[Senate Hearing 109-996]
[From the U.S. Government Publishing Office]
S. Hrg. 109-996
EXAMINATION OF
THE EXON-FLORIO AMENDMENT:
FOCUS ON DUBAI PORTS WORLD'S
ACQUISITION OF P&O
=======================================================================
HEARING
before the
COMMITTEE ON
BANKING,HOUSING,AND URBAN AFFAIRS
UNITED STATES SENATE
ONE HUNDRED NINTH CONGRESS
SECOND SESSION
ON
IMPLEMENTATION OF THE EXON-FLORIO AMENDMENT, FOCUSING ON DUBAI PORTS
WORLD ACQUISITION OF PENINSULAR AND ORIENTAL STEAM NAVIGATION COMPANY,
THE ROLE OF TERMINAL OPERATORS, AND U.S. COAST GUARD ACTIONS UNDER THE
MARITIME TRANSPORTATION SECURITY ACT OF 2002
__________
MARCH 2, 2006
__________
Printed for the use of the Committee on Banking, Housing, and Urban
Affairs
Available at: http: //www.access.gpo.gov /congress /senate/
senate05sh.html
______
U.S. GOVERNMENT PRINTING OFFICE
37-513 WASHINGTON : 2007
_____________________________________________________________________________
For Sale by the Superintendent of Documents, U.S. Government Printing Office
Internet: bookstore.gpo.gov Phone: toll free (866) 512-1800; (202) 512�091800
Fax: (202) 512�092104 Mail: Stop IDCC, Washington, DC 20402�090001
COMMITTEE ON BANKING, HOUSING, AND URBAN AFFAIRS
RICHARD C. SHELBY, Alabama, Chairman
ROBERT F. BENNETT, Utah PAUL S. SARBANES, Maryland
WAYNE ALLARD, Colorado CHRISTOPHER J. DODD, Connecticut
MICHAEL B. ENZI, Wyoming TIM JOHNSON, South Dakota
CHUCK HAGEL, Nebraska JACK REED, Rhode Island
RICK SANTORUM, Pennsylvania CHARLES E. SCHUMER, New York
JIM BUNNING, Kentucky EVAN BAYH, Indiana
MIKE CRAPO, Idaho THOMAS R. CARPER, Delaware
JOHN E. SUNUNU, New Hampshire DEBBIE STABENOW, Michigan
ELIZABETH DOLE, North Carolina ROBERT MENENDEZ, New Jersey
MEL MARTINEZ, Florida
Kathleen L. Casey, Staff Director and Counsel
Steven B. Harris, Democratic Staff Director and Chief Counsel
Mark Oesterle, Counsel
Skip Fischer, Senior Staff Professional
Stephen R. Kroll, Democratic Special Counsel
Joseph R. Kolinski, Chief Clerk and Computer Systems Administrator
George E. Whittle, Editor
(ii)
?
C O N T E N T S
----------
THURSDAY, MARCH 2, 2006
Page
Opening statement of Chairman Shelby............................. 1
Opening statements, comments, or prepared statements of:
Senator Sarbanes............................................. 3
Senator Allard............................................... 5
Senator Reed................................................. 7
Senator Hagel................................................ 7
Senator Stabenow............................................. 8
Senator Bunning.............................................. 10
Senator Menendez............................................. 11
Senator Dole................................................. 13
Senator Dodd................................................. 14
Senator Crapo................................................ 15
Senator Schumer.............................................. 17
Senator Martinez............................................. 18
Prepared statement....................................... 66
Senator Bayh................................................. 19
WITNESSES
Robert M. Kimmitt, Deputy Secretary, U.S. Department of the
Treasury....................................................... 21
Prepared statement........................................... 66
Response to written questions of:
Senator Shelby........................................... 78
Senator Bunning.......................................... 81
Senator Bayh............................................. 83
Senator Carper........................................... 86
Senator Santorum......................................... 87
Eric Edelman, Under Secretary for Policy, U.S. Department of
Defense........................................................ 23
Prepared statement........................................... 70
Response to written questions of:
Seantor Shelby........................................... 89
Senator Bunning.......................................... 89
Senator Bayh............................................. 91
Stewart Baker, Assistant Secretary for Policy, U.S. Department of
Homeland Security.............................................. 27
Prepared statement........................................... 72
Response to written questions of:
Senator Shelby........................................... 93
Senator Bunning.......................................... 95
Senator Bayh............................................. 97
Senator Carper........................................... 98
Senator Santorum......................................... 100
Robert Joseph, Under Secretary for Nonproliferation, U.S.
Department of State............................................ 29
Response to written questions of Senator Bunning............. 101
(iii)
EXAMINATION OF
THE EXON-FLORIO AMENDMENT:
FOCUS ON DUBAI PORTS WORLD'S
ACQUISITION OF P&O
----------
THURSDAY, MARCH 2, 2006
U.S. Senate,
Committee on Banking, Housing, and Urban Affairs,
Washington, DC.
The Committee met at 10:04 a.m., in room SDG-50, Dirksen
Senate Office Building, Senator Richard C. Shelby (Chairman of
the Committee) presiding.
OPENING STATEMENT OF CHAIRMAN RICHARD C. SHELBY
Chairman Shelby. The hearing will come to order.
The Committee has been concerned with the adequacy of the
CFIUS process for some time. We have long held concerns that
the process favors open investment policy over legitimate
national security interests.
While I strongly support our open investment policy and
recognize that it is vital to our national economic interest, I
do not believe it should stand at any cost. Everything in this
country cannot be for sale. This makes the credibility and
integrity of the CFIUS process vital if we are to balance these
interests.
We all recall the uproar this past summer when the state-
owned Chinese oil company made an offer to buy the American
firm Unocal. Today, it is Dubai. Tomorrow, it will be another
investment deal. Again, this reinforces our need to improve
this process as soon as possible to ensure that national
security interests are adequately considered and protected and
that the process is viewed as credible by the Congress and the
American people.
I believe that a crucial starting point in this analysis
should be the requirements of the Byrd Amendment to Exon-
Florio. This provision ostensibly requires a thorough 45-day
investigation of acquisitions or mergers involving foreign
state-owned or controlled entities. However, the recent DP
World case has raised some basic questions as to the
applicability of this requirement. In fact, during last week's
briefing of the Armed Services Committee, Deputy Secretary of
the Treasury Kimmitt responded to Senator Byrd regarding Byrd's
amendment. Kimmitt said, ``we have a difference of opinion on
the interpretation of it.''
That there is no certainty on as fundamental an issue as to
whether a full 45-day investigation should be triggered by
certain transactions underscores the serious nature of the
shortcomings of the CFIUS process as it is presently
constituted. Beyond questions with respect to the process
undertaken during a CFIUS review, I also have significant
concerns regarding the range of the national security
considerations that are covered.
To this end, I believe that there must be greater clarity
in the law regarding the requirement to consider transactions
for their impact on such things as critical infrastructure
protection and nonproliferation issues, among others. Where
internal administrative efforts may take such matters into
account, I believe we must provide clarity to ensure that such
issues are formally examined as part of any routine review.
Shifting focus from general consideration of the CFIUS
process to the particular consideration as to how it was
applied in the Dubai Ports transaction only further heightens
my concerns. I believe that there is a strong consensus that
from the perspective of Homeland Security, our single greatest
vulnerability is our ports of entry, especially our maritime
ports of entry. Thus, when anyone from any foreign country
seeks to purchase any part of our port operations, careful
scrutiny should be given to the national security implications
associated with the transaction.
While Dubai is an important ally in the war on terror, it
is nevertheless a country in the Persian Gulf, a region where
support for al Qaeda is very strong and through which funding
for terrorist activities, including the attacks of September
11, flowed. It is also the location where the most dangerous
nuclear weapon black market smuggling operation in history
operated.
Given the considerable number of questions related to
national security associated with this deal, that is, the
control of critical infrastructure such as our ports and the
involvement of a firm from the world's most dangerous region, I
do not believe it was reviewed in a manner commensurate with
such risks. Perhaps most troubling, such approval occurred
notwithstanding the fact that in its review of the transaction,
the Coast Guard Intelligence Coordination Center stated that,
``there are many intelligence gaps concerning the potential for
DPW or P&O assets to support terrorist operations that preclude
an overall threat assessment of the potential DPW and P&O
merger. A process that could produce such a result is simply no
longer acceptable.''
Finally, I believe this deal reveals that there are
significant gaps in the existing process regarding transparency
and Congressional oversight. In what can only be deemed a
highly ironic twist, it is now known that just 3 days prior to
this Committee's October 2005 hearing on the CFIUS process, the
Department of Homeland Security was approached by Dubai Ports
World with very advanced notification of its intention to
purchase P&O. Next, the Treasury Department asked the Director
of National Intelligence to provide an intelligence assessment
on Dubai Ports World on November 2.
Finally, on December 16, the companies involved officially
requested that their pending transaction be reviewed by CFIUS.
This Committee was not notified, as I believe it should have
been, upon the formal commencement of a review of the proposed
transaction.
Perhaps most troubling, some have claimed that because news
stories about the transaction appeared as early as October 31
in the London Financial Times, Congress should have been aware
of the pending transaction. I am sure that when Deputy
Secretary Kimmitt stated on the record here at the Banking
Committee hearing on October 20 that we can certainly have a
much better line of communication with Congress on the CFIUS
process that he had something different in mind than the U.S.
Congress having to rely on the U.S. or foreign press to learn
of impending deals.
Flatly stated, the system for Congressional notification is
fundamentally broken. Both Exon-Florio and the later Byrd
Amendment were passed in particular contexts in which it was
very clear that the Legislative Branch of the U.S. Government
was deeply concerned about the manner in which foreign
acquisitions of U.S. companies were examined or not examined
for national security implications.
The manner in which the Dubai Ports transaction was handled
only reinforces this Committee's earlier findings that the
system is seriously flawed and that corrective, legislative
measures are required. We will hear this morning again from
Deputy Secretary Robert Kimmitt, the Chairman of the Committee
on Foreign Investments in the United States and who I might add
personally assured us would remain on top of the security
review process last year.
We will also hear from Mr. Eric Edelman, Under Secretary
for Policy, Department of Defense; Mr. Stewart Baker, Assistant
Secretary, Department of Homeland Security; Mr. Robert Joseph,
he is here, Under Secretary of State for Nonproliferation.
Senator Sarbanes.
STATEMENT OF SENATOR PAUL S. SARBANES
Senator Sarbanes. Thank you very much, Mr. Chairman.
Under your leadership, this Committee has been concerned
for some time about the way foreign purchases of U.S. asset
with national security implications are evaluated under the
Exon-Florio Amendment to the Defense Production Act. In fact, 2
years ago, Senator Bayh and I joined with you in asking for a
GAO report on this subject. GAO delivered that report last
September, and this Committee held two hearings on the report
and its implications in October, well before the present
controversy about Dubai Ports World arose.
At the time, I thought we were receiving assurances from
the Administration that the review process through which Exon-
Florio was implemented would be substantially improved.
Regrettably, that appears not to have happened. The Exon-Florio
Amendment was enacted in 1988. It authorizes the President to
review and investigate and ultimately, if necessary, to suspend
or bar the acquisition by a non-U.S. person of a company doing
business in the United States if the acquisition could threaten
U.S. national security.
Now, Exon-Florio was amended in 1992, most importantly to
mandate a 45-day investigation if a foreign government-owned
company acquired a company in the United States whose
operations relate to the national security. The 1992 Amendment
also required a report to Congress by the President after the
conclusion of any Exon-Florio investigation.
In that report to the Congress, the President was charged
by the statute to provide a detailed explanation of why it
either permitted or rejected the acquisition in question.
Whichever way he decided, he was required to submit an
explanation to the Congress, and the rationale for that was
that you could not begin to understand the criteria that were
being used unless you got an explanation when it was permitted,
as well as when it was rejected.
The President's Exon-Florio authority to investigate
acquisitions has been delegated by the President to the
Committee on Foreign Investments in the United States, or
CFIUS. CFIUS is chaired by the Department of the Treasury. It
includes the Departments of Commerce, Defense, Homeland
Security, Justice, State, the National Security Council, and
five other components of the Executive Office of the President:
The OMB, the CEA, the National Economic Council, the Trade
Adviser, and the Adviser on Science and Technology.
This highly critical report by the GAO delivered to this
Committee last year concluded that the way CFIUS administers
Exon-Florio may limit the statute's effectiveness. The GAO
cited several specific concerns: First, that Treasury very
narrowly defines what constitutes national security; two, that
CFIUS is reluctant to start 45-day formal investigations
because they perceive a negative impact on foreign investment
and a conflict with U.S. open investment policy; third, that
the resulting limitation of the CFIUS process to a 30-day
preliminary review period makes careful analysis very difficult
at best; and fourth, that failure to proceed to an
investigation means that few Presidential decisions will ever
be required, thereby eliminating reporting to the Congress and
making effective Congressional oversight impossible. In fact,
it contributes markedly to making the whole process more
opaque, less transparent.
Now, the purchase by Dubai Ports World, DPW, of Peninsular
and Oriental Steam Navigation Company, P&O, has focused the
questions with which we were concerned last year in deeply
troubling ways. Let me just say, Exon-Florio states that the
President or the President's designee shall make an
investigation as described in Subsection A in any instance in
which an entity controlled by or acting on behalf of a foreign
government seeks to engage in any merger, acquisition, or
takeover which could result in control of a person engaged in
interstate commerce in the United States that could affect the
national security of the United States.
How could one reasonably question the fact that the
Government of Dubai's control of the corporation that is
operating major terminals in some of the largest ports in the
United States could affect national security? Port security is
a major component of our defenses against terrorism. Our ports
are critical to the national economy and to our conduct of
international trade, and our ports employ tens of thousands of
our citizens.
Still, despite ownership of DPW by the Government of Dubai,
no 45-day investigation occurred. I co-sponsored the 1992
Amendment to Exon-Florio that provided for the 45-day
investigation. Senator Robert Byrd, the sponsor of the
amendment, said on the floor when the amendment was being
considered, ``it requires that any acquisition that involves a
company controlled by a foreign government, as was the attempt
with Thompson's attempt to buy LTV Corporation's missile
division, must automatically receive the more detailed 45-day
investigation.''
It is not surprising that U.S. citizens throughout the
country are worried about the Dubai Ports World transaction.
The transaction would transfer control of substantial terminal
functions at a number of major East and Gulf Coast ports
including New York, Newark, Philadelphia, Baltimore, Miami, and
New Orleans would be transferred to DPW. DPW would acquire
lesser but still significant functions at ports including
Portland, Maine; Boston; Davisville, Rhode Island; Norfolk;
Galveston; Houston; and Corpus Christi.
And I go back to the point I made earlier. No one has
denied that port security is a critical component of our
national security. In fact, that point is constantly being made
to us. My concern is with the deeply flawed process that
permits this transaction to go forward before it is analyzed
sufficiently. The problems identified by the GAO, especially
the fear of moving to a 45-day investigation, are evident.
In addition, I am not aware of any effort to discuss this
transaction with the Chairmen and Ranking Members of relevant
Congressional committees. And there is little evidence that
this transaction, in fact, received high level attention within
the executive branch before CFIUS acted. In fact, Mr. Chairman,
one of the answers I would like to receive from this panel
today is who from each of the 12 departments and offices,
including those in the Executive Office of the President, were
involved in the decision not to move forward with a 45-day full
investigation. Who were the decision makers? What level were
they at? And what did they tell their principles.
Secretary Kimmitt, as Chairman of CFIUS, I was seeking to
learn from you when you learned of the transaction and what
your direct involvement in it was.
Mr. Chairman, I believe that fundamental reforms in the
Exon-Florio process are in order, and I look forward to working
with you to ensure that the problems we are reviewing today do
not happen again. Thank you very much.
Chairman Shelby. Thank you.
Senator Allard.
STATEMENT OF SENATOR WAYNE ALLARD
Senator Allard. Thank you, Mr. Chairman.
I would personally like to thank you for your ongoing
oversight on the CFIUS process. Like many of my colleagues, I
have been extremely concerned with what I have been hearing
regarding the decision to transfer port operations to a company
owned by a foreign government. I appreciate this opportunity to
more closely examine not only the ports decision but also to
use this as a poster child of the shortcomings of the
underlying CFIUS process.
I oppose the decision to permit a company owned by the
Government of Dubai to take over operations of six major U.S.
ports without additional information and review. My primary
concern about this plan is national security. While I am a
strong advocate for economic growth and business opportunities,
they must not come at the expense of national security.
Having served on the Armed Services Committee and on the
Intelligence Committee also at that time under the able
leadership of Chairman Shelby, I am keenly aware of the primacy
of national security. The only room for error in the arena of
national security is to err on the side of caution. We cannot
be casual about the safety and security of our country.
The Administration has urged, as they no doubt will today,
that Dubai Ports World will only conduct terminal operations
and that the company will have no involvement in port or
terminal security. In my view, they could not be more wrong.
Security is an integral part of operations. To draw a parallel,
ground maintenance crews and crews that clean and prepare
planes are not directly responsible for airplane security.
However, it is not difficult to imagine ways in which they
could have a deleterious effect on our air security. Similarly,
with terminal operations, operators might not have primary
responsibility for security; their actions directly affect the
ability of Customs and the Coast Guard to perform their
security functions.
I am pleased that the Administration has finally agreed to
conduct a review of this matter. However, I am disappointed
that it took a massive public outcry. Congressional pressure
and a request from the Dubai Ports World company itself for the
administration to agree to conduct what unquestionably should
have been done in the first place.
I would strongly advise that they consult closely with
Congress in this process, as we have a critical role to play in
national security decisions. I would also admonish the
Administration to ensure that they conduct a thorough, vigorous
investigation during this 45-day period.
Key Administration officials have already made comments
that could lead one to believe that this will be little more
than a perfunctory investigation or one designed to support a
predetermined outcome. This is absolutely unacceptable.
Congress and the American people expect a legitimate,
objective, substantive investigation, and I continue demanding
nothing less.
Only when a thorough, objective investigation has been
completed, and Congress has had an opportunity to review the
findings will I even consider allowing this takeover to
proceed.
While much of the public attention has been focused
specifically on the matter of port operations, this one
situation simply underscores the much broader concern of how we
even got to this point, and the answer lies in a flawed CFIUS
process. Again, the ports deal only typifies the lack of
transparency and Congressional notification in the current
process. The fact that the Administration fails to acknowledge
any weakness in this system only makes me more concerned.
For some time now, Chairman Shelby has indicated his
concern with the CFIUS process, and I appreciate his
leadership. I intend to work closely with him and other
Committee Members to continue examining what forms may be
necessary for the underlying CFIUS process.
Without reforms for the flawed structure that supported the
decision to allow a foreign government to take control without
even conducting an investigation, we will continue to face
potential risks to other sectors vital to our national
security.
Thank you, Mr. Chairman.
Chairman Shelby. Senator Reed.
STATEMENT OF SENATOR JACK REED
Senator Reed. Thank you very much, Mr. Chairman, and thank
you for holding this hearing.
At the heart of most of what we do is trying to strike a
balance, and in this case, it is a balance between an open
investment policy in a world economy and the national security
of the United States. And the conclusion emerging at this point
is that balance has not been properly struck as of yet.
Certainly, that is what I am hearing from my constituents
throughout Rhode Island, and I think my colleagues are hearing
the same thing throughout the country.
Since 1988, the Exon-Florio Amendment has required the
Administration to conduct these reviews, and in 1992, the Byrd
Amendment put in place a 45-day investigative process, which
would lead ultimately to a Presidential decision and to
Congressional review, at a minimum.
The process that was taken with respect to Dubai's
potential acquisition of our ports, or at least potential
management, I should say, of our ports to be precise, avoids
this investigation process and, in effect, cuts Congress out
and the American people for a careful review of this
transaction, and that has caused great concern not only here
but also more importantly throughout the country.
I think we have to go forward, as now is the case with this
45-day review. I think Congress has to be an active participant
in this process. We have to look very closely at all of the
parameters of national security. It is troubling to be revealed
in the last few days that the Coast Guard essentially did not
think they had sufficient information to cover all the
different aspects of national security.
And as Senator Sarbanes pointed out, the Government
Accountability Office has also indicated that there appears in
the process of CFIUS review a narrowing of the terms of
national security to avoid the type of investigation and
ultimately the type of transparency that is essential, I
believe, not only for appropriate decisions but also
communicating to the public that we are taking care to protect
the national security of the United States.
And so, I think it is important that we have this hearing
today. It is important for this investigation. And I would hope
that this is not simply a perfunctory analysis with the
conclusion predetermined, but it is a searching and careful
review of every aspect of national security that could be
implicated in the transfer of the management of these ports to
any other entity.
Thank you, Mr. Chairman.
Chairman Shelby. Senator Hagel.
STATEMENT OF SENATOR CHUCK HAGEL
Senator Hagel. Mr. Chairman, thank you, and I, too, welcome
our witnesses.
As has been noted this morning, for any nation, no interest
is more important than its national security interests. We are
dealing here with two specific issues: One, this particular
case, the P&O acquisition case, and two and maybe more
importantly, future acquisitions and the process that leads us
to those future acquisitions. It may well require that we amend
current law.
I would also note, Mr. Chairman, that these kinds of issues
and decisions that are made have consequences and implications
that always go far beyond national security interests. As also
noted here this morning, they would include investment issues,
trade issues, diplomatic, geopolitical, strategic interests of
our country, which are particularly important at a time when we
live in a global community underpinned by a global economy.
Many complicated issues.
I am particularly pleased, Mr. Chairman, that you have
brought forward these witnesses, because as we sort through
this, let us deal with the facts. Let us not deal with the
politics or the passion or the emotion. It is facts that we
will require, and through this process of questions, we will
get the facts in this particular case as well as any
adjustments that need to be made to the process.
One last point, the world is obviously dynamic. We
appreciate that. Laws and regulations constitute the reality of
the world at the time we pass the law, not unlike what we were
dealing with in the NSA surveillance case, the 1978 law.
Technology has bypassed, I believe, that law. We are going to
have to change that law.
And here, too, is a living, breathing 21st century example
of how and why we may have to change this law. But it should be
very clear to the world and to the people of America that
first, our security is paramount, but our security does include
many other dynamics of our future. And that is our economic,
geopolitical, our relationships, our diplomatic and all that
secure our economy, our future, and our competitive position in
the world. I look forward to hearing our witnesses and
opportunity to ask questions.
Thank you, Mr. Chairman.
Chairman Shelby. Thank you.
Senator Stabenow.
STATEMENT OF SENATOR DEBBIE STABENOW
Senator Stabenow. Thank you, Mr. Chairman, for this very
important hearing. Thank you for our witnesses being here
today. There is no question that the issue of homeland security
is something on the minds of all of us and the people we
represent, and we are here today really to say that this should
not be negotiated, sidestepped, or ignored in any of the
processes that have been developed.
Everyone, port managers, front line workers, former
administrators, all agree that safety should be our primary
concern. A former commander in the U.S. Coast Guard and expert
on maritime security I think put it this way. The September 11,
2001 attacks on New York and subsequent attacks on Madrid and
London show that transport systems have become favored targets
for terrorist organizations, and it is only a matter of time
before terrorist breach the superficial security measures in
place to protect the ports, ships, and millions of intermodal
containers that link global producers to consumers. So that is
the backdrop that we are having this discussion.
Given this type of statement, I simply cannot understand
how the importance of port security was ignored in this
process. In my opinion, it is just common sense, frankly, that
American companies accountable to American people should run
ports, regardless of the country.
A company that manages a port is responsible for providing
the day-to-day physical security of that facility, and when you
think about it, they control access to the port with fencing,
security cameras, security guards, and screening the truck
drivers that come and go. They ensure the employees meet
Federal and State employment laws and ultimately facilitate the
transport of goods through the port and coordinate between
Federal and State law enforcement agencies as well as
commercial interests at the port. Again, given that, I believe
that our policy in a post-September 11 world specifically
should be that we should have this done by American companies.
The port manager has a tremendous amount of power and
influence over the operations of the port. In my opinion, as I
said, it does not matter if we are talking about a British
company or United Arab Emirates. I believe American companies
accountable to the American people should manage the operations
of these vital national security interests.
Mr. Chairman, we have dealt with this issue before. You
mentioned the Chinese oil company. We also had a situation back
in the late 1990's with the Port of Long Beach, when they
reached an agreement to lease a former Navy container terminal
to a Chinese company, China Ocean Shipping Company. At that
time, Congress passed legislation that followed 1998, I was in
the House at the time and supported that, to prohibit the Navy
from conveying the closed naval station to the Chinese company.
I think what is even more concerning about the process
involved in all of this is that people at the highest levels of
government do not appear to have been involved or aware of what
was happening as it happened. The entire approach has been
casual. It appears that the President as well as the Secretary
of the Treasury, who chairs the Committee on Foreign
Investments in the United States and the Secretary of Defense,
who serves on the Committee, learned of the U.S. Government's
approval of the sale, the same way that we did, through the
television and other media reports.
And what we have learned since then is even more
concerning, I think, that according to an internal document,
the Coast Guard, which is in charge of reviewing security at
ports operated by the Dubai Maritime Company, warned the
Administration it could not rule out that the company's assets
would not be used for terrorist operations.
On Tuesday, we also found that the Deputy Homeland Security
Director, Michael Jackson, admitted that he was not aware of
the Coast Guard memo before he approved the deal. That is a
great concern to me.
But finally, Mr. Chairman, I would simply say I believe
there is a broader issue here as well as this process, and that
is what we are doing about port security. Only one in 20
shipping containers entering the United States is physically
inspected. When we look at the fact that the September 11
Commission report gave us a D on port security. To me, the
broader issue is not just what happens through this process,
although it is critical.
But as a Member of the Budget Committee, I am extremely
concerned that we have not seen the action we need to address
port security. The Coast Guard estimated after September 11
that it would cost nearly $5.4 billion to provide the needed
upgrades at our ports, $5.4 billion. Since then, the
Administration has requested $46 million, and in this year's
budget that we are going to be taking up in a few weeks, the
Administration has proposed eliminating the Port Security Grant
Program for the second year in a row. I do not understand this.
Fortunately, we in Congress have at least begun to fund
this at $700 million to date, but frankly, most of our Nation's
ports are left without the resources that they need, and I hope
we are going to address this on a bipartisan basis, because
this is not, of course, a partisan issue. This is an American
issue.
And I would finally just say, as an example, our ports in
Detroit were told they were not even eligible for the Port
Security Grants because they were not a high risk port, despite
the fact that the City of Detroit is the eighth largest
metropolitan area in the country, and 42 percent of all the
American-Canadian trade goes through those ports in
Southeastern Michigan.
So, Mr. Chairman, people in my State are perplexed about
what is going on, both the decisionmaking processes, what the
decisions were, and frankly, the larger question of how are we
going to up our grade. The D that was given by the September 11
Commission to me is the broader issue at play, and I hope this
year we are going to do something about that.
Thank you, Mr. Chairman.
Chairman Shelby. Senator Bunning.
STATEMENT OF SENATOR JIM BUNNING
Senator Bunning. Thank you, Mr. Chairman, and thank you for
holding this very timely and important hearing.
I think it is very important to note that this Committee
has been active on the issues surrounding the Committee on
Foreign Investment for a lot longer than just the port deal
that is the focus of this hearing. Now more than ever, it is
clear that we need to take a hard look at the Committee on
Foreign Investment to see what changes need to be made for the
future.
But the task at hand today is to take a closer look at the
Dubai Ports World's acquisition of P&O and its U.S. operations.
We need to go slow with this process. We should have had the
45-day review, because it is a foreign government's investment,
and, to our witnesses, I do not know how we did not get the 45-
day review to start with.
This decision should be based on facts, not on emotion or
partisan political calculation. The single most important
question we need answered is will this deal make the United
States less safe? If the answer is yes, the deal needs to be
stopped. If the answer is no, it should probably go through but
with a lot more thorough investigation of the consequences.
A business deal like this is a matter of free trade and
economic efficiency. There are clear economic benefits from the
transaction, and the UAE is an important trading partner. In
fact, we have a large trade surplus with them, one of the few
countries that we do. The UAE is also a partner in the war on
terror. They have provided critical assistance to our military
forces, including port facilities for the Navy. They are
actively participating in our efforts to bring democracy and
freedom to the Middle East, both in Iraq and Afghanistan. They
even donated $100 million to help those affected by Hurricane
Katrina.
But there are troubling questions that we need to resolve.
For example, the UAE was one of the three countries to
recognize the Taliban in Afghanistan prior to September 11.
There are reports of censorship by their government, and the
parent company of Dubai Ports World may participate in the Arab
boycott of Israel. How do we know if the UAE's friendship with
the United States is sincere or if it is just good for
business?
I am glad that the company asked for more detailed review
of the transaction so that both the Committee on Foreign
Investment and Congress have time to look into it thoroughly.
We should stop this deal if there are any real security
threats. To stop it purely for political reasons would send, I
believe, the wrong message to peaceful Muslim countries and to
our allies and trading partners around the world.
Mr. Chairman, thank you again. I hope this hearing gives us
a better understanding of the facts of this deal and helps us
understand what changes we need to make to make the Committee
on Foreign Investment a better committee.
Chairman Shelby. Thank you, Senator Bunning.
Senator Menendez.
STATEMENT OF SENATOR ROBERT MENENDEZ
Senator Menendez. Thank you, Mr. Chairman.
I want to thank you for holding this hearing at a critical
moment, and I want to associate and thank you for your very
strong statement at the opening, which I associate myself with
as well as the Ranking Member's.
You know, I have for 13 years prior to coming to the U.S.
Senate in the House of Representatives represented the third
largest port on the East Coast, the megaport on the East Coast,
the Port of Elizabeth and Newark, which is part of the Port of
New York and New Jersey. And I must say that anyone who
suggests that a terminal operator has nothing to do with part
of the security equation at a port is living in la-la land.
That is just simply not a fact.
And it alarms me that I hear time after time, especially
that originally the Administration take that view. It just
simply is not a fact. Now, today is Thursday, March 2, and as
of today, DP World owns P&O, and as of today, a company
controlled by a foreign government owns operations at major
U.S. ports. And while they have made promises not to exercise
that control, I question whether the way that we have proceeded
legally blocks them from doing so.
Now, I certainly support the 45-day investigation, which I
believe should have been carried out automatically, as required
by U.S. law. But there is a question that the 45-day review
does not change the previous decision by the Administration to
allow this deal to go forward.
DP World did not withdraw its previous application, nor has
the Administration declared its decision to clear this deal on
January 17 to be null and void pending the 45-day
investigation. In fact, the document signed by the President of
P&O Ports and the CEO of DP World says, ``DP World and POP&A
will abide by the outcome of the review, but nothing herein
shall constitute a waiver of any rights of DP World or of POP&A
that have arisen from the original notification, which is the
statement of nonobjection dated January 17.''
Translated from lawyerspeak, it seems to me that this means
DP World will agree to the results of the new review as long as
the previous approval still stands. So as far as I can tell,
the company has made it clear that they believe that the
previous CFIUS decision still stands. And I hope the testimony
will address that right off the bat, because it is a critical
issue, today being March 2.
I am also deeply concerned that given these circumstances,
that the President will not have the authority to stop the deal
even if the new investigation gives him information that he
wants to. And that is why I believe that the legislation that
has been offered in a bipartisan way to give Congress a legal
right to stop the deal if they do not agree with the ultimate
rights of the investigation moves forward.
That right simply does not exist right now, and I hope that
we would acquire the right prior to the end of the 45-day
investigation. Now, I know that I have heard some of our
colleagues talk about politics, but I am concerned when I hear
that, in essence, the statements that this is a predetermined
outcome, because I have not heard the President say, well, let
me see what happens after the 45-day review. He continues to
say very clearly that he has made his decision; promised to
veto any legislation that deals with the question of this deal,
and stated just this Tuesday my position has not changed.
Now, it seems to me shocking that every day, where there
are new revelations about potential security risks that we have
a verdict before the trial has been concluded. In the short
time that the Congress, the media, and the American people have
scrutinized this deal, it has been revealed that amongst other
things, my former colleague in the House of Representatives,
the Chairman of the Homeland Security Committee, Peter King,
said that members of CFIUS told him weeks ago that the
intelligence review was not thorough.
The Coast Guard did have questions about national security
issues that they raised during the 30-day review. I know they
said it was satisfied, but I do not know how you go from large
intelligence gaps to suddenly so quickly filling those gaps
within that time period. And of course, DP World's holding
company and the Government of Dubai actively enforcing the
boycott of Israel that is contrary to United States law. These
are just a few of the items that have come out post the 30-day
review.
So, I seriously hope that we will look at legislation that
improves this process that also deals with the question
particularly on port security. I think it is a vital national
asset that has a huge security risk to it that simply cannot be
in the hands of a foreign government. I think Americans
instinctively understand; common sense, as we like to say in
New Jersey, that we cannot simply turn over a critical national
security infrastructure like terminal operations at our ports
to a foreign government.
Foreign governments act very differently than foreign
companies. Foreign governments act in their own national
interest and in their own national security interests.
Privately held companies are controlled by stockholders and
answers to the needs of the market, not the needs of a
government, and if we have any doubt of that, just look at what
Hugo Chavez is doing manipulating the Venezuelan oil company
Citgo here in the United States promoting his own foreign
policy views here in the United States. And so, I just simply
hope, Mr. Chairman, that we will exercise our rights and
acquire a right to have an ultimate say on this deal.
And finally, you know, the September 11 Commission amongst
other things told us think outside the box. A simple envelope
that we send for commerce or that we do to send a note to a
loved one became a deadly weapon when anthrax was put inside of
it. An airplane, which we used for leisure or for commerce and
travel became a weapon of deadly destruction. To not think
outside the box that a terminal operator is not part of the
security equation of the ports of the United States is to live
in a pre-September 11 mentality. That is a mentality we cannot
risk.
Thank you, Mr. Chairman.
Chairman Shelby. Senator Dole.
STATEMENT OF SENATOR ELIZABETH DOLE
Senator Dole. Mr. Chairman, I want to thank you very much
for holding this important hearing on an issue about which many
Americans, including many of us in Congress, have concerns, and
I would like to thank the distinguished panelists for joining
us here today to discuss this topic.
Protecting our ports is a daunting task. As a former
Secretary of Transportation who then oversaw the Coast Guard, I
know first hand the important role that effective port security
plays in protecting the United States. The U.S. Maritime System
consists of 300 sea and river ports with over 3,700 cargo and
passenger terminals. It is estimated that more than 9 million
marine containers enter U.S. ports each year.
While the U.S. Coast Guard and the Bureau of Customs and
Border Protection have the primary responsibility to control
and administer port security, they cannot bear the sole burden
of this duty. With the vast number of containers that come
through our ports each and every day, it is critical that all
entities that have contact with U.S. ports have our best
interests in mind.
Last week, the Senate Armed Services Committee was briefed
by Administration officials about the process that governs
foreign acquisitions. As a result of that briefing, I believe
that we have a better understanding of the events that led to
the approval of this transaction. For instance, we learned that
lawyers for the company first approached the Department of the
Treasury about this transaction in October 2005. We also
learned that key agencies responsible for protecting our
homeland were consulted during the process and did not object
to the approval of this transaction.
Although these are encouraging signs, several concerns
remain. For instance, like most Americans, I personally
disagree with CFIUS' assessment that a more extensive
investigation into this transaction was not warranted, so I am
pleased that the Administration has now agreed to undertake a
45-day second look investigate of the Dubai Ports World
transaction.
If this investigation is both thorough and transparent, the
American people will have confidence in the soundness of
whatever conclusions are reached about the transaction's impact
on our national security. During this process, we should review
Dubai Ports World's record of management in other ports and
determine whether they have created an environment that helps
or hinders port security, and we also need assurances about any
changes that Dubai Ports World might undertake at our ports and
how such changes may affect port security.
In addition, I hope that Congress and the Administration
can open a dialogue about how to create a more transparent
CFIUS process. In recent days, it has been suggested that the
process may have significant deficiencies. Unfortunately, some
have sought to politicize this issue. The goal is not to point
fingers. The goal is to ensure that the correct result is
reached in this case and that national security, as always, is
our foremost priority.
I am confident, Mr. Chairman, that working with the
Administration, we will be able to achieve this shared goal.
Thank you.
Chairman Shelby. Senator Dodd.
STATEMENT OF SENATOR CHRISTOPHER J. DODD
Senator Dodd. Mr. Chairman, thank you, and I am going to
ask unanimous consent that an opening statement be included in
the record.
Chairman Shelby. Without objection.
Senator Dodd. I want to thank you, Mr. Chairman, at the
outset for having this hearing. People may wonder, obviously,
why a Banking Committee has a jurisdiction over this, but the
Defense Production Act, over which this Committee has
jurisdiction, is, of course the Committee of responsibility in
dealing with this organization that has given approval to this
present contract.
I note this morning that yet there is another example of
the Dorchester Company involving, I might point out, located in
my home State of Connecticut operating some 9 U.S. locations in
dealing with precision parts and defense contracts from Boeing,
Honeywell, Pratt Whitney, and GE. So there are other matters, I
know, coming before this Committee.
I want to commend you, Mr. Chairman, for having this
hearing, my colleague from Maryland for his opening statement.
I want to particularly commend my colleague from New Jersey,
our newest Member of this Committee. A very direct and
forthright statement. Your comments are very, very helpful.
I am just going to take Senator Hagel's point and I think
Senator Menendez and others' point. We can obviously deal with
this port issue in front of us. But for this Committee's
purpose here, this system is broken, I think all of us agree.
And again, I think you can point to various reasons why that
has happened over the years. The world has changed.
And I was just going to ask you, I know you have your
statements, and I have looked at your statements, but I want
you to as well consider just a couple of things. Some of us
here are considering some legislation here that would do four
or five different things, and I would like you just to make
note of them quickly for you, and then, if you would comment on
them at some point here during your presentations.
First, I am curious why, in fact, we do not add the
Director of National Intelligence and the Director of the CIA
to the CFIUS panel. Seems to me you have a provision in there
that talks about national security. To not have anybody on the
panel who is directly involved in that responsibility just
screams out for an answer.
Second, the creation of a CFIUS subcommittee on
intelligence, whose matters would represent all 15 intelligence
agencies of the U.S. Government, which would be chaired by the
Director of National Intelligence, this would review and
provide comments on all matters that come to CFIUS, including
the 30-day review and 45-day investigations.
Third, to create two vice chairs, filled by the Secretaries
of Defense and Homeland Security so that economic and
intelligence security matters have appropriate weight.
Fourth, mandate that only the CFIUS Chair, with the
concurrence of the two vice-chairs or the President acting on
his own authority, can sign off on a 30-day review which
concludes that a potential deal poses no security threat. In
addition, it would require that this determination be made in
writing with appropriate signatures and mandate that the CFIUS
Chair and Vice Chair who make such a determination be at the
level of Secretary.
And fifth, informing the Congress as well, so that there is
some participation here by the appropriate Committees, with a
possibility of adding a fast track opportunity for Congress to
reverse with maybe supermajorities, so that you do not end up
with these things being thrown out unnecessarily.
So, I would like you to comment on those points and just
say I am just curious as to why, with this matter coming up,
someone did not raise their hand in the room of the 12 members
of this committee and say should we not call the boss on this
one? I just am stunned, in a way, given the nature, the times
we live in, all of the events out there that someone did not
say in this process should we not call the President of the
United States and ask him whether or not something like this
should go forward?
So for the last week or so since this has all become
public, I have been anxious to hear an answer to that question,
and maybe someone can tell me why that did not happen.
Thank you.
Chairman Shelby. Senator Crapo.
STATEMENT OF SENATOR MIKE CRAPO
Senator Crapo. Thank you very much, Mr. Chairman. I
appreciate the attention that you have given to this issue both
before and now during the current issue that has come up before
us.
Frankly, it is hard to understand why the 45-day review and
the more thorough process was not initiated with regard to this
transaction from the outset. And then, it is hard to understand
why, when the issue became one of public concern, there was so
much resistance to a 45-day review and to taking the time to
have the extra-thorough scrubbing of this issue that the
public, my constituents and I think the vast majority of the
American public are asking for.
There is no question that port security in this country is
one of the most critical aspects of our homeland security. We
have all been discussing that here today, but the fact is that
regardless of who is in charge of the specific security
activities at a port, those who actually operate the port and
are in charge of the movement of the containers and the other
activities at the port are going to have a critical opportunity
for either securing the port or making it less secure, and it
would seem that it is one of the most important things we can
review, to make sure that those who are operating our ports are
doing so in a manner that strengthens and improves the United
States' security.
It seems to me that we are facing two issues here in the
Committee today. The first is whether this specific transaction
was properly reviewed and was properly approved and whether it
should be allowed to go forward. And I agree with my colleagues
who have said that if the security of the United States is
compromised by this transaction, the transaction should be
stopped.
But there is also another much larger issue that this
Committee is facing, and that is how we are going to deal with
the transactions of this type that we face relating to our
security in the future, the question of process. I for one
believe it is very evident that the process needs to be fixed.
I have just been jotting down a couple of notes as I have
been listening to my colleagues talk here. A couple of
questions about our process that I think this Committee, Mr.
Chairman, needs to address: One, because the CFIUS system
permits public disclosure only when there has been a rejected
recommendation, how do we restore public confidence in the fact
that the accepted recommendations are all properly and
thoroughly vetted? What changes need to be made to the system
to permit more public awareness without compromising security
concerns while, at the same time, not threatening legitimate
foreign investment in the United States?
And with regard to the management and the makeup of the
Committee itself, why do we not have the Director of the CIA on
the Committee, or now that we have created the position, the
Director of National Intelligence? Why do we not recognize that
these decisions require the input of our intelligence community
and require the involvement of all those at the various levels
of Government who are tasked with protecting this Nation's
security?
I think there are a tremendous number of process questions
that we need to ask and a tremendous number of specific
questions about this transaction that need to be answered.
And once again, Mr. Chairman, I look forward to the
information that we will receive today in the Committee and in
working with you and my colleagues in the future to make sure
that in the end, we in the Congress and the American people can
have the confidence in the process that we have created to
address these issues and specifically in the outcome of this
specific transaction.
Thank you, Mr. Chairman.
Chairman Shelby. Senator Schumer.
STATEMENT OF SENATOR CHARLES E. SCHUMER
Senator Schumer. Thank you, Mr. Chairman, and I want to
thank both you and Senator Sarbanes for holding this hearing
and for your interest in this issue. It is no secret that you,
Senator Sarbanes, and this Committee have been interested in
this issue long before Dubai Ports World came onto the scene.
Now, I believe, Mr. Chairman, that the Dubai Ports World
takeover has exposed serious problems with the CFIUS process,
and I am grateful to the efforts of this Committee to look into
reforming this critical function of Government. I believe that
CFIUS dropped the ball on this investigation, and by skirting
around Congressional requirements and loosely interpreting the
law, the Committee could have left some of our most vital
assets open to infiltration and attack.
The agreement by the Bush Administration and DP World was
good news, but there are still some critical questions that
need to be answered, and they go to the heart of this deal. The
investigation must be impartial and thorough. The American
people and the Congress need to see a report of the
investigation, and Congress should have a right of disapproval.
A bipartisan group of legislators, including Members of
this Committee, have introduced such legislation, and we will
move such legislation if there is no other way of achieving
these three goals. And it was good to hear from many of my
colleagues on the other side of the aisle that if there are
security concerns, we should block the deal. That is very
important to know, because the President has already said that
he is for the deal even before the 45-day investigation is
completed and we get a report on it.
Now, today, as Senator Dodd mentioned, the Washington Post
reported that Dubai International Capital is seeking to take
over London-based Doncasters Group, which manufactures military
aircraft and tank engine parts in nine locations throughout the
United States. In this case, CFIUS decided on Monday to do the
full 45-day investigation, the very same investigation that the
Committee decided to skip in DP World's case.
The new proposed acquisition shows that a thorough review
of foreign takeovers of U.S. security functions hardly stops at
Dubai Ports World. And the more we learn about the CFIUS
process in this investigation, the more questions are raised.
Why did they do a 45-day review for tank engines in a box but
not for possible nuclear weapons in a ship's container?
It has become clear that Dubai Ports World is not a single
incident. We not only need a thorough review of this new
proposed takeover, but we also need an examination of the role
foreign countries, particularly those that have had a past
nexus with terrorism, play in areas with vital national
security interests.
And as we have discussed in this Committee before, the
CFIUS process is in dire need of reform, and the issues raised
in the course of this investigation are symptoms of a broken
system.
There are several issues I think we need to address as we
consider changes to the process. As has been mentioned before,
we need to examine who is on the committee. I believe that
either an intelligence or homeland security agency should serve
as co-chair of CFIUS. The Treasury Department is reportedly
reluctant to initiate investigations, fearing such
investigations would discourage foreign investment and that the
United States would look protectionist. But this is the wrong
approach, particularly in a post-September 11 world. Homeland
security must come first, not trumped by economic or diplomatic
considerations.
Finally, we need to beef up Congressional oversight and
bring more transparency to this process. To assure Congress is
fully informed, the President must be required to provide a
report on all applications that go through the investigation
phase. CFIUS should then provide an annual report on all
transactions that occur during the preceding year.
CFIUS has failed to provide reports required by law every 4
years which evaluate whether or not a foreign country or
company is trying to gobble up U.S. companies or critical
technologies. We have not received a report, this quadrennial
report, since 1993. If Dubai, China, or any other country is
trying to acquire strategic technology or assets behind our
backs, we need to know about it. We need answers to these
questions, and we need to know them now.
So, I would like, Mr. Chairman, to respectfully request
copies of the last three required reports, and if none have
been completed, I ask Treasury to immediately commence a review
of foreign investments over the last 14 years and do the
quadrennial reports that are required by law. CFIUS should give
this report to Congress and be required to testify before this
Committee on whether countries or companies are coordinating
strategies while our eyes are closed.
Mr. Chairman, I look forward to working with you and
Ranking Member Sarbanes on these critical issues and pledge my
full support in the effort to improve the CFIUS process.
Overall, I believe that the DP World affair has been a sorry
one and one that could have been avoided if CFIUS had done its
job and followed the law. Neither Congress nor the American
people will tolerate such a lackadaisical approach to our
security in the future.
Thank you.
Chairman Shelby. Senator Martinez.
STATEMENT OF SENATOR MEL MARTINEZ
Senator Martinez. Mr. Chairman, thank you very much. I
thank you and the Ranking Member for holding this very timely
hearing today on an important issue before the American public.
It is of great concern to us in Florida that Miami is one of
the ports that is up for the takeover, and I have a fuller
statement which I would seek----
Chairman Shelby. It will be made part of the record.
Senator Martinez. Thank you.
Chairman Shelby. Without objection.
Senator Martinez. Having the benefit of hearing from my
colleagues, I just find interesting what great consensus seems
to be developing here as to some of the things that need to be
reviewed. Obviously, the CFIUS process is one that I think
there is consensus here, and I know the Chair has been
concerned about this for some time, but it should be reviewed.
We need to know a little bit more about it. We need to know the
composition of this commission as to whether it is appropriate
or not.
I also look forward to some clarity on the 45-day
investigation and what, in fact, the prior investigation
yielded or to what extent there was an investigation or why
there was not thought to be a need for an investigation. I also
believe, and I have said from the very beginning of hearing
about this matter, that we should ask the question whether the
function that is being done here by DP World is of such
critical nature and so sensitive to national security as to
whether or not it should be in foreign hands or not.
I am not prepared to answer that question until I know the
facts, and I think that is one of the things that I hope this
hearing will get to is some of the facts so that we can make
better judgments about this. Because I think there are
competing interests here. What is the impact on commerce that
we might have with a very stringent process? And I also wonder
what the role of the Congress should be, whether in fact it
should be a continuing role, or it should be a reporting role.
And so, all of these things, Mr. Chairman, I think need to
be also done in the context of our need for diplomacy, our need
for foreign relations. Obviously, I would agree with the
Senator from New York that national security is paramount to
all of this, but we cannot ignore the very important
relationship that we have with the United Arab Emirates and
how, and the assistance that they provide to us as we seek
access to the only seaport that is available to us in the
Middle East.
And I think that the context of all of this should be done
with our national interest in mind, which includes the Homeland
Security interests of our Nation, but it also includes our
broader national security interests. All of this can be
accomplished if we get to the facts, if we find out the
sensitivity of the work that is being done; if we are not
driven by emotion. And frankly, I hope that we can continue to
function on this as we put the paramount interests of our
Nation first as opposed to any edge that we might pick up here
on a partisan basis.
I think it is important here that we provide for the safety
and security of our ports. The Port of Miami, Mr. Chairman, is
downtown Miami. It could not be in any more critical or
sensitive place. So the safety of this port is something that
we have great concern about, and I hope as we discuss the CFIUS
process, we will also talk about the broader issue of port
security as we enlarge the debate on this very, very critical
and important issue.
Thank you, Mr. Chairman.
Chairman Shelby. Thank you.
Senator Bayh.
STATEMENT OF SENATOR EVAN BAYH
Senator Bayh. Thank you very much, Mr. Chairman.
Thank you, gentlemen, for your presence today. I am sure it
is not easy, but I think as you can gather, there is deep
bipartisan concern about the efficacy of the process that you
are charged with overseeing and a deep bipartisan commitment to
correcting this process to better protect the homeland security
interests of the United States.
Mr. Chairman, I think the whole controversy involving Dubai
has revealed a process that has been deeply flawed now for some
time, evincing in what is in a significant degree a pre-
September 11 mindset. I think Senator Schumer put his finger on
part of the problem, gentlemen, which is historically, the
CFIUS process has defined the national security interests of
the United States in much too narrow terms, terms which might
have been adequate some years ago but no longer are, putting a
preeminent emphasis upon our interests in trade, which are
legitimate but cannot supersede national security concerns. We
cannot put an interest in profit ahead of our national
security.
But I am afraid that this process, in its ideological
commitment to free trade, has too often done that in the past.
I am going to mention one specific instance here in a moment. I
think, Mr. Chairman, since this process, since its inception in
1988, one transaction has been declined because of national
security concerns. That does not evince a very exacting
standard, gentlemen.
We had a hearing in the Intelligence Committee yesterday
which by definition I cannot get into. Let us just say,
gentlemen, it is a good thing that we are having a 45-day
additional review. It was my impression that there was relevant
information sitting on desks in other parts of the Government
that had not been included in this review process. Some of it
was timing issues, but we need a process that is more
comprehensive and better coordinated to ensure that all
relevant information is made available to the decision maker,
and as I said, a better balance is struck between national
security concerns and our interest in free trade.
Finally, Mr. Chairman, this has been an issue that has been
on my mind for some time, gentlemen, and frankly, I do not know
whether you were around a couple of years ago. Colleagues,
there was a company in Valparaiso, Indiana called Magnequench.
They make 80 percent of the rare earth magnets that allow our
smart bombs to function. That company was sold to a Chinese
consortium. It has now been dismantled. The entire production
capability has been moved to China.
It is not very smart to rely on China for a critical
component of an important weapons system for our country, but
that is what this process has allowed. That is what we now
confront. And I think that is what all of us on this panel are
determined that will no longer be allowed to happen.
And frankly, gentlemen, last thing, and this is not the
pique of one U.S. Senator. We brought these concerns to the
attention of the relevant authorities at the time, and we were
just treated dismissively. It just did not seem to matter a
whole lot. It was all about interests in trade, profits, rather
than a meaningful balance with national security interests.
That needs to change.
Thank you, Mr. Chairman.
Chairman Shelby. Thank you. We will start with Secretary
Kimmitt and move on.
Mr. Secretary, welcome to the Committee again.
STATEMENT OF ROBERT M. KIMMITT
DEPUTY SECRETARY, U.S. DEPARTMENT OF THE TREASURY
Mr. Kimmitt. Thank you, Mr. Chairman. Chairman Shelby,
Ranking Member Sarbanes, Members of the Committee, thank you
for the opportunity to appear before you this morning to
address both the Committee on Foreign Investments in the United
States and its role in the review of DP World's acquisition of
P&O.
As you noted, Mr. Chairman, my colleagues and I testified
before the Committee last fall. At that time, the Committee was
engaged in a broad examination of the CFIUS process. Before
discussing the review of the DP World transaction, let me
review that process.
As you know, CFIUS is an interagency group comprised of the
Departments of the Treasury, State, Defense, Justice, Commerce,
and Homeland Security and six White House offices: The National
Security Council, the National Economic Council, the U.S. Trade
Representative, the Office of Management and Budget, the
Council of Economic Advisers, and the Office of Science and
Technology Policy.
The Committee was established by Executive order in 1975 to
evaluate the impact of foreign investment in the United States.
In 1988 and 1992, Congress passed legislation now embodied in
the Exon-Florio Amendment which empowered the President to
suspend or prohibit any foreign acquisition of a U.S.
corporation if the acquisition is determined to threaten U.S.
national security.
This process has evolved over time to keep pace with
changes to the concept of national security. Picking up, I
think, on a point a number of Senators made, I think you first,
Senator Dodd, but also, I heard this from Senator Bayh earlier,
in 1998, the intelligence Community Acquisition Risk Center,
acronym is CARC, was created. This office is now under the
Director of National Intelligence and provides CFIUS with a
threat assessment of the foreign acquirer.
Further, following September 11, 2001, 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 case at hand. Further, agencies that are not
formal members of CFIUS are often called upon to lend their
expertise.
CFIUS operates through a process in which Treasury, as
Chair, receives notifications of transactions, circulates these
and other materials, including the intelligence assessment, to
the Members of the Committee and coordinates the 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, again, 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 resolved during the 30-
day review period, then, the case goes to an extended 45-day
investigation period. The investigation period provides CFIUS
and the companies additional time to address security concerns
that were identified but not resolved during the review period.
Under the Exon-Florio Amendment, upon completion of the 45-
day investigation, the Secretary of the Treasury, as Chairman
of CFIUS, forwards a recommendation and report to the
President, who then has 15 days to take action. Upon making a
determination, the President sends a report to Congress
detailing his decision. The most recent such report occurred in
September 2003, when the President reported to you on his
decision not to block the transaction between Singapore
Technologies Telemedia and Global Crossing.
Let me turn now to the DP World transaction. At the outset,
let me note that this transaction was not rushed through the
review process in early February, nor was it casual and
cursory. As you and others have noted, Mr. Chairman, on October
17, 2005, lawyers for DP World and P&O informally approached
the Treasury Department staff to discuss the preliminary stage
of the transaction. This type of informal contact enabled CFIUS
staff to identify potential issues before the review process
formally begins; in other words, before the 30-day clock begins
to run.
In this case, Treasury staff identified port security as
the primary issue and immediately directed the companies to the
Department of Homeland Security. In October, DHS and Department
of Justice staff met with the companies to review the
transaction and security issues.
On November 2, as you noted, Mr. Chairman, Treasury staff
requested an intelligence assessment from the Director of
National Intelligence. Treasury received this assessment on
December 5, and it was circulated to all staff members of
CFIUS. On November 29, DP World issued a press release
concerning this transaction.
On December 6, staff from the CFIUS agencies met with
company officials to review the transaction and to request
additional information. On December 16, then, after almost 2
months of informal interaction and 45 days after CFIUS
requested the intelligence assessment, the companies officially
filed their formal notice with the Treasury, thereby beginning
the 30-day process. Treasury circulated the filing to all CFIUS
departments and agencies but also added the Departments of
Energy and Transportation because of their statutory
responsibilities and their experience with DP World.
During the 30-day review period, the CFIUS departments and
agencies continued their internal departmental reviews and were
in contact with one another and the companies. As part of this
process, concerns were raised, and DHS negotiated an assurances
letter that addressed port security concerns that had been
raised earlier in the process. This letter was circulated to
the committee on January 6 for its review, and CFIUS concluded
its review on January 17. Far from rushing their deliberations,
members of the CFIUS staff spent nearly 90 days reviewed this
transaction.
Last Sunday, as a number of you have noted, Mr. Chairman,
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 very carefully consider
concerns raised by Members of Congress, State and local
officials, and other interested parties. We welcome your input
throughout this process, starting with the points you have
raised at today's hearing.
Mr. Chairman, since my last appearance before this
Committee, we have worked to address several of the flaws that
you and the GAO had identified in the CFIUS review process. We
have revised the interagency process to address the important
concerns raised by you, Senator Sarbanes, and other Committee
Members, specifically to ensure that all members, especially
the security agencies, have the sufficient time and opportunity
to review transactions, identify any security concerns, and
fully address those concerns.
My takeaway from that earlier hearing, Mr. Chairman, was
that that was the most important thing we were looking at, to
make sure that nobody stopped a security agency from having the
time to make its views known and either get them resolved or,
if necessary, move further in the process. Nonetheless, it is
clear that we agree that improvements are still required. In
particular, we must improve the CFIUS process to help ensure
that Congress can fulfill its important oversight
responsibilities.
Mr. Chairman and Members of the Committee, those of us
sitting at the table this morning share with you one
fundamental principle. That our highest responsibility as
Government officials is protecting the national security of the
United States. The work done by our colleagues in the initial
review was guided by this standard, as will be our further
efforts during the 45-day review, and I am sure it will also
guide your review of the President's report to you at the end
of the investigation.
I thank you for your time this morning. I am happy to
answer your questions after my colleagues make their
statements.
Chairman Shelby. Secretary Edelman.
STATEMENT OF ERIC EDELMAN
UNDER SECRETARY FOR POLICY,
U.S. DEPARTMENT OF DEFENSE
Mr. Edelman. Chairman Shelby, Senator Dodd, and other
Members of the Committee, thank you for the opportunity to
appear before you today to discuss the Department of Defense's
role in the Committee on Foreign Investments in the United
States and in our review of the Dubai Ports World and
Peninsular and Oriental Steam Navigation Company transaction.
As a formal member of the CFIUS process, the Department of
Defense weighs a number of factors when it considers any
individual proposed foreign acquisition of a U.S. company.
First and foremost, our primary objective in the process is
to ensure that any proposed transaction does not pose risks to
U.S. national security interests. And to do this, the
Department of Defense reviews several aspects of each
transaction, including the importance of the firm to the U.S.
defense industrial base; that is, whether it is a sole source
supplier and, if so, what security and financial costs would be
incurred in finding and/or qualifying a new supplier if
required; is the company involved in the proliferation of
sensitive technology or weapons of mass destruction? Is the
company to be acquired part of the critical infrastructure that
the Department of Defense depends on to accomplish its mission?
And can any potential national security concerns that are posed
by the transaction be eliminated by the application of risk
mitigation measures either under the Department's own
regulations or through negotiations with the parties.
Regarding this specific CFIUS transaction, the Departments
of Treasury, Commerce, and Homeland Security met with the legal
representatives of Dubai Ports World and P&O for CFIUS
prefiling notification consultations on October 31, 2005. On
December 6, 2005, the companies held a prefiling briefing for
all CFIUS agencies. The Defense Technology Security
Administration attended the meeting for the Department of
Defense.
On December 16, the Department of the Treasury received an
official CFIUS filing. On that same day, Treasury circulated
the filing to all CFIUS member agencies for review, DTSA
staffed the filing to 16 other Department of Defense elements
or agencies for review and comment. The review conducted by the
Department of Defense on the transaction was neither cursory
nor casual; rather, it was in depth, and it was comprehensive.
The transaction was staffed and reviewed within the DoD by
17 of our agencies or major organizations. In this case, DoD
agencies reviewed the filing for impact on critical
technologies, the presence of any classified operations
existing with the company being purchased, military
transportation and logistics as well as other concerns the
transaction might raise.
During the review process, the Department of Defense did
not uncover any national security concerns that warranted
objection to the transaction or requiring a 45-day
investigation. These positions were approved by staff that
ranged from subject matter experts up to a Deputy Under
Secretary of Defense as appropriate to the different offices
undertaking the review, and all who were consulted arrived at
the same position. Do not investigate further.
The DoD organizations that reviewed this and all other
CFIUS transactions bring to bear a diverse set of subject
matter expertise, responsibilities, and perspectives. The
organizations include, for example, the Office of the Under
Secretary for Intelligence; the Office of the Under Secretary
for Acquisitions, Logistics, and Technology, the military
departments, the Army, the Navy, and the Air Force, in this
instance, the U.S. Transportation Command, the National
Security Agency, and the Defense Intelligence Agency.
The Army, for example, reviewed the case in the following
manner. The Army Materiel Command headquarters and the
Assistant Secretary of the Army for Acquisition, Logistics, and
Technology staff gave a preliminary review immediately upon
receipt of the case. The Army Materiel Command then staffed the
filing to their subordinate readiness commands responsible for
acquisition and logistics, including the Military Surface
Deployment and Distribution Command. For this case, the Army's
review criteria included the question of assured shipping, and
the Army's final position was no objection.
The Defense Technology Security Administration, which
reviews, coordinates, and analyzes the recommendations from all
the DoD components as well as assessing export control and
sensitive technology issues, ultimately signed off on the
transaction for the Department. Therefore, we had a
comprehensive and in depth review of the transaction, and no
issues were raised along the way by any agency or department
within the Department of Defense. We remain comfortable with
the decision that was made in that review.
I would like to get back to Senator Dodd's opening
questions. He raised a number of, I think, constructive
questions about the process and also with regard to Chairman
Shelby's opening statement. When I first came into my
responsibilities last August, I was early on made aware by the
Acting Director of DTSA of the GAO report and the concerns that
had been raised about the security agencies having an adequate
opportunity to express any concerns they might have about a
pending transaction, particularly the difficulties of dealing
with such transactions when there are complicated technological
issues that have to be either worked through or analyzed by
some of the respective components that I have mentioned or that
might require detailed negotiations for mitigation measures
with the companies involved.
Shortly thereafter, Secretary Kimmitt took the initiative
to call me, asked me to come over and to visit with him at the
Treasury and talk about what we might do to help fix the
process, and as a result of those conversations and
conversations he had with others, several steps were taken to
use the prefiling notification period, for instance, to try and
address some of these concerns, to make clearer who had the
lead among agencies in looking toward risk mitigation issues.
In this instance, I believe it was DHS, and Secretary Baker may
address that, but also discussing withdrawals or refilings by
companies to allow time for these kinds of security questions
to be worked out.
No doubt, there were more things that could be done to
improve the process, but there have been steps at least since I
came into office in August to try to address many of the
concerns that were raised by the Members in their opening
statements.
I would also like to take the opportunity to provide a
perspective from the Department of Defense point of view
regarding our relationship with the United Arab Emirates and
their support as a friend and ally in the global war on
terrorism, and Senator Hagel and several others in their
statements have also alluded to the importance of UAE in that
regard.
In the war on terrorism, the United States needs friends
and allies around the world and especially in the Middle East
to help in this struggle. Simply put, we need a community of
nations to win this long war. In our recently published
quadrennial defense review, we highlight that in conducting the
fight to preserve the security of the American people and our
way of life, it is important that we strengthen the bonds of
friendship and security with our friends and allies around the
world.
We must have the authority and resources to build
partnership capacity, achieve unity of effort, and adopt
indirect approaches to act with and through others to defeat
common enemies. The United Arab Emirates is an outstanding
example of the kind of partner critical to winning the long
war. Dubai was the first Middle Eastern entity to join the
Container Security Initiative, a multinational program to
protect global trade from terrorism. It was also the first
Middle Eastern entity to join the Department of Energy's
Megaports initiative, a program aimed at stopping illicit
shipment 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 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 United States and our
coalition forces with important access to their territory and
facilities. General Pace has summed up our defense relationship
by saying that, ``in everything that we have asked and worked
with them on, they have proven to be very, very solid
partners.'' I would note as well that a couple of days ago in
The Wall Street Journal, former Secretary of Defense Cohen and
former Commandant of the Coast Guard Admiral Loy wrote that,
``some critics have suggested that the UAE is a foe and not a
friend. In fact, the UAE has been a staunch ally of the United
States, which has been confident enough in that country to send
its sensitive military equipment and technology.''
U.S. Naval forces traditionally make more port calls in the
UAE than anywhere else in the world. When peacekeepers went
into Kosovo, the UAE provided personnel and equipment of great
value to the NATO commanders. Specifically, the UAE provides
excellent access to its 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, as I just mentioned, in the
UAE than any other port outside the United States. Last year,
U.S. Naval warships and Military Sealift Command ships spent
over 1,400 days in the ports of Dubai, Jebel Ali, Abu Dhabi,
and Fujairah. And by the way, the port at Jebel Ali, which is
the only carrier-based port in the Gulf, is managed by DPW.
Coalition partnerships also used the UAE ports last year.
The 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 aerial reconnaissance aircraft supporting
operations in Iraq and Afghanistan.
We should note that our most important commodity, our
military men and women, are frequent visitors to the UAE on
liberty or leave while deployed to the region, so we rely on
the Emirates for our security in their country, and I
appreciate and thank the Government of the UAE for that. Our
close military to military relationship with the UAE also
includes the use of the UAE Air Warfare Center established in
January 2004, where our pilots train with pilots from countries
across the Middle East.
Finally, the United Arab Emirates have been very supportive
of our efforts in Afghanistan and Iraq. 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 Iraqi Government, including a pledge of
$215 million in economic and reconstruction assistance.
Chairman Shelby, that concludes my formal assessment. I
would be happy to answer any further questions you or your
colleagues have after my other colleagues had a chance to have
their say.
Chairman Shelby. Secretary Baker.
STATEMENT OF STEWART BAKER, ASSISTANT SECRETARY
FOR POLICY, U.S. DEPARTMENT OF HOMELAND SECURITY
Mr. Baker. Thank you, Chairman Shelby and Members of the
Committee.
The Department of Homeland Security is the newest member of
CFIUS, and I think it is fair to say that we have been one of
the most aggressive in raising new kinds of national security
issues because of the breadth of the kinds of national security
concerns that we are responsible for in the wake of September
11. But we did not object to this transaction, and I think the
question that the Committee has asked is why, so let me see if
I can give you an explanation of how we arrived at that
conclusion.
First, it is important to understand what a terminal
operator is. If you had read the press, you would think that
our ports were being taken over by a foreign company, that we
had outsourced security to a foreign company. None of that is
true. The acquisition at issue here is of terminals, terminal
leases, typically, in several major ports.
A terminal operator has essentially three assets. They have
a pier; they have a crane; and they have a parking lot to put
the cargo in. And what they do is they use the crane to take
cargo out or put cargo in a ship and then to store it in the
parking lot next to the pier. The facilities that we are
talking about here, the terminals, far from representing the
whole of the ports that are at issue, I think there are in
these ports about 800 regulated facilities. Twenty-four of them
are being transferred in this transaction, so it is
substantially less than 10 percent of the facilities in the
ports that we have been talking about.
Nonetheless, to say that does not mean that there was no
risk in this transaction. I would not say that. We had to ask
ourselves three questions in evaluating that risk. First, what
legal authority and programs do we have already in place that
would allow us to address any risks? Second, what do we know
about these companies that might affect our evaluation of the
risk? And third, is there anything more that we want from the
companies in order to minimize the risk?
To address that first question, what authority, what
programs do we have. Since September 11, we have increased
spending on port security by 700 percent. It is now on the
order of $2 billion a year. What we have done with that money
is it is principally spent by two components. The U.S. Coast
Guard, which administers a law passed since September 11 which
required that there be port security plans for all U.S. ports
and that all facility owners within those ports have facility
security plans. That means that each of the facilities that is
being transferred in this transaction in the United States has
a facility security plan. It is inspected by the U.S. Coast
Guard.
The U.S. Coast Guard also has the authority to conduct
inspections of overseas ports. We came to the realization, I
think, quickly after September 11 that if someone were to use a
container to send a weapon of mass destruction into the United
States that it would be a Pyrrhic victory if we found it in
Newark while we were conducting inspections in Newark. We
should, if possible, worry about the security of foreign cargo,
foreign ports so that weapons that could cause us harm do not
enter into ships bound for the United States and so that we are
not doing our first inspection in the United States.
We also have substantial authority with respect to cargo.
For the same reason that we inspect foreign parts, we now
require that shippers sending cargo to the United States tell
us what is in that container 24 hours before it goes on the
ship, so that we can say I am sorry; we are not satisfied with
the risk factors associated with this container. We are going
to send it to radiation screening or some other form of
inspection in the foreign port itself.
We do that in 42 ports today. We are expanding that to 50,
which covers about 80 percent of the containers bound for the
United States, and that program will continue to expand.
We also have started a program in which participants in the
supply chain, everyone from the manufacturer of goods who uses
the container all the way through to the terminal operator and
the purchaser adopt best security practices so that we can be
sure that it is very difficult to introduce some foreign weapon
or other dangerous material into an ordinary commercial
container shipment.
So we do have substantial security programs in place
addressed at precisely the concerns that have been raised by
this Committee. We did not stop there, of course; we also asked
what do we know about these companies? It turned out, quite a
bit. We knew quite a bit about DPW, even though they do not do
business in the United States, because they had been
instrumental in helping us to do some of the screening that we
have moved out to foreign ports. They were an early and
voluntary participant in a Department of Energy screening
program in Dubai, and when we set up our own screening program
in Dubai, they were instrumental in helping that get set up in
about 3, 3\1/2\ months in contrast to what is often a 12-month
process. They were very helpful, very professional, and very
cooperative.
We also, of course, know the U.S. facilities quite well.
They are currently run by P&O Ports North America. The Coast
Guard had inspected them, and they had joined our voluntary
program of best security practices, so that we knew what kinds
of security practices they had signed up to willingly.
Even so, with that background, we decided that we were
going to take a step that was unprecedented in this area. We
often have negotiated assurances with respect to
telecommunications companies and high-tech companies about how
they will add additional protections to national security after
a transaction has gone through. We had never done that in the
context of a ports transaction before. We nonetheless decided
that in order to add an element of security to this
transaction, we would ask for assurances from the parties.
They gave us those assurances. The assurances are really
twofold: One, they agreed that the programs that they had
entered into voluntarily, the foreign port screening, the best
security practices in the United States, would no longer be
voluntary for those companies. They are now mandatory for those
companies. And second, they agreed that they would open their
books to us essentially and allow us to get access to any
information about their U.S. operations that we wanted without
a subpoena, without a warrant, simply walking in with a written
request and getting that information. That will allow us, for
example, to get current lists of employee, Social Security
numbers, dates of birth so that we can run those names through
watch lists, conduct our own background investigations, and the
like.
It was only after we had gotten this unprecedented set of
assurances that adding to the other safeguards that we saw in
the transaction that we concluded that there was not a basis
for going forward to a further review.
Thank you.
Chairman Shelby. Secretary Joseph.
STATEMENT OF ROBERT JOSEPH
UNDER SECRETARY FOR NONPROLIFERATION
U.S. DEPARTMENT OF STATE
Mr. Joseph. Mr. Chairman, Senator Sarbanes, thank you very
much for the opportunity to testify before this Committee and
all of its distinguished Members.
Given what has been said, I think I can be very brief. I
would just emphasize that as others have said, the UAE is a
strong friend and ally of the United States. After September
11, the UAE leadership made the strategic decision to be with
us on the war on terror and has been a key partner ever since
that date. Others have spoken to the contribution that the UAE
is making in this essential effort, providing the United States
and coalition forces with unprecedented access, overflight
clearances, and other critical and important logistical
assistance, providing outstanding support for our air and Naval
forces, extending vital military and political support to
Operation Enduring Freedom in Afghanistan and substantial
financial and humanitarian support to the Afghan people and
also providing significant material support to the Iraqi
Government.
The UAE has worked with us very closely to suppress
terrorist financing and money laundering, including freezing
accounts and acting very aggressively enforcing its money
laundering regulations, exchanging information, and conducting
investigations.
On the nonproliferation side, while the UAE record is not
perfect, it has been a solid partner. It is one of a number of
countries that has cooperated with us to deny Iran access to
nuclear and missile technology. It has disrupted financial
transactions, stopping WMD activities. It has closed down
proliferation-related front companies and has taken very direct
actions to counter the proliferation of WMD and missiles in
other contexts.
There are gaps, but we are working very closely with the
UAE to close those gaps. I visited the UAE last October to
create the counterproliferation task force, which is intended
to improve our mutual efforts to combat weapons of mass
destruction. The UAE, I would also point out, has also been one
of our best partners in unraveling and closing down the A.Q.
Khan network, elements of that network having operated on its
territory.
It has been very active in investigating those involved in
the network and working effectively to prosecute those that
committed the illicit actions involved. UAE authorities have
been very helpful in pursuing individuals and companies who
work to facilitate the network's activities. The UAE, for
example, closed down SMB Computers and other companies when it
was discovered that they were acting as front companies for the
Khan network.
In sum, the UAE is a moderate Arab state. It is a supporter
of our efforts to achieve peace in the Middle East. It has
reached out to the United States in a friendship, as someone
noted, being one of the first nations to offer financial
support to the United States after Hurricane Katrina.
The United States and the UAE are working together to
create a stable economic, political, and security environment
in this very key region, and our national security, quite
frankly, benefits significantly from its support and its
activities both in the war on terrorism as well as its efforts
to stop the proliferation of weapons of mass destruction and
missiles.
Thank you.
Chairman Shelby. Thank you, Mr. Secretary.
Secretary Kimmitt, I among the many here are puzzled by the
Administration's interpretation of what we call the Byrd
Amendment, the requirement for a full investigation when state-
owned or controlled entities are involved. The law states that
the investigation is required if the transaction could affect
the national security of the United States. I can read the
statute and see how you arrived at your interpretation, as the
review determined that there was no risk to national security.
We will put aside for a moment the extraordinarily low bar
placed in the law by the use of the word could. It is a
stretch, but I will try to get there.
But I cannot get there if I apply an intellectually honest
approach that takes into account the clear intent of the
statute. Senator Byrd, in introducing his amendment on the
floor of the Senate on September 18, 1992, stated, ``that it
requires that any acquisition that involves a company
controlled by a foreign government must automatically receive
the more detailed 45-day investigation.'' These are the words
of the sponsor, Senator Byrd.
Given this disturbing gap between the clearly stated intent
of the statute and the Treasury Department's interpretation of
it, I would like to hear from you today how exactly the
Department interprets the Byrd Amendment and whether, in its
deliberations, it has had opportunity to review the amendment's
legislative history. That is what we do.
If you familiarize yourself with the legislative history
and believe the statute is unclear, would it be fair to say
that you are putting the letter of the law over the spirit of
the law? If the statute is unclear, what would you suggest
would help to clarify it? It seems to me that Senator Byrd's
words on the floor of the Senate, the intent of this is clear
and unambiguous.
Mr. Kimmitt. Mr. Chairman, I sincerely regret that we have
this difference, and I think it is important that we resolve it
quickly. I think with regard to the DP World case, as soon as
we receive the filing, we will begin the 45-day investigation.
But as many of your colleagues have said, we are not talking
just about the DP World case. As important as that is, we are
talking about what goes beyond.
Clearly, we are strongest in protecting our national
security when the parties and the branches are together. We
should not let a legal interpretation separate us.
Chairman Shelby. But that is what you are doing.
Mr. Kimmitt. But that is what, I will have to say, has been
the consistent legal advice given to CFIUS going back to 1992,
even in light of reading the legislative history. Your
colleague, Chairman Warner, had asked, and there is being
prepared by the Department of Justice, a memorandum outlining
the Administration's view on this.
As a policymaker, I would rather not parse the legal
interpretation, but I will say that it has been consistent
across Administrations. Just for example, by coincidence, in
the 8 years of the Clinton Administration, there were 46
instances of government-owned and controlled companies seeking
to make acquisitions in the United States. One went to
investigation.
In the Bush Administration through the end of 2005,
coincidence, also 46 cases, four of which went into
investigation, and I would note all after September 11. But the
fact is I do not think this is a partisan issue. I think we
have a difference, and I think we have to close the gap. I have
spent more time talking about legal interpretations and less
about protecting the national security. I know that is your
first priority; it is ours.
But I will just tell you that the people who did the
security review, many of them who have been involved in this
process going back many years were getting that consistent
legal advice from their counsel. It was not really a Treasury
interpretation as much as it was an interagency, sir. I regret
that we are at that point.
Chairman Shelby. I do, too, because I think it is a loose
interpretation of the intent of the statute and the words of
the statute.
When briefing this Committee's staff on the Committee on
Foreign Investment's conclusions with respect to the Dubai
Ports acquisition, the phrase that was repeatedly used in
explaining those conclusions was that the interagency process
turned up, ``no derogatory information on the foreign owned
company in question.'' Could you explain for the Committee what
it means to sign off on an acquisition on the basis of an
absence of derogatory information on a foreign-owned company?
Did the pre-review and formal review include a thorough
examination of the potential risks to critical infrastructure
posed by any transaction involving a Middle Eastern country's
management of U.S. terminal operations? Secretary Joseph, did
the review include a thorough examination of the proliferation
risk posed by an acquisition by a country that in very recent
history, as you have referenced, was a major throughway for
nuclear components as part of the A.Q. Khan black market of
nuclear parts?
First, Secretary Kimmitt, do you want to----
Mr. Kimmitt. Mr. Chairman, the answer to your question was
that the critical infrastructure question was looked at during
the initial review. That is why we had as many agencies
involved in the review. I think there were literally hundreds
of security professionals involved in this process when you
hear that the Defense Department, once they get the notice,
sends it out to 17 component agencies, but that is also why we
have--not only the Department of Homeland Security; reached out
to the Transportation Department and others to make sure that
those nontraditional indicia of national security, the post-
September 11 indicia, were represented by the people who have
statutory responsibility day after day to carry those out. So
those were taken into account.
With regard to your point, before I turn to Under Secretary
Joseph, I did not, I do not think, participate in the briefing
you referred to.
Chairman Shelby. We are talking about a briefing for the
staff.
Mr. Kimmitt. Right; no derogatory information. That
actually is a standard that is implied--one of the standards
applied and one of the conclusions that is reached in terms of
the intelligence community assessment of this or any other
transaction. The measure for a member of CFIUS at the end of
the 30-day process is have you raised all your national
security concerns? Have they been satisfactorily addressed? If
not, we go into investigation.
So it is not just no derogatory information. The person has
to be satisfied. When he or she signs on the bottom line their
most sacred oath, this transaction will not adversely affect
the national security interests of the United States, that is
the only standard. The no derogatory information or whatever
the result is from the intelligence community informs that
decision, but remember, we are talking about human beings here
who are discharging their most important function when they
clear on those things.
And Senator Sarbanes has asked, and we will certainly
provide the names of the people involved. But I will tell you,
I think that the people at the professional security level who
have been doing this for quite some time are motivated by one
thing and one thing only, and I am sure you will agree. What
was right for the country?
Chairman Shelby. Secretary Joseph, do you want to comment
on the proliferation stuff ?
Mr. Joseph. Yes, sir.
Let me just say that the State Department does have a very
rigorous review process for CFIUS transactions. All
transactions are referred to a number of bureaus, with the
Economic Bureau in the lead. But that also includes the Bureau
for International Security and Nonproliferation and the
Political Military Bureau, both of which report to me as well
as other bureaus, including the bureau that deals directly with
intelligence.
In terms of your specific question, Senator, yes, the
proliferation record was taken into account. I would note that
the activities of the A.Q. Khan network stretched over three
continents, involved many countries in terms of where the
illicit activities took place, including in Asia and in Africa
as well as a good number of countries in Europe.
Chairman Shelby. Secretary Kimmitt, you have, on a number
of occasions, pointed out that you are restricted from sharing
information by the statute. According to the relevant
subsection, though, while the information is exempt from
Freedom of Information requests as not to be made public, I
will quote the statute, ``nothing in this subsection shall be
construed to prevent disclosure to either House of Congress or
to any duly authorized Committee or Subcommittee of the
Congress.''
Clearly, there must be considerable attention given to
drawing the line between appropriate levels of Congressional
oversight and the legal requirement to protect proprietary
information. We understand that. Can you provide this Committee
some insight on how you feel that balance can be better
maintained? Should this Committee be briefed on pending cases
such as this? I mean, this has caused a firestorm in this
country, or only on closed cases?
You know, this is not the first time you have been before
this Committee dealing with CFIUS.
Mr. Kimmitt. Right, Mr. Chairman, and as I said, when we
were together last fall, I think that the most serious concern
was that the security agencies needed to have time to do their
reviews. I think we have made major progress on that front. The
other, though, was Congressional transparency, giving you the
ability to exercise your important oversight responsibilities.
I think we have made some progress, but your
dissatisfaction makes clear that the process in its entirety
did not work.
Chairman Shelby. It is not just my dissatisfaction.
Mr. Kimmitt. Right, I understand.
Chairman Shelby. You just need to go out and talk to the
people at the coffee shop in Montana or Oregon or whatever you
want to go. There is great concern.
Mr. Kimmitt. I would not mind being there right now, but I
am before their elected representatives.
[Laughter.]
Chairman Shelby. They might have a lot of questions for
you.
Mr. Kimmitt. And we should be ready to answer those.
Because at the end of the day, every one of us is here to ask
the question, what can we do every day to protect the national
security interests of the United States and advance the
aspirations of its people? That is why you are in government;
that is why I have come back into government.
Let me answer the question on the notification. You and I
have had several conversations after the hearing. We had set
up, although someone had proposed an annual briefing on closed
cases; as you know, we have set up a system of quarterly
briefings on closed cases. Indeed, we are scheduled to brief
you on this case, DP World, even before the firestorm hit. But
it was, you are right, a closed case.
I think the real question, as I mentioned in my opening
remarks, was how do we interact on pending cases to allow you
to discharges your responsibilities, us to discharge ours? What
the law says, its strictest part is that there cannot be public
disclosure of information provided to us during the course of a
review. I think that you put that in there because you wanted
to make sure that companies felt comfortable giving us that
sensitive proprietary business information that we need to make
the national security determination.
And I guess I would like to suggest that we work with you;
I think that now that we have decided on a mechanism on closed
cases on how we can interact on pending cases in a way that
ensures that the security review is done on a professional
basis, we continue to get good, objective intelligence but also
the companies feel comfortable in sharing this proprietary
information with us.
Senator Bayh mentioned one statistic. Everyone always says
1,500; it is actually almost 1,600 cases now and only one
disapproved. What we probably need to give you more visibility
into is how many cases do not even get into the process. I will
give you an example. At its high point in 1990, 295
notifications came to the Committee. Today, there are 65. What
that means is people have begun to understand that they have to
meet certain standards, particularly in the post-September 11
world, and those cases go away before we come in.
But I do not think we would want a company to fear
reputational risk if they could not share with us that
sensitive proprietary information. But I do think, as we get
closer to a formal filing into that pending process, I am very
open to discussing with you how we could provide you the
information that you need consistent with those points.
Chairman Shelby. Did it ever occur to you in the Committee
on Foreign Investments that this would be a very sensitive
case, sensitive and concern by the American people, that
someone coming from an area that--in the Persian Gulf, no
matter how they were doing now has had some history of
questionable activities and you did not even let us know, me,
Senator Sarbanes, the Members of this Committee after we had
that hearing in October? Why did you not do that?
Mr. Kimmitt. Mr. Chairman, if I could, I think I will pick
up a question that Senator Sarbanes asked and a comment that
Senator Dodd made. I have no idea why none of the hundreds of
people involved in that security review did not raise their
hand and try to move it up in their organizations. To answer
your question, Senator Sarbanes, I, too, learned about this
after the fact.
In February, a staff member brought it to my attention. I
got the facts quickly. I told my boss, and I said let us notify
the Hill, and I called you very shortly thereafter, Mr.
Chairman. If I had known about this earlier, you would have
known about it earlier. That is the process that we have to
improve.
Chairman Shelby. You remember what I told you? You
remember, I said this is a political firestorm, may be a
debacle.
Mr. Kimmitt. Sir, that is why I called you as quickly as I
had told my boss about the subject. We took a look at what had
been done. I still believe that the professional security
officials did the job that we wanted them to do. I think the
interagency process worked right; always room for improvement;
I am always open to suggestions from my colleagues.
What we have to get right is notification within the
departments at higher levels. We have to involve a broader
group in the departments, and we have to find a way much more
quickly to come into contact with you.
Chairman Shelby. Thank you.
Senator Sarbanes.
Senator Sarbanes. Thank you very much, Mr. Chairman.
Gentlemen, I am going to try to go through some questions
here rather quickly, because we have time limits. But I do
first want to say to Secretary Kimmitt that a policy is not
something distinct from what the law provides. I mean, you were
making the statement, well, I just do policy, and someone else
does the law.
The statute provides the framework within which you must do
your policy. That is where your authorities come from. You do
not have a blanket authority. You have an authority provided to
you by law. And therefore, what the law provides is extremely
important. The Administration cannot run around and do whatever
it wants willy nilly without regard to what the law provides.
Does anyone at the table think that taking over terminal
operations in a port could not affect the national security? If
I came to you and said this is going to happen, do you think it
might have an impact on the national security? Presumably, you
would say, well, it could, and we have to take a look at it,
would you not? Would anyone not say that?
Mr. Kimmitt. Senator Sarbanes, I do not think so. And I do
not think that is what happened in this case. I think those
professional people who looked at this did have concerns that
could affect the national security and through the 60-day
prefiling process and the 30-day process were able to resolve
those concerns.
Senator Sarbanes. That is not what the law says. If you
once concede to me that it could affect the national security--
this is not buying a toy company somewhere to make some toys,
where you say, well, we cannot imagine any effect on the
national security; clearly, this implicates the national
security.
The law says the President or the President's designee
shall--not may--the first paragraph says may--says shall make
an investigation. And I think you were required to do that, and
you did not do it in this instance.
Now, we will go back and review the other cases to which
you make reference. I do not know what activities they
encompassed. But this was written in here. When you have a
foreign government involved in the takeover, you move to, if it
could affect the national security, you move to a 45-day
investigation.
I mean, we may have to lengthen the time periods here. I
know you do not want to do that, because you want to move these
things along, but we may have to lengthen the time periods and
make it very clear what requires an investigation.
It is the same thing as a case about providing information,
the other question the Chairman asked along this same line. It
said nothing in this subsection, the one that gives you the
authority not to make the information public says nothing in
this subsection shall be construed to prevent disclosure to
either House of Congress or to any duly authorized Committee or
Subcommittee of the Congress.
Now, I take it from what you just said, you did not know
about any of this, is that right, until it happened?
Mr. Kimmitt. I learned about it after the fact, Senator.
Senator Sarbanes. Now, who is the Chairman of the Committee
on Foreign Investments in the United States?
Mr. Kimmitt. By executive order, confirmed by the statute,
it is the Secretary of the Treasury.
Senator Sarbanes. Secretary of the Treasury. Now,
presumably, the Secretary of the Treasury did not know about
this either?
Mr. Kimmitt. Not until I notified him, sir.
Senator Sarbanes. All right; now, you are the Deputy
Secretary of the Treasury.
Mr. Kimmitt. I am.
Senator Sarbanes. So you did not know about it either.
Okay; who chaired this committee on this specific instance?
Mr. Kimmitt. The way this works, the Committee on Foreign
Investment in the United States is an interagency committee. It
operates as other interagency committees do in that there is a
staff level; there is a policy level, deputies, and then, the
full committee. In this case, it was the staff and policy
levels; that is, up to an assistant secretary or, as Secretary
Edelman said, a deputy under secretary, who were involved.
Senator Sarbanes. Well, who was the--I am trying to get
some accountability here.
Chairman Shelby. Names, names.
Senator Sarbanes. Who was the chair of the committee as
they considered this particular issue?
Mr. Kimmitt. That would be at the staff level. We have a
deputy assistant secretary and an office director who are
responsible for it at the staff level and then an assistant
secretary at the policy level.
Senator Sarbanes. Who decides?
Mr. Kimmitt. At the end of the day, the staff receives the
input from all of the departments and agencies in terms of
their views as to whether there are concerns, have they been
addressed, do they need more time? If it is by consensus, then,
generally what happens is that either at the assistant
secretary level, there is a meeting or a sign-off by people at
the assistant secretary level.
Senator Sarbanes. That happened in this instance?
Mr. Kimmitt. It did. I would have to get you the details in
terms of who was involved elsewhere, but it is then cases in
which there are still issues that remain or any controversy
that would come up. If the consensus has been reached, a
decision is usually made at that staff or policy level.
Senator Sarbanes. And does someone sign off on it? Is there
a piece of paper with people's signatures saying that this is
okay, and it should go ahead?
Mr. Kimmitt. There is a record, Senator Sarbanes.
Senator Sarbanes. Has that been furnished to the Committee?
Mr. Kimmitt. I do not think it has been furnished, but we
would be glad to put that together, sir.
Chairman Shelby. We would ask for it.
Senator Sarbanes. Yes.
Chairman Shelby. We would ask for it.
Mr. Kimmitt. All right, sir.
Senator Sarbanes. Now, why should Treasury chair this
group?
Mr. Kimmitt. I have asked myself that question many times
in recent days. This has been a process that has wanted to make
sure that that range of issues that we have discussed today is
considered. Treasury, I think, was designated when it was first
created years ago, but there were the national security
agencies on there right from the start.
I think some of the suggestions that have been made today,
including the notion of the DNI being a member of CFIUS--any
time I have a meeting of the deputies, the DNI or his rep is
always there. I think the idea of some vice-chairs is a very
good idea, but I think the feeling was, going back to what the
Chairman said, was that the United States has benefitted from
an open investment policy.
There are today between 5 million and 6 million Americans
employed by companies headquartered overseas; 20 percent of our
exports; $30 billion a year in development; and, therefore, we
need to operate within the context of an open investment
policy. But our first priority, as I testified today and in the
past, is to protect our national security. And so, there is no
way that a transaction can go forward if any agency,
particularly any security agency, refuses to agree with it
going forward.
Senator Sarbanes. The GAO, in their report, which I presume
you have gone over carefully, says the manner in which the
Committee on Foreign Investment in the United States implements
Exon-Florio may limit its effectiveness. For example, Treasury,
in its role as chair and some others narrowly define what
constitutes a threat to national security. And they go on to
say the Committee is reluctant to initiate investigations
because of a perception that they would discourage foreign
investment, a potential conflict with U.S. open investment
policy.
Of course, the Treasury has the responsibility to finance
our debt, correct?
Mr. Kimmitt. We do, sir.
Senator Sarbanes. Yes, so the inflow of foreign capital in
the current economic circumstances in which we find ourselves
is an extremely important priority for the Treasury Department,
is it not?
Mr. Kimmitt. It is, sir.
Senator Sarbanes. Yes.
Then, they go on to say Treasury in its capacity as chair
applies a strict standard in determining whether an acquisition
should be investigated. The Chair has established as the
criteria for initiating an investigation essentially the same
criteria that the law provides as a basis for the President to
suspend or prohibit the transaction or order a divestiture.
Defense and other agencies have argued that since the
statute applies these criteria to Presidential decisions, these
criteria should not be the standard for initiating an
investigation. In other words, whether you go to an
investigation should have a lower standard in terms of the
danger to the security than the final judgment that would have
to be made by the President at the end of the 45-day
investigation period.
Mr. Kimmitt. Senator Sarbanes, the GAO has done very good
work in this area. You and I had a conversation about a
critical comment a Treasury official had made about the GAO
report. I told you that that did not reflect my views.
After our hearing, I sat down at length with the GAO to get
more understanding of their point of view, and I will have to
say, on the point that you have raised here, I just have really
not found any basis for the fact that Treasury was somehow
narrowing the ability of agencies to put their national
security concerns on the table.
I will tell you what the standard is for me. If any agency
of the Government is not prepared to sign off on the deal, it
goes to investigation. It is a consensus. It is an interagency
process. It is the way the interagency process runs. If you
cannot get agreement at one level, you keep moving it up until
you get to the ultimate decision maker.
I think there had been in the past some arguments on legal
interpretations, on thresholds, and all the rest, but to me, it
is very straightforward. And in this instance, if any agency,
going back to Senator Dodd's point, had raised a hand, said I
need more time, I have a concern, I do not think the assurances
are good enough, we would have gone to the 45-day
investigation.
I really do not believe that the Treasury Department, as
much as we do support an open investment policy as part of a
strong national and world economy, is in a position to
influence the most fundamental decision any government official
has to make, and that is signing off that the national security
is going to be protected. And so, some of the people who work
on this in the Department are with me. I am sure some others
are watching. That is the standard that applies for me. What is
right for national security. And if these departments and the
many others are not prepared to say that, we go forward to the
investigation, or the deal goes away.
Senator Sarbanes. Well, is the standard you are using the
same standard that the President would use if you went to an
investigation? Is the standard you use to go to an
investigation the same standard that the President would use at
the end of the investigation in order to make his determination
whether to say yea or nay?
Mr. Kimmitt. I think at the end of the investigation,
Senator, the President would look at the recommendations from
all of his Cabinet members who have participated in that, and
he would make a fundamental decision of what was right for the
national security.
Senator Sarbanes. Right, but you do not make that
determination as to whether--that is not the determination as
to whether to go to an investigation.
Mr. Kimmitt. No; exactly, well, it is a determination----
Senator Sarbanes. On your part, on the part of CFIUS.
Mr. Kimmitt. Well, but it is; it would seem to me, the
question that every official involved in the process has to
ask. Are they going to put their name on a piece of paper that
is going to be eventually provided to the Committee as having
signed off from the perspective of DoD or DHS or anyone else if
they thought the national security would be compromised? I do
not think so.
So, I think that what pervades the decisionmaking from
bottom to top is the same thing that is driving your interests
in this. How do we protect the national security of the United
States? And I think at each level, that is the question that is
being asked.
Senator Sarbanes. What you are doing--is 30 days enough to
do a thorough investigation in a complex matter?
Mr. Kimmitt. As I testified last time and have subsequently
talked with the Chairman and your colleagues in the House, it
is very often not enough time if a company just comes in with a
filing. If the first time that you hear from them is when they
put in their paperwork, because take a look in this case. For
the intelligence community to do its assessment required 33
days, and there was some concern expressed about the
intelligence community having to rush their assessment, other
agencies having not enough time.
That is why we have made clear both in your hearings and
elsewhere that parties, particularly to transactions that are
complex, and any government-owned or controlled company
transaction is complex, they need to come in to us as early as
they can, even before the deal is done.
In this case, they came in 2 months before their formal
filing. That allowed us to begin the review process, to get the
intelligence assessment both requested and in. But my message
to companies would be do not think you can just walk in, drop
something on the table, and expect in every instance for it to
go through this 30-day period.
Senator Sarbanes. Is the material made available in that
prefiling period, does that become part of the record?
Mr. Kimmitt. That is a good question, Senator, because it
goes to the question of whether some of the protections that
you have extended to materials that have been filed by the
company; we are looking at that question right now. I would
think, I mean, the bottom line is anything the Government has
in its possession becomes part of the record, but the formal
filing, as I said, is what triggers the 30-day.
Senator Sarbanes. Thank you, Mr. Chairman. My time is up.
Chairman Shelby. Senator Hagel.
Senator Hagel. Thank you, Mr. Chairman.
Following along the lines of Senator Sarbanes' questions,
and I am going to go back to a comment that you made, Secretary
Kimmitt, about you have received consistent legal advice on
interpretation of the Byrd Amendment. Take me back through some
of the history. Does that mean all the way through since the
Byrd Amendment was enacted into law, in 1992? Where do you get
that advice? Give us a little history.
Mr. Kimmitt. I think it does go back to the beginning of
the law, which was in 1992. In fact, responding to a question,
perhaps, that Senator Sarbanes raised, those cases that I
mentioned, the 46 during the Clinton years, the 46 during the
first 4 years of the Bush Administration were all government-
owned and controlled companies. So starting in 1992 and running
through, I think that the advice that has been given, it would
be within Treasury, the General Counsel's office, the same
would exist elsewhere, has been, again, that you must go to
investigation if there is any security concern that has not
been resolved.
Again, I know we have a difference of interpretation on
that. I would like to resolve this as quickly as possible. And
again, the legal background and advice on this, Senator Hagel,
is something that has been prepared by the Justice Department
in response to a previously received request.
Senator Hagel. So it goes back to the beginning of the Byrd
Amendment as to when it was enacted into law, the legal--what
you are saying the consistent legal advice is to the
interpretation.
Mr. Kimmitt. That is certainly my understanding, but I
would say in each of those cases, and I really think we have to
focus on this, 92 cases in all, only 5 of which went to
investigation, in those other 87, there was a unanimous
arrangement among the CFIUS agencies that there was no national
security concern that had not been addressed.
Senator Hagel. Are there others who weigh in on the legal
analysis of this? Is it all from the Justice Department, and
that is the legal advice you rely on? Are your attorneys at
Treasury or any other agency involved in the CFIUS process
involved?
Mr. Kimmitt. Generally, people in departments rely on
advice from their general counsel's office for issues that come
up under their authorizing legislation. If it is something that
involves the Government more broadly, then, the Justice
Department really speaks on behalf of the Government more
broadly, and of course, Justice is a very important member of
the CFIUS and were on the panel the last time we appeared.
When we, by the way, as you know, discussed this subject a
bit, it did come up also in the GAO report, and the GAO report,
I think, or the GAO has done about four studies on this. They
have noted this difference of opinion, and frankly, I wish we
had gotten to resolution on it quicker. Someone said how do you
resolve it. I think you put a period after shall conduct an
investigation.
Senator Hagel. Do you believe that the current law that you
are operating under needs to be changed?
Mr. Kimmitt. Well, as I said, the dissatisfaction expressed
by this Committee and others makes clear that the process in
its entirety did not work right. I think the career security
professionals, hundreds of them who did that informal and
formal review, performed their jobs admirably and well, and I
know that no criticism of those of us here at the table today
is meant to suggest that those people conducted their
responsibilities other than in the best name of the Nation's
security.
But as I said, Senator, we clearly have to do some things
inside the departments, and we clearly have to do quite a bit
in finding ways to provide you more promptly with the
information you need, and I would hope, and I cannot imagine
that it would be not part of our discussion that we can very
quickly resolve this interpretive disagreement on the Byrd
Amendment.
Senator Hagel. Well, does that, again, I am going to ask
the same question. Does that include changing or amending the
law, in your opinion?
Mr. Kimmitt. Well, I think it is pretty clear that the
Congress is going to come up with new CFIUS legislation. We
want very much to participate with you in that process. I think
some of the questions that have been raised but also the
suggestions that have been put on the table by Senator Dodd and
others this morning are ones that we need to look at very
seriously.
Senator Hagel. Thank you.
Secretary Baker, let me ask a couple of questions going
back to your testimony on the definition, as you laid it out,
of a terminal operator. Would you explain the relationship
between that terminal operator and U.S. security officials,
specifically Coast Guard, U.S. Customs Service? Where does the
division of responsibility end? Is it integrated into the same
system? What role does the terminal operator have in port
security?
Mr. Baker. They are subject to regulation by the Coast
Guard. The Coast Guard prepares a port security plan, and then,
it expects the owners of facilities within that port to have
their own facilities security plans that fit into the overall
port security plan.
Typically, that would mean for a terminal operator that
they would have to have lighting, fences, control over who
gains access to the facility and the like, so that you expect
of them what you would expect of a responsible property owner
with valuable and sometimes risky material on their property.
They are subject, as I said, to inspections by the Coast
Guard. They are also subject to regulation by the Customs and
Border Protection Agency, which, particularly in this case,
where they belong to our best security practices program,
requires extensive background checks for employees,
recordkeeping with respect to employees, ID's, and a variety of
other security practices, and they, again, are subject to
validation by the Customs and Border Protection Agency.
Senator Hagel. Does that include inspection of containers?
Mr. Baker. They are not expected to inspect the containers.
They are expected to assist. If the Customs official wants to
see inside of a particular container, and if it is urgent, we
can meet the ship at sea. If it is somewhat less urgent, we can
be at dockside and insist on having a particular container
removed there.
More typically, Customs will say to the terminal operator
these are the containers that we are going to check. Some of
them are going to go to radiation screening; others are going
to go to ordinary Customs inspection. The terminal operator
knows which containers we are looking at. They do not know why.
They often do not know what is inside them. They certainly do
not know why we are concerned about those particular
containers.
Senator Hagel. So it goes back to your original definition,
if I understood it right; the terminal operator has a pier, a
crane, and a parking lot for the cargo.
Mr. Baker. Yes.
Senator Hagel. And that, within that, is their
responsibility.
Mr. Baker. That is right. They have responsibilities for
maintaining security in that area.
Senator Hagel. One last question, Mr. Chairman. How many
ports in the United States are under the management of foreign-
owned terminal operators?
Mr. Baker. Well, as I said at the beginning, the ports are
not managed by the terminal operators. The ports are typically
managed by----
Senator Hagel. The definition you used of terminal
operators.
Mr. Baker. The estimates that I have seen, and this turns
out to be more difficult to estimate than one would think, are
that it is in the neighborhood of 70 to 80 percent.
Senator Hagel. Seventy to 80 percent? So most of the ports
in the United States have terminal operators that are foreign
owned.
Mr. Baker. Yes.
Senator Hagel. Is that correct?
Mr. Baker. That is correct.
Senator Hagel. So what we are talking about here is not
anything particularly unusual as far as a foreign-owned
operator.
Mr. Baker. That is correct.
Senator Hagel. Is that right?
Mr. Baker. There are a very limited, but there are other
foreign government-owned terminals.
Senator Hagel. How many of those, would you say?
Mr. Baker. I cannot give you an estimate. There are only
one or two companies that have terminals in the United States.
Senator Hagel. What country would be involved?
Mr. Baker. I think Singapore is one. There may be a
Taiwanese company as well. A Chinese company has stevedoring
and other services that they provide on the West Coast.
Senator Hagel. Mr. Chairman, I would ask for the record if
Secretary Baker could provide that information.
Chairman Shelby. Absolutely.
Senator Hagel. Thank you very much, Mr. Chairman.
Thank you.
Chairman Shelby. Senator Reed.
Senator Reed. Thank you, Mr. Chairman, and thank you,
gentlemen, for your testimony today. This is an issue,
obviously, of great concern to so many Americans at the moment.
Just a technical point or an informational point. As I
understand it, Secretary Kimmitt, this process of CFIUS
notification is voluntary; is that correct?
Mr. Kimmitt. That is correct, but there is a heavy penalty
for any company that fails to file who should have, because the
President has authority in the event of a company that has
failed to file to unwind or modify the deal.
Senator Reed. Do we have any ongoing effort to determine if
people, companies, or entities, are avoiding this filing
requirement, or is it just if it happens, we will take
appropriate action?
Mr. Kimmitt. We watch very carefully deals that are closed.
We also watch carefully even deals where approval has been
received, but there have been letters of assurance, mitigation
agreements to make sure that people live up to their
obligations.
Senator Reed. Thank you.
Like so many of my colleagues, I have been trying to
understand this process and understand this particular
decision. And I must say, my impression is that this is a
rather amorphous and faceless operation. I mean, it is hard to
tell who made the decision; hard to tell what was the
definition of national security, was it consistent across every
department that looked at this? And I think we have a lot of
work to do.
Again, I have immense respect for the gentlemen here today
and particularly Secretary Kimmitt, but the impression I have
is that perhaps it is not national security that pervades this
decisionmaking, but it is the notion of getting these deals
done as expeditiously as possible, which means, effectively, do
not invoke the 45-day investigative phase, because that raises
it to a very high public level, involving Congress.
Ad perhaps I am wrong, but those types of groupthink to me
might account for a situation today, we are looking back all of
us, stunned, saying how could this happen? This seems so
simplistic that at least you would want to ventilate this deal.
Now, Mr. Secretary, comments?
Mr. Kimmitt. I think that that suggestion that somehow
there was a rush to judgment for economic reasons was what
pervaded a lot of the report that GAO prepared at your request.
That is where, in my early months back in government, I have
really focused my attention, because again, at the end of the
day, none of us has a higher responsibility than protecting the
national security.
No national security official is going to ever be rushed in
this process to reach other than the decision that is right for
the country. And if more time is needed, more time will be
taken. So, I think that impression has been out there, Senator.
Respectfully, I think that is something that we worked on very
hard, and I do not think there is anyone throughout this
process who has suggested that he or she did not have the time
to come to the judgment that they did at the staff and policy
level.
I think it is very legitimate to discuss who else should
have been involved in the departments and agencies. It is very
legitimate to discuss how best to get this information to you
quicker. But I really think that we have gotten out of the
system whatever problems kept people from getting their views
on the table, having them seriously considered, or you go
deeper into an investigation or the deal does not go forward.
I think going back, just picking up on the other part of
your comment, Senator Reed, when I had testified last fall, I
had said that the definition of national security is something
tough to pin down. We would have written one definition in
1988; one in 1992; we would have written one definition on
September 10, 2001; a quite different one on September 12.
I think if we look at changing this law, which clearly, we
are going to work with you on, I think we should get the very
best definition that we can of national security; lay out every
one of the concerns that each of you thinks is most important;
but then make very clear that this is not an exclusive list,
that we still want the individuals at whatever level involved
in this process to take their range of national security
responsibilities, many of which are embodied in other laws that
you pass, measure them against the criteria in the statute but
not to be hesitant to raise any other issue.
Senator Reed. Thank you, Mr. Secretary.
I have one question.
Chairman Shelby. Go ahead.
Senator Reed. It is responsive, I think, to the comments
that Secretary Kimmitt has made and might be handled by other
members of the panel is that there have been some reports that
Coast Guard analysts felt that they could not answer all the
questions. I guess that raises a question, are those reports
accurate? And second, does that cut against your presumption
that when time was running out, and questions were still
unresolved, the decision was not to say okay, stop, we got to
do this, it was, okay, this train has left the station, and I
guess those are not really major concerns.
Could you respond?
Mr. Kimmitt. I will make the general response. I might ask
Secretary Baker to respond to the Coast Guard point. Again, we
request as quickly as we can an intelligence community
assessment. Your Chairman knows, and many of you know, how hard
we have worked for the intelligence community to speak with one
voice. Again, this is the Community Acquisition Risk Center.
That is passed to them, that request, through intelligence
channels. They then go out to all the intelligence agencies in
the departments and agencies throughout the Government. They
draw from those sources to come back with a community
assessment to us. However, each department and agency also has,
most of the members of CFIUS, have their own intelligence
offices who, in addition to providing input to the community
assessment, are also giving advice to their policy officials
who have to make those national security judgments.
And going back to Senator Sarbanes' point, you know, maybe
much later, I would really like to come up and talk about how
transformed the Treasury Department is in the national security
business. It is quite different than the Treasury Department
that I was in 18 years ago, the most important part of which is
we now have an Under Secretary for Terrorism and Financial
Intelligence.
So we actually are now a member of the intelligence
community. We have an Assistant Secretary for Intelligence and
Analysis. We do our own internal work, feed both into the
intelligence community. But also, I rely on those people to
advise my Assistant and Under Secretaries and the Secretary and
myself.
I think on the Coast Guard point, I would turn to Secretary
Baker.
Mr. Baker. Thank you; yes, the Coast Guard, like many
components, does have its own intelligence capability. And when
we asked them if they thought that further restrictions on the
transaction were required, they concluded that restrictions
were not required. They did their own intelligence analysis and
used that to make their final decision with respect to the
transaction in question, so in the course of reviewing the
intelligence, a report was prepared, and the final conclusion
was reached based on that intelligence.
The conclusion was that DP World's acquisition of P&O in
and of itself does not pose a significant threat to U.S. assets
in the United States, in Continental U.S. ports, so the final
decision about what this intelligence told the Coast Guard was
that there was not a significant threat to U.S. assets.
The report also does acknowledge that there are gaps, lack
of information in some cases, that would have been helpful in
making a further intelligence evaluation, but even taking those
gaps into account, the intelligence report concluded that there
was not a significant threat to U.S. assets.
Senator Reed. Thank you.
Thank you, Mr. Chairman, for your patience.
Chairman Shelby. Senator Allard.
Senator Allard. Thank you, Mr. Chairman.
I would like to address my question to Secretary Edelman
and Secretary Baker. During public statements and in your
testimony, you have referred to Dubai as one of our closest
allies in the Middle East and indicated they are one of the
most cooperative--well, actually, the country of the United
Arab Emirates is one of our most cooperative Middle Eastern
countries on a number of issues.
And you have made the comparison to the Middle East, and
these are countries that have a fairly active, at the very
least, fairly active population not in support of U.S.
policies; in fact, many of them would like to, in my view, see
the United States disappear from the face of the Earth, making
those kinds of statements.
And you made these comparisons to that actually very narrow
or small group. How would that country rate and that company
rate when you take into consideration the whole world? See what
I am saying? So, I would like to know what your valuations are
in respect to the whole world as the United Arab Emirates would
compare instead of just that narrow population that you
selected.
Mr. Edelman. Well, Senator Allard, I think that what I was
trying to say is that the concern that has been raised in this
case is that because Dubai Ports World is a government-owned
entity that that would in and of itself present some higher
level of risk. So the point I was making is that the Government
of the United Arab Emirates has been extremely supportive since
September 11 of the United States and other coalition partners
in the global war on terror. I have mentioned all the different
things they have done for us, and there are others that I did
not mention.
So it went to the issue of the government and government
ownership. We do recognize that throughout the Middle East, we
face populations that are in many ways hostile to some of the
policies this Government has pursued, but my comments went to
the issue of the government. On the issue of Dubai Ports World,
I think really, that was more of a Coast Guard judgment to make
in terms of how they function in terms of terminal management.
I believe my colleagues in Defense who were involved in
this, to the degree they had actual experience with Dubai Ports
World at Jebel Ali, for instance, found that they ran the port
very effectively.
Senator Allard. I guess I am more concerned----
Mr. Edelman. World class, I think they were saying.
Senator Allard. Okay; so, your view is, if you rate them
with the rest of the port operators throughout the world, they
rate high in your mind?
Mr. Edelman. I would say those colleagues in the Department
of Defense who were involved in the review and looked at it
felt that they were a world class operator, as I understand it.
Senator Allard. Well, yes, you can be a world class
operator, meaning that they operate throughout the world, but
what--how do they rate among other businesses or other, you
know, that provide this kind of service to other countries?
Mr. Edelman. I think the judgment was that they operated
efficiently and as well had been involved in some of these
other programs that DHS and other departments run and
cooperatively.
Senator Allard. Well, I am thinking in terms of security.
How do they rate in terms of security compared to other
companies throughout the world?
Mr. Edelman. That is why I referred to the Container
Security Initiative. I think that again, it is really more an
issue for my colleague from DHS, but I think our judgment was
that they have performed well.
There were concerns that DHS was addressing in the process
that were addressed through the letter of assurances, and I
think my colleagues in Defense who were involved in the process
looked closely at the letter and waited for it to come in
before making their final determination.
Senator Allard. Did you want to respond, Secretary Baker?
Mr. Baker. I would be glad to. We do not compare companies
directly against each other. We ask whether they meet the
highest standards that we can set, whether we are inspecting
foreign ports, and we have inspected a number of foreign ports
where DPW operates or measuring performance in our customs
trade partnership against terrorism or cooperation on
screening.
Senator Allard. So when you let out this contract, it is
not competitively bid?
Mr. Baker. No, this is not our contract.
Senator Allard. Well, how do you select that if you do not
do it competitively?
Mr. Baker. This was a purchase of a company. We do not
regulate directly who may or may not operate a terminal. The
port authority may have such regulations.
Senator Allard. Is that competitively bid?
Mr. Baker. They do charge for the terminals, but in this
case----
Senator Allard. No, I mean competitively bid. Do you ask
for several companies to submit proposals as to what their cost
would be to run the port maintenance and operation?
Mr. Baker. That is not a role that we have ever played in
port operations.
Senator Allard. So do we have any idea how they are
selected, then?
Mr. Baker. Typically, the question is who is willing to
build the pier, pay for the crane, pave the lot. That is worked
out with the port authority, the price that is paid, and then,
we regulate that person by virtue of their record and security.
Senator Allard. Mr. Chairman, I think we need to look at
the process, and this is, to me, I think we need to bring in
somehow or the other how security is evaluated.
Chairman Shelby. I agree.
Senator Allard. I think that we have better companies out
there, various companies out there or port operators who have a
different record as far as their ability to manage the company
and to work with security. Some of them would probably do a
better job than the others.
Now, I know that security is done by Customs, and I also
know that it is done by the, you know, U.S. agencies. But the
fact is that there is information that the operator has access
to that I think can be valuable to a terrorist group. They may
have access to arrivals and departures and when those occur on
various cargo shipments.
And if you are a terrorist, that is pretty valuable
information. But I do not see anybody looking at that and
whether that type of information is secure, and over the long-
term, that concerns me. They may look good today, but
terrorists have a way of kind of moving in and being a problem,
and I guess during the process, this would be something that I
would raise a concern about. And I am just going to give you an
opportunity to respond back to my thoughts.
Mr. Baker. Senator, you are quite right that there is
reason to be cautious about who is operating terminals in the
United States. That is why we have some of the regulations we
have.
During the course of this 45-day investigation, we will be
doing inspections of operations of both companies in various
locations, and that information will be fed back into our
decisionmaking process. So we will be looking very hard at
precisely those questions, but I would say that today, based on
the information that we had available when we made this
decision, I could not identify a company that has done more for
us when we have asked in terms of cooperation than the
companies that we are talking about today.
Senator Allard. I see my time has expired.
Thank you, Mr. Chairman.
Chairman Shelby. Senator Stabenow.
Senator Stabenow. Thank you, Mr. Chairman, and thank you
all for being here again.
First, I want to just comment that I agree with the
statements we need friends and allies in the Middle East. There
is no question. And the UAE, I believe, has been a solid
partner in many ways. In Detroit, Michigan, we have many
positive relationships, business relationships, city to city
relationships with Dubai. And it has been positive.
My concern goes to the larger issue that I spoke about in
my opening statement that relates to the policy of a business
that is owned by a foreign government managing ports or
anything else that deals with our security. And I have to say,
listening today, I am sure there are many good people at every
single level of these reviews, but I wonder if this is not what
the September 11 Commission heard as they heard all of these
various pieces going on that in the end just did not come
together to make the right judgments as it related to security.
A lot of good people; I agree with my colleagues that
certainly, processes need to be improved and so on, but I also
see a bureaucracy that looks like it could get pretty bogged
down with not seeing the forest for the trees here on what we
are really talking about here.
It is not just about reports, although they are critically
important, and I do not mean to undermine that. But Mr.
Chairman, I think, I hope we are going to debate one of the
fundamental policies, which is should a business owned by a
foreign government be allowed to participate or to manage our
assets that relate to security?
And so, my first of two questions is tell me, it seems to
me there are only risks to that situation. It does not matter
how competent the business is. It does not even matter, really,
what our relationship is at the moment, because we know
relationships change. Times change.
What are the benefits of even having that kind of
relationship for a port? I mean, do we not have American
businesses that are competent and able to do this work? What
are the benefits?
Mr. Baker. Let me start by pointing out that in fact,
terminal operation is a field dominated by foreign companies.
For whatever reason, it is not a field in which U.S. companies
have played a large role.
Senator Stabenow. If I may just interject one thing,
though, Secretary Baker, you did say only one or two of the
terminals were foreign government-owned.
Mr. Baker. That is true. These are foreign companies, and
only a relatively small number are owned by companies that are
controlled by foreign governments.
The question then arises, are we going to say there are
certain areas that we will not accept foreign government
participation in, and what are those areas? That is a position
that we can take. Our view, when we reviewed this transaction,
was that if we took their current level of cooperation, because
I agree with you, one of the questions is will they, for
reasons of state, change their mind about what their policies
are going to be, that if we could take their current level of
cooperation, which is very, very good, and lock it in, make it
mandatory, require them to tell us all about their personnel,
all about their security practices, all about how they control
access to their computers, to their facilities and the like,
that that would give us an ability to make sure that they could
not change their policy quickly and move to a different one,
and if they did, we would know about it and be able to take
additional action ourselves.
Senator Stabenow. Well, I appreciate that. I do not have
confidence that it is ever possible to do that to the extent
that the American people expect us to in terms of their
security.
But just one other question that relates to the broader
issue and again, to Secretary Baker, talking about security.
Again, the Coast Guard estimated it would take $5.4 billion to
really secure our ports. The Congress and the Administration
has authorized less than $1 billion, $700 million. Of that, you
talk about increasing 300 percent. It must have been from zero.
I mean, I am not sure how you get those numbers.
But the reality is that the President, again, has proposed
eliminating Port Security Grants. We are going to take that up
in the Budget Committee. So when we look at this, and then, we
listen to your testimony saying that, for instance, that we ask
or require that the cargo companies coming in tell us 24 hours
ahead of time what is in the containers and so on, I guess I
would ask how do we verify that? How do we know they are
telling the truth? And do you feel that right now, we are doing
everything that we should be doing, and you can say to the
American people that we are, in fact, securing our ports to the
level that they need to be?
Mr. Baker. Two points; the level of spending on port
security is well over $2 billion, approaching $3 billion if you
count in the Port Security Grant Program, much of it spent by
the Coast Guard and CBP on the programs that we have been
talking about today. And a very substantial contribution and
almost all of it initiated since September 11, when port
security spending was in the $200 million, $300 million range.
So that is how I get the 700 percent increase.
As to the question of how do we know that people are not
lying to us about what they put into the containers, we have
two or three ways of dealing with that. First, many of the
people who are giving us this information are part of our Best
Security Practices team, so that there are checks on what they
are doing, who they are hiring, how they secure that cargo.
Second, we get information from a variety of people. We may
know what the shipper says he is sending, what the manufacturer
says that he is sending, and what the importer thinks that he
is receiving. We can compare that information, and where there
are discrepancies, the risk factor goes up, and we will inspect
it, and then, we will know who is telling the truth and be able
to find out why there was a discrepancy. So we do have
mechanisms for checking the accuracy of the assertions that
people make.
With all of that said, I cannot in any respect say we have
a guarantee of security. We do not have a guarantee of security
when we get on Metro or when we get on a plane. We have tried
our best to manage these risks so that we have reduced and
minimized the risk to the American people from a variety of
possible attacks, and we think in cargo and port security that
we have done a good job.
Senator Stabenow. I would just say in conclusion, Secretary
Baker, we can in no way ever guarantee absolutely on anything.
But are you saying today that you believe that we are doing the
very best we can on port security?
Mr. Baker. We will, in this transaction, for example, we
will go back and look at every piece of information that we can
find, and we will be doing substantial amounts of----
Senator Stabenow. I am talking about in general.
Mr. Baker. In general?
Senator Stabenow. Are you saying that we are doing
everything that we can on port security?
Mr. Baker. Yes, everything we can, we could always spend
more money more usefully, but we have to recognize that there
are competing needs, including needs that are aimed directly at
the security of the American people.
We have devoted an enormous amount of effort to precisely
this concern, the possibility that someone would introduce a
weapon of mass destruction into the container supply chain. And
I would say that we have probably spent more effort, more time,
more imagination, more regulation on that than on that than
many other risks. So, I think we are doing a better job here
than on many other areas that are also of great concern.
Senator Stabenow. Mr. Chairman, that is also of concern to
me, since the September 11 Commission gave us collectively a D.
So that is of concern, and I do not say that you are not
working hard, but that is the grade we received, and I think we
need to be serious about it.
Chairman Shelby. Thank you, Senator.
Senator Dole.
Senator Dole. Thank you, Mr. Chairman.
Secretary Baker, in response to DHS' concerns, it is
reported that one of the commitments that DPW apparently made
was to open their books and give DHS access to formal legal
process. However, it is my understanding that DHS did not
insist that DPW keep copies of business records on American
soil, where they would be subject to court orders.
DHS also did not require, I understand, a designated
American to response to Government requests. It is my
understanding these conditions are routinely made a part of
U.S. approvals of foreign sales. Did the Department ever ask
DPW to comply with these requirements, and if not, why did not
the Department insist on these requirements?
Mr. Baker. I think let me first say that when we create
these assurances, we try to tailor them to the industry and the
particular security risks involved. The requirement of a U.S.
security officer is drawn principally from the telecom
industry, and there, it serves a very important purpose,
because we often have to serve wiretap orders, including
classified FISA wiretap orders, on the security officer. That
person has to be an American citizen so as to be able to get
the clearance to see those wiretap orders.
In fact, the security officer here is, and we have
assurance will remain during the pendency of the investigation,
a U.S. citizen, but there is not the same level of concern
there. If they were to choose a British National, for example,
I am not sure that we would say that that automatically should
be excluded, whereas in the context of telecommunications, we
would say that.
With respect to keeping data in the United States, again,
in the telecommunications industry, where we often have these
requirements, there is a very important reason to keep that
data in the United States, because it is the calling records of
the customers. All of my calls, all of your calls are recorded
by telecommunications companies. We do not really want that
information available to foreign governments where it might be
misused, and so, we want it here.
There is less privacy concern about how many tons of
sorghum are in a particular container, and so, we did not focus
on that as a crucial priority. We did, however, insist, as you
said, you sometimes want these records here so that you can
serve a court order to get them. Instead of that, we have a
binding commitment from the company to provide us access to
information about U.S. operations wherever that information may
be.
There is no restriction on whether it is in the United
States or not with respect to their U.S. operations
information, so that we do not need to worry about getting a
court order. If they do not produce that information, they are
in breach of their agreement.
Senator Dole. Secretary Baker, according to a 2005 report
by the GAO, auditors found a variety of problems in ports
participating in the Container Security Initiative;
specifically, containers identified as high risk sometimes were
shipped to the United States before agents on the ground could
find them at the originating port.
Did CFIUS investigate whether any of these problems
occurred at ports operated by DPW?
Mr. Baker. The CSI program in Dubai, where DPW is based and
where they are critical to the success of the program, actually
started up just a month after the report was issued, so I am
sure that none of the problems arose there.
In fact, we have had difficulties in some ports getting
complete cooperation from local authorities. They do not always
agree with us that a particular container should be
investigated.
That is not true in Dubai. We have made 700 requests for
high risk cargo to be examined, and the Dubai authorities and
DPW have complied with every single one of them.
Senator Dole. Let me ask both Secretary Kimmitt and
Secretary Baker, in a post-September 11 world, the Department
of Homeland Security has the imminent responsibility of
ensuring that our ports and borders are protected. That being
said, should the final signoff of these transactions come from
the Treasury Secretary and not from the Secretary of Homeland
Security?
Mr. Kimmitt. Senator Dole, the final signoff in this case
will come from the President because of the 45-day review and
then will be reported to you.
Senator Dole. Right.
Mr. Kimmitt. And the way the system operates, again, once
you get into the investigation, it would have to end up on the
President's desk for decision, and certainly, no decision would
be taken without Homeland Security signing off on it. And among
the changes we are instituting is to make sure that people at
higher levels in the Department not only are informed earlier
but are also involved earlier.
Mr. Baker. If I could add to that----
Senator Dole. I am referring to the CFIUS process, the 30-
day----
Mr. Baker. I completely agreement with Deputy Secretary
Kimmitt. Each of the participants, as the Deputy Secretary has
made clear, has its own vote and can make that determination on
its own, so each of us has the ability to insist that a
transaction go to the President for review. That may not be
clear in the statute, but that is the current practice. And if
this Committee of Congress wanted to make that clearer, there
would be no objection from our point of view.
Senator Dole. Thank you, Mr. Chairman.
Chairman Shelby. Thank you.
Senator Menendez.
Senator Menendez. Thank you, Mr. Chairman.
This is such an important issue in its immediate
application, beyond the overall issues of reforming CFIUS,
which I agree with many of the comments made by the Chair and
the Ranking Democrat and others. But I want to focus on the
immediacy, because it is very important to the people of the
State of New Jersey. And so, since I have so many questions, I
hope that you will give me a responsive but tight answer.
Secretary Kimmitt, as I understand it, you said that Dubai
Ports World has not filed for that additional 45-day review; is
that correct?
Mr. Kimmitt. That is correct, Senator.
Senator Menendez. So that means that as of this moment
right now, legally, they have the authority, since the original
review has run, and today is the enactment date, they have the
authority to operate notwithstanding what they said they will
voluntarily do, but they have the authority to operate these
terminals at the various ports in the United States.
Mr. Kimmitt. Senator, my understanding is that the deal is
not going to close today and that we will have the refiling
before the deal closes.
Senator Menendez. You say the deal is not closed today. In
terms of the legal review of this, technically, they have the
authority. If they close the deal later today, I see that the
court in Great Britain gave them the authority. That is in the
news today. So therefore, if they close the deal today, they
have legal authority right now to operate those ports, do they
not, to operate the terminal facilities at those ports.
Mr. Kimmitt. That would be correct if they closed the deal,
but although they had announced March 2 as the closing date, I
think not only in response to us and the courts but also,
frankly, because they have been listening closely to the
Congress, I think that deal will now not close until tomorrow
or Monday and that we will have the refiling before the
closing. We have been informed by their counsel that we will
have the refiling before the closing.
Senator Menendez. Let me ask you one more question. I
appreciate that, but if they do not file before the actual
closing takes place, would it not be true that they have the
legal authority to proceed if that is the case?
Mr. Kimmitt. That is a hypothetical, Senator. The answer to
the hypothetical is yes. The good news is they said--I will try
to keep this tight--they said on Sunday they were going to
refile. They would abide by the results of that review; that
they would hold separate the U.S. operations, and they would do
that throughout the pendency of the review.
Senator Menendez. Let us assume that they honor that and
that they do not close before they file. Let us assume that.
When they file, which they are filing, as I understand it, on
this voluntary 45-day review, which I agree should have been
the law automatically. Does that stop the clock as it relates
to the operations at the ports of the United States until that
review is finalized and signed off by the President? That is a
simple yes or no.
Mr. Kimmitt. The operations at U.S. ports will be held
separate. The refiling will moot the prior approval. The
decision at the end of the new review and investigation will
supersede the prior approval, and they have agreed to abide by
the results of the 45-day investigation.
Senator Menendez. So all of the other verbage that they
had, that they do not give up their rights under the original
determination, that was superfluous?
Mr. Kimmitt. What I would say is the parties, when they
make presentations, I would imagine to the legislative as well
as the executive branch, assert their position. We consider it,
but at the end of the day, we follow the law.
Senator Menendez. Secretary Baker, I have to be honest with
you, I find your description in your testimony just a little
bit too simplistic and I think of concern when you suggest that
this is about a pier, a crane, and a parking lot. You know, the
reality is you gave us the impression that you screen all of
this cargo abroad, but the United States does not screen all
this cargo abroad; is that correct?
Mr. Baker. We do screen it all. That does not mean that we
inspect it all. We run the containers and the information we
have about them through a variety of algorithms designed to----
Senator Menendez. With all due respect, Mr. Secretary, I am
not talking about algorithms.
Mr. Baker. Right.
Senator Menendez. Let us not confuse the American people. I
am talking about do you physically go abroad and do an
inspection of the cargo that is coming to the United States?
Yes or no?
Mr. Baker. Yes.
Senator Menendez. Do you do an inspection of all of the
cargo that is coming to the United States?
Mr. Baker. No.
Senator Menendez. You do an inspection of less than 5
percent of the cargo that is coming to the United States.
Mr. Baker. I would say we do the top and most risky 5
percent.
Senator Menendez. So 95 percent, bottom line, does not get
inspected abroad, let us make that clear, of what comes to the
United States. Also, the suggestion that this is just a pier, a
crane, and a parking lot, well if that was the case, then, why
do you both in the Customs Trade Partnership Against Terrorism
Act, which you cite in your testimony, as well as the Container
Security Initiative, you list a whole host of things that the
terminal operator does that has a security equation to it?
You go from a wide variety of security practice, from
fences and lighting to requiring that the member companies
conduct background checks on their employees, maintain current
employee lists, require proper identification, address physical
access controls, facility security, information technology
security, container security, security awareness and training,
personnel screening, and important business partner
requirements? That is a lot more than a crane, a pier, and a
parking lot.
Mr. Baker. Most of those are addressed to making sure that
there is the personnel, in particular, and the personnel that
might gain access to that facility have been investigated and
are people that we are willing to trust.
Senator Menendez. Mr. Secretary, it is all about security,
is it not?
Mr. Baker. Well, of course.
Senator Menendez. It is all about security. So this is not
just a pier, a crane, and a parking lot. And by the way, all of
these things that I just described, this is self-administered,
in this case by the Government of Dubai that owns the company.
This is self-administered. You do not administer this.
Mr. Baker. We review and audit their compliance with this
program.
Senator Menendez. It is self-administered, is it not? Yes
or no? You may review what they self-administer, but it is
self-administered.
Mr. Baker. They are expected to meet all of those
requirements, and we check to make sure they meet them.
Senator Menendez. Maybe my command of the English language
is deficient. Do they administer all of the things I just read
to you on their own, subject to your review, but do they
ultimately administer it on their own, yes or no?
Mr. Baker. Like any other regulatory program, you set the
standards; you tell people what they have to do; and then, you
make sure they do it.
Senator Menendez. And by the way, a manifest is ultimately
what you depend on, is it not?
Mr. Baker. In most cases.
Senator Menendez. Well, if a company wants to ultimately
put something on a ship that is not on its manifest, how would
you know?
Mr. Baker. Then, it would come off the ship and would not
have been notified to us.
Senator Sarbanes. Particularly when the company is both the
sending and the receiving party.
Mr. Baker. We do have mechanisms for making sure that the
supply chain is secure so that the ships are not accepting
containers that are not listed on the manifests. There are a
number of parties who have to handle this----
Senator Menendez. Mr. Secretary, I am talking about
thinking outside the box. The reality is that something can get
on a ship that a company or, in this case, a foreign government
wants to put on that ship that is not on the manifest and that
lo and behold comes into a port of the United States, and God
forbid it is not electronics or clothing but a nuclear,
chemical, or biological weapon, and it explodes before it comes
off. That is a little too late, is it not?
Mr. Baker. I will not say that that risk is not present. I
will say that that risk is not substantially increased by
owning a terminal operation in the United States. You could do
that without having a terminal. Take the ship into the port and
set it off then without ever touching a terminal.
Senator Menendez. Finally, with the indulgence of the
Chair, if I may ask Secretary Edelman, would it be fair to say
that what Benjamin Disraeli, the British Prime Minister one
time said that governments have no permanent allies or enemies,
only permanent interests, is pretty much true?
Chairman Shelby. Go ahead, go ahead, Senator.
Mr. Edelman. Senator Menendez, you must have discovered in
my biography that I am a former history graduate student. I
thought it was Palmerston actually, not Disraeli, but I could
be wrong about that.
Senator Menendez. I would be happy some other time to have
a cup of coffee with you and go over who said it, but
basically, the principle----
Mr. Edelman. But we obviously have ongoing national
interests, as does the UAE. I think in the current
circumstance, we have found a confluence of interest in
combating terrorism.
Senator Menendez. My point is ultimately, a foreign
government acts in its own interests at the end of the day. It
may coincide with us at a given moment; it may diverge with us.
Am I wrong, but at one time, was the United States not somehow
supportive of Saddam Hussein in his war against Iran? Am I
wrong about that?
Mr. Edelman. We had, obviously, a period of time when we
felt that there was some commonality of interest with regard to
Iranian domination of the Persian Gulf.
Senator Menendez. So my final point is this, since
governments, as we can see with what Hugo Chavez is doing with
his oil company totally owned by a foreign government and not
subject to the marketplace in terms of trying to promote his
own foreign policy ideas right here in U.S. soil, can change
their allegiances at any given time and their interests.
One of the things that this merger will do, according to a
February 20 article in the British maritime publication Lloyd's
List, that the P&O, which is the company that selling to Dubai,
recently renewed a contract with the United States Surface
Deployment and Distribution Command to provide stevedoring,
which is about loading and offloading of military equipment at
Beaumont and Corpus Christi ports in Texas until the year 2010.
And according to the Army logistician, that accounts for 40
percent of the Army cargo deployed in support of Operation
Iraqi Freedom. On that and so many other realities, we use
commercial ports increasingly to send supplies and equipment to
our soldiers in the field. Imagine that a foreign government
just simply takes the benign decision that I do not want to
operate the terminal. I do not want to operate the terminal. I
am not doing stevedoring at a critical moment in terms of
deployment of goods and supplies abroad. Is that not a real
consequence to the national security of the United States?
Mr. Edelman. Obviously, that hypothetical would be. I
believe that the Army Materiel Command looked closely at the
situation at Beaumont and Corpus Christi and did not conclude
that it presented a risk for them. It was also looked at by
U.S. Transportation Command.
Senator Menendez. I only gave you one example; it is
multiplied by many more times, and the continuous movement of
port operations in the hands of foreign creates a risk to us.
Thank you for your indulgence, Mr. Chairman.
Chairman Shelby. Senator Dodd.
Senator Dodd. Thank you, Mr. Chairman.
And let me begin by thanking, first of all, our witnesses.
You have been sitting here for a little more than three hours,
and we appreciate it very much. I know Secretary Kimmitt. I
have known his family for a long time; have great appreciation
for him. And I would be remiss if I did not express those
feelings to you. I do not know the other of the witnesses that
well, but I thank you for your presence here today.
Let me pick up a bit on Senator Menendez's very good line
of questioning in my view here. I have been intrigued in a
sense, Secretary Baker, about the Department of Homeland
Security's commitment to this whole process. You became a
member of this CFIUS board in 2003, as I understand it, and
yet, for the first time, it is in this year's budget that you
are actually asking for some money to have a CFIUS office at
the Department of Homeland Security; is that not correct?
Mr. Baker. I was not around last year, but my understanding
is there was a request for last year as well for funds. There
was no policy office, so the policy office did not ask for it.
Senator Dodd. But I am looking at the request here in 2000,
and it is an $8 million request to provide funding to establish
the CFIUS office within the Homeland Security Department. But
what raises the issue is that it just did not seem to be a
terribly high priority for the Department of Homeland Security,
despite being a member of that Committee until most recently
here. That is my concern.
Mr. Baker. No, I would say that that is not correct. We
have been a very aggressive and active participant, and there
has been a substantial CFIUS activity at the Department for
some years.
Senator Dodd. The facts are there was no clear office of
responsibility for CFIUS duties. That office does not exist, at
least it does not according to the budgetary request. But let
me move on.
The one word that has not been mentioned here in the
discussion of all this, and it is something I want to raise
with you in terms of what we might do to correct the problem is
the voluntary nature of all of this. I mean, what happens to
initiate CFIUS involvement is that the company or the country
voluntarily comes forward and asks for permission of this
office to operate.
We have an example, and I want to know if this is the case
or not, but I am told that last year, in February 2005, an
affiliate of DP World, DP International, successfully acquired
container freight facilities previously owned by American--the
CSX company, the company that Secretary Snow headed before
becoming Secretary of the Treasury. Was CFIUS notified of the
CSX or DP International in 2004 or 2005 of the pending
acquisition by DP International of CSX Orange Blossom
Investment Company Limited, a company which operates container
freight terminal facilities and businesses in the United
States, Hong Kong, Korea, Venezuela, and elsewhere? Did that
request come before CFIUS?
Mr. Kimmitt. Sir, I will have to check that, Senator Dodd.
My recollection was that because U.S. assets were not involved,
it did not come before CFIUS. Could I just ask a quick
question, because that was before I came into government; yes,
there were no U.S. assets within the purchase. The U.S. assets
had been sold previously.
Senator Dodd. That is not true. Under this here, the Dubai
Ports International here under that particular request, these
companies operate container freight terminal facilities, and I
listed the countries, and the last one on the list is the
United States. Now, they are not required by law to come, are
they?
Mr. Kimmitt. They are not required by law, but I mentioned
when you were briefly out of the room, Senator Dodd, that the
penalty for not filing is that the President has absolute
authority to unwind the deal for anyone who has not gone
through the approval process.
Early on, after you passed the law in 1988, as I mentioned,
the annual filings were almost as high as 300 per year. They
are now down to somewhere between 50 and 75 per year, I think
in part because, and I think particularly after this case, no
one is going to do an acquisition that might have a national
security implication without at least asking the question of
whether they should not go through CFIUS.
If they fail to do it, and we find that they should have
done it, then, the President has the authority to modify or
unwind that deal.
Senator Dodd. Well, should we not be talking about in here
as we are trying to get this right now, this process of looking
forward, should there not be some mandatory requirement here
where national security implications are involved that it does
not become a voluntary nature, whether you want to set a dollar
amount or whether there is some other criterion, but it seems
to me under existing law, whatever the decisions people make
because they are fearful what may happen down the road, it is
strictly a voluntary process at this point, and it should
become mandatory; would you agree with that?
Mr. Kimmitt. I would like to engage in that discussion. I
think certainly, after we get through this process, it would be
good for the investing community, both in the United States and
abroad, to know what the rules of the road are, and I think
among the other suggestions that you made, we would like to add
this one to the ones that we would discuss with you.
Senator Dodd. And I would like you to check on this.
Correct me if I am wrong, but my list shows that the United
States--and I mentioned the----
Mr. Kimmitt. I will check mine and get back to you, sir.
Senator Dodd. That is an example of what I have been
talking about here. If that did not come before CFIUS for
approval, and yet, there are U.S. ports involved in this thing,
that is an example of something happening. If it is involved,
by the way, I would respectfully request that that one be
examined and be put part of the 45-day examination period as
well, it seems to me.
Mr. Kimmitt. I will find the facts, sir.
Senator Dodd. It was an article by, as I understand it
here, this is the right piece I have here, I think it is, this
is from--it is called ``A Port in the Storm over Dubai'' by
Stephen Flynn and James Loy, who I gather are I think former
Coast Guard officials in which they make the case here, Mr.
Chairman, that requiring a global container inspection system
that scans contents of every single container destined for
American waterfronts before it leaves the port.
They note that this is already in place; since 2005, the
containers entering the truck gates of two of the world's
largest container terminals in Hong Kong have passed through
scanning and radiation detection systems. It seems to me, if it
is already being done in one place, and maybe this is to
Secretary Baker, are we implementing such a proposal? It seems
to me if the technology exists today to have something like
this in place, we could begin to eliminate a lot of the very
legitimate concerns being raised if you could have the scanning
that would certainly would help determine whether or not
materials coming in here are going to be harmful or not.
Mr. Baker. We are following this quite closely. It is a
pilot project that is an effort to see whether this can be done
on a 100 percent screening basis. There are a lot of questions
still to be answered. Currently, I believe the Hong Kong
facility is x-raying all the cargo, but nobody is looking at
the x-rays, so they are really doing this to show that you can
actually x-ray trucks as they move through at a reasonable
speed.
Senator Dodd. Look at this. This is the article they wrote.
I am not knowledgeable about it. They are claiming it is being
done. These are two former officers of the Coast Guard who
apparently have some knowledge about all of this. It seems to
me that if that technology exists, then, it seems to me the
Department of Homeland Security or the appropriate agency
should be examining why this cannot become a part of our
operations.
Mr. Baker. We are certainly looking at it quite closely,
and we certainly have not rejected the idea. We want to make
sure that it is practical.
Senator Dodd. Now, let me just quickly go back, because I
raised these issues with you earlier in my opening comments
here about some steps that need to be taken, and I appreciate
the generous comments during the testimony you provided here.
But let me just mention the way they are again and ask you
quickly on whether or not you would have any objections to what
we are suggesting here, and obviously, we would like to
continue talking to you about other matters you might add to
some legislation here now to update the CFIUS program; one, to
move away from a voluntary to more of a mandatory system. Now,
you would have to have what criteria you establish to make that
mandatory, but certainly, the general notion of getting away
from voluntary notion of it; to include the Director of
National Intelligence and the CIA as part of the panel of
CFIUS; to have a subcommittee with the agencies, the
intelligence agencies included, so they have to go to their
respective shops to determine whether or not these matters
raise concerns; to have vice-chairs, the Secretary of Defense
and Homeland Security, so you are covering the economic, the
intelligence, and the security matters; and then, whether or
not you would be willing to accept a notion of Congressional
disapproval process on a fast track even with necessarily a
two-thirds vote or something but some manner by which the
Congress could then respond to some of these matters.
Would you quickly just tell me how you are reacting to
these suggestions?
Mr. Kimmitt. Senator Dodd, I think they are very
constructive suggestions. I think we would like to examine them
with you. I think up until the last one, it would be something
that we would largely be engaged with the CFIUS members.
I would note that the intel subcommittee piece, I would
defer to your Chairman on this. As we try to get a true
national intelligence capability, I think we have to rely on
the DNI to be able to produce that kind of comprehensive,
coordinated intelligence. I would be a little bit concerned
about setting up a subcommittee that itself could suggest that
the DNI is not doing what is done.
The last one, in terms of the Congressional involvement, we
would have to involve people beyond the Committee, but I think
we are open to discussion of all your suggestions.
Senator Dodd. Secretary Edelman.
Mr. Edelman. Senator Dodd, as I said in my testimony, I
think the suggestions you have put forward today are extremely
constructive. First time that I have thought about some of
them, and so, I would want also to take them back. And one
thing we have all learned in this process is that it needs to
move up to higher levels in our respective departments when
decisions are being made.
And so, since the Secretary of Defense's equities would be
involved in what you have proposed, I think I would want to
discuss it with him.
Senator Dodd. I am sure.
Mr. Baker. There are two aspects of your proposals that I
think would require further thought on our part. If you are
going to make filings mandatory, then the definition of what
triggers a filing must be fairly clear for people, and as we
have discussed, one of the values of CFIUS has been that when
Homeland Security joins the CFIUS process, they can help expand
the issues that we are concerned about, and that word gets
around.
I would almost rather rely on a certain informality in that
and not have people still filing something that was important
in 1988 but is not important now.
Senator Dodd. I would just note here, be careful about the
informality. I think the point that has been made by all of our
colleagues up here, and I appreciate that point, but it is the
informality of all of this that I think may create a lot of the
problems here.
Mr. Baker. I hear you. It is just that if we end up getting
1,000 a year, we may not give it as much attention as we
should.
Senator Dodd. By the way, that article I mentioned earlier,
I should point out, also, the author of it is also the former
Deputy Secretary of Homeland Security.
Mr. Baker. And a fine man.
As to the DNI's participation, and the Chairman and I share
a long history with the intelligence community. One of the
difficulties is whether the DNI would participate as a policy
representative speaking up for the interests of the
intelligence community in having technology that they can
trust, which is an important problem for them, or whether they
are participating to provide intelligence.
And if they are participating to provide intelligence,
then, you always worry that if they are also participating for
a policy reason that their policy goals influences their
intelligence analysis. And so, in this case, I think actually,
the DNI's policy interests should lead them to participate, but
then, they should not have an authoritative intelligence role.
They should simply be responsible for getting as much
intelligence as possible.
Senator Dodd. I do not have a problem with that, because
remember, the motivations behind the Byrd Amendment and other
things were to get at those intelligence questions, and the
concerns that Senator Sarbanes and others have raised that it
appears in the GAO report that too much of this is being
determined, the outcomes, by the economic interests and even in
some cases, I think probably military interests. But they are
not illegitimate interests, I might point out.
But they trump the security interests, and that is one of
the concerns here. And I think the Chairman said it well in
October; others have. Nothing trumps security issues. It should
not, anyway, in the final analysis, so it is an important----
Mr. Baker. I do not disagree, and I think that the DNI does
have a significant security policy interest here.
Senator Sarbanes. I understand that in the Treasury, the
office that is responsible for investment flows is also the
office that staffs CFIUS; is that correct?
Mr. Kimmitt. That is correct. But again, as I mentioned to
you before, inside the Treasury, we have a range of
responsibilities, including the terrorist financing
responsibility that I mentioned to you. We involve all Treasury
offices, as do other departments and agencies. That has been
where the CFIUS process has been located since 1975, even 13
years before the law was passed.
Senator Dodd. Secretary Joseph, quickly.
Mr. Joseph. Senator, thank you.
I find all of your ideas to be potentially very
constructive, and I think we should look at each of them very
carefully as we work forward on this.
Senator Dodd. I thank you.
Let me just last, because of my local interest here, but
Doncasters, Senator Schumer raised this issue earlier; I raised
it as well. It is a Connecticut company here, so we have more
than just a passing interest. What is the nature of this
review, Secretary Kimmitt, that is occurring with the Doncaster
that was the subject of a lengthy article this morning by the
Dubai firm?
Mr. Kimmitt. Senator Dodd, the company issued a release in
December that they, Doncasters was going to sell its assets to
Dubai International Capital, including some assets in the
United States. They noted that the sale was subject to United
States and German regulatory approvals. I do not know what is
happening in other departments and agencies in the U.S.
Government, but in the CFIUS process, it is now in the 45-day
investigation period.
Senator Dodd. Thank you. Keep us posted on this as well.
This is a $1.2 billion transaction; is that correct?
Mr. Kimmitt. I do not think the U.S. part was that large. I
will come back to you with the facts on it. But again,
something that we discussed earlier, remember, we are barred by
the terms of the Exon-Florio Act of discussing in public
information available during the pendency of a review, but as
the Chairman and Senator Sarbanes made clear, obviously, we
could be responsive to you, we would be glad to come back and
share with you what we can.
Senator Dodd. Thank you.
Mr. Chairman, thank you very much.
Chairman Shelby. Thank you.
Senator Schumer.
Senator Schumer. Thank you, Mr. Chairman, and before I get
into my questions, I want to thank all of you for your
patience, and I am sure you have not had an easy couple of
weeks, so thank you for your service. And I want to thank the
Chairman for his usual generosity in terms of letting people
ask questions, et cetera.
Chairman Shelby. Thank you.
Senator Schumer. That does not happen too often.
I would like to return to where Senator Dodd left off, and
that is the new report about Dubai International Capital taking
over Doncaster, which has U.S. interests. And here is what
totally befuddles me; why did CFIUS implement a 45-day review
for tank engines in a box but not for potential nuclear weapons
in a ship's container? Why did this one merit a review and the
other one not? It is totally befuddling. Is there any rhyme or
reason to it?
Mr. Kimmitt. There is a procedural rhyme and reason. I am
not sure that it would satisfy the political dimension of your
question.
Senator Schumer. It is a substantive dimension. Why one and
not the other?
Mr. Kimmitt. Well, here is the substantive answer, then.
The substantive--no, I am sorry, this is a procedural answer,
and I think we would have to discuss substance with you in
private, Senator. But the procedural answer is because security
concerns were not resolved by the end of the 30-day period;
that is, there was not consensus among the CFIUS members that
concerns that had been raised had been addressed. It went into
the 45-day period.
Senator Schumer. But just give us, without giving us the
details, which I know you are not allowed, how would--it is
just going to befuddle, I think, most of us on this panel, if I
can take the liberty, and certainly the vast majority of
Americans that giving control to a Dubai company over our ports
does not raise security concerns, but giving Dubai control over
a company that makes parts to tank engines does.
Mr. Kimmitt. I understand the question.
Senator Schumer. It does not add up.
Mr. Kimmitt. I understand the question; I understand the
concern. The fact is that the same broad range of security
professionals, relying on information provided both by the
companies and by the intelligence community, came to one
decision on the Dubai Ports World case within the 30-day
period. They came to a different decision on the second one.
The effect, though, as of later today, Senator Schumer, when we
get the refiling is that both cases will be in the 45-day
period.
Senator Schumer. I understand that. Well, I think we are
going to need further inquiry on this, even if we have to do it
behind closed doors.
Next, also on this case, CFIUS is required to contact or
brief Members of this Committee when a 45-day investigation is
launched. Did you brief the Committee on the Dubai
International Capital deal, and who on the Committee did you
brief ?
Mr. Kimmitt. We briefed Committee staff, Senator, on the
basis of the public information made available by the companies
and are prepared to respond to further questions, but we would
have to do that not on the public record.
Senator Schumer. Okay; because you did brief Committee
staff; was that right?
Mr. Kimmitt. We have, again, on the basis of the publicly
available information.
Senator Schumer. I did not ask if you gave them the
details, but they were aware that such a transaction was now
undergoing a 45-day review.
Mr. Kimmitt. They were.
Senator Schumer. Because I was unaware of it.
Mr. Kimmitt. There had not been a requirement; I mean, you
use the term requirement, but we are learning the lessons. As I
said to the Chairman in response to an earlier question, we had
focused a lot of attention on briefing on closed cases. There
are some restrictions on pending cases. Those restrictions do
not extend, by and large, to the Congress.
One of the things we wanted to make sure that was done was
that for cases for which there had been public announcement or
comment by the companies that we had called that to your
attention and were able and then were prepared to respond to
questions.
Senator Schumer. But you do not agree that you are required
to brief people on this Committee when you initiate a 45-day
full investigation?
Mr. Kimmitt. I do not think that has ever been a
requirement. I think that is something that we need to discuss.
As I had said earlier, Senator, I think what we need to find is
a way that we can continue to encourage the companies to file
sensitive proprietary information with us, so we can do a
security review, you can do your oversight review; that if
companies come in and find that the deal is not going to go
forward, they can walk away without the reputational risk.
Now, again, I may have used the term briefing. That was
generic. What we provided was notice of the status of the case
and are available to respond further to questions but would
have to do that in private.
Senator Schumer. And who was that provided to?
Mr. Kimmitt. The staff of this and other Committees plus
the leadership in both Houses. That was on Monday.
Senator Schumer. Okay; next question goes to the way you do
investigation. I was shocked to learn, this is one of the
things that provided impetus for me to really be so involved in
this, that even in the 30-day review of Dubai Ports World, no
one at the Port Authority of New York-New Jersey had been
contacted.
Now, again, I do not want to get into the details of this
investigation, but do you not routinely, if it is a situation
with a port, talk to some of the people who run the ports and
see if they have concerns before you give somebody a green
light?
Mr. Kimmitt. Well, I think what we relied on, Senator,
although again, we are learning that we and you together
perhaps need to do some more, particularly in terms of
outreach, but we really rely on those agencies who are in
direct contact with both the owners and operators of the ports.
And so, for example, not only Homeland Security with its
important responsibilities with the Coast Guard and Customs and
Border Patrol, but we also brought the Department of
Transportation in.
Senator Schumer. Let me ask you. Did anyone in Homeland
Security or any of the departments under your jurisdiction
contact the Port Authority during this 30-day period?
Mr. Baker. We believe we were constrained by the
confidentiality restrictions from telling anyone about the
pendency of this proceeding. So we did not ask for people to
provide comment on the transaction.
Senator Schumer. So, in other words, it would be fair to
say that you relied only on internal governmental people in the
agencies and did not ask anybody from the outside about these
concerns.
Mr. Baker. I think that would be fair.
Senator Schumer. Is that typical?
Mr. Baker. That would be typical.
Senator Schumer. I think that is really wrong. Will you not
be able to do it in the 45-day review for Dubai Ports World?
Mr. Baker. Because this is now public, the fact of the 45-
day review, we will be consulting with the port security
officials across the country----
Senator Schumer. Let me clarify. So the law would not have
allowed you to talk to them in the 30-day review?
Mr. Baker. That is how I read it, yes.
Senator Schumer. Do you read it that way, Secretary
Kimmitt?
Mr. Kimmitt. Well, again, what the law says is that we are
barred from publicly discussing any information provided to us
during the pendency of a review. There is an exception, as the
Chairman pointed out, for the Congress. There is not an
exception for State and local people. Clearly, we are going to
reach out to them now, and I think one of the things----
Senator Schumer. But could someone in Homeland Security not
have gone to somebody in the Port Authority and said do you
have concerns about who would--you maybe did not have to give
the name, but someone is thinking of buying the British
company, P&O, would you have security concerns? Because the
talk out there is that oh, whoever is the operator does not
matter in terms of security.
Well, that is not the view of everyone I talked to who is
on the ground, whether it be the Port Authority, the shippers,
or anybody else. Why could you not have gone to them and done
this? You could have, could you not?
Mr. Baker. No, our view----
Senator Schumer. You would not have to mention the name
Dubai Ports World, but you could certainly----
Mr. Baker. Yes, but I would say we are taking a great risk
if the result is that someone decides, gee, they are doing a
CFIUS review and infers from the fact that we are asking the
questions that there is a CFIUS review underway. We were
concerned that we could have been charged with essentially----
Senator Schumer. In all due respect, are you not taking a
greater risk by not asking?
Mr. Baker. Well, as matters have eventuated, for sure.
Senator Schumer. Thank you.
Mr. Kimmitt. But, Senator, we were relying on both the
officials in the Department of Homeland Security, to include
the Coast Guard, Customs and Border Patrol. We reached out,
although they are not a member of CFIUS, to Transportation.
These are the people who are in touch with those officials
every day on port security issues. They may not have discussed
the specific transaction, but just as Secretary Edelman said,
the Army asked through transportation people about what was
happening in Beaumont.
I think we were relying on those people to do as much as we
could for----
Senator Schumer. Well, let me ask, then, Secretary Baker.
Do you agree with the view that the port operator has nothing
to do with security?
Mr. Baker. I would not say that the port operator? You mean
terminal operator?
Senator Schumer. The terminal operator.
Mr. Baker. No, they obviously have a role in security.
Senator Schumer. Good; well, let us shout this out to the
world and all those columnists and everybody else. They do have
a role in security. Let us make that 100 percent clear, which
has been obvious to anyone who has the details but not to
anybody else.
One final question about this. When you do your review, the
30-day review now that is completed, do you affirmatively go
out and affirmatively ask people to look into it, or do you
just, because I have been told that you just look through the
record, and if Dubai Ports World has nothing negative, there is
nothing negative in the various records of the various
agencies, both confidential and not, that you give a green
light.
Is that accurate, Secretary Kimmitt?
Mr. Kimmitt. That is not accurate.
Senator Schumer. Good.
Mr. Kimmitt. This new review will be----
Senator Schumer. No, I mean the 30-day review. The 30-day
review, the one that you did already.
Mr. Kimmitt. No, on the 30-day review, remember that we
were 60 days into interaction with the company on this. We
already had the intelligence assessment, and as I mentioned
when you were out briefly, Senator, the intelligence
assessment----
Senator Schumer. You are kind. I was out more than briefly,
but that is okay. You were very nice.
Mr. Kimmitt. Well, maybe it was Disraeli; I do not know.
Senator Schumer. Right.
[Laughter.]
Mr. Kimmitt. But the point that I would make is that a lot
of times, when the intelligence community is asked a question,
they might look at it from a no derogatory or no adverse
information. The standard used by my colleagues and me is what
is right for the national security interests of the United
States. Would my putting my name on that line saying that there
is no national security adverse effect from that decision, that
is really what guides us and will continue to guide us during
the 45-day review. The review will be thorough; it will be
impartial; and it will ask just one question. What is right for
the Nation's security, including our ports?
Senator Schumer. So if you gain new information, you will
not hesitate to reverse the position of the 30-day review.
Mr. Kimmitt. We will get new information, and we will
consider it in deciding what is right for this country.
Senator Schumer. And will have no hesitation at changing,
at the 45-day saying it might damage security if you believe it
does.
Mr. Kimmitt. At the end of the day, I am in this business
for one reason; to protect the national security interests of
the United States, and I also know, Senator, that you and many
others will be judging how we do, because you will get a
detailed report from the President of the United States.
Senator Schumer. Right; one quick last one. I thank the
Chairman; as I said, his generosity, I have rarely encountered
it in my 25 years in Congress, as generous as the Chairman has
been with all of this, and thank you.
Chairman Shelby. Take another minute or two.
[Laughter.]
Senator Schumer. That is how it works around here,
Gentlemen.
I mentioned in my opening statement the quadrennial review,
which we have not heard from in 14 years. Have you done those
quadrennial reviews?
Mr. Kimmitt. Boy, I will tell you; I do not know if this is
the last question, but it is a thicket. I mean, this was
something that was mandated as you mentioned in the law. It was
done one time. It asks a lot of very detailed, data-oriented
questions.
Senator Schumer. Right.
Mr. Kimmitt. When I came in and discovered this, and the
Chairman and I were talking about the GAO report, I said my
God, let us get this thing up right away. Turned out that we
had a draft, but it just did not have the supporting
information that we thought would have made it worthwhile. We
have gone to the intelligence community. That was one of the
first things I did, saying we need help to make sure that our
intelligence, our information basis is right, because how can
you reach an analytical conclusion against the legal standards
until you get the base right, and it is a very fact intensive
process. We are in the middle of it. We will get it to you as
quickly as we can.
Senator Schumer. You agree you should've done it and did
not.
Mr. Kimmitt. Administrations going back to 1992 should have
complied with sending up the report.
Senator Schumer. Thank you, but you will now. How soon can
we get that report?
Mr. Kimmitt. I will check with the intelligence community
when I get back, but we want to make sure that we have got good
facts and give you our best results.
Senator Schumer. Better to do it right than quicker.
Thank you, gentlemen.
Thank you, Mr. Chairman.
Chairman Shelby. Thank you.
Just a few concluding thoughts. We recognize the importance
of our open investment policy. You have heard that from both
sides of the aisle. We also recognize that we have a duty, as
you have, to consider the national security ramifications
associated with foreign ownership of American assets. There
will often be tension between these considerations. For this
reason, the credibility, the integrity of this Committee on
Foreign Investments process is crucial; it is paramount.
This hearing has made some things very clear. The American
people and the Congress need to have greater confidence, and
they do not in this process. To achieve this, I believe the
Banking Committee needs to act. I look forward to working with
my colleagues, Democrats and Republicans, as we address the
various shortcomings. We hope to work with you, Secretary
Kimmitt, Secretary Edelman, Secretary Baker, and Secretary
Joseph. I hope we can.
But there are various shortcomings here. It is not just a
perception. Ports are very important, crucial, and it has been
pointed out, Secretary Baker, many times that the ports are
probably our most vulnerable area as far as national security
is concerned. So we have our work cut out to do.
We thank you for your time and your patience this morning.
The hearing is adjourned.
[Whereupon, at 1:45 p.m., the hearing was adjourned.]
[Prepared statements and response to written questions
supplied for the record follow:]
PREPARED STATEMENT OF SENATOR MEL MARTINEZ
Good morning. Today's hearing could not be more timely or important
and I want to thank Chairman Shelby for scheduling this so quickly.
Like many of my colleagues here, I publicly stated my concerns soon
after learning that that Dubai Ports World was approved to purchase the
London-based Peninsular & Oriental Steam Navigation Company, giving
control of terminal operations at six of our American ports--including
one in Miami, Florida--to a company owned by the Dubai Government.
As we go forward with this debate, we should be mindful that this
decision was not made by one person alone, but by a group of 12
government agencies including the State Department, the Treasury,
Defense, Homeland Security, and Commerce Departments, the USTR, OMB,
and several others. As a former Cabinet Secretary in this
Administration, I have great confidence in the President's dedication
to keeping our Nation secure and his commitment to fighting the war on
terror at every level. I further trust that this Administration would
not purposefully make decisions or endorse foreign investments that
would jeopardize the security of our Nation.
There have been few issues in Washington that have aroused the
emotional response that this $6.8 billion acquisition has. And I do not
believe that this response is unwarranted--as it has been said, members
of the United Arab Emirates have had ties to terrorism in the past and
it is appropriate and necessary to debate their management of American
ports. However, the UAE made a concerted effort against terrorism after
the horrific attacks against our Nation in September 2001, and the UAE
is now considered an important partner and ally in the war on terror
and we rely on them for strategic access to the Middle East.
I believe that the most important guiding principal that we should
focus on as we examine the Committee on Foreign Investment in the
United States and whether or not Congress should play a role in the
review and approval of international corporate business deals, is that
we try to remain objective with a focus on good policy and national
security.
I have several questions and concerns that I hope are addressed
during your testimony. I hope to walk away from this hearing with a
clear understanding of what this takeover means for our port operations
and be assured that in no way will Dubai Ports World be responsible for
port security. I am interested in hearing more about the actual
agreement--including details of security screening at port facilities
in Dubai, tightening security along P&O's global ``supply chain'' and
what access U.S. officials will have to Dubai Port World's records and
background information on employees and managers and be assured that
this will be available without subpoena. I would also like to know the
details on the financing of this acquisition--including who the
principal investors are and whether or not there will be other states
investing or involved in the deal.
When Congress approved the Exon-Florio provision of the Defense
Production Act in 1988, it set guidelines for the process CFIUS is to
follow when considering blocking an application for a foreign
acquisition, merger, or takeovers. It was at this time that Congress
decided that a committee with representation from various government
departments would be best suited to investigate foreign investment in
the United States and review all applications with a broad spectrum of
national securities interests in mind. In your testimony, I would like
to hear more about the process through which CFIUS came to its
conclusion to approve this acquisition. I also want to hear from those
members of CFIUS who are not here today.
Ensuring our homeland security is the top priority for all of us
here--it would not be in the U.S. Government's interest to sign off on
a deal that would be detrimental to the progress we have made in
fighting the war on terror. I am appreciative of the 45-day extension
that Dubai Ports World and the President agreed to and I hope we use
this time effectively to review the CFIUS process to determine whether
or not there is a real security threat to U.S. ports resulting from
this deal.
Thank you. I look forward to the panel.
----------
PREPARED STATEMENT OF ROBERT M. KIMMITT
Deputy Secretary, U.S. Department of the Treasury
Mr. Chairman, Ranking Member Sarbanes, and distinguished Members of
the Committee, I appreciate the opportunity to appear before you today
to discuss once again the Committee on Foreign Investment in the United
States (CFIUS) and the Committee's review of DP World's acquisition of
P&O. I am here speaking on behalf of the Administration, the Treasury
Department, and CFIUS.
The last time I testified before this Committee, the Committee was
engaged in a broad examination of the CFIUS process in light of the
recent report by the Government Accountability Office. The hearing this
morning is an opportunity to
continue that dialogue. Before discussing the review surrounding the DP
World transaction, I would like to generally describe the CFIUS
process.
CFIUS
Exon-Florio
CFIUS was established in 1975 by Executive order of the President
with the Secretary of the Treasury as its chair. Its main
responsibility was ``monitoring the
impact of foreign investment in the United States and coordinating the
implementation of United States policy on such investment.'' It
analyzed foreign investment trends and developments in the United
States and provided guidance to the President on significant
transactions. However, it had no authority to take action with regard
to specific foreign investments.
The Omnibus Trade and Competitiveness Act of 1988 added Section 721
to the Defense Production Act of 1950 to provide authority to the
President to suspend or prohibit any foreign acquisition, merger, or
takeover of a U.S. company where the President determines that the
foreign acquirer might take action that threatens to impair the
national security of the United States. Section 721 is widely known as
the Exon-Florio Amendment, after its original Congressional cosponsors.
Specifically, the Exon-Florio Amendment authorizes the President,
or his designee, to investigate foreign acquisitions of U.S. companies
to determine their effects on the national security. It also authorizes
the President to take such action as he deems appropriate to prohibit
or suspend such an acquisition if he finds that:
There is credible evidence that leads him to believe that the
foreign investor might take action that threatens to impair the
national security; and
Existing laws, other than the International Emergency Economic
Powers Act (IEEPA) and the Exon-Florio Amendment itself, do not in
his judgment provide adequate and appropriate authority to protect
the national security.
The President may direct the Attorney General to seek appropriate
judicial relief to enforce Exon-Florio, including divestment. The
President's findings are not subject to judicial review.
Following the enactment of the Exon-Florio Amendment, the President
delegated to CFIUS the responsibility to receive notices from companies
engaged in transactions that are subject to Exon-Florio, to conduct
reviews to identify the effects of such transactions on the national
security, and, as appropriate, to undertake investigations. However,
the President retained the authority to suspend or prohibit a
transaction.
The Secretary of the Treasury is the Chair of CFIUS, and the
Treasury's Office of International Investment serves as the Staff Chair
of CFIUS. Treasury receives notices of transactions, serves as the
contact point for the private sector, establishes a calendar for review
of each transaction, and coordinates the interagency process. The other
CFIUS member agencies are the Departments of State, Defense, Justice,
and Commerce, OMB, CEA, USTR, OSTP, the NSC, the NEC, and the newest
member, the Department of Homeland Security. Additional agencies, such
as the Departments of Energy and Transportation or the Nuclear
Regulatory Commission are routinely invited to participate in a review
when they have relevant expertise.
The CFIUS process is governed by Treasury regulations that were
first issued in 1991 (31 CFR part 800). Under these regulations,
parties to a proposed or completed acquisition, merger, or takeover of
a U.S. company by a foreign entity may file a voluntary written notice
with CFIUS through Treasury. Alternatively, a CFIUS member agency may
on its own submit notice of a transaction. If a company fails to file
notice, the transaction remains subject to the President's authority to
block the deal indefinitely.
The CFIUS process starts upon receipt by Treasury of a complete,
written notice. Treasury determines whether a filing is in fact
complete, thereby triggering the start of the 30-day review period.
CFIUS may reject notices that do not comply with the notice
requirements under the regulations. Upon receiving a complete filing,
Treasury sends the notice to all CFIUS member agencies and to other
agencies that might have an interest in a particular transaction. CFIUS
then begins a thorough review of the notified transaction to determine
its effect on national security. In some cases, this review prompts
CFIUS to undertake an ``investigation,'' which must begin no later than
30 days after receipt of a notice. The Amendment requires CFIUS to
complete any investigation and provide a recommendation to the
President within 45 days of the investigation's inception. The
President in turn has up to 15 days to make a decision, for a total of
up to 90 days for the entire process.
CFIUS Implementation
Although the formal review period commences when CFIUS receives a
complete filing, there is often an informal review that begins in
advance. Parties to a transaction may contact CFIUS before a filing in
order to identify potential issues and seek guidance on information the
parties to the transaction could provide to assist CFIUS' review. This
type of informal consultation between CFIUS and transaction parties
enables both to address potential issues earlier in the review process.
The prefiling consultation allows the parties to answer many of CFIUS'
questions in the formal filing and allows for a more comprehensive
filing. In some cases, CFIUS members negotiate security agreements
before a filing is made. In addition, the prefiling consultation may
lead the parties to conclude that a transaction will not pass CFIUS
review, in which case they may restructure their transaction to address
national security issues or abandon it entirely.
During the initial 30-day review, each CFIUS member agency conducts
its own internal analysis of the national security implications of the
notified transaction. In addition, the U.S. Intelligence Community
provides input to all CFIUS reviews. The Intelligence Community
Acquisition Risk Center (CARC), now under the office of the Director of
National Intelligence (DNI), provides threat assessments on the foreign
acquirers. CFIUS will request a threat assessment report from CARC as
early as possible in the review process. In order to facilitate
reviews, CFIUS may request these reports before the parties to the
transaction have made their formal filing. Further, additional agencies
such as the Departments of Energy and Transportation and the Nuclear
Regulatory Commission actively participate in the consideration of
transactions that impact the industries under their respective
jurisdictions.
During the review period, there are frequent contacts between CFIUS
and the parties to the transaction. The transaction parties respond to
information requests and provide briefings to CFIUS members in order to
clarify issues and supplement filing materials. Although the CFIUS
agencies may meet collectively with the parties as an interagency
group, meetings also often occur between the parties and the agency or
agencies that have a specific interest in the transaction. Typically,
certain members of CFIUS will identify a concern early in the review
and then assume the lead role in examining the issue and providing
views and recommendations on whether the concern can be addressed. For
example, if there are military contracts, the Department of Defense
would lead the CFIUS review and recommend a course of action.
Depending on the facts of a particular case, CFIUS agencies that
have identified specific risks that a transaction could pose to the
national security may, separately or through CFIUS auspices, develop
appropriate mechanisms to address those risks when other existing laws
and regulations alone are not adequate or appropriate to protect the
national security. Agreements implementing security measures vary in
scope and purpose, and are negotiated on a case-by-case basis to
address the particular concerns raised by an individual transaction.
Publicly available examples of some of the general types of agreements
that have been negotiated include: Special Security Agreements, which
provide security protection for classified or other sensitive
contracts; Board Resolutions, which, for instance, require a U.S.
company to certify that the foreign investor will not have access to
particular information or influence over particular contracts; Proxy
Agreements, which isolate the foreign acquirer from any control or
influence over the U.S. company; and Network Security Agreements
(NSA's), which are used in telecommunications cases and often are
imposed in the context of the Federal Communications Commission's (FCC)
licensing process.
CFIUS operates by consensus among its members. A decision not to
undertake an investigation is made only if the members agree that the
transaction creates no national security concerns, or any identified
national security concerns have been addressed to the satisfaction of
all CFIUS agencies. The daily operation of CFIUS is conducted by
professional staff at each agency. Each agency sends the filing to
multiple groups in its agency depending on the issues involved in the
filing. CFIUS staff report to the policy level, which is the Assistant
Secretary level. A decision can be elevated to the Deputy Secretary
level and on to the Cabinet officials, if necessary. If within the
initial 30-day period there is consensus that the transaction does not
raise national security concerns or any national security concerns have
been addressed, Treasury, on behalf of CFIUS, writes to the parties
notifying them of that determination. This concludes the CFIUS review
of the acquisition.
If one or more members of CFIUS believe that national security
concerns remain unresolved, then CFIUS conducts a 45-day investigation.
The additional 45 days enables CFIUS and the parties to obtain
additional information from the parties, conduct additional internal
analysis, and continue addressing outstanding concerns. Upon completion
of a 45-day investigation, CFIUS must provide a report to the President
stating its recommendation. If CFIUS is unable to reach a unanimous
recommendation, the Secretary of the Treasury, as Chairman, must submit
a CFIUS report to the President setting forth the differing views and
presenting the issues for decision. The President has up to 15 days to
announce his decision on the case and inform Congress of his
determination.
The last report sent to Congress occurred in September 2003, when
the President sent a classified report detailing his decision to take
no action to block the transaction between Singapore Technologies
Telemedia and Global Crossing.
The Exon-Florio Amendment requires that information furnished to
any CFIUS agency by the parties to a transaction shall be held
confidential and not made public, except in the case of an
administrative or judicial action or proceeding. This
confidentiality provision does not prohibit CFIUS from sharing
information with Congress. Treasury, as chair of CFIUS, upon request of
Congressional committees or subcommittees with jurisdiction over Exon-
Florio matters, has arranged Congressional briefings on transactions
reviewed by CFIUS. These briefings are conducted in closed sessions
and, when appropriate, at a classified level. CFIUS members with
equities in the transaction under discussion are invited to participate
in these briefings.
Since the enactment of Exon-Florio in 1988, CFIUS has reviewed
1,604 foreign acquisitions of companies for potential national security
concerns. In most of these reviews, CFIUS agencies have either
identified no specific risks to national security created by the
transactions or risks have been addressed during the review period.
However, to date 25 cases have gone through investigation, twelve of
which reached the President's desk for decision. In eleven of those,
the President took no action, leaving the parties to the proposed
acquisitions free to proceed. In one case, the President ordered the
foreign acquirer to divest all its interest in the U.S. company. In
another case that did not go to the President, the foreign acquirer
undertook a voluntary divestiture. Of those 25 investigations, seven
have been undertaken since 2001 with one going to the President for
decision. However, these statistics do not reflect the instances where
CFIUS agencies implemented security measures that obviated the need for
an investigation or where, in response to dialogue with CFIUS agencies,
parties to a transaction either voluntarily restructured the
transaction to address national security concerns or withdrew from the
transaction altogether.
DP World
Contrary to many accounts, the DP World transaction was not rushed
through the review process in early February. On October 17, 2005,
lawyers for DP World and P&O informally approached Treasury Department
staff to discuss the preliminary stages of the transaction. This type
of informal contact enables CFIUS staff to identify potential issues
before the review process formally begins. In this case, Treasury staff
identified port security as the primary issue and directed the
companies to DHS. On October 31, DHS and the Department of Justice
staff met with the companies to review the transaction and security
issues.
On November 2, Treasury staff requested a CARC intelligence
assessment from the Office of the DNI. Treasury received this
assessment on December 5, and it was circulated to CFIUS staff. On
December 6, staff from CFIUS agencies with the addition of staff from
the Departments of Transportation and Energy met with company officials
to review the transaction and to request additional information. On
December 16, after 2 months of informal interaction, the companies
officially filed their formal notice with Treasury, which 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 period, members of the CFIUS staff were in
contact with one another and the companies. As part of this process,
DHS negotiated an assurances letter that addressed port security
concerns. The final assurances letter was circulated to the committee
on January 6 for its review, and CFIUS concluded its review on January
17. In total, far from rushing their review, members of CFIUS staff
spent nearly 90 days reviewing this transaction. There were national
security issues raised during this review process, but any and all
concerns were addressed to the satisfaction of all members of CFIUS. By
the time the transaction was formally approved, there was full
agreement among the CFIUS members.
Another misperception is that this transaction was concluded in
secret. Although the Exon-Florio Amendment prohibits CFIUS from
publicly disclosing information provided to it in connection with a
filing under Exon-Florio, these transactions often become public
through actions taken by the companies. Here, as is often the case, the
companies issued a press release announcing the transaction on November
29. In addition, beginning on October 30, dozens of news articles were
published regarding this transaction, well before CFIUS officially
initiated, much less concluded its review.
Last Sunday, February 26, DP World announced that it would make a
new filing with CFIUS and requested a 45-day investigation. Upon
receipt of DP World's new filing, CFIUS will promptly initiate the
review process, including DP World's request for an investigation. The
45-day investigation will consider existing materials as well as new
information anticipated from the company. Importantly, the
investigation process will also consider very carefully concerns raised
by Members of Congress, State, and local officials, and other
interested parties. We welcome your input during this process,
including issues that will be raised at today's hearing.
Conclusion
Since my last appearance before this Committee, I have worked with
my colleagues to address several of the flaws that you identified in
CFIUS reviews. We have revised the interagency process to ensure that
all members, especially the security agencies, have sufficient time and
opportunity to review transactions, identify any security concerns, and
fully address those concerns. Nonetheless, it is clear that
improvements are still required. In particular, we must improve the
CFIUS process to help ensure the Congress can fulfill its important
oversight responsibilities. Although CFIUS operates under restrictions
on public disclosures regarding pending cases, we have tried to be
responsive to inquiries from Congress. I am open to suggestions on how
we foster closer communication in the future. I think that we can find
the right balance between providing Congress the information it
requires to fulfill its oversight role while respecting the
deliberative processes of the executive branch and the proprietary
information of the parties filing with CFIUS.
Let me stress in closing, Mr. Chairman, that all members of CFIUS
understand that their top priority is to protect our national security.
As President Bush said: ``If there was any doubt in my mind, or people
in my Administration's mind, that our ports would be less secure and
the American people endangered, this deal wouldn't go forward.''
I thank you for your time this afternoon and am happy to answer to
any questions.
----------
PREPARED STATEMENT ERIC EDELMAN
Under Secretary for Policy, U.S. Department of Defense
March 2, 2006
Mr. Chairman, Members of the Committee. Thank you for the
opportunity to appear before you today to discuss the Department of
Defense's role in the Committee on Foreign Investments in the United
States (CFIUS) and our review of the Dubai Ports World (DPW) and
Peninsular and Oriental Stream Navigation Company (P&O) transaction.
As a formal member of the CFIUS process, the Department of Defense
weighs a number of factors when it considers any individual proposed
foreign acquisition of a U.S. company.
First and foremost, our primary objective in this process is to
ensure that any proposed transaction does not pose risks to U.S.
national security interests. To do this, the Department of Defense
reviews several aspects of the transaction, including:
The importance of the firm to the U.S. defense industrial base (for
example, is it a sole-source supplier, and, if so, what security and
financial costs would be incurred in finding and/or qualifying a new
supplier, if required?); Is the company involved in the proliferation
of sensitive technology or WMD? Is the company to be acquired part of
the critical infrastructure that the Defense Department depends upon to
accomplish its mission; Can any potential national security concerns
posed by the transaction be eliminated by the application of risk
mitigation measures, either under the Department's own regulations or
through negotiation with the parties?
Regarding this specific CFIUS transaction, the Departments of
Treasury, Commerce, and Homeland Security met with the legal
representatives of DPW and P&O for CFIUS prefiling notification
consultations on October 31, 2005. On December 6, 2005, the companies
held a prefiling briefing for all CFIUS agencies. The Defense
Technology Security Administration (DTSA) attended the meeting for DoD.
On December 16, 2005, the Department of the Treasury received an
official CFIUS filing. On the same day, Treasury circulated the filing
to all CFIUS member agencies for review and DTSA staffed the filing to
sixteen other Department of Defense (DoD) elements or agencies for
review and comment.
The review conducted by the Department of Defense on this
transaction was neither cursory nor casual. Rather, it was in-depth and
it was comprehensive. This transaction was staffed and reviewed within
the DoD by 17 of our agencies or major organizations. In this case, DoD
agencies reviewed the filing for impact on critical technologies, the
presence of any classified operations existing with the company being
purchased, military transportation and logistics as well as other
concerns this transaction might raise. During the review process
(December 21, 2005 through January 6, 2006), DoD did not uncover
national security concerns that warranted objecting to the transaction
or requiring a 45-day investigation. Positions were approved by staff
that ranged from staff-matter experts up to a Deputy Under Secretary of
Defense, as appropriate to the office undertaking the review. All who
were consulted arrived at the same position: ``Do not investigate
further.''
The DoD organizations that reviewed this and all other CFIUS
transactions bring to bear a diverse set of subject matter expertise,
responsibilities, and perspectives. The organizations 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 (Army, Navy, and Air Force); U.S. Transportation
Command; the National Security Agency; and the Defense Intelligence
Agency. The Army, for example, reviewed the case in the following
manner: Army Materiel Command (AMC) Headquarters and Assistant
Secretary of the Army for Acquisition, Logistics, and Technology
(ASA(AL&T)) staff gave a preliminary review, immediately upon receipt
of the case. AMC staffed the filing to their subordinate readiness
commands responsible for acquisition and logistics, including the
Military Surface Deployment and Distribution Command (SDDC). For this
case, the Army's review criteria included the question of assured
shipping, and the Army's final position was ``no objection.''
The Defense Technology Security Administration, which reviews,
coordinates and analyzes the recommendations from all the DoD
components, as well as assessing export control and sensitive
technology issues, ultimately ``signed off'' on the transaction for the
Department. Therefore, we had a comprehensive and in-depth review of
this transaction, and no issues were raised by any agencies or
departments within the Department of Defense. We are comfortable with
the decision that was made.
I do want to provide a perspective from the Department of Defense
regarding our relationship with the United Arab Emirates and their
support, as a friend and ally, in the Global War on Terrorism. In the
War on Terrorism, the United States needs friends and allies around the
world, and especially in the Middle East, to help in this struggle. A
community of nations is necessary to win this Long War.
In our recently published Quadrennial Defense Review, we highlight
that in conducting this fight to preserve the security of the American
people and our way of life, it is important that we strengthen the
bonds of friendship and security with our friends and allies around the
world. We must have the authority and resources to build partnership
capacity, achieve unity of effort, and adopt indirect approaches to act
with and through others to defeat common enemies.
The United Arab Emirates is an outstanding example of the kind of
partner critical to winning this Long War. Dubai was the first Middle
Eastern entity to joint the Container Security Initiative--a
multinational program to protect global trade from terrorism. It was
also the first Middle Eastern entity to join the Department of Energy's
Megaports Initiative, a program aimed at stopping illicit shipments of
nuclear and other radioactive material. The UAE has also worked with us
to stop terrorist financing and money laundering by freezing accounts,
enacting aggressive anti-money laundering and counter-terrorist
financing laws and regulations, and exchanging information on people
and entities suspected of being involved in these activities.
As you may know, the UAE provides the United States and our
coalition forces with important access to their territory and
facilities. General Pace has summed up our defense relationship by
saying that ``in everything that we have asked and work with them on,
they have proven to be very, very solid partners.''
The UAE provides excellent access to its seaports and airfields
like al Dhafra Air Base, as well as overflight through UAE airspace and
other logistical assistance. We have more Navy port visits in the UAE
than any other port outside the United States. Last year, U.S. Naval
warships and Military Sealift Command ships spent over 1,400 days in
the ports of Dubai, Jebel Ali, Abu Dhabi, and Fujairah. And, by the
way, the port at Jebel Ali--which is the only carrier-capable port in
the Gulf--is managed by DPW. Coalition partner ships also used the UAE
ports last year. The U.S. Air Force has operated out of al Dhafra Air
Base since the Gulf War in 1990. Today, al Dhafra is an important
location for air refueling and aerial reconnaissance aircraft
supporting operations in Iraq and Afghanistan.
And we should note that our most important commodity--our military
men and women--are frequent visitors to the UAE on liberty or leave
while deployed to the region. So we rely on the Emirates for our
security in their country, and I appreciate and thank them for that.
Our close military-to-military relationship with the UAE also
includes the use of the UAE Air Warfare Center, established in January
2004, where our pilots train with pilots from countries across the
Middle East.
Finally, the United Arab Emirates have been very supportive of our
efforts in Iraq and Afghanistan. They 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 Iraqi Government,
including a pledge of $215M in economic and reconstruction assistance.
Mr. Chairman, this concludes my formal statement. I would be happy
to answer any further questions you may have regarding this subject.
----------
PREPARED STATEMENT OF STEWART BAKER
Assistant Secretary for Policy, U.S. Department of Homeland Security
March 2, 2006
Mr. Chairman, Senator Sarbanes, and Members of the Committee, I am
pleased to be here today to help discuss the critically important issue
of port security and help clarify any questions you have about DHS's
role in the Committee on Foreign Investment in the United States
(CFIUS) and both DHS's consideration of the Dubai Ports World (DP
World) acquisition of the British-owned Peninsula and Oriental Steam
Navigation Company (P&O) and P&O's wholly owned U.S. subsidiary, P.O.
Ports North America, Inc.
As DHS's Assistant Secretary for Policy, Planning, and
International Affairs, I play a key role both in DHS's ongoing efforts
to continue to strengthen port security and the CFIUS process. As you
know, I oversaw the DHS review of the CFIUS transaction involving DP
World and P&O. Based on a thorough review, meetings with the company
that began more than 6 weeks before the company filed for review, and
the binding nature of an assurances agreement between DHS and the
company to ensure security at U.S. ports, I fully stand behind the
decision DHS made in January 2006 not to further investigate this
transaction.
Developments in the DP World Case
Nevertheless, DP World has announced that it is requesting an
additional review by CFIUS. According to press reports, the company is
likely to file a request for CFIUS review this week and seek an
additional 45-day review.
DHS, as one of 12 CFIUS agencies, will be a full and active
participant in that review, and welcomes the opportunity to review the
transaction anew. As I explain in more detail below, DHS will once
again consult widely with its experts in the Department, including
those at Coast Guard and Customs and Border Protection (CBP) who have
primary responsibility for port and cargo security.
Before getting into the specifics of the DP World transaction, I
would like to provide a general overview of DHS's participation in the
CFIUS process.
Overview of DHS Participation in CFIUS
DHS is the newest member of CFIUS, added by Executive order in
2003, after DHS was created. DHS has participated in the CFIUS process
actively, and has placed a significant focus on nontraditional threats,
as DHS has broad responsibility for protecting a wide variety of
critical infrastructures. DHS is often joined in raising these concerns
by our partners at the Department of Justice and Department of Defense,
and others. DHS is proud to work in close cooperation with these sister
Cabinet agencies.
There are dozens of transactions in a year that require CFIUS
review. In 2005, for example, CFIUS considered 65 discrete filings. DHS
conducts a thorough review of each CFIUS case, and raises its concerns
where issues arise.
The three most important questions DHS considers before deciding to
seek an investigation are:
Does DHS already have sufficient legal or regulatory authority
to eliminate any threat to homeland security that might be raised
by the transaction?
Does DHS have homeland security concerns about the parties or
nature of the transaction?
If DHS has homeland security concerns, can they be resolved
with binding assurances from the parties to the transaction?
Only after answering these questions does DHS decide whether to
seek an investigation in CFIUS. DHS examined those questions in the DP
World case and, as I will explain in more detail, made the judgment not
to object to the transaction. All of the other 11 CFIUS member agencies
made a similar decision after conducting their own independent reviews
of the transaction.
DHS Legal Authority at the Ports
Congress has granted DHS sufficient legal authority to regulate the
security of America's ports and the cargo that passes through each of
those ports.
Under the Magnuson Act, the Ports and Waterways Safety Act, and,
most recently, the Maritime Transportation Security Act of 2002 (MTSA),
the U.S. Coast Guard has great authority to regulate security in all
American ports. This includes the security for all facilities within a
port, including terminal operators and vessels intending to call at a
port or place subject to the jurisdiction of the United States.
The Role of Terminal Operators like P&O and DP World
Let me first clarify what terminal operators do.
They do not run ports.
They certainly do not provide or oversee security for the entire
port complex. That is the responsibility of the government and the
local port authority, which is usually a government agency.
Terminal operators also do not obtain a comprehensive window into
the breadth and depth of security measures that DHS employs to protect
our ports and the cargo that enters those ports. The public fears that
the DP World transaction have generated on this point are misplaced and
lack a firm factual foundation, as I will explain later.
Terminal operators ordinarily sign a long-term lease for waterfront
property in the port. They build a pier for ships, cranes to unload the
ship, a parking lot to store the containers they unload, and perhaps a
small management office. They make their money lifting containers out
of ships and holding them for shippers.
That is what we are talking about here. Through its acquisition of
P&O, DP World is hoping to take over the leases at twenty-four
terminals in the United States. That is a relatively small part of the
operations in the six ports where they would operate terminals,
including New Orleans, Houston, Miami, Newark, Baltimore, and
Philadelphia. Their filings indicate that DP World will also take over
the P&O equities at other ports, but these consist of stevedoring and
labor operations where P&O is not the designated terminal operator.
I understand from the Coast Guard that there are more than 800
regulated port facilities in the six ports where P&O operates terminals
in the United States. So the twenty-four terminals in question here
constitute less than 5 percent of the facilities in those six ports.
MTSA requires each terminal operator--because they operate inside
the port--to file a facilities security plan with the Coast Guard that
specifically details their compliance with all of the security measures
required by Federal law, including those enforced by the Coast Guard.
The Coast Guard inspects the terminal and can check the terminal
operator's plan at any time, and require more effective measures if the
Coast Guard deems they are necessary.
These MTSA requirements for U.S. port security do not turn on the
nationality of the terminal operator. United States, British, Chinese,
and UAE terminal operators are all subject to the same legal
requirements, and the Coast Guard Captains of the Port can tailor each
security plan to address the particular circumstances of each location.
Coast Guard Actions under MTSA
The Coast Guard has inspected and approved facility security plans
for some 3,200 facilities regulated by MTSA. In addition, Coast Guard
has completed Port Security Assessments and Port Threat Assessments for
all 55 military and/or economically critical ports.
Forty-four Area Maritime Security Committees have been formally
chartered and have developed Area Maritime Security Plans for the
purpose of detecting, deterring, and preventing terrorist attacks as
well as responding in the event of an incident. These committees are
chaired by a local Coast Guard official, the designated Federal
Maritime Security Coordinator, and include port authority, vessel,
facility, labor interest as well as Federal, State, and local agencies.
The Coast Guard established an International Port Security Program
to assess the effectiveness of antiterrorism measures in place in
overseas ports. Thirty-seven of the 44 countries assessed to date have
substantially implemented the International Ship and Port Facility
Security (ISPS) Code. These 44 countries are responsible for over 80
percent of the maritime trade to the United States. The seven countries
that are not in substantial compliance have been or will be notified
shortly to take corrective actions or risk being placed on a Port
Security Advisory and have Conditions of Entry imposed on vessels
arriving from their ports.
The Coast Guard has conducted 16,000 foreign flag vessel boardings
for security compliance with the ISPS Code since July 2004. These
boardings were conducted either offshore or in port, depending on the
risk assessment completed prior to each vessel's arrival in a U.S.
port.
DHS Role in Cargo Security
The Administration recognized after September 11 that more was
needed to protect the United States from terrorist attack, and it
immediately identified the vulnerability posed by the millions of cargo
containers entering our ports each year. DHS plays a primary role in
strengthening port and cargo security, and with the support of the
Administration, we have made dramatic increases in these areas. Since
September 11, funding for port and cargo security has increased by more
than 700 percent, from $259 million in fiscal year 2001 to $2.164
billion in fiscal year 2004 and $2.183 billion in fiscal year 2005.
This upward trend continues with $2.455 billion for DHS port security
allocated in fiscal year 2006, and an addition 35 percent increase to
$3.172 billion in the President's Budget request for fiscal year 2007.
This money has of course funding port security grants of more than
$870 million. It has also built a layered security strategy that pushes
our security measures overseas. The reason is simple. The Federal
Government realized after the September 11 attacks that it would be far
better to detect and interdict a threat to the United States when that
container was thousands of miles away, rather than sitting in a U.S.
port. So we pushed our borders out to do much more inspection and
screening of cargo before it ever arrives at our shores.
The 24-Hour Rule and CSI
Our authority over shipping containers begins even before the
container is loaded in a foreign port--and long before that container
arrives in the United States. We require foreign companies to send us a
list of the contents of a container 24 hours before the container is
loaded on board the ship in the foreign country.
If Customs and Border Protection (CBP) concludes that the contents
of a particular container may be high risk, we can have it physically
inspected or x-rayed in cooperating foreign ports.
This program, known as the Container Security Initiative (CSI)
depends on the voluntary cooperation of foreign governments and foreign
companies. We have gotten that cooperation around the world--including
in Dubai, the United Arab Emirates. The CSI currently operates in 42 of
the world's largest ports. By the end of this year, the number of
cooperating ports is expected to grow to 50, covering approximately 82
percent of maritime containerized cargo shipped to the United States.
Twenty-four hours before a ship is loaded, and therefore prior to
departing the last foreign port for the United States, DHS receives a
complete manifest of all the cargo that will be on that ship when it
arrives in a U.S. port. This includes all cargo information at the bill
of lading level, whether the cargo is destined for the United States,
or will remain on-board while in a U.S. port but destined for a foreign
country. This rule applies to all containerized sea cargo whether
departing from a CSI port or not.
Mandatory Advance Notice of Crew Members to DHS
Depending upon the length of the voyage, DHS receives additional
notice concerning the crew of the vessel 24 to 96 hours before the
vessel arrives in the United States. This is full biographic data
identifying the crewmembers and passengers, if any, so that DHS can
screen them against risk indicators, the terrorist watch list and other
databases.
We also get information from the importer describing the declared
value and description of the goods being imported.
Risk Analysis of Cargo and Crew
Thus, long before a cargo ship arrives at any U.S. port, DHS has
the shipper's information, the ship's information, and usually the
buyer's information about what is in the container. The data is
compared to ensure that it matches, and is also compared against
historical information to detect anomalous patterns.
This data is all scrutinized and processed through a complex
program that runs against hundreds of risk indicators to assign the
ship and its cargo a risk score. The crew and passengers are all vetted
prior to arrival.
DHS has full information about the vessel, its contents, and the
people on-board.
If DHS has a concern about the cargo, the Coast Guard and CBP meet
and decide an appropriate course of action, which may include boarding
the vessel at sea or at the entrance to the ship channel, or meeting
the vessel dockside and immediately inspecting the suspect containers.
Coast Guard has established a process to identify and target High
Interest Vessels. This process has resulted in 3,400 at sea security
boardings, and 1,500 positive vessel control escorts since 2004 to
ensure that these vessels cannot be used as a potential weapon.
What the Terminal Operator Knows about U.S. Security Measures
I noted earlier that ownership of a terminal operation does not
give the terminal operator--foreign or domestic--a unique insight into
the breadth and depth of DHS security measures nor provide a crafty
terminal operator with ill intent access to inside information to avoid
or evade DHS scrutiny.
The first time a terminal operator at a U.S. facility sees any of
the law enforcement and security measures that DHS has in place
concerning the vessel and cargo is when the ship arrives in the United
States. Even then, all the terminal operator knows is that CBP has
selected certain containers for examination. The operator is simply
instructed to unload the containers, under DHS supervision, and deliver
them to CBP for inspection. They are not told why.
CBP Examines 100 percent of Risky Containers
As I have noted already, CBP screens 100 percent of containers for
risk. All containers that DHS determines to be of risk are examined
using a variety of technologies. These technologies include: Radiation
screening, nonintrusive x-ray inspection, and as appropriate, physical
examination.
This screening and examination is carried out by DHS employees
tasked with the security of our seaports. They are assisted by
longshoreman and stevedores in moving the containers, and by local law-
enforcement authorities and port police to ensure the security of the
port facilities.
All a terminal operator knows is that a container has been selected
for examination, but not why the container was selected. The
inspections and radiation detections are performed by CBP, not by the
operator. Security is provided by a variety of government programs,
agencies, and local law enforcement officials, not the terminal
operator.
Special Measures to Detect Radioactive Devices
DHS component agencies and the DHS Domestic Nuclear Detection
Office have worked closely with the Department of Energy to deploy
radiation detection technology at domestic and foreign seaports. The
Department of Energy is providing technical support to Dubai Customs to
install four Radiation Portal Monitors in their main port in June. Some
of this equipment is specifically dedicated to ``in-transit cargo''
passing through the Dubai port on its way to places like the United
States.
In the United States, we have deployed 181 radiation portal
monitors at seaports to date, which allows us to screen 37 percent of
arriving international cargo, and that number will continue to grow
through the remainder of this year and 2007. CBP also has the ability
to use portable devices to detect the presence of radiation at
additional facilities, and CBP has issued over 12,000 hand-held devices
to its officers. The President's fiscal year 2007 budget requests $157
million to secure next-generation detection equipment at our ports of
entry.
Since there is often confusion on this point, I want to restate it.
CBP subjects 100 percent of all containers shipped to the United States
to a risk assessment analysis and subjects 100 percent of any container
over a certain risk threshold to further inspection.
In short, DHS already has a large number of measures in place
relating to port and cargo security that are designed to ensure the
security of our ports. These measures, and additional measures taken by
local port authorities, greatly reduce the risks presented by the
presence of any foreign terminal operator in a U.S. port.
CFIUS Review of the DP World Transaction
DHS always examines the backgrounds of parties to a CFIUS
transaction, and we did so in this case. DHS agencies--the Coast Guard
and CBP--had previously worked with both DP World and its management
and found them to be cooperative and professional. Demonstrating this
is the fact that DP World met with senior officials of DHS and DOJ on
October 31--more than 6 weeks before they filed on December 16 and our
review began on December 17, to provide confidential notice of their
plans and begin answering questions.
DP World
DP World has played an invaluable role in the establishment of the
first foreign-port screening program that the United States started in
the Middle East. That is because Dubai also volunteered to help in this
innovative approach to security. DP World has voluntarily agreed to
participate in screening of outbound cargo for nuclear material, and it
has worked closely with CBP and the Dubai Customs Authority to target
high-risk containers destined for the United States. These screening
programs could not have been successfully implemented without the
cooperation of Dubai Port World.
P&O's Participation in the Customs-Trade Partnership Against Terrorism
(C-TPAT)
British-based P&O, the owner of the U.S. facilities DP World is
seeking to acquire, is and was a voluntary participant in CBP's
Customs-Trade Partnership Against Terrorism (C-TPAT). C-TPAT
establishes voluntary best security practices for all parts of the
supply chain, making it more difficult for a terrorist or terrorist
sympathizer to introduce a weapon into a container being sent by a
legitimate party to the United States. DP World has committed to
maintaining C-TPAT participation for all of the P&O ports subject to
this acquisition.
C-TPAT covers a wide variety of security practices, from fences and
lighting to requiring that member companies conduct background checks
on their employees, maintain current employee lists, and require that
employees display proper identification.
C-TPAT's criteria also address physical access controls, facility
security, information technology security, container security, security
awareness and training, personnel screening, and important business
partner requirements. These business partner requirements oblige C-TPAT
members, like P&O, to conduct business with other C-TPAT members who
have committed to the same enhanced security requirements established
by the C-TPAT program.
In Newark, New Jersey, all eight of the carriers who use P&O's Port
Newark Container Terminal are also members of C-TPAT which increases
the overall security of the Newark facility.
The DP World CFIUS Transaction
As I noted toward the beginning of my testimony, DHS considers
three important questions in any CFIUS transaction: (1) does DHS
already have sufficient legal or regulatory authority to eliminate any
threat to homeland security that might be raised by the transaction?;
(2) does DHS have homeland security concerns about the parties or
nature of the transaction?; and (3) if DHS has homeland security
concerns, can they be resolved with binding assurances from the parties
to the transaction?
I have addressed the first two of those questions, now let me turn
to the third.
As part of its CFIUS review, DHS considers whether it should obtain
any further commitments from the companies engaging in the transaction
to protect homeland security. DHS has been aggressive in seeking such
assurances as part of CFIUS reviews. The assurances are carefully
tailored to the particular industry and transaction, as well as the
national security risks that we have identified.
The Assurances Agreements
DHS had never required an assurances agreement before in the
context of a terminal operator or a port. But after analyzing the
facts, DHS decided that we should ask for and obtain binding assurances
from both companies.
The companies agreed after discussions to provide a number of
assurances, two of which are particularly important.
First, both parties agreed that they would maintain their level of
participation and cooperation with the voluntary security programs that
they had already joined. This means that, for these companies, and
these companies alone, what was previously voluntary is now mandatory.
In the United States, the parties are committed to maintaining the
best security practices set out in C-TPAT. In Dubai, the parties are
committed to continued cooperation in the screening of containers bound
for the United States, including the radiation screening discussed
above.
Second, the parties agreed to an open book policy in the United
States. DHS is entitled to see any records the companies maintain about
their operations in the United States--without a subpoena and without a
warrant. All DHS needs to provide to DP World is a written request and
we can see it all. DHS can also see any records in the United States of
efforts to control operations of the U.S. facilities from abroad.
Because C-TPAT requires a participating company to keep a current
record of its employees, including Social Security number and date of
birth, this open-book assurance also allows us to obtain up-to-date
lists of employees, including any new employees. DHS will have
sufficient information about DP World employees to run the names
against terrorist watch lists, to do background checks of our own, or
to conduct other investigations as necessary.
These agreements were negotiated and obtained during the 30-day
period the transaction was under CFIUS review, and DHS conditioned its
nonobjection to the transaction on the execution of those agreements.
The Assurances Letters to DHS are Binding and Legally Enforceable
The assurances that DHS obtained from the companies are binding and
legally enforceable, so that DHS and the U.S. Government could go into
court to enforce them.
The companies also agreed in the assurances letters that DHS could
reopen the case, which could lead to divestment by the foreign company
if the representations the companies made to DHS turned out to be false
or misleading.
DHS believes that DP World will adhere to both the letter and the
spirit of the assurances letter, because the worst thing that can
happen to a terminal operator's business is to lose the trust of the
CBP officials who decide how much of that operator's cargo must be
inspected every day. If we lose faith in the security and honesty of
these parties, we will have to increase government scrutiny of the
cargo they handle. That means more inspections and more delays for
their customers.
And that is very bad for business.
That is why DHS is confident that the companies will work hard to
continue to earn and retain our trust--and to fulfill their
assurances--every day.
Conclusion
In short, after examining this transaction with care, DHS concluded
that: (1) we have legal authority to regulate the U.S. security
practices of these parties, including the ability to assess the
maritime threat and intervene, at the foreign port of origin or on the
high-seas, before potentially problematic cargo arrives at a U.S. port
to be serviced by the parties; (2) DP World's track record in
cooperating with DHS on security practices is already very good; and
(3) DHS obtained assurances that provide additional protection against
any possible future change in the cooperative spirit we have seen so
far and that allow us to do further checks on our own.
Based on all those factors, DHS concluded that it would not object
to the CFIUS transaction or seek an additional 45-day investigation.
I would be pleased to answer any questions that you have.
RESPONSE TO WRITTEN QUESTIONS OF SENATOR SHELBY
FROM ROBERT M. KIMMITT
Q.1. Secretary Kimmitt, you have been testifying and briefing
almost nonstop on the issues of the Dubai Ports transaction and
the Committee on Foreign Investments. Given that fact, can you
offer the Banking Committee some explanation why we did not
receive your prepared statement until 10:30 the night before
the hearing? Certainly your statement for this hearing cannot
differ that markedly from what you have already spoken on this
week.
A.1. I apologize for any delay. Treasury's interest is ensuring
that testimony is responsive to the precise nature of each
heming. As Chair of CFIUS, we also necessarily collaborate with
other agencies, a process which takes a certain amount of time.
We provided you the written testimony as soon as it was
available.
Q.2. Secretary Kimmitt, could you clarify for the Committee
your understanding of the authorities existing with the
President that would allow for a nullification of the ports
transaction in the event a new investigation results in a
determination that U.S. national security would be endangered
by the deal? Would a potentially protracted court case be the
only recourse?
A.2. The President would have had the authority to undo the
deal as a result of the new review. By agreeing to file a new
notice under 31 CFR Sec. 800.401 (and to be bound thereby), the
companies initiated a new ``action under Section 721''--one
that had the effect of allowing the President to take action
under 31 CFR Sec. 800.601 in response to CFIUS's
recommendation, notwithstanding CFIUS's previous decision not
to proceed to an extended 45-day investigation. The President
has the authority under Exon-Florio to order divestiture and
can direct the Attorney General to enforce such an order if
necessary. He can direct the Attorney General to enforce such
an order, if the parties do not willingly comply with the
President's divestiture order.
Q.3. Secretary Kimmitt, I would like to address the issue of
the Arab boycott of Israel and of the parent company of Dubai
Ports World's participation in that boycott.
I recognize that the Department of Commerce is not
represented here today, and they would be the logical ones to
field this question. As chair of the Committee on Foreign
Investments, however, I would like you to respond, on whether
the boycott issue was raised during consideration of the Dubai
Ports acquisition and, if so, how was it resolved.
A.3. Consistent with the Exon-Florio Amendment, CFIUS considers
a broad range of factors when investigating proposed foreign
acquisitions of U.S. companies. The Committee takes an
expansive view of national security and consistently examines
the prospective acquirer's country of origin, as well as U.S.
relations with the acquirer's country of origin. The Committee
gives particular attention to this factor when investigating
proposed transactions with foreign government-controlled
entities. As part of its broad review of the proposed DP World
acquisition of P&O and potential impacts on U.S. national
security, CFIUS carefully considered the relationship between
the United States and the United Arab Emirates. The Committee
unanimously concluded that the acquisition did not present a
threat to national security.
Q.4. I would like to hear from each of the witnesses regarding
their views on the wisdom of implementing a system for
approaching reviews of state-owned entities from a risk-based
perspective.
The port management company that is being bought by Dubai
is British-owned. I recall no expressions of concern when P&O
came into the picture, certainly nothing like has occurred with
respect to Dubai Ports World. Does it make sense to treat some
countries as presenting an inherently greater risk than others,
so that legislative changes to Exon-Florio do not necessarily
treat a close NATO ally in the same manner as a country from
the Middle East? I am picturing in my mind the system of
tiering countries according to risk used in regulating the
export of high performance computers.
A.4. CFIUS always considers the country in which an acquiring
entity is located as part of its broad and comprehensive
security review, and gives extra scrutiny to transactions
involving foreign governments. When deciding whether to open a
45-day extended investigation, CFIUS considers whether the
transaction may affect national security. In establishing
whether an acquisition or merger by a foreign entity may affect
national security, CFIUS examines relevant intelligence
reporting and a number of other national security factors,
including the foreign entity's country of origin, U.S.
relations with the foreign entity's country of origin, and the
foreign entity's compliance with any preexisting national
security agreements and/or other preexisting agreements it has
with the United States that seek to ensure protection of
homeland security, as well as information regarding the foreign
entity and its compliance with U.S. laws and regulations.
CFIUS's implementation of Exon-Florio has increased the
awareness of investors to national security issues, brought
transactions into conformity with existing laws where needed,
and resulted in investors abandoning transactions that raised
insurmountable national security problems. We do not believe
the law needs to be amended to require consideration of the
country of the foreign acquirer since CFIUS already takes that
into consideration as part of its analysis.
Q.5. Could the panel explain for the Committee the precise
routine role of the intelligence community in the review
process?
A.5. CFIUS consists of six Departments and six White House
agencies. In addition, CFIUS invites other Federal agencies to
participate in investigations on a case-by-case basis when they
have expertise relevant for a particular case. For example, the
Departments of Transportation and Energy have participated in
CFIUS cases. The Intelligence Community--primarily the
Intelligence Community Acquisition Risk Center (CARC) and the
Defense Intelligence Agency (DIA)--has played a long-standing
and important role in the CFIUS process, not as a voting
member, but as a provider of intelligence assessments regarding
the foreign acquirer and the transaction. The Office of the
Director for National Intelligence (DNI)--via the National
Intelligence Council--is now providing an all-source assessment
of any potential threats arising from proposed transactions.
The DNI can be engaged even before a case is formally filed
with CFIUS. In fact, Treasury, on behalf of CFIUS, routinely
requests DNI assessments when parties to a transaction notify
CFIUS of an anticipated filing (that is, a prefiling). As part
of the 30-day investigation, Treasury always asks the DNI to
provide a threat assessment for each case. Generally, DNI
provides its assessment no later than Day 23 of the initial 30-
day investigation period. If a case goes into a 45-day extended
investigation, DNI has a continued role in the consideration of
national security concerns.
Q.6. One of the major concerns the Committee has with regard to
implementation of Exon-Florio involves mitigation agreements,
in which companies accept certain conditions in exchange for
regulatory consent to the transaction in question.
Could the panel inform the Committee as to the measures
taken to monitor and enforce mitigation and national security
agreements? How is it determined which member agency within the
Committee on Foreign Investment negotiates, monitors, and
enforces such agreements? Have there been instances in which
foreign governments or businesses have placed obstacles in the
way of that process?
A.6. If it has particular national security concerns that it
feels must be addressed, any CFIUS agency may, in consultation
with CFIUS, engage the parties in negotiating a mitigation
agreement. Agencies monitor and ensure compliance with respect
to those agreements to which they have chosen to become
parties.
With regard to any particular national security concern for
which CFIUS agencies may want to pursue mitigation, it is
typically the member of the Committee with the greatest
relevant expertise that assumes the lead role in negotiating
and ultimately concluding assurance letters or mitigation
agreements to address that concern. Such assurance letters and/
or mitigation agreements implement security measures that vary
in scope and purpose according to the particular national
security concerns raised by a specific transaction.
There are remedies built into mitigation agreements to
address concerns that arise after the CFIUS case concludes. The
``lead'' agency or agencies are and should be responsible for
monitoring the parties' compliance. Procedures for monitoring
an agreement may, for example, include annual reporting by the
company to the lead agency or site visits by the lead agency.
For a material breach of any representation or commitment
in the mitigation agreement, the lead agency would be empowered
to seek any remedy available at law or equity in a U.S. court
of law.
Companies that file with CFIUS have voluntarily engaged in
the process in order to protect themselves in the future from
potentially having their transactions unwound by the
government. We have found companies, including those owned and
controlled by foreign governments, to be cooperative and
willing to provide assurances letters and engage in
negotiations concerning mitigation agreements, when required by
CFIUS.
RESPONSE TO WRITTEN QUESTIONS OF SENATOR BUNNING
FROM ROBERT M. KIMMITT
Q.1. What kind of help have we gotten from the UAE on tracing
and stopping the flow of money to terrorist groups?
A.1. The United Arab Emirates has laws criminalizing money
laundering and terrorist financing, and has prosecuted several
cases under both laws. The UAE has enacted measures in
compliance with the Financial Action Task Force 40
Recommendations on Money Laundering and the nine Special
Recommendations on Terrorist Financing. Among those efforts,
the UAE instituted a hawala registration system domestically,
and it also has hosted two regional hawala conferences to
educate other governments on best practices for regulating a
traditionally unregulated informal financial sector. The UAE is
establishing procedures for the regulation of cash couriers,
charitable organizations, and other nongovernmental
organizations, including oversight of their financial
activities.
We consult frequently with senior UAE officials on
terrorist financing issues and continue to rely on a frank,
open, and productive exchange of information and insight. We
have repeatedly asked the UAE, as a regional financial center,
to demonstrate leadership on these issues by setting high
standards and cooperating with regional governments on
information exchange and counter terrorist financing actions.
Since 2000, the UAE Government has frozen $1.3 million of funds
in 17 different accounts based on U.N. Security Council
resolutions. Its Financial Intelligence Unit exchanges
information on people and entities suspected of being involved
in terrorist financing with international Financial
Intelligence Units, including FinCEN, through the Egmont Group.
In addition, the UAE has approved the opening of a
permanent Drug Enforcement Administration (DEA) post in Dubai
which will be staffed by two special agents (one of whom will
act as the country attache), an intelligence research
specialist, and one support staff. DEA is working closely with
UAE authorities on the investigation of drug trafficking and
drug money laundering, which has the potential to support
terrorism or the insurgency in Afghanistan.
Q.2. Are we still seeing money flow through the UAE to aid
terrorists like we did before September 11?
A.2. The UAE has addressed terrorist financing issues since
September 11, and has worked with the United States in shutting
down terrorist finance networks. The UAE has strengthened its
banking laws and regulations to prevent the misuse of its
financial institutions by money launderers and terrorist
financiers. The UAE has taken steps to curb and block financial
flows to terrorists. We continue to encourage the UAE
Government to take further steps to strengthen its financial
defenses and to vigorously enforce its existing laws and
regulations against money laundering and terrorist financing.
Q.3. How many transactions has the Committee on Foreign
Investment rejected and approved in its history?
A.3. In considering more than 1,600 transactions since 1988,
CFIUS has compiled a solid record of identifying potential
adverse effects on national security and taking appropriate
measures to mitigate those effects, where possible. As of this
writing, 27 transactions have gone to investigation, and 13
have reached the President for decision (others were withdrawn
prior to a Presidential decision). The President blocked one
transaction in February 1990, when CATIC company--controlled by
the Government of the People's Republic of China--sought to
acquire MAMCO Manufacturing, Inc., an aerospace parts
manufacturer in the State of Washington.
These figures must be viewed in the proper context.
Relatively few acquisitions by foreign entities have the
potential to affect national security. The vast majority of
notified transactions do not require an investigation either
because these transactions do not potentially threaten national
security, or because CFIUS is able to mitigate the national
security concerns that arise in connection with these
transactions through other means.
CFIUS has raised the awareness of foreign investors
contemplating acquisitions of U.S. companies to the importance
of national security considerations. This awareness helps to
ensure that foreign investments are structured in order to
avoid national security problems. Prospective foreign acquirers
understand that security measures may need to be negotiated to
mitigate concerns. In some cases, CFIUS agencies have
identified security measures during the 30-day review period
that would adequately address national security concerns. In
some of these instances, companies have requested withdrawal of
their CFIUS notices to negotiate security agreements. Once such
agreements are executed, the companies refile with CFIUS, and
CFIUS concludes its review. For example, in the
telecommunications sector, some foreign companies have entered
into Network Security Agreements when acquiring U.S. companies.
(Examples of completed Network Security Agreements are
available on the FCC website.)
In addition, some notified transactions were abandoned
because CFIUS conveyed to the companies that there was no way
to mitigate the national security concerns.
Q.4. Are there any other commercial operations of companies
from the UAE in sensitive industries in the United States?
A.4. According to the Bureau of Economic Analysis (BEA), the
UAB's foreign direct investment position in the United States
was $24 million at the end of 2004, down $21 million from a
year earlier. This investment position was concentrated in real
estate, with a smaller amount of direct investment in financial
services. However, in some of the industry categories, the
direct investment positions have not been made public to
preserve the confidentially of the investor. At the end of
2004, total foreign direct investment in the United States was
$1.5 trillion, and the UAE had a very small share.
The data on foreign direct investment, discussed above,
excludes investments acquired through third countries, such as
tax havens in the Caribbean. To include those amounts, the BEA
prepares estimates in terms of the ultimate beneficial owner.
On this basis, the UAE had a foreign direct investment position
in the United States of $1,772 million at the end of 2004, up
from $1,202 a year earlier. These estimates do not include
industry detail.
In addition to DPW, Dubai International Capital LLC, a
subsidiary of Dubai Holding LLC, recently filed notice with
CFIUS in connection with its acquisition of the Doncasters
Group plc, a British company, and its U.S. subsidiaries. The
President announced on April 28 that he would take no action on
that transaction under Exon-Florio, as the acquisition did not
present a possible impairment of national security. The Dubai
International Capital transaction is an example of the
continued attractiveness of the U.S. market to foreign
investors, including investors based in the UAE. The UAE is
strengthening its investment ties with the United States in a
manner that advances American interests and is entirely
consistent with the preservation of national security.
Q.5. Would you describe what is going to happen in the upcoming
review of the deal and what are you going to look at to decide
if it should go forward?
A.5. Upon receiving the parties' second notice on March 3,
2006, CFIUS focused on clarifying DPW's commitment to operate
its U.S. businesses independently. CFIUS also asked the
intelligence community for an updated threat assessment to keep
its understanding of the transaction current. The Intelligence
Community--via the National Intelligence Council of the
Director of National Intelligence--completed this threat
assessment and delivered it to CFIUS members on April 5.
That focus changed when DPW indicated that it no longer
intended to seek control of the U.S. businesses. On behalf of
CFIUS, Treasury engaged in discussions with DPW with respect to
the company's proposed sale of its U.S. operations. On March 9,
DPW announced that it would ``transfer fully the U.S.
operations of P&O Ports North America, Inc. to a United States
entity.'' On March 15, DPW issued a second press release
indicating that its U.S. operations would be operated
independently until they could be sold to an American company.
The company explained that ``an expedited sale process is under
way and with the cooperation of the port authorities and joint
venture partners, it is expected that a sale can be agreed
within 4 to 6 months.''
On March 31, Assistant Secretary Lowery sent a letter to
DPW indicating that CFIUS had rejected the company's filing of
March 3 based on a material change--the company's decision to
sell its U.S. operations. The letter notes that CFIUS will
continue to monitor developments relating to the sale closely.
The President retains the power to take action to safeguard
national security with respect to this transaction, and CFIUS
retains the authority to initiate a review in the event that
circumstances suggest any material change in DPW's intentions
announced on March 15.
RESPONSE TO WRITTEN QUESTIONS OF SENATOR BAYH
FROM ROBERT M. KIMMITT
Q.1. Was any consideration given to the country in which the
acquiring entity is located? Should the law be amended to
require such consideration?
A.1. CFIUS always considers the country in which an acquiring
entity is located as part of its broad and comprehensive
security review, and gives extra scrutiny to transactions
involving foreign governments. CFIUS agencies are guided by the
criteria in the Exon-Florio Amendment and, when deciding
whether to open a 45-day investigation, consider whether the
transaction could affect national security.
In establishing whether an acquisition or merger by a
foreign entity may affect national security, CFIUS examines
relevant intelligence reporting about the foreign entity and
any reports of the foreign entity's violating U.S. laws and
regulations, such as not complying with U.S. export control
laws.
CFIUS agencies examine a broad range of national security
considerations when evaluating any acquisition. CFIUS has
implemented the Exon-Florio Amendment in a manner to protect
the national security as prescribed in the statute while
staying consistent with the U.S. open investment policy.
CFIUS's implementation of Exon-Florio has increased the
awareness of investors to national security issues, brought
transactions into conformity with existing laws where needed,
and resulted in investors abandoning transactions that raised
insurmountable national security problems. We do not believe
that the law needs to be amended to require consideration of
the country of the foreign acquirer since CFIUS already takes
that into consideration as part of its analysis.
Q.2. Was there any consideration and/or investigation into the
UAE's links to terrorist groups? Should there have been?
A.2. Close consideration was given to the UAB's position on
terrorism. The UAB has addressed terrorist financing issues
since September 11, and has worked with the United States to
shut down terrorist financing networks. The UAE has
strengthened its banking laws and regulations to prevent the
misuse of its financial institutions by money launderers and
terrorist financiers. The UAE has taken steps to curb and block
financial flows to terrorists. We continue to encourage the UAE
Government to take further steps to strengthen its financial
defenses and to vigorously enforce its existing laws and
regulations against money laundering and terrorist financing.
In its thorough review of the proposed DPW transaction,
CFIUS did not uncover any evidence that any DPW executive has
contributed funds to terrorist organizations. CFIUS carefully
considered the possibility that the proposed transaction could
contribute to a heightened risk of terrorism. In connection
with the March 3 filing, CFIUS also requested and received a
fully coordinated threat assessment produced by the National
Intelligence Council, which incorporated judgments based on
terrorist-related name traces of senior DP World personnel
conducted by the intelligence and law enforcement communities,
and CFIUS agencies with counterterrorism responsibilities
thoroughly analyzed the available information. This thorough
interagency process did not produce any credible evidence of
any terrorism-related activity by DPW or its management team.
Q.3. What consideration was given to the nature of the asset?
Specifically, was there a closer examination because the
acquisition involved critical infrastructure? Should the law be
amended to require such consideration?
A.3. In reviewing transactions under Exon-Florio, CFIUS members
consider the nature of the assets being acquired, the parties
involved in their operation, and whether such assets represent
critical infrastructure for the United States. With respect to
the DPW transaction, CFIUS member agencies carefully considered
the fact that P&O North America carries out operations at ports
across the Eastern and Gulf Coasts. As always, the Committee
looked at both threats and vulnerabilities to the United States
when assessing the implications of the DPW acquisition. In
fact, the Department of Homeland Security signed an assurances
letter with DPW with respect to law enforcement, public safety,
and national security that it does not have from other terminal
operators.
Q.4. Was there any thought to notifying Congress in advance of
this pending transaction? Should the law require that
Congressional notification be made?
A.4. CFIUS does not notify Congress before a review and
investigation is complete, in part to avoid the disclosure of
proprietary information that could undermine the
confidentiality of a transaction or be used for competitive
purposes and in part to protect the executive branch's
deliberative processes. However, I support enhancing the
transparency of the CFIUS process through more effective
communication with Congress. I would be pleased to meet with
you and other Members of the Senate Banking Committee to inform
you of recent improvements in the CFIUS process. To keep
Congress informed adequately and regularly about the CFIUS
process, I have also offered that Treasury, on behalf of CFIUS,
orally brief the Senate Banking and House Financial Services
Committees generally every quarter on completed reviews. When
appropriate, CFIUS may suggest that its oversight committees
invite other potentially interested members and committees with
jurisdiction over areas affected by decisions under Exon-Florio
to attend these briefings. I am also open to other suggestions
on ways to improve the transparency of the process in order to
help Congress meet its oversight responsibilities.
Q.5. Does the Director of National Intelligence (DNI) sit on
CFIUS? Should the DNI sit on CFIUS?
A.5. The Director of National Intelligence (DNI) now
participates in the CFIUS process by providing intelligence
support and participating in CFIUS meetings. The DNI does not
vote on CFIUS matters, because the role of the DNI is to
provide intelligence support and not to issue policy judgments
based upon that intelligence. However, the DNI examines every
transaction and provides CFIUS with broad and comprehensive
intelligence assessments.
Q.6. Has any consideration been given to convening declassified
public hearings? Should the law be amended to allow some public
participation?
A.6. Since implementation of the Exon-Florio provision involves
national security as well as the disclosure of proprietary
information, there is a limit on the extent to which the
process can be public. Exon-Florio prohibits disclosure to the
public of information and materials submitted to CFIUS. This
provision helps to encourage companies to file with CFIUS
without fear that proprietary information will be disclosed to
the public. In addition, sometimes the impetus for an
investigation is information contained in a classified report.
In such cases, it may not be possible to reveal the reasons for
an investigation without compromising classified information.
Similar considerations may pertain to the reasons for the final
determination by the President. In addition, detailed
unclassified reports could provide a road map for foreign
acquiring companies to circumvent national security reviews
under Exon-Florio.
Amending the law to require public participation would
jeopardize the sensitive information discussed in CFIUS, much
of which is either classified or treated as business
confidential for legitimate business reasons. Companies would
be reluctant to notify CFIUS and may even decide not to invest
in the United States if they feared that proprietary
information may be made public. The Committee believes that the
decision rests with the companies to determine the most
appropriate way to keep the public informed without divulging
sensitive business information.
RESPONSE TO WRITTEN QUESTIONS OF SENATOR CARPER
FROM ROBERT M. KIMMITT
Q.1. Dubai Ports World filed with CFIUS for a review of their
acquisition and the Committee approved it in January. According
to the Exon-Florio law, Dubai Ports should not have any fear of
being directed to divest of the American P&O operations because
they have complied with the law and the acquisition was
cleared. If that is true, is Exon-Florio retriggered with all
its authorities by this voluntary filing? If an honest
investigation finds any problems, does the Administration have
any authority to disapprove the deal or even force Dubai Ports
to comply with additional security measures that they oppose?
A.1. With respect to DP World (DPW), the power of the President
to force divestment is no longer an issue. On March 9, DPW
announced that it would ``transfer fully the U.S. operations of
P&O Ports North America, Inc. to a United States entity,'' and
on March 15 DPW issued a second press release saying that its
U.S. operations would be operated independently until they
could be sold to an American company. DPW further asserted that
``an expedited sale process is under way and with the
cooperation of the port authorities and joint venture partners,
it is expected that a sale can be agreed within 4 to 6
months.''
On March 31, Treasury Assistant Secretary for International
Affairs, Clay Lowery, sent a letter to DPW indicating that
CFIUS had rejected the company's filing of March 3 based on a
material change--the company's decision to sell its U.S.
operations. The letter notes that CFIUS will continue to
monitor developments relating to the sale closely. The
President retains the power to take action to safeguard
national security with respect to this transaction, and CFIUS
retains the authority to initiate a review in the event that
circumstances suggest any material change in DPW's intentions
announced on March 15.
RESPONSE TO WRITTEN QUESTIONS OF SENATOR SANTORUM
FROM ROBERT M. KIMMITT
Q.1. What if security concerns arise after a transaction has
been approved? Is there accountability or are there enforcement
measures taken once a transaction is completed?
A.1. Once CFIUS has concluded action on a transaction that has
been notified under Exon-Florio, a review can be reopened in
limited circumstances. For example, under 31 CFR 800.601(e), if
the parties to the transaction omitted material information or
submitted false or misleading material information to CFIUS,
the Committee may reopen review, and the President has the
authority to take action. Additionally, individual CFIUS
agencies often sign assurance agreements with parties to the
transaction, and there are remedies built into those agreements
to address concerns that arise after the CFIUS review
concludes. In the case of DP World, DHS received assurances
from DP World with respect to law enforcement, public safety,
and national security that went beyond those received from
other terminal operators. In addition to action under Exon-
Florio, other legal authorities remain available to protect the
national security both before and after CFIUS action has been
completed. CFIUS actions did not affect authorities that the
Department of Homeland Security and others have over the
operation and security of U.S. ports.
Q.2. How will CFIUS make an extended review period of Dubai
Ports World useful?
A.2. Upon receiving the parties' second notice on March 3,
2006, CFIUS focused on clarifying DP World's (DPW) commitment
to operate its U.S. businesses independently. CFIUS also asked
the intelligence community for an updated threat assessment to
keep its understanding of the transaction current. The
Intelligence Community--via the National Intelligence Council
of the Director of National Intelligence--completed this threat
assessment and delivered it to CFIUS members on April 5.
That focus changed when DPW indicated that it no longer
intended to seek control of the U.S. businesses. On behalf of
CFIUS, Treasury engaged in discussions with DPW with respect to
the company's proposed sale of its U.S. operations. On March 9,
DPW announced that it would ``transfer fully the U.S.
operations of P&O Ports North America, Inc. to a United States
entity.'' On March 15, DPW issued a second press release
indicating that its U.S. operations would be operated
independently until they could be sold to an American company.
The company explained that ``an expedited sale process is under
way and with the cooperation of the port authorities and joint
venture partners, it is expected that a sale can be agreed
within 4 to 6 months.''
On March 31, Assistant Secretary Lowery sent a letter to
DPW indicating that CFIUS had rejected the company's filing of
March 3 based on a material change--the company's decision to
sell its U.S. operations. The letter notes that CFIUS will
continue to monitor developments relating to the sale closely.
The President retains the power to take action to safeguard
national security with respect to this transaction, and CFIUS
retains the authority to initiate a review in the event that
circumstances suggest any material change in DPW's intentions
announced on March 15.
Q.3. Despite the 1992 requirement for a report on foreign
acquisition strategies every 4 years, there has been only one
report--in 1994. Why have not these reports been forthcoming?
A.3. Exon-Florio requires the President, and such agencies as
the President shall designate, to complete and furnish to the
Congress a quadrennial report that:
Evaluates whether there is credible evidence of a
coordinated strategy by one or more countries or companies
to acquire U.S. companies involved in research,
development, or production of critical technologies for
which the United States is a leading producer; and
Evaluates whether there are industrial espionage
activities directed or directly assisted by foreign
governments against private U.S. companies aimed at
obtaining commercial secrets related to critical
technologies.
In 1993, the National Economic Council formed a working
group, chaired by Treasury, to coordinate the preparation of
the first report, which was submitted in 1994. A quadrennial
report pursuant to paragraph (a) above-relating to a foreign
country's or company's acquisition strategy--has not been
produced since 1994. The Administration plans to provide a
comprehensive report on that subject in 2006.
However, it is important to note that the information
required under paragraph (b) has been provided to Congress
through reports prepared by the Office of the National
Counterintelligence Executive (NCIX). The Intelligence
Authorization Act for fiscal year 1995 requires the President
to submit annually to Congress updated information on the
threat to U.S. industry from foreign economic collection and
industrial espionage. This report, coordinated by the NCIX,
draws on input from all the intelligence agencies. The Foreign
Economic Collection and Industrial Espionage reports from 1995-
2004 can be found at the following Internet address:
http://www.NCIX.gov/publications/reports_speeches/reports/
fecie_all/Index_fecie.html.
The most recent NCIX report was provided to Congress in
April 2005. Because the NCIX report addresses the issue of
foreign government-sponsored industrial espionage activities to
obtain U.S. critical technology secrets, the report effectively
addresses a key requirement of the quadrennial report
pertaining to economic espionage. Indeed, the NCIX report is
actually more comprehensive in scope than what the quadrennial
report requires in that it seeks to characterize and assess
efforts by foreign entities--government and private--to
unlawfully target or acquire critical U.S. technologies, trade
secrets, and sensitive financial or proprietary economic
information.
Although the NCIX report already provides information
relating to the espionage portion of the mandate, we are
working toward producing a report related to foreign
acquisitions in 2006. While we work to complete this report,
regular Congressional briefings will provide Congress with
additional information on CFIUS matters.
Q.4. The October 2005 GAO report states that CFIUS generally
grants requests to withdraw. What are some examples of requests
to withdraw that were not granted and why were they not
granted?
A.4. The Exon-Florio regulations state that CFIUS will
``generally'' grant the parties' request to withdraw their
notice. To date, CFIUS has granted all requests to withdraw. In
some cases, foreign entities cease to pursue the proposed
acquisition, obviating the need for CFIUS review. In other
cases, companies withdraw to allow more time to negotiate an
effective means to mitigate national security concerns. Once
these negotiations are concluded, the companies are requested
to refile to commence another 30-day review in order for CFIUS
to conclude action.
RESPONSE TO A WRITTEN QUESTION OF SENATOR SHELBY
FROM ERIC EDELMAN
Q.1. Could you provide some assurance, however, that the
Department of Defense role in reviewing this transaction looked
at the ugly as well as the good? In other words, I hope that
the focus on the government-to-government relationship was not
given priority over focused consideration of the national
security implications of this proposed deal, including
consideration of the potential risk to a critical
infrastructure and of exploitation of ports by terrorists. Can
you comment on this?
A.1. The Department of Defense looked at the deal with regard
to both the potential threat to defense assets and the overall
relationship with the United Arab Emirates (UAE). The
Department of Defense did not agree to approve the deal as a
``trade'' in exchange for our existing military relationships
with the UAE. The review conducted by the Department of Defense
was in-depth and comprehensive. This transaction was staffed
and reviewed within the Department of Defense by 17 of our
agencies or major organizations which examined the filing for
impact on U.S. national security interests, critical
technologies, the presence of any classified operations
existing with the company being purchased, and any other
concerns this transaction posed. Given the issues related to
port security in this case, we took the added measure of
including U.S. Transportation Command among the reviewing
agencies and organizations. In summary, the Department of
Defense conducted a very comprehensive and in-depth review of
this transaction, and no issues were raised by any of the
reviewing agencies or organizations within the Department of
Defense.
RESPONSE TO WRITTEN QUESTIONS OF SENATOR BUNNING
FROM ERIC EDELMAN
Q.1. The UAE has given us a lot of help in the war on terror,
especially military support. Are they making money on our use
of their ports and air facilities? If so do you think their
help is genuine or is it just good for business?
A.1 The United Arab Emirates' (UAE) help is genuine. The UAE
has been a strong and valuable strategic partner of the United
States since the first Gulf war in 1991. After the September 11
attacks, the UAE stepped up its level of support with port and
air base access, but more importantly, the UAE cracked down on
terror organizations that were using the UAE as a base for
operations. Operational successes in Operation Iraqi Freedom,
Operation Enduring Freedom, and Operation Horn of Africa have
been directly linked to UAE's support.
The Government of the UAE has been extremely generous in
their financial support of U.S. operations. Direct sharing in
costs of U.S. deployments amounted to $12.6 million. Indirect
sharing of costs estimated at approximately $532.2 million. The
UAE donated $100 million to the United States for Hurricane
Katrina relief. While the UAE charged $2.4 million port fees
and cargo handling in 2004 and 2005, they waived $8.03 million
in taxes and customs duties.
Q.2. What has the UAE done in the war on terror that points to
a genuine desire on the part of the state to stop Muslim
extremists, rather than just making nice with the United
States?
A.2. The United Arab Emirates (UAE) is an outstanding example
of the kind of partner critical to winning this long war,
standing side-by-side with the United States. The access the
UAE provides to U.S. forces is not without risks to the
Emirates and makes their country a target for terrorists. The
UAE has assisted us in Iraq and Afghanistan, and provided
critical intelligence invaluable to our efforts in the war on
terrorism. As far as specifics, the UAE arrested and detained
several al Qaeda members including the mastermind of the U.S.S.
Cole attack, Abd ai-Rahim Husayn Muhammad al-Nashri in November
2002.
Q.3. What progress has the UAE made in rooting out terrorists
and terrorist networks in their own country?
A.3. The United Arab Emirates (UAE) has worked closely with the
United States to suppress terrorist financing and money
laundering, including by freezing accounts, enacting and
aggressively enforcing its anti-money laundering regulations,
exchanging information, and conducting investigations. Dubai
was the first Middle Eastern entity to join the Container
Security Initiative, a multinational program to protect global
trade from terrorism. Dubai was also the first Middle Eastern
entity to join the Department of Energy's Megaports Initiative,
a program aimed as stopping illicit shipments of nuclear and
other radioactive material.
Q.4.: Is there any evidence of terrorist influence in the
governments in the UAE?
A.4.: The United Arab Emirates (UAE) is a moderate Arab state
and a longtime supporter of all aspects of Middle East peace
efforts. The United States and the UAE also work together to
create a stable economic, political, and security environment
in the Middle East. Since September 11, the UAE has cracked
down on terror organizations that were using the UAE as a base
for operations. The UAE has worked closely with the United
States to suppress terrorist activities to include: Financing
and port security.
Q.5. What kind of response did the governments in the UAE take
to the recent cartoon controversy and how did the citizens
there react?
A.5. The United Arab Emirates (UAE) Minister of Justice,
Islamic Affairs, Awqaf Mohammad Nakhir al-Daheri, condemned the
publication of the cartoons and stated the incident could spark
``a dreadful clash of civilizations.'' The civilian reaction
was mild. The reaction was limited to the publication of
several articles by UAE newspapers and a small, peaceful, and
orderly procession of less than 3,000 people on February 3,
2006.
Q.6. It has been reported that people close to the leadership
of the UAE were spotted with Osama bin Laden prior to September
11, and that an airstrike was stopped because of that, or
alternatively because he was alerted to the potential action by
someone in the UAE. Are those reports true, and are there any
signs that such high-level contacts with terrorists continued
past September 11?
A.6. The September 11 Commission Report, recounts that there
was concern ``about the danger that a strike would kill an
Emirati prince or other senior officials who might be with Bin
Laden.''; however, then-National Security Council Coordinator
for Counter-Terrorism, Richard Clarke, noted that ``the strike
was called off after consultations with (CIA) Director Tenet
because intelligence was dubious, and it seemed to Clarke as if
the CIA was presenting an option to attack America's best
counter-terrorism ally in the Gulf [UAE].'' On the matter of
continuing high-level contacts continuing past September 11,
the Department of Defense defers this question to the U.S.
Intelligence Community.
RESPONSE TO WRITTEN QUESTIONS OF SENATOR BAYH
FROM ERIC EDELMAN
Q.1. Was any consideration given to the country in which the
acquiring entity is located? Should the law be amended to
require such consideration?
A.1. The Department of Defense considered the country, the
United Arab Emirates (UAE), in which the acquiring entity is
located as part of its review of the case. While our
relationship with the UAE is very important to the Global War
on Terrorism, we take our responsibilities as a member of the
Committee on Foreign Investment in the United States (CFIUS)
process seriously. The UAE is an outstanding example of the
kind of partner critical to winning this long war, standing
side-by-side with us. For the Department of Defense,
consideration was given to the critical infrastructure of this
case, as some of those port facilities also have U.S. military
operations. The Department of Defense analyzed the Dubai Ports
World case thoroughly and determined that it posed no risk to
national security, including the shipment of military cargo. If
the Department of Defense or any other agency identified
threats to national security that could not be resolved
adequately during the 30-day review period, the Department of
Defense would have asked for an investigation of the
transaction. In this case, the Department of Defense did not
have concerns with the foreign government involved, the
acquiring company, or the nature and structure of the actual
business operations. The six U.S. ports would have remained
under the ownership and control of U.S. State and local
authorities, not Dubai Ports World. The Department of Defense
defers the question of whether the law should be amended to
require such consideration to the Department of the Treasury,
the Chairman of the Committee on Foreign Investment in the
United States (CFIUS).
Q.2. Was there any consideration and/or investigation into the
UAE's links to terrorist groups? Should the law be amended to
require such consideration?
A.2. The U.S. Intelligence Community completes a comprehensive
threat assessment of each case reviewed by the Committee on
Foreign Investment in the United States (CFIUS). This threat
assessment focuses on the threat to U.S. national security by
the foreign acquiring company. This assessment examines this
threat based on a variety of factors to achieve a fully
integrated intelligence product for CFIUS.
Q.3. What consideration was given to the nature of the asset?
Specifically, was there a closer examination because the
acquisition involved critical infrastructure? Should the law be
amended to require such consideration?
A.3. For the Department of Defense, consideration was given to
critical infrastructure because some of the port facilities
also handle U.S. military operations. The Department of Defense
analyzed the Dubai Ports World case thoroughly and determined
that it posed no risk to national security, including the
shipment of military cargo. The U.S. Transportation Command
(USTRANSCOM) is the Department of Defense's designated single
port manager for military cargo. Port operations are overseen
by military and career government civilians. Other ports
utilized for military cargo have no connection with Peninsular
& Oriental Navigation Company. The Department of Defense defers
the question of whether the law should be amended to require
such consideration to the Department of The Treasury, the
Chairman of the Committee on Foreign Investment in the United
States (CFIUS).
Q.4. Was there any thought to notifying Congress in advance of
this pending transaction? Should the law require that
Congressional notification be made?
A.4. As a member of the Committee on Foreign Investment in the
United States (CFIUS), the Department of Defense is working
with the Department of the Treasury, the chairman of CFIUS as
well as other CFIUS agencies to provide better transparency to
Congress regarding CFIUS actions. The CFIUS process is also
structured to protect proprietary knowledge and information,
and confidence in the confidentiality of the process must be
maintained. The interagency review is looking at ways to
balance the need to keep Congress informed with the need to
protect confidentiality and proprietary knowledge.
Q.5. Does the Director of National Intelligence (DNI) sit on
CFIUS? Should the DNI sit on CFIUS?
A.5. The Director of National Intelligence (DNI) participates
in the Committee on Foreign Investment in the United States
(CFIUS) by providing CFIUS with a fully, integrated U.S.
Intelligence Community threat assessment of the foreign
acquiring company for all CFIUS cases.
Q.6. Has any consideration been given to convening declassified
public hearings? Should the law be amended to allow some public
participation?
A.6. As part of the overall improvements to the Committee on
Foreign Investments in the United States (CFIUS) process, all
CFIUS agencies are considering ways to ensure public views are
taken into consideration while balancing the need for
confidentiality of the CFIUS process.
RESPONSE TO WRITTEN QUESTIONS OF SENATOR SHELBY
FROM STEWART BAKER
Q.1.a. One of the major concerns the Committee has with regard
to implementation of Exon-Florio involves mitigation
agreements, in which companies accept certain conditions in
exchange for regulatory consent to the transaction in question.
Could the panel inform the Committee as to the measures taken
to monitor and enforce mitigation and national security
agreements?
A.1.a. DHS monitors and ensures compliance with respect to
those agreements to which DHS is a party. It does so by
tracking the reports, audits, and other products owed to DHS
pursuant to each agreement, reviewing these products, and
contacting the parties when there are questions or concerns.
Q.1.b. How is it determined which member agency within the
Committee on Foreign Investment negotiates, monitors, and
enforces such agreements?
A.1.b. DHS decides, in consultation with CFIUS, when to engage
parties in negotiating mitigation agreements, and DHS then
monitors and ensures compliance with respect to each agreement
to which it is a party. Other CFIUS agencies similarly
negotiate and monitor compliance with agreements to which they
choose to become parties.
Q.1.c. Have there been instances in which foreign governments
or businesses have placed obstacles in the way of that process?
A.1.c. The negotiation of mitigation agreements, like
negotiations of other agreements, is a process of give and
take. If DHS believed that a party were unwilling to provide
assurances that DHS deemed necessary to protect national
security, then DHS would not assent to the transaction.
Q.2.a. Could the panel explain for the Committee the precise
routine role of the intelligence community in the review
process?
A.2.a. This question is better addressed to the DNI or to the
Treasury Department as Chair of the CFIUS. DHS values the role
of the intelligence community in providing facts that may bear
on the risk presented by the transactions subject to CFIUS
review.
Q.2.b. Assistant Secretary Baker, within this context, how
should intelligence from within your department be handled
relative to how it apparently was handled in the case of the
now-infamous Coast Guard Intelligence Coordination Center
document?
A.2.b. There may be some misunderstanding about the nature of
the Coast Guard document. While that document raised a concern
about incomplete information, that concern was preliminary in
nature and was resolved in the course of the CFIUS review as
more information was acquired. Further, DHS has formalized and
improved the process by which its various components review and
provide input on CFIUS transactions.
Q.2.c. Was the document in question reviewed by anyone involved
in the Dubai review process prior to that process being closed?
A.2.c. Yes. As noted above, that document expressed some
preliminary concerns that were resolved in the course of the
CFIUS review.
Q.3. I would like to hear from each of the witnesses regarding
their views on the wisdom of implementing a system for
approaching reviews of state-owned entities from a risk-based
perspective. The port management company that is being bought
by Dubai is British-owned. I recall no expressions of concern
when P&O came into the picture, certainly nothing like has
occurred with respect to Dubai Ports World. Does it make sense
to treat some countries as presenting an inherently greater
risk than others, so that legislative changes to Exon-Florio do
not necessarily treat a close NATO ally in the same manner as a
country from the Middle East? I am picturing in my mind the
system of tiering countries according to risk used in
regulating the export of high performance computers.
A.3. CFIUS always considers the country in which an acquiring
entity is located as part of its broad and comprehensive
security review, and gives extra scrutiny to transactions
involving foreign governments. CFIUS agencies are guided by the
criteria in the Exon-Florio Amendment and, when deciding
whether to open a 45-day investigation, consider whether the
transaction could affect national security.
In establishing whether an acquisition or merger by a
foreign entity may affect national security, CFIUS examines
relevant intelligence reporting about the foreign entity and
any reports of the foreign entity's violating U.S. laws and
regulations, such as not complying with U.S. export control
laws.
CFIUS agencies examine a broad range of national security
considerations when evaluating any acquisition. CFIUS has
implemented the Exon-Florio Amendment in a manner to protect
the national security as prescribed in the statute while
staying consistent with the U.S. open investment policy.
CFIUS's implementation of Exon-Florio has increased the
awareness of investors to national security issues, brought
transactions into conformity with existing laws where needed,
and resulted in investors abandoning transactions that raised
insurmountable national security problems. We do not believe
that the law needs to be amended to require consideration of
the country of the foreign acquirer since CFIUS already takes
that into consideration as part of its analysis.
Q.4. Secretary Kimmitt, you have been testifying and briefing
almost nonstop on the issues of the Dubai Ports transaction and
the Committee on Foreign Investments. Given that fact, can
offer the Banking Committee some explanation why we did not
receive your prepared statement until 10:30 the night before
the hearing? Certainly your statement for this hearing can not
differ that markedly from what you have already spoken on this
week. Secretary Baker, you have similarly been testifying and
briefing all over Capitol Hill, yet your statement did not
arrive until 8:30 A.M. Any comment?
A.4. I apologize for any delay.
RESPONSE TO WRITTEN QUESTIONS OF SENATOR BUNNING
FROM STEWART BAKER
Q.1. What kind of security information will Dubai Ports World
gain access to as a result of this deal that they would not
otherwise get?
A.1. DPW has stated that it intends to sell P&O's U.S.
operations in the next 4 to 6 months and that, until the sale
occurs, P&O's U.S. operations will be operated entirely
independently of DPW. Even before deciding to sell P&O, DPW had
committed to maintaining P&O's current security personnel.
In any event, terminal operators neither provide, nor
oversee, security for a port complex. Security for an entire
port complex is the responsibility of the government and the
local port authority. Because terminal operators are not
afforded access to this information, they can not develop an
understanding into the breadth and depth of security measures
that DHS employs to protect our ports and the cargo that enters
those ports. Terminal operators do not have access to security
information related to arriving cargo or vessels; rather, a
terminal operator only has access to its facility security
plan, which it developed and provided to the Coast Guard under
MTSA.
Terminal operators ordinarily sign a long-term lease for
waterfront property in the port. They build a pier for ships,
cranes to unload the ship, a parking lot to store the
containers they unload, and perhaps a small management office;
the terminal operator generates profits from lifting containers
out of ships and holding them for shippers. The first time a
terminal operator at a U.S. facility sees any of the law
enforcement and security measures that DHS has in place
concerning the vessel and cargo is when the ship arrives in the
United States. Even then, all the terminal operator knows is
that CBP has selected certain containers for examination.
Operators are simply instructed to unload the containers, under
DHS supervision, and deliver them to CBP for inspection. They
are not told why.
Q.2. What exactly will the company be doing at the ports and
what role do port operators play in security?
A.2. DPW has stated that it intends to sell P&O's U.S.
operations in the next 4 to 6 months and that, until the sale
occurs, P&O's U.S. operations will be operated entirely
independently of DPW.
Terminal operating companies provide a number of services
to their steamship company clients, which can include the
actual stevedoring of vessels; storing of cargo containers
awaiting delivery; performing repairs to cargo containers or
chassis; delivering cargo containers to consignees; providing
direct invoicing to clients on behalf of the steamship company;
as well as numerous additional ancillary services. Services
provided are outlined in the individual contracts signed
between the terminal operator and the steamship company
customer.
Regarding security, a terminal operator must first and
foremost adhere to its Coast Guard approved Facility Security
Plan (FSP), as required under the Maritime Transportation
Security Act of 2002. Beyond adhering to the FSP, a terminal
operator's security role often depends on the lease agreement
signed with the municipal port authority. Some port authorities
operate strictly as ``turn key'' landlords, meaning that they
provide the acreage to the terminal operator but no other
services or equipment. In other ports, the port authority may
include not just the leased acreage but some additional value-
added services like security guards and port authority provided
container cranes to work the vessels of the terminal operator's
client.
Q.3. How many and what kind of personnel is the company likely
to replace at the ports, and will DHS be able to veto any
employees you are concerned about?
A.3. DPW has stated that it intends to sell P&O's U.S.
operations in the next 4 to 6 months and that, until the sale
occurs, P&O's U.S. operations will be operated entirely
independently of DPW. Even before deciding to sell P&O, DPW had
committed to maintaining P&O's current security personnel.
Should any company wish to change or add maritime facility
personnel in the future, those persons will be subject to the
vetting process associated with the Transportation Worker's
Identification Credential. That credential will be issued by
the Transportation Security Administration to all
transportation workers and the employees of all companies
engaged in transportation will have to undergo the background
check required as part of the application process. Thus, while
DHS may not exercise any ``veto'' authority over new employees,
there is a robust system being developed that will identify and
prohibit certain persons of concern from gaining unescorted
access to regulated maritime facilities.
Q.4. What is the status of screening the backgrounds dock
workers for criminal records or terrorist ties?
A.4. The Department of Homeland Security has completed vetting
against terrorist watch-list and immigration databases for
employees of P&O Ports North America, Inc., who work at ports
in the United States. P&O Ports was fully responsive to the
Department's request for information, and at this time there
have been no problems identified.
Q.5. It has been reported that you were the only panel member
to raise objections to this transaction. What were your
concerns, and what was done to address them? And did you want
more changes that were not made?
A.5. As a lead agency in the DP World case, DHS thought it
prudent to obtain certain written assurances from DPW,
including: (i) that DPW would participate in certain port
security programs that are voluntary for other companies but
would become mandatory for DPW because of its written
assurances; and (ii) that DPW would provide, upon request, any
records maintained regarding DPW's operations in the United
States.
Q.6. Did anyone object to your concerns or your efforts to
address them?
A.6. No.
Q.7. Is it more important to have steps in place to screen
cargo before it is loaded on ships at foreign ports or after it
arrives in the United States?
A.7. CBP utilizes a multilayered cargo enforcement strategy
which includes: The analysis of advanced information, as
required by the Trade Act of 2002 and CBP's 24 Hour Rule;
programs intended to ``push the borders out,'' such as the
Container Security Initiative (CSI) and the Customs-Trade
Partnership Against Terrorism (C-TPAT); and the use of high
tech nonintrusive inspection equipment and radiation detection
portals. CBP developed and implemented the 24 Hour Rule and CSI
to assess the risk of each container before it is laden onto
the vessel destined for the United States. Under these
programs, all containerized sea cargo is screened using with
CBP's automated Advanced Targeting System prior to loading.
Decisions to physically examine or physically screen each
container for the presence of radiation prior to loading onto
the vessel are determined by balancing the likely security risk
against need to facilitate the movement of trade; where CBP
officers identify cargo that poses sufficient risk, a ``do not
load'' order can be given.
RESPONSE TO WRITTEN QUESTIONS OF SENATOR BAYH
FROM STEWART BAKER
Q.1. Was any consideration given to the country in which the
acquiring entity is located? Should the law be amended to
require such consideration?
A.1. The Department of the Treasury previously submitted a
response to this request. DHS defers to Treasury on this
question.
Q.2. Was there any consideration and/or investigation into the
UAE's links to terrorist groups? Should there have been?
A.2. The Department of the Treasury previously submitted a
response to this request. DHS defers to Treasury on this
question.
Q.3. What consideration was given to the nature of the asset?
Specifically, was there a closer examination because the
acquisition involved critical infrastructure? Should the law be
amended to require such consideration?
A.3. DHS decided that it would be prudent to obtain certain
security assurances from DPW, and this prudential decision was
partly a function of the nature of the asset. DHS does not
favor changing the flexible manner in which the law currently
allows consideration of national security and homeland security
factors.
Q.4. Was there any thought to notifying Congress in advance of
this pending transaction? Should the law require that
Congressional notification be made?
A.4. CFIUS's longstanding practice has been that pending cases
are confidential within CFIUS. While DHS believes that Congress
does and should play an important oversight role with respect
to the CFIUS process, and while DHS has no objection to
Congressional notification regarding closed cases, DHS does not
believe that the law should require Congressional notification
of pending cases.
Q.5. Does the Director of National Intelligence (DNI) sit on
CFIUS? Should the DNI sit on CFIUS?
A.5. The Department of the Treasury previously submitted a
response to this request. DHS defers to Treasury on this
question.
Q.6. Has any consideration been given to convening declassified
public hearings? Should the law be amended to allow some public
participation?
A.6. The Department of the Treasury previously submitted a
response to this request. DHS defers to Treasury on this
question.
RESPONSE TO WRITTEN QUESTIONS OF SENATOR CARPER
FROM STEWART BAKER
Q.1. This morning, I went to the Port of Wilmington to discuss
security issues as well as the Dubai Ports World acquisition. A
company that operates at the Port of Wilmington-Delaware River
Stevedores--is a joint venture between P&O and Stevedoring
Services of America, a company out of Seattle.
The representative from Delaware River Stevedores mentioned
that their personnel working at the ports will not change due
to this acquisition because they have a contract with the
longshoremen that does not expire until 2010. I assume P&O
operations at other ports have similar arrangements.
But once those contracts expire, what options will Dubai
Ports World have with regard to who they employ at U.S. ports?
Will Dubai Ports be required to continue to contract with the
longshoremen? Or continue to employ American workers?
A.1. DPW has stated that it intends to sell P&O's U.S.
operations in the next 4 to 6 months and that, until the sale
occurs, P&O's U.S. operations will be operated entirely
independently of DPW. Even before deciding to sell P&O, DPW had
committed to maintaining P&O's current security personnel.
The provisions of the International Longshoremen's
Association (ILA) contract apply to any signatory to the
agreement. As long as a company is a member of any association
that has signed the contract, it is bound by the requirement to
use unionized longshore labor in their operations and pay
certain hourly wages. To illustrate, Delaware River Stevedores
is a member of the Ports of the Delaware River Trade
Association which, in turn, belongs to the United States
Maritime Alliance, the signatory to the ILA contract on behalf
of East Coast and Gulf maritime employers. As long as that
relationship is maintained, the company is committed to
utilizing members of the ILA. If, however, a company would
choose to discontinue its membership in these organizations, it
could attempt to establish nonunion operations. This, however,
is difficult because there is a very limited supply of labor
with the skills necessary to work in a terminal/stevedoring
operation and they are, almost exclusively, unionized
longshoremen. The possibility of operating a nonunion facility
with any employees able to pass the background check for the
Transportation Worker Identification Credential, though, does
exist. However, U.S. immigration laws would not permit a
company to replace U.S. longshoremen with foreign workers.
Q.2. The Delaware River Stevedores representative also said
they are willing to submit their employees to background
checks. Is this something the Department of Homeland Security
has considered requiring?
A.2. The Port of Wilmington, where the Delaware River
Stevedores have been providing stevedoring and terminal
services since 1987, has been the site of a prototype test
conducted by the Department of Homeland Security of an
identification card system for screening port workers that will
deny individuals with criminal or terrorist backgrounds or
immigration issues from accessing sensitive areas at our ports.
The Transportation Worker Identification Credential (TWIC)
is a top departmental priority, and Secretary Chertoff has
directed DHS components to move forward with the program as
quickly as possible. Under the TWIC program, all port workers
requiring unescorted access to the secure areas of facilities
regulated by the Maritime Transportation Security Act of 2002
(P.L. 107-295) will be subject to background checks before they
are issued a credential. TSA recently published a ``request for
qualifications'' seeking firms who are appropriately
experienced and interested to help deploy certain components of
the TWIC program. This is the first step toward operational
deployment of the TWIC program for unescorted access to all
U.S. ports. This deployment includes accelerated and parallel
rulemaking work by both TSA and Coast Guard, which will enable
implementation to begin and fees to be collected for the
services provided.
Q.3. The Port of Wilmington has been the site of a test
conducted by the Department of Homeland Security of an
identification card system for screening port workers and
blocking individuals with criminal or terrorist backgrounds
from accessing sensitive areas at our ports. The program--known
as the Transportation Worker Identification Credential (TWIC)--
has been underway at the port and at three other locations for
more than 4 years, has been successful. However, the Department
of Homeland Security is ending the test, even though a national
screening and identification system is more than a year away.
Why has the Department decided to remove the TWIC program from
the ports where it is working? Shouldn't we speed the
implementation of the national program rather than discontinue
the program at the ports where it is already working?
A.3. The Transportation Security Administration (TSA) greatly
appreciates the willingness of Port of Wilmington officials and
their workers to partner with TSA in testing the prototype TWIC
at their facility. The knowledge gained in issuing cards to
over 1,500 Port of Wilmington workers over the past year will
speed full implementation of the TWIC program.
The prototype program ended in June 2005. It was not
intended to be a permanent bridge to implementation of the
program. The Port of Wilmington is the last of the prototype
facilities still using the prototype Transportation Worker
Identification Credential (TWIC) for its identity and access
control credential. TSA has assisted the Port of Wilmington and
other sites in the Philadelphia area to transition to a self-
sustaining credentialing process. All the other TWIC prototype
facilities have already returned to their self-sustaining
identity management processes.
The Transportation Worker Identification Credential (TWIC)
is a top Departmental priority, and Secretary Chertoff has
directed DHS components to move forward with the program as
quickly as possible. TSA recently published a ``request for
qualifications'' seeking firms who are appropriately
experienced and interested to help deploy certain components of
the TWIC program. This is the first step toward operational
deployment of the TWIC program for unescorted access to all
U.S. ports. This deployment includes accelerated and parallel
rulemaking work by both TSA and Coast Guard, which will enable
implementation to begin and fees to be collected for the
services provided.
RESPONSE TO WRITTEN QUESTIONS OF SENATOR SANTORUM
FROM STEWART BAKER
Q.1. Where is the remaining 20 percent of inbound cargo not
participating in the Container Security Initiative originating
and what measures are taken beyond reviewing the manifests to
reduce risks posed by that cargo?
A.1.
Origin of Cargo not Participating in CSI
CSI is currently operational in 44 ports. These ports,
which cover 75 percent of maritime containerized cargo destined
to the United States, are located in Asia, the Middle East,
Africa, Europe, and North, South, and Central America.
Measures Taken to Reduce Cargo Risks
With over 700 seaports around the world lading cargo
containers destined to the United States, CSI was established
to cover seaports with the greatest volume of goods destined to
the United States and which are based in strategically critical
locations abroad. It was not, however, ever intended to cover
100 percent of all maritime containerized cargo. Instead, CSI
was developed to operate as a ``system of systems'' and is but
one component in Customs and Border Protection's (CBP) arsenal
of programs and activities that serve to significantly mitigate
the vulnerabilities of a post-September 11 environment. Other
programs established to keep U.S. borders secure include the
Twenty-Four Hour Rule, the National Targeting Center/Automated
Targeting System, MTSA, ISPS, C-TPAT, U.S. Coast Guard's
Ninety-Six Hour Notice of Arrival Rule, and the utilization of
NII/RPM's. CSI complements these other programs, which must be
taken as a ``whole'' and not as individual programs when
evaluating container security.
International cargo statistics justify this multifaceted
approach. Specifically, shipments laden on board vessels arrive
in the United States from over 700 foreign seaports. One
hundred foreign seaports accounted for approximately 96 percent
of the cargo. The remaining 600 seaports accounted for the last
4 percent. It is further anticipated that, when CSI reaches 58
to 60 ports, approximately 85 percent of cargo arriving from
foreign ports will be represented. CBP plans to address the
remaining 15 percent using other combinations of its layered
systems, including the Twenty-Four Hour Rule, NTC/ATS, Do-Not-
Load and NII/RPM at U.S. Ports of Entries, and, if necessary,
utilizing the World Customs Organization (WCO) Framework to
engage host governments' participation in the examination of
containers.
Q.2. How can we encourage the remaining 20 percent to
participate?
A.2. As discussed above, the sheer volume of cargo activity and
the number of foreign seaports that have containers laden on
board vessels destined to the United States necessitate CBP's
strategy of a layered, defense in-depth system to address the
risk in the most cost effective manner. This will not include
participation by every port in the world, but will focus on
strategic ports. CBP is currently in the process of working
with other countries to establish additional CSI ports and will
build off previous success with foreign hosts to encourage
participation.
RESPONSE TO WRITTEN QUESTIONS OF SENATOR BUNNING
FROM ROBERT JOSEPH
Q.1. The UAE has given us a lot of help in the war on terror,
especially military support. Are they making money off our use
of their ports and air facilities? If so, do you think their
help is genuine, or is it just good for business?
A.1. I would refer you to the Department of Defense for
information on whether the UAE receives income from the U.S.
military's use of Emirati ports and air facilities. However,
the use of those facilities has been immensely helpful to our
efforts in both Operation Enduring Freedom and Operation Iraqi
Freedom.
Q.2. What has the UAE done in the war on terror that points to
a genuine desire on the part of the state to stop Muslim
extremists, rather than just making nice with the United
States? What progress has the UAE made in rooting out
terrorists and terrorist networks in their own country?
A.2. The UAE has been an important ally in the war on terror.
Since September 11, the UAE leadership has strongly and
consistently condemned all acts of terrorism--in London,
Istanbul, Madrid, and elsewhere. The UAE passed an anti-money
laundering law in 2002 and a strengthened anti-terrorism law in
2004. It has signed all 12 U.N. Counterterrorism Conventions.
Since 2000, UAE banks have frozen $1.3 million of funds in
17 different accounts based on U.N. sanctions. The UAE's
Financial Intelligence Unit has been a member of the Egmont
Group since 2002. The UAE monitors registered charities and
their financial transfers abroad, and it has been a leader in
setting new standards for controlling the hawala, or informal
money exchange system. The UAE was a charter signatory to the
Middle East North Africa Financial Action Task Force
inaugurated in Bahrain in November 2004. The United States and
the UAE formed and held the first meeting of a Joint Terror
Finance Coordinating Committee in January 2006 to further
coordinate our efforts to combat this problem.
The UAE also has worked closely with us to disrupt
proliferation activities. It was the first state in the Middle
East to have one of its ports join the Container Security
Initiative; as part of this program, U.S. Customs personnel
based in Dubai are ensuring that U.S.-bound containers are free
of WMD. The UAE also is a member of the U.S. Megaports
Initiative, which seeks to stop the illicit movement of nuclear
and radiological materials. The UAE played an important role in
unraveling the activities of the A.Q. Khan network, which
stretched over three continents.
Q.3. Is there any evidence of contacts of UAE officials with
terrorists or terrorist groups? Is there any evidence of
terrorist influence in the governments in the UAE?
A.3. The UAE leadership, with its moderate outlook and close
ties to the United States, is a prospective target for--not an
ally of--terrorist groups. Far from sharing terrorists'
fanatical ideology, the UAE has a long history of religious
tolerance--Christian churches of several denominations, as well
as Hindu and Sikh places of worship, operate without
restriction in the country (other than the requirement not to
proselytize Muslims). Since September 11, UAE political and
religious leaders have strongly condemned acts of terrorism--in
London, Istanbul, Madrid, and elsewhere--and consistently
called for moderation and tolerance of ethnic differences in
the Middle East.
Although the UAE's open banking system has been exploited
by terrorists and their financiers (see the response to
Question 2 above on steps the UAE Government is taking to
prevent such exploitation), the UAE Government has no policy of
supporting terrorism, financially or otherwise. We have no
reason to believe that these fanatics influence the moderate
leaders of the UAE.
Prior to September 11, the UAE recognized the Taliban as
the Government of Afghanistan and maintained desert camps and
airstrips in that country for periodic hunting trips. The UAE
rejected frequent U.S. requests to end contact with the
Taliban, but it never in any way supported the ideology or
operational agenda of either the Taliban or al Qaeda. The
September 11 Commission Report (page 137 and following), cites
a report that, in February 1999, Usama bin Laden (UBL) visited
a location near a hunting camp in Afghanistan ``being used by
visitors . . . from the United Arab Emirates.'' The September
11 Commission Report also notes that a U.S. missile strike
against UBL was considered at that time, although there are
conflicting accounts of why no such strike occurred. One source
asserts that the presence of Emiratis was a factor, while a
senior White House official is quoted as stating no strike was
launched because ``the intelligence [regarding UBL's presence]
was dubious.''
According to media reports, al Qaeda in May/June 2002 sent
a threatening letter to the UAE Government, claiming to have
infiltrated the UAE Government and threatening a terrorist
attack in the UAE as a result of that country's pro-Western,
moderate stance. While the claim of infiltration remains
unsubstantiated--which is not surprising, as al Qaeda's
statements are typically designed to mislead and threaten,
rather than to inform--the al Qaeda threat to the UAE is clear
and credible.
Q.4. What kind of response did the governments in the UAE take
to the recent cartoon controversy and how did the citizens
there react?
A.4. A Jan. 29, 2006, statement by Minister of Justice and
Islamic Affairs Mohammed Nakhira Al Dhaheri to a group of
Islamic clerics summarizes the government's reaction to the
cartoon:
The UAE Minister of Justice and Islamic Affairs has
strongly condemned some Danish and Norwegian papers for
publishing cartoons blasphemous of Prophet Mohammed. Minister
Mohammed Al Dhaheri dismissed the cartoons . . . as
``disgusting and irresponsible.'' Noting a rising wave of anti-
Islam sentiments, the Minister said these sentiments serve only
to undermine the values of tolerance, peace, and coexistence,
``the very principles heralded by the divine religions and
adopted by international organizations.'' Al Dhaheri said . . .
the cartoons were ``cultural terrorism, not freedom of
expression.'' Labeling these acts as ``alarming religious
intolerance and discrimination,'' Al Dhaheri called for . . .
deterrent international legal measures against such desecrating
acts, because they are disgraceful to the entire humankind.
The cartoons were a subject of the UAE's Government-
directed Friday mosque sermons, which advocated respect for
religion and nonviolence. Most UAE supermarkets pulled Danish
products from their shelves in response to a boycott call from
consumers; those products are starting to reappear now.
Q.5. A report in the Jerusalem Post links the parent company of
Dubai Ports World to the Arab boycott of Israel. Can any of you
confirm or deny that, and if true was that considered in the
original review of the deal?
A.5. While this is not a security issue and is not related to
the CFIUS review, we understand that currently the UAE does
observe a ``primary'' boycott of Israeli goods, meaning that it
does not trade directly with Israel. However, the UAE does not
enforce secondary and tertiary aspects of this boycott--meaning
that the UAE does business with companies (including American
companies) that do business with Israel.
A Dubai Government-owned company, the Ports, Customs and
Free Zone Corporation, controls both Dubai Customs and Dubai
Ports World, but the two are wholly separate entities.
Dubai Ports World is a port terminal operator. It does not
perform customs functions, nor is it involved in boycott
enforcement. As a port operator, DPW conducts business with
Israeli shipping firms, including ZIM. This was confirmed by
ZIM's Chairman, Idan Ofer, in a recent letter sent to Senator
Clinton (D-NY).
We are currently negotiating a Free Trade Agreement with
the UAE and have made it clear that for the FTA to be concluded
and go into effect, the UAE cannot boycott Israel. In this
regard, a joint State/Commerce antiboycott compliance team
visited the UAE in February to assist UAE officials in
harmonizing their laws with U.S. antiboycott regulations. Under
Secretary of Commerce McCormick visited in March to discuss
trade issues, of which this is one. The UAE has expressed its
willingness to meet all U.S. legal requirements.
The FTA with the UAE will be a major step forward in
realizing the President's vision to establish the Middle East
Free Trade Area by 2013 in order to promote economic freedom
and development, the tearing down of barriers, and the
integration of Middle East economies into the global system.
Q.6. Can any of you describe what kind of censorship the
governments in the UAE conduct on information coming into the
country?
A.6. The UAE Government censors information that it considers
immoral and offensive, although the UAE remains one of the most
open societies in the region. It has an active, independent
press, and a free zone known as Media City that hosts the pan-
Arab satellite channel al-Arabiya and hundreds of other
journalists representing international and Western media. Many
American media outlets, such as CNBC and CNN, have regional
centers in Dubai.
Censors review all imported media and ban or censor before
distribution material considered pornographic, excessively
violent, derogatory to Islam, supportive of certain Israeli
Government positions, unduly critical of friendly countries, or
critical of the government or ruling families. Academic
materials destined for schools are routinely censored by the
Ministry of Education. Students are banned from reading texts
featuring sexuality or pictures of the human body.
The government-owned Internet provider, Etisalat, regularly
blocks internet sites determined to be ``objectionable.'' These
sites include information on the Baha'i faith, Judaism,
negative critiques of Islam, and testimonies of former Muslims
who have converted to Christianity. Etisalat also blocks
Internet addresses originating from Israel (using the ``.il''
address), any web address that includes the word ``lesbian;''
and numerous other sites declared to be ``inconsistent with the
religious, cultural, political, and moral values of the UAE.''
Q.7. Is foreign investment allowed in the UAE? In particular,
would an American company be allowed to manage port operations
in Dubai?
A.7. While the UAE wants to attract foreign investment,
investment laws and regulations are still evolving. At present,
the regulatory and legal framework favors local over foreign
investors in most sectors. We understand that the UAE may
impose foreign equity limitations on investment in ``supporting
services for maritime transport.'' However, United States and
other foreign terminal operators can and do invest in UAE
ports. All UAE ports and port operations are owned by the
governments of the seven individual emirates.
Two UAE ports are currently operated by foreign companies
that have contracts with local authorities: The Port of Khor
Fakkan in Sharjah, and the Port of Ras Al-Khaimah.
The United States actively encourages the opening of Middle
East markets to U.S. investment and is engaging in Free Trade
Agreement negotiations in the region, including with the UAE.
We are addressing the whole range of investment and services
issues in our FTA negotiations. The CFIUS process will apply to
foreign acquisitions regardless of whether or not they are
covered by the investment provisions of an FTA.