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THE IMPACT OF FOREIGN OWNERSHIP AND 

FOREIGN INVESTMENT ON THE SECURITY OF 

OUR NATION’S CRITICAL INFRASTRUCTURE 

HEARING 

BEFORE THE

SUBCOMMITTEE ON TRANSPORTATION 

SECURITY AND INFRASTRUCTURE 

PROTECTION 

OF THE

COMMITTEE ON HOMELAND SECURITY 

HOUSE OF REPRESENTATIVES 

ONE HUNDRED TENTH CONGRESS 

FIRST SESSION 

MAY 16, 2007 

Serial No. 110–36 

Printed for the use of the Committee on Homeland Security 

Available via the World Wide Web: http://www.gpoaccess.gov/congress/index.html 


Congress.#13
COMMITTEE ON HOMELAND SECURITY 

BENNIE G. THOMPSON, Mississippi, Chairman 

LORETTA SANCHEZ, California, 

EDWARD J. MARKEY, Massachusetts 

NORMAN D. DICKS, Washington 

JANE HARMAN, California 

PETER A. DEFAZIO, Oregon 

NITA M. LOWEY, New York 

ELEANOR HOLMES NORTON, District of 

Columbia 

ZOE LOFGREN, California 

SHEILA JACKSON LEE, Texas 

DONNA M. CHRISTENSEN, U.S. Virgin 

Islands 

BOB ETHERIDGE, North Carolina 

JAMES R. LANGEVIN, Rhode Island 

HENRY CUELLAR, Texas 

CHRISTOPHER P. CARNEY, Pennsylvania 

YVETTE D. CLARKE, New York 

AL GREEN, Texas 

ED PERLMUTTER, Colorado 

VACANCY 

PETER T. KING, New York 

LAMAR SMITH, Texas 

CHRISTOPHER SHAYS, Connecticut 

MARK E. SOUDER, Indiana 

TOM DAVIS, Virginia 

DANIEL E. LUNGREN, California 

MIKE ROGERS, Alabama 

BOBBY JINDAL, Louisiana 

DAVID G. REICHERT, Washington 

MICHAEL T. MCCAUL, Texas 

CHARLES W. DENT, Pennsylvania 

GINNY BROWN-WAITE, Florida 

MARSHA BLACKBURN, Tennessee 

GUS M. BILIRAKIS, Florida 

DAVID DAVIS, Tennessee 

JESSICA HERRERA-FLANIGAN, Staff Director & General Counsel 

ROSALINE COHEN, Chief Counsel 

MICHAEL TWINCHEK, Chief Clerk 

ROBERT O’CONNOR, Minority Staff Director 

SUBCOMMITTEE ON TRANSPORTATION SECURITY AND 

INFRASTRUCTURE PROTECTION 

SHEILA JACKSON LEE, Texas, Chairwoman 

EDWARD J. MARKEY, Massachusetts 

PETER A. DEFAZIO, Oregon 

ELEANOR HOLMES NORTON, District of 

Columbia 

YVETTE D. CLARKE, New York 

ED PERLMUTTER, Colorado 

BENNIE G. THOMPSON, Mississippi (Ex 

Officio) 

DANIEL E. LUNGREN, California 

GINNY BROWN-WAITE, Florida 

MARSHA BLACKBURN, Tennessee 

GUS M. BILIRAKIS, Florida 

PETER T. KING, New York (Ex Officio) 

MATHEW WASHINGTON, Director 

ERIN DASTE, Counsel 

NATALIE NIXON, Deputy Chief Clerk 

COLEY O’BRIEN, Senior Counsel 

(II) 

(III) 

C O N T E N T S 

Page 

STATEMENTS

The Honorable Sheila Jackson Lee, a Representative in Congress From the 

State of Texas, and Chairwoman, Subcommittee on Transportation Security 

and Infrastructure Protection ............................................................................. 1 

The Honorable Daniel E. Lungren, a Representative in Congress From the 

State of California, Ranking Member, Subcommittee on Transportation 

Security and Infrastructure Protection .............................................................. 2 

The Honorable Yvette D. Clarke, a Representative in Congress From the 

State of New York ................................................................................................ 26 

WITNESSES

Mr. Richard T. Garcia, Global Security Advisor, Corporate Affairs Security, 

Shell International: 

Oral Statement ..................................................................................................... 6 

Prepared Statement ............................................................................................. 7 

Mr Michael Pfister, Senior Vice President and Chief Information Officer, 

Halliburton Company: 

Oral Statement ..................................................................................................... 10 

Prepared Statement ............................................................................................. 12 

Mr. David Marchick, Covington and Burling LLP: 

Oral Statement ..................................................................................................... 14 

Prepared Statement ............................................................................................. 16 

(1) 

THE IMPACT OF FOREIGN OWNERSHIP AND 

FOREIGN INVESTMENT ON THE SECURITY OF 

OUR NATION’S CRITICAL INFRASTRUCTURE 

Wednesday, May 16, 2007 

U.S. HOUSE OF REPRESENTATIVES, 

COMMITTEE ON HOMELAND SECURITY, 

SUBCOMMITTEE ON TRANSPORTATION SECURITY AND

INFRASTRUCTURE PROTECTION, 

Washington, DC. 

The subcommittee met, pursuant to call, at 2:50 p.m., in Room 

1539, Longworth House Office Building, Hon. Sheila Jackson Lee 

[chairwoman of the subcommittee] presiding. 

Present: Representatives Jackson Lee, DeFazio, Clarke, and Lungren. 

Ms. JACKSON LEE. Good afternoon. Let me first of all thank all 

of the witnesses for their patience. There is quite a bit of activity 

on the floor of the House, and Members must be engaged in that 

activity. Our ranking member is en route. 

Let me acknowledge the presence of Mr. DeFazio of Oregon. I 

thank him, and members are coming, but with the importance of 

this hearing and the presence of the witnesses, we will begin. 

Let me first of all ask the subcommittee to come to order. 

The subcommittee is meeting today to receive testimony on the 

impact of foreign ownership and foreign investment on our Nation’s 

critical infrastructure. 

Under the rules of the House of Representatives and the rules 

of the committee, visitors and guests are not permitted to make 

undue noise or to applaud or in any way show their pleasure or 

displeasure as to the actions of the Members of the House. The 

Chair will continue to abide by those rules as we proceed in this 

hearing so that all of the witnesses may be heard, as well as the 

members of the committee. 

Let me begin with my opening statement, I yield myself 5 minutes. 

I would like to take this opportunity, as I said earlier, to thank 

all of you for joining with us this afternoon so that we can continue 

to address the questions of security and the security of our Nation. 

In this hearing, we will continue our exploration of foreign ownership and investment and how it intersects with national security. 

As we all know, early this year, this subcommittee took a thorough look into how the Federal Government monitors and evaluates foreign ownership of our critical infrastructure. Today, the 

subcommittee is taking a different approach to this issue. 

2 

I think it is important to note that the challenge of the Department of Homeland Security and the challenge, of this committee is 

to be proactive. It is important that we imagine the possible and 

the impossible; and what that means is that every hearing that 

may in some areas be viewed as impossible are the actions that 

would generate from the testimony or the suggestion of the title to 

be impossible. We who have the responsibility of securing America 

can never consider that the possible or the impossible is too small 

or too narrow for us to review. 

Today, we are exploring the vulnerabilities of critical infrastructure owned by U.S. companies that have a significant number of 

foreign investors and how it may compromise homeland security 

preparedness, as well as the question of investment and access and 

control. I think we all understand that when a foreign entity establishes a lasting financial interest in a country, it is able to exert 

influence on that country. 

According to 2005 CEA data, foreign investors own over 9 trillion 

in stock in U.S. assets. These assets are composed of four basic 

types and the largest portion is foreign direct investment. This type 

of investment goes directly into companies and infrastructures. The 

other three types of foreign investment are corporate stocks, private bonds and the U.S. Treasury bonds and bills. Each of these 

types comprises about 2 trillion of the total investment stocks. It 

is also important to note that these investments have accumulated 

over decades, even centuries. 

Like most Americans, I wholeheartedly support capitalism and 

free trade, of course, with various requirements that would help all 

Americans. Yet, as events have shown, we need to pursue a vigorous oversight agenda, especially in the area of foreign investment 

and critical infrastructure. Dubai Ports taught us that we need to 

not just focus on one area of infrastructure, but we need to focus 

on all areas. And we need to be open minded because we know the 

capitalistic system is enormously creative. There are any number 

of subsets of what can be sold and what can be invested in. 

As the chairwoman of this subcommittee which bears the term 

‘‘infrastructure protection’’ in its title, I intend to do just that, 

evaluate how infrastructure is being protected to ensure it is here 

and available when America needs it most in a time of crisis. 

As we all know, terrorists do not signal or call ahead before they 

attack. We saw this in Madrid and London, amongst other horrible 

incidents. Terrorists are creative, especially in the ways in which 

they will attack us. 

It is not inconceivable that a terrorist might try to attack us not 

with brute force, but simply by pressing a computer button or by 

crippling a key asset or some other nonstated, but possibly unimaginable-type act. 

Another example, foreign investment deals with energy. Current 

European wind companies have been keen on investing in the U.S. 

market. In fact, several of the largest turbine producers are now 

selling to U.S. developers for projects, and opening offices and manufacturing plants in the U.S. 

Now, I know many will say that it is just wind turbines. What 

is the big deal? Well, being from Houston, I can tell you that energy is an important issue, and the security of energy is important. 

3 

We must make sure that these companies take the necessary steps 

to protect new infrastructure as it becomes more prevalent. 

Today, we will address these basic questions. What are the U.S. 

companies doing to control access to sensitive information that if 

compromised, could possibly cripple our economy? What steps are 

taken to protect information when U.S. corporations operate outside the U.S.? For example, Halliburton recently set up operations 

in Dubai. This committee is eager to know how sensitive material 

or information that is housed in those offices in a foreign land are 

to be protected. 

I and other members of this subcommittee certainly are, hopefully, perceived as being responsible and serious and seriously committed to protecting the critical infrastructure and understanding 

how the private sector is protecting our vital assets. 

The chairman of the full committee and the ranking member of 

the full committee have had one voice on the question of ensuring 

the security of this Nation. As I work with my ranking member, 

we hope that as we work through many issues, that voice will be 

one voice on the questions of securing the Nation. 

Again, today, we want to explore what steps the private sector 

has taken to protect its infrastructure, and I look forward to witnesses’ testimony learning how these different entities protect 

themselves from threats and what role Congress can play to fortify 

and protect the United States’ assets. 

Let me close by simply saying that, in addition to the witnesses 

who are here, we know that many States have found in the public 

sector a source of revenue by utilizing public entities for investment of foreign operators, investors, and sometimes owners. In the 

course of our work, we will be looking at those issues as well, because frankly, the ability to lose control during a time of crisis or 

tragedy has to be the concern of this committee. 

So, in the course of this hearing, I will put some of these 

thoughts into the comments and questions that I will make. We 

must stand ready and we must be prepared. 

The Chair now recognizes the ranking member of the subcommittee, the gentleman from California, for an opening statement. 

Mr. LUNGREN. Thank you very much, Madam Chairwoman. And 

I noted you talked about the possible and the impossible. It may 

be impossible for us to hold this hearing because of all of the comings and goings that we are having on the floor of the House today, 

and if we could just get the germaneness rule figured out between 

now and the end of the day, we might be able to get back to regular 

work. 

I thank you for holding this hearing, and I welcome the opportunity to discuss foreign ownership and foreign investment, its impact on the critical infrastructure of the country. 

This Homeland Security Committee is all too familiar with the 

concerns and fears that foreign ownership of U.S. critical infrastructure assets create in our citizens. The 2006 purchase of the 

operating rights at six U.S. ports, including the Ports of New York, 

New Jersey, and Baltimore by the Dubai Ports World Company, 

owned by the UAE, created a firestorm of public and congressional 

opposition. I may be one of the few Members of Congress who was 

4 

not so worried at the time. Perhaps because I was born and raised 

in a large port city, the city of Long Beach, California, and for 10 

years represented both Long Beach and L.A. ports, it had dawned 

on me at an early age that ports had foreign ships, foreign workers, 

and foreign investment; and without that foreign investment in our 

ports of the United States, we would not be in as good shape as 

we were otherwise. 

I was one of those who thought that it is good that people think 

it is good to be investing in the United States. I would rather have 

them think this is the place to invest than somewhere else. But 

nonetheless, the Dubai Ports World controversy focused attention 

on the governmental process established to review such sales and 

determine whether review protects our economic and national security. 

Of course, I am referring to the CFIUS, or Committee on Financial Investment in the United States. 

Amid growing concerns over foreign acquisition of American businesses in 1988—that was my last year in Congress during my first 

tour of duty here—Congress passed the Exon-Florio provision, 

which gives the President the authority to block proposed foreign 

acquisitions that threaten our national security. Foreign acquisitions of U.S. Government assets do pose a challenge to our government. It does create a delicate balancing act in the worldwide economy. How do we attract vital foreign investment to the U.S. without sacrificing or diminishing our national security? 

I do believe we have the proper procedures in place to protect our 

critical infrastructure and assets by requiring foreign acquisition to 

be closely reviewed and scrutinized by CFIUS. 

For over 30 years, this process has worked effectively, guarding 

our capital markets, our high-valued infrastructure assets, and 

most importantly, our national security. On only one occasion of 

which I am aware, in 1990, the President intervened and ordered 

a divestiture by a Chinese aerospace company of a U.S. aircraft 

parts manufacturer. 

Last year’s debate on the Dubai purchase raised a number of 

problems with the CFIUS review process. It demonstrates the 

changes needed to be made in light of 9/11 and our Nation’s growing concern for security. 

I believe important improvements were included in the legislation we passed last year, H.R.μ5337, and again in February of this 

year, H.R. 556, at that time by a vote of 423 to zero. 

One of the important things it does is, it elevates the Secretaries 

of Homeland Security and Commerce to Vice Chairs of CFIUS, 

which will ensure a broader definition of national security threats 

in the CFIUS review. This legislation also limits delegating these 

important CFIUS decisions below the under secretary level. 

I would just say with respect to American businesses that operate overseas or bring some of their corporate structure overseas, it 

is important for us to see how they protect assets that we don’t 

want to be revealed to others. But this is not something new; this 

is what we did throughout the entire Cold War. And then, in some 

cases, the most important technology we were working with were 

computers, but it also had to do with things as mundane as that 

which we used for offshore drilling, that which we used for exploVerDate Nov 24 2008 08:36 Jun 25, 2009 Jkt 000000 PO 00000 Frm 00008 Fmt 6633 Sfmt 6633 H:\DOCS\110-HRGS\110-36\48911.TXT HSEC PsN: DIANE
5 

ration of oil around the world. We believed that some of those 

things ought to be limited at that time because of it. 

But we have to remember how fast the world works. I can remember back in the 1980s, when we had something called a global 

positioning satellite as a DOD project, and they were coming 

around telling us that we ought to vote for it because it would 

allow us to be able to determine where our military people were, 

within 100 feet of where they were. For Mother’s Day, I just bought 

my wife a GPS. That shows how fast that which we want to protect 

from suspicious eyes of others become commonplace. 

So that is the challenge we have, and I would be very interested 

to find out how we deal with that from the standpoint of our witnesses. 

And I thank the gentlelady for yielding me this time. 

Ms. JACKSON LEE. I thank the gentleman for his remarks. 

Other members of the subcommittee will be reminded, under the 

committee rules, opening statements may be submitted for the 

record. 

Ms. JACKSON LEE. At this time I would like to welcome our panel 

of witnesses. 

Our first witness will be Mr. Richard T. Garcia, Global Security 

Advisor, Corporate Affairs Security, Shell International. 

Mr. Garcia began his position on August 1, 2005, after retiring 

from the Federal Bureau of Investigation with 25 years of service 

as the Assistant Director for the Los Angeles field office. 

Welcome, Mr. Garcia. 

As the Global Security Advisor, Mr. Garcia coordinates with 

other intelligence and law enforcement agencies, both domestic and 

foreign, in an effort to obtain strategic intelligence regarding potential criminal terrorist attacks against Shell assets globally. 

Mr. Garcia also manages security advisors in North America and 

in Latin America, as well as the intelligence and assessment team 

with offices in Washington, D.C., and London. 

Our second witness is Mr. Michael Pfister, Senior Vice President 

and Chief Information Officer at Halliburton. Mr. Pfister was 

named Senior Vice President and Chief Information Officer for Halliburton in January 2007. Previously, Mr. Pfister was President 

and Chief Operating Officer in a privately held health care firm in 

New Braunfels, Texas. 

The final witness of this panel is David Marchick, Partner at 

Covington & Burling. Mr. Marchick’s practice focuses on complex 

international trade, investment, transportation and legislative matters. Mr. Marchick is also a leading expert on the Exon-Florio 

amendment and has an active practice advising U.S. and foreign 

companies on security approvals from the Committee on Foreign 

Investment in the United States. 

He is a coauthor of the book, National Security in Foreign Direct 

Investments. He has testified in Congress on numerous occasions 

on implementation of the legislation and played an active role in 

congressional consideration of the legislation that would amend the 

legislation in question. 

Without objection, the witnesses’ full statements will be inserted 

in the record. 

6 

I now ask each witness to summarize his statement for 5 minutes, beginning with Mr. Garcia from Shell, if you would. 

STATEMENT OF RICHARD T. GARCIA, GLOBAL SECURITY 

ADVISOR, CORPORATE AFFAIRS SECURITY, SHELL 

INTERNATIONAL 

Mr. GARCIA. Madam Chair, members of the subcommittee, I am 

pleased to appear before you today to testify on the impacts of foreign ownership investment and the security of our Nation’s infrastructure. 

Shell is active in more than 130 countries with 109,000 employees worldwide. Security plays a vital role in every one of our operations. When we operate politically in stable, geologically challenging regions, leading-edge security is critical to our success. 

Shell has a century-old history in the United States; one-third of 

Shell’s assets and shareholders are here in the United States. 

Shell Oil Company, through its U.S. affiliates, owns more than 

10,000 miles of pipeline, 59 product terminals, nearly 1,000 storage 

tanks, as well as chemical facilities and oil refineries. Shell U.S. 

operates oil and gas rigs onshore and offshore around the country. 

We have 22,000 people working in Shell offices from New York to 

Los Angeles, from the Arctic Circle to the Gulf of Mexico. We invest 

heavily in the personnel training systems and tools we need to protect our people and our assets. 

Since September 11th of 2001, Shell has invested in facility protection, training, access monitoring, and communications. Since 9/ 

11, we have brought people into our corporate affairs security office 

from the Federal Government, law enforcement, military, and the 

Coast Guard. Shell U.S. maintains strong ties with these and other 

agencies that allow us to share information. 

We also receive briefings from DHS and the State Department’s 

Overseas Security Advisory Council on security issues important to 

Shell in the energy industry. 

Our security team participates in various information-sharing 

programs from the U.S. Government such as the FBI’s Texas coastal regional alert system, the intelligence of terrorism network, 

which work with our information-sharing programs in Houston and 

Los Angeles. 

We also participate in the FBI’s information-sharing program, 

which is currently where I am a member of the national board. 

Shell Oil Company, which operates in the United States, is a 

subsidiary of the Royal Dutch/Shell Group, a group global company 

incorporated in the United Kingdom and headquartered in the 

Netherlands. 

I am here today because you would like Shell’s perspective on 

how foreign ownership or foreign investment impacts critical infrastructure. Let me say, as far as Shell is concerned, it does not affect us. I am aware of no instance where our foreign ownership or 

foreign investment has had any negative impact on keeping Shell’s 

infrastructure and keeping it safe. I believe our energy infrastructure is secure as it would be as if Royal Dutch/Shell were based 

here in the United States. 

A diplomatic relationship between the United States and the 

Netherlands is one of the strongest unbroken relationships in the 

7 

world. The Netherlands was the first country to recognize the 

American flag in November 1776, only 4 months after we declared 

independence. 

Shell has always had strong security measures in place protecting our people and infrastructure. Within months of 9/11, the 

oil and gas industry developed security protocols and procedures 

for all segments of the industry, including pipelines and terminals. 

Shell participates fully with the Homeland Security Information 

Network, which allows DHS to get information quickly and easily 

to those responsible for the security of critical infrastructure. 

Shell also participates fully in Homeport. Homeport has the same 

function, but is focused on the maritime aspect of the critical infrastructure, facilities with docks and wharves. It is a Web-based portal for industry to access necessary information or for the Coast 

Guard to push data quickly should a threat materialize. 

As you may be aware, the Federal Government has also developed a credentialing program which will document transportation 

workers who have access to sensitive areas and equipment. 

In addition, Shell maintains a global network and helps with the 

relationship between the government and agencies around the 

world to protect our people and assets because a threat to our infrastructure is as likely to come from the outside as it is to come 

from inside. Shell’s network helps us protect our U.S. infrastructure. 

Finally, Shell’s security measures here are strengthened by the 

challenges being encountered around the world. Shell’s experience 

in keeping our people and our assets secure in politically unstable 

regions and difficult climates sharpens our expertise in keeping our 

people and our assets safe here in the U.S. What we learn around 

the world, we apply here. 

Shell is proudest of the safety and reliability of our U.S. infrastructure, and it remains dedicated and committed to our security. 

Thank you for allowing me to be here to answer the questions 

that you. 

[The statement of Mr. Garcia follows:] 

PREPARED STATEMENT OF RICHARD T. GARCIA

Chairwoman Jackson-Lee, Ranking Member Lungren and Members of the Subcommittee: My name is Richard Garcia and I am an employee of Shell Oil Company 

and serve as the Global Security Advisor for Shell International. In that capacity, 

I coordinate with law enforcement agencies in the United States and abroad to prevent attacks—both criminal and terrorist—against Shell’s personnel or assets. I 

manage Shell’s security advisors in North and Latin America. I also direct Shell’s 

Information and Assessment Team, which has offices in Washington, D.C. and London. Prior to joining Shell, I was with the FBI for 25 years. I headed both the Houston and Los Angeles FBI field offices. 

I am pleased to appear before you today to testify on the impact of foreign ownership and foreign investment on the security of U.S. infrastructure. 

Shell is committed to protecting our assets and our people around the world. Shell 

companies produce oil, gas, chemicals, lubricants and alternative energies like wind 

and hydrogen around the globe. Security plays a vital role in every one of our operations. When we operate in politically unstable or geologically challenging regions, 

security is mission critical to our success. 

Shell has a century-old history in the United States. One third of Shell’s assets, 

and shareholders are here in the United States. Shell Oil Company, through its U.S. 

affiliates, (Shell US) owns and operates 5,000 miles of pipeline and has partial ownership of 10,500 miles of pipeline. We wholly or partially own 59 products terminals 

and 960 storage tanks with more than 67.8 million barrels of capacity. 

8 

Shell US owns and operates five refineries in the United States with a combined 

capacity of 753,000 barrels per day. Six plants produce 15 billion pounds of chemicals annually for industrial use. Seven blending and packaging facilities around the 

country prepare our automotive consumer products like engine oils and lubricants. 

Shell US operates oil and gas rigs onshore and offshore around the country. We 

have 22,000 employees working at Shell sites and Shell offices from New York to 

Los Angeles and from the Arctic Circle to the Gulf of Mexico. 

Shell US invests heavily in the training, employees, systems and tools we need 

to protect our people and our assets. Since September 11, 2001, we have invested 

in facility protection, training and communications all the way from wellheads and 

offshore platforms to tankers, ports, pipelines, refineries and storage tanks. 

All of these steps were carried out in close partnerships with law enforcement and 

security officials. Shell US maintains strong relationships with federal, state and 

local law enforcement agencies in the United States. Shell hires skilled security professionals who have the experience, training and professional relationships to protect Shell’s people and infrastructure. 

———————————————————————————— 

Note: The companies in which Royal Dutch Shell plc directly and indirectly owns investments are separate entities.

In this Statement, the expressions ‘‘Shell’’, ‘‘Group’’ and ‘‘Shell Group’’ are sometimes used for convenience where

references are made to Group companies in general. Likewise, the words ‘‘we’’, ‘‘us’’ and ‘‘our’’ are also used

to refer to Group companies in general or those who work for them. These expressions are also used where there

is no purpose in identifying specific companies.

Since 9–ll, Shell Oil Company has recruited professionals into our Corporate Affairs Security office from the State Department, the police and military and the 

Coast Guard. Shell US maintains strong ties with these and other agencies that 

allow us to share information back and forth. Shell Oil Company’s security team 

also receives briefings from Department of Homeland Security (DHS) and the State 

Department’s Overseas Security Advisory Council on security issues important to 

Shell and the energy industry. 

The U.S. security team participates in various information-sharing programs from 

the U.S. Government such as the FBI’s Texas Coastal Regional Alert System and 

the Intelligence and Terrorism Alert Network, which are information-sharing programs in Houston and Los Angeles. In my previous employment with the FBI, I was 

responsible for the expansion and enhancement of these two programs. The U.S. Security team also participates with the FBI’s InfraGard information sharing program 

where I am currently on the National Board of Directors for InfraGard. 

Shell Oil Company, which operates in the United States, is a subsidiary the Royal 

Dutch Shell Group, a global energy company incorporated in the United Kingdom 

and headquartered in The Netherlands. 

I am here today because you would like Shell’s perspective on whether foreign 

ownership or foreign investment impacts the security of critical infrastructure. Let 

me say simply: It does not. I am aware of no instance where our foreign ownership 

or foreign investment has had any negative impact on keeping Shell’s infrastructure 

and people safe in the United States. I believe our energy infrastructure is as secure 

as it would be if Royal Dutch Shell plc were headquartered here in the United 

States. 

The Dutch-American friendship goes back more than 200 years. The Netherlands 

was the first country to recognize the American flag in November 1776—four 

months after our nation declared independence. The diplomatic relationship between the United States and The Netherlands is one of the longest, unbroken diplomatic relationships in the world. 

Before 9–11, She had strong security measures in place to protect our people and 

infrastructure. But the world of corporate security changed forever on 9/11, as we 

had to more seriously address the possibility of intentional acts to harm our facilities and employees instead of just accidental events. Since 9–11, the oil and gas industry has forged a partnership with government at all levels to protect hundreds 

of facilities across the country from the potential of terrorist attacks. Shell is a full 

participant in that partnership. 

Within months of the attack, the oil and gas industry developed security measures 

for all segments of the oil and gas network—including pipelines, refineries, terminals, and others. The American Petroleum Institute and the National Petrochemical 

and Refiners Association produced an industry-wide method for managers to identify security vulnerabilities in their operations. The Security Vulnerability Assessment methodology is a sophisticated, risk-based tool used to identify the security 

hazards, threats and vulnerabilities of a facility, and to evaluate the best measures 

to provide secure facility operations. In other words, it provides the framework for 

a complete security analysis of the facility and its operations. The SVA covers both 

9 

physical and cyber security, process safety, facility and process design and operations, emergency response, management and law enforcement. 

In 2004, the oil and natural gas industry expanded the SVA methodology to include pipeline, truck, rail and liquefied natural gas (LNG) operations. DHS has recognized the SVA methodology and even uses it to train its own employees and Shell 

US has provided personnel to DHS to assist in this training. Shell US has participated fully in the use and expansion of the SVA methodology. 

The oil and gas industry and federal security personnel also completed the ‘‘Security Guidelines for the Petroleum Industry,’’ to help employers protect facilities and 

respond to changes in the threat level. This guidance is now in routine use as a 

roadmap for companies in deciding how best to protect all sectors of the industry 

against the threat of attack. These are the working methods and countermeasures 

the oil sector uses to protect all segments of the industry. 

The guidelines are important because they allow companies to manage security 

risks and provide a reference to federal security laws and regulations that have an 

impact on petroleum operations. The Secretary of Energy and later the Undersecretary for the Department of Homeland Security have endorsed the industry guidelines. These security protocols are constantly being updated. A third edition was 

published in April 2005. Shell continues to use these guidelines. 

As you may be aware, a new program currently being developed by the US Government will aid in securing certain Shell US facilities even further by the implementation of the Transportation Worker Identification Credential (TWIC). With the 

TWIC program, appropriate government background checks can be conducted to aid 

in identifying the insider threat to Shell US facilities by properly clearing the workers who have access to sensitive areas and equipment. 

Shell US participates in the Homeland Security Information Network. HSIN is a 

web-based portal that allows DHS to pass security related information to the Critical Infrastructure Community. It is managed by DHS. All members must be vetted 

by the Oil and Gas Sector Committee of the DHS to be admitted. HSIN allows DHS 

to push data to the sector quickly and easily. 

Shell also participates fully in Homeport. Homeport has the same function but is 

focused on the maritime aspect of the critical infrastructure, facilities with docks 

and wharves. It is a web-based portal for industry to access necessary information 

or for the Coast Guard to push data should a threat materialize. 

Membership in HSIN is focused at the corporate level for Shell whereas Homeport 

is geared to the facility owner and operator. 

In addition to Shell US’ extensive security work within the oil and gas industry 

and with law enforcement agencies, Shell has built a global network that allows us 

to leverage our relationships with governments and law enforcement agencies 

around the world to protect Shell employees and assets. We exchange information, 

forge partnerships, design systems and implement procedures in partnership with 

governments and companies in other countries just as we do here. Because a threat 

to our U.S. infrastructure is as likely to come from outside the United States, as 

it is to come from the inside, Shell’s network helps us protect our U.S. infrastructure. 

Finally, Shell’s security measures in the United States are strengthened by the 

challenges we encounter around in the world. Shell’s experience in keeping our people and our assets secure in politically unstable region, geologically-challenging 

areas and difficult climates sharpens our expertise in keeping our people and infrastructure safe here in the United States. What we learn around the world we apply 

here, just as what we learn here we apply around the world. I believe Shell’s global 

presence strengthens the security of our U.S. assets. 

Shell is committed to providing a reliable supply of fuels and products to keep the 

economy growing. We are proud of the reliability of our oil and gas infrastructure 

and remain committed to its security. Thank you. 

Ms. JACKSON LEE. We are going to try to have you begin your 

testimony and then recess after your testimony. 

Mr. Marchick, if you will be patient, we would appreciate it; and 

Mr. Ranking Member, I would like to ask unanimous consent that 

we could continue this hearing without a quorum so we can at least 

get through. 

Mr. LUNGREN. Thanks. 

10 

STATEMENT OF MICHAEL PFISTER, SENIOR VICE PRESIDENT 

AND CHIEF INFORMATION OFFICER, HALLIBURTON 

Mr. PFISTER. Thank you, Chairwoman Jackson Lee and Ranking 

Member Lungren, members of the Committee on Homeland Security. 

I am Michael Pfister, Senior Vice President and Chief Information Officer of Halliburton Company. I am here today to witness on 

behalf of Halliburton Company, founded by Earl P. Halliburton in 

1919 and incorporated in the State of Delaware. 

Halliburton received correspondence by committee Chairman 

Bennie Thompson, offering us an opportunity to testify before this 

committee. That correspondence indicated that the topic of the 

hearing would be the impact of foreign ownership and foreign investment on the security of our Nation’s critical infrastructure. 

Halliburton is not foreign owned, and we do not possess critical 

infrastructure as we understand it. However, we would like to be 

of whatever help we can to this committee, and we might be of assistance relative to your introduction if we describe how we protect 

our technology and our information from being obtained and used 

by those who might wish to do our country harm. 

Halliburton and the energy industry for some time have been responding to the reality of the global business environment for 

which key employees travel around the world and need to have access to very sensitive information in order to do their jobs correctly. 

It also a given in today’s world that threats to the security of vital 

information comes from almost every location around the globe. 

Hackers do not need to be near important computer resources. 

The IT security landscape for Halliburton assumes that all of our 

important IT assets, regardless of which data center they are located in, are under constant attack by hackers from every location 

around the globe. In fact, in our world, we intercept 16,000 viruses 

every day, and we respond to about 12,000 attacks per day upon 

our network perimeter. So we have no choice but to take this information—information security extremely seriously. 

The IT industry has established security standards practiced by 

the Federal Government and by corporations like us that protect 

the perimeters of our networks, that protect the transmission of 

our information through public carriers, and it protects the centers 

that host the servers that run our applications and store our important raw data. 

Like the rest of the energy sector, Halliburton’s IT security relies 

on what we call defense in depth. It is multiple layers of defense 

that are placed throughout the IT system, and the idea behind this 

defense in depth is the idea that any attacker would have to break 

through multiple defensive countermeasures in order to successfully hack into the system. 

Modeled much after the security systems that have evolved over 

the years, Halliburton operates industry standard firewalls, 

antivirus and intruder prevention systems to separate our internal 

network and all of the information on it from the Internet. We perform perimeter audits to ensure that our firewalls are doing their 

jobs. We regularly monitor for suspicious activity, and we isolate 

that activity before it can do any harm. 

11 

We utilize third-party security experts to test our security systems’ effectiveness, and we encrypt our digital communications before we transport them through public communication networks. 

In addition to all of the technical security we deploy to protect 

our information assets, there are other steps taken by Halliburton 

to physically secure its confidential data and its facilities. Our facilities have physical barriers such as fencing, locked doors, locked 

traffic gates. We employ security guards to prevent unauthorized 

access and entry to both tangible and intangible property. We restrict access to our facilities to persons having proper credentials, 

such as electronic badges, and badge access records are automatically retained and maintained and reviewed from time to time. 

Visitors to our Halliburton facilities are required to sign in and are 

escorted as they make their way through our facilities. 

We store our trade secret information, such as drawings and 

specifications that make us competitive, in a digital vault that is 

referred to as the matrix database. And the control access to this 

important trade secret information, the matrix database, recognizes 

the degree of authorization that has been granted to a user, and 

it appropriately limits the user’s access to authorize data in the 

system. 

In addition, there are federally mandated export controls that 

impact our security assets as well. Halliburton has complex procedures in place to manage the export of our company’s technical 

data. These movements are screened either through our company’s 

system or by a member of the law department’s trade compliance 

group. And in doing so, we believe that we may be helping to protect our country’s critical infrastructure while keeping assets out of 

the hands of individuals who should not have them. 

There is also a need in our business to control to the best of our 

ability, the activities of employees that are entering and leaving 

our company. 

We have thousands of patents and many skills that we use to remain one of the finest energy service companies in the world. In 

our industry, there is a fairly constant turnover rate of talented 

and educated individuals, and for that reason, we have developed 

the following methods to protect Halliburton’s intellectual property: 

new employee packages, provided by our H.R. department, include 

an intellectual property assignment and a confidentiality agreement that requires the employee to assign to Halliburton any IT 

that was developed during his employment and that relates to company business, and to maintain the secrecy and the confidentiality 

of any information to which they might have been exposed. 

Ms. JACKSON LEE. Your time has expired. 

Would you be kind enough to summarize or respond to our questions? 

Mr. PFISTER. I want to close by saying that our success depends 

upon a well-trained workforce. We provide a bunch of training options to teach people how to take good care of our proprietary information. Some of them are online; others are instructor-led. 

I want to thank you for allowing me to appear here today, and 

I hope that we have provided some information that will be of help 

to the committee. We take very seriously our responsibility for protecting data and trade secrets and intellectual property. 

12 

I will be happy to answer any questions after we get done, and 

if I don’t possess the information, we will get it for you for the 

record. 

[The statement of Mr. Pfister follows:] 

PREPARED STATEMENT OF MICHAEL PFISTER

Chairwoman Jackson–Lee, members of the Committee on Homeland Security, I 

am Mike Pfister, Senior Vice President and Chief Information Officer of Halliburton 

Company. I am here today as a witness on behalf of Halliburton Company, founded 

by Earl P. Halliburton in 1919 and incorporated in Delaware. Halliburton received 

correspondence on May 9th from Committee Chairman, Congressman Bennie 

Thompson, offering us an opportunity to testify before this committee. That correspondence indicated that the topic of the hearing would be ‘‘The Impact of Foreign 

Ownership and Foreign Investment on the Security of Our Nation’s Critical Infrastructure.’’ Halliburton is not foreign owned and does not possess critical infrastructure. However, we would like to be of whatever help we can to this committee and 

I believe that we might be able to be of assistance if we describe how we protect 

our technology and information from being obtained and used by those who might 

wish to do our country harm. With that in mind, I would like to take a few minutes 

of your time to address Halliburton’s Information Technology and the safeguards we 

employ to protect our assets. 

Halliburton, and the energy industry—along with the Information Technology (IT) 

industries—have, for some time, been responding to the reality of a global business 

environment in which key employees travel around the world and need to have access to very sensitive information in order to do their job correctly. It is also a given 

in today’s world that threats to the security of vital business information come from 

almost every location around the globe. Hackers do not need to be near important 

computing resources. They take the path of least resistance and use the power of 

the Internet to locate information, regardless of where in the world it might be. The 

frequency and approaches that they use are independent of where key information 

stores reside, or where key employees office. For that reason, international business 

companies that have key corporate leaders, such as our CEO, Mr. Dave Lesar, who 

spend significant time outside the borders of the United States do not materially 

increase the risk that through IT methods, important information might be compromised. The IT security landscape for Halliburton assumes that ‘‘all important IT 

assets’’, regardless of which data center they are located in, are under constant attack by hackers from every location. That assumption is already in place, and preventive security measures are geared to that reality, regardless of where key employees are at any moment. 

Our customers do control most of the critical energy infrastructure and we have 

worked with those customers and IT security vendors to develop robust products 

and approaches to protect the information stored in our databases and other data 

repositories. The IT industry has established security standards, practiced by the 

federal government and by corporations, that protect the perimeters of our networks, the transmission of our information through public carriers, and the centers 

that host the servers that run our applications and store our raw data. 

Like the rest of the energy sector, Halliburton’s IT Security relies on ‘‘Defense in 

Depth’’—multiple layers of defense are placed throughout an IT system and address 

personnel, technology, and operations for the duration of the system’s lifecycle. The 

idea behind the Defense in Depth approach is that any attacker should have to 

break through multiple defensive countermeasures, in order to successfully hack 

into the system. This increases the likelihood of being able to identify and prevent 

an attack from occurring. 

Halliburton operates industry—standard firewalls, antivirus, and intrusion prevention systems to separate our internal network from the Internet. Halliburton 

performs perimeter audits to ensure the firewalls are doing their jobs. We regularly 

monitor for suspicious activity and isolate that activity before it can do any harm. 

We utilize third party security experts to test our security system’s effectiveness. We 

encrypt digital communications before transporting them through public communications networks. 

It is worth noting at this point that the energy sector participates in the National 

Infrastructure Protection Plan. There is a sector-focused project called LOGIIC 

(Linking the Oil and Gas Industry to Improve Cyber Security). However, its focus 

has been on Supervisory Control and Data Acquisition (SCADA) and other ‘‘control 

systems’’ that control production and distribution of hydrocarbons. Halliburton does 

not operate these systems. We also share industry best practices each quarter 

13 

through the American Petroleum Institute’s Information Technology Security 

Forum. 

In additional to all the technical security we deploy to protect our information assets, there are other steps taken by Halliburton to physically secure its confidential 

data and its facilities. • Halliburton facilities have physical barriers (fencing, locked doors, and locked 

traffic gates) and security guards to prevent unauthorized entry and access to 

both tangible and intangible property. 

• Halliburton restricts access to facilities to persons having proper credentials, 

such as electronic badges. Badge access records are automatically made and 

maintained. 

• Visitors to Halliburton facilities are required to sign-in and then are escorted 

throughout the facility. 

• Halliburton marks certain documents as ‘‘confidential’’ or uses other appropriate headers / legends when such documents contain confidential information 

of the company. 

• Warning labels appear on computer log-in screens to inform users that the 

system contains business confidential information and is for company use. 

• Halliburton stores trade secret information (drawings, specifications, etc.) in 

an electronic vault that is referred to as the Matrix database. To control access 

to the trade secret information, the Matrix database recognizes the degree of 

authorization that has been granted to a user and appropriately limits the 

user’s access to authorized data in the system. 

Our internal controls over our own vital assets are engendered largely to keep us 

competitive with others in the energy service field and of the most benefit to our 

clients. However, there are federally mandated export controls that impact our security practices as well. Halliburton has procedures in place to screen the export of 

our Company’s technical data. These movements are screened either through the 

Company’s SAP system or manually by a member of the Law Department’s Trade 

Compliance Group. In so doing, we believe we may be helping to protect critical infrastructure while keeping assets out of the hands of individuals that should not 

have them. 

So, I hope this brief technical disclosure helps this committee to appreciate the 

significant investment that we have made to protect information about our business 

from those with bad intentions. 

There is also a need in our business to control, to the best of our ability, the activities of employees that are entering and leaving the company. We have thousands 

of patents and many skills that we use to remain one of the finest energy service 

companies in the world. 

In our industry, there is a fairly constant turn over rate of very talented and educated individuals. For that reason, we have developed the following methods to protect Halliburton’s intellectual property. 

New employee packages provided by Halliburton’s Human Resources (HR) department include an intellectual property assignment and confidentiality agreement 

that requires the employee to assign to Halliburton intellectual property developed 

during his/her employment that relates to company business; and to maintain the 

secrecy of proprietary confidential information he/she develops or to which he/she 

is exposed. 

When an employee who had access to Halliburton’s valuable proprietary information leaves the company, Halliburton’s Law Department works closely with the HR 

Department and the business units, seeking to prevent the employee from taking 

that information for his or her own benefit or that of another, e.g., a competitor. 

When appropriate, access to our computer systems is disabled immediately. At other 

times during exit interviews, key employees are reminded of their continuing obligations under any applicable intellectual property and confidentiality agreements, and 

are requested to return any Halliburton proprietary information in their possession. 

When circumstances warrant, the company will send a letter to the departing employee, and possibly his new employer, formally reminding the ex-employee of his 

obligations to the company. If Halliburton suspects that the departing employee intends to or will be in a position to use Halliburton information in violation of those 

obligations, the company will consider taking legal action against the ex-employee 

and other responsible parties. There is a Dispute Resolution Agreement in place between the company and its employees that normally will require such disputes with 

ex-employees to be submitted to binding arbitration. 

In addition, when Halliburton engages a third party to provide goods or services 

and Halliburton is required to disclose confidential information to the third party, 

the third party is contractually obligated to maintain the confidentiality of such information. Typically, when a third party is engaged in Halliburton technology develVerDate Nov 24 2008 08:36 Jun 25, 2009 Jkt 000000 PO 00000 Frm 00017 Fmt 6633 Sfmt 6621 H:\DOCS\110-HRGS\110-36\48911.TXT HSEC PsN: DIANE
14 

opment, all rights to the developed technology are assigned to Halliburton, and 

again, the third party is required to maintain the confidentiality of Halliburton’s 

proprietary information. In some cases, the developed technology could be jointly 

owned by Halliburton and a co-developer, but in those cases as well, the parties will 

be obligated to maintain the confidentiality of proprietary information shared by one 

with the other. 

The company provides a number of courses in its ‘‘I-Learn’’ catalog that relate to 

protecting Halliburton’s valuable proprietary information, and to the proper handling of confidential information of third parties that is lawfully in the company’s 

possession. Some of these courses are fully electronic, or on-line; others are instructor-led. The ‘‘I-Learn’’ system has been developed by Halliburton to allow its employees to easily learn about many topics often while sitting in the comfort of their own 

offices. 

I again thank you for allowing me to appear here today and hopefully I have provided information that will be of help to this committee. I would be happy to answer 

any questions you might have and if I do not posses the information you want with 

me today, I will be happy to provide it for your record. 

Ms. JACKSON LEE. Thank you very much. 

The committee stands in recess. 

[Recess.] 

Ms. JACKSON LEE. Thank you. 

Mr. Marchick, would you please begin your testimony? 

STATEMENT OF DAVID MARCHICK, COVINGTON & BURLING 

LLP 

Mr. MARCHICK. Thank you, Madam Chairman, and it is a pleasure to be here. I know from personal meetings with you how much 

you have focused on this issue, how deeply you have investigated 

this issue, and I appreciate the leadership you have shown on this. 

I would like to make four points, Madam Chair. 

The first is that we want more foreign investment, not less. Foreign investment is part of the lifeblood of the U.S. economy. Employees, foreign companies employ about 5 million Americans, paying higher wage jobs than American-owned companies. It is critical 

to our technology and manufacturing base. Foreign-owned companies own about 5μpercent of all U.S. assets, but they employ about 

20μpercent of all manufacturing jobs, so it is critical to our manufacturing base. And as long as we spend more than we save, we 

need the money to come from somewhere, and it is better for foreign entities to invest in fixed assets than in liquid assets because 

you simply can’t dump fixed assets like you can liquid assets. So 

we want them to invest. It is good for our economy. It is good for 

R&D. 

Second is the issue of critical infrastructure. This committee, the 

Homeland Security Department and its predecessors, going back 

for almost 15 years, have really struggled with the concept of what 

critical infrastructure is. During the Clinton administration, the 

Clinton administration put out a study that the critical infrastructure covers about eight sectors. In 2001, Congress passed the PATRIOT Act and defined critical infrastructure as systems and assets that are so vital to the U.S. national and economic security 

that their destruction would have a debilitating impact on U.S. national security. 

15 

Since that time, there have been four different reports that have 

come out from the executive branch with four different definitions 

of critical infrastructure and four different lists of sectors. 

Now why is this important? It is important because investors 

and security managers, like Mr. Garcia, take guidance from the 

government on what is critical infrastructure and what is not; and 

foreign investors take guidance on that as well. And so, unless 

there is clear guidance from the government as to what critical infrastructure is, it will make it more difficult and there will be more 

insufficiency for investors in deciding whether to invest with the 

United States. Because if a transaction—if a foreign investment 

implicates or covers critical infrastructure, then there is a greater 

likelihood that it has to go through the CFIUS review process. And 

if companies don’t know whether they have to go through that 

process, it creates uncertainty, and uncertainty chills investment. 

So the third issue is that the CFIUS process since Dubai Ports 

has changed significantly. Transactions are now regularly going to 

very, very high levels in the government, sometimes all the way up 

to the Secretary, sometimes all the way up to the President, there 

is additional scrutiny. There has been an increase in the number 

of mitigation agreements or conditions imposed by the government. 

The Homeland Security Department has taken a very active role 

in this. Last year they negotiated—they required companies to 

commit to 15 mitigation agreements, which is three times the number of agreements required the previous year and equal to all of the 

mitigation agreements in the previous 3 years. 

So, as a result of the increased oversight from this committee 

and others, there has been additional scrutiny of foreign investments in the United States. 

Frankly, in my view, not all of that is good, because overregulating investment has a chilling impact; and I know, from my practice, that there are investors who have decided not to pursue investments because of the CFIUS process. So the balance, the pendulum shifted dramatically after the Dubai Ports controversy, and 

hopefully that pendulum will swing back towards the middle. 

The final issue is legislation. Mr. Frank and Mr. Bachus and the 

Financial Services Committee put together a very good bill with 

Mrs. Maloney and Ms. Pryce. This committee and Chairman 

Thompson and Mr. King played a very important role in shaping 

that legislation; they were original cosponsors. 

You and Mr. Lungren played a very important role as well. It 

gives the Homeland Security Department additional authority. 

That legislation, I think, is very good legislation. It passed unanimously in the House. 

Today, in the Senate, Senator Dodd and Senator Shelby marked 

up similar legislation based on the House bill with a few changes. 

Hopefully, that will go through the Senate quickly and come back 

to the House with a conference, and hopefully, we can get a good 

bill. 

That legislation further increases the scrutiny that transactions 

will have to go through under the CFIUS process. It requires additional scrutiny of government-owned acquisitions. It requires additional reporting to Congress; Congress will have a much greater 

oversight role. And it requires additional factors to be considered 

16 

1David Marchick is a partner at Covington & Burling LLP, a Washington-based law firm. He 

has an active CFIUS practice and is co-authored the book ‘‘U.S. National Security and Foreign 

Direct Investment (Peterson Institute, May 2006). Mr. Marchick represents U.S. and foreign investors before the Committee on Foreign Investment in the United States and the Congress. 

The views in this testimony are Mr. Marchick’s views and not those of Covington & Burling 

LLP or the firms clients. 2Section 1016(e) of the USA PATRIOT Act, codified at 42 U.S.C. § 5195c. 

3See National Strategy for the Physical Protection of Critical Infrastructure and Key Assets, 

(February 2003), available at www.whitehouse.gov (last visited May 20, 2006). 4 U.S. National Security and Foreign Direct Investment, by Edward M. Graham and David M. 

Marchick, Peterson Institute, May 2006, p. 149. 

in every transaction, factors that now are much more relevant after 

September 11th including investment in critical infrastructure. 

So the hearing that you are pursuing today is a very important 

hearing. Congressional oversight is very important, and the most 

important thing is that, through hearings like this, there is additional confidence in the integrity of the CFIUS process, so we don’t 

have another Dubai Ports, which is not good for our country and 

not good for our relationships with other countries. 

[The statement of Mr. Marchick follows:] 

PREPARED STATEMENT OF DAVID MARCHICK 1

Chairman Jackson-Lee and Ranking Member Lungren 

Thank you for the opportunity to testify before your committee today on the important subject of foreign ownership of critical infrastructure. 

I plan to discuss three issues in my testimony: 

First, the concept of ‘‘critical infrastructure’’ and the implications of foreign 

ownership thereof; 

Second, recent developments in the Committee on Foreign Investment in the 

United States; 

Third, CFIUS-reform legislation moving through the Congress. 

Foreign Ownership of Critical Infrastructure 

A significant amount of work has been undertaken in this Committee, in the Department of Homeland Security and its predecessor agencies, and in the private sector with respect to defining and protecting critical infrastructure. This work dates 

back to the mid–1980s and continues to evolve today. 

There have been many iterations of the government’s definition of ‘‘critical infrastructure’’ over the years. In 1996, for example, President Clinton issued Executive 

Order 13010, which stated that ‘‘certain national infrastructures are so vital that 

their incapacity or destruction would have a debilitating impact on the defense or 

economic security of the United States.’’ EO 13010 listed eight sectors as critical infrastructure, including telecommunications, electrical power systems, gas and oil 

storage and transportation, banking and finance, and transportation. 

Building on this initial concept, the USA PATRIOT Act, and later the Homeland 

Security Act, defined ‘‘critical infrastructure’’ as: 

‘‘[S]ystems and assets, whether physical or virtual, so vital to the United States 

that the incapacity or destruction of such systems and assets would have a debilitating impact on security, national economic security, national public health 

or safety, or any combination of those matters.’’ 2

This definition, by setting a high threshold, implies that a relatively narrow list 

of assets would be deemed to ‘‘have a debilitating effect.’’ Core communications assets or the electrical grid certainly would meet this definition. But in the National 

Strategy for the Physical Protection of Critical Infrastructure and Key Assets, the 

White House identified twelve very broad sectors as critical infrastructure, including 

agriculture and food, water, and public health.3 In the book that I co-authored with 

Monty Graham of the Peterson Institute, Mr. Graham estimated that these twelve 

sectors cover some 25% of U.S. employment.4 Taking this effort one step further, 

the Department of Homeland Security created a ‘‘national assets database,’’ which 

contains tens of thousands of entries compiled from various sources, including state 

and local officials. The Information Assurance and Infrastructure Protection Division of DHS reported that it had identified 1,700 ‘‘critical assets’’ in 2004. And since 

17 

5See, E.O. 13228; the National Strategy for Homeland Security, July 2002; the National Strategy for Physical Infrastructure Protection, February 2003; and Homeland Security Presidential 

Directive 7, December 2003. 

2001, there have been four different executive orders or reports, each of which included different sectors as critical infrastructure.5

The definition of critical infrastructure matters because the private sector makes 

key decisions—investment and resource allocation decisions—based on guidance 

from the federal government. Yet the evolving and increasingly broad definition of 

critical infrastructure, coupled with little guidance from the government on the national security issues associated with investment and management of such infrastructure, has created ambiguity and uncertainty for U.S. companies looking to increase their value by attracting foreign partners as well as for direct foreign investors. 

To be sure, we know from CFIUS practice, from statements by Homeland Security 

officials, and from H.R. 556 and the Dodd/Shelby bill, that protection of critical infrastructure is a top priority. And, for investment in certain sectors—including the 

defense industrial base, telecommunications carriers, and certain energy assets, including nuclear—there is a clear nexus to national security, there are established 

paradigms for assessing and, where necessary, mitigating national security risks 

posed by foreign investors. Foreign investors might reasonably expect to incur some 

national security-related mitigation costs associated with their investment in these 

sectors, and they should have some sense of what those costs will be (especially for 

investments in the defense industrial base where there are fairly standard terms 

for mitigation). 

But these cases represent only a small percentage of investment in critical infrastructure, as that term has been broadly defined. It is far less clear that foreign 

ownership of other assets deemed to be ‘‘critical infrastructure’’ has any measurable 

impact on U.S. national and homeland security. Let me offer three examples of how 

the absence of guidance in this area is both troubling from a policy perspective and 

potentially costly in the marketplace. 

First, there are certain areas of ‘‘critical infrastructure,’’ broadly defined, that in 

the ordinary course simply should not raise national security concerns. 

For example, there has been great controversy in certain states regarding the privatization of toll roads. While that debate is understandable, it would be far more 

difficult to see how foreign ownership of a toll road would raise national security 

issues. The same logic applies to most investments in agriculture and food. Ben and 

Jerry’s is owned by a Dutch company, and Ha ̈agen-Dazs is owned by Diageo, a British company. I can think of many great ways to describe Cherry Garcia, but central 

to national security isn’t one of them. 

Second, regulations that preserve and protect the national interest already govern 

a number of sectors identified as ‘‘critical infrastructure.’’ For example, there already exist myriad federal, state and local regulations to protect the food supply, 

to ensure the integrity of the banking system, and to facilitate high-quality public 

health services. This also is now true of investment in the chemical sector. Ambiguity as to whether investment in such sectors might also require a national security review because they technically are ‘‘critical infrastructure’’ unnecessarily complicates the investment and resource allocation calculus of both sellers and buyers. 

Third, there is a real risk of ‘‘critical infrastructure’’ mission creep, particularly 

with respect to information technology products and services. Increasingly, in practice, the government is defining critical infrastructure to include not only the specifically identified sectors, but also any product or service sold into that sector. This 

produces a slippery analytic slope. An IT product that serves the exact same function for Ben & Jerry’s as it does for AT&T may, because its customer is AT&T, be 

deemed part of critical infrastructure. This, in turn, creates unequal costs for foreign investors. For example, take two products that serve the same function on the 

IT networks of Ben & Jerry’s and AT&T. Both products have source code that is 

written by engineers in Eastern Europe. Both products are incorporated into hardware assembled in China, with the hardware comprised of component parts made 

in a number of other countries all over the world. Both products are sold by publicly 

traded U.S. companies, and both companies use direct sales as well as distributors 

to reach their customers. One company is then bought by a foreign, publicly-traded 

company with no government ownership. Should that investment require a national 

security review simply because, among the many diverse customers of the product, 

some are located in ‘‘critical infrastructure’’ sectors? 

To be sure, the answer to that question may be ‘‘yes’’ in some instances. Moreover, 

Exon-Florio and the CFIUS process can adequately identify and mitigate risks in 

those cases. However, even sophisticated counsel frequently have difficulty identiVerDate Nov 24 2008 08:36 Jun 25, 2009 Jkt 000000 PO 00000 Frm 00021 Fmt 6633 Sfmt 6621 H:\DOCS\110-HRGS\110-36\48911.TXT HSEC PsN: DIANE
18 

fying which instances these concerns may arise, or the potential costs associated 

with those issues. And this uncertainty is itself very costly, both for U.S. sellers who 

have an interest in creating the largest possible market for bidding and certainty 

with respect to closing, and for foreign investors who, in formulating their bid, must 

assess additional costs associated with their investment and how potential regulatory uncertainty both in timing and result might affect their competitive position 

vis-a`-vis other bidders. 

More can be done to provide clear guidance to foreign investors, U.S. companies 

and their investment advisors. While the definitions and classes of assets I described earlier may work for the physical protection of critical infrastructure, they 

do not work for foreign investment considerations. The Administration and Congress 

should work together to determine how best to protect critical infrastructure, regardless of who owns a particular company or asset. Security policies and guidance 

could be developed on a sector-by-sector basis. A baseline level of security requirements should be established. Then, if there are particular national security issues 

associated with foreign ownership in a particular asset, U.S. interests will be further preserved by CFIUS, which is well equipped to mitigate the risk or block the 

investment. 

Recent Developments in CFIUS 

Simultaneous with progress on CFIUS reform legislation in the Congress, CFIUS 

has undertaken a number of changes in response to concerns on the hill. These include: • Committing additional resources to staffing CFIUS cases. Treasury has added 

a new CFIUS Deputy Assistant Secretary and DHS has added case officers and 

lawyers to focus on reviews and enforcement; 

• Involving more senior level officials within CFIUS; • Enhancing communications with Congress; • Expanding coordination among intelligence agencies; • Expanding the use of mitigation agreements and introducing new, tougher 

terms in such agreements; and, 

• Enhancing enforcement of mitigation agreements, including through on-site 

audits and consultations with parties to such agreements. 

In many respects, CFIUS has taken a much more cautious attitude toward their 

work post-DPW. This caution has had a ripple effect on the private sector, leading 

to more filings. In 2006, there were 113 filings (up 73 percent over 2005), 7 secondstage investigations (up 250 percent) and 5 withdrawals (up 150 percent) during the 

second-stage investigation period. A number of other transactions were withdrawn 

during the initial 30-day period. The dramatic increase in the number of secondstage investigations and withdrawals suggests that foreign investors are having a 

more difficult time closing transactions in a timely fashion. The stakes are high— 

the value of just one-third of the transactions that were submitted to CFIUS exceeded $95.5 billion in 2006. 

CFIUS has also increased the number of ‘‘mitigation’’ or ‘‘national security’’ agreements negotiated as a condition for approval. From 2003–2005, the Department of 

Homeland Security (DHS) was a party to just 13 mitigation agreements, compared 

with 15 such agreements in 2006 alone. Foreign investors—particularly in the IT 

sector and other sectors considered ‘‘critical infrastructure’’—now face a greater likelihood of being compelled to enter into a mitigation agreement in order to secure 

CFIUS approval. 

The trend in filings has continued this year—there have been 54 to date, putting 

CFIUS on track for almost 150 filings this year, a 130 percent increase over 2005. 

Transactions that raise real national security issues should be filed and reviewed 

by CFIUS. But uncertainty about what cases should be filed will cause more transactions to be submitted for review than necessary. In turn, this forces CFIUS and 

the intelligence agencies to conduct a full analysis of inconsequential transactions, 

taking their focus off the transactions that really matter to national security. I suspect that over time this dramatic increase in filings post-DPW will level off to more 

normal levels, and that some caution in the agencies at this time is to be expected. 

The pendulum has swung too far post-DPW. For U.S. national security and economic interests, I hope the pendulum will soon swing back toward the middle. 

Legislative Efforts to Amend Exon-Florio 

In the wake of the Dubai Ports World controversy just over a year ago, more than 

20 bills were introduced in the House and Senate that would have restricted or 

blocked foreign investment in one way or another. Certain of these bills would have 

simply prohibited foreign investment in critical infrastructure; others would have 

prohibited foreign government ownership of certain assets in the United States. Several bills would have amended Exon-Florio, the statute that gives the President the 

19 

power to block certain transactions that threaten U.S. national security. One bill 

amending Exon-Florio passed the House, and another passed the Senate, but the 

109th Congress ran out of time before the bills could be reconciled. 

On February 28, the House passed unanimously H.R. 556, the National Security 

Foreign Investment Reform and Strengthened Transparency Act of 2007, which was 

pulled together by Chairman Frank, Ranking Member Bachus, Congresswoman 

Maloney and Congresswoman Pryce, among others, and co-sponsored by Chairman 

Thompson and Ranking Member King of this committee. Today, in the Senate, 

Chairman Dodd and Ranking Member Shelby are marking up a bill based in large 

part upon H.R. 556. 

Credit goes to you, Madame Chairman and Mr. Lundgren, and to Chairman 

Thompson and Mr. King, for helping to shape a bipartisan, balanced bill that enhances protection of national security while not impeding foreign investment in the 

United States. This Committee had an important role in shaping that legislation. 

H.R. 556 would address many of the perceived shortcomings with the CFIUS process without chilling foreign investment. It would: 

• Enhance Congressional oversight and reporting to Congress without politicizing transactions; 

• Require higher-level involvement in CFIUS decisions; 

• Expand the factors that CFIUS must consider to reflect post–September 11 

imperatives, including protection of critical infrastructure; 

• Heighten scrutiny for government-owned transactions without impeding investments that don’t raise real national security issues; and, 

• Allow for transactions to be reopened based on material intentional breaches 

of mitigation agreements where no other adequate remedy exists. This provision—the so-called ‘‘evergreen’’ provision—is tough medicine and a provision 

which foreign investors and key elements of the U.S. business community oppose. 

Chairman Dodd and Senator Shelby are marking up a bill in the Senate Banking 

Committee that is substantially similar on H.R. 556, making some modifications 

that in my view are very good changes. Among other things, the Dodd/Shelby bill: 

• Adopts the concept of rotating lead agencies and vests enhanced authority in 

those agencies to negotiate, monitor and enforce mitigation agreements. For example, DOD would take the lead on defense acquisitions; Homeland Security 

would lead on investments in ports, airports and transportation companies; Justice would take the lead where law enforcement issues were paramount; and 

Commerce would take the lead on transactions with significant export control 

issues; 

• Eliminates some of the unnecessary bureaucratic provisions of H.R. 556, such 

as requiring two-thirds votes in CFIUS for certain decisions. Unlike Congressional committees, agencies don’t typically vote; and, 

• Imposes the same confidentiality requirements on Congress that exist within 

CFIUS. 

I was pleased that the Senate decided to use the House bill as the baseline. If 

the Dodd/Shelby bill passes the Senate without significant changes, I am confident 

and hopeful that the House and the Senate could work together, in a bipartisan 

fashion, to send sensible CFIUS reform legislation to the President for signature. 

The key, however, is that legislation advance U.S. national security interests 

without impeding foreign direct investment that we want and need. No bill would 

be better than a bad bill, but I am hopeful that the House and Senate can put together a good bill for the benefit of our economy and national security. 

Conclusion 

The United States very much needs additional investment in critical infrastructure from both domestic and foreign sources. The more investment, the more durable and resilient our telecommunications, energy and other critical infrastructure 

will be. 

According to the Treasury Department: 

• Foreign companies in the U.S. employed more than 5 million U.S. workers in 

2005, providing 4.5% of all private sector employment in the United States. 

• Manufacturing jobs accounted for 33% of the jobs created by foreign companies in the U.S. (2004 data).μ The manufacturing sector accounts for just 12% 

of overall U.S. private sector employment.μ Thus, FDI is disproportionately bolstering this important sector. 

• An additional 4.6 million U.S. jobs indirectly depend on foreign investment 

in the U.S. (2005 data). Foreign companies in the U.S. buy 80% of their inputs 

from U.S. companies. This additional business indirectly supports almost as 

many U.S. jobs as FDI creates directly. 

20 

• Compensation at foreign companies in the U.S. is on average 30% higher than 

the U.S. national average.μ Foreign-owned firms paid U.S. workers an average 

of $63,428 in 2004. 

Further, in 2000, foreign firms directly employed 5.7 million people in the U.S. 

(5.1% of the private sector workforce) and indirectly supported 6.5 million more 

jobs.μ In 2005, those figures had fallen to 5.1 million (4.7% of the private sector 

workforce) and 4.6 million, respectively.μ Foreign firms? R&D spending as a share 

of total R&D spending in the U.S. has also slightly declined since 2000. 

We need more foreign investment, not less. 

In some cases—a very narrow set of circumstances—foreign investment does raise 

real national security issues. In those cases, the CFIUS process works, and works 

well. Through hearings like this, Madam Chairman, I am hopeful that the Congress 

will have additional confidence in the integrity of the CFIUS process. And with good 

legislation, the business uncertainty that has come in the wake of Dubai Ports will 

be reduced or eliminated, facilitating enhanced investments, new jobs and more economic activity in the United States. 

Thank you for the opportunity to testify before your committee. 

Ms. JACKSON LEE. I thank the gentleman. We allowed you to 

pontificate a little bit longer, and we thank you for your expressions. 

Let me thank the witnesses for their testimony—I thank them 

for statements that open the door. And we are here to do some factfinding. We are not here to prejudge or presuppose, and there are 

members on the committee who, I know, would have differing opinions. 

And let me indicate that we are going to move quickly. I understand there are certain flight obligations, and I understand also 

that we are in between and betwixt activities on the floor. 

But let me then pose a question in the context, as quickly as I 

can, to indicate that we have a no—if you will, an environment 

that we are in now, Mr. Garcia, Mr. Pfister, Mr. Marchick, that is 

stable and steady; and your testimony suggests somewhat that all 

is well. 

And I started out by indicating that we don’t deal with the 

wellness of security; we deal with the fractures and the possibility 

of fractures. And I think we have made it very clear that we are 

not interested in violating or at least undermining the free flow of 

the economy. 

Frankly, another viable hearing would be the question of China’s 

dominance, and I know that Financial Services has probably engaged in that in terms of the sizable investment that they have 

here in the United States, particularly in the financial institutions. 

That is not this committee’s jurisdiction per se unless we discuss 

issues involving critical infrastructure. But these are very large 

questions that have to be asked and answered, so I hope the witnesses will answer my questions in the context that this is not an 

indictment of the witnesses as much as it is a fact-finding effort. 

And I will start first with Mr. Garcia. 

I have had the pleasure of working with Mr. Garcia in working 

with the management and leadership of the FBI. So I imagine you 

have a fuller understanding, and I would like you to—and I hope 

Shell will give you that latitude—to broaden your answers and how 

it relates really to, your background in the FBI. 

Just to lay the groundwork, we know that you stated in your testimony that one-third of Shell’s assets and shareholders are in the 

U.S., thereby implying that two-thirds of your assets and shareholders are foreign. In addition to being a foreign-owned company, 

21 

Shell is global, which operates in more than 130 companies and 

employs 108,000 people. And I would assume some of them are foreign nationals worldwide. 

Would you please elaborate on the specific additional security 

measures you take, both in terms of physical security over critical 

infrastructure and data security over information, because Shell is 

both foreign owned and a global company. 

And may I ask this question right here before so that we can separate some of the issues that you will be answering as it relates 

to Shell? 

But the foreign ownership and foreign investment issue sometimes relates to countries whose relationships with the United 

States are not as long-standing as those that we have with the 

Netherlands. Would you agree to that? 

Mr. GARCIA. That is correct. 

Ms. JACKSON LEE. Therefore, when you raise these questions, 

when our committee raises these questions, we are not just necessarily thinking that Shell has to be before us as a witness, but 

we have to address it as it relates to investments that may come 

from countries who have a short-term friendship with us versus a 

long-term. 

And if I can yield to you now for a response to my question on 

the security measures. 

Mr. GARCIA. Thank you. 

When I retired from the FBI and took employment with Shell security, Shell security at that time was addressing all of the issues 

since 9/11, addressing all of the regulatory issues and regulatory 

information that was coming from Congress and other governments 

to the U.S. for protection of infrastructure. 

When I came on board, the position that I took, it was brand 

new; it had not been there before. And the purpose of that, my position in coming in there, was to look at the United States infrastructure, look at how Shell is operating in order to do what you 

are asking about: protection of the infrastructure, protection of the 

critical assets that are here and then how we interact with the rest 

of our partners around the world, the two-thirds, as you mentioned 

there. 

We have very strict procedures on how we deal with information, 

how we deal with information-sharing between agencies in the U.S. 

Government, information we share with our expats or foreign nationals that work with Shell. 

All of our facilities are controlled. All of our facilities, as far as 

the people that are there, we know who they are, we have background on them. We have no—we know exactly the access that 

they have, and one facility in the U.S. cannot be accessed by another person, even by a U.S. person unless they have authorization, 

escorted if they do not have authorization to be there on their own, 

or for what type of reason they are going to be there. 

The information we receive from these different things, we look 

at it, we vet it, and we keep it within the close realm of the security group. 

And also maintained in its information in a classified type of PKI 

encrypted system to where—and we only have access—that is not 

just open to the Shell Group in the U.S. or even overseas. We try 

22 

to maintain these proper controls and limit what the information 

is so that, therefore, it does not get into the wrong hands. Only authorized personnel have access to this information, and that is only 

a handful of people and, some places, dependent on what exactly 

the information is. 

Ms. JACKSON LEE. Is everyone carded and everyone vetted 

around your critical infrastructure in places other than the United 

States and in the United States? 

Mr. GARCIA. That is correct. In those facilities they have 

credentialing that goes into facilities there. I, myself, cannot go to 

another foreign country, go into a facility and just walk in; they 

cannot do it in our facility. 

Ms. JACKSON LEE. You might recall when Russia froze its gas exports into Europe, the critical impact that occurred. Would you 

imagine the possibility, the way you are structured now, that happening by an individual act of an employee? Because we have established that, at this point, our relationship with the Netherlands 

is certainly a, collaborative, cooperative relationship. But would 

you envision—or would you have the ability if that was an individual act of an employee or set of employees? 

Mr. GARCIA. The possibility to have it happen here in the United 

States is slim. To have one employee just turn off a particular 

major gas line takes more than just an individual doing that. There 

are checks and balances that are established that I am aware of, 

from the process at the refineries; and the gas plants have some 

type of deviation from that. There is a work blot-out; those who 

work are advised as—security, as well—to make a determination 

as to what is going on here. 

Nothing is 100 percent. You always have that lone wolf. You always have that individual who can do something on their own because you cannot be in the minds of everybody. But the procedures 

and the checks and balances that they have in each facility and 

how they do things help to try to mitigate that. 

Ms. JACKSON LEE. Thank you. 

Mr. Pfister, let me raise the question of access and control. And 

thank you very much for focusing most of your testimony on technology. But let us go back to the question of Dubai and the relocation or joint location, if you will, of corporate headquarters. 

As I understand, it is being reinterpreted to being jointly—two 

joint locations, Houston and Dubai. But in the course of your leadership, being in Dubai would suggest that there would be lead 

space. There would also be the appropriate resources for the joint 

corporate office to function. 

What procedures do you have in place that would give us comfort 

that any actions in Dubai by anyone who would be in that particular area would not have access to critical infrastructure that 

could impact America? 

Mr. PFISTER. Thank you for giving me the chance to clear that 

up because there was a lot of misperception around that. 

We didn’t plan on moving the company to Dubai. We are a proud 

American company, incorporated here since— 

Ms. JACKSON LEE. I am glad to allow you to restate that again. 

Mr. PFISTER. The reality—the way the IT security environment 

works is that, for decades, key employees have been moving all 

23 

over the world and where they move and where they office and 

where they sit doesn’t necessarily mean that the information that 

they need to have access to sits in that same location. In fact, it 

is much more likely for you to have your key information, your critical information, to be stored in data centers that have been physically secured in locations. You are comfortable around the 

environmentals, you are comfortable around access, you are comfortable about the security that you can put around that. And, in 

fact, that is the case in our computing environment. We take very 

good care of all of our digital crown jewels, and we put them in 

places where we have the fullest confidence that they will be well 

protected and access will be controlled. 

Ms. JACKSON LEE. Would some of those be housed in the offices 

in Dubai? 

Mr. PFISTER. Very few. Our particular security model is to put 

as little technology as possible in those locations. 

Generally we will put in, obviously, end-user devices such as PCs 

and laptops, and then we will put in local networks to allow them 

to talk to each other; but very seldom in other locations, other than 

our major data centers, which for us today, in an HP-managed facility in Toronto, in a Halliburton-managed facility in Houston. 

Very seldom do we push anything more complex than that. 

Ms. JACKSON LEE. I will raise some more questions with you 

later. 

Mr. Marchick, your testimony focused on the value of investment, and I don’t think we have a disagreement in that. But I did 

note that you gave short shrift to the concept of the purchase, or 

the proliferation of the purchase of roads, toll roads, et cetera, noticing that this had been a phenomenon in Europe for a long time. 

However, the framework of this hearing is we must think of what 

could happen. 

Do you still want to give short shrift to the idea of loss of access 

and control or the interest that should be established as to have 

certain markers, certain criteria, certain oversight in terms of making sure that during a time of crisis, man-made disaster or natural 

disaster, that the people of the United States have access to these 

facilities or to these roads? 

Mr. MARCHICK. Madam Chairwoman, the first thing I want to do 

is learn the critical lesson in Washington: Never disagree with the 

Chairwoman. 

Ms. JACKSON LEE. We welcome your opinion. 

Mr. MARCHICK. My view is that the government has a responsibility to ensure that security is in place whether it is a U.S. or a 

foreign investor, a U.S. or a foreign owner. And with a toll road, 

that starts with the regulatory structure that is in place or the 

structure that is in place for that asset. 

So, for example, if there are concerns about access to a road in 

a time of emergency, there should be provisions in place so that either the owner follows instructions of the government in times of 

emergency or the government gets out of the way and the State, 

local, Federal Government can take over the entrance and exits to 

a toll road at a time of emergency; but that the government should 

only intervene if there is a marginal increase in the risk as associated with a foreign investment. 

24 

And with a toll road, I frankly think it is hard to see how a foreign investor could have a negative impact on a road. I think there 

is a very legitimate policy debate, which I want to stay out of, 

about whether roads should be privatized or not. But whether it is 

owned by a Canadian company or a U.S. company, or an Australian company or a U.S. company, I am not sure makes that big 

of a difference. If it does, the government should intervene and put 

security measures in place. 

Ms. JACKSON LEE. Let me yield to the distinguished gentleman 

from California for 5μminutes. 

Mr. LUNGREN. Mr. Garcia, when were you with the FBI in L.A.? 

Mr. GARCIA. June of 2001 was when I first arrived there as a 

special agent in charge, and I lived in Long Beach. Not to mention 

that— 

Mr. LUNGREN. You obviously have good judgment. I appreciate 

that. 

Ms. JACKSON LEE. I won’t take from your time, Mr. Lungren, but 

he is now back in Houston, and he started in Houston. 

Mr. LUNGREN. I know. I understand. 

Mr. GARCIA. I am a Texan. 

Mr. LUNGREN. I understand that. You miss the humidity and the 

sweat. I understand that. 

In your testimony, you note that Shell participates in the Homeland Security Information Network and Homeport. Is there any difference that you can ascertain between the cooperation and the relationship you have with the Department of Homeland Security 

here as opposed to if you were not a subsidiary of a foreign-owned 

corporation? 

Mr. GARCIA. If I understand your question: If we were a foreign 

corporation strictly, not have U.S. ties, as Shell has here in the 

United States, would there be any difference on how DHS works 

with you? I would imagine that DHS is limited on what they can 

share with anybody, depending on their nationality, depending on 

the information that they have and that they are actually trying 

to put out. 

Mr. LUNGREN. But as a wholly owned subsidiary of a corporation, 

do you have any— 

Mr. GARCIA. We have no restrictions whatsoever on how they 

deal with us because of the fact that we are U.S. persons, too. 

Mr. LUNGREN. Mr. Pfister, could you clear up for me, I don’t understand this idea of dual corporate structure Dubai, Houston. 

What is—what do you have in Houston and what do you have in 

Dubai in terms of corporate headquarters? 

Mr. PFISTER. Well, Houston is our principal place of business. It 

is where we have the majority of our corporate officers; it is where 

we conduct the majority of the strategy settings and the design 

making of our company. So it is our corporate headquarters. 

Mr. LUNGREN. What is Dubai? 

Mr. PFISTER. Dubai is going to be the location of our chairman 

and chief executive officer. It is our opinion that it is in the best 

interest of the country for Halliburton to be as strong in the energy 

business, and in order for us to do that, we have to be as strong 

in the Eastern Hemisphere. You have probably seen some of the 

25 

statistics that are there; 60 percent of the oil reserves are in the 

Eastern Hemisphere, so he is moving over to Dubai. 

We will probably consolidate some of the other managers that 

are in that general region, and that will be his base. 

Mr. LUNGREN. So you have got more business over there than 

you have here? 

Mr. PFISTER. No, that is not the case now. We conduct well into 

the majority of our business in North America today, but we need 

more valuable portfolios because that is where most of the reserves 

are. 

Mr. LUNGREN. And reserves you can go after, I presume. 

Mr. PFISTER. Yes. 

Mr. LUNGREN. Last time I checked, you can’t go offshore, Florida, 

California, offshore in the eastern part of the United States. You 

can’t go in ANWR. Am I right in those things? 

Mr. PFISTER. It is better probably to ask our Shell representative, 

because we don’t get involved in this debate, but I think it is accurate. 

Mr. LUNGREN. I can’t understand why you would move to where 

the business is. That is just bothersome. 

No. I mean, you know, we have made it almost impossible for us 

to go after new resources in the United States in our environs, and 

I always remember the people who used to drive to the protests 

against offshore drilling in California. Very few of them came there 

via skateboard or walking. I guess it was magically produced for 

them. 

That is just a little thing I have. I mean, I grew up in Long 

Beach, as you know, and Long Beach, we have manmade oil islands. We have 2 billion proven reserves. We actually do slant drilling there. We had the first, the beginnings of injection wells for the 

purpose of boosting the city back up, and then we got into the 

whole idea of using it for secondary and tertiary recovery. 

We are looking at the Signal Hill reserve, which I think is the 

fourth oldest continuous operating reserve in the country, and we 

actually have potential for opening up wells there because we put 

more money into it. It is kind of interesting. A lot of people get in 

their car and figure that comes there. 

Anyway, Mr. Marchick, you were talking about the CFIUS process and the ambiguity in which infrastructure will have an impact 

on national security, complicating foreign investment. We in the 

Congress responded to a concern that was expressed that we needed to bring CFIUS up to date. One of the concerns I had as we did 

that was, we should—would we be bringing too many transactions 

within that ambit? Would that cause us to spend too much time 

and attention and have our intelligence communities focusing 

across the board on what would end up being nonimportant issues, 

and therefore, not being able to give the appropriate analysis to 

those which truly had a national security interest within what we 

know have to be some sort of reasonable time limits; otherwise, you 

are not going to have the investment because we make it impossible. 

How do you suggest we balance that? You talk about ambiguity, 

which means you think we ought to have more particularity. What 

kind of particularity would you talk about? 

26 

Mr. MARCHICK. The first thing to do is define what critical infrastructure is for the purposes of foreign investments. 

As I mentioned, during the Clinton administration there were 

eight sectors defined as critical infrastructures. Now there are 12, 

but there have been four different reports in the last 4 years that 

define it differently and give different sectors. That is all for the 

purpose of physical protection of critical infrastructure. 

Take a stadium, for example. You want to protect that from 

being blown up or from some tragic circumstance, but who owns a 

stadium, you know, doesn’t have any impact on security. So I think 

the most important thing to do—— 

Mr. LUNGREN. You obviously haven’t been involved in the debate 

on building a stadium in DC. 

Mr. MARCHICK. Building or not building is a key issue, but who 

owns it doesn’t raise any security issues. 

The key issue is for the government to provide guidance on what 

they mean by critical infrastructure for the purposes of foreign investment. They define agriculture as critical infrastructure. Who 

owns a farm, whether it is owned by a Canadian or an American, 

I can’t see the difference from a security perspective. 

So in the Senate bill that passed the Senate today, the Senate 

Banking Committee, there is a requirement for the CFIUS agencies 

to provide guidance to the investment communities on the type of 

transactions they are seeing. That would be very helpful. Because 

right now there is a lot of ambiguity, and you are forcing a lot of 

transactions into the CFIUS process that don’t need to be there. 

And you are requiring the intelligence community, the Homeland 

Security Department and others to spend a lot of time on those 

when they should be focused on the transactions that really matter. 

Ms. JACKSON LEE. Thank you. 

The gentleman’s time has expired. 

It is my pleasure to yield to the distinguished gentlelady from 

New York, Brooklyn, New York for her 5 minutes. 

Ms. CLARKE. Thank you, Madam Chair. 

It has been somewhat of a hectic day today, but I thought it was 

very important to be at this subcommittee hearing. I just want to 

share a couple of thoughts and raise a couple of questions. 

Since the very beginning, foreign investment has played a vital 

role in the development of the United States; as the world becomes 

increasingly global and the businesses around the world find new 

ways to integrate, maintaining a strong level of foreign investment 

will be as important as ever. 

There is also a great deal that foreign companies can’t do to keep 

America secure. By working with the government and reducing 

their vulnerabilities, companies can both improve the economy and 

help maintain security. This, however, is dependent on a strong, cooperative relationship with the government and on maintaining 

sensitive information and systems in a safe way. 

We must also keep in mind that not all investors have the best 

interest of the U.S. at heart. Therefore, the government must continue to play a role in determining which investments could cause 

harm to come to Americans. 

I wanted to direct my question to you, Mr. Pfister. How exactly 

would you define critical infrastructure? That has been a lot of the 

27 

challenge. You know, I come from New York State where, of course, 

the big issue around Dubai Ports became a national issue and national concern. And I think defining critical infrastructure and 

what it means in this global environment that we are in, is really 

important. 

Because I notice that you comment in your testimony that Halliburton does not possess any critical infrastructure or assets, I want 

to know whether you would consider various energy facilities—you 

operate critical infrastructure; or what about operations which involve supplying or building facilities for our military overseas? 

Can you just sort of give me a sense? 

Mr. PFISTER. Yes, ma’am. I would be happy to do that. Let me 

kind of start off—all right. Is it better now? This must be the 

microphone. I would be happy to answer those questions. 

Let me explain kind of what our assets are that we do own. We 

own people, obviously, with intellectual property between their 

ears. We have got manufacturing plants all over the world that 

build equipment, heavy equipment and tools that are mobile 

enough to then drop-ship into different parts of the world, so the 

big trucks and the skids and the boats that go out and provide 

services in the more permanent critical infrastructure that Homeland Security has appeared to focus more attention on in the past. 

We have technology centers where we do—we have laboratories 

where we do research and development of our products. And then 

again, we have the equipment, the actual equipment. 

So when we made the statement up at the—in my opening statement that we were really not the owners or the operators of critical 

infrastructure, we were using the more classical definition that 

Homeland Security has had of refineries, pipelines, LNG terminals, 

et cetera. We don’t operate or own any of those. 

What we operate and own are tools that fit in trucks that we 

drive around or we float to different locations to actually help us. 

And the complexity around them is that our primary technology 

is in better understanding rock properties and fluid properties, 

deep underground, and figuring out how to make hydrocarbons 

flow faster out of that and get to the surface. So our equipment is 

very specific, very niche-oriented to that. 

So I don’t know if that answers your question or not. 

Ms. CLARKE. It does to a certain degree. But being an avid 

watcher of the television program 24, I will submit to you that the 

tools that you utilize getting into the wrong hands or being exposed 

to the wrong environment could pose a threat. Just FYI 

Let me follow up with this question: If Halliburton’s operations 

were run by an entity that wished to do harm to America or shift 

U.S. policy, do you feel they would have a means through your operations to accomplish this? 

Mr. PFISTER. Can you clear up the question just a little bit? If 

Halliburton’s operations were bought by someone else and then 

controlled? 

Ms. CLARKE. By that entity. 

Mr. PFISTER. Well, it wouldn’t be too different than some of our 

competitors today. Schlumberger is not an American corporation 

and yet we allow them to operate in the United States and in other 

places around the world. 

28 

I guess you are asking me for my advice on whether foreign ownership of the sort of business that we operate today would create 

any incremental concerns. 

Ms. CLARKE. Vulnerabilities. 

Mr. PFISTER. I have a hard time seeing that being a large increase in risk. 

Ms. CLARKE. OK. 

Mr. MARCHICK. I would just note, it was the microphone of the 

foreign company that didn’t work. 

Ms. CLARKE. That is a good one. 

Mr. Marchick, in your testimony, you express several definitions 

for critical infrastructure. Which do you feel is most appropriate, 

or do you have a separate definition you feel would better fit? 

Mr. MARCHICK. I think the definition in the PATRIOT Act is a 

very good definition because it focuses on those systems and assets 

whose destruction would have a debilitating impact on the United 

States. 

We know that, for example, in some sectors there is an incremental risk in foreign investment. For example, in the telecom sector because the Department of Justice wants to have access to 

wiretaps that we want—they have a legitimate interest in ensuring 

that they can conduct those wiretaps without foreign persons 

knowing about them or without foreign governments knowing 

about them, so you want to have American citizens handling those 

wiretap processes. 

Similarly, you want American citizens handling classified information in defense companies. 

But I think there is a very narrowly defined set of sectors where 

there really is an incremental risk for foreign investments, and in 

most of those sectors, if not all of them, there are ways to mitigate 

that risk through, for example, requiring that American citizens 

operate in key functions at a port facility or in a telecommunications control center or in the defense sector by making sure that 

all of the people that have access to sensitive assets have background checks and security screens, and there are access controls 

and badging and escorts. 

So I think that we shouldn’t seek to ban foreign investment. We 

should seek to mitigate the marginal increase in risk associated 

with foreign ownership in those very narrow sets of sectors where 

foreign ownership matters. 

Ms. CLARKE. Just to follow up, Madam Chair. 

Mr. Marchick, in your experience, do you feel that CFIUS takes 

into account the country in which the potential foreign owners are 

based? Does it treat various countries differently, and are you 

aware of any situations where CFIUS denied a filing purely on the 

nationality of the company? 

Mr. MARCHICK. CFIUS looks at a variety of factors in their national security analysis. They start with looking at the threat and 

whether there—if the buyer had harmful intent and the capability, 

would they do something to harm the interest of the United States. 

They would then look at the vulnerability. What are the assets 

that the company is buying and how could a person or entity that 

has the intent to harm the United States take action to harm the 

United States? 

29 

The country where the buyer comes from is a factor. British companies are treated differently than companies from other countries. 

Privately owned companies are treated differently than government-owned companies. And the ownership does have a significant 

impact on the national security risk analysis that the CFIUS agencies undertake. 

I am not aware of any specific ban outside of existing law on 

companies from certain countries investing in the United States, 

but I do know that certain countries that make investments in the 

United States have higher scrutiny than others. 

Ms. CLARKE. Thank you very much, Madam Chair. 

I yield back the rest of my time. 

Ms. JACKSON LEE. I thank you. 

I am aware of your schedule. We will be back before that time. 

And we will recess for the last time. When we come back, we will 

conclude the hearing. 

[Recess.] 

Ms. JACKSON LEE. The subcommittee hearing is called to order. 

Thank you so very much for your patience. I know it will add to 

your happenings here on the Hill. 

Let me first, in the absence of my ranking member—I know that 

he has been called to another hearing which I am called to, so we 

will finish at this time. Just—in his absence, as well, I will make 

sure that he knows that he has a few friends in Texas who believe 

in the energy industry and the value and importance that it has 

for the United States. 

With that in mind, Mr. Garcia, let me just quickly get a quick 

question to you. Plain and simple, how are these lessons applied 

to assets that are or affect critical infrastructure in the United 

States? 

The lessons that we are talking about, of course, are the fact that 

you are a global company. If you could, just restate for us how the 

lessons of being global can impact on the securing of assets here 

in the United States which happen to be under the control of foreign investors. 

Mr. GARCIA. Since 9/11, the United States has really tightened 

its security measures on all aspects of life here. Everybody is more 

conscious of what is going on—law enforcement as well as companies, if they can take stringent measures to try to protect against 

another attack since 9/11. 

For attacks that take place overseas, we are in countries where 

security measures are not as strict as in the United States. The insurgents in Iraq and places in other locations, we see what they do. 

We learn from what they are trying to do and how to do it, and 

see what we can do to ensure that that does not happen here in 

the United States. 

We take those lessons learned by looking at and studying what 

they do to ensure that we are covering our procedures, that we 

have to plug that gap. We always try to look at the ‘‘what ifs,’’ as 

you suggested earlier. We do not just take things for granted. Anything can possibly happen, so we always look at the impossible and 

say, ‘‘Do we have a coverage for that or not?’’ Using the overseas 

incidents that take place, we look at that as well. 

30 

Ms. JACKSON LEE. Mr. Marchick, let me just, as we excuse you 

and thank you for your testimony, raise this last question with you. 

I, frankly, believe that we need legislation that is geared toward 

the question of actual security of the infrastructure, of the critical 

infrastructure; and certainly CFIUS has a lot of elements in it. I 

will certainly be looking very closely at the markup that the Senate 

has done today. 

Give us, if you will again, your parameters or where you believe 

there should be government intervention, and we hope that you 

will not be inhibited by your clients. We are asking for your wisdom and so—frankly, I think you started out by saying, where 

there was a crisis or where there shows to be some inconsistency 

or problems, there might be a need for government intervention. 

Would you expand on that, please? 

Mr. MARCHICK. Thank you very much. 

Let me just state for the record that these are my opinions. My 

clients have opinions all over the map, and hopefully, I will not get 

fired by any of them after what I say today. 

It seems to me that the Federal Government, working with industry, should develop security guidelines, security mechanisms, 

security standards on a sector-by-sector basis, addressing the risk 

that is inherent in that sector. 

The Department of Homeland Security is doing that now in the 

chemical sector, coming up with chemical security guidelines and 

chemical security regulations, working with industry. That is a 

very healthy exercise. 

On top of that, if there are marginal increases in risk to our national security associated with foreign investment, those should be 

addressed through CFIUS; and CFIUS, I think, is well-equipped to 

address those particular concerns, but it is that marginal increase, 

that delta in security risk that is the only thing that CFIUS should 

focus on. 

The general vulnerabilities that exist in our energy sector, for example, or our chemical sector should be addressed across the board 

regardless of who owns the asset. And then on top of that, if there 

are particular issues associated with a particular foreign owner 

who raises issues, those should be addressed through CFIUS. And 

I think that this committee and the CFIUS committee and the 

Homeland Security Department can work together to accomplish 

those twin goals. 

Ms. JACKSON LEE. So, if you will, as to an established conflict 

that may generate between the United States and another sovereign nation that might interfere with critical assets or with that 

country’s investment in the United States, you are suggesting that 

that should be looked at isolated or it should be looked at separately? 

Mr. MARCHICK. I think it should be looked at with great rigor to 

see if there are risks that a foreign owner would do anything that 

would harm the security of the United States. And we should never 

allow that to happen, but we should start by ensuring that we have 

strong security measures in place across the board; then—going 

back to the security philosophy that Mr. Pfister and Mr. Garcia articulated—have a layered approach, have additional security condiVerDate Nov 24 2008 08:36 Jun 25, 2009 Jkt 000000 PO 00000 Frm 00034 Fmt 6633 Sfmt 6601 H:\DOCS\110-HRGS\110-36\48911.TXT HSEC PsN: DIANE
31 

tions to address particular concerns that are associated with a foreign investment. 

So you start with a basic building block of security for our critical 

infrastructure, and if there are additional risks associated with foreign investors, CFIUS should impose conditions on that transaction 

to make sure that those security issues are addressed. 

Ms. JACKSON LEE. So you add to CFIUS or you may look also at 

a more narrow focus on homeland security? 

Mr. MARCHICK. Exactly. 

Ms. JACKSON LEE. Let me thank you, Mr. Marchick. I understand you have a flight. 

Let me conclude with Mr. Pfister. 

Let us try to probe again, just as we close this hearing, to have 

a better understanding, because Dubai has created a great deal of 

interest, and the presence of your CEO and other personnel have 

created a great deal of interest. That, in essence, Mr. Pfister, is an 

investment of sorts. 

I assume that you are leasing property or buying a building. You 

are possibly having access and control. So our inquiry is equally, 

certainly for the safety of the personnel and for the safety of whatever resources you utilize. 

Can you again frame for us how you provide the protection of 

any critical infrastructure that might be necessary to ensure your 

work in Dubai or in Doha or wherever you might happen to be? 

Mr. PFISTER. Yes, ma’am, I would be happy to. 

To be quite frank with you, Dubai is one of the easier places to 

secure and protect infrastructure, particularly of the information 

technology. They are one of the more advanced countries around 

the world in terms of providing capabilities and digital technologies, once you have figured out how to provide acceptable security in places like Africa and other places—in Russia, Falkland Islands, and other places that the energy industry operates. 

Ms. JACKSON LEE. So how do you proceed in those difficult areas? 

Mr. PFISTER. So it is using the standards. 

One of the phenomena around information technology security is 

that security improvements are cumulative. The financial industry 

creates new ways of protecting financial data, and it immediately 

becomes available in commercial products that then other industries are able to deploy. The health care industry creates new technology approaches and commercial products that we then embed in 

other industries. So, you know, this is not a brand-new phenomenon. 

With the advent of the Internet and when companies started 

hooking their computer networks up to, you know, the globe, that 

risk was introduced at that point in time; and so the commercial 

IT security industry and companies participating in groups like the 

API and others have been designing firewall systems, prevention 

systems, approaches to secure computers and assets that are almost mainstream at this point in time. 

So Mr. Lesar’s move to Dubai really does not materially increase 

at all the risk that any of our key technologies or our key intellectual property is going to be exposed to, any more than it was in 

the last decade as we have had people traveling all over the world, 

many times much more and to more desolate places than Dubai. 

32 

Ms. JACKSON LEE. Do you have enhanced security measures of 

personnel? Do you have reinforced buildings? Do you do anything 

differently? 

Mr. PFISTER. Well, we do the same types of security, from the 

physical security aspects, that you heard about from our Shell associate: guards; you know, big cement blocks as you enter the building so that car bombs and things like that would not get into the 

core of the building; the same card key access; the same logging; 

those types of things. So it is really not any different than the way 

we protect any other location that has computers that might have 

access to critical information. 

Ms. JACKSON LEE. Let me say that I think the test may be the 

word ‘‘rigor’’ in that we should be rigorous when we are looking at 

foreign ownership and foreign investors as it relates to our security. 

My last question to you, Mr. Garcia, is that—again, using your 

expertise—we do know that oil companies—many of them are in 

and invest in continents—South America, the continent of Africa. 

We know in particular that there has been some well-known publicized seizing of assets in the delta of Nigeria. That obviously has 

a life of its own, but I want to pose a question which is similar to 

the Russian incident that occurred that impacted Europe. 

If the resources were stymied such that there would be the foreign investment by a foreign company but they would be impacting 

the UnitedμStates, what kind of intervention are you all looking toward to prevent that kind of major impact? Even though resources 

go all over the world, what are you looking toward to prevent that 

kind of major impact on energy resources coming to the United 

States? 

Mr. GARCIA. Congresswoman, the actual dynamics of the oil 

flow’s being cut off in various countries outside the United States 

would probably be answered best by somebody in the company that 

deals with that. 

As far as the security issues there in Nigeria, I monitor that with 

the Shell security group to see what measures can be done and to 

see what assistance can be provided to them either through the 

host country or through other types of training and activities that 

can be done with the various U.S. embassy personnel who are 

there, to help alleviate some of those problems and some of those 

issues so that we do not get to this position where it is not safe 

to do any business at all in that particular country. 

As far as the impact, I would imagine the impact of cutting off 

any kind of reserves coming to the United States can be detrimental to the United States economy depending on how much is 

cut. As far as how and specifically what the impact would be, some 

other witness will probably have to answer that on the economics 

part. 

Ms. JACKSON LEE. Do you think, in the whole idea of security 

and critical infrastructure around the world, that the Federal Government, beyond the existing legislation, can be more helpful? 

Mr. GARCIA. Well, the Federal Government right now is working 

a lot with the Coast Guard on the international port security program where they actually go to the various ports around the world 

that service ships that come to the United States—our tankers and 

33 

other things that do come here. They are doing a big push in working with the various countries that these vehicles or vessels come 

from in order to try to ensure that the security measures that are 

taken on in those host ports overseas are helpful for what is coming to the United States. 

Some of the exceptions that are done are that the Coast Guard 

will do inspections and boardings offshore well within the safety region away from the United States so as to ensure that the vessel 

itself is not something that is going to be detrimental or dangerous 

to the United States when it comes to our ports. 

So the United States and the Federal Government are doing a 

lot of things overseas to help in that aspect, and we, as an industry, are trying to assist them on identifying weaknesses and 

vulnerabilities that they should be looking at and are trying to ensure that they search and look at those areas to try to prevent 

some sort of an act. 

Ms. JACKSON LEE. Let me conclude and thank you very much for 

the response. 

Just in summary, this has been a challenging time to have a 

hearing, but I thank you for giving us at least the beginnings of 

our discussion on this issue. As I indicated, I think there is more 

to explore. This hearing was to begin the discussion, as we have 

started under the full committee with ChairmanμThompson. 

How do you protect foreign infrastructure that may be in the 

hands of a foreign owner that impacts the United States, our national security or a foreign investor? There are a lot of nuances 

that will take several panels and very long hours, but I will end 

as I started. 

Our challenge is to imagine the possible and the impossible, and 

it is also to accept the premise of our economy, which is an economy that welcomes investors, but at the same time, as for the persons who we have the responsibility of protecting, we have to ask 

the hard questions. 

So I believe that we have been given, even from your testimony, 

a range of issues to think about and a range of issues to look at— 

expanded legislation—in light of the long list of critical infrastructure that we have, to be able to at least give guidance to public entities, which are separate from Mr. Garcia and Mr. Pfister. 

And also to our corporate entities, which already probably have 

a major leg forward, because statistics show that you have about 

85 percent of our critical infrastructure, both domestically and then 

those that are owned by foreign investors that are in the private 

sector; and you certainly have concern about your own property 

and the needs and protection of your own employees. 

We know you are forward-thinking, and I think it is crucial that 

we take up the responsibility for those issues that may not be as 

far ahead as the private sector is, and I count that as the raging 

new, if you will, basis of securing funding for public entities, and 

that is the selling of the very roads upon which we travel. That is 

a major issue, and I think that we should certainly look at that. 

You have given us a great deal of insight. We thank you for your 

appearance here before our committee, and I believe that I will follow up with my concluding remarks so that we can finish. 

34 

As I have indicated, I thank the witnesses for their very valuable 

testimony, and the members of the subcommittee may have additional questions for the witnesses, and we will ask you to respond 

expeditiously in writing to those questions, and we will look forward to the answers in the response. 

Ms. JACKSON LEE. I am going to put into the record, with the existing quorum, an article by a Times reporter in Philadelphia, ‘‘Foreign Companies Buying American Roads and Bridges’’—it happens 

to be a positive article—and an article from the Dallas Morning 

News, ‘‘Foreign Companies Buying U.S. Roads and Bridges.’’ Those 

are some of the other aspects of the work that we have before us 

in this committee. 

So let me thank all of the witnesses. With that, the hearing is 

adjourned. 

[Whereupon, at 5 p.m., the subcommittee was adjourned, subject 

to the call of the Chair.] 

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