1 

1 UNITED STATES OF AMERICA 

2 NUCLEAR REGULATORY COMMISSION 

3 + + + + + 

4 BRIEFING ON FOREIGN OWNERSHIP, CONTROL, AND DOMINATION 

5 (PUBLIC) 

6 + + + + + 

7 THURSDAY 

8 JANUARY 29, 2015 

9 + + + + + 

10 The Commission met in the Commissioners' 

11 Conference Room, 1st Floor, One White Flint North, 11555 

12 Rockville Pike, Rockville, Maryland, at 9:00 a.m., 

13 Stephen G. Burns, Chairman, presiding. 

14 PRESENT

15 STEPHEN G. BURNS, Chairman 

16 KRISTINE L. SVINICKI, Commissioner 

17 WILLIAM C. OSTENDORFF, Commissioner 

18 JEFF BARAN, Commissioner 

19 ALSO PRESENT

20 STEWART BAKER 

21 JOHN HAMRE 

22 WILLIAM LYNN III 

23 PAUL MURPHY 

24 SEAN O'KEEFE 

25 STANLEY SIMS 

26 MARGARET M. DOANE, General Counsel 

27 ANNETTE L. VIETTI-COOK, Secretary of the Commission 
 2 

1 P-R-O-C-E-E-D-I-N-G-S 

2 (9:01 a.m.) 

3 CHAIRMAN BURNS: Well, good morning, 

4 everyone and welcome to our meeting this morning and on 

5 the general topic of foreign ownership control and 

6 domination. 

7 I want to welcome our panelists today who 

8 will be speaking with us. We have a couple who are 

9 running a bit late but will join us as we go. 

10 The focus of today's meeting is on the 

11 processes and methods through which issues of foreign 

12 ownership, control and domination are addressed in the 

13 non-nuclear sectors of U.S. critical infrastructure and 

14 the U.S. defense establishment. 

15 As many of you know, the commission has been 

16 looking at this issue of foreign ownership and control 

17 and domination in connection with its responsibilities 

18 under Section 103d of the Atomic Energy Act which 

19 applies to production and utilization facilities. 

20 We're hoping our discussions today will aid 

21 the commission in its deliberations on this policy issue 

22 before us, and the commission will be briefed by a panel 

23 of external experts today including John Hamre, 

24 President and Chief Executive Officer, The Center for 

25 Strategic and International Studies; Mr. Stanley Sims, 

26 Director of the Defense Security Service and former 
 3 

1 Director for Security with the Department of Defense; 

2 Mr. Lynn - William Lynn III, the Chief Executive Officer 

3 of Finmeccanica-North America and a former Deputy 

4 Secretary of Defense; Paul Murphy, Special Counsel with 

5 Milbank Tweed Hadley & McCloy and who has also served 

6 as representative to my former organization, the 

7 Nuclear Energy Agency's Expert Working Group on the 

8 Financing of Nuclear Power Plants; Mr. Stewart Baker, 

9 a partner at Steptoe & Johnson and a former Assistant 

10 Secretary for Policy in the Department of Homeland 

11 Security; and finally, Mr. Sean O'Keefe, former Chief 

12 Executive Officer of Airbus Group-North America and a 

13 former Secretary of the Navy and former Administrator 

14 of NASA. 

15 We look forward to your presentations this 

16 morning and the discussion with the members of the 

17 Commission. But before we begin, would any of my 

18 colleagues like to say something? 

19 COMMISSIONER SVINICKI: Thank you, 

20 Chairman Burns. Good morning and a belated Happy New 

21 Year to many and I have not had an opportunity, Chairman 

22 Burns, to publically congratulate you in your selection 

23 as Chairman and look forward - we're diving right in to 

24 a very complex topic here. 

25 But welcome and, again, congratulations 

26 and really look forward to serving under your 
 4 

1 Chairmanship. 

2 And I also want to thank our very 

3 distinguished group of panelists for being here today, 

4 you know, and Commissioner Ostendorff suggested that we 

5 step way back and look at non-nuclear experts who are 

6 tackling some of the same issues. 

7 I thought about it and I thought in general 

8 we'd try to stick to our meeting here and we look within 

9 the four corners of the Atomic Energy Act. 

10 But this is the type of issue that across 

11 the economy, across the government many people are 

12 having to grapple with it and I came to understand that 

13 some people have it presented to them with perhaps even 

14 greater complexity than we do. 

15 So I really look forward to today's 

16 meeting. Thank you. 

17 CHAIRMAN BURNS: Thank you. 

18 COMMISSIONER OSTENDORFF: Thank you, 

19 Chairman Burns. I'd like to add my thanks and best 

20 wishes to you, to echo Commissioner Svinicki's comments 

21 on your Chairmanship here. 

22 I'd also like to look at the panelists here 

23 and those that will be arriving and say thank you for 

24 helping us tackle a difficult issue. It's important 

25 for us to go outside our narrow lanes at times, look more 

26 broadly at issues from a broad national perspective that 
 5 

1 you bring to this table. 

2 I'd like to personally thank John Hamre for 

3 his help in assembling this distinguished group. Thank 

4 you, John. 

5 COMMISSIONER BARAN: I guess I should 

6 chime in. Just to echo my colleagues, congratulations 

7 on your new position. You've been doing it now what 

8 seems like for so long. 

9 It's hard to believe that this is the first 

10 time we've had a full meeting. But congratulations 

11 again on that and thanks to our panelists for being here. 

12 We appreciate it. 

13 CHAIRMAN BURNS: I think it's been a month 

14 but it only seems like ten years. So anyway, on that 

15 happy note, Mr. Hamre, we'd be pleased to hear from you. 

16 DR. HAMRE: Thank you. I'm really honored 

17 to be invited. I must tell you, I've testified many 

18 times before the Congress because of previous roles but 

19 this is far more intimidating and the reason is because, 

20 you know, when you testify to Congress you know a hell 

21 of a lot more than everybody sitting on the other side 

22 of the dais and, you know, so you enter with a lot of 

23 confidence. 

24 Here, you know a hell of a lot more about 

25 this than I do and so it's - I'm a little intimidated 

26 but I'm going to try to press through, if I may. 
 6 

1 Let me just start with a disclosure, that 

2 for a period of about six years I served on an advisory 

3 committee to people that appeared before you, 

4 supplicants before you. 

5 This was a joint venture between 

6 Constellation Energy and EDF. They knew that there 

7 were going to be issues of FOCD and so they created an 

8 advisory commission to serve as kind of a mitigation 

9 strategy for that. 

10 So I spent six years working that. I'm no 

11 longer associated with them. 

12 The scale of that work came - went down so 

13 far they didn't five people on the - on this advisory 

14 committee but they retain two very fine people, Bill - 

15 Jim Asselstine and Dick Meserve, you know, who were both 

16 Commissioners here. 

17 So they still have it in place but they 

18 didn't need me. So I have no - I'm not conflicted in 

19 any sense with the testimony that I'd like to offer 

20 today, and I really am coming today more to speak of my 

21 experience at the Defense Department. 

22 For 30 years the Department of Defense has 

23 had to deal with this question. We depend on foreign 

24 sources. We have foreign supply chains for some of our 

25 most sensitive things. 

26 Some of our most sophisticated weapons 
 7 

1 systems depend on foreign sourcing and so we have a 

2 process. Stan runs this so he's really the expert here. 

3 We call it FOCI - Foreign Ownership, Control and 

4 Influence, not domination. 

5 But so we had to work on this in many, many, 

6 many ways, designing not only for mitigation procedures 

7 for very sophisticated hardware but also for operations 

8 because we operate around the world and we operate 

9 around the world in ways where we have to operate with 

10 other countries. 

11 So we have - we have had to work out 

12 sophisticated ways to protect our, you know, national 

13 security. And when I look at the way which we were just 

14 simply looking at ownership of a company I thought this 

15 is - this is not good security. It's actually 

16 counterproductive that I'll mention in a minute. 

17 But we need to design more sophisticated 

18 mitigation techniques and that's really what we were 

19 doing on this advisory committee to Constellation 

20 Energy. 

21 You know, how we operated with them, our 

22 rules with them, how we were able to independently 

23 investigate things that came up, we sat in on the safety 

24 committee, et cetera. 

25 So we designed more sophisticated 

26 techniques because we do have an obligation to protect 
 8 

1 crucial things. I don't personally think there's a 

2 great national security risk letting a foreign company 

3 own a power generating plant in America, personally. 

4 But we can find techniques for it but they 

5 need to be focused techniques. The second point I would 

6 make is that, you know, America is a declining nuclear 

7 power. 

8 We are losing our edge in nuclear power. 

9 We now - it's now a global enterprise and we are 

10 completely dependent on cooperation with other 

11 countries - entities in other countries. 

12 You can't build a nuclear reactor in this 

13 country without depending on foreign supplying - 

14 foreigners supplying key components. So we have to 

15 have - America has to have foreign participation in 

16 nuclear energy and in all of the instances I know of 

17 that's actually contributing to strengthening our 

18 program here. 

19 It's not weakening anything. It's 

20 actually strengthening it. So we have to be careful not 

21 to take and put a block in the way that's going to make 

22 it harder for America to remain a competent and leading 

23 nuclear power. 

24 This leads to the third point and I - this 

25 goes back to when President Eisenhower gave that very 

26 famous Atoms for Peace speech. We knew the great 
 9 

1 promise of nuclear power as a commercial energy source. 

2 We also knew that it was the primary vector by which you 

3 have weapons - nuclear weapons. 

4 The foundation of every weapons program is 

5 material that's developed in a - usually in a commercial 

6 process. You know, uranium in a natural concentration 

7 is at 1000th of a percent. 

8 To get it to 4 to 5 percent for a commercial 

9 reactor you are at the 95-yard goal to get a nuclear 

10 weapon because you only have to go from 5 percent to 90 

11 percent enrichment. 

12 You're at the 95-yard line. So we have to 

13 have strong regulatory procedures around commercial 

14 energy and the Nonproliferation Act does that. 

15 It's actually - commercial energy is the 

16 source of our ability to know that we are protecting 

17 ourselves from proliferation and we are the global 

18 standard now, and I would say the NRC is the global 

19 standard in terms of regulation - safety and regulation. 

20 It is the global standard. But if you 

21 adopt - forgive me for saying it - dumb FOCD rules you're 

22 going to alienate the very moral authority that you have 

23 around the world. 

24 So I'd ask you, this is a very important 

25 thing for us to get right. We have to get - we have to 

26 have good security. I'm all for it. I'm not trying to 
 10 

1 weaken anything. 

2 It has to be smart security and it has to 

3 be security that strengthens us a global leader. Thank 

4 you. 

5 CHAIRMAN BURNS: Thank you. Mr. Sims? 

6 MR. SIMS: Thank you, Commission, and I 

7 also want to join the - in saying congratulations, 

8 Chairman Burns. 

9 CHAIRMAN BURNS: Thank you. 

10 MR. SIMS: And, you know, as Dr. Hamre 

11 said, I've not addressed the Commission before and I try 

12 to stay off the Hill. At the end of the day, I'm just 

13 an operator. But I have testified on the Hill before 

14 and, as Dr. Hamre said, this is a little bit different. 

15 But I do thank you for the opportunity to 

16 come and at least help you think through this challenge 

17 and hopefully what I have to say here today will help 

18 you all work your way through it. 

19 It is important. Dr. Hamre said a lot of 

20 what I would echo about what - foreign investment and 

21 foreign involvement in our national security apparatus. 

22 It's very important. 

23 Other foreign countries and companies do 

24 have technologies which we so desperately need in our 

25 national defense organization. I've been doing this 

26 now. This will be my 36th year in the Department of 
 11 

1 Defense both in uniform and now as a civilian and so I 

2 consider myself, at the end of the day, an operator. 

3 So I'll explain a little bit about how we 

4 in the Defense Security Service, DSS, we do this, and 

5 I apologize if I repeat some of this stuff in the 

6 statement but I think it bears saying. 

7 Again, as Dr. Hamre said, we call this FOCI 

8 - influence as opposed to dominance - but the terms are 

9 absolutely the same. I would like to take a moment. 

10 I brought two of my key individuals in my 

11 organization with me today - Ms. Lynda Mallow, who is 

12 actually my Acting Director for Policy and Programs, but 

13 in her day job she runs what we call our FOCI analytic 

14 division, which is pretty important to this thing, and 

15 then Nicoletta Giordani, colleague of hers, and she runs 

16 our FOCI operations division. 

17 Now, the two of them work together every day 

18 to mitigate this risk, we so call it, from our foreign 

19 companies, if you will - an analytical shop that 

20 actually does most of the analysis and then our FOCI 

21 operations branch which actually put together 

22 mitigation agreements, and together they work together 

23 every day to make sure that we are doing - taking those 

24 more sophisticated ways to look at this - what we call 

25 the risk. 

26 At the end of the day, DSS, we consider 
 12 

1 ourselves a risk management organization. That's what 

2 we do, at the end of the day. 

3 Now, just for a little bit of background, 

4 DSS - Defense Security Service - we do this business on 

5 behalf of the Department of Defense and 27 other federal 

6 - executive federal agencies and soon to be 28. 

7 So while we are a DoD organization, we 

8 perform a national mission, and you all know - are 

9 probably aware that the National Industrial Security 

10 Program, Executive Order 12829, established the program 

11 and it assigned the Secretary of Defense as the 

12 executive agent to execute the program. 

13 And so DSS - that's where our mission is 

14 derived from. We're the organization that actually 

15 execute the mission on a day-to-day basis for all of the 

16 DoD components in those other 27 federal agencies and 

17 we take that very seriously because we know we're 

18 managing risk for those companies. 

19 Now, the National Industrial Security 

20 Program operating manual, that's the guideline that we 

21 use that tells us what it is - how we should look at FOCI, 

22 or Foreign Ownership, Control and Influence. 

23 And then what we do is it gives us some what 

24 we call factors, if you will, to consider, and if I will, 

25 there are seven specific FOCI factors we consider and 

26 then there's one general, and what I would like to do 
 13 

1 is say that while there are seven or eight total, if you 

2 will, we don't take any one single FOCI factor and make 

3 it absolute. 

4 We evaluate them in the aggregate because 

5 we think that's important. If we look at just one 

6 single factor we believe we could fall in the trap of 

7 locking out, like Dr. Hamre said, those companies that 

8 could be very valuable to our national security. 

9 But we look at them in the aggregate, and 

10 then there's one general FOCI factor which I'll talk to 

11 in a little bit. But let me just - let me just, for the 

12 purpose of the audience here, those factors - each of 

13 those factors they talk to the company, the foreign 

14 interests and then the government of the foreign 

15 interests. 

16 So that's where they're trying to focus on. 

17 So what are they? Number one, the record of enforcement 

18 and our engagement in unauthorized technology transfer. 

19 So we look at that. 

20 Number two - the type and sensitivity of the 

21 information that the company will access. Number three 

22 - the source, nature and extent of FOCI - how big is it. 

23 Number four - the record of compliance with 

24 the pertinent U.S. laws, regulations and contracts. So 

25 your past history does matter in this case. 

26 Five - the nature of any relevant bilateral 
 14 

1 and multilateral security and information exchange 

2 agreements that that foreign interest may have with the 

3 U.S. As you all know, we have a lot of companies that 

4 we share some of our most sensitive national security 

5 information with. So would it be proper for us to lock 

6 those type of foreign interests out of our national 

7 security apparatus? I would think not. 

8 Number six - ownership in whole or in part 

9 by the foreign government, and I think that's one that's 

10 particularly interesting to the Commission here. 

11 And number seven, the record of economic 

12 and government espionage against the U.S. interests, 

13 and then the one general factor is we get to consider 

14 any information that is indicative of or that would 

15 demonstrate some type of unduly influence - undue 

16 influence on that U.S. national interest. 

17 So if one of those other seven don't apply, 

18 we get to look at any other factors that we deem be 

19 pertinent to the interests of national security. So 

20 it's pretty broad. We have broad responsibilities in 

21 this case and we take it very seriously. 

22 But the point is we don't take any one 

23 single, I guess, factor and then make a determination 

24 on whether we should allow them in our national security 

25 apparatus. 

26 I will highlight the one - I guess, the 
 15 

1 record of economic and government espionage. See, DSS 

2 we - each year we produce a document called Targeting 

3 U.S. Technologies, a trend analysis of clear industry 

4 reporting, and basically this - we take this information 

5 that comes from our cleared companies. 

6 They report suspicious stuff to us and then 

7 we combine that with the other information source that 

8 we have available and a lot of it is from our 

9 intelligence databases and we combine that. 

10 And so we think we have a lot of expertise 

11 about economic espionage as far as foreign interests. 

12 So we take that and we consider that in our factors. 

13 The other thing I will tell you is that we 

14 have standard, I guess, templates, if you will, with 

15 regard to how do you mitigate depending on how much 

16 foreign interests or control or influence there is in 

17 there. 

18 We have five types of mitigation plans that 

19 we put in place and they range anywhere from a simple 

20 board resolution with very minimal ownership and where 

21 the company really can't - doesn't have the power to 

22 elect board members, if you will, and it goes all the 

23 way up to what we call a voting trust where the company, 

24 if they want to do business in a national security 

25 structure here in the U.S., they actually have to turn 

26 over their voting right or their title to that company 
 16 

1 to U.S. trustees. 

2 Now, we don't dictate those, but the one 

3 just below that, proxies, we do quite a number of those 

4 where they actually do turn - they give their voting 

5 rights to a proxy holder and then it can't have any real 

6 involvement in running the company. The company is 

7 really an independent organization. 

8 The foreign interests may take the profits 

9 or the losses but they certainly don't get involved in 

10 the operation of the company. So there are a number of 

11 tools that we have available to us and it's very 

12 sophisticated. 

13 And so in the time I have left I will tell 

14 you I mentioned that our FOCI operations in our FOCI 

15 analytic division we have a very rigorous process by 

16 which we analyze the FOCI. 

17 And they're not constant. They change - 

18 they change with the changing security environment, and 

19 we have databases that we research every day and before 

20 a company is given a facility clearance, which is 

21 essentially a license to do business in the U.S. 

22 national security space we run every one of those 

23 companies through that process and then we establish the 

24 mitigation agreement, figure out what plan it is and 

25 then there's a continuous monitoring effort that goes 

26 on behind there. 
 17 

1 So we make sure that those companies, if any 

2 FOCI changes over time we are aware of. So what I hope 

3 I've given you some sense of is that we are changing. 

4 We understand that you need foreign 

5 interests here. But there is a process and to mitigate 

6 that risk and that's what we do every day. 

7 So I'll end there and say I do appreciate, 

8 again, having the opportunity to help you with this and 

9 I look forward to any questions you have. Thank you. 

10 CHAIRMAN BURNS: Thank you, Mr. Sims. Mr. 

11 Lynn, welcome, and we look forward to your remarks. 

12 MR. LYNN: Thanks. Thanks very much. 

13 Appreciate the opportunity to be here with the 

14 Commission and particularly the opportunity to testify 

15 with some good friends and the distinguished panel that 

16 you've put together. 

17 Let me start with a little background. 

18 I've spent the last three years as the CEO of a mid-sized 

19 U.S. defense company, DRS Technologies, that's owned by 

20 a foreign parent, an Italian conglomerate, 

21 Finmeccanica. 

22 Before that, like John I was Deputy 

23 Secretary of Defense and wrestled with these same issues 

24 from the perspective of a government policy maker. I 

25 worked there with Stan. 

26 So I see my role today is to use those two 
 18 

1 experiences on both sides of the fence, if you will, to 

2 give you some perspective on FOCI in the defense 

3 technology area. 

4 In the defense arena I think you have to 

5 start with the central purpose of FOCI is to prevent the 

6 loss of critical military technologies to a potential 

7 adversary. 

8 That seems like a simple purpose and it is, 

9 and Stan focused on it. You also need to know what the 

10 purpose is not. The purpose is not to prevent foreign 

11 owned or controlled companies from acquiring U.S. 

12 defense companies, it's not to prevent foreign 

13 companies from participating in the U.S. defense market 

14 and it's not intended to give advantage to U.S.-based 

15 defense companies. 

16 Those are not the purposes of FOCI. Now, 

17 it's important to start with those purposes because the 

18 context in which the FOCI statutes and processes and 

19 institutions were initially developed was quite 

20 different than it is today. 

21 It was a Cold War context and there - things 

22 were different on a number of lines. First, the Cold 

23 War itself was bipolar. Our main adversary for almost 

24 five decades was the Soviet Union. 

25 It was very much an us versus them. There 

26 were two camps, and so in terms of protecting technology 
 19 

1 you very much knew who you were trying to prevent from 

2 getting the technology. 

3 Second, the U.S. was the clear leader at 

4 that time in defense technologies such that in fact that 

5 we had - we based our strategies around using our 

6 technology advantages to offset the numerical 

7 advantages that the former Soviet Union had. 

8 Third, most defense technologies at that 

9 time were developed organically - that is, within the 

10 defense industrial complex. And then relatedly, not 

11 only were defense companies heavily U.S. based but their 

12 entire supply chain was heavily U.S. 

13 None of those conditions pertain today. 

14 First, the world is now multipolar. It's not bipolar. 

15 There is many potential but few actual adversaries. 

16 This means we can no longer rely on this 

17 kind of us versus them, this two-camp theory of how do 

18 we protect our technology. It's much blurrier who we 

19 should be protecting technology from and who we should 

20 be sharing with as allies. So it's a much more complex 

21 world. 

22 Second, the origins of defense technology 

23 have shifted substantially in two ways. First, while 

24 the U.S. is still the leader in defense technology, it's 

25 no longer as dominant as it was in the '50s and the '60s. 

26 There are much more foreign sources of critical 
 20 

1 technologies for our military. 

2 And then the second aspect in which that's 

3 changed as well is - I indicated that defense technology 

4 was largely organically developed. That's no longer 

5 the case anymore. 

6 You find much more transfer of commercial 

7 technology into the military sphere than you might of 

8 two, three, four decades ago. Whereas before defense 

9 was really a net exporter of technology - global 

10 positioning systems, the Internet itself came out of 

11 initial defense research. 

12 There's still some of that but the balance 

13 has shifted and now you see much of what we're trying 

14 to do in the defense sphere is to import technologies 

15 from the commercial - 3D printing, nanotechnology, the 

16 broad swath of information technology - and 

17 operationalize it for military purposes. 

18 And then finally, the way things have 

19 changed, like other industries defense has embraced the 

20 concept of a global supply chain. I'm sorry I wasn't 

21 here for John's testimony but I read it. I think he made 

22 the mention of the F-35 example. 

23 That's a very good one. It's a high profile 

24 one. But even if you look at, you know, most of our 

25 weapons systems, most of our defense companies you'll 

26 find that they, like the rest of industries, have a very 
 21 

1 globalized supply chain and they - not only - I guess 

2 there's two aspects of that. 

3 One, they outsource much more of the work 

4 than they used to and they outsource it in a global 

5 fashion. So given these dramatic changes in the 

6 conditions of the defense industry, the FOCI system 

7 itself had to evolve. 

8 Now, interestingly, I know this is an issue 

9 before the Commission, I think, as you think about it. 

10 There was not an enormous amount of legislation involved 

11 in these changes. 

12 The changes have been mostly process 

13 driven, changing the culture of institutions - fewer 

14 legislative changes and, indeed, the DSS, led by Stan, 

15 has really focused on some of the newer strategies that 

16 he discussed within the same legal framework that's 

17 existed. 

18 So and, again, the DSS, I think, has looked 

19 back to the original purpose of FOCI to - which is to 

20 encourage foreign investment in our defense industrial 

21 base while at the same time protecting our classified 

22 programs and other key technologies and has sought to 

23 update the processes to reflect these different 

24 purposes. 

25 I think it has done that in several concrete 

26 ways. First, there's now a greater recognition that a 
 22 

1 foreign parent, like any investor, has an 

2 understandable interest in increased financial 

3 transparency and more efficient business processes. 

4 So the emphasis is now on addressing and 

5 mitigating areas of actual risk while seeking to avoid 

6 placing unnecessary burdens on mitigated companies. 

7 For example, DSS has taken a leadership 

8 role in trying to streamline the administrative 

9 procedures for addressing FOCI company participation in 

10 certain restricted programs. 

11 Second, while this is a general consistency 

12 across the FOCI program, we've seen a more nuanced 

13 approach to tailoring implementation to a company's 

14 risk profile. For example, FOCI companies with a 

15 strong record of compliance and a sophisticated and 

16 active government security committee comprised of 

17 clear, trusted and highly reputable members should and 

18 seemingly do get greater delegated authority. 

19 Finally, DSS has also leveraged its closer 

20 regulatory control over mitigated companies to promote 

21 greater adherence to its broadly applicable security 

22 controls and procedures. 

23 As a result of its greater emphasis on 

24 security, FOCI companies indeed generally perform 

25 better than their U.S. counterparts on DSS' annual 

26 facility audits. 
 23 

1 Similarly, DSS appears to use its close 

2 relationship with FOCI companies to launch important 

3 new initiatives in not directly related but closely 

4 related and increasingly important areas of security 

5 such as cyber security and insider threats. 

6 So let me just conclude by going back to the 

7 beginning. My concluding point here is the FOCI 

8 process is about balance. Its primary purpose is to 

9 prevent the loss of defense technologies to potential 

10 adversaries because that would harm our national 

11 security. 

12 But the loss of foreign investment in our 

13 defense industry or the loss of access to foreign 

14 technologies of supply chains would also harm our 

15 national security. 

16 So the goal of the FOCI system is to balance 

17 between those two imperatives and I think Stan and the 

18 DSS have done an extremely nice job in adapting an older 

19 set of laws and regulations to a newer area while keeping 

20 in mind those two competing purposes. 

21 Thank you. 

22 CHAIRMAN BURNS: Thank you, Mr. Lynn. Mr. 

23 Murphy? 

24 MR. MURPHY: Mr. Chairman, Commissioners, 

25 it's an honor to be here. Thank you for having me. 

26 I was asked to speak today about nuclear 
 24 

1 financing and somehow weave in some concepts of climate 

2 change, and then I asked well, how many minutes do I have 

3 to do that and I was told ten. 

4 We did a course out at Argonne National Lab 

5 for the IAEA this year on financing that was a week long. 

6 So I'm going to try and distill this into a few minutes 

7 and really try and focus on what are the key issues at 

8 it really relates to this and not to try and do a user's 

9 guide on nuclear financing. 

10 But, you know, when you start - you know, 

11 I put in the slides sort of five key points and, you know, 

12 you start with a concept that nuclear financing is sort 

13 of where the rubber hits the road for NPP development. 

14 You can have the best case for nuclear. 

15 You can have a good design. You can have a favorable 

16 regulatory environment. You can go through all those 

17 hoops. But if you don't have the money to build the 

18 plant there is no project. 

19 And so that we've seen in our practice is 

20 sort of the ultimate test for whether nuclear plants can 

21 go forward or not. From a financier's perspective, 

22 financiers want clarity. 

23 They want it to be simple. They're lending 

24 money. They want to make money. They don't like risk 

25 and they like clear bright line rules. 

26 One of the trends that we've seen in NPP 
 25 

1 development internationally has been vendor equity - 

2 that they're asking the vendors, the ones who are 

3 providing the NSSS design to bring money to the project. 

4 Not just debt but also equity to invest in 

5 the project and that has been one of the determining 

6 factors as to how winners and losers are being chosen. 

7 And then, of course, within all this we have 

8 to acknowledge that specific to the United States right 

9 now it's not a favorable environment for developing new 

10 nuclear power plants. 

11 You know, we're looking at shutting down 

12 perfectly good power plants because the economics 

13 aren't working. That needs to be factored in but it 

14 can't overwhelm the conversation. 

15 And then finally, you know, as I was asked 

16 to talk - when we talk about climate change there is a 

17 piece for nuclear in all of this and when we look at some 

18 of the studies that have been done, clearly, nuclear has 

19 a place in it. 

20 It doesn't mean that that's an 

21 anti-renewables position. There's a place for all of 

22 this. But if we want nuclear to have that place we have 

23 to keep building plants. We can't sit still because the 

24 percentages will continue to decline and we get farther 

25 and farther away from our goals. 

26 So when you consider the challenges for 
 26 

1 nuclear financing, and I put a list in the slides, you 

2 know, sort of, again, from a lender or an equity 

3 perspective, why is financing so challenging - what are 

4 the issues that you look at. 

5 And when you then consider the foreign 

6 ownership rules and tie that into financing, it raises 

7 two issues - regulatory oversight, of course, and then 

8 the challenges generally with financing and how the two 

9 might weave together. 

10 The current rules are not clear. There is 

11 not a bright line that says if this the answer is X, if 

12 that the answer is Y. 

13 Well, again, that doesn't make it right or 

14 wrong but from an investor perspective - from a lender 

15 perspective you start getting nervous because now you 

16 say well, what does that mean - how is it going to work 

17 out - am I willing to wade through this process not 

18 knowing how this might turn out. 

19 Because you look - you know, it's very 

20 fact dependent and, you know, from a safety perspective 

21 when you're tasked with a safety responsibility the 

22 easiest answer is to say no, right. If you say no you 

23 haven't taken any risks. 

24 But if now you're having to look at a set 

25 of facts and come up with an answer, moving away from 

26 no becomes more difficult, more risky, more uncertain, 
 27 

1 and from a lender perspective or investor perspective 

2 they realize that. 

3 You know, it's difficult to move away from 

4 the simple case, and you know, as has already been 

5 mentioned in reference to the defense industry, when you 

6 look at the nuclear industry it's an international 

7 industry nowadays. 

8 We can't - as was mentioned already, we 

9 can't build a plant in the United States on our own. We 

10 need foreign participation and we see the cross border 

11 activity in other places of the world. 

12 At the same time, it's understandable why 

13 we struggle with these issues. All investors and all 

14 lenders are not created equal. If the Second People's 

15 Bank of North Korea showed up and said we'd like to 

16 invest in a nuclear project, you might be a little 

17 worried about that. 

18 And, you know, so the facts do matter and 

19 that is understandable. But then you say is the 

20 financier really going to wait around for all this stuff 

21 to get sorted out, figured out, and, again, you sit there 

22 and say but we're not really building a lot of nuclear 

23 plants in the United States right now so why should we 

24 care - you know, is this something we should be doing 

25 - is this a problem. 

26 Are we not building plants because foreign 
 28 

1 investors want to do this - there's this line at the door 

2 that we're saying no and that's why nuclear plants 

3 aren't being built? 

4 I would submit the answer is no. That 

5 doesn't mean that we don't look at the rule and say is 

6 it a problem - could it be better - could it open up new 

7 possibilities down the road even if current market 

8 conditions may not favor nuclear development. 

9 You know, I put a couple of slides in the 

10 presentation. One was on trends in the nuclear sector, 

11 and the only point I put it there was that the point of 

12 all these trends one of the key trends is vendor equity. 

13 I teach for the IAEA. It's one of those 

14 basic training points that say what's going on - what 

15 are the trends. Well, vendor equity is one of those 

16 trends, looking at bringing money into the deal. 

17 You know, when you go to the next slide 

18 about challenges to financing and you say, you know, how 

19 do you make this happen - how do you build the economic 

20 case. You know, if you could go to the next slide, 

21 please. 

22 You know, can the project be financed, and 

23 when you look at it again the believability of the 

24 financial model is key and then you look at the potential 

25 sources. Again, right in that list vendor equity - 

26 having that money come into the deal. 
 29 

1 And so stepping back and saying what are the 

2 overall prevailing themes with the nuclear financing 

3 abroad we're seeing the importance of government 

4 support, the importance of export credit agency 

5 financing, which fortunately we have an institution 

6 here in the United States that does want to support 

7 nuclear, which is great, but it can only do so overseas, 

8 which is U.S. Ex-Im. 

9 But the reputational risk, government to 

10 government deals, bilateral relationships - but it 

11 involves, you know, countries coming together and 

12 working these issues out and then we're seeing emerging 

13 in this conversation conversations about climate 

14 change, conversations about grid stability and all this 

15 stuff is weaving together. 

16 When you look at how projects have been 

17 developed overseas, I put a list together and for the 

18 most part these projects would not be going forward 

19 without foreign equity. 

20 I think the UAE is the exception. They 

21 seem to have a lot of money. But the rest of them are 

22 - everybody is out there looking for money, both debt 

23 and equity, and if - to win bring money into the deal. 

24 So if that's the trend elsewhere on how 

25 these projects are happening then we look at ourselves 

26 and say well, you know, can we do things to make it easier 
 30 

1 to get these projects to market - are we limiting our 

2 options by having more restrictive rules. 

3 And I think that's where we have to consider 

4 this, and what I would also stress is from a financing 

5 perspective everybody likes to focus on the development 

6 and construction period. That is, clearly, the most 

7 difficult period. 

8 At the same time, you have an asset you're 

9 going to - that's going to run for 60, probably 80 years 

10 with the new designs. That provides tons of 

11 opportunities for financing on the back end to 

12 refinance, and refinancing means bringing in new 

13 investors. 

14 You lower your cost of capital. You look 

15 at the life of the plant and say well, I have a high cost 

16 in the beginning, a low cost later - when I level that 

17 out it's a much better story. 

18 If we're limiting our options, it's just 

19 making it that much harder and so, you know, when you 

20 go through all this you say okay, maybe there's not that 

21 line at the door but if we're - if we consider nuclear 

22 to be a viable option for a lot of different things, you 

23 know, climate change being one of - what I'll get to in 

24 a second, do we need to have all the tools available to 

25 us and if we don't we're restricting our options. 

26 Again, doesn't mean that we make a decision 
 31 

1 based on market factors today and saying well, is this 

2 that big a deal. You have to look long term. You have 

3 to look decades and given the asset class, given how long 

4 it takes to develop these and we can't make a policy 

5 based on what's happening at this moment and time and 

6 say well, you know, we just shut down Vermont Yankee. 

7 If we shut down a perfectly good nuclear 

8 plant well, then why are we talking about - worrying 

9 about building new ones. 

10 I mean, you know, but we have to look more 

11 broadly and when we think about climate change you see 

12 that not only have a lot of environmentalists and 

13 biologists now turned and thought differently about the 

14 value of nuclear but we're seeing the WEN, the IAEA, 

15 other groups talking about saying we shouldn't just 

16 build only nuclear but it has to be part of the story. 

17 And if that's relevant for the world it's 

18 relevant for the United States as well as we try and meet 

19 our climate goals. 

20 And as we shut down more and more plants and 

21 don't replace them, we're just making those - we're 

22 creating an asymptotic relationship to the goal. We're 

23 never going to get there. 

24 And so in order for it to be part of the mix 

25 we've got to look and say are we doing everything we can 

26 to facilitate this in a rational way - you know, 
 32 

1 recognizing again there are specific considerations. 

2 So I think we have to always be careful and 

3 say let's not be overwhelmed by the current case in the 

4 United States. 

5 Let's look at what's happening oversees and 

6 see that there are a lot of intelligent people outside 

7 of the United States that are making rational judgments 

8 and saying we can do this. 

9 You know, after my slides had to be 

10 submitted there were some stories about Hinkley Point 

11 where the U.K. government is saying we have a golden 

12 share in this project so that we can have some rights 

13 with regard to national security and we're going to 

14 impose some requirements about the nationality of the 

15 operators and other things. 

16 So we're seeing that it can be done. You 

17 know, the U.K. is more of the extreme to say hey, anybody 

18 can come - we're going to put some restrictions on it 

19 but we're not going to limit you coming through the door. 

20 And so I think there's a balance in there 

21 that we have to consider. We've also seen - you know, 

22 we've heard from the defense side, also within the 

23 nuclear side when you look at 810 licensing, for 

24 example. 

25 All countries are not created equal under 

26 810 licensing. We do draw distinctions. We've gotten 
 33 

1 comfortable with drawing distinctions, not always 

2 perfectly. But there is precedent for doing that. 

3 You know, we can figure out what are those 

4 key issues as we've heard on the defense side about have 

5 the criteria, look at them on a case by case basis but, 

6 you know, see can we facilitate development as opposed 

7 to making it less clear and ambiguous. 

8 And I think that, again, from the lender 

9 perspective - the financier perspective - you're 

10 stepping back and saying do I want to get involved in 

11 this or is it too complicated - is it too hard. 

12 And the more clarity we can have in the 

13 process to achieve some of these goals that I've stated, 

14 you know, I think that's better for the industry and 

15 hopefully for the country as well. Thank you very much. 

16 CHAIRMAN BURNS: Thank you, Mr. Murphy. 

17 Mr. Baker? 

18 MR. BAKER: Thank you, Mr. Chairman. I 

19 thought the most useful thing that I could do for the 

20 Commission would be to talk a little bit about an 

21 alternative way of regulating foreign investment, which 

22 is CFIUS, the Committee on Foreign Investment in the 

23 United States. 

24 That's something I - a process I ran for the 

25 Department of Homeland Security when I was there. I've 

26 written the only - this shows my bad judgment - the only 
 34 

1 attempted popular book that touches on CFIUS and you've 

2 got a chapter in your materials. 

3 But I think it shows that it's possible to 

4 do - to achieve some of the flexibility that you have 

5 heard people talking about today using a slightly 

6 different format, and I'll just talk about how CFIUS 

7 works. 

8 CFIUS presumes largely control when you get 

9 to 10 percent indirect and direct and, obviously, that's 

10 quite different from the OCD rules that the Commission 

11 uses. 

12 The reason it's different and the reason it 

13 can be different is control just brings you into the 

14 regulatory process and doesn't guarantee a particular 

15 outcome. 

16 It doesn't say you're going to be rejected. 

17 In fact, roughly 90 percent of the investments that 

18 result in foreign control of a U.S. company that 

19 triggers CFIUS interests are approved without any 

20 conditions at all. 

21 So but that means a lot of stuff goes in and 

22 then the committee goes through a process in which first 

23 they - they're centrally looking at three things - 

24 what's the threat, what's the vulnerability and what are 

25 the consequences if the threat and vulnerability come 

26 together in a bad way for us. 
 35 

1 To determine the threat, this is a very 

2 focused and quite particular to the company and the 

3 country it comes from analysis that the intelligence 

4 community helps with. 

5 They produce a report saying, often, is 

6 this a company that has helped its foreign government 

7 engage in espionage or steal secrets or violate export 

8 controls and that will then shape the climate of the 

9 further review. 

10 The committee has a choice of saying no to 

11 the transaction. I said about 10 percent - 90 percent 

12 are approved without any action. Probably 1 or 2 

13 percent are rejected. 

14 The remainder go through a process that is 

15 also very flexible that allows the negotiation of what's 

16 called a mitigation agreement. 

17 This is not completely different from the 

18 negation agreements that you all do but the negation 

19 agreements, as I understand them, are really focused on 

20 are you in the control or out of the control and we can 

21 negate your control in these particular ways. 

22 Mitigation agreements are more about 

23 ending the threat or the vulnerability or minimizing the 

24 consequences. So they are far more flexible and focus 

25 not so much on ownership as on what are you worried about 

26 - are you worried that these guys are going to steal 
 36 

1 secrets - are you worried they're going to sabotage the 

2 plant - are you worried they're going to export 

3 technology that they shouldn't export, and you can write 

4 a set of rules that are designed to prevent the thing 

5 that you are most worried about and those mitigation 

6 agreements have evolved quite substantially over 20 

7 years as we've become worried about different things. 

8 And, obviously, there's a whole bunch of 

9 cyber that is built into some of these agreements that 

10 wasn't previously built into agreements 15 years ago. 

11 Greater emphasis - they'll be candid about 

12 worries about Chinese espionage that you didn't see as 

13 often 15, 20 years ago. But probably the most 

14 significant thing, and I've given them the slides, some 

15 lists of typical mitigation terms. 

16 They might be described in some respects as 

17 a light version of what Stan Sims' DSS does. DSS is 

18 about restricting the access of the foreign owner to 

19 information about the operations of the subsidiary by 

20 building in a layer of American management that cuts off 

21 a lot of that communication. 

22 In CFIUS because we can say Stan's got the 

23 DSS part, if this is the defense industry it's much 

24 lighter, we might say we want to have an 

25 American-cleared - American who handles security 

26 matters and who has a special reporting relationship to 
 37 

1 the government. 

2 And so the terms can be very flexible. I 

3 think Paul's right that when you're investing a lot of 

4 money you want a lot of certainty and the way CFIUS has 

5 handled that is by saying you're going to come in for 

6 a process. 

7 We're not telling you in advance how it's 

8 going to come out. We're certainly not going to tell 

9 you how to get out of this process. But once you're in 

10 we will negotiate an agreement with you and that will 

11 give you the certainty that you need. You'll know what 

12 the obligations are and if you don't want to do it you 

13 don't have to invest. 

14 So that's how the process works. I've 

15 thought a little bit and only a little bit about how if 

16 the NRC wanted to move to a process that was more 

17 flexible in that format it would do it and it seems to 

18 me that the FOCD rules are - they're sort of inherently 

19 binary in the statute. You're either in or you're out. 

20 But the inimicality rules offer a good deal 

21 of flexibility and it would not be impossible, it seems 

22 to me, subject to your General Counsel's okay, to build 

23 a structure that looked very much like CFIUS on the 

24 foundation of inimicality. 

25 That is to say, you say yes, you are not 

26 foreign - FOCD as FOCD is defined in 103d but you could 
 38 

1 be inimical and to prevent inimicality we're going to 

2 ask you to give us all sorts of assurances about how your 

3 company is going to run, how much information we're 

4 going to have about the activities of the foreign 

5 investors, et cetera. 

6 That's one possibility. The other 

7 possibility, to be candid, is that you could rely more 

8 heavily on CFIUS. You could say we're approving this 

9 under 103 but you still have to go through the CFIUS 

10 process and we will negotiate a mitigation agreement in 

11 that context. 

12 The good news is that that's a reasonably 

13 clearly established set of rules. The difficulty with 

14 that is you will have a lot of other agencies telling 

15 you how to do your business - the U.S. trade 

16 representative, the Commerce Department, the State 

17 Department. 

18 They will all weigh in and usually to tell 

19 you that you're being too hard on the foreign investor, 

20 and then the Defense Department and DHS will say maybe 

21 you're not being hard enough. 

22 So it may be that you'd be better off from 

23 a control of your process to build a structure, if you 

24 wanted this kind of a structure, straight on top of 

25 inimicality. 

26 And I don't want to suggest that CFIUS is 
 39 

1 a perfect solution. There are many things that are 

2 wrong with CFIUS including the multiplicity of agencies 

3 and also the fact that once you've negotiated an 

4 agreement it tends to stick as it is and it becomes hard 

5 to make changes in it, which means that, you know, you're 

6 stuck with things as they look to you ten years ago. Why 

7 don't I stop there and answer any questions? 

8 CHAIRMAN BURNS: Thank you. Since Mr. 

9 O'Keefe hasn't been able to join us as yet, I think what 

10 we are going to do originally we had scheduled a short 

11 break. I think we're going to skip the break and just 

12 proceed to questions with the panelists that we have 

13 here and I believe I'll start off. 

14 COMMISSIONER SVINICKI: Excuse me, Mr. 

15 Chairman. When Mr. O'Keefe arrives will we just 

16 recognize him in the order of questioning to hear or 

17 should we just have him join for the questions? I guess 

18 it depends on if he makes it. 

19 CHAIRMAN BURNS: Yeah, it depends. Have 

20 we heard - gotten any word as yet? 

21 MS. VIETTI-COOK: No. I mean, we knew he 

22 was going to be running late. That's why he was - 

23 CHAIRMAN BURNS: Yeah. Yeah, and I think 

24 there's some traffic issues as well going on. So, you 

25 know, maybe we'll see what - 

26 COMMISSIONER SVINICKI: I'm fine with 
 40 

1 recognizing him when he arrives. 

2 CHAIRMAN BURNS: Yeah, yeah. When he 

3 comes, yeah. I'll start. I found it interesting, I 

4 think, the comment Mr. Lynn had is that, and this is, 

5 I think, certainly the position the Commission finds 

6 itself, is essentially we're dealing in terms of the 

7 actual statutory or regulatory or, really, statutory 

8 framework probably statutes that go back quite a ways 

9 when I was about one year old, I would say, when the 

10 Atomic Energy Act of 1954 was enacted. 

11 I take it that's essentially what we have 

12 - the circumstance you have in the defense industry and 

13 elsewhere, I take it, correct? Yeah. 

14 How has - has that provided or has that 

15 created any challenges in dealing with these older 

16 statutory frameworks in terms of adapting to modernity, 

17 if you will - adapting to those circumstances we faced 

18 in the 1990s or the 2000s or the teens, and anyone can 

19 address that. 

20 MR. SIMS: I'd like to and then - I'll start 

21 with that because that's kind of my daily life and 

22 dealing with those changes. 

23 If you recall, part of my statement I talked 

24 about the changing security environment and how that has 

25 forced us, really, to change how we look at this 

26 situation. Do we have old laws? You know, the 
 41 

1 Executive Order 12829 was signed in 1992, I think, or 

2 1993. 

3 So it's more than two decades old and, 

4 interestingly enough, right now today we are - at the 

5 National Security Council level we have convened an 

6 interagency group to look at that because the structure 

7 has changed. 

8 The rules of two decades ago are not the 

9 same. There are too many gray areas in the executive 

10 order now. The National Industrial Security Program 

11 operating manual that we operate on is based on a 

12 two-decade-old executive order in which the things that 

13 we're dealing with today don't exist. 

14 For example, cyber - I think you all 

15 mentioned cyber. The word cyber does not even appear 

16 - cyber threat does not appear in the executive order 

17 nor does it appear in today's NISPOM, the operating 

18 manual. 

19 We know that. We've been doing patchwork 

20 - you know, doing conforming changes to that, and now 

21 we're looking at a wholesale relook to try to alleviate 

22 some of those gray areas. 

23 So we have recognized in the Defense 

24 Department, in the national security business is that 

25 the landscape have changed. A colleague of mine in 

26 which I know you all know, Mr. Brett Lambert, about three 
 42 

1 years ago as we were working together when he was on the 

2 AT&L there - Acquisition Technology & Logistics staff 

3 at DoD - he said something to me that made me relook how 

4 we do business, and this was about - I was about a year 

5 into the job and he said Stan, you know, the world we're 

6 in now there's three things that are challenges. 

7 He says, first of all, our defense business 

8 is increasingly more globalized. It is increasingly 

9 more commercialized, and what Secretary Lynn said that 

10 we don't purpose build things for the Defense Department 

11 anymore - we're kind of off the shelf - that's the 

12 commercialization of it. 

13 And then the third one is we are 

14 increasingly - this business is increasingly more 

15 financially complex. Now, when he said those three 

16 things to me my eyes rolled back and I said oh, my 

17 goodness, and I thought - I internalized it and said, 

18 every one of those three things have risk in it and which 

19 I now have to evolve - our agency have to evolve to manage 

20 the risk in those three things - the globalization of 

21 it, the commercialization of our supply chains and then 

22 the financial complexity of that. 

23 And so ever since he said that - we were 

24 doing it but I kind of reinvigorated our energy and our 

25 processes that these two ladies deal with every day. 

26 They have to take a look at that. 
 43 

1 And then - and then Mr. Baker mentioned my 

2 greatest one, risk, and he - we have a risk equation. 

3 I've been doing - managing risk forever and he talked 

4 about it's a function of threat vulnerability, 

5 consequence and value, and in essence that's what we do 

6 every day. 

7 All of my operational directors they manage 

8 that risk in those - in those three areas. So what I 

9 will tell you is that we've got to change our regulations 

10 and in some cases, I would suggest, this country we're 

11 going to have to change some laws because the laws we 

12 wrote back in 1954 just do not apply in some cases in 

13 today's environment. 

14 CHAIRMAN BURNS: Okay. Thank you. I 

15 want to welcome Mr. O'Keefe to the panel. If you're 

16 prepared I'll let you go ahead and make your remarks and 

17 then we'll proceed back to our questioning. Thank you. 

18 MR. O'KEEFE: Thank you very much, Mr. 

19 Chairman. I can't imagine what I could possibly add to 

20 the proceedings and the distinguished panel you've 

21 already assembled and heard from. 

22 And so, you know, batting sweep up here - 

23 you know, it isn't clean up, it's sweep up and it's the 

24 last in the order - there's virtually no way I'm going 

25 to be able to provide any other insight that I'm sure 

26 you've already heard. 
 44 

1 And just having heard Director Sims' 

2 comment here as it pertains to the currency of the 

3 existing statute that is a very profound comment, 

4 particularly coming from a gentleman who is charged with 

5 the responsibility of trying to then figure out how to 

6 enforce that range of challenges in a different 

7 environment. 

8 So I guess I would just quickly add to, you 

9 know, what I've seen as prepared testimony as well as 

10 the commentary that I have heard that the challenges are 

11 twofold of trying to establish anything that resembles 

12 a foreign ownership control influence domination - any 

13 terminology you want to use that would suggest that 

14 there is a different approach there is, first of all, 

15 that there is. 

16 You have to come to the first conclusion 

17 that there is a regulatory requirement that from the 

18 get-go that that be controlled just by the mere 

19 existence of the fact that it is not considered to be 

20 an organic or U.S. or domestic or heritage or any of the 

21 other terms that are used to define U.S. companies and 

22 that that is definitionally bad. That's the first 

23 major determination. 

24 It also implies very implicitly that there 

25 is an absence of trust unless it is under a certain set 

26 of conditions. So if those two, you know, are met in 
 45 

1 the first instance you then determine there must be some 

2 unique regulatory requirement that goes with this. 

3 Then the second major hurdle is to 

4 determine how enforceable could any compliance regimen 

5 be in working through this. In my judgment, in the time 

6 I've spent in industry on the receiving end of the 

7 government's regulatory environment this is about as 

8 good as it gets right now with the Defense Department. 

9 It has never been as good. It has never 

10 been more open, never been more transparent, never been 

11 more understandable in terms of what the requirements 

12 are, the expectations, how they're going to operate. 

13 It's been just as good as it gets. 

14 But it starts with the first proposition 

15 again, which is is it really necessary and that 

16 determination is made by others than those who have to 

17 administer the regulatory environment which industry 

18 must operate to do business with the Defense Department 

19 if you are not a chartered company in the United States. 

20 But to the extent that there is a real 

21 imperative for it it assumes that there is a way that 

22 you can control the technology, you can control the 

23 transfer of it and that there's a necessity to do so, 

24 and that's always a questionable proposition in this 

25 world of globalization that exists today. 

26 The number of pure organic U.S. only do 
 46 

1 business here in the United States and therefore we can 

2 completely control every element of this is such a 

3 minimum number and, more importantly, that environment 

4 almost assures technological obsolescence, which we 

5 have a perfect control over but it is obsolete. 

6 And so therefore, you know, the 

7 opportunities for real innovation, technology sharing, 

8 all that is so limited as to be more difficult to enforce 

9 than any other factor. 

10 So beyond that, again, I would associate 

11 directly with the prepared statements I have seen and 

12 the commentary I think that has been already offered to 

13 suggest that, you know, great care must be established 

14 in order to - or determined to answer those two questions 

15 first. 

16 Is it really a regulatory environment that 

17 it's imperative to do so? Is there some overriding 

18 reason why something needs to be done to make that work, 

19 and number two, what is an enforceable mechanism in 

20 which the consequences will be determined to be 

21 acceptable relative to the outcome of what you're trying 

22 to achieve. 

23 I thank you, Mr. Chairman, members of the 

24 commission, for the opportunity to be here. 

25 CHAIRMAN BURNS: Thanks very much. I'll 

26 go back - I think I have about half my question time left. 
 47 

1 But a couple others - one other question 

2 that I think Mr. Baker mentioned, for example, in the 

3 CFIUS reviews that there's a threshold at least - let's 

4 say a 5 percent or about 5 percent threshold. 

5 One of the issues I think that the 

6 Commission is looking at or one of the issues that's been 

7 raised is are there absolute thresholds, or not absolute 

8 thresholds but absolute percentages or targets at which 

9 one reaches a decision that - for in our terms or the 

10 FOCD can't be met, and I'd appreciate commentary from 

11 any of you with respect to that or how it works and 

12 elsewhere, looking at, as I say, an absolute, I guess, 

13 ceiling is the right word - right word for it. 

14 MR. BAKER: I will say I think in the CFIUS 

15 world when we were asked for - can you give us more 

16 certainty, can you tell us for sure that 9 percent that 

17 we never have to worry about, and I was always very 

18 resistant to that because of my fear of about the 

19 creativity and just astonishing smarts that people like 

20 Paul brought to the table and the ability to restructure 

21 the arrangement so that you had control but you still 

22 met some arbitrary number, and that was always the 

23 worry. 

24 Suppose it was a 9 - you had a 9 percent 

25 ownership interest but a separate contractual ability 

26 to name members of the board or name the CEO. 
 48 

1 At that point you start to say well, yeah, 

2 they met the 10 percent rule but we still actually want 

3 to be able to review this transaction. 

4 DR. HAMRE: Could I speak to this? 

5 CHAIRMAN BURNS: Yes, absolutely. 

6 DR. HAMRE: I think the problem of a single 

7 criteria is that, you know, the threats we face aren't 

8 uniform. So if the Sovereign Wealth Fund of Norway 

9 wants to invest in nuclear power that isn't a big risk. 

10 You know, but if a - you know, a rather new 

11 financial intermediary in a country that isn't well 

12 regulated wants to become an investor I would want more 

13 control about structuring the mitigation for that. 

14 So I would - I know it's easier to say 80 

15 percent or 2 percent or 50 percent or something. But 

16 it's - but the risk isn't granular. I mean, it's very 

17 lumpy. It's very uneven, and we just would do ourselves 

18 a disservice to just make it a rule. 

19 Because we're going to block out good 

20 people and we're not really going to solve the security 

21 problem. So I think you have to look at this in a more 

22 nuanced way. 

23 MR. SIMS: If I could. 

24 CHAIRMAN BURNS: Certainly. 

25 MR. SIMS: We don't - in DSS we don't deal 

26 in absolutes, if you will. We just look at the 
 49 

1 situation and I echo what Dr. Hamre says. You know, we 

2 manage risk and we try to deal mostly with the 

3 unacceptable risk. 

4 That's the - that's the - what we try to 

5 define what is unacceptable to the defense industrial 

6 base or the national industrial base and then try to deal 

7 with that. 

8 We've got our standard type templates of 

9 agreements and they are focused, as I said, based on the 

10 percent of ownership or control and so we tailor each 

11 of the agreements, as Secretary Lynn said, to the 

12 situation. 

13 Now, we do treat foreign government control 

14 of a company differently than we do of the ownership - 

15 or I'm sorry, foreign government owned - if we have a 

16 company that is foreign government owned we look at it 

17 a little bit tougher and there are some strict legal 

18 requirements that we must meet if we're going to allow 

19 them access to classified national security 

20 information. 

21 And so that regiment is pretty steep, but 

22 it still doesn't absolutely shut them out. We can 

23 actually put them in there because we can put mitigation 

24 agreements around if there is a challenge. 

25 But there are some things that we say the 

26 risk is too great to accept that, and I can think of some 
 50 

1 of the issues on the CFIUS where we've said no, you can't 

2 do it. 

3 I'll give you a good example. The State 

4 Department - they produced our foreign - our passports. 

5 I don't think we would let another foreign country that 

6 doesn't have a good relationship with us get into the 

7 business of producing our passports. That's one - an 

8 example. 

9 That may be an absolute no. That risk is 

10 just not - and it doesn't matter what country it is. 

11 Doesn't matter if it was, you know, the U.K. or the 

12 Canadians. 

13 We just don't do that. So if you're 

14 looking for an absolute case - that maybe that's a simple 

15 example but there are very few of those real absolute 

16 cases. 

17 If you hone in on what's the risk and what 

18 are you really concerned about, as Secretary O'Keefe 

19 said, and then hone in on that and then build a 

20 mitigation agreement around that. 

21 DR. HAMRE: Could I just point out? 

22 Secretary O'Keefe and Secretary Lynn both ran 

23 companies that had foreign government ownership and 

24 they had to find strategies - we're working with Stan 

25 - where we could manage that. 

26 So it is very possible to do that. 
 51 

1 CHAIRMAN BURNS: Thank you. Thank you. 

2 Commissioner Svinicki? 

3 COMMISSIONER SVINICKI: Well, thank you 

4 all. Gosh, I knew that we had, based on your experience 

5 base, a really wonderful distinguished panel here but 

6 you've thrown out so many thoughts that I want to react 

7 to. 

8 What I'm going to do is just talk for a bit 

9 and then I'm going to open it for reaction to what I've 

10 talked about. I just have some very broad themes here. 

11 I want to begin by saying some of you do have 

12 some knowledge of our Atomic Energy Act structure. 

13 Chairman Burns was very precise in his opening statement 

14 that we have under the Atomic Energy Act what I consider 

15 to be a really wonderful for the American people double 

16 safety net because we have FOCD and then we have, under 

17 rules of statutory construction, really a separate 

18 finding that we make on inimicality. 

19 But I think that the strength of that 

20 structure - it is antiquated but the strength of it is 

21 that I think it gives us a double backstop because 

22 working in wanting to safeguard American national 

23 security, of course, I think we have a tremendous amount 

24 of flexibility. 

25 Now, broad authorities for government 

26 agencies are beneficial. The one thing, though, that 
 52 

1 they tend not to create is great clarity for applicants 

2 and seekers of licenses and permits. 

3 One of the proposals that our Commission 

4 concretely has in front to it - us right now is our staff 

5 has recommended that we consider looking at the guidance 

6 that we have. 

7 We use what we call a standard review plan 

8 for our experts if they receive an FOCD issue that they 

9 need to review. One of our staff's recommendations to 

10 our Commission is that perhaps we inject more clarity 

11 and we modernize and update that guidance. 

12 But a number of you have offered a caution 

13 that really these things need to be looked at case by 

14 case. As a matter of fact, some of you were just 

15 responding in that vein to Chairman Burns. 

16 So I would be interested to hear if any of 

17 you have thoughts on that kind of sweet spot of providing 

18 clarify for those who are in the business of saying are 

19 projects likely to get permission to go forward but at 

20 the same time having something that is flexible enough 

21 to look at different structures. 

22 Again, under the Atomic Energy Act the one 

23 thing that we interpret to be prohibited is direct 

24 foreign ownership and, of course, 100 percent direct 

25 and, of course, we have historically, going back to the 

26 Atomic Energy Commission, interpreted indirect. The 
 53 

1 statute doesn't say direct or indirect. 

2 It's my understanding that in the defense 

3 - in the mitigation plans there have been successful 

4 mitigations against 100 percent direct foreign 

5 ownership, which is something I'd be interested in 

6 hearing a little bit more about even though, again, our 

7 interpretation that the Atomic Energy Act doesn't 

8 permit that. 

9 How does one, you know, look at enforcement 

10 and implementation of these extremely intrusive 

11 mitigation plans? That's another area that I don't 

12 think, and perhaps DSS has some things to offer on that 

13 topic. 

14 I think the final thing is kind of a soft 

15 point if any of you - and I think many of you would have 

16 experience with this. I don't rival Mr. Sims' 36 years 

17 but I'm coming up on 25 years of working in the system 

18 of being around these national security issues where, 

19 you know, the saying no is kind of the easiest reflex. 

20 People who work in national security tend 

21 to be deeply patriotic. It is a cultural view that we 

22 want to be extremely protective of U.S. national 

23 interests. 

24 Some of you have commented though that the 

25 just say no mentality is not without consequences of its 

26 own, particularly in the modern age. 
 54 

1 But I would be interested if any of you have 

2 had to kind of not just move regulations or guidance but 

3 move kind of organizational culture and forgetting, you 

4 know, people who work in this field do so for a personal 

5 commitment and purpose. 

6 And what are cautions you would offer if we 

7 opened the door of saying let's take our standard review 

8 plans - let's put more clarity and specificity in there? 

9 How does one navigate the issue of a culture 

10 that is kind of prophylactically just closing the door 

11 and putting its arms around it to say no? 

12 So those are a lot of thoughts some of you 

13 have been jotting down so I just open it now if any of 

14 you would like to react to that. And Mr. Sims, I think 

15 a number of them were in your wheelhouse so if you'd like 

16 to start. 

17 MR. SIMS: I don't think anything you said 

18 is outside of our wheelhouse because we deal in that 

19 every day. A couple points about the clarity. 

20 Clarity is important, and I'll look at it 

21 from a standpoint of a lot of what we've had to do in 

22 DSS to encourage foreign investment where we know we 

23 need that technology in the U.S. is that - and I have 

24 personally had to talk to foreign owners of the 

25 companies because they don't have the same clarity about 

26 what am I getting into if I buy this - 
 55 

1 COMMISSIONER SVINICKI: Sometimes you 

2 prohibit them from visiting their own facilities. 

3 Isn't that correct? 

4 MR. SIMS: We do. There are some that - 

5 when you say prohibit we have visitation rules. We have 

6 a lot of rules about if you want to get into the national 

7 industrial security business we do have a lot of rules. 

8 And so we do. We prohibit some of the 

9 accesses that they have and in some cases we prohibit 

10 all of the access they have. But our visitation rules 

11 kind of control a little bit of that. 

12 But back to my point about clarity, I spend 

13 time - my agency and my workforce spend time in training 

14 the foreign owner in what are you getting into - do you 

15 really want to invest in this because there are rules. 

16 Flexibility - as I told you before, we have 

17 a lot of flexibility on how we - how we put in place these 

18 mitigation agreements. We have our standard 

19 templates, if you will, but then we get to inject - 

20 remember that number eight? 

21 Anything in there that we feel that may 

22 impact that influence? Because see, controlling 

23 ownership is pretty easy to determine by your 

24 documentation. That influence thing you really got to 

25 understand. And then the culture - I got to talk about 

26 that and I would say that for the last four years I've 
 56 

1 been in this position the one thing that I started on 

2 day one was changing the culture of my workforce in how 

3 we do our oversight business. 

4 We have a program that we call Partnership 

5 with Industry - Partnership with Industry. It's as 

6 simple as that. We need the industrial base. 

7 It's the engine for our economy. It is the 

8 engine, and we also need the technology that our 

9 industrial base provides to us and the government 

10 doesn't produce national security. Industry does. 

11 And so if you take that mind set, we've got to treat them 

12 as part of our national security team and then we've got 

13 to hold them accountable for safeguarding those things 

14 that have been trusted to them. 

15 These are American companies that just 

16 happen to be bought by foreign interests and there are 

17 some - there are a lot of 100 percent owned companies 

18 in the National Industrial Security program. 

19 There are a lot of them. We just put 

20 mitigation agreements in place to make sure we manage 

21 the risk that we're worried about. 

22 And then what I'll tell you is when you talk 

23 about risk - you say the caution - I would submit to you 

24 that the level of risk that a country or any group is 

25 comfortable with is throttled by understanding - the 

26 understanding of what you're dealing with and that's 
 57 

1 where we come in. 

2 We deal with this every day. We do take the 

3 threat assessments that are provided to us by the 

4 National Intel Council. We do look at the risk 

5 assessments that are done by the Defense Intelligence 

6 Agency. 

7 We are part of the CFIUS committee. We 

8 look at every CFIUS case to see if that merger 

9 acquisition involves national security interests. We 

10 look at every one of them. 

11 About 50 percent of them are the Department 

12 of Defense and about 25 percent of them actually 

13 involves - or maybe it's 15 percent of them actually 

14 involves cleared contractors. Those are already in the 

15 National Industrial Security program. 

16 So I guess we're a little bit more 

17 comfortable with managing risk because we deal with it 

18 every day. We look at it. We have some expertise in it, 

19 and then we collaborate with the interagency and our 

20 intelligence partners. 

21 And by the way, my background in the Army 

22 I was an operational intelligence officer. So I've 

23 been managing risk within the foreign space all of my 

24 life and so this is just a different nuance when you look 

25 at it from a security standpoint on the national basis. 

26 So I don't know if that helped you but - 
 58 

1 COMMISSIONER SVINICKI: No, that is very 

2 helpful. Dr. Hamre, did you also want to comment? 

3 DR. HAMRE: Yes, Commissioner Svinicki. 

4 I'd like to address the last question raised, which was 

5 this culture of no in bureaucracies. That's what 

6 bureaucracies do, you know, I mean, and - 

7 COMMISSIONER SVINICKI: Well, and I 

8 sometimes relate it to my - you know, again, I began as 

9 an entry level engineer in the government and, you know, 

10 the career upside of saying yes, you know, there's not 

11 a lot for you when you sign off on something and the 

12 career potential down sides of saying it at the end of 

13 the day. 

14 So it's a fundamental tension that exists 

15 in permitting and licensing activities is that - but at 

16 the end of the day it can't always be no and so it's 

17 something, I think, everybody struggles with. 

18 DR. HAMRE: Well, that's right, and 

19 honestly we train bureaucrats to keep inside the lines 

20 of legality. I mean, you don't want a bureaucracy 

21 that's, you know - and we're a democracy. 

22 So you don't want a bureaucracy that says 

23 I don't agree with that law - I think that law is probably 

24 not right - I think we're going to do it this way. 

25 So we want bureaucrats to stay firmly 

26 inside - firmly inside legal boundaries. The problem 
 59 

1 is the world is changing all the time and the laws don't 

2 change dynamically. 

3 I personally think every one of our - you 

4 know, CFIUS, the NISPOM stuff, I think it's all in some 

5 ways obsolete but I wouldn't want to go to the Congress 

6 right now because we've got parties that want to kill 

7 the other party by being more paranoid and frightened 

8 about threats than the other guy. 

9 So it will get worse if we were to try to 

10 get cleaner legislation. So the only way you solve it, 

11 and these guys - Bill was the example. Secretary Lynn 

12 was the example. He had a broken DSS. It was - it was 

13 the organization that said no. 

14 They didn't even say no. They just didn't 

15 say anything. You know, they just sat like a lump and 

16 refused to even to respond. So it's what it is. It's 

17 a - 

18 COMMISSIONER SVINICKI: To be clear, Mr. 

19 Sims was not there at the time. 

20 DR. HAMRE: No, he was trying to come in at 

21 that and Bill put him in the job to reform it. It's - 

22 what it is it's leadership. It's people who are 

23 politically accountable to the citizens. You, 

24 Secretaries you're accountable to the citizens. 

25 You have to lead your bureaucracy to think 

26 in new ways, to think about what is the balance, and it's 
 60 

1 not going to come organically out of a bureaucracy. It 

2 didn't in DoD. It's coming from people that say we've 

3 got - the world is different than this and we're going 

4 to lead it to a new path of understanding. 

5 I hate most of the frameworks we have right 

6 now because I don't think they give good security. We 

7 need better security because the world is more 

8 complicated. These simplistic rules that we're 

9 applying are not adequate security. 

10 Like on security clearances - good grief, 

11 we have a process whereas the spy fills out his own form 

12 - his application form and then we - and then we go to 

13 the lowest - 

14 COMMISSIONER SVINICKI: That's a problem, 

15 thankfully, we don't - my colleagues and I on this side 

16 of the table don't have to solve and I'm over my time. 

17 But I really appreciate - I know the culture 

18 piece is a soft piece but without getting the culture 

19 aligned then things don't happen. 

20 So I appreciate your acknowledgment of 

21 that. Thank you. Thank you, Mr. Chairman. 

22 MR. LYNN: Can I just add one point to your 

23 - I agree with John and Stan on the culture. Just on 

24 your clarity point I think there's also an addition you 

25 ought to think about. 

26 You do need clarity and that's very 
 61 

1 important. You also need perceived fairness, 

2 particularly when you're dealing with foreign entities. 

3 One of the challenges in the FOCI regime is from Europe 

4 or Asia or whatever this looks like a rigged game and 

5 that's very, very damaging. 

6 And so I think as you think about clarity 

7 think as well about fairness and to make sure that that 

8 perception of fairness is well understood - that there 

9 are rules, they're followed, we have processes but 

10 they're not designed to keep out investment, keep out 

11 foreign ownership. They're designed to keep - protect 

12 things, keep certain things in. 

13 Because if you don't - if you're not able 

14 to do that the system itself becomes very damaging even 

15 if it's clear. 

16 COMMISSIONER SVINICKI: Thank you. Thank 

17 you again. 

18 CHAIRMAN BURNS: Commissioner Ostendorff. 

19 COMMISSIONER OSTENDORFF: Thank you, 

20 Chairman. Thank you all for being here. I really 

21 think your participation and dialogue is helping to - 

22 sort of as a catalyst for our thinking before we make 

23 a significant decision here going forward. So thank 

24 you for your engagement. 

25 I'm going to make just a couple of very 

26 brief comments and I'm just going to set up a question 
 62 

1 that I want to give everybody a chance to respond to. 

2 I know that Dr. Hamre talked about how 

3 international participation is strengthening the 

4 enterprise in the United States. Dr. Hamre has been 

5 engaged in talking about the synergies and part of the 

6 speeches I’ve heard him give, synergies between the 

7 naval reactors program, DOE's nuclear weapons program, 

8 commercial nuclear technology in the United States, et 

9 cetera, and he's been a key thought leader in that area. 

10 I've heard discussions from Secretary Lynn 

11 associated with what are we trying to protect? Is it 

12 critical defense technologies that might be of use to 

13 an adversary and how does that tee up post-Cold War? 

14 I'm reminded 38 years ago when I reported 

15 as a Rickover ensign to my first submarine to go on 

16 ballistic missile patrol the very first hour we were in 

17 international waters being harassed by Soviet AGIs off 

18 the coast of Spain and then I served on five submarines 

19 after that all attack submarines. 

20 But a lot of the Cold War era defense 

21 messages you're talking about are different today. I 

22 mean, we're certainly not in a bipolar world and as Stan 

23 mentioned the cyber security threat is a key thing. 

24 Mr. Baker mentioned comments along the 

25 lines of what is the threat - what is the vulnerability. 

26 Chairman Burns, in his initial question, referred to the 
 63 

1 1954 Atomic Energy Act Section 103d that deals with 

2 Foreign Ownership Control and Domination and the 

3 prohibitions on inimicality of common defense and 

4 security that recognizes that that was a 60-year-old 

5 statute. So here's the question I ask. 

6 If we were writing the statute - a statute 

7 today or perhaps trying to develop the legislative 

8 history in the Congressional Record, for what problem 

9 are we trying to solve? 

10 What are we trying to fix? What is the 

11 threat? And I'll get to that in just a second with a 

12 question to you. When I got here in 2010 I was struck 

13 by the Vogtle and Summer projects for the AP 1000 relying 

14 upon heavy steel forgings coming from Korea and Japan 

15 - Doosan Heavy Industries of Doosan, Korea, and Japan 

16 Steel Works in Sapporo to provide these major vessels 

17 for commercial nuclear power plants. 

18 I was stunned by that - the fact that we 

19 don't do that in the United States today. Yet, in the 

20 1970s on USS George Bancroft I walked back in the engine 

21 room in the submarine and saw all the GE and Westinghouse 

22 technology. 

23 So with that kind of background, I wanted 

24 to ask this group what - you know, today we're looking 

25 at - what are we concerned about is probably not sharing 

26 the critical technologies because everybody has the 
 64 

1 commercial nuclear technology that wants it, basically, 

2 at one level as far as built programs in India, China, 

3 Russia, Korea and other countries. 

4 Are we concerned about espionage, 

5 sabotage, somebody not properly taking care of a plant 

6 if they're the foreign owner of a U.S. nuclear plant? 

7 I'm trying to help frame what is the 

8 high-level principle that should help inform us as to 

9 how we look at the FOCD issue and inimicality. 

10 What are we concerned about protecting and 

11 what is the threat? So I'll start with Dr. Hamre. 

12 DR. HAMRE: I can only give examples. I 

13 can't reduce it to a principle. But we - because of the 

14 capacity of cyber hacking one of the great worries I have 

15 is opening up the control systems of nuclear power 

16 plants to internet technologies. 

17 Right now they're all - first of all, 

18 they're 30 years old and they're analog and, you know, 

19 they're not wired and they're not connected. 

20 But, you know, the next generation we're 

21 going to have increasing, you know, connection for 

22 efficiency purposes to open cyber systems and the 

23 vulnerability. 

24 So that would be a place I'd want to really 

25 focus on and make sure that we design procedures that 

26 don't let a foreign owner introduce a control system 
 65 

1 that becomes a back door way where you can get access 

2 to the actual operation of a plant. 

3 I'm not worried if - about putting payroll 

4 records, you know, into the cloud. But I certainly 

5 don't want to have the controls to the reactor in the 

6 cloud, as an example. 

7 You guys are looking at small modular 

8 reactors. I'm a big, big proponent. I think we should 

9 do this. I would want to see fire walls because some 

10 of the guys that make - that are proposing SMRs also make 

11 them for the Navy. 

12 There are some design issue that I'd just 

13 - we just have to ensure there's no permeability between 

14 a commercial SMR and what we do for the Navy. 

15 So, I mean, I can think of examples for you. 

16 I do not think there is any risk to have a foreign owner 

17 own part of a power generating plant. 

18 You know, I mean, I've spent six years on 

19 an advisory committee only one time and it was really 

20 a misunderstanding. 

21 I mean, this is a business transaction. 

22 You know, having a foreign entity run an enrichment 

23 facility - I mean, you guys wrestled with that. 

24 You said yes. There's much more risk with 

25 that because you're dealing with enriched material. 

26 So you want to know that there are controls 
 66 

1 around the record keeping - you know, that there can't 

2 be diversion of material, that there can't be enrichment 

3 beyond certain levels. So there - I think you have to 

4 be very focused on those threats, Commissioner. 

5 It's not a single rule but there are 

6 definitely things that we have to design rules to 

7 mitigate and I put them in the nature of cyber. I put 

8 them in the nature of design, especially where it has 

9 military application, and then certainly compliance 

10 procedures that are central to our nonproliferation 

11 regime. 

12 COMMISSIONER OSTENDORFF: Mr. Murphy? 

13 MR. MURPHY: Yeah. I think the facts 

14 matter and maybe that can create clarity. It also can 

15 cut the other way. But, you know, if you state the 

16 things that you're concerned about and then say well, 

17 who you are now starts to matter you can get the clarity. 

18 For example, if we take the case of Calvert 

19 Cliffs 3, EDF was going to build an EPR. We can't say 

20 that the concern about foreign ownership was technology 

21 leaking out of the United States. That would be 

22 ridiculous. 

23 They're already building an EPR in France. 

24 They're EDF. They're the biggest nuclear operator out 

25 there. So, you know, then you start to say, well, what 

26 can I do with that. 
 67 

1 There has to be a different reason why I 

2 don't want them to own the whole thing because when we 

3 look at the rules now there's a presumption that 

4 foreign is bad because we say a foreign cannot control, 

5 right. 

6 It's not just - so there's always a 

7 presumption well, if you own 100 percent and you're a 

8 foreigner that's no. Should we look at that? Should 

9 we say well, why. 

10 I mean, if you have a domestic operator, if 

11 you have an accounts program so the money flows through 

12 then it doesn't get to the equity before the operators 

13 properly, you know, fund it for all its needs and you 

14 have controls on how the funds flow why couldn't you have 

15 a wholly owned foreign plant? 

16 But there's a presumption right now that 

17 that's an absolute no so somebody made a judgment. So 

18 then you say well, how do we now move off of that 

19 continuum and that's where it gets very murky. 

20 But then you have to really look at well, 

21 what are we trying to protect against. If it's a 

22 foreign nuclear technology provider we can't say well, 

23 I'm worried about the technology leaving the country. 

24 That doesn't make sense. If we're saying 

25 well, I'm worried about, you know, them not having 

26 operators - that, you know, they may go home, you know, 
 68 

1 we represented U.S. Ex-Im and KEXIM for the UAE deal, 

2 right. 

3 A key aspect of that is well, it's a Korean 

4 plant - Koreans are coming here - do we really think that 

5 over time the Koreans are going to run this plant 

6 forever. No. You would be foolish to think that. 

7 So what did we look at? Well, what's your 

8 succession plan over time? How are you going to 

9 transition that over time. You know, so there might be 

10 a concern - there might be an answer to that that can 

11 occur maybe not today but over time and you monitor it. 

12 But I think that by articulating what your 

13 concerns are and saying these are the things we look at, 

14 and depending on how you line up institutionally against 

15 this concern that will start giving us more clarity on 

16 the answers. 

17 MR. BAKER: Can I express a little bit of 

18 skepticism about the oh, it's 1954 - how can you expect 

19 it to work? Maybe because I was seven. 

20 The Federal Communications Commission has 

21 a 1934 Communications Act which restricts licensing to 

22 foreign carriers - requires licenses for foreign 

23 carriers, which they have managed to make work, and the 

24 way they do it is similar to CFIUS. 

25 They defer to the national security 

26 agencies of the executive branch on what the risks are 
 69 

1 and what the mitigation terms ought to be and they draft 

2 a whole set of license conditions and they just drop them 

3 into the license and I approve the licenses with those 

4 conditions if they think that that's a plausible 

5 outcome. 

6 And so they have managed to make this work 

7 and I wouldn't be surprised if you could, with a 

8 combination of regulatory and inimicality analysis make 

9 your existing statute work for you. 

10 MR. SIMS: Mr. Commissioner, if I could - 

11 I don't want to give a bunch of examples but I think what 

12 we have done in DSS is that - you asked the question what 

13 is the threat. 

14 We used to ask that too. But I would submit 

15 to you that's really not the optimal question. The 

16 question really is what's the risk - what's the risk. 

17 Not the threat because, as I've said 

18 before, risk is a function of four distinct elements and 

19 that's threat, vulnerability, value and consequence. 

20 And so - and we're so wedded to that 

21 construct of what we do because at the end of the day 

22 we can't prevent risk. We can only manage risk. 

23 And so we have designed our entire 

24 operation and our agency around that risk equation and 

25 I've told - like I've said before, every one of my 

26 directors if you can't tell me that define what you do 
 70 

1 you're either trying to identify what the threat is, 

2 you're either trying to identify and look at the 

3 vulnerabilities, you are analyzing the value of our 

4 technology to our adversaries and then - and the 

5 consequences if they succeed in what they're trying to 

6 do, and if you're not doing one of those four things 

7 you're probably not doing anything to help us. 

8 So whatever you come up with I think you've 

9 got to really look at the risk because in some cases 

10 there's limited and no risk. 

11 Now, quite frankly, if there's no threat 

12 obviously there is no risk. Okay. So everybody 

13 focuses on the threat. 

14 But if you don't put it in some type of risk 

15 equation and then manage those elements of the risk it 

16 helps us prioritize what we're going to look at. You 

17 know, I'm from Arkansas. We say all pigs aren't equal. 

18 So we don't treat all the pigs the same. 

19 And so if we know what the threat is, we 

20 understand the vulnerabilities around it, we've 

21 absolutely got to understand the value and the 

22 consequences of it and that kind of drives everything 

23 else - the heavier the consequences, you know, the more 

24 prioritized it is, et cetera, then we get at it. 

25 So I would submit to you whatever you deal 

26 with if you manage it - profile it around some type of 
 71 

1 risk equation in which that risk equation has been 

2 around for a long time and works, it will probably get 

3 you closer to probably where you think you ought to go 

4 for the future. 

5 COMMISSIONER OSTENDORFF: Chairman, I 

6 think - I'm sorry - I think Mr. O'Keefe in the next time, 

7 please. 

8 MR. O'KEEFE: No, I was just going to 

9 suggest that the focus of your question and as modified 

10 I think appropriately by what Director Sims has 

11 concentrated on is central to the entire effort. 

12 What are you trying to accomplish? What 

13 behavior are you trying to influence? And is it a 

14 positive behavior? Are you trying to deter some 

15 approach? Whatever it is, however you define that 

16 ultimately - the threat, then the risk relative to it 

17 - gives you the answer you're looking for. 

18 But the challenge we're dealing with today 

19 and I think one of the closest analogies I can think of 

20 here in terms of what the scope of the Commission's 

21 review is, of the NRC overall is far more in the lane 

22 of a large scale systems engineering projects 

23 orientation. 

24 Sharp contrast to what Director Sims is 

25 dealing with, which is a wide range of diverse how you 

26 define the threat, how you define the risk. This is a 
 72 

1 little more definable. There's a lane here. 

2 Now, there's a lot of challenges that come 

3 with it, a lot of consequences for getting it wrong, and 

4 there are any number of different issues that have to 

5 be inventoried to make a determination. 

6 But you've got a definable lane and the 

7 closest analogy I can think of was one - at one point 

8 I started on a federal advisory panel that was chaired 

9 by Norm Augustine in which he posed exactly that point. 

10 It was the precursor of what ultimately led 

11 to the administration's export control rules and how 

12 they wanted to modify that and amend it, and it was at 

13 least or two prior to that unveiling of what the 

14 administration's initiative was. 

15 And he posed it exactly the right way - how 

16 do you define what it is we're trying to accomplish here 

17 and the final determination was the thing - the best 

18 categorization is you're trying to mitigate, control or 

19 at least influence the pace of technology transfer of 

20 information, of intellectual property, all that. 

21 And so the group was entitled the Deemed 

22 Export Group by virtue of this nature of the 

23 intellectual property technology transfer, et cetera, 

24 focus which Norm Augustine, at the end of the 

25 conversation, determined that we ought to change the 

26 name of the panel to the Doomed Experts Group, okay. 
 73 

1 He says, there's no way to accomplish the 

2 task short of what, I think, John Hamre laid out in his 

3 comments in the beginning of this - you know, to answer 

4 this question, which was you build higher fences and 

5 walls around fewer and fewer things, once you've 

6 determined that that is the point of greatest 

7 sensitivity. 

8 And, again, you've got a definable lane. 

9 Large-scale systems engineering projects, great - 

10 that's what you're trying to motivate behavior in a 

11 different direction as well as distribution of energy, 

12 et cetera. 

13 There are ways to define what is probably 

14 going to be a long list of things that you would consider 

15 to be extremely sensitive, and then building the highest 

16 walls around those fewest objects as defined as 

17 priorities. 

18 That you really do want to preclude or you 

19 really want to motivate behavior differently is going 

20 to be the most enforceable, as opposed to the incredibly 

21 broad challenge that Director Sims has, which is to 

22 cover the full range - a real challenge. Thank you. 

23 CHAIRMAN BURNS: Thanks. Commissioner 

24 Baran. 

25 COMMISSIONER BARAN: Thank you, Mr. 

26 Chairman. Well, thank you all for being here. This 
 74 

1 has, I think, been a really great conversation and for 

2 us, I think, the back drop of the conversation is the 

3 Atomic Energy Act our guiding statute and the provisions 

4 of that act, which include a prohibition - foreign 

5 ownership control or domination of nuclear reactor 

6 licensees. 

7 And one of the values, I think, of having 

8 you all here is that you know how these issues are dealt 

9 with in other sectors that we're not as familiar, 

10 whether it's defense or aerospace or communications. 

11 And so I'd like to get a better sense of 

12 whether there are comparable constraints, prohibitions 

13 in these other sectors to what we have in the Atomic 

14 Energy Act or whether we are more constrained under our 

15 statute than you all are or have been under the statutes 

16 you've operated under. Can folks talk about that? 

17 MR. BAKER: Why don't I start. I think the 

18 straight out you may not have a foreign company in this 

19 industry is relatively rare and has largely disappeared 

20 in part because of WTO negotiations and the like. 

21 Frankly, given where you've taken 103 

22 already - the OCD rules - saying - well, what it really 

23 regulates is direct foreign ownership of the plant and 

24 if it's indirect ownership - you know, the company sets 

25 up a U.S. subsidiary and the U.S. subsidiary then does 

26 it, it's a different rule - you've already set the stage 
 75 

1 if you decided to - you know, it's silly to have a 

2 straight bar - to say okay, if you set up a U.S. 

3 subsidiary we're going to go straight to inimicality. 

4 Doesn't mean you're going to get approved 

5 but you now are not foreign owned because it's a U.S. 

6 company that we can reach and is subject to our 

7 jurisdiction. That would be, obviously, a big change. 

8 But it seems to me you could justify that under the law, 

9 given your existing precedence. 

10 DR. HAMRE: Could I just speak to the 

11 broader problem I think that you face, which is the 

12 Defense Department and the Treasury and others that have 

13 been wrestling with CFIUS, NISPOM reform and all that, 

14 they live in a political environment where they are 

15 constantly engaging with Congress on an annual basis 

16 over these tough questions. 

17 So the test for them is ostensible - you 

18 know, can they convince members of Congress that this 

19 is sensible what they're trying to do. So they're not 

20 trying to re-legislate to redefine the underlying 

21 statute but they're constantly engaging in a way to say 

22 look, we're wrestling with a problem - how would you do 

23 this - how do you feel. 

24 I think you've had a difficulty because, 

25 first of all, we haven't built so many power plants here 

26 recently and during that void, you know, the industry 
 76 

1 went global. 

2 And you are at the pinnacle of leadership 

3 but you operate in an environment where it's hard for 

4 you to get the confidence you've got political backing 

5 - not partisan backing, not Republican and Democrat - 

6 but political backing that elected officials think 

7 you're doing the right thing. 

8 You haven't had enough banging back and 

9 forth against them. Again, so this is a problem we're 

10 wrestling with. So I think you do have a challenge. I 

11 mean, it's not just the statute. 

12 I think it's partly the way, you know, an 

13 independent regulatory organization functions in our 

14 constitutional democracy. So part of it, I think, has 

15 to be well, like what you're doing here is, you know, 

16 seeking the counsel of how other people have been 

17 wrestling with it, use that as the basis for 

18 conversations with Congress to say we're wrestling with 

19 this - here's how these guys were doing it - here's what 

20 we're struggling with. 

21 Because I think it's really developing a 

22 political consensus that you're mindful of the 

23 challenges, that you're working within the constraints 

24 of the law and you're using - you're doing your 

25 leadership responsibility to interpret to our national 

26 best interest at this point. So I really think - don't 
 77 

1 solve this once and for all through - in an 

2 administrative process with your staff. 

3 I think this is much more of an interactive 

4 process that you as leaders of a regulatory agency have 

5 to have with political authorities and that's the 

6 Congress and the Executive Branch. 

7 You say we're wrestling with this problem 

8 - here's how we think about it - we're taking leads from 

9 other people that have been wrestling with it. 

10 We're going to interpret it in this way now 

11 because we think that's consistent with what you gave 

12 us as a mandate when you wrote the Atomic Energy Act. 

13 Again, I think it's more of a process of what I think 

14 you have to do rather than - because if you were to go 

15 up right now to Congress and say we think we better 

16 revise this legislation because, you know, God and the 

17 angels couldn't help you, you know. I mean, what would 

18 happen in this town. 

19 So lead with - you know, you have the 

20 capacity, I think, to do this. 

21 COMMISSIONER BARAN: Thanks, 

22 MR. MURPHY: You know, when you look at 

23 countries that are start-up nuclear power programs, 

24 we're completely the opposite extreme, obviously. 

25 But when you look at what they're tasked to 

26 do, one of the things is to bring all the stakeholders 
 78 

1 together and have a conversation at the same time - a 

2 lot of what's just been said - and that - so that 

3 everybody's on the same page, that everybody 

4 understands what the goals are. 

5 Personally, I don't think that compromises 

6 regulatory independence. But one of the things they do 

7 they're writing laws. They're writing a national 

8 nuclear law. They're writing their regulatory 

9 structure for the first time, their nuclear liability 

10 - all these things. 

11 And so it's being put together with a blank 

12 sheet of paper. They have to make judgments as to, you 

13 know, how they want to interact with foreigners and 

14 there's an inherent acknowledgment because they're 

15 starting with nothing that they're going to need foreign 

16 participation to achieve their goals. 

17 We're in a very different place. But I 

18 think you can still draw examples from that because one 

19 of the things that has to be factored in that 

20 conversation is engagement with the public and, you 

21 know, as the safety organization - as the regulatory 

22 organization this, I believe, is not something you do 

23 by yourselves because part of this is if you go into a 

24 room, write the perfect regulation that's handed down 

25 from Heaven before you and here it is the next day and 

26 oh, my god, it's perfect - 
 79 

1 COMMISSIONER BARAN: That's exactly how we 

2 do it, too. 

3 MR. MURPHY: I've heard that. But, you 

4 know, if at the same time on the government side - you 

5 know, DOE, Commerce - you know, that there's also some 

6 sort of a push to say this is okay, I think the two have 

7 to go together. 

8 When you look at what the U.K. has done, 

9 which is similar to where we find ourselves, then the 

10 first country, I'm not sitting here saying they've got 

11 it perfect either. 

12 But there was a lot of work done by the 

13 government to talk about the value of nuclear, the need 

14 for, you know, these projects to go forward. I mean, 

15 they've gone to battle with the EU over this. But there 

16 was definitely an engagement in terms of we need nuclear 

17 - oh, by the way, the U.K. nuclear industry has fallen 

18 in on itself - we need foreign participation. 

19 We think it's okay that foreign - it was an 

20 open discussion as opposed to just saying - you know, 

21 the regulator going into a room and just crossing out 

22 a few lines in a regulation, saying nothing to see here 

23 - let's move on. 

24 It was a much broader discussion and I think 

25 that it's great that this discussion is happening here. 

26 But I think it needs to be happening together with other 
 80 

1 institutions in our government because if you guys write 

2 or handed the perfect regulation but there isn't the 

3 dialogue on the other side, you then run the backlash 

4 of somebody coming in and developing the project and 

5 being a hue and cry from whomever because there hasn't 

6 been thought given to all the other things that need to 

7 be done to make it all work - to reach the end goal that 

8 you're trying to achieve. 

9 MR. LYNN: If I could just add one point, 

10 maybe connect your question to Commissioner 

11 Ostendorff's question of principle and kind of the 

12 absoluteness of the statute. 

13 I think when the statute was written you 

14 were worried - and Stan's terminology about three risks 

15 - you were worried about technology leakage, you were 

16 worried about potential accidents and you were worried 

17 about malicious acts, some sort of - 

18 I think you're still worried about those 

19 same three risks but I think the order is reversed. I 

20 think that, you know, as John said you're only really 

21 worried about technology leakage in very specified, you 

22 know, maybe naval nuclear reactors. But the commercial 

23 technology is so much more proliferated than it was in 

24 the '50s. 

25 You know, accidents are always going to be, 

26 you know, a central function but I think the primary risk 
 81 

1 now has become more malicious acts either through cyber 

2 or other. 

3 And so as I think about how you interpret 

4 this statute you ought to think about, you know, that 

5 the order of risks has changed. They're all there but 

6 the emphasis and the order has almost reversed. 

7 COMMISSIONER BARAN: I'm going to push my 

8 luck and ask - probably go over my time - just ask Mr. 

9 Sims a few questions. So when you're doing a FOCI or 

10 FOCI, whatever you call it, determination, am I right 

11 in understanding that you're doing a single analysis 

12 that takes into account all the relevant foreign 

13 ownership and security issues at one time? 

14 MR. SIMS: How do I answer it? First of 

15 all, nothing is single in our world. We do an upfront 

16 assessment as an entry into the program. Before we even 

17 grant a facility clearance we run them through the 

18 numbers, do our analysis, consult with the intelligence 

19 agencies and all that, and so that gives us a snapshot 

20 of time. 

21 And that then tells us how much risk that 

22 we are maybe assuming here. Then, based on that, then 

23 we develop a mitigation plan that focuses on that risk 

24 - for example, how do we want to have this wall. 

25 But maybe there's some technology we 

26 recommend to our companies - hey, look, you don't even 
 82 

1 want this to ever touch the Internet. It needs to be 

2 on a separate system and it's simple as that. 

3 And then once we figure that out then we put 

4 in the implementation plan and then here's the key. We 

5 exercise oversight and then we continuously monitor it. 

6 We continuously monitor through our 

7 routine audits, and those that have the greatest risk 

8 we continually monitor them more routinely. So it's 

9 that - it's that balance so it's not singular and that's 

10 our cycle. I even got a slide here that shows you. 

11 You know, I grew up in the world of the intel 

12 cycle, how it keeps going. Well, we have an oversight 

13 FOCI security cycle that we run through. We even call 

14 it the FOCI life cycle, if you will, and they manage it 

15 and they run it for us. 

16 So it's not singular. It's constant. If 

17 things change we change our procedures to meet whatever 

18 risk that we're concerned about. That's the simplest 

19 way I can - I can say. 

20 COMMISSIONER BARAN: And at the same time, 

21 thinking through what the appropriate mitigation 

22 measures are. Is that - because this gets at this 

23 question of regulatory clarity, I guess - is that 

24 fundamentally a judgment call that you all have to make? 

25 There's no - there's no formula where you 

26 put in the criteria and it spits out the right 
 83 

1 mitigation. 

2 MR. SIMS: It is a judgment call. But I 

3 would submit to you as I said before, a very educated 

4 judgment call based on what we've seen, what we deal 

5 with. 

6 We deal with all the - there's over 10,000 

7 companies in the National Industrial Security Program 

8 with over 13,000 facilities building some of the most 

9 sensitive national security technology that we have in 

10 this country. 

11 Okay. That's a lot, and so that's why we 

12 really do have to have a construct about how we - how 

13 we prioritize things. 

14 Let me say another thing about the law and 

15 what we - what I find here. The Atomic Energy Act it 

16 is the act and I agree, it may not be - might not be 

17 absolutely obsolete. But the lack of agility in any law 

18 or regulation it has a huge operational impact. 

19 What I say is the world is changing, the 

20 environment we're in, and we have to do things. But if 

21 our regulations and our laws are not willing to be agile 

22 enough to change with that operational necessity I think 

23 we are going to find ourselves in, you know, in a pickle, 

24 if you will. 

25 COMMISSIONER BARAN: Thank you. 

26 CHAIRMAN BURNS: Thank you all. Perhaps 
 84 

1 before I ask my Commissioners for any closing comment 

2 are there any closing thoughts any of you would like to 

3 share? 

4 DR. HAMRE: Could I just say one thing, and 

5 that is I do appreciate how hard it is to - you know, 

6 you're at the very pinnacle of leadership on a very 

7 inflexible law and I appreciate the complexity of that 

8 for you. 

9 I do think you need to reinterpret what 

10 national security and what foreign control and 

11 dominance means because it isn't - it is not about 

12 ownership. It's much more complicated. 

13 I think you - you're going to have to take 

14 the lead on it and there's nobody that's going to do it 

15 for you and I think you have to do it with the spirit 

16 that you're trying to strengthen our security, not 

17 weaken it. 

18 I think if you let people define that, you 

19 know, you're going to change the rules on percentage of 

20 ownership and that's seen as you're weakening 

21 something, that's - you're very vulnerable politically. 

22 But if you're strengthening it, if you're 

23 creating a process where you're going to strengthen 

24 national security by your regulatory process in a 

25 predictable way, the country would welcome that and 

26 politically you will survive that process because the 
 85 

1 people on the Hill that's what they want you to do. 

2 They want you to ensure that the - that the 

3 NRC today is providing security that was intended back 

4 in 1954. But it's a new world and you're the only people 

5 who could possibly do that. 

6 So I would encourage you to think about this 

7 as a process. It does probably require some new 

8 expertise that you have in - on the Commission staff. 

9 I think you should draw on expertise that's in the 

10 government that's already there. 

11 But I think the way you have to do this - 

12 because the law is too inflexible and you're just going 

13 to have to lean forward. 

14 Stewart indicated if you look at the 

15 inimicality rules I think you've got an opening for it. 

16 But politically you're going to have to show Americans 

17 that you're actually strengthening our security and I 

18 think if you do that I don't have any doubt that people 

19 will support you. 

20 MR. BAKER: I would add one thought to 

21 that. Many of the rules that we're relying on now we're 

22 relying on because we got rid of tougher, more 

23 U.S.-focused rules like buy America or some of the 

24 communications licensing in international 

25 negotiations. 

26 And, you know, if I know anything about the 
 86 

1 European Union they are giving us nothing for free. You 

2 have to say to them we're thinking about this 

3 liberalization - what are you thinking about for our 

4 industry, and you need to ask industry what are your 

5 opportunities and what rules would you like to see 

6 relaxed abroad. 

7 So you're now talking about something that 

8 is truly reciprocal. It might not be WTO, given the 

9 membership there, but there could be a number of 

10 relatively like-minded countries where you could agree 

11 to relax the formal restrictions while maintaining 

12 clear security rules and that would also help build a 

13 climate for making changes like this. 

14 MR. O'KEEFE: Listening to the 

15 conversation this morning too sparked a thought that I 

16 had not considered prior to coming over. 

17 One of the more interesting case studies 

18 that you may find on the challenge that you're 

19 confronting is one that pertains to the actual 

20 production construction and then ultimate operational 

21 delivery of what is now known as the International Space 

22 Station. 

23 This is 16 nation states - the Russians, the 

24 Canadians, the Japanese, the United States, the 

25 European Space Agency representing all these EU folks 

26 who always want to know what's in it for them - you know, 
 87 

1 the whole combination - every element of this you can 

2 imagine. 

3 And you had to build what turned to be out 

4 a $100 billion project that's the size of three football 

5 fields. It's a laboratory in space that operates 

6 continuously - you know, 365 days a year 24/7, and on 

7 board is always a half a dozen humans who are 

8 representing U.S. astronauts, Russian cosmonauts, 

9 Japanese, European, et cetera. 

10 And all the information, as you might 

11 imagine, that went into designing something that was a 

12 standard production because we can't during the 

13 assembly, you have components, modules, sections that 

14 had to be installed while the platform is moving at 

15 17,500 miles an hour by two people who are up there to 

16 tack it on correctly. 

17 So if you had anything - any engineering 

18 specifications off by even a fraction the project was 

19 lost, you can assume, a lot. So all of this required 

20 a level of coordination, a level of technology transfer 

21 because it was built in lots of places around the globe, 

22 as you might imagine, and all of these individual 

23 partners all insisted that individual pieces be built 

24 where that may be - my component or my module, whatever 

25 - be fabricated here, there or somewhere else. But it 

26 all had to match an exacting specifications to do it and 
 88 

1 then it had to be operational. 

2 This thing is probably - this capability is 

3 probability one invention away from being designated 

4 one of the world's, you know, wonders and it - hopefully 

5 it may end up turning that way. 

6 But as it stands right now they've got to 

7 be able to operate this with a multitude of different 

8 folks who all, as you might imagine, represent nation 

9 states that have a very strong interest in some of the 

10 intelligence collection capabilities, the technical 

11 capabilities that can be drawn from that, the unique 

12 kind of performance characteristics of what comes from 

13 something that's operating 250 miles straight up in that 

14 kind of condition. 

15 There was an awful lot that had to be 

16 overcome to achieve that. That story is what may lead 

17 to this because there was an awful lot of changes to the 

18 restrictions that were in place - the regulatory 

19 framework, the legal limitations, all of it - in order 

20 to actually gain that level of cooperation, and some 

21 folks, I think, in Congress, certainly, sit back and 

22 wonder why they ever agreed to it in the first place 

23 given a couple of the different partners who are now 

24 engaged and given our challenges with them. 

25 That's a different time. But it's one 

26 nonetheless that had to be overcome in order to even make 
 89 

1 this feasible to discuss something of that magnitude - 

2 of that, you know, incredible engineering as well as 

3 scientific expanse, and the currency of the information 

4 that was to be relayed on a regular daily basis between 

5 different nationalities and interests made it an 

6 incredibly difficult challenge. 

7 They were all overcome and ultimately it's 

8 operating today because of that. That's an interesting 

9 case study all by itself. 

10 MR. BAKER: So you can do this as long as 

11 you can sign Sandra Bullock and - 

12 MR. O'KEEFE: Or maybe a little recruiting 

13 mechanism, too. 

14 DR. HAMRE: Start from that and then work 

15 your way through it. 

16 MR. BAKER: And we can start thinking of 

17 which actors will play us, right? 

18 MR. SIMS: Mr. Chairman and Commissioners, 

19 as a final and a comment, and beyond what we've said here 

20 today and what I've said, and in DSS certainly our 

21 processes are not absolutely and they're not perfect. 

22 But I do know that we as a country - we're 

23 stronger if we operate as a national security team and 

24 in that vein what I would say to you that DSS and the 

25 Department of Defense we are - we are prepared. 

26 We can offer you that we will offer you 
 90 

1 whatever procedures we have and work with your staff and 

2 give you and let you look at whatever we got to help you 

3 wrestle with this, and that's the only thing, I guess, 

4 I can leave you with. 

5 We're open. Your staff can link with us. 

6 We'll open our doors and let you see what we do and pick 

7 and choose whatever you need to deal with this - as Dr. 

8 Hamre said, to have that conversation and build 

9 confidence that what you're trying to do is 

10 strengthening our national security. So thank you 

11 again. 

12 CHAIRMAN BURNS: Well, thank you, Mr. 

13 Sims. I appreciate that offer. I think we work as a 

14 government better when we learn from each other and 

15 share. 

16 I think, Commissioner Svinicki, you wanted 

17 to make a last statement? 

18 COMMISSIONER SVINICKI: I did, and I 

19 appreciate that, Mr. Chairman. And again, my thanks to 

20 all of you. In reflecting on this discussion, which has 

21 been extremely beneficial and our questions and answers 

22 back and forth, we do have members of the public in the 

23 audience and we are webcasting. Maybe this is my own 

24 paranoia but I didn't want to leave an impression to 

25 anyone tuning in that as an agency we are toiling 

26 entirely in isolation on the issues of the threat - 
 91 

1 technology leakage, malicious acts and, I would add, 

2 diversion of materials. 

3 Our threat analysts and experts inside the 

4 Nuclear Regulatory Commission, even though we are not 

5 a Title 50, we're not part of the intelligence 

6 community, they're engaging both drawing information 

7 from that community and, I would say, feeding 

8 information we have into that system on a daily basis 

9 and our Commission, reinvigorated after the attacks of 

10 9/11, revived a bit under our most recent former 

11 chairman, Chairman MacFarlane, and continuing under 

12 Chairman Burns in meetings we'll have soon. 

13 As the leadership we meet directly with 

14 counterparts from the intelligence community in closed 

15 session. 

16 So when we ask about the threat, I didn't 

17 want to create an impression that for all enemies 

18 foreign and domestic that we aren't on the job on 

19 security. We are absolutely on the job of that issue 

20 every day. Thank you, Mr. Chairman. 

21 CHAIRMAN BURNS: Well, thank you all. 

22 It's been a rich dialogue I think will help us as we 

23 deliberate on the question of how we best implement our 

24 responsibilities under the Atomic Energy Act. 

25 And, again, I thank you all for being here 

26 and contributing to this dialogue. Thank you and we are 
 92 

1 adjourned. 

2 (Whereupon, the above-entitled matter 

3 concluded at 11:00 a.m.) 

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