[House Hearing, 109 Congress]
[From the U.S. Government Publishing Office]
[H.A.S.C. No. 109-100]
NATIONAL SECURITY IMPLICATIONS OF THE DUBAI PORTS WORLD DEAL TO TAKE
OVER MANAGEMENT OF U.S. PORTS
__________
HEARING
BEFORE THE
COMMITTEE ON ARMED SERVICES
HOUSE OF REPRESENTATIVES
ONE HUNDRED NINTH CONGRESS
SECOND SESSION
__________
HEARING HELD
MARCH 2, 2006
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
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HOUSE COMMITTEE ON ARMED SERVICES
One Hundred Ninth Congress
DUNCAN HUNTER, California, Chairman
CURT WELDON, Pennsylvania IKE SKELTON, Missouri
JOEL HEFLEY, Colorado JOHN SPRATT, South Carolina
JIM SAXTON, New Jersey SOLOMON P. ORTIZ, Texas
JOHN M. McHUGH, New York LANE EVANS, Illinois
TERRY EVERETT, Alabama GENE TAYLOR, Mississippi
ROSCOE G. BARTLETT, Maryland NEIL ABERCROMBIE, Hawaii
HOWARD P. ``BUCK'' McKEON, MARTY MEEHAN, Massachusetts
California SILVESTRE REYES, Texas
MAC THORNBERRY, Texas VIC SNYDER, Arkansas
JOHN N. HOSTETTLER, Indiana ADAM SMITH, Washington
WALTER B. JONES, North Carolina LORETTA SANCHEZ, California
JIM RYUN, Kansas MIKE McINTYRE, North Carolina
JIM GIBBONS, Nevada ELLEN O. TAUSCHER, California
ROBIN HAYES, North Carolina ROBERT A. BRADY, Pennsylvania
KEN CALVERT, California ROBERT ANDREWS, New Jersey
ROB SIMMONS, Connecticut SUSAN A. DAVIS, California
JO ANN DAVIS, Virginia JAMES R. LANGEVIN, Rhode Island
W. TODD AKIN, Missouri STEVE ISRAEL, New York
J. RANDY FORBES, Virginia RICK LARSEN, Washington
JEFF MILLER, Florida JIM COOPER, Tennessee
JOE WILSON, South Carolina JIM MARSHALL, Georgia
FRANK A. LoBIONDO, New Jersey KENDRICK B. MEEK, Florida
JEB BRADLEY, New Hampshire MADELEINE Z. BORDALLO, Guam
MICHAEL TURNER, Ohio TIM RYAN, Ohio
JOHN KLINE, Minnesota MARK E. UDALL, Colorado
CANDICE S. MILLER, Michigan G.K. BUTTERFIELD, North Carolina
MIKE ROGERS, Alabama CYNTHIA McKINNEY, Georgia
TRENT FRANKS, Arizona DAN BOREN, Oklahoma
BILL SHUSTER, Pennsylvania
THELMA DRAKE, Virginia
JOE SCHWARZ, Michigan
CATHY McMORRIS, Washington
MICHAEL CONAWAY, Texas
GEOFF DAVIS, Kentucky
Robert L. Simmons, Staff Director
Roger Zakheim, Professional Staff Member
Julie Unmacht, Counsel
Brian Anderson, Staff Assistant
C O N T E N T S
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CHRONOLOGICAL LIST OF HEARINGS
2006
Page
Hearing:
Thursday, March 2, 2006, National Security Implications of the
Dubai Ports World Deal to Take Over Management of U.S. Ports... 1
Appendix:
Thursday, March 2, 2006.......................................... 121
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THURSDAY, MARCH 2, 2006
NATIONAL SECURITY IMPLICATIONS OF THE DUBAI PORTS WORLD DEAL TO TAKE
OVER MANAGEMENT OF U.S. PORTS
STATEMENTS PRESENTED BY MEMBERS OF CONGRESS
Hunter, Hon. Duncan, a Representative from California, Chairman,
Committee on Armed Services.................................... 1
Skelton, Hon. Ike, a Representative from Missouri, Ranking
Member, Committee on Armed Services............................ 3
WITNESSES
Bilkey, H. Edward, Chief Operating Officer, Dubai Ports World;
George Dalton, General Counsel, Dubai Ports World; Michael
Moore, Senior Vice President, Commercial, Dubai Ports World;
and Robert Scavone, Executive Vice President, Security
Peninsular and Oriental Steam Navigation Company (P&O)
beginning on................................................... 41
Carafano, Dr. James Jay, Senior Research Fellow for National
Security and Homeland Security, The Heritage Foundation........ 7
Edelman, Eric S., Under Secretary of Defense for Policy,
Department of Defense; Stewart Baker, Assistant Secretary,
Policy, Planning and International Affairs, Department of
Homeland Security; Clay Lowery, Assistant Secretary,
International Affairs, U.S. Department of the Treasury; Alan
Misenheimer, Director, Office of Arabian Peninsular and Iran
Affairs, Department of State; and Rear Adm. Thomas Gilmour,
USCG, Assistant Commandant for Marine Safety, Security and
Environmental Protection beginning on.......................... 77
Flynn, Stephen E., Commander, U.S. Coast Guard (Ret.), Jeane J.
Kirkpatrick Senior Fellow, in National Security Studies........ 10
Gaffney, Frank J., Jr., President and CEO, Center for Security
Policy......................................................... 14
APPENDIX
Prepared Statements:
Baker, Stewart............................................... 160
Bilkey, H. Edward............................................ 146
Carafano, Dr. James Jay...................................... 125
Flynn, Stephen E............................................. 133
Gaffney, Frank J., Jr........................................ 140
Gilmour, Rear Adm. Thomas.................................... 177
Lowery, Clay................................................. 171
Misenheimer, Alan............................................ 170
Scavone, Robert.............................................. 156
Documents Submitted for the Record:
Copyright 2000 Council on Foreign Relations, Inc. Foreign
Affairs, November 2000/December 2000, Beyond Border Control 183
Testimony of the Department of Defense, Regarding the Dubai
Ports World CFIUS Case..................................... 193
In the Name of Allah the Most Compassionate and Merciful, 14
May/June/2002.............................................. 200
Responses to al Qaeda's Initial Assaults..................... 190
Questions and Answers Submitted for the Record:
Mr. Andrews.................................................. 205
Mr. LoBiondo................................................. 205
Mr. Skelton.................................................. 205
Mr. Spratt................................................... 205
NATIONAL SECURITY IMPLICATIONS OF THE DUBAI PORTS WORLD DEAL TO TAKE
OVER MANAGEMENT OF U.S. PORTS
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House of Representatives,
Committee on Armed Services,
Washington, DC, Thursday, March 2, 2006.
The committee met, pursuant to call, at 1 p.m., in room
2118, Rayburn House Office Building, Hon. Duncan Hunter
(chairman of the committee) presiding.
OPENING STATEMENT OF HON. DUNCAN HUNTER, A REPRESENTATIVE FROM
CALIFORNIA, CHAIRMAN, COMMITTEE ON ARMED SERVICES
The Chairman. The committee will come to order. The
committee meets this afternoon to examine the national security
implications of the Dubai Ports World, DP World, deal, to take
over port terminal operations in ports in six American cities.
Like many Americans and Members of Congress, I am deeply
distressed by the national security implications of this deal.
The controversy surrounding Dubai Ports World's acquisition
has exposed the vulnerability of United States ports to
security threats, the inadequacy of the so-called Committee on
Foreign Investments in the United States (CFIUS) review
process, that is, foreign investment process to address these
threats, and it also raises a broader issue of whether the
United States is taking adequate steps to protect our entire
national critical infrastructure.
It is my opinion that the U.S. Government needs to conduct
wholesale reform as to how we protect the homeland and our
critical infrastructure. This problem runs deeper than ports.
Vulnerability to our maritime interests is only one example of
many sectors that require increased protection and security.
The post 9/11 world demands that in the realm of national
security, we take nothing for granted.
Voluntary compliance schemes, the method we currently
employ to protect our key arteries of national and economic
security, is necessary but not sufficient.
Our government must take steps to enhance our security, not
to run the risk of creating greater vulnerabilities. We seem to
be our own worst enemies.
We should require critical U.S. infrastructure to remain in
U.S. hands.
To those who say my views smack of protectionism, I say
America is worth protecting.
Yet today's hearing is also about a failed process.
In my experience, a CFIUS scheme for reviewing national
security implications of foreign investments in the United
States consistently comes out on the wrong side of the issue.
Not too long ago, this committee sat together to discuss a
Chinese national oil offshore corporations' bid to merge with
Unocal. In that instance, a CFIUS review did not belive that
the merger deal warranted a 45-day investigation known as a
Byrd Amendment.
Once again, today we find ourselves in a similar situation
where none of the participants in CFIUS believe that the DP
World acquisition warranted a 45-day investigation.
Well, I think everyone on this committee recognizes that
government is imperfect and is prone to making mistakes. The
Congress and the citizens of this country do not have to
tolerate a process that repeatedly makes the same mistake.
I might just say that I just reviewed the findings of Garry
Milhollin, who has advised this committee for many years. And
his recounting of the weapons of mass destruction materiel and
machinery that has been routinely moved through Dubai, with the
acquiescence of the Dubai government, including 66 triggers
that can be used for nuclear detonators, heavy water coming out
of Russia and China for Pakistan and India, nerve gas
precursors bound for Iran--no problem there. And the idea that
those things happened and were documented, in fact, some of
them involved American protests, and that didn't perk up the
ears of CFIUS, was quite remarkable.
In fact, I think it is only the huge public outcry and the
pressure from Congress that ultimately has lead to the this
increased scrutiny of the DP World deal.
Recently, the officers of DP World requested that CFIUS
conduct a 45-day investigation. And while we all welcome this
development, I am concerned it is too little and too late. It
is my understanding that the $6.79 billion deal becomes final
today.
Moreover, the details of the DP World requested 45-day
investigation is murky.
Unanswered to date is how this investigation will be more
comprehensive, more robust than the CFIUS 30-day review. Some
have dismissed this review as a public relations scheme to pass
it by the Congress. I hope this is not the case. And I look
forward to hearing from our witnesses on this matter.
The problem isn't going away. Today, The Washington Post
reports how another Dubai-owned company, Dubai International
Capital, is planning a $1.2 billion acquisition of a British
company that owns U.S. subsidiaries that are part of our
defense industrial base.
And I might say to my colleagues, we have these repeated
incursions by our British friends who, in fact, are allies with
us in Iraq and other operations around the world to buy
critical pieces of the military defense, or military industrial
base, and we always looked, examined our relationship with the
British, and concluded that the deal is a fine one.
The problem is involved when the second step is taken, and
that is when a Dubai-owned corporation, now, simply based on
the fact that it has got lots of cash, ends up acquiring the
British company and settles into the position that we never
would have released to another country beyond Great Britain,
and perhaps, Australia.
So we all understand that that the United Arab Emirates
(UAE) has been our ally. But we also know that they have been a
point of transshipment, obviously, with their government's
acquiescence, either their acquiescence, their informed
involvement, or one of the greatest systematic cases of
negligence that the world has ever seen, to become the
transshipment point for all of these nuclear components to the
point where their trademark, their advertising trademark is, we
can move whatever you have got with very little hassle.
So if you are a German company or a former Nazi who moved
lots of heavy water out of China and Russia to various nuclear
companies with nuclear ambitions, you want to move it through a
transshipment point that is easy going, you move it through
Dubai.
And interestingly, also, the Malaysian company that was
involved in one of the last transshipment scandals I think
reflected well the Dubai government's policy of creating an
environment of deniability. They said, we can't find any--we
have no paper. This is the Malaysian Government. And I am
paraphrasing. They said we have no paper that indicates
anything about where this company moved its--moved this
particular material.
That is the nature of Dubai. It is a bazaar for terrorist
nations to receive prohibited components from sources from the
free world and from the nonfree world.
And apparently--and it appears to me that the same
government leaders who countenance that trans-shipment, in
fact, probably have designed that transshipment because it
makes them money--would be the same people overseeing America's
ports.
And the idea that CFIUS seemed to think that was okay or
didn't look at it very closely is quite a remarkable thing.
So the purpose of today's hearing is to examine this
question of whether we should have this particular company or
any foreign-owned company controlling or owning American
critical infrastructure.
And with us this afternoon to discuss these issues are
policy experts, officers of DP World, and administration
officials from the Department of Defense, Department of
Treasury, Department of State and the Department of Homeland
Security.
So let's get to it, and before we go to our witnesses, I
would like to turn to the ranking member, the gentleman from
Missouri, Mr. Skelton, for any remark he would like to make.
STATEMENT OF HON. IKE SKELTON, A REPRESENTATIVE FROM MISSOURI,
RANKING MEMBER, COMMITTEE ON ARMED SERVICES
Mr. Skelton. Mr. Chairman, thank you, and I welcome our
witnesses, and I also thank you for calling this very important
hearing. It is on the minds of--this issue is on the minds of
so many people across the country.
Today, we are to address the recently announced deal to
hand over operations at six major American ports to Dubai Ports
World, which is a company owned by the United Arab Emirates, or
UAE.
This is a significant deal that requires careful scrutiny.
In addition, Mr. Chairman, today's press reports indicate a
second deal by a Dubai firm under investigation by the
Committee on Foreign Investment in the United States. This deal
involves a proposed purchase of a British firm with U.S.
subsidiaries that make military components. This second deal as
much as the Dubai Ports World must be questioned to ensure that
our national security is protected.
Like many of my colleagues on both sides of the aisle, and
a majority of the American people, I have some very, very
serious concerns about the DPW deal. It would give ownership of
some of our major national security assets to an agent of a
foreign country with past connections to terrorist activity, at
a time when security in airports is woefully inadequate.
People back home understand this issue. Their family's
safety is their first concern. They understand that our
Nation's ports are vulnerable today as our airlines were before
9/11. Our seaports handle more than 95 percent of our nation's
foreign trade including trade insensitive technologies and the
movement of critical materials for our military.
Yet the bipartisan 9/11 Commission identified America's
ports as particularly vulnerable to attacks because only 6
percent of the cargo containers entering our country are
screened.
Experts have warned the most likely way a terrorist could
get a nuclear weapon into the United States is in a cargo
container ship.
In 2003, the Coast Guard asked for $5.4 billion over the
next 10 years to comply fully with the port security
requirements, and yet, despite the efforts of many of our
colleagues, the Congress has approved only $883 million, and
the Administration, in this year's budget, is eliminating
funding that goes directly for port security.
People back home also have questions about Dubai Ports
World and our relationship with the United Arab Emirates. We
know that the UAE has been a recognized partner in the war
against terror. At the same time, two of the hijackers of the
9/11 attacks were from the UAE. The 9/11 Commission concluded
that the vast majority for the financing for the attacks flowed
through the United Arab Emirates. The UAE was one of three
countries to recognize the Taliban as the legitimate government
of Afghanistan, and it has also pledged support to Hamas. The
UAE was a key transfer point for illegal shipments of nuclear
components to Iran, North Korea and Libya.
These are not cut and dried issues for our national
security.
It is then not surprising that the Coast Guard and the
Department of Homeland Security raised red flags during the
review process for the Dubai Ports World port deal which is
conducted by CFIUS, the Committee on Foreign Investment in the
United States.
The Coast Guard's intelligence assessment found gaps in the
intelligence by DPW's operations, personnel and foreign
influence, all relating to the potential for the DPW assets to
support terrorists' operations. This level of concern should
have triggered full use of the CFIUS process.
The law provides for an additional 45-day investigation to
resolve these types of issues when American security is at
stake. That was not done here.
After little review, and without consultation with
Congress, or input from the affected communities, the President
approved the deal and threatened to veto any legislation that
would oppose it. Only when Congress and the American people got
involved is that process now being followed.
For me, this situation comes down to three things: First,
we have to take a careful honest assessment of this particular
deal. Congress must be involved. That begins today with this
hearing. What is the potential for the UAE's government to
exert any influence over the company? What possible risks did
our government agencies find that this company could pose to
our national security? How are those risks being addressed?
And although DPW has now voluntarily agreed to a 45-day
investigation, the parties involved have already closed the
deal. So what is the purpose of the investigation? What can be
done under the party's agreement at this late stage? I hope the
witnesses will be able to answer these questions.
The bottom line is that we must make sure that this deal is
right for American national security.
Second, we must reform the CFIUS process for all
transactions that affect national security.
We must be able to reassure the American people in every
case that we will not allow the fox to guard the chicken house.
We need a CFIUS process for a post 9/11 world with national
security at its center.
The review should also include input from the affected
communities at the local level.
Third, and most important, we must take this opportunity to
invest more money and to institute better policies to protect
our ports. We must screen more cargo. We must know who is
working in our ports, and who is working on the ships that
enter them. And we must think creatively about how to stop a
weapon of mass destruction from ever entering this Nation.
We have been extremely deficient in the area of security.
We are very lucky we have not had to face disastrous results to
our failings. Our security shortfalls are being demonstrated as
a result of a corporate sale, and not because of a terrorist
attack. We still have time to get it right, Mr. Chairman, and
we must. We must get it right. Thank you.
The Chairman. Thank you, Mr. Skelton. I appreciate it. And
I might just let you know, because you have mentioned these
three major things that we have got to do, reforming CFIUS,
blocking foreign ownership of critical U.S. Infrastructure and,
requiring full inspection of cargo.
And we have been drafting, for the last couple of days, a
bill that does that, that I hoped to introduce on Tuesday. And
I would hope that you would join with me and any interested
members of the committee, and I remind my fellow members of
this committee that it was this committee that blocked the
acquisition of the U.S. naval base at Long Beach during the
days of the Clinton administration from being purchased by
KOSCO, which is the maritime arm of the People's Liberation
Army.
We did that, even though the deal had been approved and
this particular legislation, even if this deal is approved,
would roll it back and would also cause upon the identification
of critical U.S. infrastructure by the Department of Defense
and the Department of Homeland Security would require then that
that infrastructure be owned by Americans, and that if it was
not owned by Americans, would be divested in as painless a way
as possible, but would be divested of foreign ownership, and a
U.S. ownership would be established.
So I say to my colleagues, I think this is an issue that we
have worked on over the years. And we are the one committee
that has actually been able to block foreign ownership of what
we consider to be critical U.S. infrastructure. I think now is
the time to address this problem in a fulsome way.
Having said that, I think Mr. Saxton wanted to say a word
or two. Let the gentleman say a word before our----
Mr. Saxton. Mr. Chairman, thank you for the unusual
recognition at this point. I think there is something here that
needs to be made part of the record and part of this
conversation. The administration is always proud of the United
States policy of providing for fair play in trade matters.
And there are some unusual restrictions that are pertinent
to this issue as part of United Arab Emirates policy. And let
me just say what they are for the purpose of beginning this
discussion, because these are issues that go beyond the
important matters that have been discussed by the chairman and
the ranking member.
The following foreign investment restrictions are listed in
the United Arab Emirates chapter from the 2005 national trade
estimate report on foreign trade barriers issued by the United
States trade representative. First, a business engaged in
importing and distributing a product in the UAE must be either
a 100 percent UAE owned agency or distributorship or a 51
percent UAE, 49 percent foreign limited liability company.
Two, subsidies for manufacturing firms are only available
to those with at least 51 percent local ownership.
Three, non-Gulf Corporation Council (GCC) states nationals
cannot own land, but the Emirate of Dubai, currently is
offering a so-called freehold estate ownership for the limited
non-GCC nationals within certain priorities. And these
countries, the GCC countries are the UAE, Bahrain, Saudi
Arabia, Oman, Qatar and Kuwait.
Four, only 22 out of 53 stocks on the UAE stock market are
open to foreign investment.
Five, Ministry of Economy and Planning rules restrict
foreign investors' ownership to no more than 49 percent of
companies on the stock market, however, company bylaws in many
cases prohibit foreign ownership.
Finally, except for companies located in one of the limited
free zones, at least 51 percent of a business establishment
must be owned by the UAE national.
These are matters which I think should be of economic
concern to us in terms of the fair play that our government
goes out of its way to provide for others. And so, as part of
the record, and part of the conversation, I think these are
important considerations for us, along with security matters
that you both mentioned.
The Chairman. Well, I thank the gentleman. And let me turn
to our panel. We have with us Dr. James Carafano, Senior Fellow
for National Security and Homeland Security the Heritage
Foundation. Mr. Stephen Flynn, Senior Fellow Counsel on Foreign
Relations, and Mr. Frank Gaffney, President Center for Security
Policy.
So, Mr. Carafano, good afternoon. Thanks for being with us
and the floor is your, sir.
STATEMENT OF DR. JAMES JAY CARAFANO, SENIOR RESEARCH FELLOW FOR
NATIONAL SECURITY AND HOMELAND SECURITY, THE HERITAGE
FOUNDATION
Dr. Carafano. Thank you, sir. I submitted a formal
statement for the record.
The Chairman. Without objection, all written statements
will be taken into the record.
Dr. Carafano. First of all, I would like to commend this
committee and the Congress for focusing on something which is
an absolutely incredibly vital issue to this Nation, which is
maritime security. A third of our economy approximately of
trade is--a third of our economy is in trade.
95 percent of our trade goes by sea. This is absolutely
important. Our ports are vital. This is exactly the right
issue.
And I think the Congress's concerns are legitimate.
And I think it is appropriate that Congress relook the
CFIUS process. Congress has not done that since 9/11. We live
in a different world than we did then. And I think it is very
appropriately that Congress relooks at the process that is
established to make sure that national security interests were
appropriated vetted in foreign investments and commercial
transactions. You know, I will say a fundamental to my approach
to this is: How we do look at all these issues, I think, should
be the same.
And I think it is fundamental to do with the nature of the
conflict we are in. And I think the President was correct in
his State of the Union address when he called it a long war. I
think the Department of Defense was accurate in their
Quadrennial Defense Review when they talked about this. I think
Franks book warfighting is laced around here. And you fight
long wars differently because what is important in a long
protracted conflict, whether it is a war on terrorism or the
Cold War, is that it is essential to maintain the
competitiveness and robustness of the society as it is to
defeating the enemy and you have to do both simultaneously. And
I have always talked about four essential requirements in
fighting a long war.
One is security. And the more and more I have looked at
this, the more and more I look at how you get the best buck out
of your security dollar, the more and more I am convinced is
that is an offense, and taking out the word of the enemy,
taking out the leadership, taking out the infrastructure,
taking out the sources of recruiting, taking out sources of
funding, that this is simply the biggest bang for the buck.
Now having said that, we all know that you have to have an
element of defense, because we live in a world that is united
by networks that carry the free flow of goods, services, people
and ideas, and that some day it is going to carry bad things to
your shore. And you have to have some way to defend against
that.
Equally as important is protecting the privacy and liberty
of our citizens and equally important is winning the war of
ideas and our argument is simply that you need security
solutions that do all four of these things. And if you don't,
you have the wrong answer and you need to go back and start
over.
And I think that counts just as much in this issue of
maritime security perhaps more than any other issue.
Now, I will say with regard to security concerns about the
Dubai Ports World deal, I don't find any compelling security
concerns here. And I think it has to do with the nature of the
way we do maritime security in the maritime domain. Most of the
infrastructure in maritime domain upon which U.S. trade is
dependent is foreign-owned, whether it is ships or port
facilities. And that ownership changes quite frequently. Very
frequently you go into a port and you can ask a union worker
and say, who owns your company today and he doesn't know. Maybe
a different guy owned it last year. But things at the port go
on the same way as they did before, and that is because the
maritime security architecture is not designed based on
ownership. The security requirements are the same for whoever
owns the companies.
If we are concerned about Dubai Ports World specifically as
a company, then we have got real serious issues. And it is
irrelevant--the U.S. ownings are a small piece of that. Dubai
as a port is the probably the most strategically vital port to
the United States in the Middle East, it is what allowed us to
do power projection in the Middle East, and it is owned by
World Ports. Likewise, this company is now the third largest
owner of port facilities around the world. Likely, it is
anywhere U.S. interests are involved, anywhere U.S. goods are
moved, anywhere the U.S. military deploys this company is going
to be involved.
So even if we disapprove this deal and don't let them own
these U.S. facilities, the security relationship between the
United States and Dubai Ports World is going to be inclusive
and ongoing.
And I think it is critically important that they have the
things like Customs-Trade Partnership Against Terrorism (C-
TPAT), that they are involved in things like Container Security
Initiative (CSI), that they are open to Coast Guard auditing.
So I am not actually sure that excluding them from owning U.S.
port facilities makes our ability to affect how they execute
security around the world better or worse.
I do think that while our ports are vulnerable, we miss the
point if we think that we can make ports safe by somehow
turning them into little Fort Knoxes or little Maginot Lines.
You make ports safe by keeping terrorists out of the ports.
And it is about making the maritime system safe. And it is the
system that is the critical infrastructure, not the port. It is
the system. And so we have to look at solutions that make the
system overall better.
And I will just end on this, since I have three areas I
think that are particularly relevant to this committee, and if
they are deeply interested in moving forward on improving
maritime security and on making our ports safer, these are
three I would commend to you.
The first one is investing in the Coast Guard. The Coast
Guard touches on every single aspect of maritime security. This
committee has a vested interest in Coast Guard investments
because the relationship between the Coast Guard and the Navy
is essential. The national fleet is something we do in name
only. There is very little real cooperation and collaboration
to determining our future requirements and harmonizing what the
Navy and Coast Guard does.
And this committee could play a leadership role in making
sure we have the Coast Guard we need for the 21st century, and
it dovetails well with the Navy we need for the 21st century.
Another issue I think you could look at is there was a very
good initiative in Charleston called Sea Hawk, which is an
intel fusion center. It was a model intel fusion center. It was
absolutely the best thing we did in port security in terms of
coordinating the assets at the port and making them effective.
It was funded through the Department of Justice. I understand
that funding is now dried up. It was a pilot project. It is not
owned by Department of Homeland Security (DHS). It is going to
die. I think this committee and the Department of Defense
should have a vested interest in seeing that things this Sea
Hawk are sustained and revitalized because quite frankly, any
port in the United States that has a major U.S. defense outlook
facility, there ought to be a Sea Hawk asset at that port doing
intelligence and operations integration, because it is simply
the best thing we have done in our ports to make them safer.
And the third one has to do with fundamental science. There
is one thing about the maritime world in that this is a true
system of systems, and I think this committee understands that
from all the work that you have done in terms of defense. This
makes some of the military systems look pretty simple. This is
a complex system of operators and conveyors. Nobody owns the
system. It is a very rich complex environment. And it has kinds
of second and third order effects.
The irony is that though the United States is probably the
world leader in systems integration, we fundamentally
understand almost nothing about the underlying science of how
complex systems works. And we really don't have quality science
and knowledge in forming our decision makers. There is an
argument for something called network science, which pulls
together various disciplines, including network biology,
infomatics, mathematics, physics pulling these disciplines
together to give us understanding of how complex systems work,
how we can make them more redundant, how we can make them more
robust, how we can make decisions, how we can design them to be
better, how we can reconstruct them after they are hit.
And I think the Department of Defense and this committee
should have a vested interest in seeing network science move
forward because many of the problems that the military is
trying to address in the battle field is how to create the
military systems and the systems of the 21st century. The
underlying science that we need to understand that and make
good policy and build good systems and develop good
requirements is much the same.
So I think this committee should be a strong proponent of
the--having the Department of Defense establish network science
institutions, partnering with the Department of Homeland
Security. I would commend to you an excellent report by the
National Research Council on this issue I think outlines
fundamental things we can do which in the long run is going to
both make the United States more competitive and more safe.
Thank you, Mr. Chairman.
[The prepared statement of Dr. Carafano can be found in the
Appendix on page 125.]
Mr. Hefley [presiding]. Thank you, very much.
Mr. Flynn.
STATEMENT OF STEPHEN E. FLYNN, U.S. COAST GUARD (RET.), JEANE
J. KIRKPATRICK SENIOR FELLOW IN NATIONAL SECURITY STUDIES
Mr. Flynn. Thank you, Mr. Chairman. I am delighted to be
here today and thank you, distinguished members of the House
Armed Services Committee, for inviting me to discuss this DP
World controversy and my assessment of where we are and where
we need to be with regard to port security. And let me say, I
will talk more to port security than CFIUS process where I
think there are other experts who could do that far more
justice than I.
The controversy surrounding the takeover to buy the
American container terminals by Dubai Ports World has had
certainly the salutary benefit of engaging Washington and the
American people in a national conversation on the state of port
security. This is long overdue, given the enormous national
security and economic security stakes should the next
catastrophic terrorist attack on U.S. soil involve the global
maritime transportation system and America's waterfronts.
My long-standing deep concern about this persistent
vulnerability of America's homeland generally and the global
supply chain and ports specifically is a matter of public
record. This is my 16th time testifying before a House and
Senate committee on these issues. And I am sorry to say that 4
years and 4 months later from my first opportunity to do this,
my assessment is that the security measures that are currently
in place do not provide an effective deterrent for determined
terrorist organizations intent on exploiting or targeting our
maritime transportation system to strike the United States.
At the Federal level, the primary front line agencies, the
Coast Guard and Customs Border Protection Agency are grossly
underfunded for what has become essentially a brand new
mission.
Let's be clear. The Coast Guard stopped doing port security
after the Second World War. And then we give them this new
mission and the resources simply are not there in the ports.
The same is true with Customs in terms of we pulled them out of
the ports for 20 years, and now we said do more for our
national security and there are just not the numbers. There are
not physically Customs agents and Customs officials in the
terminals. And we rely heavily on terminal operators.
Should terrorists strike in a major U.S. seaport today,
Americans will experience a post Katrina sense of dismay and
frustration at how little the Federal Government has been
investing to effectively safeguard this critical national
security and economic security asset.
While it leaves a sobering assessment of where we are
today, it may come has a bit of a surprise that my assessment
of national security implications of the DP World purchase of
Peninsular and Orient Steam Navigation System and the leases to
its five container terminals on the east coast and New Orleans
is that this commercial transaction will not qualitatively
effect the overall state of global and maritime transportation
security.
The primary reason is the stage is so bad it isn't going to
make a whole lot of difference. This is because the problem is
less about who owns and operates U.S. container terminals than
it is that we simply have not addressed far more serious supply
chain maritime and port security issues that would dramatically
reduce the terrorist risk to our homeland.
To put this current controversy into a broader security
context, let me share with you a terrorist scenario that most
keeps me up at night and why I spend most of my days trying to
convey a greater sense of urgency and have been working to try
to design and help promote meaningful measures to address this
issue.
Based on my experience and research of this issue for
nearly 15 years, I believe that the greatest vulnerability that
will involve the maritime sector in our sea ports is overseas
within the transportation system before a container reaches a
loading port. Specifically, the biggest security gap is in the
transportation system once the container leaves the factory.
This has been for three reasons. First of all, local truck
drivers are typically poorly paid and often belong to very
small firms operating on very thin profit margin.
Second there are no mandated standards for seals of locks
on containers, typical one used is a 50 cent lead seal with a
number on it.
Third, the issue is the containers travel through often
remote, and at times, dangerous jurisdictions before they get
there. So here is the kind of scenario I am worried about,
informed by Gary Gilbert, the Chairman of the Corporate
Security Council and Senior Vice-President for the world's
biggest container terminal operator, Hutchison Port Holdings.
A container of athletic footwear for a name brand company
is loaded in the manufacturing plant in Surabuya, Indonesia.
The container doors are shut. In this case they go the extra
mile to put the one dollar mechanical seal on it and into the
door's pad eyes. These designer sneakers are destined for
retail stores in malls across the America. The container and a
seal number is recorded at the factory. Local driver turns out
to be sympathetic to al Qaeda, picks up the container. But on
the way to the port, he gets a bit lost. He pulls down an alley
to a warehouse. There is a group of operatives inside. They pop
the hinge on the door to not even mess with the seal. They open
it up, take some sneakers out, put a dirty bomb in wrapped in
lead so that it will defeat our radiation detection equipment.
Then the dirty bomb is delivered to the port of Surabaya
where it is loaded on a coaster feeder ship, which typically
carry about 300 containers where it is dropped off in the port
of Jakarta. Jakarta, in turn, will load it onto a inter Asia
ship, where it goes on a container ship carrying 1,200 to 1,500
containers destined for Singapore or Hong Kong. To make the
journey across the Pacific Ocean, it will then go on a super
container ship carrying 5,000 to 8,000 containers.
In this case, it is going to Vancouver. And it is going to
drop it off there. Now, the good news, we now have a Container
Security Initiative team in Canada so we can expect an inbound
container destined for the United States by a Canada Pacific
railway. The bad news is the CSI team identifies this as a
trusted shipper from a reliable company of designer sneakers
who is a member of the Customs Trade Partnership Against
Terrorism, and therefore is not screened or inspected. It is
simply loaded on a rail chassis and sent to Chicago, where it
moves from the rail yard to a distribution center.
In the distribution center, a hapless warehouse employee
opens the container setting off the triggering mechanism and
exploding the dirty bomb.
Now, what are the consequences of this? There are four and
quite immediate. Obviously, the local deaths and injuries
associated with the conventional explosive. Second, there is
the environmental damage done as the radioactive material is
spread over a vast area.
Third, there will be no way to determine where the
compromise in security took place. Did it take place in Chicago
yard? Did it take place on the Pacific rail? Did it take place
in Vancouver? Did it take place in Hong Kong or Singapore or
Jakarta? We don't know. So we assume the whole thing is at
risk. And worse in the port case here, all the current
container and port security initiatives that we have currently
in place are compromised as a result. Because this turns out to
be a CT pack container going through an International Ship and
Port Facility Security (ISPS) compliant port with ISPS
compliant vessels through a CSI port on its way into the
mainland and defeats our radiation portals because they are
simply wrapped in lead. So not only the incident, but the
entire regime crashes.
And what happens? Well, immediately, of course, we are
going to have to close our borders until we sort this out.
Within two weeks, the global trade system essentially grinds to
a halt. In the words of John Meredith, who runs Hutchison Port
Holdings has moved over 50 million containers last year in a
letter he wrote to Robert Barter, former Commissioner of Border
Protection on January 20, 2004, I think the economic
consequences could well spawn a global recession, or worse.
That is what we are talking about. Enormous stakes.
National security stakes.
And what do we have? We have essentially an honor system.
If you are a good company, and shipping terrorist-free, we
basically delegate to you to figure out what minimum standards
you think are basically appropriate and we provide virtually no
oversight.
The Coast Guard, by law, by the Maritime Transportation
Security Act, for instance, has been charged by Congress to go
assess whether or not these ports around the world are actually
living up to international standards, to which you have
allocated resources, 20, count them, 20 Coast Guard, 13 for
Europe, Africa, Middle East, Latin America and Caribbean, and
then seven for all of Asia.
I saw more coming through La Guardia at the Transportation
Security Administration (TSA) security check in point than the
total number of inspectors we have assigned to oversee whether
or not we have a regime.
The important lessons to pull from the scenario I just laid
out here today are, I think fourfold.
First, the threat is not so much tied to seaports as it is
to global supply chains that now operate on the honor system,
the point I just made.
Second, no container terminal operator within the United
States or abroad really knows what is in the box. That is the
problem. They are in the business of receiving and discharging
these containers from ships to trucks to trains that converge
on the terminals quickly efficiently at low cost.
Third, as the engagement of John Meredith and Gary Gilbert
on these issues--by the way, Hudson portals had no ports in the
U.S. but had been working actively with the US Government,
global terminal operators are deeply concerned about the
terrorist threat that would essentially implode their
enterprise with billions of dollars of capital investment.
Basically, they are potential allies in this process.
Fourth, the scenario I just laid out essentially involved
Vancouver. It didn't involve any U.S. ports. This is a global
network challenge.
So where do go from here? I think the case that I just
tried to make with my former boss, Admiral Jim Loy, who is the
Commandant of the Coast Guard and former Deputy Secretary for
Homeland Security, wrote for the Times on February 28, is let's
think about using this opportunity with DP World to raise the
bar on security.
The way American people would truly benefit from what has
become essentially a political food fight is that we actually
improve security for this system.
And the way to do that is to work with the terminal
operators and go to a trust but verify system.
Every container, before it is loaded and arrives in the
terminal, goes through a screen of a radiation portal, an image
of what is inside, and takes a picture of the container number
that is successful and near realtime to an inspector here in
the U.S.A.
It is over there where we are worried about the problem in
a place like Dubai with the kind of material that Chairman
Hunter raises here.
Now is this possible? The answer is yes. In Hong Kong
today, one of world's busiest terminals, this demonstration of
300 trucks an hour coming into the terminal, collecting this
data has been done.
Now, this isn't an inspection because nobody is looking at
it. The pilot was showing it is possible. You don't have to
rely on 5 percent. We could go to 100 percent, if we are
willing to make the resources available to do this.
And guess what? The terminal operators will put this
equipment down and pay for it if they can do it because there
is a standard back here for the use of that. There is an
opportunity here, an opportunity to make a real difference in
the American people to continue to stay engaged in the global
economy and recognize this is a global network.
Today, 90 percent of all the terminals in the West Coast go
to foreign-owned companies, and they are the least of them.
Also, the East Coast is a little less above the majority.
Why is this happening? It is happening because we gave away
our Merchant Marine about 30 years ago, and we are not going to
get it back any time soon.
Companies that ship want terminals on both sides, just like
British Airways wants to have a jetway, they want to have some
connection to it. Ships lose money unless they are at sea. They
want to control the operations. The challenge here is can we
set standards that assures, given this is not private hands and
foreign-owned private hands that are high enough, according to
our national security interests with sufficient oversight.
And can we put in place smart technologies and processes
throughout this global network to continue the benefit being a
part of the global society but without putting us unnecessarily
at risk.
So thank you very much for the opportunity to speak with
you about this critical issue. I commend the Congress for
focusing on port security. Please don't accept that the current
system in place is adequate for the threat that we are dealing
with. Thank you.
Mr. Hefley. Thank you, Mr. Flynn. And now Mr. Gaffney.
[The prepared statement of Mr. Flynn can be found in the
Appendix on page 133.]
STATEMENT OF FRANK J. GAFFNEY, JR., PRESIDENT AND CEO, CENTER
FOR SECURITY POLICY
Mr. Gaffney. Mr. Chairman, members of the committee, it is
a pleasure to be back with you. The last time I had a chance to
talk to you was July of last year, when, you may remember, we
were discussing another impending fire sale of an important
American asset to a government-owned company from a country
that we had some reason to believe might not have our best
interest at stake.
I am delighted to be here in the company of people who know
a great detail more about port security than I do. And I think
they have given you very good advice up to a point.
It seems to me that much of what you have just been treated
to by both of my colleagues is a pretty compelling argument for
not making matters worse in our port facilities.
And I think it is hard to argue that an arrangement that
entrusts to a government-owned entity from a country that could
not prevent acts of terror from being operationally organized
and planned and financed from its soil, will not make matters
worse, at least marginally and possibly quite a bit.
And Steve Flynn has powerfully described how bad things are
already, how easily those deficiencies could be exploited
today. And I think it is simply begs the question, do you, do
your colleagues, do the American people, do members of our
executive branch, feel confident that we can take any further
risk at all?
And I would like to talk about two things with you here
quickly this afternoon. One is that you cannot rely on the
existing process as the chairman and ranking member have made
clear. You cannot rely upon the Committee on Foreign Investment
in the United States as it is presently constituted and as it
has operated for approximately 18 years to evaluate those sorts
of risks adequately and to come up with a conclusion that I
think we can all say meets the common sense test.
And I will explain that for a moment by and by.
But I would also argue that there are very practical
reasons why this deal should not only be everything my
colleagues have argued, it is an opportunity, an opportunity,
yes, to reform CFIUS, but also to focus the sort of attention
that both Steve and James have been calling for for years, to a
yawning vulnerability in this country and take corrective
action. But I think starting with corrective action requires
doing the common-sense thing with respect to the Dubai Ports
World deal as well.
The question that I have about CFIUS is you have, as has
been noted, an interagency mechanism, that is, has lead and for
those of you who follow closely the affairs of the executive
branch, you know that means largely dominated by, the entity
the United States Government relies upon to raise foreign
investment in the United States.
This is, to my way of thinking, the very definition of a
conflict of interest.
It is not to assign anybody impure motives, but it is to
say that when people see it as their job to promote foreign
investment, to ask them to interpose objections to it is to
expect too much.
And in this case, I think it is clear that the national
security agencies who participate at some level in the CFIUS
process, also had other considerations in mind. Yes, to be
sure, they take seriously their national security or homeland
security responsibilities. But let's be clear.
This is a friendly government, a strategic valuable
partner, at least at the moment, in a war we call the war for
the free world.
It is not likely to be given a front or to be alienated
from us. And unfortunately that is precisely what this process
has done, I think, unnecessarily so.
There are certain issues here that specifically raise
questions in my mind. One for starters is, how many ports are
we talking about? We keep hearing that it is six, ports of New
York, both in New Jersey and New York, Port of Philadelphia,
Port of Baltimore, Port of Miami and the Port of New Orleans.
And yet there are at least 2 others that the United States
Army has contracted with P&O to move material through the Ports
of Corpus Christi in Beaumont in Texas, and by at least the
accounting of the P&O Web site, there are a total of some 22
ports in this country ranging from Maine to Texas, that will
have some relationship, some management functions performed if
this deal does, in fact, go through. That is a lot of ports,
ladies and gentlemen, including many of our most strategically
important ones.
I fear that as before, in fact, in every case but one, in
the over 1,500 that the CFIUS process has formally vetted, that
is to say, that somebody has formally submitted to the CFIUS
process, only one has been formally rejected by this process.
I think it is--I think the technical term is a lead pipe
cinch that the 45-day review will be just another in that
litany.
Not only if you have the President of the United States
affirm that it is the right answer, before the 45-day process
begins again, but as best I can tell, all of the same people,
all of whom have publicly said they came to the right answer
the first time are going to be asked to revisit their earlier
decision.
In short, if you don't want exactly the same rigged game
played on this deal again, I think the Congress is going to
have to insist upon some changes.
I have made some in my formal testimony. Some of the more
obvious ones are to ensure that senior level people at the
cabinet level for instance, are actively personally involved
and responsible for this decision. You may still get the same
outcome but it is clear that a number of them were not during
the previous process.
I would also suggest with great respect that the Secretary
of Treasury should recuse himself from the deal.
He, after all, in the previous incarnation, sold to DP
World, ports that were owned by his company, CSX. That would
seem to me, again, to be something of a conflict.
I believe, in addition, that we need to have in this
process a rigorous security assessment performed.
And that is not simply one that factors most heavily,
weights most heavily the idea that the UAE is a very important
country to us. It has to take into account the sorts of
considerations that Steve and James have just been talking
about.
What are some of those considerations? I would argue at
least about three. That again, just, I think, trigger the
common sense bewilderment factor for most Americans. The first
is clearly, DP World is going to be responsible for hiring and
vetting of some personnel.
Now, Newsweek has said that ``the company has promised to
leave the British appointed U.S. port managers in place for a
time in a bid to ease the immediate political pressure.''
Well clearly, there is no guarantee that once you or your
constituents aren't applying political pressure that that
process, that representation, on the docks or in the
supervisory offices will remain. At the very least you are
going to have attrition, people are going to have to be hired.
They may be foreign nationals on which we may or may not have a
good handle on who they are. They may be Americans. In Britain
in July of last year, we discovered that citizenship is no
impediment in people engaging in acts of terror against their
own country.
So personnel is one problem.
Cargo is another. Steve has just provided expert testimony
that we will rely heavily under the circumstances we find
ourselves in on the cargo management firms to account for what
is in these holds. We use certain rational but easily
circumvented procedures to assign risk to certain cargo.
Can a company that is responsible for the cargo management,
even if it is at the end zone, as some people like to call it,
be relied upon, if, in fact, it has, or its country at least,
has been penetrated by terrorists in the past?
And third, it does seem to me that at the very minimum,
even if the personnel problem is not there, even if the cargo
management problem is not there, you have to appreciate that
this company is going to be read in on the security plans of
the port. They are going to have to implement something.
That gives rise, I believe, to yet another potential
liability and opportunity for penetration. I take all these
together, many of you are lawyers, I am not, but I think the
term is attractive nuisance. It is like having a swimming pool
without a fence. You are creating an opportunity for people to
get into and make mischief. And that doesn't seem to be wise,
especially since, as I would stipulate, things are as
problematic already as these gentlemen have described.
Finally, Mr. Chairman, let me just say, in addition to
saluting your efforts to reform CFIUS, I hope this is the last
of these processes. I hope that this one, that The Washington
Post is reporting about today that several of you have made
note of, in which American defense contractors, equipment
precision, equipment is supposed to be supplied in the future
by not a British-owned company, but by a UAE-owned company,
will not be just the next of this litany of failed
dysfunctional vetting of foreign investments with clear
national security implications.
I would also urge that the point that Congressman Saxton be
given very serious consideration. Even if everything else were
unexceptionable in these deals, it does seem to me outrageous
that we as a country keep finding ourselves in a position where
we play by one set of rules and other people play by a
different set of rules, sometimes even in violation of our
trade agreements with them. But this idea that you can have a
company that wouldn't dream, or a country that owns it that
wouldn't dream of having an American company own any of its
critical infrastructure to say nothing of the U.S. Government
operating it.
And I am not speaking here about monitoring stations and
that sort of thing. I am talking about owning physical plants,
critical, physical plants, nonetheless should be given carte
blanche to do the same here.
I don't know where this ends. Does it include nuclear power
plants and other instances of critical infrastructure? I should
hope not.
Finally, there are two other things. In addition, I hope to
getting an independent second opinion, I don't think you have
to rely on CFIUS. You are holding hearings, of course, but
Congress has been known to do commissions. Normally, you can't
appoint a commission, let alone get it going in 45 days. But I
think given the consensus that exists in the Congress today
about the saliency of these questions you might be able to pull
one together and get something back before the CFIUS does
whatever it is going to do this time around.
But the last two points, Mr. Chairman, are one, we have got
to find a way that allows, without undue politicization,
Congress to provide adult supervision to the CFIUS process,
however you perform it, it has to be made more accountable,
somewhat more transparent so that you don't continue to find
yourself presented with faits accompli which is, of course,
what has happened in this instance.
And second, I would just urge you and we had a conversation
when I was last here, Mr. Chairman, and you were, as always,
right on the money, we have to come to grips with the fact that
as a nation, we are becoming essentially dependent for most
things, most finished products, most raw materials, most
services even now, on foreign suppliers.
This is a matter of the utmost importance, I think, not
only for our national security, the immediate objective and
responsibility of this committee, but also think for all of us,
as it such as touches upon not only our security, but our
economic well being for the future.
And so, Mr. Chairman, the last time we talked, you
indicated a willingness to pick up the cudgel once again to
hold hearings on this question of foreign dependency and its
bearing on our national security, and I would urge that it be
part of a larger effort by the Congress to address what is
perhaps the inevitable outcome of the sorts of trade practices
we have been engaged in for so long, and the failure of a
process to provide real supervision within the executive
branch, and arguably even within the Congress that will not
only address some of these maritime security issues which are
so important, but also the larger national economic and
security considerations that attend them.
Mr. Gaffney. I appreciate your giving me this opportunity
to contribute to your deliberations, Mr. Chairman. Thank you.
[The prepared statement of Mr. Gaffney can be found in the
Appendix on page 140.]
The Chairman [presiding]. Thank you, Mr. Gaffney, and
thanks to all of you for laying out I think a very good
foundation for discussion here.
Mr. Gaffney, we did as a committee pass in our bill several
years ago a requirement that all critical military components
be built in the United States. We didn't get that one past the
Senate, but perhaps we got their attention this year.
Let me go to one of the statements that was made early on
by Mr. Carafano and I think has been to some degree echoed by
all of our witnesses. You have all described the UAE as being
allies, and we can point to military operations where they
accommodated us. We can point to accommodations to our security
interests, but at the same point, at the same time, we can
point to times when they absolutely stood against our security
interests and took actions that hurt American security
interests, and that implies to me that they are accommodators.
They accommodate people that come to them with large amounts of
cash, and they don't have a great deal of concern as to who it
is, whether it is this former Nazi who was moving lots of heavy
water from China and Russia through Dubai, and I am looking
particularly at the 2003 incident in which the UAE, even after
we protested, insisted on moving those 66 high speed electrical
switches used for nuclear detonations to a Pakistani
businessman with close ties to the Pakistani military, even
against a backdrop in which we indicted the people that
exported those switches. That is not the action of an ally. It
sounds to me like the action of an international player, which
can't be ignored because of its size and its money and the fact
that it is strategically located and sometimes accommodates you
but certainly the idea that the people in the UAE government
who sat in a room and decided upon getting a communication from
the United States, please don't turn over those nuclear
switches to these people who may use it adversely, and they
decided to go through with the deal despite America's protest;
those are not people, I think, that you want to have anywhere
close to the security apparatus of your own ports. Because it
indicates not that they can't be accommodating to our interests
if in fact it is their interest to accommodate us, but that
they don't consistently accommodate our interests, and at times
other people with money and influence overwhelm the American
interests. If that translates into a cargo container that has a
chem-bio weapon in it that is accompanied by large amounts of
cash, then this history of accommodation of American interest
doesn't mean anything.
And we have this history that is laid out fairly clearly by
Mr. Milholland. He goes back to the precursor for nerve gas
which was being shipped to Iran, which was only stopped because
the United States had a sting operation, but certainly not
because Dubai wanted to stop it.
You have got the heavy water situation. You have got the
two containers of gas centrifuge parts from the doctor's labs
that were shipped through Dubai from Iran for about $3 million
worth of UAE currency. These people have a nightmare history.
This is not a question of whether somebody has been tested or
not. They have been tested, and they have gone the wrong way on
this stuff.
I guess, Mr. Carafano, to you, my question would be, how
can you possibly say that you didn't see in this particular
case, in this particular deal, a security problem?
Dr. Carafano. That is an excellent question, and I
certainly share your concerns. And I think that is something
that the Congress should discuss and should take on and discuss
with the Administration. I do think we need two separate
debates here, however. We need to have a policy debate on how
the United States wants to engage with the UAE. And all the
issues about UAE's past behavior, foreign policies, strategic
vision for the future should all be on the table. But I think
that is separate from the security debate because, again, most
of the infrastructure that the U.S. is dependent upon the
maritime domain is foreign-owned. That is why our security
systems are designed to be ownership independent. It doesn't
matter who owns them, if it is a U.S. Company or a foreign
company.
The Chairman. Let me stop you on that. If you had--let's
say you had the British ownership of this particular port, and
you had people who had been strong allies of the United States
and were people whom you felt you could trust, isn't that
different from having an ownership which reflects basically the
desire to do whatever it takes to acquire money, which I think
is a good description of Dubai's foreign policy? Their foreign
policy is, they will sell Winchesters to the good guys or the
bad guys. They are not too interested who it is as long as they
get to be the bazaar and they get to have the money. So are you
sure you can say, from a security standpoint, that the
ownership is irrelevant?
Dr. Carafano. Congressman, I am with Ronald Reagan; I trust
everybody, but I would verify. I don't trust anybody in the
system. That is why the system is really ownership irrelevant.
Dubai Ports World might turn around tomorrow and sell that
company to somebody else. The point is the maritime security
system can't be dependent on ownership as the guarantor of
security. Security has to be the guarantor of security.
The Chairman. Wait. You said ownership. I would ask you to
address its relevancy. That means, if the information on the
security plan for a particular port is elicited by the people
that own the port operation, their employees will probably
deliver it to them. I think you can be assured of that. That
could be used to our detriment. Is that not true?
Dr. Carafano. I would go back to Steve's scenario, which is
plausible. I wouldn't argue it is the most likely, but it is
plausible. And it is exactly how terrorists operate. You don't
need to buy a $7 billion company to penetrate maritime
security. As a matter of fact, it works to your disadvantage
because, first of all, there is an audit trail as to who you
are; and second of all, it is an enormous investment because
all you are actually gaining access to is the vulnerabilities
of your own company. It is much more likely if a terrorist
attack occurs in the maritime domain, that terrorists are going
to do what smugglers do. The Mafia doesn't buy FedEx to
smuggle. They make low-level penetrations. If you look at the
operations in the port, the management groups are relatively
small. It is a small community; people know who each other are.
The penetrations are most likely going to happen as janitors,
short haul truck drivers, people that aren't highly checked,
and they have access to the kind of information that they do.
To do Steve's kinds of attack, you don't need to own the
company.
The Chairman. Mr. Flynn.
Mr. Flynn. Well, there is little question that any time a
foreign government is involved with buying critical assets, it
deserves a thorough scrub. I hope that is what will happen as a
result of this 45-day period. The people who are paid to worry
about our security and access to intelligence do a thorough
scrub. If, at the end of the road, the determination is, with
your oversight, the company does not pose a threat in a way
that other global companies do, I am still going to come back
to, I want a verification system of how they operate. It is
precisely because this is critical infrastructure and largely
privately owned, and increasingly foreign privately owned, that
we have to make sure the bar is high and the oversight is high.
My concern is that while we have a framework for oversight,
there is very little behind the curtain. So as I look at it
from a security perspective, I don't see this place softer than
anywhere else. The whole system is way too soft. It is a global
network, and here are some of the complexities we are going to
get into even pushing back this particular arrangement.
Currently, P&O owns half the operations in Karachi. The
other is by Hutchinson. You can't get a container out of
Karachi to Dubai or Iran unless you go through one of those two
terminals. Even if this deal is killed here in the U.S. side,
this player will own that terminal. From a counter
proliferation standpoint, we will want to have the ability to
put in place a verification regime not just for stuff coming
here, and you will have to work with the members of this
community. So I think the challenge here is oversight, high
standards and making sure when you pull back the curtain of
where the money is and who is involved with it here, that you
are not giving away the store. It is just, the bottom line is:
This is a network. It is global. It is dominated by four
players, and they are all foreign-owned. We need to bring them
on board with our solution.
The Chairman. Let me just say, if you look at the
technology transfers, they were done, some of them, over the
protest of the American Government. Involving things like
nuclear weapons triggers, we didn't bring them on board. I
would say the idea that having non-trustworthy people at the
top, the people who have been tested and gone in the wrong
direction, the idea that that is not relevant to me is not
logical. It is true that the so-called privates in the
operation, the taxicab driver, the guy who works as a
stevedore, could be the bad player, as Mr. Carafano said. On
the other hand, we had an incident not too long ago where we
discovered millions of dollars in the bank account of the
general in Mexico who was in charge of antinarcotics
operations. In that case, the people that needed the buyoff
didn't go to the bottom. They didn't go to a private, a
sergeant who could avoid a marijuana field; they went to the
top of the operation. So the point is, this is a system of
opportunities, and the idea that having a government in control
of our ports which has demonstrated that it will allow
components for nuclear weapons to be transshipped, in fact,
really the operation that they have in Dubai I think could be
best described as a genius for masking the transshipment of
illicit goods. That is their trademark. That is how they make
their money. And the idea that that is irrelevant to the
operation of the port to me is not a sensible judgment.
Mr. Gaffney.
Mr. Gaffney. Mr. Chairman, I think that James is right; you
don't have to own the company. But I think what we are
wrestling with here, does it help or does it at least help
somebody who wants to exploit the fact that the company is not
in U.S. control. Just so we are clear about this, I have
exactly the same concerns about having communist China having
this kind of control as I do about the United Arab Emirates. I
think the track record is probably every bit as deplorable if
you ask about what China has been allowing to move through.
The Chairman. So would you agree with a new law that states
that critical infrastructure that is identified by the
Department of Defense and the Department of Homeland Security
as critical infrastructure should be owned by Americans?
Mr. Gaffney. That is my personal view, Mr. Chairman. I
haven't a clue what the full implications of that are. But I
will tell you, it does seem to me that the power that you are
hearing in terms of the vocalized outrage of your constituents
is practically none of them are aware that that isn't the case
today. It is like Congressman Weldon and so many of you have
been working on missile defense all these years. It was always
the case the public thought we had one. This is the same sort
of thing. It has been an epiphany, and I agree with my
colleagues that it is very salutary that we are having this
debate. I tend to agree that is where this debate should take
us, but we are going to need to follow this debate through
starting with, I hope, minimizing further damage with this
relationship with the UAE.
Going to your point, Mr. Chairman, there is no question,
and I think it trumped all further considerations in the final
analysis, there are things the United Arab Emirates are doing
we are probably not all privy to but nonetheless that are very
helpful in this war for the free world. It is just that they
are doing things, and they are certainly capable of doing
things or people are able to do things from their territory
that could be very dangerous to this country.
The Chairman. I thank the gentleman.
The gentleman from South Carolina, Mr. Spratt.
Mr. Spratt. Thank you all for your excellent testimony. Let
me cut straight to the chase. CFIUS, we had Secretary England
before the Budget Committee yesterday, and I asked him what
national security concerns were raised in the review process.
He freely couldn't cite any. He basically said these were
homeland security and not national security concerns.
I learned from reading the committee memo that the person
in DOD who made this review is a Deputy Assistant Secretary for
Defense, Technology and Security Administration, and we have an
Assistant Secretary of DOD for Homeland Defense, but he was not
consulted on the DP issue. Is it the opinion of your panel, all
three of you, that CFIUS simply did not exercise due diligence
to start with?
Mr. Gaffney. That is my view. I think the point--it is very
helpful that you have been able to extract from the system who
did participate because, as you know, nominally it is supposed
to be at the level of Cabinet officers. As I said in my
testimony, they weren't read into it. The President didn't know
anything about this. You are talking about Deputy Assistant
Secretaries. It may even be there are career people who do this
thing day in and day out, and it is no knock on them. But
clearly there are aspects to this that transcend the
perspective that somebody who may be an office director or at
best a Deputy Assistant Secretary is going to have. And
unfortunately, the process chronically sort of defaults to this
kind of setting, especially when, as no fault of this
committee, but your counterpart on the other side is
responsible, I think, in some small measure for this. There are
so many vacancies in senior level positions where I think this
sort of broader perspective would properly reside and be
brought to bear.
Mr. Spratt. I hate to cut you off.
Mr. Flynn.
Mr. Flynn. I have not had access because of the lack of
transparency to know whether there was an adequate review or
not. I think it is worth asking the questions. I can say, the
maritime transportation community is a pretty small world, and
most people know each other by reputation. The DP World
Company, the senior executives in that company are very well
regarded international players in the shipping community. Many
of them are Americans. The top nine managers of DP World, there
is only one United Arab Emirates member and----
Mr. Spratt. Are you suggesting it didn't get the depth of
analysis it warranted?
Mr. Flynn. Seems clear it has not; otherwise, we wouldn't
be where we are--here--today. There is no question that
something as critical as this deserves full scrutiny. The law
for CFIUS was written in 1988. The thinking was not geared
toward the kind of world we are in.
Dr. Carafano. I don't think the CFIUS process gets to the
national maritime security interests in the maritime domain.
The CFIUS process looks at ownership. And what Steve and I have
argued is that ownership does nothing for you. Only security
provides security, and it is a global network, and most of it
is foreign-owned. So just verifying ownership doesn't address
security issues and threats.
Mr. Spratt. What we see here is typical of immigration,
other customs issues. I have followed this for years. I can
tell you story after story of containers that weren't opened. I
see here, I believe it is Dr. Flynn's testimony, that for all
of the 58,000 exporters, shippers to be monitored, the Coast
Guard has 80 inspectors.
Mr. Flynn. The Coast Guard has 20 inspectors to verify all
ports around the world are compliant with the International
Ship Port Facilities Bill. The good news, Customs has four
times as many to take on the CT path. By the way, there are
over 11,000 companies in queue to get into that program. There
is not staffing to do that job.
Mr. Spratt. What would it take in your estimation?
Mr. Flynn. One is, we should be moving to third party
audits, and then you audit the auditors. We are talking about
having to send Customs agents around the world; that is
complicated. Just as in the maritime area, we often use
professional classification societies like American Bureau of
Shipping to check to see if things are compliant, and the Coast
Guard oversees that.
You have got to insist not purely voluntary and hope for
the best. If you said, as a company, you are securing your
supply chain, show us, have the certification for that and then
we spot check it. No question we are talking about five-fold.
We should be talking an office about 500 people for oversight
for a program as complex as this one.
Mr. Spratt. One final question, are you testifying, all of
you, that the technology is there for far greater if not much
better surveillance than we have got now that could be done in
foreign ports? It will require a big commitment, but
nevertheless, we could do this with much greater security than
we are now achieving.
Mr. Flynn. It is there, sir, and the global operators would
be willing to put it in. They can get a cost recovery system
through a fee; we don't have to pay for it if we have a system
of how to use it. The problem is the Department of Homeland
Security can't figure out how to integrate its operations. So
we can go to 100 percent screening, non-intrusive, at loading
ports with the cooperation of the terminals. We don't have to
rely on a five percent, hope for the best intelligence-driven
system when we all know our intelligence apparatus is broken.
How is it Customs has gotten so good in the intelligence arena
that it can spot 100 percent of the right 5 percent when we
can't find the weapons of mass destruction and other problems
we found out, which is a real problem with our intelligence
community? You need to go to 100 percent.
Dr. Carafano. I am less optimistic that there is a simple
technological fix, that you can make a solid business case that
will do this. I think screening is a nice measure, but you
don't rely on screening to save your life. I think if we are
relying on the people screening people on planes, then we are
all going to die. Screening is good, but any screening system
can be defeated. Steve's scenario is great, and the fact is,
with all the technology in the world, a smart terrorist, smart
smuggler can find a way around that. One guy can find a $5
solution on a multibillion dollar system and kill you.
I think it is a question of where you put the balance of
your investments. I think you put them, your investments, on
the offensive capabilities. That is why I agree the Coast Guard
is an enormous investment, grossly underfunded; kids running
around in ships that are eligible for Social Security. They
have missions that span the entire maritime domain. Not just
the auditing issue but also on the proliferation security
initiative, maritime domain, which looks in the commercial and
noncommercial system, and we have grossly underfunded them. So
if you have got a couple million dollars to throw at something,
throw it at the Coast Guard first.
I would agree with Steve, if there is a global business
case for a technological security solution that somebody can
produce, then that is fine; I would accept that. I am a little
skeptical that it is out there.
Mr. Flynn. It is right now in Hong Kong. It is not perfect
in lots of ways, but one of the things it does, it gives you a
forensic capability. Just like those closed circuit TV's in
London didn't stop the attack but allowed us to pull back and
find who the operators are. As we build greater visibility, we
raise the deterrent level. It could take them 2 to 3 years to
acquire a weapon of mass destruction. You put it in the system
where everything is being screened, and if you find out the
problem, you can isolate where the problem came from so you
don't have a wholesale shut down of the system. It is not just
technology; it is layers of security. We don't have to rely
solely on trying to find all the bad guys and leaving the
system wide open.
Mr. Gaffney. Mr. Spratt, I think technology is part of the
answer. It is like a fence along our southern border. Seems to
me that is part of the answer to the immigration problem, too.
But you have to appreciate that you are up against determined
adversaries. They are going to try to end run it, find new
openings and opportunities, and it is one of the reasons why I
come down differently than my colleagues by saying, shut down
other opportunities where you see them possibly being opened
up, including the case of this port acquisition.
Mr. Spratt. Can't this be paid for by levying fees. There
are huge flows of commerce. Can't small fees produce
substantial funds to buy much better technology?
Mr. Flynn. The pilot in Hong Kong will come in at $6 to $8
a container. We can move a 40-foot container with up to 32 tons
of material from Asia to the West Coast about average rates,
$1,850, which makes a postage stamp seem a little overpriced.
They carry about $66,000 dollars of retail goods on average for
Target and Wal-Mart. You are not going to see that. Those rates
go up and down based upon availability. You want to layer it
throughout the system. I want it in Singapore, Jakarta, so I
can spot things along the way. They need to put the system in
place, the terminal operator, if they do it altogether and come
up with a common fee structure and make the data accessible to
Customs agents, not just us but to the British. There are
export control issues.
So there is a lot of promise here without solely relying on
a system either focused on ownership or hoping and praying our
intelligence is so good we can narrow down the universe and
check the right thing.
Dr. Carafano. I am skeptical. This to me is the TSA
solution. We spent $6 billion a year on a system which was
defeated by $20 dollars worth of razor blades. The global
security screening solution, I think, there may be a business
case for some measures, and I am all for that. And I agree with
Steve, the global movers of systems have a vested interest in
making sure that this system keeps going. They realize if there
is a 9/11 in the maritime domain, the consequences will be as
catastrophic as Steve says.
I talked to all the people in Homeland Security, and they
say we are not going to shut down the ports, just the affected
ones, and we all know what is really going to happen, on the
day of the Katrina-style port act, they are going to shut down
all the ports, and we are going to have consequences that are
global. But the notion that this is going to prevent that, I am
just very, very skeptical. The business community can do some
things because they have a vested interest in preventing that,
but I don't think the TSA solution of, let's just screen
everything and rely on technology, is going to get us there.
Mr. Spratt. Thank you, Mr. Chairman.
The Chairman. The gentleman from Pennsylvania, Mr. Weldon.
Mr. Weldon. Thank you all for your testimony. The tragedy
of this situation is not just the fact that we have to look at
the substance, and we will raise them in other parts of the
hearing with the Administration, but it is the damage that we
have done in our relationship with a country that seems to be
becoming our ally. This reminds me of the Clinton
administration when President Clinton told the leadership of
the mainland in Beijing that they would not allow a visa to be
provided to President Lee Teng-hui of Taiwan to go back to his
alma mater to speak. The Congress found out the next day
because the White House didn't talk to the Congress, and the
Congress was livid. And so in a bipartisan manner, we overruled
the President. That so embarrassed the Chinese administration.
They thought we deliberately embarrassed them. So they started
lobbing missiles across the Straits of Taiwan.
What did President Clinton have to do? He sent a carrier
battle group in the Straits of Taiwan that almost caused a war
between China and the U.S. over the administration not talking
to Congress. That is what is happening in this case.
What absolutely offends me the most is this White House had
to know that there would be significant concerns raised by the
American people and the Congress. Now maybe they would have
been dealt within a structured process that we would have felt
was okay, but they didn't give us that opportunity. Now they
are telling us well, if you object, you are going to hurt our
relationship with the Emirates. Too bad. Where were you? Why
didn't you bring the leadership of the Congress in? Why didn't
you ask for us to understand what was being proposed? That
unfortunately is a dilemma we now find ourselves in.
So we are damned either way in this case. Whatever we do,
we are going to cause problems and concerns. Many say we are
just posturing. We are not posturing. I come from Philadelphia.
I walked those ports. I would have liked to have had some
inclination that a pending deal was on the horizon that was
being talked about for months within the process of the agency,
the Administration, but that wasn't done. In fact, none of the
people at the Tioga Terminal that will be taken over by this
process were even consulted. They didn't have a clue. And all
of a sudden, through the media, this is sprung upon us.
What do they expect we and the American people to do? It is
a tragedy that should have been avoided. It wasn't, and now we
are left to try in the best way possible to understand what are
the threats, and I won't pose some very specific questions that
I have relative to al Qaeda's involvement in a very direct way
with the Emirates. I will talk about a camp that mysteriously
disappeared because the Emirates government tipped off the al
Qaeda leaders when we were about to strike it a week before
that camp was attacked.
I will bring up an internal document from West Point and
their terrorism efforts up there of a document that al Qaeda
sent to the Emirates saying we have infiltrated your security,
your censorship, along with other agencies that should not be
mentioned. This is al Qaeda talking to the Emirates. This is an
official document of al Qaeda.
I want to know whether or not that has all been considered.
I have no idea whether this process went through that. What
really bothers me by the Administration is also their
interpretation of the Exon-Florio language as amended.
So the question I have for each of you is whether or not
you agree with the Administration in their interpretation of
the Byrd amendment, which is contradictory to how Byrd
interprets his own amendment, when they say that even in the
case where the two conditions of the Byrd amendment are met,
the committee may determine that the 40-day investigation is
not required.
I am of the feeling, as a Member of Congress who worked on
this language, that it is required, but the Administration has
seen fit to interpret it that it is not required.
So I would ask you all to respond to that, and also, Mr.
Chairman, I would like to ask these witnesses if they think
that there needs to be a role for selected leadership of the
Congress to play. There is no role in that process today. Maybe
there needs to be, either through the Intelligence Committee or
the leadership of the Congress, a very elite group of members
of both parties who are at least made aware of what the CFIUS
process is considering when it comes to foreign investment.
Mr. Gaffney. I think, like you, the commonsense
interpretation of this language suggests that the trigger
should have kicked in. It is just one of the things that is
broken with the CFIUS process, maybe not even the most
important but certainly one of the things that I think you need
to revisit as you think about reforming it.
I guess my feeling about it is, members of this committee,
members of the leadership, members of the Intelligence
Committee, for that matter the entire Congress, will be saddled
with the consequences of a defective process. It is incumbent
upon you I think, in the old adage, to be in on the take-off if
they want you in on the landing. There are concerns--and I
understand they are legitimate--about undue political
influence, the compromising of proprietary information and so
on, but I think what we can take away from this fiasco, and it
is a fiasco for the reasons you mentioned, is the need to try
to improve it so that it doesn't happen again.
I believe people of good will on both sides of the aisle,
on both sides of the Hill are going to be able to find ways to
ensure that there is oversight in an appropriate way and there
is a degree of transparency that is incumbent upon the need for
audit supervision that this system clearly cries out for.
Mr. Flynn. I am not a constitutional lawyer, but what I
have heard from port communities, with which I can empathize,
is the Federal Government can't have it both ways. The fact is
that it has been to the charge of States and localities to
provide for the security of their ports, working through the
private sectors, and they are to split the bill. The
Administration didn't ask for any port security funds until
2004 despite three budgets going by because they said quite
clearly these fall in your jurisdictions; you are responsible
for security.
I can appreciate there is legitimate frustration at the
local level when decisions about who their tenants are going to
be, that that would lead to significant aggravation which they
are likely to express to their members. There is little
question as we evolve to a point in recognizing this new
adversary is increasingly focused on disrupting economic
targets, that the old matrix that was used in the CFIUS process
is not going to apply. It is a more all-encompassing, more
civil, and I think it is going to, by necessity, need to
involve a broader engagement. The more we engage our civil
society, and through our elected representatives, what is
critical and where resources need to be applied, the more
likely we will make those investments. When everybody is
ignorant, we don't make investments; we think it is all honky-
dory. This process, if there is any positive thing, has focused
the Nation's attention on the gross vulnerabilities of a
critical infrastructure that supports our way of life, and I
hope the opportunity, while I can certainly understand the
frustration here, that we move from that to saying let's really
fix for the American people what we know--well-documented--is
well broken.
Dr. Carafano. I sympathize with your remarks, and until the
Congress has an opportunity to get through all the facts of how
this process was executed, I think I would reserve judgment. I
do think it is self-evident the process needs to be revised so
these kinds of fiascos don't happen.
I do believe one message I want to be crystal clear on,
that is dispelling any notion that revising and reforming the
process will address the kinds of maritime concerns that Steve
and I raised today. And while I am thrilled along with Steve, I
see this as an enormous opportunity to get Americans excited
about something they ought to be excited about because a third
of their economy is dependent that this global system work, but
I would hate to have Americans walk away to think, because
Congress devised this process, we are safer at sea, because
that simply won't be true.
Mr. Weldon. How about a simple response to the
interpretation of the Byrd amendment which required a mandatory
45-day review? Do you believe that they had the power to ignore
that?
Dr. Carafano. Without having seen all the facts of how the
process was executed that I think will only be available after
the Congress has an opportunity to gain those facts, I really
don't feel qualified to answer that.
The Chairman. I thank the gentleman.
Let me ask my colleagues something. We have got two more
panels to go, and I know there are no more votes today, and I
know people are going to have planes to catch. Let me ask my
colleagues who haven't had a chance to ask a question yet if
you would be willing to forego a question on this panel to move
to the next panel which includes Dubai ownership
representatives and pick up immediately where we took off.
Everybody who would like--thinks that is okay, could you raise
your hand if you want me to do that?
I think--Dr. Snyder, if--Mr. Taylor, would you be willing
to do that if we end with Dr. Snyder? Okay. I tell you what we
will do, let's do Dr. Snyder, Mr. Larsen, Mr. Taylor, and move
to the next panel--and Mr. Turner.
The gentleman from Arkansas, Dr. Snyder.
Dr. Snyder. I think this panel is really, really important
because you are the forest-for-the-trees guys. The next two
panels we are going to get focused on one contract, and I am
afraid if we leave you alone, we are going to miss a point.
Mr. Flynn, you are not a Johnny-come-lately to this event.
I would like, Mr. Chairman, if I might, to put in the record an
article that Mr. Steven Flynn wrote in November, December 2000,
that was in Foreign Affairs Magazine called, ``Beyond Border
Control,'' in which you discuss this issue.
[The information referred to can be found in the Appendix
on page 183.]
Dr. Snyder. You specifically talk about what you referred
to as your hope it is not going to be a future Tom Clancy novel
scenario, in which you gave an example of something
unfortunately came to in a different way when we had the
September 11th but that was written obviously a year before
September 11th. I don't know if you recall, but in October of
2000, you came to my office and met, and I don't know if it had
anything to do with it, Dr. Carafano, but somebody from
Heritage came by and said, we want to get to know you. I said,
if you want to do something, have business get involved with
security, go talk to Steve Flynn. Maybe they hired you after
that.
About port security, let me get into some of my points. One
concern that I have with the approach that the Chairman and Mr.
Gaffney are taking, if you, in Mr. Gaffney's words, if we go
along with this current contract, it will possibly open another
risk. Once you accept that principle, seems to me you don't
have any basis for allowing any ship to come in from any Arab
nation. How do you draw the line when you are talking about a
small package? Can you let any ship come in that has any crew
members on it that could ever go off the ship? Where do you
draw the line if you start saying, in your words, Dr. Carafano,
that ownership is the key rather than security? That is one of
the concerns I have with the direction we are going with some
of this legislation.
Mr. Flynn, in your article, you talk about, your words,
grossly underfunded port security. I am glad to hear that,
grossly underfunded; something that we think is key to an ugly
scenario that could occur. You talked about the fact that we
only have token police presence in our ports, your words, token
police presence, again, probably a question of resources. You
talk about the disorganized nature of the U.S. Government
response in our ports.
We have a lot of work to do. Well, it comes down to
priorities and how we spend our money. In the view of a lot of
us, we have not done our priorities correctly in this Congress
and in this Government in terms of how we spend money, and we
get down to discussions of, who gets tax cuts versus who
doesn't, and how do you spend money?
I hope that you all are sending a strong signal in the work
you have been trying to do, Mr. Flynn, that we have tremendous
work to do. As I understand, one option, going back to Mr.
Weldon and how are we going to find something good to come out
of this, there is a scenario out there that if this company
makes it through this process, that they have stated that they
are willing to negotiate to do enhanced security measures. I
think you suggested, Mr. Flynn, that the Hong Kong model
perhaps could be adopted by this company, and you would have a
much broader study. Is that a fair description?
Mr. Flynn. It is. I think that you will see a commitment by
the players that join in that, so with these four companies,
you would account for eight out of every ten containers coming
into the United States. What you would be able to find is big
dense objects. That is what we are really worried about. Once
we put in a process of cost recovery and private players in it,
you can upgrade; it, the new technologies come along, but the
critical movement is move from a database analysis of what risk
is, is something going on in the physical movement of the
supply chain to validate low risk is low risk, and have
processes in place to manage it. That doesn't exist today. We
are in a situation analogous like airplanes never had black
boxes in them, so when they fell out of the sky in the aviation
industry, the Government said, well, happens one in a million
times. We need better tools to know where the problem happened,
where the breach has happened, so we can manage these incidents
without losing not only the whole industry but the critical
underpinnings that go with that.
Dr. Snyder. I think another theme of your article is, I
know I talk to my constituents back home, they want me to build
a wall at the Port of New York. What you all are saying is the
places to start looking are the trucks driving into the loading
points in countries all over the world. We don't think like
that. We still want to put up a wall. But if we put a wall, we
haven't done ourselves any good. I hope that is another thing
that comes out of your presence today, is we have got to start
thinking about what is going on at the point that containers
are packed and sealed and transported and loaded onto the
ships. That is the crucial point in all this. Obviously, the
unloading is a part of it, but we don't think that way. We
still think we can put up this tremendous barrier.
Mr. Flynn. As a practical matter, we have been deploying
radiation portals at the exit gate of our marine terminals in
the United States, and they have real limitations in terms of
technology. The box is in the yard for 2 or 3 days, so if I
wanted to set it off remotely and take out the port
infrastructure, I could. So we want to get it before it gets
loaded, before it is in the ship. We are going to have to do it
with the cooperation of foreign private companies and our trade
partners in the busiest places of the world. So I think we have
to be careful in trying to close one potential loophole down,
and there are potential loopholes. I would rather work from a
security perspective with U.S. companies, with U.S.-owned
infrastructures. I like that because I have law on my side and
some assumptions of patriotism. But in the global world, we are
in, given it is not that way, that is all the more reason to
not have no minimum standards and no oversight but go in the
other direction. We can't own all this global transportation
infrastructure. We don't have the resources nor the
willingness. But we do have the leverage of our market to get
folks to raise the bar in the oversight process. We have a long
ways to go, and this presents an opportunity to go in that
direction.
Dr. Carafano. He made a great point. In the 21st Century,
nationality and geography don't guarantee you security. Only
security guarantees security. I don't object to some of his
solution, but the easiest way to smuggle something into the
United States is to drive it across the Mexican border or put
it on a noncommercial ship and land between a port. If some
terrorist has something valuable he wants to get inside the
United States, he is most likely to choose those venues which
are cheaper and probably a lot safer than putting something on
a container and getting it out of his control. And I think this
is the criteria. If there is a business case for adding on a
security measure, and I think that would be pretty apparent,
then I think that is great because it is value added in lots of
way, in terms of inventory, security against terrorism,
security against theft. So if there is a business case for
security measures, I think that is great, and I am all for it.
But let us not--that ain't going to buy security from the
terrorists. The best thing for security from the terrorists is
going out and getting the terrorists.
Mr. Flynn. There is a key point. We push it out so it is
coming across the border, but we don't shut down the trade
system. So identifying what part of these networks are most
critical in finding safeguards is not a bad thing.
Mr. Gaffney. That wasn't a rhetorical question to me,
Congressman. I would like to address it quickly. I would argue
that where you draw the line or think about drawing the line is
what you do after an attack. Because my colleagues may be right
that this is a very serious likelihood of somebody penetrating
our ports and blowing them up. You have got a two-fer in most
parts because not only a critical part of our economic
infrastructure but a lot of population which surrounds it.
The other part of this is, of course, you are going, I
think, to find us throwing money at this problem after it
happens, much as we have done about airports. I am simply
saying, I don't think we have got all the money in the world to
do all the things we want to do, so the sorts of suggestions we
have made, there seems to be triage, applying sensible
precautionary measures overseas and at home to try to make this
particular avenue of attack harder for people who we know are
trying to hurt us.
The Chairman. I thank the gentleman.
The gentleman from New Jersey, Mr. Saxton.
Mr. Saxton. I would like to yield my time to Mr. Turner
from Ohio.
Mr. Turner. Thank you, Mr. Chairman.
Thank you, Mr. Saxton.
I appreciate you yielding time to me, and also, I
appreciate your opening comments concerning the restriction of
foreign investment and foreign ownership of assets in the
United Arab Emirates.
In your discussion, as you were talking about this, seems
we have several different issues: We have the issue of
security, and security can be both, what are we doing to
protect ourselves at the port, and can we also then include the
issue of, who owns them, who are they, what do they do there
and how are they implementing security procedures? Issues of
trust which we hear that also dissolve into the issues of
relationship.
When you go to the issue of relationships and ascertaining
security and trust, you go to the issue of fairness and wanting
a relationship with someone who has a relationship with you and
not wanting to offend and wanting to strengthen partnerships in
the future.
One of the things I find interesting in the issue of the
concept of fairness is that I asked my staff to pull
information on the ownership interests, the foreign investment
rules of the United Arab Emirates because I think that goes to
a basic interest of fairness because I believe that we should
not allow someone to buy something here that they won't let us
buy it there.
What Chairman Saxton listed were the ownership rules
published in our National Trade Estimate Report on Foreign
Trade Barriers by the United States Trade Representative which
clearly lay out that not only could we not buy ports in UAE or
American citizens not buy the ports in UAE, but we couldn't
even own McDonald's. In fact, the McDonald's in UAE on its
website proudly exclaims UAE-owned, operated and proud to serve
you. It says: In the Arab nations, all McDonald's Restaurants
are locally owned and operated by Arab entrepreneurs.
When you look at these rules that require that if you are
going to have an ownership interest, if you are a foreigner and
have an ownership interest, an investment in the country of
UAE, except for some minor exceptions, it requires that that
asset, business enterprise, et cetera, be owned 51 percent by
someone from the UAE, which means that if we were to apply
their rules to their purchase of our ports, it wouldn't be
happening. I have a bill that I am working on in conjunction
with Mr. Hunter's bill on critical infrastructure that would
require that especially government-owned entities, when they go
to purchase and invest in things in our country, would be held
to the same standards of their rules. We are not just talking
about a UAE citizen or business entity, we are talking about
the UAE government interest attempting to make an investment in
a country where their own rules, the government's rules,
prohibit it.
I would like, if you would, to talk for a moment about that
issue, because it seems that goes to the issue of fairness, an
element that should be considered. It certainly distinguishes
some countries from other countries. If we can't invest in
their country in the manner in which they want to invest here,
perhaps we should reconsider it.
Dr. Carafano.
Dr. Carafano. I think that is a fine debate for the
Congress to have. If you want to debate our strategic interests
in the UAE and our future trade and economic and foreign policy
relationships, it is a great debate. It should be separate from
the security debate because I don't think they are intertwined.
I will just say this on the economic issue. Fundamentally,
what you have here, not just with Dubai Ports World but all the
foreign-owned maritime assets, you have foreign-owned companies
coming in and investing in dilapidated infrastructure in the
United States, hiring our citizens, increasing employment in
the United States and building one of the marvels of the world,
which is one of the fastest global maritime networks which
makes imports cheaper because they move faster and makes our
ability to expert things more competitive.
Mr. Flynn. There is a lot of irony because the Port of
Dubai was built by an American company and run by Americans for
the first 10 years. They had a heavy military troop put on
there. Sort of the nature and complexity of globalization, but
I merely need to accentuate his point here about the
investment. The most foreign-owned port in this country, in
terms of leases, is the port of Los Angeles, which is about 90
percent. It happened because when you turned to the citizens of
the City of Los Angeles and said, are you ready to put in a $50
billion bond to upgrade your waterfront so you can be a gateway
to Asia, the answer was, I would rather put it in schools,
roads, other things. So the option here for those folks were,
okay, we won't have a gateway to Asia or we find somebody to
bring capital to do that. To make that happen, you have to give
them a 30-year lease. They dredge the channel, put the cranes
in and make that possible for us to trade.
So we are playing a bit with fire here. We would have to
find the capital ourselves. Today, in China, a new port of New
York and New Jersey is being built every year. And we are
building virtually no new capacity. Trade is supposed to double
in the next 15 years in terms of container traffic. Where is it
going to go? Maybe through Canada or Mexico. That might be
where we end up going with this.
We need the infrastructure. What all this leads me to is,
because it is private owned, we better have a damn high
security bar and promoting it internationally to get us to a
point where the critical system is secure. The ownership issue
is certainly one that is worthy in the policy and leveraging
this with the UAE as a foreign policy point is there, but if we
are really focused, we should be using what we have got, the
best security thinking about getting to where we want to go.
Mr. Gaffney. Mr. Turner, I think the question is
sufficiently important that I mentioned it earlier and
complimented Congressman Saxton for raising it. I think it is a
fundamental equity issue that we ought to have part of this
larger debate, but I would just ask one other thing related to
financing. I am bemused, to be honest with you, how CFIUS could
have concluded its judgment about the national security
implications of this deal when its deliberations were completed
before the international financing of it was even started; $6.5
billion of this $6.8 billion deal had been raised on
international capital markets. How that exactly works in with
the ownership limitations, I don't know, but I don't think
CFIUS knows either.
I would ask a classical question, follow the money: Have
there been undertakings made that might give rise to still
other questions here about ownership, about the rights that
attend investment that bear upon questions like the ones you
are asking but also questions like the ones I am asking? What
about the security of these facilities? Could they be
compromised if the security plans, for example, have to be
shared with owners whose identity wasn't known, let alone
disclosed before the CFIUS, first CFIUS process completed to
the satisfaction of the executive branch?
So I would encourage this to be part of the debate. I think
the questions, as we have all talked about here, actually
introduce a very far-reaching and perhaps possible debate in
this country about whether we are comfortable with the level of
globalization and what it has translated into in terms of lack
of control and foreign presence in even critical
infrastructure. But I think that is the debate we have got to
be having, too, in addition to resolving the question of this
particular deal.
The Chairman. I thank the gentleman.
The gentleman from Washington, Mr. Larsen.
Mr. Larsen. Thank you, Mr. Chairman.
I think what I am hearing in some respect today on the
security side is that our currently layered approach to port
security and supply-chain security is full of holes and gaps,
and that security at our ports ought to be frankly as thick as
flies at a picnic on a hot day, and what we have is a picnic
and very few flies when it comes to security. I am talking
about the ports in Washington State, a large focus ought to be
on the port security and the supply chain security. I will give
you some examples: GAO found less than 13 percent of our CT
patent checks have actually been performed. They found, due to
staffing imbalances within the Container Security Initiative of
foreign seaports 35 percent of the high-risk containers are not
even inspected overseas.
So there are definite gaps, and I guess the headline here
is inadequate; we have inadequate funding to assure adequate
screening. As an example, the American Association of Port
Authorities requested, their members requested, $3.7 billion in
port security money from 2002 to 2005; $708 million was
granted, leaving a gap of about $3 billion. I am not going to
argue every $3 billion was necessary, but it is an 81 percent
difference, and surely the funding is not there for port
security or supply chain security for containers coming into
the country.
Mr. Flynn, I want to ask you a question. I went to Hong
Kong International Terminals (HIT) in January and talked with
the general manager, who is an American, a Washingtonian, in
fact from Washington State, managing the HIT Terminal there in
Hong Kong, about their pilot project. It is basically three
steps: Check to be sure it is the right container; has got the
right stuff in it; and there is no rad stuff, no radiation
stuff in it. Basically those three steps.
It is a pilot program. And in your writings, you have
talked about perhaps Dubai Ports World adopting this program.
You have also talked about the GreenLane maritime security act
and what that put forward. Can you talk about the GreenLane act
a little bit for this committee to help us understand the kind
of actions that perhaps separate from talking about the CFIUS
process, what we can do on the maritime security side of things
to move the ball forward here?
Mr. Flynn. I think the biggest thing is the market needs
incentives for moving ahead, and they have to have confidence
there is buy-in by all of the players, that what they invest in
is going to be used in an appropriate way for security. What
stalled out the investment of moving further on the Hutchinson
Project is, legitimately talking with the group manager and
director, he said why would I put in place a system that would
cost me a half a billion dollars if Congress after the next
incident is going to change the rules and tell me I need a
different system? I need to buy in upfront; then I will make
the investment, and the other players are likely to go along.
The first thing is to have DHS respond to the initiative
and say, this is how we could use it, and for Congress to say,
this is a good step forward. We are not going to change the
rules overall.
Mr. Larsen. When we see DHS in a few hours, we should push
this issue on them.
Mr. Flynn. They are evaluating it now. A little slow to the
take, but they are evaluating it, and I am very pleased the
Deputy Secretary of Homeland Security is very much focused on
getting an assessment here, and Jay Ahern, the field operations
assistant commissioner, has been very engaged. So we are
getting some positive movement here.
The other is the importers want a level playing field. For
most main players, it is nothing different than before 9/11, so
it is hard to dangle a carrot when there is not much more
capability or stick out there. So we need to make sure Customs
is whole. If we move forward with this, we need Customs
capacity. They don't want to be embarrassed to have a brand new
capability, and they can't integrate a response. We have to
create incentives for customers, and I think that is the
essence of the legislation. And I know there are other ways we
can talk about how to continue to improve it, but I hope it is
about seizing opportunities here. We have got this in our
crosshairs; this is a vulnerable system. What we should look
for is the capacity at the Federal level and what the private
sector can do and recognize it is going to be a global effort
to get us where we need to go.
Mr. Carafano. I would just say I think I agree with
everything Steve just said. I will say I don't know if it is
inadequate funding on the part of the Federal Government. I
will say it is incredibly wrongheaded funding. We have thrown
money at the things that have the loudest and strongest
stakeholders and not at the things that are most important.
So we grossly underfunded the Coast Guard. We haven't
funded the chemical biological defense (CBD) infrastructure and
human capital to make CSI and C-TPAT programs really effective.
On the other hand, we have thrown millions and millions and
millions of dollars in port security grants which by and large
I don't think are the best bang for the security buck. If you
look at the Department of Homeland Security Inspector General
(DHS-IG) report on some of the things, even at the end of the
day, okay, you would find is not a really big help in terms of
making the domain safer. We need to spend money on the things
that make the domain safer.
Some of the initiatives Steve mentioned, absolutely, that
is fine; Coast Guard, absolutely, that is fine; having the DHS
people do its job. But just giving out money to people to be
cool, that is not helping.
Mr. Larsen. Thank you.
I just want to make a final point on the Container Security
Initiative. As an example, if we don't fund the CSI, which is
the Container Security Initiative, which is our worst
nightmare, that we will have another CSI, that is crime scene
investigations of the worst kind at all our ports. So we really
need to step forward on all these issues by CSI and C-TPAT and
make these work.
The Chairman. I thank the gentleman.
And the gentleman from New Jersey, Mr. LoBiondo.
Mr. LoBiondo. Thank you, Mr. Chairman.
I really want to thank our panelists here today.
I have a couple of comments at the end, but, first, Dr.
Carafano, I know how you feel about port security grants. But,
Mr. Flynn and Mr. Gaffney, how do you feel about port security
grants?
Mr. Flynn. I think clearly there needs to be a debate here
when you have some real equity issues. Particularly I will
speak to L.A. Long Beach but certainly also Port Newark or Port
Elizabeth. L.A. Long Beach brings in about 40 percent of all
the containers that come into the country. Asking Los Angeles
County property tax owners to be responsible for the physical
security and access control and so forth seems to be legitimate
equity issues.
The other challenges here are that, in the absence of
national standards, when a port sets a higher bar they have to
take out all their capital investment fund or try to pass it of
off to the lessees, which raises the costs, which pushes the
business to another port.
So one of the problems here is we have not agreed upon
minimal national standards, and then we haven't really had the
conversation of who should ante up what. We essentially have
gone through an approach that says, states and locals, you know
best. Well, the State of Maryland knows that putting up
cardboard boxes as a closed circuit TV as a deterrent may work
for a 13-year-old, but it is unlikely to be a good
counterterrorism device.
So they are in a dilemma. Do they use their capital
improvement in order to keep pace with Norfolk or do they hoist
the cost on?
We need to set national standards, and we need to have a
conversation about who pays. And we shouldn't do by just by,
well, you guys come up with it and compete and some decision is
made. People, frankly, at DHS don't know much about ports
making decisions. Well, this sounds kind of cool. That is not a
way to do things, and that is how we have been doing it.
Mr. Gaffney. Congressman, I don't have a whole lot to add
to that, though it does seem to me this is part of a larger
problem we have been talking about this afternoon and really
for the past two weeks; and that is, oh, my gosh, you mean the
ports aren't secure? And you are seeing people suddenly, I
think, focusing on the kind of constructive attention that is
needed, whether it is in terms of national standards or in
terms of new technologies, whether it is in terms of the
overseas component being kicked up to a higher priority,
whether it is better fences, whether it is better surveillance,
whether it is whatever.
It seems to me that this is really the moment now, for all
of you, in particular to capitalize on this intense energy and
engage the public in the sort of debate, as I said in response
to Congressman Snyder, that you will be having after an attack,
except before attack, and maybe thereby prevent it from
happening.
I think this is the way to address this, as a matter of
that kind of opportunity and urgency; and whether it is local
grants or whether it is going to be a national standard, I
don't--I am sure there is something to be said for both, but
there is a moment here where we still have, I believe, the
opportunity to do it better than we have been doing it. I hope
that the upside of the trauma that we have clearly created with
the debate about the UAE ports is going to catalyze that kind
of constructive outcome.
Dr. Carafano. I don't want to be on the record for arguing
that it is zero money for port security, because that is not
what I am saying. I think that there should be a Federal port
security program. Because there is a captain of the port. He
comes to the table. He is trying to get people in this port to
cooperate. He has to have some carrot to come to bring to the
table to facilitate cooperation. So I think there should be
some port grant security money.
I do think it should be targeted on the most critical
avenues to keeping the maritime security system robust. So I
think I would be spending a lot more money in places like L.A.
and New Jersey and Long Beach than I would in small ports in
some other States.
And the third thing which I think--Steve's point is
absolutely essential. What we need most of all is a predictable
business case. Because I talk to people, and they say, well, we
are not going to do anything because we will wait until next
year because maybe there will be some port security money. What
I found is that for most of these guys if there is something
that really needs to be done in a port and it is a real
vulnerability, they are not sitting around waiting for the
Federal Government to pay for it; and the other stuff is, let's
sit around and see if we get something.
So whatever we do, we need to have a national program that
allows--because these guys are making 30-year infrastructure
investments where they can credibly see what the Federal
Government is going to kick in and what it is going to kick it
in for and what they can do, so they can make sound business
decisions.
Mr. LoBiondo. Thank you, Mr. Chairman.
What we are hearing today is really good information, but
the Coast Guard Committee has been talking about these things.
Mr. Flynn came before us. We have had testimony from everybody.
Office of Management and Budget (OMB) acts like they are our
enemy when it comes to funding the Coast Guard. We fight with
Appropriations on Operation Deep Water when we have got cutters
that are disabled every day and aircraft that can't fly. This
Congress will not put its money where its mouth is about port
security.
Gene Taylor and a number of members have joined with us to
do something. We have spent $25 billion on the aviation side,
with less than a billion dollars on the port side; and with the
current funding structure that is proposed, it will take us
more than 60 years to make that up, to get to the minimum that
DHS and Coast Guard has recommended of $7 billion dollars. What
is really disheartening is if this attack takes place you will
see that money appropriated tomorrow, after how many lives are
lost and how much destruction is wreaked and how much of the
global economy is wrecked. What do we have to do to get the
attention, to get some action?
So our panelist is spot on. I thank you.
I hope somehow, Mr. Chairman, you will join other members
of this committee that have the power of persuasion, because,
obviously, we have not found the right combination to get the
word out that the Coast Guard is terribly underfunded; and if
we can fund them, we can fund port security. Thank you.
The Chairman. I thank the gentleman, and I thank him for
his leadership in this important area.
I would just say that, in my view, we should and we could
have 100 percent cargo scan. I think it is achievable, and I
think one way to achieve is it is to charge the guys that are
bringing the stuff in. I know that is an anathema to the
commercial free trade community, but that makes sense, and user
pays is a fairly accepted custom.
I agree with the gentleman that we have got to increase
that capability. So let's work together and try to get it done.
We have got one more. Mr. Taylor had a question of this
panel. We are going to go to Mr. Taylor. Then we are going to
go to the next panel, and we will take up with people that
haven't had a chance for a question with the next panel.
Gentleman from Mississippi.
Mr. Taylor. I would like to thank you gentlemen for being
here. I think all of you raised a valid point. Mr. Gaffney, I
am with you.
I deeply regret to say I think it is going to take a 9/11
type maritime industry based disaster for our country to do
what we should be doing right now.
I am going to get on a plane tonight. Now the Nation is not
going to pay for my ticket, but the Nation is going to pay
about 5 bucks to pay for that screener for me to get on the
plane. If we are willing to do that to individuals every time
they buy a ticket, why can't we ask corporate America to pony
up just a little bit to see to it that those approximately
20,000 CEUs that come into this country--I am sorry--20 million
CEUs, container equivalent units, come to the country that
there is some safety to them?
I am pleased to hear that all of you are showing these
concerns. But, you know, if you think about it, this is the tip
of the iceberg. I mean, can't we as a Nation get upset that we
owe the Communist Chinese $300 billion, $256 to Communist
China, another $150 or so to Hong Kong?
Today in New Orleans, in Pascagoula, Mississippi, foreign
flag cruise ships with sailors from who knows where are taking
care of our FEMA folk. Our Government is paying them to take
care of folks that lost their houses in hurricanes instead of
an American flag vessel.
On a daily basis, the people ask for Jones Act waivers. The
law that is going all the way back to the earliest days of our
republic that we are supposed to provide for the safe coast-
wide commerce and security of our ports, that they be American-
owned, American-crewed, American-manufactured, on a daily basis
they get waivers.
Right now there is a French firm called Verbone that,
through a clever manipulation of the banking process, owns
supply boats that operate in the Gulf of Mexico. Now when
someone sees they have done it, what is to keep the Koreans
from doing it or the Iranians or whoever?
So, again, I think you have raised some very, very valid
points.
One thing I think you missed, and it is just piling on with
how scary this is, when I was a kid, I was a stevedore on the
docks in New Orleans, miles and miles of wharves, each of them
offloading ships that, by and large, could load and unload
themselves. Now most of those docks sit idle because all of
that has been consolidated to a few container cranes. So if you
own the container crane and you choose not to load a military
sea lift command vessel--remember, we have not declared war
since 1941. We are relying on the good will of those ports to
load our vessels or unload vessels, as the case may be. So if
you are a foreign operator and you choose not to make your
facility available, you can certainly throw a heck of a monkey
wrench into any operation that the American military chooses to
carry out around the world.
So, again, I welcome your thoughts on that. I am sure there
are places where the President can step in, but I have noticed
that, particularly in the aftermath of the storm, our Nation
has stepped in and made tough decisions that involved the lives
of people not very often and not very well.
Mr. Flynn. I might say on the last point here, particularly
in prosecuting the war in Iraq, the Department of Defense has
been extremely dependent upon foreign flag vessel container
ships and foreign terminal operators to move material. When
Turkey basically closed out its base, it was a company,
Hutchison Port Holdings, in Rotterdam that made available the
real estate for the free deployment of it. So you are dealing
with relationships here with private actors and foreign actors;
and, like anything, trust has got to be built up.
But I want the verification because it is private owned,
because we lost this capability. We are 30 years behind now. It
is a bit like trying to resurrect JC Penney and say go take on
Wal-Mart by saying let's try to recapture America's Merchant
Marine and put it back. I wish that weren't the case. I love
ships and love that heritage. When I came into the service in
the Coast Guard in 1978, you know, I thought there would be
something to go into, and it is not there anymore.
But, that being said, as a security and going on global we
want to build this capacity into the system.
I point out on the fee thing here the good news about doing
this and loading ports is the nature of the beast is a terminal
operator can't just select U.S.-bound goods. It is just too
complicated. He has to do it for everybody.
So instead of being 40 bucks a box for U.S.-bound goods it
would have impact on our competitiveness. Everybody has to pay
the same fee, and that also is very useful for
counterproliferation purposes. You can't get from North Korea
to Iran by saying, Scotty, beam me up. You move to the system.
You don't come to our borders. Visibility in the system would
have a huge asset. But you not only have to cooperate with the
people who own it, but trust, but verify.
And that is what we need is a system to do that. We have
just the trust part right now, and there is reason to be
squeamish if that is all we have.
Dr. Carafano. I agree with Steve. Trust but verify is
absolutely the way to go. And the good news is, although a lot
of this infrastructure is foreign owned, it is a very, very
competitive environment. There is lots of people doing this,
and everybody wants your business. And if you do find a partner
one day that violates your trust, it is not hard to switch to
another guy. So it is a different kind of foreign dependency
than, for example, if somebody is making a tiny transistor that
without that transistor you can't have cruise missiles.
Somebody is operating a facility in a port in the United States
today and you don't like how they do business, there are other
people that would love to have that business and can do it just
as effectively, if not better. So it is, in a sense, a buyer's
market.
Mr. Gaffney. I had the privilege of working with President
Reagan at the time when he was talking about trust but verify;
and with the greatest respect to a President I loved, I always
thought that was a little bit cockamamie. I think you have to
be skeptical, healthfully skeptical about people that you have
no reason to trust or who you in fact in some cases have reason
to distrust. Verification is important, but skepticism first,
and then prove that indeed your trust is warranted.
I mentioned in my remarks Beaumont and Corpus Christi has
two ports that somehow simply never get thrown into the mix of
the six that we are told are going to be affected by this. I
believe it is a matter of record that the United States Army
has contracted with P&O to move materiel through those two
ports. There is an example of a place where you might or might
not have cooperation. Those are ports, as this committee knows
better than anybody, where we are moving heavy armor and
helicopters and other equipment to places like the Persian
Gulf.
It also is a question--again, just going back to I think
why we are here, perhaps a minority of you on this panel, but I
sense a majority of you within the committee--is that a set of
facilities that you most especially want to take risks with,
the personnel, cargo information, and security planning? And my
suggestion to you, sir, is not in those two ports, not in the
other six ports, and not in the remaining whatever it is, 10 or
12, that I think are also in play here.
Without in any way, shape or form disregarding or
disagreeing with my colleagues about the other parts of the
system and the other mechanisms we need to bring to bear and
the idea of a multi-faceted approach, those are all, it seems
to me, eminently sensible and part and parcel of what I am sure
this committee and its counterparts are going to come up with.
It is just, to leave you with a final thought, I guess that
I think this is a hard problem right now; and we should not
voluntarily take steps that I think will--predictably will make
it harder, maybe marginally and maybe dramatically.
The Chairman. Thank the gentleman.
We are going now--we are going to move to the next panel,
but let me ask this panel if you can stick around if you have a
chance and have the opportunity to maybe listen to the next two
panels, we might have a couple of questions at the end.
Mr. Langevin had a statement, not a question, he wanted to
simply address before you folks move off the dais. Gentleman is
recognized.
Mr. Langevin. Thank you, Mr. Chairman. I will be brief. I
think we have covered a lot of ground here today, and I am
going to forgo asking questions so we can get to our next
panel.
This discussion today has been exceptionally helpful, and I
really want to thank you all for your contributing here today.
I just will end with this, that I, for one, am not a fan in
support of this sale going through, for a variety of reasons.
But I will say that we can perhaps look at and evaluate such
sales primarily from a financial standpoint, and I think that
is really what happened here. Yet, in a post-9/11 world, that
is just simply no longer possible, that we have to evaluate
these types of sales primarily from a security perspective.
And you know if people had confidence that we were doing
everything we could to do to secure our ports, perhaps this
wouldn't be such an inflammatory issue. But we are not. And we
have to do a better job, obviously, of giving both the Coast
Guard and Customs and Border Patrol the resources that they
need.
Mr. Carafano, you said in your testimony that ownership
really isn't the issue, that irrespective of who owns the ports
that individuals who want to target us can and will infiltrate
at very low levels. That may very well be true. But security,
as you recognized and you have acknowledged, requires a multi-
level approach, and we ought not be giving our playbook to
those that might wish us harm.
Mr. Gaffney, you got it right in your third point, your
opening statement, that if this sale happens, Dubai or any
company who owns this port will know about our security
procedures. We cannot let that happen.
So I hope this serves as a wake-up call to all of us that
we better redouble our efforts to do a better job of securing
our ports and our borders. This discussion was helpful today,
and I want to thank you for your testimony.
The Chairman. I thank the gentleman.
Mr. Marshall wants to make a brief statement here and would
ask a question before we go to the next panel.
Mr. Marshall. I appreciate, Mr. Chairman.
I found your comments to be immensely helpful to me. I
think all of us did as well. It would be even more helpful to
me if you did as the chairman requested, and that is stick
around, listen to what is said by the next panel and following
panel, and then I would like to hear your comments about what
has been said.
I would specifically like to hear, after you have heard
what others have to say about the subject, hear things that we
might ask you be done by DP, by the Federal Government, in this
instance, as a condition to approving this deal, those sorts of
things that you think are practical and would be helpful in
light of the current circumstances.
You are the experts. You have great ideas concerning how we
can improve our security, which I think, frankly, is what we
ought to be about with regard to this particular inquiry. It
seems to me we have a real opportunity here that we ought not
to let pass by. We ought to take your guidance. So if you can
give us your guidance after listening to all these folks that
would be real helpful. Thank you.
The Chairman. I thank the gentleman, and we have only got
three people who haven't had a chance to ask a question of this
panel. Does anybody else have a feeling they want to make a
statement to the panel before this panel exits? Okay.
Gentlemen, thank you. We have had an interesting and very
instructive discussion here. Hang tough, if you can; and we
will invite the next panel, the second panel to come on up.
We are going to hear from--the committee is going to hear
from the officers of DP World. We have Mr. Edward H. Bilkey,
Chief Operating Officer at DP World; Mr. George Dalton, General
Counsel of DP World; Mr. Michael Moore, Senior Vice President,
Commercial, DP World; and Mr. Robert Scavone, Executive Vice
President For Security, P&O.
STATEMENT OF H. EDWARD BILKEY, CHIEF OPERATING OFFICER, DUBAI
PORTS WORLD; GEORGE DALTON, GENERAL COUNSEL, DUBAI PORTS WORLD;
MICHAEL MOORE, SENIOR VICE PRESIDENT, COMMERCIAL, DUBAI PORTS
WORLD; AND ROBERT SCAVONE, EXECUTIVE VICE PRESIDENT, SECURITY
PENINSULAR AND ORIENTAL STEAM NAVIGATION COMPANY (P&O)
The Chairman. So I understand Mr. Bilkey has a statement
and then Mr. Scavone.
Gentlemen, thank you for being here with us. Mr. Bilkey, I
understand you are going to make a statement; and then Mr.
Scavone is going to make a follow-up.
Mr. Bilkey. Yes, Mr. Chairman, with your permission.
The Chairman. Can you pull that microphone a little closer
and make sure it is turned on there.
Welcome, gentlemen. I think you had an opportunity to
listen to our first panel. I think you understand the concern
of the committee, and we look forward to your statement.
STATEMENT OF H. EDWARD BILKEY
Mr. Bilkey. Thank you, Mr. Chairman.
My name is Ted Bilkey, and I am the Chief Operating Officer
of DP World, and I commend you for holding this hearing. DP
World welcomes the opportunity to get the truth out so that
Congress and the public can better understand the facts
surrounding our acquisition of P&O Ports North America.
By way of personal background, I grew up in New Jersey and
New York. I served as an officer in the U.S. Navy. I have
worked in the ports and shipping business for over 45 years,
starting on the docks of Brooklyn and Newark.
Also on a personal note, it is an honor for me to appear
before this committee of the United States Congress. My
grandfather, Joseph S. Frelinghuysen, served as a Senator from
New Jersey on the Senate Committee on Coast Defense. Indeed,
every generation of my family, from the earliest days, have
served in the Senate, House of Representatives, or as Secretary
of State.
Let me start by giving a little background on DP World. DP
World, before this acquisition, is the seventh largest port
terminal operator in the world. We manage 19 container
terminals, four free trade zones, three logistics centers, one
of which is the biggest in the world. It is bigger than the
Pentagon and handles 7,000 truck entries and exits a day in
some 14 countries.
Our Jebel Ali facility in Dubai handles more container
freight than all the ports of the east coast of the United
States combined. We operate on a strictly commercial entity but
are owned by the government of Dubai. Our management is truly
international; and, last week, Lloyds List voted DP World as
the best port operator of the year in 2005.
DP World has a long and rich history of supporting the
global operations of the U.S. military. These include
operations in support of the U.S. military in Germany, Djibouti
and Dubai; and I would like to give some examples.
We have dealt with the U.S. Navy for over 2 decades in
Dubai. We have allowed the U.S. Navy to station an officer 24/7
in our control tower, which is highly unusual. He has a
panoramic view of the harbor and any potential threats.
We allow the U.S. Navy to provide its own security for
having two high-speed gunships that are heavily armed. This is
a most unusual arrangement which shows strong commitment and
strong trust.
We have given the U.S. Navy a lease of highly secured land
to stow its cargo and rework its volume.
We have created a high security bunkering operation that is
fueling in Djibouti that hosted its first vessel, the cruiser
USS Vicksburg, just a week ago. It is a very secure refueling
station in the Red Sea which is highly prized; and, frankly,
one of the motivations for building it was the knowledge that
the U.S. Navy needed a facility in the area.
We have hosted over 500 vessel calls in Dubai of U.S. Navy
warships.
In Fujairah today we have the main transshipment points for
the U.S. Army's Afghanistan operations. Cargo comes in on roll/
roll off vessels, and we provide a high security area blocked
off by containers and patrolled by the U.S. Army. We then
containerize the rolling stock for movement to Karachi and on
to Afghanistan. Whenever battalions change, we go to work to
move the cargo efficiently. We do the same as battalions leave
Afghanistan for home.
In the last Gulf War, I personally set in motion the
arrangements for the first aircraft carrier to enter the berths
of Jebel Ali, and it solved a major logistic problem because
all the crews and all the supplies have to be moved on tugs and
tugboats off shore.
Mr. Chairman, I believe we have distributed some pictures
for the panel and the committee that I have here. I believe
they have been distributed earlier.
The Chairman. We will ensure that those get distributed.
Mr. Bilkey. Thank you, sir.
Just a quick note on the general shipping trend. The
shipping and ports business is becoming increasingly globalized
and consolidated, and DP World is determined to acquire P&O for
commercial reasons based on its strong management team and
complementary geographic fit. It is important to understand
that this is a $6.8 billion transaction involving assets all
over the globe in 51 terminals when they are combined with our
own present ones. The U.S. operations of P&O--P&O Ports North
America--constitute approximately 10 percent of the overall
value of the transaction.
It is also important to understand that it has also been
our intent to operate P&O Ports of North America as a
separately incorporated U.S. legal entity, using its long-
standing reputation and management structure and personnel to
the maximum extent possible. As a smaller entity, acquiring a
larger entity, DP World needs the existing talent and expertise
of the P&O Ports North America team to run these operations.
I would now like to try to dispel a couple of myths and try
to establish some facts.
First, we are not acquiring or taking over U.S. ports, as
some people have claimed. U.S. ports are owned by local
governments or port authorities, which is a fundamental fact
that seems to have been totally distorted. Rather, we act as an
operator who has a license or a lease to operate a particular
terminal within a port. The terminal operator is responsible
for the area within a port that serves as a loading and
unloading transfer point.
Second, the transaction does not involve an outsourcing of
U.S. security, as some have alleged; and I will defer to the
Department of Homeland Security or my colleague from P&O Ports
in charge of security, Rob Scavone on my left here, to describe
in detail how port security operates within the U.S. suffice it
to say, security is a many layered approach, with the U.S.
Customs and Border Protection and Coast Guard taking leading
roles; and a terminal operator is one piece of a complex
picture.
DP World and P&O Ports North America actively participate
in various U.S. government-sponsored initiatives. These
programs include:
The Customs-Trade Partnership Against Terrorism;
The Container Security Initiative, which I believe you have
heard about before and to me is one of the ones which should be
looked at with great attention. In fact, the United Emirates
was the first country in the Middle East to join that
initiative, and we actually operated with some very unique
capabilities that are not in all of the CSI locations.
The Business Alliance on Smuggling and Counterfeiting;
The so-called ISPS, International Maritime Organization on
Port Security. All our ports are ISPS authorized and regulated.
And the Megaports Initiative with the Department of Energy.
DP World is expressly committed to continuing and, as
appropriate, expanding its commitment to these programs.
Third, some people have charged that DP World enforces the
Arab League boycott of Israel. I would like to answer that, as
a terminal operator, we do not operate in a capacity that
involves us in boycott issues at all. DP World does not
discriminate. DP world is a global port management company that
facilitates trade with many nations. Our company has long-
standing business relationships with all the major shipping
companies, including Israeli companies, among our diverse
international clients; and actually Zim Lines is one of our
larger clients and a highly valued one.
Further, let me assure you that, consistent with our policy
of corporate compliance, the U.S. operations of P&O will fully
comply with both the letter and spirit of the U.S. anti-boycott
regulations to which they are subject. We comply with the laws
of all the countries in which we operate.
Fourth, DP World did not obtain U.S. Government approval of
its acquisition of P&O Ports North America, as some people have
stated, secretly in the dead of night or without adequate
review. This is a total misrepresentation. There is an explicit
process administered by the Committee on Foreign Investments in
the United States, CFIUS, which we have all been talking about,
mandated by Congress and the Defense Production Act and by
Department of the Treasury regulations. In point of fact, CFIUS
actively reviewed the transaction for almost 3 months.
DP World first met with CFIUS staff on October 17, 2005.
Two weeks later, we held a face-to-face meeting with certain
key CFIUS member agencies, including the Department of Homeland
Security, Custom and Border Protection, Coast Guard, Department
of Justice and Department of Commerce. We provided detailed
information on the proposed transaction to CFIUS, which had
already commenced its review and analysis of the transaction.
We subsequently met on December 6th, 2005, with all member
agencies of CFIUS. This was not required. It was suggested, and
we readily said we would like to do that. I personally flew in
from Dubai to participate in that meeting with our Senior Vice
President for Operations for Europe and the Americas and our
senior officer responsible for overseeing security.
Further, during this period, the transaction received
considerable coverage in the press in the United States and
Europe.
We filed CFIUS notification in December 15, 2005; and CFIUS
commenced a 30-day review, as required by statute. During the
course of that review, CFIUS asked us to memorialize certain
undertakings we had voluntarily made in our notification, as
well as others at their request. These letters formed the
Letter of Assurances dated January 6th.
Among these undertakings were seven additional express and
legally binding commitments that were absolutely unique to our
transaction. We did not object. We looked at them. We thought
that, well, this is a little excessive, but it didn't make any
difference to us. If this is what people wanted, fine, it
wasn't going to affect our business.
Based on this review and the Letter of Assurances, on
January 17, CFIUS issued a formal letter of no objection,
completing its CFIUS review and allowing the transaction to
proceed.
I think it is important to understand that in reliance on
the U.S. Government's clearance, DP World took the necessary
legal steps required under the UK takeover laws to complete its
purchase of P&O on a global basis.
In conclusion, I respectfully submit that DP World is a
company that in good faith sought to comply with all applicable
U.S. legal requirements and, having been told by the U.S.
Government that we met those requirement, now find itself in
the position of being told that was not good enough.
Nonetheless, we fully recognize that there are now concerns
in Congress and among the public about DP World's acquisition
of P&O's terminal operations. DP World has therefore
voluntarily acted to assure people that the security of the
United States will remain strong. Specifically, on February 26,
we voluntarily issued a legally binding ``Hold Separate
Commitment'' under which the management and control of P&O's
North American operation will be held in suspension without
direction or control in any way from DP World until May 1st,
2006, in order to allow additional review of DP World's
acquisition of P&O Ports North America.
In addition, at the same time, we requested CFIUS to
conduct a review, including a full 45-day investigation of the
acquisition. We stated we will abide by the outcome of that
review.
The Hold Separate Commitment contains a number of specific
obligations, including maintaining P&O Ports North America's
current management and having a U.S. citizen serve as its Chief
Security Officer for P&O Ports North America, as is the case
today with Mr. Rob Scavone on my left.
We are confident that further review by CFIUS will confirm
that DP World's acquisition of P&O's U.S. operation does not
pose any threat whatsoever to America's safety and security.
I would like to say if there is any good to come out of
this experience, perhaps it is that both Congress and the
executive branch will take a closer look to upgrade port
security and increase funding for these efforts. DP World
strongly encourages such efforts and looks forward to working
with you to achieve them.
I firmly believe that the security of our country, the
United States, is well served and, in fact, enhanced on
numerous levels by allowing this transaction to go forward and
working with DP World's global 51-terminal network as a
responsible partner in securing security at home and abroad.
Especially for us, we could never afford to have a bad security
incident. Security is everybody's business.
I thank you, Mr. Chairman and the committee members.
The Chairman. Thank you, Mr. Bilkey.
[The prepared statement of Mr. Bilkey can be found in the
Appendix on page 146.]
The Chairman. Is it Mr. Scavone? Is that the correct
pronunciation.
Mr. Scavone. Scavone.
The Chairman. Thank you, sir. For being with us today. I
understand you are the officer in charge of security for the
company which is making a transfer.
Mr. Scavone. Yes, sir. The company that is being acquired.
The Chairman. Company being acquired. And pull that mike a
little closer there if you could.
STATEMENT OF ROBERT SCAVONE
Mr. Scavone. Mr. Chairman and members of the committee, my
name is Rob Scavone. I am Executive Vice President of P&O
Ports. I will take just 2 minutes to reference the main points
in my submitted written remarks.
The Chairman. Without objection, all your written
statements will be taken into the record.
Mr. Scavone. As the person responsible for our company's
security, of course it is my business to know how it works on
the ground inside our terminals. I also know that the way our
security works is not going to change if control of our parent
company changes hands. I know this not only because DP World
has made undertakings to this effect but also because there is
no practical way to change it in a way that would erode our
security.
You may have seen that when security experts are queried on
this question, the overwhelming majority agree with that
assessment. Here are some reasons why.
Even after control of our parent company in London changes
hands and the current 45-day review period has lapsed, the P&O
organization in the U.S. will remain in place. DP World has
committed to retaining the existing managerial staff and to
involve the U.S. Government in the event any replacements are
appointed in the area of security.
Inside a terminal, only longshoremen perform any physical
work on containers. We employ approximately 6,000 every day.
Therefore, the same people who manage these responsibilities
for us now will be the ones who do it next month and the month
after that.
These functions are not directed from abroad, nor are they
electronically accessible from abroad, and that is not going to
change.
The Coast Guard and Customs continue to be responsible for
all security measures relating to the entrance of persons or
goods into the United States. Those agencies maintain a
presence in the ports and work with port and local police. Our
terminals work in close corporation with those authorities
every day.
The statement that the security of our ports is being
outsourced is simply not the case. It is not outsourced now,
and nothing will change if our ultimate ownership changes
hands.
In conclusion, I would like to add that the continuous
improvement of the security of our supply chain across the
globe is a goal toward which I personally work with industry
colleagues--including such persons as Mr. Flynn, who spoke
earlier--every day. In so doing, we wrestle with the means to
improve areas we feel be are not yet where we need to be; and I
can say with certainty that none of those areas have anything
to do with which port operating company happens to own P&O
Ports.
Thank you.
The Chairman. Mr. Scavone, thank you.
[The prepared statement of Mr. Scavone can be found in the
Appendix on page 156.]
The Chairman. Mr. Bilkey, thank you for your opening
statements; and we will go to Mr. Kline, who is next in line,
for questions.
Mr. Kline. Thank you, Mr. Chairman; and thank you,
gentlemen, for being here today.
We just had another panel for the last 2 and a half hours
that discussed security issues in general, maritime security
issues; and some concerns were raised--and, clearly, you
wouldn't be here if concerns hadn't been raised--by American
people from coast to coast. Specifically, it was suggested that
we ought to be concerned with the new ownership about issues
revolving around personnel, security planning execution and
cargo. In your statements, you have addressed those to some
extent. Both you, Mr. Bilkey and you, Mr. Scavone, have talked
about those. But let's play a scenario here.
It has been suggested by some of my colleagues that the
owners, whoever owns this, the ultimate owner, would have
access to all of the security plans and would be involved in
the security planning process and that should cause us some
concern. Can any one of you address that specific issue, the
ultimate ownership, Dubai, UAE, being involved in or having
access to the security plans at an American port?
Mr. Scavone. I would be glad to, Congressman.
First of all, of course, the ports themselves, which are
managed by, in a typical case, port authorities have a port
security plan to which we do not have access.
Mr. Kline. You do not have?
The Chairman. Can you pull that microphone a little closer?
It is worthwhile to go back over that because that is
important.
Mr. Kline. I am coming from essentially no knowledge in how
port security works. So P&O now operating these American ports
has no access to security plans? Explain how that can be.
Mr. Scavone. I will explain in a little more detail. The
ports themselves, the port property and the area by the port,
is typically owned by a port authority or some typical
government authority; and the port itself works with the Coast
Guard for an area or port security plan. That would encompass
the entire area of the port. We do not operate the port. Any
port would typically--that we have a facility in, we have by
virtue of a lease or a concession.
So take the port of Newark, New Jersey, as an example.
There are five container terminals, any number of break bulk
terminals, barge terminals, terminals of all sorts; and one of
those is leased by us in a joint venture with another partner
which happens to be Maersk Line, the Danish shipping company.
The Coast Guard requires that, as part of our contribution
to the layered approach to security, that we develop a plan
primarily for access control in and out of that, the perimeter
of our terminal. That has to do with access of persons,
vehicles or cargo.
We develop the plan. We submit it to the Coast Guard. The
Coast Guard reviews it, either comments on it or approves it;
and then it is settled. We--our terminal in Newark actually
happens to be the very first plan that the Coast Guard ever
approved in the Nation.
The plan relates exclusively to measures such as that. They
are not actually not unlike the security measures you might
expect any common industrial facility to have with access
controls, the difference being that the Coast Guard has the
right to audit those plans and to enforce your compliance with
those plans, up to and including shutting you down if they
don't believe you are properly observing these plans.
Mr. Kline. Thank you. I am going to have a red light here
shortly.
Let's talk about personnel for just a minute. The
assumption of concern is that we are in a war with radical
Islamic fundamentalists and there may be some sympathy
somewhere in Dubai or the UAE, two or three or four or five
people who could apparently then be transferred to one of these
ports and put into a place where they could be--a janitor was
suggested or something else--and there would be a leak in the
personnel sieve. Could you address that issue for us, please?
Mr. Scavone. Yes, sir.
First, as has been mentioned, a commitment has been made to
keep the current management in place. Longshoremen are not--we
don't hire longshoremen. The union hires longshoremen, and they
are sent to us. So we order a complement of workers, and they
get sent to us by the longshoremen. So they are not within our
influence.
And DP world, as I said, has made a commitment that
replacements of any of the existing management would be vetted
in cooperation with the U.S. Government, bearing in mind that
unless you are the facility security officer of the company you
don't have access to the facility's security plan that the
Coast Guard has negotiated or approved because that plan is
kept under lock and key and the person who has the key is the
facility security officer.
Also, you don't have access to the manifest information or
the electronic information which would tell you what are the
contents of the container. Why? Because we don't have it. We
don't need it to do our job. The carrier has it. Customs and
Border Protection has it; and both of those agencies, of
course, are present on our terminal. But we don't have it
because we don't need it. Customs decides what they want to
inspect. We give the boxes to them, and they do what they want
to do with them.
Mr. Kline. Thank you.
Yes.
Mr. Bilkey. Mr. Kline, I just wanted to mention what my
colleagues didn't mention, that to be a longshoreman--and I
started on the docks--you have to be a U.S. citizen.
Mr. Kline. Thank you; and, Mr. Chairman, thank you. I yield
back.
The Chairman. I thank the gentleman.
The gentleman from Missouri, the Ranking Member, Mr.
Skelton.
Mr. Skelton. Mr. Bilkey, you are the Chief Operating
Officer of the corporation?
Mr. Bilkey. Yes, sir.
Mr. Skelton. Is there a president of the corporation?
Mr. Bilkey. I am Chief Operating Officer.
Mr. Skelton. You are the number one.
Mr. Bilkey. No, no, he is the number one; and I want to
make sure I say this on this panel.
Mr. Skelton. Let's start over again. You are the Chief
Operating Officer.
Mr. Bilkey. Yes, sir.
Mr. Skelton. You work for whom?
Mr. Bilkey. The Chief Executive Officer.
Mr. Skelton. Who is the Chief Executive Officer?
Mr. Bilkey. Mohammed Sharaf, who was educated at the
University of Arizona.
Mr. Skelton. And he lives where?
Mr. Bilkey. Excuse me?
Mr. Skelton. Where does he live?
Mr. Bilkey. He lives in Dubai.
The Chairman. What is his citizenship?
Mr. Bilkey. UAE national, sir.
Mr. Skelton. Is there a board of directors of the DP
corporation?
Mr. Bilkey. Yes, sir.
Mr. Skelton. How many are on the board?
Mr. Bilkey. The board is made up of one person, Sultan Amed
bin Sulayem.
Mr. Skelton. And that person lives where?
Mr. Bilkey. He lives in the United Arab Emirates, sir.
Mr. Skelton. So you have the number one, and then you have
one person as the board of directors. Is that it?
Mr. Bilkey. Yes, sir. At the present time.
Mr. Skelton. There are no other members of the board of
directors?
Mr. Bilkey. No, sir, not at the present time. It is planned
to have it expanded when this acquisition is over.
Mr. Skelton. How long has the corporation only had one
member of the board of directors?
Mr. Bilkey. Since its incorporation, sir.
Mr. Skelton. When was that?
Mr. Bilkey. I am not exactly sure of the date. I could ask
my general counsel, if I might.
Mr. Skelton. Please ask him.
Mr. Dalton. We will supply that information for the record.
We don't have that precise information.
Mr. Skelton. Was it 10 years ago, 15 years ago.
Mr. Dalton. Probably within the last two years.
Mr. Skelton. It is a new corporation?
Mr. Dalton. Approximately two years old.
Mr. Skelton. Now please explain to me how the United Arab
Emirates owns this corporation.
Mr. Bilkey. We have a shareholder who created a decree
creating the Ports, Customs and Free Zone Corporation (PCFC)
and the two shareholders of that are Sultan Amed bin Sulayem
and Sheik Mohammed of Dubai. Sheik Mohammed bin Rashid al-
Maktoum of Dubai.
Mr. Dalton. Congressman, may I clarify?
Mr. Skelton. That doesn't help me very much.
Tell me how the UAE owns this corporation, please.
Mr. Dalton. May I respond, Congressman?
Mr. Skelton. Please.
Mr. Dalton. The UAE does not own those companies. It is
owned by the government of Dubai.
Mr. Skelton. Mr. Bilkey, how do we know that the people
working for the DP World, both at the management level and the
operational level, do not pose a security threat?
Mr. Bilkey. Well, sir, we are an international company with
an international management team. We select from the best
people around the world, and our team--at the present time, we
have three Americans, two Britains and Brits, or British, UK
gentlemen, and people from India.
Mr. Skelton. And what do they do?
Mr. Bilkey. One of them is the general counsel here; and
one of the Americans is the commercial--head of the commercial
department. And we have a finance head and an IT head, an HR
head and a corporate strategy head.
Mr. Skelton. To what countries do they belong?
Mr. Bilkey. Well, the finance head is from the UK, the HR
manager is from the UK, the corporate strategy is from India,
and we have a UAE gentleman who actually runs the UAE section
of our business. We are separated into regions, and we have the
UAE region, and that is run by a UAE national called Mohammed
Muallem.
Mr. Skelton. Would you tell us how does the government of
Dubai own the cooperation?
Mr. Bilkey. I am not sure I understand the question.
Otherwise, they are--the Dubai government is the shareholder of
the company.
Mr. Skelton. Is it the only shareholder?
Mr. Bilkey. Yes, sir.
Mr. Skelton. What type of background checks or other
investigations have been conducted regarding potential security
threats for the corporate--people who work for the corporation?
Mr. Bilkey. We follow normal industrial and commercial
checks on all our people; and, in some cases, we put them
through separate testing requirements for their capabilities.
Mr. Skelton. The agreement has been signed, sealed and
delivered, is that not correct?
Mr. Bilkey. No, sir.
Mr. Skelton. It is not a binding contract as we speak?
Mr. Bilkey. Sir, at the present time, we are under the
rules of the takeover regulations of the United Kingdom; and we
are advised that tomorrow the court will approve the
acquisition.
Mr. Skelton. So, as of tomorrow, you will legally have
their work in the American ports, is that correct?
Mr. Bilkey. I am going to turn this over, if I may, to my
general counsel, because he has been closest on that.
Mr. Skelton. That is very simple. Will you legally have the
work in the American ports as of tomorrow?
Mr. Dalton. Congressman, may I respond? Because there are
some technicalities to this.
Mr. Skelton. Tell us about the technicalities, please.
Mr. Dalton. The court decision was rendered today in the
United Kingdom where there was a challenge made by Ellers,
which is a U.S. company. Ellers is a joint venture partner with
us in the Miami operation. They own 25 percent. There has been
a long-standing dispute in the courts in Miami for
approximately 3 years. The court in the UK overruled their
objections, however; and they, Ellers, indicated they were
going to appeal. The court gave them leave to appeal to a
higher court until 3 p.m. Tomorrow.
We have all confidence that their appeal, if they do
appeal, will be denied and the deal will go forward. We expect
it to conclude some time probably Monday or Tuesday of next
week.
Mr. Skelton. So as of Monday or Tuesday next week, you will
have the legal obligation under the contract to operate in the
American ports?
Mr. Dalton. Yes, sir. But that is also the reason that we
proffered to the U.S. Government the Hold Separate Agreement,
which is a binding agreement on our behalf where we have agreed
to allow the current P&O Ports North American management to
stay in place to report to their headquarters in London without
any influence being exercised by any senior management in Dubai
or any other management in Dubai.
Mr. Skelton. Well, lay that aside. The contract will be
binding then Tuesday, am I correct?
Mr. Dalton. That is our best estimate, yes, sir.
Mr. Skelton. So, as I understand it, your corporation will
not take over the duties for 45 days, is that correct?
Mr. Dalton. Sir, we have----
Mr. Bilkey. Until May 1st, sir, is what we committed in our
offer.
Mr. Skelton. But, nevertheless, it is a done deal as of
Tuesday, am I correct?
Mr. Bilkey. As far as the acquisition, we have to--at that
time, we have to mail out $6.8 billion to the various
shareholders. That was the commitment that we made when the
offer went unconditional.
Mr. Skelton. What is the purpose then of the 45-day waiting
period?
Mr. Bilkey. Well, we agreed not to take any management
initiatives whatsoever. In fact, we weren't planning to do them
anyway. We are very satisfied with the management that is here.
But we have agreed that we will in actual fact have no
intercourse whatsoever on any management deals with the present
operation in the P&O Ports North America and the Northern
American assets.
Mr. Skelton. For 45 days?
Mr. Bilkey. No, until May 1st, until this 45-day process
should go forward.
Mr. Skelton. What is the purpose of this May 1st date?
Legally, it is a done deal, is it not?
Mr. Dalton. Congressman, if I may, what we agreed to and
proffered to the U.S. Government, I want to emphasize that we
proffered this offer voluntarily.
Mr. Skelton. I understand that. But the deal is done. As of
Tuesday, the deal is done, is that correct?
Mr. Dalton. We hope so. We believe so, unless the appeal
goes forward.
Mr. Skelton. I understand that. If the deal is done, why
the May 1 date?
Mr. Dalton. Sir, we are trying to respond as a good
corporate citizen to the concerns of Congress and the American
public; and we thought that an offer of reviewing this for an
additional 45 days, despite the fact that we had already gone
through the CFIUS process, would be a worthwhile exercise to
enhance the attention to be paid on security.
Mr. Spratt. Counsel, I don't understand.
Mr. Chairman, thank you.
Mr. Weldon [presiding]. I thank the gentleman.
The gentleman from New Hampshire is recognized for 5
minutes.
Mr. Bradley. Thank you, Mr. Chairman. I would like to
follow up on Mr. Skelton's questions. If I understand this
voluntary arrangement until the 1st of May correctly, there is
a second review period by CFIUS. My first question is under the
second review are there the potential of more conditions being
placed on this deal that you might find acceptable or you might
find unacceptable?
Mr. Dalton. Sir, we would be happy to entertain any other
conditions that would be reasonable as long as it is applied
equally to our competitors in a business environment. I want to
emphasize we will abide by the CFIUS decision that comes out of
this 45-day review.
Mr. Bradley. So you would accept any and all conditions
provided they are a level playing field with your competitors?
Mr. Bilkey. Absolutely, sir.
Mr. Bradley. What if CFIUS objects on second review to the
operational security arrangements that are in this deal? What
recourse then does the United States Government have if the
second review doesn't recommend final approval?
Mr. Dalton. Sir, it is our firm belief we have complied
with all of the United States requirements and have, in fact,
gone beyond them. I really don't want to speculate at this time
what the reaction would be. We would have to see what comes out
of the CFIUS process and then be able to react in an informed
fashion.
Mr. Bradley. So you have no answer to that question, if
there were unacceptable conditions, our objection, of what
recourse you might take?
Mr. Bilkey. We are very optimistic and hopeful it will
allow us to go forward and explain to everybody that we are not
a security risk, and especially we don't plan to make any
changes in what exists today, which is now what is in place is
fully acceptable. What do I think is the ultimate way that
there should be in security? As we heard earlier today, I think
security can be improved tremendously if you push the borders
out in a way that--the CSI, Container Security Initiative, into
the port. That is why we were very serious when I said we are
going to operate 51 terminals around the world. We would like
to see those type of initiatives in all our ports.
We actually have been trying to push for one in the
Dominican Republic. We have a brand new port down there about
30 miles east of the Dominican Republic where there is
transshipment business and import/export business from the
U.S., and we want it to be in a CSI place, and there has been
long, long delays to it. This is a perfect place.
And one of the reasons that we are interested in this, as
are all people in the terminals, is today's security actually
is a big marketing tool. All the main and large shipping lines,
they want to make sure that they are going to secure places,
and if they don't think so, they are not going to come to your
terminal.
Mr. Bradley. One last question, Mr. Chairman.
What if there were in the second review process disputes
over personnel, security procedures, operational procedures
that you found unacceptable, and you indicated before in my
previous question, anything reasonable that you would accept,
and then you went on to say as long as they were applied
uniformly to all your competitors. There may not be the
opportunity to go back and apply them to some of the other
competitors without breaking contracts. What happens in that
case?
Mr. Dalton. Congressman, I think we need to emphasize in a
number of our locations in the United States we have joint
venture agreements with a variety of partners, and there are
contracts involved there as well. So we really would have to
wait for the review before we can make a firm determination
about how that would impact on our business.
Mr. Bradley. Thank you, Mr. Chairman.
The Chairman. I thank the gentleman.
Mr. Marshall is recognized.
Mr. Marshall. Thank you, Mr. Chairman.
Sounds to me like you anticipate that the CFIUS process
will result in approval once again, the prereview, and that if
it doesn't, you will wind up suing the United States Government
for the $6.8 billion plus I don't know what else that you are
about to spend?
Mr. Bilkey. Congressman, I don't want to speculate. We
think--we are good international citizens throughout the world.
We have been accepted in the U.K., which has obviously serious
security concerns. We are going to operate the second largest
container terminal in the United Kingdom.
Mr. Marshall. I only have five minutes, if you don't mind.
I am just observing that it sounds to me like you are utterly
confident of what the results of this--so confident that you
are willing to gamble $6.8 billion in the next week.
Mr. Bilkey. The U.S. assets, sir, are only 10 percent of
the total, but it is still a large number, about $700 million.
Mr. Marshall. But it is a $6.8 billion deal. So you are
saying at risk is only $700 million.
Mr. Bilkey. $700 billion. I keep confusing those two
numbers.
Mr. Marshall. Small difference.
Let me ask you a little bit about your opening testimony. I
sure wish that I could go back in the transcript or the
videotape. You were reading your prepared remarks, and you got
to the point where you were referencing the additional
agreements that you willingly submitted to. You said there were
seven of them. At that point you said rather--I can't remember
exactly what you said with reference to those seven additional
things that you agreed to. How did you characterize them?
Mr. Bilkey. Well, one of them has to have open books on
something, which is not normal in a commercial situation.
Mr. Marshall. What exactly was that? I have got the seven
in front of me. It is page 8. Are these seven bullet points on
page 8 intended to summarize the seven things you agreed to?
Mr. Bilkey. Yes, sir.
Mr. Marshall. I really had the sense as you were testifying
that you not only described it as unusual, but almost felt it
was kind of distasteful for us to have even asked for these
things.
Mr. Bilkey. We were happy to agree to what they did. We
readily agreed, I think, is the simpler way to put it.
Mr. Marshall. Again, I wish I could go back, and I guess
eventually I will go back and read the testimony itself, and we
do have all this on videotape. I am just curious because I did
have the sense that you found or were expressing some distaste
for those seven, and the seven referred to security issues.
With regard to the management, the bullet point says to
operate all U.S. facilities to the extent possible with current
U.S. management. To the extent possible. Do you know the actual
terms of the deal well enough to describe what that means? Does
that mean if the manager wants to leave? Obviously you can't
compel the manager to stay. Are those the only instances in
which you would change management?
Mr. Bilkey. Yes, except for malfeasance or something like
that.
Mr. Marshall. Let us assume a manager leaves or is guilty
of some malfeasance or something like that. How do you replace
management at that point?
Mr. Bilkey. I would actually turn to the executive vice
president of P&O Ports North American because I don't know
exactly how they handle it today.
Mr. Marshall. I understand.
What happens if the executive vice president is the one
that needs to get fired here?
Mr. Bilkey. Well, we would have to have good cause to fire
him.
Mr. Marshall. Let us say you do. How do you replace him?
Mr. Bilkey. We would go out and try to secure someone of
equally good qualifications.
Mr. Marshall. So the ``we'' would be your company?
Mr. Bilkey. It would be.
Mr. Marshall. You don't have some trustees set up?
Mr. Bilkey. At the present time it would be the management
of P&O Ports North America, which we are not going to be
involved in.
Mr. Marshall. The management would be--is it Mr. Scavone?
Mr. Bilkey. The CEO is Michael Seymour.
Mr. Marshall. Say you had to fire him; how do you replace
him? Does this only go until May 1st?
Mr. Bilkey. No, sir.
Mr. Marshall. It continues indefinitely. You will own but
not have control of management.
Mr. Bilkey. I didn't understand the question. We put this
out as a gesture, Congressman, and we saw the concern, and we
wanted to give a breathing period for people to take other
steps if they felt necessary to show that we are good
international citizens.
Mr. Marshall. Have you been assured by anybody in the
Administration that the 45-day review, the second CFIUS review,
will result in approval without any additional conditions?
Mr. Bilkey. No, sir.
Mr. Marshall. And you are willing to abide by any
additional conditions that are imposed?
Mr. Bilkey. As long as it is a level playing field for
everybody else on a commercial basis.
Mr. Marshall. So everybody has agreed to conditions that
you have already agreed to. These seven that you expressed
some--your understanding when you agreed to those seven was
that everybody doing business in the United States, all your
competitors, have to comply with the exact same thing?
Mr. Bilkey. We didn't care. We found them acceptable.
Mr. Marshall. So what you are saying is that as long as the
conditions imposed by this second CFIUS review is one that you
find to be acceptable or one that is imposed on everyone else,
you will go along with it?
Mr. Bilkey. Congressman, I can't speculate on that. I am
just saying whatever is put forward that is reasonable and
commercially acceptable to all people in our type of business,
we will go along with it.
Mr. Marshall. Thank you, Mr. Bilkey. I wish I had more
time, but I don't. You probably don't wish I had more time, I
understand that.
Mr. Weldon. The gentleman from Maryland is recognized for 5
minutes.
Mr. Bartlett. Thank you very much. I would just like to
note that my questions will not reflect, or not necessarily
reflect, the extent of either my knowledge or my ignorance.
Once this deal goes through, you will own the Port of
Baltimore?
Mr. Bilkey. No, sir.
Mr. Bartlett. What will you own?
Mr. Bilkey. We will have leases of two terminals, Seagirt
Terminal and Dundalk Terminal, and I am going to have to turn
to Mr. Scavone on the details of that, if I may, sir.
Mr. Bartlett. I am only interested in making the point that
you don't--you wouldn't own the Port of Baltimore. You are
telling me you wouldn't even own anything, simply be leasing
some things; is that correct?
Mr. Bilkey. Yes, sir. I believe one is a management
contract, and that is why I was going to refer to Mr. Scavone,
and one is a lease.
Mr. Bartlett. Do you now have leases in any ports in the
United States?
Mr. Bilkey. I am going to have to ask Mr. Scavone to
respond to that, if I may, sir.
Mr. Scavone. P&O Ports North America, the U.S. company,
does have a few leases in the United States, some of which are
with or through joint ventures with other partners.
Mr. Bartlett. How many would a few be?
Mr. Scavone. We have a lease in Newark, one in Miami, one
in New Orleans, and Miami is through a joint venture; and one
in Philadelphia, also through a joint venture with Stevedoring
Services of America. Everywhere else we are a pure stevedore,
or we do manage terminals with something not quite even as
extensive as a lease. It would be, for instance, an operating
agreement, which is what we have in Baltimore.
Mr. Bartlett. You stated earlier--would you repeat for us
how many countries in the world you have operations somewhat
similar to this in?
Mr. Bilkey. At the moment DP World is 14. When we
collectively put it together with P&O, it will be 30 countries,
sir.
Mr. Bartlett. You will have facilities similar to this in
30 different countries.
Mr. Bilkey. They run a wide variety from the biggest
container terminal in Busan, Korea, to Buenos Aires and
Vancouver, throughout China and Indonesia, the Philippines,
Australia, the Middle East and Europe. It's a very, very large
portfolio of assets and was a strategic move by ourselves in a
consolidating shipping business where the shipping lines are
becoming more consolidated to be able to offer a better package
across the board through these type of clients.
Mr. Bartlett. Have you had discussions similar to this at
any time in any other country?
Mr. Bilkey. No, sir. Whenever we go into any country, new
country, we normally make our own independent security
assessment on our own. We don't take for granted what anybody
says. This is just one of the things that we do, and we also
hire ISPS-certified in all the terminals that we operate in.
Mr. Bartlett. Do you know how many ports in our country
have arrangements similar to those you are making with these
ports in effect now? Do you have any idea what the rough number
is?
Mr. Bilkey. No, sir, I don't, not anymore. I have been away
for a long time.
Mr. Bartlett. We asked Congressional Research Service (CRS)
to get this information for us, and there are more than 90
ports in our country that are operated by entities from other
countries similar to yours.
If, sir, you could turn back the hands of time, you had
this all to do over again, what would you do differently
relative to this contract so we wouldn't be sitting here today?
It would have been nice to make this public. That wasn't your
responsibility, I know, but don't you think if this had been
made public and we had these discussions in a calmer
environment, it might have been more productive?
Mr. Bilkey. When we went through and started early on in
October, I can tell you that I personally and my colleagues--I
don't want to start the process that early because one of the
important things in this type of acquisition is to try to keep
it out of the press and to keep it quiet until you make your
official offer. And I was very nervous about putting
information out in Washington because I thought it would become
public too quickly, and then we knew we were going to have
other people who were going to compete for this very, very
attractive portfolio. But I was convinced by others that this
was kept confidential.
And we started on October 17th, I believe, and it was our
belief, because we took so long, and I came personally here
with a team of people to interview the various agencies--
frankly, we thought they would take care of any necessary
liaisons that were necessary within the government, and we were
trying to do everything possible to make this happen because
one of the reasons we started early--the two ones that had the
most largest requirements, specific requirements, were
Australia and the United States. So we started those very early
because we wanted very much to be able to go and make our offer
unconditional as quickly as possible.
When we finally got our permissions, they all came in about
the same time, Europe and Australia and the U.S., we then made
our offer unconditional. And when you make it unconditional,
your money is sitting in the bank, and it is in escrow. We
aren't mailing out the money to the shareholders yet, but we
don't have control of it anymore. The takeover procedures do.
That is why we started, and we actually thought that--in
hindsight it obviously was an incorrect thought, and some might
even say naive--but we were dealing with the U.S. Government,
and the U.S. Government said it is okay, and to us, we'd been
doing it for 3 months, so we said, wonderful. And actually when
we went--we actually publicized the fact that we went forward
and went unconditional. It went down the wires. It had to be
known throughout the United States also.
Mr. Bartlett. Mr. Chairman, I would like to close with a
quote from Ronald Reagan that our panelists might find
instructive. You were talking about working with our
Government. He said, when you get in bed with the government,
expect more than a good night's sleep.
Mr. Weldon. Thank the gentleman.
We have completed the first round of questioning and will
move to a second round. The gentleman from North Carolina is
recognized.
Mr. Jones. Mr. Chairman, I will be brief. I came here for
the next panel.
I want to say to Mr. Bilkey I am sorry I didn't get here
early on, but you said to Mr. Bartlett's question whomever you
talked with at the U.S. Government said everything is okay. Who
did you speak to that said it is okay? You might have discussed
this earlier. I apologize.
Mr. Bilkey. That was done through our counsel here.
Mr. Jones. I am not going to hold you because, again, I
came here for the third panel, but I will tell you that I
represent an area where this is not your doing or your fault,
in my opinion. This is the fault of the Administration, this is
the fault of the process. It just has not worked the way I
think the American people feel like it should work.
In 2 days I had 127 phone calls. That is not a lot out of
my district of people, but, again, it is 127 phone calls that
people took the time to call, and only 6 were in favor of this
arrangement. I mean, I had people that professed to be
Republican, I am a Republican, and they are just outside of
themselves, irate.
And again, I don't fault you, I don't fault your company or
the people that you represent, but I will tell you that this is
an issue that maybe has galvanized the American people to
understand that we are selling America out, and it is time to
stop. And again, I am not pointing this to you or to this
panel, but I will tell you, Mr. Chairman, I thank God that this
happened the way it did because maybe we can save America
before we become a second-rate economic Nation.
Thank you.
Mr. Weldon. I will thank the gentleman.
Second round. I yield myself 5 minutes. We thank you for
your testimony. You all are aware that you are considered under
oath here when you are testifying before the Congress, correct?
You are all aware of that.
Let the record note they nodded yes.
If I read, Mr. Bilkey, your statement and comments, the
reason why you didn't feel it was necessary to go to the
Congress was because, one, there was no requirement of that,
and because you felt you were following the instructions of our
Government, and that the deal was pretty straightforward; you
make the offer, go through the CFIUS process, it is a done
deal. Is that correct?
Mr. Bilkey. Yes, sir.
Mr. Weldon. Then I have to ask you a question. Why did you
hire lobbying firms? I would like to know for the record who
you hired. Would you tell me what firms were hired and who were
the principal players that you were involved with? I assume you
were involved with that effort.
Mr. Bilkey. In the effort that we did the CFIUS process, I
am going to turn this over, if I may, to Mr. Dalton, our
general counsel, but we only dealt with the firm Alston & Bird.
Mr. Weldon. That is the only one?
Mr. Bilkey. You are talking about the CFIUS process.
Mr. Weldon. You obviously employed counsel in this city and
public affairs firms and lobbyists, and I assume you hired them
for a reason. Now, you have just told us----
Mr. Bilkey. Excuse me, sir, do you mean now or when we
first started the CFIUS process?
Mr. Weldon. The whole process, now and then. I would like
to know who for the record was hired.
Mr. Bilkey. Fine, sir.
Mr. Dalton. We retained the firm of Linkletters, a U.K.-
based law firm, very reputable one. Here in the United States
we worked with Alston & Bird in their office here in
Washington.
Mr. Weldon. Those are legal firms?
Mr. Dalton. Yes, sir. From, as you call it, a lobbying
standpoint, the reason we found it to necessary to turn to
certain firms, I understand that has been reported fairly
widely in the press, because we felt our company, which had
followed all the U.S. processes and, in fact, relied upon those
processes in lifting our conditions precedent as well as the
other regulatory filings that we had done at a number of
locations throughout the world, we had relied on that process,
and we found ourselves in a difficult situation.
Mr. Weldon. You just said everything was going well up
until this process became public. Why would you have to hire
those firms in the past?
Mr. Dalton. Congressman, we hadn't hired them in the past.
We did hire firms after our CFIUS process had been approved and
the conditions listed.
Mr. Weldon. Who were they?
Mr. Dalton. It was a Downey & McGraff firm. Jonathan
Weiner; Chip, I am not sure of the last name, Andrae. I believe
his name is spelled A-N-D-R-A-E. I would have to check if there
are others.
Mr. Weldon. Was the Albright firm hired?
Mr. Bilkey. I can answer that, sir. The answer is no.
Mr. Weldon. Never any employment with the Albright firm?
Mr. Bilkey. They worked on our behalf in China. We had some
China assets that needed some help.
Mr. Weldon. Was there any discussion from former President
Clinton with any of you or the leadership back in the Emirates
about this potential deal?
Mr. Bilkey. Not with myself.
Mr. Weldon. I said are you aware of any discussion.
Mr. Bilkey. Yes, I am aware of a discussion.
Mr. Weldon. So there was a discussion by the former
President. Who was that with?
Mr. Bilkey. It was with our chairman Sultan----
Mr. Weldon. About this particular deal?
Mr. Bilkey. Yes.
Mr. Weldon. Was there a recommendation that you retain a
former spokesman by the name of Joe Lockhart?
Mr. Bilkey. Yes, sir. That is my understanding.
Mr. Weldon. Why did that not take place?
Mr. Bilkey. The firm turned it down.
Mr. Weldon. Why would you feel it necessary to hire people
of that caliber when you testified to us this was a normal
deal, that you were abiding by all the laws, there was no need
to tell the Congress, you certainly didn't need to tell us
because it wasn't controversial? Why did you need to hire
people of that caliber, whether Republican or Democrat? The
people you cited here are from both parties.
Mr. Bilkey. Sir, none of those activities started until the
last two weeks.
Mr. Weldon. You mean the last two weeks from today?
Mr. Bilkey. Yes, sir. When we suddenly saw that there were
concerns being expressed throughout Congress and in the U.S.,
we saw that we would need some help. We think we are good
citizens. We are very, very proud of our record, and we
obviously--something had gone wrong, and we didn't understand
what had gone wrong, so we went for help. Because we are a firm
of high integrity, we try to get the very best we could.
Mr. Weldon. When was the discussion between the Sultan and
President Clinton about this deal? Was that in the last two
weeks?
Mr. Bilkey. I don't know.
Mr. Weldon. When do you think it was?
Mr. Bilkey. Within the last two weeks.
Mr. Weldon. That discussion just took place in the last two
weeks.
Mr. Bilkey. Yes. To the best of my knowledge. All I know
was there was a call.
Mr. Weldon. The gentleman is recognized, the Ranking Member
Mr.--I am sorry, Mr. Spratt.
Mr. Spratt. Thank you for your appearance here and for your
testimony. Let me just follow it up by saying if I am plowing
old ground, it was because I stepped out of the room a minute.
I just wanted to clarify one thing for the record. You
heard the testimony of Mr. Flynn, who suggested that this
occasion, this opportunity, should be used to be the basis for
a comprehensive global container inspection system that scans
the contents of every single container destined for America's
waterfront before it leaves a loading port. He said that the
technology was in hand for doing that, and it might include
both scanning radiation detection and maybe some radio
frequency electronic identification that would go along with
it, and all of this could be done by levying a fee, provided it
was done everywhere, levying a fee per container.
You have been in the this business for a long time. You
know the ins and outs, what works, what doesn't. In your
opinion, is this feasible; is this the basis for some kind of a
deal?
Mr. Bilkey. Well, the general question--I am not sure
specifically how it applies to us. I mean, I would like to have
it apply to us in all our locations, which is this CSI. Yes,
the technology is available, and we actually make our own
initiatives sometimes.
I would like to see--there are now 42 CSI locations--
container security initiatives where U.S. Customs are put on
the ground. It actually pushes the borders of the U.S. out into
these locations, and this is one of the best ways.
And the technology is there for these high-speed what they
call NII, nonintrusive inspections, and that has been the big
bottleneck of the present style of inspection equipment, the
present inspection equipment that actually can look in a
container. And I have sat in these booths and watched it go
through, and it is completely reliant on the operator, and we
have them in Dubai, but they are very slow. That is why you
only get 5 percent that are actually inspected, because it is
so slow.
This new equipment, and there is probably going to be
better technology coming, but right now it would be a vast
improvement. This present equipment can handle 400 trucks an
hour in this pilot program in Hong Kong, and not only does it
scan the box, it inspects it for radioactive, but it stores the
image, and that image can be transmitted to the center, the
customs center, here.
Mr. Spratt. Does it have to have a portal where it can be
inserted inside the container?
Mr. Bilkey. No. The container drives through at almost
normal truck speed, and it captures the image, and that image
can be transmitted. Now, if you have the CSI locations set up
as we do in Dubai--and we actually are out on a global request
for proposal (RFP) for NII equipment to start installing it,
because security stuff like this is good business for us. It is
a marketing tool for us, and beside that, it brings safety.
At the present time if I could have a perfect world, I
would have these in every port where U.S. goods pass through
either directly or indirectly through transshipment. And in
Dubai we have a very unique arrangement with Customs. Customs
can actually ask for a transshipment box today. Let us say
something came from Karachi. We supply them with the whole
manifest of the ship, and if they don't like a box that says
``garments'' and think it might be something else, they can
instruct us, and we have the legal right to take that out of
the ship, put it on the ground, and U.S. Customs will inspect
it. We don't inspect it for them and say it is okay; they
inspect it.
With NII equipment in place in places around the world, I
would also do it a second time. I would do it here. And there
is equipment now in some U.S. locations. Rob Scavone would be
able to address that better than I. But there is some of this
equipment now coming on stream in U.S. ports, and this, to me,
is a no-brainer and should be globally, not just for the U.S.,
but for all sorts of places, and a lot of people are taking
initiatives.
One of our competitors, and they are a very good
competitor, has a pilot program going in Hong Kong, and we are
looking at them. We live right next to them, we have a very
large terminal right next to them in Hong Kong, and we are
actually looking at it, and there is a great discussion of how
we are going to implement it and who is going to pay for it.
But if there is enough initiative and push--most of these
international security initiatives have come from the U.S.,
which is great, and I would like to see more of it pushed. We
are in the business of security. If there ever was a company,
the responsible large global terminal operators.
Mr. Spratt. Do you think it is feasible to fund it by
levying a fee on each container or each shipper?
Mr. Bilkey. Excuse me for smiling, sir, but this is
starting to be tried actually in some places in China, and
there has been some resistance to it because you are going to
charge the ship, and the ship is going to charge the cargo
interest. I think if it comes universally, everybody is going
to be in the same playing field and pay it. I think it could be
done, and I hope I don't get myself in trouble with a lot of
our large customers by suggesting something like this, but I
think what we are really interested in is in security and
safety, and I think this type of initiative should come and be
pushed, and we would not only be a backer, we would like to be
a participant.
Mr. Spratt. That is my last question. You have got 6.8
billion invested in this deal?
Mr. Bilkey. Yes, sir.
Mr. Spratt. A lot of money even to the Emir of Dubai.
Mr. Bilkey. Sir, we did this on our own balance sheet. So,
yes.
Mr. Spratt. Do you worry about port security, about the
security of your assets?
Mr. Bilkey. All the time, sir.
Mr. Spratt. Under the present circumstances?
Mr. Bilkey. We continually address security issues. We
operate in some very tough places, and we are also, as I
mentioned earlier, trying to get CSI, which has been in active
discussion with the Dominican Republic. We hope that would
happen tomorrow, and we would get the gear installed and get it
up, but from the best of all worlds, from the day you say yes,
it is a 6-month deal probably.
Mr. Weldon. The gentleman's time has expired.
The gentleman from New Jersey.
Mr. LoBiondo. Mr. Scavone, when talking about the facility
security officer, you said that that is the only person who has
access to the port security plans, and not the operator of the
terminal.
Mr. Scavone. That is correct, sir.
Mr. LoBiondo. At Port Newark who employs the security
facility officer?
Mr. Scavone. That would be Port Newark Container Terminal,
also know as PNCT, which is the joint venture that we
participate in.
Mr. LoBiondo. So that facility security officer that you
partially hire has access to those sensitive port security
plans?
Mr. Scavone. Yes, sir.
Mr. LoBiondo. If, in fact, this all were to go through,
then the new owner that is buying the operation, that would
still be hiring or partially hiring at Port Newark that
facility security officer?
Mr. Scavone. The understanding is that the current manager
will remain in place, and that any replacements to those
individuals as in the natural course of things they perhaps
leave or get promoted or otherwise are removed from a position
would be--would require prior approval from the U.S. Government
before a replacement is made.
Mr. LoBiondo. For the facilities security officer.
Mr. Scavone. Yes, sir.
Mr. LoBiondo. What I was getting at, I don't remember the
name of the Member who initiated the questions or how you first
got into that, but that basically your corporation or the new
owner would not have access to the port security plans, but
that in this case would not be true. They would actually have
access to those plans because they are your employee or the
employee of Dubai Port World.
Mr. Scavone. I do believe that as part of the commitment
that was made during the CFIUS process, it was agreed that the
formal protocols that are in place would remain in place, and
that none of that information would leave the country, as
indeed happens now. For instance, our London office does not
have copies of our facility security plans. They have never
asked for them. They make no attempt to get involved in the way
we manage security on the ground.
Mr. LoBiondo. Your company does not, but in the case of New
Orleans, it would be 100 percent ownership, Mr. Bilkey--would
be 100 percent ownership if this goes through.
Mr. Scavone.
Mr. Scavone. Bearing in mind that what is being bought is
P&O Ports in the U.K., which, through several corporations,
owns P&O Ports North America, which is a U.S. company with U.S.
employees that pays U.S. taxes, that is going to remain intact.
It is similar to----
Mr. LoBiondo. I understand. The point I am getting to which
we are trying to ascertain when we are talking about the
security end of this is that, in fact, those port security
plans would be available to the parent company, in which case
they would be available to the Government of Dubai. And
somebody is shaking their head behind you. If that is not
true----
Mr. Scavone. It is not true, sir, and I do think that
during the additional 45-day review process, those are exactly
the type of details that perhaps can be examined, and indeed if
anybody believes that the measures that have been agreed have
any vulnerability, perhaps that is something that perhaps we
can talk about. But the intention is that that not, in fact, be
the case.
Mr. LoBiondo. That is part of our problem. We are trying to
sort through what intentions are, what is been decided and
agreed to, and what the Congress has access to, and there is a
wide variation.
Mr. Bilkey, I would like to know, I read a report that
Dubai has imposed a boycott on Israel. Did I, in fact,
understand that accurately, that that is the case?
Mr. Bilkey. The government of Dubai is just for the
emirates, sir.
Mr. LoBiondo. Is there a boycott with dealing with Israel?
Mr. Bilkey. Well, sir, I am not someone who can speak to
state matters, and that is a UAE matter, but what I do know
that is going on right at this time is that there is a--fair
trade negotiations are going on between the UAE and the United
States Government, and I am sure this is going to be one of the
issues that they will be discussing.
Mr. LoBiondo. I understand. I thought I read from your
Senate testimony though that that boycott is in place or being
honored by United Arab Emirates. I read wrong, you didn't say
that?
Mr. Bilkey. I didn't quite understand the question, sir.
Mr. LoBiondo. Sorry, Mr. Chairman, a little frustration
here trying to communicate.
I believe that I read in your Senate testimony--you did
indeed testify for the Senate, correct?
Mr. Bilkey. Yes.
Mr. LoBiondo. That there is a boycott in place with Israel?
Mr. Bilkey. For cargo from the United States, the United
Arab Emirates puts it in, but it is not something we are
involved in, sir. We are involved in the terminal business, and
we obey the laws of any country that we are in.
Mr. LoBiondo. But with government involvement, that is
where our--we can't separate some of these issues because with
Israel as our most reliable partner in that part of the world,
some of us view that if there is, in fact, a boycott, that
something like the deal we are talking about is in effect
ending up subsidizing a boycott, and that is where we have got
a serious problem and where this is coming down. You probably
can't answer if it were one of the conditions after the 45 days
that there not be anything like a boycott, how you would react
to that condition, but that will certainly be one of the
questions that we will be asking.
Mr. Bilkey. Yes, sir. I know this is a matter of concern,
and with the Chair's permission, I would like to read some
excerpts and put this letter in the record, if I may.
Mr. Weldon. Without objection, it will be entered in the
record.
[The information referred to can be found in the Appendix
beginning on page 205.]
Mr. Bilkey. Thank you, sir.
This is a letter to my CEO and from Idan Ofer, who is the
chairman of the board of the largest Israeli shipping company:
I wanted to take a moment to express my complete dismay at the
way your fine organization is being pilloried in the United
States. As you well know, Zimm Israel considers DP World to be
one of our closest global allies.
I am going to skip the middle of it where they operate with
facilities.
They are one our largest customers in many parts of the
globe. I sincerely hope this unnecessary political storm will
cease so we can all focus on the business of providing the
world safe and efficient shipping services. We truly look
forward to working with you in the U.S. where I know we will
enjoy the same great relationship we are in the rest of the
world. Until then, I would like to extend an offer to help you
in DP World any way we can.
Mr. LoBiondo. I appreciate that letter, and I will look
forward to getting my hands on it and seeing it, but that
individual still isn't answering the question about the
boycott. And if, in fact, it is real, and if it is real,
because it is United Arab Emirates and you are a part there,
that is what is causing agitation on our part.
Mr. Chairman, I thank you very much.
The Chairman. The gentleman from Washington Mr. Larsen.
Mr. Larsen. Thank you for being here.
On your hold separate commitment, the last page before the
signature page, it says, this hold separate commitment shall
take effect from the date, and so on; remain in effect until
May 1st. In other words, your time line is May 1st or when the
new review is done. Has the new review started?
Mr. Bilkey. May I give this to my general counsel?
Mr. Larsen. Absolutely.
Mr. Dalton. No. We had been preparing the CFIUS application
that will be going in very shortly, perhaps as early as
tomorrow.
Mr. Larsen. Does the clock start then?
Mr. Dalton. That is my understanding. My understanding is
the process has to be accepted by CFIUS first.
Mr. Larsen. Let me give you the cheapest piece of advice
you are going to get. Last week we were out of session, and the
announcement came out that the CFIUS review was completed, and
you were approved to move forward, and we were in our districts
for a full week hearing from our constituents, e-mails, phone
calls, letters, getting our dander up. If I count 45 days from
tomorrow or even early next week, I think we are out of session
again.
The cheapest piece of advice I can give to you is if there
is an announcement one way or the other, don't have us be out
of Washington, D.C., because we are going to be through this
all over again. We have to talk to our counterparts in the
Administration when they come through as well to get our point
across about this process, about the CFIUS process, and that is
not your problem, that is the Administration's problem. But we
could be going through this all over again in 45 days.
So I would strongly suggest that it is in everyone's
advantage for Congress to be in D.C. when any announcement is
made on this new review. Otherwise, we are going to come back
to this place if it comes back in an approval, and we don't
feel like we are going to be involved, we are going to be
through this all over again. That is free advice. That is why
it is so cheap.
I have some questions for you. You mentioned that you had a
U.S. Government agency as a point of contact. Which agency is
that, and who is that, who within that agency? Perhaps Mr.
Scavone mentioned that.
Mr. Scavone. Yes, Congressman, I was the one who said that,
but, of course, I was reciting what I understand the agreement
to be with DP World under the CFIUS process. I do think that
that is exactly, again, the type of detail that perhaps should
be buttoned down during the next 45-day review process so that
it is to the satisfaction of everybody.
Mr. Larsen. Probably a question we should ask the next
panel.
Mr. Bilkey, you talked about your going out with an RFP,
may have been RFP or R5 of some sort, about applying some NII
technology to your terminals. What is the time line on that?
Mr. Bilkey. Well, I am looking at it here. It actually took
place long before any of this happened. The date on this is
September 19th. We are now considering three different offers
that we have had, and we would hope to make our decision, I am
sure--I have a day job, and it is a fairly big one, and I
haven't been paying a lot of attention to it, and I hope they
keep me employed. But we are hoping to do this--certainly
within the next month we would be making decisions, because it
is not an immediate process, and it takes from the day we say
go--and where we are going to start, we would like to start a
pilot program in the Dominican Republic, because that will
actually be, frankly, a good marketing tool for us, but it
involves U.S. cargo and U.S. transshipments and would be a very
strong point in the security cycle.
Mr. Larsen. My time is growing short.
I was in Hong Kong in January and took a tour with Hong
Kong International Terminals on their pilot, and they are
putting the dollars in per container. There is an equivalent
per container. It is coming out of their pocket to do this. My
sincere hope is that we have--perhaps it may take the U.S. to
push this, but to push this kind of thing as an international
system for our own sake.
Just quickly, Mr. Chairman, if I could, I am from
Washington State. Just up the highway is the Port of Vancouver.
To what do you contribute the collective yawn in Vancouver and
Canada about your takeover of terminal operations in the Port
of Vancouver compared to port operations in the U.S., if you
dare to answer that question?
Mr. Bilkey. We have had no adverse reactions.
Mr. Larsen. I know. To what do you contribute the
collective yawn in Canada compared to the response here in the
United States?
Mr. Bilkey. I don't know, and to be frank, since it hasn't
raised its head, I haven't paid much attention to it.
Mr. Larsen. Fair enough. Thank you.
The Chairman. Thank the gentleman.
The gentleman from New Jersey Mr. Saxton.
Mr. Saxton. Thank you, Mr. Chairman.
Mr. Bilkey, I understand my smart staff tells me that Dubai
Port World has two divisions, one known as the Port Authority,
the other known as Ports International. Is that right?
Mr. Bilkey. I think what maybe had been referred to is
Dubai Ports Authority actually ran the whole operation in
Dubai, both the port authority side and also the operational
side. They had an international division, which I also was in
charge of as the executive director of Dubai Ports
International. These were merged in September into DB World
because we actually all had the same customers. I think that is
where that----
Mr. Saxton. Thank you. So there were two separate
functions, and now Dubai Ports World has combined both
functions together.
Mr. Bilkey. Yes. But we separated out the regulatory
functions of Dubai Port Authority. Dubai Port Authority is now
a separate body.
Mr. Saxton. The port authority formerly--apparently the
port authority formerly took part in the Container Security
Initiative; is that right?
Mr. Bilkey. Yes, sir. I am not too familiar because I
wasn't there when it first happened.
Mr. Saxton. So today Dubai Port World takes part in the
Container Security Initiative.
Mr. Bilkey. Not directly, it is really Customs. And the
arrangement is with Customs, and the agreement I know was
signed last January.
Mr. Saxton. Here is my point of interest--thank you for
helping me clarify that. Here is my point of interest. The U.S.
Customs Service under the Container Security Initiative
agreement with Dubai or the UAE sends U.S. Customs agents to
Dubai to inspect--to do certain inspections, right?
Mr. Bilkey. Yes. Actually to receive the manifests. There
is a 24-hour rule any box anyplace in the world being loaded to
the U.S., the shipping line has to supply the manifest or the
bill of lading to U.S. Customs before it will be loaded.
Mr. Saxton. Those inspections are done in cooperation with
the Dubai Customs organization?
Mr. Bilkey. Yes. Yes, sir. If they want to inspect
something, they will advise us, or they will tell us not to
load something, and we don't load it.
Mr. Saxton. It is a reciprocal agreement which gives Dubai
Customs authorities the opportunity or the right to come to
this country to inspect containers that are bound for Dubai; is
that right?
Mr. Bilkey. No, sir. It is an initiative really pushing out
our borders, so to speak.
Mr. Saxton. We don't have a reciprocal agreement with Dubai
that gives them the same authority?
Mr. Bilkey. I don't know about it if there is one, sir.
Mr. Saxton. Well, the information that we have is that
there is one, and under that reciprocal agreement, the Dubai
Customs authorities would have the right to come to this
country and take part in similar inspections. You have no
knowledge of that?
Mr. Bilkey. No, I don't, sir.
Mr. Saxton. We got that from our annual Customs report from
2005, and so I am asking you because----
Mr. Bilkey. It sounds like it is kind of a normal
reciprocal arrangement; if you do it for me----
Mr. Saxton. So there would be citizens of Dubai potentially
to carry it out?
Mr. Bilkey. If it is there. I am totally unaware of it,
Congressman.
Mr. Saxton. You couldn't tell us about the people that take
part in this kind of program?
Mr. Bilkey. No, sir, because I am not involved in the
Customs procedures.
Mr. Saxton. It would certainly concern us, or we would at
least be concerned enough to want to know who would be hired to
come into this country and make those inspections, and so I
wonder if it might be an advantage in your deliberations over
the next 45 days or so to look into this and make sure our
decisionmakers take this program into consideration so that we
can make sure that that is not a bone of contention 45 days
from now, because obviously we are going to look into it.
Mr. Bilkey. I would imagine in the CFIUS review that U.S.
Customs would be bringing something like that question up.
Mr. Saxton. Thank you, Mr. Chairman.
The Chairman. Thank the gentleman.
The gentleman from Georgia Mr. Marshall.
Mr. Marshall. Thank you, Mr. Chairman.
Mr. Bilkey, I want to kind of continue on the line of
questioning I had before with regard to the additional things
that you agreed to, the company agreed to, as part of the CFIUS
process and clearance. One had to do with management, we talk
about that, and various people have asked you questions about
this management understanding. And the summary in your
testimony is that you undertake to--this is a quote--operate
all U.S. facilities to the extent possible with current U.S.
management. As we talked about that, that undertaking doesn't
end on May 1st, it continues thereafter, and it is your
understanding that there would be simply U.S. management?
Mr. Bilkey. No, sir. We put this time period in place so
there could be a review.
Mr. Marshall. I understand. The undertaking doesn't stop at
the end of that time period.
Mr. Bilkey. I understand that this is in the package that
we handed out.
Mr. Marshall. The actual language, I want to get to that
next, but I just want to see what your understanding is. I
assume that it was our Homeland Security Department that asked
for this concession; it wasn't something that you simply
proposed.
Mr. Bilkey. I frankly don't know. I reviewed it. I think
the answer can be made here.
Mr. Dalton. Congressman, we did propose it.
Mr. Marshall. You proposed it in response to concerns
expressed by?
Mr. Dalton. Through the normal CFIUS process.
Mr. Marshall. The CFIUS process. It is utterly incredible
you would say our management is not competent or--somebody was
worried about----
Mr. Dalton. We volunteered at the CFIUS.
Mr. Marshall. Why did you volunteer it?
Mr. Dalton. I am sorry. I was conferring with our counsel
who helped assist us because we wanted to assure the United
States Government and the public that the management team that
was currently in place from P&O would in fact remain in place.
Mr. Marshall. And I think I understand the spirit behind
that and the concerns that you had at the time you made that
offer. And this was during that period of time before you hired
lobbyists and before we had this big public dispute, you
anticipated that there could be some problems associated with
this, and one way to mute those problems, to lessen them,
lessen the public perception that there is a problem here is to
go ahead and agree to this retention of management.
Mr. Dalton. What we were attempting to accomplish was to
demonstrate our cooperation with the United States Government
and our concerns about security.
Mr. Marshall. When you say your concerns, now, you are the
guy. And what is your concern that would lead you to say we
won't manage?
Mr. Dalton. Sir, we are a company incorporated in Dubai,
and we have security concerns in all of our facilities around
the world.
Mr. Marshall. Why would you be--why would your security
concern that is worldwide persuade you to make an offer that
you would only have U.S. management for these facilities in the
United States? What is the relationship between those two?
Mr. Dalton. Sir, I don't think we committed to only having
U.S. management. I think we committed to keeping the current
P&O ports management in place. My understanding--my colleague
from P&O can address this more specifically, but there is
action, approximately 400 direct employees by P&O Ports North
America of which approximately seven or eight are non-U.S.
citizens. There are several other citizens such as from the UK,
I believe Australia, and I am not sure a couple of other
places, but clearly, the vast majority of the employees of P&O
Ports North America are U.S. citizens. And we wanted to
demonstrate our commitment to them as well.
This was a company that is approximately four times larger,
depending on how you calculate it, than DP World. And as part
of that, we needed their management expertise, and that was
part of the reason that we wanted to acquire their firm.
Mr. Marshall. I understand, Mr. Bilkey, in his testimony,
as I said previously, indicated some discomfort that these were
unusual things to have agreed to. And you are telling me now
that, at least with regard to the management thing it was your
idea; it was your proposal that this be done because you wanted
to, I guess, make CFIUS comfortable. I am not sure. We will get
more information about that.
I will observe though that page two of the letter that I
guess memorializes the agreement, this undertaking, says this,
it is page two of the letter that is in the packet, and I
assume this is the language of the agreement. I will give you a
more precise description.
This is a letter dated January 6, 2006, to Mr. Stewart A
Baker, and it is from--I'm sorry but I can't read, Robert
Scavone. I guess it is from you. And I assume that this is the
language of the undertaking. And here is what it says about
management of U.S. facilities: The companies--companies,
plural--I am a little confused about that, I guess it is both
companies here--and so the acquiring company, hereby
represent----
Mr. Bilkey. I was going to say, it was a joint filing, sir.
Mr. Marshall. Good. Okay. So the acquiring company, DP
World, is representing--hereby represent and commit that their
current intent and plan is to operate any U.S. facilities they
own or control to the extent possible with the current U.S.
management structure.
I am a lawyer. Commercial transactions, lawyers happen--I
do these kinds of deals. That is language that doesn't bind
anybody to anything. It states a current intent and a current
plan.
But intent changes; plans change. And one of the things
that I thought I clearly heard from Mr. Scavone, I might have
heard from Mr. Bilkey, is that you are willing to work with us
to take up language, the undertakings that have been made here,
if in fact the language isn't ideal, perhaps we can take up
that language and perhaps the Congress can help the
Administration to address some language that is a little
clearer and firmer with regard to that issue, if in fact it is
an issue that has something to do with security. That is all I
have, sir.
The Chairman. I thank the gentleman.
The gentleman from Missouri, Mr. Skelton, had a couple more
questions.
Mr. Skelton. I am still, Counsel, what is your name again?
Mr. Dalton. George Dalton, sir.
Mr. Skelton. Are you in-house counsel?
Mr. Dalton. Yes, sir.
Mr. Skelton. I am not quite clear. The period of time that
is supposed to elapse before DP World takes over operation is
between now and May 1; is that correct?
Mr. Dalton. Sir, it is the earliest, I believe--I will find
the exact language in just a second--but I believe it is the
earliest of the conclusion of the CFIUS process or May 1, if
you give me just a moment.
Mr. Skelton. And again, give us the reason for that.
Mr. Dalton. Sir, we were attempting to address or at least
provide an opportunity and an avenue to address the concerns of
Congress and the American people that have been raised through
the course of this acquisition of the transaction.
Mr. Skelton. It had no legal binding effect; did it?
Mr. Dalton. No. We believe it will have a binding effect if
the United States Government accepts our offer. I think that we
have found----
Mr. Skelton. Accepts your offer to do what?
Mr. Dalton. To hold separate, to honor the commitments that
we have given in the agreement, we hope that the United States
Government will accept it. I think we have found ourselves very
much in unchartered waters here because we had already received
the CFIUS approval.
Mr. Skelton. That's right. The deal was done.
Mr. Dalton. Well, the deal is about to be done, but the
CFIUS approval was granted, which was, we followed the specific
legislative intent and the letter of the law set out by the
United States Government.
To be honest, I don't think that it is our position to
comment on whether or not the CFIUS process is correct or
right. We simply followed what had to be followed.
Mr. Skelton. No. No. No. You told me a little while ago
that, Tuesday, the deal is in blood; am I correct?
Mr. Dalton. That is correct, under the UK takeover code,
and we would find ourselves in violation of UK law, we believe,
if we didn't proceed with the deal.
Mr. Skelton. So, Tuesday, the deal is done.
Mr. Dalton. We believe it should take place on or about
Tuesday. Yes, sir.
Mr. Skelton. Then I still, if the deal is done Tuesday, why
the May 1 date?
Mr. Dalton. To give the Congress an opportunity to----
Mr. Skelton. To do what?
Mr. Dalton. To take a look at the deal. We are voluntarily
committing back to the CFIUS process embodied by that process
as it relates to the United States' facilities.
Mr. Skelton. That has no legal binding now other than maybe
to let the thing blow over; is that correct?
Mr. Dalton. No, sir, we were trying to demonstrate our
commitment to security and to our cooperation to work with
Congress. We just found ourselves----
Mr. Skelton. To do what? How can you work with Congress if
the deal is done?
Mr. Dalton. Sir, the deal applies not just to the United
States but also to many other countries around the world.
Mr. Skelton. I understand that. But the deal is already in
blood as of Tuesday it will be.
Mr. Dalton. Yes, sir.
Mr. Skelton. So what, how do you work with Congress if the
deal is behind you?
Mr. Dalton. Sir, we found ourselves in a very difficult
position.
Mr. Skelton. I understand that, but it is a public
relations thing; isn't it?
Mr. Dalton. I don't believe so no, sir.
Mr. Skelton. Thanks counsel.
The Chairman. I thank the gentleman.
The gentleman from Pennsylvania, Mr. Weldon.
Mr. Weldon. I thank the gentleman for yielding, and I want
to get back to the point that I was raising only because when
this deal was announced by the Administration, I went on
national television and blasted the White House publicly.
And I did so because they didn't have the courtesy to bring
Members of Congress in from both sides to let us be a help. And
I don't want to cause a problem with the Emirates because I
think they have, in fact, been helpful to us. But I blasted the
White House for what I thought was an inappropriate way of
involving Congress in transparency.
And now, what I am finding out is that there have been
discussions from the other side of the aisle about helping this
deal move forward.
Now, I believe that you testified that your lobbying, one
of your lobbying firms was Alston & Bird; is that correct?
Mr. Bilkey. No, sir they are our counsel.
Mr. Weldon. They are your counsel. Is it true that, at
Alston & Bird, one of the leading people working with you is in
fact a gentleman named Jonathan Winer.
Mr. Bilkey. Yes, sir.
Mr. Weldon. And he is here.
Mr. Bilkey. Yes, sir.
Mr. Weldon. And is it true Jonathan Winer spent 10 years as
Senator John Kerry's aid?
Mr. Bilkey. He told me that, sir.
Mr. Weldon. Is one of the other principals in the firm
involved with this Kathryn Marks.
Mr. Dalton. May I take that, sir?
Mr. Weldon. Yes.
Mr. Dalton. Yes, she is----
Mr. Weldon. Is it true that Kathryn Marks was policy
director for Senator John Edwards?
Mr. Dalton. I saw that in the newspaper for the first time
yesterday.
Mr. Weldon. And the reason I say this is, my colleagues and
I have all been very critical of this Administration, and I
take the lead on that. And I don't apologize for it. But what I
see here is leaders of both parties, instead of coming to the
Congress and letting the Congress come in and understand, which
is what I would have done when I had this deal, knowing it was
going to become controversial based on substance or not, after
the fact, all of these players, including a former President,
are getting involved to push a deal through that the American
people, including my constituents, are going bonkers over.
And that bothers me.
Now some on the other side are using this as a cheap shot
to trash President Bush and Republicans in Congress. And I have
been one of those that has criticized this President in not
having access. But now I find out it is not just one party.
I want to get back to when--and now you have told me on the
record that the Albright firm does not work for your company,
never has, nor any of the principals or others involved; is
that correct?
Mr. Bilkey. No, sir. The Albright company helped us in
China.
Mr. Weldon. But they have done nothing on this deal?
Mr. Bilkey. No, sir.
Mr. Weldon. They have not talked to any agency heads?
Mr. Bilkey. I understand they gave us some referrals, but
that is all.
Mr. Weldon. They have not talked to the State Department?
Mr. Bilkey. To the best of our knowledge, no, sir.
Mr. Weldon. So you have never had contact with anybody in
Albright's firm about this particular deal in helping it get
through?
Mr. Bilkey. To my knowledge, other than what I have been
told, they made some referrals.
Mr. Weldon. Mr. Dalton, can you affirm that same statement,
that you are aware of no involvement by Madeleine Albright's
firm on this deal?
Mr. Dalton. My understanding is that one of the principals,
I am not sure of her name, attended one meeting, and I, the
rest of what Mr. Bilkey has stated, yes, I can confirm that the
Albright firm has provided information and help to us in China
but not in the United States.
Mr. Weldon. But now you just said, one principal of that
firm did attend. Would that person have been Carol Browner.
Mr. Dalton. I believe that is her name.
Mr. Weldon. And do you know that she was the former
Environmental Protection Agency (EPA) director in the Clinton
administration?
Mr. Dalton. I believe I saw something about that in the
press as well, sir.
Mr. Weldon. I don't know why you would say that the
Albright firm, of which she was a principal, was not involved.
I understand they may have helped you with China, but we are
not talking just about China here.
The problem here, and believe me, I say this as somebody
who took on the White House and made it very uncomfortable for
my President and Treasury Secretary Snow and all of the Cabinet
members--I was willing to do that.
But I also think the American people have a right to know
when the other side of the aisle is pushing the deal for
whatever reason, maybe because it is legitimate.
And the only reason I raise these questions is your
testimony, both written and what statement you have given, is
that there was no need for concern, no need for security
concerns; you just felt this was a routine transaction that
would, on the merits, go forward.
And so I have to ask the question, why would you hire all
these high-priced firms, both Republicans and Democrats, to
make it happen if there are no security concerns, if there is
no way to grease the skids?
We have got a laundry list of officials here and their
former staffers that are now involved in making this deal
happen.
If this was such an ordinary routine business deal to make
a sale occur, I don't understand why all of this should be
necessary.
Can you help me understand that?
Mr. Bilkey. Sir, we started on October 17 and way ahead of
any time frame that we thought we would be able to put it in an
offer. We also started very early in Australia, because these
were two areas that had processes that had to go through that
were going to be time-consuming. And we abided by everything
that we thought was necessary.
This was all there was. This is what we did throughout the
world. And at the end of the time that this happened, and we
volunteered because it was suggested that they might like to
talk to you personally and ask questions, so we came in
December 6, I think, to Washington and met with the 12
agencies.
And from that time on, the process continued. And finally,
we received approval. So we thought we had done all the right
things, Congressman.
Mr. Weldon. I understand.
Mr. Bilkey. And I mean, within our own situation, we said,
this is what is required. We are doing everything that is
required. And any process that needed liaison between, you
know, the Administration and Congress we thought would be part
of the process. We don't know the process.
We just did exactly what we were told to.
Mr. Weldon. I understand and the only reason----
Mr. Bilkey. And we really, we are very, you know, surprised
at the reaction.
The Chairman. I thank the gentleman.
Gentlemen, let me ask you a couple of questions. First, Mr.
Bilkey, you stated that President Clinton made a call on the
Emir or talked to him on the telephone?
Mr. Bilkey. No, sir, to my chairman, Sultan Ahmed bin
Sulayem.
The Chairman. What is his name?
Mr. Bilkey. Sultan Amid bin Sulayem.
The Chairman. How did you find out about that?
Mr. Bilkey. He told me.
The Chairman. Was this a supportive call or was he
eliciting advice or what?
Mr. Bilkey. I don't know the details of the call. He just
said, he called me.
The Chairman. About the deal?
Mr. Bilkey. Yes. I mean, I didn't go into it with him at
the time.
Mr. Weldon. Will the gentleman yield?
The gentleman wasn't here, but you did testify there was a
recommendation to hire Mr.----
Mr. Bilkey. Yes, but, my chairman told me that he made this
recommendation.
Mr. Weldon. And I assume the gentleman would yield further
that that was for the purpose of supporting the deal.
Mr. Bilkey. Yes, it would be.
The Chairman. So your understanding is that President
Clinton called in to help support the deal or to offer advice
on how to get this thing through.
Mr. Bilkey. I don't know what the conversation was about.
The only thing I was told was that this had been a
recommendation.
The Chairman. Have you had any conversations with your--
this is your president or your Chief Operations Officer (COO)?
Mr. Bilkey. My chairman.
The Chairman. Your chairman.
Did he make any remarks in the wake of Senator Clinton
criticizing this deal?
Mr. Bilkey. I have no knowledge of any of that, sir.
The Chairman. Did you have an answer there, Mr. Moore.
Mr. Moore. No, I didn't. I had a different subject, and I
leaped again there. I apologize.
The Chairman. Okay. Have any of you folks had a discussion
with President Clinton?
Mr. Dalton. No, sir.
Mr. Moore. No, sir.
The Chairman. Do you know if--do you have any--has there
been a relationship between your COO and the President before
this?
Mr. Bilkey. I don't know. If there has been one, I am not
aware of it, sir.
The Chairman. Were you ever aware of him visiting Dubai?
Mr. Bilkey. I heard he visited Dubai, but I was never
involved if he did.
The Chairman. Did they ever maybe hire him for a speech
that you know of?
Mr. Bilkey. I read in the paper that he had a speech, today
or yesterday, but that is the only time I was aware of it.
The Chairman. That President Clinton had a speech in Dubai
today or yesterday?
Mr. Bilkey. No. I read recently----
The Chairman. You read today that he had a speech at some
point.
Mr. Bilkey. Recently, I can't remember if it was today. I
have been reading a lot of information.
I don't remember when it was, but there was a reference
that there was a speech in Dubai, I believe.
The Chairman. Mr. Bilkey, you heard this litany of
transfers of technology that took place in Dubai,
transshipments of components of nuclear systems that took place
that I read to you or I started out the hearing.
Mr. Bilkey. Yes, I had heard that, sir.
The Chairman. Now, I understand the Emir, who is the only
director, is for practical purposes the leader----
Mr. Bilkey. He is the shareholder, sir.
The Chairman. He is the shareholder. What is his position
in the government of Dubai?
Mr. Bilkey. He is the ruler, sir.
The Chairman. He is the ruler of Dubai, and isn't he also,
he has a place in the United Arab Emirates, does he not?
Mr. Bilkey. Yes, sir. He is the prime minister.
The Chairman. I am going to go back to this 2003 transfer
of these high-speed electrical switches which are utilized for
detonating nuclear weapons that were allowed to be transshipped
to a Pakistani businessman through Dubai and the information
that we have is that Washington protested those transfers. And
yet the government of Dubai allowed the transfers to take place
over our protests.
Do you know anything about that?
Mr. Bilkey. No. Absolutely not. Only what I read in the
paper. But I would say one thing as far as the terminal, people
go and our operations go, we don't know what is in containers.
The people who know what are in containers are the ship owners,
the shipping company and customs.
The Chairman. But in this case, your only stockholder, the
Emir, he is the government of Dubai. We protested to the
government of Dubai that these triggers were going to be
transshipped, and we wanted to stop them so we wouldn't have an
unfortunate nuclear detonation at some point. So he apparently
knew even, though he didn't transfer that information to you.
In your opinion, you understand, is that----
Mr. Bilkey. I know nothing about this issue. And I am not
even sure I was in Dubai when it took place.
The Chairman. If he is--he is the ruler of Dubai. Is that a
fairly absolute position? Does that mean that the Emir has--is
the--has the ability to stop a shipment if he wanted to stop it
from going through Dubai, send the police down, send the port
authority down? You understand the nature of his government
there?
Mr. Bilkey. Yes, sir. But I can't comment on his authority
and how he would do that.
The Chairman. Is there anybody else in Dubai that--who
supersedes him?
Mr. Bilkey. No, sir, not in Dubai.
The Chairman. If you discovered, if you were informed that,
in fact, he, through his subordinates, discussed the
transshipment of these high-speed switches, that can detonate
nuclear devices with the United States officials and told them
he was going to allow the transshipment anyway or allow his
subordinates to allow the transshipment, would that be
relevant, from your perspective, with respect to this deal,
this port deal? Or would it be irrelevant?
Mr. Bilkey. Well, I would imagine, sir, it would be a
matter between not Dubai but the UAE and the U.S. Government.
And it would be the UAE would be taking action.
The Chairman. Now what is this gentleman's name, say it one
more time, the Emir?
Mr. Bilkey. The Emir, Mohammed bin Rashid
al-Maktoum
The Chairman. Isn't he also the vice president of the UAE?
Mr. Bilkey. Yes, sir, and the prime minister.
The Chairman. Well, in that case, we are talking about the
same guy. I don't care if he moves from one desk to another,
and you say you are dealing with the UAE now, and you are not
dealing with Dubai. It looks to me like you have got the same
power in government behind both of those desks.
So my question to you is--and same guy who is the only
shareholder in the corporation.
Would he not be in a position to have stopped those high-
speed switches that could be used to detonate nuclear devices?
Would he be in a position to stop a shipment? What is your
basic take on the way the government is set up? Is there
somebody----
Mr. Bilkey. I can't answer that, sir, because I am not a
specialist on the government of the UAE. They have a council of
ministers, and I don't know how they function exactly.
The Chairman. Are you aware of any of the, have you heard
anything or have you been faintly aware of any of these
transshipments that have taken place with respect to either the
precursors to nerve gas, a transshipment to Iran, the
precursors of nerve gas, the 66 high-speed nuclear weapons
switches that I talked about, the heavy water shipments from
China and Russia to India, through Dubai, have you ever heard
of any of those transfers?
Mr. Bilkey. No, sir.
The Chairman. And you are the chief operating officer for--
--
Mr. Bilkey. Yes. And I don't even know when they took
place. But what I can tell you is that, since the CSI agreement
was signed between the UAE and the United States, that any
container that U.S. Customs, transshipment or not, wishes to
inspect, they have, in the agreement, they have the right to
inspect. And not only that, in most countries, it will be the
agency of the country that will make the inspection. In Dubai--
--
The Chairman. But they didn't stop the shipment of those
triggers.
Mr. Bilkey. I have no idea the years we are talking or when
we are talking about. But I do know what the situation is now,
and that is what interests me now, is security from now going
forward.
And I do know that it is a very unique situation that we
have. And I know that we have very strong operations supporting
the efforts in Afghanistan, in Iraq, going through Dubai at the
present time.
The Chairman. Okay. Thank you.
Do we have anybody else with questions?
Yes. The gentleman from New Jersey.
Mr. Andrews. I will be very brief because I think we have
exhausted this. One thing I want to make very clear on the
record to is it Mr. Bilkey, I am sorry, correct, is the CEO,
thank you for your patience and for your diligence.
The prime minister of Dubai is the sole shareholder of the
corporation; correct?
Mr. Bilkey. Yes, sir.
Mr. Andrews. Am I correct in assuming that, under Dubai
law, that if he chose to dismiss you or any of your
subordinates, he has the power to do so?
Mr. Bilkey. That power would be with the board of
directors. The board of directors is made up of Sheik Mohammed
and Sultan Sulayem.
Mr. Andrews. Under the law of--you are a Dubai corporation;
is that correct?
Mr. Bilkey. Actually, we are a free--a Jebel Ali Free Zone
cooperation.
Mr. Andrews. Under the chartering law of your corporation,
does the shareholder have a right to elect a new board of
directors that would follow his will?
Mr. Bilkey. I am not sure of that, sir.
Mr. Andrews. Does your counsel know?
Mr. Dalton. I am not a Dubai lawyer, but I believe the
shareholder would have the authority.
Mr. Andrews. So isn't the practical answer to that question
is, should the sole shareholder wish to change the management,
he has the power to do so?
Mr. Bilkey. I would think so. It is true in most companies.
Mr. Andrews. I would think so.
Thank you very much, Mr. Chairman.
Mr. Weldon [presiding]. We will move on to the next panel.
I want to thank you all for appearing before us. We appreciate
your statements, and formal comments will be entered into the
record. Thank you.
Our next panel will include five witnesses, four of whom
will give testimony.
We would ask them to come to the table, the dais, at this
point in time.
STATEMENT OF ERIC S. EDELMAN, UNDER SECRETARY OF DEFENSE FOR
POLICY, DEPARTMENT OF DEFENSE; STEWART BAKER, ASSISTANT
SECRETARY, POLICY, PLANNING AND INTERNATIONAL AFFAIRS,
DEPARTMENT OF HOMELAND SECURITY; CLAY LOWERY, ASSISTANT
SECRETARY, INTERNATIONAL AFFAIRS, U.S. DEPARTMENT OF THE
TREASURY; ALAN MISENHEIMER, DIRECTOR, OFFICE OF ARABIAN
PENINSULA AND IRAN AFFAIRS, DEPARTMENT OF STATE; AND REAR ADM.
THOMAS GILMOUR, USCG, ASSISTANT COMMANDANT FOR MARINE SAFETY,
SECURITY AND ENVIRONMENTAL PROTECTION
Mr. Weldon. Our second panel today consists of Ambassador
Eric Edelman, Under Secretary of Defense for Policy, Department
of Defense; Mr. Stewart Baker, Assistant Secretary of Policy,
Planning and International Affairs, Department of Homeland
Security; Mr. Clay Lowery, Assistant Secretary, International
Affairs, Department of Treasury; Mr. Alan Misenheimer,
director, Office of Arabian Peninsula and Iran Affairs,
Department of State; Rear Admiral Thomas Gilmour, Coast Guard
Assistant Commandant for Marine Safety, Security and
Environmental Protection.
We welcome each of you here. Your written statements will
be entered into the record as you prepared them, without
objection. And I understand that only four of you are going to
give statements. My understanding is that Mr. Misenheimer is
not going to give a statement but is here in case we have
questions, and anything you have for the record, we would
accept as well.
We thank you all for appearing. We have been in a rather
long hearing today, and you have heard probably many of the
proceedings, so you know the tone of discussion. Plus you have
been on the other side, so you are used to this drill. We do
appreciate you being here, and I would like to now--did you
want to make any opening on this?
Mr. Skelton. No.
Mr. Weldon. So we will proceed with Ambassador Edelman.
STATEMENT OF ERIC S. EDELMAN
Mr. Edelman. Congress Weldon, thank you very much. Members
of the committee, I appreciate the opportunity to appear before
you today to discuss the Department of Defense (DOD's) role in
the Committee on Foreign Investments in the United States and
our review of the Dubai Ports World P&O transaction.
When the Department of Defense participates in the CFIUS
process, we weigh a number of factors. I thought it would be
useful to walk through them as we consider an acquisition.
First and foremost, of course, our primary objective, as
yours is, is to ensure that any transaction does not pose risks
to U.S. national security interests. And to do that, we
consider several aspects.
First is the importance of the firm to the U.S. defense
industrial base, which is to say, is it a sole source supplier?
And if so, what security and financial costs would be incurred
in finding and/or qualifying a new supplier if required?
A second question is whether the company is involved in
proliferation of sensitive technology or weapons of mass
destruction.
A third is whether the company to be acquired is part of
the critical infrastructure that the Department needs in order
to accomplish its mission.
And finally, we look at whether any of the potential
national security concerns that might be posed by the
transaction can be eliminated by the application of risk-
mitigation measures either under our own regulations or through
negotiation with parties.
Regarding this specific CFIUS transaction, I thought it
would be useful to just walk through the history.
The Departments of Treasury, Commerce and Homeland Security
met with the legal representatives of Dubai Ports World and P&O
for a CFIUS pre-filing notification consultation on October 31,
2005. On December 6, 2005, the companies held a pre-filing
briefing for all of the CFIUS agencies.
The Defense Technology Security Administration (DTSA)
attended the meeting for the Department of Defense. On December
16, the Department of Treasury received an official CFIUS
filing. And on the same day, Treasury circulated the filing to
all of the CFIUS member agencies for review, and DTSA staffed
it to 16 other Department of Defense elements or agencies for
review and comment.
The review conducted by the Department of Defense on the
transaction was not cursory, and it was not casual.
It was in depth. And it was comprehensive.
The transaction was staffed and reviewed within the DOD by
17 of our agencies. In this case, the DOD agencies reviewed the
filing for impact on critical technologies, the presence of any
classified operations existing with the company being
purchased, military transportation and logistics as well as our
concerns that the transaction might raise.
During the review process, DOD did not uncover national
security concerns that warranted objection to the transaction
or requiring the 45-day investigation.
Positions were approved by staff that ranged from subject
matter experts up to, in one case, a Deputy Under Secretary of
Defense as appropriate to the offices undertaking the review.
All of the offices that were consulted came back with the
same position, which was that the transaction did not require
further investigation.
The DOD organizations that reviewed this and the other
CFIUS transactions that had come before us bring to bear a very
diverse set of subject matter expertise, responsibility and
perspective. The organizations included, for example, the
office of the Under Secretary for Intelligence, the Office of
the Under Secretary For Acquisition, Logistics and Technology,
the military departments, U.S. Transportation Command, the
National Security Agency (NSA) and the Defense Intelligence
Agency (DIA).
The Army, for example, reviewed the case in the following
manner. The Army Material Command Headquarters and Assistant
Secretary of the Army for Acquisition Logistics and technology
staff gave a preliminary review immediately upon receiving the
case. Army Material Command then staffed the filing to their
subordinate readiness command responsible for acquisition and
logistics, including the military surface deployment and
distribution command. For this case, the Army's review criteria
included the question of assured shipping and the army's final
position was that it had no objection to the transaction.
The Defense Security Administration, which reviews,
coordinates and analyzes the recommendations from all the other
DOD components as well as assessing the export control and
sensitive technology issues, ultimately signed off on the
transaction for the Department.
The comprehensive and in-depth review we had of the
transaction did not raise any issues. We remain comfortable
with the decision that was made on that review. I would add
that, early in my tenure, Deputy Secretary of the Treasury
Kimmitt contacted me to talk to me about the Government
Accountability Office (GAO) report that was done on the CFIUS
process and the importance of making sure that the security
agencies, notably the Department of Defense, had their views
fully heard and had sufficient time to analyze sometimes
complicated technological parts of proposed transactions and,
in addition, had time to, if conditions warranted, work out
possible mitigation measures with the companies involved.
Some of those steps have been taken. The process continues.
And clearly, we, I think, agree that it is a process that can
use even more improvement and look forward to working with
members of the committee as the process goes forward to try and
see what we can do to improve it.
I do also want to take the opportunity to provide a bit of
a perspective for the committee from the Department of Defense
point-of-view on the role of the government of the United Arab
Emirates and their support as a friend and ally in the global
war on terror.
In the war on terrorism, the United States needs friends
and allies around the world, especially in the Middle East, to
win this struggle.
Our recently published Quadrennial Defense Review (QDR)
highlighted that, in conducting the fight, it is important to
strengthen the bonds of friendship and security with friends
and allies around the world.
And the United Arab Emirates is an outstanding example of
the kind of partner critical to winning the long war on terror.
Dubai was the first Middle Eastern country or entity to join
the Container Security Initiative, the multinational program to
protect global trade from terrorism.
It was the first Middle Eastern entity to join the
Department of Energy's Megaports Initiative, a program aimed at
stopping illicit shipments of nuclear and other radioactive
material. The UAE has also worked with us to stop terrorist
financing and money laundering by freezing accounts, enacting
aggressive anti-money-laundering and counterterrorist financing
laws and regulations and exchanging information on people and
entities suspected of being involved in these activities.
As you may know, the UAE provides the U.S. and coalition
forces with access to its territory and facilities, and General
Pace has summed up our Defense relationship by saying that,
quote, ``in everything we have asked and worked with them on,
they have proven to be very, very solid partners.''
We have been provided access to seaports and airfields like
al Dhafra Air Base as well as overflight through UAE air space
and other logistical assistance. We have more Navy port visits
in the UAE than any other port outside of the United States.
And last year, U.S. Navy war ships and U.S. Military
Sealift Command ships spent over 1,400 days in the ports of
Dubai, Jebel Ali, Abu Dhabi and Fujairah.
By the way, the port at Jebel Ali happens to be managed by
Dubai Ports World, which is also the only carrier-capable port
in the Gulf.
U.S. Air Force has operated out of al Dhafra since the Gulf
War in 1990, and today, it is an important location for air
refueling and reconnaissance aircraft supporting operations in
Iraq and Afghanistan. And we should note that our most valuable
commodity, our military men and women, are frequent visitors to
the UAE on liberty or leave while deployed in the region. And
we, of course, rely on the government of UAE to protect those
folks, and we are grateful for their assistance.
Finally, the United Arab Emirates has been very supportive
in our efforts in Iraq and Afghanistan. They have provided
military and operational support to Operation Enduring Freedom
in Afghanistan and financial and humanitarian aid to
Afghanistan and its people.
The UAE has provided monetary and material support to the
new Iraqi government, including a pledge of $250 million in
economic and reconstruction assistance.
Mr. Chairman, that concludes my formal statement, and I
would be happy to answer any further questions you or your
colleagues have after my other colleagues have had a chance to
make their statements.
Mr. Weldon. Thank you.
Assistant Secretary Baker, the floor is yours.
STATEMENT OF STEWART BAKER
Secretary Baker. Thank you, Chairman Hunter, and members of
the committee. It is a pleasure to be here. I would like to
explain the role of the Department of Homeland Security in this
transaction. We are the newest member of CFIUS and have been
particularly aggressive in raising new issues about particular
transactions that we think required further review.
It is a record we are proud of. Notwithstanding our
willingness to stand alone on behalf of certain concerns about
homeland security, we did approve this transaction. I think the
committee's question for us is why we did that.
And I think the answer to that lies in the three questions
that we would ordinarily ask ourselves before voting against a
transaction. Those are: Do we have any other legal authority to
prevent the national security harms that are of concern here?
What do we know about the companies that are carrying out the
transaction and their willingness to cooperate in national
security concerns? And are there any further assurances that we
want to negotiate or obtain from the companies as part of a
condition on approving the deal?
We ask those questions. And if we don't get satisfactory
answers, we will object to the closing of the transaction.
In this case, it happens that there are significant answers
to all three of those questions. Since September 11, we have
changed our approach to the security of our ports and to the
security of cargo. With the help of Congress, with the Maritime
Transportation Security Act, we now have substantial authority
for the Coast Guard, which I will let Admiral Gilmour talk
about, both to impose regulations on members of, the
participants in a port, facilities in a port, and also to
inspect foreign ports to make sure that they maintain security.
We also have substantial new authorities with respect to
the supply chain, containers. We receive word before the
container is put in the ship in a foreign port. We have to
receive 24 hours in advance, a list of the contents. We can
decide at that point that we would like the containers screened
in the foreign port, actually inspected, x-rayed or otherwise
run through a radiation monitor or actually physically
inspected in order to make sure that there is not a problem. We
do that with any high-risk containers that we encounter in
foreign ports.
Then, when the cargo is closer to the United States, we
have a variety of reporting, including 96-hour report on the
manifest and the crew and passengers so that we can do
background checks on crew and passengers before they arrive.
When the cargo arrives, we, of course, have full authority
over what happens to the contents of the ship. We can meet the
ship at dockside. We can meet the ship offshore. We can
designate any of the containers that we wish to go to further
inspection, radiological or otherwise.
We make those decisions principally based on a variety of
intelligence and information we have about anomalies in the
supply chain or aspects of the shipment that raise its risk
score.
Once we have done that, and only after we have done that,
is the cargo free to leave the port.
In the course of that, we do deal with terminal operators.
And I think this committee understands better than the press
has what the role of a terminal operator is. Terminal operators
do not run ports. They are not responsible for the security of
the ports.
They have a pier. They have a crane, and they have a
parking lot to put the cargo on when they unload it.
That is an important job. It is a job that gives them some
insight into the operations of the port. And it gives them a
modest insight into our security activities.
They see what containers we send to screening to inspection
in the United States. They do not know why. They may not even
know what is in those containers. But they have some modest
insight into it, and they also have a role in security because
they have facilities on the port premises. We require them to
have a facilities security plan. The Coast Guard inspects the
facility to make sure it maintains those security standards.
That is the role that they have played.
The next question is, what do we know about the companies?
We, actually, it turned out, had had pretty close
relationships with both companies. This is a little unusual
because Dubai Ports World is not operating in any significant
way in the United States. Nonetheless, because they have a very
substantial role in Dubai, we had encountered them in the
course of pushing out our borders so that we could do
inspections abroad. We negotiated agreements, CSI agreement,
with the port, the Dubai Port Authority.
And Dubai Ports World was critical to the implementation of
that, and also a Department of Energy screening program that
was also set up in Dubai, so that they were, I think Dubai was
the first port in the Middle East where we established this
kind of screening. And Dubai Ports World was a very cooperative
and professional partner in doing that.
We also, of course, knew the facilities in the United
States. And in addition to Coast Guard inspections, they
belonged to our Customs and Border Protection Best Security
Practices Program, the Customs-Trade Partnership Against
Terrorism, which requires a wide variety of higher security
practices than is normal in the trade and is a voluntary
program. P&O, the owner of those facilities, had joined that
program and had maintained very strong security standards as
part of that program.
So we had a lot of authority already over port and cargo
security.
We had good experiences, cooperative professional
experiences with all the facilities and with the company that
is acquiring them.
We nonetheless decided when we looked at this that we
wanted to do something more and something that had no
precedent. We had decided to ask the company for a set of
assurances about their future behavior after the transaction
was consummated.
This is something that we have done in other areas,
particularly telecommunications and high technology. We have
never done it in the context of a ports deal. But we decided
that, given how important port security was to our mission,
that we should leave no stone unturned. And so we sat down with
the company and negotiated a set of assurances that I think you
have talked about today already.
The principal assurances in that letter are, one, that the
programs that they had voluntarily entered into, the Dubai
Ports World screening in Dubai and the C-TPAT Best Security
Practices in the United States would be maintained, that the
companies would never allow their level of cooperation and
membership to go below their current level.
That is very important because that means that there are
probably 5,000 or 6,000 members of C-TPAT; for two of them now,
that program is not voluntary. It is mandatory. And those are
the two companies that are engaged in this transaction.
Same is true for the Foreign Screening Program where,
again, we have locked Dubai Ports World into its current level
of cooperation.
It was after we got all those assurances and could look to
our existing authority that we decided that we had done an
appropriate amount of protection for port security in this
context; that we had gone beyond what anyone else is required
to do. And for that reason, we decided not to stand in the way
of the transaction.
Thank you.
[The prepared statement of Secretary Baker can be found in
the Appendix on page 160.]
Mr. Weldon. Thank you, Mr. Secretary.
Mr. Lowery, the floor is yours.
STATEMENT OF CLAY LOWERY
Secretary Lowery. Congressman Weldon and members of the
committee, thank you very much for allowing me to explain today
about CFIUS, the Committee on Foreign Investment in the United
States, and a little bit on its role in the DP Worlds'
acquisition of P&O.
CFIUS is an interagency group comprised of the Departments
of Treasury, State, Justice, Commerce, Defense, and Homeland
Security.
It also includes six White House offices, including the
National Security Council and the U.S. Trade Representative.
The committee was established by executive order in 1975 to
evaluate the impact of foreign investment in the United States.
In 1988 and 1992, Congress passed legislation now embodied in
the Exon-Florio amendment which empowered the President to
suspend or prohibit any foreign acquisition of a U.S.
corporation if the acquisition is determined to threaten U.S.
national security.
CFIUS has evolved over time to keep pace with changes to
the concept of national security.
For example, in 1998, the Intelligence Community
Acquisition Risk Center, also known as CARC, was created. This
office is now under the Director of National Intelligence and
provides CFIUS with a threat assessment of the foreign
inquirer.
Further, following September 11, the newly created
Department of Homeland Security was added to the committee. And
DHS has played a primary role in reviewing many transactions,
including the one at hand.
Further, agencies that are not formal members of CFIUS are
often called upon to lend their expertise, such as the
Department of Energy and the Department of Transportation.
CFIUS operates through a process in which Treasury, as the
chair, receives notices of transactions, circulates these and
other materials to members of the committee and coordinates
interagency process.
Upon receipt of a filing, CFIUS staff conducts a 30-day
review during which each CFIUS member examines the national
security implications of the transaction, including the CARC
threat assessment.
All CFIUS decisions are made by consensus. Any agency that
identifies a potential threat to national security has an
obligation to raise those concerns within the review process.
If any member of CFIUS objects or raises a national security
concern that cannot be satisfactorily addressed during the 30-
day review period, then the case goes to an extended 45-day
investigation period.
The investigation period provides CFIUS and the transaction
parties additional time to address security concerns that were
identify but not resolved during the review period. It also
could provide the time to get a report to the President of the
United States.
Under the Exon-Florio amendment, upon completion of the 45-
day investigation, the Secretary of Treasury forwards a
recommendation on to the President who then has 15 days to take
action. Upon making that determination, the President then
sends a report to Congress detailing its decision. The most
recent such report occurred in 2003 when the President reported
to the Congress on its decision not to block the transaction
between Singapore Technologies Telemedia and Global Crossing.
Turning now on the DP World transaction, in contrast to
some accounts, we would note that this transaction was not
rushed through the review process in early February, nor was it
casual, nor was it cursory.
On October 17, 2005, lawyers from DP World and P&O
informally approached the Treasury Department staff to discuss
the preliminary stages of the transaction.
In this case, Treasury staff identified port security as
the primary issue and immediately directed the companies to the
Department of Homeland Security which, with the Department of
Justice and others, met on October 31 with the companies to
review the transaction and security issues.
On November 2, Treasury staff requested an intelligence
assessment from the Director of National Intelligence. Treasury
received this assessment on December 5, and it was circulated
to the staff members of CFIUS.
On November 29, DP World issued a press release along with
P&O concerning their proposed merger. This announcement was
carried in numerous press articles in the weeks that followed.
On December 6, staff from the CFIUS agencies met with
company officials to review the transaction to request
additional formation. On December 16, after almost 2 months of
informal interaction and 45 days after CFIUS requested the
intelligence assessment, the companies officially filed their
formal 30-day notice with the Treasury Department.
Treasury circulated the filing to all CFIUS departments and
agencies and also to the Departments of Energy and
Transportation, because of their statutory responsibilities and
experience with DP World.
During the 30-day review, the CFIUS departments and
agencies continued their internal departmental reviews and were
in contact with one another and the companies.
As part of this process, DHS negotiated an assurances
letter which Secretary Baker just discussed that addressed port
security concerns that have been raised earlier in the process.
The letter was circulated to the committee on January 6 for its
review and CFIUS concluded its review on January 17.
Far from rushing the review, the members of the CFIUS staff
spent nearly 90 days carefully reviewing this transaction.
Last Sunday, February 26th, DP World announced that it
would make a new filing with CFIUS and requested a 45-day
investigation.
Upon receipt of DP World's new filing, CFIUS will promptly
initiate the review process, including DP World's request for
an investigation. The 45-day investigation will consider
existing materials as well as new information anticipated from
the company.
Importantly, the investigation process will also consider
very carefully the concerns raised by yourselves, State and
local officials, and other interested parties.
We welcome your input during the process, including issues
that will be raised in today's hearing.
Mr. Chairman, members of the committee, those of us sitting
at this table this afternoon share with you one fundamental
principle, our highest responsibility as government officials
is protecting the national security of the United States. The
work done by our colleagues in the initial review period was
guided by this standard as will our further efforts under this
new review process that the companies have asked for.
We are sure it will also guide your review and the
President's report to you at the end of the investigation. I
thank you for your time, and I am happy to answer any
questions.
[The prepared statement of Secretary Lowery can be found in
the Appendix on page 171.]
Mr. Weldon. I thank you.
And finally, Admiral Gilmour, the floor is yours.
STATEMENT OF REAR ADM. THOMAS GILMOUR
Admiral Gilmour. Thank you, Congressman Weldon.
Let me begin by stressing that the Coast Guard is the
Federal agency in charge of maritime security in our ports and
waterways. We regulate facilities and vessel security under the
authority of the Marine Transportation Security Act (MTSA) and
the International Ship and Port Facility Security Code
developed with our efforts at Internatinal Maritime
Organization (IMO).
These security rules are complementary in nature and
specify detailed requirements for both vessels and for
facilities and allow us to inspect the ports of all of our
trading partners.
There are over 3,000 marine cargo facilities in the United
States. Each has an approved and inspected security plan.
Since July 2004, we have required corrective action to more
than 700 violations of the MTSA security regulations. Of those
700 violations, 44 resulted in major control actions, such as
terminating cargo operations or closure of a facility until
corrective measures were taken.
We also oversee the arrival of foreign vessels 96 hours
before they arrive at our ports and enforce security compliance
with the ISPS code.
Since July 2004, we have conducted approximately 16,000
foreign flag vessel boardings. They were conducted either
offshore or in port depending on the risk assessed prior to
each vessel's arrival into U. S. Ports. As a result, we have
imposed 143 detentions, expulsions or denial of entry for
vessels that fail to comply with international security
requirements.
During the CFIUS process, the Coast Guard's intelligence
assessment concluded that DPW's acquisition of P&O in and of
itself does not pose a significant threat to U.S. assets in the
continental United States ports.
However, it also identified the need for additional
information. We have addressed those gaps by obtaining formal
assurances from DPW regarding ongoing access of information on
personnel and operations.
And during the 45-day review period, the Coast Guard will
continue to work diligently with the Department of Homeland
Security and the intelligence community to ensure that the port
security concerns are fully raised and objectively analyzed. In
addition, the Coast Guard will assess DP World's ports in Dubai
and also audit all of P&O operations in the United States.
Thank you for the opportunity to testify today, and I am
happy to answer any questions.
[The prepared statement of Admiral Gilmour can be found in
the Appendix on page 177.]
Mr. Weldon. Thank you very much.
Thank you for each of your testimony and for your service
to the country.
First of all, I want to just make a statement. I, like my
colleague Mr. Spratt, we were involved in the Cox Committee
investigation back in the mid 1990's, authorized by the
Congress to look at the transfer of technology to China from
the U.S., and we voted nine-to-zero that our security was
harmed through the Chinese efforts. And in that investigation,
we also saw attempts by the People's Liberation Army (PLA) to
use dollars to infiltrate companies in the U.S. through third-
party financial operations in European banking institutions.
Unfortunately, one of the things that happened in the
1990's which was not a recommendation of the Cox Committee--in
fact, it was quite the contrary--was the abolishment in 2000 of
the Pentagon Office of Technology Security Operations.
This office came under--I believe it was DTSA, and did a
fantastic job at going out and doing hands-on investigations
for exactly this kind of purpose. And so I would say at the
outset that, since 2000, in my opinion, we were doomed to
failure.
We took away the capability, at least from DOD's part, to
do a full assessment. And I say that as both the vice chairman
of this committee and the vice chairman of the Homeland
Security Committee; we are at dual roles.
I am concerned about this deal, number one, because there
was no effort to bring Congress into the process.
Now, you may say, well, that wasn't mandated by the policy.
But clearly, Congress has concerns on security. That is nothing
new.
The President is constantly talking to us about the need to
pass legislation dealing with homeland security and whether it
is the Patriot Act or whatever, and we have done it.
Anyone in their right mind had to understand, this kind of
a proposal, in this environment, whether it was substantive or
not, was going to generate significant concern. You would have
to be a turtle with your head in the ground not to be able--now
maybe it wasn't you all that should have pointed out, but
somebody had to say, hey, wait a minute this deal, because of
who is involved and where it is, we ought to at least have some
process to bring Congress in; not all Congress, maybe the
leadership of the Congress.
And that is why I was so incensed when this deal was
announced by the media, especially with me representing the
area right next to Philadelphia ports. And I called the Tioga
terminal folks, and they said, we have no idea what's going on,
Congressman; nobody has talked to us. And that is the portion
of the Philadelphia port that would be affected by this action.
My concerns also now are that, as I mentioned in an earlier
session, it reminds me of the Chinese incident several years
ago when, again, the White House didn't talk to the Congress,
so we almost went to war because President Clinton told the
Chinese government in Beijing that he would not issue a visa to
the president of Taiwan Lee Teng-hui to come back to his alma
mater to give a graduation speech. And he did that without
talking to the Congress. When the Congress found out, we
overruled the President, and the visa was granted.
Well, the Chinese thought that was a deliberate slap in
their face, and they started launching missiles across the
Taiwan Straights at Taiwan.
We sent a carrier up the Straits of Taiwan and almost went
to war over a lack of communication between the White House
and, in this case, China over an issue that could have had us
work together.
In this case, there was none of that, and now we learned
the company involved has hired lobbying firms from both parties
and leaders to make their case today and to try to get us to
allay our concerns. Lobbyists should not be the ones to tell us
that this deal is okay. The facts and the details that you all
should have looked at should be the justification for our
decision, to support this which is going to take a long bit of
convincing to make me feel comfortable with that, with the
decision you ultimately made.
Now, it has been reported that the CFIUS committee--
commission--decided that the interpretation of the Byrd
language, even though it says, requires a 45-day action, of an
investigation, when two criteria are met, then you all
interpreted it that that was voluntary. Now my understanding is
that only three of you were actually involved in that process.
Mr. Weldon. So is that the opinion of the three of you who
were involved. I'll start with you, Mr. Lowery.
Secretary Lowery. Sir, that has been the opinion of this
Administration and the last Administration, it has been the way
that it has been conducted for the last 13 or 14 years.
Mr. Weldon. You are aware it is not the opinion of the
member who wrote that.
Secretary Lowery. I think he made that abundantly clear.
Mr. Weldon. You are aware most of us feel the same way.
Secretary Lowery. You have made that abundantly clear.
Mr. Weldon. So is your position that no one questioned
that, in this sensitivity of this case no one thought perhaps
we should do a 45-day?
Secretary Lowery. The mandatory language from the Byrd
amendment has been interpreted this way for 13 years. It has
been the way that we have conducted our business. We have never
tried to hide that fact. It has always been the way we have
done it and I understand the Department of Justice has put in a
legal brief about there issue.
Mr. Weldon. But no one involved, and you are one of the
three at this table, no one raised that concern, saying perhaps
this time we should, based on at least a minimum what the Coast
Guard put forward, which I have a statement which I will enter
into the record of their concerns in this case. No one said
maybe we should, since two of these factors identified by the
Byrd amendment, you did not consider that, no one.
Secretary Lowery. Sir, as I mentioned, if the national
security concerns had raised--there was an objection of any of
the members of CFIUS, then we would have gone into that 45-day
investigative period. None of the members on the CFIUS panel
raised an objection on national security based on this
transaction that could not be resolved or that were not
resolved.
Mr. Weldon. Did you consider recusing yourself as a
representative of Treasury Secretary Snow because of his
involvement with some of the principles of this firm?
Secretary Lowery. Sir, I think that if there if there would
be a recusal it would be the Secretary himself, however, I
believe that the legal counsel has taken an opinion he did not
need to recuse himself, but I'm not an expert. Because he had
left CSX roughly 2 years prior to the acquisition of CSX
overseas assets by DPW, my understanding is legal couple said
there was no reason for him to.
Mr. Weldon. Since you were, I understand, chair of this
process, were you aware of those connections to the Treasury
Secretary, and were you aware there were CSX employees involved
in this company that wanted to complete this transaction?
Secretary Lowery. No, sir.
Mr. Weldon. You were not aware of that?
Secretary Lowery. No, sir. I was not aware of it because I
actually did not know about the transaction myself.
Mr. Weldon. But you were not aware any of the employees
making the acquisition attempt had been involved with Treasury
Secretary Snow at any previous time at CSX.
Secretary Lowery. I don't know anything about that, sir.
Mr. Weldon. Who did--the overview, I guess, for defense,
would have been done by you, ambassador, and by your staff, is
that correct?
Mr. Edelman. The process was managed by the DTSA for the
Department of Defense, but as I indicated, it is farmed out to
a variety of other elements of the Department, sir.
Mr. Weldon. You are aware DTSA no longer has the office
that, in fact, used to do that investigative work.
Mr. Edelman. I am glad you raised that. I can completely
understand the concern that you raised about the DTSA, the
defense technology security office. My understanding is that
the office was melded into DTSA's policy directorate and
renamed the assessments division, which is now responsible for
the CFIUS portfolio. Its civilian workforce is still made up of
intelligence professionals as it was during the time of
Technology Security Operations (TSO), and that division now has
more personnel than TSO did and that the mission remains the
same as TSO, they review the intelligence products provided
under the CFIUS process. They do end user checks on
approximately 30,000 export licenses a year, and they have
extensive access to intelligence databases.
Mr. Weldon. Two concerns that I have and again I am not
trying to cast any negative light on the Emirates. They have
been helpful and I publicly acknowledge that and the way this
deal was handled has put us in an extremely difficult if not
impossible situation. As I said earlier, we are damned either
way this goes. If we stop the deal, we are damned because the
Emirates would think we have done this to embarrass them, if
the deal goes through then we will be blamed for not having
done our homework. So either way we lose.
I will give you a couple of issues you can respond to. One
is a memo that was sent on the 14th of May in 2002 by al-Qaeda
and I have it in both in Arabic and in English: To the
officials of the United Arab Emirates and especially the two
emirates of Abu Dhabi and Dubai. Are you aware of such a memo
that was sent?
Mr. Edelman. I actually became aware of that in the last 24
hours that this memo exists. I believe it is an annex in a
document prepared by the counterterrorism center at West Point.
Mr. Weldon. Came from General Downing.
Mr. Edelman. I met with him last night and discussed this
product, in fact he gave me a copy of it and I have seen the
document which I believe is an annex.
Mr. Weldon. Would that have affected your opinion?
Mr. Edelman. Obviously that is a data point we will have to
include in our review, but I also think as with any other data
point, it needs to be looked at in the context of the whole
broad array of intelligence and what its providence.
[The information referred to can be found in the Appendix
on page 200.]
Mr. Weldon. Without objection, I will enter it into the
record. I want to read part. This was sent by al-Qaeda to the
officials of the United Arab Emirates, in particular Abu Dhabi
and Dubai. I will read two sections. You are well aware that we
have infiltrated your security, censorship and monetary
agencies along with other agencies that should not be
mentioned. Therefore, we warn of the continuation of practicing
such policies which do not serve your interest and will only
cost you many problems that will place you in an embarrassing
state before your citizens.
In addition, it will prove your agencies' immobility and
failure. Also, we are confident that you are fully aware your
agencies will not get to the same high level of your American
lords. Furthermore, your intelligence will not be cleverer than
theirs and your censorship capabilities are not worth much
against what they have reached. In spite of all this, Allah has
granted us success to get even with them and harm them.
However, you are an easier target than them. Your homeland is
exposed to us. There are many vital interests that will hurt
you if we decide to harm them, especially since you rely on
shameless tourism in your economical income. Finally our
policies are not to operate in your homeland or to tamper with
your security because we are occupied with others. If you
compel us to do so we are prepared to postpone our program for
a short period and allocate time for you.
This was sent to the leadership of the Emirates. The same
people that you all said there is no problem with. Now I wonder
if they told you if you found that in your process that they
had been warned by al-Qaeda that they had fully infiltrated all
of the operations of the Emirates government. Were any of you
aware of that? Were you, Mr. Lowery?
Secretary Lowery. No, sir.
Mr. Weldon. Mr. Baker.
Secretary Baker. No, sir.
Mr. Weldon. Were you, Admiral?
Admiral Gilmour. No, sir.
Mr. Weldon. Ambassador, you told me you found out about it
yesterday.
I have been critical of the 9/11 Commission lately, and I
think rightfully so, but I want to refer to a provision last
week and page 137 in the 9/11 Commission report, I don't know
whether you have had a chance to look at it, it is called the
Desert Camp, February of 1999.
[The information referred to can be found in the Appendix
on page 190.]
Mr. Edelman. I have not looked at it recently, but I am
aware of the contents and several references throughout the
reports to the Emirates.
Mr. Weldon. I am going to paraphrase. I would, without
objection, place this into the record. But what it says: Early
in 1999 the CIA received information that Osama bin Laden was
one of several camps in the Afghan desert, a desert hunting
camp. There, in fact, was an incident where we were going to
attack that camp. In fact, our intelligence and our military
folks had planned the attack. They were concerned about the
strike. This is according to CIA defense officials. Because
they might kill an Emirate prince or other senior officials who
would have been with bin Laden or close by. So we called the
strike off.
So this country, knowing bin Laden was frequenting a camp
in Afghanistan called off a strike because of our fear that
Emirates officials, in this case, a prince was there because we
had seen evidence of an Emirates airplane. It was a lost
opportunity to kill bin Laden.
On March 7th of 1999, you know who I am talking about,
called a UAE official to express concerns about possible
associations between Emirate leadership and bin Laden. A week
after that, less than a week, that camp was gone. It was gone.
Now I can't prove that the officials of the Emirates told
bin Laden to get rid of your camp because the U.S. is after you
but would I assume that is what happened. The United Arab
Emirates was a counterterrorism ally but the fact is imagery
confirmed that the camp was hurriedly dismantled and the site
was deserted. This is the same group of people that we have
basically said it is okay that one of these leaders of this
family, in fact, owns this site. This is a chance that we had
to take out bin Laden, and I think anyone reasonably could
assume that because of information provided to the Emirates
leadership, that camp was destroyed.
Do you know if that was considered as a part of the defense
assessment of this operation of your CFIUS assessment?
Mr. Edelman. I can't say, sir, within a certainty what
specific information from the 9/11 Commission people may or may
not have brought to bear.
Mr. Weldon. How about the person representing you? Was she
aware of this? Can I ask her that?
Mr. Edelman. You are certainly welcome to do that. Ms.
McCormack.
Ms. McCormack. No, I was not aware of that. I am aware of
the 9/11 Commission report.
Mr. Weldon. But the tie between the Emirates and the base
camp.
Ms. McCormack. We did not, but obviously we have a detailed
report that comes from the Defense Intelligence Agency, which
was a part of the Defense Department's review.
Mr. Edelman. Congressman Weldon, if I might, I think my
recollection of the report is, and I think you characterized it
correctly, that Dick Clark, at the time, was concerned about
having the strike go forward because if my recollection bears
me out, I believe in the report he said we were about to have a
strike on one of our best counterterrorism allies. I know as
well in the report, my former colleague who was ambassador to
the United Arab Emirates in the late 1990's characterized it as
a complex situation in which the Emirates were both a
counterterrorist ally, but also a bit of a counterterrorist
problem for the reasons that you mentioned.
Mr. Weldon. A bit? We lost a chance to take out bin Laden.
Mr. Edelman. The reasons that are outlined in the 9/11
report. I think as I tried to suggest in my testimony, since
September 11th, I think there has been a dramatic change. And
for almost the last 5 years, we have had extraordinary
cooperation with them on the counterterrorism front.
Mr. Weldon. Mr. Lowery, were you aware of this incident as
outlined in the 9/11 Commission report?
Secretary Lowery. I was not aware of the 9/11 report of
this incident. I do know that the intelligence services of the
United States did do a review and a threat assessment and said,
and I believe Mr. Negroponte testified this week, the threat on
this was low.
Mr. Weldon. The threat was low. Do we have a copy of that
for the record either classified or unclassified for the
hearing?
Mr. Baker, were you aware of this report?
Secretary Baker. I certainly remember the incident and Dick
Clark's reaction about the complexity of it and the risk of
attacking someone he viewed as a ally in the hunt for bin
Laden.
Mr. Weldon. You didn't know he was at bin Laden's base
camp. Admiral, were you aware of this at all. Admiral?
Admiral Gilmour. I am aware of the incident but not in any
detail.
Mr. Weldon. That didn't raise any concerns to you when you
were part of the process?
Admiral Gilmour. Sir, we did a separate intelligence look
at the ports, looking specifically at the effect on the ports
in the U.S.
Mr. Weldon. I am advised in the unclassified report of the
intelligence committee assessment, and I will repeat this for
the record, the community acquisition risk assessment center
does not assess vulnerabilities. Are you all aware of that?
Secretary Lowery. Yes, sir, I believe what they do is they
assess the threat of the acquirer, in this case it was DP
World, which, of course, is owned by the government of Dubai.
Mr. Weldon. You were aware they did not assess
vulnerabilities.
Secretary Lowery. I believe in this case, because it is
about port securities issues, that is, Department of Homeland
Security and Coast Guard addressed more specifically.
Mr. Weldon. The gentleman from Missouri.
Mr. Skelton. Mr. Lowery, you were the chairman of the CFIUS
group, is that correct?
Secretary Lowery. The Treasury Department is the chairman,
the Chair of the CFIUS group, sir.
Mr. Skelton. You personally were the chairman, is that
correct?
Secretary Lowery. In this particular case?
Mr. Skelton. Yes.
Secretary Lowery. No, I was not.
Mr. Skelton. Well, who was?
Secretary Lowery. The way it works, sir, at the top
obviously the Secretary of the Treasury. As we go down further,
it is the Deputy Secretary then, myself.
Mr. Skelton. Who had the knowledge and information on this
proposal?
Secretary Lowery. I believe 14 different agencies.
Mr. Skelton. I know that. Within the Treasury Department.
Secretary Lowery. At the Treasury Department, I believe the
Deputy Assistant Secretary, sir.
Mr. Skelton. What is that name?
Secretary Lowery. His name is Mr. Shott.
Mr. Skelton. Is he the one that approved it for CFIUS as
one of the 12 agencies?
Secretary Lowery. As one of the 14 agencies in this case, I
would have to ask Mr. Shott about who----
Mr. Skelton. Who signed off on it?
Secretary Lowery. I would have to ask him.
Mr. Skelton. It was not you?
Secretary Lowery. No, sir.
Mr. Skelton. Ms. McCormack, would you take the witness
stand, please. Let her sit there, Ambassador.
Your name is Beth McCormack?
Ms. McCormack. That is correct, sir.
Mr. Skelton. Are you the one that represented the
Department of Defense in CFIUS?
Ms. McCormack. In this particular case, sir, the
predominant discussions of this transaction were done at the
staff level where I have the part of my organization we talked
about a few minutes ago, my policy directorate, which is one of
the five directorates of my agency. They were the
representatives at the level because we had basically one
meeting on this transaction.
Mr. Skelton. Is that below your level?
Ms. McCormack. Yes.
Mr. Skelton. Can you give me the name of someone within the
Department of Defense that signed off on this?
Ms. McCormack. In this particular case, after we got the
inputs in from the 16 other agencies other than my own that
reviewed the transaction and none of those agencies had any
issue, the transaction was signed off on by the director of my
policy directorate, and, again, my agency----
Mr. Skelton. What is the name of your policy director?
Ms. McCormack. At the particular time, Andrew Reitzel.
Mr. Skelton. Did the CFIUS 14 ever meet?
Ms. McCormack. My understanding was we had two meetings on
this transaction. We had a discussion with the company in
December and then there was another meeting at the staff level
of the transaction after the review process.
Mr. Skelton. Were you ever present?
Ms. McCormack. I was not.
Mr. Skelton. Below your level?
Ms. McCormack. Yes.
Mr. Skelton. Thank you, Ms. McCormack.
Ms. McCormack. Thank you, sir.
Mr. Skelton. Mr. Baker, we have talked about these
assurances, have we not?
Secretary Baker. Yes, sir.
Mr. Skelton. And they were given when?
Secretary Baker. I think January 6th.
Mr. Skelton. As a result of what?
Secretary Baker. As a result of our request to the company
that they give us assurances on these topics.
Mr. Skelton. In going through the list of assurances, it
really depends upon the good will of the company, does it not?
Secretary Baker. To a degree. However----
Mr. Skelton. Yes or no.
Secretary Baker. No.
Mr. Skelton. In other words, some of them are legally
enforceable?
Secretary Baker. Yes.
Mr. Skelton. Which ones?
Secretary Baker. All of them are legally enforceable, but I
would have to say the ones that have, in my view, the most
clear cut content are the requirements that they maintain their
level of cooperation and membership in a variety of previous
voluntary programs and a requirement that they give us
information without a warrant, without a subpoena about all of
their U.S. operations.
Mr. Skelton. Are you alone, Mr. Baker?
Secretary Baker. I used to be at least, yes.
Mr. Skelton. I practiced law for 20 years. In reading the
language thereof, I don't think they are very enforceable. I
think a court would agree with me on that.
Secretary Baker. May I explain why I believe that they are
enforceable. I understand that if this went to litigation,
there are parts of these agreements that talk about what is
reasonable or what was intended, what the plans of the company
are. However, we clearly have expectations about what those
mean and we have the ability beyond going to court.
This company is entirely dependent on having a Customs
service and the Coast Guard that trusts them. If we don't trust
them, we are going to have to inspect far more of their cargo
than we do today. And if that happens, their competitors are
going to be moving much more quickly through those ports than
they are, and that is a terrible business disadvantage. The one
thing you cannot do if you are in this business is have the
Customs service and the Coast Guard not believe that you are
being candid and honest and straight forward with you.
That is why I believe that we be able to enforce our
expectation about the spirit as well as the letter of this
agreement.
Mr. Skelton. That is not a court of law, is it?
Secretary Baker. That is right. I think it is better than a
court of law, frankly.
Mr. Skelton. Very good. Well, I won't belabor it, but it
appears--well, let's ask Mr. Ambassador here; your title is?
Mr. Edelman. Under Secretary of Defense for Policy, sir.
Mr. Skelton. Did you know anything about this?
Mr. Edelman. I found out about the transaction after the
review had been completed when I was recipient of a phone call
from Deputy Secretary Kimmitt.
Mr. Skelton. This was done at a much lower level. Evidently
in all 14 agencies, am I correct?
Mr. Edelman. I can't speak for the other agencies, but it
certainly was done at a lower level in the Department of
Defense.
Mr. Skelton. Thank you.
The Chairman. Thank the gentleman.
Gentlemen, I don't know if you watched the earlier part of
our hearing when we went over the activities with respect to
technology transfer that had been attributed to Dubai in terms
of transshipment. I want to go over these and ask you to come
back to the committee if you can with a written response either
saying these things didn't happen or they did happen, and
obviously your response probably would require a classified
answer, and if it does, that is fine.
Let me just go over these particular transfers. In 2003,
according to the information that we have here and from Mr.
Milholland, who has testified to this committee for decades,
and who I consider to be one of the experts in the world on
technology transfer, in 2003, over Washington protests, 66 high
speed triggers or switches that are utilized in nuclear
detonations were transferred to a Pakistani businessman
transshipped through Dubai. Even though we found out about it
and protested, Dubai allowed the transshipment to go through.
There was an indictment of an Israeli national in this
case, but the Dubai government allowed the transshipment to
take place. So that is one.
2003. In 1996, the German government listed six firms in
Dubai as front companies for Iranian efforts to import arms and
nuclear technology from Dubai. In 1995, Guide Oil of Dubai
ordered American-made material, which can be used for making
nerve gas ingredients, a precursor to nerve gas, and tried to
pass it along to an Iranian purchasing agent in violation of
American expert control laws. That was stopped by an American
sting operation, but that was taking place in Dubai.
In 1990, a Greek intermediary offered Iraq an atomic bomb
design, probably of Chinese origin, from Doctor Kahn in
Pakistan with a guarantee that, quote, any requirements or
materials can be bought from western countries and routed
through Dubai.
In 1995 and 1996, Mr. Hampel, who is a German exporter and
former Nazi sent 12 tons of Soviet heavy water to India through
Dubai. In 1993, Mr. Hampel sent 15 tons of heavy water from
Norway and some from--and 6.7 tons from the Soviet Union
through Dubai to India.
If you guys could take a look at those instances of
transshipment and respond back to us, that would be certainly
helpful.
It appears that it is clear from these hearings that the
sole stockholder of this company is the Emir, is that your
information?
Secretary Lowery. I know that it is--I am not sure about
that. It is controlled definitely by the government of Dubai,
and that usually comes under the heading of the Emirs.
The Chairman. And the Emir's also the vice president of the
United Arab Emirates, this particular Emir, and the sole
director of the company. I guess the point that I am making is
he is in charge of the government which shapes Dubai's
transshipment policies and it appears that Dubai specializes in
masking transfers. And if you read Milholland's account here,
which I think we will make sure we get you a copy of this, this
is a place where you go to, if you want to mask the seller and
mask the buyer, you take things through Dubai.
It appears that while Dubai may cooperate with the United
States with respect to security matters, it appears that they
also cooperate with people who aren't on our side, and who, at
some point, could bring great harm to millions of Americans and
at least in the case of these triggers that they transshipped
over our objection. That is their policy. Their policy is
sometimes to accommodate America and estimates not to
accommodate America.
So my question is was there any consideration for their
policy of export control or transshipment control when you
looked at this deal, at this ports deal.
Mr. Edelman. There was certainly consideration among the
various Department of Defense elements and agencies who look at
this transaction with regard to the possibility of diversion of
sensitive technology.
The Chairman. Are you sure of that?
Mr. Edelman. I can tell you what I understand took place in
the process, Chairman Hunter. I was not a part of it myself.
The Chairman. We had a TRANSCOM hearing this morning,
transportation command. Incidental to that hearing we asked the
General, who was in charge of the security apparatus in port
distribution of American material if he was, in fact, requested
to give a report or give his analysis from a defense
perspective on this deal. His answer was he didn't look at it
from a security standpoint. What he felt he was supposed to
look at is whether or not they could load and unload things and
basically run an efficient port system.
His experience was around the world, Dubai ports knows how
to get stuff on and off ships. So he didn't look at this thing
at all from a security standpoint. So maybe they didn't look at
technology transfer.
Mr. Edelman. Your characterization of TRANSCOM's role in
the process, as I understand it, is completely accurate. I
think there were a number of other elements including DTSA that
do look at this, and I know that DIA looked at the question of
potential diversion of technology, but from the point of view
not of the UAE as a whole, but of the transaction at hand.
The Chairman. Gentlemen, thanks for being with us today and
discussing this. Let me ask you one other question.
Mr. Misenheimer. Would it be possible to comment on the
proliferation record? The specific instances that you referred
to are obviously very serious, and I am not familiar with them,
but I think in the interest of completeness, it would be
appropriate to mention also that the record of Dubai familiar
to all of us and particularly in the post-9/11 period on
nonproliferation has been very strong. Just this past month, we
had the first meeting of a joint nonproliferation task force
established between Dubai and the United States. The Emirati
government was instrumental in cooperating with us in the
unraveling the A.Q. Khan network. There are many instances on
the positive side that I just would like to put on to the table
as well.
The Chairman. Looks to me like you have a nation which
accommodates. Sometimes it accommodates American interests, but
sometimes it goes the other way, and it accommodates the
interests of those who might do us harm.
I am looking at another piece of information that Mr.
Milholland pointed out, and that is next to Dubai's main port
in the Jebel Ali free trade zone. He describes it as a haven
for freewheeling international companies and states that some
264 firms from Iran and 44 from rogue regimes like Syria and
North Korea have located and done business there.
So my point is that I think you clearly can make the case
that UAE has cooperated with the Americans on a number of
occasions. On the other hand, appears to me they have also
cooperated with people who wish us ill and that they have not
viewed technology transfer as an area where they need to have
discipline.
This place is described as a kind of freewheeling bazaar,
and I am reading the statements that are made by people who do
business and in some of the communications where they said
don't worry, and I am paraphrasing, don't worry, we will ship
it through Dubai.
So the question becomes, because that is directly relevant
to what port operations are, right. Try to make sure that the
cargo container that has got the bad stuff in doesn't end up in
your port. And that is one area where the leadership in Dubai
has looked the other way and allowed major transshipments of
bad stuff to go to bad people. That certainly doesn't place
them in the role of a Great Britain, for example. Is that
your--would you agree with that or do you want to review this?
If you would like to review these instances, and I do request
that you come back on the record with us on these instances.
But what do you think about that?
Mr. Misenheimer. I am sure we can agree undertaking a
review of these instances would be appropriate and useful in
providing the most complete record that we can. I would come
back to the current judgment, sir, that the record of
cooperation of Dubai in our current assessment is positive and
is improving. The historical record is certainly of interest,
and as Deputy Secretary Kimmitt has made clear in previous
briefings by this group, the record of the 9/11 Commission and
other sources are certainly relevant, and were familiar to
members of the CFIUS review panel.
The Chairman. But 2003 is not quite historic. That is
pretty recent. Okay.
The gentleman from Missouri--or the gentleman from South
Carolina, Mr. Spratt, have a few questions.
The gentlemen from Missouri.
Mr. Skelton. Mr. Lowery, since your department shared the
CFIUS operation or the process, I request of you to produce to
our committee any documents relating to the deliberation and
decision making process for this port deal, and this includes
correspondence, minutes of any CFIUS meetings, statements or
summaries of fact, and written decisions. All right, Mr.
Lowery?
Secretary Lowery. I will take that back to the Treasury
Department, sir.
Mr. Skelton. Thank you.
[The information referred to can be found in the Appendix
beginning on page 205.]
Mr. Spratt. Thank you all for your testimony and for your
forbearance late this afternoon, but this is a highly important
matter, and we need to give it due diligence. Let me just get
the general opinion of the whole panel. Do all of you agree
seaport security is not what it should be, in fact it is
significantly below what is an acceptable level of security?
The 9/11 Commission, for example, said that the next terrorist
catastrophe could be a seaport and they further assessed
seaport security at least as vulnerable, if not more than our
airports.
When you consider what we have done since 9/11 to our
airports, what we have done for our seaports pales by
comparison. The Coast Guard came up, Admiral, with an
assessment of $5.86 billion, I believe, which was to be spread
over a period of about 10 years for just meat and potatoes
basic surveillance security at the seaports; lights and
surveillance cameras and fences, of this nature.
Of that amount, only $700 million has been appropriated
thus far. I think your program was presented some time ago. We
have offered amendments on the House floor, which haven't been
passed to increase seaport security.
Does the whole panel share concern about the adequacy of
seaport security and the vulnerability posed by seaports,
particularly considering the fact 9.8 million containers came
into our ports last year?
Mr. Edelman. Congressman Spratt, I certainly agree that
port security is extraordinarily important for the country, it
is important for the Department of Defense, with regard to
those ports that we use for our own critical missions, and
obviously, it deserves a very high level of attention from the
Administration and from the Congress.
I am not really in a position to make a judgment about the
level. There are other folks on the panel more expert than I
who can speak to that.
Mr. Spratt. Did you regard it as a national security
concern?
Mr. Edelman. It is clearly a national security concern.
Mr. Spratt. Admiral.
Admiral Gilmour. Sir, to answer the question about the 5.8
billion, I believe the 5.8 billion over a 10-year period was
the amount required for the facilities or the maritime industry
to meet the requirements of MTSA.
Mr. Spratt. What about radiation detectors? Do we have an
adequate number today. It is my understanding these detectors
are only available in about 25 percent of our ports?
Admiral Gilmour. I would have to ask that DHS and Customs
and Border Patrol (CBP) answer that. I will explain that we are
in charge of the security of the facilities themselves and
vessels that come from foreign 96-hour notification into our
ports. We also look at the people on the vessels and run them
through terrorist watch lists. But the cargo part of the
security is really under the jurisdiction of Customs and Border
Patrol.
Mr. Spratt. We had a statistic given to us earlier today
that there were 80 Customs inspectors for monitoring the
compliance of 5,800 importers, and that there were only 20
Coast Guard inspectors to monitor the international shipping
port facilities code. Is that correct, 20 inspectors to monitor
the worldwide international code?
Admiral Gilmour. I can speak to the foreign code
inspectors, and the number 20, I can get you the exact number,
but that is in the ball park, sir. I will tell you that what
they do is under MTSA look at all of our trading partners
ports. We started about a year ago. We have done about one-
third of our trading partner ports. It is about 44 ports that
we have looked at with about 80 percent of the cargo through-
put that comes into our Nation, and we will be completed in
about another 2-1/2 years.
Mr. Spratt. When you had your discussion on the committee,
I believe it was Mr. Lowery indicated, I will quote, there were
national security issues raised during this review process.
Could you tell us what those national security issues were
specifically?
Secretary Lowery. I think that the national security
concerns were revolving around port security and I believe that
is why the people at the Department of Homeland Security and
the Coast Guard worked on putting together an agreement with DP
World and P&O.
Mr. Spratt. Can you tell us more specifically what those
concerns were?
Secretary Lowery. I would have to defer to the port
security experts. I am not one. That is why we make sure that
in CFIUS, because we do bring in 14 different agencies so that
we make sure that the national security experts in whichever
agency have a chance to look at it because there is different
types of technology and different types of things that are
being acquired and so we make sure our experts look at it. In
this case, the expertise lies in primarily the Coast Guard, the
borders and customs patrol, and Department of Homeland
Security, though obviously Department of Defense, State,
Justice all looked at it, as well as the Treasury Department.
Mr. Spratt. The Coast Guard raised several concerns itself,
which it backed off, apparently. It was more or less satisfied,
but it indicated that it did have concerns about personnel,
things of this nature.
Secretary Lowery. Sir, as I mentioned in my testimony, if
any agency had raised a concern about national security, we
would have gone into a 45-day investigation. Each agency----
Mr. Spratt. I understand they were raised, but they were
resolved. You say there were national security issues raised
during this review process.
Secretary Lowery. I also said they were addressed.
Mr. Spratt. How were they addressed? Simply information?
Secretary Baker. May I offer some background on that?
Stewart Baker, Assistant Secretary for Policy at DHS, and I was
in charge of this policy, this particular case. We are very
concerned about port security, and two of our major agencies,
Customs and Border Patrol and the Coast Guard, have substantial
responsibilities for cargo and port security, so we had a
strong interest in this case. We asked each of the components
to evaluate this transaction and give us their thoughts on it.
Just to clarify one point with respect to the concerns that
have been in the press from the Coast Guard, there was, indeed,
a paragraph released from a classified report on Monday that
suggested that concerns had been raised by the Court Guard's
intelligence center. That very same memo concludes that there
is not a substantial or significant increase in risk from this
transaction. So it is not as though they raised them and backed
off them.
This was the complete memo, which, unfortunately, is
classified, and comes to a more balanced conclusion than is
suggested by the release of that one paragraph.
The concerns that we had about this led us ultimately to
conclude that we wanted additional assurances from the parties
to this transaction, and that if we didn't get them, we were
prepared to object to the transaction. We got them. Those
assurances locked in their level of cooperation in a variety of
volunteer programs that substantially raised the level of
security above what is required by law.
Mr. Spratt. Earlier today, we had testimony from the first
panel corroborated by testimony from the Dubai Ports World
panel to the effect that there is equipment out there,
scanners, radiation detectors, radio frequency emitters, all of
which could give us far greater security.
The first panel of witnesses said make this an opportunity
to impose that requirement on this firm as a condition of
approval. The company itself said if you broaden that so we are
all there together charging the same fee, and I presume we
could charge fees sufficient to defray the cost, then it is
feasible. The equipment is there, the process is there. We
could inspect 100 percent of all of the containers instead of 5
percent. Did this possibility come up, did you ever discuss
this idea?
Secretary Baker. I am certainly aware of the Hong Kong
experiment that is frequently mentioned in this context. It is
a pilot project, it is a project to determine whether it is
possible to x-ray a large volume of containers. It is not a
pilot project that enables us to actually evaluate by looking
at the x-rays. I don't think there is anybody looking at those
x-rays today.
So this is still a very limited and preliminary pilot
program. It may well turn out to be a very valuable approach to
port security, but it is a little early for us to say let's get
married to it. So we are not prepared at this point to say this
is something we are sure we want to impose. We certainly will
be looking at it, because it does have some promise.
The Chairman. Thank the gentleman.
The gentleman from New Jersey, Mr. Saxton.
Mr. Saxton. Thank you, and thank you for hanging in here
with us so long. We appreciate it.
The panel that was here just before you headed by Mr.
Edward Bilkey, chief operating officer of the company, told us
quite clearly that they believe that the status of the deal is
that while it is on hold for 40 days, that pending the court
activity that is underway, that the approval has been granted
and that the delay of 45 days for review purposes is just a
review and they conveyed to us that it is their conclusion that
the deal is done pending the court action. Do you agree with
that assessment?
Secretary Lowery. Sir, I believe that they are trying to
close their transaction, their financial transaction. I know
that they are going through a U.K. Regulatory issue of some
sort. They have said to us in a commitment letter that they
will hold the assets of North America in a separate holding--it
is not a company because that is not the right legal term--but
a separate holding arrangement that basically will take
operational and management responsibilities and keep them
exactly the way they are currently. They will be the financial
beneficiary so they basically serve as a passive investor in
certain respects, and they said they are willing to go through
a new review process and a new investigation. They have asked
for a 45-day investigation opening themselves up to the Exxon-
Florio statute. They actually said in their letter that DP
World will abide by the outcome of that review.
Mr. Saxton. So your review, then, will be geared to
reapprove or reject the deal? Or I suppose your other option is
to impose additional or different conditions?
Secretary Lowery. Correct. All of those options are
available.
Mr. Saxton. Given the so-called data points which Mr.
Weldon and Mr. Hunter and Mr. Skelton mentioned, which appear
to have not been considered as part of the process, given that
new information, do you think that shines any different light
on the situation?
Secretary Lowery. Well, let me just say that I believe that
we felt like we did do our jobs and our agencies did their jobs
on the national security review and in terms of an intelligence
threat assessment. That said, during this investigation period,
we will--we have heard very clearly from Congress, we have
heard very clearly from transit authorities and local
officials. We want to look at all information, including the
information from the questions that have been raised and in
other hearings, and we will do a very thorough and robust job
over the next 45 days or so.
Mr. Saxton. We are, as you know, in the process of
beginning to consider legislation as the responsibility--as we
see the responsibility of Congress to the American people and
to this process that seems pretty obvious that we have a
responsibility to be involved. The bill that we have drafted
here in this committee thus far requires citizenship or
American ownership. It requires 100 percent inspection of
material being imported into the country through containers, or
perhaps otherwise as well. And it has a section that speaks to
the reform of the Committee on Foreign Investment in the U.S. I
am specifically interested in your opinion on the last part.
Would you--would you think at this point that, given the
fact that we have experienced 9/11 and its aftermath, that the
security situation in the country has changed, that a different
process might be used through CFIUS or some other named process
to more effectively handle security with regard to these
matters?
Secretary Lowery. Let me just say, I guess, that since 9/11
I think that CFIUS actually has changed. We do look at more
matters. Very importantly, we have brought the Department of
Homeland Security, which obviously did not exist before 9/11,
they bring a very different voice to the table and it is a very
strong voice. We will be open to any suggestions that Congress
has and we can work with you. We obviously know that there is a
problem. We have already said that there is clearly a problem
with how we are informing Congress about what we are doing. And
so we are open to discuss these matters over the next weeks
months, what have you.
Mr. Saxton. Are you satisfied with the level of
investigation that was done prior to your conclusion on this
matter?
Secretary Lowery. Yes.
Mr. Saxton. In spite of the fact that in just a few days
Members of Congress have come up with data points that were not
considered, that letters from al Qaeda to the leadership of the
country involved, and all those things that you did not--that
you said you did not consider?
Secretary Lowery. Sir, I said that I did not personally
consider. What I also said was that each agency did its own
thorough review based on their knowledge and expertise. And
that the intelligence community did an overall threat
assessment based on their knowledge of what I would imagine
many of the data points that people have brought up.
That said, there have been a lot of questions asked and a
lot of points raised and I think that we should--we have been
given this opportunity to provide another 45 days and we will
investigate to the best of our ability and as robustly as
possible all of those issues.
Mr. Saxton. And I am sure you are also aware of the reality
that Congress is likely to do something. And certainly we would
rather do it with you than without you. And so I would hope
that you would keep an open mind. I know several of you
personally, and I know what kind of good people you are, and I
hope that we can work together so that we have the benefit of
your experience and your points of view.
Thank you very much.
Secretary Baker. Congressman Saxton, on behalf of the
Department of Homeland Security, we share your goal to improve
the security of the supply chain and port security. We would be
delighted to work with you on these questions.
Mr. Saxton. Thank you.
The Chairman. The gentleman from New Jersey, Mr. Andrews.
Mr. Andrews. Thank you, Mr. Chairman, I first want to thank
you for a very thoroughgoing and comprehensive hearing and
giving the members a chance to ask their questions. Thank you.
And I thank the witnesses for their patience in what has been a
long day.
The first thing I want to be sure the record reflects is
that the panel before this, I think, propagated a legal reality
that is a substantive fiction, that the Dubais Port Corporation
is one entity, and the Government of Dubai and in part the
government of the UAE is quite another. Now, this is true as a
formalistic legal proposition. But I think that any practical
reading of the record indicates that 100 percent of the shares
of the Dubai Port Corporation are owned by the ruler of Dubai,
as the previous panel testified. So I think we have to start
from the proposition that the conduct, the opinions, the track
record of the Government of Dubais, and, to some extent, the
Government of the UAE, since the ruler of Dubai and the Vice
President of the UAE are identical, are synonymous. And I think
we have to start from a security assessment from that point of
view.
The second thing that I want to ask Mr. Misenheimer is I
understand that your conclusion is that the balance of the
record favors the conclusion that the UAE has been and Dubai
has been a constructive force against proliferation of weapons
of mass destruction. But I want to be clear. You acknowledge,
do you not, the Chairman's question about 2003 and the transfer
of the triggers which could be used in a nuclear weapon? Do you
agree with the proposition that such a transaction took place,
that it went through the UAE and it went through the UAE over
the objections of the United States? Do you acknowledge that?
Mr. Misenheimer. Sir, I am not personally familiar with the
details of that episode. I have heard the reports. But I could
not go beyond that.
Mr. Andrews. Well, if you are able to draw a conclusion,
which I did, about the balance of the record, are you aware of
any of the negative implications in the record, or only the
positive ones?
Mr. Misenheimer. No, sir. And thank you for that question.
I am certainly not here representing the State Department as an
advocate of the UAE or of Dubai. If the United States has an
ally that has a perfect unblemished record of cooperation with
us and everything we cared about, the UAE is certainly not that
ally. And I think that has been made very clear in many of the
facts and data points that have been brought out.
Mr. Andrews. So the State Department acknowledges that on
the record there are examples of conduct that we would regard
as antithetical to the goal of prohibiting proliferation of
weapons of mass destruction; is that correct?
Mr. Misenheimer. As has been stated, sir, the full record
of Dubai's performance was documented and familiar to the
participants in the CFIUS process, including the various
intelligence agencies involved. And the conclusions that were
reached took those data points into account.
Mr. Andrews. And the record included examples of behavior
antithetical to the goal of prohibiting proliferation of
weapons of mass destruction; correct?
Mr. Misenheimer. Again, I can't go to the specific
examples, but I did want to represent the conclusions of both
my agency and of the intelligence reviews that I have seen that
reach a favorable conclusion on their cooperation.
Mr. Andrews. But there were examples that were negative
examples on the record; correct?
Mr. Misenheimer. Sir, I couldn't go into the intelligence,
the positive and negative intelligence ledger.
Mr. Andrews. Okay. Here is what I am going to ask you to
do. I would ask the Department to supplement on the written
record whether it acknowledges or disclaims the basis of the
Chairman's question about the 2003 transaction of the triggers
which could be used in a nuclear weapon; whether the Department
acknowledges that, in fact, took place over the protest of the
United States or whether it did not. Could you do that for us?
Mr. Misenheimer. Yes, we will be glad to look into that.
Mr. Andrews. The next issue I want to raise----
The Chairman. And if the gentleman would yield, let's try
to get that information on that and the other ones within 10
days or so. Say by next Friday, we should be able to get--if
all activities are fairly well known by the agencies, and they
should be able to review it pretty quickly and say yes or no.
So if you would get it back in 10 days, we would appreciate
that, okay?
Mr. Andrews. I thank the Chairman for that and I think it
is something more than we would just appreciate. If we are
going to make an intelligent decision before or after the
expiration of this 45-day review period, I think we need to
have that information----
The Chairman. Let's say then that we agree that you will
get that back to us. Will you do that?
Mr. Misenheimer. Yes, sir.
The Chairman. Thank you.
Mr. Andrews. Thank you, Mr. Chairman. Nice to have that
gavel.
Mr. Skelton. May I interrupt? Will the gentleman yield?
Mr. Andrews. Yes.
Mr. Skelton. My request Mr. Lowery, if you would comply
with my request for the documents and all the items I mentioned
thereto that you agreed to furnish, if you would do it within
the same time frame, that would be very helpful to us. Is that
okay, Mr. Lowery?
Secretary Lowery. Sir, I will take that back to the
Treasury Department.
Mr. Andrews. If I may, just to help my Ranking Member, when
you take it back, Mr. Secretary, to the Department, we would
appreciate an answer as promptly as possible. If the answer is
no, we are not going to comply within the time, I think we need
to know that. If the answer is yes, we will, I think we need to
do that very promptly.
Secretary Lowery. Sir, the Congressman asked for
distributive documents. That is obviously something that I have
to talk to my general counsel about.
Mr. Andrews. We appreciate that and we think that your
general counsel and/or the Secretary needs to tell us his or
her response to that promptly so that we can consider what our
options are; do you agree with that?
Secretary Lowery. I hear you, sir.
Mr. Andrews. Okay. That means no. I understand.
Admiral Gilmour, I take it that the Coast Guard played--
plays a critical role in the port security of the country. That
is a given. And some of the defenders of this agreement have
taken the position that the Coast Guard's prime position in
defending port security means that it is of marginal or limited
relevance as to who the terminal operators are as long as the
Coast Guard is on the job, that we are okay. And by the way, I
have tremendous faith in the Coast Guard and the work that you
do and I salute you for it.
Your statement is a very lawyerly one about the role of the
Coast Guard's involvement in the CFIUS process. Let me read it
to you from page 4 of your statement:
Regarding the Coast Guard's involvement, the Coast Guard's
initial review identified potential gaps in available
intelligence related to specific Coast Guard interests in the
transaction. However, after fully considering all available
intelligence, the Coast Guard's assessment was that it did not
oppose the transaction.
Have you had a chance to review the intelligence--
obviously, without disclosing the specifics of it, have you had
a chance to review the intelligence that was unavailable, prior
to making your recommendation, since you made your
recommendation?
Admiral Gilmour. Sir, I--I need to explain that I guess a
couple of things. I am not a member of the CFIUS Committee and
we work, obviously, for the Department of Homeland Security.
Second, our intel was done for internal Coast Guard purposes. I
am the director of port security. Our intelligence director and
his staff made that assessment. So I really couldn't speak to
it. However, he is here if you would like him to speak.
Mr. Andrews. Oh, I would, with the Chairman's permission.
If that gentleman would answer my question, I would like you to
step to the microphone and identify yourself for the record.
Mr. Sloan. I am James Sloan, S-L-O-A-N. I am the Assistant
Commandant for Intelligence and Criminal Investigations at the
Coast Guard.
Mr. Andrews. Mr. Sloan, what is the answer to my question?
Mr. Sloan. The answer is yes, we did review intelligence
subsequent to our report.
Mr. Andrews. Can I ask you a question, Mr. Sloan?
Mr. Sloan. Yes.
Mr. Andrews. If there was intelligence that you deemed to
be relevant that was available to be reviewed before a
decision, why did you make the decision? Why did not you ask
that the decision be delayed or kicked over into the 45-day
review process?
Mr. Sloan. I am going to tread lightly, given the fact that
we are talking about a classified assessment.
Mr. Andrews. I appreciate that.
Mr. Sloan. We did identify intelligence gaps. That does not
necessarily mean that they were potential threats or should
sway the assessment, other than they were information that we
wanted to alert our colleagues, for whom we were informing with
this product, that we needed more information.
We were assessing the acquisition of these facilities by
DPW, and, as a result of that assessment, and the reason I am
hesitant--I am just going through my mind with the document--we
did come to the conclusion that the DPW acquisition would not
create a significant threat.
Mr. Andrews. But my question is a little different. By
definition, I think implicitly, the use of the word ``available
intelligence'' or the phrase ``available intelligence'' implies
that you concluded that there was relevant intelligence not
available to you before you made the decision. You since
reviewed that and you have reached a conclusion that it does
not change your judgment.
What was the rush?
Mr. Sloan. Sir, it is important, I think, for this purpose;
to point out that that assessment was requested in early
November and was delivered for the purposes of informing our
colleagues in late November.
Mr. Andrews. Really?
Mr. Sloan. Yes, sir.
Mr. Andrews. How many days were put into that assessment?
Mr. Sloan. Fifteen. It was requested for the purposes of
the request, yes.
Mr. Andrews. How many ports--how many P&O operations are
there in the United States that you looked at?
Mr. Sloan. We examined--well, I should back up and tell you
this. By the end of last year, we reviewed, by virtue of a port
threat assessment, every one of the ports that contain P&O
operation. We did it to complement Admiral Gilmour's
directorate, which is the port security.
Mr. Andrews. By the end of last year. But you delivered
your recommendation at end of November and it was 15 days'
worth of investigation?
Mr. Sloan. No, sir, it was 15 days of gathering information
for an analysis to help inform our personnel who were going to
be part of an action officer team in the CFIUS process.
Mr. Andrews. Okay. So you took 15 days and the intelligence
that was available after that 15 days, the Coast Guard in
effect voted its proxy in the committee process; is that right?
Mr. Sloan. I am not familiar that the Coast Guard voted in
that regard. I am not part of the CFIUS process and I think
Admiral Gilmour indicated neither is he.
Mr. Andrews. May I ask who from the Coast Guard was part of
the CFIUS process?
Mr. Sloan. I might be overstepping my bounds in saying
this, but the Coast Guard's role was to help inform the DHS
decision.
Mr. Andrews. Maybe I could ask Mr. Baker. With whom did you
consult from the Coast Guard about the pace of the gathering of
this intelligence?
Secretary Baker. I would have to go back and check the
records for the particular names of the people in the Coast
Guard, but they were authorized to speak on behalf of the Coast
Guard in the CFIUS process.
Mr. Andrews. Uh-huh. And did any of them represent to you
or anyone in the Department that there was intelligence they
deemed relevant that was not yet available when they made their
recommendation?
Secretary Baker. No, they did not. And I would say that
that intelligence report itself comes to the conclusion,
notwithstanding the gaps, it says DP World's acquisition of P&O
in and of itself does not pose a significant threat to U.S.
assets.
Mr. Andrews. That is correct. And when was that report
written?
Secretary Baker. End of November.
Mr. Andrews. And that presumably, according to today's
testimony, was based upon the available intelligence that was
available then. Why was it so necessary to write that report
before all the relevant intelligence was available?
Secretary Baker. The report comes to a conclusion. It
acknowledges, as a good intelligence report would, that it does
not have all the available information. There is always some
gap in intelligence or we would be all-knowing. It does not say
that it knows everything, but it says it knows enough to come
to this conclusion.
Mr. Andrews. You know, I am not by any means an expert on
port operations but when I look at port operations, the scope
of the P&O operations, the sensitivity of the places in which
they operate, frankly, the issues with respect to the identity
between Dubai and the corporation, it strikes me that 15 days
is a rather hasty timetable for the evaluation of this. Am I
wrong about that?
Admiral Gilmour. Sir, could I clarify the record?
Mr. Andrews. Sure.
Admiral Gilmour. Mr. Sloan--my staff was involved with the
DHS team that looked at the CFIUS review.
Mr. Andrews. Uh-huh.
Admiral Gilmour. And we tasked Mr. Sloan and gave him a
deadline so that we would have what available information we
had to make a due diligence attempt to look at the intelligence
within the DHS.
Mr. Andrews. Your staff gave him the late November
deadline?
Admiral Gilmour. Yes, sir.
Mr. Andrews. Why? What was the big hurry?
Admiral Gilmour. I think the point was we wanted the
information--we wanted the information to go into the report,
and my staff has inspected after P&O port in the United States
as well as a number of them overseas.
Mr. Andrews. Wasn't that subsequent to the recommendation
that you made? Weren't most of those inspections subsequent to
the end of November?
Admiral Gilmour. Which inspections, sir?
Mr. Andrews. You just referenced inspections of P&O
facilities in Dubai World overseas.
Admiral Gilmour. Sir, we inspected all of the P&O
facilities initially after July 2004 and we looked at them
again. We are doing a baseline inspection to look at them to
see if they substantially continue to substantially meet the
regulations before the turnover.
Mr. Andrews. What was the first date that the Coast Guard
received notice that it was going to be asked for its input
into this process?
Admiral Gilmour. November 7.
Mr. Andrews. What was the date on which the Coast Guard
made its recommendation to the CFIUS process?
Admiral Gilmour. They had a couple of meetings after that.
They had a staff-level meeting held at Treasury on the 6th of
December, where our concerns on operations and personnel were
lodged.
Mr. Andrews. I'm sorry, Admiral, did not you just say, or
the other gentleman just say, that there was a recommendation
made the end of November?
Admiral Gilmour. No, sir, that was--that was the summary--
the Coast Guard intelligence summary on the 29th of November to
my staff.
Mr. Andrews. So that was not a conclusion? It was a record
on which you drew your conclusion?
Admiral Gilmour. No, it was a conclusion from the
intelligence.
Mr. Andrews. You made a conclusion by the end of November.
That is what you just said, when was the conclusion by?
Admiral Gilmour. No, sir, we did not make a conclusion. The
intelligence community gave us the report that made a
conclusion. And it made both of the things that Mr. Sloan
talked about.
Mr. Andrews. Were any of the inspections that you just made
reference to done between the 7th of November and when that
conclusion was made?
Admiral Gilmour. Any of our P&O inspections? I don't know,
but I would say I doubt that any were made during that time
within the U.S.
Mr. Andrews. Do you think that you would ask yourself a
different set of questions about the P&O inspections if you
knew who the new owner might be?
Admiral Gilmour. We did know who the prospective owner was
going to be.
Mr. Andrews. Not until November 7th, did you?
Admiral Gilmour. Yes, sir.
Mr. Andrews. You did? You tell me you made inspections of
P&O facilities overseas, knowing that the purpose of the
investigation was to assess this new owner from Dubai?
Admiral Gilmour. No, sir. That was part of our
international assessment program.
Mr. Andrews. I understand; it was a more generic
assessment. Admiral, let me ask you another question that
concerned me I think, that the CSI initiative has been a
success story and you and the people in Homeland Security
deserve great credit for it. I have been privileged to receive
some classified briefings as to the basis of your judgments and
I think you are very sound, do a good job. But I would
obviously state that the record shows--and I am sure you would
agree--that the vast majority of containers coming into the
country are not inspected; is that correct?
Admiral Gilmour. Again, sir, CBP is the group in charge of
security.
Mr. Andrews. Is that correct, Mr. Baker?
Secretary Baker. That is correct.
Mr. Andrews. And that is not an accusation, it is just an
observation given the vast scope of trade that comes in. And I
would assume, therefore, a vast majority of containers coming
into these ports that the Dubai company would operate would not
be inspected; is that correct?
Secretary Baker. That would be correct.
Mr. Andrews. Let's posit a circumstance where the
containers contain three elements that separately are rather
benign but, if combined, could form a weapon or the basis of a
weapon. They are in three separate containers, none of them are
inspected, they find their way into a warehouse facility run by
the new owner, the new operator, the Dubai people. Are all the
employees of the Dubai organization subject to a background
check?
Secretary Baker. The Dubai company operating in the United
States. Yes.
Mr. Andrews. Who does the background check?
Secretary Baker. There are a variety of background checks
because they are a C-TPAT member and can't get out of the
program now, they are subject to background checks. I think in
Newark the background checks are performed by the Port
Authority. We also now have authority to get the names of all
their employees and date of birth, Social Security number, and
conduct our own review.
Mr. Andrews. And for what percentage of employees do you do
your own review?
Secretary Baker. This is a special assurance that we have
received from this company as a condition of approving this
transaction. And so we can, if we wish, impose that requirement
on 100 percent of the employees.
Mr. Andrews. I do have some familiarity with this. It has
been my understanding that the background check that is done of
the terminal employees tends to be a paperback ground check
which relies heavily upon the documents that are presented by
those employees. Is that generally true in your experience?
Secretary Baker. I am not sure I can generalize about all
of them. I think that is entirely possible, which is one reason
why we are pleased to have the additional authority in this
case to carry out more extensive background checks using our
own records.
Mr. Andrews. And it is also my understanding that, for
example, a document that indicated that an employee of the
terminal had never served in the Armed Forces--in other words,
one could falsify a resume rather easily if it was simply a
paperback ground check, couldn't one?
Secretary Baker. There is a risk there. It is better than
not having a background check, but there are always
possibilities for fraud in these cases.
Mr. Andrews. How much time would be--how many man-hours
would be involved in doing a background check that goes beyond
the papers when you are talking about people who are residents
of the UAE? Do you have staff in the UAE?
Secretary Baker. Yes, sir, we do.
Mr. Andrews. Do you have sufficient personnel to perform
thorough background checks on all the people who would work for
the Dubai Port Corporation?
Secretary Baker. When we get applications for visas to come
to the United States, we perform checks of that sort on the
people who want the visas. Certainly if they want to come work
in our ports, which is a rare event, we would be able to do
that.
Mr. Andrews. I assume it might be somewhat less rare if the
transaction goes through.
Secretary Baker. One might think so, but only 10 or 15
percent of the people who work at the Dubai ports are from the
Dubai ports because they are a net importer of labor.
Mr. Andrews. My last question for Mr. Lowery about the
legal standing in which we stand here today. Mr. Saxton's
questions really went to this. This afternoon it came across
the news wires that the overall deal is going to close on
Monday and there is, of course, this set-aside agreement that
is a contract between the two private parties that they not
close that part of the deal. Is that your understanding?
Secretary Lowery. My understanding is that what they will
do is basically--and I am not a lawyer--set up a holding--
again, it is not----
Mr. Andrews. Is your lawyer here?
Secretary Lowery. No.
Mr. Andrews. Here is the question I would like your lawyer
to answer. Is it the Treasury Department's position that the
two private parties, and specifically the Dubai Corporation,
has waived any rights that it received under its original
approval by signing this standby agreement? Let me tell you the
reason I raise that question.
Your testimony relies upon a private contract, frankly, not
made in the United States, as I understand it, between two
private parties, where they have agreed to suspend the transfer
of operations that they contractually agreed to earlier. The
question I am asking is what if those two parties agreed to
rescind that contract, for whatever reason. They have
explicitly stated for the record that they won't do that. Is it
the Department's position that they have a legal obligation to
the United States of America not to do that?
Secretary Lowery. I would have to check with an attorney, I
can say this, sir. When the parties file a notice under this
new transaction with the Treasury Department and with CFIUS, it
will be--go through the full Exxon Florio statute and all the
powers that are invested in it.
Mr. Andrews. That is not quite what I asked.
Secretary Lowery. I said I was not a lawyer and I couldn't
answer the exact specific of that.
Mr. Andrews. One thing I will say and I mean no disrespect
to any member of the panel. This is obviously a matter of
tremendous gravity to the Congress and to this committee. The
testimony today has been sincere, it has been thoughtful. It
has also been filled with holes, given by people who weren't
part of the process, people that don't have the specific facts,
people that are not in the position to know the specific facts.
I do not in any way fault any of you as individuals for
that. But I would say that if this is the review that we are
going to undertake, it needs a lot more work. I have more than
extended my time and I thank my friends for giving me the time.
I would say this to you. I came into this discussion very
disturbed at the way I found out about this--given the fact
that my 600,000 constituents live very proximate to the port of
Philadelphia--was from a newspaper reporter. I, frankly, am
disturbed for a different set of reasons today. And it has
nothing to do with the sincerity or integrity of any of the
witnesses, but it does have to do with the unusual feel one
gets about this process, that it is simultaneously a process
that seems to have been conducted by people not in policymaking
positions but it was a process that had, at least as far as I
can tell, rather tight deadlines, things had to move very
quickly. And my experience has been that the lower down the
decision making chain you go, the slower things are, not the
faster. And I hear our individuals from the Coast Guard talk
about the pace at which their involvement took place and I hear
about some of the other things, it concerns me.
And I hope that the Chairman's admonitions about supplying
the record will be promptly adhered to so that the committee
can draw its conclusion in an expeditious manner.
Thank you, Mr. Chairman, for your indulgence. And I thank
the witnesses.
Mr. LoBiondo [presiding]. Thank you, Mr. Andrews. And I
think Mr. Andrews was being very kind with his choice of words
about the comfort level that we are all feeling about what we
have been hearing in this hearing and some of the other
hearings covered.
I am assuming that most of you did not get a chance to hear
the first panel. The panel, while they really did not focus so
much on this deal itself, really focused on the general area of
maritime antiterrorism and port security. And there was almost
unanimous agreement that, while this particular issue with
Dubai has to be reviewed, the bigger picture has to be
addressed.
And I have to tell you, Mr. Baker, that I heard you say how
port security is a really top priority of DHS. We have heard it
from a number of other people. But your actions, the actions of
DHS, do not match your rhetoric.
The Coast Guard has done a magnificent job in everything
they have been asked to do. And every year they are being asked
to do more with less. And this year, it is my view and the view
of some others, that with the budget that has been submitted by
the Administration, the increase that is afforded to the Coast
Guard in operations and maintenance ends up being an overall
reduction because of the factors of the price of fuel and pay
raises and things like that.
Yesterday, we had a Coast Guard hearing where Master Chief
Welsh outlined the horrific stories of the challenges of the
aging assets and the personnel who man them. And we cannot
conduct Coast Guard missions with Coast Guard cutters and
planes that are falling apart, where literally lives are almost
at risk, and the Coast Guard is not given the resources to do
the job.
In a couple of areas that I am particularly cranked up
about, in the Maritime Transportation Security Act, there were
a number of mandates that were issued. The Coast Guard has come
through pretty much in compliance with what we have asked; but
when it comes to TSA, which I understand you are responsible
for, something as simple as the transportation worker identity
card, which was supposed to pretty much be in place by 2004, so
the bill was signed by the President maybe a year after the
September 11th incident, a little bit more than that, we want
to take our time to put it together. There wasn't any
indication that there was going to be a major problem. We now
find--without explanation from TSA that can give us an idea of
why this delay occurred. And we heard from testimony that
basically someone shows up at port, a transportation worker
shows up at the port with a photo ID and that is what must be
accepted.
Now, maybe one port has got something that is a little more
involved, but basically that is what is accepted. And that it
is my understanding from reports that we have received back
that TSA is not going to propose the final rule until sometime
later this year. Can you talk about this at all?
Secretary Baker. I would be glad to. First, I share your
admiration for the Coast Guard and their ability to meet the
deadlines that the law requires, and appreciate the fact that
when they do they make us look good.
We are committed to port security. The budgets that have
been proposed, as I am sure you appreciate, are Administration
budgets that reflect a host of difficult balancing decisions
that have to be made by the Administration as a whole.
As for the transportation worker identity card, you are
quite right; we have missed the deadline and we deeply regret
that. Our difficulties have arisen from questions about the
appropriateness of the design, how we can design as a
Department an effective card that goes beyond the kind of flash
pass that is so easy to forge and so easy to overlook in the
busy port environment.
One of the reasons why we asked for the kind of assurance
that we have asked for from this company was so that we could
do a background check on the employees that they would have
working at their facility so that we would have that kind of
assurance with respect to those employees. In the long run, you
are absolutely right that the transportation worker identity
card will give us greater authority to do that for a wider
range of employees.
Mr. LoBiondo. When do you expect to publish the rule?
Secretary Baker. I can't say, in part because as a result
of the very discussion we are having today and related focus on
the question of what is the best way to guarantee appropriate
review of who is working in ports, we have begun a process of
intensively examining the assumption that underlie the program
so that we actually have a program that the Secretary and the
Deputy Secretary are confident will work. We are in that
process now.
Mr. LoBiondo. Mr. Baker, with all due respect, the ``Bank
of Goodwill and Trust Me'' is empty. And you are talking about
this as not 2 months, 6 months, a year overdue. This is 4 years
overdue. It is relatively--I mean, I understand you want to
make this right. I don't know who that is involved with looking
at this from a committee standpoint on this side can believe it
is a top priority if you are taking this long to do it.
And in addition, I understand the budget constraints of the
Administration. But our frustration and anger goes to everyone
involved on the Administration side--and unfortunately that
means you--that on a program this critical and essential to
port security, which I think you just acknowledged, there is
not even funding in the budget to implement the program.
Secretary Baker. And this, of course, is part of the
problem with trying to come up with a program that we can--in
which we can make the private sector absorb in an appropriate
way the costs of this without our having to prime the pump with
large appropriations at the start. That is a difficult program
design challenge.
Mr. LoBiondo. We should have been having these discussions
2 years ago, and we are 4 years into it. We are going to be
talking a whole lot more about this. But then when we get into
the area of port security grants, I think Mr. Spratt had it
wrong. In testimony yesterday, Admiral Cross acknowledged that
the recommendation of the Coast Guard from their initial review
put the price tag on the low end at 7 billion, on the high end
at 11 billion, and with the recommendation of 125 million this
year. I did not major in math, but that is something like a 60-
year time frame to get to where we need to be.
That is not putting port security at a high priority. And
somebody, somewhere along the line, has to give us more than
lip service. I mean, I will encourage Chairman Hunter, I will
encourage everyone I can, that this reservoir of goodwill and
what appears to be just patting us on the head, putting us
aside, telling us don't worry, we are reviewing it and doing
everything we can. Port security is a great priority, we are 4
years behind on the Transportation Worker Identification
Credential (TWIC) program. We are constrained by budget
requirements and so on and so forth.
What I said in my statement in the first panel is that if
we were to have an incident tomorrow, and there would be an
actual terrorist incident at one of our ports, besides shutting
down all of our ports and our maritime economy, besides
whatever damage may be done in terms of lives or property, the
day after the check would be blank, that we would get to fill
in the numbers as it was with aviation: $25 billion up to this
point in time. And something has got to change.
Somewhere along the line, we have been maybe delinquent in
just saying ``yes'' and accepting that tomorrow better news is
going to come and tomorrow someone will show a little bit more
of a priority. But it is at the point now where the frustration
level is so high, and the opportunity for us, because of this
Dubai Ports proposal, to actually do something about overall
maritime antiterrorism and port security, which is woefully
inadequate, is going to be a short window. Something--maybe 2
weeks from now, 3 weeks from now, the Congress is going to
focus on something else, and I hope in a very positive sense
that the DHS and TSA and all those associated feel tremendous
heat to give this more than lip service.
Secretary Baker. If I might, we certainly do. We would be
delighted to work with Congress on ways to improve port
security in the short run. I will note that we did not say to
Dubai Ports World or P&O, how much money can we give you to
make your participation in the C-TPAT permanent and mandatory?
We said, will you do it? And they said, Yes, sir. We said--we
did not say, We will give you money so that we don't have to
come up with a subpoena when we want to see the list of your
employees and do background checks. We said, will you do it?
And they said, Yes, sir.
The ability to impose those kinds of restrictions, we may
well want to ask the question, What can the private sector do
to improve port security along with the government? And we
would be delighted to work with you on that.
Mr. LoBiondo. I appreciate that, but I will just reiterate
that a lot of what we do has to pass the kitchen table test.
And people sitting around their kitchen table cannot understand
if port security and maritime antiterrorism is a priority for
this government, this Congress, and this Administration. How we
can be four years into this and be so woefully behind? It just
seems to be bureaucratic rhetoric about what we are going to do
next. It never happens. There is a certain point at which that
does not work anymore. I think we are past that point.
I want to thank Admiral Gilmour for the tremendous job that
the Coast Guard has been doing. I don't know how you continue
to have the men and women excel in the way that they do when
you are constantly being stretched and pressed and asked to do
more with less. But I have said it before: They really need to
be commended.
I asked the question of the last panel and Mr.
Misenheimer--I hope I pronounced it correct--can you comment?
Does the United Arab Emirates enforce a boycott on Israel?
Mr. Misenheimer. The Arab League boycott of Israel is a
serious issue and we oppose it. With respect to the UAE, like a
number of other states in the region, the UAE supports and
enforces the primary boycott. That is to say, they do not do
direct commerce with Israel. It does not enforce the secondary
and tertiary boycotts which we as a matter of policy have
targeted right across the region.
I would add, sir, that we are involved in free trade
agreement talks with the UAE, and of course one of the
parameters of those talks is the elimination of the boycott.
And so that is where we see the process heading.
Mr. LoBiondo. But the boycott, the primary boycott is in
place.
Mr. Misenheimer. Yes, sir; that is correct.
Mr. LoBiondo. What would your reaction be if one of the
congressional conclusions was that this boycott could not be in
place for this deal to move forward?
Mr. Misenheimer. Again, sir, we oppose the boycott. We aim
to see it eliminated. The complicating factors that would come
into play in the circumstances that you are suggesting are
several, including the fact that under international trade
rules that apply to all states under the World Trade
Organization (WTO), primary boycotts are permissible. The
United States has one or two of its own.
And second, with regard to the CFIUS process which looks at
security threats to the United States arising from proposed
acquisitions of assets here, the fact of whether a potential
investor would be involved in the boycott is, as I understand
it, currently outside the scope of that process.
Mr. LoBiondo. You do understand that we have constituents
who have contacted us who believe that approval of this is in
essence helping to subsidize the boycott?
Mr. Misenheimer. Again, there is no one who is in favor of
boycott. There are many levels of our interaction with the UAE
and the other states in the region. And the investment of those
states in the United States, of course, has benefits for our
economy which are well documented.
Mr. LoBiondo. Thank you. Mr. Langevin you are up.
Mr. Langevin. Thank you, Mr. Chairman. And, gentlemen, I
want to thank you for your testimony today. The hour is late
and we appreciate you being here.
I want to begin with this. I understand clearly, we all
understand now, that the Secretaries of Defense, Treasury and
Homeland Security are all a part of this, sit on the CFIUS
committee, and that this has been designated to others far
below their rank who actually made this decision. But I have to
ask the question that--in particular for the three secretaries
that I mentioned--that they were unaware of the sale until it
appeared in the newspapers.
How is it that your bosses did not know what was happening?
And is the process broken?
Mr. Edelman. Congressman, as I testified earlier, I found
out about the transaction after the fact as well. I found out
about it from Deputy Secretary Kimmitt, and at the earliest
possible opportunity I had, I notified the Secretary of
Defense, who had already learned of it from the press, as you
said.
It is clear that, although as I mentioned there have been
some steps to fix the part of the process that has been
problematic from the point of view of some of the security
agencies in terms of getting some of their concerns addressed,
we have not completely fixed everything in the process. And at
least--I can't speak for other agencies--but in the Department
of Defense, we have taken some steps to make sure these cases
get elevated to higher policy level now as a matter of routine.
Secretary Lowery. I think that I have a very similar
reaction. And I think the one thing I would say is that all the
agencies did have their most professional people that deal with
CFIUS matters or national security issues look at all this
transaction very thoroughly. That said, clearly there were two
mistakes that were made. One, there was not good vertical
agreement; and second, that we did not do a very good job of
explaining this to Congress.
Secretary Baker. Well, I have to say Representative Skelton
did not actually ask me if I knew about this. It turns out that
I am the only person on the panel that did know about this. I
am in charge of all policy for the Department of Homeland
Security. I was deeply involved in the decisions about whether
we were going to object to this transaction and what kinds of
assurances we were going to insist on from the company in order
to decide not to do that.
In our case, while obviously in light of what has happened
I should have talked to the Deputy Secretary and the Secretary,
I concluded that we had protected the national security
interest appropriately by getting the assurances that we
received. So in our case, while I am confident that in the
future we will be doing more reporting up, I would not say that
this was decided at a low level within the Department.
Mr. Langevin. Let me be clear. Mr. Baker, you are the only
person on this panel here today that was directly involved with
making the decision to allow the DP World sale to go forward?
Secretary Baker. Boy, I guess I shouldn't be saying this,
but yes, I think that is the case. I have a feeling that means
more questions from you.
Mr. Langevin. Well, Mr. Chairman, I would point out that
unless we have direct testimony from all those people who were
part of the committee, I don't think we are exercising proper
oversight, and I would request that the committee consider
bringing those individuals before the committee to answer the
question of how we got into this point and really what
additional information went into them making this decision.
I would ask this. We can start with Mr. Baker and the other
departments can answer. The individuals that were involved in
making the decision to approve this sale, what national
security experience do they have? I am not interested in their
experience in foreign policy or the economy. I want to know
specifically what experience they had in making national
security decisions, what the experience was in national
security.
Secretary Baker. Obviously, a lot of different people
participated in the Department of Homeland Security's decision.
We asked for extensive review by the Customs and Border
Protection Agency as well as the U.S. Coast Guard, which
obviously these are people that have a career spent concerned
about port and cargo security.
Myself, I was general counsel of the National Security
Agency. I have been general counsel and author of the report of
the WMD Commission on Iraq Intelligence, and also I am head of
policy for the Department of Homeland Security.
Mr. Langevin. And for the Department of Defense and also
for the Department of Treasury?
Mr. Edelman. Congressman, for the Department of Defense,
the main point of entry for the CFIUS process is the DTSA,
which is essentially an organization that is devoted to the
whole issue of export and technology control.
Mr. Langevin. The individual who represented the Department
at the CFIUS committee who was directly--who approved this
decision--who is that person and what is their national
security background?
Mr. Edelman. I think Ms. McCormick testified it was Mr.
Reitzel who was the actual participant in the meetings, and we
can get back to you with--I don't know his exact CV but we can
get back to you with his background. Would you like to hear
from Ms. McCormick who is his superior?
Ms. McCormick. I will just mention that Mr. Reitzel is a
retired army intelligence officer, so he is by training an
intelligence officer, and that is one reason why he runs the
assessment part of my policy directorate where we review a
variety of intelligence information and user checks, and he has
been a civilian in the Department following his Active Duty.
Secretary Lowery. I am Assistant Secretary for Treasury for
International Affairs, and I take responsibility for my
Department, and my Department made a decision that this
transaction is okay to go forward. That is why I am here
testifying today.
As to the people that were involved, the person who runs
the office has been doing CFIUS reviews, which are all related
to national security, for the last roughly 10 to 12 years. As
far as my own background, I have been involved in national
security matters either at the Treasury Department or the
National Security Council for 10 of the last 12 years.
Mr. Langevin. I think we all find it astounding that no one
seemed to anticipate the firestorm this was going to set off.
And it really speaks to how insecure, really, the public is
right now in the belief that our ports and our borders are
secure. And we clearly have got to do a far better job at
securing our ports, because I don't know we are prepared at our
ports. I think we are grossly underprepared.
I am going to end with this. It is my understanding that
the Director of National Intelligence is not a sitting member
right now of the CFIUS committee.
Secretary Lowery. That is correct, sir.
Mr. Langevin. Do you believe that the Director of National
Intelligence should be a member of that committee?
Secretary Lowery. We think that would be a good suggestion
to take up, sir.
Mr. Langevin. I agree.
Secretary Baker. If I could just add one caveat from my
experience with intelligence. One of the difficulties that
arises when someone from the intelligence community
participates in an interagency process is that there is a
question of whether they are participating to provide
intelligence or to represent their national security interests.
And I think the DNI has very substantial national security
interests here.
The risk that is always raised is that once they begin
participating from a policy point of view, it becomes harder
for the other participants who may be disagreeing with them to
rely entirely on their intelligence assessments, which
inevitably are seen as tied to their bureaucratic interests.
Secretary Baker. So we do need to find a way to have the
DNI participate, to reflect their strong policy interests here.
We just have to find a way to make sure that the intelligence
that they gather isn't subject to the objection with respect to
their policy interests.
I, for one, believe that the DNI should have a seat on the
committee and have a strong voice and role in overseeing these
types of sales. I think in the past, CFIUS evaluated its
decisions primarily based on a financial and an economic
decision or standpoint. In this post 9/11 world, that cannot
happen as we go forward. It has to be based on--a decision has
to be made from a national security standpoint primarily and
not an economic standpoint.
Secretary Lowery. We agree.
Mr. Langevin. Thank you, Mr. Chairman. I yield back.
Mr. LoBiondo [presiding]. And now, for the last hour of the
hearing, I recognize Mr. Larsen.
Mr. Larsen. Thank you, Mr. Chairman. I have to warn you, I
flew in from Washington State two days ago. I am still on west
coast time. I have three hours, but I am not going to take
three hours.
It has been a great hearing, great panel. The two previous
panels are very helpful for this committee. You have all been
very patient with us. You have done your best to answer
questions as you can, and we appreciate it.
I think one of the headlines that you need to take away
from this entire day is that we believe the CFIUS process is a
legitimate process to conduct. We have serious questions about
the legitimacy of the process based on the questions that we
have had today, based on information that has come out since,
and those are the kinds of questions we have to get answers to.
If we don't, Congress will be a co-shareholder in every
company that wants to do foreign investment in the U.S. trying
to make those decisions, instead of the shareholders making
those decisions, however many shareholders happen to be on the
board of any of these companies. This process has to work, and
we may be moving forward to change the process to make it work,
change the criteria beyond the Exon-Florio criteria as well to
make this process work. We have a lot of work to do here in
Congress, and I would argue that we cannot spend every week
reviewing every foreign investment in the U.S. that will be--it
is a dangerous thing for us to get involved in.
So this process has to change in order to work. It has to
be seen as legitimate by us, more importantly, by the American
people.
I want to--Admiral--I can't even see that far any more; my
eyes are so tired--Gilmour, the guy in uniform, you said
earlier that with 20 inspectors for the ISPS compliance that
you all do worldwide, that number was in the ballpark and it
was--so it is about 20, and it would take you another
additional 2 years to finish your assessments?
Admiral Gilmour. Sir, that is an international team that
inspects our foreign partners. We have many more people doing
the domestic facilities in the United States, and they have
already been inspected.
Mr. Larsen. So the domestic are done, but now you are going
international, and we have 20 inspectors about, and it would be
another 2 years to complete that, is that what you said?
Admiral Gilmour. Yes, sir.
Mr. Larsen. The international.
Admiral Gilmour. Yes, sir. We have completed about a third
of the nations right now, about 80 percent of the traffic that
comes to the U.S.
Mr. Larsen. About 80 percent of the traffic that comes to
the U.S., okay. I don't know if it would do any good to include
in our discussions deliberations after this to add inspectors
or not, given the fact that, where you are in the process. But
it just seems to me that, you know, you use a ballpark analogy
to sort of describe how many inspectors we have. I would just
sort of say it is not a ballpark, it is sort of the size of a
little league field in terms of how many we should have had in
this process to really get this done, and that is no fault of
the Coast Guard at all.
It is just--the port security--and Congressman LoBiondo
made the point about port security. I won't go through the
numbers again. But we are clearly, compared to aviation, not
putting the kind of investment, public investment, that is
necessary to move as quickly as we have, compared to aviation.
In the agreement, the--what do they call this? What do they
call this? The----
Mr. Baker. The assurances letter.
Mr. Larsen. The hold separate commitment letter. Condition
I say, chief security officer for P&O Ports North America
(POPNA) will at all times be a U.S. citizen unless U.S. Coast
Guard agrees otherwise. So, apparently, U.S. Coast Guard will
be responsible for approving through the life of this
agreement, which will be at the latest May 1, that the security
officer for POPNA will be a U.S. citizen. Is that your
understanding of this as well? Or should that be to Mr. Baker?
Admiral Gilmour. Yes, sir.
Mr. Larsen. That is your understanding? Is it your
understanding that after May 1 or earlier that then you no
longer have any say in who they determine as a security
officer, their chief security officer?
Admiral Gilmour. I guess I have to defer to DHS on that.
But my interpretation would be that in perpetuity we would be
able to do that.
Mr. Larsen. Mr. Baker, do you have----
Secretary Baker. I think that this agreement goes beyond
the assurances letter. The assurances letter requires that the
company maintains security policies under the direction of a
responsible corporate officer----
Mr. Larsen. Right, and I was getting to that as well. But
just in terms of the chief security officer of POPNA of as long
as it is POPNA, it is going to be the Coast Guard's
responsibility and only until that agreement is no longer
relevant, which will be made the 1st or earlier?
Mr. Baker. That is my understanding.
Admiral Gilmour. Yes, sir. I was thinking of the wrong
letter. I am sorry.
Mr. Larsen. Sure.
Okay, the next question is probably for Mr. Baker. Then the
letter--the assurances letter designates a responsible
corporate officer to serve as a point of contact with the
Department of Homeland Security on security matters.
My question to Mr. Scavone, I think, with the security
office, the current executive vice president for security at
POPNA who is the--which agency at DHS will be responsible and
who will be the contact at DHS--the basic question, who do we
hold responsible for ensuring that portion of the assurance
letter is implemented?
Mr. Baker. My office is in charge of the CFIUS process, and
along with the general counsel's office, we make sure that
people comply with the agreements. But I think it is likely
that, with respect to this kind of thing, that we will end up
asking one of the components, CBT or Coast Guard, to take
responsibility for the details of the implementation of this
agreement.
Mr. Larsen. Should this agreement go forward after the 45
day re-review of it and however the process works out, that
Congress is in with the Administration, can you let us know
which agency and which office and which phone number?
Mr. Baker. Absolutely, yes. We will be glad to do that.
Mr. Larsen. Assuming it gets that far.
Is there any other agency at this table who is going to be
part of any other management decision at the post P&O PNA
entity? Or is it all going to be DHS?
Mr. Baker. The agreement is with DHS. So anything that
happens under that agreement would be something that we would
be responsible for.
Mr. Larsen. Mr. Lowery, were you about to give up the
ghost?
Secretary Lowery. I was just going to agree with my
colleague.
Mr. Larsen. Okay, thanks.
Mr. Baker, you mentioned that as well, that you said in two
different forms, more detail the second time, about the ability
for DHS to subpoena employee records at DP World and conduct
their own background checks if you wish, if DHS wishes. My
question to you is, will you wish? Is this something you are
holding out or you are going to do?
Secretary Baker. Our current plan is to actually make--we
don't even have to get a subpoena. We can just make a written
request. We plan to make a written request to test our
understanding of the agreement, make sure we get the
cooperation that we expect, as part of the 45-day review
process is to make sure that everything is working.
Then I expect us to perform some form of background check
on the names that we get back. Precisely what checks we will
do, whether we are running those names against watchlists or
performing other checks, remains to be determined. But we will
certainly be exercising our rights here and going beyond what
is currently required of other companies.
Mr. Larsen. Will you be doing those only of direct
employees of DP World?
Mr. Baker. These are employees in the U.S. facilities.
Mr. Larsen. I am sorry, in U.S. facilities as employees of
DP World?
Mr. Baker. That is our current plan.
Mr. Larsen. Mr. Baker, you mentioned to Mr. Saxton earlier
your willingness to work on security issues and you mentioned a
few other times as well.
There is legislation--it has been introduced in the
Senate--the Greenlane Maritime Cargo Security Act by Senator
Murray from my State and Senator Collins from Maine; and at
least according to a few commentators, the DHS's initial
reaction--I think one commentator used the word ``tepid.'' I
would ask you if it is still tepid, if that was accurate. I
want to give you a chance here. If it is accurate, why it is
tepid; and if it isn't accurate, tell me how excited you are
about working to get something like this passed?
Mr. Baker. I think we are quite prepared to turn up the
heat on our efforts in this regard. I am not in a position to
give you a response to the details of this legislation, but I
think we all recognize that this is a moment in history where
we can do something about port security legislatively, and we
should look hard at what can be done.
Mr. Larsen. Just generally some details that would provide
incentives for American importers to accept modest fees, to
establish minimum security standards, encourage tracking and
monitoring of containers through the entire supply chain,
create joint operation centers within U.S. ports, to respond to
terrorists incidents as well as to allow for flow of commerce
to resume when everything is sorted out after incidents; and
then it would authorize $835 million a year for the Container
Security Initiative. So those are some of the details as
reported not only in the press but on the fact sheet on the
Greenlane.
Mr. Baker. I think those are all topics in which we would
be quite prepared to work with Congress to see if we can come
up with a proposal that the Administration can support as well.
Mr. Larsen. That makes me excited to hear, I should say.
With that, Mr. Chairman, I have no further questions for
the panel. Thank you.
Mr. LoBiondo. Okay, thank you, Mr. Larsen.
I want to thank our panel very much. I guess no one
expected that it would go on to this hour, but this was very
helpful for the committee, and we appreciate your cooperation.
[The prepared statement of Mr. Misenheimer can be found in
the Appendix on page 170.]
Mr. LoBiondo. The meeting stands adjourned.
[Whereupon, at 7:58 p.m., the committee was adjourned.]
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A P P E N D I X
March 2, 2006
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PREPARED STATEMENTS SUBMITTED FOR THE RECORD
March 2, 2006
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[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
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DOCUMENTS SUBMITTED FOR THE RECORD
March 2, 2006
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[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
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QUESTIONS AND ANSWERS SUBMITTED FOR THE RECORD
March 2, 2006
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QUESTIONS SUBMITTED BY MR. SKELTON
Mr. Skelton. I request of you to produce to our committee any
documents relating to the deliberation and decision making process for
this port deal, and this includes correspondence, minutes of any CFIUS
meetings, statements or summaries of fact, and written decisions. All
right, Mr. Lowery?
Secretary Lowery. [The information referred to is propietary
information and retained in the committee files.]
______
QUESTIONS SUBMITTED BY MR. LOBIONDO
Mr. LoBiondo. But with government involvement, that is where our--
we can't separate some of these issues because with Israel as our most
reliable partner in that part of the world, some of us view that if
there is, in fact, a boycott, that something like the deal we are
talking about is in effect ending up subsidizing a boycott, and that is
where we have got a serious problem and where this is coming down. You
probably can't answer if it were one of the conditions after the 45
days that there not be anything like a boycott, how you would react to
that condition, but that will certainly be one of the questions that we
will be asking.
Mr. Bilkey. [The information referred to was unavailable at the
time of printing.]
______
QUESTIONS SUBMITTED BY MR. SPRATT
Mr. Spratt. We had a statistic given to us earlier today that there
were 80 Customs inspectors for monitoring the compliance of 5,800
importers, and that there were only 20 Coast Guard inspectors to
monitor the international shipping port facilities code. Is that
correct, 20 inspectors to monitor the worldwide international code?
Admiral Gilmour. All 63 billets assigned to the International Port
Security Program are involved in monitoring the security of
international ports/facilities; however, the primary responsibility for
physically visiting foreign countries resides with the two Coast Guard
Area Commanders who determine the appropriate number of personnel to
conduct the visits.
Below is the unit allocation of the 63 billets assigned to the
International Port Security Program:
Headquarters: 9
Atlantic Area (Portsmouth, VA): 23
Atlantic Area (Activities Europe): 12
Pacific Area (Alameda, CA): 7
Pacific Area (Activities Far East and Maritime Inspection
Detachment Singapore): 12
______
QUESTIONS SUBMITTED BY MR. ANDREWS
Mr. Andrews. Okay. Here is what I am going to ask you to do. I
would ask the Department to supplement on the written record whether it
acknowledges or disclaims the basis of the Chairman's question about
the 2003 transaction of the triggers which could be used in a nuclear
weapon; whether the Department acknowledges that, in fact, took place
over the protest of the United States or whether it did not. Could you
do that for us?
Mr. Misenheimer. [The information referred to was unavailable at
the time of printing.]