain, the consequences will be as 
catastrophic as Steve says.
    I talked to all the people in Homeland Security, and they 
say we are not going to shut down the ports, just the affected 
ones, and we all know what is really going to happen, on the 
day of the Katrina-style port act, they are going to shut down 
all the ports, and we are going to have consequences that are 
global. But the notion that this is going to prevent that, I am 
just very, very skeptical. The business community can do some 
things because they have a vested interest in preventing that, 
but I don't think the TSA solution of, let's just screen 
everything and rely on technology, is going to get us there.
    Mr. Spratt. Thank you, Mr. Chairman.
    The Chairman. The gentleman from Pennsylvania, Mr. Weldon.
    Mr. Weldon. Thank you all for your testimony. The tragedy 
of this situation is not just the fact that we have to look at 
the substance, and we will raise them in other parts of the 
hearing with the Administration, but it is the damage that we 
have done in our relationship with a country that seems to be 
becoming our ally. This reminds me of the Clinton 
administration when President Clinton told the leadership of 
the mainland in Beijing that they would not allow a visa to be 
provided to President Lee Teng-hui of Taiwan to go back to his 
alma mater to speak. The Congress found out the next day 
because the White House didn't talk to the Congress, and the 
Congress was livid. And so in a bipartisan manner, we overruled 
the President. That so embarrassed the Chinese administration. 
They thought we deliberately embarrassed them. So they started 
lobbing missiles across the Straits of Taiwan.
    What did President Clinton have to do? He sent a carrier 
battle group in the Straits of Taiwan that almost caused a war 
between China and the U.S. over the administration not talking 
to Congress. That is what is happening in this case.
    What absolutely offends me the most is this White House had 
to know that there would be significant concerns raised by the 
American people and the Congress. Now maybe they would have 
been dealt within a structured process that we would have felt 
was okay, but they didn't give us that opportunity. Now they 
are telling us well, if you object, you are going to hurt our 
relationship with the Emirates. Too bad. Where were you? Why 
didn't you bring the leadership of the Congress in? Why didn't 
you ask for us to understand what was being proposed? That 
unfortunately is a dilemma we now find ourselves in.
    So we are damned either way in this case. Whatever we do, 
we are going to cause problems and concerns. Many say we are 
just posturing. We are not posturing. I come from Philadelphia. 
I walked those ports. I would have liked to have had some 
inclination that a pending deal was on the horizon that was 
being talked about for months within the process of the agency, 
the Administration, but that wasn't done. In fact, none of the 
people at the Tioga Terminal that will be taken over by this 
process were even consulted. They didn't have a clue. And all 
of a sudden, through the media, this is sprung upon us.
    What do they expect we and the American people to do? It is 
a tragedy that should have been avoided. It wasn't, and now we 
are left to try in the best way possible to understand what are 
the threats, and I won't pose some very specific questions that 
I have relative to al Qaeda's involvement in a very direct way 
with the Emirates. I will talk about a camp that mysteriously 
disappeared because the Emirates government tipped off the al 
Qaeda leaders when we were about to strike it a week before 
that camp was attacked.
    I will bring up an internal document from West Point and 
their terrorism efforts up there of a document that al Qaeda 
sent to the Emirates saying we have infiltrated your security, 
your censorship, along with other agencies that should not be 
mentioned. This is al Qaeda talking to the Emirates. This is an 
official document of al Qaeda.
    I want to know whether or not that has all been considered. 
I have no idea whether this process went through that. What 
really bothers me by the Administration is also their 
interpretation of the Exon-Florio language as amended.
    So the question I have for each of you is whether or not 
you agree with the Administration in their interpretation of 
the Byrd amendment, which is contradictory to how Byrd 
interprets his own amendment, when they say that even in the 
case where the two conditions of the Byrd amendment are met, 
the committee may determine that the 40-day investigation is 
not required.
    I am of the feeling, as a Member of Congress who worked on 
this language, that it is required, but the Administration has 
seen fit to interpret it that it is not required.
    So I would ask you all to respond to that, and also, Mr. 
Chairman, I would like to ask these witnesses if they think 
that there needs to be a role for selected leadership of the 
Congress to play. There is no role in that process today. Maybe 
there needs to be, either through the Intelligence Committee or 
the leadership of the Congress, a very elite group of members 
of both parties who are at least made aware of what the CFIUS 
process is considering when it comes to foreign investment.
    Mr. Gaffney. I think, like you, the commonsense 
interpretation of this language suggests that the trigger 
should have kicked in. It is just one of the things that is 
broken with the CFIUS process, maybe not even the most 
important but certainly one of the things that I think you need 
to revisit as you think about reforming it.
    I guess my feeling about it is, members of this committee, 
members of the leadership, members of the Intelligence 
Committee, for that matter the entire Congress, will be saddled 
with the consequences of a defective process. It is incumbent 
upon you I think, in the old adage, to be in on the take-off if 
they want you in on the landing. There are concerns--and I 
understand they are legitimate--about undue political 
influence, the compromising of proprietary information and so 
on, but I think what we can take away from this fiasco, and it 
is a fiasco for the reasons you mentioned, is the need to try 
to improve it so that it doesn't happen again.
    I believe people of good will on both sides of the aisle, 
on both sides of the Hill are going to be able to find ways to 
ensure that there is oversight in an appropriate way and there 
is a degree of transparency that is incumbent upon the need for 
audit supervision that this system clearly cries out for.
    Mr. Flynn. I am not a constitutional lawyer, but what I 
have heard from port communities, with which I can empathize, 
is the Federal Government can't have it both ways. The fact is 
that it has been to the charge of States and localities to 
provide for the security of their ports, working through the 
private sectors, and they are to split the bill. The 
Administration didn't ask for any port security funds until 
2004 despite three budgets going by because they said quite 
clearly these fall in your jurisdictions; you are responsible 
for security.
    I can appreciate there is legitimate frustration at the 
local level when decisions about who their tenants are going to 
be, that that would lead to significant aggravation which they 
are likely to express to their members. There is little 
question as we evolve to a point in recognizing this new 
adversary is increasingly focused on disrupting economic 
targets, that the old matrix that was used in the CFIUS process 
is not going to apply. It is a more all-encompassing, more 
civil, and I think it is going to, by necessity, need to 
involve a broader engagement. The more we engage our civil 
society, and through our elected representatives, what is 
critical and where resources need to be applied, the more 
likely we will make those investments. When everybody is 
ignorant, we don't make investments; we think it is all honky-
dory. This process, if there is any positive thing, has focused 
the Nation's attention on the gross vulnerabilities of a 
critical infrastructure that supports our way of life, and I 
hope the opportunity, while I can certainly understand the 
frustration here, that we move from that to saying let's really 
fix for the American people what we know--well-documented--is 
well broken.
    Dr. Carafano. I sympathize with your remarks, and until the 
Congress has an opportunity to get through all the facts of how 
this process was executed, I think I would reserve judgment. I 
do think it is self-evident the process needs to be revised so 
these kinds of fiascos don't happen.
    I do believe one message I want to be crystal clear on, 
that is dispelling any notion that revising and reforming the 
process will address the kinds of maritime concerns that Steve 
and I raised today. And while I am thrilled along with Steve, I 
see this as an enormous opportunity to get Americans excited 
about something they ought to be excited about because a third 
of their economy is dependent that this global system work, but 
I would hate to have Americans walk away to think, because 
Congress devised this process, we are safer at sea, because 
that simply won't be true.
    Mr. Weldon. How about a simple response to the 
interpretation of the Byrd amendment which required a mandatory 
45-day review? Do you believe that they had the power to ignore 
that?
    Dr. Carafano. Without having seen all the facts of how the 
process was executed that I think will only be available after 
the Congress has an opportunity to gain those facts, I really 
don't feel qualified to answer that.
    The Chairman. I thank the gentleman.
    Let me ask my colleagues something. We have got two more 
panels to go, and I know there are no more votes today, and I 
know people are going to have planes to catch. Let me ask my 
colleagues who haven't had a chance to ask a question yet if 
you would be willing to forego a question on this panel to move 
to the next panel which includes Dubai ownership 
representatives and pick up immediately where we took off. 
Everybody who would like--thinks that is okay, could you raise 
your hand if you want me to do that?
    I think--Dr. Snyder, if--Mr. Taylor, would you be willing 
to do that if we end with Dr. Snyder? Okay. I tell you what we 
will do, let's do Dr. Snyder, Mr. Larsen, Mr. Taylor, and move 
to the next panel--and Mr. Turner.
    The gentleman from Arkansas, Dr. Snyder.
    Dr. Snyder. I think this panel is really, really important 
because you are the forest-for-the-trees guys. The next two 
panels we are going to get focused on one contract, and I am 
afraid if we leave you alone, we are going to miss a point.
    Mr. Flynn, you are not a Johnny-come-lately to this event. 
I would like, Mr. Chairman, if I might, to put in the record an 
article that Mr. Steven Flynn wrote in November, December 2000, 
that was in Foreign Affairs Magazine called, ``Beyond Border 
Control,'' in which you discuss this issue.
    [The information referred to can be found in the Appendix 
on page 183.]
    Dr. Snyder. You specifically talk about what you referred 
to as your hope it is not going to be a future Tom Clancy novel 
scenario, in which you gave an example of something 
unfortunately came to in a different way when we had the 
September 11th but that was written obviously a year before 
September 11th. I don't know if you recall, but in October of 
2000, you came to my office and met, and I don't know if it had 
anything to do with it, Dr. Carafano, but somebody from 
Heritage came by and said, we want to get to know you. I said, 
if you want to do something, have business get involved with 
security, go talk to Steve Flynn. Maybe they hired you after 
that.
    About port security, let me get into some of my points. One 
concern that I have with the approach that the Chairman and Mr. 
Gaffney are taking, if you, in Mr. Gaffney's words, if we go 
along with this current contract, it will possibly open another 
risk. Once you accept that principle, seems to me you don't 
have any basis for allowing any ship to come in from any Arab 
nation. How do you draw the line when you are talking about a 
small package? Can you let any ship come in that has any crew 
members on it that could ever go off the ship? Where do you 
draw the line if you start saying, in your words, Dr. Carafano, 
that ownership is the key rather than security? That is one of 
the concerns I have with the direction we are going with some 
of this legislation.
    Mr. Flynn, in your article, you talk about, your words, 
grossly underfunded port security. I am glad to hear that, 
grossly underfunded; something that we think is key to an ugly 
scenario that could occur. You talked about the fact that we 
only have token police presence in our ports, your words, token 
police presence, again, probably a question of resources. You 
talk about the disorganized nature of the U.S. Government 
response in our ports.
    We have a lot of work to do. Well, it comes down to 
priorities and how we spend our money. In the view of a lot of 
us, we have not done our priorities correctly in this Congress 
and in this Government in terms of how we spend money, and we 
get down to discussions of, who gets tax cuts versus who 
doesn't, and how do you spend money?
    I hope that you all are sending a strong signal in the work 
you have been trying to do, Mr. Flynn, that we have tremendous 
work to do. As I understand, one option, going back to Mr. 
Weldon and how are we going to find something good to come out 
of this, there is a scenario out there that if this company 
makes it through this process, that they have stated that they 
are willing to negotiate to do enhanced security measures. I 
think you suggested, Mr. Flynn, that the Hong Kong model 
perhaps could be adopted by this company, and you would have a 
much broader study. Is that a fair description?
    Mr. Flynn. It is. I think that you will see a commitment by 
the players that join in that, so with these four companies, 
you would account for eight out of every ten containers coming 
into the United States. What you would be able to find is big 
dense objects. That is what we are really worried about. Once 
we put in a process of cost recovery and private players in it, 
you can upgrade; it, the new technologies come along, but the 
critical movement is move from a database analysis of what risk 
is, is something going on in the physical movement of the 
supply chain to validate low risk is low risk, and have 
processes in place to manage it. That doesn't exist today. We 
are in a situation analogous like airplanes never had black 
boxes in them, so when they fell out of the sky in the aviation 
industry, the Government said, well, happens one in a million 
times. We need better tools to know where the problem happened, 
where the breach has happened, so we can manage these incidents 
without losing not only the whole industry but the critical 
underpinnings that go with that.
    Dr. Snyder. I think another theme of your article is, I 
know I talk to my constituents back home, they want me to build 
a wall at the Port of New York. What you all are saying is the 
places to start looking are the trucks driving into the loading 
points in countries all over the world. We don't think like 
that. We still want to put up a wall. But if we put a wall, we 
haven't done ourselves any good. I hope that is another thing 
that comes out of your presence today, is we have got to start 
thinking about what is going on at the point that containers 
are packed and sealed and transported and loaded onto the 
ships. That is the crucial point in all this. Obviously, the 
unloading is a part of it, but we don't think that way. We 
still think we can put up this tremendous barrier.
    Mr. Flynn. As a practical matter, we have been deploying 
radiation portals at the exit gate of our marine terminals in 
the United States, and they have real limitations in terms of 
technology. The box is in the yard for 2 or 3 days, so if I 
wanted to set it off remotely and take out the port 
infrastructure, I could. So we want to get it before it gets 
loaded, before it is in the ship. We are going to have to do it 
with the cooperation of foreign private companies and our trade 
partners in the busiest places of the world. So I think we have 
to be careful in trying to close one potential loophole down, 
and there are potential loopholes. I would rather work from a 
security perspective with U.S. companies, with U.S.-owned 
infrastructures. I like that because I have law on my side and 
some assumptions of patriotism. But in the global world, we are 
in, given it is not that way, that is all the more reason to 
not have no minimum standards and no oversight but go in the 
other direction. We can't own all this global transportation 
infrastructure. We don't have the resources nor the 
willingness. But we do have the leverage of our market to get 
folks to raise the bar in the oversight process. We have a long 
ways to go, and this presents an opportunity to go in that 
direction.
    Dr. Carafano. He made a great point. In the 21st Century, 
nationality and geography don't guarantee you security. Only 
security guarantees security. I don't object to some of his 
solution, but the easiest way to smuggle something into the 
United States is to drive it across the Mexican border or put 
it on a noncommercial ship and land between a port. If some 
terrorist has something valuable he wants to get inside the 
United States, he is most likely to choose those venues which 
are cheaper and probably a lot safer than putting something on 
a container and getting it out of his control. And I think this 
is the criteria. If there is a business case for adding on a 
security measure, and I think that would be pretty apparent, 
then I think that is great because it is value added in lots of 
way, in terms of inventory, security against terrorism, 
security against theft. So if there is a business case for 
security measures, I think that is great, and I am all for it.
    But let us not--that ain't going to buy security from the 
terrorists. The best thing for security from the terrorists is 
going out and getting the terrorists.
    Mr. Flynn. There is a key point. We push it out so it is 
coming across the border, but we don't shut down the trade 
system. So identifying what part of these networks are most 
critical in finding safeguards is not a bad thing.
    Mr. Gaffney. That wasn't a rhetorical question to me, 
Congressman. I would like to address it quickly. I would argue 
that where you draw the line or think about drawing the line is 
what you do after an attack. Because my colleagues may be right 
that this is a very serious likelihood of somebody penetrating 
our ports and blowing them up. You have got a two-fer in most 
parts because not only a critical part of our economic 
infrastructure but a lot of population which surrounds it.
    The other part of this is, of course, you are going, I 
think, to find us throwing money at this problem after it 
happens, much as we have done about airports. I am simply 
saying, I don't think we have got all the money in the world to 
do all the things we want to do, so the sorts of suggestions we 
have made, there seems to be triage, applying sensible 
precautionary measures overseas and at home to try to make this 
particular avenue of attack harder for people who we know are 
trying to hurt us.
    The Chairman. I thank the gentleman.
    The gentleman from New Jersey, Mr. Saxton.
    Mr. Saxton. I would like to yield my time to Mr. Turner 
from Ohio.
    Mr. Turner. Thank you, Mr. Chairman.
    Thank you, Mr. Saxton.
    I appreciate you yielding time to me, and also, I 
appreciate your opening comments concerning the restriction of 
foreign investment and foreign ownership of assets in the 
United Arab Emirates.
    In your discussion, as you were talking about this, seems 
we have several different issues: We have the issue of 
security, and security can be both, what are we doing to 
protect ourselves at the port, and can we also then include the 
issue of, who owns them, who are they, what do they do there 
and how are they implementing security procedures? Issues of 
trust which we hear that also dissolve into the issues of 
relationship.
    When you go to the issue of relationships and ascertaining 
security and trust, you go to the issue of fairness and wanting 
a relationship with someone who has a relationship with you and 
not wanting to offend and wanting to strengthen partnerships in 
the future.
    One of the things I find interesting in the issue of the 
concept of fairness is that I asked my staff to pull 
information on the ownership interests, the foreign investment 
rules of the United Arab Emirates because I think that goes to 
a basic interest of fairness because I believe that we should 
not allow someone to buy something here that they won't let us 
buy it there.
    What Chairman Saxton listed were the ownership rules 
published in our National Trade Estimate Report on Foreign 
Trade Barriers by the United States Trade Representative which 
clearly lay out that not only could we not buy ports in UAE or 
American citizens not buy the ports in UAE, but we couldn't 
even own McDonald's. In fact, the McDonald's in UAE on its 
website proudly exclaims UAE-owned, operated and proud to serve 
you. It says: In the Arab nations, all McDonald's Restaurants 
are locally owned and operated by Arab entrepreneurs.
    When you look at these rules that require that if you are 
going to have an ownership interest, if you are a foreigner and 
have an ownership interest, an investment in the country of 
UAE, except for some minor exceptions, it requires that that 
asset, business enterprise, et cetera, be owned 51 percent by 
someone from the UAE, which means that if we were to apply 
their rules to their purchase of our ports, it wouldn't be 
happening. I have a bill that I am working on in conjunction 
with Mr. Hunter's bill on critical infrastructure that would 
require that especially government-owned entities, when they go 
to purchase and invest in things in our country, would be held 
to the same standards of their rules. We are not just talking 
about a UAE citizen or business entity, we are talking about 
the UAE government interest attempting to make an investment in 
a country where their own rules, the government's rules, 
prohibit it.
    I would like, if you would, to talk for a moment about that 
issue, because it seems that goes to the issue of fairness, an 
element that should be considered. It certainly distinguishes 
some countries from other countries. If we can't invest in 
their country in the manner in which they want to invest here, 
perhaps we should reconsider it.
    Dr. Carafano.
    Dr. Carafano. I think that is a fine debate for the 
Congress to have. If you want to debate our strategic interests 
in the UAE and our future trade and economic and foreign policy 
relationships, it is a great debate. It should be separate from 
the security debate because I don't think they are intertwined.
    I will just say this on the economic issue. Fundamentally, 
what you have here, not just with Dubai Ports World but all the 
foreign-owned maritime assets, you have foreign-owned companies 
coming in and investing in dilapidated infrastructure in the 
United States, hiring our citizens, increasing employment in 
the United States and building one of the marvels of the world, 
which is one of the fastest global maritime networks which 
makes imports cheaper because they move faster and makes our 
ability to expert things more competitive.
    Mr. Flynn. There is a lot of irony because the Port of 
Dubai was built by an American company and run by Americans for 
the first 10 years. They had a heavy military troop put on 
there. Sort of the nature and complexity of globalization, but 
I merely need to accentuate his point here about the 
investment. The most foreign-owned port in this country, in 
terms of leases, is the port of Los Angeles, which is about 90 
percent. It happened because when you turned to the citizens of 
the City of Los Angeles and said, are you ready to put in a $50 
billion bond to upgrade your waterfront so you can be a gateway 
to Asia, the answer was, I would rather put it in schools, 
roads, other things. So the option here for those folks were, 
okay, we won't have a gateway to Asia or we find somebody to 
bring capital to do that. To make that happen, you have to give 
them a 30-year lease. They dredge the channel, put the cranes 
in and make that possible for us to trade.
    So we are playing a bit with fire here. We would have to 
find the capital ourselves. Today, in China, a new port of New 
York and New Jersey is being built every year. And we are 
building virtually no new capacity. Trade is supposed to double 
in the next 15 years in terms of container traffic. Where is it 
going to go? Maybe through Canada or Mexico. That might be 
where we end up going with this.
    We need the infrastructure. What all this leads me to is, 
because it is private owned, we better have a damn high 
security bar and promoting it internationally to get us to a 
point where the critical system is secure. The ownership issue 
is certainly one that is worthy in the policy and leveraging 
this with the UAE as a foreign policy point is there, but if we 
are really focused, we should be using what we have got, the 
best security thinking about getting to where we want to go.
    Mr. Gaffney. Mr. Turner, I think the question is 
sufficiently important that I mentioned it earlier and 
complimented Congressman Saxton for raising it. I think it is a 
fundamental equity issue that we ought to have part of this 
larger debate, but I would just ask one other thing related to 
financing. I am bemused, to be honest with you, how CFIUS could 
have concluded its judgment about the national security 
implications of this deal when its deliberations were completed 
before the international financing of it was even started; $6.5 
billion of this $6.8 billion deal had been raised on 
international capital markets. How that exactly works in with 
the ownership limitations, I don't know, but I don't think 
CFIUS knows either.
    I would ask a classical question, follow the money: Have 
there been undertakings made that might give rise to still 
other questions here about ownership, about the rights that 
attend investment that bear upon questions like the ones you 
are asking but also questions like the ones I am asking? What 
about the security of these facilities? Could they be 
compromised if the security plans, for example, have to be 
shared with owners whose identity wasn't known, let alone 
disclosed before the CFIUS, first CFIUS process completed to 
the satisfaction of the executive branch?
    So I would encourage this to be part of the debate. I think 
the questions, as we have all talked about here, actually 
introduce a very far-reaching and perhaps possible debate in 
this country about whether we are comfortable with the level of 
globalization and what it has translated into in terms of lack 
of control and foreign presence in even critical 
infrastructure. But I think that is the debate we have got to 
be having, too, in addition to resolving the question of this 
particular deal.
    The Chairman. I thank the gentleman.
    The gentleman from Washington, Mr. Larsen.
    Mr. Larsen. Thank you, Mr. Chairman.
    I think what I am hearing in some respect today on the 
security side is that our currently layered approach to port 
security and supply-chain security is full of holes and gaps, 
and that security at our ports ought to be frankly as thick as 
flies at a picnic on a hot day, and what we have is a picnic 
and very few flies when it comes to security. I am talking 
about the ports in Washington State, a large focus ought to be 
on the port security and the supply chain security. I will give 
you some examples: GAO found less than 13 percent of our CT 
patent checks have actually been performed. They found, due to 
staffing imbalances within the Container Security Initiative of 
foreign seaports 35 percent of the high-risk containers are not 
even inspected overseas.
    So there are definite gaps, and I guess the headline here 
is inadequate; we have inadequate funding to assure adequate 
screening. As an example, the American Association of Port 
Authorities requested, their members requested, $3.7 billion in 
port security money from 2002 to 2005; $708 million was 
granted, leaving a gap of about $3 billion. I am not going to 
argue every $3 billion was necessary, but it is an 81 percent 
difference, and surely the funding is not there for port 
security or supply chain security for containers coming into 
the country.
    Mr. Flynn, I want to ask you a question. I went to Hong 
Kong International Terminals (HIT) in January and talked with 
the general manager, who is an American, a Washingtonian, in 
fact from Washington State, managing the HIT Terminal there in 
Hong Kong, about their pilot project. It is basically three 
steps: Check to be sure it is the right container; has got the 
right stuff in it; and there is no rad stuff, no radiation 
stuff in it. Basically those three steps.
    It is a pilot program. And in your writings, you have 
talked about perhaps Dubai Ports World adopting this program. 
You have also talked about the GreenLane maritime security act 
and what that put forward. Can you talk about the GreenLane act 
a little bit for this committee to help us understand the kind 
of actions that perhaps separate from talking about the CFIUS 
process, what we can do on the maritime security side of things 
to move the ball forward here?
    Mr. Flynn. I think the biggest thing is the market needs 
incentives for moving ahead, and they have to have confidence 
there is buy-in by all of the players, that what they invest in 
is going to be used in an appropriate way for security. What 
stalled out the investment of moving further on the Hutchinson 
Project is, legitimately talking with the group manager and 
director, he said why would I put in place a system that would 
cost me a half a billion dollars if Congress after the next 
incident is going to change the rules and tell me I need a 
different system? I need to buy in upfront; then I will make 
the investment, and the other players are likely to go along.
    The first thing is to have DHS respond to the initiative 
and say, this is how we could use it, and for Congress to say, 
this is a good step forward. We are not going to change the 
rules overall.
    Mr. Larsen. When we see DHS in a few hours, we should push 
this issue on them.
    Mr. Flynn. They are evaluating it now. A little slow to the 
take, but they are evaluating it, and I am very pleased the 
Deputy Secretary of Homeland Security is very much focused on 
getting an assessment here, and Jay Ahern, the field operations 
assistant commissioner, has been very engaged. So we are 
getting some positive movement here.
    The other is the importers want a level playing field. For 
most main players, it is nothing different than before 9/11, so 
it is hard to dangle a carrot when there is not much more 
capability or stick out there. So we need to make sure Customs 
is whole. If we move forward with this, we need Customs 
capacity. They don't want to be embarrassed to have a brand new 
capability, and they can't integrate a response. We have to 
create incentives for customers, and I think that is the 
essence of the legislation. And I know there are other ways we 
can talk about how to continue to improve it, but I hope it is 
about seizing opportunities here. We have got this in our 
crosshairs; this is a vulnerable system. What we should look 
for is the capacity at the Federal level and what the private 
sector can do and recognize it is going to be a global effort 
to get us where we need to go.
    Mr. Carafano. I would just say I think I agree with 
everything Steve just said. I will say I don't know if it is 
inadequate funding on the part of the Federal Government. I 
will say it is incredibly wrongheaded funding. We have thrown 
money at the things that have the loudest and strongest 
stakeholders and not at the things that are most important.
    So we grossly underfunded the Coast Guard. We haven't 
funded the chemical biological defense (CBD) infrastructure and 
human capital to make CSI and C-TPAT programs really effective. 
On the other hand, we have thrown millions and millions and 
millions of dollars in port security grants which by and large 
I don't think are the best bang for the security buck. If you 
look at the Department of Homeland Security Inspector General 
(DHS-IG) report on some of the things, even at the end of the 
day, okay, you would find is not a really big help in terms of 
making the domain safer. We need to spend money on the things 
that make the domain safer.
    Some of the initiatives Steve mentioned, absolutely, that 
is fine; Coast Guard, absolutely, that is fine; having the DHS 
people do its job. But just giving out money to people to be 
cool, that is not helping.
    Mr. Larsen. Thank you.
    I just want to make a final point on the Container Security 
Initiative. As an example, if we don't fund the CSI, which is 
the Container Security Initiative, which is our worst 
nightmare, that we will have another CSI, that is crime scene 
investigations of the worst kind at all our ports. So we really 
need to step forward on all these issues by CSI and C-TPAT and 
make these work.
    The Chairman. I thank the gentleman.
    And the gentleman from New Jersey, Mr. LoBiondo.
    Mr. LoBiondo. Thank you, Mr. Chairman.
    I really want to thank our panelists here today.
    I have a couple of comments at the end, but, first, Dr. 
Carafano, I know how you feel about port security grants. But, 
Mr. Flynn and Mr. Gaffney, how do you feel about port security 
grants?
    Mr. Flynn. I think clearly there needs to be a debate here 
when you have some real equity issues. Particularly I will 
speak to L.A. Long Beach but certainly also Port Newark or Port 
Elizabeth. L.A. Long Beach brings in about 40 percent of all 
the containers that come into the country. Asking Los Angeles 
County property tax owners to be responsible for the physical 
security and access control and so forth seems to be legitimate 
equity issues.
    The other challenges here are that, in the absence of 
national standards, when a port sets a higher bar they have to 
take out all their capital investment fund or try to pass it of 
off to the lessees, which raises the costs, which pushes the 
business to another port.
    So one of the problems here is we have not agreed upon 
minimal national standards, and then we haven't really had the 
conversation of who should ante up what. We essentially have 
gone through an approach that says, states and locals, you know 
best. Well, the State of Maryland knows that putting up 
cardboard boxes as a closed circuit TV as a deterrent may work 
for a 13-year-old, but it is unlikely to be a good 
counterterrorism device.
    So they are in a dilemma. Do they use their capital 
improvement in order to keep pace with Norfolk or do they hoist 
the cost on?
    We need to set national standards, and we need to have a 
conversation about who pays. And we shouldn't do by just by, 
well, you guys come up with it and compete and some decision is 
made. People, frankly, at DHS don't know much about ports 
making decisions. Well, this sounds kind of cool. That is not a 
way to do things, and that is how we have been doing it.
    Mr. Gaffney. Congressman, I don't have a whole lot to add 
to that, though it does seem to me this is part of a larger 
problem we have been talking about this afternoon and really 
for the past two weeks; and that is, oh, my gosh, you mean the 
ports aren't secure? And you are seeing people suddenly, I 
think, focusing on the kind of constructive attention that is 
needed, whether it is in terms of national standards or in 
terms of new technologies, whether it is in terms of the 
overseas component being kicked up to a higher priority, 
whether it is better fences, whether it is better surveillance, 
whether it is whatever.
    It seems to me that this is really the moment now, for all 
of you, in particular to capitalize on this intense energy and 
engage the public in the sort of debate, as I said in response 
to Congressman Snyder, that you will be having after an attack, 
except before attack, and maybe thereby prevent it from 
happening.
    I think this is the way to address this, as a matter of 
that kind of opportunity and urgency; and whether it is local 
grants or whether it is going to be a national standard, I 
don't--I am sure there is something to be said for both, but 
there is a moment here where we still have, I believe, the 
opportunity to do it better than we have been doing it. I hope 
that the upside of the trauma that we have clearly created with 
the debate about the UAE ports is going to catalyze that kind 
of constructive outcome.
    Dr. Carafano. I don't want to be on the record for arguing 
that it is zero money for port security, because that is not 
what I am saying. I think that there should be a Federal port 
security program. Because there is a captain of the port. He 
comes to the table. He is trying to get people in this port to 
cooperate. He has to have some carrot to come to bring to the 
table to facilitate cooperation. So I think there should be 
some port grant security money.
    I do think it should be targeted on the most critical 
avenues to keeping the maritime security system robust. So I 
think I would be spending a lot more money in places like L.A. 
and New Jersey and Long Beach than I would in small ports in 
some other States.
    And the third thing which I think--Steve's point is 
absolutely essential. What we need most of all is a predictable 
business case. Because I talk to people, and they say, well, we 
are not going to do anything because we will wait until next 
year because maybe there will be some port security money. What 
I found is that for most of these guys if there is something 
that really needs to be done in a port and it is a real 
vulnerability, they are not sitting around waiting for the 
Federal Government to pay for it; and the other stuff is, let's 
sit around and see if we get something.
    So whatever we do, we need to have a national program that 
allows--because these guys are making 30-year infrastructure 
investments where they can credibly see what the Federal 
Government is going to kick in and what it is going to kick it 
in for and what they can do, so they can make sound business 
decisions.
    Mr. LoBiondo. Thank you, Mr. Chairman.
    What we are hearing today is really good information, but 
the Coast Guard Committee has been talking about these things. 
Mr. Flynn came before us. We have had testimony from everybody. 
Office of Management and Budget (OMB) acts like they are our 
enemy when it comes to funding the Coast Guard. We fight with 
Appropriations on Operation Deep Water when we have got cutters 
that are disabled every day and aircraft that can't fly. This 
Congress will not put its money where its mouth is about port 
security.
    Gene Taylor and a number of members have joined with us to 
do something. We have spent $25 billion on the aviation side, 
with less than a billion dollars on the port side; and with the 
current funding structure that is proposed, it will take us 
more than 60 years to make that up, to get to the minimum that 
DHS and Coast Guard has recommended of $7 billion dollars. What 
is really disheartening is if this attack takes place you will 
see that money appropriated tomorrow, after how many lives are 
lost and how much destruction is wreaked and how much of the 
global economy is wrecked. What do we have to do to get the 
attention, to get some action?
    So our panelist is spot on. I thank you.
    I hope somehow, Mr. Chairman, you will join other members 
of this committee that have the power of persuasion, because, 
obviously, we have not found the right combination to get the 
word out that the Coast Guard is terribly underfunded; and if 
we can fund them, we can fund port security. Thank you.
    The Chairman. I thank the gentleman, and I thank him for 
his leadership in this important area.
    I would just say that, in my view, we should and we could 
have 100 percent cargo scan. I think it is achievable, and I 
think one way to achieve is it is to charge the guys that are 
bringing the stuff in. I know that is an anathema to the 
commercial free trade community, but that makes sense, and user 
pays is a fairly accepted custom.
    I agree with the gentleman that we have got to increase 
that capability. So let's work together and try to get it done.
    We have got one more. Mr. Taylor had a question of this 
panel. We are going to go to Mr. Taylor. Then we are going to 
go to the next panel, and we will take up with people that 
haven't had a chance for a question with the next panel.
    Gentleman from Mississippi.
    Mr. Taylor. I would like to thank you gentlemen for being 
here. I think all of you raised a valid point. Mr. Gaffney, I 
am with you.
    I deeply regret to say I think it is going to take a 9/11 
type maritime industry based disaster for our country to do 
what we should be doing right now.
    I am going to get on a plane tonight. Now the Nation is not 
going to pay for my ticket, but the Nation is going to pay 
about 5 bucks to pay for that screener for me to get on the 
plane. If we are willing to do that to individuals every time 
they buy a ticket, why can't we ask corporate America to pony 
up just a little bit to see to it that those approximately 
20,000 CEUs that come into this country--I am sorry--20 million 
CEUs, container equivalent units, come to the country that 
there is some safety to them?
    I am pleased to hear that all of you are showing these 
concerns. But, you know, if you think about it, this is the tip 
of the iceberg. I mean, can't we as a Nation get upset that we 
owe the Communist Chinese $300 billion, $256 to Communist 
China, another $150 or so to Hong Kong?
    Today in New Orleans, in Pascagoula, Mississippi, foreign 
flag cruise ships with sailors from who knows where are taking 
care of our FEMA folk. Our Government is paying them to take 
care of folks that lost their houses in hurricanes instead of 
an American flag vessel.
    On a daily basis, the people ask for Jones Act waivers. The 
law that is going all the way back to the earliest days of our 
republic that we are supposed to provide for the safe coast-
wide commerce and security of our ports, that they be American-
owned, American-crewed, American-manufactured, on a daily basis 
they get waivers.
    Right now there is a French firm called Verbone that, 
through a clever manipulation of the banking process, owns 
supply boats that operate in the Gulf of Mexico. Now when 
someone sees they have done it, what is to keep the Koreans 
from doing it or the Iranians or whoever?
    So, again, I think you have raised some very, very valid 
points.
    One thing I think you missed, and it is just piling on with 
how scary this is, when I was a kid, I was a stevedore on the 
docks in New Orleans, miles and miles of wharves, each of them 
offloading ships that, by and large, could load and unload 
themselves. Now most of those docks sit idle because all of 
that has been consolidated to a few container cranes. So if you 
own the container crane and you choose not to load a military 
sea lift command vessel--remember, we have not declared war 
since 1941. We are relying on the good will of those ports to 
load our vessels or unload vessels, as the case may be. So if 
you are a foreign operator and you choose not to make your 
facility available, you can certainly throw a heck of a monkey 
wrench into any operation that the American military chooses to 
carry out around the world.
    So, again, I welcome your thoughts on that. I am sure there 
are places where the President can step in, but I have noticed 
that, particularly in the aftermath of the storm, our Nation 
has stepped in and made tough decisions that involved the lives 
of people not very often and not very well.
    Mr. Flynn. I might say on the last point here, particularly 
in prosecuting the war in Iraq, the Department of Defense has 
been extremely dependent upon foreign flag vessel container 
ships and foreign terminal operators to move material. When 
Turkey basically closed out its base, it was a company, 
Hutchison Port Holdings, in Rotterdam that made available the 
real estate for the free deployment of it. So you are dealing 
with relationships here with private actors and foreign actors; 
and, like anything, trust has got to be built up.
    But I want the verification because it is private owned, 
because we lost this capability. We are 30 years behind now. It 
is a bit like trying to resurrect JC Penney and say go take on 
Wal-Mart by saying let's try to recapture America's Merchant 
Marine and put it back. I wish that weren't the case. I love 
ships and love that heritage. When I came into the service in 
the Coast Guard in 1978, you know, I thought there would be 
something to go into, and it is not there anymore.
    But, that being said, as a security and going on global we 
want to build this capacity into the system.
    I point out on the fee thing here the good news about doing 
this and loading ports is the nature of the beast is a terminal 
operator can't just select U.S.-bound goods. It is just too 
complicated. He has to do it for everybody.
    So instead of being 40 bucks a box for U.S.-bound goods it 
would have impact on our competitiveness. Everybody has to pay 
the same fee, and that also is very useful for 
counterproliferation purposes. You can't get from North Korea 
to Iran by saying, Scotty, beam me up. You move to the system. 
You don't come to our borders. Visibility in the system would 
have a huge asset. But you not only have to cooperate with the 
people who own it, but trust, but verify.
    And that is what we need is a system to do that. We have 
just the trust part right now, and there is reason to be 
squeamish if that is all we have.
    Dr. Carafano. I agree with Steve. Trust but verify is 
absolutely the way to go. And the good news is, although a lot 
of this infrastructure is foreign owned, it is a very, very 
competitive environment. There is lots of people doing this, 
and everybody wants your business. And if you do find a partner 
one day that violates your trust, it is not hard to switch to 
another guy. So it is a different kind of foreign dependency 
than, for example, if somebody is making a tiny transistor that 
without that transistor you can't have cruise missiles. 
Somebody is operating a facility in a port in the United States 
today and you don't like how they do business, there are other 
people that would love to have that business and can do it just 
as effectively, if not better. So it is, in a sense, a buyer's 
market.
    Mr. Gaffney. I had the privilege of working with President 
Reagan at the time when he was talking about trust but verify; 
and with the greatest respect to a President I loved, I always 
thought that was a little bit cockamamie. I think you have to 
be skeptical, healthfully skeptical about people that you have 
no reason to trust or who you in fact in some cases have reason 
to distrust. Verification is important, but skepticism first, 
and then prove that indeed your trust is warranted.
    I mentioned in my remarks Beaumont and Corpus Christi has 
two ports that somehow simply never get thrown into the mix of 
the six that we are told are going to be affected by this. I 
believe it is a matter of record that the United States Army 
has contracted with P&O to move materiel through those two 
ports. There is an example of a place where you might or might 
not have cooperation. Those are ports, as this committee knows 
better than anybody, where we are moving heavy armor and 
helicopters and other equipment to places like the Persian 
Gulf.
    It also is a question--again, just going back to I think 
why we are here, perhaps a minority of you on this panel, but I 
sense a majority of you within the committee--is that a set of 
facilities that you most especially want to take risks with, 
the personnel, cargo information, and security planning? And my 
suggestion to you, sir, is not in those two ports, not in the 
other six ports, and not in the remaining whatever it is, 10 or 
12, that I think are also in play here.
    Without in any way, shape or form disregarding or 
disagreeing with my colleagues about the other parts of the 
system and the other mechanisms we need to bring to bear and 
the idea of a multi-faceted approach, those are all, it seems 
to me, eminently sensible and part and parcel of what I am sure 
this committee and its counterparts are going to come up with.
    It is just, to leave you with a final thought, I guess that 
I think this is a hard problem right now; and we should not 
voluntarily take steps that I think will--predictably will make 
it harder, maybe marginally and maybe dramatically.
    The Chairman. Thank the gentleman.
    We are going now--we are going to move to the next panel, 
but let me ask this panel if you can stick around if you have a 
chance and have the opportunity to maybe listen to the next two 
panels, we might have a couple of questions at the end.
    Mr. Langevin had a statement, not a question, he wanted to 
simply address before you folks move off the dais. Gentleman is 
recognized.
    Mr. Langevin. Thank you, Mr. Chairman. I will be brief. I 
think we have covered a lot of ground here today, and I am 
going to forgo asking questions so we can get to our next 
panel.
    This discussion today has been exceptionally helpful, and I 
really want to thank you all for your contributing here today. 
I just will end with this, that I, for one, am not a fan in 
support of this sale going through, for a variety of reasons. 
But I will say that we can perhaps look at and evaluate such 
sales primarily from a financial standpoint, and I think that 
is really what happened here. Yet, in a post-9/11 world, that 
is just simply no longer possible, that we have to evaluate 
these types of sales primarily from a security perspective.
    And you know if people had confidence that we were doing 
everything we could to do to secure our ports, perhaps this 
wouldn't be such an inflammatory issue. But we are not. And we 
have to do a better job, obviously, of giving both the Coast 
Guard and Customs and Border Patrol the resources that they 
need.
    Mr. Carafano, you said in your testimony that ownership 
really isn't the issue, that irrespective of who owns the ports 
that individuals who want to target us can and will infiltrate 
at very low levels. That may very well be true. But security, 
as you recognized and you have acknowledged, requires a multi-
level approach, and we ought not be giving our playbook to 
those that might wish us harm.
    Mr. Gaffney, you got it right in your third point, your 
opening statement, that if this sale happens, Dubai or any 
company who owns this port will know about our security 
procedures. We cannot let that happen.
    So I hope this serves as a wake-up call to all of us that 
we better redouble our efforts to do a better job of securing 
our ports and our borders. This discussion was helpful today, 
and I want to thank you for your testimony.
    The Chairman. I thank the gentleman.
    Mr. Marshall wants to make a brief statement here and would 
ask a question before we go to the next panel.
    Mr. Marshall. I appreciate, Mr. Chairman.
    I found your comments to be immensely helpful to me. I 
think all of us did as well. It would be even more helpful to 
me if you did as the chairman requested, and that is stick 
around, listen to what is said by the next panel and following 
panel, and then I would like to hear your comments about what 
has been said.
    I would specifically like to hear, after you have heard 
what others have to say about the subject, hear things that we 
might ask you be done by DP, by the Federal Government, in this 
instance, as a condition to approving this deal, those sorts of 
things that you think are practical and would be helpful in 
light of the current circumstances.
    You are the experts. You have great ideas concerning how we 
can improve our security, which I think, frankly, is what we 
ought to be about with regard to this particular inquiry. It 
seems to me we have a real opportunity here that we ought not 
to let pass by. We ought to take your guidance. So if you can 
give us your guidance after listening to all these folks that 
would be real helpful. Thank you.
    The Chairman. I thank the gentleman, and we have only got 
three people who haven't had a chance to ask a question of this 
panel. Does anybody else have a feeling they want to make a 
statement to the panel before this panel exits? Okay.
    Gentlemen, thank you. We have had an interesting and very 
instructive discussion here. Hang tough, if you can; and we 
will invite the next panel, the second panel to come on up.
    We are going to hear from--the committee is going to hear 
from the officers of DP World. We have Mr. Edward H. Bilkey, 
Chief Operating Officer at DP World; Mr. George Dalton, General 
Counsel of DP World; Mr. Michael Moore, Senior Vice President, 
Commercial, DP World; and Mr. Robert Scavone, Executive Vice 
President For Security, P&O.

 STATEMENT OF H. EDWARD BILKEY, CHIEF OPERATING OFFICER, DUBAI 
PORTS WORLD; GEORGE DALTON, GENERAL COUNSEL, DUBAI PORTS WORLD; 
 MICHAEL MOORE, SENIOR VICE PRESIDENT, COMMERCIAL, DUBAI PORTS 
 WORLD; AND ROBERT SCAVONE, EXECUTIVE VICE PRESIDENT, SECURITY 
     PENINSULAR AND ORIENTAL STEAM NAVIGATION COMPANY (P&O)

    The Chairman. So I understand Mr. Bilkey has a statement 
and then Mr. Scavone.
    Gentlemen, thank you for being here with us. Mr. Bilkey, I 
understand you are going to make a statement; and then Mr. 
Scavone is going to make a follow-up.
    Mr. Bilkey. Yes, Mr. Chairman, with your permission.
    The Chairman. Can you pull that microphone a little closer 
and make sure it is turned on there.
    Welcome, gentlemen. I think you had an opportunity to 
listen to our first panel. I think you understand the concern 
of the committee, and we look forward to your statement.

                 STATEMENT OF H. EDWARD BILKEY

    Mr. Bilkey. Thank you, Mr. Chairman.
    My name is Ted Bilkey, and I am the Chief Operating Officer 
of DP World, and I commend you for holding this hearing. DP 
World welcomes the opportunity to get the truth out so that 
Congress and the public can better understand the facts 
surrounding our acquisition of P&O Ports North America.
    By way of personal background, I grew up in New Jersey and 
New York. I served as an officer in the U.S. Navy. I have 
worked in the ports and shipping business for over 45 years, 
starting on the docks of Brooklyn and Newark.
    Also on a personal note, it is an honor for me to appear 
before this committee of the United States Congress. My 
grandfather, Joseph S. Frelinghuysen, served as a Senator from 
New Jersey on the Senate Committee on Coast Defense. Indeed, 
every generation of my family, from the earliest days, have 
served in the Senate, House of Representatives, or as Secretary 
of State.
    Let me start by giving a little background on DP World. DP 
World, before this acquisition, is the seventh largest port 
terminal operator in the world. We manage 19 container 
terminals, four free trade zones, three logistics centers, one 
of which is the biggest in the world. It is bigger than the 
Pentagon and handles 7,000 truck entries and exits a day in 
some 14 countries.
    Our Jebel Ali facility in Dubai handles more container 
freight than all the ports of the east coast of the United 
States combined. We operate on a strictly commercial entity but 
are owned by the government of Dubai. Our management is truly 
international; and, last week, Lloyds List voted DP World as 
the best port operator of the year in 2005.
    DP World has a long and rich history of supporting the 
global operations of the U.S. military. These include 
operations in support of the U.S. military in Germany, Djibouti 
and Dubai; and I would like to give some examples.
    We have dealt with the U.S. Navy for over 2 decades in 
Dubai. We have allowed the U.S. Navy to station an officer 24/7 
in our control tower, which is highly unusual. He has a 
panoramic view of the harbor and any potential threats.
    We allow the U.S. Navy to provide its own security for 
having two high-speed gunships that are heavily armed. This is 
a most unusual arrangement which shows strong commitment and 
strong trust.
    We have given the U.S. Navy a lease of highly secured land 
to stow its cargo and rework its volume.
    We have created a high security bunkering operation that is 
fueling in Djibouti that hosted its first vessel, the cruiser 
USS Vicksburg, just a week ago. It is a very secure refueling 
station in the Red Sea which is highly prized; and, frankly, 
one of the motivations for building it was the knowledge that 
the U.S. Navy needed a facility in the area.
    We have hosted over 500 vessel calls in Dubai of U.S. Navy 
warships.
    In Fujairah today we have the main transshipment points for 
the U.S. Army's Afghanistan operations. Cargo comes in on roll/
roll off vessels, and we provide a high security area blocked 
off by containers and patrolled by the U.S. Army. We then 
containerize the rolling stock for movement to Karachi and on 
to Afghanistan. Whenever battalions change, we go to work to 
move the cargo efficiently. We do the same as battalions leave 
Afghanistan for home.
    In the last Gulf War, I personally set in motion the 
arrangements for the first aircraft carrier to enter the berths 
of Jebel Ali, and it solved a major logistic problem because 
all the crews and all the supplies have to be moved on tugs and 
tugboats off shore.
    Mr. Chairman, I believe we have distributed some pictures 
for the panel and the committee that I have here. I believe 
they have been distributed earlier.
    The Chairman. We will ensure that those get distributed.
    Mr. Bilkey. Thank you, sir.
    Just a quick note on the general shipping trend. The 
shipping and ports business is becoming increasingly globalized 
and consolidated, and DP World is determined to acquire P&O for 
commercial reasons based on its strong management team and 
complementary geographic fit. It is important to understand 
that this is a $6.8 billion transaction involving assets all 
over the globe in 51 terminals when they are combined with our 
own present ones. The U.S. operations of P&O--P&O Ports North 
America--constitute approximately 10 percent of the overall 
value of the transaction.
    It is also important to understand that it has also been 
our intent to operate P&O Ports of North America as a 
separately incorporated U.S. legal entity, using its long-
standing reputation and management structure and personnel to 
the maximum extent possible. As a smaller entity, acquiring a 
larger entity, DP World needs the existing talent and expertise 
of the P&O Ports North America team to run these operations.
    I would now like to try to dispel a couple of myths and try 
to establish some facts.
    First, we are not acquiring or taking over U.S. ports, as 
some people have claimed. U.S. ports are owned by local 
governments or port authorities, which is a fundamental fact 
that seems to have been totally distorted. Rather, we act as an 
operator who has a license or a lease to operate a particular 
terminal within a port. The terminal operator is responsible 
for the area within a port that serves as a loading and 
unloading transfer point.
    Second, the transaction does not involve an outsourcing of 
U.S. security, as some have alleged; and I will defer to the 
Department of Homeland Security or my colleague from P&O Ports 
in charge of security, Rob Scavone on my left here, to describe 
in detail how port security operates within the U.S. suffice it 
to say, security is a many layered approach, with the U.S. 
Customs and Border Protection and Coast Guard taking leading 
roles; and a terminal operator is one piece of a complex 
picture.
    DP World and P&O Ports North America actively participate 
in various U.S. government-sponsored initiatives. These 
programs include:
    The Customs-Trade Partnership Against Terrorism;
    The Container Security Initiative, which I believe you have 
heard about before and to me is one of the ones which should be 
looked at with great attention. In fact, the United Emirates 
was the first country in the Middle East to join that 
initiative, and we actually operated with some very unique 
capabilities that are not in all of the CSI locations.
    The Business Alliance on Smuggling and Counterfeiting;
    The so-called ISPS, International Maritime Organization on 
Port Security. All our ports are ISPS authorized and regulated.
    And the Megaports Initiative with the Department of Energy.
    DP World is expressly committed to continuing and, as 
appropriate, expanding its commitment to these programs.
    Third, some people have charged that DP World enforces the 
Arab League boycott of Israel. I would like to answer that, as 
a terminal operator, we do not operate in a capacity that 
involves us in boycott issues at all. DP World does not 
discriminate. DP world is a global port management company that 
facilitates trade with many nations. Our company has long-
standing business relationships with all the major shipping 
companies, including Israeli companies, among our diverse 
international clients; and actually Zim Lines is one of our 
larger clients and a highly valued one.
    Further, let me assure you that, consistent with our policy 
of corporate compliance, the U.S. operations of P&O will fully 
comply with both the letter and spirit of the U.S. anti-boycott 
regulations to which they are subject. We comply with the laws 
of all the countries in which we operate.
    Fourth, DP World did not obtain U.S. Government approval of 
its acquisition of P&O Ports North America, as some people have 
stated, secretly in the dead of night or without adequate 
review. This is a total misrepresentation. There is an explicit 
process administered by the Committee on Foreign Investments in 
the United States, CFIUS, which we have all been talking about, 
mandated by Congress and the Defense Production Act and by 
Department of the Treasury regulations. In point of fact, CFIUS 
actively reviewed the transaction for almost 3 months.
    DP World first met with CFIUS staff on October 17, 2005. 
Two weeks later, we held a face-to-face meeting with certain 
key CFIUS member agencies, including the Department of Homeland 
Security, Custom and Border Protection, Coast Guard, Department 
of Justice and Department of Commerce. We provided detailed 
information on the proposed transaction to CFIUS, which had 
already commenced its review and analysis of the transaction.
    We subsequently met on December 6th, 2005, with all member 
agencies of CFIUS. This was not required. It was suggested, and 
we readily said we would like to do that. I personally flew in 
from Dubai to participate in that meeting with our Senior Vice 
President for Operations for Europe and the Americas and our 
senior officer responsible for overseeing security.
    Further, during this period, the transaction received 
considerable coverage in the press in the United States and 
Europe.
    We filed CFIUS notification in December 15, 2005; and CFIUS 
commenced a 30-day review, as required by statute. During the 
course of that review, CFIUS asked us to memorialize certain 
undertakings we had voluntarily made in our notification, as 
well as others at their request. These letters formed the 
Letter of Assurances dated January 6th.
    Among these undertakings were seven additional express and 
legally binding commitments that were absolutely unique to our 
transaction. We did not object. We looked at them. We thought 
that, well, this is a little excessive, but it didn't make any 
difference to us. If this is what people wanted, fine, it 
wasn't going to affect our business.
    Based on this review and the Letter of Assurances, on 
January 17, CFIUS issued a formal letter of no objection, 
completing its CFIUS review and allowing the transaction to 
proceed.
    I think it is important to understand that in reliance on 
the U.S. Government's clearance, DP World took the necessary 
legal steps required under the UK takeover laws to complete its 
purchase of P&O on a global basis.
    In conclusion, I respectfully submit that DP World is a 
company that in good faith sought to comply with all applicable 
U.S. legal requirements and, having been told by the U.S. 
Government that we met those requirement, now find itself in 
the position of being told that was not good enough.
    Nonetheless, we fully recognize that there are now concerns 
in Congress and among the public about DP World's acquisition 
of P&O's terminal operations. DP World has therefore 
voluntarily acted to assure people that the security of the 
United States will remain strong. Specifically, on February 26, 
we voluntarily issued a legally binding ``Hold Separate 
Commitment'' under which the management and control of P&O's 
North American operation will be held in suspension without 
direction or control in any way from DP World until May 1st, 
2006, in order to allow additional review of DP World's 
acquisition of P&O Ports North America.
    In addition, at the same time, we requested CFIUS to 
conduct a review, including a full 45-day investigation of the 
acquisition. We stated we will abide by the outcome of that 
review.
    The Hold Separate Commitment contains a number of specific 
obligations, including maintaining P&O Ports North America's 
current management and having a U.S. citizen serve as its Chief 
Security Officer for P&O Ports North America, as is the case 
today with Mr. Rob Scavone on my left.
    We are confident that further review by CFIUS will confirm 
that DP World's acquisition of P&O's U.S. operation does not 
pose any threat whatsoever to America's safety and security.
    I would like to say if there is any good to come out of 
this experience, perhaps it is that both Congress and the 
executive branch will take a closer look to upgrade port 
security and increase funding for these efforts. DP World 
strongly encourages such efforts and looks forward to working 
with you to achieve them.
    I firmly believe that the security of our country, the 
United States, is well served and, in fact, enhanced on 
numerous levels by allowing this transaction to go forward and 
working with DP World's global 51-terminal network as a 
responsible partner in securing security at home and abroad. 
Especially for us, we could never afford to have a bad security 
incident. Security is everybody's business.
    I thank you, Mr. Chairman and the committee members.
    The Chairman. Thank you, Mr. Bilkey.
    [The prepared statement of Mr. Bilkey can be found in the 
Appendix on page 146.]
    The Chairman. Is it Mr. Scavone? Is that the correct 
pronunciation.
    Mr. Scavone. Scavone.
    The Chairman. Thank you, sir. For being with us today. I 
understand you are the officer in charge of security for the 
company which is making a transfer.
    Mr. Scavone. Yes, sir. The company that is being acquired.
    The Chairman. Company being acquired. And pull that mike a 
little closer there if you could.

                  STATEMENT OF ROBERT SCAVONE

    Mr. Scavone. Mr. Chairman and members of the committee, my 
name is Rob Scavone. I am Executive Vice President of P&O 
Ports. I will take just 2 minutes to reference the main points 
in my submitted written remarks.
    The Chairman. Without objection, all your written 
statements will be taken into the record.
    Mr. Scavone. As the person responsible for our company's 
security, of course it is my business to know how it works on 
the ground inside our terminals. I also know that the way our 
security works is not going to change if control of our parent 
company changes hands. I know this not only because DP World 
has made undertakings to this effect but also because there is 
no practical way to change it in a way that would erode our 
security.
    You may have seen that when security experts are queried on 
this question, the overwhelming majority agree with that 
assessment. Here are some reasons why.
    Even after control of our parent company in London changes 
hands and the current 45-day review period has lapsed, the P&O 
organization in the U.S. will remain in place. DP World has 
committed to retaining the existing managerial staff and to 
involve the U.S. Government in the event any replacements are 
appointed in the area of security.
    Inside a terminal, only longshoremen perform any physical 
work on containers. We employ approximately 6,000 every day. 
Therefore, the same people who manage these responsibilities 
for us now will be the ones who do it next month and the month 
after that.
    These functions are not directed from abroad, nor are they 
electronically accessible from abroad, and that is not going to 
change.
    The Coast Guard and Customs continue to be responsible for 
all security measures relating to the entrance of persons or 
goods into the United States. Those agencies maintain a 
presence in the ports and work with port and local police. Our 
terminals work in close corporation with those authorities 
every day.
    The statement that the security of our ports is being 
outsourced is simply not the case. It is not outsourced now, 
and nothing will change if our ultimate ownership changes 
hands.
    In conclusion, I would like to add that the continuous 
improvement of the security of our supply chain across the 
globe is a goal toward which I personally work with industry 
colleagues--including such persons as Mr. Flynn, who spoke 
earlier--every day. In so doing, we wrestle with the means to 
improve areas we feel be are not yet where we need to be; and I 
can say with certainty that none of those areas have anything 
to do with which port operating company happens to own P&O 
Ports.
    Thank you.
    The Chairman. Mr. Scavone, thank you.
    [The prepared statement of Mr. Scavone can be found in the 
Appendix on page 156.]
    The Chairman. Mr. Bilkey, thank you for your opening 
statements; and we will go to Mr. Kline, who is next in line, 
for questions.
    Mr. Kline. Thank you, Mr. Chairman; and thank you, 
gentlemen, for being here today.
    We just had another panel for the last 2 and a half hours 
that discussed security issues in general, maritime security 
issues; and some concerns were raised--and, clearly, you 
wouldn't be here if concerns hadn't been raised--by American 
people from coast to coast. Specifically, it was suggested that 
we ought to be concerned with the new ownership about issues 
revolving around personnel, security planning execution and 
cargo. In your statements, you have addressed those to some 
extent. Both you, Mr. Bilkey and you, Mr. Scavone, have talked 
about those. But let's play a scenario here.
    It has been suggested by some of my colleagues that the 
owners, whoever owns this, the ultimate owner, would have 
access to all of the security plans and would be involved in 
the security planning process and that should cause us some 
concern. Can any one of you address that specific issue, the 
ultimate ownership, Dubai, UAE, being involved in or having 
access to the security plans at an American port?
    Mr. Scavone. I would be glad to, Congressman.
    First of all, of course, the ports themselves, which are 
managed by, in a typical case, port authorities have a port 
security plan to which we do not have access.
    Mr. Kline. You do not have?
    The Chairman. Can you pull that microphone a little closer? 
It is worthwhile to go back over that because that is 
important.
    Mr. Kline. I am coming from essentially no knowledge in how 
port security works. So P&O now operating these American ports 
has no access to security plans? Explain how that can be.
    Mr. Scavone. I will explain in a little more detail. The 
ports themselves, the port property and the area by the port, 
is typically owned by a port authority or some typical 
government authority; and the port itself works with the Coast 
Guard for an area or port security plan. That would encompass 
the entire area of the port. We do not operate the port. Any 
port would typically--that we have a facility in, we have by 
virtue of a lease or a concession.
    So take the port of Newark, New Jersey, as an example. 
There are five container terminals, any number of break bulk 
terminals, barge terminals, terminals of all sorts; and one of 
those is leased by us in a joint venture with another partner 
which happens to be Maersk Line, the Danish shipping company.
    The Coast Guard requires that, as part of our contribution 
to the layered approach to security, that we develop a plan 
primarily for access control in and out of that, the perimeter 
of our terminal. That has to do with access of persons, 
vehicles or cargo.
    We develop the plan. We submit it to the Coast Guard. The 
Coast Guard reviews it, either comments on it or approves it; 
and then it is settled. We--our terminal in Newark actually 
happens to be the very first plan that the Coast Guard ever 
approved in the Nation.
    The plan relates exclusively to measures such as that. They 
are not actually not unlike the security measures you might 
expect any common industrial facility to have with access 
controls, the difference being that the Coast Guard has the 
right to audit those plans and to enforce your compliance with 
those plans, up to and including shutting you down if they 
don't believe you are properly observing these plans.
    Mr. Kline. Thank you. I am going to have a red light here 
shortly.
    Let's talk about personnel for just a minute. The 
assumption of concern is that we are in a war with radical 
Islamic fundamentalists and there may be some sympathy 
somewhere in Dubai or the UAE, two or three or four or five 
people who could apparently then be transferred to one of these 
ports and put into a place where they could be--a janitor was 
suggested or something else--and there would be a leak in the 
personnel sieve. Could you address that issue for us, please?
    Mr. Scavone. Yes, sir.
    First, as has been mentioned, a commitment has been made to 
keep the current management in place. Longshoremen are not--we 
don't hire longshoremen. The union hires longshoremen, and they 
are sent to us. So we order a complement of workers, and they 
get sent to us by the longshoremen. So they are not within our 
influence.
    And DP world, as I said, has made a commitment that 
replacements of any of the existing management would be vetted 
in cooperation with the U.S. Government, bearing in mind that 
unless you are the facility security officer of the company you 
don't have access to the facility's security plan that the 
Coast Guard has negotiated or approved because that plan is 
kept under lock and key and the person who has the key is the 
facility security officer.
    Also, you don't have access to the manifest information or 
the electronic information which would tell you what are the 
contents of the container. Why? Because we don't have it. We 
don't need it to do our job. The carrier has it. Customs and 
Border Protection has it; and both of those agencies, of 
course, are present on our terminal. But we don't have it 
because we don't need it. Customs decides what they want to 
inspect. We give the boxes to them, and they do what they want 
to do with them.
    Mr. Kline. Thank you.
    Yes.
    Mr. Bilkey. Mr. Kline, I just wanted to mention what my 
colleagues didn't mention, that to be a longshoreman--and I 
started on the docks--you have to be a U.S. citizen.
    Mr. Kline. Thank you; and, Mr. Chairman, thank you. I yield 
back.
    The Chairman. I thank the gentleman.
    The gentleman from Missouri, the Ranking Member, Mr. 
Skelton.
    Mr. Skelton. Mr. Bilkey, you are the Chief Operating 
Officer of the corporation?
    Mr. Bilkey. Yes, sir.
    Mr. Skelton. Is there a president of the corporation?
    Mr. Bilkey. I am Chief Operating Officer.
    Mr. Skelton. You are the number one.
    Mr. Bilkey. No, no, he is the number one; and I want to 
make sure I say this on this panel.
    Mr. Skelton. Let's start over again. You are the Chief 
Operating Officer.
    Mr. Bilkey. Yes, sir.
    Mr. Skelton. You work for whom?
    Mr. Bilkey. The Chief Executive Officer.
    Mr. Skelton. Who is the Chief Executive Officer?
    Mr. Bilkey. Mohammed Sharaf, who was educated at the 
University of Arizona.
    Mr. Skelton. And he lives where?
    Mr. Bilkey. Excuse me?
    Mr. Skelton. Where does he live?
    Mr. Bilkey. He lives in Dubai.
    The Chairman. What is his citizenship?
    Mr. Bilkey. UAE national, sir.
    Mr. Skelton. Is there a board of directors of the DP 
corporation?
    Mr. Bilkey. Yes, sir.
    Mr. Skelton. How many are on the board?
    Mr. Bilkey. The board is made up of one person, Sultan Amed 
bin Sulayem.
    Mr. Skelton. And that person lives where?
    Mr. Bilkey. He lives in the United Arab Emirates, sir.
    Mr. Skelton. So you have the number one, and then you have 
one person as the board of directors. Is that it?
    Mr. Bilkey. Yes, sir. At the present time.
    Mr. Skelton. There are no other members of the board of 
directors?
    Mr. Bilkey. No, sir, not at the present time. It is planned 
to have it expanded when this acquisition is over.
    Mr. Skelton. How long has the corporation only had one 
member of the board of directors?
    Mr. Bilkey. Since its incorporation, sir.
    Mr. Skelton. When was that?
    Mr. Bilkey. I am not exactly sure of the date. I could ask 
my general counsel, if I might.
    Mr. Skelton. Please ask him.
    Mr. Dalton. We will supply that information for the record. 
We don't have that precise information.
    Mr. Skelton. Was it 10 years ago, 15 years ago.
    Mr. Dalton. Probably within the last two years.
    Mr. Skelton. It is a new corporation?
    Mr. Dalton. Approximately two years old.
    Mr. Skelton. Now please explain to me how the United Arab 
Emirates owns this corporation.
    Mr. Bilkey. We have a shareholder who created a decree 
creating the Ports, Customs and Free Zone Corporation (PCFC) 
and the two shareholders of that are Sultan Amed bin Sulayem 
and Sheik Mohammed of Dubai. Sheik Mohammed bin Rashid al-
Maktoum of Dubai.
    Mr. Dalton. Congressman, may I clarify?
    Mr. Skelton. That doesn't help me very much.
    Tell me how the UAE owns this corporation, please.
    Mr. Dalton. May I respond, Congressman?
    Mr. Skelton. Please.
    Mr. Dalton. The UAE does not own those companies. It is 
owned by the government of Dubai.
    Mr. Skelton. Mr. Bilkey, how do we know that the people 
working for the DP World, both at the management level and the 
operational level, do not pose a security threat?
    Mr. Bilkey. Well, sir, we are an international company with 
an international management team. We select from the best 
people around the world, and our team--at the present time, we 
have three Americans, two Britains and Brits, or British, UK 
gentlemen, and people from India.
    Mr. Skelton. And what do they do?
    Mr. Bilkey. One of them is the general counsel here; and 
one of the Americans is the commercial--head of the commercial 
department. And we have a finance head and an IT head, an HR 
head and a corporate strategy head.
    Mr. Skelton. To what countries do they belong?
    Mr. Bilkey. Well, the finance head is from the UK, the HR 
manager is from the UK, the corporate strategy is from India, 
and we have a UAE gentleman who actually runs the UAE section 
of our business. We are separated into regions, and we have the 
UAE region, and that is run by a UAE national called Mohammed 
Muallem.
    Mr. Skelton. Would you tell us how does the government of 
Dubai own the cooperation?
    Mr. Bilkey. I am not sure I understand the question. 
Otherwise, they are--the Dubai government is the shareholder of 
the company.
    Mr. Skelton. Is it the only shareholder?
    Mr. Bilkey. Yes, sir.
    Mr. Skelton. What type of background checks or other 
investigations have been conducted regarding potential security 
threats for the corporate--people who work for the corporation?
    Mr. Bilkey. We follow normal industrial and commercial 
checks on all our people; and, in some cases, we put them 
through separate testing requirements for their capabilities.
    Mr. Skelton. The agreement has been signed, sealed and 
delivered, is that not correct?
    Mr. Bilkey. No, sir.
    Mr. Skelton. It is not a binding contract as we speak?
    Mr. Bilkey. Sir, at the present time, we are under the 
rules of the takeover regulations of the United Kingdom; and we 
are advised that tomorrow the court will approve the 
acquisition.
    Mr. Skelton. So, as of tomorrow, you will legally have 
their work in the American ports, is that correct?
    Mr. Bilkey. I am going to turn this over, if I may, to my 
general counsel, because he has been closest on that.
    Mr. Skelton. That is very simple. Will you legally have the 
work in the American ports as of tomorrow?
    Mr. Dalton. Congressman, may I respond? Because there are 
some technicalities to this.
    Mr. Skelton. Tell us about the technicalities, please.
    Mr. Dalton. The court decision was rendered today in the 
United Kingdom where there was a challenge made by Ellers, 
which is a U.S. company. Ellers is a joint venture partner with 
us in the Miami operation. They own 25 percent. There has been 
a long-standing dispute in the courts in Miami for 
approximately 3 years. The court in the UK overruled their 
objections, however; and they, Ellers, indicated they were 
going to appeal. The court gave them leave to appeal to a 
higher court until 3 p.m. Tomorrow.
    We have all confidence that their appeal, if they do 
appeal, will be denied and the deal will go forward. We expect 
it to conclude some time probably Monday or Tuesday of next 
week.
    Mr. Skelton. So as of Monday or Tuesday next week, you will 
have the legal obligation under the contract to operate in the 
American ports?
    Mr. Dalton. Yes, sir. But that is also the reason that we 
proffered to the U.S. Government the Hold Separate Agreement, 
which is a binding agreement on our behalf where we have agreed 
to allow the current P&O Ports North American management to 
stay in place to report to their headquarters in London without 
any influence being exercised by any senior management in Dubai 
or any other management in Dubai.
    Mr. Skelton. Well, lay that aside. The contract will be 
binding then Tuesday, am I correct?
    Mr. Dalton. That is our best estimate, yes, sir.
    Mr. Skelton. So, as I understand it, your corporation will 
not take over the duties for 45 days, is that correct?
    Mr. Dalton. Sir, we have----
    Mr. Bilkey. Until May 1st, sir, is what we committed in our 
offer.
    Mr. Skelton. But, nevertheless, it is a done deal as of 
Tuesday, am I correct?
    Mr. Bilkey. As far as the acquisition, we have to--at that 
time, we have to mail out $6.8 billion to the various 
shareholders. That was the commitment that we made when the 
offer went unconditional.
    Mr. Skelton. What is the purpose then of the 45-day waiting 
period?
    Mr. Bilkey. Well, we agreed not to take any management 
initiatives whatsoever. In fact, we weren't planning to do them 
anyway. We are very satisfied with the management that is here. 
But we have agreed that we will in actual fact have no 
intercourse whatsoever on any management deals with the present 
operation in the P&O Ports North America and the Northern 
American assets.
    Mr. Skelton. For 45 days?
    Mr. Bilkey. No, until May 1st, until this 45-day process 
should go forward.
    Mr. Skelton. What is the purpose of this May 1st date? 
Legally, it is a done deal, is it not?
    Mr. Dalton. Congressman, if I may, what we agreed to and 
proffered to the U.S. Government, I want to emphasize that we 
proffered this offer voluntarily.
    Mr. Skelton. I understand that. But the deal is done. As of 
Tuesday, the deal is done, is that correct?
    Mr. Dalton. We hope so. We believe so, unless the appeal 
goes forward.
    Mr. Skelton. I understand that. If the deal is done, why 
the May 1 date?
    Mr. Dalton. Sir, we are trying to respond as a good 
corporate citizen to the concerns of Congress and the American 
public; and we thought that an offer of reviewing this for an 
additional 45 days, despite the fact that we had already gone 
through the CFIUS process, would be a worthwhile exercise to 
enhance the attention to be paid on security.
    Mr. Spratt. Counsel, I don't understand.
    Mr. Chairman, thank you.
    Mr. Weldon [presiding]. I thank the gentleman.
    The gentleman from New Hampshire is recognized for 5 
minutes.
    Mr. Bradley. Thank you, Mr. Chairman. I would like to 
follow up on Mr. Skelton's questions. If I understand this 
voluntary arrangement until the 1st of May correctly, there is 
a second review period by CFIUS. My first question is under the 
second review are there the potential of more conditions being 
placed on this deal that you might find acceptable or you might 
find unacceptable?
    Mr. Dalton. Sir, we would be happy to entertain any other 
conditions that would be reasonable as long as it is applied 
equally to our competitors in a business environment. I want to 
emphasize we will abide by the CFIUS decision that comes out of 
this 45-day review.
    Mr. Bradley. So you would accept any and all conditions 
provided they are a level playing field with your competitors?
    Mr. Bilkey. Absolutely, sir.
    Mr. Bradley. What if CFIUS objects on second review to the 
operational security arrangements that are in this deal? What 
recourse then does the United States Government have if the 
second review doesn't recommend final approval?
    Mr. Dalton. Sir, it is our firm belief we have complied 
with all of the United States requirements and have, in fact, 
gone beyond them. I really don't want to speculate at this time 
what the reaction would be. We would have to see what comes out 
of the CFIUS process and then be able to react in an informed 
fashion.
    Mr. Bradley. So you have no answer to that question, if 
there were unacceptable conditions, our objection, of what 
recourse you might take?
    Mr. Bilkey. We are very optimistic and hopeful it will 
allow us to go forward and explain to everybody that we are not 
a security risk, and especially we don't plan to make any 
changes in what exists today, which is now what is in place is 
fully acceptable. What do I think is the ultimate way that 
there should be in security? As we heard earlier today, I think 
security can be improved tremendously if you push the borders 
out in a way that--the CSI, Container Security Initiative, into 
the port. That is why we were very serious when I said we are 
going to operate 51 terminals around the world. We would like 
to see those type of initiatives in all our ports.
    We actually have been trying to push for one in the 
Dominican Republic. We have a brand new port down there about 
30 miles east of the Dominican Republic where there is 
transshipment business and import/export business from the 
U.S., and we want it to be in a CSI place, and there has been 
long, long delays to it. This is a perfect place.
    And one of the reasons that we are interested in this, as 
are all people in the terminals, is today's security actually 
is a big marketing tool. All the main and large shipping lines, 
they want to make sure that they are going to secure places, 
and if they don't think so, they are not going to come to your 
terminal.
    Mr. Bradley. One last question, Mr. Chairman.
    What if there were in the second review process disputes 
over personnel, security procedures, operational procedures 
that you found unacceptable, and you indicated before in my 
previous question, anything reasonable that you would accept, 
and then you went on to say as long as they were applied 
uniformly to all your competitors. There may not be the 
opportunity to go back and apply them to some of the other 
competitors without breaking contracts. What happens in that 
case?
    Mr. Dalton. Congressman, I think we need to emphasize in a 
number of our locations in the United States we have joint 
venture agreements with a variety of partners, and there are 
contracts involved there as well. So we really would have to 
wait for the review before we can make a firm determination 
about how that would impact on our business.
    Mr. Bradley. Thank you, Mr. Chairman.
    The Chairman. I thank the gentleman.
    Mr. Marshall is recognized.
    Mr. Marshall. Thank you, Mr. Chairman.
    Sounds to me like you anticipate that the CFIUS process 
will result in approval once again, the prereview, and that if 
it doesn't, you will wind up suing the United States Government 
for the $6.8 billion plus I don't know what else that you are 
about to spend?
    Mr. Bilkey. Congressman, I don't want to speculate. We 
think--we are good international citizens throughout the world. 
We have been accepted in the U.K., which has obviously serious 
security concerns. We are going to operate the second largest 
container terminal in the United Kingdom.
    Mr. Marshall. I only have five minutes, if you don't mind. 
I am just observing that it sounds to me like you are utterly 
confident of what the results of this--so confident that you 
are willing to gamble $6.8 billion in the next week.
    Mr. Bilkey. The U.S. assets, sir, are only 10 percent of 
the total, but it is still a large number, about $700 million.
    Mr. Marshall. But it is a $6.8 billion deal. So you are 
saying at risk is only $700 million.
    Mr. Bilkey. $700 billion. I keep confusing those two 
numbers.
    Mr. Marshall. Small difference.
    Let me ask you a little bit about your opening testimony. I 
sure wish that I could go back in the transcript or the 
videotape. You were reading your prepared remarks, and you got 
to the point where you were referencing the additional 
agreements that you willingly submitted to. You said there were 
seven of them. At that point you said rather--I can't remember 
exactly what you said with reference to those seven additional 
things that you agreed to. How did you characterize them?
    Mr. Bilkey. Well, one of them has to have open books on 
something, which is not normal in a commercial situation.
    Mr. Marshall. What exactly was that? I have got the seven 
in front of me. It is page 8. Are these seven bullet points on 
page 8 intended to summarize the seven things you agreed to?
    Mr. Bilkey. Yes, sir.
    Mr. Marshall. I really had the sense as you were testifying 
that you not only described it as unusual, but almost felt it 
was kind of distasteful for us to have even asked for these 
things.
    Mr. Bilkey. We were happy to agree to what they did. We 
readily agreed, I think, is the simpler way to put it.
    Mr. Marshall. Again, I wish I could go back, and I guess 
eventually I will go back and read the testimony itself, and we 
do have all this on videotape. I am just curious because I did 
have the sense that you found or were expressing some distaste 
for those seven, and the seven referred to security issues.
    With regard to the management, the bullet point says to 
operate all U.S. facilities to the extent possible with current 
U.S. management. To the extent possible. Do you know the actual 
terms of the deal well enough to describe what that means? Does 
that mean if the manager wants to leave? Obviously you can't 
compel the manager to stay. Are those the only instances in 
which you would change management?
    Mr. Bilkey. Yes, except for malfeasance or something like 
that.
    Mr. Marshall. Let us assume a manager leaves or is guilty 
of some malfeasance or something like that. How do you replace 
management at that point?
    Mr. Bilkey. I would actually turn to the executive vice 
president of P&O Ports North American because I don't know 
exactly how they handle it today.
    Mr. Marshall. I understand.
    What happens if the executive vice president is the one 
that needs to get fired here?
    Mr. Bilkey. Well, we would have to have good cause to fire 
him.
    Mr. Marshall. Let us say you do. How do you replace him?
    Mr. Bilkey. We would go out and try to secure someone of 
equally good qualifications.
    Mr. Marshall. So the ``we'' would be your company?
    Mr. Bilkey. It would be.
    Mr. Marshall. You don't have some trustees set up?
    Mr. Bilkey. At the present time it would be the management 
of P&O Ports North America, which we are not going to be 
involved in.
    Mr. Marshall. The management would be--is it Mr. Scavone?
    Mr. Bilkey. The CEO is Michael Seymour.
    Mr. Marshall. Say you had to fire him; how do you replace 
him? Does this only go until May 1st?
    Mr. Bilkey. No, sir.
    Mr. Marshall. It continues indefinitely. You will own but 
not have control of management.
    Mr. Bilkey. I didn't understand the question. We put this 
out as a gesture, Congressman, and we saw the concern, and we 
wanted to give a breathing period for people to take other 
steps if they felt necessary to show that we are good 
international citizens.
    Mr. Marshall. Have you been assured by anybody in the 
Administration that the 45-day review, the second CFIUS review, 
will result in approval without any additional conditions?
    Mr. Bilkey. No, sir.
    Mr. Marshall. And you are willing to abide by any 
additional conditions that are imposed?
    Mr. Bilkey. As long as it is a level playing field for 
everybody else on a commercial basis.
    Mr. Marshall. So everybody has agreed to conditions that 
you have already agreed to. These seven that you expressed 
some--your understanding when you agreed to those seven was 
that everybody doing business in the United States, all your 
competitors, have to comply with the exact same thing?
    Mr. Bilkey. We didn't care. We found them acceptable.
    Mr. Marshall. So what you are saying is that as long as the 
conditions imposed by this second CFIUS review is one that you 
find to be acceptable or one that is imposed on everyone else, 
you will go along with it?
    Mr. Bilkey. Congressman, I can't speculate on that. I am 
just saying whatever is put forward that is reasonable and 
commercially acceptable to all people in our type of business, 
we will go along with it.
    Mr. Marshall. Thank you, Mr. Bilkey. I wish I had more 
time, but I don't. You probably don't wish I had more time, I 
understand that.
    Mr. Weldon. The gentleman from Maryland is recognized for 5 
minutes.
    Mr. Bartlett. Thank you very much. I would just like to 
note that my questions will not reflect, or not necessarily 
reflect, the extent of either my knowledge or my ignorance. 
Once this deal goes through, you will own the Port of 
Baltimore?
    Mr. Bilkey. No, sir.
    Mr. Bartlett. What will you own?
    Mr. Bilkey. We will have leases of two terminals, Seagirt 
Terminal and Dundalk Terminal, and I am going to have to turn 
to Mr. Scavone on the details of that, if I may, sir.
    Mr. Bartlett. I am only interested in making the point that 
you don't--you wouldn't own the Port of Baltimore. You are 
telling me you wouldn't even own anything, simply be leasing 
some things; is that correct?
    Mr. Bilkey. Yes, sir. I believe one is a management 
contract, and that is why I was going to refer to Mr. Scavone, 
and one is a lease.
    Mr. Bartlett. Do you now have leases in any ports in the 
United States?
    Mr. Bilkey. I am going to have to ask Mr. Scavone to 
respond to that, if I may, sir.
    Mr. Scavone. P&O Ports North America, the U.S. company, 
does have a few leases in the United States, some of which are 
with or through joint ventures with other partners.
    Mr. Bartlett. How many would a few be?
    Mr. Scavone. We have a lease in Newark, one in Miami, one 
in New Orleans, and Miami is through a joint venture; and one 
in Philadelphia, also through a joint venture with Stevedoring 
Services of America. Everywhere else we are a pure stevedore, 
or we do manage terminals with something not quite even as 
extensive as a lease. It would be, for instance, an operating 
agreement, which is what we have in Baltimore.
    Mr. Bartlett. You stated earlier--would you repeat for us 
how many countries in the world you have operations somewhat 
similar to this in?
    Mr. Bilkey. At the moment DP World is 14. When we 
collectively put it together with P&O, it will be 30 countries, 
sir.
    Mr. Bartlett. You will have facilities similar to this in 
30 different countries.
    Mr. Bilkey. They run a wide variety from the biggest 
container terminal in Busan, Korea, to Buenos Aires and 
Vancouver, throughout China and Indonesia, the Philippines, 
Australia, the Middle East and Europe. It's a very, very large 
portfolio of assets and was a strategic move by ourselves in a 
consolidating shipping business where the shipping lines are 
becoming more consolidated to be able to offer a better package 
across the board through these type of clients.
    Mr. Bartlett. Have you had discussions similar to this at 
any time in any other country?
    Mr. Bilkey. No, sir. Whenever we go into any country, new 
country, we normally make our own independent security 
assessment on our own. We don't take for granted what anybody 
says. This is just one of the things that we do, and we also 
hire ISPS-certified in all the terminals that we operate in.
    Mr. Bartlett. Do you know how many ports in our country 
have arrangements similar to those you are making with these 
ports in effect now? Do you have any idea what the rough number 
is?
    Mr. Bilkey. No, sir, I don't, not anymore. I have been away 
for a long time.
    Mr. Bartlett. We asked Congressional Research Service (CRS) 
to get this information for us, and there are more than 90 
ports in our country that are operated by entities from other 
countries similar to yours.
    If, sir, you could turn back the hands of time, you had 
this all to do over again, what would you do differently 
relative to this contract so we wouldn't be sitting here today? 
It would have been nice to make this public. That wasn't your 
responsibility, I know, but don't you think if this had been 
made public and we had these discussions in a calmer 
environment, it might have been more productive?
    Mr. Bilkey. When we went through and started early on in 
October, I can tell you that I personally and my colleagues--I 
don't want to start the process that early because one of the 
important things in this type of acquisition is to try to keep 
it out of the press and to keep it quiet until you make your 
official offer. And I was very nervous about putting 
information out in Washington because I thought it would become 
public too quickly, and then we knew we were going to have 
other people who were going to compete for this very, very 
attractive portfolio. But I was convinced by others that this 
was kept confidential.
    And we started on October 17th, I believe, and it was our 
belief, because we took so long, and I came personally here 
with a team of people to interview the various agencies--
frankly, we thought they would take care of any necessary 
liaisons that were necessary within the government, and we were 
trying to do everything possible to make this happen because 
one of the reasons we started early--the two ones that had the 
most largest requirements, specific requirements, were 
Australia and the United States. So we started those very early 
because we wanted very much to be able to go and make our offer 
unconditional as quickly as possible.
    When we finally got our permissions, they all came in about 
the same time, Europe and Australia and the U.S., we then made 
our offer unconditional. And when you make it unconditional, 
your money is sitting in the bank, and it is in escrow. We 
aren't mailing out the money to the shareholders yet, but we 
don't have control of it anymore. The takeover procedures do.
    That is why we started, and we actually thought that--in 
hindsight it obviously was an incorrect thought, and some might 
even say naive--but we were dealing with the U.S. Government, 
and the U.S. Government said it is okay, and to us, we'd been 
doing it for 3 months, so we said, wonderful. And actually when 
we went--we actually publicized the fact that we went forward 
and went unconditional. It went down the wires. It had to be 
known throughout the United States also.
    Mr. Bartlett. Mr. Chairman, I would like to close with a 
quote from Ronald Reagan that our panelists might find 
instructive. You were talking about working with our 
Government. He said, when you get in bed with the government, 
expect more than a good night's sleep.
    Mr. Weldon. Thank the gentleman.
    We have completed the first round of questioning and will 
move to a second round. The gentleman from North Carolina is 
recognized.
    Mr. Jones. Mr. Chairman, I will be brief. I came here for 
the next panel.
    I want to say to Mr. Bilkey I am sorry I didn't get here 
early on, but you said to Mr. Bartlett's question whomever you 
talked with at the U.S. Government said everything is okay. Who 
did you speak to that said it is okay? You might have discussed 
this earlier. I apologize.
    Mr. Bilkey. That was done through our counsel here.
    Mr. Jones. I am not going to hold you because, again, I 
came here for the third panel, but I will tell you that I 
represent an area where this is not your doing or your fault, 
in my opinion. This is the fault of the Administration, this is 
the fault of the process. It just has not worked the way I 
think the American people feel like it should work.
    In 2 days I had 127 phone calls. That is not a lot out of 
my district of people, but, again, it is 127 phone calls that 
people took the time to call, and only 6 were in favor of this 
arrangement. I mean, I had people that professed to be 
Republican, I am a Republican, and they are just outside of 
themselves, irate.
    And again, I don't fault you, I don't fault your company or 
the people that you represent, but I will tell you that this is 
an issue that maybe has galvanized the American people to 
understand that we are selling America out, and it is time to 
stop. And again, I am not pointing this to you or to this 
panel, but I will tell you, Mr. Chairman, I thank God that this 
happened the way it did because maybe we can save America 
before we become a second-rate economic Nation.
    Thank you.
    Mr. Weldon. I will thank the gentleman.
    Second round. I yield myself 5 minutes. We thank you for 
your testimony. You all are aware that you are considered under 
oath here when you are testifying before the Congress, correct? 
You are all aware of that.
    Let the record note they nodded yes.
    If I read, Mr. Bilkey, your statement and comments, the 
reason why you didn't feel it was necessary to go to the 
Congress was because, one, there was no requirement of that, 
and because you felt you were following the instructions of our 
Government, and that the deal was pretty straightforward; you 
make the offer, go through the CFIUS process, it is a done 
deal. Is that correct?
    Mr. Bilkey. Yes, sir.
    Mr. Weldon. Then I have to ask you a question. Why did you 
hire lobbying firms? I would like to know for the record who 
you hired. Would you tell me what firms were hired and who were 
the principal players that you were involved with? I assume you 
were involved with that effort.
    Mr. Bilkey. In the effort that we did the CFIUS process, I 
am going to turn this over, if I may, to Mr. Dalton, our 
general counsel, but we only dealt with the firm Alston & Bird.
    Mr. Weldon. That is the only one?
    Mr. Bilkey. You are talking about the CFIUS process.
    Mr. Weldon. You obviously employed counsel in this city and 
public affairs firms and lobbyists, and I assume you hired them 
for a reason. Now, you have just told us----
    Mr. Bilkey. Excuse me, sir, do you mean now or when we 
first started the CFIUS process?
    Mr. Weldon. The whole process, now and then. I would like 
to know who for the record was hired.
    Mr. Bilkey. Fine, sir.
    Mr. Dalton. We retained the firm of Linkletters, a U.K.-
based law firm, very reputable one. Here in the United States 
we worked with Alston & Bird in their office here in 
Washington.
    Mr. Weldon. Those are legal firms?
    Mr. Dalton. Yes, sir. From, as you call it, a lobbying 
standpoint, the reason we found it to necessary to turn to 
certain firms, I understand that has been reported fairly 
widely in the press, because we felt our company, which had 
followed all the U.S. processes and, in fact, relied upon those 
processes in lifting our conditions precedent as well as the 
other regulatory filings that we had done at a number of 
locations throughout the world, we had relied on that process, 
and we found ourselves in a difficult situation.
    Mr. Weldon. You just said everything was going well up 
until this process became public. Why would you have to hire 
those firms in the past?
    Mr. Dalton. Congressman, we hadn't hired them in the past. 
We did hire firms after our CFIUS process had been approved and 
the conditions listed.
    Mr. Weldon. Who were they?
    Mr. Dalton. It was a Downey & McGraff firm. Jonathan 
Weiner; Chip, I am not sure of the last name, Andrae. I believe 
his name is spelled A-N-D-R-A-E. I would have to check if there 
are others.
    Mr. Weldon. Was the Albright firm hired?
    Mr. Bilkey. I can answer that, sir. The answer is no.
    Mr. Weldon. Never any employment with the Albright firm?
    Mr. Bilkey. They worked on our behalf in China. We had some 
China assets that needed some help.
    Mr. Weldon. Was there any discussion from former President 
Clinton with any of you or the leadership back in the Emirates 
about this potential deal?
    Mr. Bilkey. Not with myself.
    Mr. Weldon. I said are you aware of any discussion.
    Mr. Bilkey. Yes, I am aware of a discussion.
    Mr. Weldon. So there was a discussion by the former 
President. Who was that with?
    Mr. Bilkey. It was with our chairman Sultan----
    Mr. Weldon. About this particular deal?
    Mr. Bilkey. Yes.
    Mr. Weldon. Was there a recommendation that you retain a 
former spokesman by the name of Joe Lockhart?
    Mr. Bilkey. Yes, sir. That is my understanding.
    Mr. Weldon. Why did that not take place?
    Mr. Bilkey. The firm turned it down.
    Mr. Weldon. Why would you feel it necessary to hire people 
of that caliber when you testified to us this was a normal 
deal, that you were abiding by all the laws, there was no need 
to tell the Congress, you certainly didn't need to tell us 
because it wasn't controversial? Why did you need to hire 
people of that caliber, whether Republican or Democrat? The 
people you cited here are from both parties.
    Mr. Bilkey. Sir, none of those activities started until the 
last two weeks.
    Mr. Weldon. You mean the last two weeks from today?
    Mr. Bilkey. Yes, sir. When we suddenly saw that there were 
concerns being expressed throughout Congress and in the U.S., 
we saw that we would need some help. We think we are good 
citizens. We are very, very proud of our record, and we 
obviously--something had gone wrong, and we didn't understand 
what had gone wrong, so we went for help. Because we are a firm 
of high integrity, we try to get the very best we could.
    Mr. Weldon. When was the discussion between the Sultan and 
President Clinton about this deal? Was that in the last two 
weeks?
    Mr. Bilkey. I don't know.
    Mr. Weldon. When do you think it was?
    Mr. Bilkey. Within the last two weeks.
    Mr. Weldon. That discussion just took place in the last two 
weeks.
    Mr. Bilkey. Yes. To the best of my knowledge. All I know 
was there was a call.
    Mr. Weldon. The gentleman is recognized, the Ranking Member 
Mr.--I am sorry, Mr. Spratt.
    Mr. Spratt. Thank you for your appearance here and for your 
testimony. Let me just follow it up by saying if I am plowing 
old ground, it was because I stepped out of the room a minute.
    I just wanted to clarify one thing for the record. You 
heard the testimony of Mr. Flynn, who suggested that this 
occasion, this opportunity, should be used to be the basis for 
a comprehensive global container inspection system that scans 
the contents of every single container destined for America's 
waterfront before it leaves a loading port. He said that the 
technology was in hand for doing that, and it might include 
both scanning radiation detection and maybe some radio 
frequency electronic identification that would go along with 
it, and all of this could be done by levying a fee, provided it 
was done everywhere, levying a fee per container.
    You have been in the this business for a long time. You 
know the ins and outs, what works, what doesn't. In your 
opinion, is this feasible; is this the basis for some kind of a 
deal?
    Mr. Bilkey. Well, the general question--I am not sure 
specifically how it applies to us. I mean, I would like to have 
it apply to us in all our locations, which is this CSI. Yes, 
the technology is available, and we actually make our own 
initiatives sometimes.
    I would like to see--there are now 42 CSI locations--
container security initiatives where U.S. Customs are put on 
the ground. It actually pushes the borders of the U.S. out into 
these locations, and this is one of the best ways.
    And the technology is there for these high-speed what they 
call NII, nonintrusive inspections, and that has been the big 
bottleneck of the present style of inspection equipment, the 
present inspection equipment that actually can look in a 
container. And I have sat in these booths and watched it go 
through, and it is completely reliant on the operator, and we 
have them in Dubai, but they are very slow. That is why you 
only get 5 percent that are actually inspected, because it is 
so slow.
    This new equipment, and there is probably going to be 
better technology coming, but right now it would be a vast 
improvement. This present equipment can handle 400 trucks an 
hour in this pilot program in Hong Kong, and not only does it 
scan the box, it inspects it for radioactive, but it stores the 
image, and that image can be transmitted to the center, the 
customs center, here.
    Mr. Spratt. Does it have to have a portal where it can be 
inserted inside the container?
    Mr. Bilkey. No. The container drives through at almost 
normal truck speed, and it captures the image, and that image 
can be transmitted. Now, if you have the CSI locations set up 
as we do in Dubai--and we actually are out on a global request 
for proposal (RFP) for NII equipment to start installing it, 
because security stuff like this is good business for us. It is 
a marketing tool for us, and beside that, it brings safety.
    At the present time if I could have a perfect world, I 
would have these in every port where U.S. goods pass through 
either directly or indirectly through transshipment. And in 
Dubai we have a very unique arrangement with Customs. Customs 
can actually ask for a transshipment box today. Let us say 
something came from Karachi. We supply them with the whole 
manifest of the ship, and if they don't like a box that says 
``garments'' and think it might be something else, they can 
instruct us, and we have the legal right to take that out of 
the ship, put it on the ground, and U.S. Customs will inspect 
it. We don't inspect it for them and say it is okay; they 
inspect it.
    With NII equipment in place in places around the world, I 
would also do it a second time. I would do it here. And there 
is equipment now in some U.S. locations. Rob Scavone would be 
able to address that better than I. But there is some of this 
equipment now coming on stream in U.S. ports, and this, to me, 
is a no-brainer and should be globally, not just for the U.S., 
but for all sorts of places, and a lot of people are taking 
initiatives.
    One of our competitors, and they are a very good 
competitor, has a pilot program going in Hong Kong, and we are 
looking at them. We live right next to them, we have a very 
large terminal right next to them in Hong Kong, and we are 
actually looking at it, and there is a great discussion of how 
we are going to implement it and who is going to pay for it. 
But if there is enough initiative and push--most of these 
international security initiatives have come from the U.S., 
which is great, and I would like to see more of it pushed. We 
are in the business of security. If there ever was a company, 
the responsible large global terminal operators.
    Mr. Spratt. Do you think it is feasible to fund it by 
levying a fee on each container or each shipper?
    Mr. Bilkey. Excuse me for smiling, sir, but this is 
starting to be tried actually in some places in China, and 
there has been some resistance to it because you are going to 
charge the ship, and the ship is going to charge the cargo 
interest. I think if it comes universally, everybody is going 
to be in the same playing field and pay it. I think it could be 
done, and I hope I don't get myself in trouble with a lot of 
our large customers by suggesting something like this, but I 
think what we are really interested in is in security and 
safety, and I think this type of initiative should come and be 
pushed, and we would not only be a backer, we would like to be 
a participant.
    Mr. Spratt. That is my last question. You have got 6.8 
billion invested in this deal?
    Mr. Bilkey. Yes, sir.
    Mr. Spratt. A lot of money even to the Emir of Dubai.
    Mr. Bilkey. Sir, we did this on our own balance sheet. So, 
yes.
    Mr. Spratt. Do you worry about port security, about the 
security of your assets?
    Mr. Bilkey. All the time, sir.
    Mr. Spratt. Under the present circumstances?
    Mr. Bilkey. We continually address security issues. We 
operate in some very tough places, and we are also, as I 
mentioned earlier, trying to get CSI, which has been in active 
discussion with the Dominican Republic. We hope that would 
happen tomorrow, and we would get the gear installed and get it 
up, but from the best of all worlds, from the day you say yes, 
it is a 6-month deal probably.
    Mr. Weldon. The gentleman's time has expired.
    The gentleman from New Jersey.
    Mr. LoBiondo. Mr. Scavone, when talking about the facility 
security officer, you said that that is the only person who has 
access to the port security plans, and not the operator of the 
terminal.
    Mr. Scavone. That is correct, sir.
    Mr. LoBiondo. At Port Newark who employs the security 
facility officer?
    Mr. Scavone. That would be Port Newark Container Terminal, 
also know as PNCT, which is the joint venture that we 
participate in.
    Mr. LoBiondo. So that facility security officer that you 
partially hire has access to those sensitive port security 
plans?
    Mr. Scavone. Yes, sir.
    Mr. LoBiondo. If, in fact, this all were to go through, 
then the new owner that is buying the operation, that would 
still be hiring or partially hiring at Port Newark that 
facility security officer?
    Mr. Scavone. The understanding is that the current manager 
will remain in place, and that any replacements to those 
individuals as in the natural course of things they perhaps 
leave or get promoted or otherwise are removed from a position 
would be--would require prior approval from the U.S. Government 
before a replacement is made.
    Mr. LoBiondo. For the facilities security officer.
    Mr. Scavone. Yes, sir.
    Mr. LoBiondo. What I was getting at, I don't remember the 
name of the Member who initiated the questions or how you first 
got into that, but that basically your corporation or the new 
owner would not have access to the port security plans, but 
that in this case would not be true. They would actually have 
access to those plans because they are your employee or the 
employee of Dubai Port World.
    Mr. Scavone. I do believe that as part of the commitment 
that was made during the CFIUS process, it was agreed that the 
formal protocols that are in place would remain in place, and 
that none of that information would leave the country, as 
indeed happens now. For instance, our London office does not 
have copies of our facility security plans. They have never 
asked for them. They make no attempt to get involved in the way 
we manage security on the ground.
    Mr. LoBiondo. Your company does not, but in the case of New 
Orleans, it would be 100 percent ownership, Mr. Bilkey--would 
be 100 percent ownership if this goes through.
    Mr. Scavone.
    Mr. Scavone. Bearing in mind that what is being bought is 
P&O Ports in the U.K., which, through several corporations, 
owns P&O Ports North America, which is a U.S. company with U.S. 
employees that pays U.S. taxes, that is going to remain intact. 
It is similar to----
    Mr. LoBiondo. I understand. The point I am getting to which 
we are trying to ascertain when we are talking about the 
security end of this is that, in fact, those port security 
plans would be available to the parent company, in which case 
they would be available to the Government of Dubai. And 
somebody is shaking their head behind you. If that is not 
true----
    Mr. Scavone. It is not true, sir, and I do think that 
during the additional 45-day review process, those are exactly 
the type of details that perhaps can be examined, and indeed if 
anybody believes that the measures that have been agreed have 
any vulnerability, perhaps that is something that perhaps we 
can talk about. But the intention is that that not, in fact, be 
the case.
    Mr. LoBiondo. That is part of our problem. We are trying to 
sort through what intentions are, what is been decided and 
agreed to, and what the Congress has access to, and there is a 
wide variation.
    Mr. Bilkey, I would like to know, I read a report that 
Dubai has imposed a boycott on Israel. Did I, in fact, 
understand that accurately, that that is the case?
    Mr. Bilkey. The government of Dubai is just for the 
emirates, sir.
    Mr. LoBiondo. Is there a boycott with dealing with Israel?
    Mr. Bilkey. Well, sir, I am not someone who can speak to 
state matters, and that is a UAE matter, but what I do know 
that is going on right at this time is that there is a--fair 
trade negotiations are going on between the UAE and the United 
States Government, and I am sure this is going to be one of the 
issues that they will be discussing.
    Mr. LoBiondo. I understand. I thought I read from your 
Senate testimony though that that boycott is in place or being 
honored by United Arab Emirates. I read wrong, you didn't say 
that?
    Mr. Bilkey. I didn't quite understand the question, sir.
    Mr. LoBiondo. Sorry, Mr. Chairman, a little frustration 
here trying to communicate.
    I believe that I read in your Senate testimony--you did 
indeed testify for the Senate, correct?
    Mr. Bilkey. Yes.
    Mr. LoBiondo. That there is a boycott in place with Israel?
    Mr. Bilkey. For cargo from the United States, the United 
Arab Emirates puts it in, but it is not something we are 
involved in, sir. We are involved in the terminal business, and 
we obey the laws of any country that we are in.
    Mr. LoBiondo. But with government involvement, that is 
where our--we can't separate some of these issues because with 
Israel as our most reliable partner in that part of the world, 
some of us view that if there is, in fact, a boycott, that 
something like the deal we are talking about is in effect 
ending up subsidizing a boycott, and that is where we have got 
a serious problem and where this is coming down. You probably 
can't answer if it were one of the conditions after the 45 days 
that there not be anything like a boycott, how you would react 
to that condition, but that will certainly be one of the 
questions that we will be asking.
    Mr. Bilkey. Yes, sir. I know this is a matter of concern, 
and with the Chair's permission, I would like to read some 
excerpts and put this letter in the record, if I may.
    Mr. Weldon. Without objection, it will be entered in the 
record.
    [The information referred to can be found in the Appendix 
beginning on page 205.]
    Mr. Bilkey. Thank you, sir.
    This is a letter to my CEO and from Idan Ofer, who is the 
chairman of the board of the largest Israeli shipping company: 
I wanted to take a moment to express my complete dismay at the 
way your fine organization is being pilloried in the United 
States. As you well know, Zimm Israel considers DP World to be 
one of our closest global allies.
    I am going to skip the middle of it where they operate with 
facilities.
    They are one our largest customers in many parts of the 
globe. I sincerely hope this unnecessary political storm will 
cease so we can all focus on the business of providing the 
world safe and efficient shipping services. We truly look 
forward to working with you in the U.S. where I know we will 
enjoy the same great relationship we are in the rest of the 
world. Until then, I would like to extend an offer to help you 
in DP World any way we can.
    Mr. LoBiondo. I appreciate that letter, and I will look 
forward to getting my hands on it and seeing it, but that 
individual still isn't answering the question about the 
boycott. And if, in fact, it is real, and if it is real, 
because it is United Arab Emirates and you are a part there, 
that is what is causing agitation on our part.
    Mr. Chairman, I thank you very much.
    The Chairman. The gentleman from Washington Mr. Larsen.
    Mr. Larsen. Thank you for being here.
    On your hold separate commitment, the last page before the 
signature page, it says, this hold separate commitment shall 
take effect from the date, and so on; remain in effect until 
May 1st. In other words, your time line is May 1st or when the 
new review is done. Has the new review started?
    Mr. Bilkey. May I give this to my general counsel?
    Mr. Larsen. Absolutely.
    Mr. Dalton. No. We had been preparing the CFIUS application 
that will be going in very shortly, perhaps as early as 
tomorrow.
    Mr. Larsen. Does the clock start then?
    Mr. Dalton. That is my understanding. My understanding is 
the process has to be accepted by CFIUS first.
    Mr. Larsen. Let me give you the cheapest piece of advice 
you are going to get. Last week we were out of session, and the 
announcement came out that the CFIUS review was completed, and 
you were approved to move forward, and we were in our districts 
for a full week hearing from our constituents, e-mails, phone 
calls, letters, getting our dander up. If I count 45 days from 
tomorrow or even early next week, I think we are out of session 
again.
    The cheapest piece of advice I can give to you is if there 
is an announcement one way or the other, don't have us be out 
of Washington, D.C., because we are going to be through this 
all over again. We have to talk to our counterparts in the 
Administration when they come through as well to get our point 
across about this process, about the CFIUS process, and that is 
not your problem, that is the Administration's problem. But we 
could be going through this all over again in 45 days.
    So I would strongly suggest that it is in everyone's 
advantage for Congress to be in D.C. when any announcement is 
made on this new review. Otherwise, we are going to come back 
to this place if it comes back in an approval, and we don't 
feel like we are going to be involved, we are going to be 
through this all over again. That is free advice. That is why 
it is so cheap.
    I have some questions for you. You mentioned that you had a 
U.S. Government agency as a point of contact. Which agency is 
that, and who is that, who within that agency? Perhaps Mr. 
Scavone mentioned that.
    Mr. Scavone. Yes, Congressman, I was the one who said that, 
but, of course, I was reciting what I understand the agreement 
to be with DP World under the CFIUS process. I do think that 
that is exactly, again, the type of detail that perhaps should 
be buttoned down during the next 45-day review process so that 
it is to the satisfaction of everybody.
    Mr. Larsen. Probably a question we should ask the next 
panel.
    Mr. Bilkey, you talked about your going out with an RFP, 
may have been RFP or R5 of some sort, about applying some NII 
technology to your terminals. What is the time line on that?
    Mr. Bilkey. Well, I am looking at it here. It actually took 
place long before any of this happened. The date on this is 
September 19th. We are now considering three different offers 
that we have had, and we would hope to make our decision, I am 
sure--I have a day job, and it is a fairly big one, and I 
haven't been paying a lot of attention to it, and I hope they 
keep me employed. But we are hoping to do this--certainly 
within the next month we would be making decisions, because it 
is not an immediate process, and it takes from the day we say 
go--and where we are going to start, we would like to start a 
pilot program in the Dominican Republic, because that will 
actually be, frankly, a good marketing tool for us, but it 
involves U.S. cargo and U.S. transshipments and would be a very 
strong point in the security cycle.
    Mr. Larsen. My time is growing short.
    I was in Hong Kong in January and took a tour with Hong 
Kong International Terminals on their pilot, and they are 
putting the dollars in per container. There is an equivalent 
per container. It is coming out of their pocket to do this. My 
sincere hope is that we have--perhaps it may take the U.S. to 
push this, but to push this kind of thing as an international 
system for our own sake.
    Just quickly, Mr. Chairman, if I could, I am from 
Washington State. Just up the highway is the Port of Vancouver. 
To what do you contribute the collective yawn in Vancouver and 
Canada about your takeover of terminal operations in the Port 
of Vancouver compared to port operations in the U.S., if you 
dare to answer that question?
    Mr. Bilkey. We have had no adverse reactions.
    Mr. Larsen. I know. To what do you contribute the 
collective yawn in Canada compared to the response here in the 
United States?
    Mr. Bilkey. I don't know, and to be frank, since it hasn't 
raised its head, I haven't paid much attention to it.
    Mr. Larsen. Fair enough. Thank you.
    The Chairman. Thank the gentleman.
    The gentleman from New Jersey Mr. Saxton.
    Mr. Saxton. Thank you, Mr. Chairman.
    Mr. Bilkey, I understand my smart staff tells me that Dubai 
Port World has two divisions, one known as the Port Authority, 
the other known as Ports International. Is that right?
    Mr. Bilkey. I think what maybe had been referred to is 
Dubai Ports Authority actually ran the whole operation in 
Dubai, both the port authority side and also the operational 
side. They had an international division, which I also was in 
charge of as the executive director of Dubai Ports 
International. These were merged in September into DB World 
because we actually all had the same customers. I think that is 
where that----
    Mr. Saxton. Thank you. So there were two separate 
functions, and now Dubai Ports World has combined both 
functions together.
    Mr. Bilkey. Yes. But we separated out the regulatory 
functions of Dubai Port Authority. Dubai Port Authority is now 
a separate body.
    Mr. Saxton. The port authority formerly--apparently the 
port authority formerly took part in the Container Security 
Initiative; is that right?
    Mr. Bilkey. Yes, sir. I am not too familiar because I 
wasn't there when it first happened.
    Mr. Saxton. So today Dubai Port World takes part in the 
Container Security Initiative.
    Mr. Bilkey. Not directly, it is really Customs. And the 
arrangement is with Customs, and the agreement I know was 
signed last January.
    Mr. Saxton. Here is my point of interest--thank you for 
helping me clarify that. Here is my point of interest. The U.S. 
Customs Service under the Container Security Initiative 
agreement with Dubai or the UAE sends U.S. Customs agents to 
Dubai to inspect--to do certain inspections, right?
    Mr. Bilkey. Yes. Actually to receive the manifests. There 
is a 24-hour rule any box anyplace in the world being loaded to 
the U.S., the shipping line has to supply the manifest or the 
bill of lading to U.S. Customs before it will be loaded.
    Mr. Saxton. Those inspections are done in cooperation with 
the Dubai Customs organization?
    Mr. Bilkey. Yes. Yes, sir. If they want to inspect 
something, they will advise us, or they will tell us not to 
load something, and we don't load it.
    Mr. Saxton. It is a reciprocal agreement which gives Dubai 
Customs authorities the opportunity or the right to come to 
this country to inspect containers that are bound for Dubai; is 
that right?
    Mr. Bilkey. No, sir. It is an initiative really pushing out 
our borders, so to speak.
    Mr. Saxton. We don't have a reciprocal agreement with Dubai 
that gives them the same authority?
    Mr. Bilkey. I don't know about it if there is one, sir.
    Mr. Saxton. Well, the information that we have is that 
there is one, and under that reciprocal agreement, the Dubai 
Customs authorities would have the right to come to this 
country and take part in similar inspections. You have no 
knowledge of that?
    Mr. Bilkey. No, I don't, sir.
    Mr. Saxton. We got that from our annual Customs report from 
2005, and so I am asking you because----
    Mr. Bilkey. It sounds like it is kind of a normal 
reciprocal arrangement; if you do it for me----
    Mr. Saxton. So there would be citizens of Dubai potentially 
to carry it out?
    Mr. Bilkey. If it is there. I am totally unaware of it, 
Congressman.
    Mr. Saxton. You couldn't tell us about the people that take 
part in this kind of program?
    Mr. Bilkey. No, sir, because I am not involved in the 
Customs procedures.
    Mr. Saxton. It would certainly concern us, or we would at 
least be concerned enough to want to know who would be hired to 
come into this country and make those inspections, and so I 
wonder if it might be an advantage in your deliberations over 
the next 45 days or so to look into this and make sure our 
decisionmakers take this program into consideration so that we 
can make sure that that is not a bone of contention 45 days 
from now, because obviously we are going to look into it.
    Mr. Bilkey. I would imagine in the CFIUS review that U.S. 
Customs would be bringing something like that question up.
    Mr. Saxton. Thank you, Mr. Chairman.
    The Chairman. Thank the gentleman.
    The gentleman from Georgia Mr. Marshall.
    Mr. Marshall. Thank you, Mr. Chairman.
    Mr. Bilkey, I want to kind of continue on the line of 
questioning I had before with regard to the additional things 
that you agreed to, the company agreed to, as part of the CFIUS 
process and clearance. One had to do with management, we talk 
about that, and various people have asked you questions about 
this management understanding. And the summary in your 
testimony is that you undertake to--this is a quote--operate 
all U.S. facilities to the extent possible with current U.S. 
management. As we talked about that, that undertaking doesn't 
end on May 1st, it continues thereafter, and it is your 
understanding that there would be simply U.S. management?
    Mr. Bilkey. No, sir. We put this time period in place so 
there could be a review.
    Mr. Marshall. I understand. The undertaking doesn't stop at 
the end of that time period.
    Mr. Bilkey. I understand that this is in the package that 
we handed out.
    Mr. Marshall. The actual language, I want to get to that 
next, but I just want to see what your understanding is. I 
assume that it was our Homeland Security Department that asked 
for this concession; it wasn't something that you simply 
proposed.
    Mr. Bilkey. I frankly don't know. I reviewed it. I think 
the answer can be made here.
    Mr. Dalton. Congressman, we did propose it.
    Mr. Marshall. You proposed it in response to concerns 
expressed by?
    Mr. Dalton. Through the normal CFIUS process.
    Mr. Marshall. The CFIUS process. It is utterly incredible 
you would say our management is not competent or--somebody was 
worried about----
    Mr. Dalton. We volunteered at the CFIUS.
    Mr. Marshall. Why did you volunteer it?
    Mr. Dalton. I am sorry. I was conferring with our counsel 
who helped assist us because we wanted to assure the United 
States Government and the public that the management team that 
was currently in place from P&O would in fact remain in place.
    Mr. Marshall. And I think I understand the spirit behind 
that and the concerns that you had at the time you made that 
offer. And this was during that period of time before you hired 
lobbyists and before we had this big public dispute, you 
anticipated that there could be some problems associated with 
this, and one way to mute those problems, to lessen them, 
lessen the public perception that there is a problem here is to 
go ahead and agree to this retention of management.
    Mr. Dalton. What we were attempting to accomplish was to 
demonstrate our cooperation with the United States Government 
and our concerns about security.
    Mr. Marshall. When you say your concerns, now, you are the 
guy. And what is your concern that would lead you to say we 
won't manage?
    Mr. Dalton. Sir, we are a company incorporated in Dubai, 
and we have security concerns in all of our facilities around 
the world.
    Mr. Marshall. Why would you be--why would your security 
concern that is worldwide persuade you to make an offer that 
you would only have U.S. management for these facilities in the 
United States? What is the relationship between those two?
    Mr. Dalton. Sir, I don't think we committed to only having 
U.S. management. I think we committed to keeping the current 
P&O ports management in place. My understanding--my colleague 
from P&O can address this more specifically, but there is 
action, approximately 400 direct employees by P&O Ports North 
America of which approximately seven or eight are non-U.S. 
citizens. There are several other citizens such as from the UK, 
I believe Australia, and I am not sure a couple of other 
places, but clearly, the vast majority of the employees of P&O 
Ports North America are U.S. citizens. And we wanted to 
demonstrate our commitment to them as well.
    This was a company that is approximately four times larger, 
depending on how you calculate it, than DP World. And as part 
of that, we needed their management expertise, and that was 
part of the reason that we wanted to acquire their firm.
    Mr. Marshall. I understand, Mr. Bilkey, in his testimony, 
as I said previously, indicated some discomfort that these were 
unusual things to have agreed to. And you are telling me now 
that, at least with regard to the management thing it was your 
idea; it was your proposal that this be done because you wanted 
to, I guess, make CFIUS comfortable. I am not sure. We will get 
more information about that.
    I will observe though that page two of the letter that I 
guess memorializes the agreement, this undertaking, says this, 
it is page two of the letter that is in the packet, and I 
assume this is the language of the agreement. I will give you a 
more precise description.
    This is a letter dated January 6, 2006, to Mr. Stewart A 
Baker, and it is from--I'm sorry but I can't read, Robert 
Scavone. I guess it is from you. And I assume that this is the 
language of the undertaking. And here is what it says about 
management of U.S. facilities: The companies--companies, 
plural--I am a little confused about that, I guess it is both 
companies here--and so the acquiring company, hereby 
represent----
    Mr. Bilkey. I was going to say, it was a joint filing, sir.
    Mr. Marshall. Good. Okay. So the acquiring company, DP 
World, is representing--hereby represent and commit that their 
current intent and plan is to operate any U.S. facilities they 
own or control to the extent possible with the current U.S. 
management structure.
    I am a lawyer. Commercial transactions, lawyers happen--I 
do these kinds of deals. That is language that doesn't bind 
anybody to anything. It states a current intent and a current 
plan.
    But intent changes; plans change. And one of the things 
that I thought I clearly heard from Mr. Scavone, I might have 
heard from Mr. Bilkey, is that you are willing to work with us 
to take up language, the undertakings that have been made here, 
if in fact the language isn't ideal, perhaps we can take up 
that language and perhaps the Congress can help the 
Administration to address some language that is a little 
clearer and firmer with regard to that issue, if in fact it is 
an issue that has something to do with security. That is all I 
have, sir.
    The Chairman. I thank the gentleman.
    The gentleman from Missouri, Mr. Skelton, had a couple more 
questions.
    Mr. Skelton. I am still, Counsel, what is your name again?
    Mr. Dalton. George Dalton, sir.
    Mr. Skelton. Are you in-house counsel?
    Mr. Dalton. Yes, sir.
    Mr. Skelton. I am not quite clear. The period of time that 
is supposed to elapse before DP World takes over operation is 
between now and May 1; is that correct?
    Mr. Dalton. Sir, it is the earliest, I believe--I will find 
the exact language in just a second--but I believe it is the 
earliest of the conclusion of the CFIUS process or May 1, if 
you give me just a moment.
    Mr. Skelton. And again, give us the reason for that.
    Mr. Dalton. Sir, we were attempting to address or at least 
provide an opportunity and an avenue to address the concerns of 
Congress and the American people that have been raised through 
the course of this acquisition of the transaction.
    Mr. Skelton. It had no legal binding effect; did it?
    Mr. Dalton. No. We believe it will have a binding effect if 
the United States Government accepts our offer. I think that we 
have found----
    Mr. Skelton. Accepts your offer to do what?
    Mr. Dalton. To hold separate, to honor the commitments that 
we have given in the agreement, we hope that the United States 
Government will accept it. I think we have found ourselves very 
much in unchartered waters here because we had already received 
the CFIUS approval.
    Mr. Skelton. That's right. The deal was done.
    Mr. Dalton. Well, the deal is about to be done, but the 
CFIUS approval was granted, which was, we followed the specific 
legislative intent and the letter of the law set out by the 
United States Government.
    To be honest, I don't think that it is our position to 
comment on whether or not the CFIUS process is correct or 
right. We simply followed what had to be followed.
    Mr. Skelton. No. No. No. You told me a little while ago 
that, Tuesday, the deal is in blood; am I correct?
    Mr. Dalton. That is correct, under the UK takeover code, 
and we would find ourselves in violation of UK law, we believe, 
if we didn't proceed with the deal.
    Mr. Skelton. So, Tuesday, the deal is done.
    Mr. Dalton. We believe it should take place on or about 
Tuesday. Yes, sir.
    Mr. Skelton. Then I still, if the deal is done Tuesday, why 
the May 1 date?
    Mr. Dalton. To give the Congress an opportunity to----
    Mr. Skelton. To do what?
    Mr. Dalton. To take a look at the deal. We are voluntarily 
committing back to the CFIUS process embodied by that process 
as it relates to the United States' facilities.
    Mr. Skelton. That has no legal binding now other than maybe 
to let the thing blow over; is that correct?
    Mr. Dalton. No, sir, we were trying to demonstrate our 
commitment to security and to our cooperation to work with 
Congress. We just found ourselves----
    Mr. Skelton. To do what? How can you work with Congress if 
the deal is done?
    Mr. Dalton. Sir, the deal applies not just to the United 
States but also to many other countries around the world.
    Mr. Skelton. I understand that. But the deal is already in 
blood as of Tuesday it will be.
    Mr. Dalton. Yes, sir.
    Mr. Skelton. So what, how do you work with Congress if the 
deal is behind you?
    Mr. Dalton. Sir, we found ourselves in a very difficult 
position.
    Mr. Skelton. I understand that, but it is a public 
relations thing; isn't it?
    Mr. Dalton. I don't believe so no, sir.
    Mr. Skelton. Thanks counsel.
    The Chairman. I thank the gentleman.
    The gentleman from Pennsylvania, Mr. Weldon.
    Mr. Weldon. I thank the gentleman for yielding, and I want 
to get back to the point that I was raising only because when 
this deal was announced by the Administration, I went on 
national television and blasted the White House publicly.
    And I did so because they didn't have the courtesy to bring 
Members of Congress in from both sides to let us be a help. And 
I don't want to cause a problem with the Emirates because I 
think they have, in fact, been helpful to us. But I blasted the 
White House for what I thought was an inappropriate way of 
involving Congress in transparency.
    And now, what I am finding out is that there have been 
discussions from the other side of the aisle about helping this 
deal move forward.
    Now, I believe that you testified that your lobbying, one 
of your lobbying firms was Alston & Bird; is that correct?
    Mr. Bilkey. No, sir they are our counsel.
    Mr. Weldon. They are your counsel. Is it true that, at 
Alston & Bird, one of the leading people working with you is in 
fact a gentleman named Jonathan Winer.
    Mr. Bilkey. Yes, sir.
    Mr. Weldon. And he is here.
    Mr. Bilkey. Yes, sir.
    Mr. Weldon. And is it true Jonathan Winer spent 10 years as 
Senator John Kerry's aid?
    Mr. Bilkey. He told me that, sir.
    Mr. Weldon. Is one of the other principals in the firm 
involved with this Kathryn Marks.
    Mr. Dalton. May I take that, sir?
    Mr. Weldon. Yes.
    Mr. Dalton. Yes, she is----
    Mr. Weldon. Is it true that Kathryn Marks was policy 
director for Senator John Edwards?
    Mr. Dalton. I saw that in the newspaper for the first time 
yesterday.
    Mr. Weldon. And the reason I say this is, my colleagues and 
I have all been very critical of this Administration, and I 
take the lead on that. And I don't apologize for it. But what I 
see here is leaders of both parties, instead of coming to the 
Congress and letting the Congress come in and understand, which 
is what I would have done when I had this deal, knowing it was 
going to become controversial based on substance or not, after 
the fact, all of these players, including a former President, 
are getting involved to push a deal through that the American 
people, including my constituents, are going bonkers over.
    And that bothers me.
    Now some on the other side are using this as a cheap shot 
to trash President Bush and Republicans in Congress. And I have 
been one of those that has criticized this President in not 
having access. But now I find out it is not just one party.
    I want to get back to when--and now you have told me on the 
record that the Albright firm does not work for your company, 
never has, nor any of the principals or others involved; is 
that correct?
    Mr. Bilkey. No, sir. The Albright company helped us in 
China.
    Mr. Weldon. But they have done nothing on this deal?
    Mr. Bilkey. No, sir.
    Mr. Weldon. They have not talked to any agency heads?
    Mr. Bilkey. I understand they gave us some referrals, but 
that is all.
    Mr. Weldon. They have not talked to the State Department?
    Mr. Bilkey. To the best of our knowledge, no, sir.
    Mr. Weldon. So you have never had contact with anybody in 
Albright's firm about this particular deal in helping it get 
through?
    Mr. Bilkey. To my knowledge, other than what I have been 
told, they made some referrals.
    Mr. Weldon. Mr. Dalton, can you affirm that same statement, 
that you are aware of no involvement by Madeleine Albright's 
firm on this deal?
    Mr. Dalton. My understanding is that one of the principals, 
I am not sure of her name, attended one meeting, and I, the 
rest of what Mr. Bilkey has stated, yes, I can confirm that the 
Albright firm has provided information and help to us in China 
but not in the United States.
    Mr. Weldon. But now you just said, one principal of that 
firm did attend. Would that person have been Carol Browner.
    Mr. Dalton. I believe that is her name.
    Mr. Weldon. And do you know that she was the former 
Environmental Protection Agency (EPA) director in the Clinton 
administration?
    Mr. Dalton. I believe I saw something about that in the 
press as well, sir.
    Mr. Weldon. I don't know why you would say that the 
Albright firm, of which she was a principal, was not involved. 
I understand they may have helped you with China, but we are 
not talking just about China here.
    The problem here, and believe me, I say this as somebody 
who took on the White House and made it very uncomfortable for 
my President and Treasury Secretary Snow and all of the Cabinet 
members--I was willing to do that.
    But I also think the American people have a right to know 
when the other side of the aisle is pushing the deal for 
whatever reason, maybe because it is legitimate.
    And the only reason I raise these questions is your 
testimony, both written and what statement you have given, is 
that there was no need for concern, no need for security 
concerns; you just felt this was a routine transaction that 
would, on the merits, go forward.
    And so I have to ask the question, why would you hire all 
these high-priced firms, both Republicans and Democrats, to 
make it happen if there are no security concerns, if there is 
no way to grease the skids?
    We have got a laundry list of officials here and their 
former staffers that are now involved in making this deal 
happen.
    If this was such an ordinary routine business deal to make 
a sale occur, I don't understand why all of this should be 
necessary.
    Can you help me understand that?
    Mr. Bilkey. Sir, we started on October 17 and way ahead of 
any time frame that we thought we would be able to put it in an 
offer. We also started very early in Australia, because these 
were two areas that had processes that had to go through that 
were going to be time-consuming. And we abided by everything 
that we thought was necessary.
    This was all there was. This is what we did throughout the 
world. And at the end of the time that this happened, and we 
volunteered because it was suggested that they might like to 
talk to you personally and ask questions, so we came in 
December 6, I think, to Washington and met with the 12 
agencies.
    And from that time on, the process continued. And finally, 
we received approval. So we thought we had done all the right 
things, Congressman.
    Mr. Weldon. I understand.
    Mr. Bilkey. And I mean, within our own situation, we said, 
this is what is required. We are doing everything that is 
required. And any process that needed liaison between, you 
know, the Administration and Congress we thought would be part 
of the process. We don't know the process.
    We just did exactly what we were told to.
    Mr. Weldon. I understand and the only reason----
    Mr. Bilkey. And we really, we are very, you know, surprised 
at the reaction.
    The Chairman. I thank the gentleman.
    Gentlemen, let me ask you a couple of questions. First, Mr. 
Bilkey, you stated that President Clinton made a call on the 
Emir or talked to him on the telephone?
    Mr. Bilkey. No, sir, to my chairman, Sultan Ahmed bin 
Sulayem.
    The Chairman. What is his name?
    Mr. Bilkey. Sultan Amid bin Sulayem.
    The Chairman. How did you find out about that?
    Mr. Bilkey. He told me.
    The Chairman. Was this a supportive call or was he 
eliciting advice or what?
    Mr. Bilkey. I don't know the details of the call. He just 
said, he called me.
    The Chairman. About the deal?
    Mr. Bilkey. Yes. I mean, I didn't go into it with him at 
the time.
    Mr. Weldon. Will the gentleman yield?
    The gentleman wasn't here, but you did testify there was a 
recommendation to hire Mr.----
    Mr. Bilkey. Yes, but, my chairman told me that he made this 
recommendation.
    Mr. Weldon. And I assume the gentleman would yield further 
that that was for the purpose of supporting the deal.
    Mr. Bilkey. Yes, it would be.
    The Chairman. So your understanding is that President 
Clinton called in to help support the deal or to offer advice 
on how to get this thing through.
    Mr. Bilkey. I don't know what the conversation was about. 
The only thing I was told was that this had been a 
recommendation.
    The Chairman. Have you had any conversations with your--
this is your president or your Chief Operations Officer (COO)?
    Mr. Bilkey. My chairman.
    The Chairman. Your chairman.
    Did he make any remarks in the wake of Senator Clinton 
criticizing this deal?
    Mr. Bilkey. I have no knowledge of any of that, sir.
    The Chairman. Did you have an answer there, Mr. Moore.
    Mr. Moore. No, I didn't. I had a different subject, and I 
leaped again there. I apologize.
    The Chairman. Okay. Have any of you folks had a discussion 
with President Clinton?
    Mr. Dalton. No, sir.
    Mr. Moore. No, sir.
    The Chairman. Do you know if--do you have any--has there 
been a relationship between your COO and the President before 
this?
    Mr. Bilkey. I don't know. If there has been one, I am not 
aware of it, sir.
    The Chairman. Were you ever aware of him visiting Dubai?
    Mr. Bilkey. I heard he visited Dubai, but I was never 
involved if he did.
    The Chairman. Did they ever maybe hire him for a speech 
that you know of?
    Mr. Bilkey. I read in the paper that he had a speech, today 
or yesterday, but that is the only time I was aware of it.
    The Chairman. That President Clinton had a speech in Dubai 
today or yesterday?
    Mr. Bilkey. No. I read recently----
    The Chairman. You read today that he had a speech at some 
point.
    Mr. Bilkey. Recently, I can't remember if it was today. I 
have been reading a lot of information.
    I don't remember when it was, but there was a reference 
that there was a speech in Dubai, I believe.
    The Chairman. Mr. Bilkey, you heard this litany of 
transfers of technology that took place in Dubai, 
transshipments of components of nuclear systems that took place 
that I read to you or I started out the hearing.
    Mr. Bilkey. Yes, I had heard that, sir.
    The Chairman. Now, I understand the Emir, who is the only 
director, is for practical purposes the leader----
    Mr. Bilkey. He is the shareholder, sir.
    The Chairman. He is the shareholder. What is his position 
in the government of Dubai?
    Mr. Bilkey. He is the ruler, sir.
    The Chairman. He is the ruler of Dubai, and isn't he also, 
he has a place in the United Arab Emirates, does he not?
    Mr. Bilkey. Yes, sir. He is the prime minister.
    The Chairman. I am going to go back to this 2003 transfer 
of these high-speed electrical switches which are utilized for 
detonating nuclear weapons that were allowed to be transshipped 
to a Pakistani businessman through Dubai and the information 
that we have is that Washington protested those transfers. And 
yet the government of Dubai allowed the transfers to take place 
over our protests.
    Do you know anything about that?
    Mr. Bilkey. No. Absolutely not. Only what I read in the 
paper. But I would say one thing as far as the terminal, people 
go and our operations go, we don't know what is in containers. 
The people who know what are in containers are the ship owners, 
the shipping company and customs.
    The Chairman. But in this case, your only stockholder, the 
Emir, he is the government of Dubai. We protested to the 
government of Dubai that these triggers were going to be 
transshipped, and we wanted to stop them so we wouldn't have an 
unfortunate nuclear detonation at some point. So he apparently 
knew even, though he didn't transfer that information to you. 
In your opinion, you understand, is that----
    Mr. Bilkey. I know nothing about this issue. And I am not 
even sure I was in Dubai when it took place.
    The Chairman. If he is--he is the ruler of Dubai. Is that a 
fairly absolute position? Does that mean that the Emir has--is 
the--has the ability to stop a shipment if he wanted to stop it 
from going through Dubai, send the police down, send the port 
authority down? You understand the nature of his government 
there?
    Mr. Bilkey. Yes, sir. But I can't comment on his authority 
and how he would do that.
    The Chairman. Is there anybody else in Dubai that--who 
supersedes him?
    Mr. Bilkey. No, sir, not in Dubai.
    The Chairman. If you discovered, if you were informed that, 
in fact, he, through his subordinates, discussed the 
transshipment of these high-speed switches, that can detonate 
nuclear devices with the United States officials and told them 
he was going to allow the transshipment anyway or allow his 
subordinates to allow the transshipment, would that be 
relevant, from your perspective, with respect to this deal, 
this port deal? Or would it be irrelevant?
    Mr. Bilkey. Well, I would imagine, sir, it would be a 
matter between not Dubai but the UAE and the U.S. Government. 
And it would be the UAE would be taking action.
    The Chairman. Now what is this gentleman's name, say it one 
more time, the Emir?
    Mr. Bilkey. The Emir, Mohammed bin Rashid
    al-Maktoum
    The Chairman. Isn't he also the vice president of the UAE?
    Mr. Bilkey. Yes, sir, and the prime minister.
    The Chairman. Well, in that case, we are talking about the 
same guy. I don't care if he moves from one desk to another, 
and you say you are dealing with the UAE now, and you are not 
dealing with Dubai. It looks to me like you have got the same 
power in government behind both of those desks.
    So my question to you is--and same guy who is the only 
shareholder in the corporation.
    Would he not be in a position to have stopped those high-
speed switches that could be used to detonate nuclear devices? 
Would he be in a position to stop a shipment? What is your 
basic take on the way the government is set up? Is there 
somebody----
    Mr. Bilkey. I can't answer that, sir, because I am not a 
specialist on the government of the UAE. They have a council of 
ministers, and I don't know how they function exactly.
    The Chairman. Are you aware of any of the, have you heard 
anything or have you been faintly aware of any of these 
transshipments that have taken place with respect to either the 
precursors to nerve gas, a transshipment to Iran, the 
precursors of nerve gas, the 66 high-speed nuclear weapons 
switches that I talked about, the heavy water shipments from 
China and Russia to India, through Dubai, have you ever heard 
of any of those transfers?
    Mr. Bilkey. No, sir.
    The Chairman. And you are the chief operating officer for--
--
    Mr. Bilkey. Yes. And I don't even know when they took 
place. But what I can tell you is that, since the CSI agreement 
was signed between the UAE and the United States, that any 
container that U.S. Customs, transshipment or not, wishes to 
inspect, they have, in the agreement, they have the right to 
inspect. And not only that, in most countries, it will be the 
agency of the country that will make the inspection. In Dubai--
--
    The Chairman. But they didn't stop the shipment of those 
triggers.
    Mr. Bilkey. I have no idea the years we are talking or when 
we are talking about. But I do know what the situation is now, 
and that is what interests me now, is security from now going 
forward.
    And I do know that it is a very unique situation that we 
have. And I know that we have very strong operations supporting 
the efforts in Afghanistan, in Iraq, going through Dubai at the 
present time.
    The Chairman. Okay. Thank you.
    Do we have anybody else with questions?
    Yes. The gentleman from New Jersey.
    Mr. Andrews. I will be very brief because I think we have 
exhausted this. One thing I want to make very clear on the 
record to is it Mr. Bilkey, I am sorry, correct, is the CEO, 
thank you for your patience and for your diligence.
    The prime minister of Dubai is the sole shareholder of the 
corporation; correct?
    Mr. Bilkey. Yes, sir.
    Mr. Andrews. Am I correct in assuming that, under Dubai 
law, that if he chose to dismiss you or any of your 
subordinates, he has the power to do so?
    Mr. Bilkey. That power would be with the board of 
directors. The board of directors is made up of Sheik Mohammed 
and Sultan Sulayem.
    Mr. Andrews. Under the law of--you are a Dubai corporation; 
is that correct?
    Mr. Bilkey. Actually, we are a free--a Jebel Ali Free Zone 
cooperation.
    Mr. Andrews. Under the chartering law of your corporation, 
does the shareholder have a right to elect a new board of 
directors that would follow his will?
    Mr. Bilkey. I am not sure of that, sir.
    Mr. Andrews. Does your counsel know?
    Mr. Dalton. I am not a Dubai lawyer, but I believe the 
shareholder would have the authority.
    Mr. Andrews. So isn't the practical answer to that question 
is, should the sole shareholder wish to change the management, 
he has the power to do so?
    Mr. Bilkey. I would think so. It is true in most companies.
    Mr. Andrews. I would think so.
    Thank you very much, Mr. Chairman.
    Mr. Weldon [presiding]. We will move on to the next panel. 
I want to thank you all for appearing before us. We appreciate 
your statements, and formal comments will be entered into the 
record. Thank you.
    Our next panel will include five witnesses, four of whom 
will give testimony.
    We would ask them to come to the table, the dais, at this 
point in time.

 STATEMENT OF ERIC S. EDELMAN, UNDER SECRETARY OF DEFENSE FOR 
    POLICY, DEPARTMENT OF DEFENSE; STEWART BAKER, ASSISTANT 
    SECRETARY, POLICY, PLANNING AND INTERNATIONAL AFFAIRS, 
    DEPARTMENT OF HOMELAND SECURITY; CLAY LOWERY, ASSISTANT 
   SECRETARY, INTERNATIONAL AFFAIRS, U.S. DEPARTMENT OF THE 
    TREASURY; ALAN MISENHEIMER, DIRECTOR, OFFICE OF ARABIAN 
PENINSULA AND IRAN AFFAIRS, DEPARTMENT OF STATE; AND REAR ADM. 
 THOMAS GILMOUR, USCG, ASSISTANT COMMANDANT FOR MARINE SAFETY, 
             SECURITY AND ENVIRONMENTAL PROTECTION

    Mr. Weldon. Our second panel today consists of Ambassador 
Eric Edelman, Under Secretary of Defense for Policy, Department 
of Defense; Mr. Stewart Baker, Assistant Secretary of Policy, 
Planning and International Affairs, Department of Homeland 
Security; Mr. Clay Lowery, Assistant Secretary, International 
Affairs, Department of Treasury; Mr. Alan Misenheimer, 
director, Office of Arabian Peninsula and Iran Affairs, 
Department of State; Rear Admiral Thomas Gilmour, Coast Guard 
Assistant Commandant for Marine Safety, Security and 
Environmental Protection.
    We welcome each of you here. Your written statements will 
be entered into the record as you prepared them, without 
objection. And I understand that only four of you are going to 
give statements. My understanding is that Mr. Misenheimer is 
not going to give a statement but is here in case we have 
questions, and anything you have for the record, we would 
accept as well.
    We thank you all for appearing. We have been in a rather 
long hearing today, and you have heard probably many of the 
proceedings, so you know the tone of discussion. Plus you have 
been on the other side, so you are used to this drill. We do 
appreciate you being here, and I would like to now--did you 
want to make any opening on this?
    Mr. Skelton. No.
    Mr. Weldon. So we will proceed with Ambassador Edelman.

                  STATEMENT OF ERIC S. EDELMAN

    Mr. Edelman. Congress Weldon, thank you very much. Members 
of the committee, I appreciate the opportunity to appear before 
you today to discuss the Department of Defense (DOD's) role in 
the Committee on Foreign Investments in the United States and 
our review of the Dubai Ports World P&O transaction.
    When the Department of Defense participates in the CFIUS 
process, we weigh a number of factors. I thought it would be 
useful to walk through them as we consider an acquisition.
    First and foremost, of course, our primary objective, as 
yours is, is to ensure that any transaction does not pose risks 
to U.S. national security interests. And to do that, we 
consider several aspects.
    First is the importance of the firm to the U.S. defense 
industrial base, which is to say, 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?
    A second question is whether the company is involved in 
proliferation of sensitive technology or weapons of mass 
destruction.
    A third is whether the company to be acquired is part of 
the critical infrastructure that the Department needs in order 
to accomplish its mission.
    And finally, we look at whether any of the potential 
national security concerns that might be posed by the 
transaction can be eliminated by the application of risk-
mitigation measures either under our own regulations or through 
negotiation with parties.
    Regarding this specific CFIUS transaction, I thought it 
would be useful to just walk through the history.
    The Departments of Treasury, Commerce and Homeland Security 
met with the legal representatives of Dubai Ports World and P&O 
for a CFIUS pre-filing notification consultation on October 31, 
2005. On December 6, 2005, the companies held a pre-filing 
briefing for all of the CFIUS agencies.
    The Defense Technology Security Administration (DTSA) 
attended the meeting for the Department of Defense. On December 
16, the Department of Treasury received an official CFIUS 
filing. And on the same day, Treasury circulated the filing to 
all of the CFIUS member agencies for review, and DTSA staffed 
it to 16 other Department of Defense elements or agencies for 
review and comment.
    The review conducted by the Department of Defense on the 
transaction was not cursory, and it was not casual.
    It was in depth. And it was comprehensive.
    The transaction was staffed and reviewed within the DOD by 
17 of our agencies. In this case, the DOD agencies reviewed the 
filing for impact on critical technologies, the presence of any 
classified operations existing with the company being 
purchased, military transportation and logistics as well as our 
concerns that the transaction might raise.
    During the review process, DOD did not uncover national 
security concerns that warranted objection to the transaction 
or requiring the 45-day investigation.
    Positions were approved by staff that ranged from subject 
matter experts up to, in one case, a Deputy Under Secretary of 
Defense as appropriate to the offices undertaking the review.
    All of the offices that were consulted came back with the 
same position, which was that the transaction did not require 
further investigation.
    The DOD organizations that reviewed this and the other 
CFIUS transactions that had come before us bring to bear a very 
diverse set of subject matter expertise, responsibility and 
perspective. The organizations included, for example, the 
office of the Under Secretary for Intelligence, the Office of 
the Under Secretary For Acquisition, Logistics and Technology, 
the military departments, U.S. Transportation Command, the 
National Security Agency (NSA) and the Defense Intelligence 
Agency (DIA).
    The Army, for example, reviewed the case in the following 
manner. The Army Material Command Headquarters and Assistant 
Secretary of the Army for Acquisition Logistics and technology 
staff gave a preliminary review immediately upon receiving the 
case. Army Material Command then staffed the filing to their 
subordinate readiness command 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 that it had no objection to the transaction.
    The Defense Security Administration, which reviews, 
coordinates and analyzes the recommendations from all the other 
DOD components as well as assessing the export control and 
sensitive technology issues, ultimately signed off on the 
transaction for the Department.
    The comprehensive and in-depth review we had of the 
transaction did not raise any issues. We remain comfortable 
with the decision that was made on that review. I would add 
that, early in my tenure, Deputy Secretary of the Treasury 
Kimmitt contacted me to talk to me about the Government 
Accountability Office (GAO) report that was done on the CFIUS 
process and the importance of making sure that the security 
agencies, notably the Department of Defense, had their views 
fully heard and had sufficient time to analyze sometimes 
complicated technological parts of proposed transactions and, 
in addition, had time to, if conditions warranted, work out 
possible mitigation measures with the companies involved.
    Some of those steps have been taken. The process continues. 
And clearly, we, I think, agree that it is a process that can 
use even more improvement and look forward to working with 
members of the committee as the process goes forward to try and 
see what we can do to improve it.
    I do also want to take the opportunity to provide a bit of 
a perspective for the committee from the Department of Defense 
point-of-view on the role of the government of the United Arab 
Emirates and their support as a friend and ally in the global 
war on terror.
    In the war on terrorism, the United States needs friends 
and allies around the world, especially in the Middle East, to 
win this struggle.
    Our recently published Quadrennial Defense Review (QDR) 
highlighted that, in conducting the fight, it is important to 
strengthen the bonds of friendship and security with friends 
and allies around the world.
    And the United Arab Emirates is an outstanding example of 
the kind of partner critical to winning the long war on terror. 
Dubai was the first Middle Eastern country or entity to join 
the Container Security Initiative, the multinational program to 
protect global trade from terrorism.
    It was 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 counterterrorist 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 U.S. and coalition 
forces with access to its territory and facilities, and General 
Pace has summed up our Defense relationship by saying that, 
quote, ``in everything we have asked and worked with them on, 
they have proven to be very, very solid partners.''
    We have been provided access to seaports and airfields like 
al 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 of the United States.
    And last year, U.S. Navy war ships and U.S. Military 
Sealift Command ships spent over 1,400 days in the ports of 
Dubai, Jebel Ali, Abu Dhabi and Fujairah.
    By the way, the port at Jebel Ali happens to be managed by 
Dubai Ports World, which is also the only carrier-capable port 
in the Gulf.
    U.S. Air Force has operated out of al Dhafra since the Gulf 
War in 1990, and today, it is an important location for air 
refueling and reconnaissance aircraft supporting operations in 
Iraq and Afghanistan. And we should note that our most valuable 
commodity, our military men and women, are frequent visitors to 
the UAE on liberty or leave while deployed in the region. And 
we, of course, rely on the government of UAE to protect those 
folks, and we are grateful for their assistance.
    Finally, the United Arab Emirates has been very supportive 
in our efforts in Iraq and Afghanistan. They have 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.
    Mr. Chairman, that concludes my formal statement, and I 
would be happy to answer any further questions you or your 
colleagues have after my other colleagues have had a chance to 
make their statements.
    Mr. Weldon. Thank you.
    Assistant Secretary Baker, the floor is yours.

                   STATEMENT OF STEWART BAKER

    Secretary Baker. Thank you, Chairman Hunter, and members of 
the committee. It is a pleasure to be here. I would like to 
explain the role of the Department of Homeland Security in this 
transaction. We are the newest member of CFIUS and have been 
particularly aggressive in raising new issues about particular 
transactions that we think required further review.
    It is a record we are proud of. Notwithstanding our 
willingness to stand alone on behalf of certain concerns about 
homeland security, we did approve this transaction. I think the 
committee's question for us is why we did that.
    And I think the answer to that lies in the three questions 
that we would ordinarily ask ourselves before voting against a 
transaction. Those are: Do we have any other legal authority to 
prevent the national security harms that are of concern here? 
What do we know about the companies that are carrying out the 
transaction and their willingness to cooperate in national 
security concerns? And are there any further assurances that we 
want to negotiate or obtain from the companies as part of a 
condition on approving the deal?
    We ask those questions. And if we don't get satisfactory 
answers, we will object to the closing of the transaction.
    In this case, it happens that there are significant answers 
to all three of those questions. Since September 11, we have 
changed our approach to the security of our ports and to the 
security of cargo. With the help of Congress, with the Maritime 
Transportation Security Act, we now have substantial authority 
for the Coast Guard, which I will let Admiral Gilmour talk 
about, both to impose regulations on members of, the 
participants in a port, facilities in a port, and also to 
inspect foreign ports to make sure that they maintain security.
    We also have substantial new authorities with respect to 
the supply chain, containers. We receive word before the 
container is put in the ship in a foreign port. We have to 
receive 24 hours in advance, a list of the contents. We can 
decide at that point that we would like the containers screened 
in the foreign port, actually inspected, x-rayed or otherwise 
run through a radiation monitor or actually physically 
inspected in order to make sure that there is not a problem. We 
do that with any high-risk containers that we encounter in 
foreign ports.
    Then, when the cargo is closer to the United States, we 
have a variety of reporting, including 96-hour report on the 
manifest and the crew and passengers so that we can do 
background checks on crew and passengers before they arrive.
    When the cargo arrives, we, of course, have full authority 
over what happens to the contents of the ship. We can meet the 
ship at dockside. We can meet the ship offshore. We can 
designate any of the containers that we wish to go to further 
inspection, radiological or otherwise.
    We make those decisions principally based on a variety of 
intelligence and information we have about anomalies in the 
supply chain or aspects of the shipment that raise its risk 
score.
    Once we have done that, and only after we have done that, 
is the cargo free to leave the port.
    In the course of that, we do deal with terminal operators. 
And I think this committee understands better than the press 
has what the role of a terminal operator is. Terminal operators 
do not run ports. They are not responsible for the security of 
the ports.
    They have a pier. They have a crane, and they have a 
parking lot to put the cargo on when they unload it.
    That is an important job. It is a job that gives them some 
insight into the operations of the port. And it gives them a 
modest insight into our security activities.
    They see what containers we send to screening to inspection 
in the United States. They do not know why. They may not even 
know what is in those containers. But they have some modest 
insight into it, and they also have a role in security because 
they have facilities on the port premises. We require them to 
have a facilities security plan. The Coast Guard inspects the 
facility to make sure it maintains those security standards.
    That is the role that they have played.
    The next question is, what do we know about the companies?
    We, actually, it turned out, had had pretty close 
relationships with both companies. This is a little unusual 
because Dubai Ports World is not operating in any significant 
way in the United States. Nonetheless, because they have a very 
substantial role in Dubai, we had encountered them in the 
course of pushing out our borders so that we could do 
inspections abroad. We negotiated agreements, CSI agreement, 
with the port, the Dubai Port Authority.
    And Dubai Ports World was critical to the implementation of 
that, and also a Department of Energy screening program that 
was also set up in Dubai, so that they were, I think Dubai was 
the first port in the Middle East where we established this 
kind of screening. And Dubai Ports World was a very cooperative 
and professional partner in doing that.
    We also, of course, knew the facilities in the United 
States. And in addition to Coast Guard inspections, they 
belonged to our Customs and Border Protection Best Security 
Practices Program, the Customs-Trade Partnership Against 
Terrorism, which requires a wide variety of higher security 
practices than is normal in the trade and is a voluntary 
program. P&O, the owner of those facilities, had joined that 
program and had maintained very strong security standards as 
part of that program.
    So we had a lot of authority already over port and cargo 
security.
    We had good experiences, cooperative professional 
experiences with all the facilities and with the company that 
is acquiring them.
    We nonetheless decided when we looked at this that we 
wanted to do something more and something that had no 
precedent. We had decided to ask the company for a set of 
assurances about their future behavior after the transaction 
was consummated.
    This is something that we have done in other areas, 
particularly telecommunications and high technology. We have 
never done it in the context of a ports deal. But we decided 
that, given how important port security was to our mission, 
that we should leave no stone unturned. And so we sat down with 
the company and negotiated a set of assurances that I think you 
have talked about today already.
    The principal assurances in that letter are, one, that the 
programs that they had voluntarily entered into, the Dubai 
Ports World screening in Dubai and the C-TPAT Best Security 
Practices in the United States would be maintained, that the 
companies would never allow their level of cooperation and 
membership to go below their current level.
    That is very important because that means that there are 
probably 5,000 or 6,000 members of C-TPAT; for two of them now, 
that program is not voluntary. It is mandatory. And those are 
the two companies that are engaged in this transaction.
    Same is true for the Foreign Screening Program where, 
again, we have locked Dubai Ports World into its current level 
of cooperation.
    It was after we got all those assurances and could look to 
our existing authority that we decided that we had done an 
appropriate amount of protection for port security in this 
context; that we had gone beyond what anyone else is required 
to do. And for that reason, we decided not to stand in the way 
of the transaction.
    Thank you.
    [The prepared statement of Secretary Baker can be found in 
the Appendix on page 160.]
    Mr. Weldon. Thank you, Mr. Secretary.
    Mr. Lowery, the floor is yours.

                    STATEMENT OF CLAY LOWERY

    Secretary Lowery. Congressman Weldon and members of the 
committee, thank you very much for allowing me to explain today 
about CFIUS, the Committee on Foreign Investment in the United 
States, and a little bit on its role in the DP Worlds' 
acquisition of P&O.
    CFIUS is an interagency group comprised of the Departments 
of Treasury, State, Justice, Commerce, Defense, and Homeland 
Security.
    It also includes six White House offices, including the 
National Security Council and the U.S. Trade Representative.
    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, also known as CARC, was created. This 
office is now under the Director of National Intelligence and 
provides CFIUS with a threat assessment of the foreign 
inquirer.
    Further, following September 11, the newly created 
Department of Homeland Security was added to the committee. And 
DHS has played a primary role in reviewing many transactions, 
including the one at hand.
    Further, agencies that are not formal members of CFIUS are 
often called upon to lend their expertise, such as the 
Department of Energy and the Department of Transportation.
    CFIUS operates through a process in which Treasury, as the 
chair, receives notices of transactions, circulates these and 
other materials to members of the committee and coordinates 
interagency process.
    Upon receipt of a filing, CFIUS staff 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 30-
day review period, then the case goes to an extended 45-day 
investigation period.
    The investigation period provides CFIUS and the transaction 
parties additional time to address security concerns that were 
identify but not resolved during the review period. It also 
could provide the time to get a report to the President of the 
United States.
    Under the Exon-Florio amendment, upon completion of the 45-
day investigation, the Secretary of Treasury forwards a 
recommendation on to the President who then has 15 days to take 
action. Upon making that determination, the President then 
sends a report to Congress detailing its decision. The most 
recent such report occurred in 2003 when the President reported 
to the Congress on its decision not to block the transaction 
between Singapore Technologies Telemedia and Global Crossing.
    Turning now on the DP World transaction, in contrast to 
some accounts, we would note that this transaction was not 
rushed through the review process in early February, nor was it 
casual, nor was it cursory.
    On October 17, 2005, lawyers from DP World and P&O 
informally approached the Treasury Department staff to discuss 
the preliminary stages of the transaction.
    In this case, Treasury staff identified port security as 
the primary issue and immediately directed the companies to the 
Department of Homeland Security which, with the Department of 
Justice and others, met on October 31 with the companies to 
review the transaction and security issues.
    On November 2, Treasury staff requested an intelligence 
assessment from the Director of National Intelligence. Treasury 
received this assessment on December 5, and it was circulated 
to the staff members of CFIUS.
    On November 29, DP World issued a press release along with 
P&O concerning their proposed merger. This announcement was 
carried in numerous press articles in the weeks that followed.
    On December 6, staff from the CFIUS agencies met with 
company officials to review the transaction to request 
additional formation. On December 16, after almost 2 months of 
informal interaction and 45 days after CFIUS requested the 
intelligence assessment, the companies officially filed their 
formal 30-day notice with the Treasury Department.
    Treasury circulated the filing to all CFIUS departments and 
agencies and also to the Departments of Energy and 
Transportation, because of their statutory responsibilities and 
experience with DP World.
    During the 30-day review, 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 which Secretary Baker just discussed that addressed port 
security concerns that have been raised earlier in the process. 
The letter was circulated to the committee on January 6 for its 
review and CFIUS concluded its review on January 17.
    Far from rushing the review, the members of the 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 the concerns raised by yourselves, State and 
local officials, and other interested parties.
    We welcome your input during the process, including issues 
that will be raised in today's hearing.
    Mr. Chairman, members of the committee, those of us sitting 
at this table this afternoon share with you one fundamental 
principle, 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 period was 
guided by this standard as will our further efforts under this 
new review process that the companies have asked for.
    We are sure it will also guide your review and the 
President's report to you at the end of the investigation. I 
thank you for your time, and I am happy to answer any 
questions.
    [The prepared statement of Secretary Lowery can be found in 
the Appendix on page 171.]
    Mr. Weldon. I thank you.
    And finally, Admiral Gilmour, the floor is yours.

             STATEMENT OF REAR ADM. THOMAS GILMOUR

    Admiral Gilmour. Thank you, Congressman Weldon.
    Let me begin by stressing that the Coast Guard is the 
Federal agency in charge of maritime security in our ports and 
waterways. We regulate facilities and vessel security under the 
authority of the Marine Transportation Security Act (MTSA) and 
the International Ship and Port Facility Security Code 
developed with our efforts at Internatinal Maritime 
Organization (IMO).
    These security rules are complementary in nature and 
specify detailed requirements for both vessels and for 
facilities and allow us to inspect the ports of all of our 
trading partners.
    There are over 3,000 marine cargo facilities in the United 
States. Each has an approved and inspected security plan.
    Since July 2004, we have required corrective action to more 
than 700 violations of the MTSA security regulations. Of those 
700 violations, 44 resulted in major control actions, such as 
terminating cargo operations or closure of a facility until 
corrective measures were taken.
    We also oversee the arrival of foreign vessels 96 hours 
before they arrive at our ports and enforce security compliance 
with the ISPS code.
    Since July 2004, we have conducted approximately 16,000 
foreign flag vessel boardings. They were conducted either 
offshore or in port depending on the risk assessed prior to 
each vessel's arrival into U. S. Ports. As a result, we have 
imposed 143 detentions, expulsions or denial of entry for 
vessels that fail to comply with international security 
requirements.
    During the CFIUS process, the Coast Guard's intelligence 
assessment concluded that DPW's acquisition of P&O in and of 
itself does not pose a significant threat to U.S. assets in the 
continental United States ports.
    However, it also identified the need for additional 
information. We have addressed those gaps by obtaining formal 
assurances from DPW regarding ongoing access of information on 
personnel and operations.
    And during the 45-day review period, the Coast Guard will 
continue to work diligently with the Department of Homeland 
Security and the intelligence community to ensure that the port 
security concerns are fully raised and objectively analyzed. In 
addition, the Coast Guard will assess DP World's ports in Dubai 
and also audit all of P&O operations in the United States.
    Thank you for the opportunity to testify today, and I am 
happy to answer any questions.
    [The prepared statement of Admiral Gilmour can be found in 
the Appendix on page 177.]
    Mr. Weldon. Thank you very much.
    Thank you for each of your testimony and for your service 
to the country.
    First of all, I want to just make a statement. I, like my 
colleague Mr. Spratt, we were involved in the Cox Committee 
investigation back in the mid 1990's, authorized by the 
Congress to look at the transfer of technology to China from 
the U.S., and we voted nine-to-zero that our security was 
harmed through the Chinese efforts. And in that investigation, 
we also saw attempts by the People's Liberation Army (PLA) to 
use dollars to infiltrate companies in the U.S. through third-
party financial operations in European banking institutions.
    Unfortunately, one of the things that happened in the 
1990's which was not a recommendation of the Cox Committee--in 
fact, it was quite the contrary--was the abolishment in 2000 of 
the Pentagon Office of Technology Security Operations.
    This office came under--I believe it was DTSA, and did a 
fantastic job at going out and doing hands-on investigations 
for exactly this kind of purpose. And so I would say at the 
outset that, since 2000, in my opinion, we were doomed to 
failure.
    We took away the capability, at least from DOD's part, to 
do a full assessment. And I say that as both the vice chairman 
of this committee and the vice chairman of the Homeland 
Security Committee; we are at dual roles.
    I am concerned about this deal, number one, because there 
was no effort to bring Congress into the process.
    Now, you may say, well, that wasn't mandated by the policy. 
But clearly, Congress has concerns on security. That is nothing 
new.
    The President is constantly talking to us about the need to 
pass legislation dealing with homeland security and whether it 
is the Patriot Act or whatever, and we have done it.
    Anyone in their right mind had to understand, this kind of 
a proposal, in this environment, whether it was substantive or 
not, was going to generate significant concern. You would have 
to be a turtle with your head in the ground not to be able--now 
maybe it wasn't you all that should have pointed out, but 
somebody had to say, hey, wait a minute this deal, because of 
who is involved and where it is, we ought to at least have some 
process to bring Congress in; not all Congress, maybe the 
leadership of the Congress.
    And that is why I was so incensed when this deal was 
announced by the media, especially with me representing the 
area right next to Philadelphia ports. And I called the Tioga 
terminal folks, and they said, we have no idea what's going on, 
Congressman; nobody has talked to us. And that is the portion 
of the Philadelphia port that would be affected by this action.
    My concerns also now are that, as I mentioned in an earlier 
session, it reminds me of the Chinese incident several years 
ago when, again, the White House didn't talk to the Congress, 
so we almost went to war because President Clinton told the 
Chinese government in Beijing that he would not issue a visa to 
the president of Taiwan Lee Teng-hui to come back to his alma 
mater to give a graduation speech. And he did that without 
talking to the Congress. When the Congress found out, we 
overruled the President, and the visa was granted.
    Well, the Chinese thought that was a deliberate slap in 
their face, and they started launching missiles across the 
Taiwan Straights at Taiwan.
    We sent a carrier up the Straits of Taiwan and almost went 
to war over a lack of communication between the White House 
and, in this case, China over an issue that could have had us 
work together.
    In this case, there was none of that, and now we learned 
the company involved has hired lobbying firms from both parties 
and leaders to make their case today and to try to get us to 
allay our concerns. Lobbyists should not be the ones to tell us 
that this deal is okay. The facts and the details that you all 
should have looked at should be the justification for our 
decision, to support this which is going to take a long bit of 
convincing to make me feel comfortable with that, with the 
decision you ultimately made.
    Now, it has been reported that the CFIUS committee--
commission--decided that the interpretation of the Byrd 
language, even though it says, requires a 45-day action, of an 
investigation, when two criteria are met, then you all 
interpreted it that that was voluntary. Now my understanding is 
that only three of you were actually involved in that process.
    Mr. Weldon. So is that the opinion of the three of you who 
were involved. I'll start with you, Mr. Lowery.
    Secretary Lowery. Sir, that has been the opinion of this 
Administration and the last Administration, it has been the way 
that it has been conducted for the last 13 or 14 years.
    Mr. Weldon. You are aware it is not the opinion of the 
member who wrote that.
    Secretary Lowery. I think he made that abundantly clear.
    Mr. Weldon. You are aware most of us feel the same way.
    Secretary Lowery. You have made that abundantly clear.
    Mr. Weldon. So is your position that no one questioned 
that, in this sensitivity of this case no one thought perhaps 
we should do a 45-day?
    Secretary Lowery. The mandatory language from the Byrd 
amendment has been interpreted this way for 13 years. It has 
been the way that we have conducted our business. We have never 
tried to hide that fact. It has always been the way we have 
done it and I understand the Department of Justice has put in a 
legal brief about there issue.
    Mr. Weldon. But no one involved, and you are one of the 
three at this table, no one raised that concern, saying perhaps 
this time we should, based on at least a minimum what the Coast 
Guard put forward, which I have a statement which I will enter 
into the record of their concerns in this case. No one said 
maybe we should, since two of these factors identified by the 
Byrd amendment, you did not consider that, no one.
    Secretary Lowery. Sir, as I mentioned, if the national 
security concerns had raised--there was an objection of any of 
the members of CFIUS, then we would have gone into that 45-day 
investigative period. None of the members on the CFIUS panel 
raised an objection on national security based on this 
transaction that could not be resolved or that were not 
resolved.
    Mr. Weldon. Did you consider recusing yourself as a 
representative of Treasury Secretary Snow because of his 
involvement with some of the principles of this firm?
    Secretary Lowery. Sir, I think that if there if there would 
be a recusal it would be the Secretary himself, however, I 
believe that the legal counsel has taken an opinion he did not 
need to recuse himself, but I'm not an expert. Because he had 
left CSX roughly 2 years prior to the acquisition of CSX 
overseas assets by DPW, my understanding is legal couple said 
there was no reason for him to.
    Mr. Weldon. Since you were, I understand, chair of this 
process, were you aware of those connections to the Treasury 
Secretary, and were you aware there were CSX employees involved 
in this company that wanted to complete this transaction?
    Secretary Lowery. No, sir.
    Mr. Weldon. You were not aware of that?
    Secretary Lowery. No, sir. I was not aware of it because I 
actually did not know about the transaction myself.
    Mr. Weldon. But you were not aware any of the employees 
making the acquisition attempt had been involved with Treasury 
Secretary Snow at any previous time at CSX.
    Secretary Lowery. I don't know anything about that, sir.
    Mr. Weldon. Who did--the overview, I guess, for defense, 
would have been done by you, ambassador, and by your staff, is 
that correct?
    Mr. Edelman. The process was managed by the DTSA for the 
Department of Defense, but as I indicated, it is farmed out to 
a variety of other elements of the Department, sir.
    Mr. Weldon. You are aware DTSA no longer has the office 
that, in fact, used to do that investigative work.
    Mr. Edelman. I am glad you raised that. I can completely 
understand the concern that you raised about the DTSA, the 
defense technology security office. My understanding is that 
the office was melded into DTSA's policy directorate and 
renamed the assessments division, which is now responsible for 
the CFIUS portfolio. Its civilian workforce is still made up of 
intelligence professionals as it was during the time of 
Technology Security Operations (TSO), and that division now has 
more personnel than TSO did and that the mission remains the 
same as TSO, they review the intelligence products provided 
under the CFIUS process. They do end user checks on 
approximately 30,000 export licenses a year, and they have 
extensive access to intelligence databases.
    Mr. Weldon. Two concerns that I have and again I am not 
trying to cast any negative light on the Emirates. They have 
been helpful and I publicly acknowledge that and the way this 
deal was handled has put us in an extremely difficult if not 
impossible situation. As I said earlier, we are damned either 
way this goes. If we stop the deal, we are damned because the 
Emirates would think we have done this to embarrass them, if 
the deal goes through then we will be blamed for not having 
done our homework. So either way we lose.
    I will give you a couple of issues you can respond to. One 
is a memo that was sent on the 14th of May in 2002 by al-Qaeda 
and I have it in both in Arabic and in English: To the 
officials of the United Arab Emirates and especially the two 
emirates of Abu Dhabi and Dubai. Are you aware of such a memo 
that was sent?
    Mr. Edelman. I actually became aware of that in the last 24 
hours that this memo exists. I believe it is an annex in a 
document prepared by the counterterrorism center at West Point.
    Mr. Weldon. Came from General Downing.
    Mr. Edelman. I met with him last night and discussed this 
product, in fact he gave me a copy of it and I have seen the 
document which I believe is an annex.
    Mr. Weldon. Would that have affected your opinion?
    Mr. Edelman. Obviously that is a data point we will have to 
include in our review, but I also think as with any other data 
point, it needs to be looked at in the context of the whole 
broad array of intelligence and what its providence.
    [The information referred to can be found in the Appendix 
on page 200.]
    Mr. Weldon. Without objection, I will enter it into the 
record. I want to read part. This was sent by al-Qaeda to the 
officials of the United Arab Emirates, in particular Abu Dhabi 
and Dubai. I will read two sections. You are well aware that we 
have infiltrated your security, censorship and monetary 
agencies along with other agencies that should not be 
mentioned. Therefore, we warn of the continuation of practicing 
such policies which do not serve your interest and will only 
cost you many problems that will place you in an embarrassing 
state before your citizens.
    In addition, it will prove your agencies' immobility and 
failure. Also, we are confident that you are fully aware your 
agencies will not get to the same high level of your American 
lords. Furthermore, your intelligence will not be cleverer than 
theirs and your censorship capabilities are not worth much 
against what they have reached. In spite of all this, Allah has 
granted us success to get even with them and harm them. 
However, you are an easier target than them. Your homeland is 
exposed to us. There are many vital interests that will hurt 
you if we decide to harm them, especially since you rely on 
shameless tourism in your economical income. Finally our 
policies are not to operate in your homeland or to tamper with 
your security because we are occupied with others. If you 
compel us to do so we are prepared to postpone our program for 
a short period and allocate time for you.
    This was sent to the leadership of the Emirates. The same 
people that you all said there is no problem with. Now I wonder 
if they told you if you found that in your process that they 
had been warned by al-Qaeda that they had fully infiltrated all 
of the operations of the Emirates government. Were any of you 
aware of that? Were you, Mr. Lowery?
    Secretary Lowery. No, sir.
    Mr. Weldon. Mr. Baker.
    Secretary Baker. No, sir.
    Mr. Weldon. Were you, Admiral?
    Admiral Gilmour. No, sir.
    Mr. Weldon. Ambassador, you told me you found out about it 
yesterday.
    I have been critical of the 9/11 Commission lately, and I 
think rightfully so, but I want to refer to a provision last 
week and page 137 in the 9/11 Commission report, I don't know 
whether you have had a chance to look at it, it is called the 
Desert Camp, February of 1999.
    [The information referred to can be found in the Appendix 
on page 190.]
    Mr. Edelman. I have not looked at it recently, but I am 
aware of the contents and several references throughout the 
reports to the Emirates.
    Mr. Weldon. I am going to paraphrase. I would, without 
objection, place this into the record. But what it says: Early 
in 1999 the CIA received information that Osama bin Laden was 
one of several camps in the Afghan desert, a desert hunting 
camp. There, in fact, was an incident where we were going to 
attack that camp. In fact, our intelligence and our military 
folks had planned the attack. They were concerned about the 
strike. This is according to CIA defense officials. Because 
they might kill an Emirate prince or other senior officials who 
would have been with bin Laden or close by. So we called the 
strike off.
    So this country, knowing bin Laden was frequenting a camp 
in Afghanistan called off a strike because of our fear that 
Emirates officials, in this case, a prince was there because we 
had seen evidence of an Emirates airplane. It was a lost 
opportunity to kill bin Laden.
    On March 7th of 1999, you know who I am talking about, 
called a UAE official to express concerns about possible 
associations between Emirate leadership and bin Laden. A week 
after that, less than a week, that camp was gone. It was gone.
    Now I can't prove that the officials of the Emirates told 
bin Laden to get rid of your camp because the U.S. is after you 
but would I assume that is what happened. The United Arab 
Emirates was a counterterrorism ally but the fact is imagery 
confirmed that the camp was hurriedly dismantled and the site 
was deserted. This is the same group of people that we have 
basically said it is okay that one of these leaders of this 
family, in fact, owns this site. This is a chance that we had 
to take out bin Laden, and I think anyone reasonably could 
assume that because of information provided to the Emirates 
leadership, that camp was destroyed.
    Do you know if that was considered as a part of the defense 
assessment of this operation of your CFIUS assessment?
    Mr. Edelman. I can't say, sir, within a certainty what 
specific information from the 9/11 Commission people may or may 
not have brought to bear.
    Mr. Weldon. How about the person representing you? Was she 
aware of this? Can I ask her that?
    Mr. Edelman. You are certainly welcome to do that. Ms. 
McCormack.
    Ms. McCormack. No, I was not aware of that. I am aware of 
the 9/11 Commission report.
    Mr. Weldon. But the tie between the Emirates and the base 
camp.
    Ms. McCormack. We did not, but obviously we have a detailed 
report that comes from the Defense Intelligence Agency, which 
was a part of the Defense Department's review.
    Mr. Edelman. Congressman Weldon, if I might, I think my 
recollection of the report is, and I think you characterized it 
correctly, that Dick Clark, at the time, was concerned about 
having the strike go forward because if my recollection bears 
me out, I believe in the report he said we were about to have a 
strike on one of our best counterterrorism allies. I know as 
well in the report, my former colleague who was ambassador to 
the United Arab Emirates in the late 1990's characterized it as 
a complex situation in which the Emirates were both a 
counterterrorist ally, but also a bit of a counterterrorist 
problem for the reasons that you mentioned.
    Mr. Weldon. A bit? We lost a chance to take out bin Laden.
    Mr. Edelman. The reasons that are outlined in the 9/11 
report. I think as I tried to suggest in my testimony, since 
September 11th, I think there has been a dramatic change. And 
for almost the last 5 years, we have had extraordinary 
cooperation with them on the counterterrorism front.
    Mr. Weldon. Mr. Lowery, were you aware of this incident as 
outlined in the 9/11 Commission report?
    Secretary Lowery. I was not aware of the 9/11 report of 
this incident. I do know that the intelligence services of the 
United States did do a review and a threat assessment and said, 
and I believe Mr. Negroponte testified this week, the threat on 
this was low.
    Mr. Weldon. The threat was low. Do we have a copy of that 
for the record either classified or unclassified for the 
hearing?
    Mr. Baker, were you aware of this report?
    Secretary Baker. I certainly remember the incident and Dick 
Clark's reaction about the complexity of it and the risk of 
attacking someone he viewed as a ally in the hunt for bin 
Laden.
    Mr. Weldon. You didn't know he was at bin Laden's base 
camp. Admiral, were you aware of this at all. Admiral?
    Admiral Gilmour. I am aware of the incident but not in any 
detail.
    Mr. Weldon. That didn't raise any concerns to you when you 
were part of the process?
    Admiral Gilmour. Sir, we did a separate intelligence look 
at the ports, looking specifically at the effect on the ports 
in the U.S.
    Mr. Weldon. I am advised in the unclassified report of the 
intelligence committee assessment, and I will repeat this for 
the record, the community acquisition risk assessment center 
does not assess vulnerabilities. Are you all aware of that?
    Secretary Lowery. Yes, sir, I believe what they do is they 
assess the threat of the acquirer, in this case it was DP 
World, which, of course, is owned by the government of Dubai.
    Mr. Weldon. You were aware they did not assess 
vulnerabilities.
    Secretary Lowery. I believe in this case, because it is 
about port securities issues, that is, Department of Homeland 
Security and Coast Guard addressed more specifically.
    Mr. Weldon. The gentleman from Missouri.
    Mr. Skelton. Mr. Lowery, you were the chairman of the CFIUS 
group, is that correct?
    Secretary Lowery. The Treasury Department is the chairman, 
the Chair of the CFIUS group, sir.
    Mr. Skelton. You personally were the chairman, is that 
correct?
    Secretary Lowery. In this particular case?
    Mr. Skelton. Yes.
    Secretary Lowery. No, I was not.
    Mr. Skelton. Well, who was?
    Secretary Lowery. The way it works, sir, at the top 
obviously the Secretary of the Treasury. As we go down further, 
it is the Deputy Secretary then, myself.
    Mr. Skelton. Who had the knowledge and information on this 
proposal?
    Secretary Lowery. I believe 14 different agencies.
    Mr. Skelton. I know that. Within the Treasury Department.
    Secretary Lowery. At the Treasury Department, I believe the 
Deputy Assistant Secretary, sir.
    Mr. Skelton. What is that name?
    Secretary Lowery. His name is Mr. Shott.
    Mr. Skelton. Is he the one that approved it for CFIUS as 
one of the 12 agencies?
    Secretary Lowery. As one of the 14 agencies in this case, I 
would have to ask Mr. Shott about who----
    Mr. Skelton. Who signed off on it?
    Secretary Lowery. I would have to ask him.
    Mr. Skelton. It was not you?
    Secretary Lowery. No, sir.
    Mr. Skelton. Ms. McCormack, would you take the witness 
stand, please. Let her sit there, Ambassador.
    Your name is Beth McCormack?
    Ms. McCormack. That is correct, sir.
    Mr. Skelton. Are you the one that represented the 
Department of Defense in CFIUS?
    Ms. McCormack. In this particular case, sir, the 
predominant discussions of this transaction were done at the 
staff level where I have the part of my organization we talked 
about a few minutes ago, my policy directorate, which is one of 
the five directorates of my agency. They were the 
representatives at the level because we had basically one 
meeting on this transaction.
    Mr. Skelton. Is that below your level?
    Ms. McCormack. Yes.
    Mr. Skelton. Can you give me the name of someone within the 
Department of Defense that signed off on this?
    Ms. McCormack. In this particular case, after we got the 
inputs in from the 16 other agencies other than my own that 
reviewed the transaction and none of those agencies had any 
issue, the transaction was signed off on by the director of my 
policy directorate, and, again, my agency----
    Mr. Skelton. What is the name of your policy director?
    Ms. McCormack. At the particular time, Andrew Reitzel.
    Mr. Skelton. Did the CFIUS 14 ever meet?
    Ms. McCormack. My understanding was we had two meetings on 
this transaction. We had a discussion with the company in 
December and then there was another meeting at the staff level 
of the transaction after the review process.
    Mr. Skelton. Were you ever present?
    Ms. McCormack. I was not.
    Mr. Skelton. Below your level?
    Ms. McCormack. Yes.
    Mr. Skelton. Thank you, Ms. McCormack.
    Ms. McCormack. Thank you, sir.
    Mr. Skelton. Mr. Baker, we have talked about these 
assurances, have we not?
    Secretary Baker. Yes, sir.
    Mr. Skelton. And they were given when?
    Secretary Baker. I think January 6th.
    Mr. Skelton. As a result of what?
    Secretary Baker. As a result of our request to the company 
that they give us assurances on these topics.
    Mr. Skelton. In going through the list of assurances, it 
really depends upon the good will of the company, does it not?
    Secretary Baker. To a degree. However----
    Mr. Skelton. Yes or no.
    Secretary Baker. No.
    Mr. Skelton. In other words, some of them are legally 
enforceable?
    Secretary Baker. Yes.
    Mr. Skelton. Which ones?
    Secretary Baker. All of them are legally enforceable, but I 
would have to say the ones that have, in my view, the most 
clear cut content are the requirements that they maintain their 
level of cooperation and membership in a variety of previous 
voluntary programs and a requirement that they give us 
information without a warrant, without a subpoena about all of 
their U.S. operations.
    Mr. Skelton. Are you alone, Mr. Baker?
    Secretary Baker. I used to be at least, yes.
    Mr. Skelton. I practiced law for 20 years. In reading the 
language thereof, I don't think they are very enforceable. I 
think a court would agree with me on that.
    Secretary Baker. May I explain why I believe that they are 
enforceable. I understand that if this went to litigation, 
there are parts of these agreements that talk about what is 
reasonable or what was intended, what the plans of the company 
are. However, we clearly have expectations about what those 
mean and we have the ability beyond going to court.
    This company is entirely dependent on having a Customs 
service and the Coast Guard that trusts them. If we don't trust 
them, we are going to have to inspect far more of their cargo 
than we do today. And if that happens, their competitors are 
going to be moving much more quickly through those ports than 
they are, and that is a terrible business disadvantage. The one 
thing you cannot do if you are in this business is have the 
Customs service and the Coast Guard not believe that you are 
being candid and honest and straight forward with you.
    That is why I believe that we be able to enforce our 
expectation about the spirit as well as the letter of this 
agreement.
    Mr. Skelton. That is not a court of law, is it?
    Secretary Baker. That is right. I think it is better than a 
court of law, frankly.
    Mr. Skelton. Very good. Well, I won't belabor it, but it 
appears--well, let's ask Mr. Ambassador here; your title is?
    Mr. Edelman. Under Secretary of Defense for Policy, sir.
    Mr. Skelton. Did you know anything about this?
    Mr. Edelman. I found out about the transaction after the 
review had been completed when I was recipient of a phone call 
from Deputy Secretary Kimmitt.
    Mr. Skelton. This was done at a much lower level. Evidently 
in all 14 agencies, am I correct?
    Mr. Edelman. I can't speak for the other agencies, but it 
certainly was done at a lower level in the Department of 
Defense.
    Mr. Skelton. Thank you.
    The Chairman. Thank the gentleman.
    Gentlemen, I don't know if you watched the earlier part of 
our hearing when we went over the activities with respect to 
technology transfer that had been attributed to Dubai in terms 
of transshipment. I want to go over these and ask you to come 
back to the committee if you can with a written response either 
saying these things didn't happen or they did happen, and 
obviously your response probably would require a classified 
answer, and if it does, that is fine.
    Let me just go over these particular transfers. In 2003, 
according to the information that we have here and from Mr. 
Milholland, who has testified to this committee for decades, 
and who I consider to be one of the experts in the world on 
technology transfer, in 2003, over Washington protests, 66 high 
speed triggers or switches that are utilized in nuclear 
detonations were transferred to a Pakistani businessman 
transshipped through Dubai. Even though we found out about it 
and protested, Dubai allowed the transshipment to go through.
    There was an indictment of an Israeli national in this 
case, but the Dubai government allowed the transshipment to 
take place. So that is one.
    2003. In 1996, the German government listed six firms in 
Dubai as front companies for Iranian efforts to import arms and 
nuclear technology from Dubai. In 1995, Guide Oil of Dubai 
ordered American-made material, which can be used for making 
nerve gas ingredients, a precursor to nerve gas, and tried to 
pass it along to an Iranian purchasing agent in violation of 
American expert control laws. That was stopped by an American 
sting operation, but that was taking place in Dubai.
    In 1990, a Greek intermediary offered Iraq an atomic bomb 
design, probably of Chinese origin, from Doctor Kahn in 
Pakistan with a guarantee that, quote, any requirements or 
materials can be bought from western countries and routed 
through Dubai.
    In 1995 and 1996, Mr. Hampel, who is a German exporter and 
former Nazi sent 12 tons of Soviet heavy water to India through 
Dubai. In 1993, Mr. Hampel sent 15 tons of heavy water from 
Norway and some from--and 6.7 tons from the Soviet Union 
through Dubai to India.
    If you guys could take a look at those instances of 
transshipment and respond back to us, that would be certainly 
helpful.
    It appears that it is clear from these hearings that the 
sole stockholder of this company is the Emir, is that your 
information?
    Secretary Lowery. I know that it is--I am not sure about 
that. It is controlled definitely by the government of Dubai, 
and that usually comes under the heading of the Emirs.
    The Chairman. And the Emir's also the vice president of the 
United Arab Emirates, this particular Emir, and the sole 
director of the company. I guess the point that I am making is 
he is in charge of the government which shapes Dubai's 
transshipment policies and it appears that Dubai specializes in 
masking transfers. And if you read Milholland's account here, 
which I think we will make sure we get you a copy of this, this 
is a place where you go to, if you want to mask the seller and 
mask the buyer, you take things through Dubai.
    It appears that while Dubai may cooperate with the United 
States with respect to security matters, it appears that they 
also cooperate with people who aren't on our side, and who, at 
some point, could bring great harm to millions of Americans and 
at least in the case of these triggers that they transshipped 
over our objection. That is their policy. Their policy is 
sometimes to accommodate America and estimates not to 
accommodate America.
    So my question is was there any consideration for their 
policy of export control or transshipment control when you 
looked at this deal, at this ports deal.
    Mr. Edelman. There was certainly consideration among the 
various Department of Defense elements and agencies who look at 
this transaction with regard to the possibility of diversion of 
sensitive technology.
    The Chairman. Are you sure of that?
    Mr. Edelman. I can tell you what I understand took place in 
the process, Chairman Hunter. I was not a part of it myself.
    The Chairman. We had a TRANSCOM hearing this morning, 
transportation command. Incidental to that hearing we asked the 
General, who was in charge of the security apparatus in port 
distribution of American material if he was, in fact, requested 
to give a report or give his analysis from a defense 
perspective on this deal. His answer was he didn't look at it 
from a security standpoint. What he felt he was supposed to 
look at is whether or not they could load and unload things and 
basically run an efficient port system.
    His experience was around the world, Dubai ports knows how 
to get stuff on and off ships. So he didn't look at this thing 
at all from a security standpoint. So maybe they didn't look at 
technology transfer.
    Mr. Edelman. Your characterization of TRANSCOM's role in 
the process, as I understand it, is completely accurate. I 
think there were a number of other elements including DTSA that 
do look at this, and I know that DIA looked at the question of 
potential diversion of technology, but from the point of view 
not of the UAE as a whole, but of the transaction at hand.
    The Chairman. Gentlemen, thanks for being with us today and 
discussing this. Let me ask you one other question.
    Mr. Misenheimer. Would it be possible to comment on the 
proliferation record? The specific instances that you referred 
to are obviously very serious, and I am not familiar with them, 
but I think in the interest of completeness, it would be 
appropriate to mention also that the record of Dubai familiar 
to all of us and particularly in the post-9/11 period on 
nonproliferation has been very strong. Just this past month, we 
had the first meeting of a joint nonproliferation task force 
established between Dubai and the United States. The Emirati 
government was instrumental in cooperating with us in the 
unraveling the A.Q. Khan network. There are many instances on 
the positive side that I just would like to put on to the table 
as well.
    The Chairman. Looks to me like you have a nation which 
accommodates. Sometimes it accommodates American interests, but 
sometimes it goes the other way, and it accommodates the 
interests of those who might do us harm.
    I am looking at another piece of information that Mr. 
Milholland pointed out, and that is next to Dubai's main port 
in the Jebel Ali free trade zone. He describes it as a haven 
for freewheeling international companies and states that some 
264 firms from Iran and 44 from rogue regimes like Syria and 
North Korea have located and done business there.
    So my point is that I think you clearly can make the case 
that UAE has cooperated with the Americans on a number of 
occasions. On the other hand, appears to me they have also 
cooperated with people who wish us ill and that they have not 
viewed technology transfer as an area where they need to have 
discipline.
    This place is described as a kind of freewheeling bazaar, 
and I am reading the statements that are made by people who do 
business and in some of the communications where they said 
don't worry, and I am paraphrasing, don't worry, we will ship 
it through Dubai.
    So the question becomes, because that is directly relevant 
to what port operations are, right. Try to make sure that the 
cargo container that has got the bad stuff in doesn't end up in 
your port. And that is one area where the leadership in Dubai 
has looked the other way and allowed major transshipments of 
bad stuff to go to bad people. That certainly doesn't place 
them in the role of a Great Britain, for example. Is that 
your--would you agree with that or do you want to review this? 
If you would like to review these instances, and I do request 
that you come back on the record with us on these instances. 
But what do you think about that?
    Mr. Misenheimer. I am sure we can agree undertaking a 
review of these instances would be appropriate and useful in 
providing the most complete record that we can. I would come 
back to the current judgment, sir, that the record of 
cooperation of Dubai in our current assessment is positive and 
is improving. The historical record is certainly of interest, 
and as Deputy Secretary Kimmitt has made clear in previous 
briefings by this group, the record of the 9/11 Commission and 
other sources are certainly relevant, and were familiar to 
members of the CFIUS review panel.
    The Chairman. But 2003 is not quite historic. That is 
pretty recent. Okay.
    The gentleman from Missouri--or the gentleman from South 
Carolina, Mr. Spratt, have a few questions.
    The gentlemen from Missouri.
    Mr. Skelton. Mr. Lowery, since your department shared the 
CFIUS operation or the process, I request of you to produce to 
our committee any documents relating to the deliberation and 
decision making process for this port deal, and this includes 
correspondence, minutes of any CFIUS meetings, statements or 
summaries of fact, and written decisions. All right, Mr. 
Lowery?
    Secretary Lowery. I will take that back to the Treasury 
Department, sir.
    Mr. Skelton. Thank you.
    [The information referred to can be found in the Appendix 
beginning on page 205.]
    Mr. Spratt. Thank you all for your testimony and for your 
forbearance late this afternoon, but this is a highly important 
matter, and we need to give it due diligence. Let me just get 
the general opinion of the whole panel. Do all of you agree 
seaport security is not what it should be, in fact it is 
significantly below what is an acceptable level of security? 
The 9/11 Commission, for example, said that the next terrorist 
catastrophe could be a seaport and they further assessed 
seaport security at least as vulnerable, if not more than our 
airports.
    When you consider what we have done since 9/11 to our 
airports, what we have done for our seaports pales by 
comparison. The Coast Guard came up, Admiral, with an 
assessment of $5.86 billion, I believe, which was to be spread 
over a period of about 10 years for just meat and potatoes 
basic surveillance security at the seaports; lights and 
surveillance cameras and fences, of this nature.
    Of that amount, only $700 million has been appropriated 
thus far. I think your program was presented some time ago. We 
have offered amendments on the House floor, which haven't been 
passed to increase seaport security.
    Does the whole panel share concern about the adequacy of 
seaport security and the vulnerability posed by seaports, 
particularly considering the fact 9.8 million containers came 
into our ports last year?
    Mr. Edelman. Congressman Spratt, I certainly agree that 
port security is extraordinarily important for the country, it 
is important for the Department of Defense, with regard to 
those ports that we use for our own critical missions, and 
obviously, it deserves a very high level of attention from the 
Administration and from the Congress.
    I am not really in a position to make a judgment about the 
level. There are other folks on the panel more expert than I 
who can speak to that.
    Mr. Spratt. Did you regard it as a national security 
concern?
    Mr. Edelman. It is clearly a national security concern.
    Mr. Spratt. Admiral.
    Admiral Gilmour. Sir, to answer the question about the 5.8 
billion, I believe the 5.8 billion over a 10-year period was 
the amount required for the facilities or the maritime industry 
to meet the requirements of MTSA.
    Mr. Spratt. What about radiation detectors? Do we have an 
adequate number today. It is my understanding these detectors 
are only available in about 25 percent of our ports?
    Admiral Gilmour. I would have to ask that DHS and Customs 
and Border Patrol (CBP) answer that. I will explain that we are 
in charge of the security of the facilities themselves and 
vessels that come from foreign 96-hour notification into our 
ports. We also look at the people on the vessels and run them 
through terrorist watch lists. But the cargo part of the 
security is really under the jurisdiction of Customs and Border 
Patrol.
    Mr. Spratt. We had a statistic given to us earlier today 
that there were 80 Customs inspectors for monitoring the 
compliance of 5,800 importers, and that there were only 20 
Coast Guard inspectors to monitor the international shipping 
port facilities code. Is that correct, 20 inspectors to monitor 
the worldwide international code?
    Admiral Gilmour. I can speak to the foreign code 
inspectors, and the number 20, I can get you the exact number, 
but that is in the ball park, sir. I will tell you that what 
they do is under MTSA look at all of our trading partners 
ports. We started about a year ago. We have done about one-
third of our trading partner ports. It is about 44 ports that 
we have looked at with about 80 percent of the cargo through-
put that comes into our Nation, and we will be completed in 
about another 2-1/2 years.
    Mr. Spratt. When you had your discussion on the committee, 
I believe it was Mr. Lowery indicated, I will quote, there were 
national security issues raised during this review process. 
Could you tell us what those national security issues were 
specifically?
    Secretary Lowery. I think that the national security 
concerns were revolving around port security and I believe that 
is why the people at the Department of Homeland Security and 
the Coast Guard worked on putting together an agreement with DP 
World and P&O.
    Mr. Spratt. Can you tell us more specifically what those 
concerns were?
    Secretary Lowery. I would have to defer to the port 
security experts. I am not one. That is why we make sure that 
in CFIUS, because we do bring in 14 different agencies so that 
we make sure that the national security experts in whichever 
agency have a chance to look at it because there is different 
types of technology and different types of things that are 
being acquired and so we make sure our experts look at it. In 
this case, the expertise lies in primarily the Coast Guard, the 
borders and customs patrol, and Department of Homeland 
Security, though obviously Department of Defense, State, 
Justice all looked at it, as well as the Treasury Department.
    Mr. Spratt. The Coast Guard raised several concerns itself, 
which it backed off, apparently. It was more or less satisfied, 
but it indicated that it did have concerns about personnel, 
things of this nature.
    Secretary Lowery. Sir, as I mentioned in my testimony, if 
any agency had raised a concern about national security, we 
would have gone into a 45-day investigation. Each agency----
    Mr. Spratt. I understand they were raised, but they were 
resolved. You say there were national security issues raised 
during this review process.
    Secretary Lowery. I also said they were addressed.
    Mr. Spratt. How were they addressed? Simply information?
    Secretary Baker. May I offer some background on that? 
Stewart Baker, Assistant Secretary for Policy at DHS, and I was 
in charge of this policy, this particular case. We are very 
concerned about port security, and two of our major agencies, 
Customs and Border Patrol and the Coast Guard, have substantial 
responsibilities for cargo and port security, so we had a 
strong interest in this case. We asked each of the components 
to evaluate this transaction and give us their thoughts on it.
    Just to clarify one point with respect to the concerns that 
have been in the press from the Coast Guard, there was, indeed, 
a paragraph released from a classified report on Monday that 
suggested that concerns had been raised by the Court Guard's 
intelligence center. That very same memo concludes that there 
is not a substantial or significant increase in risk from this 
transaction. So it is not as though they raised them and backed 
off them.
    This was the complete memo, which, unfortunately, is 
classified, and comes to a more balanced conclusion than is 
suggested by the release of that one paragraph.
    The concerns that we had about this led us ultimately to 
conclude that we wanted additional assurances from the parties 
to this transaction, and that if we didn't get them, we were 
prepared to object to the transaction. We got them. Those 
assurances locked in their level of cooperation in a variety of 
volunteer programs that substantially raised the level of 
security above what is required by law.
    Mr. Spratt. Earlier today, we had testimony from the first 
panel corroborated by testimony from the Dubai Ports World 
panel to the effect that there is equipment out there, 
scanners, radiation detectors, radio frequency emitters, all of 
which could give us far greater security.
    The first panel of witnesses said make this an opportunity 
to impose that requirement on this firm as a condition of 
approval. The company itself said if you broaden that so we are 
all there together charging the same fee, and I presume we 
could charge fees sufficient to defray the cost, then it is 
feasible. The equipment is there, the process is there. We 
could inspect 100 percent of all of the containers instead of 5 
percent. Did this possibility come up, did you ever discuss 
this idea?
    Secretary Baker. I am certainly aware of the Hong Kong 
experiment that is frequently mentioned in this context. It is 
a pilot project, it is a project to determine whether it is 
possible to x-ray a large volume of containers. It is not a 
pilot project that enables us to actually evaluate by looking 
at the x-rays. I don't think there is anybody looking at those 
x-rays today.
    So this is still a very limited and preliminary pilot 
program. It may well turn out to be a very valuable approach to 
port security, but it is a little early for us to say let's get 
married to it. So we are not prepared at this point to say this 
is something we are sure we want to impose. We certainly will 
be looking at it, because it does have some promise.
    The Chairman. Thank the gentleman.
    The gentleman from New Jersey, Mr. Saxton.
    Mr. Saxton. Thank you, and thank you for hanging in here 
with us so long. We appreciate it.
    The panel that was here just before you headed by Mr. 
Edward Bilkey, chief operating officer of the company, told us 
quite clearly that they believe that the status of the deal is 
that while it is on hold for 40 days, that pending the court 
activity that is underway, that the approval has been granted 
and that the delay of 45 days for review purposes is just a 
review and they conveyed to us that it is their conclusion that 
the deal is done pending the court action. Do you agree with 
that assessment?
    Secretary Lowery. Sir, I believe that they are trying to 
close their transaction, their financial transaction. I know 
that they are going through a U.K. Regulatory issue of some 
sort. They have said to us in a commitment letter that they 
will hold the assets of North America in a separate holding--it 
is not a company because that is not the right legal term--but 
a separate holding arrangement that basically will take 
operational and management responsibilities and keep them 
exactly the way they are currently. They will be the financial 
beneficiary so they basically serve as a passive investor in 
certain respects, and they said they are willing to go through 
a new review process and a new investigation. They have asked 
for a 45-day investigation opening themselves up to the Exxon-
Florio statute. They actually said in their letter that DP 
World will abide by the outcome of that review.
    Mr. Saxton. So your review, then, will be geared to 
reapprove or reject the deal? Or I suppose your other option is 
to impose additional or different conditions?
    Secretary Lowery. Correct. All of those options are 
available.
    Mr. Saxton. Given the so-called data points which Mr. 
Weldon and Mr. Hunter and Mr. Skelton mentioned, which appear 
to have not been considered as part of the process, given that 
new information, do you think that shines any different light 
on the situation?
    Secretary Lowery. Well, let me just say that I believe that 
we felt like we did do our jobs and our agencies did their jobs 
on the national security review and in terms of an intelligence 
threat assessment. That said, during this investigation period, 
we will--we have heard very clearly from Congress, we have 
heard very clearly from transit authorities and local 
officials. We want to look at all information, including the 
information from the questions that have been raised and in 
other hearings, and we will do a very thorough and robust job 
over the next 45 days or so.
    Mr. Saxton. We are, as you know, in the process of 
beginning to consider legislation as the responsibility--as we 
see the responsibility of Congress to the American people and 
to this process that seems pretty obvious that we have a 
responsibility to be involved. The bill that we have drafted 
here in this committee thus far requires citizenship or 
American ownership. It requires 100 percent inspection of 
material being imported into the country through containers, or 
perhaps otherwise as well. And it has a section that speaks to 
the reform of the Committee on Foreign Investment in the U.S. I 
am specifically interested in your opinion on the last part.
    Would you--would you think at this point that, given the 
fact that we have experienced 9/11 and its aftermath, that the 
security situation in the country has changed, that a different 
process might be used through CFIUS or some other named process 
to more effectively handle security with regard to these 
matters?
    Secretary Lowery. Let me just say, I guess, that since 9/11 
I think that CFIUS actually has changed. We do look at more 
matters. Very importantly, we have brought the Department of 
Homeland Security, which obviously did not exist before 9/11, 
they bring a very different voice to the table and it is a very 
strong voice. We will be open to any suggestions that Congress 
has and we can work with you. We obviously know that there is a 
problem. We have already said that there is clearly a problem 
with how we are informing Congress about what we are doing. And 
so we are open to discuss these matters over the next weeks 
months, what have you.
    Mr. Saxton. Are you satisfied with the level of 
investigation that was done prior to your conclusion on this 
matter?
    Secretary Lowery. Yes.
    Mr. Saxton. In spite of the fact that in just a few days 
Members of Congress have come up with data points that were not 
considered, that letters from al Qaeda to the leadership of the 
country involved, and all those things that you did not--that 
you said you did not consider?
    Secretary Lowery. Sir, I said that I did not personally 
consider. What I also said was that each agency did its own 
thorough review based on their knowledge and expertise. And 
that the intelligence community did an overall threat 
assessment based on their knowledge of what I would imagine 
many of the data points that people have brought up.
    That said, there have been a lot of questions asked and a 
lot of points raised and I think that we should--we have been 
given this opportunity to provide another 45 days and we will 
investigate to the best of our ability and as robustly as 
possible all of those issues.
    Mr. Saxton. And I am sure you are also aware of the reality 
that Congress is likely to do something. And certainly we would 
rather do it with you than without you. And so I would hope 
that you would keep an open mind. I know several of you 
personally, and I know what kind of good people you are, and I 
hope that we can work together so that we have the benefit of 
your experience and your points of view.
    Thank you very much.
    Secretary Baker. Congressman Saxton, on behalf of the 
Department of Homeland Security, we share your goal to improve 
the security of the supply chain and port security. We would be 
delighted to work with you on these questions.
    Mr. Saxton. Thank you.
    The Chairman. The gentleman from New Jersey, Mr. Andrews.
    Mr. Andrews. Thank you, Mr. Chairman, I first want to thank 
you for a very thoroughgoing and comprehensive hearing and 
giving the members a chance to ask their questions. Thank you. 
And I thank the witnesses for their patience in what has been a 
long day.
    The first thing I want to be sure the record reflects is 
that the panel before this, I think, propagated a legal reality 
that is a substantive fiction, that the Dubais Port Corporation 
is one entity, and the Government of Dubai and in part the 
government of the UAE is quite another. Now, this is true as a 
formalistic legal proposition. But I think that any practical 
reading of the record indicates that 100 percent of the shares 
of the Dubai Port Corporation are owned by the ruler of Dubai, 
as the previous panel testified. So I think we have to start 
from the proposition that the conduct, the opinions, the track 
record of the Government of Dubais, and, to some extent, the 
Government of the UAE, since the ruler of Dubai and the Vice 
President of the UAE are identical, are synonymous. And I think 
we have to start from a security assessment from that point of 
view.
    The second thing that I want to ask Mr. Misenheimer is I 
understand that your conclusion is that the balance of the 
record favors the conclusion that the UAE has been and Dubai 
has been a constructive force against proliferation of weapons 
of mass destruction. But I want to be clear. You acknowledge, 
do you not, the Chairman's question about 2003 and the transfer 
of the triggers which could be used in a nuclear weapon? Do you 
agree with the proposition that such a transaction took place, 
that it went through the UAE and it went through the UAE over 
the objections of the United States? Do you acknowledge that?
    Mr. Misenheimer. Sir, I am not personally familiar with the 
details of that episode. I have heard the reports. But I could 
not go beyond that.
    Mr. Andrews. Well, if you are able to draw a conclusion, 
which I did, about the balance of the record, are you aware of 
any of the negative implications in the record, or only the 
positive ones?
    Mr. Misenheimer. No, sir. And thank you for that question. 
I am certainly not here representing the State Department as an 
advocate of the UAE or of Dubai. If the United States has an 
ally that has a perfect unblemished record of cooperation with 
us and everything we cared about, the UAE is certainly not that 
ally. And I think that has been made very clear in many of the 
facts and data points that have been brought out.
    Mr. Andrews. So the State Department acknowledges that on 
the record there are examples of conduct that we would regard 
as antithetical to the goal of prohibiting proliferation of 
weapons of mass destruction; is that correct?
    Mr. Misenheimer. As has been stated, sir, the full record 
of Dubai's performance was documented and familiar to the 
participants in the CFIUS process, including the various 
intelligence agencies involved. And the conclusions that were 
reached took those data points into account.
    Mr. Andrews. And the record included examples of behavior 
antithetical to the goal of prohibiting proliferation of 
weapons of mass destruction; correct?
    Mr. Misenheimer. Again, I can't go to the specific 
examples, but I did want to represent the conclusions of both 
my agency and of the intelligence reviews that I have seen that 
reach a favorable conclusion on their cooperation.
    Mr. Andrews. But there were examples that were negative 
examples on the record; correct?
    Mr. Misenheimer. Sir, I couldn't go into the intelligence, 
the positive and negative intelligence ledger.
    Mr. Andrews. Okay. Here is what I am going to ask you to 
do. I would ask the Department to supplement on the written 
record whether it acknowledges or disclaims the basis of the 
Chairman's question about the 2003 transaction of the triggers 
which could be used in a nuclear weapon; whether the Department 
acknowledges that, in fact, took place over the protest of the 
United States or whether it did not. Could you do that for us?
    Mr. Misenheimer. Yes, we will be glad to look into that.
    Mr. Andrews. The next issue I want to raise----
    The Chairman. And if the gentleman would yield, let's try 
to get that information on that and the other ones within 10 
days or so. Say by next Friday, we should be able to get--if 
all activities are fairly well known by the agencies, and they 
should be able to review it pretty quickly and say yes or no. 
So if you would get it back in 10 days, we would appreciate 
that, okay?
    Mr. Andrews. I thank the Chairman for that and I think it 
is something more than we would just appreciate. If we are 
going to make an intelligent decision before or after the 
expiration of this 45-day review period, I think we need to 
have that information----
    The Chairman. Let's say then that we agree that you will 
get that back to us. Will you do that?
    Mr. Misenheimer. Yes, sir.
    The Chairman. Thank you.
    Mr. Andrews. Thank you, Mr. Chairman. Nice to have that 
gavel.
    Mr. Skelton. May I interrupt? Will the gentleman yield?
    Mr. Andrews. Yes.
    Mr. Skelton. My request Mr. Lowery, if you would comply 
with my request for the documents and all the items I mentioned 
thereto that you agreed to furnish, if you would do it within 
the same time frame, that would be very helpful to us. Is that 
okay, Mr. Lowery?
    Secretary Lowery. Sir, I will take that back to the 
Treasury Department.
    Mr. Andrews. If I may, just to help my Ranking Member, when 
you take it back, Mr. Secretary, to the Department, we would 
appreciate an answer as promptly as possible. If the answer is 
no, we are not going to comply within the time, I think we need 
to know that. If the answer is yes, we will, I think we need to 
do that very promptly.
    Secretary Lowery. Sir, the Congressman asked for 
distributive documents. That is obviously something that I have 
to talk to my general counsel about.
    Mr. Andrews. We appreciate that and we think that your 
general counsel and/or the Secretary needs to tell us his or 
her response to that promptly so that we can consider what our 
options are; do you agree with that?
    Secretary Lowery. I hear you, sir.
    Mr. Andrews. Okay. That means no. I understand.
    Admiral Gilmour, I take it that the Coast Guard played--
plays a critical role in the port security of the country. That 
is a given. And some of the defenders of this agreement have 
taken the position that the Coast Guard's prime position in 
defending port security means that it is of marginal or limited 
relevance as to who the terminal operators are as long as the 
Coast Guard is on the job, that we are okay. And by the way, I 
have tremendous faith in the Coast Guard and the work that you 
do and I salute you for it.
    Your statement is a very lawyerly one about the role of the 
Coast Guard's involvement in the CFIUS process. Let me read it 
to you from page 4 of your statement:
    Regarding the Coast Guard's involvement, the Coast Guard's 
initial review identified potential gaps in available 
intelligence related to specific Coast Guard interests in the 
transaction. However, after fully considering all available 
intelligence, the Coast Guard's assessment was that it did not 
oppose the transaction.
    Have you had a chance to review the intelligence--
obviously, without disclosing the specifics of it, have you had 
a chance to review the intelligence that was unavailable, prior 
to making your recommendation, since you made your 
recommendation?
    Admiral Gilmour. Sir, I--I need to explain that I guess a 
couple of things. I am not a member of the CFIUS Committee and 
we work, obviously, for the Department of Homeland Security. 
Second, our intel was done for internal Coast Guard purposes. I 
am the director of port security. Our intelligence director and 
his staff made that assessment. So I really couldn't speak to 
it. However, he is here if you would like him to speak.
    Mr. Andrews. Oh, I would, with the Chairman's permission. 
If that gentleman would answer my question, I would like you to 
step to the microphone and identify yourself for the record.
    Mr. Sloan. I am James Sloan, S-L-O-A-N. I am the Assistant 
Commandant for Intelligence and Criminal Investigations at the 
Coast Guard.
    Mr. Andrews. Mr. Sloan, what is the answer to my question?
    Mr. Sloan. The answer is yes, we did review intelligence 
subsequent to our report.
    Mr. Andrews. Can I ask you a question, Mr. Sloan?
    Mr. Sloan. Yes.
    Mr. Andrews. If there was intelligence that you deemed to 
be relevant that was available to be reviewed before a 
decision, why did you make the decision? Why did not you ask 
that the decision be delayed or kicked over into the 45-day 
review process?
    Mr. Sloan. I am going to tread lightly, given the fact that 
we are talking about a classified assessment.
    Mr. Andrews. I appreciate that.
    Mr. Sloan. We did identify intelligence gaps. That does not 
necessarily mean that they were potential threats or should 
sway the assessment, other than they were information that we 
wanted to alert our colleagues, for whom we were informing with 
this product, that we needed more information.
    We were assessing the acquisition of these facilities by 
DPW, and, as a result of that assessment, and the reason I am 
hesitant--I am just going through my mind with the document--we 
did come to the conclusion that the DPW acquisition would not 
create a significant threat.
    Mr. Andrews. But my question is a little different. By 
definition, I think implicitly, the use of the word ``available 
intelligence'' or the phrase ``available intelligence'' implies 
that you concluded that there was relevant intelligence not 
available to you before you made the decision. You since 
reviewed that and you have reached a conclusion that it does 
not change your judgment.
    What was the rush?
    Mr. Sloan. Sir, it is important, I think, for this purpose; 
to point out that that assessment was requested in early 
November and was delivered for the purposes of informing our 
colleagues in late November.
    Mr. Andrews. Really?
    Mr. Sloan. Yes, sir.
    Mr. Andrews. How many days were put into that assessment?
    Mr. Sloan. Fifteen. It was requested for the purposes of 
the request, yes.
    Mr. Andrews. How many ports--how many P&O operations are 
there in the United States that you looked at?
    Mr. Sloan. We examined--well, I should back up and tell you 
this. By the end of last year, we reviewed, by virtue of a port 
threat assessment, every one of the ports that contain P&O 
operation. We did it to complement Admiral Gilmour's 
directorate, which is the port security.
    Mr. Andrews. By the end of last year. But you delivered 
your recommendation at end of November and it was 15 days' 
worth of investigation?
    Mr. Sloan. No, sir, it was 15 days of gathering information 
for an analysis to help inform our personnel who were going to 
be part of an action officer team in the CFIUS process.
    Mr. Andrews. Okay. So you took 15 days and the intelligence 
that was available after that 15 days, the Coast Guard in 
effect voted its proxy in the committee process; is that right?
    Mr. Sloan. I am not familiar that the Coast Guard voted in 
that regard. I am not part of the CFIUS process and I think 
Admiral Gilmour indicated neither is he.
    Mr. Andrews. May I ask who from the Coast Guard was part of 
the CFIUS process?
    Mr. Sloan. I might be overstepping my bounds in saying 
this, but the Coast Guard's role was to help inform the DHS 
decision.
    Mr. Andrews. Maybe I could ask Mr. Baker. With whom did you 
consult from the Coast Guard about the pace of the gathering of 
this intelligence?
    Secretary Baker. I would have to go back and check the 
records for the particular names of the people in the Coast 
Guard, but they were authorized to speak on behalf of the Coast 
Guard in the CFIUS process.
    Mr. Andrews. Uh-huh. And did any of them represent to you 
or anyone in the Department that there was intelligence they 
deemed relevant that was not yet available when they made their 
recommendation?
    Secretary Baker. No, they did not. And I would say that 
that intelligence report itself comes to the conclusion, 
notwithstanding the gaps, it says DP World's acquisition of P&O 
in and of itself does not pose a significant threat to U.S. 
assets.
    Mr. Andrews. That is correct. And when was that report 
written?
    Secretary Baker. End of November.
    Mr. Andrews. And that presumably, according to today's 
testimony, was based upon the available intelligence that was 
available then. Why was it so necessary to write that report 
before all the relevant intelligence was available?
    Secretary Baker. The report comes to a conclusion. It 
acknowledges, as a good intelligence report would, that it does 
not have all the available information. There is always some 
gap in intelligence or we would be all-knowing. It does not say 
that it knows everything, but it says it knows enough to come 
to this conclusion.
    Mr. Andrews. You know, I am not by any means an expert on 
port operations but when I look at port operations, the scope 
of the P&O operations, the sensitivity of the places in which 
they operate, frankly, the issues with respect to the identity 
between Dubai and the corporation, it strikes me that 15 days 
is a rather hasty timetable for the evaluation of this. Am I 
wrong about that?
    Admiral Gilmour. Sir, could I clarify the record?
    Mr. Andrews. Sure.
    Admiral Gilmour. Mr. Sloan--my staff was involved with the 
DHS team that looked at the CFIUS review.
    Mr. Andrews. Uh-huh.
    Admiral Gilmour. And we tasked Mr. Sloan and gave him a 
deadline so that we would have what available information we 
had to make a due diligence attempt to look at the intelligence 
within the DHS.
    Mr. Andrews. Your staff gave him the late November 
deadline?
    Admiral Gilmour. Yes, sir.
    Mr. Andrews. Why? What was the big hurry?
    Admiral Gilmour. I think the point was we wanted the 
information--we wanted the information to go into the report, 
and my staff has inspected after P&O port in the United States 
as well as a number of them overseas.
    Mr. Andrews. Wasn't that subsequent to the recommendation 
that you made? Weren't most of those inspections subsequent to 
the end of November?
    Admiral Gilmour. Which inspections, sir?
    Mr. Andrews. You just referenced inspections of P&O 
facilities in Dubai World overseas.
    Admiral Gilmour. Sir, we inspected all of the P&O 
facilities initially after July 2004 and we looked at them 
again. We are doing a baseline inspection to look at them to 
see if they substantially continue to substantially meet the 
regulations before the turnover.
    Mr. Andrews. What was the first date that the Coast Guard 
received notice that it was going to be asked for its input 
into this process?
    Admiral Gilmour. November 7.
    Mr. Andrews. What was the date on which the Coast Guard 
made its recommendation to the CFIUS process?
    Admiral Gilmour. They had a couple of meetings after that. 
They had a staff-level meeting held at Treasury on the 6th of 
December, where our concerns on operations and personnel were 
lodged.
    Mr. Andrews. I'm sorry, Admiral, did not you just say, or 
the other gentleman just say, that there was a recommendation 
made the end of November?
    Admiral Gilmour. No, sir, that was--that was the summary--
the Coast Guard intelligence summary on the 29th of November to 
my staff.
    Mr. Andrews. So that was not a conclusion? It was a record 
on which you drew your conclusion?
    Admiral Gilmour. No, it was a conclusion from the 
intelligence.
    Mr. Andrews. You made a conclusion by the end of November. 
That is what you just said, when was the conclusion by?
    Admiral Gilmour. No, sir, we did not make a conclusion. The 
intelligence community gave us the report that made a 
conclusion. And it made both of the things that Mr. Sloan 
talked about.
    Mr. Andrews. Were any of the inspections that you just made 
reference to done between the 7th of November and when that 
conclusion was made?
    Admiral Gilmour. Any of our P&O inspections? I don't know, 
but I would say I doubt that any were made during that time 
within the U.S.
    Mr. Andrews. Do you think that you would ask yourself a 
different set of questions about the P&O inspections if you 
knew who the new owner might be?
    Admiral Gilmour. We did know who the prospective owner was 
going to be.
    Mr. Andrews. Not until November 7th, did you?
    Admiral Gilmour. Yes, sir.
    Mr. Andrews. You did? You tell me you made inspections of 
P&O facilities overseas, knowing that the purpose of the 
investigation was to assess this new owner from Dubai?
    Admiral Gilmour. No, sir. That was part of our 
international assessment program.
    Mr. Andrews. I understand; it was a more generic 
assessment. Admiral, let me ask you another question that 
concerned me I think, that the CSI initiative has been a 
success story and you and the people in Homeland Security 
deserve great credit for it. I have been privileged to receive 
some classified briefings as to the basis of your judgments and 
I think you are very sound, do a good job. But I would 
obviously state that the record shows--and I am sure you would 
agree--that the vast majority of containers coming into the 
country are not inspected; is that correct?
    Admiral Gilmour. Again, sir, CBP is the group in charge of 
security.
    Mr. Andrews. Is that correct, Mr. Baker?
    Secretary Baker. That is correct.
    Mr. Andrews. And that is not an accusation, it is just an 
observation given the vast scope of trade that comes in. And I 
would assume, therefore, a vast majority of containers coming 
into these ports that the Dubai company would operate would not 
be inspected; is that correct?
    Secretary Baker. That would be correct.
    Mr. Andrews. Let's posit a circumstance where the 
containers contain three elements that separately are rather 
benign but, if combined, could form a weapon or the basis of a 
weapon. They are in three separate containers, none of them are 
inspected, they find their way into a warehouse facility run by 
the new owner, the new operator, the Dubai people. Are all the 
employees of the Dubai organization subject to a background 
check?
    Secretary Baker. The Dubai company operating in the United 
States. Yes.
    Mr. Andrews. Who does the background check?
    Secretary Baker. There are a variety of background checks 
because they are a C-TPAT member and can't get out of the 
program now, they are subject to background checks. I think in 
Newark the background checks are performed by the Port 
Authority. We also now have authority to get the names of all 
their employees and date of birth, Social Security number, and 
conduct our own review.
    Mr. Andrews. And for what percentage of employees do you do 
your own review?
    Secretary Baker. This is a special assurance that we have 
received from this company as a condition of approving this 
transaction. And so we can, if we wish, impose that requirement 
on 100 percent of the employees.
    Mr. Andrews. I do have some familiarity with this. It has 
been my understanding that the background check that is done of 
the terminal employees tends to be a paperback ground check 
which relies heavily upon the documents that are presented by 
those employees. Is that generally true in your experience?
    Secretary Baker. I am not sure I can generalize about all 
of them. I think that is entirely possible, which is one reason 
why we are pleased to have the additional authority in this 
case to carry out more extensive background checks using our 
own records.
    Mr. Andrews. And it is also my understanding that, for 
example, a document that indicated that an employee of the 
terminal had never served in the Armed Forces--in other words, 
one could falsify a resume rather easily if it was simply a 
paperback ground check, couldn't one?
    Secretary Baker. There is a risk there. It is better than 
not having a background check, but there are always 
possibilities for fraud in these cases.
    Mr. Andrews. How much time would be--how many man-hours 
would be involved in doing a background check that goes beyond 
the papers when you are talking about people who are residents 
of the UAE? Do you have staff in the UAE?
    Secretary Baker. Yes, sir, we do.
    Mr. Andrews. Do you have sufficient personnel to perform 
thorough background checks on all the people who would work for 
the Dubai Port Corporation?
    Secretary Baker. When we get applications for visas to come 
to the United States, we perform checks of that sort on the 
people who want the visas. Certainly if they want to come work 
in our ports, which is a rare event, we would be able to do 
that.
    Mr. Andrews. I assume it might be somewhat less rare if the 
transaction goes through.
    Secretary Baker. One might think so, but only 10 or 15 
percent of the people who work at the Dubai ports are from the 
Dubai ports because they are a net importer of labor.
    Mr. Andrews. My last question for Mr. Lowery about the 
legal standing in which we stand here today. Mr. Saxton's 
questions really went to this. This afternoon it came across 
the news wires that the overall deal is going to close on 
Monday and there is, of course, this set-aside agreement that 
is a contract between the two private parties that they not 
close that part of the deal. Is that your understanding?
    Secretary Lowery. My understanding is that what they will 
do is basically--and I am not a lawyer--set up a holding--
again, it is not----
    Mr. Andrews. Is your lawyer here?
    Secretary Lowery. No.
    Mr. Andrews. Here is the question I would like your lawyer 
to answer. Is it the Treasury Department's position that the 
two private parties, and specifically the Dubai Corporation, 
has waived any rights that it received under its original 
approval by signing this standby agreement? Let me tell you the 
reason I raise that question.
    Your testimony relies upon a private contract, frankly, not 
made in the United States, as I understand it, between two 
private parties, where they have agreed to suspend the transfer 
of operations that they contractually agreed to earlier. The 
question I am asking is what if those two parties agreed to 
rescind that contract, for whatever reason. They have 
explicitly stated for the record that they won't do that. Is it 
the Department's position that they have a legal obligation to 
the United States of America not to do that?
    Secretary Lowery. I would have to check with an attorney, I 
can say this, sir. When the parties file a notice under this 
new transaction with the Treasury Department and with CFIUS, it 
will be--go through the full Exxon Florio statute and all the 
powers that are invested in it.
    Mr. Andrews. That is not quite what I asked.
    Secretary Lowery. I said I was not a lawyer and I couldn't 
answer the exact specific of that.
    Mr. Andrews. One thing I will say and I mean no disrespect 
to any member of the panel. This is obviously a matter of 
tremendous gravity to the Congress and to this committee. The 
testimony today has been sincere, it has been thoughtful. It 
has also been filled with holes, given by people who weren't 
part of the process, people that don't have the specific facts, 
people that are not in the position to know the specific facts.
    I do not in any way fault any of you as individuals for 
that. But I would say that if this is the review that we are 
going to undertake, it needs a lot more work. I have more than 
extended my time and I thank my friends for giving me the time.
    I would say this to you. I came into this discussion very 
disturbed at the way I found out about this--given the fact 
that my 600,000 constituents live very proximate to the port of 
Philadelphia--was from a newspaper reporter. I, frankly, am 
disturbed for a different set of reasons today. And it has 
nothing to do with the sincerity or integrity of any of the 
witnesses, but it does have to do with the unusual feel one 
gets about this process, that it is simultaneously a process 
that seems to have been conducted by people not in policymaking 
positions but it was a process that had, at least as far as I 
can tell, rather tight deadlines, things had to move very 
quickly. And my experience has been that the lower down the 
decision making chain you go, the slower things are, not the 
faster. And I hear our individuals from the Coast Guard talk 
about the pace at which their involvement took place and I hear 
about some of the other things, it concerns me.
    And I hope that the Chairman's admonitions about supplying 
the record will be promptly adhered to so that the committee 
can draw its conclusion in an expeditious manner.
    Thank you, Mr. Chairman, for your indulgence. And I thank 
the witnesses.
    Mr. LoBiondo [presiding]. Thank you, Mr. Andrews. And I 
think Mr. Andrews was being very kind with his choice of words 
about the comfort level that we are all feeling about what we 
have been hearing in this hearing and some of the other 
hearings covered.
    I am assuming that most of you did not get a chance to hear 
the first panel. The panel, while they really did not focus so 
much on this deal itself, really focused on the general area of 
maritime antiterrorism and port security. And there was almost 
unanimous agreement that, while this particular issue with 
Dubai has to be reviewed, the bigger picture has to be 
addressed.
    And I have to tell you, Mr. Baker, that I heard you say how 
port security is a really top priority of DHS. We have heard it 
from a number of other people. But your actions, the actions of 
DHS, do not match your rhetoric.
    The Coast Guard has done a magnificent job in everything 
they have been asked to do. And every year they are being asked 
to do more with less. And this year, it is my view and the view 
of some others, that with the budget that has been submitted by 
the Administration, the increase that is afforded to the Coast 
Guard in operations and maintenance ends up being an overall 
reduction because of the factors of the price of fuel and pay 
raises and things like that.
    Yesterday, we had a Coast Guard hearing where Master Chief 
Welsh outlined the horrific stories of the challenges of the 
aging assets and the personnel who man them. And we cannot 
conduct Coast Guard missions with Coast Guard cutters and 
planes that are falling apart, where literally lives are almost 
at risk, and the Coast Guard is not given the resources to do 
the job.
    In a couple of areas that I am particularly cranked up 
about, in the Maritime Transportation Security Act, there were 
a number of mandates that were issued. The Coast Guard has come 
through pretty much in compliance with what we have asked; but 
when it comes to TSA, which I understand you are responsible 
for, something as simple as the transportation worker identity 
card, which was supposed to pretty much be in place by 2004, so 
the bill was signed by the President maybe a year after the 
September 11th incident, a little bit more than that, we want 
to take our time to put it together. There wasn't any 
indication that there was going to be a major problem. We now 
find--without explanation from TSA that can give us an idea of 
why this delay occurred. And we heard from testimony that 
basically someone shows up at port, a transportation worker 
shows up at the port with a photo ID and that is what must be 
accepted.
    Now, maybe one port has got something that is a little more 
involved, but basically that is what is accepted. And that it 
is my understanding from reports that we have received back 
that TSA is not going to propose the final rule until sometime 
later this year. Can you talk about this at all?
    Secretary Baker. I would be glad to. First, I share your 
admiration for the Coast Guard and their ability to meet the 
deadlines that the law requires, and appreciate the fact that 
when they do they make us look good.
    We are committed to port security. The budgets that have 
been proposed, as I am sure you appreciate, are Administration 
budgets that reflect a host of difficult balancing decisions 
that have to be made by the Administration as a whole.
    As for the transportation worker identity card, you are 
quite right; we have missed the deadline and we deeply regret 
that. Our difficulties have arisen from questions about the 
appropriateness of the design, how we can design as a 
Department an effective card that goes beyond the kind of flash 
pass that is so easy to forge and so easy to overlook in the 
busy port environment.
    One of the reasons why we asked for the kind of assurance 
that we have asked for from this company was so that we could 
do a background check on the employees that they would have 
working at their facility so that we would have that kind of 
assurance with respect to those employees. In the long run, you 
are absolutely right that the transportation worker identity 
card will give us greater authority to do that for a wider 
range of employees.
    Mr. LoBiondo. When do you expect to publish the rule?
    Secretary Baker. I can't say, in part because as a result 
of the very discussion we are having today and related focus on 
the question of what is the best way to guarantee appropriate 
review of who is working in ports, we have begun a process of 
intensively examining the assumption that underlie the program 
so that we actually have a program that the Secretary and the 
Deputy Secretary are confident will work. We are in that 
process now.
    Mr. LoBiondo. Mr. Baker, with all due respect, the ``Bank 
of Goodwill and Trust Me'' is empty. And you are talking about 
this as not 2 months, 6 months, a year overdue. This is 4 years 
overdue. It is relatively--I mean, I understand you want to 
make this right. I don't know who that is involved with looking 
at this from a committee standpoint on this side can believe it 
is a top priority if you are taking this long to do it.
    And in addition, I understand the budget constraints of the 
Administration. But our frustration and anger goes to everyone 
involved on the Administration side--and unfortunately that 
means you--that on a program this critical and essential to 
port security, which I think you just acknowledged, there is 
not even funding in the budget to implement the program.
    Secretary Baker. And this, of course, is part of the 
problem with trying to come up with a program that we can--in 
which we can make the private sector absorb in an appropriate 
way the costs of this without our having to prime the pump with 
large appropriations at the start. That is a difficult program 
design challenge.
    Mr. LoBiondo. We should have been having these discussions 
2 years ago, and we are 4 years into it. We are going to be 
talking a whole lot more about this. But then when we get into 
the area of port security grants, I think Mr. Spratt had it 
wrong. In testimony yesterday, Admiral Cross acknowledged that 
the recommendation of the Coast Guard from their initial review 
put the price tag on the low end at 7 billion, on the high end 
at 11 billion, and with the recommendation of 125 million this 
year. I did not major in math, but that is something like a 60-
year time frame to get to where we need to be.
    That is not putting port security at a high priority. And 
somebody, somewhere along the line, has to give us more than 
lip service. I mean, I will encourage Chairman Hunter, I will 
encourage everyone I can, that this reservoir of goodwill and 
what appears to be just patting us on the head, putting us 
aside, telling us don't worry, we are reviewing it and doing 
everything we can. Port security is a great priority, we are 4 
years behind on the Transportation Worker Identification 
Credential (TWIC) program. We are constrained by budget 
requirements and so on and so forth.
    What I said in my statement in the first panel is that if 
we were to have an incident tomorrow, and there would be an 
actual terrorist incident at one of our ports, besides shutting 
down all of our ports and our maritime economy, besides 
whatever damage may be done in terms of lives or property, the 
day after the check would be blank, that we would get to fill 
in the numbers as it was with aviation: $25 billion up to this 
point in time. And something has got to change.
    Somewhere along the line, we have been maybe delinquent in 
just saying ``yes'' and accepting that tomorrow better news is 
going to come and tomorrow someone will show a little bit more 
of a priority. But it is at the point now where the frustration 
level is so high, and the opportunity for us, because of this 
Dubai Ports proposal, to actually do something about overall 
maritime antiterrorism and port security, which is woefully 
inadequate, is going to be a short window. Something--maybe 2 
weeks from now, 3 weeks from now, the Congress is going to 
focus on something else, and I hope in a very positive sense 
that the DHS and TSA and all those associated feel tremendous 
heat to give this more than lip service.
    Secretary Baker. If I might, we certainly do. We would be 
delighted to work with Congress on ways to improve port 
security in the short run. I will note that we did not say to 
Dubai Ports World or P&O, how much money can we give you to 
make your participation in the C-TPAT permanent and mandatory? 
We said, will you do it? And they said, Yes, sir. We said--we 
did not say, We will give you money so that we don't have to 
come up with a subpoena when we want to see the list of your 
employees and do background checks. We said, will you do it? 
And they said, Yes, sir.
    The ability to impose those kinds of restrictions, we may 
well want to ask the question, What can the private sector do 
to improve port security along with the government? And we 
would be delighted to work with you on that.
    Mr. LoBiondo. I appreciate that, but I will just reiterate 
that a lot of what we do has to pass the kitchen table test. 
And people sitting around their kitchen table cannot understand 
if port security and maritime antiterrorism is a priority for 
this government, this Congress, and this Administration. How we 
can be four years into this and be so woefully behind? It just 
seems to be bureaucratic rhetoric about what we are going to do 
next. It never happens. There is a certain point at which that 
does not work anymore. I think we are past that point.
    I want to thank Admiral Gilmour for the tremendous job that 
the Coast Guard has been doing. I don't know how you continue 
to have the men and women excel in the way that they do when 
you are constantly being stretched and pressed and asked to do 
more with less. But I have said it before: They really need to 
be commended.
    I asked the question of the last panel and Mr. 
Misenheimer--I hope I pronounced it correct--can you comment? 
Does the United Arab Emirates enforce a boycott on Israel?
    Mr. Misenheimer. The Arab League boycott of Israel is a 
serious issue and we oppose it. With respect to the UAE, like a 
number of other states in the region, the UAE supports and 
enforces the primary boycott. That is to say, they do not do 
direct commerce with Israel. It does not enforce the secondary 
and tertiary boycotts which we as a matter of policy have 
targeted right across the region.
    I would add, sir, that we are involved in free trade 
agreement talks with the UAE, and of course one of the 
parameters of those talks is the elimination of the boycott. 
And so that is where we see the process heading.
    Mr. LoBiondo. But the boycott, the primary boycott is in 
place.
    Mr. Misenheimer. Yes, sir; that is correct.
    Mr. LoBiondo. What would your reaction be if one of the 
congressional conclusions was that this boycott could not be in 
place for this deal to move forward?
    Mr. Misenheimer. Again, sir, we oppose the boycott. We aim 
to see it eliminated. The complicating factors that would come 
into play in the circumstances that you are suggesting are 
several, including the fact that under international trade 
rules that apply to all states under the World Trade 
Organization (WTO), primary boycotts are permissible. The 
United States has one or two of its own.
    And second, with regard to the CFIUS process which looks at 
security threats to the United States arising from proposed 
acquisitions of assets here, the fact of whether a potential 
investor would be involved in the boycott is, as I understand 
it, currently outside the scope of that process.
    Mr. LoBiondo. You do understand that we have constituents 
who have contacted us who believe that approval of this is in 
essence helping to subsidize the boycott?
    Mr. Misenheimer. Again, there is no one who is in favor of 
boycott. There are many levels of our interaction with the UAE 
and the other states in the region. And the investment of those 
states in the United States, of course, has benefits for our 
economy which are well documented.
    Mr. LoBiondo. Thank you. Mr. Langevin you are up.
    Mr. Langevin. Thank you, Mr. Chairman. And, gentlemen, I 
want to thank you for your testimony today. The hour is late 
and we appreciate you being here.
    I want to begin with this. I understand clearly, we all 
understand now, that the Secretaries of Defense, Treasury and 
Homeland Security are all a part of this, sit on the CFIUS 
committee, and that this has been designated to others far 
below their rank who actually made this decision. But I have to 
ask the question that--in particular for the three secretaries 
that I mentioned--that they were unaware of the sale until it 
appeared in the newspapers.
    How is it that your bosses did not know what was happening? 
And is the process broken?
    Mr. Edelman. Congressman, as I testified earlier, I found 
out about the transaction after the fact as well. I found out 
about it from Deputy Secretary Kimmitt, and at the earliest 
possible opportunity I had, I notified the Secretary of 
Defense, who had already learned of it from the press, as you 
said.
    It is clear that, although as I mentioned there have been 
some steps to fix the part of the process that has been 
problematic from the point of view of some of the security 
agencies in terms of getting some of their concerns addressed, 
we have not completely fixed everything in the process. And at 
least--I can't speak for other agencies--but in the Department 
of Defense, we have taken some steps to make sure these cases 
get elevated to higher policy level now as a matter of routine.
    Secretary Lowery. I think that I have a very similar 
reaction. And I think the one thing I would say is that all the 
agencies did have their most professional people that deal with 
CFIUS matters or national security issues look at all this 
transaction very thoroughly. That said, clearly there were two 
mistakes that were made. One, there was not good vertical 
agreement; and second, that we did not do a very good job of 
explaining this to Congress.
    Secretary Baker. Well, I have to say Representative Skelton 
did not actually ask me if I knew about this. It turns out that 
I am the only person on the panel that did know about this. I 
am in charge of all policy for the Department of Homeland 
Security. I was deeply involved in the decisions about whether 
we were going to object to this transaction and what kinds of 
assurances we were going to insist on from the company in order 
to decide not to do that.
    In our case, while obviously in light of what has happened 
I should have talked to the Deputy Secretary and the Secretary, 
I concluded that we had protected the national security 
interest appropriately by getting the assurances that we 
received. So in our case, while I am confident that in the 
future we will be doing more reporting up, I would not say that 
this was decided at a low level within the Department.
    Mr. Langevin. Let me be clear. Mr. Baker, you are the only 
person on this panel here today that was directly involved with 
making the decision to allow the DP World sale to go forward?
    Secretary Baker. Boy, I guess I shouldn't be saying this, 
but yes, I think that is the case. I have a feeling that means 
more questions from you.
    Mr. Langevin. Well, Mr. Chairman, I would point out that 
unless we have direct testimony from all those people who were 
part of the committee, I don't think we are exercising proper 
oversight, and I would request that the committee consider 
bringing those individuals before the committee to answer the 
question of how we got into this point and really what 
additional information went into them making this decision.
    I would ask this. We can start with Mr. Baker and the other 
departments can answer. The individuals that were involved in 
making the decision to approve this sale, what national 
security experience do they have? I am not interested in their 
experience in foreign policy or the economy. I want to know 
specifically what experience they had in making national 
security decisions, what the experience was in national 
security.
    Secretary Baker. Obviously, a lot of different people 
participated in the Department of Homeland Security's decision. 
We asked for extensive review by the Customs and Border 
Protection Agency as well as the U.S. Coast Guard, which 
obviously these are people that have a career spent concerned 
about port and cargo security.
    Myself, I was general counsel of the National Security 
Agency. I have been general counsel and author of the report of 
the WMD Commission on Iraq Intelligence, and also I am head of 
policy for the Department of Homeland Security.
    Mr. Langevin. And for the Department of Defense and also 
for the Department of Treasury?
    Mr. Edelman. Congressman, for the Department of Defense, 
the main point of entry for the CFIUS process is the DTSA, 
which is essentially an organization that is devoted to the 
whole issue of export and technology control.
    Mr. Langevin. The individual who represented the Department 
at the CFIUS committee who was directly--who approved this 
decision--who is that person and what is their national 
security background?
    Mr. Edelman. I think Ms. McCormick testified it was Mr. 
Reitzel who was the actual participant in the meetings, and we 
can get back to you with--I don't know his exact CV but we can 
get back to you with his background. Would you like to hear 
from Ms. McCormick who is his superior?
    Ms. McCormick. I will just mention that Mr. Reitzel is a 
retired army intelligence officer, so he is by training an 
intelligence officer, and that is one reason why he runs the 
assessment part of my policy directorate where we review a 
variety of intelligence information and user checks, and he has 
been a civilian in the Department following his Active Duty.
    Secretary Lowery. I am Assistant Secretary for Treasury for 
International Affairs, and I take responsibility for my 
Department, and my Department made a decision that this 
transaction is okay to go forward. That is why I am here 
testifying today.
    As to the people that were involved, the person who runs 
the office has been doing CFIUS reviews, which are all related 
to national security, for the last roughly 10 to 12 years. As 
far as my own background, I have been involved in national 
security matters either at the Treasury Department or the 
National Security Council for 10 of the last 12 years.
    Mr. Langevin. I think we all find it astounding that no one 
seemed to anticipate the firestorm this was going to set off. 
And it really speaks to how insecure, really, the public is 
right now in the belief that our ports and our borders are 
secure. And we clearly have got to do a far better job at 
securing our ports, because I don't know we are prepared at our 
ports. I think we are grossly underprepared.
    I am going to end with this. It is my understanding that 
the Director of National Intelligence is not a sitting member 
right now of the CFIUS committee.
    Secretary Lowery. That is correct, sir.
    Mr. Langevin. Do you believe that the Director of National 
Intelligence should be a member of that committee?
    Secretary Lowery. We think that would be a good suggestion 
to take up, sir.
    Mr. Langevin. I agree.
    Secretary Baker. If I could just add one caveat from my 
experience with intelligence. One of the difficulties that 
arises when someone from the intelligence community 
participates in an interagency process is that there is a 
question of whether they are participating to provide 
intelligence or to represent their national security interests. 
And I think the DNI has very substantial national security 
interests here.
    The risk that is always raised is that once they begin 
participating from a policy point of view, it becomes harder 
for the other participants who may be disagreeing with them to 
rely entirely on their intelligence assessments, which 
inevitably are seen as tied to their bureaucratic interests.
    Secretary Baker. So we do need to find a way to have the 
DNI participate, to reflect their strong policy interests here. 
We just have to find a way to make sure that the intelligence 
that they gather isn't subject to the objection with respect to 
their policy interests.
    I, for one, believe that the DNI should have a seat on the 
committee and have a strong voice and role in overseeing these 
types of sales. I think in the past, CFIUS evaluated its 
decisions primarily based on a financial and an economic 
decision or standpoint. In this post 9/11 world, that cannot 
happen as we go forward. It has to be based on--a decision has 
to be made from a national security standpoint primarily and 
not an economic standpoint.
    Secretary Lowery. We agree.
    Mr. Langevin. Thank you, Mr. Chairman. I yield back.
    Mr. LoBiondo [presiding]. And now, for the last hour of the 
hearing, I recognize Mr. Larsen.
    Mr. Larsen. Thank you, Mr. Chairman. I have to warn you, I 
flew in from Washington State two days ago. I am still on west 
coast time. I have three hours, but I am not going to take 
three hours.
    It has been a great hearing, great panel. The two previous 
panels are very helpful for this committee. You have all been 
very patient with us. You have done your best to answer 
questions as you can, and we appreciate it.
    I think one of the headlines that you need to take away 
from this entire day is that we believe the CFIUS process is a 
legitimate process to conduct. We have serious questions about 
the legitimacy of the process based on the questions that we 
have had today, based on information that has come out since, 
and those are the kinds of questions we have to get answers to.
    If we don't, Congress will be a co-shareholder in every 
company that wants to do foreign investment in the U.S. trying 
to make those decisions, instead of the shareholders making 
those decisions, however many shareholders happen to be on the 
board of any of these companies. This process has to work, and 
we may be moving forward to change the process to make it work, 
change the criteria beyond the Exon-Florio criteria as well to 
make this process work. We have a lot of work to do here in 
Congress, and I would argue that we cannot spend every week 
reviewing every foreign investment in the U.S. that will be--it 
is a dangerous thing for us to get involved in.
    So this process has to change in order to work. It has to 
be seen as legitimate by us, more importantly, by the American 
people.
    I want to--Admiral--I can't even see that far any more; my 
eyes are so tired--Gilmour, the guy in uniform, you said 
earlier that with 20 inspectors for the ISPS compliance that 
you all do worldwide, that number was in the ballpark and it 
was--so it is about 20, and it would take you another 
additional 2 years to finish your assessments?
    Admiral Gilmour. Sir, that is an international team that 
inspects our foreign partners. We have many more people doing 
the domestic facilities in the United States, and they have 
already been inspected.
    Mr. Larsen. So the domestic are done, but now you are going 
international, and we have 20 inspectors about, and it would be 
another 2 years to complete that, is that what you said?
    Admiral Gilmour. Yes, sir.
    Mr. Larsen. The international.
    Admiral Gilmour. Yes, sir. We have completed about a third 
of the nations right now, about 80 percent of the traffic that 
comes to the U.S.
    Mr. Larsen. About 80 percent of the traffic that comes to 
the U.S., okay. I don't know if it would do any good to include 
in our discussions deliberations after this to add inspectors 
or not, given the fact that, where you are in the process. But 
it just seems to me that, you know, you use a ballpark analogy 
to sort of describe how many inspectors we have. I would just 
sort of say it is not a ballpark, it is sort of the size of a 
little league field in terms of how many we should have had in 
this process to really get this done, and that is no fault of 
the Coast Guard at all.
    It is just--the port security--and Congressman LoBiondo 
made the point about port security. I won't go through the 
numbers again. But we are clearly, compared to aviation, not 
putting the kind of investment, public investment, that is 
necessary to move as quickly as we have, compared to aviation.
    In the agreement, the--what do they call this? What do they 
call this? The----
    Mr. Baker. The assurances letter.
    Mr. Larsen. The hold separate commitment letter. Condition 
I say, chief security officer for P&O Ports North America 
(POPNA) will at all times be a U.S. citizen unless U.S. Coast 
Guard agrees otherwise. So, apparently, U.S. Coast Guard will 
be responsible for approving through the life of this 
agreement, which will be at the latest May 1, that the security 
officer for POPNA will be a U.S. citizen. Is that your 
understanding of this as well? Or should that be to Mr. Baker?
    Admiral Gilmour. Yes, sir.
    Mr. Larsen. That is your understanding? Is it your 
understanding that after May 1 or earlier that then you no 
longer have any say in who they determine as a security 
officer, their chief security officer?
    Admiral Gilmour. I guess I have to defer to DHS on that. 
But my interpretation would be that in perpetuity we would be 
able to do that.
    Mr. Larsen. Mr. Baker, do you have----
    Secretary Baker. I think that this agreement goes beyond 
the assurances letter. The assurances letter requires that the 
company maintains security policies under the direction of a 
responsible corporate officer----
    Mr. Larsen. Right, and I was getting to that as well. But 
just in terms of the chief security officer of POPNA of as long 
as it is POPNA, it is going to be the Coast Guard's 
responsibility and only until that agreement is no longer 
relevant, which will be made the 1st or earlier?
    Mr. Baker. That is my understanding.
    Admiral Gilmour. Yes, sir. I was thinking of the wrong 
letter. I am sorry.
    Mr. Larsen. Sure.
    Okay, the next question is probably for Mr. Baker. Then the 
letter--the assurances letter designates a responsible 
corporate officer to serve as a point of contact with the 
Department of Homeland Security on security matters.
    My question to Mr. Scavone, I think, with the security 
office, the current executive vice president for security at 
POPNA who is the--which agency at DHS will be responsible and 
who will be the contact at DHS--the basic question, who do we 
hold responsible for ensuring that portion of the assurance 
letter is implemented?
    Mr. Baker. My office is in charge of the CFIUS process, and 
along with the general counsel's office, we make sure that 
people comply with the agreements. But I think it is likely 
that, with respect to this kind of thing, that we will end up 
asking one of the components, CBT or Coast Guard, to take 
responsibility for the details of the implementation of this 
agreement.
    Mr. Larsen. Should this agreement go forward after the 45 
day re-review of it and however the process works out, that 
Congress is in with the Administration, can you let us know 
which agency and which office and which phone number?
    Mr. Baker. Absolutely, yes. We will be glad to do that.
    Mr. Larsen. Assuming it gets that far.
    Is there any other agency at this table who is going to be 
part of any other management decision at the post P&O PNA 
entity? Or is it all going to be DHS?
    Mr. Baker. The agreement is with DHS. So anything that 
happens under that agreement would be something that we would 
be responsible for.
    Mr. Larsen. Mr. Lowery, were you about to give up the 
ghost?
    Secretary Lowery. I was just going to agree with my 
colleague.
    Mr. Larsen. Okay, thanks.
    Mr. Baker, you mentioned that as well, that you said in two 
different forms, more detail the second time, about the ability 
for DHS to subpoena employee records at DP World and conduct 
their own background checks if you wish, if DHS wishes. My 
question to you is, will you wish? Is this something you are 
holding out or you are going to do?
    Secretary Baker. Our current plan is to actually make--we 
don't even have to get a subpoena. We can just make a written 
request. We plan to make a written request to test our 
understanding of the agreement, make sure we get the 
cooperation that we expect, as part of the 45-day review 
process is to make sure that everything is working.
    Then I expect us to perform some form of background check 
on the names that we get back. Precisely what checks we will 
do, whether we are running those names against watchlists or 
performing other checks, remains to be determined. But we will 
certainly be exercising our rights here and going beyond what 
is currently required of other companies.
    Mr. Larsen. Will you be doing those only of direct 
employees of DP World?
    Mr. Baker. These are employees in the U.S. facilities.
    Mr. Larsen. I am sorry, in U.S. facilities as employees of 
DP World?
    Mr. Baker. That is our current plan.
    Mr. Larsen. Mr. Baker, you mentioned to Mr. Saxton earlier 
your willingness to work on security issues and you mentioned a 
few other times as well.
    There is legislation--it has been introduced in the 
Senate--the Greenlane Maritime Cargo Security Act by Senator 
Murray from my State and Senator Collins from Maine; and at 
least according to a few commentators, the DHS's initial 
reaction--I think one commentator used the word ``tepid.'' I 
would ask you if it is still tepid, if that was accurate. I 
want to give you a chance here. If it is accurate, why it is 
tepid; and if it isn't accurate, tell me how excited you are 
about working to get something like this passed?
    Mr. Baker. I think we are quite prepared to turn up the 
heat on our efforts in this regard. I am not in a position to 
give you a response to the details of this legislation, but I 
think we all recognize that this is a moment in history where 
we can do something about port security legislatively, and we 
should look hard at what can be done.
    Mr. Larsen. Just generally some details that would provide 
incentives for American importers to accept modest fees, to 
establish minimum security standards, encourage tracking and 
monitoring of containers through the entire supply chain, 
create joint operation centers within U.S. ports, to respond to 
terrorists incidents as well as to allow for flow of commerce 
to resume when everything is sorted out after incidents; and 
then it would authorize $835 million a year for the Container 
Security Initiative. So those are some of the details as 
reported not only in the press but on the fact sheet on the 
Greenlane.
    Mr. Baker. I think those are all topics in which we would 
be quite prepared to work with Congress to see if we can come 
up with a proposal that the Administration can support as well.
    Mr. Larsen. That makes me excited to hear, I should say.
    With that, Mr. Chairman, I have no further questions for 
the panel. Thank you.
    Mr. LoBiondo. Okay, thank you, Mr. Larsen.
    I want to thank our panel very much. I guess no one 
expected that it would go on to this hour, but this was very 
helpful for the committee, and we appreciate your cooperation.
    [The prepared statement of Mr. Misenheimer can be found in 
the Appendix on page 170.]
    Mr. LoBiondo. The meeting stands adjourned.
    [Whereupon, at 7:58 p.m., the committee was adjourned.]
     
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                            A P P E N D I X

                             March 2, 2006

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              PREPARED STATEMENTS SUBMITTED FOR THE RECORD

                             March 2, 2006

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                   DOCUMENTS SUBMITTED FOR THE RECORD

                             March 2, 2006

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             QUESTIONS AND ANSWERS SUBMITTED FOR THE RECORD

                             March 2, 2006
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                   QUESTIONS SUBMITTED BY MR. SKELTON

    Mr. Skelton. I request of you to produce to our committee any 
documents relating to the deliberation and decision making process for 
this port deal, and this includes correspondence, minutes of any CFIUS 
meetings, statements or summaries of fact, and written decisions. All 
right, Mr. Lowery?
    Secretary Lowery. [The information referred to is propietary 
information and retained in the committee files.]
                                 ______
                                 
                  QUESTIONS SUBMITTED BY MR. LOBIONDO
    Mr. LoBiondo. But with government involvement, that is where our--
we can't separate some of these issues because with Israel as our most 
reliable partner in that part of the world, some of us view that if 
there is, in fact, a boycott, that something like the deal we are 
talking about is in effect ending up subsidizing a boycott, and that is 
where we have got a serious problem and where this is coming down. You 
probably can't answer if it were one of the conditions after the 45 
days that there not be anything like a boycott, how you would react to 
that condition, but that will certainly be one of the questions that we 
will be asking.
    Mr. Bilkey. [The information referred to was unavailable at the 
time of printing.]
                                 ______
                                 
                   QUESTIONS SUBMITTED BY MR. SPRATT
    Mr. Spratt. We had a statistic given to us earlier today that there 
were 80 Customs inspectors for monitoring the compliance of 5,800 
importers, and that there were only 20 Coast Guard inspectors to 
monitor the international shipping port facilities code. Is that 
correct, 20 inspectors to monitor the worldwide international code?
    Admiral Gilmour. All 63 billets assigned to the International Port 
Security Program are involved in monitoring the security of 
international ports/facilities; however, the primary responsibility for 
physically visiting foreign countries resides with the two Coast Guard 
Area Commanders who determine the appropriate number of personnel to 
conduct the visits.
    Below is the unit allocation of the 63 billets assigned to the 
International Port Security Program:

      Headquarters: 9
      Atlantic Area (Portsmouth, VA): 23
      Atlantic Area (Activities Europe): 12
      Pacific Area (Alameda, CA): 7
       Pacific Area (Activities Far East and Maritime Inspection 
Detachment Singapore): 12
                                 ______
                                 
                   QUESTIONS SUBMITTED BY MR. ANDREWS
    Mr. Andrews. Okay. Here is what I am going to ask you to do. I 
would ask the Department to supplement on the written record whether it 
acknowledges or disclaims the basis of the Chairman's question about 
the 2003 transaction of the triggers which could be used in a nuclear 
weapon; whether the Department acknowledges that, in fact, took place 
over the protest of the United States or whether it did not. Could you 
do that for us?
    Mr. Misenheimer. [The information referred to was unavailable at 
the time of printing.]

                                  
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