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37–513 PDF 2007

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 

COMMITTEE ON BANKING, HOUSING, AND URBAN AFFAIRS 

RICHARD C. SHELBY, Alabama, Chairman

ROBERT F. BENNETT, Utah 

WAYNE ALLARD, Colorado 

MICHAEL B. ENZI, Wyoming 

CHUCK HAGEL, Nebraska 

RICK SANTORUM, Pennsylvania 

JIM BUNNING, Kentucky 

MIKE CRAPO, Idaho 

JOHN E. SUNUNU, New Hampshire 

ELIZABETH DOLE, North Carolina 

MEL MARTINEZ, Florida 

PAUL S. SARBANES, Maryland 

CHRISTOPHER J. DODD, Connecticut 

TIM JOHNSON, South Dakota 

JACK REED, Rhode Island 

CHARLES E. SCHUMER, New York 

EVAN BAYH, Indiana 

THOMAS R. CARPER, Delaware 

DEBBIE STABENOW, Michigan 

ROBERT MENENDEZ, New Jersey

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)

CONTENTS

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)

(1)

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 

2

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 

3

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. 

4

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 ExonFlorio 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, 

5

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 ExonFlorio 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. 

6

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 

7

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 

8

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 proVerDate 0ct 09 2002 08:57 Dec 18, 2007 Jkt 000000 PO 00000 Frm 00012 Fmt 6633 Sfmt 6633 S:\DOCS\37513.TXT BANK1 PsN: BANK
9

ducers 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 

10

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. 

11

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. 

12

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 

13

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 responVerDate 0ct 09 2002 08:57 Dec 18, 2007 Jkt 000000 PO 00000 Frm 00017 Fmt 6633 Sfmt 6633 S:\DOCS\37513.TXT BANK1 PsN: BANK
14

sible 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 

15

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. 

16

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 conVerDate 0ct 09 2002 08:57 Dec 18, 2007 Jkt 000000 PO 00000 Frm 00020 Fmt 6633 Sfmt 6633 S:\DOCS\37513.TXT BANK1 PsN: BANK
17

fidence 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. 

18

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 

19

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 

20

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. 

21

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. 

22

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 

23

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 

24

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 

25

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 

26

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. 

27

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 

28

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, 31⁄2 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, simVerDate 0ct 09 2002 08:57 Dec 18, 2007 Jkt 000000 PO 00000 Frm 00032 Fmt 6633 Sfmt 6633 S:\DOCS\37513.TXT BANK1 PsN: BANK
29

ply 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 ComVerDate 0ct 09 2002 08:57 Dec 18, 2007 Jkt 000000 PO 00000 Frm 00033 Fmt 6633 Sfmt 6633 S:\DOCS\37513.TXT BANK1 PsN: BANK
30

puters 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. 

31

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 

32

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 

33

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 

34

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 imporVerDate 0ct 09 2002 08:57 Dec 18, 2007 Jkt 000000 PO 00000 Frm 00038 Fmt 6633 Sfmt 6633 S:\DOCS\37513.TXT BANK1 PsN: BANK
35

tant. 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? 

36

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. 

37

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. 

38

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 

39

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 

40

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 

41

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 foreignowned 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? 

42

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 foVerDate 0ct 09 2002 08:57 Dec 18, 2007 Jkt 000000 PO 00000 Frm 00046 Fmt 6633 Sfmt 6633 S:\DOCS\37513.TXT BANK1 PsN: BANK
43

cused 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 

44

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. 

45

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? 

46

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. 

47

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. 

48

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 

49

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? 

50

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 

51

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 

52

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? 

53

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. 

54

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. 

55

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. 

56

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 

57

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. 

58

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 

59

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 

60

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 

61

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. 

62

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——

63

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. 

64

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? 

65

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:] 

66

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. 

67

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. 

68

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 

69

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 regardVerDate 0ct 09 2002 08:57 Dec 18, 2007 Jkt 000000 PO 00000 Frm 00073 Fmt 6621 Sfmt 6621 S:\DOCS\37513.TXT BANK1 PsN: BANK
70

ing 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. 

71

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. 

72

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? 

73

• 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 

74

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. 

75

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 nextgeneration 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 offiVerDate 0ct 09 2002 08:57 Dec 18, 2007 Jkt 000000 PO 00000 Frm 00079 Fmt 6621 Sfmt 6621 S:\DOCS\37513.TXT BANK1 PsN: BANK
76

cials 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 foreignport 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 proVerDate 0ct 09 2002 08:57 Dec 18, 2007 Jkt 000000 PO 00000 Frm 00080 Fmt 6621 Sfmt 6621 S:\DOCS\37513.TXT BANK1 PsN: BANK
77

vide 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. 

78

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 

79

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. 

80

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. 

81

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?

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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, 

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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?

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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 ExonFlorio 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 inVerDate 0ct 09 2002 08:57 Dec 18, 2007 Jkt 000000 PO 00000 Frm 00088 Fmt 6602 Sfmt 6602 S:\DOCS\37513.TXT BANK1 PsN: BANK
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volved 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 

86

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. 

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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 

88

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/reportslspeeches/reports/

fecielall/Indexlfecie.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.

89

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 terVerDate 0ct 09 2002 08:57 Dec 18, 2007 Jkt 000000 PO 00000 Frm 00093 Fmt 6602 Sfmt 6602 S:\DOCS\37513.TXT BANK1 PsN: BANK
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ror 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 publiVerDate 0ct 09 2002 08:57 Dec 18, 2007 Jkt 000000 PO 00000 Frm 00094 Fmt 6602 Sfmt 6602 S:\DOCS\37513.TXT BANK1 PsN: BANK
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cation 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 CounterTerrorism, 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 

92

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.

93

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 naVerDate 0ct 09 2002 08:57 Dec 18, 2007 Jkt 000000 PO 00000 Frm 00097 Fmt 6602 Sfmt 6602 S:\DOCS\37513.TXT BANK1 PsN: BANK
94

ture 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 ExonFlorio 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, 

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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), 

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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.

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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.

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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 

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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 selfsustaining identity management processes. 

100

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 postSeptember 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 

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(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 

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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:

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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 satVerDate 0ct 09 2002 08:57 Dec 18, 2007 Jkt 000000 PO 00000 Frm 00107 Fmt 6602 Sfmt 6602 S:\DOCS\37513.TXT BANK1 PsN: BANK
104

ellite 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.