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32–987 2008

[H.A.S.C. No. 109–100]

NATIONAL SECURITY IMPLICATIONS OF

THE DUBAI PORTS WORLD DEAL TO

TAKE OVER MANAGEMENT OF U.S.

PORTS

HEARING

BEFORE THE

COMMITTEE ON ARMED SERVICES

HOUSE OF REPRESENTATIVES

ONE HUNDRED NINTH CONGRESS

SECOND SESSION

HEARING HELD

MARCH 2, 2006

(II)

HOUSE COMMITTEE ON ARMED SERVICES

ONE HUNDRED NINTH CONGRESS

DUNCAN HUNTER, California, Chairman

CURT WELDON, Pennsylvania

JOEL HEFLEY, Colorado

JIM SAXTON, New Jersey

JOHN M. MCHUGH, New York

TERRY EVERETT, Alabama

ROSCOE G. BARTLETT, Maryland

HOWARD P. ‘‘BUCK’’ MCKEON, California

MAC THORNBERRY, Texas

JOHN N. HOSTETTLER, Indiana

WALTER B. JONES, North Carolina

JIM RYUN, Kansas

JIM GIBBONS, Nevada

ROBIN HAYES, North Carolina

KEN CALVERT, California

ROB SIMMONS, Connecticut

JO ANN DAVIS, Virginia

W. TODD AKIN, Missouri

J. RANDY FORBES, Virginia

JEFF MILLER, Florida

JOE WILSON, South Carolina

FRANK A. LOBIONDO, New Jersey

JEB BRADLEY, New Hampshire

MICHAEL TURNER, Ohio

JOHN KLINE, Minnesota

CANDICE S. MILLER, Michigan

MIKE ROGERS, Alabama

TRENT FRANKS, Arizona

BILL SHUSTER, Pennsylvania

THELMA DRAKE, Virginia

JOE SCHWARZ, Michigan

CATHY MCMORRIS, Washington

MICHAEL CONAWAY, Texas

GEOFF DAVIS, Kentucky

IKE SKELTON, Missouri

JOHN SPRATT, South Carolina

SOLOMON P. ORTIZ, Texas

LANE EVANS, Illinois

GENE TAYLOR, Mississippi

NEIL ABERCROMBIE, Hawaii

MARTY MEEHAN, Massachusetts

SILVESTRE REYES, Texas

VIC SNYDER, Arkansas

ADAM SMITH, Washington

LORETTA SANCHEZ, California

MIKE MCINTYRE, North Carolina

ELLEN O. TAUSCHER, California

ROBERT A. BRADY, Pennsylvania

ROBERT ANDREWS, New Jersey

SUSAN A. DAVIS, California

JAMES R. LANGEVIN, Rhode Island

STEVE ISRAEL, New York

RICK LARSEN, Washington

JIM COOPER, Tennessee

JIM MARSHALL, Georgia

KENDRICK B. MEEK, Florida

MADELEINE Z. BORDALLO, Guam

TIM RYAN, Ohio

MARK E. UDALL, Colorado

G.K. BUTTERFIELD, North Carolina

CYNTHIA MCKINNEY, Georgia

DAN BOREN, Oklahoma

ROBERT L. SIMMONS, Staff Director

ROGER ZAKHEIM, Professional Staff Member

JULIE UNMACHT, Counsel

BRIAN ANDERSON, Staff Assistant

(III)

C O N T E N T S

CHRONOLOGICAL LIST OF HEARINGS

2006

Page

HEARING:

Thursday, March 2, 2006, National Security Implications of the Dubai Ports

World Deal to Take Over Management of U.S. Ports ....................................... 1

APPENDIX:

Thursday, March 2, 2006 ........................................................................................ 121

THURSDAY, MARCH 2, 2006

NATIONAL SECURITY IMPLICATIONS OF THE DUBAI PORTS WORLD

DEAL TO TAKE OVER MANAGEMENT OF U.S. PORTS

STATEMENTS PRESENTED BY MEMBERS OF CONGRESS

Hunter, Hon. Duncan, a Representative from California, Chairman, Committee on Armed Services ......................................................................................... 1

Skelton, Hon. Ike, a Representative from Missouri, Ranking Member, Committee on Armed Services .................................................................................... 3

WITNESSES

Bilkey, H. Edward, Chief Operating Officer, Dubai Ports World; George Dalton, General Counsel, Dubai Ports World; Michael Moore, Senior Vice President, Commercial, Dubai Ports World; and Robert Scavone, Executive Vice

President, Security Peninsular and Oriental Steam Navigation Company

(P&O) beginning on ............................................................................................. 41

Carafano, Dr. James Jay, Senior Research Fellow for National Security and

Homeland Security, The Heritage Foundation .................................................. 7

Edelman, Eric S., Under Secretary of Defense for Policy, Department of

Defense; Stewart Baker, Assistant Secretary, Policy, Planning and International Affairs, Department of Homeland Security; Clay Lowery, Assistant

Secretary, International Affairs, U.S. Department of the Treasury; Alan

Misenheimer, Director, Office of Arabian Peninsular and Iran Affairs, Department of State; and Rear Adm. Thomas Gilmour, USCG, Assistant Commandant for Marine Safety, Security and Environmental Protection beginning on .................................................................................................................. 77

Flynn, Stephen E., Commander, U.S. Coast Guard (Ret.), Jeane J. Kirkpatrick Senior Fellow, in National Security Studies ......................................... 10

Gaffney, Frank J., Jr., President and CEO, Center for Security Policy ............. 14

APPENDIX

PREPARED STATEMENTS:

Baker, Stewart .................................................................................................. 160

Bilkey, H. Edward ............................................................................................ 146

Carafano, Dr. James Jay ................................................................................. 125

Flynn, Stephen E. ............................................................................................. 133

Gaffney, Frank J., Jr. ....................................................................................... 140

Gilmour, Rear Adm. Thomas ........................................................................... 177

Page

IV

PREPARED STATEMENTS—CONTINUED

Lowery, Clay ..................................................................................................... 171

Misenheimer, Alan ........................................................................................... 170

Scavone, Robert ................................................................................................ 156

DOCUMENTS SUBMITTED FOR THE RECORD:

Copyright 2000 Council on Foreign Relations, Inc. Foreign Affairs, November 2000/December 2000, Beyond Border Control ............................... 183

Testimony of the Department of Defense, Regarding the Dubai Ports

World CFIUS Case ........................................................................................ 193

In the Name of Allah the Most Compassionate and Merciful, 14 May/

June/2002 ....................................................................................................... 200

Responses to al Qaeda’s Initial Assaults ........................................................ 190

QUESTIONS AND ANSWERS SUBMITTED FOR THE RECORD:

Mr. Andrews ..................................................................................................... 205

Mr. LoBiondo .................................................................................................... 205

Mr. Skelton ....................................................................................................... 205

Mr. Spratt ......................................................................................................... 205

(1)

NATIONAL SECURITY IMPLICATIONS OF THE DUBAI

PORTS WORLD DEAL TO TAKE OVER MANAGEMENT

OF U.S. PORTS

HOUSE OF REPRESENTATIVES, COMMITTEE ON ARMED SERVICES, Washington, DC, Thursday, March 2, 2006.

The committee met, pursuant to call, at 1 p.m., in room 2118,

Rayburn House Office Building, Hon. Duncan Hunter (chairman of

the committee) presiding.

OPENING STATEMENT OF HON. DUNCAN HUNTER, A REPRESENTATIVE FROM CALIFORNIA, CHAIRMAN, COMMITTEE

ON ARMED SERVICES

The CHAIRMAN. The committee will come to order. The committee

meets this afternoon to examine the national security implications

of the Dubai Ports World, DP World, deal, to take over port terminal operations in ports in six American cities. Like many Americans and Members of Congress, I am deeply distressed by the national security implications of this deal.

The controversy surrounding Dubai Ports World’s acquisition has

exposed the vulnerability of United States ports to security threats,

the inadequacy of the so-called Committee on Foreign Investments

in the United States (CFIUS) review process, that is, foreign investment process to address these threats, and it also raises a

broader issue of whether the United States is taking adequate

steps to protect our entire national critical infrastructure.

It is my opinion that the U.S. Government needs to conduct

wholesale reform as to how we protect the homeland and our critical infrastructure. This problem runs deeper than ports. Vulnerability to our maritime interests is only one example of many sectors that require increased protection and security.

The post 9/11 world demands that in the realm of national security, we take nothing for granted.

Voluntary compliance schemes, the method we currently employ

to protect our key arteries of national and economic security, is

necessary but not sufficient.

Our government must take steps to enhance our security, not to

run the risk of creating greater vulnerabilities. We seem to be our

own worst enemies.

We should require critical U.S. infrastructure to remain in U.S.

hands.

To those who say my views smack of protectionism, I say America is worth protecting.

Yet today’s hearing is also about a failed process.

2

In my experience, a CFIUS scheme for reviewing national security implications of foreign investments in the United States consistently comes out on the wrong side of the issue. Not too long ago,

this committee sat together to discuss a Chinese national oil offshore corporations’ bid to merge with Unocal. In that instance, a

CFIUS review did not belive that the merger deal warranted a 45-

day investigation known as a Byrd Amendment.

Once again, today we find ourselves in a similar situation where

none of the participants in CFIUS believe that the DP World acquisition warranted a 45-day investigation.

Well, I think everyone on this committee recognizes that government is imperfect and is prone to making mistakes. The Congress

and the citizens of this country do not have to tolerate a process

that repeatedly makes the same mistake.

I might just say that I just reviewed the findings of Garry

Milhollin, who has advised this committee for many years. And his

recounting of the weapons of mass destruction materiel and machinery that has been routinely moved through Dubai, with the acquiescence of the Dubai government, including 66 triggers that can

be used for nuclear detonators, heavy water coming out of Russia

and China for Pakistan and India, nerve gas precursors bound for

Iran—no problem there. And the idea that those things happened

and were documented, in fact, some of them involved American

protests, and that didn’t perk up the ears of CFIUS, was quite remarkable.

In fact, I think it is only the huge public outcry and the pressure

from Congress that ultimately has lead to the this increased scrutiny of the DP World deal.

Recently, the officers of DP World requested that CFIUS conduct

a 45-day investigation. And while we all welcome this development,

I am concerned it is too little and too late. It is my understanding

that the $6.79 billion deal becomes final today.

Moreover, the details of the DP World requested 45-day investigation is murky.

Unanswered to date is how this investigation will be more comprehensive, more robust than the CFIUS 30-day review. Some have

dismissed this review as a public relations scheme to pass it by the

Congress. I hope this is not the case. And I look forward to hearing

from our witnesses on this matter.

The problem isn’t going away. Today, The Washington Post reports how another Dubai-owned company, Dubai International

Capital, is planning a $1.2 billion acquisition of a British company

that owns U.S. subsidiaries that are part of our defense industrial

base.

And I might say to my colleagues, we have these repeated incursions by our British friends who, in fact, are allies with us in Iraq

and other operations around the world to buy critical pieces of the

military defense, or military industrial base, and we always looked,

examined our relationship with the British, and concluded that the

deal is a fine one.

The problem is involved when the second step is taken, and that

is when a Dubai-owned corporation, now, simply based on the fact

that it has got lots of cash, ends up acquiring the British company

3

and settles into the position that we never would have released to

another country beyond Great Britain, and perhaps, Australia.

So we all understand that that the United Arab Emirates (UAE)

has been our ally. But we also know that they have been a point

of transshipment, obviously, with their government’s acquiescence,

either their acquiescence, their informed involvement, or one of the

greatest systematic cases of negligence that the world has ever

seen, to become the transshipment point for all of these nuclear

components to the point where their trademark, their advertising

trademark is, we can move whatever you have got with very little

hassle.

So if you are a German company or a former Nazi who moved

lots of heavy water out of China and Russia to various nuclear

companies with nuclear ambitions, you want to move it through a

transshipment point that is easy going, you move it through Dubai.

And interestingly, also, the Malaysian company that was involved in one of the last transshipment scandals I think reflected

well the Dubai government’s policy of creating an environment of

deniability. They said, we can’t find any—we have no paper. This

is the Malaysian Government. And I am paraphrasing. They said

we have no paper that indicates anything about where this company moved its—moved this particular material.

That is the nature of Dubai. It is a bazaar for terrorist nations

to receive prohibited components from sources from the free world

and from the nonfree world.

And apparently—and it appears to me that the same government

leaders who countenance that trans-shipment, in fact, probably

have designed that transshipment because it makes them money—

would be the same people overseeing America’s ports.

And the idea that CFIUS seemed to think that was okay or

didn’t look at it very closely is quite a remarkable thing.

So the purpose of today’s hearing is to examine this question of

whether we should have this particular company or any foreignowned company controlling or owning American critical infrastructure.

And with us this afternoon to discuss these issues are policy experts, officers of DP World, and administration officials from the

Department of Defense, Department of Treasury, Department of

State and the Department of Homeland Security.

So let’s get to it, and before we go to our witnesses, I would like

to turn to the ranking member, the gentleman from Missouri, Mr.

Skelton, for any remark he would like to make.

STATEMENT OF HON. IKE SKELTON, A REPRESENTATIVE

FROM MISSOURI, RANKING MEMBER, COMMITTEE ON

ARMED SERVICES

Mr. SKELTON. Mr. Chairman, thank you, and I welcome our witnesses, and I also thank you for calling this very important hearing. It is on the minds of—this issue is on the minds of so many

people across the country.

Today, we are to address the recently announced deal to hand

over operations at six major American ports to Dubai Ports World,

which is a company owned by the United Arab Emirates, or UAE.

This is a significant deal that requires careful scrutiny.

4

In addition, Mr. Chairman, today’s press reports indicate a second deal by a Dubai firm under investigation by the Committee on

Foreign Investment in the United States. This deal involves a proposed purchase of a British firm with U.S. subsidiaries that make

military components. This second deal as much as the Dubai Ports

World must be questioned to ensure that our national security is

protected.

Like many of my colleagues on both sides of the aisle, and a majority of the American people, I have some very, very serious concerns about the DPW deal. It would give ownership of some of our

major national security assets to an agent of a foreign country with

past connections to terrorist activity, at a time when security in

airports is woefully inadequate.

People back home understand this issue. Their family’s safety is

their first concern. They understand that our Nation’s ports are

vulnerable today as our airlines were before 9/11. Our seaports

handle more than 95 percent of our nation’s foreign trade including

trade insensitive technologies and the movement of critical materials for our military.

Yet the bipartisan 9/11 Commission identified America’s ports as

particularly vulnerable to attacks because only 6 percent of the

cargo containers entering our country are screened.

Experts have warned the most likely way a terrorist could get a

nuclear weapon into the United States is in a cargo container ship. In 2003, the Coast Guard asked for $5.4 billion over the next 10

years to comply fully with the port security requirements, and yet,

despite the efforts of many of our colleagues, the Congress has approved only $883 million, and the Administration, in this year’s

budget, is eliminating funding that goes directly for port security.

People back home also have questions about Dubai Ports World

and our relationship with the United Arab Emirates. We know that

the UAE has been a recognized partner in the war against terror.

At the same time, two of the hijackers of the 9/11 attacks were

from the UAE. The 9/11 Commission concluded that the vast majority for the financing for the attacks flowed through the United

Arab Emirates. The UAE was one of three countries to recognize

the Taliban as the legitimate government of Afghanistan, and it

has also pledged support to Hamas. The UAE was a key transfer

point for illegal shipments of nuclear components to Iran, North

Korea and Libya.

These are not cut and dried issues for our national security.

It is then not surprising that the Coast Guard and the Department of Homeland Security raised red flags during the review process for the Dubai Ports World port deal which is conducted by

CFIUS, the Committee on Foreign Investment in the United

States.

The Coast Guard’s intelligence assessment found gaps in the intelligence by DPW’s operations, personnel and foreign influence, all

relating to the potential for the DPW assets to support terrorists’

operations. This level of concern should have triggered full use of

the CFIUS process.

The law provides for an additional 45-day investigation to resolve

these types of issues when American security is at stake. That was

not done here.

5

After little review, and without consultation with Congress, or

input from the affected communities, the President approved the

deal and threatened to veto any legislation that would oppose it.

Only when Congress and the American people got involved is that

process now being followed.

For me, this situation comes down to three things: First, we have

to take a careful honest assessment of this particular deal. Congress must be involved. That begins today with this hearing. What

is the potential for the UAE’s government to exert any influence

over the company? What possible risks did our government agencies find that this company could pose to our national security?

How are those risks being addressed?

And although DPW has now voluntarily agreed to a 45-day investigation, the parties involved have already closed the deal. So

what is the purpose of the investigation? What can be done under

the party’s agreement at this late stage? I hope the witnesses will

be able to answer these questions.

The bottom line is that we must make sure that this deal is right

for American national security.

Second, we must reform the CFIUS process for all transactions

that affect national security.

We must be able to reassure the American people in every case

that we will not allow the fox to guard the chicken house. We need

a CFIUS process for a post 9/11 world with national security at its

center.

The review should also include input from the affected communities at the local level.

Third, and most important, we must take this opportunity to invest more money and to institute better policies to protect our

ports. We must screen more cargo. We must know who is working

in our ports, and who is working on the ships that enter them. And

we must think creatively about how to stop a weapon of mass destruction from ever entering this Nation.

We have been extremely deficient in the area of security. We are

very lucky we have not had to face disastrous results to our

failings. Our security shortfalls are being demonstrated as a result

of a corporate sale, and not because of a terrorist attack. We still

have time to get it right, Mr. Chairman, and we must. We must

get it right. Thank you.

The CHAIRMAN. Thank you, Mr. Skelton. I appreciate it. And I

might just let you know, because you have mentioned these three

major things that we have got to do, reforming CFIUS, blocking

foreign ownership of critical U.S. Infrastructure and, requiring full

inspection of cargo.

And we have been drafting, for the last couple of days, a bill that

does that, that I hoped to introduce on Tuesday. And I would hope

that you would join with me and any interested members of the

committee, and I remind my fellow members of this committee that

it was this committee that blocked the acquisition of the U.S. naval

base at Long Beach during the days of the Clinton administration

from being purchased by KOSCO, which is the maritime arm of the

People’s Liberation Army.

We did that, even though the deal had been approved and this

particular legislation, even if this deal is approved, would roll it

6

back and would also cause upon the identification of critical U.S.

infrastructure by the Department of Defense and the Department

of Homeland Security would require then that that infrastructure

be owned by Americans, and that if it was not owned by Americans, would be divested in as painless a way as possible, but would

be divested of foreign ownership, and a U.S. ownership would be

established.

So I say to my colleagues, I think this is an issue that we have

worked on over the years. And we are the one committee that has

actually been able to block foreign ownership of what we consider

to be critical U.S. infrastructure. I think now is the time to address

this problem in a fulsome way.

Having said that, I think Mr. Saxton wanted to say a word or

two. Let the gentleman say a word before our——

Mr. SAXTON. Mr. Chairman, thank you for the unusual recognition at this point. I think there is something here that needs to be

made part of the record and part of this conversation. The administration is always proud of the United States policy of providing for

fair play in trade matters.

And there are some unusual restrictions that are pertinent to

this issue as part of United Arab Emirates policy. And let me just

say what they are for the purpose of beginning this discussion, because these are issues that go beyond the important matters that

have been discussed by the chairman and the ranking member.

The following foreign investment restrictions are listed in the

United Arab Emirates chapter from the 2005 national trade estimate report on foreign trade barriers issued by the United States

trade representative. First, a business engaged in importing and

distributing a product in the UAE must be either a 100 percent

UAE owned agency or distributorship or a 51 percent UAE, 49 percent foreign limited liability company.

Two, subsidies for manufacturing firms are only available to

those with at least 51 percent local ownership.

Three, non-Gulf Corporation Council (GCC) states nationals cannot own land, but the Emirate of Dubai, currently is offering a socalled freehold estate ownership for the limited non-GCC nationals

within certain priorities. And these countries, the GCC countries

are the UAE, Bahrain, Saudi Arabia, Oman, Qatar and Kuwait.

Four, only 22 out of 53 stocks on the UAE stock market are open

to foreign investment.

Five, Ministry of Economy and Planning rules restrict foreign investors’ ownership to no more than 49 percent of companies on the

stock market, however, company bylaws in many cases prohibit foreign ownership.

Finally, except for companies located in one of the limited free

zones, at least 51 percent of a business establishment must be

owned by the UAE national.

These are matters which I think should be of economic concern

to us in terms of the fair play that our government goes out of its

way to provide for others. And so, as part of the record, and part

of the conversation, I think these are important considerations for

us, along with security matters that you both mentioned.

The CHAIRMAN. Well, I thank the gentleman. And let me turn to

our panel. We have with us Dr. James Carafano, Senior Fellow for

7

National Security and Homeland Security the Heritage Foundation. Mr. Stephen Flynn, Senior Fellow Counsel on Foreign Relations, and Mr. Frank Gaffney, President Center for Security Policy.

So, Mr. Carafano, good afternoon. Thanks for being with us and

the floor is your, sir.

STATEMENT OF DR. JAMES JAY CARAFANO, SENIOR RESEARCH FELLOW FOR NATIONAL SECURITY AND HOMELAND SECURITY, THE HERITAGE FOUNDATION

Dr. CARAFANO. Thank you, sir. I submitted a formal statement

for the record.

The CHAIRMAN. Without objection, all written statements will be

taken into the record.

Dr. CARAFANO. First of all, I would like to commend this committee and the Congress for focusing on something which is an absolutely incredibly vital issue to this Nation, which is maritime security. A third of our economy approximately of trade is—a third of

our economy is in trade.

95 percent of our trade goes by sea. This is absolutely important.

Our ports are vital. This is exactly the right issue.

And I think the Congress’s concerns are legitimate.

And I think it is appropriate that Congress relook the CFIUS

process. Congress has not done that since 9/11. We live in a different world than we did then. And I think it is very appropriately

that Congress relooks at the process that is established to make

sure that national security interests were appropriated vetted in

foreign investments and commercial transactions. You know, I will

say a fundamental to my approach to this is: How we do look at

all these issues, I think, should be the same.

And I think it is fundamental to do with the nature of the conflict we are in. And I think the President was correct in his State

of the Union address when he called it a long war. I think the Department of Defense was accurate in their Quadrennial Defense

Review when they talked about this. I think Franks book

warfighting is laced around here. And you fight long wars differently because what is important in a long protracted conflict,

whether it is a war on terrorism or the Cold War, is that it is essential to maintain the competitiveness and robustness of the society as it is to defeating the enemy and you have to do both simultaneously. And I have always talked about four essential requirements in fighting a long war.

One is security. And the more and more I have looked at this,

the more and more I look at how you get the best buck out of your

security dollar, the more and more I am convinced is that is an offense, and taking out the word of the enemy, taking out the leadership, taking out the infrastructure, taking out the sources of recruiting, taking out sources of funding, that this is simply the biggest bang for the buck.

Now having said that, we all know that you have to have an element of defense, because we live in a world that is united by networks that carry the free flow of goods, services, people and ideas,

and that some day it is going to carry bad things to your shore.

And you have to have some way to defend against that.

8

Equally as important is protecting the privacy and liberty of our

citizens and equally important is winning the war of ideas and our

argument is simply that you need security solutions that do all four

of these things. And if you don’t, you have the wrong answer and

you need to go back and start over.

And I think that counts just as much in this issue of maritime

security perhaps more than any other issue.

Now, I will say with regard to security concerns about the Dubai

Ports World deal, I don’t find any compelling security concerns

here. And I think it has to do with the nature of the way we do

maritime security in the maritime domain. Most of the infrastructure in maritime domain upon which U.S. trade is dependent is foreign-owned, whether it is ships or port facilities. And that ownership changes quite frequently. Very frequently you go into a port

and you can ask a union worker and say, who owns your company

today and he doesn’t know. Maybe a different guy owned it last

year. But things at the port go on the same way as they did before,

and that is because the maritime security architecture is not designed based on ownership. The security requirements are the

same for whoever owns the companies.

If we are concerned about Dubai Ports World specifically as a

company, then we have got real serious issues. And it is irrelevant—the U.S. ownings are a small piece of that. Dubai as a port

is the probably the most strategically vital port to the United

States in the Middle East, it is what allowed us to do power projection in the Middle East, and it is owned by World Ports. Likewise,

this company is now the third largest owner of port facilities

around the world. Likely, it is anywhere U.S. interests are involved, anywhere U.S. goods are moved, anywhere the U.S. military deploys this company is going to be involved.

So even if we disapprove this deal and don’t let them own these

U.S. facilities, the security relationship between the United States

and Dubai Ports World is going to be inclusive and ongoing.

And I think it is critically important that they have the things

like Customs-Trade Partnership Against Terrorism (C–TPAT), that

they are involved in things like Container Security Initiative (CSI),

that they are open to Coast Guard auditing. So I am not actually

sure that excluding them from owning U.S. port facilities makes

our ability to affect how they execute security around the world

better or worse.

I do think that while our ports are vulnerable, we miss the point

if we think that we can make ports safe by somehow turning them

into little Fort Knoxes or little Maginot Lines.

You make ports safe by keeping terrorists out of the ports. And

it is about making the maritime system safe. And it is the system

that is the critical infrastructure, not the port. It is the system.

And so we have to look at solutions that make the system overall

better.

And I will just end on this, since I have three areas I think that

are particularly relevant to this committee, and if they are deeply

interested in moving forward on improving maritime security and

on making our ports safer, these are three I would commend to

you.

9

The first one is investing in the Coast Guard. The Coast Guard

touches on every single aspect of maritime security. This committee

has a vested interest in Coast Guard investments because the relationship between the Coast Guard and the Navy is essential. The

national fleet is something we do in name only. There is very little

real cooperation and collaboration to determining our future requirements and harmonizing what the Navy and Coast Guard does.

And this committee could play a leadership role in making sure

we have the Coast Guard we need for the 21st century, and it dovetails well with the Navy we need for the 21st century.

Another issue I think you could look at is there was a very good

initiative in Charleston called Sea Hawk, which is an intel fusion

center. It was a model intel fusion center. It was absolutely the

best thing we did in port security in terms of coordinating the assets at the port and making them effective. It was funded through

the Department of Justice. I understand that funding is now dried

up. It was a pilot project. It is not owned by Department of Homeland Security (DHS). It is going to die. I think this committee and

the Department of Defense should have a vested interest in seeing

that things this Sea Hawk are sustained and revitalized because

quite frankly, any port in the United States that has a major U.S.

defense outlook facility, there ought to be a Sea Hawk asset at that

port doing intelligence and operations integration, because it is

simply the best thing we have done in our ports to make them

safer.

And the third one has to do with fundamental science. There is

one thing about the maritime world in that this is a true system

of systems, and I think this committee understands that from all

the work that you have done in terms of defense. This makes some

of the military systems look pretty simple. This is a complex system of operators and conveyors. Nobody owns the system. It is a

very rich complex environment. And it has kinds of second and

third order effects.

The irony is that though the United States is probably the world

leader in systems integration, we fundamentally understand almost

nothing about the underlying science of how complex systems

works. And we really don’t have quality science and knowledge in

forming our decision makers. There is an argument for something

called network science, which pulls together various disciplines, including network biology, infomatics, mathematics, physics pulling

these disciplines together to give us understanding of how complex

systems work, how we can make them more redundant, how we

can make them more robust, how we can make decisions, how we

can design them to be better, how we can reconstruct them after

they are hit.

And I think the Department of Defense and this committee

should have a vested interest in seeing network science move forward because many of the problems that the military is trying to

address in the battle field is how to create the military systems and

the systems of the 21st century. The underlying science that we

need to understand that and make good policy and build good systems and develop good requirements is much the same.

So I think this committee should be a strong proponent of the—

having the Department of Defense establish network science instiVerDate 22-MAR-2001 10:47 Sep 16, 2008 Jkt 032987 PO 00000 Frm 00013 Fmt 6633 Sfmt 6633 C:\DOCS\109-100\061002.000 HNS1 PsN: HNS1
10

tutions, partnering with the Department of Homeland Security. I

would commend to you an excellent report by the National Research Council on this issue I think outlines fundamental things

we can do which in the long run is going to both make the United

States more competitive and more safe. Thank you, Mr. Chairman.

[The prepared statement of Dr. Carafano can be found in the Appendix on page 125.]

Mr. HEFLEY [presiding]. Thank you, very much.

Mr. Flynn.

STATEMENT OF STEPHEN E. FLYNN, U.S. COAST GUARD (RET.),

JEANE J. KIRKPATRICK SENIOR FELLOW IN NATIONAL SECURITY STUDIES

Mr. FLYNN. Thank you, Mr. Chairman. I am delighted to be here

today and thank you, distinguished members of the House Armed

Services Committee, for inviting me to discuss this DP World controversy and my assessment of where we are and where we need

to be with regard to port security. And let me say, I will talk more

to port security than CFIUS process where I think there are other

experts who could do that far more justice than I.

The controversy surrounding the takeover to buy the American

container terminals by Dubai Ports World has had certainly the

salutary benefit of engaging Washington and the American people

in a national conversation on the state of port security. This is long

overdue, given the enormous national security and economic security stakes should the next catastrophic terrorist attack on U.S. soil

involve the global maritime transportation system and America’s

waterfronts.

My long-standing deep concern about this persistent vulnerability of America’s homeland generally and the global supply

chain and ports specifically is a matter of public record. This is my

16th time testifying before a House and Senate committee on these

issues. And I am sorry to say that 4 years and 4 months later from

my first opportunity to do this, my assessment is that the security

measures that are currently in place do not provide an effective deterrent for determined terrorist organizations intent on exploiting

or targeting our maritime transportation system to strike the

United States.

At the Federal level, the primary front line agencies, the Coast

Guard and Customs Border Protection Agency are grossly underfunded for what has become essentially a brand new mission.

Let’s be clear. The Coast Guard stopped doing port security after

the Second World War. And then we give them this new mission

and the resources simply are not there in the ports. The same is

true with Customs in terms of we pulled them out of the ports for

20 years, and now we said do more for our national security and

there are just not the numbers. There are not physically Customs

agents and Customs officials in the terminals. And we rely heavily

on terminal operators.

Should terrorists strike in a major U.S. seaport today, Americans

will experience a post Katrina sense of dismay and frustration at

how little the Federal Government has been investing to effectively

safeguard this critical national security and economic security

asset.

11

While it leaves a sobering assessment of where we are today, it

may come has a bit of a surprise that my assessment of national

security implications of the DP World purchase of Peninsular and

Orient Steam Navigation System and the leases to its five container terminals on the east coast and New Orleans is that this

commercial transaction will not qualitatively effect the overall state

of global and maritime transportation security.

The primary reason is the stage is so bad it isn’t going to make

a whole lot of difference. This is because the problem is less about

who owns and operates U.S. container terminals than it is that we

simply have not addressed far more serious supply chain maritime

and port security issues that would dramatically reduce the terrorist risk to our homeland.

To put this current controversy into a broader security context,

let me share with you a terrorist scenario that most keeps me up

at night and why I spend most of my days trying to convey a greater sense of urgency and have been working to try to design and

help promote meaningful measures to address this issue.

Based on my experience and research of this issue for nearly 15

years, I believe that the greatest vulnerability that will involve the

maritime sector in our sea ports is overseas within the transportation system before a container reaches a loading port. Specifically, the biggest security gap is in the transportation system once

the container leaves the factory. This has been for three reasons.

First of all, local truck drivers are typically poorly paid and often

belong to very small firms operating on very thin profit margin.

Second there are no mandated standards for seals of locks on

containers, typical one used is a 50 cent lead seal with a number

on it.

Third, the issue is the containers travel through often remote,

and at times, dangerous jurisdictions before they get there. So here

is the kind of scenario I am worried about, informed by Gary Gilbert, the Chairman of the Corporate Security Council and Senior

Vice-President for the world’s biggest container terminal operator,

Hutchison Port Holdings.

A container of athletic footwear for a name brand company is

loaded in the manufacturing plant in Surabuya, Indonesia. The

container doors are shut. In this case they go the extra mile to put

the one dollar mechanical seal on it and into the door’s pad eyes.

These designer sneakers are destined for retail stores in malls

across the America. The container and a seal number is recorded

at the factory. Local driver turns out to be sympathetic to al

Qaeda, picks up the container. But on the way to the port, he gets

a bit lost. He pulls down an alley to a warehouse. There is a group

of operatives inside. They pop the hinge on the door to not even

mess with the seal. They open it up, take some sneakers out, put

a dirty bomb in wrapped in lead so that it will defeat our radiation

detection equipment.

Then the dirty bomb is delivered to the port of Surabaya where

it is loaded on a coaster feeder ship, which typically carry about

300 containers where it is dropped off in the port of Jakarta. Jakarta, in turn, will load it onto a inter Asia ship, where it goes on

a container ship carrying 1,200 to 1,500 containers destined for

Singapore or Hong Kong. To make the journey across the Pacific

12

Ocean, it will then go on a super container ship carrying 5,000 to

8,000 containers.

In this case, it is going to Vancouver. And it is going to drop it

off there. Now, the good news, we now have a Container Security

Initiative team in Canada so we can expect an inbound container

destined for the United States by a Canada Pacific railway. The

bad news is the CSI team identifies this as a trusted shipper from

a reliable company of designer sneakers who is a member of the

Customs Trade Partnership Against Terrorism, and therefore is not

screened or inspected. It is simply loaded on a rail chassis and sent

to Chicago, where it moves from the rail yard to a distribution center.

In the distribution center, a hapless warehouse employee opens

the container setting off the triggering mechanism and exploding

the dirty bomb.

Now, what are the consequences of this? There are four and

quite immediate. Obviously, the local deaths and injuries associated with the conventional explosive. Second, there is the environmental damage done as the radioactive material is spread over a

vast area.

Third, there will be no way to determine where the compromise

in security took place. Did it take place in Chicago yard? Did it

take place on the Pacific rail? Did it take place in Vancouver? Did

it take place in Hong Kong or Singapore or Jakarta? We don’t

know. So we assume the whole thing is at risk. And worse in the

port case here, all the current container and port security initiatives that we have currently in place are compromised as a result.

Because this turns out to be a CT pack container going through an

International Ship and Port Facility Security (ISPS) compliant port

with ISPS compliant vessels through a CSI port on its way into the

mainland and defeats our radiation portals because they are simply

wrapped in lead. So not only the incident, but the entire regime

crashes.

And what happens? Well, immediately, of course, we are going

to have to close our borders until we sort this out. Within two

weeks, the global trade system essentially grinds to a halt. In the

words of John Meredith, who runs Hutchison Port Holdings has

moved over 50 million containers last year in a letter he wrote to

Robert Barter, former Commissioner of Border Protection on January 20, 2004, I think the economic consequences could well spawn

a global recession, or worse.

That is what we are talking about. Enormous stakes. National

security stakes.

And what do we have? We have essentially an honor system. If

you are a good company, and shipping terrorist-free, we basically

delegate to you to figure out what minimum standards you think

are basically appropriate and we provide virtually no oversight.

The Coast Guard, by law, by the Maritime Transportation Security Act, for instance, has been charged by Congress to go assess

whether or not these ports around the world are actually living up

to international standards, to which you have allocated resources,

20, count them, 20 Coast Guard, 13 for Europe, Africa, Middle

East, Latin America and Caribbean, and then seven for all of Asia.

13

I saw more coming through La Guardia at the Transportation

Security Administration (TSA) security check in point than the

total number of inspectors we have assigned to oversee whether or

not we have a regime.

The important lessons to pull from the scenario I just laid out

here today are, I think fourfold.

First, the threat is not so much tied to seaports as it is to global

supply chains that now operate on the honor system, the point I

just made.

Second, no container terminal operator within the United States

or abroad really knows what is in the box. That is the problem.

They are in the business of receiving and discharging these containers from ships to trucks to trains that converge on the terminals quickly efficiently at low cost.

Third, as the engagement of John Meredith and Gary Gilbert on

these issues—by the way, Hudson portals had no ports in the U.S.

but had been working actively with the US Government, global terminal operators are deeply concerned about the terrorist threat

that would essentially implode their enterprise with billions of dollars of capital investment.

Basically, they are potential allies in this process.

Fourth, the scenario I just laid out essentially involved Vancouver. It didn’t involve any U.S. ports. This is a global network

challenge.

So where do go from here? I think the case that I just tried to

make with my former boss, Admiral Jim Loy, who is the Commandant of the Coast Guard and former Deputy Secretary for

Homeland Security, wrote for the Times on February 28, is let’s

think about using this opportunity with DP World to raise the bar

on security.

The way American people would truly benefit from what has become essentially a political food fight is that we actually improve

security for this system.

And the way to do that is to work with the terminal operators

and go to a trust but verify system.

Every container, before it is loaded and arrives in the terminal,

goes through a screen of a radiation portal, an image of what is inside, and takes a picture of the container number that is successful

and near realtime to an inspector here in the U.S.A.

It is over there where we are worried about the problem in a

place like Dubai with the kind of material that Chairman Hunter

raises here.

Now is this possible? The answer is yes. In Hong Kong today, one

of world’s busiest terminals, this demonstration of 300 trucks an

hour coming into the terminal, collecting this data has been done.

Now, this isn’t an inspection because nobody is looking at it. The

pilot was showing it is possible. You don’t have to rely on 5 percent. We could go to 100 percent, if we are willing to make the resources available to do this.

And guess what? The terminal operators will put this equipment

down and pay for it if they can do it because there is a standard

back here for the use of that. There is an opportunity here, an opportunity to make a real difference in the American people to conVerDate 22-MAR-2001 10:47 Sep 16, 2008 Jkt 032987 PO 00000 Frm 00017 Fmt 6633 Sfmt 6633 C:\DOCS\109-100\061002.000 HNS1 PsN: HNS1
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tinue to stay engaged in the global economy and recognize this is

a global network.

Today, 90 percent of all the terminals in the West Coast go to

foreign-owned companies, and they are the least of them. Also, the

East Coast is a little less above the majority.

Why is this happening? It is happening because we gave away

our Merchant Marine about 30 years ago, and we are not going to

get it back any time soon.

Companies that ship want terminals on both sides, just like British Airways wants to have a jetway, they want to have some connection to it. Ships lose money unless they are at sea. They want

to control the operations. The challenge here is can we set standards that assures, given this is not private hands and foreignowned private hands that are high enough, according to our national security interests with sufficient oversight.

And can we put in place smart technologies and processes

throughout this global network to continue the benefit being a part

of the global society but without putting us unnecessarily at risk.

So thank you very much for the opportunity to speak with you

about this critical issue. I commend the Congress for focusing on

port security. Please don’t accept that the current system in place

is adequate for the threat that we are dealing with. Thank you.

Mr. HEFLEY. Thank you, Mr. Flynn. And now Mr. Gaffney.

[The prepared statement of Mr. Flynn can be found in the Appendix on page 133.]

STATEMENT OF FRANK J. GAFFNEY, JR., PRESIDENT AND CEO,

CENTER FOR SECURITY POLICY

Mr. GAFFNEY. Mr. Chairman, members of the committee, it is a

pleasure to be back with you. The last time I had a chance to talk

to you was July of last year, when, you may remember, we were

discussing another impending fire sale of an important American

asset to a government-owned company from a country that we had

some reason to believe might not have our best interest at stake.

I am delighted to be here in the company of people who know a

great detail more about port security than I do. And I think they

have given you very good advice up to a point.

It seems to me that much of what you have just been treated to

by both of my colleagues is a pretty compelling argument for not

making matters worse in our port facilities.

And I think it is hard to argue that an arrangement that entrusts to a government-owned entity from a country that could not

prevent acts of terror from being operationally organized and

planned and financed from its soil, will not make matters worse,

at least marginally and possibly quite a bit.

And Steve Flynn has powerfully described how bad things are already, how easily those deficiencies could be exploited today. And

I think it is simply begs the question, do you, do your colleagues,

do the American people, do members of our executive branch, feel

confident that we can take any further risk at all?

And I would like to talk about two things with you here quickly

this afternoon. One is that you cannot rely on the existing process

as the chairman and ranking member have made clear. You cannot

rely upon the Committee on Foreign Investment in the United

15

States as it is presently constituted and as it has operated for approximately 18 years to evaluate those sorts of risks adequately

and to come up with a conclusion that I think we can all say meets

the common sense test.

And I will explain that for a moment by and by.

But I would also argue that there are very practical reasons why

this deal should not only be everything my colleagues have argued,

it is an opportunity, an opportunity, yes, to reform CFIUS, but also

to focus the sort of attention that both Steve and James have been

calling for for years, to a yawning vulnerability in this country and

take corrective action. But I think starting with corrective action

requires doing the common-sense thing with respect to the Dubai

Ports World deal as well.

The question that I have about CFIUS is you have, as has been

noted, an interagency mechanism, that is, has lead and for those

of you who follow closely the affairs of the executive branch, you

know that means largely dominated by, the entity the United

States Government relies upon to raise foreign investment in the

United States.

This is, to my way of thinking, the very definition of a conflict

of interest.

It is not to assign anybody impure motives, but it is to say that

when people see it as their job to promote foreign investment, to

ask them to interpose objections to it is to expect too much.

And in this case, I think it is clear that the national security

agencies who participate at some level in the CFIUS process, also

had other considerations in mind. Yes, to be sure, they take seriously their national security or homeland security responsibilities.

But let’s be clear.

This is a friendly government, a strategic valuable partner, at

least at the moment, in a war we call the war for the free world.

It is not likely to be given a front or to be alienated from us. And

unfortunately that is precisely what this process has done, I think,

unnecessarily so.

There are certain issues here that specifically raise questions in

my mind. One for starters is, how many ports are we talking

about? We keep hearing that it is six, ports of New York, both in

New Jersey and New York, Port of Philadelphia, Port of Baltimore,

Port of Miami and the Port of New Orleans.

And yet there are at least 2 others that the United States Army

has contracted with P&O to move material through the Ports of

Corpus Christi in Beaumont in Texas, and by at least the accounting of the P&O Web site, there are a total of some 22 ports in this

country ranging from Maine to Texas, that will have some relationship, some management functions performed if this deal does, in

fact, go through. That is a lot of ports, ladies and gentlemen, including many of our most strategically important ones.

I fear that as before, in fact, in every case but one, in the over

1,500 that the CFIUS process has formally vetted, that is to say,

that somebody has formally submitted to the CFIUS process, only

one has been formally rejected by this process.

I think it is—I think the technical term is a lead pipe cinch that

the 45-day review will be just another in that litany.

16

Not only if you have the President of the United States affirm

that it is the right answer, before the 45-day process begins again,

but as best I can tell, all of the same people, all of whom have publicly said they came to the right answer the first time are going to

be asked to revisit their earlier decision.

In short, if you don’t want exactly the same rigged game played

on this deal again, I think the Congress is going to have to insist

upon some changes.

I have made some in my formal testimony. Some of the more obvious ones are to ensure that senior level people at the cabinet

level for instance, are actively personally involved and responsible

for this decision. You may still get the same outcome but it is clear

that a number of them were not during the previous process.

I would also suggest with great respect that the Secretary of

Treasury should recuse himself from the deal.

He, after all, in the previous incarnation, sold to DP World, ports

that were owned by his company, CSX. That would seem to me,

again, to be something of a conflict.

I believe, in addition, that we need to have in this process a rigorous security assessment performed.

And that is not simply one that factors most heavily, weights

most heavily the idea that the UAE is a very important country to

us. It has to take into account the sorts of considerations that

Steve and James have just been talking about.

What are some of those considerations? I would argue at least

about three. That again, just, I think, trigger the common sense bewilderment factor for most Americans. The first is clearly, DP

World is going to be responsible for hiring and vetting of some personnel.

Now, Newsweek has said that ‘‘the company has promised to

leave the British appointed U.S. port managers in place for a time

in a bid to ease the immediate political pressure.’’

Well clearly, there is no guarantee that once you or your constituents aren’t applying political pressure that that process, that

representation, on the docks or in the supervisory offices will remain. At the very least you are going to have attrition, people are

going to have to be hired. They may be foreign nationals on which

we may or may not have a good handle on who they are. They may

be Americans. In Britain in July of last year, we discovered that

citizenship is no impediment in people engaging in acts of terror

against their own country.

So personnel is one problem.

Cargo is another. Steve has just provided expert testimony that

we will rely heavily under the circumstances we find ourselves in

on the cargo management firms to account for what is in these

holds. We use certain rational but easily circumvented procedures

to assign risk to certain cargo.

Can a company that is responsible for the cargo management,

even if it is at the end zone, as some people like to call it, be relied

upon, if, in fact, it has, or its country at least, has been penetrated

by terrorists in the past?

And third, it does seem to me that at the very minimum, even

if the personnel problem is not there, even if the cargo management problem is not there, you have to appreciate that this comVerDate 22-MAR-2001 10:47 Sep 16, 2008 Jkt 032987 PO 00000 Frm 00020 Fmt 6633 Sfmt 6633 C:\DOCS\109-100\061002.000 HNS1 PsN: HNS1
17

pany is going to be read in on the security plans of the port. They

are going to have to implement something.

That gives rise, I believe, to yet another potential liability and

opportunity for penetration. I take all these together, many of you

are lawyers, I am not, but I think the term is attractive nuisance.

It is like having a swimming pool without a fence. You are creating

an opportunity for people to get into and make mischief. And that

doesn’t seem to be wise, especially since, as I would stipulate,

things are as problematic already as these gentlemen have described.

Finally, Mr. Chairman, let me just say, in addition to saluting

your efforts to reform CFIUS, I hope this is the last of these processes. I hope that this one, that The Washington Post is reporting

about today that several of you have made note of, in which American defense contractors, equipment precision, equipment is supposed to be supplied in the future by not a British-owned company,

but by a UAE-owned company, will not be just the next of this litany of failed dysfunctional vetting of foreign investments with clear

national security implications.

I would also urge that the point that Congressman Saxton be

given very serious consideration. Even if everything else were

unexceptionable in these deals, it does seem to me outrageous that

we as a country keep finding ourselves in a position where we play

by one set of rules and other people play by a different set of rules,

sometimes even in violation of our trade agreements with them.

But this idea that you can have a company that wouldn’t dream,

or a country that owns it that wouldn’t dream of having an American company own any of its critical infrastructure to say nothing

of the U.S. Government operating it.

And I am not speaking here about monitoring stations and that

sort of thing. I am talking about owning physical plants, critical,

physical plants, nonetheless should be given carte blanche to do the

same here.

I don’t know where this ends. Does it include nuclear power

plants and other instances of critical infrastructure? I should hope

not.

Finally, there are two other things. In addition, I hope to getting

an independent second opinion, I don’t think you have to rely on

CFIUS. You are holding hearings, of course, but Congress has been

known to do commissions. Normally, you can’t appoint a commission, let alone get it going in 45 days. But I think given the consensus that exists in the Congress today about the saliency of these

questions you might be able to pull one together and get something

back before the CFIUS does whatever it is going to do this time

around.

But the last two points, Mr. Chairman, are one, we have got to

find a way that allows, without undue politicization, Congress to

provide adult supervision to the CFIUS process, however you perform it, it has to be made more accountable, somewhat more transparent so that you don’t continue to find yourself presented with

faits accompli which is, of course, what has happened in this instance.

And second, I would just urge you and we had a conversation

when I was last here, Mr. Chairman, and you were, as always,

18

right on the money, we have to come to grips with the fact that

as a nation, we are becoming essentially dependent for most things,

most finished products, most raw materials, most services even

now, on foreign suppliers.

This is a matter of the utmost importance, I think, not only for

our national security, the immediate objective and responsibility of

this committee, but also think for all of us, as it such as touches

upon not only our security, but our economic well being for the future.

And so, Mr. Chairman, the last time we talked, you indicated a

willingness to pick up the cudgel once again to hold hearings on

this question of foreign dependency and its bearing on our national

security, and I would urge that it be part of a larger effort by the

Congress to address what is perhaps the inevitable outcome of the

sorts of trade practices we have been engaged in for so long, and

the failure of a process to provide real supervision within the executive branch, and arguably even within the Congress that will not

only address some of these maritime security issues which are so

important, but also the larger national economic and security considerations that attend them.

Mr. GAFFNEY. I appreciate your giving me this opportunity to

contribute to your deliberations, Mr. Chairman. Thank you.

[The prepared statement of Mr. Gaffney can be found in the Appendix on page 140.]

The CHAIRMAN [presiding]. Thank you, Mr. Gaffney, and thanks

to all of you for laying out I think a very good foundation for discussion here.

Mr. Gaffney, we did as a committee pass in our bill several years

ago a requirement that all critical military components be built in

the United States. We didn’t get that one past the Senate, but perhaps we got their attention this year.

Let me go to one of the statements that was made early on by

Mr. Carafano and I think has been to some degree echoed by all

of our witnesses. You have all described the UAE as being allies,

and we can point to military operations where they accommodated

us. We can point to accommodations to our security interests, but

at the same point, at the same time, we can point to times when

they absolutely stood against our security interests and took actions that hurt American security interests, and that implies to me

that they are accommodators. They accommodate people that come

to them with large amounts of cash, and they don’t have a great

deal of concern as to who it is, whether it is this former Nazi who

was moving lots of heavy water from China and Russia through

Dubai, and I am looking particularly at the 2003 incident in which

the UAE, even after we protested, insisted on moving those 66 high

speed electrical switches used for nuclear detonations to a Pakistani businessman with close ties to the Pakistani military, even

against a backdrop in which we indicted the people that exported

those switches. That is not the action of an ally. It sounds to me

like the action of an international player, which can’t be ignored

because of its size and its money and the fact that it is strategically

located and sometimes accommodates you but certainly the idea

that the people in the UAE government who sat in a room and decided upon getting a communication from the United States, please

19

don’t turn over those nuclear switches to these people who may use

it adversely, and they decided to go through with the deal despite

America’s protest; those are not people, I think, that you want to

have anywhere close to the security apparatus of your own ports.

Because it indicates not that they can’t be accommodating to our

interests if in fact it is their interest to accommodate us, but that

they don’t consistently accommodate our interests, and at times

other people with money and influence overwhelm the American interests. If that translates into a cargo container that has a chembio weapon in it that is accompanied by large amounts of cash,

then this history of accommodation of American interest doesn’t

mean anything.

And we have this history that is laid out fairly clearly by Mr.

Milholland. He goes back to the precursor for nerve gas which was

being shipped to Iran, which was only stopped because the United

States had a sting operation, but certainly not because Dubai wanted to stop it.

You have got the heavy water situation. You have got the two

containers of gas centrifuge parts from the doctor’s labs that were

shipped through Dubai from Iran for about $3 million worth of

UAE currency. These people have a nightmare history. This is not

a question of whether somebody has been tested or not. They have

been tested, and they have gone the wrong way on this stuff.

I guess, Mr. Carafano, to you, my question would be, how can

you possibly say that you didn’t see in this particular case, in this

particular deal, a security problem?

Dr. CARAFANO. That is an excellent question, and I certainly

share your concerns. And I think that is something that the Congress should discuss and should take on and discuss with the Administration. I do think we need two separate debates here, however. We need to have a policy debate on how the United States

wants to engage with the UAE. And all the issues about UAE’s

past behavior, foreign policies, strategic vision for the future should

all be on the table. But I think that is separate from the security

debate because, again, most of the infrastructure that the U.S. is

dependent upon the maritime domain is foreign-owned. That is

why our security systems are designed to be ownership independent. It doesn’t matter who owns them, if it is a U.S. Company or

a foreign company.

The CHAIRMAN. Let me stop you on that. If you had—let’s say

you had the British ownership of this particular port, and you had

people who had been strong allies of the United States and were

people whom you felt you could trust, isn’t that different from having an ownership which reflects basically the desire to do whatever

it takes to acquire money, which I think is a good description of

Dubai’s foreign policy? Their foreign policy is, they will sell Winchesters to the good guys or the bad guys. They are not too interested who it is as long as they get to be the bazaar and they get

to have the money. So are you sure you can say, from a security

standpoint, that the ownership is irrelevant?

Dr. CARAFANO. Congressman, I am with Ronald Reagan; I trust

everybody, but I would verify. I don’t trust anybody in the system.

That is why the system is really ownership irrelevant. Dubai Ports

World might turn around tomorrow and sell that company to someVerDate 22-MAR-2001 10:47 Sep 16, 2008 Jkt 032987 PO 00000 Frm 00023 Fmt 6633 Sfmt 6633 C:\DOCS\109-100\061002.000 HNS1 PsN: HNS1
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body else. The point is the maritime security system can’t be dependent on ownership as the guarantor of security. Security has to

be the guarantor of security.

The CHAIRMAN. Wait. You said ownership. I would ask you to address its relevancy. That means, if the information on the security

plan for a particular port is elicited by the people that own the port

operation, their employees will probably deliver it to them. I think

you can be assured of that. That could be used to our detriment.

Is that not true?

Dr. CARAFANO. I would go back to Steve’s scenario, which is plausible. I wouldn’t argue it is the most likely, but it is plausible. And

it is exactly how terrorists operate. You don’t need to buy a $7 billion company to penetrate maritime security. As a matter of fact,

it works to your disadvantage because, first of all, there is an audit

trail as to who you are; and second of all, it is an enormous investment because all you are actually gaining access to is the

vulnerabilities of your own company. It is much more likely if a

terrorist attack occurs in the maritime domain, that terrorists are

going to do what smugglers do. The Mafia doesn’t buy FedEx to

smuggle. They make low-level penetrations. If you look at the operations in the port, the management groups are relatively small. It

is a small community; people know who each other are. The penetrations are most likely going to happen as janitors, short haul

truck drivers, people that aren’t highly checked, and they have access to the kind of information that they do. To do Steve’s kinds

of attack, you don’t need to own the company.

The CHAIRMAN. Mr. Flynn.

Mr. FLYNN. Well, there is little question that any time a foreign

government is involved with buying critical assets, it deserves a

thorough scrub. I hope that is what will happen as a result of this

45-day period. The people who are paid to worry about our security

and access to intelligence do a thorough scrub. If, at the end of the

road, the determination is, with your oversight, the company does

not pose a threat in a way that other global companies do, I am

still going to come back to, I want a verification system of how they

operate. It is precisely because this is critical infrastructure and

largely privately owned, and increasingly foreign privately owned,

that we have to make sure the bar is high and the oversight is

high.

My concern is that while we have a framework for oversight,

there is very little behind the curtain. So as I look at it from a security perspective, I don’t see this place softer than anywhere else.

The whole system is way too soft. It is a global network, and here

are some of the complexities we are going to get into even pushing

back this particular arrangement.

Currently, P&O owns half the operations in Karachi. The other

is by Hutchinson. You can’t get a container out of Karachi to Dubai

or Iran unless you go through one of those two terminals. Even if

this deal is killed here in the U.S. side, this player will own that

terminal. From a counter proliferation standpoint, we will want to

have the ability to put in place a verification regime not just for

stuff coming here, and you will have to work with the members of

this community. So I think the challenge here is oversight, high

standards and making sure when you pull back the curtain of

21

where the money is and who is involved with it here, that you are

not giving away the store. It is just, the bottom line is: This is a

network. It is global. It is dominated by four players, and they are

all foreign-owned. We need to bring them on board with our solution.

The CHAIRMAN. Let me just say, if you look at the technology

transfers, they were done, some of them, over the protest of the

American Government. Involving things like nuclear weapons triggers, we didn’t bring them on board. I would say the idea that having non-trustworthy people at the top, the people who have been

tested and gone in the wrong direction, the idea that that is not

relevant to me is not logical. It is true that the so-called privates

in the operation, the taxicab driver, the guy who works as a stevedore, could be the bad player, as Mr. Carafano said. On the other

hand, we had an incident not too long ago where we discovered millions of dollars in the bank account of the general in Mexico who

was in charge of antinarcotics operations. In that case, the people

that needed the buyoff didn’t go to the bottom. They didn’t go to

a private, a sergeant who could avoid a marijuana field; they went

to the top of the operation. So the point is, this is a system of opportunities, and the idea that having a government in control of

our ports which has demonstrated that it will allow components for

nuclear weapons to be transshipped, in fact, really the operation

that they have in Dubai I think could be best described as a genius

for masking the transshipment of illicit goods. That is their trademark. That is how they make their money. And the idea that that

is irrelevant to the operation of the port to me is not a sensible

judgment.

Mr. Gaffney.

Mr. GAFFNEY. Mr. Chairman, I think that James is right; you

don’t have to own the company. But I think what we are wrestling

with here, does it help or does it at least help somebody who wants

to exploit the fact that the company is not in U.S. control. Just so

we are clear about this, I have exactly the same concerns about

having communist China having this kind of control as I do about

the United Arab Emirates. I think the track record is probably

every bit as deplorable if you ask about what China has been allowing to move through.

The CHAIRMAN. So would you agree with a new law that states

that critical infrastructure that is identified by the Department of

Defense and the Department of Homeland Security as critical infrastructure should be owned by Americans?

Mr. GAFFNEY. That is my personal view, Mr. Chairman. I haven’t

a clue what the full implications of that are. But I will tell you, it

does seem to me that the power that you are hearing in terms of

the vocalized outrage of your constituents is practically none of

them are aware that that isn’t the case today. It is like Congressman Weldon and so many of you have been working on missile defense all these years. It was always the case the public thought we

had one. This is the same sort of thing. It has been an epiphany,

and I agree with my colleagues that it is very salutary that we are

having this debate. I tend to agree that is where this debate should

take us, but we are going to need to follow this debate through

22

starting with, I hope, minimizing further damage with this relationship with the UAE.

Going to your point, Mr. Chairman, there is no question, and I

think it trumped all further considerations in the final analysis,

there are things the United Arab Emirates are doing we are probably not all privy to but nonetheless that are very helpful in this

war for the free world. It is just that they are doing things, and

they are certainly capable of doing things or people are able to do

things from their territory that could be very dangerous to this

country.

The CHAIRMAN. I thank the gentleman.

The gentleman from South Carolina, Mr. Spratt.

Mr. SPRATT. Thank you all for your excellent testimony. Let me

cut straight to the chase. CFIUS, we had Secretary England before

the Budget Committee yesterday, and I asked him what national

security concerns were raised in the review process. He freely

couldn’t cite any. He basically said these were homeland security

and not national security concerns.

I learned from reading the committee memo that the person in

DOD who made this review is a Deputy Assistant Secretary for Defense, Technology and Security Administration, and we have an Assistant Secretary of DOD for Homeland Defense, but he was not

consulted on the DP issue. Is it the opinion of your panel, all three

of you, that CFIUS simply did not exercise due diligence to start

with?

Mr. GAFFNEY. That is my view. I think the point—it is very helpful that you have been able to extract from the system who did participate because, as you know, nominally it is supposed to be at the

level of Cabinet officers. As I said in my testimony, they weren’t

read into it. The President didn’t know anything about this. You

are talking about Deputy Assistant Secretaries. It may even be

there are career people who do this thing day in and day out, and

it is no knock on them. But clearly there are aspects to this that

transcend the perspective that somebody who may be an office director or at best a Deputy Assistant Secretary is going to have. And

unfortunately, the process chronically sort of defaults to this kind

of setting, especially when, as no fault of this committee, but your

counterpart on the other side is responsible, I think, in some small

measure for this. There are so many vacancies in senior level positions where I think this sort of broader perspective would properly

reside and be brought to bear.

Mr. SPRATT. I hate to cut you off.

Mr. Flynn.

Mr. FLYNN. I have not had access because of the lack of transparency to know whether there was an adequate review or not. I

think it is worth asking the questions. I can say, the maritime

transportation community is a pretty small world, and most people

know each other by reputation. The DP World Company, the senior

executives in that company are very well regarded international

players in the shipping community. Many of them are Americans.

The top nine managers of DP World, there is only one United Arab

Emirates member and——

Mr. SPRATT. Are you suggesting it didn’t get the depth of analysis it warranted?

23

Mr. FLYNN. Seems clear it has not; otherwise, we wouldn’t be

where we are—here—today. There is no question that something as

critical as this deserves full scrutiny. The law for CFIUS was written in 1988. The thinking was not geared toward the kind of world

we are in.

Dr. CARAFANO. I don’t think the CFIUS process gets to the national maritime security interests in the maritime domain. The

CFIUS process looks at ownership. And what Steve and I have argued is that ownership does nothing for you. Only security provides

security, and it is a global network, and most of it is foreign-owned.

So just verifying ownership doesn’t address security issues and

threats.

Mr. SPRATT. What we see here is typical of immigration, other

customs issues. I have followed this for years. I can tell you story

after story of containers that weren’t opened. I see here, I believe

it is Dr. Flynn’s testimony, that for all of the 58,000 exporters,

shippers to be monitored, the Coast Guard has 80 inspectors.

Mr. FLYNN. The Coast Guard has 20 inspectors to verify all ports

around the world are compliant with the International Ship Port

Facilities Bill. The good news, Customs has four times as many to

take on the CT path. By the way, there are over 11,000 companies

in queue to get into that program. There is not staffing to do that

job.

Mr. SPRATT. What would it take in your estimation?

Mr. FLYNN. One is, we should be moving to third party audits,

and then you audit the auditors. We are talking about having to

send Customs agents around the world; that is complicated. Just

as in the maritime area, we often use professional classification societies like American Bureau of Shipping to check to see if things

are compliant, and the Coast Guard oversees that.

You have got to insist not purely voluntary and hope for the best.

If you said, as a company, you are securing your supply chain,

show us, have the certification for that and then we spot check it.

No question we are talking about five-fold. We should be talking

an office about 500 people for oversight for a program as complex

as this one.

Mr. SPRATT. One final question, are you testifying, all of you,

that the technology is there for far greater if not much better surveillance than we have got now that could be done in foreign ports?

It will require a big commitment, but nevertheless, we could do

this with much greater security than we are now achieving.

Mr. FLYNN. It is there, sir, and the global operators would be

willing to put it in. They can get a cost recovery system through

a fee; we don’t have to pay for it if we have a system of how to

use it. The problem is the Department of Homeland Security can’t

figure out how to integrate its operations. So we can go to 100 percent screening, non-intrusive, at loading ports with the cooperation

of the terminals. We don’t have to rely on a five percent, hope for

the best intelligence-driven system when we all know our intelligence apparatus is broken. How is it Customs has gotten so good

in the intelligence arena that it can spot 100 percent of the right

5 percent when we can’t find the weapons of mass destruction and

other problems we found out, which is a real problem with our intelligence community? You need to go to 100 percent.

24

Dr. CARAFANO. I am less optimistic that there is a simple technological fix, that you can make a solid business case that will do

this. I think screening is a nice measure, but you don’t rely on

screening to save your life. I think if we are relying on the people

screening people on planes, then we are all going to die. Screening

is good, but any screening system can be defeated. Steve’s scenario

is great, and the fact is, with all the technology in the world, a

smart terrorist, smart smuggler can find a way around that. One

guy can find a $5 solution on a multibillion dollar system and kill

you.

I think it is a question of where you put the balance of your investments. I think you put them, your investments, on the offensive capabilities. That is why I agree the Coast Guard is an enormous investment, grossly underfunded; kids running around in

ships that are eligible for Social Security. They have missions that

span the entire maritime domain. Not just the auditing issue but

also on the proliferation security initiative, maritime domain,

which looks in the commercial and noncommercial system, and we

have grossly underfunded them. So if you have got a couple million

dollars to throw at something, throw it at the Coast Guard first.

I would agree with Steve, if there is a global business case for

a technological security solution that somebody can produce, then

that is fine; I would accept that. I am a little skeptical that it is

out there.

Mr. FLYNN. It is right now in Hong Kong. It is not perfect in lots

of ways, but one of the things it does, it gives you a forensic capability. Just like those closed circuit TV’s in London didn’t stop the

attack but allowed us to pull back and find who the operators are.

As we build greater visibility, we raise the deterrent level. It could

take them 2 to 3 years to acquire a weapon of mass destruction.

You put it in the system where everything is being screened, and

if you find out the problem, you can isolate where the problem

came from so you don’t have a wholesale shut down of the system.

It is not just technology; it is layers of security. We don’t have to

rely solely on trying to find all the bad guys and leaving the system

wide open.

Mr. GAFFNEY. Mr. Spratt, I think technology is part of the answer. It is like a fence along our southern border. Seems to me that

is part of the answer to the immigration problem, too. But you

have to appreciate that you are up against determined adversaries.

They are going to try to end run it, find new openings and opportunities, and it is one of the reasons why I come down differently

than my colleagues by saying, shut down other opportunities where

you see them possibly being opened up, including the case of this

port acquisition.

Mr. SPRATT. Can’t this be paid for by levying fees. There are

huge flows of commerce. Can’t small fees produce substantial funds

to buy much better technology?

Mr. FLYNN. The pilot in Hong Kong will come in at $6 to $8 a

container. We can move a 40-foot container with up to 32 tons of

material from Asia to the West Coast about average rates, $1,850,

which makes a postage stamp seem a little overpriced. They carry

about $66,000 dollars of retail goods on average for Target and

Wal-Mart. You are not going to see that. Those rates go up and

25

down based upon availability. You want to layer it throughout the

system. I want it in Singapore, Jakarta, so I can spot things along

the way. They need to put the system in place, the terminal operator, if they do it altogether and come up with a common fee structure and make the data accessible to Customs agents, not just us

but to the British. There are export control issues.

So there is a lot of promise here without solely relying on a system either focused on ownership or hoping and praying our intelligence is so good we can narrow down the universe and check the

right thing.

Dr. CARAFANO. I am skeptical. This to me is the TSA solution. We spent $6 billion a year on a system which was defeated by $20

dollars worth of razor blades. The global security screening solution, I think, there may be a business case for some measures, and

I am all for that. And I agree with Steve, the global movers of systems have a vested interest in making sure that this system keeps

going. They realize if there is a 9/11 in the maritime domain, the

consequences will be as catastrophic as Steve says.

I talked to all the people in Homeland Security, and they say we

are not going to shut down the ports, just the affected ones, and

we all know what is really going to happen, on the day of the

Katrina-style port act, they are going to shut down all the ports,

and we are going to have consequences that are global. But the notion that this is going to prevent that, I am just very, very skeptical. The business community can do some things because they

have a vested interest in preventing that, but I don’t think the TSA

solution of, let’s just screen everything and rely on technology, is

going to get us there.

Mr. SPRATT. Thank you, Mr. Chairman.

The CHAIRMAN. The gentleman from Pennsylvania, Mr. Weldon.

Mr. WELDON. Thank you all for your testimony. The tragedy of

this situation is not just the fact that we have to look at the substance, and we will raise them in other parts of the hearing with

the Administration, but it is the damage that we have done in our

relationship with a country that seems to be becoming our ally.

This reminds me of the Clinton administration when President

Clinton told the leadership of the mainland in Beijing that they

would not allow a visa to be provided to President Lee Teng-hui of

Taiwan to go back to his alma mater to speak. The Congress found

out the next day because the White House didn’t talk to the Congress, and the Congress was livid. And so in a bipartisan manner,

we overruled the President. That so embarrassed the Chinese administration. They thought we deliberately embarrassed them. So

they started lobbing missiles across the Straits of Taiwan.

What did President Clinton have to do? He sent a carrier battle

group in the Straits of Taiwan that almost caused a war between

China and the U.S. over the administration not talking to Congress. That is what is happening in this case.

What absolutely offends me the most is this White House had to

know that there would be significant concerns raised by the American people and the Congress. Now maybe they would have been

dealt within a structured process that we would have felt was okay,

but they didn’t give us that opportunity. Now they are telling us

well, if you object, you are going to hurt our relationship with the

26

Emirates. Too bad. Where were you? Why didn’t you bring the

leadership of the Congress in? Why didn’t you ask for us to understand what was being proposed? That unfortunately is a dilemma

we now find ourselves in.

So we are damned either way in this case. Whatever we do, we

are going to cause problems and concerns. Many say we are just

posturing. We are not posturing. I come from Philadelphia. I

walked those ports. I would have liked to have had some inclination that a pending deal was on the horizon that was being talked

about for months within the process of the agency, the Administration, but that wasn’t done. In fact, none of the people at the Tioga

Terminal that will be taken over by this process were even consulted. They didn’t have a clue. And all of a sudden, through the

media, this is sprung upon us.

What do they expect we and the American people to do? It is a

tragedy that should have been avoided. It wasn’t, and now we are

left to try in the best way possible to understand what are the

threats, and I won’t pose some very specific questions that I have

relative to al Qaeda’s involvement in a very direct way with the

Emirates. I will talk about a camp that mysteriously disappeared

because the Emirates government tipped off the al Qaeda leaders

when we were about to strike it a week before that camp was attacked.

I will bring up an internal document from West Point and their

terrorism efforts up there of a document that al Qaeda sent to the

Emirates saying we have infiltrated your security, your censorship,

along with other agencies that should not be mentioned. This is al

Qaeda talking to the Emirates. This is an official document of al

Qaeda.

I want to know whether or not that has all been considered. I

have no idea whether this process went through that. What really

bothers me by the Administration is also their interpretation of the

Exon-Florio language as amended.

So the question I have for each of you is whether or not you

agree with the Administration in their interpretation of the Byrd

amendment, which is contradictory to how Byrd interprets his own

amendment, when they say that even in the case where the two

conditions of the Byrd amendment are met, the committee may determine that the 40-day investigation is not required.

I am of the feeling, as a Member of Congress who worked on this

language, that it is required, but the Administration has seen fit

to interpret it that it is not required.

So I would ask you all to respond to that, and also, Mr. Chairman, I would like to ask these witnesses if they think that there

needs to be a role for selected leadership of the Congress to play.

There is no role in that process today. Maybe there needs to be, either through the Intelligence Committee or the leadership of the

Congress, a very elite group of members of both parties who are at

least made aware of what the CFIUS process is considering when

it comes to foreign investment.

Mr. GAFFNEY. I think, like you, the commonsense interpretation

of this language suggests that the trigger should have kicked in.

It is just one of the things that is broken with the CFIUS process,

27

maybe not even the most important but certainly one of the things

that I think you need to revisit as you think about reforming it.

I guess my feeling about it is, members of this committee, members of the leadership, members of the Intelligence Committee, for

that matter the entire Congress, will be saddled with the consequences of a defective process. It is incumbent upon you I think,

in the old adage, to be in on the take-off if they want you in on

the landing. There are concerns—and I understand they are legitimate—about undue political influence, the compromising of proprietary information and so on, but I think what we can take away

from this fiasco, and it is a fiasco for the reasons you mentioned,

is the need to try to improve it so that it doesn’t happen again.

I believe people of good will on both sides of the aisle, on both

sides of the Hill are going to be able to find ways to ensure that

there is oversight in an appropriate way and there is a degree of

transparency that is incumbent upon the need for audit supervision

that this system clearly cries out for.

Mr. FLYNN. I am not a constitutional lawyer, but what I have

heard from port communities, with which I can empathize, is the

Federal Government can’t have it both ways. The fact is that it has

been to the charge of States and localities to provide for the security of their ports, working through the private sectors, and they

are to split the bill. The Administration didn’t ask for any port security funds until 2004 despite three budgets going by because they

said quite clearly these fall in your jurisdictions; you are responsible for security.

I can appreciate there is legitimate frustration at the local level

when decisions about who their tenants are going to be, that that

would lead to significant aggravation which they are likely to express to their members. There is little question as we evolve to a

point in recognizing this new adversary is increasingly focused on

disrupting economic targets, that the old matrix that was used in

the CFIUS process is not going to apply. It is a more all-encompassing, more civil, and I think it is going to, by necessity, need

to involve a broader engagement. The more we engage our civil society, and through our elected representatives, what is critical and

where resources need to be applied, the more likely we will make

those investments. When everybody is ignorant, we don’t make investments; we think it is all honky-dory. This process, if there is

any positive thing, has focused the Nation’s attention on the gross

vulnerabilities of a critical infrastructure that supports our way of

life, and I hope the opportunity, while I can certainly understand

the frustration here, that we move from that to saying let’s really

fix for the American people what we know—well-documented—is

well broken.

Dr. CARAFANO. I sympathize with your remarks, and until the

Congress has an opportunity to get through all the facts of how

this process was executed, I think I would reserve judgment. I do

think it is self-evident the process needs to be revised so these

kinds of fiascos don’t happen.

I do believe one message I want to be crystal clear on, that is

dispelling any notion that revising and reforming the process will

address the kinds of maritime concerns that Steve and I raised

today. And while I am thrilled along with Steve, I see this as an

28

enormous opportunity to get Americans excited about something

they ought to be excited about because a third of their economy is

dependent that this global system work, but I would hate to have

Americans walk away to think, because Congress devised this process, we are safer at sea, because that simply won’t be true.

Mr. WELDON. How about a simple response to the interpretation

of the Byrd amendment which required a mandatory 45-day review? Do you believe that they had the power to ignore that?

Dr. CARAFANO. Without having seen all the facts of how the process was executed that I think will only be available after the Congress has an opportunity to gain those facts, I really don’t feel

qualified to answer that.

The CHAIRMAN. I thank the gentleman.

Let me ask my colleagues something. We have got two more panels to go, and I know there are no more votes today, and I know

people are going to have planes to catch. Let me ask my colleagues

who haven’t had a chance to ask a question yet if you would be

willing to forego a question on this panel to move to the next panel

which includes Dubai ownership representatives and pick up immediately where we took off. Everybody who would like—thinks that

is okay, could you raise your hand if you want me to do that?

I think—Dr. Snyder, if—Mr. Taylor, would you be willing to do

that if we end with Dr. Snyder? Okay. I tell you what we will do,

let’s do Dr. Snyder, Mr. Larsen, Mr. Taylor, and move to the next

panel—and Mr. Turner.

The gentleman from Arkansas, Dr. Snyder.

Dr. SNYDER. I think this panel is really, really important because

you are the forest-for-the-trees guys. The next two panels we are

going to get focused on one contract, and I am afraid if we leave

you alone, we are going to miss a point.

Mr. Flynn, you are not a Johnny-come-lately to this event. I

would like, Mr. Chairman, if I might, to put in the record an article

that Mr. Steven Flynn wrote in November, December 2000, that

was in Foreign Affairs Magazine called, ‘‘Beyond Border Control,’’

in which you discuss this issue.

[The information referred to can be found in the Appendix on

page 183.]

Dr. SNYDER. You specifically talk about what you referred to as

your hope it is not going to be a future Tom Clancy novel scenario,

in which you gave an example of something unfortunately came to

in a different way when we had the September 11th but that was

written obviously a year before September 11th. I don’t know if you

recall, but in October of 2000, you came to my office and met, and

I don’t know if it had anything to do with it, Dr. Carafano, but

somebody from Heritage came by and said, we want to get to know

you. I said, if you want to do something, have business get involved

with security, go talk to Steve Flynn. Maybe they hired you after

that.

About port security, let me get into some of my points. One concern that I have with the approach that the Chairman and Mr.

Gaffney are taking, if you, in Mr. Gaffney’s words, if we go along

with this current contract, it will possibly open another risk. Once

you accept that principle, seems to me you don’t have any basis for

allowing any ship to come in from any Arab nation. How do you

29

draw the line when you are talking about a small package? Can

you let any ship come in that has any crew members on it that

could ever go off the ship? Where do you draw the line if you start

saying, in your words, Dr. Carafano, that ownership is the key

rather than security? That is one of the concerns I have with the

direction we are going with some of this legislation.

Mr. Flynn, in your article, you talk about, your words, grossly

underfunded port security. I am glad to hear that, grossly underfunded; something that we think is key to an ugly scenario that

could occur. You talked about the fact that we only have token police presence in our ports, your words, token police presence, again,

probably a question of resources. You talk about the disorganized

nature of the U.S. Government response in our ports.

We have a lot of work to do. Well, it comes down to priorities and

how we spend our money. In the view of a lot of us, we have not

done our priorities correctly in this Congress and in this Government in terms of how we spend money, and we get down to discussions of, who gets tax cuts versus who doesn’t, and how do you

spend money?

I hope that you all are sending a strong signal in the work you

have been trying to do, Mr. Flynn, that we have tremendous work

to do. As I understand, one option, going back to Mr. Weldon and

how are we going to find something good to come out of this, there

is a scenario out there that if this company makes it through this

process, that they have stated that they are willing to negotiate to

do enhanced security measures. I think you suggested, Mr. Flynn,

that the Hong Kong model perhaps could be adopted by this company, and you would have a much broader study. Is that a fair description?

Mr. FLYNN. It is. I think that you will see a commitment by the

players that join in that, so with these four companies, you would

account for eight out of every ten containers coming into the

United States. What you would be able to find is big dense objects.

That is what we are really worried about. Once we put in a process

of cost recovery and private players in it, you can upgrade; it, the

new technologies come along, but the critical movement is move

from a database analysis of what risk is, is something going on in

the physical movement of the supply chain to validate low risk is

low risk, and have processes in place to manage it. That doesn’t

exist today. We are in a situation analogous like airplanes never

had black boxes in them, so when they fell out of the sky in the

aviation industry, the Government said, well, happens one in a million times. We need better tools to know where the problem happened, where the breach has happened, so we can manage these incidents without losing not only the whole industry but the critical

underpinnings that go with that.

Dr. SNYDER. I think another theme of your article is, I know I

talk to my constituents back home, they want me to build a wall

at the Port of New York. What you all are saying is the places to

start looking are the trucks driving into the loading points in countries all over the world. We don’t think like that. We still want to

put up a wall. But if we put a wall, we haven’t done ourselves any

good. I hope that is another thing that comes out of your presence

today, is we have got to start thinking about what is going on at

30

the point that containers are packed and sealed and transported

and loaded onto the ships. That is the crucial point in all this. Obviously, the unloading is a part of it, but we don’t think that way.

We still think we can put up this tremendous barrier.

Mr. FLYNN. As a practical matter, we have been deploying radiation portals at the exit gate of our marine terminals in the United

States, and they have real limitations in terms of technology. The

box is in the yard for 2 or 3 days, so if I wanted to set it off remotely and take out the port infrastructure, I could. So we want

to get it before it gets loaded, before it is in the ship. We are going

to have to do it with the cooperation of foreign private companies

and our trade partners in the busiest places of the world. So I

think we have to be careful in trying to close one potential loophole

down, and there are potential loopholes. I would rather work from

a security perspective with U.S. companies, with U.S.-owned infrastructures. I like that because I have law on my side and some assumptions of patriotism. But in the global world, we are in, given

it is not that way, that is all the more reason to not have no minimum standards and no oversight but go in the other direction. We

can’t own all this global transportation infrastructure. We don’t

have the resources nor the willingness. But we do have the leverage of our market to get folks to raise the bar in the oversight process. We have a long ways to go, and this presents an opportunity

to go in that direction.

Dr. CARAFANO. He made a great point. In the 21st Century, nationality and geography don’t guarantee you security. Only security

guarantees security. I don’t object to some of his solution, but the

easiest way to smuggle something into the United States is to drive

it across the Mexican border or put it on a noncommercial ship and

land between a port. If some terrorist has something valuable he

wants to get inside the United States, he is most likely to choose

those venues which are cheaper and probably a lot safer than putting something on a container and getting it out of his control. And

I think this is the criteria. If there is a business case for adding

on a security measure, and I think that would be pretty apparent,

then I think that is great because it is value added in lots of way,

in terms of inventory, security against terrorism, security against

theft. So if there is a business case for security measures, I think

that is great, and I am all for it.

But let us not—that ain’t going to buy security from the terrorists. The best thing for security from the terrorists is going out and

getting the terrorists.

Mr. FLYNN. There is a key point. We push it out so it is coming

across the border, but we don’t shut down the trade system. So

identifying what part of these networks are most critical in finding

safeguards is not a bad thing.

Mr. GAFFNEY. That wasn’t a rhetorical question to me, Congressman. I would like to address it quickly. I would argue that where

you draw the line or think about drawing the line is what you do

after an attack. Because my colleagues may be right that this is

a very serious likelihood of somebody penetrating our ports and

blowing them up. You have got a two-fer in most parts because not

only a critical part of our economic infrastructure but a lot of population which surrounds it.

31

The other part of this is, of course, you are going, I think, to find

us throwing money at this problem after it happens, much as we

have done about airports. I am simply saying, I don’t think we

have got all the money in the world to do all the things we want

to do, so the sorts of suggestions we have made, there seems to be

triage, applying sensible precautionary measures overseas and at

home to try to make this particular avenue of attack harder for

people who we know are trying to hurt us.

The CHAIRMAN. I thank the gentleman.

The gentleman from New Jersey, Mr. Saxton.

Mr. SAXTON. I would like to yield my time to Mr. Turner from

Ohio.

Mr. TURNER. Thank you, Mr. Chairman.

Thank you, Mr. Saxton.

I appreciate you yielding time to me, and also, I appreciate your

opening comments concerning the restriction of foreign investment

and foreign ownership of assets in the United Arab Emirates.

In your discussion, as you were talking about this, seems we

have several different issues: We have the issue of security, and security can be both, what are we doing to protect ourselves at the

port, and can we also then include the issue of, who owns them,

who are they, what do they do there and how are they implementing security procedures? Issues of trust which we hear that also

dissolve into the issues of relationship.

When you go to the issue of relationships and ascertaining security and trust, you go to the issue of fairness and wanting a relationship with someone who has a relationship with you and not

wanting to offend and wanting to strengthen partnerships in the

future.

One of the things I find interesting in the issue of the concept

of fairness is that I asked my staff to pull information on the ownership interests, the foreign investment rules of the United Arab

Emirates because I think that goes to a basic interest of fairness

because I believe that we should not allow someone to buy something here that they won’t let us buy it there.

What Chairman Saxton listed were the ownership rules published in our National Trade Estimate Report on Foreign Trade

Barriers by the United States Trade Representative which clearly

lay out that not only could we not buy ports in UAE or American

citizens not buy the ports in UAE, but we couldn’t even own

McDonald’s. In fact, the McDonald’s in UAE on its website proudly

exclaims UAE-owned, operated and proud to serve you. It says: In

the Arab nations, all McDonald’s Restaurants are locally owned

and operated by Arab entrepreneurs.

When you look at these rules that require that if you are going

to have an ownership interest, if you are a foreigner and have an

ownership interest, an investment in the country of UAE, except

for some minor exceptions, it requires that that asset, business enterprise, et cetera, be owned 51 percent by someone from the UAE,

which means that if we were to apply their rules to their purchase

of our ports, it wouldn’t be happening. I have a bill that I am working on in conjunction with Mr. Hunter’s bill on critical infrastructure that would require that especially government-owned entities,

when they go to purchase and invest in things in our country,

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would be held to the same standards of their rules. We are not just

talking about a UAE citizen or business entity, we are talking

about the UAE government interest attempting to make an investment in a country where their own rules, the government’s rules,

prohibit it.

I would like, if you would, to talk for a moment about that issue,

because it seems that goes to the issue of fairness, an element that

should be considered. It certainly distinguishes some countries

from other countries. If we can’t invest in their country in the manner in which they want to invest here, perhaps we should reconsider it.

Dr. Carafano.

Dr. CARAFANO. I think that is a fine debate for the Congress to

have. If you want to debate our strategic interests in the UAE and

our future trade and economic and foreign policy relationships, it

is a great debate. It should be separate from the security debate

because I don’t think they are intertwined.

I will just say this on the economic issue. Fundamentally, what

you have here, not just with Dubai Ports World but all the foreignowned maritime assets, you have foreign-owned companies coming

in and investing in dilapidated infrastructure in the United States,

hiring our citizens, increasing employment in the United States

and building one of the marvels of the world, which is one of the

fastest global maritime networks which makes imports cheaper because they move faster and makes our ability to expert things more

competitive.

Mr. FLYNN. There is a lot of irony because the Port of Dubai was

built by an American company and run by Americans for the first

10 years. They had a heavy military troop put on there. Sort of the

nature and complexity of globalization, but I merely need to accentuate his point here about the investment. The most foreign-owned

port in this country, in terms of leases, is the port of Los Angeles,

which is about 90 percent. It happened because when you turned

to the citizens of the City of Los Angeles and said, are you ready

to put in a $50 billion bond to upgrade your waterfront so you can

be a gateway to Asia, the answer was, I would rather put it in

schools, roads, other things. So the option here for those folks were,

okay, we won’t have a gateway to Asia or we find somebody to

bring capital to do that. To make that happen, you have to give

them a 30-year lease. They dredge the channel, put the cranes in

and make that possible for us to trade.

So we are playing a bit with fire here. We would have to find the

capital ourselves. Today, in China, a new port of New York and

New Jersey is being built every year. And we are building virtually

no new capacity. Trade is supposed to double in the next 15 years

in terms of container traffic. Where is it going to go? Maybe

through Canada or Mexico. That might be where we end up going

with this.

We need the infrastructure. What all this leads me to is, because

it is private owned, we better have a damn high security bar and

promoting it internationally to get us to a point where the critical

system is secure. The ownership issue is certainly one that is worthy in the policy and leveraging this with the UAE as a foreign policy point is there, but if we are really focused, we should be using

33

what we have got, the best security thinking about getting to

where we want to go.

Mr. GAFFNEY. Mr. Turner, I think the question is sufficiently important that I mentioned it earlier and complimented Congressman

Saxton for raising it. I think it is a fundamental equity issue that

we ought to have part of this larger debate, but I would just ask

one other thing related to financing. I am bemused, to be honest

with you, how CFIUS could have concluded its judgment about the

national security implications of this deal when its deliberations

were completed before the international financing of it was even

started; $6.5 billion of this $6.8 billion deal had been raised on

international capital markets. How that exactly works in with the

ownership limitations, I don’t know, but I don’t think CFIUS

knows either.

I would ask a classical question, follow the money: Have there

been undertakings made that might give rise to still other questions here about ownership, about the rights that attend investment that bear upon questions like the ones you are asking but

also questions like the ones I am asking? What about the security

of these facilities? Could they be compromised if the security plans,

for example, have to be shared with owners whose identity wasn’t

known, let alone disclosed before the CFIUS, first CFIUS process

completed to the satisfaction of the executive branch?

So I would encourage this to be part of the debate. I think the

questions, as we have all talked about here, actually introduce a

very far-reaching and perhaps possible debate in this country about

whether we are comfortable with the level of globalization and

what it has translated into in terms of lack of control and foreign

presence in even critical infrastructure. But I think that is the debate we have got to be having, too, in addition to resolving the

question of this particular deal.

The CHAIRMAN. I thank the gentleman.

The gentleman from Washington, Mr. Larsen.

Mr. LARSEN. Thank you, Mr. Chairman.

I think what I am hearing in some respect today on the security

side is that our currently layered approach to port security and

supply-chain security is full of holes and gaps, and that security at

our ports ought to be frankly as thick as flies at a picnic on a hot

day, and what we have is a picnic and very few flies when it comes

to security. I am talking about the ports in Washington State, a

large focus ought to be on the port security and the supply chain

security. I will give you some examples: GAO found less than 13

percent of our CT patent checks have actually been performed.

They found, due to staffing imbalances within the Container Security Initiative of foreign seaports 35 percent of the high-risk containers are not even inspected overseas.

So there are definite gaps, and I guess the headline here is inadequate; we have inadequate funding to assure adequate screening.

As an example, the American Association of Port Authorities requested, their members requested, $3.7 billion in port security

money from 2002 to 2005; $708 million was granted, leaving a gap

of about $3 billion. I am not going to argue every $3 billion was

necessary, but it is an 81 percent difference, and surely the funding

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is not there for port security or supply chain security for containers

coming into the country.

Mr. Flynn, I want to ask you a question. I went to Hong Kong

International Terminals (HIT) in January and talked with the general manager, who is an American, a Washingtonian, in fact from

Washington State, managing the HIT Terminal there in Hong

Kong, about their pilot project. It is basically three steps: Check to

be sure it is the right container; has got the right stuff in it; and

there is no rad stuff, no radiation stuff in it. Basically those three

steps.

It is a pilot program. And in your writings, you have talked

about perhaps Dubai Ports World adopting this program. You have

also talked about the GreenLane maritime security act and what

that put forward. Can you talk about the GreenLane act a little bit

for this committee to help us understand the kind of actions that

perhaps separate from talking about the CFIUS process, what we

can do on the maritime security side of things to move the ball forward here?

Mr. FLYNN. I think the biggest thing is the market needs incentives for moving ahead, and they have to have confidence there is

buy-in by all of the players, that what they invest in is going to

be used in an appropriate way for security. What stalled out the

investment of moving further on the Hutchinson Project is, legitimately talking with the group manager and director, he said why

would I put in place a system that would cost me a half a billion

dollars if Congress after the next incident is going to change the

rules and tell me I need a different system? I need to buy in upfront; then I will make the investment, and the other players are

likely to go along.

The first thing is to have DHS respond to the initiative and say,

this is how we could use it, and for Congress to say, this is a good

step forward. We are not going to change the rules overall.

Mr. LARSEN. When we see DHS in a few hours, we should push

this issue on them.

Mr. FLYNN. They are evaluating it now. A little slow to the take,

but they are evaluating it, and I am very pleased the Deputy Secretary of Homeland Security is very much focused on getting an assessment here, and Jay Ahern, the field operations assistant commissioner, has been very engaged. So we are getting some positive

movement here.

The other is the importers want a level playing field. For most

main players, it is nothing different than before 9/11, so it is hard

to dangle a carrot when there is not much more capability or stick

out there. So we need to make sure Customs is whole. If we move

forward with this, we need Customs capacity. They don’t want to

be embarrassed to have a brand new capability, and they can’t integrate a response. We have to create incentives for customers, and

I think that is the essence of the legislation. And I know there are

other ways we can talk about how to continue to improve it, but

I hope it is about seizing opportunities here. We have got this in

our crosshairs; this is a vulnerable system. What we should look

for is the capacity at the Federal level and what the private sector

can do and recognize it is going to be a global effort to get us where

we need to go.

35

Mr. CARAFANO. I would just say I think I agree with everything

Steve just said. I will say I don’t know if it is inadequate funding

on the part of the Federal Government. I will say it is incredibly

wrongheaded funding. We have thrown money at the things that

have the loudest and strongest stakeholders and not at the things

that are most important.

So we grossly underfunded the Coast Guard. We haven’t funded

the chemical biological defense (CBD) infrastructure and human

capital to make CSI and C–TPAT programs really effective. On the

other hand, we have thrown millions and millions and millions of

dollars in port security grants which by and large I don’t think are

the best bang for the security buck. If you look at the Department

of Homeland Security Inspector General (DHS–IG) report on some

of the things, even at the end of the day, okay, you would find is

not a really big help in terms of making the domain safer. We need

to spend money on the things that make the domain safer.

Some of the initiatives Steve mentioned, absolutely, that is fine;

Coast Guard, absolutely, that is fine; having the DHS people do its

job. But just giving out money to people to be cool, that is not helping.

Mr. LARSEN. Thank you.

I just want to make a final point on the Container Security Initiative. As an example, if we don’t fund the CSI, which is the Container Security Initiative, which is our worst nightmare, that we

will have another CSI, that is crime scene investigations of the

worst kind at all our ports. So we really need to step forward on

all these issues by CSI and C–TPAT and make these work.

The CHAIRMAN. I thank the gentleman.

And the gentleman from New Jersey, Mr. LoBiondo.

Mr. LOBIONDO. Thank you, Mr. Chairman.

I really want to thank our panelists here today.

I have a couple of comments at the end, but, first, Dr. Carafano,

I know how you feel about port security grants. But, Mr. Flynn and

Mr. Gaffney, how do you feel about port security grants?

Mr. FLYNN. I think clearly there needs to be a debate here when

you have some real equity issues. Particularly I will speak to L.A.

Long Beach but certainly also Port Newark or Port Elizabeth. L.A.

Long Beach brings in about 40 percent of all the containers that

come into the country. Asking Los Angeles County property tax

owners to be responsible for the physical security and access control and so forth seems to be legitimate equity issues.

The other challenges here are that, in the absence of national

standards, when a port sets a higher bar they have to take out all

their capital investment fund or try to pass it of off to the lessees,

which raises the costs, which pushes the business to another port.

So one of the problems here is we have not agreed upon minimal

national standards, and then we haven’t really had the conversation of who should ante up what. We essentially have gone through

an approach that says, states and locals, you know best. Well, the

State of Maryland knows that putting up cardboard boxes as a

closed circuit TV as a deterrent may work for a 13-year-old, but it

is unlikely to be a good counterterrorism device.

So they are in a dilemma. Do they use their capital improvement

in order to keep pace with Norfolk or do they hoist the cost on?

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We need to set national standards, and we need to have a conversation about who pays. And we shouldn’t do by just by, well, you

guys come up with it and compete and some decision is made. People, frankly, at DHS don’t know much about ports making decisions. Well, this sounds kind of cool. That is not a way to do things,

and that is how we have been doing it.

Mr. GAFFNEY. Congressman, I don’t have a whole lot to add to

that, though it does seem to me this is part of a larger problem we

have been talking about this afternoon and really for the past two

weeks; and that is, oh, my gosh, you mean the ports aren’t secure?

And you are seeing people suddenly, I think, focusing on the kind

of constructive attention that is needed, whether it is in terms of

national standards or in terms of new technologies, whether it is

in terms of the overseas component being kicked up to a higher priority, whether it is better fences, whether it is better surveillance,

whether it is whatever.

It seems to me that this is really the moment now, for all of you,

in particular to capitalize on this intense energy and engage the

public in the sort of debate, as I said in response to Congressman

Snyder, that you will be having after an attack, except before attack, and maybe thereby prevent it from happening.

I think this is the way to address this, as a matter of that kind

of opportunity and urgency; and whether it is local grants or

whether it is going to be a national standard, I don’t—I am sure

there is something to be said for both, but there is a moment here

where we still have, I believe, the opportunity to do it better than

we have been doing it. I hope that the upside of the trauma that

we have clearly created with the debate about the UAE ports is

going to catalyze that kind of constructive outcome.

Dr. CARAFANO. I don’t want to be on the record for arguing that

it is zero money for port security, because that is not what I am

saying. I think that there should be a Federal port security program. Because there is a captain of the port. He comes to the table.

He is trying to get people in this port to cooperate. He has to have

some carrot to come to bring to the table to facilitate cooperation.

So I think there should be some port grant security money.

I do think it should be targeted on the most critical avenues to

keeping the maritime security system robust. So I think I would be

spending a lot more money in places like L.A. and New Jersey and

Long Beach than I would in small ports in some other States.

And the third thing which I think—Steve’s point is absolutely essential. What we need most of all is a predictable business case.

Because I talk to people, and they say, well, we are not going to

do anything because we will wait until next year because maybe

there will be some port security money. What I found is that for

most of these guys if there is something that really needs to be

done in a port and it is a real vulnerability, they are not sitting

around waiting for the Federal Government to pay for it; and the

other stuff is, let’s sit around and see if we get something.

So whatever we do, we need to have a national program that allows—because these guys are making 30-year infrastructure investments where they can credibly see what the Federal Government

is going to kick in and what it is going to kick it in for and what

they can do, so they can make sound business decisions.

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Mr. LOBIONDO. Thank you, Mr. Chairman.

What we are hearing today is really good information, but the

Coast Guard Committee has been talking about these things. Mr.

Flynn came before us. We have had testimony from everybody. Office of Management and Budget (OMB) acts like they are our

enemy when it comes to funding the Coast Guard. We fight with

Appropriations on Operation Deep Water when we have got cutters

that are disabled every day and aircraft that can’t fly. This Congress will not put its money where its mouth is about port security.

Gene Taylor and a number of members have joined with us to do something. We have spent $25 billion on the aviation side, with

less than a billion dollars on the port side; and with the current

funding structure that is proposed, it will take us more than 60

years to make that up, to get to the minimum that DHS and Coast

Guard has recommended of $7 billion dollars. What is really disheartening is if this attack takes place you will see that money appropriated tomorrow, after how many lives are lost and how much

destruction is wreaked and how much of the global economy is

wrecked. What do we have to do to get the attention, to get some

action?

So our panelist is spot on. I thank you.

I hope somehow, Mr. Chairman, you will join other members of

this committee that have the power of persuasion, because, obviously, we have not found the right combination to get the word out

that the Coast Guard is terribly underfunded; and if we can fund

them, we can fund port security. Thank you.

The CHAIRMAN. I thank the gentleman, and I thank him for his

leadership in this important area.

I would just say that, in my view, we should and we could have

100 percent cargo scan. I think it is achievable, and I think one

way to achieve is it is to charge the guys that are bringing the stuff

in. I know that is an anathema to the commercial free trade community, but that makes sense, and user pays is a fairly accepted

custom.

I agree with the gentleman that we have got to increase that capability. So let’s work together and try to get it done.

We have got one more. Mr. Taylor had a question of this panel.

We are going to go to Mr. Taylor. Then we are going to go to the

next panel, and we will take up with people that haven’t had a

chance for a question with the next panel.

Gentleman from Mississippi.

Mr. TAYLOR. I would like to thank you gentlemen for being here.

I think all of you raised a valid point. Mr. Gaffney, I am with you.

I deeply regret to say I think it is going to take a 9/11 type maritime industry based disaster for our country to do what we should

be doing right now.

I am going to get on a plane tonight. Now the Nation is not going

to pay for my ticket, but the Nation is going to pay about 5 bucks

to pay for that screener for me to get on the plane. If we are willing

to do that to individuals every time they buy a ticket, why can’t

we ask corporate America to pony up just a little bit to see to it

that those approximately 20,000 CEUs that come into this country—I am sorry—20 million CEUs, container equivalent units,

come to the country that there is some safety to them?

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I am pleased to hear that all of you are showing these concerns.

But, you know, if you think about it, this is the tip of the iceberg.

I mean, can’t we as a Nation get upset that we owe the Communist

Chinese $300 billion, $256 to Communist China, another $150 or

so to Hong Kong?

Today in New Orleans, in Pascagoula, Mississippi, foreign flag

cruise ships with sailors from who knows where are taking care of

our FEMA folk. Our Government is paying them to take care of

folks that lost their houses in hurricanes instead of an American

flag vessel.

On a daily basis, the people ask for Jones Act waivers. The law

that is going all the way back to the earliest days of our republic

that we are supposed to provide for the safe coast-wide commerce

and security of our ports, that they be American-owned, Americancrewed, American-manufactured, on a daily basis they get waivers.

Right now there is a French firm called Verbone that, through

a clever manipulation of the banking process, owns supply boats

that operate in the Gulf of Mexico. Now when someone sees they

have done it, what is to keep the Koreans from doing it or the Iranians or whoever?

So, again, I think you have raised some very, very valid points.

One thing I think you missed, and it is just piling on with how

scary this is, when I was a kid, I was a stevedore on the docks in

New Orleans, miles and miles of wharves, each of them offloading

ships that, by and large, could load and unload themselves. Now

most of those docks sit idle because all of that has been consolidated to a few container cranes. So if you own the container crane

and you choose not to load a military sea lift command vessel—remember, we have not declared war since 1941. We are relying on

the good will of those ports to load our vessels or unload vessels,

as the case may be. So if you are a foreign operator and you choose

not to make your facility available, you can certainly throw a heck

of a monkey wrench into any operation that the American military

chooses to carry out around the world.

So, again, I welcome your thoughts on that. I am sure there are

places where the President can step in, but I have noticed that,

particularly in the aftermath of the storm, our Nation has stepped

in and made tough decisions that involved the lives of people not

very often and not very well.

Mr. FLYNN. I might say on the last point here, particularly in

prosecuting the war in Iraq, the Department of Defense has been

extremely dependent upon foreign flag vessel container ships and

foreign terminal operators to move material. When Turkey basically closed out its base, it was a company, Hutchison Port Holdings, in Rotterdam that made available the real estate for the free

deployment of it. So you are dealing with relationships here with

private actors and foreign actors; and, like anything, trust has got

to be built up.

But I want the verification because it is private owned, because

we lost this capability. We are 30 years behind now. It is a bit like

trying to resurrect JC Penney and say go take on Wal-Mart by saying let’s try to recapture America’s Merchant Marine and put it

back. I wish that weren’t the case. I love ships and love that heritage. When I came into the service in the Coast Guard in 1978, you

39

know, I thought there would be something to go into, and it is not

there anymore.

But, that being said, as a security and going on global we want

to build this capacity into the system.

I point out on the fee thing here the good news about doing this

and loading ports is the nature of the beast is a terminal operator

can’t just select U.S.-bound goods. It is just too complicated. He has

to do it for everybody.

So instead of being 40 bucks a box for U.S.-bound goods it would

have impact on our competitiveness. Everybody has to pay the

same fee, and that also is very useful for counterproliferation purposes. You can’t get from North Korea to Iran by saying, Scotty,

beam me up. You move to the system. You don’t come to our borders. Visibility in the system would have a huge asset. But you not

only have to cooperate with the people who own it, but trust, but

verify.

And that is what we need is a system to do that. We have just

the trust part right now, and there is reason to be squeamish if

that is all we have.

Dr. CARAFANO. I agree with Steve. Trust but verify is absolutely

the way to go. And the good news is, although a lot of this infrastructure is foreign owned, it is a very, very competitive environment. There is lots of people doing this, and everybody wants your

business. And if you do find a partner one day that violates your

trust, it is not hard to switch to another guy. So it is a different

kind of foreign dependency than, for example, if somebody is making a tiny transistor that without that transistor you can’t have

cruise missiles. Somebody is operating a facility in a port in the

United States today and you don’t like how they do business, there

are other people that would love to have that business and can do

it just as effectively, if not better. So it is, in a sense, a buyer’s

market.

Mr. GAFFNEY. I had the privilege of working with President

Reagan at the time when he was talking about trust but verify;

and with the greatest respect to a President I loved, I always

thought that was a little bit cockamamie. I think you have to be

skeptical, healthfully skeptical about people that you have no reason to trust or who you in fact in some cases have reason to distrust. Verification is important, but skepticism first, and then

prove that indeed your trust is warranted.

I mentioned in my remarks Beaumont and Corpus Christi has

two ports that somehow simply never get thrown into the mix of

the six that we are told are going to be affected by this. I believe

it is a matter of record that the United States Army has contracted

with P&O to move materiel through those two ports. There is an

example of a place where you might or might not have cooperation.

Those are ports, as this committee knows better than anybody,

where we are moving heavy armor and helicopters and other equipment to places like the Persian Gulf.

It also is a question—again, just going back to I think why we

are here, perhaps a minority of you on this panel, but I sense a majority of you within the committee—is that a set of facilities that

you most especially want to take risks with, the personnel, cargo

information, and security planning? And my suggestion to you, sir,

40

is not in those two ports, not in the other six ports, and not in the

remaining whatever it is, 10 or 12, that I think are also in play

here.

Without in any way, shape or form disregarding or disagreeing

with my colleagues about the other parts of the system and the

other mechanisms we need to bring to bear and the idea of a multifaceted approach, those are all, it seems to me, eminently sensible

and part and parcel of what I am sure this committee and its counterparts are going to come up with.

It is just, to leave you with a final thought, I guess that I think

this is a hard problem right now; and we should not voluntarily

take steps that I think will—predictably will make it harder,

maybe marginally and maybe dramatically.

The CHAIRMAN. Thank the gentleman.

We are going now—we are going to move to the next panel, but

let me ask this panel if you can stick around if you have a chance

and have the opportunity to maybe listen to the next two panels,

we might have a couple of questions at the end.

Mr. Langevin had a statement, not a question, he wanted to simply address before you folks move off the dais. Gentleman is recognized.

Mr. LANGEVIN. Thank you, Mr. Chairman. I will be brief. I think

we have covered a lot of ground here today, and I am going to forgo

asking questions so we can get to our next panel.

This discussion today has been exceptionally helpful, and I really

want to thank you all for your contributing here today. I just will

end with this, that I, for one, am not a fan in support of this sale

going through, for a variety of reasons. But I will say that we can

perhaps look at and evaluate such sales primarily from a financial

standpoint, and I think that is really what happened here. Yet, in

a post–9/11 world, that is just simply no longer possible, that we

have to evaluate these types of sales primarily from a security perspective.

And you know if people had confidence that we were doing everything we could to do to secure our ports, perhaps this wouldn’t be

such an inflammatory issue. But we are not. And we have to do

a better job, obviously, of giving both the Coast Guard and Customs and Border Patrol the resources that they need.

Mr. Carafano, you said in your testimony that ownership really

isn’t the issue, that irrespective of who owns the ports that individuals who want to target us can and will infiltrate at very low levels. That may very well be true. But security, as you recognized

and you have acknowledged, requires a multi-level approach, and

we ought not be giving our playbook to those that might wish us

harm.

Mr. Gaffney, you got it right in your third point, your opening

statement, that if this sale happens, Dubai or any company who

owns this port will know about our security procedures. We cannot

let that happen.

So I hope this serves as a wake-up call to all of us that we better

redouble our efforts to do a better job of securing our ports and our

borders. This discussion was helpful today, and I want to thank

you for your testimony.

The CHAIRMAN. I thank the gentleman.

41

Mr. Marshall wants to make a brief statement here and would

ask a question before we go to the next panel.

Mr. MARSHALL. I appreciate, Mr. Chairman.

I found your comments to be immensely helpful to me. I think

all of us did as well. It would be even more helpful to me if you

did as the chairman requested, and that is stick around, listen to

what is said by the next panel and following panel, and then I

would like to hear your comments about what has been said.

I would specifically like to hear, after you have heard what others have to say about the subject, hear things that we might ask

you be done by DP, by the Federal Government, in this instance,

as a condition to approving this deal, those sorts of things that you

think are practical and would be helpful in light of the current circumstances.

You are the experts. You have great ideas concerning how we can

improve our security, which I think, frankly, is what we ought to

be about with regard to this particular inquiry. It seems to me we

have a real opportunity here that we ought not to let pass by. We

ought to take your guidance. So if you can give us your guidance

after listening to all these folks that would be real helpful. Thank

you.

The CHAIRMAN. I thank the gentleman, and we have only got

three people who haven’t had a chance to ask a question of this

panel. Does anybody else have a feeling they want to make a statement to the panel before this panel exits? Okay.

Gentlemen, thank you. We have had an interesting and very instructive discussion here. Hang tough, if you can; and we will invite the next panel, the second panel to come on up.

We are going to hear from—the committee is going to hear from

the officers of DP World. We have Mr. Edward H. Bilkey, Chief Operating Officer at DP World; Mr. George Dalton, General Counsel

of DP World; Mr. Michael Moore, Senior Vice President, Commercial, DP World; and Mr. Robert Scavone, Executive Vice President

For Security, P&O.

STATEMENT OF H. EDWARD BILKEY, CHIEF OPERATING OFFICER, DUBAI PORTS WORLD; GEORGE DALTON, GENERAL

COUNSEL, DUBAI PORTS WORLD; MICHAEL MOORE, SENIOR

VICE PRESIDENT, COMMERCIAL, DUBAI PORTS WORLD; AND

ROBERT SCAVONE, EXECUTIVE VICE PRESIDENT, SECURITY

PENINSULAR AND ORIENTAL STEAM NAVIGATION COMPANY

(P&O)

The CHAIRMAN. So I understand Mr. Bilkey has a statement and

then Mr. Scavone.

Gentlemen, thank you for being here with us. Mr. Bilkey, I understand you are going to make a statement; and then Mr. Scavone

is going to make a follow-up.

Mr. BILKEY. Yes, Mr. Chairman, with your permission.

The CHAIRMAN. Can you pull that microphone a little closer and

make sure it is turned on there.

Welcome, gentlemen. I think you had an opportunity to listen to

our first panel. I think you understand the concern of the committee, and we look forward to your statement.

42

STATEMENT OF H. EDWARD BILKEY

Mr. BILKEY. Thank you, Mr. Chairman.

My name is Ted Bilkey, and I am the Chief Operating Officer of

DP World, and I commend you for holding this hearing. DP World

welcomes the opportunity to get the truth out so that Congress and

the public can better understand the facts surrounding our acquisition of P&O Ports North America.

By way of personal background, I grew up in New Jersey and

New York. I served as an officer in the U.S. Navy. I have worked

in the ports and shipping business for over 45 years, starting on

the docks of Brooklyn and Newark.

Also on a personal note, it is an honor for me to appear before

this committee of the United States Congress. My grandfather, Joseph S. Frelinghuysen, served as a Senator from New Jersey on the

Senate Committee on Coast Defense. Indeed, every generation of

my family, from the earliest days, have served in the Senate,

House of Representatives, or as Secretary of State.

Let me start by giving a little background on DP World. DP

World, before this acquisition, is the seventh largest port terminal

operator in the world. We manage 19 container terminals, four free

trade zones, three logistics centers, one of which is the biggest in

the world. It is bigger than the Pentagon and handles 7,000 truck

entries and exits a day in some 14 countries.

Our Jebel Ali facility in Dubai handles more container freight

than all the ports of the east coast of the United States combined.

We operate on a strictly commercial entity but are owned by the

government of Dubai. Our management is truly international; and,

last week, Lloyds List voted DP World as the best port operator of

the year in 2005.

DP World has a long and rich history of supporting the global operations of the U.S. military. These include operations in support

of the U.S. military in Germany, Djibouti and Dubai; and I would

like to give some examples.

We have dealt with the U.S. Navy for over 2 decades in Dubai.

We have allowed the U.S. Navy to station an officer 24/7 in our

control tower, which is highly unusual. He has a panoramic view

of the harbor and any potential threats.

We allow the U.S. Navy to provide its own security for having

two high-speed gunships that are heavily armed. This is a most unusual arrangement which shows strong commitment and strong

trust.

We have given the U.S. Navy a lease of highly secured land to

stow its cargo and rework its volume.

We have created a high security bunkering operation that is fueling in Djibouti that hosted its first vessel, the cruiser USS Vicksburg, just a week ago. It is a very secure refueling station in the

Red Sea which is highly prized; and, frankly, one of the motivations for building it was the knowledge that the U.S. Navy needed

a facility in the area.

We have hosted over 500 vessel calls in Dubai of U.S. Navy warships.

In Fujairah today we have the main transshipment points for the

U.S. Army’s Afghanistan operations. Cargo comes in on roll/roll off

vessels, and we provide a high security area blocked off by containVerDate 22-MAR-2001 10:47 Sep 16, 2008 Jkt 032987 PO 00000 Frm 00046 Fmt 6633 Sfmt 6633 C:\DOCS\109-100\061002.000 HNS1 PsN: HNS1
43

ers and patrolled by the U.S. Army. We then containerize the rolling stock for movement to Karachi and on to Afghanistan. Whenever battalions change, we go to work to move the cargo efficiently.

We do the same as battalions leave Afghanistan for home.

In the last Gulf War, I personally set in motion the arrangements for the first aircraft carrier to enter the berths of Jebel Ali,

and it solved a major logistic problem because all the crews and all

the supplies have to be moved on tugs and tugboats off shore.

Mr. Chairman, I believe we have distributed some pictures for

the panel and the committee that I have here. I believe they have

been distributed earlier.

The CHAIRMAN. We will ensure that those get distributed.

Mr. BILKEY. Thank you, sir.

Just a quick note on the general shipping trend. The shipping

and ports business is becoming increasingly globalized and consolidated, and DP World is determined to acquire P&O for commercial

reasons based on its strong management team and complementary

geographic fit. It is important to understand that this is a $6.8 billion transaction involving assets all over the globe in 51 terminals

when they are combined with our own present ones. The U.S. operations of P&O—P&O Ports North America—constitute approximately 10 percent of the overall value of the transaction.

It is also important to understand that it has also been our intent to operate P&O Ports of North America as a separately incorporated U.S. legal entity, using its long-standing reputation and

management structure and personnel to the maximum extent possible. As a smaller entity, acquiring a larger entity, DP World

needs the existing talent and expertise of the P&O Ports North

America team to run these operations.

I would now like to try to dispel a couple of myths and try to

establish some facts.

First, we are not acquiring or taking over U.S. ports, as some

people have claimed. U.S. ports are owned by local governments or

port authorities, which is a fundamental fact that seems to have

been totally distorted. Rather, we act as an operator who has a license or a lease to operate a particular terminal within a port. The

terminal operator is responsible for the area within a port that

serves as a loading and unloading transfer point.

Second, the transaction does not involve an outsourcing of U.S.

security, as some have alleged; and I will defer to the Department

of Homeland Security or my colleague from P&O Ports in charge

of security, Rob Scavone on my left here, to describe in detail how

port security operates within the U.S. suffice it to say, security is

a many layered approach, with the U.S. Customs and Border Protection and Coast Guard taking leading roles; and a terminal operator is one piece of a complex picture.

DP World and P&O Ports North America actively participate in

various U.S. government-sponsored initiatives. These programs include:

The Customs-Trade Partnership Against Terrorism;

The Container Security Initiative, which I believe you have heard

about before and to me is one of the ones which should be looked

at with great attention. In fact, the United Emirates was the first

country in the Middle East to join that initiative, and we actually

44

operated with some very unique capabilities that are not in all of

the CSI locations.

The Business Alliance on Smuggling and Counterfeiting;

The so-called ISPS, International Maritime Organization on Port

Security. All our ports are ISPS authorized and regulated.

And the Megaports Initiative with the Department of Energy.

DP World is expressly committed to continuing and, as appropriate, expanding its commitment to these programs.

Third, some people have charged that DP World enforces the

Arab League boycott of Israel. I would like to answer that, as a terminal operator, we do not operate in a capacity that involves us in

boycott issues at all. DP World does not discriminate. DP world is

a global port management company that facilitates trade with

many nations. Our company has long-standing business relationships with all the major shipping companies, including Israeli companies, among our diverse international clients; and actually Zim

Lines is one of our larger clients and a highly valued one.

Further, let me assure you that, consistent with our policy of corporate compliance, the U.S. operations of P&O will fully comply

with both the letter and spirit of the U.S. anti-boycott regulations

to which they are subject. We comply with the laws of all the countries in which we operate.

Fourth, DP World did not obtain U.S. Government approval of its

acquisition of P&O Ports North America, as some people have stated, secretly in the dead of night or without adequate review. This

is a total misrepresentation. There is an explicit process administered by the Committee on Foreign Investments in the United

States, CFIUS, which we have all been talking about, mandated by

Congress and the Defense Production Act and by Department of

the Treasury regulations. In point of fact, CFIUS actively reviewed

the transaction for almost 3 months.

DP World first met with CFIUS staff on October 17, 2005. Two

weeks later, we held a face-to-face meeting with certain key CFIUS

member agencies, including the Department of Homeland Security,

Custom and Border Protection, Coast Guard, Department of Justice

and Department of Commerce. We provided detailed information on

the proposed transaction to CFIUS, which had already commenced

its review and analysis of the transaction.

We subsequently met on December 6th, 2005, with all member

agencies of CFIUS. This was not required. It was suggested, and

we readily said we would like to do that. I personally flew in from

Dubai to participate in that meeting with our Senior Vice President

for Operations for Europe and the Americas and our senior officer

responsible for overseeing security.

Further, during this period, the transaction received considerable

coverage in the press in the United States and Europe.

We filed CFIUS notification in December 15, 2005; and CFIUS

commenced a 30-day review, as required by statute. During the

course of that review, CFIUS asked us to memorialize certain undertakings we had voluntarily made in our notification, as well as

others at their request. These letters formed the Letter of Assurances dated January 6th.

Among these undertakings were seven additional express and legally binding commitments that were absolutely unique to our

45

transaction. We did not object. We looked at them. We thought

that, well, this is a little excessive, but it didn’t make any difference to us. If this is what people wanted, fine, it wasn’t going

to affect our business.

Based on this review and the Letter of Assurances, on January

17, CFIUS issued a formal letter of no objection, completing its

CFIUS review and allowing the transaction to proceed.

I think it is important to understand that in reliance on the U.S.

Government’s clearance, DP World took the necessary legal steps

required under the UK takeover laws to complete its purchase of

P&O on a global basis.

In conclusion, I respectfully submit that DP World is a company

that in good faith sought to comply with all applicable U.S. legal

requirements and, having been told by the U.S. Government that

we met those requirement, now find itself in the position of being

told that was not good enough.

Nonetheless, we fully recognize that there are now concerns in

Congress and among the public about DP World’s acquisition of

P&O’s terminal operations. DP World has therefore voluntarily

acted to assure people that the security of the United States will

remain strong. Specifically, on February 26, we voluntarily issued

a legally binding ‘‘Hold Separate Commitment’’ under which the

management and control of P&O’s North American operation will

be held in suspension without direction or control in any way from

DP World until May 1st, 2006, in order to allow additional review

of DP World’s acquisition of P&O Ports North America.

In addition, at the same time, we requested CFIUS to conduct

a review, including a full 45-day investigation of the acquisition.

We stated we will abide by the outcome of that review.

The Hold Separate Commitment contains a number of specific

obligations, including maintaining P&O Ports North America’s current management and having a U.S. citizen serve as its Chief Security Officer for P&O Ports North America, as is the case today with

Mr. Rob Scavone on my left.

We are confident that further review by CFIUS will confirm that

DP World’s acquisition of P&O’s U.S. operation does not pose any

threat whatsoever to America’s safety and security.

I would like to say if there is any good to come out of this experience, perhaps it is that both Congress and the executive branch

will take a closer look to upgrade port security and increase funding for these efforts. DP World strongly encourages such efforts and

looks forward to working with you to achieve them.

I firmly believe that the security of our country, the United

States, is well served and, in fact, enhanced on numerous levels by

allowing this transaction to go forward and working with DP

World’s global 51-terminal network as a responsible partner in securing security at home and abroad. Especially for us, we could

never afford to have a bad security incident. Security is everybody’s

business.

I thank you, Mr. Chairman and the committee members.

The CHAIRMAN. Thank you, Mr. Bilkey.

[The prepared statement of Mr. Bilkey can be found in the Appendix on page 146.]

46

The CHAIRMAN. Is it Mr. Scavone? Is that the correct pronunciation.

Mr. SCAVONE. Scavone.

The CHAIRMAN. Thank you, sir. For being with us today. I understand you are the officer in charge of security for the company

which is making a transfer.

Mr. SCAVONE. Yes, sir. The company that is being acquired.

The CHAIRMAN. Company being acquired. And pull that mike a

little closer there if you could.

STATEMENT OF ROBERT SCAVONE

Mr. SCAVONE. Mr. Chairman and members of the committee, my

name is Rob Scavone. I am Executive Vice President of P&O Ports.

I will take just 2 minutes to reference the main points in my submitted written remarks.

The CHAIRMAN. Without objection, all your written statements

will be taken into the record.

Mr. SCAVONE. As the person responsible for our company’s security, of course it is my business to know how it works on the

ground inside our terminals. I also know that the way our security

works is not going to change if control of our parent company

changes hands. I know this not only because DP World has made

undertakings to this effect but also because there is no practical

way to change it in a way that would erode our security.

You may have seen that when security experts are queried on

this question, the overwhelming majority agree with that assessment. Here are some reasons why.

Even after control of our parent company in London changes

hands and the current 45-day review period has lapsed, the P&O

organization in the U.S. will remain in place. DP World has committed to retaining the existing managerial staff and to involve the

U.S. Government in the event any replacements are appointed in

the area of security.

Inside a terminal, only longshoremen perform any physical work

on containers. We employ approximately 6,000 every day. Therefore, the same people who manage these responsibilities for us now

will be the ones who do it next month and the month after that.

These functions are not directed from abroad, nor are they electronically accessible from abroad, and that is not going to change.

The Coast Guard and Customs continue to be responsible for all

security measures relating to the entrance of persons or goods into

the United States. Those agencies maintain a presence in the ports

and work with port and local police. Our terminals work in close

corporation with those authorities every day.

The statement that the security of our ports is being outsourced

is simply not the case. It is not outsourced now, and nothing will

change if our ultimate ownership changes hands.

In conclusion, I would like to add that the continuous improvement of the security of our supply chain across the globe is a goal

toward which I personally work with industry colleagues—including such persons as Mr. Flynn, who spoke earlier—every day. In

so doing, we wrestle with the means to improve areas we feel be

are not yet where we need to be; and I can say with certainty that

47

none of those areas have anything to do with which port operating

company happens to own P&O Ports.

Thank you.

The CHAIRMAN. Mr. Scavone, thank you.

[The prepared statement of Mr. Scavone can be found in the Appendix on page 156.]

The CHAIRMAN. Mr. Bilkey, thank you for your opening statements; and we will go to Mr. Kline, who is next in line, for questions.

Mr. KLINE. Thank you, Mr. Chairman; and thank you, gentlemen, for being here today.

We just had another panel for the last 2 and a half hours that

discussed security issues in general, maritime security issues; and

some concerns were raised—and, clearly, you wouldn’t be here if

concerns hadn’t been raised—by American people from coast to

coast. Specifically, it was suggested that we ought to be concerned

with the new ownership about issues revolving around personnel,

security planning execution and cargo. In your statements, you

have addressed those to some extent. Both you, Mr. Bilkey and

you, Mr. Scavone, have talked about those. But let’s play a scenario

here.

It has been suggested by some of my colleagues that the owners,

whoever owns this, the ultimate owner, would have access to all of

the security plans and would be involved in the security planning

process and that should cause us some concern. Can any one of you

address that specific issue, the ultimate ownership, Dubai, UAE,

being involved in or having access to the security plans at an

American port?

Mr. SCAVONE. I would be glad to, Congressman.

First of all, of course, the ports themselves, which are managed

by, in a typical case, port authorities have a port security plan to

which we do not have access.

Mr. KLINE. You do not have?

The CHAIRMAN. Can you pull that microphone a little closer? It

is worthwhile to go back over that because that is important.

Mr. KLINE. I am coming from essentially no knowledge in how

port security works. So P&O now operating these American ports

has no access to security plans? Explain how that can be.

Mr. SCAVONE. I will explain in a little more detail. The ports

themselves, the port property and the area by the port, is typically

owned by a port authority or some typical government authority;

and the port itself works with the Coast Guard for an area or port

security plan. That would encompass the entire area of the port.

We do not operate the port. Any port would typically—that we have

a facility in, we have by virtue of a lease or a concession.

So take the port of Newark, New Jersey, as an example. There

are five container terminals, any number of break bulk terminals,

barge terminals, terminals of all sorts; and one of those is leased

by us in a joint venture with another partner which happens to be

Maersk Line, the Danish shipping company.

The Coast Guard requires that, as part of our contribution to the

layered approach to security, that we develop a plan primarily for

access control in and out of that, the perimeter of our terminal.

That has to do with access of persons, vehicles or cargo.

48

We develop the plan. We submit it to the Coast Guard. The

Coast Guard reviews it, either comments on it or approves it; and

then it is settled. We—our terminal in Newark actually happens to

be the very first plan that the Coast Guard ever approved in the

Nation.

The plan relates exclusively to measures such as that. They are

not actually not unlike the security measures you might expect any

common industrial facility to have with access controls, the difference being that the Coast Guard has the right to audit those

plans and to enforce your compliance with those plans, up to and

including shutting you down if they don’t believe you are properly

observing these plans.

Mr. KLINE. Thank you. I am going to have a red light here shortly.

Let’s talk about personnel for just a minute. The assumption of

concern is that we are in a war with radical Islamic fundamentalists and there may be some sympathy somewhere in Dubai or the

UAE, two or three or four or five people who could apparently then

be transferred to one of these ports and put into a place where they

could be—a janitor was suggested or something else—and there

would be a leak in the personnel sieve. Could you address that

issue for us, please?

Mr. SCAVONE. Yes, sir.

First, as has been mentioned, a commitment has been made to

keep the current management in place. Longshoremen are not—we

don’t hire longshoremen. The union hires longshoremen, and they

are sent to us. So we order a complement of workers, and they get

sent to us by the longshoremen. So they are not within our influence.

And DP world, as I said, has made a commitment that replacements of any of the existing management would be vetted in cooperation with the U.S. Government, bearing in mind that unless

you are the facility security officer of the company you don’t have

access to the facility’s security plan that the Coast Guard has negotiated or approved because that plan is kept under lock and key

and the person who has the key is the facility security officer.

Also, you don’t have access to the manifest information or the

electronic information which would tell you what are the contents

of the container. Why? Because we don’t have it. We don’t need it

to do our job. The carrier has it. Customs and Border Protection

has it; and both of those agencies, of course, are present on our terminal. But we don’t have it because we don’t need it. Customs decides what they want to inspect. We give the boxes to them, and

they do what they want to do with them.

Mr. KLINE. Thank you.

Yes.

Mr. BILKEY. Mr. Kline, I just wanted to mention what my colleagues didn’t mention, that to be a longshoreman—and I started

on the docks—you have to be a U.S. citizen.

Mr. KLINE. Thank you; and, Mr. Chairman, thank you. I yield

back.

The CHAIRMAN. I thank the gentleman.

The gentleman from Missouri, the Ranking Member, Mr. Skelton.

49

Mr. SKELTON. Mr. Bilkey, you are the Chief Operating Officer of

the corporation?

Mr. BILKEY. Yes, sir.

Mr. SKELTON. Is there a president of the corporation?

Mr. BILKEY. I am Chief Operating Officer.

Mr. SKELTON. You are the number one.

Mr. BILKEY. No, no, he is the number one; and I want to make

sure I say this on this panel.

Mr. SKELTON. Let’s start over again. You are the Chief Operating

Officer.

Mr. BILKEY. Yes, sir.

Mr. SKELTON. You work for whom?

Mr. BILKEY. The Chief Executive Officer.

Mr. SKELTON. Who is the Chief Executive Officer?

Mr. BILKEY. Mohammed Sharaf, who was educated at the University of Arizona.

Mr. SKELTON. And he lives where?

Mr. BILKEY. Excuse me?

Mr. SKELTON. Where does he live?

Mr. BILKEY. He lives in Dubai.

The CHAIRMAN. What is his citizenship?

Mr. BILKEY. UAE national, sir.

Mr. SKELTON. Is there a board of directors of the DP corporation?

Mr. BILKEY. Yes, sir.

Mr. SKELTON. How many are on the board?

Mr. BILKEY. The board is made up of one person, Sultan Amed

bin Sulayem.

Mr. SKELTON. And that person lives where?

Mr. BILKEY. He lives in the United Arab Emirates, sir.

Mr. SKELTON. So you have the number one, and then you have

one person as the board of directors. Is that it?

Mr. BILKEY. Yes, sir. At the present time.

Mr. SKELTON. There are no other members of the board of directors?

Mr. BILKEY. No, sir, not at the present time. It is planned to

have it expanded when this acquisition is over.

Mr. SKELTON. How long has the corporation only had one member of the board of directors?

Mr. BILKEY. Since its incorporation, sir.

Mr. SKELTON. When was that?

Mr. BILKEY. I am not exactly sure of the date. I could ask my

general counsel, if I might.

Mr. SKELTON. Please ask him.

Mr. DALTON. We will supply that information for the record. We

don’t have that precise information.

Mr. SKELTON. Was it 10 years ago, 15 years ago.

Mr. DALTON. Probably within the last two years.

Mr. SKELTON. It is a new corporation?

Mr. DALTON. Approximately two years old.

Mr. SKELTON. Now please explain to me how the United Arab

Emirates owns this corporation.

Mr. BILKEY. We have a shareholder who created a decree creating the Ports, Customs and Free Zone Corporation (PCFC) and the

two shareholders of that are Sultan Amed bin Sulayem and Sheik

50

Mohammed of Dubai. Sheik Mohammed bin Rashid al-Maktoum of

Dubai.

Mr. DALTON. Congressman, may I clarify?

Mr. SKELTON. That doesn’t help me very much.

Tell me how the UAE owns this corporation, please.

Mr. DALTON. May I respond, Congressman?

Mr. SKELTON. Please.

Mr. DALTON. The UAE does not own those companies. It is

owned by the government of Dubai.

Mr. SKELTON. Mr. Bilkey, how do we know that the people working for the DP World, both at the management level and the operational level, do not pose a security threat?

Mr. BILKEY. Well, sir, we are an international company with an

international management team. We select from the best people

around the world, and our team—at the present time, we have

three Americans, two Britains and Brits, or British, UK gentlemen,

and people from India.

Mr. SKELTON. And what do they do?

Mr. BILKEY. One of them is the general counsel here; and one of

the Americans is the commercial—head of the commercial department. And we have a finance head and an IT head, an HR head

and a corporate strategy head.

Mr. SKELTON. To what countries do they belong?

Mr. BILKEY. Well, the finance head is from the UK, the HR manager is from the UK, the corporate strategy is from India, and we

have a UAE gentleman who actually runs the UAE section of our

business. We are separated into regions, and we have the UAE region, and that is run by a UAE national called Mohammed

Muallem.

Mr. SKELTON. Would you tell us how does the government of

Dubai own the cooperation?

Mr. BILKEY. I am not sure I understand the question. Otherwise,

they are—the Dubai government is the shareholder of the company.

Mr. SKELTON. Is it the only shareholder?

Mr. BILKEY. Yes, sir.

Mr. SKELTON. What type of background checks or other investigations have been conducted regarding potential security threats

for the corporate—people who work for the corporation?

Mr. BILKEY. We follow normal industrial and commercial checks

on all our people; and, in some cases, we put them through separate testing requirements for their capabilities.

Mr. SKELTON. The agreement has been signed, sealed and delivered, is that not correct?

Mr. BILKEY. No, sir.

Mr. SKELTON. It is not a binding contract as we speak?

Mr. BILKEY. Sir, at the present time, we are under the rules of

the takeover regulations of the United Kingdom; and we are advised that tomorrow the court will approve the acquisition.

Mr. SKELTON. So, as of tomorrow, you will legally have their

work in the American ports, is that correct?

Mr. BILKEY. I am going to turn this over, if I may, to my general

counsel, because he has been closest on that.

51

Mr. SKELTON. That is very simple. Will you legally have the work

in the American ports as of tomorrow?

Mr. DALTON. Congressman, may I respond? Because there are

some technicalities to this.

Mr. SKELTON. Tell us about the technicalities, please.

Mr. DALTON. The court decision was rendered today in the

United Kingdom where there was a challenge made by Ellers,

which is a U.S. company. Ellers is a joint venture partner with us

in the Miami operation. They own 25 percent. There has been a

long-standing dispute in the courts in Miami for approximately 3

years. The court in the UK overruled their objections, however; and

they, Ellers, indicated they were going to appeal. The court gave

them leave to appeal to a higher court until 3 p.m. Tomorrow.

We have all confidence that their appeal, if they do appeal, will

be denied and the deal will go forward. We expect it to conclude

some time probably Monday or Tuesday of next week.

Mr. SKELTON. So as of Monday or Tuesday next week, you will

have the legal obligation under the contract to operate in the

American ports?

Mr. DALTON. Yes, sir. But that is also the reason that we proffered to the U.S. Government the Hold Separate Agreement, which

is a binding agreement on our behalf where we have agreed to

allow the current P&O Ports North American management to stay

in place to report to their headquarters in London without any influence being exercised by any senior management in Dubai or any

other management in Dubai.

Mr. SKELTON. Well, lay that aside. The contract will be binding

then Tuesday, am I correct?

Mr. DALTON. That is our best estimate, yes, sir.

Mr. SKELTON. So, as I understand it, your corporation will not

take over the duties for 45 days, is that correct?

Mr. DALTON. Sir, we have——

Mr. BILKEY. Until May 1st, sir, is what we committed in our

offer.

Mr. SKELTON. But, nevertheless, it is a done deal as of Tuesday,

am I correct?

Mr. BILKEY. As far as the acquisition, we have to—at that time,

we have to mail out $6.8 billion to the various shareholders. That

was the commitment that we made when the offer went unconditional.

Mr. SKELTON. What is the purpose then of the 45-day waiting period?

Mr. BILKEY. Well, we agreed not to take any management initiatives whatsoever. In fact, we weren’t planning to do them anyway.

We are very satisfied with the management that is here. But we

have agreed that we will in actual fact have no intercourse whatsoever on any management deals with the present operation in the

P&O Ports North America and the Northern American assets.

Mr. SKELTON. For 45 days?

Mr. BILKEY. No, until May 1st, until this 45-day process should

go forward.

Mr. SKELTON. What is the purpose of this May 1st date? Legally,

it is a done deal, is it not?

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Mr. DALTON. Congressman, if I may, what we agreed to and proffered to the U.S. Government, I want to emphasize that we proffered this offer voluntarily.

Mr. SKELTON. I understand that. But the deal is done. As of

Tuesday, the deal is done, is that correct?

Mr. DALTON. We hope so. We believe so, unless the appeal goes

forward.

Mr. SKELTON. I understand that. If the deal is done, why the

May 1 date?

Mr. DALTON. Sir, we are trying to respond as a good corporate

citizen to the concerns of Congress and the American public; and

we thought that an offer of reviewing this for an additional 45

days, despite the fact that we had already gone through the CFIUS

process, would be a worthwhile exercise to enhance the attention

to be paid on security.

Mr. SPRATT. Counsel, I don’t understand.

Mr. Chairman, thank you.

Mr. WELDON [presiding]. I thank the gentleman.

The gentleman from New Hampshire is recognized for 5 minutes.

Mr. BRADLEY. Thank you, Mr. Chairman. I would like to follow

up on Mr. Skelton’s questions. If I understand this voluntary arrangement until the 1st of May correctly, there is a second review

period by CFIUS. My first question is under the second review are

there the potential of more conditions being placed on this deal

that you might find acceptable or you might find unacceptable?

Mr. DALTON. Sir, we would be happy to entertain any other conditions that would be reasonable as long as it is applied equally to

our competitors in a business environment. I want to emphasize we

will abide by the CFIUS decision that comes out of this 45-day review.

Mr. BRADLEY. So you would accept any and all conditions provided they are a level playing field with your competitors?

Mr. BILKEY. Absolutely, sir.

Mr. BRADLEY. What if CFIUS objects on second review to the

operational security arrangements that are in this deal? What recourse then does the United States Government have if the second

review doesn’t recommend final approval?

Mr. DALTON. Sir, it is our firm belief we have complied with all

of the United States requirements and have, in fact, gone beyond

them. I really don’t want to speculate at this time what the reaction would be. We would have to see what comes out of the CFIUS

process and then be able to react in an informed fashion.

Mr. BRADLEY. So you have no answer to that question, if there

were unacceptable conditions, our objection, of what recourse you

might take?

Mr. BILKEY. We are very optimistic and hopeful it will allow us

to go forward and explain to everybody that we are not a security

risk, and especially we don’t plan to make any changes in what exists today, which is now what is in place is fully acceptable. What

do I think is the ultimate way that there should be in security? As

we heard earlier today, I think security can be improved tremendously if you push the borders out in a way that—the CSI, Container Security Initiative, into the port. That is why we were very

serious when I said we are going to operate 51 terminals around

53

the world. We would like to see those type of initiatives in all our

ports.

We actually have been trying to push for one in the Dominican

Republic. We have a brand new port down there about 30 miles

east of the Dominican Republic where there is transshipment business and import/export business from the U.S., and we want it to

be in a CSI place, and there has been long, long delays to it. This

is a perfect place.

And one of the reasons that we are interested in this, as are all

people in the terminals, is today’s security actually is a big marketing tool. All the main and large shipping lines, they want to make

sure that they are going to secure places, and if they don’t think

so, they are not going to come to your terminal.

Mr. BRADLEY. One last question, Mr. Chairman.

What if there were in the second review process disputes over

personnel, security procedures, operational procedures that you

found unacceptable, and you indicated before in my previous question, anything reasonable that you would accept, and then you

went on to say as long as they were applied uniformly to all your

competitors. There may not be the opportunity to go back and

apply them to some of the other competitors without breaking contracts. What happens in that case?

Mr. DALTON. Congressman, I think we need to emphasize in a

number of our locations in the United States we have joint venture

agreements with a variety of partners, and there are contracts involved there as well. So we really would have to wait for the review

before we can make a firm determination about how that would impact on our business.

Mr. BRADLEY. Thank you, Mr. Chairman.

The CHAIRMAN. I thank the gentleman.

Mr. Marshall is recognized.

Mr. MARSHALL. Thank you, Mr. Chairman.

Sounds to me like you anticipate that the CFIUS process will result in approval once again, the prereview, and that if it doesn’t,

you will wind up suing the United States Government for the $6.8

billion plus I don’t know what else that you are about to spend?

Mr. BILKEY. Congressman, I don’t want to speculate. We think—

we are good international citizens throughout the world. We have

been accepted in the U.K., which has obviously serious security

concerns. We are going to operate the second largest container terminal in the United Kingdom.

Mr. MARSHALL. I only have five minutes, if you don’t mind. I am

just observing that it sounds to me like you are utterly confident

of what the results of this—so confident that you are willing to

gamble $6.8 billion in the next week.

Mr. BILKEY. The U.S. assets, sir, are only 10 percent of the total,

but it is still a large number, about $700 million.

Mr. MARSHALL. But it is a $6.8 billion deal. So you are saying

at risk is only $700 million.

Mr. BILKEY. $700 billion. I keep confusing those two numbers.

Mr. MARSHALL. Small difference.

Let me ask you a little bit about your opening testimony. I sure

wish that I could go back in the transcript or the videotape. You

were reading your prepared remarks, and you got to the point

54

where you were referencing the additional agreements that you

willingly submitted to. You said there were seven of them. At that

point you said rather—I can’t remember exactly what you said with

reference to those seven additional things that you agreed to. How

did you characterize them?

Mr. BILKEY. Well, one of them has to have open books on something, which is not normal in a commercial situation.

Mr. MARSHALL. What exactly was that? I have got the seven in

front of me. It is page 8. Are these seven bullet points on page 8

intended to summarize the seven things you agreed to?

Mr. BILKEY. Yes, sir.

Mr. MARSHALL. I really had the sense as you were testifying that

you not only described it as unusual, but almost felt it was kind

of distasteful for us to have even asked for these things.

Mr. BILKEY. We were happy to agree to what they did. We readily agreed, I think, is the simpler way to put it.

Mr. MARSHALL. Again, I wish I could go back, and I guess eventually I will go back and read the testimony itself, and we do have

all this on videotape. I am just curious because I did have the

sense that you found or were expressing some distaste for those

seven, and the seven referred to security issues.

With regard to the management, the bullet point says to operate

all U.S. facilities to the extent possible with current U.S. management. To the extent possible. Do you know the actual terms of the

deal well enough to describe what that means? Does that mean if

the manager wants to leave? Obviously you can’t compel the manager to stay. Are those the only instances in which you would

change management?

Mr. BILKEY. Yes, except for malfeasance or something like that.

Mr. MARSHALL. Let us assume a manager leaves or is guilty of

some malfeasance or something like that. How do you replace management at that point?

Mr. BILKEY. I would actually turn to the executive vice president

of P&O Ports North American because I don’t know exactly how

they handle it today.

Mr. MARSHALL. I understand.

What happens if the executive vice president is the one that

needs to get fired here?

Mr. BILKEY. Well, we would have to have good cause to fire him.

Mr. MARSHALL. Let us say you do. How do you replace him?

Mr. BILKEY. We would go out and try to secure someone of equally good qualifications.

Mr. MARSHALL. So the ‘‘we’’ would be your company?

Mr. BILKEY. It would be.

Mr. MARSHALL. You don’t have some trustees set up?

Mr. BILKEY. At the present time it would be the management of

P&O Ports North America, which we are not going to be involved

in.

Mr. MARSHALL. The management would be—is it Mr. Scavone?

Mr. BILKEY. The CEO is Michael Seymour.

Mr. MARSHALL. Say you had to fire him; how do you replace him?

Does this only go until May 1st?

Mr. BILKEY. No, sir.

55

Mr. MARSHALL. It continues indefinitely. You will own but not

have control of management.

Mr. BILKEY. I didn’t understand the question. We put this out as

a gesture, Congressman, and we saw the concern, and we wanted

to give a breathing period for people to take other steps if they felt

necessary to show that we are good international citizens.

Mr. MARSHALL. Have you been assured by anybody in the Administration that the 45-day review, the second CFIUS review, will

result in approval without any additional conditions?

Mr. BILKEY. No, sir.

Mr. MARSHALL. And you are willing to abide by any additional

conditions that are imposed?

Mr. BILKEY. As long as it is a level playing field for everybody

else on a commercial basis.

Mr. MARSHALL. So everybody has agreed to conditions that you

have already agreed to. These seven that you expressed some—

your understanding when you agreed to those seven was that everybody doing business in the United States, all your competitors,

have to comply with the exact same thing?

Mr. BILKEY. We didn’t care. We found them acceptable.

Mr. MARSHALL. So what you are saying is that as long as the

conditions imposed by this second CFIUS review is one that you

find to be acceptable or one that is imposed on everyone else, you

will go along with it?

Mr. BILKEY. Congressman, I can’t speculate on that. I am just

saying whatever is put forward that is reasonable and commercially acceptable to all people in our type of business, we will go

along with it.

Mr. MARSHALL. Thank you, Mr. Bilkey. I wish I had more time,

but I don’t. You probably don’t wish I had more time, I understand

that.

Mr. WELDON. The gentleman from Maryland is recognized for 5

minutes.

Mr. BARTLETT. Thank you very much. I would just like to note

that my questions will not reflect, or not necessarily reflect, the extent of either my knowledge or my ignorance. Once this deal goes

through, you will own the Port of Baltimore?

Mr. BILKEY. No, sir.

Mr. BARTLETT. What will you own?

Mr. BILKEY. We will have leases of two terminals, Seagirt Terminal and Dundalk Terminal, and I am going to have to turn to Mr.

Scavone on the details of that, if I may, sir.

Mr. BARTLETT. I am only interested in making the point that you

don’t—you wouldn’t own the Port of Baltimore. You are telling me

you wouldn’t even own anything, simply be leasing some things; is

that correct?

Mr. BILKEY. Yes, sir. I believe one is a management contract, and

that is why I was going to refer to Mr. Scavone, and one is a lease.

Mr. BARTLETT. Do you now have leases in any ports in the

United States?

Mr. BILKEY. I am going to have to ask Mr. Scavone to respond

to that, if I may, sir.

56

Mr. SCAVONE. P&O Ports North America, the U.S. company, does

have a few leases in the United States, some of which are with or

through joint ventures with other partners.

Mr. BARTLETT. How many would a few be?

Mr. SCAVONE. We have a lease in Newark, one in Miami, one in

New Orleans, and Miami is through a joint venture; and one in

Philadelphia, also through a joint venture with Stevedoring Services of America. Everywhere else we are a pure stevedore, or we

do manage terminals with something not quite even as extensive

as a lease. It would be, for instance, an operating agreement, which

is what we have in Baltimore.

Mr. BARTLETT. You stated earlier—would you repeat for us how

many countries in the world you have operations somewhat similar

to this in?

Mr. BILKEY. At the moment DP World is 14. When we collectively put it together with P&O, it will be 30 countries, sir.

Mr. BARTLETT. You will have facilities similar to this in 30 different countries.

Mr. BILKEY. They run a wide variety from the biggest container

terminal in Busan, Korea, to Buenos Aires and Vancouver,

throughout China and Indonesia, the Philippines, Australia, the

Middle East and Europe. It’s a very, very large portfolio of assets

and was a strategic move by ourselves in a consolidating shipping

business where the shipping lines are becoming more consolidated

to be able to offer a better package across the board through these

type of clients.

Mr. BARTLETT. Have you had discussions similar to this at any

time in any other country?

Mr. BILKEY. No, sir. Whenever we go into any country, new country, we normally make our own independent security assessment

on our own. We don’t take for granted what anybody says. This is

just one of the things that we do, and we also hire ISPS-certified

in all the terminals that we operate in.

Mr. BARTLETT. Do you know how many ports in our country have

arrangements similar to those you are making with these ports in

effect now? Do you have any idea what the rough number is?

Mr. BILKEY. No, sir, I don’t, not anymore. I have been away for

a long time.

Mr. BARTLETT. We asked Congressional Research Service (CRS)

to get this information for us, and there are more than 90 ports in

our country that are operated by entities from other countries similar to yours.

If, sir, you could turn back the hands of time, you had this all

to do over again, what would you do differently relative to this contract so we wouldn’t be sitting here today? It would have been nice

to make this public. That wasn’t your responsibility, I know, but

don’t you think if this had been made public and we had these discussions in a calmer environment, it might have been more productive?

Mr. BILKEY. When we went through and started early on in October, I can tell you that I personally and my colleagues—I don’t

want to start the process that early because one of the important

things in this type of acquisition is to try to keep it out of the press

and to keep it quiet until you make your official offer. And I was

57

very nervous about putting information out in Washington because

I thought it would become public too quickly, and then we knew

we were going to have other people who were going to compete for

this very, very attractive portfolio. But I was convinced by others

that this was kept confidential.

And we started on October 17th, I believe, and it was our belief,

because we took so long, and I came personally here with a team

of people to interview the various agencies—frankly, we thought

they would take care of any necessary liaisons that were necessary

within the government, and we were trying to do everything possible to make this happen because one of the reasons we started

early—the two ones that had the most largest requirements, specific requirements, were Australia and the United States. So we

started those very early because we wanted very much to be able

to go and make our offer unconditional as quickly as possible.

When we finally got our permissions, they all came in about the

same time, Europe and Australia and the U.S., we then made our

offer unconditional. And when you make it unconditional, your

money is sitting in the bank, and it is in escrow. We aren’t mailing

out the money to the shareholders yet, but we don’t have control

of it anymore. The takeover procedures do.

That is why we started, and we actually thought that—in hindsight it obviously was an incorrect thought, and some might even

say naive—but we were dealing with the U.S. Government, and the

U.S. Government said it is okay, and to us, we’d been doing it for

3 months, so we said, wonderful. And actually when we went—we

actually publicized the fact that we went forward and went unconditional. It went down the wires. It had to be known throughout

the United States also.

Mr. BARTLETT. Mr. Chairman, I would like to close with a quote

from Ronald Reagan that our panelists might find instructive. You

were talking about working with our Government. He said, when

you get in bed with the government, expect more than a good

night’s sleep.

Mr. WELDON. Thank the gentleman.

We have completed the first round of questioning and will move

to a second round. The gentleman from North Carolina is recognized.

Mr. JONES. Mr. Chairman, I will be brief. I came here for the

next panel.

I want to say to Mr. Bilkey I am sorry I didn’t get here early on,

but you said to Mr. Bartlett’s question whomever you talked with

at the U.S. Government said everything is okay. Who did you

speak to that said it is okay? You might have discussed this earlier.

I apologize.

Mr. BILKEY. That was done through our counsel here.

Mr. JONES. I am not going to hold you because, again, I came

here for the third panel, but I will tell you that I represent an area

where this is not your doing or your fault, in my opinion. This is

the fault of the Administration, this is the fault of the process. It

just has not worked the way I think the American people feel like

it should work.

In 2 days I had 127 phone calls. That is not a lot out of my district of people, but, again, it is 127 phone calls that people took the

58

time to call, and only 6 were in favor of this arrangement. I mean,

I had people that professed to be Republican, I am a Republican,

and they are just outside of themselves, irate.

And again, I don’t fault you, I don’t fault your company or the

people that you represent, but I will tell you that this is an issue

that maybe has galvanized the American people to understand that

we are selling America out, and it is time to stop. And again, I am

not pointing this to you or to this panel, but I will tell you, Mr.

Chairman, I thank God that this happened the way it did because

maybe we can save America before we become a second-rate economic Nation.

Thank you.

Mr. WELDON. I will thank the gentleman.

Second round. I yield myself 5 minutes. We thank you for your

testimony. You all are aware that you are considered under oath

here when you are testifying before the Congress, correct? You are

all aware of that.

Let the record note they nodded yes.

If I read, Mr. Bilkey, your statement and comments, the reason

why you didn’t feel it was necessary to go to the Congress was because, one, there was no requirement of that, and because you felt

you were following the instructions of our Government, and that

the deal was pretty straightforward; you make the offer, go through

the CFIUS process, it is a done deal. Is that correct?

Mr. BILKEY. Yes, sir.

Mr. WELDON. Then I have to ask you a question. Why did you

hire lobbying firms? I would like to know for the record who you

hired. Would you tell me what firms were hired and who were the

principal players that you were involved with? I assume you were

involved with that effort.

Mr. BILKEY. In the effort that we did the CFIUS process, I am

going to turn this over, if I may, to Mr. Dalton, our general counsel,

but we only dealt with the firm Alston & Bird.

Mr. WELDON. That is the only one?

Mr. BILKEY. You are talking about the CFIUS process.

Mr. WELDON. You obviously employed counsel in this city and

public affairs firms and lobbyists, and I assume you hired them for

a reason. Now, you have just told us——

Mr. BILKEY. Excuse me, sir, do you mean now or when we first

started the CFIUS process?

Mr. WELDON. The whole process, now and then. I would like to

know who for the record was hired.

Mr. BILKEY. Fine, sir.

Mr. DALTON. We retained the firm of Linkletters, a U.K.-based

law firm, very reputable one. Here in the United States we worked

with Alston & Bird in their office here in Washington.

Mr. WELDON. Those are legal firms?

Mr. DALTON. Yes, sir. From, as you call it, a lobbying standpoint,

the reason we found it to necessary to turn to certain firms, I understand that has been reported fairly widely in the press, because

we felt our company, which had followed all the U.S. processes and,

in fact, relied upon those processes in lifting our conditions precedent as well as the other regulatory filings that we had done at a

59

number of locations throughout the world, we had relied on that

process, and we found ourselves in a difficult situation.

Mr. WELDON. You just said everything was going well up until

this process became public. Why would you have to hire those firms

in the past?

Mr. DALTON. Congressman, we hadn’t hired them in the past. We

did hire firms after our CFIUS process had been approved and the

conditions listed.

Mr. WELDON. Who were they?

Mr. DALTON. It was a Downey & McGraff firm. Jonathan Weiner;

Chip, I am not sure of the last name, Andrae. I believe his name

is spelled A-N-D-R-A-E. I would have to check if there are others.

Mr. WELDON. Was the Albright firm hired?

Mr. BILKEY. I can answer that, sir. The answer is no.

Mr. WELDON. Never any employment with the Albright firm?

Mr. BILKEY. They worked on our behalf in China. We had some

China assets that needed some help.

Mr. WELDON. Was there any discussion from former President

Clinton with any of you or the leadership back in the Emirates

about this potential deal?

Mr. BILKEY. Not with myself.

Mr. WELDON. I said are you aware of any discussion.

Mr. BILKEY. Yes, I am aware of a discussion.

Mr. WELDON. So there was a discussion by the former President.

Who was that with?

Mr. BILKEY. It was with our chairman Sultan——

Mr. WELDON. About this particular deal?

Mr. BILKEY. Yes.

Mr. WELDON. Was there a recommendation that you retain a

former spokesman by the name of Joe Lockhart?

Mr. BILKEY. Yes, sir. That is my understanding.

Mr. WELDON. Why did that not take place?

Mr. BILKEY. The firm turned it down.

Mr. WELDON. Why would you feel it necessary to hire people of

that caliber when you testified to us this was a normal deal, that

you were abiding by all the laws, there was no need to tell the Congress, you certainly didn’t need to tell us because it wasn’t controversial? Why did you need to hire people of that caliber, whether

Republican or Democrat? The people you cited here are from both

parties.

Mr. BILKEY. Sir, none of those activities started until the last two

weeks.

Mr. WELDON. You mean the last two weeks from today?

Mr. BILKEY. Yes, sir. When we suddenly saw that there were

concerns being expressed throughout Congress and in the U.S., we

saw that we would need some help. We think we are good citizens.

We are very, very proud of our record, and we obviously—something had gone wrong, and we didn’t understand what had gone

wrong, so we went for help. Because we are a firm of high integrity, we try to get the very best we could.

Mr. WELDON. When was the discussion between the Sultan and

President Clinton about this deal? Was that in the last two weeks?

Mr. BILKEY. I don’t know.

Mr. WELDON. When do you think it was?

60

Mr. BILKEY. Within the last two weeks.

Mr. WELDON. That discussion just took place in the last two

weeks.

Mr. BILKEY. Yes. To the best of my knowledge. All I know was

there was a call.

Mr. WELDON. The gentleman is recognized, the Ranking Member

Mr.—I am sorry, Mr. Spratt.

Mr. SPRATT. Thank you for your appearance here and for your

testimony. Let me just follow it up by saying if I am plowing old

ground, it was because I stepped out of the room a minute.

I just wanted to clarify one thing for the record. You heard the

testimony of Mr. Flynn, who suggested that this occasion, this opportunity, should be used to be the basis for a comprehensive global container inspection system that scans the contents of every single container destined for America’s waterfront before it leaves a

loading port. He said that the technology was in hand for doing

that, and it might include both scanning radiation detection and

maybe some radio frequency electronic identification that would go

along with it, and all of this could be done by levying a fee, provided it was done everywhere, levying a fee per container.

You have been in the this business for a long time. You know the

ins and outs, what works, what doesn’t. In your opinion, is this feasible; is this the basis for some kind of a deal?

Mr. BILKEY. Well, the general question—I am not sure specifically how it applies to us. I mean, I would like to have it apply to

us in all our locations, which is this CSI. Yes, the technology is

available, and we actually make our own initiatives sometimes.

I would like to see—there are now 42 CSI locations—container

security initiatives where U.S. Customs are put on the ground. It

actually pushes the borders of the U.S. out into these locations, and

this is one of the best ways.

And the technology is there for these high-speed what they call

NII, nonintrusive inspections, and that has been the big bottleneck

of the present style of inspection equipment, the present inspection

equipment that actually can look in a container. And I have sat in

these booths and watched it go through, and it is completely reliant

on the operator, and we have them in Dubai, but they are very

slow. That is why you only get 5 percent that are actually inspected, because it is so slow.

This new equipment, and there is probably going to be better

technology coming, but right now it would be a vast improvement.

This present equipment can handle 400 trucks an hour in this pilot

program in Hong Kong, and not only does it scan the box, it inspects it for radioactive, but it stores the image, and that image

can be transmitted to the center, the customs center, here.

Mr. SPRATT. Does it have to have a portal where it can be inserted inside the container?

Mr. BILKEY. No. The container drives through at almost normal

truck speed, and it captures the image, and that image can be

transmitted. Now, if you have the CSI locations set up as we do

in Dubai—and we actually are out on a global request for proposal

(RFP) for NII equipment to start installing it, because security

stuff like this is good business for us. It is a marketing tool for us,

and beside that, it brings safety.

61

At the present time if I could have a perfect world, I would have

these in every port where U.S. goods pass through either directly

or indirectly through transshipment. And in Dubai we have a very

unique arrangement with Customs. Customs can actually ask for

a transshipment box today. Let us say something came from Karachi. We supply them with the whole manifest of the ship, and if

they don’t like a box that says ‘‘garments’’ and think it might be

something else, they can instruct us, and we have the legal right

to take that out of the ship, put it on the ground, and U.S. Customs

will inspect it. We don’t inspect it for them and say it is okay; they

inspect it.

With NII equipment in place in places around the world, I would

also do it a second time. I would do it here. And there is equipment

now in some U.S. locations. Rob Scavone would be able to address

that better than I. But there is some of this equipment now coming

on stream in U.S. ports, and this, to me, is a no-brainer and should

be globally, not just for the U.S., but for all sorts of places, and a

lot of people are taking initiatives.

One of our competitors, and they are a very good competitor, has

a pilot program going in Hong Kong, and we are looking at them.

We live right next to them, we have a very large terminal right

next to them in Hong Kong, and we are actually looking at it, and

there is a great discussion of how we are going to implement it and

who is going to pay for it. But if there is enough initiative and

push—most of these international security initiatives have come

from the U.S., which is great, and I would like to see more of it

pushed. We are in the business of security. If there ever was a company, the responsible large global terminal operators.

Mr. SPRATT. Do you think it is feasible to fund it by levying a

fee on each container or each shipper?

Mr. BILKEY. Excuse me for smiling, sir, but this is starting to be

tried actually in some places in China, and there has been some

resistance to it because you are going to charge the ship, and the

ship is going to charge the cargo interest. I think if it comes universally, everybody is going to be in the same playing field and pay

it. I think it could be done, and I hope I don’t get myself in trouble

with a lot of our large customers by suggesting something like this,

but I think what we are really interested in is in security and safety, and I think this type of initiative should come and be pushed,

and we would not only be a backer, we would like to be a participant.

Mr. SPRATT. That is my last question. You have got 6.8 billion

invested in this deal?

Mr. BILKEY. Yes, sir.

Mr. SPRATT. A lot of money even to the Emir of Dubai.

Mr. BILKEY. Sir, we did this on our own balance sheet. So, yes.

Mr. SPRATT. Do you worry about port security, about the security

of your assets?

Mr. BILKEY. All the time, sir.

Mr. SPRATT. Under the present circumstances?

Mr. BILKEY. We continually address security issues. We operate

in some very tough places, and we are also, as I mentioned earlier,

trying to get CSI, which has been in active discussion with the Dominican Republic. We hope that would happen tomorrow, and we

62

would get the gear installed and get it up, but from the best of all

worlds, from the day you say yes, it is a 6-month deal probably.

Mr. WELDON. The gentleman’s time has expired.

The gentleman from New Jersey.

Mr. LOBIONDO. Mr. Scavone, when talking about the facility security officer, you said that that is the only person who has access

to the port security plans, and not the operator of the terminal.

Mr. SCAVONE. That is correct, sir.

Mr. LOBIONDO. At Port Newark who employs the security facility

officer?

Mr. SCAVONE. That would be Port Newark Container Terminal,

also know as PNCT, which is the joint venture that we participate

in.

Mr. LOBIONDO. So that facility security officer that you partially

hire has access to those sensitive port security plans?

Mr. SCAVONE. Yes, sir.

Mr. LOBIONDO. If, in fact, this all were to go through, then the

new owner that is buying the operation, that would still be hiring

or partially hiring at Port Newark that facility security officer?

Mr. SCAVONE. The understanding is that the current manager

will remain in place, and that any replacements to those individuals as in the natural course of things they perhaps leave or get

promoted or otherwise are removed from a position would be—

would require prior approval from the U.S. Government before a

replacement is made.

Mr. LOBIONDO. For the facilities security officer.

Mr. SCAVONE. Yes, sir.

Mr. LOBIONDO. What I was getting at, I don’t remember the

name of the Member who initiated the questions or how you first

got into that, but that basically your corporation or the new owner

would not have access to the port security plans, but that in this

case would not be true. They would actually have access to those

plans because they are your employee or the employee of Dubai

Port World.

Mr. SCAVONE. I do believe that as part of the commitment that

was made during the CFIUS process, it was agreed that the formal

protocols that are in place would remain in place, and that none

of that information would leave the country, as indeed happens

now. For instance, our London office does not have copies of our facility security plans. They have never asked for them. They make

no attempt to get involved in the way we manage security on the

ground.

Mr. LOBIONDO. Your company does not, but in the case of New

Orleans, it would be 100 percent ownership, Mr. Bilkey—would be

100 percent ownership if this goes through.

Mr. Scavone.

Mr. SCAVONE. Bearing in mind that what is being bought is P&O

Ports in the U.K., which, through several corporations, owns P&O

Ports North America, which is a U.S. company with U.S. employees

that pays U.S. taxes, that is going to remain intact. It is similar

to——

Mr. LOBIONDO. I understand. The point I am getting to which we

are trying to ascertain when we are talking about the security end

of this is that, in fact, those port security plans would be available

63

to the parent company, in which case they would be available to

the Government of Dubai. And somebody is shaking their head behind you. If that is not true——

Mr. SCAVONE. It is not true, sir, and I do think that during the

additional 45-day review process, those are exactly the type of details that perhaps can be examined, and indeed if anybody believes

that the measures that have been agreed have any vulnerability,

perhaps that is something that perhaps we can talk about. But the

intention is that that not, in fact, be the case.

Mr. LOBIONDO. That is part of our problem. We are trying to sort

through what intentions are, what is been decided and agreed to,

and what the Congress has access to, and there is a wide variation.

Mr. Bilkey, I would like to know, I read a report that Dubai has

imposed a boycott on Israel. Did I, in fact, understand that accurately, that that is the case?

Mr. BILKEY. The government of Dubai is just for the emirates,

sir.

Mr. LOBIONDO. Is there a boycott with dealing with Israel?

Mr. BILKEY. Well, sir, I am not someone who can speak to state

matters, and that is a UAE matter, but what I do know that is

going on right at this time is that there is a—fair trade negotiations are going on between the UAE and the United States Government, and I am sure this is going to be one of the issues that they

will be discussing.

Mr. LOBIONDO. I understand. I thought I read from your Senate

testimony though that that boycott is in place or being honored by

United Arab Emirates. I read wrong, you didn’t say that?

Mr. BILKEY. I didn’t quite understand the question, sir.

Mr. LOBIONDO. Sorry, Mr. Chairman, a little frustration here

trying to communicate.

I believe that I read in your Senate testimony—you did indeed

testify for the Senate, correct?

Mr. BILKEY. Yes.

Mr. LOBIONDO. That there is a boycott in place with Israel?

Mr. BILKEY. For cargo from the United States, the United Arab

Emirates puts it in, but it is not something we are involved in, sir.

We are involved in the terminal business, and we obey the laws of

any country that we are in.

Mr. LOBIONDO. But with government involvement, that is where

our—we can’t separate some of these issues because with Israel as

our most reliable partner in that part of the world, some of us view

that if there is, in fact, a boycott, that something like the deal we

are talking about is in effect ending up subsidizing a boycott, and

that is where we have got a serious problem and where this is coming down. You probably can’t answer if it were one of the conditions after the 45 days that there not be anything like a boycott,

how you would react to that condition, but that will certainly be

one of the questions that we will be asking.

Mr. BILKEY. Yes, sir. I know this is a matter of concern, and with

the Chair’s permission, I would like to read some excerpts and put

this letter in the record, if I may.

Mr. WELDON. Without objection, it will be entered in the record.

[The information referred to can be found in the Appendix beginning on page 205.]

64

Mr. BILKEY. Thank you, sir.

This is a letter to my CEO and from Idan Ofer, who is the chairman of the board of the largest Israeli shipping company: I wanted

to take a moment to express my complete dismay at the way your

fine organization is being pilloried in the United States. As you

well know, Zimm Israel considers DP World to be one of our closest

global allies.

I am going to skip the middle of it where they operate with facilities.

They are one our largest customers in many parts of the globe.

I sincerely hope this unnecessary political storm will cease so we

can all focus on the business of providing the world safe and efficient shipping services. We truly look forward to working with you

in the U.S. where I know we will enjoy the same great relationship

we are in the rest of the world. Until then, I would like to extend

an offer to help you in DP World any way we can.

Mr. LOBIONDO. I appreciate that letter, and I will look forward

to getting my hands on it and seeing it, but that individual still

isn’t answering the question about the boycott. And if, in fact, it

is real, and if it is real, because it is United Arab Emirates and

you are a part there, that is what is causing agitation on our part.

Mr. Chairman, I thank you very much.

The CHAIRMAN. The gentleman from Washington Mr. Larsen.

Mr. LARSEN. Thank you for being here.

On your hold separate commitment, the last page before the signature page, it says, this hold separate commitment shall take effect from the date, and so on; remain in effect until May 1st. In

other words, your time line is May 1st or when the new review is

done. Has the new review started?

Mr. BILKEY. May I give this to my general counsel?

Mr. LARSEN. Absolutely.

Mr. DALTON. No. We had been preparing the CFIUS application

that will be going in very shortly, perhaps as early as tomorrow.

Mr. LARSEN. Does the clock start then?

Mr. DALTON. That is my understanding. My understanding is the

process has to be accepted by CFIUS first.

Mr. LARSEN. Let me give you the cheapest piece of advice you are

going to get. Last week we were out of session, and the announcement came out that the CFIUS review was completed, and you

were approved to move forward, and we were in our districts for

a full week hearing from our constituents, e-mails, phone calls, letters, getting our dander up. If I count 45 days from tomorrow or

even early next week, I think we are out of session again.

The cheapest piece of advice I can give to you is if there is an

announcement one way or the other, don’t have us be out of Washington, D.C., because we are going to be through this all over

again. We have to talk to our counterparts in the Administration

when they come through as well to get our point across about this

process, about the CFIUS process, and that is not your problem,

that is the Administration’s problem. But we could be going

through this all over again in 45 days.

So I would strongly suggest that it is in everyone’s advantage for

Congress to be in D.C. when any announcement is made on this

new review. Otherwise, we are going to come back to this place if

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it comes back in an approval, and we don’t feel like we are going

to be involved, we are going to be through this all over again. That

is free advice. That is why it is so cheap.

I have some questions for you. You mentioned that you had a

U.S. Government agency as a point of contact. Which agency is

that, and who is that, who within that agency? Perhaps Mr.

Scavone mentioned that.

Mr. SCAVONE. Yes, Congressman, I was the one who said that,

but, of course, I was reciting what I understand the agreement to

be with DP World under the CFIUS process. I do think that that

is exactly, again, the type of detail that perhaps should be buttoned

down during the next 45-day review process so that it is to the satisfaction of everybody.

Mr. LARSEN. Probably a question we should ask the next panel.

Mr. Bilkey, you talked about your going out with an RFP, may

have been RFP or R5 of some sort, about applying some NII technology to your terminals. What is the time line on that?

Mr. BILKEY. Well, I am looking at it here. It actually took place

long before any of this happened. The date on this is September

19th. We are now considering three different offers that we have

had, and we would hope to make our decision, I am sure—I have

a day job, and it is a fairly big one, and I haven’t been paying a

lot of attention to it, and I hope they keep me employed. But we

are hoping to do this—certainly within the next month we would

be making decisions, because it is not an immediate process, and

it takes from the day we say go—and where we are going to start,

we would like to start a pilot program in the Dominican Republic,

because that will actually be, frankly, a good marketing tool for us,

but it involves U.S. cargo and U.S. transshipments and would be

a very strong point in the security cycle.

Mr. LARSEN. My time is growing short.

I was in Hong Kong in January and took a tour with Hong Kong

International Terminals on their pilot, and they are putting the

dollars in per container. There is an equivalent per container. It is

coming out of their pocket to do this. My sincere hope is that we

have—perhaps it may take the U.S. to push this, but to push this

kind of thing as an international system for our own sake.

Just quickly, Mr. Chairman, if I could, I am from Washington

State. Just up the highway is the Port of Vancouver. To what do

you contribute the collective yawn in Vancouver and Canada about

your takeover of terminal operations in the Port of Vancouver compared to port operations in the U.S., if you dare to answer that

question?

Mr. BILKEY. We have had no adverse reactions.

Mr. LARSEN. I know. To what do you contribute the collective

yawn in Canada compared to the response here in the United

States?

Mr. BILKEY. I don’t know, and to be frank, since it hasn’t raised

its head, I haven’t paid much attention to it.

Mr. LARSEN. Fair enough. Thank you.

The CHAIRMAN. Thank the gentleman.

The gentleman from New Jersey Mr. Saxton.

Mr. SAXTON. Thank you, Mr. Chairman.

66

Mr. Bilkey, I understand my smart staff tells me that Dubai Port

World has two divisions, one known as the Port Authority, the

other known as Ports International. Is that right?

Mr. BILKEY. I think what maybe had been referred to is Dubai

Ports Authority actually ran the whole operation in Dubai, both the

port authority side and also the operational side. They had an

international division, which I also was in charge of as the executive director of Dubai Ports International. These were merged in

September into DB World because we actually all had the same

customers. I think that is where that——

Mr. SAXTON. Thank you. So there were two separate functions,

and now Dubai Ports World has combined both functions together.

Mr. BILKEY. Yes. But we separated out the regulatory functions

of Dubai Port Authority. Dubai Port Authority is now a separate

body.

Mr. SAXTON. The port authority formerly—apparently the port

authority formerly took part in the Container Security Initiative; is

that right?

Mr. BILKEY. Yes, sir. I am not too familiar because I wasn’t there

when it first happened.

Mr. SAXTON. So today Dubai Port World takes part in the Container Security Initiative.

Mr. BILKEY. Not directly, it is really Customs. And the arrangement is with Customs, and the agreement I know was signed last

January.

Mr. SAXTON. Here is my point of interest—thank you for helping

me clarify that. Here is my point of interest. The U.S. Customs

Service under the Container Security Initiative agreement with

Dubai or the UAE sends U.S. Customs agents to Dubai to inspect—

to do certain inspections, right?

Mr. BILKEY. Yes. Actually to receive the manifests. There is a 24-

hour rule any box anyplace in the world being loaded to the U.S.,

the shipping line has to supply the manifest or the bill of lading

to U.S. Customs before it will be loaded.

Mr. SAXTON. Those inspections are done in cooperation with the

Dubai Customs organization?

Mr. BILKEY. Yes. Yes, sir. If they want to inspect something, they

will advise us, or they will tell us not to load something, and we

don’t load it.

Mr. SAXTON. It is a reciprocal agreement which gives Dubai Customs authorities the opportunity or the right to come to this country to inspect containers that are bound for Dubai; is that right?

Mr. BILKEY. No, sir. It is an initiative really pushing out our borders, so to speak.

Mr. SAXTON. We don’t have a reciprocal agreement with Dubai

that gives them the same authority?

Mr. BILKEY. I don’t know about it if there is one, sir.

Mr. SAXTON. Well, the information that we have is that there is

one, and under that reciprocal agreement, the Dubai Customs authorities would have the right to come to this country and take

part in similar inspections. You have no knowledge of that?

Mr. BILKEY. No, I don’t, sir.

Mr. SAXTON. We got that from our annual Customs report from

2005, and so I am asking you because——

67

Mr. BILKEY. It sounds like it is kind of a normal reciprocal arrangement; if you do it for me——

Mr. SAXTON. So there would be citizens of Dubai potentially to

carry it out?

Mr. BILKEY. If it is there. I am totally unaware of it, Congressman.

Mr. SAXTON. You couldn’t tell us about the people that take part

in this kind of program?

Mr. BILKEY. No, sir, because I am not involved in the Customs

procedures.

Mr. SAXTON. It would certainly concern us, or we would at least

be concerned enough to want to know who would be hired to come

into this country and make those inspections, and so I wonder if

it might be an advantage in your deliberations over the next 45

days or so to look into this and make sure our decisionmakers take

this program into consideration so that we can make sure that that

is not a bone of contention 45 days from now, because obviously we

are going to look into it.

Mr. BILKEY. I would imagine in the CFIUS review that U.S. Customs would be bringing something like that question up.

Mr. SAXTON. Thank you, Mr. Chairman.

The CHAIRMAN. Thank the gentleman.

The gentleman from Georgia Mr. Marshall.

Mr. MARSHALL. Thank you, Mr. Chairman.

Mr. Bilkey, I want to kind of continue on the line of questioning

I had before with regard to the additional things that you agreed

to, the company agreed to, as part of the CFIUS process and clearance. One had to do with management, we talk about that, and

various people have asked you questions about this management

understanding. And the summary in your testimony is that you undertake to—this is a quote—operate all U.S. facilities to the extent

possible with current U.S. management. As we talked about that,

that undertaking doesn’t end on May 1st, it continues thereafter,

and it is your understanding that there would be simply U.S. management?

Mr. BILKEY. No, sir. We put this time period in place so there

could be a review.

Mr. MARSHALL. I understand. The undertaking doesn’t stop at

the end of that time period.

Mr. BILKEY. I understand that this is in the package that we

handed out.

Mr. MARSHALL. The actual language, I want to get to that next,

but I just want to see what your understanding is. I assume that

it was our Homeland Security Department that asked for this concession; it wasn’t something that you simply proposed.

Mr. BILKEY. I frankly don’t know. I reviewed it. I think the answer can be made here.

Mr. DALTON. Congressman, we did propose it.

Mr. MARSHALL. You proposed it in response to concerns expressed by?

Mr. DALTON. Through the normal CFIUS process.

Mr. MARSHALL. The CFIUS process. It is utterly incredible you

would say our management is not competent or—somebody was

worried about——

68

Mr. DALTON. We volunteered at the CFIUS.

Mr. MARSHALL. Why did you volunteer it?

Mr. DALTON. I am sorry. I was conferring with our counsel who

helped assist us because we wanted to assure the United States

Government and the public that the management team that was

currently in place from P&O would in fact remain in place.

Mr. MARSHALL. And I think I understand the spirit behind that

and the concerns that you had at the time you made that offer.

And this was during that period of time before you hired lobbyists

and before we had this big public dispute, you anticipated that

there could be some problems associated with this, and one way to

mute those problems, to lessen them, lessen the public perception

that there is a problem here is to go ahead and agree to this retention of management.

Mr. DALTON. What we were attempting to accomplish was to

demonstrate our cooperation with the United States Government

and our concerns about security.

Mr. MARSHALL. When you say your concerns, now, you are the

guy. And what is your concern that would lead you to say we won’t

manage?

Mr. DALTON. Sir, we are a company incorporated in Dubai, and

we have security concerns in all of our facilities around the world.

Mr. MARSHALL. Why would you be—why would your security

concern that is worldwide persuade you to make an offer that you

would only have U.S. management for these facilities in the United

States? What is the relationship between those two?

Mr. DALTON. Sir, I don’t think we committed to only having U.S.

management. I think we committed to keeping the current P&O

ports management in place. My understanding—my colleague from

P&O can address this more specifically, but there is action, approximately 400 direct employees by P&O Ports North America of

which approximately seven or eight are non-U.S. citizens. There

are several other citizens such as from the UK, I believe Australia,

and I am not sure a couple of other places, but clearly, the vast

majority of the employees of P&O Ports North America are U.S.

citizens. And we wanted to demonstrate our commitment to them

as well.

This was a company that is approximately four times larger, depending on how you calculate it, than DP World. And as part of

that, we needed their management expertise, and that was part of

the reason that we wanted to acquire their firm.

Mr. MARSHALL. I understand, Mr. Bilkey, in his testimony, as I

said previously, indicated some discomfort that these were unusual

things to have agreed to. And you are telling me now that, at least

with regard to the management thing it was your idea; it was your

proposal that this be done because you wanted to, I guess, make

CFIUS comfortable. I am not sure. We will get more information

about that.

I will observe though that page two of the letter that I guess memorializes the agreement, this undertaking, says this, it is page

two of the letter that is in the packet, and I assume this is the language of the agreement. I will give you a more precise description.

This is a letter dated January 6, 2006, to Mr. Stewart A Baker,

and it is from—I’m sorry but I can’t read, Robert Scavone. I guess

69

it is from you. And I assume that this is the language of the undertaking. And here is what it says about management of U.S. facilities: The companies—companies, plural—I am a little confused

about that, I guess it is both companies here—and so the acquiring

company, hereby represent——

Mr. BILKEY. I was going to say, it was a joint filing, sir.

Mr. MARSHALL. Good. Okay. So the acquiring company, DP

World, is representing—hereby represent and commit that their

current intent and plan is to operate any U.S. facilities they own

or control to the extent possible with the current U.S. management

structure.

I am a lawyer. Commercial transactions, lawyers happen—I do

these kinds of deals. That is language that doesn’t bind anybody

to anything. It states a current intent and a current plan.

But intent changes; plans change. And one of the things that I

thought I clearly heard from Mr. Scavone, I might have heard from

Mr. Bilkey, is that you are willing to work with us to take up language, the undertakings that have been made here, if in fact the

language isn’t ideal, perhaps we can take up that language and

perhaps the Congress can help the Administration to address some

language that is a little clearer and firmer with regard to that

issue, if in fact it is an issue that has something to do with security. That is all I have, sir.

The CHAIRMAN. I thank the gentleman.

The gentleman from Missouri, Mr. Skelton, had a couple more

questions.

Mr. SKELTON. I am still, Counsel, what is your name again?

Mr. DALTON. George Dalton, sir.

Mr. SKELTON. Are you in-house counsel?

Mr. DALTON. Yes, sir.

Mr. SKELTON. I am not quite clear. The period of time that is

supposed to elapse before DP World takes over operation is between now and May 1; is that correct?

Mr. DALTON. Sir, it is the earliest, I believe—I will find the exact

language in just a second—but I believe it is the earliest of the conclusion of the CFIUS process or May 1, if you give me just a moment.

Mr. SKELTON. And again, give us the reason for that.

Mr. DALTON. Sir, we were attempting to address or at least provide an opportunity and an avenue to address the concerns of Congress and the American people that have been raised through the

course of this acquisition of the transaction.

Mr. SKELTON. It had no legal binding effect; did it?

Mr. DALTON. No. We believe it will have a binding effect if the

United States Government accepts our offer. I think that we have

found——

Mr. SKELTON. Accepts your offer to do what?

Mr. DALTON. To hold separate, to honor the commitments that

we have given in the agreement, we hope that the United States

Government will accept it. I think we have found ourselves very

much in unchartered waters here because we had already received

the CFIUS approval.

Mr. SKELTON. That’s right. The deal was done.

70

Mr. DALTON. Well, the deal is about to be done, but the CFIUS

approval was granted, which was, we followed the specific legislative intent and the letter of the law set out by the United States

Government.

To be honest, I don’t think that it is our position to comment on

whether or not the CFIUS process is correct or right. We simply

followed what had to be followed.

Mr. SKELTON. No. No. No. You told me a little while ago that,

Tuesday, the deal is in blood; am I correct?

Mr. DALTON. That is correct, under the UK takeover code, and

we would find ourselves in violation of UK law, we believe, if we

didn’t proceed with the deal.

Mr. SKELTON. So, Tuesday, the deal is done.

Mr. DALTON. We believe it should take place on or about Tuesday. Yes, sir.

Mr. SKELTON. Then I still, if the deal is done Tuesday, why the

May 1 date?

Mr. DALTON. To give the Congress an opportunity to——

Mr. SKELTON. To do what?

Mr. DALTON. To take a look at the deal. We are voluntarily committing back to the CFIUS process embodied by that process as it

relates to the United States’ facilities.

Mr. SKELTON. That has no legal binding now other than maybe

to let the thing blow over; is that correct?

Mr. DALTON. No, sir, we were trying to demonstrate our commitment to security and to our cooperation to work with Congress. We

just found ourselves——

Mr. SKELTON. To do what? How can you work with Congress if

the deal is done?

Mr. DALTON. Sir, the deal applies not just to the United States

but also to many other countries around the world.

Mr. SKELTON. I understand that. But the deal is already in blood

as of Tuesday it will be.

Mr. DALTON. Yes, sir.

Mr. SKELTON. So what, how do you work with Congress if the

deal is behind you?

Mr. DALTON. Sir, we found ourselves in a very difficult position.

Mr. SKELTON. I understand that, but it is a public relations

thing; isn’t it?

Mr. DALTON. I don’t believe so no, sir.

Mr. SKELTON. Thanks counsel.

The CHAIRMAN. I thank the gentleman.

The gentleman from Pennsylvania, Mr. Weldon.

Mr. WELDON. I thank the gentleman for yielding, and I want to

get back to the point that I was raising only because when this

deal was announced by the Administration, I went on national television and blasted the White House publicly.

And I did so because they didn’t have the courtesy to bring Members of Congress in from both sides to let us be a help. And I don’t

want to cause a problem with the Emirates because I think they

have, in fact, been helpful to us. But I blasted the White House for

what I thought was an inappropriate way of involving Congress in

transparency.

71

And now, what I am finding out is that there have been discussions from the other side of the aisle about helping this deal move

forward.

Now, I believe that you testified that your lobbying, one of your

lobbying firms was Alston & Bird; is that correct?

Mr. BILKEY. No, sir they are our counsel.

Mr. WELDON. They are your counsel. Is it true that, at Alston &

Bird, one of the leading people working with you is in fact a gentleman named Jonathan Winer.

Mr. BILKEY. Yes, sir.

Mr. WELDON. And he is here.

Mr. BILKEY. Yes, sir.

Mr. WELDON. And is it true Jonathan Winer spent 10 years as

Senator John Kerry’s aid?

Mr. BILKEY. He told me that, sir.

Mr. WELDON. Is one of the other principals in the firm involved

with this Kathryn Marks.

Mr. DALTON. May I take that, sir?

Mr. WELDON. Yes.

Mr. DALTON. Yes, she is——

Mr. WELDON. Is it true that Kathryn Marks was policy director

for Senator John Edwards?

Mr. DALTON. I saw that in the newspaper for the first time yesterday.

Mr. WELDON. And the reason I say this is, my colleagues and I

have all been very critical of this Administration, and I take the

lead on that. And I don’t apologize for it. But what I see here is

leaders of both parties, instead of coming to the Congress and letting the Congress come in and understand, which is what I would

have done when I had this deal, knowing it was going to become

controversial based on substance or not, after the fact, all of these

players, including a former President, are getting involved to push

a deal through that the American people, including my constituents, are going bonkers over.

And that bothers me.

Now some on the other side are using this as a cheap shot to

trash President Bush and Republicans in Congress. And I have

been one of those that has criticized this President in not having

access. But now I find out it is not just one party.

I want to get back to when—and now you have told me on the

record that the Albright firm does not work for your company,

never has, nor any of the principals or others involved; is that correct?

Mr. BILKEY. No, sir. The Albright company helped us in China.

Mr. WELDON. But they have done nothing on this deal?

Mr. BILKEY. No, sir.

Mr. WELDON. They have not talked to any agency heads?

Mr. BILKEY. I understand they gave us some referrals, but that

is all.

Mr. WELDON. They have not talked to the State Department?

Mr. BILKEY. To the best of our knowledge, no, sir.

Mr. WELDON. So you have never had contact with anybody in

Albright’s firm about this particular deal in helping it get through?

72

Mr. BILKEY. To my knowledge, other than what I have been told,

they made some referrals.

Mr. WELDON. Mr. Dalton, can you affirm that same statement,

that you are aware of no involvement by Madeleine Albright’s firm

on this deal?

Mr. DALTON. My understanding is that one of the principals, I

am not sure of her name, attended one meeting, and I, the rest of

what Mr. Bilkey has stated, yes, I can confirm that the Albright

firm has provided information and help to us in China but not in

the United States.

Mr. WELDON. But now you just said, one principal of that firm

did attend. Would that person have been Carol Browner.

Mr. DALTON. I believe that is her name.

Mr. WELDON. And do you know that she was the former Environmental Protection Agency (EPA) director in the Clinton administration?

Mr. DALTON. I believe I saw something about that in the press

as well, sir.

Mr. WELDON. I don’t know why you would say that the Albright

firm, of which she was a principal, was not involved. I understand

they may have helped you with China, but we are not talking just

about China here.

The problem here, and believe me, I say this as somebody who

took on the White House and made it very uncomfortable for my

President and Treasury Secretary Snow and all of the Cabinet

members—I was willing to do that.

But I also think the American people have a right to know when

the other side of the aisle is pushing the deal for whatever reason,

maybe because it is legitimate.

And the only reason I raise these questions is your testimony,

both written and what statement you have given, is that there was

no need for concern, no need for security concerns; you just felt this

was a routine transaction that would, on the merits, go forward.

And so I have to ask the question, why would you hire all these

high-priced firms, both Republicans and Democrats, to make it

happen if there are no security concerns, if there is no way to

grease the skids?

We have got a laundry list of officials here and their former staffers that are now involved in making this deal happen.

If this was such an ordinary routine business deal to make a sale

occur, I don’t understand why all of this should be necessary.

Can you help me understand that?

Mr. BILKEY. Sir, we started on October 17 and way ahead of any

time frame that we thought we would be able to put it in an offer.

We also started very early in Australia, because these were two

areas that had processes that had to go through that were going

to be time-consuming. And we abided by everything that we

thought was necessary.

This was all there was. This is what we did throughout the

world. And at the end of the time that this happened, and we volunteered because it was suggested that they might like to talk to

you personally and ask questions, so we came in December 6, I

think, to Washington and met with the 12 agencies.

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And from that time on, the process continued. And finally, we received approval. So we thought we had done all the right things,

Congressman.

Mr. WELDON. I understand.

Mr. BILKEY. And I mean, within our own situation, we said, this

is what is required. We are doing everything that is required. And

any process that needed liaison between, you know, the Administration and Congress we thought would be part of the process. We

don’t know the process.

We just did exactly what we were told to.

Mr. WELDON. I understand and the only reason——

Mr. BILKEY. And we really, we are very, you know, surprised at

the reaction.

The CHAIRMAN. I thank the gentleman.

Gentlemen, let me ask you a couple of questions. First, Mr.

Bilkey, you stated that President Clinton made a call on the Emir

or talked to him on the telephone?

Mr. BILKEY. No, sir, to my chairman, Sultan Ahmed bin

Sulayem.

The CHAIRMAN. What is his name?

Mr. BILKEY. Sultan Amid bin Sulayem.

The CHAIRMAN. How did you find out about that?

Mr. BILKEY. He told me.

The CHAIRMAN. Was this a supportive call or was he eliciting advice or what?

Mr. BILKEY. I don’t know the details of the call. He just said, he

called me.

The CHAIRMAN. About the deal?

Mr. BILKEY. Yes. I mean, I didn’t go into it with him at the time.

Mr. WELDON. Will the gentleman yield?

The gentleman wasn’t here, but you did testify there was a recommendation to hire Mr.——

Mr. BILKEY. Yes, but, my chairman told me that he made this

recommendation.

Mr. WELDON. And I assume the gentleman would yield further

that that was for the purpose of supporting the deal.

Mr. BILKEY. Yes, it would be.

The CHAIRMAN. So your understanding is that President Clinton

called in to help support the deal or to offer advice on how to get

this thing through.

Mr. BILKEY. I don’t know what the conversation was about. The

only thing I was told was that this had been a recommendation.

The CHAIRMAN. Have you had any conversations with your—this

is your president or your Chief Operations Officer (COO)?

Mr. BILKEY. My chairman.

The CHAIRMAN. Your chairman.

Did he make any remarks in the wake of Senator Clinton criticizing this deal?

Mr. BILKEY. I have no knowledge of any of that, sir.

The CHAIRMAN. Did you have an answer there, Mr. Moore.

Mr. MOORE. No, I didn’t. I had a different subject, and I leaped

again there. I apologize.

The CHAIRMAN. Okay. Have any of you folks had a discussion

with President Clinton?

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Mr. DALTON. No, sir.

Mr. MOORE. No, sir.

The CHAIRMAN. Do you know if—do you have any—has there

been a relationship between your COO and the President before

this?

Mr. BILKEY. I don’t know. If there has been one, I am not aware

of it, sir.

The CHAIRMAN. Were you ever aware of him visiting Dubai?

Mr. BILKEY. I heard he visited Dubai, but I was never involved

if he did.

The CHAIRMAN. Did they ever maybe hire him for a speech that

you know of?

Mr. BILKEY. I read in the paper that he had a speech, today or

yesterday, but that is the only time I was aware of it.

The CHAIRMAN. That President Clinton had a speech in Dubai

today or yesterday?

Mr. BILKEY. No. I read recently——

The CHAIRMAN. You read today that he had a speech at some

point.

Mr. BILKEY. Recently, I can’t remember if it was today. I have

been reading a lot of information.

I don’t remember when it was, but there was a reference that

there was a speech in Dubai, I believe.

The CHAIRMAN. Mr. Bilkey, you heard this litany of transfers of

technology that took place in Dubai, transshipments of components

of nuclear systems that took place that I read to you or I started

out the hearing.

Mr. BILKEY. Yes, I had heard that, sir.

The CHAIRMAN. Now, I understand the Emir, who is the only director, is for practical purposes the leader——

Mr. BILKEY. He is the shareholder, sir.

The CHAIRMAN. He is the shareholder. What is his position in the

government of Dubai?

Mr. BILKEY. He is the ruler, sir.

The CHAIRMAN. He is the ruler of Dubai, and isn’t he also, he has

a place in the United Arab Emirates, does he not?

Mr. BILKEY. Yes, sir. He is the prime minister.

The CHAIRMAN. I am going to go back to this 2003 transfer of

these high-speed electrical switches which are utilized for detonating nuclear weapons that were allowed to be transshipped to a

Pakistani businessman through Dubai and the information that we

have is that Washington protested those transfers. And yet the

government of Dubai allowed the transfers to take place over our

protests.

Do you know anything about that?

Mr. BILKEY. No. Absolutely not. Only what I read in the paper.

But I would say one thing as far as the terminal, people go and

our operations go, we don’t know what is in containers. The people

who know what are in containers are the ship owners, the shipping

company and customs.

The CHAIRMAN. But in this case, your only stockholder, the Emir,

he is the government of Dubai. We protested to the government of

Dubai that these triggers were going to be transshipped, and we

wanted to stop them so we wouldn’t have an unfortunate nuclear

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detonation at some point. So he apparently knew even, though he

didn’t transfer that information to you. In your opinion, you understand, is that——

Mr. BILKEY. I know nothing about this issue. And I am not even

sure I was in Dubai when it took place.

The CHAIRMAN. If he is—he is the ruler of Dubai. Is that a fairly

absolute position? Does that mean that the Emir has—is the—has

the ability to stop a shipment if he wanted to stop it from going

through Dubai, send the police down, send the port authority

down? You understand the nature of his government there?

Mr. BILKEY. Yes, sir. But I can’t comment on his authority and

how he would do that.

The CHAIRMAN. Is there anybody else in Dubai that—who supersedes him?

Mr. BILKEY. No, sir, not in Dubai.

The CHAIRMAN. If you discovered, if you were informed that, in

fact, he, through his subordinates, discussed the transshipment of

these high-speed switches, that can detonate nuclear devices with

the United States officials and told them he was going to allow the

transshipment anyway or allow his subordinates to allow the transshipment, would that be relevant, from your perspective, with respect to this deal, this port deal? Or would it be irrelevant?

Mr. BILKEY. Well, I would imagine, sir, it would be a matter between not Dubai but the UAE and the U.S. Government. And it

would be the UAE would be taking action.

The CHAIRMAN. Now what is this gentleman’s name, say it one

more time, the Emir?

Mr. BILKEY. The Emir, Mohammed bin Rashid

al-Maktoum

The CHAIRMAN. Isn’t he also the vice president of the UAE?

Mr. BILKEY. Yes, sir, and the prime minister.

The CHAIRMAN. Well, in that case, we are talking about the same

guy. I don’t care if he moves from one desk to another, and you say

you are dealing with the UAE now, and you are not dealing with

Dubai. It looks to me like you have got the same power in government behind both of those desks.

So my question to you is—and same guy who is the only shareholder in the corporation.

Would he not be in a position to have stopped those high-speed

switches that could be used to detonate nuclear devices? Would he

be in a position to stop a shipment? What is your basic take on the

way the government is set up? Is there somebody——

Mr. BILKEY. I can’t answer that, sir, because I am not a specialist on the government of the UAE. They have a council of ministers, and I don’t know how they function exactly.

The CHAIRMAN. Are you aware of any of the, have you heard anything or have you been faintly aware of any of these transshipments that have taken place with respect to either the precursors to nerve gas, a transshipment to Iran, the precursors of nerve

gas, the 66 high-speed nuclear weapons switches that I talked

about, the heavy water shipments from China and Russia to India,

through Dubai, have you ever heard of any of those transfers?

Mr. BILKEY. No, sir.

The CHAIRMAN. And you are the chief operating officer for——

76

Mr. BILKEY. Yes. And I don’t even know when they took place.

But what I can tell you is that, since the CSI agreement was

signed between the UAE and the United States, that any container

that U.S. Customs, transshipment or not, wishes to inspect, they

have, in the agreement, they have the right to inspect. And not

only that, in most countries, it will be the agency of the country

that will make the inspection. In Dubai——

The CHAIRMAN. But they didn’t stop the shipment of those triggers.

Mr. BILKEY. I have no idea the years we are talking or when we

are talking about. But I do know what the situation is now, and

that is what interests me now, is security from now going forward.

And I do know that it is a very unique situation that we have.

And I know that we have very strong operations supporting the efforts in Afghanistan, in Iraq, going through Dubai at the present

time.

The CHAIRMAN. Okay. Thank you.

Do we have anybody else with questions?

Yes. The gentleman from New Jersey.

Mr. ANDREWS. I will be very brief because I think we have exhausted this. One thing I want to make very clear on the record

to is it Mr. Bilkey, I am sorry, correct, is the CEO, thank you for

your patience and for your diligence.

The prime minister of Dubai is the sole shareholder of the corporation; correct?

Mr. BILKEY. Yes, sir.

Mr. ANDREWS. Am I correct in assuming that, under Dubai law,

that if he chose to dismiss you or any of your subordinates, he has

the power to do so?

Mr. BILKEY. That power would be with the board of directors.

The board of directors is made up of Sheik Mohammed and Sultan

Sulayem.

Mr. ANDREWS. Under the law of—you are a Dubai corporation;

is that correct?

Mr. BILKEY. Actually, we are a free—a Jebel Ali Free Zone cooperation.

Mr. ANDREWS. Under the chartering law of your corporation,

does the shareholder have a right to elect a new board of directors

that would follow his will?

Mr. BILKEY. I am not sure of that, sir.

Mr. ANDREWS. Does your counsel know?

Mr. DALTON. I am not a Dubai lawyer, but I believe the shareholder would have the authority.

Mr. ANDREWS. So isn’t the practical answer to that question is,

should the sole shareholder wish to change the management, he

has the power to do so?

Mr. BILKEY. I would think so. It is true in most companies.

Mr. ANDREWS. I would think so.

Thank you very much, Mr. Chairman.

Mr. WELDON [presiding]. We will move on to the next panel. I

want to thank you all for appearing before us. We appreciate your

statements, and formal comments will be entered into the record.

Thank you.

77

Our next panel will include five witnesses, four of whom will give

testimony.

We would ask them to come to the table, the dais, at this point

in time.

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

BAKER, ASSISTANT SECRETARY, POLICY, PLANNING AND

INTERNATIONAL AFFAIRS, DEPARTMENT OF HOMELAND SECURITY; CLAY LOWERY, ASSISTANT SECRETARY, INTERNATIONAL AFFAIRS, U.S. DEPARTMENT OF THE TREASURY;

ALAN MISENHEIMER, DIRECTOR, OFFICE OF ARABIAN PENINSULA AND IRAN AFFAIRS, DEPARTMENT OF STATE; AND

REAR ADM. THOMAS GILMOUR, USCG, ASSISTANT COMMANDANT FOR MARINE SAFETY, SECURITY AND ENVIRONMENTAL PROTECTION

Mr. WELDON. Our second panel today consists of Ambassador

Eric Edelman, Under Secretary of Defense for Policy, Department

of Defense; Mr. Stewart Baker, Assistant Secretary of Policy, Planning and International Affairs, Department of Homeland Security;

Mr. Clay Lowery, Assistant Secretary, International Affairs, Department of Treasury; Mr. Alan Misenheimer, director, Office of

Arabian Peninsula and Iran Affairs, Department of State; Rear Admiral Thomas Gilmour, Coast Guard Assistant Commandant for

Marine Safety, Security and Environmental Protection.

We welcome each of you here. Your written statements will be

entered into the record as you prepared them, without objection.

And I understand that only four of you are going to give statements. My understanding is that Mr. Misenheimer is not going to

give a statement but is here in case we have questions, and anything you have for the record, we would accept as well.

We thank you all for appearing. We have been in a rather long

hearing today, and you have heard probably many of the proceedings, so you know the tone of discussion. Plus you have been on the

other side, so you are used to this drill. We do appreciate you being

here, and I would like to now—did you want to make any opening

on this?

Mr. SKELTON. No.

Mr. WELDON. So we will proceed with Ambassador Edelman.

STATEMENT OF ERIC S. EDELMAN

Mr. EDELMAN. Congress Weldon, thank you very much. Members

of the committee, I appreciate the opportunity to appear before you

today to discuss the Department of Defense (DOD’s) role in the

Committee on Foreign Investments in the United States and our

review of the Dubai Ports World P&O transaction.

When the Department of Defense participates in the CFIUS process, we weigh a number of factors. I thought it would be useful to

walk through them as we consider an acquisition.

First and foremost, of course, our primary objective, as yours is,

is to ensure that any transaction does not pose risks to U.S. national security interests. And to do that, we consider several aspects.

78

First is the importance of the firm to the U.S. defense industrial

base, which is to say, is it a sole source supplier? And if so, what

security and financial costs would be incurred in finding and/or

qualifying a new supplier if required?

A second question is whether the company is involved in proliferation of sensitive technology or weapons of mass destruction.

A third is whether the company to be acquired is part of the critical infrastructure that the Department needs in order to accomplish its mission.

And finally, we look at whether any of the potential national security concerns that might be posed by the transaction can be

eliminated by the application of risk-mitigation measures either

under our own regulations or through negotiation with parties.

Regarding this specific CFIUS transaction, I thought it would be

useful to just walk through the history.

The Departments of Treasury, Commerce and Homeland Security

met with the legal representatives of Dubai Ports World and P&O

for a CFIUS pre-filing notification consultation on October 31,

2005. On December 6, 2005, the companies held a pre-filing briefing for all of the CFIUS agencies.

The Defense Technology Security Administration (DTSA) attended the meeting for the Department of Defense. On December

16, the Department of Treasury received an official CFIUS filing.

And on the same day, Treasury circulated the filing to all of the

CFIUS member agencies for review, and DTSA staffed it to 16

other Department of Defense elements or agencies for review and

comment.

The review conducted by the Department of Defense on the

transaction was not cursory, and it was not casual.

It was in depth. And it was comprehensive.

The transaction was staffed and reviewed within the DOD by 17

of our agencies. In this case, the DOD agencies reviewed the filing

for impact on critical technologies, the presence of any classified operations existing with the company being purchased, military

transportation and logistics as well as our concerns that the transaction might raise.

During the review process, DOD did not uncover national security concerns that warranted objection to the transaction or requiring the 45-day investigation.

Positions were approved by staff that ranged from subject matter

experts up to, in one case, a Deputy Under Secretary of Defense

as appropriate to the offices undertaking the review.

All of the offices that were consulted came back with the same

position, which was that the transaction did not require further investigation.

The DOD organizations that reviewed this and the other CFIUS

transactions that had come before us bring to bear a very diverse

set of subject matter expertise, responsibility and perspective. The

organizations included, for example, the office of the Under Secretary for Intelligence, the Office of the Under Secretary For Acquisition, Logistics and Technology, the military departments, U.S.

Transportation Command, the National Security Agency (NSA) and

the Defense Intelligence Agency (DIA).

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The Army, for example, reviewed the case in the following manner. The Army Material Command Headquarters and Assistant

Secretary of the Army for Acquisition Logistics and technology staff

gave a preliminary review immediately upon receiving the case.

Army Material Command then staffed the filing to their subordinate readiness command responsible for acquisition and logistics,

including the military surface deployment and distribution command. For this case, the Army’s review criteria included the question of assured shipping and the army’s final position was that it

had no objection to the transaction.

The Defense Security Administration, which reviews, coordinates

and analyzes the recommendations from all the other DOD components as well as assessing the export control and sensitive technology issues, ultimately signed off on the transaction for the Department.

The comprehensive and in-depth review we had of the transaction did not raise any issues. We remain comfortable with the decision that was made on that review. I would add that, early in my

tenure, Deputy Secretary of the Treasury Kimmitt contacted me to

talk to me about the Government Accountability Office (GAO) report that was done on the CFIUS process and the importance of

making sure that the security agencies, notably the Department of

Defense, had their views fully heard and had sufficient time to

analyze sometimes complicated technological parts of proposed

transactions and, in addition, had time to, if conditions warranted,

work out possible mitigation measures with the companies involved.

Some of those steps have been taken. The process continues. And

clearly, we, I think, agree that it is a process that can use even

more improvement and look forward to working with members of

the committee as the process goes forward to try and see what we

can do to improve it.

I do also want to take the opportunity to provide a bit of a perspective for the committee from the Department of Defense pointof-view on the role of the government of the United Arab Emirates

and their support as a friend and ally in the global war on terror.

In the war on terrorism, the United States needs friends and allies around the world, especially in the Middle East, to win this

struggle.

Our recently published Quadrennial Defense Review (QDR) highlighted that, in conducting the fight, it is important to strengthen

the bonds of friendship and security with friends and allies around

the world.

And the United Arab Emirates is an outstanding example of the

kind of partner critical to winning the long war on terror. Dubai

was the first Middle Eastern country or entity to join the Container

Security Initiative, the multinational program to protect global

trade from terrorism.

It was the first Middle Eastern entity to join the Department of

Energy’s Megaports Initiative, a program aimed at stopping illicit

shipments of nuclear and other radioactive material. The UAE has

also worked with us to stop terrorist financing and money laundering by freezing accounts, enacting aggressive anti-money-laundering and counterterrorist financing laws and regulations and exVerDate 22-MAR-2001 10:47 Sep 16, 2008 Jkt 032987 PO 00000 Frm 00083 Fmt 6633 Sfmt 6633 C:\DOCS\109-100\061002.000 HNS1 PsN: HNS1
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changing information on people and entities suspected of being involved in these activities.

As you may know, the UAE provides the U.S. and coalition forces

with access to its territory and facilities, and General Pace has

summed up our Defense relationship by saying that, quote, ‘‘in everything we have asked and worked with them on, they have proven to be very, very solid partners.’’

We have been provided access to seaports and airfields like al

Dhafra Air Base as well as overflight through UAE air space and

other logistical assistance. We have more Navy port visits in the

UAE than any other port outside of the United States.

And last year, U.S. Navy war ships and U.S. Military Sealift

Command ships spent over 1,400 days in the ports of Dubai, Jebel

Ali, Abu Dhabi and Fujairah.

By the way, the port at Jebel Ali happens to be managed by

Dubai Ports World, which is also the only carrier-capable port in

the Gulf.

U.S. Air Force has operated out of al Dhafra since the Gulf War

in 1990, and today, it is an important location for air refueling and

reconnaissance aircraft supporting operations in Iraq and Afghanistan. And we should note that our most valuable commodity, our

military men and women, are frequent visitors to the UAE on liberty or leave while deployed in the region. And we, of course, rely

on the government of UAE to protect those folks, and we are grateful for their assistance.

Finally, the United Arab Emirates has been very supportive in

our efforts in Iraq and Afghanistan. They have provided military

and operational support to Operation Enduring Freedom in Afghanistan and financial and humanitarian aid to Afghanistan and

its people.

The UAE has provided monetary and material support to the new Iraqi government, including a pledge of $250 million in economic and reconstruction assistance.

Mr. Chairman, that concludes my formal statement, and I would

be happy to answer any further questions you or your colleagues

have after my other colleagues have had a chance to make their

statements.

Mr. WELDON. Thank you.

Assistant Secretary Baker, the floor is yours.

STATEMENT OF STEWART BAKER

Secretary BAKER. Thank you, Chairman Hunter, and members of

the committee. It is a pleasure to be here. I would like to explain

the role of the Department of Homeland Security in this transaction. We are the newest member of CFIUS and have been particularly aggressive in raising new issues about particular transactions that we think required further review.

It is a record we are proud of. Notwithstanding our willingness

to stand alone on behalf of certain concerns about homeland security, we did approve this transaction. I think the committee’s question for us is why we did that.

And I think the answer to that lies in the three questions that

we would ordinarily ask ourselves before voting against a transaction. Those are: Do we have any other legal authority to prevent

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the national security harms that are of concern here? What do we

know about the companies that are carrying out the transaction

and their willingness to cooperate in national security concerns?

And are there any further assurances that we want to negotiate or

obtain from the companies as part of a condition on approving the

deal?

We ask those questions. And if we don’t get satisfactory answers,

we will object to the closing of the transaction.

In this case, it happens that there are significant answers to all

three of those questions. Since September 11, we have changed our

approach to the security of our ports and to the security of cargo.

With the help of Congress, with the Maritime Transportation Security Act, we now have substantial authority for the Coast Guard,

which I will let Admiral Gilmour talk about, both to impose regulations on members of, the participants in a port, facilities in a port,

and also to inspect foreign ports to make sure that they maintain

security.

We also have substantial new authorities with respect to the supply chain, containers. We receive word before the container is put

in the ship in a foreign port. We have to receive 24 hours in advance, a list of the contents. We can decide at that point that we

would like the containers screened in the foreign port, actually inspected, x-rayed or otherwise run through a radiation monitor or

actually physically inspected in order to make sure that there is

not a problem. We do that with any high-risk containers that we

encounter in foreign ports.

Then, when the cargo is closer to the United States, we have a

variety of reporting, including 96-hour report on the manifest and

the crew and passengers so that we can do background checks on

crew and passengers before they arrive.

When the cargo arrives, we, of course, have full authority over

what happens to the contents of the ship. We can meet the ship

at dockside. We can meet the ship offshore. We can designate any

of the containers that we wish to go to further inspection, radiological or otherwise.

We make those decisions principally based on a variety of intelligence and information we have about anomalies in the supply

chain or aspects of the shipment that raise its risk score.

Once we have done that, and only after we have done that, is the

cargo free to leave the port.

In the course of that, we do deal with terminal operators. And

I think this committee understands better than the press has what

the role of a terminal operator is. Terminal operators do not run

ports. They are not responsible for the security of the ports.

They have a pier. They have a crane, and they have a parking

lot to put the cargo on when they unload it.

That is an important job. It is a job that gives them some insight

into the operations of the port. And it gives them a modest insight

into our security activities.

They see what containers we send to screening to inspection in

the United States. They do not know why. They may not even

know what is in those containers. But they have some modest insight into it, and they also have a role in security because they

have facilities on the port premises. We require them to have a faVerDate 22-MAR-2001 10:47 Sep 16, 2008 Jkt 032987 PO 00000 Frm 00085 Fmt 6633 Sfmt 6633 C:\DOCS\109-100\061002.000 HNS1 PsN: HNS1
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cilities security plan. The Coast Guard inspects the facility to make

sure it maintains those security standards.

That is the role that they have played.

The next question is, what do we know about the companies?

We, actually, it turned out, had had pretty close relationships

with both companies. This is a little unusual because Dubai Ports

World is not operating in any significant way in the United States.

Nonetheless, because they have a very substantial role in Dubai,

we had encountered them in the course of pushing out our borders

so that we could do inspections abroad. We negotiated agreements,

CSI agreement, with the port, the Dubai Port Authority.

And Dubai Ports World was critical to the implementation of

that, and also a Department of Energy screening program that was

also set up in Dubai, so that they were, I think Dubai was the first

port in the Middle East where we established this kind of screening. And Dubai Ports World was a very cooperative and professional partner in doing that.

We also, of course, knew the facilities in the United States. And

in addition to Coast Guard inspections, they belonged to our Customs and Border Protection Best Security Practices Program, the

Customs-Trade Partnership Against Terrorism, which requires a

wide variety of higher security practices than is normal in the

trade and is a voluntary program. P&O, the owner of those facilities, had joined that program and had maintained very strong security standards as part of that program.

So we had a lot of authority already over port and cargo security.

We had good experiences, cooperative professional experiences

with all the facilities and with the company that is acquiring them.

We nonetheless decided when we looked at this that we wanted

to do something more and something that had no precedent. We

had decided to ask the company for a set of assurances about their

future behavior after the transaction was consummated.

This is something that we have done in other areas, particularly

telecommunications and high technology. We have never done it in

the context of a ports deal. But we decided that, given how important port security was to our mission, that we should leave no

stone unturned. And so we sat down with the company and negotiated a set of assurances that I think you have talked about today

already.

The principal assurances in that letter are, one, that the programs that they had voluntarily entered into, the Dubai Ports

World screening in Dubai and the C–TPAT Best Security Practices

in the United States would be maintained, that the companies

would never allow their level of cooperation and membership to go

below their current level.

That is very important because that means that there are probably 5,000 or 6,000 members of C–TPAT; for two of them now, that

program is not voluntary. It is mandatory. And those are the two

companies that are engaged in this transaction.

Same is true for the Foreign Screening Program where, again,

we have locked Dubai Ports World into its current level of cooperation.

It was after we got all those assurances and could look to our existing authority that we decided that we had done an appropriate

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amount of protection for port security in this context; that we had

gone beyond what anyone else is required to do. And for that reason, we decided not to stand in the way of the transaction.

Thank you.

[The prepared statement of Secretary Baker can be found in the

Appendix on page 160.]

Mr. WELDON. Thank you, Mr. Secretary.

Mr. Lowery, the floor is yours.

STATEMENT OF CLAY LOWERY

Secretary LOWERY. Congressman Weldon and members of the

committee, thank you very much for allowing me to explain today

about CFIUS, the Committee on Foreign Investment in the United

States, and a little bit on its role in the DP Worlds’ acquisition of

P&O.

CFIUS is an interagency group comprised of the Departments of

Treasury, State, Justice, Commerce, Defense, and Homeland Security.

It also includes six White House offices, including the National

Security Council and the U.S. Trade Representative.

The committee was established by executive order in 1975 to

evaluate the impact of foreign investment in the United States. In

1988 and 1992, Congress passed legislation now embodied in the

Exon-Florio amendment which empowered the President to suspend or prohibit any foreign acquisition of a U.S. corporation if the

acquisition is determined to threaten U.S. national security.

CFIUS has evolved over time to keep pace with changes to the

concept of national security.

For example, in 1998, the Intelligence Community Acquisition

Risk Center, also known as CARC, was created. This office is now

under the Director of National Intelligence and provides CFIUS

with a threat assessment of the foreign inquirer.

Further, following September 11, the newly created Department

of Homeland Security was added to the committee. And DHS has

played a primary role in reviewing many transactions, including

the one at hand.

Further, agencies that are not formal members of CFIUS are

often called upon to lend their expertise, such as the Department

of Energy and the Department of Transportation.

CFIUS operates through a process in which Treasury, as the

chair, receives notices of transactions, circulates these and other

materials to members of the committee and coordinates interagency process.

Upon receipt of a filing, CFIUS staff conducts a 30-day review

during which each CFIUS member examines the national security

implications of the transaction, including the CARC threat assessment.

All CFIUS decisions are made by consensus. Any agency that

identifies a potential threat to national security has an obligation

to raise those concerns within the review process. If any member

of CFIUS objects or raises a national security concern that cannot

be satisfactorily addressed during the 30-day review period, then

the case goes to an extended 45-day investigation period.

84

The investigation period provides CFIUS and the transaction

parties additional time to address security concerns that were identify but not resolved during the review period. It also could provide

the time to get a report to the President of the United States.

Under the Exon-Florio amendment, upon completion of the 45-

day investigation, the Secretary of Treasury forwards a recommendation on to the President who then has 15 days to take action. Upon making that determination, the President then sends a

report to Congress detailing its decision. The most recent such report occurred in 2003 when the President reported to the Congress

on its decision not to block the transaction between Singapore

Technologies Telemedia and Global Crossing.

Turning now on the DP World transaction, in contrast to some

accounts, we would note that this transaction was not rushed

through the review process in early February, nor was it casual,

nor was it cursory.

On October 17, 2005, lawyers from DP World and P&O informally approached the Treasury Department staff to discuss the

preliminary stages of the transaction.

In this case, Treasury staff identified port security as the primary issue and immediately directed the companies to the Department of Homeland Security which, with the Department of Justice

and others, met on October 31 with the companies to review the

transaction and security issues.

On November 2, Treasury staff requested an intelligence assessment from the Director of National Intelligence. Treasury received

this assessment on December 5, and it was circulated to the staff

members of CFIUS.

On November 29, DP World issued a press release along with

P&O concerning their proposed merger. This announcement was

carried in numerous press articles in the weeks that followed.

On December 6, staff from the CFIUS agencies met with company officials to review the transaction to request additional formation. On December 16, after almost 2 months of informal interaction and 45 days after CFIUS requested the intelligence assessment, the companies officially filed their formal 30-day notice with

the Treasury Department.

Treasury circulated the filing to all CFIUS departments and

agencies and also to the Departments of Energy and Transportation, because of their statutory responsibilities and experience

with DP World.

During the 30-day review, the CFIUS departments and agencies

continued their internal departmental reviews and were in contact

with one another and the companies.

As part of this process, DHS negotiated an assurances letter

which Secretary Baker just discussed that addressed port security

concerns that have been raised earlier in the process. The letter

was circulated to the committee on January 6 for its review and

CFIUS concluded its review on January 17.

Far from rushing the review, the members of the CFIUS staff

spent nearly 90 days carefully reviewing this transaction.

Last Sunday, February 26th, DP World announced that it would

make a new filing with CFIUS and requested a 45-day investigation.

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Upon receipt of DP World’s new filing, CFIUS will promptly initiate the review process, including DP World’s request for an investigation. The 45-day investigation will consider existing materials

as well as new information anticipated from the company.

Importantly, the investigation process will also consider very

carefully the concerns raised by yourselves, State and local officials, and other interested parties.

We welcome your input during the process, including issues that

will be raised in today’s hearing.

Mr. Chairman, members of the committee, those of us sitting at

this table this afternoon share with you one fundamental principle,

our highest responsibility as government officials is protecting the

national security of the United States. The work done by our colleagues in the initial review period was guided by this standard as

will our further efforts under this new review process that the companies have asked for.

We are sure it will also guide your review and the President’s report to you at the end of the investigation. I thank you for your

time, and I am happy to answer any questions.

[The prepared statement of Secretary Lowery can be found in the

Appendix on page 171.]

Mr. WELDON. I thank you.

And finally, Admiral Gilmour, the floor is yours.

STATEMENT OF REAR ADM. THOMAS GILMOUR

Admiral GILMOUR. Thank you, Congressman Weldon.

Let me begin by stressing that the Coast Guard is the Federal

agency in charge of maritime security in our ports and waterways.

We regulate facilities and vessel security under the authority of the

Marine Transportation Security Act (MTSA) and the International

Ship and Port Facility Security Code developed with our efforts at

Internatinal Maritime Organization (IMO).

These security rules are complementary in nature and specify detailed requirements for both vessels and for facilities and allow us

to inspect the ports of all of our trading partners.

There are over 3,000 marine cargo facilities in the United States.

Each has an approved and inspected security plan.

Since July 2004, we have required corrective action to more than

700 violations of the MTSA security regulations. Of those 700 violations, 44 resulted in major control actions, such as terminating

cargo operations or closure of a facility until corrective measures

were taken.

We also oversee the arrival of foreign vessels 96 hours before

they arrive at our ports and enforce security compliance with the

ISPS code.

Since July 2004, we have conducted approximately 16,000 foreign

flag vessel boardings. They were conducted either offshore or in

port depending on the risk assessed prior to each vessel’s arrival

into U. S. Ports. As a result, we have imposed 143 detentions, expulsions or denial of entry for vessels that fail to comply with international security requirements.

During the CFIUS process, the Coast Guard’s intelligence assessment concluded that DPW’s acquisition of P&O in and of itself does

86

not pose a significant threat to U.S. assets in the continental

United States ports.

However, it also identified the need for additional information.

We have addressed those gaps by obtaining formal assurances from

DPW regarding ongoing access of information on personnel and operations.

And during the 45-day review period, the Coast Guard will continue to work diligently with the Department of Homeland Security

and the intelligence community to ensure that the port security

concerns are fully raised and objectively analyzed. In addition, the

Coast Guard will assess DP World’s ports in Dubai and also audit

all of P&O operations in the United States.

Thank you for the opportunity to testify today, and I am happy

to answer any questions.

[The prepared statement of Admiral Gilmour can be found in the

Appendix on page 177.]

Mr. WELDON. Thank you very much.

Thank you for each of your testimony and for your service to the

country.

First of all, I want to just make a statement. I, like my colleague

Mr. Spratt, we were involved in the Cox Committee investigation

back in the mid 1990’s, authorized by the Congress to look at the

transfer of technology to China from the U.S., and we voted nineto-zero that our security was harmed through the Chinese efforts.

And in that investigation, we also saw attempts by the People’s

Liberation Army (PLA) to use dollars to infiltrate companies in the

U.S. through third-party financial operations in European banking

institutions.

Unfortunately, one of the things that happened in the 1990’s

which was not a recommendation of the Cox Committee—in fact,

it was quite the contrary—was the abolishment in 2000 of the Pentagon Office of Technology Security Operations.

This office came under—I believe it was DTSA, and did a fantastic job at going out and doing hands-on investigations for exactly

this kind of purpose. And so I would say at the outset that, since

2000, in my opinion, we were doomed to failure.

We took away the capability, at least from DOD’s part, to do a

full assessment. And I say that as both the vice chairman of this

committee and the vice chairman of the Homeland Security Committee; we are at dual roles.

I am concerned about this deal, number one, because there was

no effort to bring Congress into the process.

Now, you may say, well, that wasn’t mandated by the policy. But

clearly, Congress has concerns on security. That is nothing new.

The President is constantly talking to us about the need to pass

legislation dealing with homeland security and whether it is the

Patriot Act or whatever, and we have done it.

Anyone in their right mind had to understand, this kind of a proposal, in this environment, whether it was substantive or not, was

going to generate significant concern. You would have to be a turtle

with your head in the ground not to be able—now maybe it wasn’t

you all that should have pointed out, but somebody had to say, hey,

wait a minute this deal, because of who is involved and where it

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is, we ought to at least have some process to bring Congress in; not

all Congress, maybe the leadership of the Congress.

And that is why I was so incensed when this deal was announced

by the media, especially with me representing the area right next

to Philadelphia ports. And I called the Tioga terminal folks, and

they said, we have no idea what’s going on, Congressman; nobody

has talked to us. And that is the portion of the Philadelphia port

that would be affected by this action.

My concerns also now are that, as I mentioned in an earlier session, it reminds me of the Chinese incident several years ago when,

again, the White House didn’t talk to the Congress, so we almost

went to war because President Clinton told the Chinese government in Beijing that he would not issue a visa to the president of

Taiwan Lee Teng-hui to come back to his alma mater to give a

graduation speech. And he did that without talking to the Congress. When the Congress found out, we overruled the President,

and the visa was granted.

Well, the Chinese thought that was a deliberate slap in their

face, and they started launching missiles across the Taiwan

Straights at Taiwan.

We sent a carrier up the Straits of Taiwan and almost went to

war over a lack of communication between the White House and,

in this case, China over an issue that could have had us work together.

In this case, there was none of that, and now we learned the

company involved has hired lobbying firms from both parties and

leaders to make their case today and to try to get us to allay our

concerns. Lobbyists should not be the ones to tell us that this deal

is okay. The facts and the details that you all should have looked

at should be the justification for our decision, to support this which

is going to take a long bit of convincing to make me feel comfortable with that, with the decision you ultimately made.

Now, it has been reported that the CFIUS committee—commission—decided that the interpretation of the Byrd language, even

though it says, requires a 45-day action, of an investigation, when

two criteria are met, then you all interpreted it that that was voluntary. Now my understanding is that only three of you were actually involved in that process.

Mr. WELDON. So is that the opinion of the three of you who were

involved. I’ll start with you, Mr. Lowery.

Secretary LOWERY. Sir, that has been the opinion of this Administration and the last Administration, it has been the way that it

has been conducted for the last 13 or 14 years.

Mr. WELDON. You are aware it is not the opinion of the member

who wrote that.

Secretary LOWERY. I think he made that abundantly clear.

Mr. WELDON. You are aware most of us feel the same way.

Secretary LOWERY. You have made that abundantly clear.

Mr. WELDON. So is your position that no one questioned that, in

this sensitivity of this case no one thought perhaps we should do

a 45-day?

Secretary LOWERY. The mandatory language from the Byrd

amendment has been interpreted this way for 13 years. It has been

the way that we have conducted our business. We have never tried

88

to hide that fact. It has always been the way we have done it and

I understand the Department of Justice has put in a legal brief

about there issue.

Mr. WELDON. But no one involved, and you are one of the three

at this table, no one raised that concern, saying perhaps this time

we should, based on at least a minimum what the Coast Guard put

forward, which I have a statement which I will enter into the

record of their concerns in this case. No one said maybe we should,

since two of these factors identified by the Byrd amendment, you

did not consider that, no one.

Secretary LOWERY. Sir, as I mentioned, if the national security

concerns had raised—there was an objection of any of the members

of CFIUS, then we would have gone into that 45-day investigative

period. None of the members on the CFIUS panel raised an objection on national security based on this transaction that could not

be resolved or that were not resolved.

Mr. WELDON. Did you consider recusing yourself as a representative of Treasury Secretary Snow because of his involvement with

some of the principles of this firm?

Secretary LOWERY. Sir, I think that if there if there would be a

recusal it would be the Secretary himself, however, I believe that

the legal counsel has taken an opinion he did not need to recuse

himself, but I’m not an expert. Because he had left CSX roughly

2 years prior to the acquisition of CSX overseas assets by DPW, my

understanding is legal couple said there was no reason for him to.

Mr. WELDON. Since you were, I understand, chair of this process,

were you aware of those connections to the Treasury Secretary, and

were you aware there were CSX employees involved in this company that wanted to complete this transaction?

Secretary LOWERY. No, sir.

Mr. WELDON. You were not aware of that?

Secretary LOWERY. No, sir. I was not aware of it because I actually did not know about the transaction myself.

Mr. WELDON. But you were not aware any of the employees making the acquisition attempt had been involved with Treasury Secretary Snow at any previous time at CSX.

Secretary LOWERY. I don’t know anything about that, sir.

Mr. WELDON. Who did—the overview, I guess, for defense, would

have been done by you, ambassador, and by your staff, is that correct?

Mr. EDELMAN. The process was managed by the DTSA for the

Department of Defense, but as I indicated, it is farmed out to a variety of other elements of the Department, sir.

Mr. WELDON. You are aware DTSA no longer has the office that,

in fact, used to do that investigative work.

Mr. EDELMAN. I am glad you raised that. I can completely understand the concern that you raised about the DTSA, the defense

technology security office. My understanding is that the office was

melded into DTSA’s policy directorate and renamed the assessments division, which is now responsible for the CFIUS portfolio.

Its civilian workforce is still made up of intelligence professionals

as it was during the time of Technology Security Operations (TSO),

and that division now has more personnel than TSO did and that

the mission remains the same as TSO, they review the intelligence

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products provided under the CFIUS process. They do end user

checks on approximately 30,000 export licenses a year, and they

have extensive access to intelligence databases.

Mr. WELDON. Two concerns that I have and again I am not trying to cast any negative light on the Emirates. They have been

helpful and I publicly acknowledge that and the way this deal was

handled has put us in an extremely difficult if not impossible situation. As I said earlier, we are damned either way this goes. If we

stop the deal, we are damned because the Emirates would think we

have done this to embarrass them, if the deal goes through then

we will be blamed for not having done our homework. So either

way we lose.

I will give you a couple of issues you can respond to. One is a

memo that was sent on the 14th of May in 2002 by al-Qaeda and

I have it in both in Arabic and in English: To the officials of the

United Arab Emirates and especially the two emirates of Abu

Dhabi and Dubai. Are you aware of such a memo that was sent?

Mr. EDELMAN. I actually became aware of that in the last 24

hours that this memo exists. I believe it is an annex in a document

prepared by the counterterrorism center at West Point.

Mr. WELDON. Came from General Downing.

Mr. EDELMAN. I met with him last night and discussed this product, in fact he gave me a copy of it and I have seen the document

which I believe is an annex.

Mr. WELDON. Would that have affected your opinion?

Mr. EDELMAN. Obviously that is a data point we will have to include in our review, but I also think as with any other data point,

it needs to be looked at in the context of the whole broad array of

intelligence and what its providence.

[The information referred to can be found in the Appendix on

page 200.]

Mr. WELDON. Without objection, I will enter it into the record.

I want to read part. This was sent by al-Qaeda to the officials of

the United Arab Emirates, in particular Abu Dhabi and Dubai. I

will read two sections. You are well aware that we have infiltrated

your security, censorship and monetary agencies along with other

agencies that should not be mentioned. Therefore, we warn of the

continuation of practicing such policies which do not serve your interest and will only cost you many problems that will place you in

an embarrassing state before your citizens.

In addition, it will prove your agencies’ immobility and failure.

Also, we are confident that you are fully aware your agencies will

not get to the same high level of your American lords. Furthermore, your intelligence will not be cleverer than theirs and your

censorship capabilities are not worth much against what they have

reached. In spite of all this, Allah has granted us success to get

even with them and harm them. However, you are an easier target

than them. Your homeland is exposed to us. There are many vital

interests that will hurt you if we decide to harm them, especially

since you rely on shameless tourism in your economical income. Finally our policies are not to operate in your homeland or to tamper

with your security because we are occupied with others. If you compel us to do so we are prepared to postpone our program for a short

period and allocate time for you.

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This was sent to the leadership of the Emirates. The same people

that you all said there is no problem with. Now I wonder if they

told you if you found that in your process that they had been

warned by al-Qaeda that they had fully infiltrated all of the operations of the Emirates government. Were any of you aware of that?

Were you, Mr. Lowery?

Secretary LOWERY. No, sir.

Mr. WELDON. Mr. Baker.

Secretary BAKER. No, sir.

Mr. WELDON. Were you, Admiral?

Admiral GILMOUR. No, sir.

Mr. WELDON. Ambassador, you told me you found out about it

yesterday.

I have been critical of the 9/11 Commission lately, and I think

rightfully so, but I want to refer to a provision last week and page

137 in the 9/11 Commission report, I don’t know whether you have

had a chance to look at it, it is called the Desert Camp, February

of 1999.

[The information referred to can be found in the Appendix on

page 190.]

Mr. EDELMAN. I have not looked at it recently, but I am aware

of the contents and several references throughout the reports to the

Emirates.

Mr. WELDON. I am going to paraphrase. I would, without objection, place this into the record. But what it says: Early in 1999 the

CIA received information that Osama bin Laden was one of several

camps in the Afghan desert, a desert hunting camp. There, in fact,

was an incident where we were going to attack that camp. In fact,

our intelligence and our military folks had planned the attack.

They were concerned about the strike. This is according to CIA defense officials. Because they might kill an Emirate prince or other

senior officials who would have been with bin Laden or close by.

So we called the strike off.

So this country, knowing bin Laden was frequenting a camp in

Afghanistan called off a strike because of our fear that Emirates

officials, in this case, a prince was there because we had seen evidence of an Emirates airplane. It was a lost opportunity to kill bin

Laden.

On March 7th of 1999, you know who I am talking about, called

a UAE official to express concerns about possible associations between Emirate leadership and bin Laden. A week after that, less

than a week, that camp was gone. It was gone.

Now I can’t prove that the officials of the Emirates told bin

Laden to get rid of your camp because the U.S. is after you but

would I assume that is what happened. The United Arab Emirates

was a counterterrorism ally but the fact is imagery confirmed that

the camp was hurriedly dismantled and the site was deserted. This

is the same group of people that we have basically said it is okay

that one of these leaders of this family, in fact, owns this site. This

is a chance that we had to take out bin Laden, and I think anyone

reasonably could assume that because of information provided to

the Emirates leadership, that camp was destroyed.

Do you know if that was considered as a part of the defense assessment of this operation of your CFIUS assessment?

91

Mr. EDELMAN. I can’t say, sir, within a certainty what specific information from the 9/11 Commission people may or may not have

brought to bear.

Mr. WELDON. How about the person representing you? Was she

aware of this? Can I ask her that?

Mr. EDELMAN. You are certainly welcome to do that. Ms. McCormack.

Ms. MCCORMACK. No, I was not aware of that. I am aware of the

9/11 Commission report.

Mr. WELDON. But the tie between the Emirates and the base

camp.

Ms. MCCORMACK. We did not, but obviously we have a detailed

report that comes from the Defense Intelligence Agency, which was

a part of the Defense Department’s review.

Mr. EDELMAN. Congressman Weldon, if I might, I think my recollection of the report is, and I think you characterized it correctly,

that Dick Clark, at the time, was concerned about having the

strike go forward because if my recollection bears me out, I believe

in the report he said we were about to have a strike on one of our

best counterterrorism allies. I know as well in the report, my

former colleague who was ambassador to the United Arab Emirates

in the late 1990’s characterized it as a complex situation in which

the Emirates were both a counterterrorist ally, but also a bit of a

counterterrorist problem for the reasons that you mentioned.

Mr. WELDON. A bit? We lost a chance to take out bin Laden.

Mr. EDELMAN. The reasons that are outlined in the 9/11 report.

I think as I tried to suggest in my testimony, since September

11th, I think there has been a dramatic change. And for almost the

last 5 years, we have had extraordinary cooperation with them on

the counterterrorism front.

Mr. WELDON. Mr. Lowery, were you aware of this incident as

outlined in the 9/11 Commission report?

Secretary LOWERY. I was not aware of the 9/11 report of this incident. I do know that the intelligence services of the United States

did do a review and a threat assessment and said, and I believe

Mr. Negroponte testified this week, the threat on this was low.

Mr. WELDON. The threat was low. Do we have a copy of that for

the record either classified or unclassified for the hearing?

Mr. Baker, were you aware of this report?

Secretary BAKER. I certainly remember the incident and Dick

Clark’s reaction about the complexity of it and the risk of attacking

someone he viewed as a ally in the hunt for bin Laden.

Mr. WELDON. You didn’t know he was at bin Laden’s base camp.

Admiral, were you aware of this at all. Admiral?

Admiral GILMOUR. I am aware of the incident but not in any detail.

Mr. WELDON. That didn’t raise any concerns to you when you

were part of the process?

Admiral GILMOUR. Sir, we did a separate intelligence look at the

ports, looking specifically at the effect on the ports in the U.S.

Mr. WELDON. I am advised in the unclassified report of the intelligence committee assessment, and I will repeat this for the record,

the community acquisition risk assessment center does not assess

vulnerabilities. Are you all aware of that?

92

Secretary LOWERY. Yes, sir, I believe what they do is they assess

the threat of the acquirer, in this case it was DP World, which, of

course, is owned by the government of Dubai.

Mr. WELDON. You were aware they did not assess vulnerabilities.

Secretary LOWERY. I believe in this case, because it is about port

securities issues, that is, Department of Homeland Security and

Coast Guard addressed more specifically.

Mr. WELDON. The gentleman from Missouri.

Mr. SKELTON. Mr. Lowery, you were the chairman of the CFIUS

group, is that correct?

Secretary LOWERY. The Treasury Department is the chairman,

the Chair of the CFIUS group, sir.

Mr. SKELTON. You personally were the chairman, is that correct?

Secretary LOWERY. In this particular case?

Mr. SKELTON. Yes.

Secretary LOWERY. No, I was not.

Mr. SKELTON. Well, who was?

Secretary LOWERY. The way it works, sir, at the top obviously the

Secretary of the Treasury. As we go down further, it is the Deputy

Secretary then, myself.

Mr. SKELTON. Who had the knowledge and information on this

proposal?

Secretary LOWERY. I believe 14 different agencies.

Mr. SKELTON. I know that. Within the Treasury Department.

Secretary LOWERY. At the Treasury Department, I believe the

Deputy Assistant Secretary, sir.

Mr. SKELTON. What is that name?

Secretary LOWERY. His name is Mr. Shott.

Mr. SKELTON. Is he the one that approved it for CFIUS as one

of the 12 agencies?

Secretary LOWERY. As one of the 14 agencies in this case, I would

have to ask Mr. Shott about who——

Mr. SKELTON. Who signed off on it?

Secretary LOWERY. I would have to ask him.

Mr. SKELTON. It was not you?

Secretary LOWERY. No, sir.

Mr. SKELTON. Ms. McCormack, would you take the witness

stand, please. Let her sit there, Ambassador.

Your name is Beth McCormack?

Ms. MCCORMACK. That is correct, sir.

Mr. SKELTON. Are you the one that represented the Department

of Defense in CFIUS?

Ms. MCCORMACK. In this particular case, sir, the predominant

discussions of this transaction were done at the staff level where

I have the part of my organization we talked about a few minutes

ago, my policy directorate, which is one of the five directorates of

my agency. They were the representatives at the level because we

had basically one meeting on this transaction.

Mr. SKELTON. Is that below your level?

Ms. MCCORMACK. Yes.

Mr. SKELTON. Can you give me the name of someone within the

Department of Defense that signed off on this?

Ms. MCCORMACK. In this particular case, after we got the inputs

in from the 16 other agencies other than my own that reviewed the

93

transaction and none of those agencies had any issue, the transaction was signed off on by the director of my policy directorate,

and, again, my agency——

Mr. SKELTON. What is the name of your policy director?

Ms. MCCORMACK. At the particular time, Andrew Reitzel.

Mr. SKELTON. Did the CFIUS 14 ever meet?

Ms. MCCORMACK. My understanding was we had two meetings

on this transaction. We had a discussion with the company in December and then there was another meeting at the staff level of the

transaction after the review process.

Mr. SKELTON. Were you ever present?

Ms. MCCORMACK. I was not.

Mr. SKELTON. Below your level?

Ms. MCCORMACK. Yes.

Mr. SKELTON. Thank you, Ms. McCormack.

Ms. MCCORMACK. Thank you, sir.

Mr. SKELTON. Mr. Baker, we have talked about these assurances,

have we not?

Secretary BAKER. Yes, sir.

Mr. SKELTON. And they were given when?

Secretary BAKER. I think January 6th.

Mr. SKELTON. As a result of what?

Secretary BAKER. As a result of our request to the company that

they give us assurances on these topics.

Mr. SKELTON. In going through the list of assurances, it really

depends upon the good will of the company, does it not?

Secretary BAKER. To a degree. However——

Mr. SKELTON. Yes or no.

Secretary BAKER. No.

Mr. SKELTON. In other words, some of them are legally enforceable?

Secretary BAKER. Yes.

Mr. SKELTON. Which ones?

Secretary BAKER. All of them are legally enforceable, but I would

have to say the ones that have, in my view, the most clear cut content are the requirements that they maintain their level of cooperation and membership in a variety of previous voluntary programs

and a requirement that they give us information without a warrant, without a subpoena about all of their U.S. operations.

Mr. SKELTON. Are you alone, Mr. Baker?

Secretary BAKER. I used to be at least, yes.

Mr. SKELTON. I practiced law for 20 years. In reading the language thereof, I don’t think they are very enforceable. I think a

court would agree with me on that.

Secretary BAKER. May I explain why I believe that they are enforceable. I understand that if this went to litigation, there are

parts of these agreements that talk about what is reasonable or

what was intended, what the plans of the company are. However,

we clearly have expectations about what those mean and we have

the ability beyond going to court.

This company is entirely dependent on having a Customs service

and the Coast Guard that trusts them. If we don’t trust them, we

are going to have to inspect far more of their cargo than we do

today. And if that happens, their competitors are going to be movVerDate 22-MAR-2001 10:47 Sep 16, 2008 Jkt 032987 PO 00000 Frm 00097 Fmt 6633 Sfmt 6633 C:\DOCS\109-100\061002.000 HNS1 PsN: HNS1
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ing much more quickly through those ports than they are, and that

is a terrible business disadvantage. The one thing you cannot do

if you are in this business is have the Customs service and the

Coast Guard not believe that you are being candid and honest and

straight forward with you.

That is why I believe that we be able to enforce our expectation

about the spirit as well as the letter of this agreement.

Mr. SKELTON. That is not a court of law, is it?

Secretary BAKER. That is right. I think it is better than a court

of law, frankly.

Mr. SKELTON. Very good. Well, I won’t belabor it, but it appears—well, let’s ask Mr. Ambassador here; your title is?

Mr. EDELMAN. Under Secretary of Defense for Policy, sir.

Mr. SKELTON. Did you know anything about this?

Mr. EDELMAN. I found out about the transaction after the review

had been completed when I was recipient of a phone call from Deputy Secretary Kimmitt.

Mr. SKELTON. This was done at a much lower level. Evidently in

all 14 agencies, am I correct?

Mr. EDELMAN. I can’t speak for the other agencies, but it certainly was done at a lower level in the Department of Defense.

Mr. SKELTON. Thank you.

The CHAIRMAN. Thank the gentleman.

Gentlemen, I don’t know if you watched the earlier part of our

hearing when we went over the activities with respect to technology transfer that had been attributed to Dubai in terms of

transshipment. I want to go over these and ask you to come back

to the committee if you can with a written response either saying

these things didn’t happen or they did happen, and obviously your

response probably would require a classified answer, and if it does,

that is fine.

Let me just go over these particular transfers. In 2003, according

to the information that we have here and from Mr. Milholland, who

has testified to this committee for decades, and who I consider to

be one of the experts in the world on technology transfer, in 2003,

over Washington protests, 66 high speed triggers or switches that

are utilized in nuclear detonations were transferred to a Pakistani

businessman transshipped through Dubai. Even though we found

out about it and protested, Dubai allowed the transshipment to go

through.

There was an indictment of an Israeli national in this case, but

the Dubai government allowed the transshipment to take place. So

that is one.

2003. In 1996, the German government listed six firms in Dubai

as front companies for Iranian efforts to import arms and nuclear

technology from Dubai. In 1995, Guide Oil of Dubai ordered American-made material, which can be used for making nerve gas ingredients, a precursor to nerve gas, and tried to pass it along to an

Iranian purchasing agent in violation of American expert control

laws. That was stopped by an American sting operation, but that

was taking place in Dubai.

In 1990, a Greek intermediary offered Iraq an atomic bomb design, probably of Chinese origin, from Doctor Kahn in Pakistan

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with a guarantee that, quote, any requirements or materials can be

bought from western countries and routed through Dubai.

In 1995 and 1996, Mr. Hampel, who is a German exporter and

former Nazi sent 12 tons of Soviet heavy water to India through

Dubai. In 1993, Mr. Hampel sent 15 tons of heavy water from Norway and some from—and 6.7 tons from the Soviet Union through

Dubai to India.

If you guys could take a look at those instances of transshipment

and respond back to us, that would be certainly helpful.

It appears that it is clear from these hearings that the sole stockholder of this company is the Emir, is that your information?

Secretary LOWERY. I know that it is—I am not sure about that.

It is controlled definitely by the government of Dubai, and that

usually comes under the heading of the Emirs.

The CHAIRMAN. And the Emir’s also the vice president of the

United Arab Emirates, this particular Emir, and the sole director

of the company. I guess the point that I am making is he is in

charge of the government which shapes Dubai’s transshipment

policies and it appears that Dubai specializes in masking transfers.

And if you read Milholland’s account here, which I think we will

make sure we get you a copy of this, this is a place where you go

to, if you want to mask the seller and mask the buyer, you take

things through Dubai.

It appears that while Dubai may cooperate with the United

States with respect to security matters, it appears that they also

cooperate with people who aren’t on our side, and who, at some

point, could bring great harm to millions of Americans and at least

in the case of these triggers that they transshipped over our objection. That is their policy. Their policy is sometimes to accommodate

America and estimates not to accommodate America.

So my question is was there any consideration for their policy of

export control or transshipment control when you looked at this

deal, at this ports deal.

Mr. EDELMAN. There was certainly consideration among the various Department of Defense elements and agencies who look at this

transaction with regard to the possibility of diversion of sensitive

technology.

The CHAIRMAN. Are you sure of that?

Mr. EDELMAN. I can tell you what I understand took place in the

process, Chairman Hunter. I was not a part of it myself.

The CHAIRMAN. We had a TRANSCOM hearing this morning,

transportation command. Incidental to that hearing we asked the

General, who was in charge of the security apparatus in port distribution of American material if he was, in fact, requested to give

a report or give his analysis from a defense perspective on this

deal. His answer was he didn’t look at it from a security standpoint. What he felt he was supposed to look at is whether or not

they could load and unload things and basically run an efficient

port system.

His experience was around the world, Dubai ports knows how to

get stuff on and off ships. So he didn’t look at this thing at all from

a security standpoint. So maybe they didn’t look at technology

transfer.

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Mr. EDELMAN. Your characterization of TRANSCOM’s role in the

process, as I understand it, is completely accurate. I think there

were a number of other elements including DTSA that do look at

this, and I know that DIA looked at the question of potential diversion of technology, but from the point of view not of the UAE as

a whole, but of the transaction at hand.

The CHAIRMAN. Gentlemen, thanks for being with us today and

discussing this. Let me ask you one other question.

Mr. MISENHEIMER. Would it be possible to comment on the proliferation record? The specific instances that you referred to are obviously very serious, and I am not familiar with them, but I think

in the interest of completeness, it would be appropriate to mention

also that the record of Dubai familiar to all of us and particularly

in the post–9/11 period on nonproliferation has been very strong.

Just this past month, we had the first meeting of a joint nonproliferation task force established between Dubai and the United

States. The Emirati government was instrumental in cooperating

with us in the unraveling the A.Q. Khan network. There are many

instances on the positive side that I just would like to put on to

the table as well.

The CHAIRMAN. Looks to me like you have a nation which accommodates. Sometimes it accommodates American interests, but

sometimes it goes the other way, and it accommodates the interests

of those who might do us harm.

I am looking at another piece of information that Mr. Milholland

pointed out, and that is next to Dubai’s main port in the Jebel Ali

free trade zone. He describes it as a haven for freewheeling international companies and states that some 264 firms from Iran and

44 from rogue regimes like Syria and North Korea have located

and done business there.

So my point is that I think you clearly can make the case that

UAE has cooperated with the Americans on a number of occasions.

On the other hand, appears to me they have also cooperated with

people who wish us ill and that they have not viewed technology

transfer as an area where they need to have discipline.

This place is described as a kind of freewheeling bazaar, and I

am reading the statements that are made by people who do business and in some of the communications where they said don’t

worry, and I am paraphrasing, don’t worry, we will ship it through

Dubai.

So the question becomes, because that is directly relevant to

what port operations are, right. Try to make sure that the cargo

container that has got the bad stuff in doesn’t end up in your port.

And that is one area where the leadership in Dubai has looked the

other way and allowed major transshipments of bad stuff to go to

bad people. That certainly doesn’t place them in the role of a Great

Britain, for example. Is that your—would you agree with that or

do you want to review this? If you would like to review these instances, and I do request that you come back on the record with

us on these instances. But what do you think about that?

Mr. MISENHEIMER. I am sure we can agree undertaking a review

of these instances would be appropriate and useful in providing the

most complete record that we can. I would come back to the current judgment, sir, that the record of cooperation of Dubai in our

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current assessment is positive and is improving. The historical

record is certainly of interest, and as Deputy Secretary Kimmitt

has made clear in previous briefings by this group, the record of

the 9/11 Commission and other sources are certainly relevant, and

were familiar to members of the CFIUS review panel.

The CHAIRMAN. But 2003 is not quite historic. That is pretty recent. Okay.

The gentleman from Missouri—or the gentleman from South

Carolina, Mr. Spratt, have a few questions.

The gentlemen from Missouri.

Mr. SKELTON. Mr. Lowery, since your department shared the

CFIUS operation or the process, I request of you to produce to our

committee any documents relating to the deliberation and decision

making process for this port deal, and this includes correspondence,

minutes of any CFIUS meetings, statements or summaries of fact,

and written decisions. All right, Mr. Lowery?

Secretary LOWERY. I will take that back to the Treasury Department, sir.

Mr. SKELTON. Thank you.

[The information referred to can be found in the Appendix beginning on page 205.]

Mr. SPRATT. Thank you all for your testimony and for your forbearance late this afternoon, but this is a highly important matter,

and we need to give it due diligence. Let me just get the general

opinion of the whole panel. Do all of you agree seaport security is

not what it should be, in fact it is significantly below what is an

acceptable level of security? The 9/11 Commission, for example,

said that the next terrorist catastrophe could be a seaport and they

further assessed seaport security at least as vulnerable, if not more

than our airports.

When you consider what we have done since 9/11 to our airports,

what we have done for our seaports pales by comparison. The

Coast Guard came up, Admiral, with an assessment of $5.86 billion, I believe, which was to be spread over a period of about 10

years for just meat and potatoes basic surveillance security at the

seaports; lights and surveillance cameras and fences, of this nature.

Of that amount, only $700 million has been appropriated thus

far. I think your program was presented some time ago. We have

offered amendments on the House floor, which haven’t been passed

to increase seaport security.

Does the whole panel share concern about the adequacy of seaport security and the vulnerability posed by seaports, particularly

considering the fact 9.8 million containers came into our ports last

year?

Mr. EDELMAN. Congressman Spratt, I certainly agree that port

security is extraordinarily important for the country, it is important for the Department of Defense, with regard to those ports that

we use for our own critical missions, and obviously, it deserves a

very high level of attention from the Administration and from the

Congress.

I am not really in a position to make a judgment about the level.

There are other folks on the panel more expert than I who can

speak to that.

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Mr. SPRATT. Did you regard it as a national security concern?

Mr. EDELMAN. It is clearly a national security concern.

Mr. SPRATT. Admiral.

Admiral GILMOUR. Sir, to answer the question about the 5.8 billion, I believe the 5.8 billion over a 10-year period was the amount

required for the facilities or the maritime industry to meet the requirements of MTSA.

Mr. SPRATT. What about radiation detectors? Do we have an adequate number today. It is my understanding these detectors are

only available in about 25 percent of our ports?

Admiral GILMOUR. I would have to ask that DHS and Customs

and Border Patrol (CBP) answer that. I will explain that we are

in charge of the security of the facilities themselves and vessels

that come from foreign 96-hour notification into our ports. We also

look at the people on the vessels and run them through terrorist

watch lists. But the cargo part of the security is really under the

jurisdiction of Customs and Border Patrol.

Mr. SPRATT. We had a statistic given to us earlier today that

there were 80 Customs inspectors for monitoring the compliance of

5,800 importers, and that there were only 20 Coast Guard inspectors to monitor the international shipping port facilities code. Is

that correct, 20 inspectors to monitor the worldwide international

code?

Admiral GILMOUR. I can speak to the foreign code inspectors, and

the number 20, I can get you the exact number, but that is in the

ball park, sir. I will tell you that what they do is under MTSA look

at all of our trading partners ports. We started about a year ago.

We have done about one-third of our trading partner ports. It is

about 44 ports that we have looked at with about 80 percent of the

cargo through-put that comes into our Nation, and we will be completed in about another 2–1/2 years.

Mr. SPRATT. When you had your discussion on the committee, I

believe it was Mr. Lowery indicated, I will quote, there were national security issues raised during this review process. Could you

tell us what those national security issues were specifically?

Secretary LOWERY. I think that the national security concerns

were revolving around port security and I believe that is why the

people at the Department of Homeland Security and the Coast

Guard worked on putting together an agreement with DP World

and P&O.

Mr. SPRATT. Can you tell us more specifically what those concerns were?

Secretary LOWERY. I would have to defer to the port security experts. I am not one. That is why we make sure that in CFIUS, because we do bring in 14 different agencies so that we make sure

that the national security experts in whichever agency have a

chance to look at it because there is different types of technology

and different types of things that are being acquired and so we

make sure our experts look at it. In this case, the expertise lies in

primarily the Coast Guard, the borders and customs patrol, and

Department of Homeland Security, though obviously Department of

Defense, State, Justice all looked at it, as well as the Treasury Department.

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Mr. SPRATT. The Coast Guard raised several concerns itself,

which it backed off, apparently. It was more or less satisfied, but

it indicated that it did have concerns about personnel, things of

this nature.

Secretary LOWERY. Sir, as I mentioned in my testimony, if any

agency had raised a concern about national security, we would

have gone into a 45-day investigation. Each agency——

Mr. SPRATT. I understand they were raised, but they were resolved. You say there were national security issues raised during

this review process.

Secretary LOWERY. I also said they were addressed.

Mr. SPRATT. How were they addressed? Simply information?

Secretary BAKER. May I offer some background on that? Stewart

Baker, Assistant Secretary for Policy at DHS, and I was in charge

of this policy, this particular case. We are very concerned about

port security, and two of our major agencies, Customs and Border

Patrol and the Coast Guard, have substantial responsibilities for

cargo and port security, so we had a strong interest in this case.

We asked each of the components to evaluate this transaction and

give us their thoughts on it.

Just to clarify one point with respect to the concerns that have

been in the press from the Coast Guard, there was, indeed, a paragraph released from a classified report on Monday that suggested

that concerns had been raised by the Court Guard’s intelligence

center. That very same memo concludes that there is not a substantial or significant increase in risk from this transaction. So it

is not as though they raised them and backed off them.

This was the complete memo, which, unfortunately, is classified,

and comes to a more balanced conclusion than is suggested by the

release of that one paragraph.

The concerns that we had about this led us ultimately to conclude that we wanted additional assurances from the parties to this

transaction, and that if we didn’t get them, we were prepared to

object to the transaction. We got them. Those assurances locked in

their level of cooperation in a variety of volunteer programs that

substantially raised the level of security above what is required by

law.

Mr. SPRATT. Earlier today, we had testimony from the first panel

corroborated by testimony from the Dubai Ports World panel to the

effect that there is equipment out there, scanners, radiation detectors, radio frequency emitters, all of which could give us far greater

security.

The first panel of witnesses said make this an opportunity to impose that requirement on this firm as a condition of approval. The

company itself said if you broaden that so we are all there together

charging the same fee, and I presume we could charge fees sufficient to defray the cost, then it is feasible. The equipment is there,

the process is there. We could inspect 100 percent of all of the containers instead of 5 percent. Did this possibility come up, did you

ever discuss this idea?

Secretary BAKER. I am certainly aware of the Hong Kong experiment that is frequently mentioned in this context. It is a pilot

project, it is a project to determine whether it is possible to x-ray

a large volume of containers. It is not a pilot project that enables

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us to actually evaluate by looking at the x-rays. I don’t think there

is anybody looking at those x-rays today.

So this is still a very limited and preliminary pilot program. It

may well turn out to be a very valuable approach to port security,

but it is a little early for us to say let’s get married to it. So we

are not prepared at this point to say this is something we are sure

we want to impose. We certainly will be looking at it, because it

does have some promise.

The CHAIRMAN. Thank the gentleman.

The gentleman from New Jersey, Mr. Saxton.

Mr. SAXTON. Thank you, and thank you for hanging in here with

us so long. We appreciate it.

The panel that was here just before you headed by Mr. Edward

Bilkey, chief operating officer of the company, told us quite clearly

that they believe that the status of the deal is that while it is on

hold for 40 days, that pending the court activity that is underway,

that the approval has been granted and that the delay of 45 days

for review purposes is just a review and they conveyed to us that

it is their conclusion that the deal is done pending the court action.

Do you agree with that assessment?

Secretary LOWERY. Sir, I believe that they are trying to close

their transaction, their financial transaction. I know that they are

going through a U.K. Regulatory issue of some sort. They have said

to us in a commitment letter that they will hold the assets of North

America in a separate holding—it is not a company because that

is not the right legal term—but a separate holding arrangement

that basically will take operational and management responsibilities and keep them exactly the way they are currently. They will

be the financial beneficiary so they basically serve as a passive investor in certain respects, and they said they are willing to go

through a new review process and a new investigation. They have

asked for a 45-day investigation opening themselves up to the

Exxon-Florio statute. They actually said in their letter that DP

World will abide by the outcome of that review.

Mr. SAXTON. So your review, then, will be geared to reapprove

or reject the deal? Or I suppose your other option is to impose additional or different conditions?

Secretary LOWERY. Correct. All of those options are available.

Mr. SAXTON. Given the so-called data points which Mr. Weldon

and Mr. Hunter and Mr. Skelton mentioned, which appear to have

not been considered as part of the process, given that new information, do you think that shines any different light on the situation?

Secretary LOWERY. Well, let me just say that I believe that we

felt like we did do our jobs and our agencies did their jobs on the

national security review and in terms of an intelligence threat assessment. That said, during this investigation period, we will—we

have heard very clearly from Congress, we have heard very clearly

from transit authorities and local officials. We want to look at all

information, including the information from the questions that

have been raised and in other hearings, and we will do a very thorough and robust job over the next 45 days or so.

Mr. SAXTON. We are, as you know, in the process of beginning

to consider legislation as the responsibility—as we see the responsibility of Congress to the American people and to this process that

101

seems pretty obvious that we have a responsibility to be involved.

The bill that we have drafted here in this committee thus far requires citizenship or American ownership. It requires 100 percent

inspection of material being imported into the country through containers, or perhaps otherwise as well. And it has a section that

speaks to the reform of the Committee on Foreign Investment in

the U.S. I am specifically interested in your opinion on the last

part.

Would you—would you think at this point that, given the fact

that we have experienced 9/11 and its aftermath, that the security

situation in the country has changed, that a different process might

be used through CFIUS or some other named process to more effectively handle security with regard to these matters?

Secretary LOWERY. Let me just say, I guess, that since 9/11 I

think that CFIUS actually has changed. We do look at more matters. Very importantly, we have brought the Department of Homeland Security, which obviously did not exist before 9/11, they bring

a very different voice to the table and it is a very strong voice. We

will be open to any suggestions that Congress has and we can work

with you. We obviously know that there is a problem. We have already said that there is clearly a problem with how we are informing Congress about what we are doing. And so we are open to discuss these matters over the next weeks months, what have you.

Mr. SAXTON. Are you satisfied with the level of investigation that

was done prior to your conclusion on this matter?

Secretary LOWERY. Yes.

Mr. SAXTON. In spite of the fact that in just a few days Members

of Congress have come up with data points that were not considered, that letters from al Qaeda to the leadership of the country involved, and all those things that you did not—that you said you did

not consider?

Secretary LOWERY. Sir, I said that I did not personally consider.

What I also said was that each agency did its own thorough review

based on their knowledge and expertise. And that the intelligence

community did an overall threat assessment based on their knowledge of what I would imagine many of the data points that people

have brought up.

That said, there have been a lot of questions asked and a lot of

points raised and I think that we should—we have been given this

opportunity to provide another 45 days and we will investigate to

the best of our ability and as robustly as possible all of those

issues.

Mr. SAXTON. And I am sure you are also aware of the reality that

Congress is likely to do something. And certainly we would rather

do it with you than without you. And so I would hope that you

would keep an open mind. I know several of you personally, and

I know what kind of good people you are, and I hope that we can

work together so that we have the benefit of your experience and

your points of view.

Thank you very much.

Secretary BAKER. Congressman Saxton, on behalf of the Department of Homeland Security, we share your goal to improve the security of the supply chain and port security. We would be delighted

to work with you on these questions.

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Mr. SAXTON. Thank you.

The CHAIRMAN. The gentleman from New Jersey, Mr. Andrews.

Mr. ANDREWS. Thank you, Mr. Chairman, I first want to thank

you for a very thoroughgoing and comprehensive hearing and giving the members a chance to ask their questions. Thank you. And

I thank the witnesses for their patience in what has been a long

day.

The first thing I want to be sure the record reflects is that the

panel before this, I think, propagated a legal reality that is a substantive fiction, that the Dubais Port Corporation is one entity, and

the Government of Dubai and in part the government of the UAE

is quite another. Now, this is true as a formalistic legal proposition.

But I think that any practical reading of the record indicates that

100 percent of the shares of the Dubai Port Corporation are owned

by the ruler of Dubai, as the previous panel testified. So I think

we have to start from the proposition that the conduct, the opinions, the track record of the Government of Dubais, and, to some

extent, the Government of the UAE, since the ruler of Dubai and

the Vice President of the UAE are identical, are synonymous. And

I think we have to start from a security assessment from that point

of view.

The second thing that I want to ask Mr. Misenheimer is I understand that your conclusion is that the balance of the record favors

the conclusion that the UAE has been and Dubai has been a constructive force against proliferation of weapons of mass destruction.

But I want to be clear. You acknowledge, do you not, the Chairman’s question about 2003 and the transfer of the triggers which

could be used in a nuclear weapon? Do you agree with the proposition that such a transaction took place, that it went through the

UAE and it went through the UAE over the objections of the

United States? Do you acknowledge that?

Mr. MISENHEIMER. Sir, I am not personally familiar with the details of that episode. I have heard the reports. But I could not go

beyond that.

Mr. ANDREWS. Well, if you are able to draw a conclusion, which

I did, about the balance of the record, are you aware of any of the

negative implications in the record, or only the positive ones?

Mr. MISENHEIMER. No, sir. And thank you for that question. I am

certainly not here representing the State Department as an advocate of the UAE or of Dubai. If the United States has an ally that

has a perfect unblemished record of cooperation with us and everything we cared about, the UAE is certainly not that ally. And I

think that has been made very clear in many of the facts and data

points that have been brought out.

Mr. ANDREWS. So the State Department acknowledges that on

the record there are examples of conduct that we would regard as

antithetical to the goal of prohibiting proliferation of weapons of

mass destruction; is that correct?

Mr. MISENHEIMER. As has been stated, sir, the full record of

Dubai’s performance was documented and familiar to the participants in the CFIUS process, including the various intelligence

agencies involved. And the conclusions that were reached took

those data points into account.

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Mr. ANDREWS. And the record included examples of behavior

antithetical to the goal of prohibiting proliferation of weapons of

mass destruction; correct?

Mr. MISENHEIMER. Again, I can’t go to the specific examples, but

I did want to represent the conclusions of both my agency and of

the intelligence reviews that I have seen that reach a favorable

conclusion on their cooperation.

Mr. ANDREWS. But there were examples that were negative examples on the record; correct?

Mr. MISENHEIMER. Sir, I couldn’t go into the intelligence, the

positive and negative intelligence ledger.

Mr. ANDREWS. Okay. Here is what I am going to ask you to do.

I would ask the Department to supplement on the written record

whether it acknowledges or disclaims the basis of the Chairman’s

question about the 2003 transaction of the triggers which could be

used in a nuclear weapon; whether the Department acknowledges

that, in fact, took place over the protest of the United States or

whether it did not. Could you do that for us?

Mr. MISENHEIMER. Yes, we will be glad to look into that.

Mr. ANDREWS. The next issue I want to raise——

The CHAIRMAN. And if the gentleman would yield, let’s try to get

that information on that and the other ones within 10 days or so.

Say by next Friday, we should be able to get—if all activities are

fairly well known by the agencies, and they should be able to review it pretty quickly and say yes or no. So if you would get it back

in 10 days, we would appreciate that, okay?

Mr. ANDREWS. I thank the Chairman for that and I think it is

something more than we would just appreciate. If we are going to

make an intelligent decision before or after the expiration of this

45-day review period, I think we need to have that information——

The CHAIRMAN. Let’s say then that we agree that you will get

that back to us. Will you do that?

Mr. MISENHEIMER. Yes, sir.

The CHAIRMAN. Thank you.

Mr. ANDREWS. Thank you, Mr. Chairman. Nice to have that

gavel.

Mr. SKELTON. May I interrupt? Will the gentleman yield?

Mr. ANDREWS. Yes.

Mr. SKELTON. My request Mr. Lowery, if you would comply with

my request for the documents and all the items I mentioned thereto that you agreed to furnish, if you would do it within the same

time frame, that would be very helpful to us. Is that okay, Mr.

Lowery?

Secretary LOWERY. Sir, I will take that back to the Treasury Department.

Mr. ANDREWS. If I may, just to help my Ranking Member, when

you take it back, Mr. Secretary, to the Department, we would appreciate an answer as promptly as possible. If the answer is no, we

are not going to comply within the time, I think we need to know

that. If the answer is yes, we will, I think we need to do that very

promptly.

Secretary LOWERY. Sir, the Congressman asked for distributive

documents. That is obviously something that I have to talk to my

general counsel about.

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Mr. ANDREWS. We appreciate that and we think that your general counsel and/or the Secretary needs to tell us his or her response to that promptly so that we can consider what our options

are; do you agree with that?

Secretary LOWERY. I hear you, sir.

Mr. ANDREWS. Okay. That means no. I understand.

Admiral Gilmour, I take it that the Coast Guard played—plays

a critical role in the port security of the country. That is a given.

And some of the defenders of this agreement have taken the position that the Coast Guard’s prime position in defending port security means that it is of marginal or limited relevance as to who the

terminal operators are as long as the Coast Guard is on the job,

that we are okay. And by the way, I have tremendous faith in the

Coast Guard and the work that you do and I salute you for it.

Your statement is a very lawyerly one about the role of the Coast

Guard’s involvement in the CFIUS process. Let me read it to you

from page 4 of your statement:

Regarding the Coast Guard’s involvement, the Coast Guard’s initial review identified potential gaps in available intelligence related

to specific Coast Guard interests in the transaction. However, after

fully considering all available intelligence, the Coast Guard’s assessment was that it did not oppose the transaction.

Have you had a chance to review the intelligence—obviously,

without disclosing the specifics of it, have you had a chance to review the intelligence that was unavailable, prior to making your

recommendation, since you made your recommendation?

Admiral GILMOUR. Sir, I—I need to explain that I guess a couple

of things. I am not a member of the CFIUS Committee and we

work, obviously, for the Department of Homeland Security. Second,

our intel was done for internal Coast Guard purposes. I am the director of port security. Our intelligence director and his staff made

that assessment. So I really couldn’t speak to it. However, he is

here if you would like him to speak.

Mr. ANDREWS. Oh, I would, with the Chairman’s permission. If

that gentleman would answer my question, I would like you to step

to the microphone and identify yourself for the record.

Mr. SLOAN. I am James Sloan, S-L-O-A-N. I am the Assistant

Commandant for Intelligence and Criminal Investigations at the

Coast Guard.

Mr. ANDREWS. Mr. Sloan, what is the answer to my question?

Mr. SLOAN. The answer is yes, we did review intelligence subsequent to our report.

Mr. ANDREWS. Can I ask you a question, Mr. Sloan?

Mr. SLOAN. Yes.

Mr. ANDREWS. If there was intelligence that you deemed to be

relevant that was available to be reviewed before a decision, why

did you make the decision? Why did not you ask that the decision

be delayed or kicked over into the 45-day review process?

Mr. SLOAN. I am going to tread lightly, given the fact that we

are talking about a classified assessment.

Mr. ANDREWS. I appreciate that.

Mr. SLOAN. We did identify intelligence gaps. That does not necessarily mean that they were potential threats or should sway the

assessment, other than they were information that we wanted to

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alert our colleagues, for whom we were informing with this product, that we needed more information.

We were assessing the acquisition of these facilities by DPW,

and, as a result of that assessment, and the reason I am hesitant—

I am just going through my mind with the document—we did come

to the conclusion that the DPW acquisition would not create a significant threat.

Mr. ANDREWS. But my question is a little different. By definition,

I think implicitly, the use of the word ‘‘available intelligence’’ or the

phrase ‘‘available intelligence’’ implies that you concluded that

there was relevant intelligence not available to you before you

made the decision. You since reviewed that and you have reached

a conclusion that it does not change your judgment.

What was the rush?

Mr. SLOAN. Sir, it is important, I think, for this purpose; to point

out that that assessment was requested in early November and

was delivered for the purposes of informing our colleagues in late

November.

Mr. ANDREWS. Really?

Mr. SLOAN. Yes, sir.

Mr. ANDREWS. How many days were put into that assessment?

Mr. SLOAN. Fifteen. It was requested for the purposes of the request, yes.

Mr. ANDREWS. How many ports—how many P&O operations are

there in the United States that you looked at?

Mr. SLOAN. We examined—well, I should back up and tell you

this. By the end of last year, we reviewed, by virtue of a port threat

assessment, every one of the ports that contain P&O operation. We

did it to complement Admiral Gilmour’s directorate, which is the

port security.

Mr. ANDREWS. By the end of last year. But you delivered your

recommendation at end of November and it was 15 days’ worth of

investigation?

Mr. SLOAN. No, sir, it was 15 days of gathering information for

an analysis to help inform our personnel who were going to be part

of an action officer team in the CFIUS process.

Mr. ANDREWS. Okay. So you took 15 days and the intelligence

that was available after that 15 days, the Coast Guard in effect

voted its proxy in the committee process; is that right?

Mr. SLOAN. I am not familiar that the Coast Guard voted in that

regard. I am not part of the CFIUS process and I think Admiral

Gilmour indicated neither is he.

Mr. ANDREWS. May I ask who from the Coast Guard was part of

the CFIUS process?

Mr. SLOAN. I might be overstepping my bounds in saying this,

but the Coast Guard’s role was to help inform the DHS decision.

Mr. ANDREWS. Maybe I could ask Mr. Baker. With whom did you

consult from the Coast Guard about the pace of the gathering of

this intelligence?

Secretary BAKER. I would have to go back and check the records

for the particular names of the people in the Coast Guard, but they

were authorized to speak on behalf of the Coast Guard in the

CFIUS process.

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Mr. ANDREWS. Uh-huh. And did any of them represent to you or

anyone in the Department that there was intelligence they deemed

relevant that was not yet available when they made their recommendation?

Secretary BAKER. No, they did not. And I would say that that intelligence report itself comes to the conclusion, notwithstanding the

gaps, it says DP World’s acquisition of P&O in and of itself does

not pose a significant threat to U.S. assets.

Mr. ANDREWS. That is correct. And when was that report written?

Secretary BAKER. End of November.

Mr. ANDREWS. And that presumably, according to today’s testimony, was based upon the available intelligence that was available

then. Why was it so necessary to write that report before all the

relevant intelligence was available?

Secretary BAKER. The report comes to a conclusion. It acknowledges, as a good intelligence report would, that it does not have all

the available information. There is always some gap in intelligence

or we would be all-knowing. It does not say that it knows everything, but it says it knows enough to come to this conclusion.

Mr. ANDREWS. You know, I am not by any means an expert on

port operations but when I look at port operations, the scope of the

P&O operations, the sensitivity of the places in which they operate,

frankly, the issues with respect to the identity between Dubai and

the corporation, it strikes me that 15 days is a rather hasty timetable for the evaluation of this. Am I wrong about that?

Admiral GILMOUR. Sir, could I clarify the record?

Mr. ANDREWS. Sure.

Admiral GILMOUR. Mr. Sloan—my staff was involved with the

DHS team that looked at the CFIUS review.

Mr. ANDREWS. Uh-huh.

Admiral GILMOUR. And we tasked Mr. Sloan and gave him a

deadline so that we would have what available information we had

to make a due diligence attempt to look at the intelligence within

the DHS.

Mr. ANDREWS. Your staff gave him the late November deadline?

Admiral GILMOUR. Yes, sir.

Mr. ANDREWS. Why? What was the big hurry?

Admiral GILMOUR. I think the point was we wanted the information—we wanted the information to go into the report, and my staff

has inspected after P&O port in the United States as well as a

number of them overseas.

Mr. ANDREWS. Wasn’t that subsequent to the recommendation

that you made? Weren’t most of those inspections subsequent to

the end of November?

Admiral GILMOUR. Which inspections, sir?

Mr. ANDREWS. You just referenced inspections of P&O facilities

in Dubai World overseas.

Admiral GILMOUR. Sir, we inspected all of the P&O facilities initially after July 2004 and we looked at them again. We are doing

a baseline inspection to look at them to see if they substantially

continue to substantially meet the regulations before the turnover.

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Mr. ANDREWS. What was the first date that the Coast Guard received notice that it was going to be asked for its input into this

process?

Admiral GILMOUR. November 7.

Mr. ANDREWS. What was the date on which the Coast Guard

made its recommendation to the CFIUS process?

Admiral GILMOUR. They had a couple of meetings after that.

They had a staff-level meeting held at Treasury on the 6th of December, where our concerns on operations and personnel were

lodged.

Mr. ANDREWS. I’m sorry, Admiral, did not you just say, or the

other gentleman just say, that there was a recommendation made

the end of November?

Admiral GILMOUR. No, sir, that was—that was the summary—

the Coast Guard intelligence summary on the 29th of November to

my staff.

Mr. ANDREWS. So that was not a conclusion? It was a record on

which you drew your conclusion?

Admiral GILMOUR. No, it was a conclusion from the intelligence.

Mr. ANDREWS. You made a conclusion by the end of November.

That is what you just said, when was the conclusion by?

Admiral GILMOUR. No, sir, we did not make a conclusion. The intelligence community gave us the report that made a conclusion.

And it made both of the things that Mr. Sloan talked about.

Mr. ANDREWS. Were any of the inspections that you just made

reference to done between the 7th of November and when that conclusion was made?

Admiral GILMOUR. Any of our P&O inspections? I don’t know, but

I would say I doubt that any were made during that time within

the U.S.

Mr. ANDREWS. Do you think that you would ask yourself a different set of questions about the P&O inspections if you knew who

the new owner might be?

Admiral GILMOUR. We did know who the prospective owner was

going to be.

Mr. ANDREWS. Not until November 7th, did you?

Admiral GILMOUR. Yes, sir.

Mr. ANDREWS. You did? You tell me you made inspections of

P&O facilities overseas, knowing that the purpose of the investigation was to assess this new owner from Dubai?

Admiral GILMOUR. No, sir. That was part of our international assessment program.

Mr. ANDREWS. I understand; it was a more generic assessment.

Admiral, let me ask you another question that concerned me I

think, that the CSI initiative has been a success story and you and

the people in Homeland Security deserve great credit for it. I have

been privileged to receive some classified briefings as to the basis

of your judgments and I think you are very sound, do a good job.

But I would obviously state that the record shows—and I am sure

you would agree—that the vast majority of containers coming into

the country are not inspected; is that correct?

Admiral GILMOUR. Again, sir, CBP is the group in charge of security.

Mr. ANDREWS. Is that correct, Mr. Baker?

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Secretary BAKER. That is correct.

Mr. ANDREWS. And that is not an accusation, it is just an observation given the vast scope of trade that comes in. And I would assume, therefore, a vast majority of containers coming into these

ports that the Dubai company would operate would not be inspected; is that correct?

Secretary BAKER. That would be correct.

Mr. ANDREWS. Let’s posit a circumstance where the containers

contain three elements that separately are rather benign but, if

combined, could form a weapon or the basis of a weapon. They are

in three separate containers, none of them are inspected, they find

their way into a warehouse facility run by the new owner, the new

operator, the Dubai people. Are all the employees of the Dubai organization subject to a background check?

Secretary BAKER. The Dubai company operating in the United

States. Yes.

Mr. ANDREWS. Who does the background check?

Secretary BAKER. There are a variety of background checks because they are a C–TPAT member and can’t get out of the program

now, they are subject to background checks. I think in Newark the

background checks are performed by the Port Authority. We also

now have authority to get the names of all their employees and

date of birth, Social Security number, and conduct our own review.

Mr. ANDREWS. And for what percentage of employees do you do

your own review?

Secretary BAKER. This is a special assurance that we have received from this company as a condition of approving this transaction. And so we can, if we wish, impose that requirement on 100

percent of the employees.

Mr. ANDREWS. I do have some familiarity with this. It has been

my understanding that the background check that is done of the

terminal employees tends to be a paperback ground check which

relies heavily upon the documents that are presented by those employees. Is that generally true in your experience?

Secretary BAKER. I am not sure I can generalize about all of

them. I think that is entirely possible, which is one reason why we

are pleased to have the additional authority in this case to carry

out more extensive background checks using our own records.

Mr. ANDREWS. And it is also my understanding that, for example,

a document that indicated that an employee of the terminal had

never served in the Armed Forces—in other words, one could falsify

a resume rather easily if it was simply a paperback ground check,

couldn’t one?

Secretary BAKER. There is a risk there. It is better than not having a background check, but there are always possibilities for fraud

in these cases.

Mr. ANDREWS. How much time would be—how many man-hours

would be involved in doing a background check that goes beyond

the papers when you are talking about people who are residents of

the UAE? Do you have staff in the UAE?

Secretary BAKER. Yes, sir, we do.

Mr. ANDREWS. Do you have sufficient personnel to perform thorough background checks on all the people who would work for the

Dubai Port Corporation?

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Secretary BAKER. When we get applications for visas to come to

the United States, we perform checks of that sort on the people

who want the visas. Certainly if they want to come work in our

ports, which is a rare event, we would be able to do that.

Mr. ANDREWS. I assume it might be somewhat less rare if the

transaction goes through.

Secretary BAKER. One might think so, but only 10 or 15 percent

of the people who work at the Dubai ports are from the Dubai ports

because they are a net importer of labor.

Mr. ANDREWS. My last question for Mr. Lowery about the legal

standing in which we stand here today. Mr. Saxton’s questions

really went to this. This afternoon it came across the news wires

that the overall deal is going to close on Monday and there is, of

course, this set-aside agreement that is a contract between the two

private parties that they not close that part of the deal. Is that

your understanding?

Secretary LOWERY. My understanding is that what they will do

is basically—and I am not a lawyer—set up a holding—again, it is

not——

Mr. ANDREWS. Is your lawyer here?

Secretary LOWERY. No.

Mr. ANDREWS. Here is the question I would like your lawyer to

answer. Is it the Treasury Department’s position that the two private parties, and specifically the Dubai Corporation, has waived

any rights that it received under its original approval by signing

this standby agreement? Let me tell you the reason I raise that

question.

Your testimony relies upon a private contract, frankly, not made

in the United States, as I understand it, between two private parties, where they have agreed to suspend the transfer of operations

that they contractually agreed to earlier. The question I am asking

is what if those two parties agreed to rescind that contract, for

whatever reason. They have explicitly stated for the record that

they won’t do that. Is it the Department’s position that they have

a legal obligation to the United States of America not to do that?

Secretary LOWERY. I would have to check with an attorney, I can

say this, sir. When the parties file a notice under this new transaction with the Treasury Department and with CFIUS, it will be—

go through the full Exxon Florio statute and all the powers that

are invested in it.

Mr. ANDREWS. That is not quite what I asked.

Secretary LOWERY. I said I was not a lawyer and I couldn’t answer the exact specific of that.

Mr. ANDREWS. One thing I will say and I mean no disrespect to

any member of the panel. This is obviously a matter of tremendous

gravity to the Congress and to this committee. The testimony today

has been sincere, it has been thoughtful. It has also been filled

with holes, given by people who weren’t part of the process, people

that don’t have the specific facts, people that are not in the position

to know the specific facts.

I do not in any way fault any of you as individuals for that. But

I would say that if this is the review that we are going to undertake, it needs a lot more work. I have more than extended my time

and I thank my friends for giving me the time.

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I would say this to you. I came into this discussion very disturbed at the way I found out about this—given the fact that my

600,000 constituents live very proximate to the port of Philadelphia—was from a newspaper reporter. I, frankly, am disturbed for

a different set of reasons today. And it has nothing to do with the

sincerity or integrity of any of the witnesses, but it does have to

do with the unusual feel one gets about this process, that it is simultaneously a process that seems to have been conducted by people not in policymaking positions but it was a process that had, at

least as far as I can tell, rather tight deadlines, things had to move

very quickly. And my experience has been that the lower down the

decision making chain you go, the slower things are, not the faster.

And I hear our individuals from the Coast Guard talk about the

pace at which their involvement took place and I hear about some

of the other things, it concerns me.

And I hope that the Chairman’s admonitions about supplying the

record will be promptly adhered to so that the committee can draw

its conclusion in an expeditious manner.

Thank you, Mr. Chairman, for your indulgence. And I thank the

witnesses.

Mr. LOBIONDO [presiding]. Thank you, Mr. Andrews. And I think

Mr. Andrews was being very kind with his choice of words about

the comfort level that we are all feeling about what we have been

hearing in this hearing and some of the other hearings covered.

I am assuming that most of you did not get a chance to hear the

first panel. The panel, while they really did not focus so much on

this deal itself, really focused on the general area of maritime

antiterrorism and port security. And there was almost unanimous

agreement that, while this particular issue with Dubai has to be

reviewed, the bigger picture has to be addressed.

And I have to tell you, Mr. Baker, that I heard you say how port

security is a really top priority of DHS. We have heard it from a

number of other people. But your actions, the actions of DHS, do

not match your rhetoric.

The Coast Guard has done a magnificent job in everything they

have been asked to do. And every year they are being asked to do

more with less. And this year, it is my view and the view of some

others, that with the budget that has been submitted by the Administration, the increase that is afforded to the Coast Guard in

operations and maintenance ends up being an overall reduction because of the factors of the price of fuel and pay raises and things

like that.

Yesterday, we had a Coast Guard hearing where Master Chief

Welsh outlined the horrific stories of the challenges of the aging assets and the personnel who man them. And we cannot conduct

Coast Guard missions with Coast Guard cutters and planes that

are falling apart, where literally lives are almost at risk, and the

Coast Guard is not given the resources to do the job.

In a couple of areas that I am particularly cranked up about, in

the Maritime Transportation Security Act, there were a number of

mandates that were issued. The Coast Guard has come through

pretty much in compliance with what we have asked; but when it

comes to TSA, which I understand you are responsible for, something as simple as the transportation worker identity card, which

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was supposed to pretty much be in place by 2004, so the bill was

signed by the President maybe a year after the September 11th incident, a little bit more than that, we want to take our time to put

it together. There wasn’t any indication that there was going to be

a major problem. We now find—without explanation from TSA that

can give us an idea of why this delay occurred. And we heard from

testimony that basically someone shows up at port, a transportation worker shows up at the port with a photo ID and that is

what must be accepted.

Now, maybe one port has got something that is a little more involved, but basically that is what is accepted. And that it is my understanding from reports that we have received back that TSA is

not going to propose the final rule until sometime later this year.

Can you talk about this at all?

Secretary BAKER. I would be glad to. First, I share your admiration for the Coast Guard and their ability to meet the deadlines

that the law requires, and appreciate the fact that when they do

they make us look good.

We are committed to port security. The budgets that have been

proposed, as I am sure you appreciate, are Administration budgets

that reflect a host of difficult balancing decisions that have to be

made by the Administration as a whole.

As for the transportation worker identity card, you are quite

right; we have missed the deadline and we deeply regret that. Our

difficulties have arisen from questions about the appropriateness of

the design, how we can design as a Department an effective card

that goes beyond the kind of flash pass that is so easy to forge and

so easy to overlook in the busy port environment.

One of the reasons why we asked for the kind of assurance that

we have asked for from this company was so that we could do a

background check on the employees that they would have working

at their facility so that we would have that kind of assurance with

respect to those employees. In the long run, you are absolutely

right that the transportation worker identity card will give us

greater authority to do that for a wider range of employees.

Mr. LOBIONDO. When do you expect to publish the rule?

Secretary BAKER. I can’t say, in part because as a result of the

very discussion we are having today and related focus on the question of what is the best way to guarantee appropriate review of

who is working in ports, we have begun a process of intensively examining the assumption that underlie the program so that we actually have a program that the Secretary and the Deputy Secretary

are confident will work. We are in that process now.

Mr. LOBIONDO. Mr. Baker, with all due respect, the ‘‘Bank of

Goodwill and Trust Me’’ is empty. And you are talking about this

as not 2 months, 6 months, a year overdue. This is 4 years overdue.

It is relatively—I mean, I understand you want to make this right.

I don’t know who that is involved with looking at this from a committee standpoint on this side can believe it is a top priority if you

are taking this long to do it.

And in addition, I understand the budget constraints of the Administration. But our frustration and anger goes to everyone involved on the Administration side—and unfortunately that means

you—that on a program this critical and essential to port security,

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which I think you just acknowledged, there is not even funding in

the budget to implement the program.

Secretary BAKER. And this, of course, is part of the problem with

trying to come up with a program that we can—in which we can

make the private sector absorb in an appropriate way the costs of

this without our having to prime the pump with large appropriations at the start. That is a difficult program design challenge.

Mr. LOBIONDO. We should have been having these discussions 2

years ago, and we are 4 years into it. We are going to be talking

a whole lot more about this. But then when we get into the area

of port security grants, I think Mr. Spratt had it wrong. In testimony yesterday, Admiral Cross acknowledged that the recommendation of the Coast Guard from their initial review put the

price tag on the low end at 7 billion, on the high end at 11 billion,

and with the recommendation of 125 million this year. I did not

major in math, but that is something like a 60-year time frame to

get to where we need to be.

That is not putting port security at a high priority. And somebody, somewhere along the line, has to give us more than lip service. I mean, I will encourage Chairman Hunter, I will encourage

everyone I can, that this reservoir of goodwill and what appears to

be just patting us on the head, putting us aside, telling us don’t

worry, we are reviewing it and doing everything we can. Port security is a great priority, we are 4 years behind on the Transportation Worker Identification Credential (TWIC) program. We are

constrained by budget requirements and so on and so forth.

What I said in my statement in the first panel is that if we were

to have an incident tomorrow, and there would be an actual terrorist incident at one of our ports, besides shutting down all of our

ports and our maritime economy, besides whatever damage may be

done in terms of lives or property, the day after the check would

be blank, that we would get to fill in the numbers as it was with

aviation: $25 billion up to this point in time. And something has

got to change.

Somewhere along the line, we have been maybe delinquent in

just saying ‘‘yes’’ and accepting that tomorrow better news is going

to come and tomorrow someone will show a little bit more of a priority. But it is at the point now where the frustration level is so

high, and the opportunity for us, because of this Dubai Ports proposal, to actually do something about overall maritime

antiterrorism and port security, which is woefully inadequate, is

going to be a short window. Something—maybe 2 weeks from now,

3 weeks from now, the Congress is going to focus on something

else, and I hope in a very positive sense that the DHS and TSA

and all those associated feel tremendous heat to give this more

than lip service.

Secretary BAKER. If I might, we certainly do. We would be delighted to work with Congress on ways to improve port security in

the short run. I will note that we did not say to Dubai Ports World

or P&O, how much money can we give you to make your participation in the C–TPAT permanent and mandatory? We said, will you

do it? And they said, Yes, sir. We said—we did not say, We will

give you money so that we don’t have to come up with a subpoena

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when we want to see the list of your employees and do background

checks. We said, will you do it? And they said, Yes, sir.

The ability to impose those kinds of restrictions, we may well

want to ask the question, What can the private sector do to improve port security along with the government? And we would be

delighted to work with you on that.

Mr. LOBIONDO. I appreciate that, but I will just reiterate that a

lot of what we do has to pass the kitchen table test. And people

sitting around their kitchen table cannot understand if port security and maritime antiterrorism is a priority for this government,

this Congress, and this Administration. How we can be four years

into this and be so woefully behind? It just seems to be bureaucratic rhetoric about what we are going to do next. It never happens. There is a certain point at which that does not work anymore. I think we are past that point.

I want to thank Admiral Gilmour for the tremendous job that the

Coast Guard has been doing. I don’t know how you continue to

have the men and women excel in the way that they do when you

are constantly being stretched and pressed and asked to do more

with less. But I have said it before: They really need to be commended.

I asked the question of the last panel and Mr. Misenheimer—I

hope I pronounced it correct—can you comment? Does the United

Arab Emirates enforce a boycott on Israel?

Mr. MISENHEIMER. The Arab League boycott of Israel is a serious

issue and we oppose it. With respect to the UAE, like a number

of other states in the region, the UAE supports and enforces the

primary boycott. That is to say, they do not do direct commerce

with Israel. It does not enforce the secondary and tertiary boycotts

which we as a matter of policy have targeted right across the region.

I would add, sir, that we are involved in free trade agreement

talks with the UAE, and of course one of the parameters of those

talks is the elimination of the boycott. And so that is where we see

the process heading.

Mr. LOBIONDO. But the boycott, the primary boycott is in place.

Mr. MISENHEIMER. Yes, sir; that is correct.

Mr. LOBIONDO. What would your reaction be if one of the congressional conclusions was that this boycott could not be in place

for this deal to move forward?

Mr. MISENHEIMER. Again, sir, we oppose the boycott. We aim to

see it eliminated. The complicating factors that would come into

play in the circumstances that you are suggesting are several, including the fact that under international trade rules that apply to

all states under the World Trade Organization (WTO), primary

boycotts are permissible. The United States has one or two of its

own.

And second, with regard to the CFIUS process which looks at security threats to the United States arising from proposed acquisitions of assets here, the fact of whether a potential investor would

be involved in the boycott is, as I understand it, currently outside

the scope of that process.

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Mr. LOBIONDO. You do understand that we have constituents

who have contacted us who believe that approval of this is in essence helping to subsidize the boycott?

Mr. MISENHEIMER. Again, there is no one who is in favor of boycott. There are many levels of our interaction with the UAE and

the other states in the region. And the investment of those states

in the United States, of course, has benefits for our economy which

are well documented.

Mr. LOBIONDO. Thank you. Mr. Langevin you are up.

Mr. LANGEVIN. Thank you, Mr. Chairman. And, gentlemen, I

want to thank you for your testimony today. The hour is late and

we appreciate you being here.

I want to begin with this. I understand clearly, we all understand now, that the Secretaries of Defense, Treasury and Homeland Security are all a part of this, sit on the CFIUS committee,

and that this has been designated to others far below their rank

who actually made this decision. But I have to ask the question

that—in particular for the three secretaries that I mentioned—that

they were unaware of the sale until it appeared in the newspapers.

How is it that your bosses did not know what was happening?

And is the process broken?

Mr. EDELMAN. Congressman, as I testified earlier, I found out

about the transaction after the fact as well. I found out about it

from Deputy Secretary Kimmitt, and at the earliest possible opportunity I had, I notified the Secretary of Defense, who had already

learned of it from the press, as you said.

It is clear that, although as I mentioned there have been some

steps to fix the part of the process that has been problematic from

the point of view of some of the security agencies in terms of getting some of their concerns addressed, we have not completely fixed

everything in the process. And at least—I can’t speak for other

agencies—but in the Department of Defense, we have taken some

steps to make sure these cases get elevated to higher policy level

now as a matter of routine.

Secretary LOWERY. I think that I have a very similar reaction.

And I think the one thing I would say is that all the agencies did

have their most professional people that deal with CFIUS matters

or national security issues look at all this transaction very thoroughly. That said, clearly there were two mistakes that were made.

One, there was not good vertical agreement; and second, that we

did not do a very good job of explaining this to Congress.

Secretary BAKER. Well, I have to say Representative Skelton did

not actually ask me if I knew about this. It turns out that I am

the only person on the panel that did know about this. I am in

charge of all policy for the Department of Homeland Security. I was

deeply involved in the decisions about whether we were going to

object to this transaction and what kinds of assurances we were

going to insist on from the company in order to decide not to do

that.

In our case, while obviously in light of what has happened I

should have talked to the Deputy Secretary and the Secretary, I

concluded that we had protected the national security interest appropriately by getting the assurances that we received. So in our

case, while I am confident that in the future we will be doing more

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reporting up, I would not say that this was decided at a low level

within the Department.

Mr. LANGEVIN. Let me be clear. Mr. Baker, you are the only person on this panel here today that was directly involved with making the decision to allow the DP World sale to go forward?

Secretary BAKER. Boy, I guess I shouldn’t be saying this, but yes,

I think that is the case. I have a feeling that means more questions

from you.

Mr. LANGEVIN. Well, Mr. Chairman, I would point out that unless we have direct testimony from all those people who were part

of the committee, I don’t think we are exercising proper oversight,

and I would request that the committee consider bringing those individuals before the committee to answer the question of how we

got into this point and really what additional information went into

them making this decision.

I would ask this. We can start with Mr. Baker and the other departments can answer. The individuals that were involved in making the decision to approve this sale, what national security experience do they have? I am not interested in their experience in foreign policy or the economy. I want to know specifically what experience they had in making national security decisions, what the experience was in national security.

Secretary BAKER. Obviously, a lot of different people participated

in the Department of Homeland Security’s decision. We asked for

extensive review by the Customs and Border Protection Agency as

well as the U.S. Coast Guard, which obviously these are people

that have a career spent concerned about port and cargo security.

Myself, I was general counsel of the National Security Agency.

I have been general counsel and author of the report of the WMD

Commission on Iraq Intelligence, and also I am head of policy for

the Department of Homeland Security.

Mr. LANGEVIN. And for the Department of Defense and also for

the Department of Treasury?

Mr. EDELMAN. Congressman, for the Department of Defense, the

main point of entry for the CFIUS process is the DTSA, which is

essentially an organization that is devoted to the whole issue of export and technology control.

Mr. LANGEVIN. The individual who represented the Department

at the CFIUS committee who was directly—who approved this decision—who is that person and what is their national security background?

Mr. EDELMAN. I think Ms. McCormick testified it was Mr. Reitzel

who was the actual participant in the meetings, and we can get

back to you with—I don’t know his exact CV but we can get back

to you with his background. Would you like to hear from Ms.

McCormick who is his superior?

Ms. MCCORMICK. I will just mention that Mr. Reitzel is a retired

army intelligence officer, so he is by training an intelligence officer,

and that is one reason why he runs the assessment part of my policy directorate where we review a variety of intelligence information and user checks, and he has been a civilian in the Department

following his Active Duty.

Secretary LOWERY. I am Assistant Secretary for Treasury for

International Affairs, and I take responsibility for my Department,

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and my Department made a decision that this transaction is okay

to go forward. That is why I am here testifying today.

As to the people that were involved, the person who runs the office has been doing CFIUS reviews, which are all related to national security, for the last roughly 10 to 12 years. As far as my

own background, I have been involved in national security matters

either at the Treasury Department or the National Security Council for 10 of the last 12 years.

Mr. LANGEVIN. I think we all find it astounding that no one

seemed to anticipate the firestorm this was going to set off. And

it really speaks to how insecure, really, the public is right now in

the belief that our ports and our borders are secure. And we clearly

have got to do a far better job at securing our ports, because I don’t

know we are prepared at our ports. I think we are grossly underprepared.

I am going to end with this. It is my understanding that the Director of National Intelligence is not a sitting member right now

of the CFIUS committee.

Secretary LOWERY. That is correct, sir.

Mr. LANGEVIN. Do you believe that the Director of National Intelligence should be a member of that committee?

Secretary LOWERY. We think that would be a good suggestion to

take up, sir.

Mr. LANGEVIN. I agree.

Secretary BAKER. If I could just add one caveat from my experience with intelligence. One of the difficulties that arises when

someone from the intelligence community participates in an interagency process is that there is a question of whether they are participating to provide intelligence or to represent their national security interests. And I think the DNI has very substantial national

security interests here.

The risk that is always raised is that once they begin participating from a policy point of view, it becomes harder for the other participants who may be disagreeing with them to rely entirely on

their intelligence assessments, which inevitably are seen as tied to

their bureaucratic interests.

Secretary BAKER. So we do need to find a way to have the DNI

participate, to reflect their strong policy interests here. We just

have to find a way to make sure that the intelligence that they

gather isn’t subject to the objection with respect to their policy interests.

I, for one, believe that the DNI should have a seat on the committee and have a strong voice and role in overseeing these types

of sales. I think in the past, CFIUS evaluated its decisions primarily based on a financial and an economic decision or standpoint.

In this post 9/11 world, that cannot happen as we go forward. It

has to be based on—a decision has to be made from a national security standpoint primarily and not an economic standpoint.

Secretary LOWERY. We agree.

Mr. LANGEVIN. Thank you, Mr. Chairman. I yield back.

Mr. LOBIONDO [presiding]. And now, for the last hour of the

hearing, I recognize Mr. Larsen.

Mr. LARSEN. Thank you, Mr. Chairman. I have to warn you, I

flew in from Washington State two days ago. I am still on west

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coast time. I have three hours, but I am not going to take three

hours.

It has been a great hearing, great panel. The two previous panels

are very helpful for this committee. You have all been very patient

with us. You have done your best to answer questions as you can,

and we appreciate it.

I think one of the headlines that you need to take away from this

entire day is that we believe the CFIUS process is a legitimate

process to conduct. We have serious questions about the legitimacy

of the process based on the questions that we have had today,

based on information that has come out since, and those are the

kinds of questions we have to get answers to.

If we don’t, Congress will be a co-shareholder in every company

that wants to do foreign investment in the U.S. trying to make

those decisions, instead of the shareholders making those decisions,

however many shareholders happen to be on the board of any of

these companies. This process has to work, and we may be moving

forward to change the process to make it work, change the criteria

beyond the Exon-Florio criteria as well to make this process work.

We have a lot of work to do here in Congress, and I would argue

that we cannot spend every week reviewing every foreign investment in the U.S. that will be—it is a dangerous thing for us to get

involved in.

So this process has to change in order to work. It has to be seen

as legitimate by us, more importantly, by the American people.

I want to—Admiral—I can’t even see that far any more; my eyes

are so tired—Gilmour, the guy in uniform, you said earlier that

with 20 inspectors for the ISPS compliance that you all do worldwide, that number was in the ballpark and it was—so it is about

20, and it would take you another additional 2 years to finish your

assessments?

Admiral GILMOUR. Sir, that is an international team that inspects our foreign partners. We have many more people doing the

domestic facilities in the United States, and they have already been

inspected.

Mr. LARSEN. So the domestic are done, but now you are going

international, and we have 20 inspectors about, and it would be another 2 years to complete that, is that what you said?

Admiral GILMOUR. Yes, sir.

Mr. LARSEN. The international.

Admiral GILMOUR. Yes, sir. We have completed about a third of

the nations right now, about 80 percent of the traffic that comes

to the U.S.

Mr. LARSEN. About 80 percent of the traffic that comes to the

U.S., okay. I don’t know if it would do any good to include in our

discussions deliberations after this to add inspectors or not, given

the fact that, where you are in the process. But it just seems to

me that, you know, you use a ballpark analogy to sort of describe

how many inspectors we have. I would just sort of say it is not a

ballpark, it is sort of the size of a little league field in terms of how

many we should have had in this process to really get this done,

and that is no fault of the Coast Guard at all.

It is just—the port security—and Congressman LoBiondo made

the point about port security. I won’t go through the numbers

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again. But we are clearly, compared to aviation, not putting the

kind of investment, public investment, that is necessary to move as

quickly as we have, compared to aviation.

In the agreement, the—what do they call this? What do they call

this? The——

Mr. BAKER. The assurances letter.

Mr. LARSEN. The hold separate commitment letter. Condition I

say, chief security officer for P&O Ports North America (POPNA)

will at all times be a U.S. citizen unless U.S. Coast Guard agrees

otherwise. So, apparently, U.S. Coast Guard will be responsible for

approving through the life of this agreement, which will be at the

latest May 1, that the security officer for POPNA will be a U.S. citizen. Is that your understanding of this as well? Or should that be

to Mr. Baker?

Admiral GILMOUR. Yes, sir.

Mr. LARSEN. That is your understanding? Is it your understanding that after May 1 or earlier that then you no longer have any

say in who they determine as a security officer, their chief security

officer?

Admiral GILMOUR. I guess I have to defer to DHS on that. But

my interpretation would be that in perpetuity we would be able to

do that.

Mr. LARSEN. Mr. Baker, do you have——

Secretary BAKER. I think that this agreement goes beyond the assurances letter. The assurances letter requires that the company

maintains security policies under the direction of a responsible corporate officer——

Mr. LARSEN. Right, and I was getting to that as well. But just

in terms of the chief security officer of POPNA of as long as it is

POPNA, it is going to be the Coast Guard’s responsibility and only

until that agreement is no longer relevant, which will be made the

1st or earlier?

Mr. BAKER. That is my understanding.

Admiral GILMOUR. Yes, sir. I was thinking of the wrong letter.

I am sorry.

Mr. LARSEN. Sure.

Okay, the next question is probably for Mr. Baker. Then the letter—the assurances letter designates a responsible corporate officer

to serve as a point of contact with the Department of Homeland Security on security matters.

My question to Mr. Scavone, I think, with the security office, the

current executive vice president for security at POPNA who is

the—which agency at DHS will be responsible and who will be the

contact at DHS—the basic question, who do we hold responsible for

ensuring that portion of the assurance letter is implemented?

Mr. BAKER. My office is in charge of the CFIUS process, and

along with the general counsel’s office, we make sure that people

comply with the agreements. But I think it is likely that, with respect to this kind of thing, that we will end up asking one of the

components, CBT or Coast Guard, to take responsibility for the details of the implementation of this agreement.

Mr. LARSEN. Should this agreement go forward after the 45 day

re-review of it and however the process works out, that Congress

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is in with the Administration, can you let us know which agency

and which office and which phone number?

Mr. BAKER. Absolutely, yes. We will be glad to do that.

Mr. LARSEN. Assuming it gets that far.

Is there any other agency at this table who is going to be part

of any other management decision at the post P&O PNA entity? Or

is it all going to be DHS?

Mr. BAKER. The agreement is with DHS. So anything that happens under that agreement would be something that we would be

responsible for.

Mr. LARSEN. Mr. Lowery, were you about to give up the ghost?

Secretary LOWERY. I was just going to agree with my colleague.

Mr. LARSEN. Okay, thanks.

Mr. Baker, you mentioned that as well, that you said in two different forms, more detail the second time, about the ability for

DHS to subpoena employee records at DP World and conduct their

own background checks if you wish, if DHS wishes. My question to

you is, will you wish? Is this something you are holding out or you

are going to do?

Secretary BAKER. Our current plan is to actually make—we don’t

even have to get a subpoena. We can just make a written request.

We plan to make a written request to test our understanding of the

agreement, make sure we get the cooperation that we expect, as

part of the 45-day review process is to make sure that everything

is working.

Then I expect us to perform some form of background check on

the names that we get back. Precisely what checks we will do,

whether we are running those names against watchlists or performing other checks, remains to be determined. But we will certainly be exercising our rights here and going beyond what is currently required of other companies.

Mr. LARSEN. Will you be doing those only of direct employees of

DP World?

Mr. BAKER. These are employees in the U.S. facilities.

Mr. LARSEN. I am sorry, in U.S. facilities as employees of DP

World?

Mr. Baker. That is our current plan.

Mr. LARSEN. Mr. Baker, you mentioned to Mr. Saxton earlier

your willingness to work on security issues and you mentioned a

few other times as well.

There is legislation—it has been introduced in the Senate—the

Greenlane Maritime Cargo Security Act by Senator Murray from

my State and Senator Collins from Maine; and at least according

to a few commentators, the DHS’s initial reaction—I think one

commentator used the word ‘‘tepid.’’ I would ask you if it is still

tepid, if that was accurate. I want to give you a chance here. If it

is accurate, why it is tepid; and if it isn’t accurate, tell me how excited you are about working to get something like this passed?

Mr. BAKER. I think we are quite prepared to turn up the heat

on our efforts in this regard. I am not in a position to give you a

response to the details of this legislation, but I think we all recognize that this is a moment in history where we can do something

about port security legislatively, and we should look hard at what

can be done.

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Mr. LARSEN. Just generally some details that would provide incentives for American importers to accept modest fees, to establish

minimum security standards, encourage tracking and monitoring of

containers through the entire supply chain, create joint operation

centers within U.S. ports, to respond to terrorists incidents as well

as to allow for flow of commerce to resume when everything is sorted out after incidents; and then it would authorize $835 million a

year for the Container Security Initiative. So those are some of the

details as reported not only in the press but on the fact sheet on

the Greenlane.

Mr. BAKER. I think those are all topics in which we would be

quite prepared to work with Congress to see if we can come up

with a proposal that the Administration can support as well.

Mr. LARSEN. That makes me excited to hear, I should say.

With that, Mr. Chairman, I have no further questions for the

panel. Thank you.

Mr. LOBIONDO. Okay, thank you, Mr. Larsen.

I want to thank our panel very much. I guess no one expected

that it would go on to this hour, but this was very helpful for the

committee, and we appreciate your cooperation.

[The prepared statement of Mr. Misenheimer can be found in the

Appendix on page 170.]

Mr. LOBIONDO. The meeting stands adjourned.

[Whereupon, at 7:58 p.m., the committee was adjourned.]

A P P E N D I X

MARCH 2, 2006

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QUESTIONS AND ANSWERS SUBMITTED FOR THE

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QUESTIONS SUBMITTED BY MR. SKELTON

Mr. SKELTON. I request of you to produce to our committee any documents relating to the deliberation and decision making process for this port deal, and this includes correspondence, minutes of any CFIUS meetings, statements or summaries

of fact, and written decisions. All right, Mr. Lowery?

Secretary LOWERY. [The information referred to is propietary information and retained in the committee files.]

QUESTIONS SUBMITTED BY MR. LOBIONDO

Mr. LOBIONDO. But with government involvement, that is where our—we can’t

separate some of these issues because with Israel as our most reliable partner in

that part of the world, some of us view that if there is, in fact, a boycott, that something like the deal we are talking about is in effect ending up subsidizing a boycott,

and that is where we have got a serious problem and where this is coming down.

You probably can’t answer if it were one of the conditions after the 45 days that

there not be anything like a boycott, how you would react to that condition, but that

will certainly be one of the questions that we will be asking.

Mr. BILKEY. [The information referred to was unavailable at the time of printing.]

QUESTIONS SUBMITTED BY MR. SPRATT

Mr. SPRATT. We had a statistic given to us earlier today that there were 80 Customs inspectors for monitoring the compliance of 5,800 importers, and that there

were only 20 Coast Guard inspectors to monitor the international shipping port facilities code. Is that correct, 20 inspectors to monitor the worldwide international

code?

Admiral GILMOUR. All 63 billets assigned to the International Port Security Program are involved in monitoring the security of international ports/facilities; however, the primary responsibility for physically visiting foreign countries resides with

the two Coast Guard Area Commanders who determine the appropriate number of

personnel to conduct the visits.

Below is the unit allocation of the 63 billets assigned to the International Port

Security Program:

Headquarters: 9

Atlantic Area (Portsmouth, VA): 23

Atlantic Area (Activities Europe): 12

Pacific Area (Alameda, CA): 7

Pacific Area (Activities Far East and Maritime Inspection Detachment Singapore): 12

QUESTIONS SUBMITTED BY MR. ANDREWS

Mr. ANDREWS. Okay. Here is what I am going to ask you to do. I would ask the

Department to supplement on the written record whether it acknowledges or disclaims the basis of the Chairman’s question about the 2003 transaction of the triggers which could be used in a nuclear weapon; whether the Department acknowledges that, in fact, took place over the protest of the United States or whether it

did not. Could you do that for us?

Mr. MISENHEIMER. [The information referred to was unavailable at the time of

printing.]

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