```

[Senate Hearing 109-996]
[From the U.S. Government Publishing Office]

                                                        S. Hrg. 109-996

 
                             EXAMINATION OF
                       THE EXON-FLORIO AMENDMENT:
                      FOCUS ON DUBAI PORTS WORLD'S
                           ACQUISITION OF P&O

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

                                HEARING

                               before the

                              COMMITTEE ON
                   BANKING,HOUSING,AND URBAN AFFAIRS
                          UNITED STATES SENATE

                       ONE HUNDRED NINTH CONGRESS

                             SECOND SESSION

                                   ON

 IMPLEMENTATION OF THE EXON-FLORIO AMENDMENT, FOCUSING ON DUBAI PORTS 
WORLD ACQUISITION OF PENINSULAR AND ORIENTAL STEAM NAVIGATION COMPANY, 
THE ROLE OF TERMINAL OPERATORS, AND U.S. COAST GUARD ACTIONS UNDER THE 
              MARITIME TRANSPORTATION SECURITY ACT OF 2002

                               __________

                             MARCH 2, 2006

                               __________

  Printed for the use of the Committee on Banking, Housing, and Urban 
                                Affairs

      Available at: http: //www.access.gpo.gov /congress /senate/
                            senate05sh.html

                                 ______

                    U.S. GOVERNMENT PRINTING OFFICE
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            COMMITTEE ON BANKING, HOUSING, AND URBAN AFFAIRS

                  RICHARD C. SHELBY, Alabama, Chairman

ROBERT F. BENNETT, Utah              PAUL S. SARBANES, Maryland
WAYNE ALLARD, Colorado               CHRISTOPHER J. DODD, Connecticut
MICHAEL B. ENZI, Wyoming             TIM JOHNSON, South Dakota
CHUCK HAGEL, Nebraska                JACK REED, Rhode Island
RICK SANTORUM, Pennsylvania          CHARLES E. SCHUMER, New York
JIM BUNNING, Kentucky                EVAN BAYH, Indiana
MIKE CRAPO, Idaho                    THOMAS R. CARPER, Delaware
JOHN E. SUNUNU, New Hampshire        DEBBIE STABENOW, Michigan
ELIZABETH DOLE, North Carolina       ROBERT MENENDEZ, New Jersey
MEL MARTINEZ, Florida

             Kathleen L. Casey, Staff Director and Counsel

     Steven B. Harris, Democratic Staff Director and Chief Counsel

                         Mark Oesterle, Counsel

                Skip Fischer, Senior Staff Professional

              Stephen R. Kroll, Democratic Special Counsel

   Joseph R. Kolinski, Chief Clerk and Computer Systems Administrator

                       George E. Whittle, Editor

                                  (ii)
?

                            C O N T E N T S

                              ----------                              

                        THURSDAY, MARCH 2, 2006

                                                                   Page

Opening statement of Chairman Shelby.............................     1

Opening statements, comments, or prepared statements of:
    Senator Sarbanes.............................................     3
    Senator Allard...............................................     5
    Senator Reed.................................................     7
    Senator Hagel................................................     7
    Senator Stabenow.............................................     8
    Senator Bunning..............................................    10
    Senator Menendez.............................................    11
    Senator Dole.................................................    13
    Senator Dodd.................................................    14
    Senator Crapo................................................    15
    Senator Schumer..............................................    17
    Senator Martinez.............................................    18
        Prepared statement.......................................    66
    Senator Bayh.................................................    19

                               WITNESSES

Robert M. Kimmitt, Deputy Secretary, U.S. Department of the 
  Treasury.......................................................    21
    Prepared statement...........................................    66
    Response to written questions of:
        Senator Shelby...........................................    78
        Senator Bunning..........................................    81
        Senator Bayh.............................................    83
        Senator Carper...........................................    86
        Senator Santorum.........................................    87
Eric Edelman, Under Secretary for Policy, U.S. Department of 
  Defense........................................................    23
    Prepared statement...........................................    70
    Response to written questions of:
        Seantor Shelby...........................................    89
        Senator Bunning..........................................    89
        Senator Bayh.............................................    91
Stewart Baker, Assistant Secretary for Policy, U.S. Department of 
  Homeland Security..............................................    27
    Prepared statement...........................................    72
    Response to written questions of:
        Senator Shelby...........................................    93
        Senator Bunning..........................................    95
        Senator Bayh.............................................    97
        Senator Carper...........................................    98
        Senator Santorum.........................................   100
Robert Joseph, Under Secretary for Nonproliferation, U.S. 
  Department of State............................................    29
    Response to written questions of Senator Bunning.............   101

                                 (iii)

                             EXAMINATION OF
                       THE EXON-FLORIO AMENDMENT:
                      FOCUS ON DUBAI PORTS WORLD'S
                           ACQUISITION OF P&O

                              ----------                              

                        THURSDAY, MARCH 2, 2006

                                       U.S. Senate,
          Committee on Banking, Housing, and Urban Affairs,
                                                    Washington, DC.

    The Committee met at 10:04 a.m., in room SDG-50, Dirksen 
Senate Office Building, Senator Richard C. Shelby (Chairman of 
the Committee) presiding.

        OPENING STATEMENT OF CHAIRMAN RICHARD C. SHELBY

    Chairman Shelby. The hearing will come to order.
    The Committee has been concerned with the adequacy of the 
CFIUS process for some time. We have long held concerns that 
the process favors open investment policy over legitimate 
national security interests.
    While I strongly support our open investment policy and 
recognize that it is vital to our national economic interest, I 
do not believe it should stand at any cost. Everything in this 
country cannot be for sale. This makes the credibility and 
integrity of the CFIUS process vital if we are to balance these 
interests.
    We all recall the uproar this past summer when the state-
owned Chinese oil company made an offer to buy the American 
firm Unocal. Today, it is Dubai. Tomorrow, it will be another 
investment deal. Again, this reinforces our need to improve 
this process as soon as possible to ensure that national 
security interests are adequately considered and protected and 
that the process is viewed as credible by the Congress and the 
American people.
    I believe that a crucial starting point in this analysis 
should be the requirements of the Byrd Amendment to Exon-
Florio. This provision ostensibly requires a thorough 45-day 
investigation of acquisitions or mergers involving foreign 
state-owned or controlled entities. However, the recent DP 
World case has raised some basic questions as to the 
applicability of this requirement. In fact, during last week's 
briefing of the Armed Services Committee, Deputy Secretary of 
the Treasury Kimmitt responded to Senator Byrd regarding Byrd's 
amendment. Kimmitt said, ``we have a difference of opinion on 
the interpretation of it.''
    That there is no certainty on as fundamental an issue as to 
whether a full 45-day investigation should be triggered by 
certain transactions underscores the serious nature of the 
shortcomings of the CFIUS process as it is presently 
constituted. Beyond questions with respect to the process 
undertaken during a CFIUS review, I also have significant 
concerns regarding the range of the national security 
considerations that are covered.
    To this end, I believe that there must be greater clarity 
in the law regarding the requirement to consider transactions 
for their impact on such things as critical infrastructure 
protection and nonproliferation issues, among others. Where 
internal administrative efforts may take such matters into 
account, I believe we must provide clarity to ensure that such 
issues are formally examined as part of any routine review.
    Shifting focus from general consideration of the CFIUS 
process to the particular consideration as to how it was 
applied in the Dubai Ports transaction only further heightens 
my concerns. I believe that there is a strong consensus that 
from the perspective of Homeland Security, our single greatest 
vulnerability is our ports of entry, especially our maritime 
ports of entry. Thus, when anyone from any foreign country 
seeks to purchase any part of our port operations, careful 
scrutiny should be given to the national security implications 
associated with the transaction.
    While Dubai is an important ally in the war on terror, it 
is nevertheless a country in the Persian Gulf, a region where 
support for al Qaeda is very strong and through which funding 
for terrorist activities, including the attacks of September 
11, flowed. It is also the location where the most dangerous 
nuclear weapon black market smuggling operation in history 
operated.
    Given the considerable number of questions related to 
national security associated with this deal, that is, the 
control of critical infrastructure such as our ports and the 
involvement of a firm from the world's most dangerous region, I 
do not believe it was reviewed in a manner commensurate with 
such risks. Perhaps most troubling, such approval occurred 
notwithstanding the fact that in its review of the transaction, 
the Coast Guard Intelligence Coordination Center stated that, 
``there are many intelligence gaps concerning the potential for 
DPW or P&O assets to support terrorist operations that preclude 
an overall threat assessment of the potential DPW and P&O 
merger. A process that could produce such a result is simply no 
longer acceptable.''
    Finally, I believe this deal reveals that there are 
significant gaps in the existing process regarding transparency 
and Congressional oversight. In what can only be deemed a 
highly ironic twist, it is now known that just 3 days prior to 
this Committee's October 2005 hearing on the CFIUS process, the 
Department of Homeland Security was approached by Dubai Ports 
World with very advanced notification of its intention to 
purchase P&O. Next, the Treasury Department asked the Director 
of National Intelligence to provide an intelligence assessment 
on Dubai Ports World on November 2.
    Finally, on December 16, the companies involved officially 
requested that their pending transaction be reviewed by CFIUS. 
This Committee was not notified, as I believe it should have 
been, upon the formal commencement of a review of the proposed 
transaction.
    Perhaps most troubling, some have claimed that because news 
stories about the transaction appeared as early as October 31 
in the London Financial Times, Congress should have been aware 
of the pending transaction. I am sure that when Deputy 
Secretary Kimmitt stated on the record here at the Banking 
Committee hearing on October 20 that we can certainly have a 
much better line of communication with Congress on the CFIUS 
process that he had something different in mind than the U.S. 
Congress having to rely on the U.S. or foreign press to learn 
of impending deals.
    Flatly stated, the system for Congressional notification is 
fundamentally broken. Both Exon-Florio and the later Byrd 
Amendment were passed in particular contexts in which it was 
very clear that the Legislative Branch of the U.S. Government 
was deeply concerned about the manner in which foreign 
acquisitions of U.S. companies were examined or not examined 
for national security implications.
    The manner in which the Dubai Ports transaction was handled 
only reinforces this Committee's earlier findings that the 
system is seriously flawed and that corrective, legislative 
measures are required. We will hear this morning again from 
Deputy Secretary Robert Kimmitt, the Chairman of the Committee 
on Foreign Investments in the United States and who I might add 
personally assured us would remain on top of the security 
review process last year.
    We will also hear from Mr. Eric Edelman, Under Secretary 
for Policy, Department of Defense; Mr. Stewart Baker, Assistant 
Secretary, Department of Homeland Security; Mr. Robert Joseph, 
he is here, Under Secretary of State for Nonproliferation.
    Senator Sarbanes.

             STATEMENT OF SENATOR PAUL S. SARBANES

    Senator Sarbanes. Thank you very much, Mr. Chairman.
    Under your leadership, this Committee has been concerned 
for some time about the way foreign purchases of U.S. asset 
with national security implications are evaluated under the 
Exon-Florio Amendment to the Defense Production Act. In fact, 2 
years ago, Senator Bayh and I joined with you in asking for a 
GAO report on this subject. GAO delivered that report last 
September, and this Committee held two hearings on the report 
and its implications in October, well before the present 
controversy about Dubai Ports World arose.
    At the time, I thought we were receiving assurances from 
the Administration that the review process through which Exon-
Florio was implemented would be substantially improved. 
Regrettably, that appears not to have happened. The Exon-Florio 
Amendment was enacted in 1988. It authorizes the President to 
review and investigate and ultimately, if necessary, to suspend 
or bar the acquisition by a non-U.S. person of a company doing 
business in the United States if the acquisition could threaten 
U.S. national security.
    Now, Exon-Florio was amended in 1992, most importantly to 
mandate a 45-day investigation if a foreign government-owned 
company acquired a company in the United States whose 
operations relate to the national security. The 1992 Amendment 
also required a report to Congress by the President after the 
conclusion of any Exon-Florio investigation.
    In that report to the Congress, the President was charged 
by the statute to provide a detailed explanation of why it 
either permitted or rejected the acquisition in question. 
Whichever way he decided, he was required to submit an 
explanation to the Congress, and the rationale for that was 
that you could not begin to understand the criteria that were 
being used unless you got an explanation when it was permitted, 
as well as when it was rejected.
    The President's Exon-Florio authority to investigate 
acquisitions has been delegated by the President to the 
Committee on Foreign Investments in the United States, or 
CFIUS. CFIUS is chaired by the Department of the Treasury. It 
includes the Departments of Commerce, Defense, Homeland 
Security, Justice, State, the National Security Council, and 
five other components of the Executive Office of the President: 
The OMB, the CEA, the National Economic Council, the Trade 
Adviser, and the Adviser on Science and Technology.
    This highly critical report by the GAO delivered to this 
Committee last year concluded that the way CFIUS administers 
Exon-Florio may limit the statute's effectiveness. The GAO 
cited several specific concerns: First, that Treasury very 
narrowly defines what constitutes national security; two, that 
CFIUS is reluctant to start 45-day formal investigations 
because they perceive a negative impact on foreign investment 
and a conflict with U.S. open investment policy; third, that 
the resulting limitation of the CFIUS process to a 30-day 
preliminary review period makes careful analysis very difficult 
at best; and fourth, that failure to proceed to an 
investigation means that few Presidential decisions will ever 
be required, thereby eliminating reporting to the Congress and 
making effective Congressional oversight impossible. In fact, 
it contributes markedly to making the whole process more 
opaque, less transparent.
    Now, the purchase by Dubai Ports World, DPW, of Peninsular 
and Oriental Steam Navigation Company, P&O, has focused the 
questions with which we were concerned last year in deeply 
troubling ways. Let me just say, Exon-Florio states that the 
President or the President's designee shall make an 
investigation as described in Subsection A in any instance in 
which an entity controlled by or acting on behalf of a foreign 
government seeks to engage in any merger, acquisition, or 
takeover which could result in control of a person engaged in 
interstate commerce in the United States that could affect the 
national security of the United States.
    How could one reasonably question the fact that the 
Government of Dubai's control of the corporation that is 
operating major terminals in some of the largest ports in the 
United States could affect national security? Port security is 
a major component of our defenses against terrorism. Our ports 
are critical to the national economy and to our conduct of 
international trade, and our ports employ tens of thousands of 
our citizens.
    Still, despite ownership of DPW by the Government of Dubai, 
no 45-day investigation occurred. I co-sponsored the 1992 
Amendment to Exon-Florio that provided for the 45-day 
investigation. Senator Robert Byrd, the sponsor of the 
amendment, said on the floor when the amendment was being 
considered, ``it requires that any acquisition that involves a 
company controlled by a foreign government, as was the attempt 
with Thompson's attempt to buy LTV Corporation's missile 
division, must automatically receive the more detailed 45-day 
investigation.''
    It is not surprising that U.S. citizens throughout the 
country are worried about the Dubai Ports World transaction. 
The transaction would transfer control of substantial terminal 
functions at a number of major East and Gulf Coast ports 
including New York, Newark, Philadelphia, Baltimore, Miami, and 
New Orleans would be transferred to DPW. DPW would acquire 
lesser but still significant functions at ports including 
Portland, Maine; Boston; Davisville, Rhode Island; Norfolk; 
Galveston; Houston; and Corpus Christi.
    And I go back to the point I made earlier. No one has 
denied that port security is a critical component of our 
national security. In fact, that point is constantly being made 
to us. My concern is with the deeply flawed process that 
permits this transaction to go forward before it is analyzed 
sufficiently. The problems identified by the GAO, especially 
the fear of moving to a 45-day investigation, are evident.
    In addition, I am not aware of any effort to discuss this 
transaction with the Chairmen and Ranking Members of relevant 
Congressional committees. And there is little evidence that 
this transaction, in fact, received high level attention within 
the executive branch before CFIUS acted. In fact, Mr. Chairman, 
one of the answers I would like to receive from this panel 
today is who from each of the 12 departments and offices, 
including those in the Executive Office of the President, were 
involved in the decision not to move forward with a 45-day full 
investigation. Who were the decision makers? What level were 
they at? And what did they tell their principles.
    Secretary Kimmitt, as Chairman of CFIUS, I was seeking to 
learn from you when you learned of the transaction and what 
your direct involvement in it was.
    Mr. Chairman, I believe that fundamental reforms in the 
Exon-Florio process are in order, and I look forward to working 
with you to ensure that the problems we are reviewing today do 
not happen again. Thank you very much.
    Chairman Shelby. Thank you.
    Senator Allard.

               STATEMENT OF SENATOR WAYNE ALLARD

    Senator Allard. Thank you, Mr. Chairman.
    I would personally like to thank you for your ongoing 
oversight on the CFIUS process. Like many of my colleagues, I 
have been extremely concerned with what I have been hearing 
regarding the decision to transfer port operations to a company 
owned by a foreign government. I appreciate this opportunity to 
more closely examine not only the ports decision but also to 
use this as a poster child of the shortcomings of the 
underlying CFIUS process.
    I oppose the decision to permit a company owned by the 
Government of Dubai to take over operations of six major U.S. 
ports without additional information and review. My primary 
concern about this plan is national security. While I am a 
strong advocate for economic growth and business opportunities, 
they must not come at the expense of national security.
    Having served on the Armed Services Committee and on the 
Intelligence Committee also at that time under the able 
leadership of Chairman Shelby, I am keenly aware of the primacy 
of national security. The only room for error in the arena of 
national security is to err on the side of caution. We cannot 
be casual about the safety and security of our country.
    The Administration has urged, as they no doubt will today, 
that Dubai Ports World will only conduct terminal operations 
and that the company will have no involvement in port or 
terminal security. In my view, they could not be more wrong. 
Security is an integral part of operations. To draw a parallel, 
ground maintenance crews and crews that clean and prepare 
planes are not directly responsible for airplane security. 
However, it is not difficult to imagine ways in which they 
could have a deleterious effect on our air security. Similarly, 
with terminal operations, operators might not have primary 
responsibility for security; their actions directly affect the 
ability of Customs and the Coast Guard to perform their 
security functions.
    I am pleased that the Administration has finally agreed to 
conduct a review of this matter. However, I am disappointed 
that it took a massive public outcry. Congressional pressure 
and a request from the Dubai Ports World company itself for the 
administration to agree to conduct what unquestionably should 
have been done in the first place.
    I would strongly advise that they consult closely with 
Congress in this process, as we have a critical role to play in 
national security decisions. I would also admonish the 
Administration to ensure that they conduct a thorough, vigorous 
investigation during this 45-day period.
    Key Administration officials have already made comments 
that could lead one to believe that this will be little more 
than a perfunctory investigation or one designed to support a 
predetermined outcome. This is absolutely unacceptable. 
Congress and the American people expect a legitimate, 
objective, substantive investigation, and I continue demanding 
nothing less.
    Only when a thorough, objective investigation has been 
completed, and Congress has had an opportunity to review the 
findings will I even consider allowing this takeover to 
proceed.
    While much of the public attention has been focused 
specifically on the matter of port operations, this one 
situation simply underscores the much broader concern of how we 
even got to this point, and the answer lies in a flawed CFIUS 
process. Again, the ports deal only typifies the lack of 
transparency and Congressional notification in the current 
process. The fact that the Administration fails to acknowledge 
any weakness in this system only makes me more concerned.
    For some time now, Chairman Shelby has indicated his 
concern with the CFIUS process, and I appreciate his 
leadership. I intend to work closely with him and other 
Committee Members to continue examining what forms may be 
necessary for the underlying CFIUS process.
    Without reforms for the flawed structure that supported the 
decision to allow a foreign government to take control without 
even conducting an investigation, we will continue to face 
potential risks to other sectors vital to our national 
security.
    Thank you, Mr. Chairman.
    Chairman Shelby. Senator Reed.

                 STATEMENT OF SENATOR JACK REED

    Senator Reed. Thank you very much, Mr. Chairman, and thank 
you for holding this hearing.
    At the heart of most of what we do is trying to strike a 
balance, and in this case, it is a balance between an open 
investment policy in a world economy and the national security 
of the United States. And the conclusion emerging at this point 
is that balance has not been properly struck as of yet. 
Certainly, that is what I am hearing from my constituents 
throughout Rhode Island, and I think my colleagues are hearing 
the same thing throughout the country.
    Since 1988, the Exon-Florio Amendment has required the 
Administration to conduct these reviews, and in 1992, the Byrd 
Amendment put in place a 45-day investigative process, which 
would lead ultimately to a Presidential decision and to 
Congressional review, at a minimum.
    The process that was taken with respect to Dubai's 
potential acquisition of our ports, or at least potential 
management, I should say, of our ports to be precise, avoids 
this investigation process and, in effect, cuts Congress out 
and the American people for a careful review of this 
transaction, and that has caused great concern not only here 
but also more importantly throughout the country.
    I think we have to go forward, as now is the case with this 
45-day review. I think Congress has to be an active participant 
in this process. We have to look very closely at all of the 
parameters of national security. It is troubling to be revealed 
in the last few days that the Coast Guard essentially did not 
think they had sufficient information to cover all the 
different aspects of national security.
    And as Senator Sarbanes pointed out, the Government 
Accountability Office has also indicated that there appears in 
the process of CFIUS review a narrowing of the terms of 
national security to avoid the type of investigation and 
ultimately the type of transparency that is essential, I 
believe, not only for appropriate decisions but also 
communicating to the public that we are taking care to protect 
the national security of the United States.
    And so, I think it is important that we have this hearing 
today. It is important for this investigation. And I would hope 
that this is not simply a perfunctory analysis with the 
conclusion predetermined, but it is a searching and careful 
review of every aspect of national security that could be 
implicated in the transfer of the management of these ports to 
any other entity.
    Thank you, Mr. Chairman.
    Chairman Shelby. Senator Hagel.

                STATEMENT OF SENATOR CHUCK HAGEL

    Senator Hagel. Mr. Chairman, thank you, and I, too, welcome 
our witnesses.
    As has been noted this morning, for any nation, no interest 
is more important than its national security interests. We are 
dealing here with two specific issues: One, this particular 
case, the P&O acquisition case, and two and maybe more 
importantly, future acquisitions and the process that leads us 
to those future acquisitions. It may well require that we amend 
current law.
    I would also note, Mr. Chairman, that these kinds of issues 
and decisions that are made have consequences and implications 
that always go far beyond national security interests. As also 
noted here this morning, they would include investment issues, 
trade issues, diplomatic, geopolitical, strategic interests of 
our country, which are particularly important at a time when we 
live in a global community underpinned by a global economy. 
Many complicated issues.
    I am particularly pleased, Mr. Chairman, that you have 
brought forward these witnesses, because as we sort through 
this, let us deal with the facts. Let us not deal with the 
politics or the passion or the emotion. It is facts that we 
will require, and through this process of questions, we will 
get the facts in this particular case as well as any 
adjustments that need to be made to the process.
    One last point, the world is obviously dynamic. We 
appreciate that. Laws and regulations constitute the reality of 
the world at the time we pass the law, not unlike what we were 
dealing with in the NSA surveillance case, the 1978 law. 
Technology has bypassed, I believe, that law. We are going to 
have to change that law.
    And here, too, is a living, breathing 21st century example 
of how and why we may have to change this law. But it should be 
very clear to the world and to the people of America that 
first, our security is paramount, but our security does include 
many other dynamics of our future. And that is our economic, 
geopolitical, our relationships, our diplomatic and all that 
secure our economy, our future, and our competitive position in 
the world. I look forward to hearing our witnesses and 
opportunity to ask questions.
    Thank you, Mr. Chairman.
    Chairman Shelby. Thank you.
    Senator Stabenow.

              STATEMENT OF SENATOR DEBBIE STABENOW

    Senator Stabenow. Thank you, Mr. Chairman, for this very 
important hearing. Thank you for our witnesses being here 
today. There is no question that the issue of homeland security 
is something on the minds of all of us and the people we 
represent, and we are here today really to say that this should 
not be negotiated, sidestepped, or ignored in any of the 
processes that have been developed.
    Everyone, port managers, front line workers, former 
administrators, all agree that safety should be our primary 
concern. A former commander in the U.S. Coast Guard and expert 
on maritime security I think put it this way. The September 11, 
2001 attacks on New York and subsequent attacks on Madrid and 
London show that transport systems have become favored targets 
for terrorist organizations, and it is only a matter of time 
before terrorist breach the superficial security measures in 
place to protect the ports, ships, and millions of intermodal 
containers that link global producers to consumers. So that is 
the backdrop that we are having this discussion.
    Given this type of statement, I simply cannot understand 
how the importance of port security was ignored in this 
process. In my opinion, it is just common sense, frankly, that 
American companies accountable to American people should run 
ports, regardless of the country.
    A company that manages a port is responsible for providing 
the day-to-day physical security of that facility, and when you 
think about it, they control access to the port with fencing, 
security cameras, security guards, and screening the truck 
drivers that come and go. They ensure the employees meet 
Federal and State employment laws and ultimately facilitate the 
transport of goods through the port and coordinate between 
Federal and State law enforcement agencies as well as 
commercial interests at the port. Again, given that, I believe 
that our policy in a post-September 11 world specifically 
should be that we should have this done by American companies.
    The port manager has a tremendous amount of power and 
influence over the operations of the port. In my opinion, as I 
said, it does not matter if we are talking about a British 
company or United Arab Emirates. I believe American companies 
accountable to the American people should manage the operations 
of these vital national security interests.
    Mr. Chairman, we have dealt with this issue before. You 
mentioned the Chinese oil company. We also had a situation back 
in the late 1990's with the Port of Long Beach, when they 
reached an agreement to lease a former Navy container terminal 
to a Chinese company, China Ocean Shipping Company. At that 
time, Congress passed legislation that followed 1998, I was in 
the House at the time and supported that, to prohibit the Navy 
from conveying the closed naval station to the Chinese company.
    I think what is even more concerning about the process 
involved in all of this is that people at the highest levels of 
government do not appear to have been involved or aware of what 
was happening as it happened. The entire approach has been 
casual. It appears that the President as well as the Secretary 
of the Treasury, who chairs the Committee on Foreign 
Investments in the United States and the Secretary of Defense, 
who serves on the Committee, learned of the U.S. Government's 
approval of the sale, the same way that we did, through the 
television and other media reports.
    And what we have learned since then is even more 
concerning, I think, that according to an internal document, 
the Coast Guard, which is in charge of reviewing security at 
ports operated by the Dubai Maritime Company, warned the 
Administration it could not rule out that the company's assets 
would not be used for terrorist operations.
    On Tuesday, we also found that the Deputy Homeland Security 
Director, Michael Jackson, admitted that he was not aware of 
the Coast Guard memo before he approved the deal. That is a 
great concern to me.
    But finally, Mr. Chairman, I would simply say I believe 
there is a broader issue here as well as this process, and that 
is what we are doing about port security. Only one in 20 
shipping containers entering the United States is physically 
inspected. When we look at the fact that the September 11 
Commission report gave us a D on port security. To me, the 
broader issue is not just what happens through this process, 
although it is critical.
    But as a Member of the Budget Committee, I am extremely 
concerned that we have not seen the action we need to address 
port security. The Coast Guard estimated after September 11 
that it would cost nearly $5.4 billion to provide the needed 
upgrades at our ports, $5.4 billion. Since then, the 
Administration has requested $46 million, and in this year's 
budget that we are going to be taking up in a few weeks, the 
Administration has proposed eliminating the Port Security Grant 
Program for the second year in a row. I do not understand this.
    Fortunately, we in Congress have at least begun to fund 
this at $700 million to date, but frankly, most of our Nation's 
ports are left without the resources that they need, and I hope 
we are going to address this on a bipartisan basis, because 
this is not, of course, a partisan issue. This is an American 
issue.
    And I would finally just say, as an example, our ports in 
Detroit were told they were not even eligible for the Port 
Security Grants because they were not a high risk port, despite 
the fact that the City of Detroit is the eighth largest 
metropolitan area in the country, and 42 percent of all the 
American-Canadian trade goes through those ports in 
Southeastern Michigan.
    So, Mr. Chairman, people in my State are perplexed about 
what is going on, both the decisionmaking processes, what the 
decisions were, and frankly, the larger question of how are we 
going to up our grade. The D that was given by the September 11 
Commission to me is the broader issue at play, and I hope this 
year we are going to do something about that.
    Thank you, Mr. Chairman.
    Chairman Shelby. Senator Bunning.

                STATEMENT OF SENATOR JIM BUNNING

    Senator Bunning. Thank you, Mr. Chairman, and thank you for 
holding this very timely and important hearing.
    I think it is very important to note that this Committee 
has been active on the issues surrounding the Committee on 
Foreign Investment for a lot longer than just the port deal 
that is the focus of this hearing. Now more than ever, it is 
clear that we need to take a hard look at the Committee on 
Foreign Investment to see what changes need to be made for the 
future.
    But the task at hand today is to take a closer look at the 
Dubai Ports World's acquisition of P&O and its U.S. operations. 
We need to go slow with this process. We should have had the 
45-day review, because it is a foreign government's investment, 
and, to our witnesses, I do not know how we did not get the 45-
day review to start with.
    This decision should be based on facts, not on emotion or 
partisan political calculation. The single most important 
question we need answered is will this deal make the United 
States less safe? If the answer is yes, the deal needs to be 
stopped. If the answer is no, it should probably go through but 
with a lot more thorough investigation of the consequences.
    A business deal like this is a matter of free trade and 
economic efficiency. There are clear economic benefits from the 
transaction, and the UAE is an important trading partner. In 
fact, we have a large trade surplus with them, one of the few 
countries that we do. The UAE is also a partner in the war on 
terror. They have provided critical assistance to our military 
forces, including port facilities for the Navy. They are 
actively participating in our efforts to bring democracy and 
freedom to the Middle East, both in Iraq and Afghanistan. They 
even donated $100 million to help those affected by Hurricane 
Katrina.
    But there are troubling questions that we need to resolve. 
For example, the UAE was one of the three countries to 
recognize the Taliban in Afghanistan prior to September 11. 
There are reports of censorship by their government, and the 
parent company of Dubai Ports World may participate in the Arab 
boycott of Israel. How do we know if the UAE's friendship with 
the United States is sincere or if it is just good for 
business?
    I am glad that the company asked for more detailed review 
of the transaction so that both the Committee on Foreign 
Investment and Congress have time to look into it thoroughly. 
We should stop this deal if there are any real security 
threats. To stop it purely for political reasons would send, I 
believe, the wrong message to peaceful Muslim countries and to 
our allies and trading partners around the world.
    Mr. Chairman, thank you again. I hope this hearing gives us 
a better understanding of the facts of this deal and helps us 
understand what changes we need to make to make the Committee 
on Foreign Investment a better committee.
    Chairman Shelby. Thank you, Senator Bunning.
    Senator Menendez.

              STATEMENT OF SENATOR ROBERT MENENDEZ

    Senator Menendez. Thank you, Mr. Chairman.
    I want to thank you for holding this hearing at a critical 
moment, and I want to associate and thank you for your very 
strong statement at the opening, which I associate myself with 
as well as the Ranking Member's.
    You know, I have for 13 years prior to coming to the U.S. 
Senate in the House of Representatives represented the third 
largest port on the East Coast, the megaport on the East Coast, 
the Port of Elizabeth and Newark, which is part of the Port of 
New York and New Jersey. And I must say that anyone who 
suggests that a terminal operator has nothing to do with part 
of the security equation at a port is living in la-la land. 
That is just simply not a fact.
    And it alarms me that I hear time after time, especially 
that originally the Administration take that view. It just 
simply is not a fact. Now, today is Thursday, March 2, and as 
of today, DP World owns P&O, and as of today, a company 
controlled by a foreign government owns operations at major 
U.S. ports. And while they have made promises not to exercise 
that control, I question whether the way that we have proceeded 
legally blocks them from doing so.
    Now, I certainly support the 45-day investigation, which I 
believe should have been carried out automatically, as required 
by U.S. law. But there is a question that the 45-day review 
does not change the previous decision by the Administration to 
allow this deal to go forward.
    DP World did not withdraw its previous application, nor has 
the Administration declared its decision to clear this deal on 
January 17 to be null and void pending the 45-day 
investigation. In fact, the document signed by the President of 
P&O Ports and the CEO of DP World says, ``DP World and POP&A 
will abide by the outcome of the review, but nothing herein 
shall constitute a waiver of any rights of DP World or of POP&A 
that have arisen from the original notification, which is the 
statement of nonobjection dated January 17.''
    Translated from lawyerspeak, it seems to me that this means 
DP World will agree to the results of the new review as long as 
the previous approval still stands. So as far as I can tell, 
the company has made it clear that they believe that the 
previous CFIUS decision still stands. And I hope the testimony 
will address that right off the bat, because it is a critical 
issue, today being March 2.
    I am also deeply concerned that given these circumstances, 
that the President will not have the authority to stop the deal 
even if the new investigation gives him information that he 
wants to. And that is why I believe that the legislation that 
has been offered in a bipartisan way to give Congress a legal 
right to stop the deal if they do not agree with the ultimate 
rights of the investigation moves forward.
    That right simply does not exist right now, and I hope that 
we would acquire the right prior to the end of the 45-day 
investigation. Now, I know that I have heard some of our 
colleagues talk about politics, but I am concerned when I hear 
that, in essence, the statements that this is a predetermined 
outcome, because I have not heard the President say, well, let 
me see what happens after the 45-day review. He continues to 
say very clearly that he has made his decision; promised to 
veto any legislation that deals with the question of this deal, 
and stated just this Tuesday my position has not changed.
    Now, it seems to me shocking that every day, where there 
are new revelations about potential security risks that we have 
a verdict before the trial has been concluded. In the short 
time that the Congress, the media, and the American people have 
scrutinized this deal, it has been revealed that amongst other 
things, my former colleague in the House of Representatives, 
the Chairman of the Homeland Security Committee, Peter King, 
said that members of CFIUS told him weeks ago that the 
intelligence review was not thorough.
    The Coast Guard did have questions about national security 
issues that they raised during the 30-day review. I know they 
said it was satisfied, but I do not know how you go from large 
intelligence gaps to suddenly so quickly filling those gaps 
within that time period. And of course, DP World's holding 
company and the Government of Dubai actively enforcing the 
boycott of Israel that is contrary to United States law. These 
are just a few of the items that have come out post the 30-day 
review.
    So, I seriously hope that we will look at legislation that 
improves this process that also deals with the question 
particularly on port security. I think it is a vital national 
asset that has a huge security risk to it that simply cannot be 
in the hands of a foreign government. I think Americans 
instinctively understand; common sense, as we like to say in 
New Jersey, that we cannot simply turn over a critical national 
security infrastructure like terminal operations at our ports 
to a foreign government.
    Foreign governments act very differently than foreign 
companies. Foreign governments act in their own national 
interest and in their own national security interests. 
Privately held companies are controlled by stockholders and 
answers to the needs of the market, not the needs of a 
government, and if we have any doubt of that, just look at what 
Hugo Chavez is doing manipulating the Venezuelan oil company 
Citgo here in the United States promoting his own foreign 
policy views here in the United States. And so, I just simply 
hope, Mr. Chairman, that we will exercise our rights and 
acquire a right to have an ultimate say on this deal.
    And finally, you know, the September 11 Commission amongst 
other things told us think outside the box. A simple envelope 
that we send for commerce or that we do to send a note to a 
loved one became a deadly weapon when anthrax was put inside of 
it. An airplane, which we used for leisure or for commerce and 
travel became a weapon of deadly destruction. To not think 
outside the box that a terminal operator is not part of the 
security equation of the ports of the United States is to live 
in a pre-September 11 mentality. That is a mentality we cannot 
risk.
    Thank you, Mr. Chairman.
    Chairman Shelby. Senator Dole.

              STATEMENT OF SENATOR ELIZABETH DOLE

    Senator Dole. Mr. Chairman, I want to thank you very much 
for holding this important hearing on an issue about which many 
Americans, including many of us in Congress, have concerns, and 
I would like to thank the distinguished panelists for joining 
us here today to discuss this topic.
    Protecting our ports is a daunting task. As a former 
Secretary of Transportation who then oversaw the Coast Guard, I 
know first hand the important role that effective port security 
plays in protecting the United States. The U.S. Maritime System 
consists of 300 sea and river ports with over 3,700 cargo and 
passenger terminals. It is estimated that more than 9 million 
marine containers enter U.S. ports each year.
    While the U.S. Coast Guard and the Bureau of Customs and 
Border Protection have the primary responsibility to control 
and administer port security, they cannot bear the sole burden 
of this duty. With the vast number of containers that come 
through our ports each and every day, it is critical that all 
entities that have contact with U.S. ports have our best 
interests in mind.
    Last week, the Senate Armed Services Committee was briefed 
by Administration officials about the process that governs 
foreign acquisitions. As a result of that briefing, I believe 
that we have a better understanding of the events that led to 
the approval of this transaction. For instance, we learned that 
lawyers for the company first approached the Department of the 
Treasury about this transaction in October 2005. We also 
learned that key agencies responsible for protecting our 
homeland were consulted during the process and did not object 
to the approval of this transaction.
    Although these are encouraging signs, several concerns 
remain. For instance, like most Americans, I personally 
disagree with CFIUS' assessment that a more extensive 
investigation into this transaction was not warranted, so I am 
pleased that the Administration has now agreed to undertake a 
45-day second look investigate of the Dubai Ports World 
transaction.
    If this investigation is both thorough and transparent, the 
American people will have confidence in the soundness of 
whatever conclusions are reached about the transaction's impact 
on our national security. During this process, we should review 
Dubai Ports World's record of management in other ports and 
determine whether they have created an environment that helps 
or hinders port security, and we also need assurances about any 
changes that Dubai Ports World might undertake at our ports and 
how such changes may affect port security.
    In addition, I hope that Congress and the Administration 
can open a dialogue about how to create a more transparent 
CFIUS process. In recent days, it has been suggested that the 
process may have significant deficiencies. Unfortunately, some 
have sought to politicize this issue. The goal is not to point 
fingers. The goal is to ensure that the correct result is 
reached in this case and that national security, as always, is 
our foremost priority.
    I am confident, Mr. Chairman, that working with the 
Administration, we will be able to achieve this shared goal.
    Thank you.
    Chairman Shelby. Senator Dodd.

            STATEMENT OF SENATOR CHRISTOPHER J. DODD

    Senator Dodd. Mr. Chairman, thank you, and I am going to 
ask unanimous consent that an opening statement be included in 
the record.
    Chairman Shelby. Without objection.
    Senator Dodd. I want to thank you, Mr. Chairman, at the 
outset for having this hearing. People may wonder, obviously, 
why a Banking Committee has a jurisdiction over this, but the 
Defense Production Act, over which this Committee has 
jurisdiction, is, of course the Committee of responsibility in 
dealing with this organization that has given approval to this 
present contract.
    I note this morning that yet there is another example of 
the Dorchester Company involving, I might point out, located in 
my home State of Connecticut operating some 9 U.S. locations in 
dealing with precision parts and defense contracts from Boeing, 
Honeywell, Pratt Whitney, and GE. So there are other matters, I 
know, coming before this Committee.
    I want to commend you, Mr. Chairman, for having this 
hearing, my colleague from Maryland for his opening statement. 
I want to particularly commend my colleague from New Jersey, 
our newest Member of this Committee. A very direct and 
forthright statement. Your comments are very, very helpful.
    I am just going to take Senator Hagel's point and I think 
Senator Menendez and others' point. We can obviously deal with 
this port issue in front of us. But for this Committee's 
purpose here, this system is broken, I think all of us agree. 
And again, I think you can point to various reasons why that 
has happened over the years. The world has changed.
    And I was just going to ask you, I know you have your 
statements, and I have looked at your statements, but I want 
you to as well consider just a couple of things. Some of us 
here are considering some legislation here that would do four 
or five different things, and I would like you just to make 
note of them quickly for you, and then, if you would comment on 
them at some point here during your presentations.
    First, I am curious why, in fact, we do not add the 
Director of National Intelligence and the Director of the CIA 
to the CFIUS panel. Seems to me you have a provision in there 
that talks about national security. To not have anybody on the 
panel who is directly involved in that responsibility just 
screams out for an answer.
    Second, the creation of a CFIUS subcommittee on 
intelligence, whose matters would represent all 15 intelligence 
agencies of the U.S. Government, which would be chaired by the 
Director of National Intelligence, this would review and 
provide comments on all matters that come to CFIUS, including 
the 30-day review and 45-day investigations.
    Third, to create two vice chairs, filled by the Secretaries 
of Defense and Homeland Security so that economic and 
intelligence security matters have appropriate weight.
    Fourth, mandate that only the CFIUS Chair, with the 
concurrence of the two vice-chairs or the President acting on 
his own authority, can sign off on a 30-day review which 
concludes that a potential deal poses no security threat. In 
addition, it would require that this determination be made in 
writing with appropriate signatures and mandate that the CFIUS 
Chair and Vice Chair who make such a determination be at the 
level of Secretary.
    And fifth, informing the Congress as well, so that there is 
some participation here by the appropriate Committees, with a 
possibility of adding a fast track opportunity for Congress to 
reverse with maybe supermajorities, so that you do not end up 
with these things being thrown out unnecessarily.
    So, I would like you to comment on those points and just 
say I am just curious as to why, with this matter coming up, 
someone did not raise their hand in the room of the 12 members 
of this committee and say should we not call the boss on this 
one? I just am stunned, in a way, given the nature, the times 
we live in, all of the events out there that someone did not 
say in this process should we not call the President of the 
United States and ask him whether or not something like this 
should go forward?
    So for the last week or so since this has all become 
public, I have been anxious to hear an answer to that question, 
and maybe someone can tell me why that did not happen.
    Thank you.
    Chairman Shelby. Senator Crapo.

                STATEMENT OF SENATOR MIKE CRAPO

    Senator Crapo. Thank you very much, Mr. Chairman. I 
appreciate the attention that you have given to this issue both 
before and now during the current issue that has come up before 
us.
    Frankly, it is hard to understand why the 45-day review and 
the more thorough process was not initiated with regard to this 
transaction from the outset. And then, it is hard to understand 
why, when the issue became one of public concern, there was so 
much resistance to a 45-day review and to taking the time to 
have the extra-thorough scrubbing of this issue that the 
public, my constituents and I think the vast majority of the 
American public are asking for.
    There is no question that port security in this country is 
one of the most critical aspects of our homeland security. We 
have all been discussing that here today, but the fact is that 
regardless of who is in charge of the specific security 
activities at a port, those who actually operate the port and 
are in charge of the movement of the containers and the other 
activities at the port are going to have a critical opportunity 
for either securing the port or making it less secure, and it 
would seem that it is one of the most important things we can 
review, to make sure that those who are operating our ports are 
doing so in a manner that strengthens and improves the United 
States' security.
    It seems to me that we are facing two issues here in the 
Committee today. The first is whether this specific transaction 
was properly reviewed and was properly approved and whether it 
should be allowed to go forward. And I agree with my colleagues 
who have said that if the security of the United States is 
compromised by this transaction, the transaction should be 
stopped.
    But there is also another much larger issue that this 
Committee is facing, and that is how we are going to deal with 
the transactions of this type that we face relating to our 
security in the future, the question of process. I for one 
believe it is very evident that the process needs to be fixed.
    I have just been jotting down a couple of notes as I have 
been listening to my colleagues talk here. A couple of 
questions about our process that I think this Committee, Mr. 
Chairman, needs to address: One, because the CFIUS system 
permits public disclosure only when there has been a rejected 
recommendation, how do we restore public confidence in the fact 
that the accepted recommendations are all properly and 
thoroughly vetted? What changes need to be made to the system 
to permit more public awareness without compromising security 
concerns while, at the same time, not threatening legitimate 
foreign investment in the United States?
    And with regard to the management and the makeup of the 
Committee itself, why do we not have the Director of the CIA on 
the Committee, or now that we have created the position, the 
Director of National Intelligence? Why do we not recognize that 
these decisions require the input of our intelligence community 
and require the involvement of all those at the various levels 
of Government who are tasked with protecting this Nation's 
security?
    I think there are a tremendous number of process questions 
that we need to ask and a tremendous number of specific 
questions about this transaction that need to be answered.
    And once again, Mr. Chairman, I look forward to the 
information that we will receive today in the Committee and in 
working with you and my colleagues in the future to make sure 
that in the end, we in the Congress and the American people can 
have the confidence in the process that we have created to 
address these issues and specifically in the outcome of this 
specific transaction.
    Thank you, Mr. Chairman.
    Chairman Shelby. Senator Schumer.

            STATEMENT OF SENATOR CHARLES E. SCHUMER

    Senator Schumer. Thank you, Mr. Chairman, and I want to 
thank both you and Senator Sarbanes for holding this hearing 
and for your interest in this issue. It is no secret that you, 
Senator Sarbanes, and this Committee have been interested in 
this issue long before Dubai Ports World came onto the scene.
    Now, I believe, Mr. Chairman, that the Dubai Ports World 
takeover has exposed serious problems with the CFIUS process, 
and I am grateful to the efforts of this Committee to look into 
reforming this critical function of Government. I believe that 
CFIUS dropped the ball on this investigation, and by skirting 
around Congressional requirements and loosely interpreting the 
law, the Committee could have left some of our most vital 
assets open to infiltration and attack.
    The agreement by the Bush Administration and DP World was 
good news, but there are still some critical questions that 
need to be answered, and they go to the heart of this deal. The 
investigation must be impartial and thorough. The American 
people and the Congress need to see a report of the 
investigation, and Congress should have a right of disapproval.
    A bipartisan group of legislators, including Members of 
this Committee, have introduced such legislation, and we will 
move such legislation if there is no other way of achieving 
these three goals. And it was good to hear from many of my 
colleagues on the other side of the aisle that if there are 
security concerns, we should block the deal. That is very 
important to know, because the President has already said that 
he is for the deal even before the 45-day investigation is 
completed and we get a report on it.
    Now, today, as Senator Dodd mentioned, the Washington Post 
reported that Dubai International Capital is seeking to take 
over London-based Doncasters Group, which manufactures military 
aircraft and tank engine parts in nine locations throughout the 
United States. In this case, CFIUS decided on Monday to do the 
full 45-day investigation, the very same investigation that the 
Committee decided to skip in DP World's case.
    The new proposed acquisition shows that a thorough review 
of foreign takeovers of U.S. security functions hardly stops at 
Dubai Ports World. And the more we learn about the CFIUS 
process in this investigation, the more questions are raised. 
Why did they do a 45-day review for tank engines in a box but 
not for possible nuclear weapons in a ship's container?
    It has become clear that Dubai Ports World is not a single 
incident. We not only need a thorough review of this new 
proposed takeover, but we also need an examination of the role 
foreign countries, particularly those that have had a past 
nexus with terrorism, play in areas with vital national 
security interests.
    And as we have discussed in this Committee before, the 
CFIUS process is in dire need of reform, and the issues raised 
in the course of this investigation are symptoms of a broken 
system.
    There are several issues I think we need to address as we 
consider changes to the process. As has been mentioned before, 
we need to examine who is on the committee. I believe that 
either an intelligence or homeland security agency should serve 
as co-chair of CFIUS. The Treasury Department is reportedly 
reluctant to initiate investigations, fearing such 
investigations would discourage foreign investment and that the 
United States would look protectionist. But this is the wrong 
approach, particularly in a post-September 11 world. Homeland 
security must come first, not trumped by economic or diplomatic 
considerations.
    Finally, we need to beef up Congressional oversight and 
bring more transparency to this process. To assure Congress is 
fully informed, the President must be required to provide a 
report on all applications that go through the investigation 
phase. CFIUS should then provide an annual report on all 
transactions that occur during the preceding year.
    CFIUS has failed to provide reports required by law every 4 
years which evaluate whether or not a foreign country or 
company is trying to gobble up U.S. companies or critical 
technologies. We have not received a report, this quadrennial 
report, since 1993. If Dubai, China, or any other country is 
trying to acquire strategic technology or assets behind our 
backs, we need to know about it. We need answers to these 
questions, and we need to know them now.
    So, I would like, Mr. Chairman, to respectfully request 
copies of the last three required reports, and if none have 
been completed, I ask Treasury to immediately commence a review 
of foreign investments over the last 14 years and do the 
quadrennial reports that are required by law. CFIUS should give 
this report to Congress and be required to testify before this 
Committee on whether countries or companies are coordinating 
strategies while our eyes are closed.
    Mr. Chairman, I look forward to working with you and 
Ranking Member Sarbanes on these critical issues and pledge my 
full support in the effort to improve the CFIUS process. 
Overall, I believe that the DP World affair has been a sorry 
one and one that could have been avoided if CFIUS had done its 
job and followed the law. Neither Congress nor the American 
people will tolerate such a lackadaisical approach to our 
security in the future.
    Thank you.
    Chairman Shelby. Senator Martinez.

               STATEMENT OF SENATOR MEL MARTINEZ

    Senator Martinez. Mr. Chairman, thank you very much. I 
thank you and the Ranking Member for holding this very timely 
hearing today on an important issue before the American public. 
It is of great concern to us in Florida that Miami is one of 
the ports that is up for the takeover, and I have a fuller 
statement which I would seek----
    Chairman Shelby. It will be made part of the record.
    Senator Martinez. Thank you.
    Chairman Shelby. Without objection.
    Senator Martinez. Having the benefit of hearing from my 
colleagues, I just find interesting what great consensus seems 
to be developing here as to some of the things that need to be 
reviewed. Obviously, the CFIUS process is one that I think 
there is consensus here, and I know the Chair has been 
concerned about this for some time, but it should be reviewed. 
We need to know a little bit more about it. We need to know the 
composition of this commission as to whether it is appropriate 
or not.
    I also look forward to some clarity on the 45-day 
investigation and what, in fact, the prior investigation 
yielded or to what extent there was an investigation or why 
there was not thought to be a need for an investigation. I also 
believe, and I have said from the very beginning of hearing 
about this matter, that we should ask the question whether the 
function that is being done here by DP World is of such 
critical nature and so sensitive to national security as to 
whether or not it should be in foreign hands or not.
    I am not prepared to answer that question until I know the 
facts, and I think that is one of the things that I hope this 
hearing will get to is some of the facts so that we can make 
better judgments about this. Because I think there are 
competing interests here. What is the impact on commerce that 
we might have with a very stringent process? And I also wonder 
what the role of the Congress should be, whether in fact it 
should be a continuing role, or it should be a reporting role.
    And so, all of these things, Mr. Chairman, I think need to 
be also done in the context of our need for diplomacy, our need 
for foreign relations. Obviously, I would agree with the 
Senator from New York that national security is paramount to 
all of this, but we cannot ignore the very important 
relationship that we have with the United Arab Emirates and 
how, and the assistance that they provide to us as we seek 
access to the only seaport that is available to us in the 
Middle East.
    And I think that the context of all of this should be done 
with our national interest in mind, which includes the Homeland 
Security interests of our Nation, but it also includes our 
broader national security interests. All of this can be 
accomplished if we get to the facts, if we find out the 
sensitivity of the work that is being done; if we are not 
driven by emotion. And frankly, I hope that we can continue to 
function on this as we put the paramount interests of our 
Nation first as opposed to any edge that we might pick up here 
on a partisan basis.
    I think it is important here that we provide for the safety 
and security of our ports. The Port of Miami, Mr. Chairman, is 
downtown Miami. It could not be in any more critical or 
sensitive place. So the safety of this port is something that 
we have great concern about, and I hope as we discuss the CFIUS 
process, we will also talk about the broader issue of port 
security as we enlarge the debate on this very, very critical 
and important issue.
    Thank you, Mr. Chairman.
    Chairman Shelby. Thank you.
    Senator Bayh.

                 STATEMENT OF SENATOR EVAN BAYH

    Senator Bayh. Thank you very much, Mr. Chairman.
    Thank you, gentlemen, for your presence today. I am sure it 
is not easy, but I think as you can gather, there is deep 
bipartisan concern about the efficacy of the process that you 
are charged with overseeing and a deep bipartisan commitment to 
correcting this process to better protect the homeland security 
interests of the United States.
    Mr. Chairman, I think the whole controversy involving Dubai 
has revealed a process that has been deeply flawed now for some 
time, evincing in what is in a significant degree a pre-
September 11 mindset. I think Senator Schumer put his finger on 
part of the problem, gentlemen, which is historically, the 
CFIUS process has defined the national security interests of 
the United States in much too narrow terms, terms which might 
have been adequate some years ago but no longer are, putting a 
preeminent emphasis upon our interests in trade, which are 
legitimate but cannot supersede national security concerns. We 
cannot put an interest in profit ahead of our national 
security.
    But I am afraid that this process, in its ideological 
commitment to free trade, has too often done that in the past. 
I am going to mention one specific instance here in a moment. I 
think, Mr. Chairman, since this process, since its inception in 
1988, one transaction has been declined because of national 
security concerns. That does not evince a very exacting 
standard, gentlemen.
    We had a hearing in the Intelligence Committee yesterday 
which by definition I cannot get into. Let us just say, 
gentlemen, it is a good thing that we are having a 45-day 
additional review. It was my impression that there was relevant 
information sitting on desks in other parts of the Government 
that had not been included in this review process. Some of it 
was timing issues, but we need a process that is more 
comprehensive and better coordinated to ensure that all 
relevant information is made available to the decision maker, 
and as I said, a better balance is struck between national 
security concerns and our interest in free trade.
    Finally, Mr. Chairman, this has been an issue that has been 
on my mind for some time, gentlemen, and frankly, I do not know 
whether you were around a couple of years ago. Colleagues, 
there was a company in Valparaiso, Indiana called Magnequench. 
They make 80 percent of the rare earth magnets that allow our 
smart bombs to function. That company was sold to a Chinese 
consortium. It has now been dismantled. The entire production 
capability has been moved to China.
    It is not very smart to rely on China for a critical 
component of an important weapons system for our country, but 
that is what this process has allowed. That is what we now 
confront. And I think that is what all of us on this panel are 
determined that will no longer be allowed to happen.
    And frankly, gentlemen, last thing, and this is not the 
pique of one U.S. Senator. We brought these concerns to the 
attention of the relevant authorities at the time, and we were 
just treated dismissively. It just did not seem to matter a 
whole lot. It was all about interests in trade, profits, rather 
than a meaningful balance with national security interests. 
That needs to change.
    Thank you, Mr. Chairman.
    Chairman Shelby. Thank you. We will start with Secretary 
Kimmitt and move on.
    Mr. Secretary, welcome to the Committee again.

                 STATEMENT OF ROBERT M. KIMMITT

       DEPUTY SECRETARY, U.S. DEPARTMENT OF THE TREASURY

    Mr. Kimmitt. Thank you, Mr. Chairman. Chairman Shelby, 
Ranking Member Sarbanes, Members of the Committee, thank you 
for the opportunity to appear before you this morning to 
address both the Committee on Foreign Investments in the United 
States and its role in the review of DP World's acquisition of 
P&O.
    As you noted, Mr. Chairman, my colleagues and I testified 
before the Committee last fall. At that time, the Committee was 
engaged in a broad examination of the CFIUS process. Before 
discussing the review of the DP World transaction, let me 
review that process.
    As you know, CFIUS is an interagency group comprised of the 
Departments of the Treasury, State, Defense, Justice, Commerce, 
and Homeland Security and six White House offices: The National 
Security Council, the National Economic Council, the U.S. Trade 
Representative, the Office of Management and Budget, the 
Council of Economic Advisers, and the Office of Science and 
Technology Policy.
    The Committee was established by Executive order in 1975 to 
evaluate the impact of foreign investment in the United States. 
In 1988 and 1992, Congress passed legislation now embodied in 
the Exon-Florio Amendment which empowered the President to 
suspend or prohibit any foreign acquisition of a U.S. 
corporation if the acquisition is determined to threaten U.S. 
national security.
    This process has evolved over time to keep pace with 
changes to the concept of national security. Picking up, I 
think, on a point a number of Senators made, I think you first, 
Senator Dodd, but also, I heard this from Senator Bayh earlier, 
in 1998, the intelligence Community Acquisition Risk Center, 
acronym is CARC, was created. This office is now under the 
Director of National Intelligence and provides CFIUS with a 
threat assessment of the foreign acquirer.
    Further, following September 11, 2001, the newly created 
Department of Homeland Security was added to the Committee, and 
DHS has played a primary role in reviewing many transactions, 
including the case at hand. Further, agencies that are not 
formal members of CFIUS are often called upon to lend their 
expertise.
    CFIUS operates through a process in which Treasury, as 
Chair, receives notifications of transactions, circulates these 
and other materials, including the intelligence assessment, to 
the Members of the Committee and coordinates the interagency 
process. Upon receipt of a filing, CFIUS staff conducts a 30-
day review during which each CFIUS member examines the national 
security implications of the transaction, including, again, the 
CARC threat assessment.
    All CFIUS decisions are made by consensus. Any agency that 
identifies a potential threat to national security has an 
obligation to raise those concerns within the review process. 
If any member of CFIUS objects or raises a national security 
concern that cannot be satisfactorily resolved during the 30-
day review period, then, the case goes to an extended 45-day 
investigation period. The investigation period provides CFIUS 
and the companies additional time to address security concerns 
that were identified but not resolved during the review period.
    Under the Exon-Florio Amendment, upon completion of the 45-
day investigation, the Secretary of the Treasury, as Chairman 
of CFIUS, forwards a recommendation and report to the 
President, who then has 15 days to take action. Upon making a 
determination, the President sends a report to Congress 
detailing his decision. The most recent such report occurred in 
September 2003, when the President reported to you on his 
decision not to block the transaction between Singapore 
Technologies Telemedia and Global Crossing.
    Let me turn now to the DP World transaction. At the outset, 
let me note that this transaction was not rushed through the 
review process in early February, nor was it casual and 
cursory. As you and others have noted, Mr. Chairman, on October 
17, 2005, lawyers for DP World and P&O informally approached 
the Treasury Department staff to discuss the preliminary stage 
of the transaction. This type of informal contact enabled CFIUS 
staff to identify potential issues before the review process 
formally begins; in other words, before the 30-day clock begins 
to run.
    In this case, Treasury staff identified port security as 
the primary issue and immediately directed the companies to the 
Department of Homeland Security. In October, DHS and Department 
of Justice staff met with the companies to review the 
transaction and security issues.
    On November 2, as you noted, Mr. Chairman, Treasury staff 
requested an intelligence assessment from the Director of 
National Intelligence. Treasury received this assessment on 
December 5, and it was circulated to all staff members of 
CFIUS. On November 29, DP World issued a press release 
concerning this transaction.
    On December 6, staff from the CFIUS agencies met with 
company officials to review the transaction and to request 
additional information. On December 16, then, after almost 2 
months of informal interaction and 45 days after CFIUS 
requested the intelligence assessment, the companies officially 
filed their formal notice with the Treasury, thereby beginning 
the 30-day process. Treasury circulated the filing to all CFIUS 
departments and agencies but also added the Departments of 
Energy and Transportation because of their statutory 
responsibilities and their experience with DP World.
    During the 30-day review period, the CFIUS departments and 
agencies continued their internal departmental reviews and were 
in contact with one another and the companies. As part of this 
process, concerns were raised, and DHS negotiated an assurances 
letter that addressed port security concerns that had been 
raised earlier in the process. This letter was circulated to 
the committee on January 6 for its review, and CFIUS concluded 
its review on January 17. Far from rushing their deliberations, 
members of the CFIUS staff spent nearly 90 days reviewed this 
transaction.
    Last Sunday, as a number of you have noted, Mr. Chairman, 
DP World announced that it would make a new filing with CFIUS 
and requested a 45-day investigation. Upon receipt of DP 
World's new filing, CFIUS will promptly initiate the review 
process, including DP World's request for an investigation. The 
45-day investigation will consider existing materials as well 
as new information anticipated from the company. Importantly, 
the investigation process will also very carefully consider 
concerns raised by Members of Congress, State and local 
officials, and other interested parties. We welcome your input 
throughout this process, starting with the points you have 
raised at today's hearing.
    Mr. Chairman, since my last appearance before this 
Committee, we have worked to address several of the flaws that 
you and the GAO had identified in the CFIUS review process. We 
have revised the interagency process to address the important 
concerns raised by you, Senator Sarbanes, and other Committee 
Members, specifically to ensure that all members, especially 
the security agencies, have the sufficient time and opportunity 
to review transactions, identify any security concerns, and 
fully address those concerns.
    My takeaway from that earlier hearing, Mr. Chairman, was 
that that was the most important thing we were looking at, to 
make sure that nobody stopped a security agency from having the 
time to make its views known and either get them resolved or, 
if necessary, move further in the process. Nonetheless, it is 
clear that we agree that improvements are still required. In 
particular, we must improve the CFIUS process to help ensure 
that Congress can fulfill its important oversight 
responsibilities.
    Mr. Chairman and Members of the Committee, those of us 
sitting at the table this morning share with you one 
fundamental principle. That our highest responsibility as 
Government officials is protecting the national security of the 
United States. The work done by our colleagues in the initial 
review was guided by this standard, as will be our further 
efforts during the 45-day review, and I am sure it will also 
guide your review of the President's report to you at the end 
of the investigation.
    I thank you for your time this morning. I am happy to 
answer your questions after my colleagues make their 
statements.
    Chairman Shelby. Secretary Edelman.

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

    Mr. Edelman. Chairman Shelby, Senator Dodd, and other 
Members of the Committee, thank you for the opportunity to 
appear before you today to discuss the Department of Defense's 
role in the Committee on Foreign Investments in the United 
States and in our review of the Dubai Ports World and 
Peninsular and Oriental Steam Navigation Company transaction.
    As a formal member of the CFIUS process, the Department of 
Defense weighs a number of factors when it considers any 
individual proposed foreign acquisition of a U.S. company.
    First and foremost, our primary objective in the process is 
to ensure that any proposed transaction does not pose risks to 
U.S. national security interests. And to do this, the 
Department of Defense reviews several aspects of each 
transaction, including the importance of the firm to the U.S. 
defense industrial base; that is, whether it is a sole source 
supplier and, if so, what security and financial costs would be 
incurred in finding and/or qualifying a new supplier if 
required; is the company involved in the proliferation of 
sensitive technology or weapons of mass destruction? Is the 
company to be acquired part of the critical infrastructure that 
the Department of Defense depends on to accomplish its mission? 
And can any potential national security concerns that are posed 
by the transaction be eliminated by the application of risk 
mitigation measures either under the Department's own 
regulations or through negotiations with the parties.
    Regarding this specific CFIUS transaction, the Departments 
of Treasury, Commerce, and Homeland Security met with the legal 
representatives of Dubai Ports World and P&O for CFIUS 
prefiling notification consultations on October 31, 2005. On 
December 6, 2005, the companies held a prefiling briefing for 
all CFIUS agencies. The Defense Technology Security 
Administration attended the meeting for the Department of 
Defense.
    On December 16, the Department of the Treasury received an 
official CFIUS filing. On that same day, Treasury circulated 
the filing to all CFIUS member agencies for review, DTSA 
staffed the filing to 16 other Department of Defense elements 
or agencies for review and comment. The review conducted by the 
Department of Defense on the transaction was neither cursory 
nor casual; rather, it was in depth, and it was comprehensive.
    The transaction was staffed and reviewed within the DoD by 
17 of our agencies or major organizations. In this case, DoD 
agencies reviewed the filing for impact on critical 
technologies, the presence of any classified operations 
existing with the company being purchased, military 
transportation and logistics as well as other concerns the 
transaction might raise.
    During the review process, the Department of Defense did 
not uncover any national security concerns that warranted 
objection to the transaction or requiring a 45-day 
investigation. These positions were approved by staff that 
ranged from subject matter experts up to a Deputy Under 
Secretary of Defense as appropriate to the different offices 
undertaking the review, and all who were consulted arrived at 
the same position. Do not investigate further.
    The DoD organizations that reviewed this and all other 
CFIUS transactions bring to bear a diverse set of subject 
matter expertise, responsibilities, and perspectives. The 
organizations include, for example, the Office of the Under 
Secretary for Intelligence; the Office of the Under Secretary 
for Acquisitions, Logistics, and Technology, the military 
departments, the Army, the Navy, and the Air Force, in this 
instance, the U.S. Transportation Command, the National 
Security Agency, and the Defense Intelligence Agency.
    The Army, for example, reviewed the case in the following 
manner. The Army Materiel Command headquarters and the 
Assistant Secretary of the Army for Acquisition, Logistics, and 
Technology staff gave a preliminary review immediately upon 
receipt of the case. The Army Materiel Command then staffed the 
filing to their subordinate readiness commands responsible for 
acquisition and logistics, including the Military Surface 
Deployment and Distribution Command. For this case, the Army's 
review criteria included the question of assured shipping, and 
the Army's final position was no objection.
    The Defense Technology Security Administration, which 
reviews, coordinates, and analyzes the recommendations from all 
the DoD components as well as assessing export control and 
sensitive technology issues, ultimately signed off on the 
transaction for the Department. Therefore, we had a 
comprehensive and in depth review of the transaction, and no 
issues were raised along the way by any agency or department 
within the Department of Defense. We remain comfortable with 
the decision that was made in that review.
    I would like to get back to Senator Dodd's opening 
questions. He raised a number of, I think, constructive 
questions about the process and also with regard to Chairman 
Shelby's opening statement. When I first came into my 
responsibilities last August, I was early on made aware by the 
Acting Director of DTSA of the GAO report and the concerns that 
had been raised about the security agencies having an adequate 
opportunity to express any concerns they might have about a 
pending transaction, particularly the difficulties of dealing 
with such transactions when there are complicated technological 
issues that have to be either worked through or analyzed by 
some of the respective components that I have mentioned or that 
might require detailed negotiations for mitigation measures 
with the companies involved.
    Shortly thereafter, Secretary Kimmitt took the initiative 
to call me, asked me to come over and to visit with him at the 
Treasury and talk about what we might do to help fix the 
process, and as a result of those conversations and 
conversations he had with others, several steps were taken to 
use the prefiling notification period, for instance, to try and 
address some of these concerns, to make clearer who had the 
lead among agencies in looking toward risk mitigation issues. 
In this instance, I believe it was DHS, and Secretary Baker may 
address that, but also discussing withdrawals or refilings by 
companies to allow time for these kinds of security questions 
to be worked out.
    No doubt, there were more things that could be done to 
improve the process, but there have been steps at least since I 
came into office in August to try to address many of the 
concerns that were raised by the Members in their opening 
statements.
    I would also like to take the opportunity to provide a 
perspective from the Department of Defense point of view 
regarding our relationship with the United Arab Emirates and 
their support as a friend and ally in the global war on 
terrorism, and Senator Hagel and several others in their 
statements have also alluded to the importance of UAE in that 
regard.
    In the war on terrorism, the United States needs friends 
and allies around the world and especially in the Middle East 
to help in this struggle. Simply put, we need a community of 
nations to win this long war. In our recently published 
quadrennial defense review, we highlight that in conducting the 
fight to preserve the security of the American people and our 
way of life, it is important that we strengthen the bonds of 
friendship and security with our friends and allies around the 
world.
    We must have the authority and resources to build 
partnership capacity, achieve unity of effort, and adopt 
indirect approaches to act with and through others to defeat 
common enemies. The United Arab Emirates is an outstanding 
example of the kind of partner critical to winning the long 
war. Dubai was the first Middle Eastern entity to join the 
Container Security Initiative, a multinational program to 
protect global trade from terrorism. It was also the first 
Middle Eastern entity to join the Department of Energy's 
Megaports initiative, a program aimed at stopping illicit 
shipment of nuclear and other radioactive material. The UAE has 
also worked with us to stop terrorist financing and money 
laundering by freezing accounts, enacting aggressive money 
laundering and counterterrorist financing laws and regulations, 
and exchanging information on people and entities suspected of 
being involved in these activities.
    As you may know, the UAE provides the United States and our 
coalition forces with important access to their territory and 
facilities. General Pace has summed up our defense relationship 
by saying that, ``in everything that we have asked and worked 
with them on, they have proven to be very, very solid 
partners.'' I would note as well that a couple of days ago in 
The Wall Street Journal, former Secretary of Defense Cohen and 
former Commandant of the Coast Guard Admiral Loy wrote that, 
``some critics have suggested that the UAE is a foe and not a 
friend. In fact, the UAE has been a staunch ally of the United 
States, which has been confident enough in that country to send 
its sensitive military equipment and technology.''
    U.S. Naval forces traditionally make more port calls in the 
UAE than anywhere else in the world. When peacekeepers went 
into Kosovo, the UAE provided personnel and equipment of great 
value to the NATO commanders. Specifically, the UAE provides 
excellent access to its seaports and airfields, like Al Dhafra 
air base as well as overflight through UAE air space and other 
logistical assistance.
    We have more Navy port visits, as I just mentioned, in the 
UAE than any other port outside the United States. Last year, 
U.S. Naval warships and Military Sealift Command ships spent 
over 1,400 days in the ports of Dubai, Jebel Ali, Abu Dhabi, 
and Fujairah. And by the way, the port at Jebel Ali, which is 
the only carrier-based port in the Gulf, is managed by DPW.
    Coalition partnerships also used the UAE ports last year. 
The U.S. Air Force has operated out of Al Dhafra since the Gulf 
War in 1990, and today, it is an important location for air 
refueling and aerial reconnaissance aircraft supporting 
operations in Iraq and Afghanistan.
    We should note that our most important commodity, our 
military men and women, are frequent visitors to the UAE on 
liberty or leave while deployed to the region, so we rely on 
the Emirates for our security in their country, and I 
appreciate and thank the Government of the UAE for that. Our 
close military to military relationship with the UAE also 
includes the use of the UAE Air Warfare Center established in 
January 2004, where our pilots train with pilots from countries 
across the Middle East.
    Finally, the United Arab Emirates have been very supportive 
of our efforts in Afghanistan and Iraq. They have provided 
military and operational support to Operation Enduring Freedom 
in Afghanistan and financial and humanitarian aid to 
Afghanistan and its people. The UAE has provided monetary and 
material support to the Iraqi Government, including a pledge of 
$215 million in economic and reconstruction assistance.
    Chairman Shelby, that concludes my formal assessment. I 
would be happy to answer any further questions you or your 
colleagues have after my other colleagues had a chance to have 
their say.
    Chairman Shelby. Secretary Baker.

        STATEMENT OF STEWART BAKER, ASSISTANT SECRETARY

        FOR POLICY, U.S. DEPARTMENT OF HOMELAND SECURITY

    Mr. Baker. Thank you, Chairman Shelby and Members of the 
Committee.
    The Department of Homeland Security is the newest member of 
CFIUS, and I think it is fair to say that we have been one of 
the most aggressive in raising new kinds of national security 
issues because of the breadth of the kinds of national security 
concerns that we are responsible for in the wake of September 
11. But we did not object to this transaction, and I think the 
question that the Committee has asked is why, so let me see if 
I can give you an explanation of how we arrived at that 
conclusion.
    First, it is important to understand what a terminal 
operator is. If you had read the press, you would think that 
our ports were being taken over by a foreign company, that we 
had outsourced security to a foreign company. None of that is 
true. The acquisition at issue here is of terminals, terminal 
leases, typically, in several major ports.
    A terminal operator has essentially three assets. They have 
a pier; they have a crane; and they have a parking lot to put 
the cargo in. And what they do is they use the crane to take 
cargo out or put cargo in a ship and then to store it in the 
parking lot next to the pier. The facilities that we are 
talking about here, the terminals, far from representing the 
whole of the ports that are at issue, I think there are in 
these ports about 800 regulated facilities. Twenty-four of them 
are being transferred in this transaction, so it is 
substantially less than 10 percent of the facilities in the 
ports that we have been talking about.
    Nonetheless, to say that does not mean that there was no 
risk in this transaction. I would not say that. We had to ask 
ourselves three questions in evaluating that risk. First, what 
legal authority and programs do we have already in place that 
would allow us to address any risks? Second, what do we know 
about these companies that might affect our evaluation of the 
risk? And third, is there anything more that we want from the 
companies in order to minimize the risk?
    To address that first question, what authority, what 
programs do we have. Since September 11, we have increased 
spending on port security by 700 percent. It is now on the 
order of $2 billion a year. What we have done with that money 
is it is principally spent by two components. The U.S. Coast 
Guard, which administers a law passed since September 11 which 
required that there be port security plans for all U.S. ports 
and that all facility owners within those ports have facility 
security plans. That means that each of the facilities that is 
being transferred in this transaction in the United States has 
a facility security plan. It is inspected by the U.S. Coast 
Guard.
    The U.S. Coast Guard also has the authority to conduct 
inspections of overseas ports. We came to the realization, I 
think, quickly after September 11 that if someone were to use a 
container to send a weapon of mass destruction into the United 
States that it would be a Pyrrhic victory if we found it in 
Newark while we were conducting inspections in Newark. We 
should, if possible, worry about the security of foreign cargo, 
foreign ports so that weapons that could cause us harm do not 
enter into ships bound for the United States and so that we are 
not doing our first inspection in the United States.
    We also have substantial authority with respect to cargo. 
For the same reason that we inspect foreign parts, we now 
require that shippers sending cargo to the United States tell 
us what is in that container 24 hours before it goes on the 
ship, so that we can say I am sorry; we are not satisfied with 
the risk factors associated with this container. We are going 
to send it to radiation screening or some other form of 
inspection in the foreign port itself.
    We do that in 42 ports today. We are expanding that to 50, 
which covers about 80 percent of the containers bound for the 
United States, and that program will continue to expand.
    We also have started a program in which participants in the 
supply chain, everyone from the manufacturer of goods who uses 
the container all the way through to the terminal operator and 
the purchaser adopt best security practices so that we can be 
sure that it is very difficult to introduce some foreign weapon 
or other dangerous material into an ordinary commercial 
container shipment.
    So we do have substantial security programs in place 
addressed at precisely the concerns that have been raised by 
this Committee. We did not stop there, of course; we also asked 
what do we know about these companies? It turned out, quite a 
bit. We knew quite a bit about DPW, even though they do not do 
business in the United States, because they had been 
instrumental in helping us to do some of the screening that we 
have moved out to foreign ports. They were an early and 
voluntary participant in a Department of Energy screening 
program in Dubai, and when we set up our own screening program 
in Dubai, they were instrumental in helping that get set up in 
about 3, 3\1/2\ months in contrast to what is often a 12-month 
process. They were very helpful, very professional, and very 
cooperative.
    We also, of course, know the U.S. facilities quite well. 
They are currently run by P&O Ports North America. The Coast 
Guard had inspected them, and they had joined our voluntary 
program of best security practices, so that we knew what kinds 
of security practices they had signed up to willingly.
    Even so, with that background, we decided that we were 
going to take a step that was unprecedented in this area. We 
often have negotiated assurances with respect to 
telecommunications companies and high-tech companies about how 
they will add additional protections to national security after 
a transaction has gone through. We had never done that in the 
context of a ports transaction before. We nonetheless decided 
that in order to add an element of security to this 
transaction, we would ask for assurances from the parties.
    They gave us those assurances. The assurances are really 
twofold: One, they agreed that the programs that they had 
entered into voluntarily, the foreign port screening, the best 
security practices in the United States, would no longer be 
voluntary for those companies. They are now mandatory for those 
companies. And second, they agreed that they would open their 
books to us essentially and allow us to get access to any 
information about their U.S. operations that we wanted without 
a subpoena, without a warrant, simply walking in with a written 
request and getting that information. That will allow us, for 
example, to get current lists of employee, Social Security 
numbers, dates of birth so that we can run those names through 
watch lists, conduct our own background investigations, and the 
like.
    It was only after we had gotten this unprecedented set of 
assurances that adding to the other safeguards that we saw in 
the transaction that we concluded that there was not a basis 
for going forward to a further review.
    Thank you.
    Chairman Shelby. Secretary Joseph.

                   STATEMENT OF ROBERT JOSEPH
              UNDER SECRETARY FOR NONPROLIFERATION
                    U.S. DEPARTMENT OF STATE

    Mr. Joseph. Mr. Chairman, Senator Sarbanes, thank you very 
much for the opportunity to testify before this Committee and 
all of its distinguished Members.
    Given what has been said, I think I can be very brief. I 
would just emphasize that as others have said, the UAE is a 
strong friend and ally of the United States. After September 
11, the UAE leadership made the strategic decision to be with 
us on the war on terror and has been a key partner ever since 
that date. Others have spoken to the contribution that the UAE 
is making in this essential effort, providing the United States 
and coalition forces with unprecedented access, overflight 
clearances, and other critical and important logistical 
assistance, providing outstanding support for our air and Naval 
forces, extending vital military and political support to 
Operation Enduring Freedom in Afghanistan and substantial 
financial and humanitarian support to the Afghan people and 
also providing significant material support to the Iraqi 
Government.
    The UAE has worked with us very closely to suppress 
terrorist financing and money laundering, including freezing 
accounts and acting very aggressively enforcing its money 
laundering regulations, exchanging information, and conducting 
investigations.
    On the nonproliferation side, while the UAE record is not 
perfect, it has been a solid partner. It is one of a number of 
countries that has cooperated with us to deny Iran access to 
nuclear and missile technology. It has disrupted financial 
transactions, stopping WMD activities. It has closed down 
proliferation-related front companies and has taken very direct 
actions to counter the proliferation of WMD and missiles in 
other contexts.
    There are gaps, but we are working very closely with the 
UAE to close those gaps. I visited the UAE last October to 
create the counterproliferation task force, which is intended 
to improve our mutual efforts to combat weapons of mass 
destruction. The UAE, I would also point out, has also been one 
of our best partners in unraveling and closing down the A.Q. 
Khan network, elements of that network having operated on its 
territory.
    It has been very active in investigating those involved in 
the network and working effectively to prosecute those that 
committed the illicit actions involved. UAE authorities have 
been very helpful in pursuing individuals and companies who 
work to facilitate the network's activities. The UAE, for 
example, closed down SMB Computers and other companies when it 
was discovered that they were acting as front companies for the 
Khan network.
    In sum, the UAE is a moderate Arab state. It is a supporter 
of our efforts to achieve peace in the Middle East. It has 
reached out to the United States in a friendship, as someone 
noted, being one of the first nations to offer financial 
support to the United States after Hurricane Katrina.
    The United States and the UAE are working together to 
create a stable economic, political, and security environment 
in this very key region, and our national security, quite 
frankly, benefits significantly from its support and its 
activities both in the war on terrorism as well as its efforts 
to stop the proliferation of weapons of mass destruction and 
missiles.
    Thank you.
    Chairman Shelby. Thank you, Mr. Secretary.
    Secretary Kimmitt, I among the many here are puzzled by the 
Administration's interpretation of what we call the Byrd 
Amendment, the requirement for a full investigation when state-
owned or controlled entities are involved. The law states that 
the investigation is required if the transaction could affect 
the national security of the United States. I can read the 
statute and see how you arrived at your interpretation, as the 
review determined that there was no risk to national security. 
We will put aside for a moment the extraordinarily low bar 
placed in the law by the use of the word could. It is a 
stretch, but I will try to get there.
    But I cannot get there if I apply an intellectually honest 
approach that takes into account the clear intent of the 
statute. Senator Byrd, in introducing his amendment on the 
floor of the Senate on September 18, 1992, stated, ``that it 
requires that any acquisition that involves a company 
controlled by a foreign government must automatically receive 
the more detailed 45-day investigation.'' These are the words 
of the sponsor, Senator Byrd.
    Given this disturbing gap between the clearly stated intent 
of the statute and the Treasury Department's interpretation of 
it, I would like to hear from you today how exactly the 
Department interprets the Byrd Amendment and whether, in its 
deliberations, it has had opportunity to review the amendment's 
legislative history. That is what we do.
    If you familiarize yourself with the legislative history 
and believe the statute is unclear, would it be fair to say 
that you are putting the letter of the law over the spirit of 
the law? If the statute is unclear, what would you suggest 
would help to clarify it? It seems to me that Senator Byrd's 
words on the floor of the Senate, the intent of this is clear 
and unambiguous.
    Mr. Kimmitt. Mr. Chairman, I sincerely regret that we have 
this difference, and I think it is important that we resolve it 
quickly. I think with regard to the DP World case, as soon as 
we receive the filing, we will begin the 45-day investigation. 
But as many of your colleagues have said, we are not talking 
just about the DP World case. As important as that is, we are 
talking about what goes beyond.
    Clearly, we are strongest in protecting our national 
security when the parties and the branches are together. We 
should not let a legal interpretation separate us.
    Chairman Shelby. But that is what you are doing.
    Mr. Kimmitt. But that is what, I will have to say, has been 
the consistent legal advice given to CFIUS going back to 1992, 
even in light of reading the legislative history. Your 
colleague, Chairman Warner, had asked, and there is being 
prepared by the Department of Justice, a memorandum outlining 
the Administration's view on this.
    As a policymaker, I would rather not parse the legal 
interpretation, but I will say that it has been consistent 
across Administrations. Just for example, by coincidence, in 
the 8 years of the Clinton Administration, there were 46 
instances of government-owned and controlled companies seeking 
to make acquisitions in the United States. One went to 
investigation.
    In the Bush Administration through the end of 2005, 
coincidence, also 46 cases, four of which went into 
investigation, and I would note all after September 11. But the 
fact is I do not think this is a partisan issue. I think we 
have a difference, and I think we have to close the gap. I have 
spent more time talking about legal interpretations and less 
about protecting the national security. I know that is your 
first priority; it is ours.
    But I will just tell you that the people who did the 
security review, many of them who have been involved in this 
process going back many years were getting that consistent 
legal advice from their counsel. It was not really a Treasury 
interpretation as much as it was an interagency, sir. I regret 
that we are at that point.
    Chairman Shelby. I do, too, because I think it is a loose 
interpretation of the intent of the statute and the words of 
the statute.
    When briefing this Committee's staff on the Committee on 
Foreign Investment's conclusions with respect to the Dubai 
Ports acquisition, the phrase that was repeatedly used in 
explaining those conclusions was that the interagency process 
turned up, ``no derogatory information on the foreign owned 
company in question.'' Could you explain for the Committee what 
it means to sign off on an acquisition on the basis of an 
absence of derogatory information on a foreign-owned company?
    Did the pre-review and formal review include a thorough 
examination of the potential risks to critical infrastructure 
posed by any transaction involving a Middle Eastern country's 
management of U.S. terminal operations? Secretary Joseph, did 
the review include a thorough examination of the proliferation 
risk posed by an acquisition by a country that in very recent 
history, as you have referenced, was a major throughway for 
nuclear components as part of the A.Q. Khan black market of 
nuclear parts?
    First, Secretary Kimmitt, do you want to----
    Mr. Kimmitt. Mr. Chairman, the answer to your question was 
that the critical infrastructure question was looked at during 
the initial review. That is why we had as many agencies 
involved in the review. I think there were literally hundreds 
of security professionals involved in this process when you 
hear that the Defense Department, once they get the notice, 
sends it out to 17 component agencies, but that is also why we 
have--not only the Department of Homeland Security; reached out 
to the Transportation Department and others to make sure that 
those nontraditional indicia of national security, the post-
September 11 indicia, were represented by the people who have 
statutory responsibility day after day to carry those out. So 
those were taken into account.
    With regard to your point, before I turn to Under Secretary 
Joseph, I did not, I do not think, participate in the briefing 
you referred to.
    Chairman Shelby. We are talking about a briefing for the 
staff.
    Mr. Kimmitt. Right; no derogatory information. That 
actually is a standard that is implied--one of the standards 
applied and one of the conclusions that is reached in terms of 
the intelligence community assessment of this or any other 
transaction. The measure for a member of CFIUS at the end of 
the 30-day process is have you raised all your national 
security concerns? Have they been satisfactorily addressed? If 
not, we go into investigation.
    So it is not just no derogatory information. The person has 
to be satisfied. When he or she signs on the bottom line their 
most sacred oath, this transaction will not adversely affect 
the national security interests of the United States, that is 
the only standard. The no derogatory information or whatever 
the result is from the intelligence community informs that 
decision, but remember, we are talking about human beings here 
who are discharging their most important function when they 
clear on those things.
    And Senator Sarbanes has asked, and we will certainly 
provide the names of the people involved. But I will tell you, 
I think that the people at the professional security level who 
have been doing this for quite some time are motivated by one 
thing and one thing only, and I am sure you will agree. What 
was right for the country?
    Chairman Shelby. Secretary Joseph, do you want to comment 
on the proliferation stuff ?
    Mr. Joseph. Yes, sir.
    Let me just say that the State Department does have a very 
rigorous review process for CFIUS transactions. All 
transactions are referred to a number of bureaus, with the 
Economic Bureau in the lead. But that also includes the Bureau 
for International Security and Nonproliferation and the 
Political Military Bureau, both of which report to me as well 
as other bureaus, including the bureau that deals directly with 
intelligence.
    In terms of your specific question, Senator, yes, the 
proliferation record was taken into account. I would note that 
the activities of the A.Q. Khan network stretched over three 
continents, involved many countries in terms of where the 
illicit activities took place, including in Asia and in Africa 
as well as a good number of countries in Europe.
    Chairman Shelby. Secretary Kimmitt, you have, on a number 
of occasions, pointed out that you are restricted from sharing 
information by the statute. According to the relevant 
subsection, though, while the information is exempt from 
Freedom of Information requests as not to be made public, I 
will quote the statute, ``nothing in this subsection shall be 
construed to prevent disclosure to either House of Congress or 
to any duly authorized Committee or Subcommittee of the 
Congress.''
    Clearly, there must be considerable attention given to 
drawing the line between appropriate levels of Congressional 
oversight and the legal requirement to protect proprietary 
information. We understand that. Can you provide this Committee 
some insight on how you feel that balance can be better 
maintained? Should this Committee be briefed on pending cases 
such as this? I mean, this has caused a firestorm in this 
country, or only on closed cases?
    You know, this is not the first time you have been before 
this Committee dealing with CFIUS.
    Mr. Kimmitt. Right, Mr. Chairman, and as I said, when we 
were together last fall, I think that the most serious concern 
was that the security agencies needed to have time to do their 
reviews. I think we have made major progress on that front. The 
other, though, was Congressional transparency, giving you the 
ability to exercise your important oversight responsibilities.
    I think we have made some progress, but your 
dissatisfaction makes clear that the process in its entirety 
did not work.
    Chairman Shelby. It is not just my dissatisfaction.
    Mr. Kimmitt. Right, I understand.
    Chairman Shelby. You just need to go out and talk to the 
people at the coffee shop in Montana or Oregon or whatever you 
want to go. There is great concern.
    Mr. Kimmitt. I would not mind being there right now, but I 
am before their elected representatives.
    [Laughter.]
    Chairman Shelby. They might have a lot of questions for 
you.
    Mr. Kimmitt. And we should be ready to answer those. 
Because at the end of the day, every one of us is here to ask 
the question, what can we do every day to protect the national 
security interests of the United States and advance the 
aspirations of its people? That is why you are in government; 
that is why I have come back into government.
    Let me answer the question on the notification. You and I 
have had several conversations after the hearing. We had set 
up, although someone had proposed an annual briefing on closed 
cases; as you know, we have set up a system of quarterly 
briefings on closed cases. Indeed, we are scheduled to brief 
you on this case, DP World, even before the firestorm hit. But 
it was, you are right, a closed case.
    I think the real question, as I mentioned in my opening 
remarks, was how do we interact on pending cases to allow you 
to discharges your responsibilities, us to discharge ours? What 
the law says, its strictest part is that there cannot be public 
disclosure of information provided to us during the course of a 
review. I think that you put that in there because you wanted 
to make sure that companies felt comfortable giving us that 
sensitive proprietary business information that we need to make 
the national security determination.
    And I guess I would like to suggest that we work with you; 
I think that now that we have decided on a mechanism on closed 
cases on how we can interact on pending cases in a way that 
ensures that the security review is done on a professional 
basis, we continue to get good, objective intelligence but also 
the companies feel comfortable in sharing this proprietary 
information with us.
    Senator Bayh mentioned one statistic. Everyone always says 
1,500; it is actually almost 1,600 cases now and only one 
disapproved. What we probably need to give you more visibility 
into is how many cases do not even get into the process. I will 
give you an example. At its high point in 1990, 295 
notifications came to the Committee. Today, there are 65. What 
that means is people have begun to understand that they have to 
meet certain standards, particularly in the post-September 11 
world, and those cases go away before we come in.
    But I do not think we would want a company to fear 
reputational risk if they could not share with us that 
sensitive proprietary information. But I do think, as we get 
closer to a formal filing into that pending process, I am very 
open to discussing with you how we could provide you the 
information that you need consistent with those points.
    Chairman Shelby. Did it ever occur to you in the Committee 
on Foreign Investments that this would be a very sensitive 
case, sensitive and concern by the American people, that 
someone coming from an area that--in the Persian Gulf, no 
matter how they were doing now has had some history of 
questionable activities and you did not even let us know, me, 
Senator Sarbanes, the Members of this Committee after we had 
that hearing in October? Why did you not do that?
    Mr. Kimmitt. Mr. Chairman, if I could, I think I will pick 
up a question that Senator Sarbanes asked and a comment that 
Senator Dodd made. I have no idea why none of the hundreds of 
people involved in that security review did not raise their 
hand and try to move it up in their organizations. To answer 
your question, Senator Sarbanes, I, too, learned about this 
after the fact.
    In February, a staff member brought it to my attention. I 
got the facts quickly. I told my boss, and I said let us notify 
the Hill, and I called you very shortly thereafter, Mr. 
Chairman. If I had known about this earlier, you would have 
known about it earlier. That is the process that we have to 
improve.
    Chairman Shelby. You remember what I told you? You 
remember, I said this is a political firestorm, may be a 
debacle.
    Mr. Kimmitt. Sir, that is why I called you as quickly as I 
had told my boss about the subject. We took a look at what had 
been done. I still believe that the professional security 
officials did the job that we wanted them to do. I think the 
interagency process worked right; always room for improvement; 
I am always open to suggestions from my colleagues.
    What we have to get right is notification within the 
departments at higher levels. We have to involve a broader 
group in the departments, and we have to find a way much more 
quickly to come into contact with you.
    Chairman Shelby. Thank you.
    Senator Sarbanes.
    Senator Sarbanes. Thank you very much, Mr. Chairman.
    Gentlemen, I am going to try to go through some questions 
here rather quickly, because we have time limits. But I do 
first want to say to Secretary Kimmitt that a policy is not 
something distinct from what the law provides. I mean, you were 
making the statement, well, I just do policy, and someone else 
does the law.
    The statute provides the framework within which you must do 
your policy. That is where your authorities come from. You do 
not have a blanket authority. You have an authority provided to 
you by law. And therefore, what the law provides is extremely 
important. The Administration cannot run around and do whatever 
it wants willy nilly without regard to what the law provides.
    Does anyone at the table think that taking over terminal 
operations in a port could not affect the national security? If 
I came to you and said this is going to happen, do you think it 
might have an impact on the national security? Presumably, you 
would say, well, it could, and we have to take a look at it, 
would you not? Would anyone not say that?
    Mr. Kimmitt. Senator Sarbanes, I do not think so. And I do 
not think that is what happened in this case. I think those 
professional people who looked at this did have concerns that 
could affect the national security and through the 60-day 
prefiling process and the 30-day process were able to resolve 
those concerns.
    Senator Sarbanes. That is not what the law says. If you 
once concede to me that it could affect the national security--
this is not buying a toy company somewhere to make some toys, 
where you say, well, we cannot imagine any effect on the 
national security; clearly, this implicates the national 
security.
    The law says the President or the President's designee 
shall--not may--the first paragraph says may--says shall make 
an investigation. And I think you were required to do that, and 
you did not do it in this instance.
    Now, we will go back and review the other cases to which 
you make reference. I do not know what activities they 
encompassed. But this was written in here. When you have a 
foreign government involved in the takeover, you move to, if it 
could affect the national security, you move to a 45-day 
investigation.
    I mean, we may have to lengthen the time periods here. I 
know you do not want to do that, because you want to move these 
things along, but we may have to lengthen the time periods and 
make it very clear what requires an investigation.
    It is the same thing as a case about providing information, 
the other question the Chairman asked along this same line. It 
said nothing in this subsection, the one that gives you the 
authority not to make the information public says nothing in 
this subsection shall be construed to prevent disclosure to 
either House of Congress or to any duly authorized Committee or 
Subcommittee of the Congress.
    Now, I take it from what you just said, you did not know 
about any of this, is that right, until it happened?
    Mr. Kimmitt. I learned about it after the fact, Senator.
    Senator Sarbanes. Now, who is the Chairman of the Committee 
on Foreign Investments in the United States?
    Mr. Kimmitt. By executive order, confirmed by the statute, 
it is the Secretary of the Treasury.
    Senator Sarbanes. Secretary of the Treasury. Now, 
presumably, the Secretary of the Treasury did not know about 
this either?
    Mr. Kimmitt. Not until I notified him, sir.
    Senator Sarbanes. All right; now, you are the Deputy 
Secretary of the Treasury.
    Mr. Kimmitt. I am.
    Senator Sarbanes. So you did not know about it either.
    Okay; who chaired this committee on this specific instance?
    Mr. Kimmitt. The way this works, the Committee on Foreign 
Investment in the United States is an interagency committee. It 
operates as other interagency committees do in that there is a 
staff level; there is a policy level, deputies, and then, the 
full committee. In this case, it was the staff and policy 
levels; that is, up to an assistant secretary or, as Secretary 
Edelman said, a deputy under secretary, who were involved.
    Senator Sarbanes. Well, who was the--I am trying to get 
some accountability here.
    Chairman Shelby. Names, names.
    Senator Sarbanes. Who was the chair of the committee as 
they considered this particular issue?
    Mr. Kimmitt. That would be at the staff level. We have a 
deputy assistant secretary and an office director who are 
responsible for it at the staff level and then an assistant 
secretary at the policy level.
    Senator Sarbanes. Who decides?
    Mr. Kimmitt. At the end of the day, the staff receives the 
input from all of the departments and agencies in terms of 
their views as to whether there are concerns, have they been 
addressed, do they need more time? If it is by consensus, then, 
generally what happens is that either at the assistant 
secretary level, there is a meeting or a sign-off by people at 
the assistant secretary level.
    Senator Sarbanes. That happened in this instance?
    Mr. Kimmitt. It did. I would have to get you the details in 
terms of who was involved elsewhere, but it is then cases in 
which there are still issues that remain or any controversy 
that would come up. If the consensus has been reached, a 
decision is usually made at that staff or policy level.
    Senator Sarbanes. And does someone sign off on it? Is there 
a piece of paper with people's signatures saying that this is 
okay, and it should go ahead?
    Mr. Kimmitt. There is a record, Senator Sarbanes.
    Senator Sarbanes. Has that been furnished to the Committee?
    Mr. Kimmitt. I do not think it has been furnished, but we 
would be glad to put that together, sir.
    Chairman Shelby. We would ask for it.
    Senator Sarbanes. Yes.
    Chairman Shelby. We would ask for it.
    Mr. Kimmitt. All right, sir.
    Senator Sarbanes. Now, why should Treasury chair this 
group?
    Mr. Kimmitt. I have asked myself that question many times 
in recent days. This has been a process that has wanted to make 
sure that that range of issues that we have discussed today is 
considered. Treasury, I think, was designated when it was first 
created years ago, but there were the national security 
agencies on there right from the start.
    I think some of the suggestions that have been made today, 
including the notion of the DNI being a member of CFIUS--any 
time I have a meeting of the deputies, the DNI or his rep is 
always there. I think the idea of some vice-chairs is a very 
good idea, but I think the feeling was, going back to what the 
Chairman said, was that the United States has benefitted from 
an open investment policy.
    There are today between 5 million and 6 million Americans 
employed by companies headquartered overseas; 20 percent of our 
exports; $30 billion a year in development; and, therefore, we 
need to operate within the context of an open investment 
policy. But our first priority, as I testified today and in the 
past, is to protect our national security. And so, there is no 
way that a transaction can go forward if any agency, 
particularly any security agency, refuses to agree with it 
going forward.
    Senator Sarbanes. The GAO, in their report, which I presume 
you have gone over carefully, says the manner in which the 
Committee on Foreign Investment in the United States implements 
Exon-Florio may limit its effectiveness. For example, Treasury, 
in its role as chair and some others narrowly define what 
constitutes a threat to national security. And they go on to 
say the Committee is reluctant to initiate investigations 
because of a perception that they would discourage foreign 
investment, a potential conflict with U.S. open investment 
policy.
    Of course, the Treasury has the responsibility to finance 
our debt, correct?
    Mr. Kimmitt. We do, sir.
    Senator Sarbanes. Yes, so the inflow of foreign capital in 
the current economic circumstances in which we find ourselves 
is an extremely important priority for the Treasury Department, 
is it not?
    Mr. Kimmitt. It is, sir.
    Senator Sarbanes. Yes.
    Then, they go on to say Treasury in its capacity as chair 
applies a strict standard in determining whether an acquisition 
should be investigated. The Chair has established as the 
criteria for initiating an investigation essentially the same 
criteria that the law provides as a basis for the President to 
suspend or prohibit the transaction or order a divestiture.
    Defense and other agencies have argued that since the 
statute applies these criteria to Presidential decisions, these 
criteria should not be the standard for initiating an 
investigation. In other words, whether you go to an 
investigation should have a lower standard in terms of the 
danger to the security than the final judgment that would have 
to be made by the President at the end of the 45-day 
investigation period.
    Mr. Kimmitt. Senator Sarbanes, the GAO has done very good 
work in this area. You and I had a conversation about a 
critical comment a Treasury official had made about the GAO 
report. I told you that that did not reflect my views.
    After our hearing, I sat down at length with the GAO to get 
more understanding of their point of view, and I will have to 
say, on the point that you have raised here, I just have really 
not found any basis for the fact that Treasury was somehow 
narrowing the ability of agencies to put their national 
security concerns on the table.
    I will tell you what the standard is for me. If any agency 
of the Government is not prepared to sign off on the deal, it 
goes to investigation. It is a consensus. It is an interagency 
process. It is the way the interagency process runs. If you 
cannot get agreement at one level, you keep moving it up until 
you get to the ultimate decision maker.
    I think there had been in the past some arguments on legal 
interpretations, on thresholds, and all the rest, but to me, it 
is very straightforward. And in this instance, if any agency, 
going back to Senator Dodd's point, had raised a hand, said I 
need more time, I have a concern, I do not think the assurances 
are good enough, we would have gone to the 45-day 
investigation.
    I really do not believe that the Treasury Department, as 
much as we do support an open investment policy as part of a 
strong national and world economy, is in a position to 
influence the most fundamental decision any government official 
has to make, and that is signing off that the national security 
is going to be protected. And so, some of the people who work 
on this in the Department are with me. I am sure some others 
are watching. That is the standard that applies for me. What is 
right for national security. And if these departments and the 
many others are not prepared to say that, we go forward to the 
investigation, or the deal goes away.
    Senator Sarbanes. Well, is the standard you are using the 
same standard that the President would use if you went to an 
investigation? Is the standard you use to go to an 
investigation the same standard that the President would use at 
the end of the investigation in order to make his determination 
whether to say yea or nay?
    Mr. Kimmitt. I think at the end of the investigation, 
Senator, the President would look at the recommendations from 
all of his Cabinet members who have participated in that, and 
he would make a fundamental decision of what was right for the 
national security.
    Senator Sarbanes. Right, but you do not make that 
determination as to whether--that is not the determination as 
to whether to go to an investigation.
    Mr. Kimmitt. No; exactly, well, it is a determination----
    Senator Sarbanes. On your part, on the part of CFIUS.
    Mr. Kimmitt. Well, but it is; it would seem to me, the 
question that every official involved in the process has to 
ask. Are they going to put their name on a piece of paper that 
is going to be eventually provided to the Committee as having 
signed off from the perspective of DoD or DHS or anyone else if 
they thought the national security would be compromised? I do 
not think so.
    So, I think that what pervades the decisionmaking from 
bottom to top is the same thing that is driving your interests 
in this. How do we protect the national security of the United 
States? And I think at each level, that is the question that is 
being asked.
    Senator Sarbanes. What you are doing--is 30 days enough to 
do a thorough investigation in a complex matter?
    Mr. Kimmitt. As I testified last time and have subsequently 
talked with the Chairman and your colleagues in the House, it 
is very often not enough time if a company just comes in with a 
filing. If the first time that you hear from them is when they 
put in their paperwork, because take a look in this case. For 
the intelligence community to do its assessment required 33 
days, and there was some concern expressed about the 
intelligence community having to rush their assessment, other 
agencies having not enough time.
    That is why we have made clear both in your hearings and 
elsewhere that parties, particularly to transactions that are 
complex, and any government-owned or controlled company 
transaction is complex, they need to come in to us as early as 
they can, even before the deal is done.
    In this case, they came in 2 months before their formal 
filing. That allowed us to begin the review process, to get the 
intelligence assessment both requested and in. But my message 
to companies would be do not think you can just walk in, drop 
something on the table, and expect in every instance for it to 
go through this 30-day period.
    Senator Sarbanes. Is the material made available in that 
prefiling period, does that become part of the record?
    Mr. Kimmitt. That is a good question, Senator, because it 
goes to the question of whether some of the protections that 
you have extended to materials that have been filed by the 
company; we are looking at that question right now. I would 
think, I mean, the bottom line is anything the Government has 
in its possession becomes part of the record, but the formal 
filing, as I said, is what triggers the 30-day.
    Senator Sarbanes. Thank you, Mr. Chairman. My time is up.
    Chairman Shelby. Senator Hagel.
    Senator Hagel. Thank you, Mr. Chairman.
    Following along the lines of Senator Sarbanes' questions, 
and I am going to go back to a comment that you made, Secretary 
Kimmitt, about you have received consistent legal advice on 
interpretation of the Byrd Amendment. Take me back through some 
of the history. Does that mean all the way through since the 
Byrd Amendment was enacted into law, in 1992? Where do you get 
that advice? Give us a little history.
    Mr. Kimmitt. I think it does go back to the beginning of 
the law, which was in 1992. In fact, responding to a question, 
perhaps, that Senator Sarbanes raised, those cases that I 
mentioned, the 46 during the Clinton years, the 46 during the 
first 4 years of the Bush Administration were all government-
owned and controlled companies. So starting in 1992 and running 
through, I think that the advice that has been given, it would 
be within Treasury, the General Counsel's office, the same 
would exist elsewhere, has been, again, that you must go to 
investigation if there is any security concern that has not 
been resolved.
    Again, I know we have a difference of interpretation on 
that. I would like to resolve this as quickly as possible. And 
again, the legal background and advice on this, Senator Hagel, 
is something that has been prepared by the Justice Department 
in response to a previously received request.
    Senator Hagel. So it goes back to the beginning of the Byrd 
Amendment as to when it was enacted into law, the legal--what 
you are saying the consistent legal advice is to the 
interpretation.
    Mr. Kimmitt. That is certainly my understanding, but I 
would say in each of those cases, and I really think we have to 
focus on this, 92 cases in all, only 5 of which went to 
investigation, in those other 87, there was a unanimous 
arrangement among the CFIUS agencies that there was no national 
security concern that had not been addressed.
    Senator Hagel. Are there others who weigh in on the legal 
analysis of this? Is it all from the Justice Department, and 
that is the legal advice you rely on? Are your attorneys at 
Treasury or any other agency involved in the CFIUS process 
involved?
    Mr. Kimmitt. Generally, people in departments rely on 
advice from their general counsel's office for issues that come 
up under their authorizing legislation. If it is something that 
involves the Government more broadly, then, the Justice 
Department really speaks on behalf of the Government more 
broadly, and of course, Justice is a very important member of 
the CFIUS and were on the panel the last time we appeared.
    When we, by the way, as you know, discussed this subject a 
bit, it did come up also in the GAO report, and the GAO report, 
I think, or the GAO has done about four studies on this. They 
have noted this difference of opinion, and frankly, I wish we 
had gotten to resolution on it quicker. Someone said how do you 
resolve it. I think you put a period after shall conduct an 
investigation.
    Senator Hagel. Do you believe that the current law that you 
are operating under needs to be changed?
    Mr. Kimmitt. Well, as I said, the dissatisfaction expressed 
by this Committee and others makes clear that the process in 
its entirety did not work right. I think the career security 
professionals, hundreds of them who did that informal and 
formal review, performed their jobs admirably and well, and I 
know that no criticism of those of us here at the table today 
is meant to suggest that those people conducted their 
responsibilities other than in the best name of the Nation's 
security.
    But as I said, Senator, we clearly have to do some things 
inside the departments, and we clearly have to do quite a bit 
in finding ways to provide you more promptly with the 
information you need, and I would hope, and I cannot imagine 
that it would be not part of our discussion that we can very 
quickly resolve this interpretive disagreement on the Byrd 
Amendment.
    Senator Hagel. Well, does that, again, I am going to ask 
the same question. Does that include changing or amending the 
law, in your opinion?
    Mr. Kimmitt. Well, I think it is pretty clear that the 
Congress is going to come up with new CFIUS legislation. We 
want very much to participate with you in that process. I think 
some of the questions that have been raised but also the 
suggestions that have been put on the table by Senator Dodd and 
others this morning are ones that we need to look at very 
seriously.
    Senator Hagel. Thank you.
    Secretary Baker, let me ask a couple of questions going 
back to your testimony on the definition, as you laid it out, 
of a terminal operator. Would you explain the relationship 
between that terminal operator and U.S. security officials, 
specifically Coast Guard, U.S. Customs Service? Where does the 
division of responsibility end? Is it integrated into the same 
system? What role does the terminal operator have in port 
security?
    Mr. Baker. They are subject to regulation by the Coast 
Guard. The Coast Guard prepares a port security plan, and then, 
it expects the owners of facilities within that port to have 
their own facilities security plans that fit into the overall 
port security plan.
    Typically, that would mean for a terminal operator that 
they would have to have lighting, fences, control over who 
gains access to the facility and the like, so that you expect 
of them what you would expect of a responsible property owner 
with valuable and sometimes risky material on their property.
    They are subject, as I said, to inspections by the Coast 
Guard. They are also subject to regulation by the Customs and 
Border Protection Agency, which, particularly in this case, 
where they belong to our best security practices program, 
requires extensive background checks for employees, 
recordkeeping with respect to employees, ID's, and a variety of 
other security practices, and they, again, are subject to 
validation by the Customs and Border Protection Agency.
    Senator Hagel. Does that include inspection of containers?
    Mr. Baker. They are not expected to inspect the containers. 
They are expected to assist. If the Customs official wants to 
see inside of a particular container, and if it is urgent, we 
can meet the ship at sea. If it is somewhat less urgent, we can 
be at dockside and insist on having a particular container 
removed there.
    More typically, Customs will say to the terminal operator 
these are the containers that we are going to check. Some of 
them are going to go to radiation screening; others are going 
to go to ordinary Customs inspection. The terminal operator 
knows which containers we are looking at. They do not know why. 
They often do not know what is inside them. They certainly do 
not know why we are concerned about those particular 
containers.
    Senator Hagel. So it goes back to your original definition, 
if I understood it right; the terminal operator has a pier, a 
crane, and a parking lot for the cargo.
    Mr. Baker. Yes.
    Senator Hagel. And that, within that, is their 
responsibility.
    Mr. Baker. That is right. They have responsibilities for 
maintaining security in that area.
    Senator Hagel. One last question, Mr. Chairman. How many 
ports in the United States are under the management of foreign-
owned terminal operators?
    Mr. Baker. Well, as I said at the beginning, the ports are 
not managed by the terminal operators. The ports are typically 
managed by----
    Senator Hagel. The definition you used of terminal 
operators.
    Mr. Baker. The estimates that I have seen, and this turns 
out to be more difficult to estimate than one would think, are 
that it is in the neighborhood of 70 to 80 percent.
    Senator Hagel. Seventy to 80 percent? So most of the ports 
in the United States have terminal operators that are foreign 
owned.
    Mr. Baker. Yes.
    Senator Hagel. Is that correct?
    Mr. Baker. That is correct.
    Senator Hagel. So what we are talking about here is not 
anything particularly unusual as far as a foreign-owned 
operator.
    Mr. Baker. That is correct.
    Senator Hagel. Is that right?
    Mr. Baker. There are a very limited, but there are other 
foreign government-owned terminals.
    Senator Hagel. How many of those, would you say?
    Mr. Baker. I cannot give you an estimate. There are only 
one or two companies that have terminals in the United States.
    Senator Hagel. What country would be involved?
    Mr. Baker. I think Singapore is one. There may be a 
Taiwanese company as well. A Chinese company has stevedoring 
and other services that they provide on the West Coast.
    Senator Hagel. Mr. Chairman, I would ask for the record if 
Secretary Baker could provide that information.
    Chairman Shelby. Absolutely.
    Senator Hagel. Thank you very much, Mr. Chairman.
    Thank you.
    Chairman Shelby. Senator Reed.
    Senator Reed. Thank you, Mr. Chairman, and thank you, 
gentlemen, for your testimony today. This is an issue, 
obviously, of great concern to so many Americans at the moment. 
Just a technical point or an informational point. As I 
understand it, Secretary Kimmitt, this process of CFIUS 
notification is voluntary; is that correct?
    Mr. Kimmitt. That is correct, but there is a heavy penalty 
for any company that fails to file who should have, because the 
President has authority in the event of a company that has 
failed to file to unwind or modify the deal.
    Senator Reed. Do we have any ongoing effort to determine if 
people, companies, or entities, are avoiding this filing 
requirement, or is it just if it happens, we will take 
appropriate action?
    Mr. Kimmitt. We watch very carefully deals that are closed. 
We also watch carefully even deals where approval has been 
received, but there have been letters of assurance, mitigation 
agreements to make sure that people live up to their 
obligations.
    Senator Reed. Thank you.
    Like so many of my colleagues, I have been trying to 
understand this process and understand this particular 
decision. And I must say, my impression is that this is a 
rather amorphous and faceless operation. I mean, it is hard to 
tell who made the decision; hard to tell what was the 
definition of national security, was it consistent across every 
department that looked at this? And I think we have a lot of 
work to do.
    Again, I have immense respect for the gentlemen here today 
and particularly Secretary Kimmitt, but the impression I have 
is that perhaps it is not national security that pervades this 
decisionmaking, but it is the notion of getting these deals 
done as expeditiously as possible, which means, effectively, do 
not invoke the 45-day investigative phase, because that raises 
it to a very high public level, involving Congress.
    Ad perhaps I am wrong, but those types of groupthink to me 
might account for a situation today, we are looking back all of 
us, stunned, saying how could this happen? This seems so 
simplistic that at least you would want to ventilate this deal.
    Now, Mr. Secretary, comments?
    Mr. Kimmitt. I think that that suggestion that somehow 
there was a rush to judgment for economic reasons was what 
pervaded a lot of the report that GAO prepared at your request. 
That is where, in my early months back in government, I have 
really focused my attention, because again, at the end of the 
day, none of us has a higher responsibility than protecting the 
national security.
    No national security official is going to ever be rushed in 
this process to reach other than the decision that is right for 
the country. And if more time is needed, more time will be 
taken. So, I think that impression has been out there, Senator. 
Respectfully, I think that is something that we worked on very 
hard, and I do not think there is anyone throughout this 
process who has suggested that he or she did not have the time 
to come to the judgment that they did at the staff and policy 
level.
    I think it is very legitimate to discuss who else should 
have been involved in the departments and agencies. It is very 
legitimate to discuss how best to get this information to you 
quicker. But I really think that we have gotten out of the 
system whatever problems kept people from getting their views 
on the table, having them seriously considered, or you go 
deeper into an investigation or the deal does not go forward.
    I think going back, just picking up on the other part of 
your comment, Senator Reed, when I had testified last fall, I 
had said that the definition of national security is something 
tough to pin down. We would have written one definition in 
1988; one in 1992; we would have written one definition on 
September 10, 2001; a quite different one on September 12.
    I think if we look at changing this law, which clearly, we 
are going to work with you on, I think we should get the very 
best definition that we can of national security; lay out every 
one of the concerns that each of you thinks is most important; 
but then make very clear that this is not an exclusive list, 
that we still want the individuals at whatever level involved 
in this process to take their range of national security 
responsibilities, many of which are embodied in other laws that 
you pass, measure them against the criteria in the statute but 
not to be hesitant to raise any other issue.
    Senator Reed. Thank you, Mr. Secretary.
    I have one question.
    Chairman Shelby. Go ahead.
    Senator Reed. It is responsive, I think, to the comments 
that Secretary Kimmitt has made and might be handled by other 
members of the panel is that there have been some reports that 
Coast Guard analysts felt that they could not answer all the 
questions. I guess that raises a question, are those reports 
accurate? And second, does that cut against your presumption 
that when time was running out, and questions were still 
unresolved, the decision was not to say okay, stop, we got to 
do this, it was, okay, this train has left the station, and I 
guess those are not really major concerns.
    Could you respond?
    Mr. Kimmitt. I will make the general response. I might ask 
Secretary Baker to respond to the Coast Guard point. Again, we 
request as quickly as we can an intelligence community 
assessment. Your Chairman knows, and many of you know, how hard 
we have worked for the intelligence community to speak with one 
voice. Again, this is the Community Acquisition Risk Center.
    That is passed to them, that request, through intelligence 
channels. They then go out to all the intelligence agencies in 
the departments and agencies throughout the Government. They 
draw from those sources to come back with a community 
assessment to us. However, each department and agency also has, 
most of the members of CFIUS, have their own intelligence 
offices who, in addition to providing input to the community 
assessment, are also giving advice to their policy officials 
who have to make those national security judgments.
    And going back to Senator Sarbanes' point, you know, maybe 
much later, I would really like to come up and talk about how 
transformed the Treasury Department is in the national security 
business. It is quite different than the Treasury Department 
that I was in 18 years ago, the most important part of which is 
we now have an Under Secretary for Terrorism and Financial 
Intelligence.
    So we actually are now a member of the intelligence 
community. We have an Assistant Secretary for Intelligence and 
Analysis. We do our own internal work, feed both into the 
intelligence community. But also, I rely on those people to 
advise my Assistant and Under Secretaries and the Secretary and 
myself.
    I think on the Coast Guard point, I would turn to Secretary 
Baker.
    Mr. Baker. Thank you; yes, the Coast Guard, like many 
components, does have its own intelligence capability. And when 
we asked them if they thought that further restrictions on the 
transaction were required, they concluded that restrictions 
were not required. They did their own intelligence analysis and 
used that to make their final decision with respect to the 
transaction in question, so in the course of reviewing the 
intelligence, a report was prepared, and the final conclusion 
was reached based on that intelligence.
    The conclusion was that DP World's acquisition of P&O in 
and of itself does not pose a significant threat to U.S. assets 
in the United States, in Continental U.S. ports, so the final 
decision about what this intelligence told the Coast Guard was 
that there was not a significant threat to U.S. assets.
    The report also does acknowledge that there are gaps, lack 
of information in some cases, that would have been helpful in 
making a further intelligence evaluation, but even taking those 
gaps into account, the intelligence report concluded that there 
was not a significant threat to U.S. assets.
    Senator Reed. Thank you.
    Thank you, Mr. Chairman, for your patience.
    Chairman Shelby. Senator Allard.
    Senator Allard. Thank you, Mr. Chairman.
    I would like to address my question to Secretary Edelman 
and Secretary Baker. During public statements and in your 
testimony, you have referred to Dubai as one of our closest 
allies in the Middle East and indicated they are one of the 
most cooperative--well, actually, the country of the United 
Arab Emirates is one of our most cooperative Middle Eastern 
countries on a number of issues.
    And you have made the comparison to the Middle East, and 
these are countries that have a fairly active, at the very 
least, fairly active population not in support of U.S. 
policies; in fact, many of them would like to, in my view, see 
the United States disappear from the face of the Earth, making 
those kinds of statements.
    And you made these comparisons to that actually very narrow 
or small group. How would that country rate and that company 
rate when you take into consideration the whole world? See what 
I am saying? So, I would like to know what your valuations are 
in respect to the whole world as the United Arab Emirates would 
compare instead of just that narrow population that you 
selected.
    Mr. Edelman. Well, Senator Allard, I think that what I was 
trying to say is that the concern that has been raised in this 
case is that because Dubai Ports World is a government-owned 
entity that that would in and of itself present some higher 
level of risk. So the point I was making is that the Government 
of the United Arab Emirates has been extremely supportive since 
September 11 of the United States and other coalition partners 
in the global war on terror. I have mentioned all the different 
things they have done for us, and there are others that I did 
not mention.
    So it went to the issue of the government and government 
ownership. We do recognize that throughout the Middle East, we 
face populations that are in many ways hostile to some of the 
policies this Government has pursued, but my comments went to 
the issue of the government. On the issue of Dubai Ports World, 
I think really, that was more of a Coast Guard judgment to make 
in terms of how they function in terms of terminal management.
    I believe my colleagues in Defense who were involved in 
this, to the degree they had actual experience with Dubai Ports 
World at Jebel Ali, for instance, found that they ran the port 
very effectively.
    Senator Allard. I guess I am more concerned----
    Mr. Edelman. World class, I think they were saying.
    Senator Allard. Okay; so, your view is, if you rate them 
with the rest of the port operators throughout the world, they 
rate high in your mind?
    Mr. Edelman. I would say those colleagues in the Department 
of Defense who were involved in the review and looked at it 
felt that they were a world class operator, as I understand it.
    Senator Allard. Well, yes, you can be a world class 
operator, meaning that they operate throughout the world, but 
what--how do they rate among other businesses or other, you 
know, that provide this kind of service to other countries?
    Mr. Edelman. I think the judgment was that they operated 
efficiently and as well had been involved in some of these 
other programs that DHS and other departments run and 
cooperatively.
    Senator Allard. Well, I am thinking in terms of security. 
How do they rate in terms of security compared to other 
companies throughout the world?
    Mr. Edelman. That is why I referred to the Container 
Security Initiative. I think that again, it is really more an 
issue for my colleague from DHS, but I think our judgment was 
that they have performed well.
    There were concerns that DHS was addressing in the process 
that were addressed through the letter of assurances, and I 
think my colleagues in Defense who were involved in the process 
looked closely at the letter and waited for it to come in 
before making their final determination.
    Senator Allard. Did you want to respond, Secretary Baker?
    Mr. Baker. I would be glad to. We do not compare companies 
directly against each other. We ask whether they meet the 
highest standards that we can set, whether we are inspecting 
foreign ports, and we have inspected a number of foreign ports 
where DPW operates or measuring performance in our customs 
trade partnership against terrorism or cooperation on 
screening.
    Senator Allard. So when you let out this contract, it is 
not competitively bid?
    Mr. Baker. No, this is not our contract.
    Senator Allard. Well, how do you select that if you do not 
do it competitively?
    Mr. Baker. This was a purchase of a company. We do not 
regulate directly who may or may not operate a terminal. The 
port authority may have such regulations.
    Senator Allard. Is that competitively bid?
    Mr. Baker. They do charge for the terminals, but in this 
case----
    Senator Allard. No, I mean competitively bid. Do you ask 
for several companies to submit proposals as to what their cost 
would be to run the port maintenance and operation?
    Mr. Baker. That is not a role that we have ever played in 
port operations.
    Senator Allard. So do we have any idea how they are 
selected, then?
    Mr. Baker. Typically, the question is who is willing to 
build the pier, pay for the crane, pave the lot. That is worked 
out with the port authority, the price that is paid, and then, 
we regulate that person by virtue of their record and security.
    Senator Allard. Mr. Chairman, I think we need to look at 
the process, and this is, to me, I think we need to bring in 
somehow or the other how security is evaluated.
    Chairman Shelby. I agree.
    Senator Allard. I think that we have better companies out 
there, various companies out there or port operators who have a 
different record as far as their ability to manage the company 
and to work with security. Some of them would probably do a 
better job than the others.
    Now, I know that security is done by Customs, and I also 
know that it is done by the, you know, U.S. agencies. But the 
fact is that there is information that the operator has access 
to that I think can be valuable to a terrorist group. They may 
have access to arrivals and departures and when those occur on 
various cargo shipments.
    And if you are a terrorist, that is pretty valuable 
information. But I do not see anybody looking at that and 
whether that type of information is secure, and over the long-
term, that concerns me. They may look good today, but 
terrorists have a way of kind of moving in and being a problem, 
and I guess during the process, this would be something that I 
would raise a concern about. And I am just going to give you an 
opportunity to respond back to my thoughts.
    Mr. Baker. Senator, you are quite right that there is 
reason to be cautious about who is operating terminals in the 
United States. That is why we have some of the regulations we 
have.
    During the course of this 45-day investigation, we will be 
doing inspections of operations of both companies in various 
locations, and that information will be fed back into our 
decisionmaking process. So we will be looking very hard at 
precisely those questions, but I would say that today, based on 
the information that we had available when we made this 
decision, I could not identify a company that has done more for 
us when we have asked in terms of cooperation than the 
companies that we are talking about today.
    Senator Allard. I see my time has expired.
    Thank you, Mr. Chairman.
    Chairman Shelby. Senator Stabenow.
    Senator Stabenow. Thank you, Mr. Chairman, and thank you 
all for being here again.
    First, I want to just comment that I agree with the 
statements we need friends and allies in the Middle East. There 
is no question. And the UAE, I believe, has been a solid 
partner in many ways. In Detroit, Michigan, we have many 
positive relationships, business relationships, city to city 
relationships with Dubai. And it has been positive.
    My concern goes to the larger issue that I spoke about in 
my opening statement that relates to the policy of a business 
that is owned by a foreign government managing ports or 
anything else that deals with our security. And I have to say, 
listening today, I am sure there are many good people at every 
single level of these reviews, but I wonder if this is not what 
the September 11 Commission heard as they heard all of these 
various pieces going on that in the end just did not come 
together to make the right judgments as it related to security. 
A lot of good people; I agree with my colleagues that 
certainly, processes need to be improved and so on, but I also 
see a bureaucracy that looks like it could get pretty bogged 
down with not seeing the forest for the trees here on what we 
are really talking about here.
    It is not just about reports, although they are critically 
important, and I do not mean to undermine that. But Mr. 
Chairman, I think, I hope we are going to debate one of the 
fundamental policies, which is should a business owned by a 
foreign government be allowed to participate or to manage our 
assets that relate to security?
    And so, my first of two questions is tell me, it seems to 
me there are only risks to that situation. It does not matter 
how competent the business is. It does not even matter, really, 
what our relationship is at the moment, because we know 
relationships change. Times change.
    What are the benefits of even having that kind of 
relationship for a port? I mean, do we not have American 
businesses that are competent and able to do this work? What 
are the benefits?
    Mr. Baker. Let me start by pointing out that in fact, 
terminal operation is a field dominated by foreign companies. 
For whatever reason, it is not a field in which U.S. companies 
have played a large role.
    Senator Stabenow. If I may just interject one thing, 
though, Secretary Baker, you did say only one or two of the 
terminals were foreign government-owned.
    Mr. Baker. That is true. These are foreign companies, and 
only a relatively small number are owned by companies that are 
controlled by foreign governments.
    The question then arises, are we going to say there are 
certain areas that we will not accept foreign government 
participation in, and what are those areas? That is a position 
that we can take. Our view, when we reviewed this transaction, 
was that if we took their current level of cooperation, because 
I agree with you, one of the questions is will they, for 
reasons of state, change their mind about what their policies 
are going to be, that if we could take their current level of 
cooperation, which is very, very good, and lock it in, make it 
mandatory, require them to tell us all about their personnel, 
all about their security practices, all about how they control 
access to their computers, to their facilities and the like, 
that that would give us an ability to make sure that they could 
not change their policy quickly and move to a different one, 
and if they did, we would know about it and be able to take 
additional action ourselves.
    Senator Stabenow. Well, I appreciate that. I do not have 
confidence that it is ever possible to do that to the extent 
that the American people expect us to in terms of their 
security.
    But just one other question that relates to the broader 
issue and again, to Secretary Baker, talking about security. 
Again, the Coast Guard estimated it would take $5.4 billion to 
really secure our ports. The Congress and the Administration 
has authorized less than $1 billion, $700 million. Of that, you 
talk about increasing 300 percent. It must have been from zero. 
I mean, I am not sure how you get those numbers.
    But the reality is that the President, again, has proposed 
eliminating Port Security Grants. We are going to take that up 
in the Budget Committee. So when we look at this, and then, we 
listen to your testimony saying that, for instance, that we ask 
or require that the cargo companies coming in tell us 24 hours 
ahead of time what is in the containers and so on, I guess I 
would ask how do we verify that? How do we know they are 
telling the truth? And do you feel that right now, we are doing 
everything that we should be doing, and you can say to the 
American people that we are, in fact, securing our ports to the 
level that they need to be?
    Mr. Baker. Two points; the level of spending on port 
security is well over $2 billion, approaching $3 billion if you 
count in the Port Security Grant Program, much of it spent by 
the Coast Guard and CBP on the programs that we have been 
talking about today. And a very substantial contribution and 
almost all of it initiated since September 11, when port 
security spending was in the $200 million, $300 million range. 
So that is how I get the 700 percent increase.
    As to the question of how do we know that people are not 
lying to us about what they put into the containers, we have 
two or three ways of dealing with that. First, many of the 
people who are giving us this information are part of our Best 
Security Practices team, so that there are checks on what they 
are doing, who they are hiring, how they secure that cargo.
    Second, we get information from a variety of people. We may 
know what the shipper says he is sending, what the manufacturer 
says that he is sending, and what the importer thinks that he 
is receiving. We can compare that information, and where there 
are discrepancies, the risk factor goes up, and we will inspect 
it, and then, we will know who is telling the truth and be able 
to find out why there was a discrepancy. So we do have 
mechanisms for checking the accuracy of the assertions that 
people make.
    With all of that said, I cannot in any respect say we have 
a guarantee of security. We do not have a guarantee of security 
when we get on Metro or when we get on a plane. We have tried 
our best to manage these risks so that we have reduced and 
minimized the risk to the American people from a variety of 
possible attacks, and we think in cargo and port security that 
we have done a good job.
    Senator Stabenow. I would just say in conclusion, Secretary 
Baker, we can in no way ever guarantee absolutely on anything. 
But are you saying today that you believe that we are doing the 
very best we can on port security?
    Mr. Baker. We will, in this transaction, for example, we 
will go back and look at every piece of information that we can 
find, and we will be doing substantial amounts of----
    Senator Stabenow. I am talking about in general.
    Mr. Baker. In general?
    Senator Stabenow. Are you saying that we are doing 
everything that we can on port security?
    Mr. Baker. Yes, everything we can, we could always spend 
more money more usefully, but we have to recognize that there 
are competing needs, including needs that are aimed directly at 
the security of the American people.
    We have devoted an enormous amount of effort to precisely 
this concern, the possibility that someone would introduce a 
weapon of mass destruction into the container supply chain. And 
I would say that we have probably spent more effort, more time, 
more imagination, more regulation on that than on that than 
many other risks. So, I think we are doing a better job here 
than on many other areas that are also of great concern.
    Senator Stabenow. Mr. Chairman, that is also of concern to 
me, since the September 11 Commission gave us collectively a D. 
So that is of concern, and I do not say that you are not 
working hard, but that is the grade we received, and I think we 
need to be serious about it.
    Chairman Shelby. Thank you, Senator.
    Senator Dole.
    Senator Dole. Thank you, Mr. Chairman.
    Secretary Baker, in response to DHS' concerns, it is 
reported that one of the commitments that DPW apparently made 
was to open their books and give DHS access to formal legal 
process. However, it is my understanding that DHS did not 
insist that DPW keep copies of business records on American 
soil, where they would be subject to court orders.
    DHS also did not require, I understand, a designated 
American to response to Government requests. It is my 
understanding these conditions are routinely made a part of 
U.S. approvals of foreign sales. Did the Department ever ask 
DPW to comply with these requirements, and if not, why did not 
the Department insist on these requirements?
    Mr. Baker. I think let me first say that when we create 
these assurances, we try to tailor them to the industry and the 
particular security risks involved. The requirement of a U.S. 
security officer is drawn principally from the telecom 
industry, and there, it serves a very important purpose, 
because we often have to serve wiretap orders, including 
classified FISA wiretap orders, on the security officer. That 
person has to be an American citizen so as to be able to get 
the clearance to see those wiretap orders.
    In fact, the security officer here is, and we have 
assurance will remain during the pendency of the investigation, 
a U.S. citizen, but there is not the same level of concern 
there. If they were to choose a British National, for example, 
I am not sure that we would say that that automatically should 
be excluded, whereas in the context of telecommunications, we 
would say that.
    With respect to keeping data in the United States, again, 
in the telecommunications industry, where we often have these 
requirements, there is a very important reason to keep that 
data in the United States, because it is the calling records of 
the customers. All of my calls, all of your calls are recorded 
by telecommunications companies. We do not really want that 
information available to foreign governments where it might be 
misused, and so, we want it here.
    There is less privacy concern about how many tons of 
sorghum are in a particular container, and so, we did not focus 
on that as a crucial priority. We did, however, insist, as you 
said, you sometimes want these records here so that you can 
serve a court order to get them. Instead of that, we have a 
binding commitment from the company to provide us access to 
information about U.S. operations wherever that information may 
be.
    There is no restriction on whether it is in the United 
States or not with respect to their U.S. operations 
information, so that we do not need to worry about getting a 
court order. If they do not produce that information, they are 
in breach of their agreement.
    Senator Dole. Secretary Baker, according to a 2005 report 
by the GAO, auditors found a variety of problems in ports 
participating in the Container Security Initiative; 
specifically, containers identified as high risk sometimes were 
shipped to the United States before agents on the ground could 
find them at the originating port.
    Did CFIUS investigate whether any of these problems 
occurred at ports operated by DPW?
    Mr. Baker. The CSI program in Dubai, where DPW is based and 
where they are critical to the success of the program, actually 
started up just a month after the report was issued, so I am 
sure that none of the problems arose there.
    In fact, we have had difficulties in some ports getting 
complete cooperation from local authorities. They do not always 
agree with us that a particular container should be 
investigated.
    That is not true in Dubai. We have made 700 requests for 
high risk cargo to be examined, and the Dubai authorities and 
DPW have complied with every single one of them.
    Senator Dole. Let me ask both Secretary Kimmitt and 
Secretary Baker, in a post-September 11 world, the Department 
of Homeland Security has the imminent responsibility of 
ensuring that our ports and borders are protected. That being 
said, should the final signoff of these transactions come from 
the Treasury Secretary and not from the Secretary of Homeland 
Security?
    Mr. Kimmitt. Senator Dole, the final signoff in this case 
will come from the President because of the 45-day review and 
then will be reported to you.
    Senator Dole. Right.
    Mr. Kimmitt. And the way the system operates, again, once 
you get into the investigation, it would have to end up on the 
President's desk for decision, and certainly, no decision would 
be taken without Homeland Security signing off on it. And among 
the changes we are instituting is to make sure that people at 
higher levels in the Department not only are informed earlier 
but are also involved earlier.
    Mr. Baker. If I could add to that----
    Senator Dole. I am referring to the CFIUS process, the 30-
day----
    Mr. Baker. I completely agreement with Deputy Secretary 
Kimmitt. Each of the participants, as the Deputy Secretary has 
made clear, has its own vote and can make that determination on 
its own, so each of us has the ability to insist that a 
transaction go to the President for review. That may not be 
clear in the statute, but that is the current practice. And if 
this Committee of Congress wanted to make that clearer, there 
would be no objection from our point of view.
    Senator Dole. Thank you, Mr. Chairman.
    Chairman Shelby. Thank you.
    Senator Menendez.
    Senator Menendez. Thank you, Mr. Chairman.
    This is such an important issue in its immediate 
application, beyond the overall issues of reforming CFIUS, 
which I agree with many of the comments made by the Chair and 
the Ranking Democrat and others. But I want to focus on the 
immediacy, because it is very important to the people of the 
State of New Jersey. And so, since I have so many questions, I 
hope that you will give me a responsive but tight answer.
    Secretary Kimmitt, as I understand it, you said that Dubai 
Ports World has not filed for that additional 45-day review; is 
that correct?
    Mr. Kimmitt. That is correct, Senator.
    Senator Menendez. So that means that as of this moment 
right now, legally, they have the authority, since the original 
review has run, and today is the enactment date, they have the 
authority to operate notwithstanding what they said they will 
voluntarily do, but they have the authority to operate these 
terminals at the various ports in the United States.
    Mr. Kimmitt. Senator, my understanding is that the deal is 
not going to close today and that we will have the refiling 
before the deal closes.
    Senator Menendez. You say the deal is not closed today. In 
terms of the legal review of this, technically, they have the 
authority. If they close the deal later today, I see that the 
court in Great Britain gave them the authority. That is in the 
news today. So therefore, if they close the deal today, they 
have legal authority right now to operate those ports, do they 
not, to operate the terminal facilities at those ports.
    Mr. Kimmitt. That would be correct if they closed the deal, 
but although they had announced March 2 as the closing date, I 
think not only in response to us and the courts but also, 
frankly, because they have been listening closely to the 
Congress, I think that deal will now not close until tomorrow 
or Monday and that we will have the refiling before the 
closing. We have been informed by their counsel that we will 
have the refiling before the closing.
    Senator Menendez. Let me ask you one more question. I 
appreciate that, but if they do not file before the actual 
closing takes place, would it not be true that they have the 
legal authority to proceed if that is the case?
    Mr. Kimmitt. That is a hypothetical, Senator. The answer to 
the hypothetical is yes. The good news is they said--I will try 
to keep this tight--they said on Sunday they were going to 
refile. They would abide by the results of that review; that 
they would hold separate the U.S. operations, and they would do 
that throughout the pendency of the review.
    Senator Menendez. Let us assume that they honor that and 
that they do not close before they file. Let us assume that. 
When they file, which they are filing, as I understand it, on 
this voluntary 45-day review, which I agree should have been 
the law automatically. Does that stop the clock as it relates 
to the operations at the ports of the United States until that 
review is finalized and signed off by the President? That is a 
simple yes or no.
    Mr. Kimmitt. The operations at U.S. ports will be held 
separate. The refiling will moot the prior approval. The 
decision at the end of the new review and investigation will 
supersede the prior approval, and they have agreed to abide by 
the results of the 45-day investigation.
    Senator Menendez. So all of the other verbage that they 
had, that they do not give up their rights under the original 
determination, that was superfluous?
    Mr. Kimmitt. What I would say is the parties, when they 
make presentations, I would imagine to the legislative as well 
as the executive branch, assert their position. We consider it, 
but at the end of the day, we follow the law.
    Senator Menendez. Secretary Baker, I have to be honest with 
you, I find your description in your testimony just a little 
bit too simplistic and I think of concern when you suggest that 
this is about a pier, a crane, and a parking lot. You know, the 
reality is you gave us the impression that you screen all of 
this cargo abroad, but the United States does not screen all 
this cargo abroad; is that correct?
    Mr. Baker. We do screen it all. That does not mean that we 
inspect it all. We run the containers and the information we 
have about them through a variety of algorithms designed to----
    Senator Menendez. With all due respect, Mr. Secretary, I am 
not talking about algorithms.
    Mr. Baker. Right.
    Senator Menendez. Let us not confuse the American people. I 
am talking about do you physically go abroad and do an 
inspection of the cargo that is coming to the United States? 
Yes or no?
    Mr. Baker. Yes.
    Senator Menendez. Do you do an inspection of all of the 
cargo that is coming to the United States?
    Mr. Baker. No.
    Senator Menendez. You do an inspection of less than 5 
percent of the cargo that is coming to the United States.
    Mr. Baker. I would say we do the top and most risky 5 
percent.
    Senator Menendez. So 95 percent, bottom line, does not get 
inspected abroad, let us make that clear, of what comes to the 
United States. Also, the suggestion that this is just a pier, a 
crane, and a parking lot, well if that was the case, then, why 
do you both in the Customs Trade Partnership Against Terrorism 
Act, which you cite in your testimony, as well as the Container 
Security Initiative, you list a whole host of things that the 
terminal operator does that has a security equation to it?
    You go from a wide variety of security practice, from 
fences and lighting to requiring that the member companies 
conduct background checks on their employees, maintain current 
employee lists, require proper identification, address physical 
access controls, facility security, information technology 
security, container security, security awareness and training, 
personnel screening, and important business partner 
requirements? That is a lot more than a crane, a pier, and a 
parking lot.
    Mr. Baker. Most of those are addressed to making sure that 
there is the personnel, in particular, and the personnel that 
might gain access to that facility have been investigated and 
are people that we are willing to trust.
    Senator Menendez. Mr. Secretary, it is all about security, 
is it not?
    Mr. Baker. Well, of course.
    Senator Menendez. It is all about security. So this is not 
just a pier, a crane, and a parking lot. And by the way, all of 
these things that I just described, this is self-administered, 
in this case by the Government of Dubai that owns the company. 
This is self-administered. You do not administer this.
    Mr. Baker. We review and audit their compliance with this 
program.
    Senator Menendez. It is self-administered, is it not? Yes 
or no? You may review what they self-administer, but it is 
self-administered.
    Mr. Baker. They are expected to meet all of those 
requirements, and we check to make sure they meet them.
    Senator Menendez. Maybe my command of the English language 
is deficient. Do they administer all of the things I just read 
to you on their own, subject to your review, but do they 
ultimately administer it on their own, yes or no?
    Mr. Baker. Like any other regulatory program, you set the 
standards; you tell people what they have to do; and then, you 
make sure they do it.
    Senator Menendez. And by the way, a manifest is ultimately 
what you depend on, is it not?
    Mr. Baker. In most cases.
    Senator Menendez. Well, if a company wants to ultimately 
put something on a ship that is not on its manifest, how would 
you know?
    Mr. Baker. Then, it would come off the ship and would not 
have been notified to us.
    Senator Sarbanes. Particularly when the company is both the 
sending and the receiving party.
    Mr. Baker. We do have mechanisms for making sure that the 
supply chain is secure so that the ships are not accepting 
containers that are not listed on the manifests. There are a 
number of parties who have to handle this----
    Senator Menendez. Mr. Secretary, I am talking about 
thinking outside the box. The reality is that something can get 
on a ship that a company or, in this case, a foreign government 
wants to put on that ship that is not on the manifest and that 
lo and behold comes into a port of the United States, and God 
forbid it is not electronics or clothing but a nuclear, 
chemical, or biological weapon, and it explodes before it comes 
off. That is a little too late, is it not?
    Mr. Baker. I will not say that that risk is not present. I 
will say that that risk is not substantially increased by 
owning a terminal operation in the United States. You could do 
that without having a terminal. Take the ship into the port and 
set it off then without ever touching a terminal.
    Senator Menendez. Finally, with the indulgence of the 
Chair, if I may ask Secretary Edelman, would it be fair to say 
that what Benjamin Disraeli, the British Prime Minister one 
time said that governments have no permanent allies or enemies, 
only permanent interests, is pretty much true?
    Chairman Shelby. Go ahead, go ahead, Senator.
    Mr. Edelman. Senator Menendez, you must have discovered in 
my biography that I am a former history graduate student. I 
thought it was Palmerston actually, not Disraeli, but I could 
be wrong about that.
    Senator Menendez. I would be happy some other time to have 
a cup of coffee with you and go over who said it, but 
basically, the principle----
    Mr. Edelman. But we obviously have ongoing national 
interests, as does the UAE. I think in the current 
circumstance, we have found a confluence of interest in 
combating terrorism.
    Senator Menendez. My point is ultimately, a foreign 
government acts in its own interests at the end of the day. It 
may coincide with us at a given moment; it may diverge with us. 
Am I wrong, but at one time, was the United States not somehow 
supportive of Saddam Hussein in his war against Iran? Am I 
wrong about that?
    Mr. Edelman. We had, obviously, a period of time when we 
felt that there was some commonality of interest with regard to 
Iranian domination of the Persian Gulf.
    Senator Menendez. So my final point is this, since 
governments, as we can see with what Hugo Chavez is doing with 
his oil company totally owned by a foreign government and not 
subject to the marketplace in terms of trying to promote his 
own foreign policy ideas right here in U.S. soil, can change 
their allegiances at any given time and their interests.
    One of the things that this merger will do, according to a 
February 20 article in the British maritime publication Lloyd's 
List, that the P&O, which is the company that selling to Dubai, 
recently renewed a contract with the United States Surface 
Deployment and Distribution Command to provide stevedoring, 
which is about loading and offloading of military equipment at 
Beaumont and Corpus Christi ports in Texas until the year 2010.
    And according to the Army logistician, that accounts for 40 
percent of the Army cargo deployed in support of Operation 
Iraqi Freedom. On that and so many other realities, we use 
commercial ports increasingly to send supplies and equipment to 
our soldiers in the field. Imagine that a foreign government 
just simply takes the benign decision that I do not want to 
operate the terminal. I do not want to operate the terminal. I 
am not doing stevedoring at a critical moment in terms of 
deployment of goods and supplies abroad. Is that not a real 
consequence to the national security of the United States?
    Mr. Edelman. Obviously, that hypothetical would be. I 
believe that the Army Materiel Command looked closely at the 
situation at Beaumont and Corpus Christi and did not conclude 
that it presented a risk for them. It was also looked at by 
U.S. Transportation Command.
    Senator Menendez. I only gave you one example; it is 
multiplied by many more times, and the continuous movement of 
port operations in the hands of foreign creates a risk to us.
    Thank you for your indulgence, Mr. Chairman.
    Chairman Shelby. Senator Dodd.
    Senator Dodd. Thank you, Mr. Chairman.
    And let me begin by thanking, first of all, our witnesses. 
You have been sitting here for a little more than three hours, 
and we appreciate it very much. I know Secretary Kimmitt. I 
have known his family for a long time; have great appreciation 
for him. And I would be remiss if I did not express those 
feelings to you. I do not know the other of the witnesses that 
well, but I thank you for your presence here today.
    Let me pick up a bit on Senator Menendez's very good line 
of questioning in my view here. I have been intrigued in a 
sense, Secretary Baker, about the Department of Homeland 
Security's commitment to this whole process. You became a 
member of this CFIUS board in 2003, as I understand it, and 
yet, for the first time, it is in this year's budget that you 
are actually asking for some money to have a CFIUS office at 
the Department of Homeland Security; is that not correct?
    Mr. Baker. I was not around last year, but my understanding 
is there was a request for last year as well for funds. There 
was no policy office, so the policy office did not ask for it.
    Senator Dodd. But I am looking at the request here in 2000, 
and it is an $8 million request to provide funding to establish 
the CFIUS office within the Homeland Security Department. But 
what raises the issue is that it just did not seem to be a 
terribly high priority for the Department of Homeland Security, 
despite being a member of that Committee until most recently 
here. That is my concern.
    Mr. Baker. No, I would say that that is not correct. We 
have been a very aggressive and active participant, and there 
has been a substantial CFIUS activity at the Department for 
some years.
    Senator Dodd. The facts are there was no clear office of 
responsibility for CFIUS duties. That office does not exist, at 
least it does not according to the budgetary request. But let 
me move on.
    The one word that has not been mentioned here in the 
discussion of all this, and it is something I want to raise 
with you in terms of what we might do to correct the problem is 
the voluntary nature of all of this. I mean, what happens to 
initiate CFIUS involvement is that the company or the country 
voluntarily comes forward and asks for permission of this 
office to operate.
    We have an example, and I want to know if this is the case 
or not, but I am told that last year, in February 2005, an 
affiliate of DP World, DP International, successfully acquired 
container freight facilities previously owned by American--the 
CSX company, the company that Secretary Snow headed before 
becoming Secretary of the Treasury. Was CFIUS notified of the 
CSX or DP International in 2004 or 2005 of the pending 
acquisition by DP International of CSX Orange Blossom 
Investment Company Limited, a company which operates container 
freight terminal facilities and businesses in the United 
States, Hong Kong, Korea, Venezuela, and elsewhere? Did that 
request come before CFIUS?
    Mr. Kimmitt. Sir, I will have to check that, Senator Dodd. 
My recollection was that because U.S. assets were not involved, 
it did not come before CFIUS. Could I just ask a quick 
question, because that was before I came into government; yes, 
there were no U.S. assets within the purchase. The U.S. assets 
had been sold previously.
    Senator Dodd. That is not true. Under this here, the Dubai 
Ports International here under that particular request, these 
companies operate container freight terminal facilities, and I 
listed the countries, and the last one on the list is the 
United States. Now, they are not required by law to come, are 
they?
    Mr. Kimmitt. They are not required by law, but I mentioned 
when you were briefly out of the room, Senator Dodd, that the 
penalty for not filing is that the President has absolute 
authority to unwind the deal for anyone who has not gone 
through the approval process.
    Early on, after you passed the law in 1988, as I mentioned, 
the annual filings were almost as high as 300 per year. They 
are now down to somewhere between 50 and 75 per year, I think 
in part because, and I think particularly after this case, no 
one is going to do an acquisition that might have a national 
security implication without at least asking the question of 
whether they should not go through CFIUS.
    If they fail to do it, and we find that they should have 
done it, then, the President has the authority to modify or 
unwind that deal.
    Senator Dodd. Well, should we not be talking about in here 
as we are trying to get this right now, this process of looking 
forward, should there not be some mandatory requirement here 
where national security implications are involved that it does 
not become a voluntary nature, whether you want to set a dollar 
amount or whether there is some other criterion, but it seems 
to me under existing law, whatever the decisions people make 
because they are fearful what may happen down the road, it is 
strictly a voluntary process at this point, and it should 
become mandatory; would you agree with that?
    Mr. Kimmitt. I would like to engage in that discussion. I 
think certainly, after we get through this process, it would be 
good for the investing community, both in the United States and 
abroad, to know what the rules of the road are, and I think 
among the other suggestions that you made, we would like to add 
this one to the ones that we would discuss with you.
    Senator Dodd. And I would like you to check on this. 
Correct me if I am wrong, but my list shows that the United 
States--and I mentioned the----
    Mr. Kimmitt. I will check mine and get back to you, sir.
    Senator Dodd. That is an example of what I have been 
talking about here. If that did not come before CFIUS for 
approval, and yet, there are U.S. ports involved in this thing, 
that is an example of something happening. If it is involved, 
by the way, I would respectfully request that that one be 
examined and be put part of the 45-day examination period as 
well, it seems to me.
    Mr. Kimmitt. I will find the facts, sir.
    Senator Dodd. It was an article by, as I understand it 
here, this is the right piece I have here, I think it is, this 
is from--it is called ``A Port in the Storm over Dubai'' by 
Stephen Flynn and James Loy, who I gather are I think former 
Coast Guard officials in which they make the case here, Mr. 
Chairman, that requiring a global container inspection system 
that scans contents of every single container destined for 
American waterfronts before it leaves the port.
    They note that this is already in place; since 2005, the 
containers entering the truck gates of two of the world's 
largest container terminals in Hong Kong have passed through 
scanning and radiation detection systems. It seems to me, if it 
is already being done in one place, and maybe this is to 
Secretary Baker, are we implementing such a proposal? It seems 
to me if the technology exists today to have something like 
this in place, we could begin to eliminate a lot of the very 
legitimate concerns being raised if you could have the scanning 
that would certainly would help determine whether or not 
materials coming in here are going to be harmful or not.
    Mr. Baker. We are following this quite closely. It is a 
pilot project that is an effort to see whether this can be done 
on a 100 percent screening basis. There are a lot of questions 
still to be answered. Currently, I believe the Hong Kong 
facility is x-raying all the cargo, but nobody is looking at 
the x-rays, so they are really doing this to show that you can 
actually x-ray trucks as they move through at a reasonable 
speed.
    Senator Dodd. Look at this. This is the article they wrote. 
I am not knowledgeable about it. They are claiming it is being 
done. These are two former officers of the Coast Guard who 
apparently have some knowledge about all of this. It seems to 
me that if that technology exists, then, it seems to me the 
Department of Homeland Security or the appropriate agency 
should be examining why this cannot become a part of our 
operations.
    Mr. Baker. We are certainly looking at it quite closely, 
and we certainly have not rejected the idea. We want to make 
sure that it is practical.
    Senator Dodd. Now, let me just quickly go back, because I 
raised these issues with you earlier in my opening comments 
here about some steps that need to be taken, and I appreciate 
the generous comments during the testimony you provided here.
    But let me just mention the way they are again and ask you 
quickly on whether or not you would have any objections to what 
we are suggesting here, and obviously, we would like to 
continue talking to you about other matters you might add to 
some legislation here now to update the CFIUS program; one, to 
move away from a voluntary to more of a mandatory system. Now, 
you would have to have what criteria you establish to make that 
mandatory, but certainly, the general notion of getting away 
from voluntary notion of it; to include the Director of 
National Intelligence and the CIA as part of the panel of 
CFIUS; to have a subcommittee with the agencies, the 
intelligence agencies included, so they have to go to their 
respective shops to determine whether or not these matters 
raise concerns; to have vice-chairs, the Secretary of Defense 
and Homeland Security, so you are covering the economic, the 
intelligence, and the security matters; and then, whether or 
not you would be willing to accept a notion of Congressional 
disapproval process on a fast track even with necessarily a 
two-thirds vote or something but some manner by which the 
Congress could then respond to some of these matters.
    Would you quickly just tell me how you are reacting to 
these suggestions?
    Mr. Kimmitt. Senator Dodd, I think they are very 
constructive suggestions. I think we would like to examine them 
with you. I think up until the last one, it would be something 
that we would largely be engaged with the CFIUS members.
    I would note that the intel subcommittee piece, I would 
defer to your Chairman on this. As we try to get a true 
national intelligence capability, I think we have to rely on 
the DNI to be able to produce that kind of comprehensive, 
coordinated intelligence. I would be a little bit concerned 
about setting up a subcommittee that itself could suggest that 
the DNI is not doing what is done.
    The last one, in terms of the Congressional involvement, we 
would have to involve people beyond the Committee, but I think 
we are open to discussion of all your suggestions.
    Senator Dodd. Secretary Edelman.
    Mr. Edelman. Senator Dodd, as I said in my testimony, I 
think the suggestions you have put forward today are extremely 
constructive. First time that I have thought about some of 
them, and so, I would want also to take them back. And one 
thing we have all learned in this process is that it needs to 
move up to higher levels in our respective departments when 
decisions are being made.
    And so, since the Secretary of Defense's equities would be 
involved in what you have proposed, I think I would want to 
discuss it with him.
    Senator Dodd. I am sure.
    Mr. Baker. There are two aspects of your proposals that I 
think would require further thought on our part. If you are 
going to make filings mandatory, then the definition of what 
triggers a filing must be fairly clear for people, and as we 
have discussed, one of the values of CFIUS has been that when 
Homeland Security joins the CFIUS process, they can help expand 
the issues that we are concerned about, and that word gets 
around.
    I would almost rather rely on a certain informality in that 
and not have people still filing something that was important 
in 1988 but is not important now.
    Senator Dodd. I would just note here, be careful about the 
informality. I think the point that has been made by all of our 
colleagues up here, and I appreciate that point, but it is the 
informality of all of this that I think may create a lot of the 
problems here.
    Mr. Baker. I hear you. It is just that if we end up getting 
1,000 a year, we may not give it as much attention as we 
should.
    Senator Dodd. By the way, that article I mentioned earlier, 
I should point out, also, the author of it is also the former 
Deputy Secretary of Homeland Security.
    Mr. Baker. And a fine man.
    As to the DNI's participation, and the Chairman and I share 
a long history with the intelligence community. One of the 
difficulties is whether the DNI would participate as a policy 
representative speaking up for the interests of the 
intelligence community in having technology that they can 
trust, which is an important problem for them, or whether they 
are participating to provide intelligence.
    And if they are participating to provide intelligence, 
then, you always worry that if they are also participating for 
a policy reason that their policy goals influences their 
intelligence analysis. And so, in this case, I think actually, 
the DNI's policy interests should lead them to participate, but 
then, they should not have an authoritative intelligence role. 
They should simply be responsible for getting as much 
intelligence as possible.
    Senator Dodd. I do not have a problem with that, because 
remember, the motivations behind the Byrd Amendment and other 
things were to get at those intelligence questions, and the 
concerns that Senator Sarbanes and others have raised that it 
appears in the GAO report that too much of this is being 
determined, the outcomes, by the economic interests and even in 
some cases, I think probably military interests. But they are 
not illegitimate interests, I might point out.
    But they trump the security interests, and that is one of 
the concerns here. And I think the Chairman said it well in 
October; others have. Nothing trumps security issues. It should 
not, anyway, in the final analysis, so it is an important----
    Mr. Baker. I do not disagree, and I think that the DNI does 
have a significant security policy interest here.
    Senator Sarbanes. I understand that in the Treasury, the 
office that is responsible for investment flows is also the 
office that staffs CFIUS; is that correct?
    Mr. Kimmitt. That is correct. But again, as I mentioned to 
you before, inside the Treasury, we have a range of 
responsibilities, including the terrorist financing 
responsibility that I mentioned to you. We involve all Treasury 
offices, as do other departments and agencies. That has been 
where the CFIUS process has been located since 1975, even 13 
years before the law was passed.
    Senator Dodd. Secretary Joseph, quickly.
    Mr. Joseph. Senator, thank you.
    I find all of your ideas to be potentially very 
constructive, and I think we should look at each of them very 
carefully as we work forward on this.
    Senator Dodd. I thank you.
    Let me just last, because of my local interest here, but 
Doncasters, Senator Schumer raised this issue earlier; I raised 
it as well. It is a Connecticut company here, so we have more 
than just a passing interest. What is the nature of this 
review, Secretary Kimmitt, that is occurring with the Doncaster 
that was the subject of a lengthy article this morning by the 
Dubai firm?
    Mr. Kimmitt. Senator Dodd, the company issued a release in 
December that they, Doncasters was going to sell its assets to 
Dubai International Capital, including some assets in the 
United States. They noted that the sale was subject to United 
States and German regulatory approvals. I do not know what is 
happening in other departments and agencies in the U.S. 
Government, but in the CFIUS process, it is now in the 45-day 
investigation period.
    Senator Dodd. Thank you. Keep us posted on this as well. 
This is a $1.2 billion transaction; is that correct?
    Mr. Kimmitt. I do not think the U.S. part was that large. I 
will come back to you with the facts on it. But again, 
something that we discussed earlier, remember, we are barred by 
the terms of the Exon-Florio Act of discussing in public 
information available during the pendency of a review, but as 
the Chairman and Senator Sarbanes made clear, obviously, we 
could be responsive to you, we would be glad to come back and 
share with you what we can.
    Senator Dodd. Thank you.
    Mr. Chairman, thank you very much.
    Chairman Shelby. Thank you.
    Senator Schumer.
    Senator Schumer. Thank you, Mr. Chairman, and before I get 
into my questions, I want to thank all of you for your 
patience, and I am sure you have not had an easy couple of 
weeks, so thank you for your service. And I want to thank the 
Chairman for his usual generosity in terms of letting people 
ask questions, et cetera.
    Chairman Shelby. Thank you.
    Senator Schumer. That does not happen too often.
    I would like to return to where Senator Dodd left off, and 
that is the new report about Dubai International Capital taking 
over Doncaster, which has U.S. interests. And here is what 
totally befuddles me; why did CFIUS implement a 45-day review 
for tank engines in a box but not for potential nuclear weapons 
in a ship's container? Why did this one merit a review and the 
other one not? It is totally befuddling. Is there any rhyme or 
reason to it?
    Mr. Kimmitt. There is a procedural rhyme and reason. I am 
not sure that it would satisfy the political dimension of your 
question.
    Senator Schumer. It is a substantive dimension. Why one and 
not the other?
    Mr. Kimmitt. Well, here is the substantive answer, then. 
The substantive--no, I am sorry, this is a procedural answer, 
and I think we would have to discuss substance with you in 
private, Senator. But the procedural answer is because security 
concerns were not resolved by the end of the 30-day period; 
that is, there was not consensus among the CFIUS members that 
concerns that had been raised had been addressed. It went into 
the 45-day period.
    Senator Schumer. But just give us, without giving us the 
details, which I know you are not allowed, how would--it is 
just going to befuddle, I think, most of us on this panel, if I 
can take the liberty, and certainly the vast majority of 
Americans that giving control to a Dubai company over our ports 
does not raise security concerns, but giving Dubai control over 
a company that makes parts to tank engines does.
    Mr. Kimmitt. I understand the question.
    Senator Schumer. It does not add up.
    Mr. Kimmitt. I understand the question; I understand the 
concern. The fact is that the same broad range of security 
professionals, relying on information provided both by the 
companies and by the intelligence community, came to one 
decision on the Dubai Ports World case within the 30-day 
period. They came to a different decision on the second one. 
The effect, though, as of later today, Senator Schumer, when we 
get the refiling is that both cases will be in the 45-day 
period.
    Senator Schumer. I understand that. Well, I think we are 
going to need further inquiry on this, even if we have to do it 
behind closed doors.
    Next, also on this case, CFIUS is required to contact or 
brief Members of this Committee when a 45-day investigation is 
launched. Did you brief the Committee on the Dubai 
International Capital deal, and who on the Committee did you 
brief ?
    Mr. Kimmitt. We briefed Committee staff, Senator, on the 
basis of the public information made available by the companies 
and are prepared to respond to further questions, but we would 
have to do that not on the public record.
    Senator Schumer. Okay; because you did brief Committee 
staff; was that right?
    Mr. Kimmitt. We have, again, on the basis of the publicly 
available information.
    Senator Schumer. I did not ask if you gave them the 
details, but they were aware that such a transaction was now 
undergoing a 45-day review.
    Mr. Kimmitt. They were.
    Senator Schumer. Because I was unaware of it.
    Mr. Kimmitt. There had not been a requirement; I mean, you 
use the term requirement, but we are learning the lessons. As I 
said to the Chairman in response to an earlier question, we had 
focused a lot of attention on briefing on closed cases. There 
are some restrictions on pending cases. Those restrictions do 
not extend, by and large, to the Congress.
    One of the things we wanted to make sure that was done was 
that for cases for which there had been public announcement or 
comment by the companies that we had called that to your 
attention and were able and then were prepared to respond to 
questions.
    Senator Schumer. But you do not agree that you are required 
to brief people on this Committee when you initiate a 45-day 
full investigation?
    Mr. Kimmitt. I do not think that has ever been a 
requirement. I think that is something that we need to discuss. 
As I had said earlier, Senator, I think what we need to find is 
a way that we can continue to encourage the companies to file 
sensitive proprietary information with us, so we can do a 
security review, you can do your oversight review; that if 
companies come in and find that the deal is not going to go 
forward, they can walk away without the reputational risk.
    Now, again, I may have used the term briefing. That was 
generic. What we provided was notice of the status of the case 
and are available to respond further to questions but would 
have to do that in private.
    Senator Schumer. And who was that provided to?
    Mr. Kimmitt. The staff of this and other Committees plus 
the leadership in both Houses. That was on Monday.
    Senator Schumer. Okay; next question goes to the way you do 
investigation. I was shocked to learn, this is one of the 
things that provided impetus for me to really be so involved in 
this, that even in the 30-day review of Dubai Ports World, no 
one at the Port Authority of New York-New Jersey had been 
contacted.
    Now, again, I do not want to get into the details of this 
investigation, but do you not routinely, if it is a situation 
with a port, talk to some of the people who run the ports and 
see if they have concerns before you give somebody a green 
light?
    Mr. Kimmitt. Well, I think what we relied on, Senator, 
although again, we are learning that we and you together 
perhaps need to do some more, particularly in terms of 
outreach, but we really rely on those agencies who are in 
direct contact with both the owners and operators of the ports.
    And so, for example, not only Homeland Security with its 
important responsibilities with the Coast Guard and Customs and 
Border Patrol, but we also brought the Department of 
Transportation in.
    Senator Schumer. Let me ask you. Did anyone in Homeland 
Security or any of the departments under your jurisdiction 
contact the Port Authority during this 30-day period?
    Mr. Baker. We believe we were constrained by the 
confidentiality restrictions from telling anyone about the 
pendency of this proceeding. So we did not ask for people to 
provide comment on the transaction.
    Senator Schumer. So, in other words, it would be fair to 
say that you relied only on internal governmental people in the 
agencies and did not ask anybody from the outside about these 
concerns.
    Mr. Baker. I think that would be fair.
    Senator Schumer. Is that typical?
    Mr. Baker. That would be typical.
    Senator Schumer. I think that is really wrong. Will you not 
be able to do it in the 45-day review for Dubai Ports World?
    Mr. Baker. Because this is now public, the fact of the 45-
day review, we will be consulting with the port security 
officials across the country----
    Senator Schumer. Let me clarify. So the law would not have 
allowed you to talk to them in the 30-day review?
    Mr. Baker. That is how I read it, yes.
    Senator Schumer. Do you read it that way, Secretary 
Kimmitt?
    Mr. Kimmitt. Well, again, what the law says is that we are 
barred from publicly discussing any information provided to us 
during the pendency of a review. There is an exception, as the 
Chairman pointed out, for the Congress. There is not an 
exception for State and local people. Clearly, we are going to 
reach out to them now, and I think one of the things----
    Senator Schumer. But could someone in Homeland Security not 
have gone to somebody in the Port Authority and said do you 
have concerns about who would--you maybe did not have to give 
the name, but someone is thinking of buying the British 
company, P&O, would you have security concerns? Because the 
talk out there is that oh, whoever is the operator does not 
matter in terms of security.
    Well, that is not the view of everyone I talked to who is 
on the ground, whether it be the Port Authority, the shippers, 
or anybody else. Why could you not have gone to them and done 
this? You could have, could you not?
    Mr. Baker. No, our view----
    Senator Schumer. You would not have to mention the name 
Dubai Ports World, but you could certainly----
    Mr. Baker. Yes, but I would say we are taking a great risk 
if the result is that someone decides, gee, they are doing a 
CFIUS review and infers from the fact that we are asking the 
questions that there is a CFIUS review underway. We were 
concerned that we could have been charged with essentially----
    Senator Schumer. In all due respect, are you not taking a 
greater risk by not asking?
    Mr. Baker. Well, as matters have eventuated, for sure.
    Senator Schumer. Thank you.
    Mr. Kimmitt. But, Senator, we were relying on both the 
officials in the Department of Homeland Security, to include 
the Coast Guard, Customs and Border Patrol. We reached out, 
although they are not a member of CFIUS, to Transportation. 
These are the people who are in touch with those officials 
every day on port security issues. They may not have discussed 
the specific transaction, but just as Secretary Edelman said, 
the Army asked through transportation people about what was 
happening in Beaumont.
    I think we were relying on those people to do as much as we 
could for----
    Senator Schumer. Well, let me ask, then, Secretary Baker. 
Do you agree with the view that the port operator has nothing 
to do with security?
    Mr. Baker. I would not say that the port operator? You mean 
terminal operator?
    Senator Schumer. The terminal operator.
    Mr. Baker. No, they obviously have a role in security.
    Senator Schumer. Good; well, let us shout this out to the 
world and all those columnists and everybody else. They do have 
a role in security. Let us make that 100 percent clear, which 
has been obvious to anyone who has the details but not to 
anybody else.
    One final question about this. When you do your review, the 
30-day review now that is completed, do you affirmatively go 
out and affirmatively ask people to look into it, or do you 
just, because I have been told that you just look through the 
record, and if Dubai Ports World has nothing negative, there is 
nothing negative in the various records of the various 
agencies, both confidential and not, that you give a green 
light.
    Is that accurate, Secretary Kimmitt?
    Mr. Kimmitt. That is not accurate.
    Senator Schumer. Good.
    Mr. Kimmitt. This new review will be----
    Senator Schumer. No, I mean the 30-day review. The 30-day 
review, the one that you did already.
    Mr. Kimmitt. No, on the 30-day review, remember that we 
were 60 days into interaction with the company on this. We 
already had the intelligence assessment, and as I mentioned 
when you were out briefly, Senator, the intelligence 
assessment----
    Senator Schumer. You are kind. I was out more than briefly, 
but that is okay. You were very nice.
    Mr. Kimmitt. Well, maybe it was Disraeli; I do not know.
    Senator Schumer. Right.
    [Laughter.]
    Mr. Kimmitt. But the point that I would make is that a lot 
of times, when the intelligence community is asked a question, 
they might look at it from a no derogatory or no adverse 
information. The standard used by my colleagues and me is what 
is right for the national security interests of the United 
States. Would my putting my name on that line saying that there 
is no national security adverse effect from that decision, that 
is really what guides us and will continue to guide us during 
the 45-day review. The review will be thorough; it will be 
impartial; and it will ask just one question. What is right for 
the Nation's security, including our ports?
    Senator Schumer. So if you gain new information, you will 
not hesitate to reverse the position of the 30-day review.
    Mr. Kimmitt. We will get new information, and we will 
consider it in deciding what is right for this country.
    Senator Schumer. And will have no hesitation at changing, 
at the 45-day saying it might damage security if you believe it 
does.
    Mr. Kimmitt. At the end of the day, I am in this business 
for one reason; to protect the national security interests of 
the United States, and I also know, Senator, that you and many 
others will be judging how we do, because you will get a 
detailed report from the President of the United States.
    Senator Schumer. Right; one quick last one. I thank the 
Chairman; as I said, his generosity, I have rarely encountered 
it in my 25 years in Congress, as generous as the Chairman has 
been with all of this, and thank you.
    Chairman Shelby. Take another minute or two.
    [Laughter.]
    Senator Schumer. That is how it works around here, 
Gentlemen.
    I mentioned in my opening statement the quadrennial review, 
which we have not heard from in 14 years. Have you done those 
quadrennial reviews?
    Mr. Kimmitt. Boy, I will tell you; I do not know if this is 
the last question, but it is a thicket. I mean, this was 
something that was mandated as you mentioned in the law. It was 
done one time. It asks a lot of very detailed, data-oriented 
questions.
    Senator Schumer. Right.
    Mr. Kimmitt. When I came in and discovered this, and the 
Chairman and I were talking about the GAO report, I said my 
God, let us get this thing up right away. Turned out that we 
had a draft, but it just did not have the supporting 
information that we thought would have made it worthwhile. We 
have gone to the intelligence community. That was one of the 
first things I did, saying we need help to make sure that our 
intelligence, our information basis is right, because how can 
you reach an analytical conclusion against the legal standards 
until you get the base right, and it is a very fact intensive 
process. We are in the middle of it. We will get it to you as 
quickly as we can.
    Senator Schumer. You agree you should've done it and did 
not.
    Mr. Kimmitt. Administrations going back to 1992 should have 
complied with sending up the report.
    Senator Schumer. Thank you, but you will now. How soon can 
we get that report?
    Mr. Kimmitt. I will check with the intelligence community 
when I get back, but we want to make sure that we have got good 
facts and give you our best results.
    Senator Schumer. Better to do it right than quicker.
    Thank you, gentlemen.
    Thank you, Mr. Chairman.
    Chairman Shelby. Thank you.
    Just a few concluding thoughts. We recognize the importance 
of our open investment policy. You have heard that from both 
sides of the aisle. We also recognize that we have a duty, as 
you have, to consider the national security ramifications 
associated with foreign ownership of American assets. There 
will often be tension between these considerations. For this 
reason, the credibility, the integrity of this Committee on 
Foreign Investments process is crucial; it is paramount.
    This hearing has made some things very clear. The American 
people and the Congress need to have greater confidence, and 
they do not in this process. To achieve this, I believe the 
Banking Committee needs to act. I look forward to working with 
my colleagues, Democrats and Republicans, as we address the 
various shortcomings. We hope to work with you, Secretary 
Kimmitt, Secretary Edelman, Secretary Baker, and Secretary 
Joseph. I hope we can.
    But there are various shortcomings here. It is not just a 
perception. Ports are very important, crucial, and it has been 
pointed out, Secretary Baker, many times that the ports are 
probably our most vulnerable area as far as national security 
is concerned. So we have our work cut out to do.
    We thank you for your time and your patience this morning.
    The hearing is adjourned.
    [Whereupon, at 1:45 p.m., the hearing was adjourned.]
    [Prepared statements and response to written questions 
supplied for the record follow:]

               PREPARED STATEMENT OF SENATOR MEL MARTINEZ

    Good morning. Today's hearing could not be more timely or important 
and I want to thank Chairman Shelby for scheduling this so quickly. 
Like many of my colleagues here, I publicly stated my concerns soon 
after learning that that Dubai Ports World was approved to purchase the 
London-based Peninsular & Oriental Steam Navigation Company, giving 
control of terminal operations at six of our American ports--including 
one in Miami, Florida--to a company owned by the Dubai Government.
    As we go forward with this debate, we should be mindful that this 
decision was not made by one person alone, but by a group of 12 
government agencies including the State Department, the Treasury, 
Defense, Homeland Security, and Commerce Departments, the USTR, OMB, 
and several others. As a former Cabinet Secretary in this 
Administration, I have great confidence in the President's dedication 
to keeping our Nation secure and his commitment to fighting the war on 
terror at every level. I further trust that this Administration would 
not purposefully make decisions or endorse foreign investments that 
would jeopardize the security of our Nation.
    There have been few issues in Washington that have aroused the 
emotional response that this $6.8 billion acquisition has. And I do not 
believe that this response is unwarranted--as it has been said, members 
of the United Arab Emirates have had ties to terrorism in the past and 
it is appropriate and necessary to debate their management of American 
ports. However, the UAE made a concerted effort against terrorism after 
the horrific attacks against our Nation in September 2001, and the UAE 
is now considered an important partner and ally in the war on terror 
and we rely on them for strategic access to the Middle East.
    I believe that the most important guiding principal that we should 
focus on as we examine the Committee on Foreign Investment in the 
United States and whether or not Congress should play a role in the 
review and approval of international corporate business deals, is that 
we try to remain objective with a focus on good policy and national 
security.
    I have several questions and concerns that I hope are addressed 
during your testimony. I hope to walk away from this hearing with a 
clear understanding of what this takeover means for our port operations 
and be assured that in no way will Dubai Ports World be responsible for 
port security. I am interested in hearing more about the actual 
agreement--including details of security screening at port facilities 
in Dubai, tightening security along P&O's global ``supply chain'' and 
what access U.S. officials will have to Dubai Port World's records and 
background information on employees and managers and be assured that 
this will be available without subpoena. I would also like to know the 
details on the financing of this acquisition--including who the 
principal investors are and whether or not there will be other states 
investing or involved in the deal.
    When Congress approved the Exon-Florio provision of the Defense 
Production Act in 1988, it set guidelines for the process CFIUS is to 
follow when considering blocking an application for a foreign 
acquisition, merger, or takeovers. It was at this time that Congress 
decided that a committee with representation from various government 
departments would be best suited to investigate foreign investment in 
the United States and review all applications with a broad spectrum of 
national securities interests in mind. In your testimony, I would like 
to hear more about the process through which CFIUS came to its 
conclusion to approve this acquisition. I also want to hear from those 
members of CFIUS who are not here today.
    Ensuring our homeland security is the top priority for all of us 
here--it would not be in the U.S. Government's interest to sign off on 
a deal that would be detrimental to the progress we have made in 
fighting the war on terror. I am appreciative of the 45-day extension 
that Dubai Ports World and the President agreed to and I hope we use 
this time effectively to review the CFIUS process to determine whether 
or not there is a real security threat to U.S. ports resulting from 
this deal.
    Thank you. I look forward to the panel.

                               ----------

                PREPARED STATEMENT OF ROBERT M. KIMMITT
           Deputy Secretary, U.S. Department of the Treasury

    Mr. Chairman, Ranking Member Sarbanes, and distinguished Members of 
the Committee, I appreciate the opportunity to appear before you today 
to discuss once again the Committee on Foreign Investment in the United 
States (CFIUS) and the Committee's review of DP World's acquisition of 
P&O. I am here speaking on behalf of the Administration, the Treasury 
Department, and CFIUS.
    The last time I testified before this Committee, the Committee was 
engaged in a broad examination of the CFIUS process in light of the 
recent report by the Government Accountability Office. The hearing this 
morning is an opportunity to 
continue that dialogue. Before discussing the review surrounding the DP 
World transaction, I would like to generally describe the CFIUS 
process.
CFIUS
Exon-Florio
    CFIUS was established in 1975 by Executive order of the President 
with the Secretary of the Treasury as its chair. Its main 
responsibility was ``monitoring the 
impact of foreign investment in the United States and coordinating the 
implementation of United States policy on such investment.'' It 
analyzed foreign investment trends and developments in the United 
States and provided guidance to the President on significant 
transactions. However, it had no authority to take action with regard 
to specific foreign investments.
    The Omnibus Trade and Competitiveness Act of 1988 added Section 721 
to the Defense Production Act of 1950 to provide authority to the 
President to suspend or prohibit any foreign acquisition, merger, or 
takeover of a U.S. company where the President determines that the 
foreign acquirer might take action that threatens to impair the 
national security of the United States. Section 721 is widely known as 
the Exon-Florio Amendment, after its original Congressional cosponsors.
    Specifically, the Exon-Florio Amendment authorizes the President, 
or his designee, to investigate foreign acquisitions of U.S. companies 
to determine their effects on the national security. It also authorizes 
the President to take such action as he deems appropriate to prohibit 
or suspend such an acquisition if he finds that:

 There is credible evidence that leads him to believe that the 
    foreign investor might take action that threatens to impair the 
    national security; and
 Existing laws, other than the International Emergency Economic 
    Powers Act (IEEPA) and the Exon-Florio Amendment itself, do not in 
    his judgment provide adequate and appropriate authority to protect 
    the national security.

    The President may direct the Attorney General to seek appropriate 
judicial relief to enforce Exon-Florio, including divestment. The 
President's findings are not subject to judicial review.
    Following the enactment of the Exon-Florio Amendment, the President 
delegated to CFIUS the responsibility to receive notices from companies 
engaged in transactions that are subject to Exon-Florio, to conduct 
reviews to identify the effects of such transactions on the national 
security, and, as appropriate, to undertake investigations. However, 
the President retained the authority to suspend or prohibit a 
transaction.
    The Secretary of the Treasury is the Chair of CFIUS, and the 
Treasury's Office of International Investment serves as the Staff Chair 
of CFIUS. Treasury receives notices of transactions, serves as the 
contact point for the private sector, establishes a calendar for review 
of each transaction, and coordinates the interagency process. The other 
CFIUS member agencies are the Departments of State, Defense, Justice, 
and Commerce, OMB, CEA, USTR, OSTP, the NSC, the NEC, and the newest 
member, the Department of Homeland Security. Additional agencies, such 
as the Departments of Energy and Transportation or the Nuclear 
Regulatory Commission are routinely invited to participate in a review 
when they have relevant expertise.
    The CFIUS process is governed by Treasury regulations that were 
first issued in 1991 (31 CFR part 800). Under these regulations, 
parties to a proposed or completed acquisition, merger, or takeover of 
a U.S. company by a foreign entity may file a voluntary written notice 
with CFIUS through Treasury. Alternatively, a CFIUS member agency may 
on its own submit notice of a transaction. If a company fails to file 
notice, the transaction remains subject to the President's authority to 
block the deal indefinitely.
    The CFIUS process starts upon receipt by Treasury of a complete, 
written notice. Treasury determines whether a filing is in fact 
complete, thereby triggering the start of the 30-day review period. 
CFIUS may reject notices that do not comply with the notice 
requirements under the regulations. Upon receiving a complete filing, 
Treasury sends the notice to all CFIUS member agencies and to other 
agencies that might have an interest in a particular transaction. CFIUS 
then begins a thorough review of the notified transaction to determine 
its effect on national security. In some cases, this review prompts 
CFIUS to undertake an ``investigation,'' which must begin no later than 
30 days after receipt of a notice. The Amendment requires CFIUS to 
complete any investigation and provide a recommendation to the 
President within 45 days of the investigation's inception. The 
President in turn has up to 15 days to make a decision, for a total of 
up to 90 days for the entire process.
CFIUS Implementation
    Although the formal review period commences when CFIUS receives a 
complete filing, there is often an informal review that begins in 
advance. Parties to a transaction may contact CFIUS before a filing in 
order to identify potential issues and seek guidance on information the 
parties to the transaction could provide to assist CFIUS' review. This 
type of informal consultation between CFIUS and transaction parties 
enables both to address potential issues earlier in the review process. 
The prefiling consultation allows the parties to answer many of CFIUS' 
questions in the formal filing and allows for a more comprehensive 
filing. In some cases, CFIUS members negotiate security agreements 
before a filing is made. In addition, the prefiling consultation may 
lead the parties to conclude that a transaction will not pass CFIUS 
review, in which case they may restructure their transaction to address 
national security issues or abandon it entirely.
    During the initial 30-day review, each CFIUS member agency conducts 
its own internal analysis of the national security implications of the 
notified transaction. In addition, the U.S. Intelligence Community 
provides input to all CFIUS reviews. The Intelligence Community 
Acquisition Risk Center (CARC), now under the office of the Director of 
National Intelligence (DNI), provides threat assessments on the foreign 
acquirers. CFIUS will request a threat assessment report from CARC as 
early as possible in the review process. In order to facilitate 
reviews, CFIUS may request these reports before the parties to the 
transaction have made their formal filing. Further, additional agencies 
such as the Departments of Energy and Transportation and the Nuclear 
Regulatory Commission actively participate in the consideration of 
transactions that impact the industries under their respective 
jurisdictions.
    During the review period, there are frequent contacts between CFIUS 
and the parties to the transaction. The transaction parties respond to 
information requests and provide briefings to CFIUS members in order to 
clarify issues and supplement filing materials. Although the CFIUS 
agencies may meet collectively with the parties as an interagency 
group, meetings also often occur between the parties and the agency or 
agencies that have a specific interest in the transaction. Typically, 
certain members of CFIUS will identify a concern early in the review 
and then assume the lead role in examining the issue and providing 
views and recommendations on whether the concern can be addressed. For 
example, if there are military contracts, the Department of Defense 
would lead the CFIUS review and recommend a course of action.
    Depending on the facts of a particular case, CFIUS agencies that 
have identified specific risks that a transaction could pose to the 
national security may, separately or through CFIUS auspices, develop 
appropriate mechanisms to address those risks when other existing laws 
and regulations alone are not adequate or appropriate to protect the 
national security. Agreements implementing security measures vary in 
scope and purpose, and are negotiated on a case-by-case basis to 
address the particular concerns raised by an individual transaction. 
Publicly available examples of some of the general types of agreements 
that have been negotiated include: Special Security Agreements, which 
provide security protection for classified or other sensitive 
contracts; Board Resolutions, which, for instance, require a U.S. 
company to certify that the foreign investor will not have access to 
particular information or influence over particular contracts; Proxy 
Agreements, which isolate the foreign acquirer from any control or 
influence over the U.S. company; and Network Security Agreements 
(NSA's), which are used in telecommunications cases and often are 
imposed in the context of the Federal Communications Commission's (FCC) 
licensing process.
    CFIUS operates by consensus among its members. A decision not to 
undertake an investigation is made only if the members agree that the 
transaction creates no national security concerns, or any identified 
national security concerns have been addressed to the satisfaction of 
all CFIUS agencies. The daily operation of CFIUS is conducted by 
professional staff at each agency. Each agency sends the filing to 
multiple groups in its agency depending on the issues involved in the 
filing. CFIUS staff report to the policy level, which is the Assistant 
Secretary level. A decision can be elevated to the Deputy Secretary 
level and on to the Cabinet officials, if necessary. If within the 
initial 30-day period there is consensus that the transaction does not 
raise national security concerns or any national security concerns have 
been addressed, Treasury, on behalf of CFIUS, writes to the parties 
notifying them of that determination. This concludes the CFIUS review 
of the acquisition.
    If one or more members of CFIUS believe that national security 
concerns remain unresolved, then CFIUS conducts a 45-day investigation. 
The additional 45 days enables CFIUS and the parties to obtain 
additional information from the parties, conduct additional internal 
analysis, and continue addressing outstanding concerns. Upon completion 
of a 45-day investigation, CFIUS must provide a report to the President 
stating its recommendation. If CFIUS is unable to reach a unanimous 
recommendation, the Secretary of the Treasury, as Chairman, must submit 
a CFIUS report to the President setting forth the differing views and 
presenting the issues for decision. The President has up to 15 days to 
announce his decision on the case and inform Congress of his 
determination.
    The last report sent to Congress occurred in September 2003, when 
the President sent a classified report detailing his decision to take 
no action to block the transaction between Singapore Technologies 
Telemedia and Global Crossing.
    The Exon-Florio Amendment requires that information furnished to 
any CFIUS agency by the parties to a transaction shall be held 
confidential and not made public, except in the case of an 
administrative or judicial action or proceeding. This 
confidentiality provision does not prohibit CFIUS from sharing 
information with Congress. Treasury, as chair of CFIUS, upon request of 
Congressional committees or subcommittees with jurisdiction over Exon-
Florio matters, has arranged Congressional briefings on transactions 
reviewed by CFIUS. These briefings are conducted in closed sessions 
and, when appropriate, at a classified level. CFIUS members with 
equities in the transaction under discussion are invited to participate 
in these briefings.
    Since the enactment of Exon-Florio in 1988, CFIUS has reviewed 
1,604 foreign acquisitions of companies for potential national security 
concerns. In most of these reviews, CFIUS agencies have either 
identified no specific risks to national security created by the 
transactions or risks have been addressed during the review period. 
However, to date 25 cases have gone through investigation, twelve of 
which reached the President's desk for decision. In eleven of those, 
the President took no action, leaving the parties to the proposed 
acquisitions free to proceed. In one case, the President ordered the 
foreign acquirer to divest all its interest in the U.S. company. In 
another case that did not go to the President, the foreign acquirer 
undertook a voluntary divestiture. Of those 25 investigations, seven 
have been undertaken since 2001 with one going to the President for 
decision. However, these statistics do not reflect the instances where 
CFIUS agencies implemented security measures that obviated the need for 
an investigation or where, in response to dialogue with CFIUS agencies, 
parties to a transaction either voluntarily restructured the 
transaction to address national security concerns or withdrew from the 
transaction altogether.
DP World
    Contrary to many accounts, the DP World transaction was not rushed 
through the review process in early February. On October 17, 2005, 
lawyers for DP World and P&O informally approached Treasury Department 
staff to discuss the preliminary stages of the transaction. This type 
of informal contact enables CFIUS staff to identify potential issues 
before the review process formally begins. In this case, Treasury staff 
identified port security as the primary issue and directed the 
companies to DHS. On October 31, DHS and the Department of Justice 
staff met with the companies to review the transaction and security 
issues.
    On November 2, Treasury staff requested a CARC intelligence 
assessment from the Office of the DNI. Treasury received this 
assessment on December 5, and it was circulated to CFIUS staff. On 
December 6, staff from CFIUS agencies with the addition of staff from 
the Departments of Transportation and Energy met with company officials 
to review the transaction and to request additional information. On 
December 16, after 2 months of informal interaction, the companies 
officially filed their formal notice with Treasury, which circulated 
the filing to all CFIUS departments and agencies and also to the 
Departments of Energy and Transportation because of their statutory 
responsibilities and experience with DP World.
    During the 30-day review period, members of the CFIUS staff were in 
contact with one another and the companies. As part of this process, 
DHS negotiated an assurances letter that addressed port security 
concerns. The final assurances letter was circulated to the committee 
on January 6 for its review, and CFIUS concluded its review on January 
17. In total, far from rushing their review, members of CFIUS staff 
spent nearly 90 days reviewing this transaction. There were national 
security issues raised during this review process, but any and all 
concerns were addressed to the satisfaction of all members of CFIUS. By 
the time the transaction was formally approved, there was full 
agreement among the CFIUS members.
    Another misperception is that this transaction was concluded in 
secret. Although the Exon-Florio Amendment prohibits CFIUS from 
publicly disclosing information provided to it in connection with a 
filing under Exon-Florio, these transactions often become public 
through actions taken by the companies. Here, as is often the case, the 
companies issued a press release announcing the transaction on November 
29. In addition, beginning on October 30, dozens of news articles were 
published regarding this transaction, well before CFIUS officially 
initiated, much less concluded its review.
    Last Sunday, February 26, DP World announced that it would make a 
new filing with CFIUS and requested a 45-day investigation. Upon 
receipt of DP World's new filing, CFIUS will promptly initiate the 
review process, including DP World's request for an investigation. The 
45-day investigation will consider existing materials as well as new 
information anticipated from the company. Importantly, the 
investigation process will also consider very carefully concerns raised 
by Members of Congress, State, and local officials, and other 
interested parties. We welcome your input during this process, 
including issues that will be raised at today's hearing.
Conclusion
    Since my last appearance before this Committee, I have worked with 
my colleagues to address several of the flaws that you identified in 
CFIUS reviews. We have revised the interagency process to ensure that 
all members, especially the security agencies, have sufficient time and 
opportunity to review transactions, identify any security concerns, and 
fully address those concerns. Nonetheless, it is clear that 
improvements are still required. In particular, we must improve the 
CFIUS process to help ensure the Congress can fulfill its important 
oversight responsibilities. Although CFIUS operates under restrictions 
on public disclosures regarding pending cases, we have tried to be 
responsive to inquiries from Congress. I am open to suggestions on how 
we foster closer communication in the future. I think that we can find 
the right balance between providing Congress the information it 
requires to fulfill its oversight role while respecting the 
deliberative processes of the executive branch and the proprietary 
information of the parties filing with CFIUS.
    Let me stress in closing, Mr. Chairman, that all members of CFIUS 
understand that their top priority is to protect our national security. 
As President Bush said: ``If there was any doubt in my mind, or people 
in my Administration's mind, that our ports would be less secure and 
the American people endangered, this deal wouldn't go forward.''
    I thank you for your time this afternoon and am happy to answer to 
any questions.
                               ----------

                    PREPARED STATEMENT ERIC EDELMAN
         Under Secretary for Policy, U.S. Department of Defense
                             March 2, 2006

    Mr. Chairman, Members of the Committee. Thank you for the 
opportunity to appear before you today to discuss the Department of 
Defense's role in the Committee on Foreign Investments in the United 
States (CFIUS) and our review of the Dubai Ports World (DPW) and 
Peninsular and Oriental Stream Navigation Company (P&O) transaction.
    As a formal member of the CFIUS process, the Department of Defense 
weighs a number of factors when it considers any individual proposed 
foreign acquisition of a U.S. company.
    First and foremost, our primary objective in this process is to 
ensure that any proposed transaction does not pose risks to U.S. 
national security interests. To do this, the Department of Defense 
reviews several aspects of the transaction, including:
    The importance of the firm to the U.S. defense industrial base (for 
example, is it a sole-source supplier, and, if so, what security and 
financial costs would be incurred in finding and/or qualifying a new 
supplier, if required?); Is the company involved in the proliferation 
of sensitive technology or WMD? Is the company to be acquired part of 
the critical infrastructure that the Defense Department depends upon to 
accomplish its mission; Can any potential national security concerns 
posed by the transaction be eliminated by the application of risk 
mitigation measures, either under the Department's own regulations or 
through negotiation with the parties?
    Regarding this specific CFIUS transaction, the Departments of 
Treasury, Commerce, and Homeland Security met with the legal 
representatives of DPW and P&O for CFIUS prefiling notification 
consultations on October 31, 2005. On December 6, 2005, the companies 
held a prefiling briefing for all CFIUS agencies. The Defense 
Technology Security Administration (DTSA) attended the meeting for DoD. 
On December 16, 2005, the Department of the Treasury received an 
official CFIUS filing. On the same day, Treasury circulated the filing 
to all CFIUS member agencies for review and DTSA staffed the filing to 
sixteen other Department of Defense (DoD) elements or agencies for 
review and comment.
    The review conducted by the Department of Defense on this 
transaction was neither cursory nor casual. Rather, it was in-depth and 
it was comprehensive. This transaction was staffed and reviewed within 
the DoD by 17 of our agencies or major organizations. In this case, DoD 
agencies reviewed the filing for impact on critical technologies, the 
presence of any classified operations existing with the company being 
purchased, military transportation and logistics as well as other 
concerns this transaction might raise. During the review process 
(December 21, 2005 through January 6, 2006), DoD did not uncover 
national security concerns that warranted objecting to the transaction 
or requiring a 45-day investigation. Positions were approved by staff 
that ranged from staff-matter experts up to a Deputy Under Secretary of 
Defense, as appropriate to the office undertaking the review. All who 
were consulted arrived at the same position: ``Do not investigate 
further.''
    The DoD organizations that reviewed this and all other CFIUS 
transactions bring to bear a diverse set of subject matter expertise, 
responsibilities, and perspectives. The organizations included, for 
example, the Office of the Under Secretary for Intelligence; the Office 
of the Under Secretary for Acquisition, Logistics, and Technology; the 
Military Departments (Army, Navy, and Air Force); U.S. Transportation 
Command; the National Security Agency; and the Defense Intelligence 
Agency. The Army, for example, reviewed the case in the following 
manner: Army Materiel Command (AMC) Headquarters and Assistant 
Secretary of the Army for Acquisition, Logistics, and Technology 
(ASA(AL&T)) staff gave a preliminary review, immediately upon receipt 
of the case. AMC staffed the filing to their subordinate readiness 
commands responsible for acquisition and logistics, including the 
Military Surface Deployment and Distribution Command (SDDC). For this 
case, the Army's review criteria included the question of assured 
shipping, and the Army's final position was ``no objection.''
    The Defense Technology Security Administration, which reviews, 
coordinates and analyzes the recommendations from all the DoD 
components, as well as assessing export control and sensitive 
technology issues, ultimately ``signed off'' on the transaction for the 
Department. Therefore, we had a comprehensive and in-depth review of 
this transaction, and no issues were raised by any agencies or 
departments within the Department of Defense. We are comfortable with 
the decision that was made.
    I do want to provide a perspective from the Department of Defense 
regarding our relationship with the United Arab Emirates and their 
support, as a friend and ally, in the Global War on Terrorism. In the 
War on Terrorism, the United States needs friends and allies around the 
world, and especially in the Middle East, to help in this struggle. A 
community of nations is necessary to win this Long War.
    In our recently published Quadrennial Defense Review, we highlight 
that in conducting this fight to preserve the security of the American 
people and our way of life, it is important that we strengthen the 
bonds of friendship and security with our friends and allies around the 
world. We must have the authority and resources to build partnership 
capacity, achieve unity of effort, and adopt indirect approaches to act 
with and through others to defeat common enemies.
    The United Arab Emirates is an outstanding example of the kind of 
partner critical to winning this Long War. Dubai was the first Middle 
Eastern entity to joint the Container Security Initiative--a 
multinational program to protect global trade from terrorism. It was 
also the first Middle Eastern entity to join the Department of Energy's 
Megaports Initiative, a program aimed at stopping illicit shipments of 
nuclear and other radioactive material. The UAE has also worked with us 
to stop terrorist financing and money laundering by freezing accounts, 
enacting aggressive anti-money laundering and counter-terrorist 
financing laws and regulations, and exchanging information on people 
and entities suspected of being involved in these activities.
    As you may know, the UAE provides the United States and our 
coalition forces with important access to their territory and 
facilities. General Pace has summed up our defense relationship by 
saying that ``in everything that we have asked and work with them on, 
they have proven to be very, very solid partners.''
    The UAE provides excellent access to its seaports and airfields 
like al Dhafra Air Base, as well as overflight through UAE airspace and 
other logistical assistance. We have more Navy port visits in the UAE 
than any other port outside the United States. Last year, U.S. Naval 
warships and Military Sealift Command ships spent over 1,400 days in 
the ports of Dubai, Jebel Ali, Abu Dhabi, and Fujairah. And, by the 
way, the port at Jebel Ali--which is the only carrier-capable port in 
the Gulf--is managed by DPW. Coalition partner ships also used the UAE 
ports last year. The U.S. Air Force has operated out of al Dhafra Air 
Base since the Gulf War in 1990. Today, al Dhafra is an important 
location for air refueling and aerial reconnaissance aircraft 
supporting operations in Iraq and Afghanistan.
    And we should note that our most important commodity--our military 
men and women--are frequent visitors to the UAE on liberty or leave 
while deployed to the region. So we rely on the Emirates for our 
security in their country, and I appreciate and thank them for that.
    Our close military-to-military relationship with the UAE also 
includes the use of the UAE Air Warfare Center, established in January 
2004, where our pilots train with pilots from countries across the 
Middle East.
    Finally, the United Arab Emirates have been very supportive of our 
efforts in Iraq and Afghanistan. They have provided military and 
operational support to Operation Enduring Freedom in Afghanistan and 
financial and humanitarian aid to Afghanistan and its people. The UAE 
has provided monetary and material support to the Iraqi Government, 
including a pledge of $215M in economic and reconstruction assistance.
    Mr. Chairman, this concludes my formal statement. I would be happy 
to answer any further questions you may have regarding this subject.
                               ----------

                  PREPARED STATEMENT OF STEWART BAKER
  Assistant Secretary for Policy, U.S. Department of Homeland Security
                             March 2, 2006

    Mr. Chairman, Senator Sarbanes, and Members of the Committee, I am 
pleased to be here today to help discuss the critically important issue 
of port security and help clarify any questions you have about DHS's 
role in the Committee on Foreign Investment in the United States 
(CFIUS) and both DHS's consideration of the Dubai Ports World (DP 
World) acquisition of the British-owned Peninsula and Oriental Steam 
Navigation Company (P&O) and P&O's wholly owned U.S. subsidiary, P.O. 
Ports North America, Inc.
    As DHS's Assistant Secretary for Policy, Planning, and 
International Affairs, I play a key role both in DHS's ongoing efforts 
to continue to strengthen port security and the CFIUS process. As you 
know, I oversaw the DHS review of the CFIUS transaction involving DP 
World and P&O. Based on a thorough review, meetings with the company 
that began more than 6 weeks before the company filed for review, and 
the binding nature of an assurances agreement between DHS and the 
company to ensure security at U.S. ports, I fully stand behind the 
decision DHS made in January 2006 not to further investigate this 
transaction.
Developments in the DP World Case
    Nevertheless, DP World has announced that it is requesting an 
additional review by CFIUS. According to press reports, the company is 
likely to file a request for CFIUS review this week and seek an 
additional 45-day review.
    DHS, as one of 12 CFIUS agencies, will be a full and active 
participant in that review, and welcomes the opportunity to review the 
transaction anew. As I explain in more detail below, DHS will once 
again consult widely with its experts in the Department, including 
those at Coast Guard and Customs and Border Protection (CBP) who have 
primary responsibility for port and cargo security.
    Before getting into the specifics of the DP World transaction, I 
would like to provide a general overview of DHS's participation in the 
CFIUS process.
Overview of DHS Participation in CFIUS
    DHS is the newest member of CFIUS, added by Executive order in 
2003, after DHS was created. DHS has participated in the CFIUS process 
actively, and has placed a significant focus on nontraditional threats, 
as DHS has broad responsibility for protecting a wide variety of 
critical infrastructures. DHS is often joined in raising these concerns 
by our partners at the Department of Justice and Department of Defense, 
and others. DHS is proud to work in close cooperation with these sister 
Cabinet agencies.
    There are dozens of transactions in a year that require CFIUS 
review. In 2005, for example, CFIUS considered 65 discrete filings. DHS 
conducts a thorough review of each CFIUS case, and raises its concerns 
where issues arise.
    The three most important questions DHS considers before deciding to 
seek an investigation are:

 Does DHS already have sufficient legal or regulatory authority 
    to eliminate any threat to homeland security that might be raised 
    by the transaction?
 Does DHS have homeland security concerns about the parties or 
    nature of the transaction?
 If DHS has homeland security concerns, can they be resolved 
    with binding assurances from the parties to the transaction?

    Only after answering these questions does DHS decide whether to 
seek an investigation in CFIUS. DHS examined those questions in the DP 
World case and, as I will explain in more detail, made the judgment not 
to object to the transaction. All of the other 11 CFIUS member agencies 
made a similar decision after conducting their own independent reviews 
of the transaction.
DHS Legal Authority at the Ports
    Congress has granted DHS sufficient legal authority to regulate the 
security of America's ports and the cargo that passes through each of 
those ports.
    Under the Magnuson Act, the Ports and Waterways Safety Act, and, 
most recently, the Maritime Transportation Security Act of 2002 (MTSA), 
the U.S. Coast Guard has great authority to regulate security in all 
American ports. This includes the security for all facilities within a 
port, including terminal operators and vessels intending to call at a 
port or place subject to the jurisdiction of the United States.
The Role of Terminal Operators like P&O and DP World
    Let me first clarify what terminal operators do.
    They do not run ports.
    They certainly do not provide or oversee security for the entire 
port complex. That is the responsibility of the government and the 
local port authority, which is usually a government agency.
    Terminal operators also do not obtain a comprehensive window into 
the breadth and depth of security measures that DHS employs to protect 
our ports and the cargo that enters those ports. The public fears that 
the DP World transaction have generated on this point are misplaced and 
lack a firm factual foundation, as I will explain later.
    Terminal operators ordinarily sign a long-term lease for waterfront 
property in the port. They build a pier for ships, cranes to unload the 
ship, a parking lot to store the containers they unload, and perhaps a 
small management office. They make their money lifting containers out 
of ships and holding them for shippers.
    That is what we are talking about here. Through its acquisition of 
P&O, DP World is hoping to take over the leases at twenty-four 
terminals in the United States. That is a relatively small part of the 
operations in the six ports where they would operate terminals, 
including New Orleans, Houston, Miami, Newark, Baltimore, and 
Philadelphia. Their filings indicate that DP World will also take over 
the P&O equities at other ports, but these consist of stevedoring and 
labor operations where P&O is not the designated terminal operator.
    I understand from the Coast Guard that there are more than 800 
regulated port facilities in the six ports where P&O operates terminals 
in the United States. So the twenty-four terminals in question here 
constitute less than 5 percent of the facilities in those six ports.
    MTSA requires each terminal operator--because they operate inside 
the port--to file a facilities security plan with the Coast Guard that 
specifically details their compliance with all of the security measures 
required by Federal law, including those enforced by the Coast Guard. 
The Coast Guard inspects the terminal and can check the terminal 
operator's plan at any time, and require more effective measures if the 
Coast Guard deems they are necessary.
    These MTSA requirements for U.S. port security do not turn on the 
nationality of the terminal operator. United States, British, Chinese, 
and UAE terminal operators are all subject to the same legal 
requirements, and the Coast Guard Captains of the Port can tailor each 
security plan to address the particular circumstances of each location.
Coast Guard Actions under MTSA
    The Coast Guard has inspected and approved facility security plans 
for some 3,200 facilities regulated by MTSA. In addition, Coast Guard 
has completed Port Security Assessments and Port Threat Assessments for 
all 55 military and/or economically critical ports.
    Forty-four Area Maritime Security Committees have been formally 
chartered and have developed Area Maritime Security Plans for the 
purpose of detecting, deterring, and preventing terrorist attacks as 
well as responding in the event of an incident. These committees are 
chaired by a local Coast Guard official, the designated Federal 
Maritime Security Coordinator, and include port authority, vessel, 
facility, labor interest as well as Federal, State, and local agencies.
    The Coast Guard established an International Port Security Program 
to assess the effectiveness of antiterrorism measures in place in 
overseas ports. Thirty-seven of the 44 countries assessed to date have 
substantially implemented the International Ship and Port Facility 
Security (ISPS) Code. These 44 countries are responsible for over 80 
percent of the maritime trade to the United States. The seven countries 
that are not in substantial compliance have been or will be notified 
shortly to take corrective actions or risk being placed on a Port 
Security Advisory and have Conditions of Entry imposed on vessels 
arriving from their ports.
    The Coast Guard has conducted 16,000 foreign flag vessel boardings 
for security compliance with the ISPS Code since July 2004. These 
boardings were conducted either offshore or in port, depending on the 
risk assessment completed prior to each vessel's arrival in a U.S. 
port.
DHS Role in Cargo Security
    The Administration recognized after September 11 that more was 
needed to protect the United States from terrorist attack, and it 
immediately identified the vulnerability posed by the millions of cargo 
containers entering our ports each year. DHS plays a primary role in 
strengthening port and cargo security, and with the support of the 
Administration, we have made dramatic increases in these areas. Since 
September 11, funding for port and cargo security has increased by more 
than 700 percent, from $259 million in fiscal year 2001 to $2.164 
billion in fiscal year 2004 and $2.183 billion in fiscal year 2005. 
This upward trend continues with $2.455 billion for DHS port security 
allocated in fiscal year 2006, and an addition 35 percent increase to 
$3.172 billion in the President's Budget request for fiscal year 2007.
    This money has of course funding port security grants of more than 
$870 million. It has also built a layered security strategy that pushes 
our security measures overseas. The reason is simple. The Federal 
Government realized after the September 11 attacks that it would be far 
better to detect and interdict a threat to the United States when that 
container was thousands of miles away, rather than sitting in a U.S. 
port. So we pushed our borders out to do much more inspection and 
screening of cargo before it ever arrives at our shores.
The 24-Hour Rule and CSI
    Our authority over shipping containers begins even before the 
container is loaded in a foreign port--and long before that container 
arrives in the United States. We require foreign companies to send us a 
list of the contents of a container 24 hours before the container is 
loaded on board the ship in the foreign country.
    If Customs and Border Protection (CBP) concludes that the contents 
of a particular container may be high risk, we can have it physically 
inspected or x-rayed in cooperating foreign ports.
    This program, known as the Container Security Initiative (CSI) 
depends on the voluntary cooperation of foreign governments and foreign 
companies. We have gotten that cooperation around the world--including 
in Dubai, the United Arab Emirates. The CSI currently operates in 42 of 
the world's largest ports. By the end of this year, the number of 
cooperating ports is expected to grow to 50, covering approximately 82 
percent of maritime containerized cargo shipped to the United States.
    Twenty-four hours before a ship is loaded, and therefore prior to 
departing the last foreign port for the United States, DHS receives a 
complete manifest of all the cargo that will be on that ship when it 
arrives in a U.S. port. This includes all cargo information at the bill 
of lading level, whether the cargo is destined for the United States, 
or will remain on-board while in a U.S. port but destined for a foreign 
country. This rule applies to all containerized sea cargo whether 
departing from a CSI port or not.
Mandatory Advance Notice of Crew Members to DHS
    Depending upon the length of the voyage, DHS receives additional 
notice concerning the crew of the vessel 24 to 96 hours before the 
vessel arrives in the United States. This is full biographic data 
identifying the crewmembers and passengers, if any, so that DHS can 
screen them against risk indicators, the terrorist watch list and other 
databases.
    We also get information from the importer describing the declared 
value and description of the goods being imported.
Risk Analysis of Cargo and Crew
    Thus, long before a cargo ship arrives at any U.S. port, DHS has 
the shipper's information, the ship's information, and usually the 
buyer's information about what is in the container. The data is 
compared to ensure that it matches, and is also compared against 
historical information to detect anomalous patterns.
    This data is all scrutinized and processed through a complex 
program that runs against hundreds of risk indicators to assign the 
ship and its cargo a risk score. The crew and passengers are all vetted 
prior to arrival.
    DHS has full information about the vessel, its contents, and the 
people on-board.
    If DHS has a concern about the cargo, the Coast Guard and CBP meet 
and decide an appropriate course of action, which may include boarding 
the vessel at sea or at the entrance to the ship channel, or meeting 
the vessel dockside and immediately inspecting the suspect containers.
    Coast Guard has established a process to identify and target High 
Interest Vessels. This process has resulted in 3,400 at sea security 
boardings, and 1,500 positive vessel control escorts since 2004 to 
ensure that these vessels cannot be used as a potential weapon.
What the Terminal Operator Knows about U.S. Security Measures
    I noted earlier that ownership of a terminal operation does not 
give the terminal operator--foreign or domestic--a unique insight into 
the breadth and depth of DHS security measures nor provide a crafty 
terminal operator with ill intent access to inside information to avoid 
or evade DHS scrutiny.
    The first time a terminal operator at a U.S. facility sees any of 
the law enforcement and security measures that DHS has in place 
concerning the vessel and cargo is when the ship arrives in the United 
States. Even then, all the terminal operator knows is that CBP has 
selected certain containers for examination. The operator is simply 
instructed to unload the containers, under DHS supervision, and deliver 
them to CBP for inspection. They are not told why.
CBP Examines 100 percent of Risky Containers
    As I have noted already, CBP screens 100 percent of containers for 
risk. All containers that DHS determines to be of risk are examined 
using a variety of technologies. These technologies include: Radiation 
screening, nonintrusive x-ray inspection, and as appropriate, physical 
examination.
    This screening and examination is carried out by DHS employees 
tasked with the security of our seaports. They are assisted by 
longshoreman and stevedores in moving the containers, and by local law-
enforcement authorities and port police to ensure the security of the 
port facilities.
    All a terminal operator knows is that a container has been selected 
for examination, but not why the container was selected. The 
inspections and radiation detections are performed by CBP, not by the 
operator. Security is provided by a variety of government programs, 
agencies, and local law enforcement officials, not the terminal 
operator.
Special Measures to Detect Radioactive Devices
    DHS component agencies and the DHS Domestic Nuclear Detection 
Office have worked closely with the Department of Energy to deploy 
radiation detection technology at domestic and foreign seaports. The 
Department of Energy is providing technical support to Dubai Customs to 
install four Radiation Portal Monitors in their main port in June. Some 
of this equipment is specifically dedicated to ``in-transit cargo'' 
passing through the Dubai port on its way to places like the United 
States.
    In the United States, we have deployed 181 radiation portal 
monitors at seaports to date, which allows us to screen 37 percent of 
arriving international cargo, and that number will continue to grow 
through the remainder of this year and 2007. CBP also has the ability 
to use portable devices to detect the presence of radiation at 
additional facilities, and CBP has issued over 12,000 hand-held devices 
to its officers. The President's fiscal year 2007 budget requests $157 
million to secure next-generation detection equipment at our ports of 
entry.
    Since there is often confusion on this point, I want to restate it. 
CBP subjects 100 percent of all containers shipped to the United States 
to a risk assessment analysis and subjects 100 percent of any container 
over a certain risk threshold to further inspection.
    In short, DHS already has a large number of measures in place 
relating to port and cargo security that are designed to ensure the 
security of our ports. These measures, and additional measures taken by 
local port authorities, greatly reduce the risks presented by the 
presence of any foreign terminal operator in a U.S. port.
CFIUS Review of the DP World Transaction
    DHS always examines the backgrounds of parties to a CFIUS 
transaction, and we did so in this case. DHS agencies--the Coast Guard 
and CBP--had previously worked with both DP World and its management 
and found them to be cooperative and professional. Demonstrating this 
is the fact that DP World met with senior officials of DHS and DOJ on 
October 31--more than 6 weeks before they filed on December 16 and our 
review began on December 17, to provide confidential notice of their 
plans and begin answering questions.
DP World
    DP World has played an invaluable role in the establishment of the 
first foreign-port screening program that the United States started in 
the Middle East. That is because Dubai also volunteered to help in this 
innovative approach to security. DP World has voluntarily agreed to 
participate in screening of outbound cargo for nuclear material, and it 
has worked closely with CBP and the Dubai Customs Authority to target 
high-risk containers destined for the United States. These screening 
programs could not have been successfully implemented without the 
cooperation of Dubai Port World.
P&O's Participation in the Customs-Trade Partnership Against Terrorism
(C-TPAT)
    British-based P&O, the owner of the U.S. facilities DP World is 
seeking to acquire, is and was a voluntary participant in CBP's 
Customs-Trade Partnership Against Terrorism (C-TPAT). C-TPAT 
establishes voluntary best security practices for all parts of the 
supply chain, making it more difficult for a terrorist or terrorist 
sympathizer to introduce a weapon into a container being sent by a 
legitimate party to the United States. DP World has committed to 
maintaining C-TPAT participation for all of the P&O ports subject to 
this acquisition.
    C-TPAT covers a wide variety of security practices, from fences and 
lighting to requiring that member companies conduct background checks 
on their employees, maintain current employee lists, and require that 
employees display proper identification.
    C-TPAT's criteria also address physical access controls, facility 
security, information technology security, container security, security 
awareness and training, personnel screening, and important business 
partner requirements. These business partner requirements oblige C-TPAT 
members, like P&O, to conduct business with other C-TPAT members who 
have committed to the same enhanced security requirements established 
by the C-TPAT program.
    In Newark, New Jersey, all eight of the carriers who use P&O's Port 
Newark Container Terminal are also members of C-TPAT which increases 
the overall security of the Newark facility.
The DP World CFIUS Transaction
    As I noted toward the beginning of my testimony, DHS considers 
three important questions in any CFIUS transaction: (1) does DHS 
already have sufficient legal or regulatory authority to eliminate any 
threat to homeland security that might be raised by the transaction?; 
(2) does DHS have homeland security concerns about the parties or 
nature of the transaction?; and (3) if DHS has homeland security 
concerns, can they be resolved with binding assurances from the parties 
to the transaction?
    I have addressed the first two of those questions, now let me turn 
to the third.
    As part of its CFIUS review, DHS considers whether it should obtain 
any further commitments from the companies engaging in the transaction 
to protect homeland security. DHS has been aggressive in seeking such 
assurances as part of CFIUS reviews. The assurances are carefully 
tailored to the particular industry and transaction, as well as the 
national security risks that we have identified.
The Assurances Agreements
    DHS had never required an assurances agreement before in the 
context of a terminal operator or a port. But after analyzing the 
facts, DHS decided that we should ask for and obtain binding assurances 
from both companies.
    The companies agreed after discussions to provide a number of 
assurances, two of which are particularly important.
    First, both parties agreed that they would maintain their level of 
participation and cooperation with the voluntary security programs that 
they had already joined. This means that, for these companies, and 
these companies alone, what was previously voluntary is now mandatory.
    In the United States, the parties are committed to maintaining the 
best security practices set out in C-TPAT. In Dubai, the parties are 
committed to continued cooperation in the screening of containers bound 
for the United States, including the radiation screening discussed 
above.
    Second, the parties agreed to an open book policy in the United 
States. DHS is entitled to see any records the companies maintain about 
their operations in the United States--without a subpoena and without a 
warrant. All DHS needs to provide to DP World is a written request and 
we can see it all. DHS can also see any records in the United States of 
efforts to control operations of the U.S. facilities from abroad.
    Because C-TPAT requires a participating company to keep a current 
record of its employees, including Social Security number and date of 
birth, this open-book assurance also allows us to obtain up-to-date 
lists of employees, including any new employees. DHS will have 
sufficient information about DP World employees to run the names 
against terrorist watch lists, to do background checks of our own, or 
to conduct other investigations as necessary.
    These agreements were negotiated and obtained during the 30-day 
period the transaction was under CFIUS review, and DHS conditioned its 
nonobjection to the transaction on the execution of those agreements.
The Assurances Letters to DHS are Binding and Legally Enforceable
    The assurances that DHS obtained from the companies are binding and 
legally enforceable, so that DHS and the U.S. Government could go into 
court to enforce them.
    The companies also agreed in the assurances letters that DHS could 
reopen the case, which could lead to divestment by the foreign company 
if the representations the companies made to DHS turned out to be false 
or misleading.
    DHS believes that DP World will adhere to both the letter and the 
spirit of the assurances letter, because the worst thing that can 
happen to a terminal operator's business is to lose the trust of the 
CBP officials who decide how much of that operator's cargo must be 
inspected every day. If we lose faith in the security and honesty of 
these parties, we will have to increase government scrutiny of the 
cargo they handle. That means more inspections and more delays for 
their customers.
    And that is very bad for business.
    That is why DHS is confident that the companies will work hard to 
continue to earn and retain our trust--and to fulfill their 
assurances--every day.
Conclusion
    In short, after examining this transaction with care, DHS concluded 
that: (1) we have legal authority to regulate the U.S. security 
practices of these parties, including the ability to assess the 
maritime threat and intervene, at the foreign port of origin or on the 
high-seas, before potentially problematic cargo arrives at a U.S. port 
to be serviced by the parties; (2) DP World's track record in 
cooperating with DHS on security practices is already very good; and 
(3) DHS obtained assurances that provide additional protection against 
any possible future change in the cooperative spirit we have seen so 
far and that allow us to do further checks on our own.
    Based on all those factors, DHS concluded that it would not object 
to the CFIUS transaction or seek an additional 45-day investigation.
    I would be pleased to answer any questions that you have.

        RESPONSE TO WRITTEN QUESTIONS OF SENATOR SHELBY 
                     FROM ROBERT M. KIMMITT

Q.1. Secretary Kimmitt, you have been testifying and briefing 
almost nonstop on the issues of the Dubai Ports transaction and 
the Committee on Foreign Investments. Given that fact, can you 
offer the Banking Committee some explanation why we did not 
receive your prepared statement until 10:30 the night before 
the hearing? Certainly your statement for this hearing cannot 
differ that markedly from what you have already spoken on this 
week.

A.1. I apologize for any delay. Treasury's interest is ensuring 
that testimony is responsive to the precise nature of each 
heming. As Chair of CFIUS, we also necessarily collaborate with 
other agencies, a process which takes a certain amount of time. 
We provided you the written testimony as soon as it was 
available.

Q.2. Secretary Kimmitt, could you clarify for the Committee 
your understanding of the authorities existing with the 
President that would allow for a nullification of the ports 
transaction in the event a new investigation results in a 
determination that U.S. national security would be endangered 
by the deal? Would a potentially protracted court case be the 
only recourse?

A.2. The President would have had the authority to undo the 
deal as a result of the new review. By agreeing to file a new 
notice under 31 CFR Sec. 800.401 (and to be bound thereby), the 
companies initiated a new ``action under Section 721''--one 
that had the effect of allowing the President to take action 
under 31 CFR Sec. 800.601 in response to CFIUS's 
recommendation, notwithstanding CFIUS's previous decision not 
to proceed to an extended 45-day investigation. The President 
has the authority under Exon-Florio to order divestiture and 
can direct the Attorney General to enforce such an order if 
necessary. He can direct the Attorney General to enforce such 
an order, if the parties do not willingly comply with the 
President's divestiture order.

Q.3. Secretary Kimmitt, I would like to address the issue of 
the Arab boycott of Israel and of the parent company of Dubai 
Ports World's participation in that boycott.
    I recognize that the Department of Commerce is not 
represented here today, and they would be the logical ones to 
field this question. As chair of the Committee on Foreign 
Investments, however, I would like you to respond, on whether 
the boycott issue was raised during consideration of the Dubai 
Ports acquisition and, if so, how was it resolved.

A.3. Consistent with the Exon-Florio Amendment, CFIUS considers 
a broad range of factors when investigating proposed foreign 
acquisitions of U.S. companies. The Committee takes an 
expansive view of national security and consistently examines 
the prospective acquirer's country of origin, as well as U.S. 
relations with the acquirer's country of origin. The Committee 
gives particular attention to this factor when investigating 
proposed transactions with foreign government-controlled 
entities. As part of its broad review of the proposed DP World 
acquisition of P&O and potential impacts on U.S. national 
security, CFIUS carefully considered the relationship between 
the United States and the United Arab Emirates. The Committee 
unanimously concluded that the acquisition did not present a 
threat to national security.

Q.4. I would like to hear from each of the witnesses regarding 
their views on the wisdom of implementing a system for 
approaching reviews of state-owned entities from a risk-based 
perspective.
    The port management company that is being bought by Dubai 
is British-owned. I recall no expressions of concern when P&O 
came into the picture, certainly nothing like has occurred with 
respect to Dubai Ports World. Does it make sense to treat some 
countries as presenting an inherently greater risk than others, 
so that legislative changes to Exon-Florio do not necessarily 
treat a close NATO ally in the same manner as a country from 
the Middle East? I am picturing in my mind the system of 
tiering countries according to risk used in regulating the 
export of high performance computers.

A.4. CFIUS always considers the country in which an acquiring 
entity is located as part of its broad and comprehensive 
security review, and gives extra scrutiny to transactions 
involving foreign governments. When deciding whether to open a 
45-day extended investigation, CFIUS considers whether the 
transaction may affect national security. In establishing 
whether an acquisition or merger by a foreign entity may affect 
national security, CFIUS examines relevant intelligence 
reporting and a number of other national security factors, 
including the foreign entity's country of origin, U.S. 
relations with the foreign entity's country of origin, and the 
foreign entity's compliance with any preexisting national 
security agreements and/or other preexisting agreements it has 
with the United States that seek to ensure protection of 
homeland security, as well as information regarding the foreign 
entity and its compliance with U.S. laws and regulations.
    CFIUS's implementation of Exon-Florio has increased the 
awareness of investors to national security issues, brought 
transactions into conformity with existing laws where needed, 
and resulted in investors abandoning transactions that raised 
insurmountable national security problems. We do not believe 
the law needs to be amended to require consideration of the 
country of the foreign acquirer since CFIUS already takes that 
into consideration as part of its analysis.

Q.5. Could the panel explain for the Committee the precise 
routine role of the intelligence community in the review 
process?

A.5. CFIUS consists of six Departments and six White House 
agencies. In addition, CFIUS invites other Federal agencies to 
participate in investigations on a case-by-case basis when they 
have expertise relevant for a particular case. For example, the 
Departments of Transportation and Energy have participated in 
CFIUS cases. The Intelligence Community--primarily the 
Intelligence Community Acquisition Risk Center (CARC) and the 
Defense Intelligence Agency (DIA)--has played a long-standing 
and important role in the CFIUS process, not as a voting 
member, but as a provider of intelligence assessments regarding 
the foreign acquirer and the transaction. The Office of the 
Director for National Intelligence (DNI)--via the National 
Intelligence Council--is now providing an all-source assessment 
of any potential threats arising from proposed transactions.
    The DNI can be engaged even before a case is formally filed 
with CFIUS. In fact, Treasury, on behalf of CFIUS, routinely 
requests DNI assessments when parties to a transaction notify 
CFIUS of an anticipated filing (that is, a prefiling). As part 
of the 30-day investigation, Treasury always asks the DNI to 
provide a threat assessment for each case. Generally, DNI 
provides its assessment no later than Day 23 of the initial 30-
day investigation period. If a case goes into a 45-day extended 
investigation, DNI has a continued role in the consideration of 
national security concerns.

Q.6. One of the major concerns the Committee has with regard to 
implementation of Exon-Florio involves mitigation agreements, 
in which companies accept certain conditions in exchange for 
regulatory consent to the transaction in question.
    Could the panel inform the Committee as to the measures 
taken to monitor and enforce mitigation and national security 
agreements? How is it determined which member agency within the 
Committee on Foreign Investment negotiates, monitors, and 
enforces such agreements? Have there been instances in which 
foreign governments or businesses have placed obstacles in the 
way of that process?

A.6. If it has particular national security concerns that it 
feels must be addressed, any CFIUS agency may, in consultation 
with CFIUS, engage the parties in negotiating a mitigation 
agreement. Agencies monitor and ensure compliance with respect 
to those agreements to which they have chosen to become 
parties.
    With regard to any particular national security concern for 
which CFIUS agencies may want to pursue mitigation, it is 
typically the member of the Committee with the greatest 
relevant expertise that assumes the lead role in negotiating 
and ultimately concluding assurance letters or mitigation 
agreements to address that concern. Such assurance letters and/
or mitigation agreements implement security measures that vary 
in scope and purpose according to the particular national 
security concerns raised by a specific transaction.
    There are remedies built into mitigation agreements to 
address concerns that arise after the CFIUS case concludes. The 
``lead'' agency or agencies are and should be responsible for 
monitoring the parties' compliance. Procedures for monitoring 
an agreement may, for example, include annual reporting by the 
company to the lead agency or site visits by the lead agency.
    For a material breach of any representation or commitment 
in the mitigation agreement, the lead agency would be empowered 
to seek any remedy available at law or equity in a U.S. court 
of law.
    Companies that file with CFIUS have voluntarily engaged in 
the process in order to protect themselves in the future from 
potentially having their transactions unwound by the 
government. We have found companies, including those owned and 
controlled by foreign governments, to be cooperative and 
willing to provide assurances letters and engage in 
negotiations concerning mitigation agreements, when required by 
CFIUS.

       RESPONSE TO WRITTEN QUESTIONS OF SENATOR BUNNING 
                     FROM ROBERT M. KIMMITT

Q.1. What kind of help have we gotten from the UAE on tracing 
and stopping the flow of money to terrorist groups?

A.1. The United Arab Emirates has laws criminalizing money 
laundering and terrorist financing, and has prosecuted several 
cases under both laws. The UAE has enacted measures in 
compliance with the Financial Action Task Force 40 
Recommendations on Money Laundering and the nine Special 
Recommendations on Terrorist Financing. Among those efforts, 
the UAE instituted a hawala registration system domestically, 
and it also has hosted two regional hawala conferences to 
educate other governments on best practices for regulating a 
traditionally unregulated informal financial sector. The UAE is 
establishing procedures for the regulation of cash couriers, 
charitable organizations, and other nongovernmental 
organizations, including oversight of their financial 
activities.
    We consult frequently with senior UAE officials on 
terrorist financing issues and continue to rely on a frank, 
open, and productive exchange of information and insight. We 
have repeatedly asked the UAE, as a regional financial center, 
to demonstrate leadership on these issues by setting high 
standards and cooperating with regional governments on 
information exchange and counter terrorist financing actions. 
Since 2000, the UAE Government has frozen $1.3 million of funds 
in 17 different accounts based on U.N. Security Council 
resolutions. Its Financial Intelligence Unit exchanges 
information on people and entities suspected of being involved 
in terrorist financing with international Financial 
Intelligence Units, including FinCEN, through the Egmont Group.
    In addition, the UAE has approved the opening of a 
permanent Drug Enforcement Administration (DEA) post in Dubai 
which will be staffed by two special agents (one of whom will 
act as the country attache), an intelligence research 
specialist, and one support staff. DEA is working closely with 
UAE authorities on the investigation of drug trafficking and 
drug money laundering, which has the potential to support 
terrorism or the insurgency in Afghanistan.

Q.2. Are we still seeing money flow through the UAE to aid 
terrorists like we did before September 11?

A.2. The UAE has addressed terrorist financing issues since 
September 11, and has worked with the United States in shutting 
down terrorist finance networks. The UAE has strengthened its 
banking laws and regulations to prevent the misuse of its 
financial institutions by money launderers and terrorist 
financiers. The UAE has taken steps to curb and block financial 
flows to terrorists. We continue to encourage the UAE 
Government to take further steps to strengthen its financial 
defenses and to vigorously enforce its existing laws and 
regulations against money laundering and terrorist financing.

Q.3. How many transactions has the Committee on Foreign 
Investment rejected and approved in its history?

A.3. In considering more than 1,600 transactions since 1988, 
CFIUS has compiled a solid record of identifying potential 
adverse effects on national security and taking appropriate 
measures to mitigate those effects, where possible. As of this 
writing, 27 transactions have gone to investigation, and 13 
have reached the President for decision (others were withdrawn 
prior to a Presidential decision). The President blocked one 
transaction in February 1990, when CATIC company--controlled by 
the Government of the People's Republic of China--sought to 
acquire MAMCO Manufacturing, Inc., an aerospace parts 
manufacturer in the State of Washington.
    These figures must be viewed in the proper context. 
Relatively few acquisitions by foreign entities have the 
potential to affect national security. The vast majority of 
notified transactions do not require an investigation either 
because these transactions do not potentially threaten national 
security, or because CFIUS is able to mitigate the national 
security concerns that arise in connection with these 
transactions through other means.
    CFIUS has raised the awareness of foreign investors 
contemplating acquisitions of U.S. companies to the importance 
of national security considerations. This awareness helps to 
ensure that foreign investments are structured in order to 
avoid national security problems. Prospective foreign acquirers 
understand that security measures may need to be negotiated to 
mitigate concerns. In some cases, CFIUS agencies have 
identified security measures during the 30-day review period 
that would adequately address national security concerns. In 
some of these instances, companies have requested withdrawal of 
their CFIUS notices to negotiate security agreements. Once such 
agreements are executed, the companies refile with CFIUS, and 
CFIUS concludes its review. For example, in the 
telecommunications sector, some foreign companies have entered 
into Network Security Agreements when acquiring U.S. companies. 
(Examples of completed Network Security Agreements are 
available on the FCC website.)
    In addition, some notified transactions were abandoned 
because CFIUS conveyed to the companies that there was no way 
to mitigate the national security concerns.

Q.4. Are there any other commercial operations of companies 
from the UAE in sensitive industries in the United States?

A.4. According to the Bureau of Economic Analysis (BEA), the 
UAB's foreign direct investment position in the United States 
was $24 million at the end of 2004, down $21 million from a 
year earlier. This investment position was concentrated in real 
estate, with a smaller amount of direct investment in financial 
services. However, in some of the industry categories, the 
direct investment positions have not been made public to 
preserve the confidentially of the investor. At the end of 
2004, total foreign direct investment in the United States was 
$1.5 trillion, and the UAE had a very small share.
    The data on foreign direct investment, discussed above, 
excludes investments acquired through third countries, such as 
tax havens in the Caribbean. To include those amounts, the BEA 
prepares estimates in terms of the ultimate beneficial owner. 
On this basis, the UAE had a foreign direct investment position 
in the United States of $1,772 million at the end of 2004, up 
from $1,202 a year earlier. These estimates do not include 
industry detail.
    In addition to DPW, Dubai International Capital LLC, a 
subsidiary of Dubai Holding LLC, recently filed notice with 
CFIUS in connection with its acquisition of the Doncasters 
Group plc, a British company, and its U.S. subsidiaries. The 
President announced on April 28 that he would take no action on 
that transaction under Exon-Florio, as the acquisition did not 
present a possible impairment of national security. The Dubai 
International Capital transaction is an example of the 
continued attractiveness of the U.S. market to foreign 
investors, including investors based in the UAE. The UAE is 
strengthening its investment ties with the United States in a 
manner that advances American interests and is entirely 
consistent with the preservation of national security.

Q.5. Would you describe what is going to happen in the upcoming 
review of the deal and what are you going to look at to decide 
if it should go forward?

A.5. Upon receiving the parties' second notice on March 3, 
2006, CFIUS focused on clarifying DPW's commitment to operate 
its U.S. businesses independently. CFIUS also asked the 
intelligence community for an updated threat assessment to keep 
its understanding of the transaction current. The Intelligence 
Community--via the National Intelligence Council of the 
Director of National Intelligence--completed this threat 
assessment and delivered it to CFIUS members on April 5.
    That focus changed when DPW indicated that it no longer 
intended to seek control of the U.S. businesses. On behalf of 
CFIUS, Treasury engaged in discussions with DPW with respect to 
the company's proposed sale of its U.S. operations. On March 9, 
DPW announced that it would ``transfer fully the U.S. 
operations of P&O Ports North America, Inc. to a United States 
entity.'' On March 15, DPW issued a second press release 
indicating that its U.S. operations would be operated 
independently until they could be sold to an American company. 
The company explained that ``an expedited sale process is under 
way and with the cooperation of the port authorities and joint 
venture partners, it is expected that a sale can be agreed 
within 4 to 6 months.''
    On March 31, Assistant Secretary Lowery sent a letter to 
DPW indicating that CFIUS had rejected the company's filing of 
March 3 based on a material change--the company's decision to 
sell its U.S. operations. The letter notes that CFIUS will 
continue to monitor developments relating to the sale closely. 
The President retains the power to take action to safeguard 
national security with respect to this transaction, and CFIUS 
retains the authority to initiate a review in the event that 
circumstances suggest any material change in DPW's intentions 
announced on March 15.

         RESPONSE TO WRITTEN QUESTIONS OF SENATOR BAYH 
                     FROM ROBERT M. KIMMITT

Q.1. Was any consideration given to the country in which the 
acquiring entity is located? Should the law be amended to 
require such consideration?

A.1. CFIUS always considers the country in which an acquiring 
entity is located as part of its broad and comprehensive 
security review, and gives extra scrutiny to transactions 
involving foreign governments. CFIUS agencies are guided by the 
criteria in the Exon-Florio Amendment and, when deciding 
whether to open a 45-day investigation, consider whether the 
transaction could affect national security.
    In establishing whether an acquisition or merger by a 
foreign entity may affect national security, CFIUS examines 
relevant intelligence reporting about the foreign entity and 
any reports of the foreign entity's violating U.S. laws and 
regulations, such as not complying with U.S. export control 
laws.
    CFIUS agencies examine a broad range of national security 
considerations when evaluating any acquisition. CFIUS has 
implemented the Exon-Florio Amendment in a manner to protect 
the national security as prescribed in the statute while 
staying consistent with the U.S. open investment policy. 
CFIUS's implementation of Exon-Florio has increased the 
awareness of investors to national security issues, brought 
transactions into conformity with existing laws where needed, 
and resulted in investors abandoning transactions that raised 
insurmountable national security problems. We do not believe 
that the law needs to be amended to require consideration of 
the country of the foreign acquirer since CFIUS already takes 
that into consideration as part of its analysis.

Q.2. Was there any consideration and/or investigation into the 
UAE's links to terrorist groups? Should there have been?

A.2. Close consideration was given to the UAB's position on 
terrorism. The UAB has addressed terrorist financing issues 
since September 11, and has worked with the United States to 
shut down terrorist financing networks. The UAE has 
strengthened its banking laws and regulations to prevent the 
misuse of its financial institutions by money launderers and 
terrorist financiers. The UAE has taken steps to curb and block 
financial flows to terrorists. We continue to encourage the UAE 
Government to take further steps to strengthen its financial 
defenses and to vigorously enforce its existing laws and 
regulations against money laundering and terrorist financing.
    In its thorough review of the proposed DPW transaction, 
CFIUS did not uncover any evidence that any DPW executive has 
contributed funds to terrorist organizations. CFIUS carefully 
considered the possibility that the proposed transaction could 
contribute to a heightened risk of terrorism. In connection 
with the March 3 filing, CFIUS also requested and received a 
fully coordinated threat assessment produced by the National 
Intelligence Council, which incorporated judgments based on 
terrorist-related name traces of senior DP World personnel 
conducted by the intelligence and law enforcement communities, 
and CFIUS agencies with counterterrorism responsibilities 
thoroughly analyzed the available information. This thorough 
interagency process did not produce any credible evidence of 
any terrorism-related activity by DPW or its management team.

Q.3. What consideration was given to the nature of the asset? 
Specifically, was there a closer examination because the 
acquisition involved critical infrastructure? Should the law be 
amended to require such consideration?

A.3. In reviewing transactions under Exon-Florio, CFIUS members 
consider the nature of the assets being acquired, the parties 
involved in their operation, and whether such assets represent 
critical infrastructure for the United States. With respect to 
the DPW transaction, CFIUS member agencies carefully considered 
the fact that P&O North America carries out operations at ports 
across the Eastern and Gulf Coasts. As always, the Committee 
looked at both threats and vulnerabilities to the United States 
when assessing the implications of the DPW acquisition. In 
fact, the Department of Homeland Security signed an assurances 
letter with DPW with respect to law enforcement, public safety, 
and national security that it does not have from other terminal 
operators.

Q.4. Was there any thought to notifying Congress in advance of 
this pending transaction? Should the law require that 
Congressional notification be made?

A.4. CFIUS does not notify Congress before a review and 
investigation is complete, in part to avoid the disclosure of 
proprietary information that could undermine the 
confidentiality of a transaction or be used for competitive 
purposes and in part to protect the executive branch's 
deliberative processes. However, I support enhancing the 
transparency of the CFIUS process through more effective 
communication with Congress. I would be pleased to meet with 
you and other Members of the Senate Banking Committee to inform 
you of recent improvements in the CFIUS process. To keep 
Congress informed adequately and regularly about the CFIUS 
process, I have also offered that Treasury, on behalf of CFIUS, 
orally brief the Senate Banking and House Financial Services 
Committees generally every quarter on completed reviews. When 
appropriate, CFIUS may suggest that its oversight committees 
invite other potentially interested members and committees with 
jurisdiction over areas affected by decisions under Exon-Florio 
to attend these briefings. I am also open to other suggestions 
on ways to improve the transparency of the process in order to 
help Congress meet its oversight responsibilities.

Q.5. Does the Director of National Intelligence (DNI) sit on 
CFIUS? Should the DNI sit on CFIUS?

A.5. The Director of National Intelligence (DNI) now 
participates in the CFIUS process by providing intelligence 
support and participating in CFIUS meetings. The DNI does not 
vote on CFIUS matters, because the role of the DNI is to 
provide intelligence support and not to issue policy judgments 
based upon that intelligence. However, the DNI examines every 
transaction and provides CFIUS with broad and comprehensive 
intelligence assessments.

Q.6. Has any consideration been given to convening declassified 
public hearings? Should the law be amended to allow some public 
participation?

A.6. Since implementation of the Exon-Florio provision involves 
national security as well as the disclosure of proprietary 
information, there is a limit on the extent to which the 
process can be public. Exon-Florio prohibits disclosure to the 
public of information and materials submitted to CFIUS. This 
provision helps to encourage companies to file with CFIUS 
without fear that proprietary information will be disclosed to 
the public. In addition, sometimes the impetus for an 
investigation is information contained in a classified report. 
In such cases, it may not be possible to reveal the reasons for 
an investigation without compromising classified information. 
Similar considerations may pertain to the reasons for the final 
determination by the President. In addition, detailed 
unclassified reports could provide a road map for foreign 
acquiring companies to circumvent national security reviews 
under Exon-Florio.
    Amending the law to require public participation would 
jeopardize the sensitive information discussed in CFIUS, much 
of which is either classified or treated as business 
confidential for legitimate business reasons. Companies would 
be reluctant to notify CFIUS and may even decide not to invest 
in the United States if they feared that proprietary 
information may be made public. The Committee believes that the 
decision rests with the companies to determine the most 
appropriate way to keep the public informed without divulging 
sensitive business information.

        RESPONSE TO WRITTEN QUESTIONS OF SENATOR CARPER 
                     FROM ROBERT M. KIMMITT

Q.1. Dubai Ports World filed with CFIUS for a review of their 
acquisition and the Committee approved it in January. According 
to the Exon-Florio law, Dubai Ports should not have any fear of 
being directed to divest of the American P&O operations because 
they have complied with the law and the acquisition was 
cleared. If that is true, is Exon-Florio retriggered with all 
its authorities by this voluntary filing? If an honest 
investigation finds any problems, does the Administration have 
any authority to disapprove the deal or even force Dubai Ports 
to comply with additional security measures that they oppose?

A.1. With respect to DP World (DPW), the power of the President 
to force divestment is no longer an issue. On March 9, DPW 
announced that it would ``transfer fully the U.S. operations of 
P&O Ports North America, Inc. to a United States entity,'' and 
on March 15 DPW issued a second press release saying that its 
U.S. operations would be operated independently until they 
could be sold to an American company. DPW further asserted that 
``an expedited sale process is under way and with the 
cooperation of the port authorities and joint venture partners, 
it is expected that a sale can be agreed within 4 to 6 
months.''
    On March 31, Treasury Assistant Secretary for International 
Affairs, Clay Lowery, sent a letter to DPW indicating that 
CFIUS had rejected the company's filing of March 3 based on a 
material change--the company's decision to sell its U.S. 
operations. The letter notes that CFIUS will continue to 
monitor developments relating to the sale closely. The 
President retains the power to take action to safeguard 
national security with respect to this transaction, and CFIUS 
retains the authority to initiate a review in the event that 
circumstances suggest any material change in DPW's intentions 
announced on March 15.

       RESPONSE TO WRITTEN QUESTIONS OF SENATOR SANTORUM 
                     FROM ROBERT M. KIMMITT

Q.1. What if security concerns arise after a transaction has 
been approved? Is there accountability or are there enforcement 
measures taken once a transaction is completed?

A.1. Once CFIUS has concluded action on a transaction that has 
been notified under Exon-Florio, a review can be reopened in 
limited circumstances. For example, under 31 CFR 800.601(e), if 
the parties to the transaction omitted material information or 
submitted false or misleading material information to CFIUS, 
the Committee may reopen review, and the President has the 
authority to take action. Additionally, individual CFIUS 
agencies often sign assurance agreements with parties to the 
transaction, and there are remedies built into those agreements 
to address concerns that arise after the CFIUS review 
concludes. In the case of DP World, DHS received assurances 
from DP World with respect to law enforcement, public safety, 
and national security that went beyond those received from 
other terminal operators. In addition to action under Exon-
Florio, other legal authorities remain available to protect the 
national security both before and after CFIUS action has been 
completed. CFIUS actions did not affect authorities that the 
Department of Homeland Security and others have over the 
operation and security of U.S. ports.

Q.2. How will CFIUS make an extended review period of Dubai 
Ports World useful?

A.2. Upon receiving the parties' second notice on March 3, 
2006, CFIUS focused on clarifying DP World's (DPW) commitment 
to operate its U.S. businesses independently. CFIUS also asked 
the intelligence community for an updated threat assessment to 
keep its understanding of the transaction current. The 
Intelligence Community--via the National Intelligence Council 
of the Director of National Intelligence--completed this threat 
assessment and delivered it to CFIUS members on April 5.
    That focus changed when DPW indicated that it no longer 
intended to seek control of the U.S. businesses. On behalf of 
CFIUS, Treasury engaged in discussions with DPW with respect to 
the company's proposed sale of its U.S. operations. On March 9, 
DPW announced that it would ``transfer fully the U.S. 
operations of P&O Ports North America, Inc. to a United States 
entity.'' On March 15, DPW issued a second press release 
indicating that its U.S. operations would be operated 
independently until they could be sold to an American company. 
The company explained that ``an expedited sale process is under 
way and with the cooperation of the port authorities and joint 
venture partners, it is expected that a sale can be agreed 
within 4 to 6 months.''
    On March 31, Assistant Secretary Lowery sent a letter to 
DPW indicating that CFIUS had rejected the company's filing of 
March 3 based on a material change--the company's decision to 
sell its U.S. operations. The letter notes that CFIUS will 
continue to monitor developments relating to the sale closely. 
The President retains the power to take action to safeguard 
national security with respect to this transaction, and CFIUS 
retains the authority to initiate a review in the event that 
circumstances suggest any material change in DPW's intentions 
announced on March 15.

Q.3. Despite the 1992 requirement for a report on foreign 
acquisition strategies every 4 years, there has been only one 
report--in 1994. Why have not these reports been forthcoming?

A.3. Exon-Florio requires the President, and such agencies as 
the President shall designate, to complete and furnish to the 
Congress a quadrennial report that:

 Evaluates whether there is credible evidence of a 
    coordinated strategy by one or more countries or companies 
    to acquire U.S. companies involved in research, 
    development, or production of critical technologies for 
    which the United States is a leading producer; and
 Evaluates whether there are industrial espionage 
    activities directed or directly assisted by foreign 
    governments against private U.S. companies aimed at 
    obtaining commercial secrets related to critical 
    technologies.

    In 1993, the National Economic Council formed a working 
group, chaired by Treasury, to coordinate the preparation of 
the first report, which was submitted in 1994. A quadrennial 
report pursuant to paragraph (a) above-relating to a foreign 
country's or company's acquisition strategy--has not been 
produced since 1994. The Administration plans to provide a 
comprehensive report on that subject in 2006.
    However, it is important to note that the information 
required under paragraph (b) has been provided to Congress 
through reports prepared by the Office of the National 
Counterintelligence Executive (NCIX). The Intelligence 
Authorization Act for fiscal year 1995 requires the President 
to submit annually to Congress updated information on the 
threat to U.S. industry from foreign economic collection and 
industrial espionage. This report, coordinated by the NCIX, 
draws on input from all the intelligence agencies. The Foreign 
Economic Collection and Industrial Espionage reports from 1995-
2004 can be found at the following Internet address:
    http://www.NCIX.gov/publications/reports_speeches/reports/
fecie_all/Index_fecie.html.
    The most recent NCIX report was provided to Congress in 
April 2005. Because the NCIX report addresses the issue of 
foreign government-sponsored industrial espionage activities to 
obtain U.S. critical technology secrets, the report effectively 
addresses a key requirement of the quadrennial report 
pertaining to economic espionage. Indeed, the NCIX report is 
actually more comprehensive in scope than what the quadrennial 
report requires in that it seeks to characterize and assess 
efforts by foreign entities--government and private--to 
unlawfully target or acquire critical U.S. technologies, trade 
secrets, and sensitive financial or proprietary economic 
information.
    Although the NCIX report already provides information 
relating to the espionage portion of the mandate, we are 
working toward producing a report related to foreign 
acquisitions in 2006. While we work to complete this report, 
regular Congressional briefings will provide Congress with 
additional information on CFIUS matters.

Q.4. The October 2005 GAO report states that CFIUS generally 
grants requests to withdraw. What are some examples of requests 
to withdraw that were not granted and why were they not 
granted?

A.4. The Exon-Florio regulations state that CFIUS will 
``generally'' grant the parties' request to withdraw their 
notice. To date, CFIUS has granted all requests to withdraw. In 
some cases, foreign entities cease to pursue the proposed 
acquisition, obviating the need for CFIUS review. In other 
cases, companies withdraw to allow more time to negotiate an 
effective means to mitigate national security concerns. Once 
these negotiations are concluded, the companies are requested 
to refile to commence another 30-day review in order for CFIUS 
to conclude action.

       RESPONSE TO A WRITTEN QUESTION OF SENATOR SHELBY 
                       FROM ERIC EDELMAN

Q.1. Could you provide some assurance, however, that the 
Department of Defense role in reviewing this transaction looked 
at the ugly as well as the good? In other words, I hope that 
the focus on the government-to-government relationship was not 
given priority over focused consideration of the national 
security implications of this proposed deal, including 
consideration of the potential risk to a critical 
infrastructure and of exploitation of ports by terrorists. Can 
you comment on this?

A.1. The Department of Defense looked at the deal with regard 
to both the potential threat to defense assets and the overall 
relationship with the United Arab Emirates (UAE). The 
Department of Defense did not agree to approve the deal as a 
``trade'' in exchange for our existing military relationships 
with the UAE. The review conducted by the Department of Defense 
was in-depth and comprehensive. This transaction was staffed 
and reviewed within the Department of Defense by 17 of our 
agencies or major organizations which examined the filing for 
impact on U.S. national security interests, critical 
technologies, the presence of any classified operations 
existing with the company being purchased, and any other 
concerns this transaction posed. Given the issues related to 
port security in this case, we took the added measure of 
including U.S. Transportation Command among the reviewing 
agencies and organizations. In summary, the Department of 
Defense conducted a very comprehensive and in-depth review of 
this transaction, and no issues were raised by any of the 
reviewing agencies or organizations within the Department of 
Defense.

       RESPONSE TO WRITTEN QUESTIONS OF SENATOR BUNNING 
                       FROM ERIC EDELMAN

Q.1. The UAE has given us a lot of help in the war on terror, 
especially military support. Are they making money on our use 
of their ports and air facilities? If so do you think their 
help is genuine or is it just good for business?

A.1 The United Arab Emirates' (UAE) help is genuine. The UAE 
has been a strong and valuable strategic partner of the United 
States since the first Gulf war in 1991. After the September 11 
attacks, the UAE stepped up its level of support with port and 
air base access, but more importantly, the UAE cracked down on 
terror organizations that were using the UAE as a base for 
operations. Operational successes in Operation Iraqi Freedom, 
Operation Enduring Freedom, and Operation Horn of Africa have 
been directly linked to UAE's support.
    The Government of the UAE has been extremely generous in 
their financial support of U.S. operations. Direct sharing in 
costs of U.S. deployments amounted to $12.6 million. Indirect 
sharing of costs estimated at approximately $532.2 million. The 
UAE donated $100 million to the United States for Hurricane 
Katrina relief. While the UAE charged $2.4 million port fees 
and cargo handling in 2004 and 2005, they waived $8.03 million 
in taxes and customs duties.

Q.2. What has the UAE done in the war on terror that points to 
a genuine desire on the part of the state to stop Muslim 
extremists, rather than just making nice with the United 
States?

A.2. The United Arab Emirates (UAE) is an outstanding example 
of the kind of partner critical to winning this long war, 
standing side-by-side with the United States. The access the 
UAE provides to U.S. forces is not without risks to the 
Emirates and makes their country a target for terrorists. The 
UAE has assisted us in Iraq and Afghanistan, and provided 
critical intelligence invaluable to our efforts in the war on 
terrorism. As far as specifics, the UAE arrested and detained 
several al Qaeda members including the mastermind of the U.S.S. 
Cole attack, Abd ai-Rahim Husayn Muhammad al-Nashri in November 
2002.

Q.3. What progress has the UAE made in rooting out terrorists 
and terrorist networks in their own country?

A.3. The United Arab Emirates (UAE) has worked closely with the 
United States to suppress terrorist financing and money 
laundering, including by freezing accounts, enacting and 
aggressively enforcing its anti-money laundering regulations, 
exchanging information, and conducting investigations. Dubai 
was the first Middle Eastern entity to join the Container 
Security Initiative, a multinational program to protect global 
trade from terrorism. Dubai was also the first Middle Eastern 
entity to join the Department of Energy's Megaports Initiative, 
a program aimed as stopping illicit shipments of nuclear and 
other radioactive material.

Q.4.: Is there any evidence of terrorist influence in the 
governments in the UAE?

A.4.: The United Arab Emirates (UAE) is a moderate Arab state 
and a longtime supporter of all aspects of Middle East peace 
efforts. The United States and the UAE also work together to 
create a stable economic, political, and security environment 
in the Middle East. Since September 11, the UAE has cracked 
down on terror organizations that were using the UAE as a base 
for operations. The UAE has worked closely with the United 
States to suppress terrorist activities to include: Financing 
and port security.

Q.5. What kind of response did the governments in the UAE take 
to the recent cartoon controversy and how did the citizens 
there react?

A.5. The United Arab Emirates (UAE) Minister of Justice, 
Islamic Affairs, Awqaf Mohammad Nakhir al-Daheri, condemned the 
publication of the cartoons and stated the incident could spark 
``a dreadful clash of civilizations.'' The civilian reaction 
was mild. The reaction was limited to the publication of 
several articles by UAE newspapers and a small, peaceful, and 
orderly procession of less than 3,000 people on February 3, 
2006.

Q.6. It has been reported that people close to the leadership 
of the UAE were spotted with Osama bin Laden prior to September 
11, and that an airstrike was stopped because of that, or 
alternatively because he was alerted to the potential action by 
someone in the UAE. Are those reports true, and are there any 
signs that such high-level contacts with terrorists continued 
past September 11?

A.6. The September 11 Commission Report, recounts that there 
was concern ``about the danger that a strike would kill an 
Emirati prince or other senior officials who might be with Bin 
Laden.''; however, then-National Security Council Coordinator 
for Counter-Terrorism, Richard Clarke, noted that ``the strike 
was called off after consultations with (CIA) Director Tenet 
because intelligence was dubious, and it seemed to Clarke as if 
the CIA was presenting an option to attack America's best 
counter-terrorism ally in the Gulf [UAE].'' On the matter of 
continuing high-level contacts continuing past September 11, 
the Department of Defense defers this question to the U.S. 
Intelligence Community.

         RESPONSE TO WRITTEN QUESTIONS OF SENATOR BAYH 
                       FROM ERIC EDELMAN

Q.1. Was any consideration given to the country in which the 
acquiring entity is located? Should the law be amended to 
require such consideration?

A.1. The Department of Defense considered the country, the 
United Arab Emirates (UAE), in which the acquiring entity is 
located as part of its review of the case. While our 
relationship with the UAE is very important to the Global War 
on Terrorism, we take our responsibilities as a member of the 
Committee on Foreign Investment in the United States (CFIUS) 
process seriously. The UAE is an outstanding example of the 
kind of partner critical to winning this long war, standing 
side-by-side with us. For the Department of Defense, 
consideration was given to the critical infrastructure of this 
case, as some of those port facilities also have U.S. military 
operations. The Department of Defense analyzed the Dubai Ports 
World case thoroughly and determined that it posed no risk to 
national security, including the shipment of military cargo. If 
the Department of Defense or any other agency identified 
threats to national security that could not be resolved 
adequately during the 30-day review period, the Department of 
Defense would have asked for an investigation of the 
transaction. In this case, the Department of Defense did not 
have concerns with the foreign government involved, the 
acquiring company, or the nature and structure of the actual 
business operations. The six U.S. ports would have remained 
under the ownership and control of U.S. State and local 
authorities, not Dubai Ports World. The Department of Defense 
defers the question of whether the law should be amended to 
require such consideration to the Department of the Treasury, 
the Chairman of the Committee on Foreign Investment in the 
United States (CFIUS).

Q.2. Was there any consideration and/or investigation into the 
UAE's links to terrorist groups? Should the law be amended to 
require such consideration?

A.2. The U.S. Intelligence Community completes a comprehensive 
threat assessment of each case reviewed by the Committee on 
Foreign Investment in the United States (CFIUS). This threat 
assessment focuses on the threat to U.S. national security by 
the foreign acquiring company. This assessment examines this 
threat based on a variety of factors to achieve a fully 
integrated intelligence product for CFIUS.

Q.3. What consideration was given to the nature of the asset? 
Specifically, was there a closer examination because the 
acquisition involved critical infrastructure? Should the law be 
amended to require such consideration?

A.3. For the Department of Defense, consideration was given to 
critical infrastructure because some of the port facilities 
also handle U.S. military operations. The Department of Defense 
analyzed the Dubai Ports World case thoroughly and determined 
that it posed no risk to national security, including the 
shipment of military cargo. The U.S. Transportation Command 
(USTRANSCOM) is the Department of Defense's designated single 
port manager for military cargo. Port operations are overseen 
by military and career government civilians. Other ports 
utilized for military cargo have no connection with Peninsular 
& Oriental Navigation Company. The Department of Defense defers 
the question of whether the law should be amended to require 
such consideration to the Department of The Treasury, the 
Chairman of the Committee on Foreign Investment in the United 
States (CFIUS).

Q.4. Was there any thought to notifying Congress in advance of 
this pending transaction? Should the law require that 
Congressional notification be made?

A.4. As a member of the Committee on Foreign Investment in the 
United States (CFIUS), the Department of Defense is working 
with the Department of the Treasury, the chairman of CFIUS as 
well as other CFIUS agencies to provide better transparency to 
Congress regarding CFIUS actions. The CFIUS process is also 
structured to protect proprietary knowledge and information, 
and confidence in the confidentiality of the process must be 
maintained. The interagency review is looking at ways to 
balance the need to keep Congress informed with the need to 
protect confidentiality and proprietary knowledge.

Q.5. Does the Director of National Intelligence (DNI) sit on 
CFIUS? Should the DNI sit on CFIUS?

A.5. The Director of National Intelligence (DNI) participates 
in the Committee on Foreign Investment in the United States 
(CFIUS) by providing CFIUS with a fully, integrated U.S. 
Intelligence Community threat assessment of the foreign 
acquiring company for all CFIUS cases.

Q.6. Has any consideration been given to convening declassified 
public hearings? Should the law be amended to allow some public 
participation?

A.6. As part of the overall improvements to the Committee on 
Foreign Investments in the United States (CFIUS) process, all 
CFIUS agencies are considering ways to ensure public views are 
taken into consideration while balancing the need for 
confidentiality of the CFIUS process.

        RESPONSE TO WRITTEN QUESTIONS OF SENATOR SHELBY 
                       FROM STEWART BAKER

Q.1.a. One of the major concerns the Committee has with regard 
to implementation of Exon-Florio involves mitigation 
agreements, in which companies accept certain conditions in 
exchange for regulatory consent to the transaction in question. 
Could the panel inform the Committee as to the measures taken 
to monitor and enforce mitigation and national security 
agreements?

A.1.a. DHS monitors and ensures compliance with respect to 
those agreements to which DHS is a party. It does so by 
tracking the reports, audits, and other products owed to DHS 
pursuant to each agreement, reviewing these products, and 
contacting the parties when there are questions or concerns.

Q.1.b. How is it determined which member agency within the 
Committee on Foreign Investment negotiates, monitors, and 
enforces such agreements?

A.1.b. DHS decides, in consultation with CFIUS, when to engage 
parties in negotiating mitigation agreements, and DHS then 
monitors and ensures compliance with respect to each agreement 
to which it is a party. Other CFIUS agencies similarly 
negotiate and monitor compliance with agreements to which they 
choose to become parties.

Q.1.c. Have there been instances in which foreign governments 
or businesses have placed obstacles in the way of that process?

A.1.c. The negotiation of mitigation agreements, like 
negotiations of other agreements, is a process of give and 
take. If DHS believed that a party were unwilling to provide 
assurances that DHS deemed necessary to protect national 
security, then DHS would not assent to the transaction.

Q.2.a. Could the panel explain for the Committee the precise 
routine role of the intelligence community in the review 
process?

A.2.a. This question is better addressed to the DNI or to the 
Treasury Department as Chair of the CFIUS. DHS values the role 
of the intelligence community in providing facts that may bear 
on the risk presented by the transactions subject to CFIUS 
review.

Q.2.b. Assistant Secretary Baker, within this context, how 
should intelligence from within your department be handled 
relative to how it apparently was handled in the case of the 
now-infamous Coast Guard Intelligence Coordination Center 
document?

A.2.b. There may be some misunderstanding about the nature of 
the Coast Guard document. While that document raised a concern 
about incomplete information, that concern was preliminary in 
nature and was resolved in the course of the CFIUS review as 
more information was acquired. Further, DHS has formalized and 
improved the process by which its various components review and 
provide input on CFIUS transactions.

Q.2.c. Was the document in question reviewed by anyone involved 
in the Dubai review process prior to that process being closed?

A.2.c. Yes. As noted above, that document expressed some 
preliminary concerns that were resolved in the course of the 
CFIUS review.

Q.3. I would like to hear from each of the witnesses regarding 
their views on the wisdom of implementing a system for 
approaching reviews of state-owned entities from a risk-based 
perspective. The port management company that is being bought 
by Dubai is British-owned. I recall no expressions of concern 
when P&O came into the picture, certainly nothing like has 
occurred with respect to Dubai Ports World. Does it make sense 
to treat some countries as presenting an inherently greater 
risk than others, so that legislative changes to Exon-Florio do 
not necessarily treat a close NATO ally in the same manner as a 
country from the Middle East? I am picturing in my mind the 
system of tiering countries according to risk used in 
regulating the export of high performance computers.

A.3. CFIUS always considers the country in which an acquiring 
entity is located as part of its broad and comprehensive 
security review, and gives extra scrutiny to transactions 
involving foreign governments. CFIUS agencies are guided by the 
criteria in the Exon-Florio Amendment and, when deciding 
whether to open a 45-day investigation, consider whether the 
transaction could affect national security.
    In establishing whether an acquisition or merger by a 
foreign entity may affect national security, CFIUS examines 
relevant intelligence reporting about the foreign entity and 
any reports of the foreign entity's violating U.S. laws and 
regulations, such as not complying with U.S. export control 
laws.
    CFIUS agencies examine a broad range of national security 
considerations when evaluating any acquisition. CFIUS has 
implemented the Exon-Florio Amendment in a manner to protect 
the national security as prescribed in the statute while 
staying consistent with the U.S. open investment policy. 
CFIUS's implementation of Exon-Florio has increased the 
awareness of investors to national security issues, brought 
transactions into conformity with existing laws where needed, 
and resulted in investors abandoning transactions that raised 
insurmountable national security problems. We do not believe 
that the law needs to be amended to require consideration of 
the country of the foreign acquirer since CFIUS already takes 
that into consideration as part of its analysis.

Q.4. Secretary Kimmitt, you have been testifying and briefing 
almost nonstop on the issues of the Dubai Ports transaction and 
the Committee on Foreign Investments. Given that fact, can 
offer the Banking Committee some explanation why we did not 
receive your prepared statement until 10:30 the night before 
the hearing? Certainly your statement for this hearing can not 
differ that markedly from what you have already spoken on this 
week. Secretary Baker, you have similarly been testifying and 
briefing all over Capitol Hill, yet your statement did not 
arrive until 8:30 A.M. Any comment?

A.4. I apologize for any delay.

       RESPONSE TO WRITTEN QUESTIONS OF SENATOR BUNNING 
                       FROM STEWART BAKER

Q.1. What kind of security information will Dubai Ports World 
gain access to as a result of this deal that they would not 
otherwise get?

A.1. DPW has stated that it intends to sell P&O's U.S. 
operations in the next 4 to 6 months and that, until the sale 
occurs, P&O's U.S. operations will be operated entirely 
independently of DPW. Even before deciding to sell P&O, DPW had 
committed to maintaining P&O's current security personnel.
    In any event, terminal operators neither provide, nor 
oversee, security for a port complex. Security for an entire 
port complex is the responsibility of the government and the 
local port authority. Because terminal operators are not 
afforded access to this information, they can not develop an 
understanding into the breadth and depth of security measures 
that DHS employs to protect our ports and the cargo that enters 
those ports. Terminal operators do not have access to security 
information related to arriving cargo or vessels; rather, a 
terminal operator only has access to its facility security 
plan, which it developed and provided to the Coast Guard under 
MTSA.
    Terminal operators ordinarily sign a long-term lease for 
waterfront property in the port. They build a pier for ships, 
cranes to unload the ship, a parking lot to store the 
containers they unload, and perhaps a small management office; 
the terminal operator generates profits from lifting containers 
out of ships and holding them for shippers. The first time a 
terminal operator at a U.S. facility sees any of the law 
enforcement and security measures that DHS has in place 
concerning the vessel and cargo is when the ship arrives in the 
United States. Even then, all the terminal operator knows is 
that CBP has selected certain containers for examination. 
Operators are simply instructed to unload the containers, under 
DHS supervision, and deliver them to CBP for inspection. They 
are not told why.

Q.2. What exactly will the company be doing at the ports and 
what role do port operators play in security?

A.2. DPW has stated that it intends to sell P&O's U.S. 
operations in the next 4 to 6 months and that, until the sale 
occurs, P&O's U.S. operations will be operated entirely 
independently of DPW.
    Terminal operating companies provide a number of services 
to their steamship company clients, which can include the 
actual stevedoring of vessels; storing of cargo containers 
awaiting delivery; performing repairs to cargo containers or 
chassis; delivering cargo containers to consignees; providing 
direct invoicing to clients on behalf of the steamship company; 
as well as numerous additional ancillary services. Services 
provided are outlined in the individual contracts signed 
between the terminal operator and the steamship company 
customer.
    Regarding security, a terminal operator must first and 
foremost adhere to its Coast Guard approved Facility Security 
Plan (FSP), as required under the Maritime Transportation 
Security Act of 2002. Beyond adhering to the FSP, a terminal 
operator's security role often depends on the lease agreement 
signed with the municipal port authority. Some port authorities 
operate strictly as ``turn key'' landlords, meaning that they 
provide the acreage to the terminal operator but no other 
services or equipment. In other ports, the port authority may 
include not just the leased acreage but some additional value-
added services like security guards and port authority provided 
container cranes to work the vessels of the terminal operator's 
client.

Q.3. How many and what kind of personnel is the company likely 
to replace at the ports, and will DHS be able to veto any 
employees you are concerned about?

A.3. DPW has stated that it intends to sell P&O's U.S. 
operations in the next 4 to 6 months and that, until the sale 
occurs, P&O's U.S. operations will be operated entirely 
independently of DPW. Even before deciding to sell P&O, DPW had 
committed to maintaining P&O's current security personnel.
    Should any company wish to change or add maritime facility 
personnel in the future, those persons will be subject to the 
vetting process associated with the Transportation Worker's 
Identification Credential. That credential will be issued by 
the Transportation Security Administration to all 
transportation workers and the employees of all companies 
engaged in transportation will have to undergo the background 
check required as part of the application process. Thus, while 
DHS may not exercise any ``veto'' authority over new employees, 
there is a robust system being developed that will identify and 
prohibit certain persons of concern from gaining unescorted 
access to regulated maritime facilities.

Q.4. What is the status of screening the backgrounds dock 
workers for criminal records or terrorist ties?

A.4. The Department of Homeland Security has completed vetting 
against terrorist watch-list and immigration databases for 
employees of P&O Ports North America, Inc., who work at ports 
in the United States. P&O Ports was fully responsive to the 
Department's request for information, and at this time there 
have been no problems identified.

Q.5. It has been reported that you were the only panel member 
to raise objections to this transaction. What were your 
concerns, and what was done to address them? And did you want 
more changes that were not made?

A.5. As a lead agency in the DP World case, DHS thought it 
prudent to obtain certain written assurances from DPW, 
including: (i) that DPW would participate in certain port 
security programs that are voluntary for other companies but 
would become mandatory for DPW because of its written 
assurances; and (ii) that DPW would provide, upon request, any 
records maintained regarding DPW's operations in the United 
States.

Q.6. Did anyone object to your concerns or your efforts to 
address them?

A.6. No.

Q.7. Is it more important to have steps in place to screen 
cargo before it is loaded on ships at foreign ports or after it 
arrives in the United States?

A.7. CBP utilizes a multilayered cargo enforcement strategy 
which includes: The analysis of advanced information, as 
required by the Trade Act of 2002 and CBP's 24 Hour Rule; 
programs intended to ``push the borders out,'' such as the 
Container Security Initiative (CSI) and the Customs-Trade 
Partnership Against Terrorism (C-TPAT); and the use of high 
tech nonintrusive inspection equipment and radiation detection 
portals. CBP developed and implemented the 24 Hour Rule and CSI 
to assess the risk of each container before it is laden onto 
the vessel destined for the United States. Under these 
programs, all containerized sea cargo is screened using with 
CBP's automated Advanced Targeting System prior to loading. 
Decisions to physically examine or physically screen each 
container for the presence of radiation prior to loading onto 
the vessel are determined by balancing the likely security risk 
against need to facilitate the movement of trade; where CBP 
officers identify cargo that poses sufficient risk, a ``do not 
load'' order can be given.

         RESPONSE TO WRITTEN QUESTIONS OF SENATOR BAYH 
                       FROM STEWART BAKER

Q.1. Was any consideration given to the country in which the 
acquiring entity is located? Should the law be amended to 
require such consideration?

A.1. The Department of the Treasury previously submitted a 
response to this request. DHS defers to Treasury on this 
question.

Q.2. Was there any consideration and/or investigation into the 
UAE's links to terrorist groups? Should there have been?

A.2. The Department of the Treasury previously submitted a 
response to this request. DHS defers to Treasury on this 
question.

Q.3. What consideration was given to the nature of the asset? 
Specifically, was there a closer examination because the 
acquisition involved critical infrastructure? Should the law be 
amended to require such consideration?

A.3. DHS decided that it would be prudent to obtain certain 
security assurances from DPW, and this prudential decision was 
partly a function of the nature of the asset. DHS does not 
favor changing the flexible manner in which the law currently 
allows consideration of national security and homeland security 
factors.

Q.4. Was there any thought to notifying Congress in advance of 
this pending transaction? Should the law require that 
Congressional notification be made?

A.4. CFIUS's longstanding practice has been that pending cases 
are confidential within CFIUS. While DHS believes that Congress 
does and should play an important oversight role with respect 
to the CFIUS process, and while DHS has no objection to 
Congressional notification regarding closed cases, DHS does not 
believe that the law should require Congressional notification 
of pending cases.

Q.5. Does the Director of National Intelligence (DNI) sit on 
CFIUS? Should the DNI sit on CFIUS?

A.5. The Department of the Treasury previously submitted a 
response to this request. DHS defers to Treasury on this 
question.

Q.6. Has any consideration been given to convening declassified 
public hearings? Should the law be amended to allow some public 
participation?

A.6. The Department of the Treasury previously submitted a 
response to this request. DHS defers to Treasury on this 
question.

        RESPONSE TO WRITTEN QUESTIONS OF SENATOR CARPER 
                       FROM STEWART BAKER

Q.1. This morning, I went to the Port of Wilmington to discuss 
security issues as well as the Dubai Ports World acquisition. A 
company that operates at the Port of Wilmington-Delaware River 
Stevedores--is a joint venture between P&O and Stevedoring 
Services of America, a company out of Seattle.
    The representative from Delaware River Stevedores mentioned 
that their personnel working at the ports will not change due 
to this acquisition because they have a contract with the 
longshoremen that does not expire until 2010. I assume P&O 
operations at other ports have similar arrangements.
    But once those contracts expire, what options will Dubai 
Ports World have with regard to who they employ at U.S. ports? 
Will Dubai Ports be required to continue to contract with the 
longshoremen? Or continue to employ American workers?

A.1. DPW has stated that it intends to sell P&O's U.S. 
operations in the next 4 to 6 months and that, until the sale 
occurs, P&O's U.S. operations will be operated entirely 
independently of DPW. Even before deciding to sell P&O, DPW had 
committed to maintaining P&O's current security personnel.
    The provisions of the International Longshoremen's 
Association (ILA) contract apply to any signatory to the 
agreement. As long as a company is a member of any association 
that has signed the contract, it is bound by the requirement to 
use unionized longshore labor in their operations and pay 
certain hourly wages. To illustrate, Delaware River Stevedores 
is a member of the Ports of the Delaware River Trade 
Association which, in turn, belongs to the United States 
Maritime Alliance, the signatory to the ILA contract on behalf 
of East Coast and Gulf maritime employers. As long as that 
relationship is maintained, the company is committed to 
utilizing members of the ILA. If, however, a company would 
choose to discontinue its membership in these organizations, it 
could attempt to establish nonunion operations. This, however, 
is difficult because there is a very limited supply of labor 
with the skills necessary to work in a terminal/stevedoring 
operation and they are, almost exclusively, unionized 
longshoremen. The possibility of operating a nonunion facility 
with any employees able to pass the background check for the 
Transportation Worker Identification Credential, though, does 
exist. However, U.S. immigration laws would not permit a 
company to replace U.S. longshoremen with foreign workers.

Q.2. The Delaware River Stevedores representative also said 
they are willing to submit their employees to background 
checks. Is this something the Department of Homeland Security 
has considered requiring?

A.2. The Port of Wilmington, where the Delaware River 
Stevedores have been providing stevedoring and terminal 
services since 1987, has been the site of a prototype test 
conducted by the Department of Homeland Security of an 
identification card system for screening port workers that will 
deny individuals with criminal or terrorist backgrounds or 
immigration issues from accessing sensitive areas at our ports.
    The Transportation Worker Identification Credential (TWIC) 
is a top departmental priority, and Secretary Chertoff has 
directed DHS components to move forward with the program as 
quickly as possible. Under the TWIC program, all port workers 
requiring unescorted access to the secure areas of facilities 
regulated by the Maritime Transportation Security Act of 2002 
(P.L. 107-295) will be subject to background checks before they 
are issued a credential. TSA recently published a ``request for 
qualifications'' seeking firms who are appropriately 
experienced and interested to help deploy certain components of 
the TWIC program. This is the first step toward operational 
deployment of the TWIC program for unescorted access to all 
U.S. ports. This deployment includes accelerated and parallel 
rulemaking work by both TSA and Coast Guard, which will enable 
implementation to begin and fees to be collected for the 
services provided.

Q.3. The Port of Wilmington has been the site of a test 
conducted by the Department of Homeland Security of an 
identification card system for screening port workers and 
blocking individuals with criminal or terrorist backgrounds 
from accessing sensitive areas at our ports. The program--known 
as the Transportation Worker Identification Credential (TWIC)--
has been underway at the port and at three other locations for 
more than 4 years, has been successful. However, the Department 
of Homeland Security is ending the test, even though a national 
screening and identification system is more than a year away. 
Why has the Department decided to remove the TWIC program from 
the ports where it is working? Shouldn't we speed the 
implementation of the national program rather than discontinue 
the program at the ports where it is already working?

A.3. The Transportation Security Administration (TSA) greatly 
appreciates the willingness of Port of Wilmington officials and 
their workers to partner with TSA in testing the prototype TWIC 
at their facility. The knowledge gained in issuing cards to 
over 1,500 Port of Wilmington workers over the past year will 
speed full implementation of the TWIC program.
    The prototype program ended in June 2005. It was not 
intended to be a permanent bridge to implementation of the 
program. The Port of Wilmington is the last of the prototype 
facilities still using the prototype Transportation Worker 
Identification Credential (TWIC) for its identity and access 
control credential. TSA has assisted the Port of Wilmington and 
other sites in the Philadelphia area to transition to a self-
sustaining credentialing process. All the other TWIC prototype 
facilities have already returned to their self-sustaining 
identity management processes.
    The Transportation Worker Identification Credential (TWIC) 
is a top Departmental priority, and Secretary Chertoff has 
directed DHS components to move forward with the program as 
quickly as possible. TSA recently published a ``request for 
qualifications'' seeking firms who are appropriately 
experienced and interested to help deploy certain components of 
the TWIC program. This is the first step toward operational 
deployment of the TWIC program for unescorted access to all 
U.S. ports. This deployment includes accelerated and parallel 
rulemaking work by both TSA and Coast Guard, which will enable 
implementation to begin and fees to be collected for the 
services provided.

       RESPONSE TO WRITTEN QUESTIONS OF SENATOR SANTORUM 
                       FROM STEWART BAKER

Q.1. Where is the remaining 20 percent of inbound cargo not 
participating in the Container Security Initiative originating 
and what measures are taken beyond reviewing the manifests to 
reduce risks posed by that cargo?

A.1.

Origin of Cargo not Participating in CSI

    CSI is currently operational in 44 ports. These ports, 
which cover 75 percent of maritime containerized cargo destined 
to the United States, are located in Asia, the Middle East, 
Africa, Europe, and North, South, and Central America.

Measures Taken to Reduce Cargo Risks

    With over 700 seaports around the world lading cargo 
containers destined to the United States, CSI was established 
to cover seaports with the greatest volume of goods destined to 
the United States and which are based in strategically critical 
locations abroad. It was not, however, ever intended to cover 
100 percent of all maritime containerized cargo. Instead, CSI 
was developed to operate as a ``system of systems'' and is but 
one component in Customs and Border Protection's (CBP) arsenal 
of programs and activities that serve to significantly mitigate 
the vulnerabilities of a post-September 11 environment. Other 
programs established to keep U.S. borders secure include the 
Twenty-Four Hour Rule, the National Targeting Center/Automated 
Targeting System, MTSA, ISPS, C-TPAT, U.S. Coast Guard's 
Ninety-Six Hour Notice of Arrival Rule, and the utilization of 
NII/RPM's. CSI complements these other programs, which must be 
taken as a ``whole'' and not as individual programs when 
evaluating container security.
    International cargo statistics justify this multifaceted 
approach. Specifically, shipments laden on board vessels arrive 
in the United States from over 700 foreign seaports. One 
hundred foreign seaports accounted for approximately 96 percent 
of the cargo. The remaining 600 seaports accounted for the last 
4 percent. It is further anticipated that, when CSI reaches 58 
to 60 ports, approximately 85 percent of cargo arriving from 
foreign ports will be represented. CBP plans to address the 
remaining 15 percent using other combinations of its layered 
systems, including the Twenty-Four Hour Rule, NTC/ATS, Do-Not-
Load and NII/RPM at U.S. Ports of Entries, and, if necessary, 
utilizing the World Customs Organization (WCO) Framework to 
engage host governments' participation in the examination of 
containers.

Q.2. How can we encourage the remaining 20 percent to 
participate?

A.2. As discussed above, the sheer volume of cargo activity and 
the number of foreign seaports that have containers laden on 
board vessels destined to the United States necessitate CBP's 
strategy of a layered, defense in-depth system to address the 
risk in the most cost effective manner. This will not include 
participation by every port in the world, but will focus on 
strategic ports. CBP is currently in the process of working 
with other countries to establish additional CSI ports and will 
build off previous success with foreign hosts to encourage 
participation.

       RESPONSE TO WRITTEN QUESTIONS OF SENATOR BUNNING 
                       FROM ROBERT JOSEPH

Q.1. The UAE has given us a lot of help in the war on terror, 
especially military support. Are they making money off our use 
of their ports and air facilities? If so, do you think their 
help is genuine, or is it just good for business?

A.1. I would refer you to the Department of Defense for 
information on whether the UAE receives income from the U.S. 
military's use of Emirati ports and air facilities. However, 
the use of those facilities has been immensely helpful to our 
efforts in both Operation Enduring Freedom and Operation Iraqi 
Freedom.

Q.2. What has the UAE done in the war on terror that points to 
a genuine desire on the part of the state to stop Muslim 
extremists, rather than just making nice with the United 
States? What progress has the UAE made in rooting out 
terrorists and terrorist networks in their own country?

A.2. The UAE has been an important ally in the war on terror. 
Since September 11, the UAE leadership has strongly and 
consistently condemned all acts of terrorism--in London, 
Istanbul, Madrid, and elsewhere. The UAE passed an anti-money 
laundering law in 2002 and a strengthened anti-terrorism law in 
2004. It has signed all 12 U.N. Counterterrorism Conventions.
    Since 2000, UAE banks have frozen $1.3 million of funds in 
17 different accounts based on U.N. sanctions. The UAE's 
Financial Intelligence Unit has been a member of the Egmont 
Group since 2002. The UAE monitors registered charities and 
their financial transfers abroad, and it has been a leader in 
setting new standards for controlling the hawala, or informal 
money exchange system. The UAE was a charter signatory to the 
Middle East North Africa Financial Action Task Force 
inaugurated in Bahrain in November 2004. The United States and 
the UAE formed and held the first meeting of a Joint Terror 
Finance Coordinating Committee in January 2006 to further 
coordinate our efforts to combat this problem.
    The UAE also has worked closely with us to disrupt 
proliferation activities. It was the first state in the Middle 
East to have one of its ports join the Container Security 
Initiative; as part of this program, U.S. Customs personnel 
based in Dubai are ensuring that U.S.-bound containers are free 
of WMD. The UAE also is a member of the U.S. Megaports 
Initiative, which seeks to stop the illicit movement of nuclear 
and radiological materials. The UAE played an important role in 
unraveling the activities of the A.Q. Khan network, which 
stretched over three continents.
Q.3. Is there any evidence of contacts of UAE officials with 
terrorists or terrorist groups? Is there any evidence of 
terrorist influence in the governments in the UAE?

A.3. The UAE leadership, with its moderate outlook and close 
ties to the United States, is a prospective target for--not an 
ally of--terrorist groups. Far from sharing terrorists' 
fanatical ideology, the UAE has a long history of religious 
tolerance--Christian churches of several denominations, as well 
as Hindu and Sikh places of worship, operate without 
restriction in the country (other than the requirement not to 
proselytize Muslims). Since September 11, UAE political and 
religious leaders have strongly condemned acts of terrorism--in 
London, Istanbul, Madrid, and elsewhere--and consistently 
called for moderation and tolerance of ethnic differences in 
the Middle East.
    Although the UAE's open banking system has been exploited 
by terrorists and their financiers (see the response to 
Question 2 above on steps the UAE Government is taking to 
prevent such exploitation), the UAE Government has no policy of 
supporting terrorism, financially or otherwise. We have no 
reason to believe that these fanatics influence the moderate 
leaders of the UAE.
    Prior to September 11, the UAE recognized the Taliban as 
the Government of Afghanistan and maintained desert camps and 
airstrips in that country for periodic hunting trips. The UAE 
rejected frequent U.S. requests to end contact with the 
Taliban, but it never in any way supported the ideology or 
operational agenda of either the Taliban or al Qaeda. The 
September 11 Commission Report (page 137 and following), cites 
a report that, in February 1999, Usama bin Laden (UBL) visited 
a location near a hunting camp in Afghanistan ``being used by 
visitors . . . from the United Arab Emirates.'' The September 
11 Commission Report also notes that a U.S. missile strike 
against UBL was considered at that time, although there are 
conflicting accounts of why no such strike occurred. One source 
asserts that the presence of Emiratis was a factor, while a 
senior White House official is quoted as stating no strike was 
launched because ``the intelligence [regarding UBL's presence] 
was dubious.''
    According to media reports, al Qaeda in May/June 2002 sent 
a threatening letter to the UAE Government, claiming to have 
infiltrated the UAE Government and threatening a terrorist 
attack in the UAE as a result of that country's pro-Western, 
moderate stance. While the claim of infiltration remains 
unsubstantiated--which is not surprising, as al Qaeda's 
statements are typically designed to mislead and threaten, 
rather than to inform--the al Qaeda threat to the UAE is clear 
and credible.

Q.4. What kind of response did the governments in the UAE take 
to the recent cartoon controversy and how did the citizens 
there react?

A.4. A Jan. 29, 2006, statement by Minister of Justice and 
Islamic Affairs Mohammed Nakhira Al Dhaheri to a group of 
Islamic clerics summarizes the government's reaction to the 
cartoon:

    The UAE Minister of Justice and Islamic Affairs has 
strongly condemned some Danish and Norwegian papers for 
publishing cartoons blasphemous of Prophet Mohammed. Minister 
Mohammed Al Dhaheri dismissed the cartoons . . . as 
``disgusting and irresponsible.'' Noting a rising wave of anti-
Islam sentiments, the Minister said these sentiments serve only 
to undermine the values of tolerance, peace, and coexistence, 
``the very principles heralded by the divine religions and 
adopted by international organizations.'' Al Dhaheri said . . . 
the cartoons were ``cultural terrorism, not freedom of 
expression.'' Labeling these acts as ``alarming religious 
intolerance and discrimination,'' Al Dhaheri called for . . . 
deterrent international legal measures against such desecrating 
acts, because they are disgraceful to the entire humankind.

    The cartoons were a subject of the UAE's Government-
directed Friday mosque sermons, which advocated respect for 
religion and nonviolence. Most UAE supermarkets pulled Danish 
products from their shelves in response to a boycott call from 
consumers; those products are starting to reappear now.

Q.5. A report in the Jerusalem Post links the parent company of 
Dubai Ports World to the Arab boycott of Israel. Can any of you 
confirm or deny that, and if true was that considered in the 
original review of the deal?

A.5. While this is not a security issue and is not related to 
the CFIUS review, we understand that currently the UAE does 
observe a ``primary'' boycott of Israeli goods, meaning that it 
does not trade directly with Israel. However, the UAE does not 
enforce secondary and tertiary aspects of this boycott--meaning 
that the UAE does business with companies (including American 
companies) that do business with Israel.
    A Dubai Government-owned company, the Ports, Customs and 
Free Zone Corporation, controls both Dubai Customs and Dubai 
Ports World, but the two are wholly separate entities.
    Dubai Ports World is a port terminal operator. It does not 
perform customs functions, nor is it involved in boycott 
enforcement. As a port operator, DPW conducts business with 
Israeli shipping firms, including ZIM. This was confirmed by 
ZIM's Chairman, Idan Ofer, in a recent letter sent to Senator 
Clinton (D-NY).
    We are currently negotiating a Free Trade Agreement with 
the UAE and have made it clear that for the FTA to be concluded 
and go into effect, the UAE cannot boycott Israel. In this 
regard, a joint State/Commerce antiboycott compliance team 
visited the UAE in February to assist UAE officials in 
harmonizing their laws with U.S. antiboycott regulations. Under 
Secretary of Commerce McCormick visited in March to discuss 
trade issues, of which this is one. The UAE has expressed its 
willingness to meet all U.S. legal requirements.
    The FTA with the UAE will be a major step forward in 
realizing the President's vision to establish the Middle East 
Free Trade Area by 2013 in order to promote economic freedom 
and development, the tearing down of barriers, and the 
integration of Middle East economies into the global system.

Q.6. Can any of you describe what kind of censorship the 
governments in the UAE conduct on information coming into the 
country?

A.6. The UAE Government censors information that it considers 
immoral and offensive, although the UAE remains one of the most 
open societies in the region. It has an active, independent 
press, and a free zone known as Media City that hosts the pan-
Arab satellite channel al-Arabiya and hundreds of other 
journalists representing international and Western media. Many 
American media outlets, such as CNBC and CNN, have regional 
centers in Dubai.
    Censors review all imported media and ban or censor before 
distribution material considered pornographic, excessively 
violent, derogatory to Islam, supportive of certain Israeli 
Government positions, unduly critical of friendly countries, or 
critical of the government or ruling families. Academic 
materials destined for schools are routinely censored by the 
Ministry of Education. Students are banned from reading texts 
featuring sexuality or pictures of the human body.
    The government-owned Internet provider, Etisalat, regularly 
blocks internet sites determined to be ``objectionable.'' These 
sites include information on the Baha'i faith, Judaism, 
negative critiques of Islam, and testimonies of former Muslims 
who have converted to Christianity. Etisalat also blocks 
Internet addresses originating from Israel (using the ``.il'' 
address), any web address that includes the word ``lesbian;'' 
and numerous other sites declared to be ``inconsistent with the 
religious, cultural, political, and moral values of the UAE.''

Q.7. Is foreign investment allowed in the UAE? In particular, 
would an American company be allowed to manage port operations 
in Dubai?

A.7. While the UAE wants to attract foreign investment, 
investment laws and regulations are still evolving. At present, 
the regulatory and legal framework favors local over foreign 
investors in most sectors. We understand that the UAE may 
impose foreign equity limitations on investment in ``supporting 
services for maritime transport.'' However, United States and 
other foreign terminal operators can and do invest in UAE 
ports. All UAE ports and port operations are owned by the 
governments of the seven individual emirates.
    Two UAE ports are currently operated by foreign companies 
that have contracts with local authorities: The Port of Khor 
Fakkan in Sharjah, and the Port of Ras Al-Khaimah.
    The United States actively encourages the opening of Middle 
East markets to U.S. investment and is engaging in Free Trade 
Agreement negotiations in the region, including with the UAE. 
We are addressing the whole range of investment and services 
issues in our FTA negotiations. The CFIUS process will apply to 
foreign acquisitions regardless of whether or not they are 
covered by the investment provisions of an FTA.
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