Saturday, August 05, 2006

Reps. Hunter, Welton and Republicans full of BUSHIUT proved again by Kay in WMD hearings

Copyright 2006 The Federal News Service, Inc.
Federal News Service

March 2, 2006 Thursday


LENGTH: 40297 words











REP. DUNCAN HUNTER (R-CA): The committee will come to
order. The committee meets this afternoon to examine
the national security implications of the Dubai Ports
World, DP World, deal to take over port terminal
operations in ports in six U.S. cities.

Like many Americans and members of Congress, I am
deeply distressed by the national security
implications of this deal. The controversy surrounding
Dubai Ports World acquisition has exposed the
vulnerability of United States ports to security
threats, the inadequacy of the so-called CFIUS review
process, that's the foreign investment process, to
address these threats, and it also raises a broader
issue of whether the United States is taking adequate
steps to protect our entire national critical

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

The post 9/11 world demands that in the realm of
national security we take nothing for granted.
Voluntary compliance schemes -- the method we
currently employ to protect our key arteries of
national and economic security -- is necessary but not
sufficient. Our government must take steps to enhance
our security, not run the risk of creating greater
vulnerabilities. We seem to be our own worst enemies.
We should require critical U.S. infrastructure to
remain in U.S. hands. To those who say my views smack
of protectionism, I say: America is worth protecting.

Yet, today's hearing is also about a failed process.
In my experience, the CFIUS scheme for reviewing
national security implications of foreign investment
in the United States consistently comes out on the
wrong side of the issue. Not too long ago this
Committee sat together to discuss the Chinese National
Oil Offshore Corporation's bid to merge with Unocal.
In that instance the CFIUS review did not believe that
the merger deal warranted the 45-day investigation,
known as the Byrd Amendment.

Once again, today we find ourselves in a similar
situation where none of the participants in CFIUS
believed that the DP World acquisition warranted a
45-day investigation. While I think everyone on this
Committee recognizes that government is imperfect and
is prone to making mistakes, the Congress and the
citizens of this country do not have to tolerate a
process that repeatedly makes the same mistake. And I
might just say that I just reviewed the findings of
Gary Milholland who has advised this committee for
many years and his recounting of the weapons of mass
destruction material and machinery that has been
routinely moved through Dubai, with the acquiescence
of the Dubai Government, including 66 triggers that
can be used for nuclear detonators, heavy water coming
out of Russia and China for Pakistan and India, nerve
gas precursors bound for Iran, no problem there, and
the idea that those things happened that were
documented, in fact some of them involved American
protests and that didn't perk up the ears of CFIUS was
quite remarkable.

In fact, I think it's only the huge public outcry and
the pressure from Congress that ultimately has led to
this increased scrutiny of the DP World deal.
Recently, the officers of DP World requested that
CFIUS conduct a 45-day investigation and while we all
welcome this development, I'm concerned it's too
little and too late. It's my understanding that the
$6.79 billion deal becomes final today. Moreover, the
details of the DP World request for a 45-day
investigation is murky. Unanswered to date is how this
investigation will be more comprehensive, more robust
than the CFIUS 30-day review.

Some have dismissed this review as a public relations
scheme to pacify the Congress. I hope this is not the
case and I look forward to hearing from our witnesses
on this matter.

The problem is not going away. Today the Washington
Post reports how another Dubai owned company, Dubai
International Capital, is planning a $1.2 billion
acquisition of a British company that owns U.S.
subsidiaries that are part of our Defense industrial
base and I might say to my colleagues, we have these
repeated incursions by our British friends who, in
fact, are allies with us in Iraq and other operations
around the world to buy critical pieces of the
military defense -- military industrial base and we
always examine our relationship with the British and
conclude that the deal is a fine one. The problem is
involved -- what we do when the second step is taken
and that is when a Dubai owned corporation now, simply
based on the fact that it's got lots of cash, ends up
acquiring the British company and settles into the
position that we never would have released to another
country beyond Great Britain and perhaps Australia.

So we all understand that the UAE has been our ally,
but we also know that they have been a point of
trans-shipment, obviously with their government's
acquiescence, either their acquiescence, their
informed involvement or one of the greatest systematic
cases of negligence that the world has ever seen, to
become the trans-shipment point for all of these
nuclear components to the point where their trademark,
their advertising trademark is "we can move whatever
you've got with very little hassle." So, if you're a
German company or a former Nazi who moved lots of
heavy water out of China and Russia to various nuclear
-- companies with nuclear ambitions and you want to
move it through a trans-shipment point that's
easy-going, you move it through Dubai.

And interestingly also, the Malaysian company that was
involved in one of the last trans-shipment scandals I
think reflected well the Dubai Government's policy of
creating an environment of deniability. They said, "We
can't find any, we have no paper," this is the
Malaysian Government, and I'm paraphrasing, they said,
"we have no paper that indicates anything about where
this company moved this particular material." That's
the nature of Dubai.

It's a bazaar for terrorist nations to receive
prohibited components from sources from the free world
and from the non-free world and apparently, and it
appears to me that the same government leaders who
countenance that trans-shipment, in fact probably have
designed that trans-shipment because it makes them
money, would be the same people overseeing America's
ports. And the idea that CFIUS seemed to think that
was okay or didn't look at it very closely it quite a
remarkable thing.

So the purpose of today's hearing is to examine this
question of whether we should have this particular
company, or any foreign owned company, controlling or
owning American critical infrastructure and with us
this afternoon to discuss these issues are policy
experts, officers of DP World, and Administration
officials from the Department of Defense, Department
of Treasury, Department of State and the Department of
Homeland Security. So, let's get to it and before we
go to our witnesses, I'd like to turn to the ranking
member, the gentleman from Missouri, Mr. Skelton, for
any remark he'd like to make.

REP. IKE SKELTON: Mr. Chairman, thank you, and I
welcome our witnesses and also thank you for calling
this very important hearing. This issue is on the
minds of so many people across the country.

Today, we are to address the recently announced deal
to hand over operations at six major American ports to
Dubai Port World, which is a company owned by the
United Arab Emirates, or UAE. This is a significant
deal that requires careful scrutiny. In addition, Mr.
Chairman, today's press reports indicate a second deal
by a Dubai firm under investigation by the Committee
on Foreign Investment in the United States. This deal
involves the proposed purchase of a British firm with
U.S. subsidiaries that make military components. This
second deal, as much as the Dubai Ports World, must be
questioned to ensure that our national security is

Like many of my colleagues on both sides of the aisle,
and the majority of the American people, I have some
very, very serious concerns about the DPW deal. It
would give ownership of some of our major national
security assets to an agent of a foreign country with
past connections to terrorist activity at a time when
security in airports is woefully inadequate. People
back home understand this issue. Their family's safety
is their first concern. They understand that our
nation's ports are vulnerable today, as our airlines
were before 9/11.

Our seaports handle more than 95 per cent of our
nation's foreign trade, including trade in sensitive
technologies and the movement of critical materials
for our military, yet the bipartisan 9/11 Commission
identified America's ports as particularly vulnerable
to attacks because only 6 per cent of the cargo
containers entering our country are screened.

Experts have warned the most likely way a terrorist
could get a nuclear weapon into the United States is
in a cargo container ship. In 2003, the Coast Guard
said it needed $5.4 billion over the next 10 years to
comply fully with the port security requirements and
yet, despite the evidence of many of our colleagues,
the Congress has approved only $883 million and the
administration in this year's budget is eliminating
funding that goes directly for port security.

People back home also have questions about Dubai Ports
World and our relationship with United Arab Emirates.
We know that the UAE has been a recognized partner in
the war against terror. At the same time, two of the
hijackers of the 9/11 attacks were from the UAE. The
9/11 Commission concluded that the vast majority of
the financing for the attacks flowed through United
Arab Emirates. The UAE was one of three countries to
recognize the Taliban as the legitimate government of
Afghanistan and it has also pledged support to Hamas.

The UAE was a key transfer point for illegal shipments
of nuclear components to Iran, North Korea and Libya.
These are not cut and dried issues for our national
security. It is then not surprising that the Coast
Guard and the Department of Homeland Security raised
red flags during the review process for the Dubai
Ports World port deal which was conducted by CFIUS,
the Committee on Foreign Investment in the United
States. The Coast Guard's intelligence assessment
found gaps in the intelligence about DPW's operations,
personnel and foreign influence, all relating to the
potential for DPWSS to support terrorist operations.
This level of concern should have triggered full use
of the CFIUS process.

The law provides for an additional 45-day
investigation to resolve these types of issues when
America's security is at stake and that was not done
here. After little review, without consultation with
Congress or input from the affected communities, the
president approved the deal and threatened to veto any
legislation that would oppose it. Only when Congress
and the American people got involved is that process
now being followed.

For me, this situation comes down to three things.
First, we have to take a careful, honest assessment of
this particular deal. Congress must be involved and
that begins today with this hearing. What's the
potential for the UAE's Government to exert influence
over this company? What possible risk did our
government agencies find this company could pose to
our national security? Are those risks being
addressed? And although DPW has now voluntarily agreed
to a 45- day investigation, the parties involved have
already closed the deal. So what's the purpose of the
investigation? What can be done under the parties'
agreement at this late stage? I hope the witnesses
will be able to answer these questions. The bottom
line is that we must make sure that this deal is right
for American national security.

Second, we must reform the CFIUS process for all
transactions that affect national security. We must be
able to reassure the American people in every case
that we will not allow the fox to guard the chicken
house. We need a CFIUS process for a post-9/11 world
with national security at its center. The review
should also include input from the affected
communities at the local level.

Third, and most important, we must take this
opportunity to invest more money and to institute
better policies to protect our ports. We must screen
more cargo, we must know who is working in our ports
and who's working on the ships that enter them. We
must think creatively about how to stop a weapon of
mass destruction from ever entering this nation. We've
been extremely deficient in the area of security.
We're very lucky that we've not had to face disastrous
results to our failings. Our security shortfalls are
being demonstrated as a result of a corporate sale and
not because of a terrorist attack.

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

REP. HUNTER: Thank you, Mr. Skelton, I appreciate it.
I might just let you know, because you've mentioned
these three major things that we've got to do,
reforming CFIUS, blocking foreign ownership of
critical U.S. infrastructure and requiring full
inspection of cargo, and we have been drafting for the
last couple of days a bill that does that, that I hope
to introduce on Tuesday and I would hope that you
would join with me and any interested members of the
committee. And I remind my fellow members of this
committee that it was this committee that blocked the
acquisition of the U.S. naval base at Long Beach,
during the days of the Clinton administration, from
being purchased by Cosco, which is the maritime arm of
the People's Liberation Army.

We did that even though the deal had been approved and
this particular legislation, even if this deal is
approved, would roll it back and would also cause upon
the identification of critical U.S. infrastructure by
the Department of Defense and the Department of
Homeland Security would require then that that
infrastructure be owned by Americans and that that was
not owned by Americans would be divested in as
painless a way as possible, but would be divested of
foreign ownership and U.S. ownership would be

So I say to my colleagues, I think this is an issue
we've worked on over the years and we're the one
committee that's actually been able to block foreign
ownership of what we consider to be critical U.S.
infrastructure and I think now is the time to address
this problem in a fulsome way. Having said that, I
think Mr. Saxton wanted to say a word or two. We'll
let the gentleman say a word before --

REP. JIM SAXTON (R-NJ): Mr. Chairman, thank you for
the unusual recognition at this point. I think there
is something here that needs to be made part of the
record and part of this conversation.

The administration is always proud of the United
States policy of providing for fair play in trade
matters and there are some unusual restrictions that
are pertinent to this issue as part of the United Arab
Emirates policy and let me just say what they are for
the purposes of beginning this discussion, because
these are issues that go beyond the important matters
that have been discussed by the chairman and the
ranking member.

The following foreign investment restrictions are
listed in the United Arab Emirates chapter from the
2005 National Trade Estimate Report on Foreign Trade
Bearers, issued by the United States trade
representative. First, a business engaged in importing
and distributing a product in the UAE must be either a
100 percent UAE- owned agency or distributorship, or a
51 percent UAE, 49 percent foreign limited liability

Two, subsidies for manufacturing firms are only
available to those with at least 51 percent local
ownership. Three, non-Gulf corporation council states
nationals cannot own land, but the Emirate of Dubai
currently is offering a so-called freehold estate
ownership for limited non-GCC nationals within certain

In these countries, the GCC countries are the UAE,
Bahrain, Saudi Arabia, Oman, Qatar and Kuwait.

Four, only 22 out of 53 stocks on the UAE Stock Market
are open to foreign investment. Five, Ministry of the
Economy and Planning rules restrict foreign investors'
ownership to no more than 49 percent of companies on
the stock market. However, company bylaws in many
cases prohibit foreign ownership. And finally, except
for companies located in one of the limited free
zones, at least 51 percent of a business establishment
must be owned by a UAE national.

These are matters which I think should be of economic
concern to us in terms of the fair play that our
government goes out of its way to provide for for
others. And so, as part of the record, part of the
conversation, I think these are important
considerations for us, along with the security matters
that you both mentioned. Thank you.

REP. HUNTER: Well, I thank the gentleman and let me
turn to our panel. We have with us Dr. James Carafano,
senior fellow for National Security and Homeland
Security, the Heritage Foundation, Mr. Stephen Flynn,
senior fellow, Council on Foreign Relations and Mr.
Frank Gaffney, president, Center for Security Policy.

So, Mr. Carafano, good afternoon, thanks for being
with us and the floor is yours.

MR. JAMES CARAFANO: Thank you, sir. I've submitted a
formal statement for the record.

REP. HUNTER: Without objection, all written statements
will be taken into the record.

MR. CARAFANO: Well, first of all I would like to
commend this committee and the Congress for focusing
on what is an incredibly vital issue to this nation,
which is maritime security. A third of our economy,
approximately, in trade is -- a third of our economy
is in trade and 95 percent of our trade goes by sea.
This is absolutely important, our imports are vital,
this is exactly the right issue and I think the
Congress's concerns are legitimate and I think it's
appropriate that Congress relook the CFIUS process.
Congress has not done that since 9/11, we live in a
different world than we did then and I think it's very
appropriate that Congress relooks at the process that
is established to make sure that national security
interests are appropriately embedded in foreign
investments and commercial transactions.

Now, I will say fundamental to my approach to this is
how we look at all these issues I think should be the
same. And I think it is fundamental to do with the
nature of the conflict that we're in and I think the
president was correct in his State of the Union
address when he called it a long war, I think the
Department of Defense was accurate in their
Quadrennial Defense Review when they talked about
this. I think Frank's book Warfighting is laced
throughout here. And you fight long wars differently
because what's important in a long protracted
conflict, whether it's the war on terrorism or the
Cold War, is that it's essential to maintain the
competitiveness and the robustness of the society, as
it is to defeating the enemy and you have to do both

And so I have always talked about four essential
requirements in fighting a long war. One is security
and the more and more I've looked at this, the more
and more I look at how you get the best buck out of
your security dollar, the more and more I'm convinced
in that as an offence, that in taking the word of the
enemy, taking out the leadership, taking out the
infrastructure, taking out sources of recruiting,
taking out sources of funding, that that is simply the
biggest bang for the buck.

Now, having said that, we all know that you have to
have some element of defense because we live in a
world that's united by networks that carry the free
flow of goods, services, people and ideas and that
some day is going to carry bad things to your shore
and you have to ask somebody to defend against that.
Equally important is protecting the privacies and
liberties of our citizens and equally important is
winning the war of ideas and our argument would simply
be that you need security solutions that do all four
of those things and if you don't, you have the wrong
answer and you need to go back and start over. And I
think that counts just as much in this issue of
maritime security, maybe perhaps more than any other

Now, I will say with regard to security concerns about
the Dubai World Ports deal, I don't find any
compelling security concerns here and I think it has
to do with the nature of the way we do maritime
security in the maritime domain. Most of the
infrastructure in the maritime domain upon which U.S.
traders depend is foreign owned, whether it's ships or
port facilities and that ownership changes quite
frequently. Very frequently you go into a port and you
can ask a union worker and he says who owns your
company today and you know, he doesn't know, maybe a
different guy who owned it last year, but things at
the port go on the same way as they did before and
that's because the maritime security architecture is
not designed based on ownership, the security
requirements are the same for whoever owns the

If we are concerned about Dubai World Ports
specifically as a company, then we've got real serious
issues and it's irrelevant, I mean the U.S. ownings
are a small piece of that. Dubai is a port, it is
probably the most strategically vital port to the
United States in the Middle East. It allows us to do
power projection in the Middle East and it's owned by
Dubai World Ports. Likewise, this company is now the
third largest owner of port facilities around the
world. Likely as anywhere U.S. interests are involved,
anywhere U.S. goods are moved, anywhere the U.S.
military deploys, this company is going to be

So even if we disapprove this deal and don't let them
own these U.S. facilities, the security relationship
between the United States and Dubai World Ports is
going to be inclusive and ongoing and I think it's
critically important that they have them in things
like CTPAT, that they're involved in things like CSI,
that they're opening the Coast Guard auditing. So I'm
not actually sure if excluding them from owning U.S.
port facilities actually makes our ability to affect
how they execute security around the world better or

I do think that while our ports are vulnerable, we
miss the point if we think that we can make ports safe
by somehow turning them into little Fort Knox's or
little Magineau Lines. You make ports safe by keeping
terrorists out of the ports and it's about making the
maritime system safe and it's the system that is the
critical infrastructure, not the port, it's the
system, and so we have to look at solutions that make
the system overall better.

And I'll just end on this, there are three areas, I
think, that are particularly relevant to this
committee and if they're deeply interested in moving
forward on improving maritime security and in making
our ports safer, these are the three that I would
commend to you. The first one is investing in the
Coast Guard. The Coast Guard touches on every single
aspect of maritime security. This committee has a
vested interest in Coast Guard investment because the
relationship between the Coast Guard and the navy is
essential. The national fleet is something that we do
in name only. There is very little real cooperation
and collaboration into determining our future
requirements in harmonizing what the navy and Coast
Guard does and this committee could play a leadership
role in making sure we have the Coast Guard we need
for the 21st century and it dovetails well with the
navy we need for the 21st century.

Another issue I think that you could look at is there
was a very good initiative in Charlestown called
Seahawk which is an Intel fusion center, it was a
model Intel fusion center, it was absolutely the best
thing we did in port security in terms of coordinating
the assets at the port and making them effective. It
was funded through the Department of Justice. I
understand that funding has now dried up, it was a
pilot project. It's not owned by DHS, it's going to
die. I think this committee and the Department of
Defense should have a vested interest in seeing that
things like Seahawk are sustained and revitalized
because, quite frankly, any port in the United States
that has a major U.S. Defense outload facility,
they're ought to be a Seahawk asset at that port doing
intelligence and operations integration because it's
simply the best thing we've done in our ports to make
them safer.

And the third one has to actually do with fundamental
science. I mean there's one thing about the maritime
world, is that this is a true system of systems and I
think this committee understands that from all the
work that you've looked at in terms of defense. There
are, in fact -- I mean, this makes some of the
military sensitive systems look pretty simple, but
this is a complex system of operators and conveyors.
Nobody owns the system, it is a very rich complex
environment and it has all kinds of second and third
order effects. The irony is that though the United
States is probably the world leader in systems
integration. We fundamentally understand almost
nothing about the underlying science of how complex
systems work and we really don't have quality science
and knowledge informing our decision-makers.

There's an argument for something called network
science which pulls together various disciplines,
including network biology, informatics, mathematics,
physics, pulling these disciplines together to give us
an understanding of how complex systems work, how we
can make them more redundant, how we can make more
robust, how we can make decisions, how we can design
them to be better, how we can reconstruct them after
they're hit. And I think the Department of Defense and
this committee should have a vested interest in seeing
network science move forward because many of the
problems that the military is trying to address in the
battlefield is how do we create the military systems
as systems of the 21st century. The underlying science
that we need to understand that, to make good policy
and build good systems and develop good requirements
is much the same.

So I think this committee should be a strong proponent
of having the Department of Defense establish network
science institutions, partnering with the Department
of Homeland Security. I would commend to you an
excellent report by the National Research Council on
this issue and I think outlines some fundamental
things that we can do which in the long run is going
to both make the United States more competitive and
more safe. Thank you, Mr. Chairman.

REP. HUNTER: Thank you very much.

Mr. Flynn.

MR. STEPHEN FLYNN: Thank you, Mr. Chairman, I'm
delighted to be here today and thank you distinguished
members of the House Armed Services Committee for
inviting me to discuss this DP World controversy and
my assessment of where we are and where we need to be
with regard to port security. Let me say that I'll
talk to port security more than the CFIUS process
where I think there are other experts who could do
that far more justice than I.

The controversy surrounding the takeover of the five
American container terminals by Dubai Ports World has
had certainly the salutary benefit of engaging
Washington and the American people in a national
conversation on the state of port security. This is
long overdue given the enormous national security and
economic security stakes should the next catastrophic
terrorist attack on U.S. soil involve the global
maritime transportation system and America's

My longstanding and deep concern about the persistent
vulnerability of America's homeland generally and the
global supply chain in ports specifically is a matter
of public record. This is my 16th time testifying
before a House and Senate committee on these issues
and I'm sorry to say that four years and four months
later from my first opportunity to do this, my
assessment is that the security measures that are
currently in place do not provide an effective
deterrent for a determined terrorist organization
intent on exploiting or targeting our maritime
transportation system to strike the United States.

At the federal level, the primary frontline agencies -
the Coast Guard and Customs and Border Protection
Agency - are grossly under- funded for what has become
essentially a brand new major mission. Now, let's be
clear, the Coast Guard stopped doing port security
after the second World War, and then we gave them this
new major mission and the resources simply aren't
there in the ports. The same is true with Customs in
terms of we pull them out of the ports at 20 years and
now we should do more for our national security and
there are just not the numbers. They're not physically
Customs agents and Customs officials in the terminals
and we rely heavily on terminal operators.

Should terrorists strike in a major U.S. seaport
today, Americans, I believe, will experience a
post-Katrina sense of dismay and frustration at how
little the federal government has been investing to
effectively safeguard this critical national security
and economic security asset.

While this is a sobering assessment of where we are
today, it may come as a bit of a surprise that my
assessment of the national security implications of
the DP World purchase of Peninsular and Orient
Navigations systems and the leases to its five
containers terminals on the East Coast and New Orleans
is that this commercial transaction will not
qualitatively affect the overall state of global and
American maritime transportation security. The primary
reason is the state is so bad, this is not going to
make a whole lot of difference.

This is because the problem is less about who owns and
operates U.S. container terminals than it is that we
simply have not addressed far more serious supply
chain, maritime, and port security issues that would
dramatically reduce the terrorist risk to our
homeland. To put this current controversy into a
broader security context, I'm going to share with you
a terrorist scenario that most keeps me up at night
and why I spend most of my days trying to convey a
greater sense of urgency and have been working to try
to design and help promote meaningful measures to
address this issue.

Based on my experience and research on this issue for
nearly 15 years, I believe that the greatest
vulnerability that will involve the maritime sector
and our seaports is overseas within the transportation
system before a container reaches a loading port.
Specifically, the biggest security gap is in the
transportation system once a container leave the

This is for three reasons. First, the local truck
drivers are typically poorly paid and often belong to
very small firms operating on very thin profit
margins. Secondly, there are no mandated standards for
seals or locks on containers, typical in use is a 50
cent lead seal with a number on it. Thirdly, the issue
is the containers travel through often remove and at
times dangerous jurisdictions before they get there.

So here is the kind of scenario that I worry about,
informed by Gary Gilbert, the Chairman of the
Corporate Security Council and Senior Vice President
for the world's biggest container terminal operator,
Hutchison Port Holdings. A container of athletic
footwear for a name brand company is loaded at a
manufacturing plant in Surabaya, Indonesia. The
container doors are shut and in this case, they go the
extra mile, they put the one dollar mechanical seal on
it into the door pad-eyes. These designer sneakers are
destined for retail stores in malls across America.

The container and seal numbers are recorded at the
factory. A local driver who turns out to be
sympathetic to al Qaeda picks up the container, but on
the way to the port, he gets a bit lost, he pulls down
an alley to a warehouse, there's a group of operatives
inside, they pop the hinge on the door to not even
mess with the seal, they open it up, take some
sneakers out, put a dirty bomb in wrapped in lead so
that it'll defeat our radiation detection equipment.
Then a dirty bomb is delivered to the port of Surabaya
where it is loaded on a coastal feeder ship which
typically carry about 300 containers where it's
dropped off at the port of Jakarta.

Jakarta, in turn, will load it onto an Inter-Asia ship
where it goes on a container ship carrying 1,200-1,500
containers destined for Singapore or Hong Kong. To
make the journey across the Pacific Ocean it will then
go on a post-Panamac (ph) ship carrying 5,000-8,000
containers, but in this case, it's going to Vancouver
and it's going to drop it off there.

Now, the good news, we now have a Container Security
Initiative team in Canada so we can expect an
imbalanced container destined for the United States
via Canadian Pacific Railway. The bad news is the CSI
team identifies it as a trusted shipper from a
reliable company of designer sneakers whose a member
of the Customs Trade Partnership against Terrorism and
therefore it is not screened, inspected, it's simply
loaded on the rail chassis and sent to Chicago where
it moves to the railyard to a distribution center and
at the distribution center, a hapless warehouse
employee opens the container, setting off the
triggering mechanism and exploding the dirty bomb.

Now, what would be the consequences of this, there
would be four and quite immediate. Obviously there
would be local deaths and injuries associated with a
conventional explosive. Second, there is the
environmental damage done ass the radioactive material
is spread over the entire area. Third, there would be
no way to determine where the compromise to security
took place. Did it take place in the Chicago yard, did
it take place on the specific rail, did it take place
in Vancouver, did it take place in Hong Kong or
Singapore or Jakarta, we don't know. So we assume the
whole thing is at risk and worse in the fourth case
here, all the current container and port security
initiatives that we currently have in place are
compromised as a result.

This turns out to be a CP pack container going through
an ISPS compliant port with an ISPS compliant vessel
through a CSI port on its way into the mainland and if
he saw radiation photos, they simply wrapped it in
lead. So, not only has the incident, but the entire
regime crashed and what happens, well, immediately of
course we're going to have to close our borders until
we sort this thing out. Within two weeks, the global
trade system essentially grinds to a halt.

In the words of John Meredith who runs Hutchison Port
Holdings that moved over 50 million containers last
year in a letter he wrote to Robert Bonner, the former
Commissioner of Border Protection on Jan 20, 2004, "I
think the economic consequences could well spawn a
global recession, or worse." That's what we're talking
about, enormous stakes, national security stakes and
what do we have? We have essentially an honor system.
If you're a good company, been shipping
terrorist-free, we basically delegate to you to figure
out what minimum standards you think are basically
appropriate. We provide virtually no oversight.

The Coast Guard, by law, by the Maritime
Transportation Security Act, for instance, has been
charged by Congress to go assess whether or not these
ports around the world are actually living up to
international standards, to which you have allocated
resources, 20, count them, 20 Coast Guard -- 13 for
Europe, Africa, the Middle East, Latin America and
Caribbean and then seven for all of Asia.

I saw more coming through La Guardia at the TSA
security check-in point than the total amount of
inspectors we have assigned to oversee whether or not
we have a regime. An important lesson to pull from the
scenario I've just laid out here today are fourfold.
First, the threat is not so much tied to seaports as
it is to global supply chains that now large operate
largely on this honor system, the point I just made.

Second, no container terminal operator within the
United States or abroad really knows what's in the
box. That's the problem. They are in the business of
receiving and discharging these containers from ships
to trucks to trains that converge on the terminals
quickly, efficiently, at low cost. Third, as the
engagement of John Meredith and Gary Gilbert on these
issues , by the way Hutchison Port owners had no ports
in the U.S. but have been working acting with the U.S.
Government, global terminal operators are deeply
concerned about the terrorist threat that would
essentially implode their enterprise with billions of
dollars of capital investment. Basically, they're
potential allies in this process.

Fourth, the scenario I just laid out essentially
involved Vancouver, it didn't involve any U.S. ports.
This is a global network challenge. So, where do we go
from here? I think the case that I've just tried to
make with my former boss, Admiral Jim Loy who was the
Commandant of the Coast Guard and former Deputy
Secretary of Homeland Security and in op-ed we wrote
for the Times on February 28 is let's think about
using this opportunity with DP World to raise the bar
on security. The way the American people will truly
benefit from what has become essentially a political
food fight, is if we actually improve security for
this system and the way to do that is to work with the
terminal operators and go to a trust but verify

Every container, before it's loaded and arrives in the
terminal goes through a screen of a radiation portal,
an image of what's inside and takes a picture of the
container number that's successful and near real time
from inspection here in the USA. It's over there that
we're worried about the problem, places like Dubai
with the kind of material that Chairman Hunter related
here. Now, is this possible? The answer is yes because
in Hong Kong today in the world's busiest terminal,
there's demonstration of 300 trucks an hour coming
into a terminal, collecting this data is being done.
Now this isn't an inspection because nobody is looking
at it. The pilot was about showing it's possible. You
don't have to rely on 5 percent, we could go to 100
percent, if we're willing to make the resources
available to do this. And guess what? The terminal
operators will put this equipment down and pay for it
if they can do it because there's a standard back here
for the use of that. There's an opportunity here, an
opportunity to make a real difference to the American
people to continue to stay engaged in the global
economy and recognize this is a global network.

Today, 90 percent of all the terminals on the West
Coast go to foreign owned companies and leased --
they're leased to them. Also on the East Coast there's
some little less above the majority. Why has this
happened? It's happened because we gave away our
merchant marine about 30 years ago and we're not going
to get it back any time soon. Companies that have
ships want to have terminals on both sides, just like
British Airways wants to have a jetway, they want to
have some connection to it. Ships lose money unless
they're out to sea. They want to control the
operations. The challenge here is can we set standards
that assure -- given that this is in not private hands
and foreign owned private hands that are high enough
according to our national security interests, with
sufficient oversight. And can we put in place smart
technologies and processes throughout this global
network so we continue to benefit being a part of the
global society, but without putting us unnecessarily
at risk.

So, thank you very much for the opportunity to speak
with you about this critical issue. I commend the
Congress for focusing on port security. Please don't
accept that the current system in place is adequate
for the threat that we're dealing with. Thank you.

REP. HUNTER: Thank you, Mr. Flynn.

And now Mr. Gaffney.

MR FRANK GAFFNEY: Mr. Chairman, members of the
committee, it is a pleasure to be back with you. The
last time I had a chance to talk with you was in July
of last year when you may remember we were discussing
another impending fire sale of an important American
asset to a government-owned company from a country
that we had some reason to believe might not have our
best interests at stake.

I am delighted to be here in the company of people who
know a great deal more about port security than I do
and I think they've given you very good advice, up to
a point. It seems to me that much of what you have
just been treated to by both of my colleagues, is a
pretty compelling argument for not making matters
worse in our port facilities and I think it's hard to
argue that an arrangement that entrusts to a
government-owned entity from a country that could not
prevent acts of terror from being operationally
organized and planned and financed from its soil will
not make matters worse, at least marginally, and
possibly quite a bit.

And Steve Flynn has powerfully described how bad
things are already, how easily those deficiencies
could be exploited today and I think it simply begs
the question, do you, do your colleagues, do the
American people, do members of our executive branch
feel confident that we can take any further risk at
all and I'd like to talk about two things with you
here quickly this afternoon.

One is that you cannot rely on the existing process as
the Chairman and ranking member have made clear. You
cannot rely upon the Committee on Foreign Investment
in the United States as it is presently constituted
and as it has operated for approximately 18 years.

To evaluate those sorts of risks adequately and to
come up with a conclusion that I think we can all say
meets the commonsense test and I'll explain that for a
moment by and by, but I would also argue that there
are very practical reasons why this deal should not
only be everything my colleagues have argued, it is an
opportunity, an opportunity yes, to reform CFIUS, but
also to focus the sort of attention that both Steve
and James have been calling for for years, to a
yawning vulnerability in this country and take
corrective action. But I think starting with
corrective action requires doing the commonsense thing
with respect to the Dubai Ports World deal as well.

The question that I have about CFIUS is you have, as
has been noted, an inter-agency mechanism that is led,
and for those of you who follow closely the affairs of
the executive branch, you know that means largely
dominated by the entity the United States Government
relies upon to raise foreign investment in the United
States. This is, to my way of thinking, the very
definition of a conflict of interest. It's not to
assign anybody impure motives, but it is to say that
when people see it as their job to promote foreign
investment, to ask them to interpose objections to it,
is to expect too much. And in this case, I think it is
clear that the national security agencies who
participate at some level in the CFIUS process also
had other considerations in mind. Yes, to be sure,
they take seriously their national security or
homeland security responsibilities, but let's be

This is a friendly government, a strategic valuable
partner, at least at the moment, in a war we call the
war for the free world. It is not likely to be given a
front or to be alienated from us and unfortunately,
that's precisely what this process has done, I think,
unnecessarily so.

There are certain issues here that specifically raise
questions in my mind. One, for starters, is how many
ports are we talking about? We keep hearing that it's
six. Ports of New York both in New Jersey and New
York, the port of Philadelphia, the port of Baltimore,
the port of Miami and the port of New Orleans. And yet
there are at least two others that the United States
Army has contracted with P&O to move material through
the ports of Corpus Christi and Beaumont in Texas and
by at least the accounting of the P&O website, there
are a total of some 22 ports in this country, ranging
from Maine to Texas that will have some relationship,
some management functions performed if this deal does
in fact go through. That's a lot of ports, ladies and
gentlemen, including many of our most strategically
important ones.

I fear that as before, in fact in every case but one
in the over 1,500 that the CFIUS process has formally
vetted, that is to say that somebody has formally
submitted to the CFIUS process, only one has been
formally rejected by this process. I think it is -- I
think the technical term is a lead pipe cinch that the
45-day review will be just another in that litany.

Not only have you had the president of the United
States affirm that it is the right answer before the
45-day process begins again, but as best I can tell,
all of the same people, all of whom have publicly said
they came to the right answer the first time, are
going to be asked to revisit their earlier decision.
In short, if you don't want exactly the same rigged
game played on this deal again, I think the Congress
is going to have to insist upon some changes.

I've made some in my formal testimony. Some of the
more obvious ones are to ensure that senior level
people, at the Cabinet level for example, are actively
personally involved and responsible for this decision.
You may still get the same outcome, but it's clear
that a number of them were not during the previous
process. I would also suggest, with great respect,
that the secretary of Treasury should exclude himself
from this deal. He, after all, in a previous
incarnation, sold to DP World ports that were owned by
his company, CSX. That would seem to me again to be
something of a conflict.

I believe, in addition, that we need to have in this
process a rigorous security assessment performed and
that is not simply one that factors most heavily --
weights most heavily the idea that the UAE is a very
important country to us. It has to take into account
the sorts of considerations that Steve and James have
just been talking about. What are some of those
considerations? I would argue at least about three
that again, I think, trigger the commonsense
bewilderment factor for most Americans.

The first is clearly DP World is going to be
responsible for hiring and vetting of some personnel.
Now, Newsweek has said that, quote, "The company has
promised to leave the British appointed U.S. port
managers in place for a time in a bid to ease the
immediate political pressure" unquote. Well, clearly,
there's no guarantee that once you or your
constituents aren't applying political pressure, that
that process, that representation on the docks or in
the supervisory offices will remain. At the very
least, you're going to have attrition. People are
going to have to be hired. They may be foreign
nationals, in which case we may or may not have a good
handle on who they are, they may be Americans.

In Britain in July of last year, we discovered that
citizenship is no impediment to people engaging in
acts of terror against their own country. So,
personnel is one problem. Cargo is another. Steve has
just provided expert testimony that we rely heavily
under the circumstances we find ourselves in on the
cargo managing firms to account for what's in these
holds. We use certain rationale, but easily
circumvented procedures to assign risk to certain

Can a company that is responsible for the cargo
management, even if it's at the end zone, as some
people like to call it, be relied upon if, in fact, it
has -- or its country at least has been penetrated by
terrorists in the past? And thirdly, it does seem to
me at the very minimum, even if the personnel problem
is not there, even if the cargo management problem is
not there, you have to appreciate that this company is
going to be read in on the security plans of the port.
They're going to have to implement some of them.

That gives rise, I believe, to yet another potential
liability, an opportunity for penetration. I take all
these together as many of you are lawyers, I'm not,
but I think the term is "attractive nuisance," like
having a swimming pool without a fence, you're
creating an opportunity for people to get into and
make mischief and that doesn't seem to me to be wise,
especially since, as I would stipulate, things are as
problematic already as these gentlemen have described.

Finally, Mr. Chairman, let me just say, in addition to
saluting your efforts to reform CFIUS, I hope this is
the last of these processes. I hope that this one that
The Washington Post is reporting about today that
several of you have made note of, in which American
Defense contractors' equipment -- precision equipment
is supposed to be supplied in the future by not the
British-owned company, but a UAE- owned company, will
not be just the next of this litany of failed
dysfunctional vetting of foreign investments with
clear national security implications.

I would also urge the point that Congressman Saxton be
given very serious consideration, even if everything
else were unexceptional in these deals, it does seem
to me outrageous that we as a country keep finding
ourselves in a position where we play by one set of
rules and other people play by a different set of
rules, sometimes even in violation of our trade
agreements with them.

But this idea that you could have a company that
wouldn't dream -- or a country that owns it, that
wouldn't dream of having an American company own any
of its critical infrastructure, to say nothing of the
U.S. Government operating it, and I'm not speaking
here about monitoring stations and that sort of thing,
I'm talking about owning physical plants, critical
physical plants, nonetheless should be given carte
blanche to do the same here. I don't know where that
ends. Does it include nuclear power plants and other
pieces of critical infrastructure? I should hope not.

Finally, there are two other things. In addition, I
hope, to getting an independent second opinion, I
don't think you have to rely on CFIUS. You're holding
hearings, of course, but Congress has been known to do
commissions. Normally you can't appoint a commission,
let alone get it going in 45 days, but I think given
the consensus that exists in the Congress today about
the saliency of these questions, you might be able to
pull one together and get something back before the
CFIUS does whatever it's going to do this time around.

But the last two points, Mr. Chairman, are one, we
have got to find a way that allows, without undue
politicization, Congress to provide adult supervision
to the CFIUS process. However you reform it, it has to
be made more accountable and somewhat more transparent
at the least so that you don't continue to find
yourself presented with faits accompli, which is, of
course, what's happened in this instance.

And second, I would just urge you, we had a
conversation when I was last here, Mr. Chairman, and
you were as always right on the money. We have to come
to grips with the fact that as a nation we are
becoming essentially dependent for most things, most
finished products, most raw materials, most services
even now, on foreign suppliers. This is a matter of
the utmost importance I think not only to our national
security, the immediate objective and responsibility
of this committee, but also I think for all of us as
it touches upon not only our security but our economic
well-being for the future.

And so, Mr. Chairman, the last time we talked you
indicated a willingness to pick up the cudgel once
again and to hold hearings on this question of foreign
dependency and its bearing on our national security. I
would urge that it be part of a larger effort by the
Congress to address what is perhaps the inevitable
outcome of the sorts of trade practices we've been
engaged in for so long and the failure of a process to
provide real supervision within the executive branch
and arguably even within the Congress, that will not
only try to address some of these maritime security
issues which are so important, but also the larger
national economic and security considerations that
attend it.

I appreciate you giving me this opportunity to
contribute to deliberations, Mr. Chairman. Thank you.

REP. HUNTER: Well, thank you, Mr. Gaffney, and thanks
to all of you for laying out very good -- I think a
very good foundation for discussion here. And, Mr.
Gaffney, we did as a committee passing our bill
several years ago a requirement that all critical
military components be built in the United States. We
didn't get that one past the senate, but perhaps we
got their attention this year.

MR. GAFFNEY: I hope so.

REP. HUNTER: Let me go to a -- go to one of the
statements that was made early on by Mr. Carafano, and
I think has been to some degree echoed by all of our
witnesses. We've all -- you've all described UAE as
being allies, and we can point to military operations
where they accommodated us. We can point to
accommodations to our security interests, but at the
same time we can point to times when they absolutely
stood against our security interests and took actions
that hurt American security interests, and that
implies to me that they're accommodators.

They accommodate people that come to them with large
amounts of cash and they don't have a great deal of
concern as to who it is, whether it's this former Nazi
who was moving lots of heavy water from China and
Russia through Dubai, and I'm looking particularly at
the 2003 incident in which the UAE, even after we
protested, insisted on moving those 66 high speed
electrical switches used for nuclear detonations to a
Pakistani businessman with close ties to the Pakistani
military, even against a backdrop in which we indicted
the people that exported those switches.

That is not the action of an ally. It sounds to me
like the action of an international player which can't
be ignored because of its size and its money, and the
fact that it's strategically located and sometimes
accommodates you. But certainly the idea that the
people in the UAE government who sat in a room and
decided upon getting a communication from the United
States saying, please don't turn over those nuclear
switches to this -- to these people who may use it
adversely, and they decided to go through with the
deal despite America's protests.

That is -- those are not people I think that you want
to have anywhere close to the security apparatus of
your own ports because it indicates not that they
can't be accommodating to our interests if in fact
it's in their interests to accommodate us, but that
they don't consistently accommodate our interests, and
at times other people with money and influence
overwhelm the American interest.

And if that translates into a cargo container that has
a chem-bio weapon in it that is accompanied by large
amounts of cash, then this history of accommodation of
American interests doesn't mean anything. And we have
this history that is laid out fairly clearly by Mr.
Millholland going back to the -- he goes back to the
precursor for nerve gas which was being shipped to
Iran, which was only stopped because the United States
had a sting operation, but certainly not because Dubai
wanted to stop it.

You've got the heavy water situation. You've got the
two containers of gas centrifuge parts from Dr. Khan's
labs that were shipped through Dubai to Iran for about
$3 million worth of UAE currency. I mean, these people
have a nightmare history. This is not -- this is not a
question of whether somebody's been tested or not.
They've been tested and they've gone the wrong way on
this stuff.

And so I guess, Mr. Carafano, to you, my question
would be, how can you possibly say that you didn't see
in this particular case, in this particular deal, a
security problem?

MR. CARAFANO: Thank you, that's an excellent question,
and I certainly share your concerns. And I think
that's something that the Congress should discuss and
should discuss with the administration.

I do think we do need two separate debates here,
however. We need to have a policy debate on how the
United States wants to engage with UAE, and all the
issues about UAE's past behavior, its foreign
policies, its current policies, its strategic vision
for the future, should be all on the table, it should
all be discussed.

But I think that's separate from the security debate
because again most of the infrastructure that the U.S.
is dependent on in the maritime domain is foreign
owned. That is why our security systems are designed
to be ownership independent. It doesn't matter who
owns them if it's a U.S. company or a foreign company,
the standards are the same.

REP. HUNTER: But let me stop you on that. If you had a
-- let's say you had the British ownership of this
particular port and you had people who were -- who had
been strong allies of the United States with a -- and
were people whom you felt you could trust, isn't that
different from having an ownership which is -- which
reflects basically the desire to do whatever it takes
to acquire money, which I think is a good description
of Dubai's foreign policy. Their foreign policy is
they'll sell Winchesters to the good guys or the bad
guys. They're not too interested who it is, as long as
they get to be the bazaar and as long as they get to
have the money. So are you sure you can say from a
security standpoint that the ownership is irrelevant?

MR. CARAFANO: Well, congressman, I'm with Ronald
Reagan, I trust everybody, but I would verify, I mean,
we don't trust anybody in this system, that's why the
system is really ownership irrelevant. I mean, Dubai
might -- Dubai World Ports might turn around tomorrow
and sell that company to somebody else. The point is
that the maritime security system can't be dependent
on ownership as the guarantor of security. Security
has to be the guarantor of security. I'll just go back
to --

REP. HUNTER: But look wait, you said "ownership". I
would ask you to address this. Relevancy -- that means
if the information on the security plan for a
particular port is elicited by the people that own the
port operation, their employees will probably deliver
it to them. I think you can be assured of that. And
that could be used to our detriment, is that not true?

MR. CARAFANO: I would get back to Steve's scenario,
which is plausible. I wouldn't argue it's the most
likely, but it's a plausible scenario, and it's
exactly how terrorist trade operates. You don't need
to buy a $7 billion company to penetrate maritime
security. As a matter of fact, it works to your
disadvantage because first of all there's an audit
trail as to who you are. And second, it involves an
enormous investment because all you're actually
gaining access to is the vulnerabilities of your own

So it's much, much more likely if a terrorist attack
occurs in the maritime domain that terrorists are
going to do what smugglers do. The mafia doesn't buy
FedEx to smuggle, the mafia makes low level
penetrations. I mean, if you look at the operations in
the port, the management groups are relatively small,
it's a small community, these people know who each
other area, a lot of them are American union workers.
The penetrations are most likely going to happen as
janitors, short haul truck drivers, people that aren't
highly accredited and highly checked, and they have
access to the kind of information that they could do.
I mean, to do Steve's kind of attack you don't need to
own the company.

REP. HUNTER: Okay. Mr. Flynn.

MR. FLYNN: Well, there's little question that any time
a foreign government is involved with buying a
critical asset it deserves a thorough scrub, and I
hope that that's what will happen as a result of this
45 day period. That the people who are paid to worry
about our security and have access to intelligence
which I don't have does a thorough scrub. But if at
the end of that road the determination is with your
oversight or however the process is done here is that
the company does not pose a threat in a way that other
global companies do.

I'm certainly going to come back to it, I want a
verification system of how they operate. It is
precisely because this is critical infrastructure, and
it is largely private owned, and increasingly foreign
private owned, that we have to make sure the bar is
high and the oversight is high. My concern is that
while we have a framework for oversight there's very
little behind the curtain. So, as I look at it from a
security perspective, I don't see this place softer
than virtually anywhere else, the whole system is way
too soft.

But I'd ask us to think too, it is a global network
and here are some of the complexities we're going to
get into, you know, even pushing back this particular
arrangement. Currently P&O owns half of the operations
in Karachi, the other is by Hutchison Port Holding.
You can't get a container out of Karachi to Dubai, to
Iran, unless you go through one of those two

Even if this deal is killed here in the USA, this
player will own that terminal. From a kind of
proliferation standpoint we will want to have the
ability to put in place a verification regime not just
for stuff coming here but in this, and you're going to
have to work with the members of this community. So I
think the challenge here is oversight, high standards,
and making sure when you pull back the curtain of
where the money is and who's involved with it here
that you're not giving away the store.

The bottom line is, this is a network, it's global,
it's dominated by four players and they're all foreign
owned, we need to bring them on board with our

REP. HUNTER: Well, let me just say that if you look at
these technology transfers that were done, some of
them over the protest of the American government
involving things like nuclear weapons triggers, we
didn't bring them on board, they went ahead with the
transfers. And I would say that the idea that having
non-trustworthy people at the top, not only
non-trustworthy, but people who have been tested and
have gone in the wrong direction, the idea that that
is not relevant is not -- to me is not logical.

Now, it's true that you can -- that the privates, the
so-called privates in the operation, the taxi cab
driver, the guy who works as a stevedore, could be the
bad player, as Mr. Carafano said. On the other hand,
we had an incident not too long ago where we
discovered millions of dollars in the bank account of
the general in Mexico who is in charge of
anti-narcotics operations. In that case the people who
needed to do the buy-off didn't go to the bottom, they
didn't go to a private, they didn't go to a sergeant
who could avoid a marijuana field, they went to the
top of the operation.

So, the point is, this is a system of opportunities,
and the idea that having a government in control of
our ports which has demonstrated that it will allow
components for nuclear weapons to be transshipped, in
fact, really the operation that they have in Dubai I
think can be best described as a genius for masking
the trans-shipment of illicit goods. That's their
trademark, that's how they make their money. And the
idea that that is irrelevant to the operation of the
port to me is not a sensible judgment.

Mr. Gaffney.

MR. GAFFNEY: Well, very quickly, Mr. Chairman. I think
that James is right, you don't have to own the
company, but I think what we're wrestling with here,
does it help, or does it at least help somebody who
wants to exploit the fact that the company is not in
U.S. control? And I -- you know, just so we're clear
about this, I have exactly the same concerns about
having communist China having this kind of control, as
I do about the United Arab Emirates. I think the track
record is probably every bit as deplorable, if you ask
Mr. Millholland about what China has been allowing to
move through.

REP. HUNTER: So would you agree with a new law that
states that critical infrastructure that is identified
by the Department of Defense and the Department of
Homeland Security as critical infrastructure should be
owned by Americans?

MR. GAFFNEY: That is my personal view, Mr. Chairman. I
haven't a clue what the full implications of that are

REP. HUNTER: It would require substantial --

MR. GAFFNEY: -- what the costs are, but I will tell
you, it does seem to me that the power that you are
hearing in terms of the vocalized outrage of your
constituents is, practically none of them are aware
that that isn't the case today. It's like, you know,
Congressman Weldon and so many of you have been
working on missile defense all these years, it was
always the case the public thought we had one. This is
the same sort of thing. It has been an epiphany and I
agree with my colleagues that it is very salutary that
we're having this debate.

I tend to agree with you, that's where this debate
should take us, but we're going to need to follow this
debate through, starting with, I hope, minimizing
further damage to this relationship with UAE, because
going to your point, Mr. Chairman, there is no
question, and I think it trumped all other
considerations in the final analysis, there are things
the United Arab Emirates are doing that we're probably
not all privy to, but nonetheless are doing that are
very helpful in this war for the free world. It's just
that they're doing things and they are certainly
capable of doing things, or people are able to do
things from their territory that could be very
dangerous to this country.

REP. HUNTER: I thank the gentleman.

The gentleman from South Carolina, Mr. Spratt.

REP. JOHN M. SPRATT (D-SC): Thank you all for your
excellent testimony. Let me cut straight to the chase,
CFIUS. We had Secretary England before the budget
committee yesterday and I asked him, what national
security concerns were raised in the review process? I
want to be fair to him that he really couldn't cite
any. He basically said, these were homeland security
and not national security concerns.

I learned from reading the committee memo that the
person in DOD who made this review is the deputy
assistant secretary for Defense, Technology and
Security to the administration, and we have an
assistant secretary at DOD for homeland defense, but
he was not consulted on the DP issue. Is it the
opinion of your panel, all three of you, that CFIUS
simply did not exercise due diligence to start with?

MR. GAFFNEY: That is my view, and I think the point --
it's very helpful that you've been able to extract
from the system who did participate, because as you
know, nominally it's supposed to be at the level of
cabinet officers, but as I said in my testimony, they
weren't read in. The president didn't know anything
about this. You're talking about deputy assistant

It may even be that they're career people who
basically do this thing day in and day out, and it's
no knock on them, but clearly there are aspects to
this that transcend the perspective that somebody who
may be an office director or at best a deputy
assistant secretary is going to have, and
unfortunately the process chronically sort of defaults
to this kind of setting, especially when as -- no
fault of this committee but your counterpart on the
other side is responsible I think in some small
measure for this -- there are so many vacancies in
senior level positions where I think this sort of
broader perspective would properly reside and be
brought to bear, officers were brought to bear.

REP. HUNTER: Mr. Flynn, Dr. Flynn --

MR. FLYNN: I simply obviously do not have access
because of the lack of transparency to know whether
there was an adequate review or not. I think it's
certainly worth asking the question. I can say the
maritime transportation community is a pretty small
world and most people know each other by reputation.

And the DP World company, the senior executives in
that company, are very well regarded international
players in the shipping logistics community. Many of
them are Americans. In the top nine managers of DP
World there's only one United Arab Emirates member.
There's four Americans, there's --

REP. HUNTER: Yes, and when given that camaraderie this
got summary review, it didn't get the depth of
analysis it warranted?

MR. FLYNN: It seems clear that it has not, otherwise
we wouldn't be where we are here today. There's no
question that something as critical as this deserves
the full scrutiny. The law for CFIUS was written in
1988, the thinking was not geared towards the kind of
world we're in and to answer the questions you're

REP. HUNTER: Dr. Carafano.

MR. CARAFANO: I simply don't think the CFIUS process
gets to the maritime security -- national maritime
security interests in the maritime domain. The threats
in the CFIUS process looks at ownership, and I think
what Steve and I have argued is that ownership does
nothing for you, only security provides security, and
it's a global network, and most of it's foreign owned,
so just verifying ownership doesn't really address
security issues and threats.

REP. SPRATT: What we see here is typical too of
immigration, is typical of other customs issues. I've
followed this for years because I come from a textile
region. I could tell you story after story of crates
that -- containers that weren't opened. But I see here
-- I believe it was Dr. Flynn's testimony -- that for
all of the 5800 exporters, shippers, to be monitored,
the Coast Guard has 80 inspectors.

MR. FLYNN: Yes, the customs in that case service. The
Coast Guard has 20 inspectors to verify all ports
around the world are compliant with the International
Ship and Port Facilities Code. Good news, customs has
four times as many to take on the CT path. By the way,
there are over 11,000 companies in queue to get into
that program. They are asked to go out and check
supply chains, security standards, which are
voluntary, and we're simply not staffed to do that

REP. SPRATT: What would it take, in your estimation?

MR. FLYNN: Well, I think there's two parts to this.
One is we should be moving to third party audits, high
standard bonded players, and then you audit the
auditors. You know, we're talking about having the
same customs agents around the world. That's
complicated. It's just in the maritime arena we often
use things called, professional classification
societies, like American Bureau of Shipping, to go
check to see if things are compliant and the Coast
Guard oversees that.

I see it as a two-tiered process. But you've got to
insist, it's not purely voluntary, and hope for the
best. If you said as a company you're secure in your
supply chain, show us a certification for that, and
then we spot check it. And no question, we're talking
about five- fold. You know, we should be talking an
office of about 500 people for an oversight for a
program as complex as this one, at a minimum, with
some -- with again a third party process.

REP. SPRATT: One final question. Are you testifying
all of you that the technology is there for far
greater if not much better surveillance than we've got
now that could be done in foreign ports? We could
utilize satellites and other devices? The technology
is in hand, it will require a big commitment, but
nevertheless we could do this with much greater
security than we're now achieving?

MR. FLYNN: It's there, sir, and the company -- the
global terminal operators would be willing to put it
in. They can get a cost recovery system through a fee,
we do not have to pay for it, if we have a system of
how to use it. The problem that would solve this out
is the Department of Homeland Security can't figure
out how to integrate its operations. We could go to
100 percent screening non- intrusive at loading ports
with the cooperation of the terminals. We don't have
to rely on a five percent, hope for the best,
intelligence driven system when we all know our
intelligence apparatus is broken.

How is it that customs has gotten so good in the
intelligence arena that it can spot 100 percent of the
right five percent when we can't find the weapons of
mass destruction? Other problems we found out is a
real problem with our intelligence community. We need
to go to 100 percent.

MR. CARAFANO: I'm less optimistic that there's a
simple technological fix that you can make a solid
business case for that will do this. I think that, you
know, screening is a nice measure but you don't rely
on screening to save your life. I think if we're
relying on the people screening people getting on
planes to keep terrorists off planes then we're all
going to die.

I mean, screening is good, but any screening system
can be defeated, and Steve's scenario was great, and
the fact is, with all the technology in the world, a
smart terrorist, a smart smuggler, can find a way
around that. So, one guy can find a $5 solution or
mount a multi-billion dollar system and kill you. So I
think it's a question of where you put the balance of
your investments, and I think you put your investments
on the offensive capabilities.

That's why I agree with Steve. The Coast Guard is an
enormous investment. It's grossly under-funded. We
have kids running around on ships that are eligible
for social security. They have missions that span the
entire maritime domain, not just the auditing issue,
but also on the proliferation security initiative,
maritime domain awareness, which looks at all these
both in the commercial and in the non-commercial
system, and we have grossly under-funded them.

And so if you've got a couple of million dollars to
throw at something, I would throw it at the Coast
Guard. I would agree with Steve, I would say this, if
there's a global business case for a technological
security solution that somebody can produce, then
that's fine, I would accept that. I'm a little
skeptical that it's out there.

MR. FLYNN: It is right now in Hong Kong, we're doing
it as a private sector venture to do it. It's not
perfect in lots of ways, but one of the things it does
is give you forensic capabilities. Just like those
close circuit TVs in London didn't stop the attack but
allowed us to go back and find who the operators are.
As we build greater visibility through some of these
technologies in the system, we both raise the
deterrent level. It could take them two to three years
to acquire a weapon of mass destruction. Are you going
to put it in a system where everything is being
screened, and if you find out the problem you can
isolate where the problem came from so you don't have
a wholesale shutdown of the system.

So, no, it's not just technology by any stretch, it's
layers of security, but we don't have to rely solely
on trying to find all the bad guys and leaving the
system wide open.

MR. GAFFNEY: Mr. Spratt, I think that technology is
part of the answer. It's like a fence along our
southern border. It seems to me that's part of the
answer to the immigration problem too. But you have to
appreciate that you're up against determined
adversaries, they're going to try to end run it,
they're going to try to find new openings and
opportunities, and it's one of the reasons why I come
down differently than my colleagues I guess by saying,
shut down other opportunities where you see them
possibly being opened up, including in the cast of
this port acquisition.

REP. SPRATT: Finally, can't this be paid for by
levying fees? There are huge flows of commerce, can't
small fees produce substantial funds to buy much
better technology than we have now?

MR. FLYNN: Absolutely, the pilot in Hong Kong is going
to come in at about six to eight dollars a container.
And just to get into mind what we're talking about, we
can move a 40 foot container with up to 32 tons of
material from Asia to the west coast and start at
about -- today, average rate, $1850, which makes the
postage stamp seem a little price.

They carry about $66,000 of retail goods on average
for Target and Wal-Mart. You're not even going to see
$10-20. And, by the way, those rates go up and down
based on availability. Now, you want to layer it
throughout the system. I want it in Singapore, I want
it in Jakarta, I want it along the way so we can spot
check things along the way. You could do that. They
could put the system in place, the terminal operators,
if they do it all together and come up with a common
fee structure, and then make the data accessible to
customs agents, not just us, but to the British, this
is export control issues. So, there's a lot of promise
here without solely relying on a system.

Either focus on ownership or hoping and praying that
our intelligence is so good that we can narrow down
the universe and check the right thing.

MR. CARAFANO: I'm just a little skeptical. I mean,
this to me is -- the TSA solution, we spend $6 billion
a year on a system which was defeated by $20 worth of
razor blades. I mean, the global security screening
solution, I think it's -- I mean, there may be a
business case for some measures, and I'm all for that,
and I agree with Steve. The global movers of systems
have a vested interest in making sure that this system
keeps going.

I mean, they realize that there's a 9/11 in the
maritime domain. The consequences will be as
catastrophic as Steve says. I talked to all the people
in homeland security and they all say, well, we're not
going to shut down all the ports. You know, we'll just
shut down the affected ones. And we all know what's
really going happen. What's going to happen is on the
day of the Katrina style port act they're going to
shut down all the ports and we're going to have a --
and the consequences are going to be global.

But the notion that this is going to prevent that, I'm
just very, very skeptical that the business community
can do some things, they will do some things because
they have a vested interest in preventing that, but I
just don't think that the TSA solution of let's just
screen everything and rely on technology is really
going to get us there.

REP. HUNTER: I thank the gentleman.

The gentleman from Pennsylvania, Mr. Weldon.

REP. CURT WELDON (R-PA): Thank you, Mr. Chairman.

Thank you all for your testimony.

The tragedy of this situation is not just the fact
that we have to look at the substance and we'll raise
them in other parts of this hearing with the
administration, but it's the damage that we've done in
our relationship with a country that seems to becoming
our ally. This reminds of the Clinton administration
when President Clinton told the leadership of the
mainland in Beijing that they would not allow a visa
to be provided to President Lee Teng-hui of Taiwan to
go back to his alma mater to speak, the Congress found
out the next day because the White House didn't talk
to the Congress, and the Congress was livid, and so in
a bipartisan manner we over-ruled the president. That
so embarrassed the Chinese administration they thought
we'd deliberately embarrassed them.

So what did they start doing? They started lobbing
missiles across the Straits of Taiwan. And what did
President Clinton have to do? He sent a carrier battle
group up into the Straits of Taiwan that almost caused
a war between China and the U.S. over the
administration not talking to Congress.

That's what has happened in this case. What absolutely
offends me the most is this White House had to know
that there would be significant concerns raised by the
American people and the Congress. Now, maybe they
would have been dealt with in a structured process
that we would have felt it was okay, but they didn't
give us that opportunity. And now they're telling us,
well, if you object to this you're going to hurt our
relationship with the Emirates. Well, too bad, where
were you, White House? Why didn't you bring your
leadership of the Congress in? Why didn't you ask for
us to understand what was being proposed?

That unfortunately is the dilemma that we now find
ourselves in. And so we're damned either way on this
case. Whatever we do we're going to cause problems and
concerns. And many will say we're just posturing.
We're not posturing. I come from Philadelphia, I walk
those ports. I would have liked to have had at least
some inclination that a pending deal was on the
horizon that was being talked about for months within
the process of the cabinet agency of the
administration, but that wasn't done.

In fact, none of the people at the Tioga terminal who
run the terminal that will be taken over by this
process were even consulted, they didn't have a clue.
And all of a sudden through the media this is sprung
upon us. What did they expect we and the American
people to do?

It is a tragedy that should have been avoided, it
wasn't, and now we're left to try to in the best way
possible understand what are the threats, and I will
pose some very specific questions that I have relative
to al Qaeda's involvement in a very direct way with
the Emirates. I will talk about a camp that
mysteriously disappeared because the Emirates
government tipped off the al Qaeda leaders when we
were about to strike it a week before that camp was

I will bring up an internal document from the West
Point and their terrorism efforts up there, that of a
document that al Qaeda sent to the Emirates saying, we
have totally infiltrated your security, your
censorship, your monetary agencies, along with other
agencies that should not be mentioned. This is al
Qaeda talking to the Emirates. This is an official
document of al Qaeda.

Well, I want to know whether or not that's all been
considered, but I have no idea whether this process
went through that. What really bothers me about the
administration is also their interpretation of the
Exon-Florio language as amended. And so the question I
have for each of you is whether or not you agree with
the administration in their interpretation of the Byrd
Amendment, which is contradictory to what Byrd
interprets his own amendment, when they say that even
in the case where the two conditions of the Byrd
Amendment are met the committee may determine that the
40 day investigation is not required.

I'm of the feeling as a member of Congress who worked
on this language that it is required, but the
administration has seen fit to interpret it that it's
not required. And so I would ask you all to respond to
that. And also, Mr. Chairman, I would like to ask
these witnesses if they think that there needs to be a
role for selective leadership of the Congress to play?
There is no role in that process today, but there
needs to be, either through the intelligence committee
or through the leadership of the Congress, a very
elite group of members of both parties who are at
least made aware of what the CFIUS process is
considering when it comes to foreign investment.

MR. GAFFNEY: I think like you the commonsense
interpretation of this language suggests that the
trigger should have kicked in. It's just one of the
things that's broken with the CFIUS process. Maybe not
even the most important, but certainly one of the
things that I think you need to revisit as you think
about reforming it.

Look, I guess my feeling about it is that members of
this committee, members of the leadership, members of
the intelligence committee, for that matter the entire
Congress, will be saddled with the consequences of a
defective process. It is incumbent upon you I think,
and the old adage, to be in on the take-off if they
want you in on the landing.

Now, there are concerns, and I understand them,
they're legitimate, about undue political influence,
the compromising of proprietary information and so on,
but I think if what we can take away from this fiasco,
and it is a fiasco for the reasons you mentioned, is
the need to try to improve it so that it doesn't
happen again.

I believe people of good will on both sides of the
aisle and both sides of the hill are going to be able
to find ways to ensure that there is oversight in an
appropriate way and there is a degree of transparency
that's incumbent upon the need for adult supervision
that this system clearly cries out for.

MR. FLYNN: I'm not a constitutional lawyer, but let me
say that what I've heard from port communities I can
empathize with, which is, so the federal government
can't have it both ways. The fact is that it's been to
the charge of states and localities provide for the
security of their ports, working through the private
sectors, and they're supposed to split the bill.

The administration didn't ask for any port security
funds until 2004 despite three budgets going by
because they said quite clearly, these fall in your
jurisdictions, you're responsible for security. I can
appreciate there's legitimate frustration at the local
level when decisions about who their tenants are going
to be, and the security thing. That would lead to
significant aggravation, which they're likely to
express to their members.

There's little question that as we evolve to a point
of recognizing that this new adversary is increasingly
focused on disrupting economic targets, that the old
matrix that was used in the CFIUS process is not going
to apply.

It's more all encompassing, it's more civil, and so I
think it's going to by necessity need to involve a
broader engagement, which I think is all for the good.
The more we engage our civil society and through our
elected representatives, what's critical and where
resources need to be applied, the more likely we are
to make those investments.

When everybody is ignorant we don't make investments,
we think it's all hunky-dory, we're going to keep
going. This process, if there's any positive thing,
has focused the nation's attention on the gross
vulnerabilities of a critical infrastructure that
supports our way of life. And I hope the opportunity,
while I can certainly understand the frustration here,
that we move from that to saying, let's really fix for
the American people what we now know well documented
is broken.

MR. CARAFANO: Congressman, I sympathize with all of
your remarks, and I think I would refrain from --
until the Congress has an opportunity to really get
through all the facts of how this process was executed
I think I would reserve judgment. I do think it's
self- evident that the process needs to be revised so
that these kinds of fiascos don't happen, and so
Congress is adequately consulted.

You know, I do believe with -- one absolute message
which I want to be absolutely crystal clear on, and
that is dispelling any notion that revising and
reforming the CFIUS process is going to address the
kinds of maritime concerns that Steve and I have
raised today. And while I'm thrilled, along with
Stephen, I see this as an enormous opportunity to get
Americans excited about something they really ought to
be excited about because a third of their economy is
dependent on that this global system works. But I
would hate to have Americans walk away and think
because Congress revised this process that we're safer
at sea, because that simply won't be true.

REP. WELDON: But how about a simple response to the
interpretation of the Byrd Amendment which required a
mandatory 45 day review? Do you believe what the
administration has said, that they had the power to
ignore that?

MR. CARAFANO: I think, congressman, without having
seen all the facts before me of how the process was
executed, that I think will only be available after
the Congress has an opportunity to gain all those
facts, I really don't feel qualified to answer that.

REP. HUNTER: I thank the gentleman.

Let me ask my colleagues something. We've got two more
panels to go, and I know there's no more votes today,
and I know people are going to have planes to catch.
Let me ask my colleagues who haven't had a chance to
ask a question yet if you would be willing to forego a
question on this panel to move to the next panel which
includes the Dubai ownership representatives and pick
up immediately where we took off. Everybody who'd like
to do -- who thinks that's okay, could you let me
know, raise your hand if you're willing to do that?

Okay, I think Dr. Snyder want to -- well, I'll tell
you what, Dr. Snyder, if we go -- Mr. Taylor, would
you willing to do that if we end with Dr. Snyder?

(Off mike.)

Okay. I'll tell you what we'll do. Let's do Dr.
Snyder, Mr. Larsen and Mr. Taylor and then we'll move
to the next panel, and Mr. LoBiondo.

MR. : And Mr. Turner.

REP. HUNTER: And who else? (Laughs.) Okay.

The gentleman from Arkansas, Dr. Snyder.

REP. VIC SNYDER (D-AR): Thank you, Mr. Chairman.

I think this panel is really, really important because
you're all the forest for the trees guys. The next two
panels we're going to get focused on one contract and
I'm afraid that if we leave you all alone right now
we're going to miss a point.

Mr. Flynn, you're not a Johnny-come-lately to this

I would like, Mr. Chairman, if I might have put into
the record an article that Mr. Stephen Flynn wrote in
November/December 2000 that was in Foreign Affairs
magazine called, "Beyond Border Control" in which you
discussed this issue. You specifically talk about a --
what you refer to as you hope is not going to be a
future Tom Clancy novel scenario in which you gave an
example of something that unfortunately came to in a
different way when we had September 11th, but that was
almost -- well, it was written, obviously, a year
before September 11.

I don't know if you recall, but in October of 2000 you
came to my office and met, and I don't know if it had
anything to do with it, Dr. Carafano, but some few
weeks somebody from heritage came by and said, just
kind of -- you know, we want to get to know you. I
said, well, if you want to do something and have a
business, get involved with security, go talk to Steve
Flynn about doing something on ports. Immediately they
hired you after that -- about port security.

Let me get into some of my points. One concern that I
have with what -- the pose that the chairman and Mr.
Gaffney are taking. If you -- in Mr. Gaffney's words
-- if we go along with this current contract it will
possibly open up another risk. Once you accept that
principle it seems to me you don't have any basis for
allowing any ship to come in from any Arab nation. You
know, how do you draw the line when you're talking
about a small package? Can you let any ship come in
that has any crew members on it that could ever go off
the ship? I mean, where do you draw the line if you
start saying -- and in your words, Dr. Carafano --
that ownership is the key rather than security, so
that's one of the concerns I have with the direction
we're going with some of this legislation.

Mr. Flynn, in your article you talk about your words,
grossly under-funded port security. I'm glad to hear
that, grossly under- funded, something that we think
is key to an ugly scenario that could occur, we're
grossly under-funding it. You talk about the fact that
we only have token police presence in our ports. Your
words, token police presence. Again, probably a
question of resources. You talk about the disorganized
nature of the U.S. government response in our ports.
We have a lot of work to do.

Well, it comes to priorities and how we spend our
money. And in the view of a lot of us, we have not
done our priorities correctly in this Congress and in
this government in terms of how we spend money, and we
get down to discussions, who gets tax cuts versus who
doesn't get tax cuts, and how do you spend money. And
I hope that you are sending a strong signal here today
in the work you've been trying to do, Mr. Flynn, for
years, that we have tremendous work to do.

As I understand, one option -- this is going back to
Mr. Weldon and how we're going to find something good
to come out of this -- I mean, there is a scenario out
there, is there not, that if this company makes it
through this process that they have stated that
they're willing to negotiate to do enhanced security
measures. I think you suggested, Mr. Flynn, that the
Hong Kong model perhaps could be adopted by this
country, or this company, over the next couple of
years and you'd have a much broader study. Is that a
fair description of what you've suggested?

MR. FLYNN: It is, and I think that you'll see a
commitment by the players to join in that. With these
four companies you would account for eight out of
every ten containers coming to the United States. And
what you'd be able to find is big, dense objects. It's
not a perfect system, but that's what we're really
worried about, and technologies evolve. But once we
put in a process and of cost recovery and private
players in it, they can upgrade it, the new
technologies come along, but the critical movement for
me is move from a database analysis of what risk is to
something going on in the physical movement of the
supply chain to validate low risk as low risk and have
processes in place to manage it, and that doesn't
exist today.

It's analogous that airplanes never had black boxes in
them, so when they fell out of the sky the aviation
industry and the government shrugged, well, it only
one in a million times.

We need better tools to know where the problem
happened, where the breaches happened, so we can
manage these incidents without losing not only a whole
industry but essentially the critical economic
underpinnings that go with that.

REP. SNYDER: I think another theme of your article and
the work you've done through the years is -- I don't
want to talk much, my constituents back home, they
want me to build a wall at the port of New York. And
what you all are saying is the place to start looking
is on the trucks that are driving in to the loading
point in countries all over the world. We don't think
like that. We still want to put up a wall, but if we
put up the wall we haven't done ourselves any good.

So, I hope that's another thing that comes out of your
presence here today in terms of educating the Congress
and the American public, is we have got to start
thinking about what's going on at the point the
containers are packed and sealed and transported and
loaded on to the ships. That's the crucial point in
all this. Obviously, the unloading is a part of it,
but we don't think that way. We're still thinking we
can somehow put up this tremendous barrier. Do you
have any further comments on that?

MR. FLYNN: As a practical matter, we have for instance
been deploying radiation portals at the exit gate of
our marine terminals here in the United States, and
they have real limitations in terms of their
technology right now. That's the exit gate. The box is
in the yard for two or three days, and so if I wanted
to set off remotely and take out the port
infrastructure, it's not going to -- so we want to get
to it before it gets loaded, we want to get it before
it's in the ship, and that's only going to -- we're
going to have to do it with the cooperation of foreign
private companies and our trade partners in the
busiest places of the world.

And so I think we have to be very careful that in
trying to close one potential loophole down, and there
is potential loopholes -- I'd rather work from a
purely security perspective. I'd rather work with U.S.
companies and with U.S. owned infrastructure. I'd like
that because I have law on my side and have some
assumptions of patriotism. But in the global world
we're in, giving that is not that way, that's all the
more reason to not have no minimum standards and no
oversight, it's going in the other direction.

We can't own all this global transportation
infrastructure. We don't have the resources to do it,
nor the willingness. But we do have the leverage of
our market to get folks to raise the bar and the
oversight process. That has begun to a limited extent
since 9/11, we have a very long way to go, and this
presents an opportunity to go in that direction. I
hope we take it.

MR. CARAFANO: I agree with everything Steve said, and
you made an absolutely critical point, is that in the
21st century nationality and geography don't guarantee
you security, only security guarantees you security,
and I don't object to some of Steve's solutions. But I
would make the point that the easiest way to smuggle
something into the United States is to drive it across
the Mexican border or put it on a non-commercial ship
and land it between a port.

And the odds are quite frankly is that if some
terrorist has something valuable that he wants to get
into the United States that he's much more likely to
choose those venues which are cheaper and probably a
lot safer than putting something in a container on a
ship and getting it out of his control. So, you know,
if there is -- and I think this is the criteria.

If there's a business case for adding on a security
measure, and I think that'll be pretty apparent, then
I think that's great because it's value-added in lots
of ways in terms of asset inventory, in terms of
guarantee of on-time delivery, in terms of security
against terrorism, in terms of security against theft,
so that if there's a business case for a security
measure I think that's great and I'm all for it. But
let's not -- you know, that ain't going to buy
security from the terrorists. The best thing for
security from terrorists is going out and getting the

MR FLYNN: But we can protect -- I guess there's a key
point here -- the intermodal system is critical
infrastructure. We push it out so it's coming across
the border, it's a bad incident, but we don't shut
down the trade system. So, identifying what part of
these networks are most critical and finding
safeguards is not a bad thing in dealing with the

MR. GAFFNEY: If that was a rhetorical question to me,
congressman, I'd just like to address it quickly.

I would argue that where you draw that line, or at
least where you think about drawing the line, is what
you would do after an attack, because my colleagues
may be right that this is a very serious likelihood of
somebody penetrating our ports and blowing them up. I
mean, you've got it twofold in most ports in this
country because you not only get to take down a
critical part of our economic infrastructure, but you
also can take out a lot of population which surrounds

But the other part of this is, of course, that you're
going I think to find us throwing money at this
problem after it happens, much as we have done about
airports, and I'm simply saying that I don't think
we've got all the money in the world to do all of the
things we want to do, so the sorts of suggestions
we've made here seem to me to be triage. Applying
sensible precautionary measures overseas and at home
to try to make this particular avenue of attack harder
for people who we know are trying to hurt us.

REP. HUNTER: I thank the gentleman.

The gentleman from New Jersey, Mr. Saxton.

REP. SAXTON: Mr. Chairman, I'd like to give my time to
Mr. Turner from Ohio.

REP. HUNTER: The gentleman is recognized.

REP. MICHAEL R. TURNER (R-OH): Thank you, Mr.

Thank you, Mr. Saxton. I appreciate you yielding time
to me, and also I appreciate your opening comments
concerning the restrictions on foreign investment and
foreign ownership of assets in the United Arab

And, gentlemen, in your discussion, as you were
talking about this, it seems like we have several
different issues. We have the issue of security, and
security can be both what are we doing to protect
ourselves at the ports and it can also then include
the issue of who owns them, who are they, what do they
do there and how are they implementing security
procedures? Issues of trust which we hear that also
dissolve into the issues of relationships. And when
you go to the issue of relationships and ascertaining
security and trust you go to the issue of fairness and
wanting a relationship with someone who has a
relationship with you, and not wanting to offend and
wanting to, of course, strengthen partnerships for the

But one of the things that I find interesting in the
issue in the concept of fairness is that I asked my
staff to pull information on the ownership interests,
the foreign investment rules of the United Arab
Emirates, because I think that goes to a basic
interest of fairness, because I believe that we should
not allow someone to buy something here that won't let
us buy it there.

What Chairman Saxton listed were the ownership rules
that were published in our national trade estimate
report on foreign trade barriers by the United States
trade representative, which clearly lay out that not
only could we not buy ports in UAE, or could American
citizens not buy the ports in UAE, or American
business not buy the ports in UAE, but that we
couldn't even own McDonalds. In fact, the McDonalds in
UAE on its website proudly exclaims, "UAE owned,
operated and proud to serve you." It says, "In the
Arab nations all McDonalds restaurants are locally
owned and operated by Arab entrepreneurs."

When you look at these rules that require that if
you're going to have an ownership interest, if you're
a foreigner and you're going to have an ownership
interest and investment in the country of UAE, except
for some minor exceptions it requires that that asset,
business, enterprise etcetera be owned 51 percent by
someone from the UAE. Which means that if we were to
apply their rules to their purchase of our ports it
wouldn't be happening.

Now, I have a bill that I'm working on in conjunction
with Mr. Hunter's bill on critical infrastructure.

It would require that especially government-owned
entities, government-owned entities, when they go to
invest and purchase things in our country would be
held to the same standards of their rules. We're not
just talking about a UAE citizen or a UAE business
entity, we're talking about the UAE government
interest, attempting to make an investment in a
country with their own rules, their government's
rules, prohibit it.

I'd like if you will to talk for a moment about that
issue because it seems to me that that does go to the
issue of fairness, it goes to an issue and element
that should be considered. It certainly distinguishes
some countries from other countries beyond the issue
of just friendship or allies. If we can't invest in
their country in the manner in which they want to
invest here perhaps we should reconsider it.

Dr. Carafano.

MR. CARAFANO: Mr. Turner, I think that's a fine debate
for the Congress to have. If the Congress wants to
debate all our strategic interests in the UAE and our
future trade and economic and foreign policy
relationships, I think that's a great debate. It
should be, however, I believe, separate from the
security debate because I don't think they're

You know, and I'll just say this on the economic
issue. I mean, fundamentally what you have here, not
just Dubai World Ports, but with all the foreign owned
maritime assets in the United States, what you have is
foreign owned companies coming and investing in what
was very dilapidated infrastructure in the United
States, sending their money to build up our
infrastructure, hiring our citizens, employing and
increasing employment in the United States, and
building one of the marvels of the world, which is one
of the fastest global maritime networks which makes
imports cheaper because they move faster and are
cheaper, and which makes our ability to export things
more competitive.

MR. FLYNN: There's a lot of irony in this because the
port of Dubai was built by an American company called,
SeaLand, and was run by Americans for the first 10
years. And, of course, we've always had a very heavy
military throughput on there. You know, it's the sort
of nature and the complexity of globalization that's
led us into the kind of rules and laws we have here,
but I really need to accentuate Joe's point here about
the investment.

The fact is, the most foreign owned port in this
country in terms of leases is the port of Los Angeles
with about 90 percent. Now, why did that happen? It
happened because when you turn to the citizens of the
city of Los Angeles and said, "Are you ready to put in
a $50 billion bond to upgrade your waterfront so you
can be a gateway to Asia?" the answer was, "I'd rather
put it into schools, I'd rather put it into roads, I'd
rather put it into other things."

So, the option here for those folks was, okay, we
won't have a gateway to Asia, or we'll find somebody
who brings capital to do that. To make that happen you
have to give them a 30 year lease. They dredge the
channel, they build the infrastructure, they put in
the cranes, and makes that possible for us to trade.
So, we're playing a bit with fire here. We would have
to find the capital ourselves. And today in China a
new port of New York, New Jersey, is being built every
year. About three million containers a year capacity
built in China, and we're building virtually no new

Trade is supposed to double in the next 15 years in
terms of modern containerized traffic. Where's it
going to go? It could go through Canada or it could go
through Mexico, that might be where we end up going
with this, so we need the infrastructure. Where all
this leads me to? Because it's private owned, because
there's likely to be a foreign stake, we'd better have
a damn high security bar and we should be promoting it
internationally to get us to a point where this
critical system is secure.

And the ownership issue is certainly ones that are
worthy, and the policy and leveraging this with the
UAE as a foreign policy point I think is there, but I
think again if we're really focused we should beyond
the criticality infrastructure and using with what
we've got the best security thinking about how to get
to where we want to go.

MR. GAFFNEY: Mr. Turner, I think that the question is
sufficiently important that I mentioned it earlier,
and complimented Congressman Saxton too for raising
it. I think it is a fundamental equity issue that we
ought to have part of this larger debate.

But I just ask one other thing related to financing.
I'm bemused, to be honest with you, how CFIUS could
have concluded its judgment about the national
security implications of this deal when it's
deliberations were completed before the international
financing of it was even started. $6.5 billion of this
$6.8 billion deal had been raised on international
capital markets. How that exactly works in with the
ownership limitations, I don't know, but I daresay I
don't think CFIUS knows either.

But I just would ask that, you know, in the classic
question, follow the money, had there been
undertakings made that might give rise to still other
questions here about ownership, about the rights that
attend investment, that bear upon questions like the
ones you're asking, but also questions like the one
that I'm asking. What about the security of these
facilities, could they be compromised if the security
plans, for example, have to be shared with owners
whose identity wasn't known, let alone disclosed
before the CFIUS -- first CFIUS process completed to
the satisfaction of the executive branch?

So I would encourage this to be part of the debate. I
think that the questions, as we've all talked about
here, actually introduce a very far-reaching and
perhaps, you know, impossible debate in this country
about whether we're comfortable with the level of
globalization and what it is translated into in terms
of lack of control and foreign presence and even
critical infrastructure. But I think that's the debate
we've got to be having too in addition to resolving
the question of this particular deal.

REP. HUNTER: I thank the gentleman.

The gentleman from Washington, Mr. Larsen.

REP. RICK LARSEN (D-WA): Thank you, Mr. Chairman.

I think what I'm hearing in some respects today on the
security side is that our currently layered approach
to port security and supply chain security is full of
holes and gaps and that security at our ports ought to
be, frankly, as thick as flies at a picnic on a hot
day and what we have is a picnic and very few flies
when it comes to security. And in talking with the
ports in Washington state, they generally agree that a
large focus ought to be more on the port security and
the supply chain security.

To give you some examples, the GAO found that less
than 13 percent of our CTPAT checks have actually been
performed. GAO found due to staffing imbalances within
the container security initiative at foreign seaports
35 percent of the high risk containers are not even
inspected overseas. So there are definite gaps here
and I guess the headline here is that inadequate
funding -- we have inadequate funding to ensure
adequate screening. As an example, the American
Association of Ports Authorities requested -- their
members requested $3.7 billion in port security money
from '02 to '05 -- $708 million was granted, leaving a
gap of about $3 billion. I'm not to argue that every
$3 billion was necessary, but it's an 81 percent
difference and surely the funding is not there for
port security or supply chain security for containers
coming into the country.

Mr. Flynn, I want to ask you a question. I went to
Hong Kong International Terminals in January and
talked with the general manager who's an American, a
Washingtonian in fact from Washington state, managing
the HIT terminal there in Hong Kong about their pilot
project. Basically three steps: they check to be sure
it's the right container and it's got the right stuff
in it and there's no rad stuff in it, there's no
radiation stuff in it. It's basically those three
steps. It is a pilot program and in your writings
you've talked about perhaps Dubai Ports World adopting
this program. You've also talked about the Greenlane
Maritime Cargo Security Act and what we ought -- what
Senator Murray and Senator Collins have put forward.
Can you talk about the Greenlane Act a little bit to
this committee to help us understand the kind of
actions that perhaps -- separate from talking about
the CFIUS process, what we can do on the maritime
security side of things to move the ball forward here?

MR. FLYNN: Sure. I think the biggest thing is the
market needs some incentives for moving ahead with
this kind of investment and they have to have some
confidence that there's buy-in by all of the players,
that what they invest in is going to be used in an
appropriate way for security.

So what has stalled out the investment of moving
further on the Hutchison project is legitimately
talking with the group managing director, he says why
would I put in place a system that will cost me on the
order of a half a billion dollars through all my ports
if Congress after the next incident is going to change
the rules and tell me I need a much different system.
I need the buy-in upfront, then I'll make the
investment and the other players are likely to go
along. So one of the first things we need to do is to
be able to have say DHS respond to the initiative and
say this is how we could use it and for Congress or
others have buy-in on it to say this is a good step
forward. So we're not going to change the rules on
them overall.

REP. LARSEN: So when we see DHS in a few hours we
should push this issue on them and --

MR. FLYNN: Now, the good news is they are evaluating
it now. They're a little slow to the take but they are
evaluating it and I'm very pleased that the deputy
secretary of Homeland Security, Mr. Michael Jackson,
is very much focused on getting an assessment here and
Jay Ahern, the field operations assistant commissioner
has also been very engaged. So we've got some positive
movement here.

But the other is the importers of course are concerned
about cost. They want a level playing field and they
need incentives. The notion of greenlane is of course
facilitation if you make the investment for higher
issue. I worry right now it will be everything's a
greenlane though. I mean for most main players there's
nothing different today than it was before 9/11 so
it's hard to dangle a carrot when there's not really
much more capability or stick out there. And so we
need to make sure that Customs is whole -- you know,
if we move forward with this we need Customs capacity
to be able to teach up. They don't want to be
embarrassed as an agency to have a brand new
capability to go -- (inaudible) -- they can't
integrate a response, but we also have to create
incentives for customers who want to use secure parts
of the system, and I think that's the essence of
greenlane as legislation.

It's a good start and I know in the amendment process
there's other ways we can talk about how to continue
to improve it, but I hope again it's about seizing
opportunity here. We've now got this in our
crosshairs. This is a vulnerable system, what we
should really look for is the capacity at the federal
level and what the private sector can do and recognize
it's going to be a global effort to get us where we
need to go.


Any other panelists?

MR. CARAFANO: Yes. I would just say I think I agree
with everything Steve just said. You know, I will say
that I don't know if it's inadequate funding on the
part of the federal government. I will say it's
incredibly wrong headed by funding. We haven't thrown
-- we've thrown money at the things that had the
loudest and strongest stakeholders and not at the
things that were most important. So, we've grossly
under funded the Coast Guard. We haven't funded the
CBP infrastructure and human capital probably to make
CSI and C-TPAT programs really effective.

And on the other hand we've thrown millions and
millions and millions of dollars at port security
grants which by and large I don't think are the best
bang for the security buck. If you look at the DHS IG
report on some of the things the money has been spent
on, it's unconscionable. And even at the end of the
day, okay, you've got a fence. That fence is not a
really big help in terms of making the domain safer.
We need to spend money on the things that make the
domain safer. Some of the initiatives Steve made,
absolutely spot-on. Coast Guard, absolutely spot-on.
Having the DHS be able to have the people to do its
job, spot-on. But, you know, just giving out money to
people to buy stuff because it's cool, that's not

REP. LARSEN: Mr. Gaffney, anything?

MR. GAFFNEY: I'm okay with that.

REP. LARSEN: Well, thank you, gentlemen, for answering
those question.

I want to make one final point on the continuous
security initiative as an example. It's just that, you
know, if we don't fund the CSI, which is the Container
Security Initiative, our worst nightmare is that we
will have another CSI, that is, crime scene
investigations of the worst kind at all of our ports.
So, we really need to step forward on these issues,
like CSI and C-TPAT and make these work.

REP. HUNTER: Thank you, gentlemen.

The gentleman from New Jersey, Mr. LoBiondo.

REP. FRANK LOBIONDO (R-NJ): Thank you, Mr. Chairman.

I really want to thank our panelists here today. I've
got a couple of comments at the end, but first, Dr.
Carafano, I know how you feel about port security
grants but Mr. Flynn and Mr. Gaffney, how do you feel
about port security grants?

MR. FLYNN: I think there clearly needs to be a debate
here when you have some real equity issues, let's say
-- I can particularly maybe speak to LA Long Beach but
certainly also Port Newark or Port Elizabeth. LA Long
Beach brings in about 40 percent of all the containers
that come into the country, and so asking the Los
Angeles County property tax owners is to be
responsible for all the physical security and access
control and so forth here, there seems to be
legitimate equity issues.

The other challenges here is that in the absence of
national standards, when a port sets a higher body,
they have to take it out of their capital investment
fund or try to pass it off to the lessees, which
raises the cost, which pushes the business to another
port. So, one of the problems here is we have not
agree upon minimum national standards, and then we
haven't really had the conversation of who should ante
up what. We've essentially gone to an approach that
says, states and locals, you know best.

Well, the state of Baltimore -- I mean, the state of
Maryland knows that putting up cardboard boxes as a
closed-circuit TV as a deterrent may work for a
13-year-old, but it's not likely to be good
counterterrorism advice. But they're in the dilemma,
do they use their capital improvements in order to
keep pace with Norfolk to invest it or again do they
push the cost on. We need to set national standards
and we need to have a conversation about who pays. And
we shouldn't do it by just, well, you guys come up
with it, compete and some decision is made but people
frankly in DHS who don't know much about ports making
decisions, well, this sounds kind of cool, that's not
a way to do things and that's how we've been doing it.

MR. GAFFNEY: Congressman, I don't have a whole lot to
add to that. It does seem to me that this is part of
the larger problem we've talking about this afternoon
and really for the past two weeks, and that is -- my
gosh, you mean the ports aren't secure. And you're
seeing people suddenly I think focusing the kind of
constructive attention that's needed, whether it's in
terms of national standards, whether it's in terms of
new technologies, whether it's in terms of the
overseas component being kicked up to a higher
priority, whether it's better fences, whether it's
better surveillance, whether it's whatever, it seems
to me that this is really the moment now for all of
you in particular to capitalize on this intense energy
and engage the public in the sort of debate, as I said
in response to Congressman Snyder, that you will be
having after an attack, except before it happens, and
maybe thereby prevent it from happening.

I think this is the way to address this is a matter of
that kind of opportunity and urgency and whether it's
local grants or whether it's going to be a national
standard, I don't -- I'm sure there is something to be
said for both. But there's a moment here where we
still have I believe the opportunity to do it better
than we've been doing it. I hope that the up-side of
the trauma that we've clearly created with this debate
about the UAE ports is going to catalyze that kind of
constructive outcome.

MR. CARAFANO: Could I just make one very quick
comment, please, because I don't want to be on the
record for arguing zero money for port security,
because that's not what I'm saying. I think that there
should be a federal port security program because
there's the captain of the port, he comes to the
table, he's trying to get people in that port to
cooperate, and he has to have some carrot to being to
the table to facilitate cooperation. So, I do think
there should be some port grant security money.

I do think it should be targeted on those critical
areas to keeping the maritime security system robust,
so I think I'd be spending a lot more money in places
like LA and New Jersey, Long Beach than I would in
small ports in some other states.

And the third thing, which I think Steve's point is
absolutely essential is what we need most of all is a
predictable business case, because I talk to people
and they say, well, we're not going to do anything
because we're going to wait next year because maybe
there'll be some port security money. And what I found
is, for most of these guys, is that if there's
something that needs to be done in the port and it's a
real vulnerability, they're not sitting around waiting
for the federal government, they go out and pay for
it. And the other stuff is, let's just sit around and
see if we get something. So, whatever we do, we need
to have a national program that allows -- because
these guys are making 30-year infrastructure
investments -- where they can credibly see what the
federal government is going to kick in and what it's
going to kick in for and when it's going to do it so
they can make sound business decisions.

REP. LOBIANDO: Thank you.

Mr. Chairman, what we're hearing today is really good
information, but the Coast Guard committee has been
talking about these things. Mr. Flynn came before us.
We've had testimony from everybody. OMB acts like
they're our enemy when it comes to funding the Coast
Guard. We fight with appropriations on Operation Deep
Water when we've got cutters that are disabled every
day and aircraft that can't fly. This Congress will
not put its money where its mouth is about port

Gene Taylor and a number of members have joined with
us to do something, and we've spent $25 billion on the
aviation side, with less than a billion dollars on the
port side, and with the current funding that's
proposed, it will take us more than 60 years to make
that up, to get to the minimum that DHS and Coast
Guard has recommended of $7 billion. And what's really
disheartening is if this attack takes place, you'll
see that money appropriated tomorrow, after how many
lives are lost and how much destruction is wreaked and
how much of the global economy is wrecked, and what do
we have to do to get the attention to get some action.

So, our panelists are spot-on. I thank you. I hope
somehow, Mr. Chairman, you will join other members of
this committee that have the power of persuasion
because obviously we've not found the right
combination to get the word out that the Coast Guard
is terribly under-funded. And if we can't fund them,
we can't fund port security.

Thank you.

REP. HUNTER: I thank the gentleman and I thank him for
his leadership in this important area.

Let me just say that in my view we should and we could
have 100 percent cargo scan. I think it's achievable,
and I think one way to achieve it is to charge the
guys that are bringing the stuff in. I know that's
anathema to the commercial free-trade community, but
that makes sense. And user pays is a fairly accepted
custom. And I agree with the gentleman that we've got
to increase that capability. So, let's work together,
try to get it done.

And we've got one more -- Mr. Taylor has a question of
this panel. We're going to go to Mr. Taylor, then
we're going to go to the next panel and we'll take up
with people that haven't had a chance for a question
with the next panel.

The gentleman from Mississippi.

REP. GENE TAYLOR (D-MI): Thank you, sir.

I'd like to thank you gentlemen for being here. I
think all of you have raised some very valid points.
Mr. Gaffney, I'm with you. I deeply regret to say that
I think it is going to take a 9/11 type maritime
industry based disaster for our country to do what we
should be doing right now. I agree with the chairman.
I'm going to get on a plane tonight, the nation is
going to buy my ticket but the nation is going to pay
about five bucks to pay for that screener for me to
get on the plane. If we're willing to do that to
individuals every time they buy a ticket, why can't we
ask corporate America to pony up just a little bit to
see to it that those approximately 20,000 TEUs that
come into this country -- I'm sorry -- 20 million
TEUs, container equivalent units that come into this
country a year that there's some safety to them?

I'm pleased to hear that all of you are showing these
concerns. But, you know, if you think about it, this
is the tip of the iceberg. I mean, can't we as a
nation get upset that we owe the Communist Chinese 300
billion, 256 straight to Communist China and another
fifty or so to Hong Kong, which is today. In New
Orleans, in Pascagoula, Mississippi, foreign flag
cruise ships with sailors from who knows where are
taking care of our FEMA folks. Our government is
paying them to take care of folks who lost their
houses in the hurricane instead of American flag

On a daily basis people ask for Jones Act waivers, the
law that is going all the way back to the earliest
days of our republic that we're supposed to provide
for the safe coast-wide commerce and security of our
ports, that they'd be American owned, American crewed,
American manufactured. On a daily basis they get
waivers. Right now there's a French firm called
Borbonne (ph) that through a clever manipulation of
the banking process, owns our short supply of boats
that operate in the Gulf of Mexico. Now, when someone
sees they've done it, what's to keep the Koreans from
doing it or the Iranians or whoever?

So, again, I think you've raised some very, very valid
points. The one thing I think you missed, and it's
just piling on with how scary this is. When I was a
kid I was a stevedore on the docks of New Orleans,
miles and miles of wharves, each of them all floating
ships that by and large could load and unload
themselves. Now most of those docks sit idle because
all of that has been consolidated to a few container

So if you own the container crane and you choose not
to load a military sea lift command vessel, remember,
we have not declared war since 1941. We're relying on
the goodwill of those ports to load our vessels or
unload our vessels, as the case may be. So, if you're
a foreign operator and you choose not to make your
facility available, you can certainly throw a heck of
a money wrench into any operations that the American
military chooses to carry out around the world.

And so again I'd welcome your thoughts on that. You
know, I'm sure there are places where the president
can step in, but I've noticed that, particularly the
aftermath of the storm, our nation has stepped in and
made tough decisions that involve the lives of people
not very often and not very well.

MR. FLYNN: I might say on that last point here,
particularly in prosecuting the war in Iraq, the
Department of Defense has been extremely dependent
upon foreign flag vessel container ships and foreign
terminal operators to move material. When Turkey
basically closed out its base, it was a company called
Hutchison Port Holdings in Rotterdam that made
available the real estate for the predeployment of it.
So, you're dealing with relationships here with
private actors or foreign actors. And like anything,
trust has got to be built up. But I want the
verification because it's private owned, because we've
lost this capability. And I just think we're 30 years
behind now.

It's a bit like trying to resurrect JC Penney and say,
go take on Wal-Mart, by saying, let's try to recapture
America's merchant marine and put it back together. I
wish that weren't the case from a guy who loves ships
and loves that heritage. When I came into the service
in the Coast Guard in 1978, you know, I thought that
would be something to go into, and it's not there any
more. But that thing said, as a security and going
it's a global, we want to build this capacity into the

I just point out on the fee thing here, the good news
about doing this and loading ports is the nature of
the beast is the terminal operator can't select its
U.S. bound goods. It's just too complicated. He has to
do it for everybody. So, instead of being forty bucks
a box for U.S. bound goods where it would have impact
on our competitiveness, everybody has to pay the same
fee. And that also is very useful for
counterproliferation purposes. You can't get from
North Korea to Iran by saying, Scotty, beam me up. You
move through the system. You don't come to our
borders. Visibility in the system would have huge
asset. But you're going to really have to cooperate
with the people who own it with trust but verify.

And that's what we need is a system to do that. We've
got just the trust part right now, and there is reason
to be squeamish if that's all we've got.

MR. CARAFANO: Yes, I agree with Steve. I mean, trust
but verify is absolutely the way to go. And the good
news is although a lot of this infrastructure is
foreign owned, it's a very, very competitive
environment. I mean, there's lots of people doing
this, and everybody wants your business. And if you do
find a partner some day who violates your trust, it's
not hard to switch to another guy. So, it's a
different kind of foreign dependency than, for
example, if somebody is making a tiny transistor that,
you know, without that transistor you can't have
cruise missiles.

You know, if somebody is operating a facility in a
port in the United States today, and you don't like
how they do business, there are other people that
would love to have that business and can do it just as
effectively, if not better. So, it is in a sense a
buyer's market.

MR. GAFFNEY: I had the privilege of working for
President Regan at the time when he talked about trust
but verify. And with the greatest of respect to a
president I loved, I always thought that was a little
bit cockamamie. I think you've got to be skeptical,
healthily skeptical, about people that you have no
reason to trust or who you in fact in some cases have
reason to distrust. Verification is important, but
skepticism first, and then prove that indeed your
trust is warranted.

I mentioned in my remarks Beaumont and Corpus Christie
as two ports that somehow simply never get thrown into
the mix of the six that we are told are going to be
effected by this. I believe it is a matter of record
that the United States Army has contracted with P&O to
move material through those two ports. There is an
example of a place where you might or might not have
cooperation. Those are ports, as this committee knows
better than anybody, where we're moving heavy armor
and helicopters and other equipment to places like the
Persian Gulf.

It also is the question, again just going back to I
think why we're here, perhaps a minority view on this
panel, but I sense a majority view within the
committee, is that a set of facilities that you most
especially want to take risks with, the personnel,
cargo information and security planning.

And my suggest to you, sir, is not in those two ports,
not in the other six ports, and not in the remaining
whatever it is, 10 or 12 that I think are also in play
here. Without in any way, shape or form disregarding
or disagreeing with my colleagues about the other
parts of the system and the other mechanisms we need
to bring to bear and the idea of a multi-faceted
approach. Those are all, it seems to me, eminently
sensible, and part and parcel of what I'm sure this
committee and its counterparts are going to come up
with. It's just to leave you with the final thought I
guess, that I think this is a hard problem right now
and we should not voluntarily take steps that I think
predictably will make it harder, maybe marginally and
maybe dramatically.

REP. HUNTER: Thank the gentleman.

We're going to move to the next panel, but let me ask
this panel if you can stick around, if you've got a
chance, have the opportunity and maybe listen to the
next two panels. And we've might have a couple of
questions at the end.

Mr. Langevin had a statement, not a question, he
wanted to simply address before you folks move off the
dais. The gentleman is recognized.

REP. LANGEVIN: Thank you, Mr. Chairman.

I'll be brief. We've covered a lot of ground today and
I'm going to forego asking questions so we can get to
our next panel. But this discussion today has been
exceptionally helpful, and I really want to thank you
all for what you've contributed here today. I just
will end with this, that I for one am not a fan in
support of this sale going through for a variety of
reasons. But I'll say that in the past we could
perhaps look at and evaluate such sales, primarily
from a financial standpoint, and I think that's really
what happened here. And yet in a post-9/11 world, that
just simply is no longer possible, that we have to
evaluate these types of sales primarily from a
security perspective.

And, you know, if people had confidence that we were
doing everything we could do to secure our ports,
perhaps this wouldn't be such an inflammatory issue.
But we're not, and we have to do a better job
obviously of giving both the Coast Guard and Customs
and border patrol the resources that they need.

Mr. Carafano, you said in your testimony that
ownership really isn't the issue, that irrespective of
who owns the ports, that individuals that want to
target us can and will infiltrate at very low levels.
That may very well be true. But security as you
recognize, and you've acknowledged, requires a
multi-level approach. And we ought not be giving our
play book to those that might wish us harm.

Mr. Gaffney, you got it right in your third point in
your opening statement that if this sale happens,
Dubai or any company that owns these ports will know
about our security procedures. We cannot let that
happen. So, I hope this serves as a wake-up call to
all of us, that we've got to rebuild our efforts to do
a better job of securing our ports and our borders.
This discussion was helpful today and I want to thank
you for your testimony.

Thank you, Mr. Chairman.

REP. HUNTER: I thank the gentleman.

Mr. Marshall wants to make a brief statement, not ask
a question, before we go to the next panel.

REP. JIM MARSHALL (D-GA): I appreciate it, Mr.

I found your comments to be immensely helpful to me, I
think all of us did as well. And it would be even more
helpful to me if you did as the chairman requested,
and that is, stick around, listen to what's said by
the next panel and the following panel, and then I'd
like to hear your comments about what's been said.

I'd specifically like to hear, after you've heard what
others have to say about this subject, hear things
that we might ask be done by DP, by the federal
government in this instance as a condition to proving
this deal, those sorts of things that you think are
practical and would be helpful in light of the current
circumstances. You're the experts. You have great
ideas concerning how we can improve our security,
which I think frankly is what we all ought to be about
with regard to this particular inquiry.

And it seems to me we've got a real opportunity here
that we ought not to let pass by, we ought to take
your guidance. So if you could give us that guidance
after listening to all these folks, that would be real

Thank you, Mr. Chairman.

REP. HUNTER: I thank the gentleman. And we've only got
three people who haven't had a chance to ask a
question in this panel. Does anybody else feel they
want to make a statement to the panel before this
panel exits?

Gentlemen, thank you. We've had an interesting, very
instructive discussion here, and hang tough if you can
and we'll invite the next panel. The second panel will
now come on up. The committee is going to hear from
the offices of DP World. We have Mr. Edward H. Bilkey,
chief operating officer, DP World; Mr. George Dalton,
general counsel of DP World; Mr. Michael Moore, senior
vice president, Commercial DP World; and Mr. Robert
Scavone, executive vice president for security, P&O.
So, I understand Mr. Bilkey has got a statement, and
then Mr. Scavone.

Gentlemen, thank you for being with us. And, Mr.
Bilkey, I understand you're going to make a statement
and then Mr. Scavone is going to make a follow-up.
Welcome, gentlemen. I think you've had an opportunity
to listen to our first panel. I think you understand
the concern of the committee, and we look forward to
your statement.

MR. EDWARD BILKEY: Thank you, Mr. Chairman.

My name is Ted Bilkey and I am the chief operating
officer of DP World.

And I commend you for holding this hearing, and DP
World welcomes the opportunity to get the truth out so
that Congress and the public can better understand the
facts surrounding our acquisition of P&O Ports North

By way of personal background: I grew up in New Jersey
and New York. I served as an officer in the U.S. Navy.
I have worked in the ports and shipping business for
over 45 years, starting in the docks of Brooklyn and

Also on a personal note, it's an honor for me to
appear before this committee of the United States
Congress. My grandfather, Joseph S. Frelinghuysen,
served as a senator for New Jersey on the Senate
Committee on Coast Defense. Indeed every generation of
my family, from their earliest days, have served in
the Senate, House of Representatives or as secretary
of state.

Let me start by giving you a little background on DP
World. DP World before this acquisition is the seventh
largest port terminal operator in the world. We manage
19 container terminals, four free- trade zones, two
logistic centers, one of which is the biggest in the
world, it's bigger than the Pentagon, and handles
7,000 truck entry and exits a day, and in some 14

Our Jebel Ali facility in Dubai handles more container
freight than all the ports of the east coast of the
United States combined. We operate on a strictly
commercial entity, but are owned by the government of
Dubai. Our management is truly international. And last
week Lloyds list voted DP World as the best port
operator of the year in 2005.

And DP World has a long and rich history of supporting
the global operations of the US military. These
include operations in support of the U.S. military in
German, Djibouti and Dubai. And I'd like to give some
examples. We have dealt with the U.S. Navy for over
two decades in Dubai. We have allowed the U.S. Navy to
station an officer at 24/7 in our control tower, which
is highly unusual. It has a panoramic view of the
harbor and any potential threats.

We allow the U.S. Navy to provide its own security by
having two high-speed gunships that are heavily armed.
These are most unusual arrangements which show strong
commitment and strong trust. We have given the U.S.
Navy a lease of highly secured land to stow its cargo
and rework its volume. We have created a high-security
bunkering operation that's fueling in Djibouti that
hosted its first vessel, the cruiser USS Vicksburg
just a week ago. It is a very secure refueling station
in the Red Sea which is highly prized, and frankly one
of the motivations for building it was the knowledge
that the U.S. Navy needed a facility in the area.

We have hosted over 500 vessel calls in Dubai of U.S.
Navy warships. In Fujairah today we are the main
trans-shipment point for the U.S. Army's Afghanistan
operations. Cargo comes in on roll- on/roll-off
vessels and we provide a high security area blocked
off by containers and patrolled by the U.S. Army. We
then containerize the rolling stock for movement to
Karachi and on to Afghanistan. Whenever battalions
change, we go to work to move the cargo efficiently.
We do the same if battalions leave Afghanistan for

In the last Gulf War I personally set in motion the
arrangements for the first aircraft carrier to enter
and berth at Jebel Ali, and it solved a major logistic
problem because all the crew and all the supplies had
to be moved on tugs and tugboats offshore.

Mr. Chairman, I believe we have distributed some
pictures for the panel and the committee that I have
here, and I believe they've been distributed earlier.

REP. HUNTER: We'll ensure that those get distributed.

MR. BILKEY: Thank you, sir.

Just a quick note on general shipping trend. The
shipping and ports business is becoming increasingly
globalized and consolidated, and DP World determined
to acquire P&O for commercial reasons based on its
strong management team and complimentary geographic
fit. It's important to understand that this $6.8
billion transaction involving assets all over the
globe in 51 terminals, when they've combined with our
own present ones.

The U.S. operations of P&O, P&O Ports North America,
constitute approximately 10 percent of the overall
value of the transaction. It is also important to
understand that it has always been our intent to
operate P&O Ports North America as a separately
incorporated U.S. legal entity using its long-standing
reputation and management structure and personnel to
the maximum extent possible. As a smaller entity
acquiring a larger entity, DP World needs the existing
talent and expertise of the P&O Ports North America
team to run this operation.

I would now like to try to dispel a couple of myths
and try to establish some facts. First, we are not
acquiring or taking over U.S. ports, as some people
have claimed. U.S. ports are owned by local
governments port authorities, which is a fundamental
fact and seems to have been totally distorted. Rather,
we act as an operator who has a license or a lease to
operate a particular terminal within a port.

The terminal operator is responsible for the area
within a port that serves as a loading, unloading or
transfer point. Second, the transaction does not
involve an outsourcing of U.S. security, as some have
alleged. And I will defer to the Department of
Homeland Security or my colleague from P&O Ports who's
in charge of security, Rob Scavone, on my left here,
to describe in detail how port security operates
within the U.S.

Suffice is to say that security is a many layered
approach, with the U.S. Customs and border protection
and Coast Guard taking leading roles. And a terminal
operator is one piece of a complex picture.

DP World and P&O Ports North America actively
participate in various U.S. government-sponsored
initiates. These programs include the Customs/Trade
partnership against terrorism, the container security
initiative, which I believe you've heard about before,
and to me it's one of the ones that should be looked
at with great attention. And in fact the United
Emirates was the first country in the Middle East to
join that initiative. And we actually operate it with
some very unique capabilities that are not in all of
the CSI locations: the business alliance on smuggling
and counterfeiting, the so called ISPS International
Maritime Organization on port security, all our ports
are ISPS authorized and regulated, and the mega ports
initiative with the Department of Energy. DP World has
expressly committed to continuing as appropriate,
expanding its commitment to these programs.

Third, some people have charged that DP World enforces
the Arab league boycott of Israel. I would like to
answer that, that as a terminal operator, we do not
operate in a capacity that involves us in boycott
issues at all. DP World does not discriminate, and DP
World, as a global port management company,
facilitates trade with many nations. Our company has
long-standing business relationships with all the
major shipping companies, including Israeli companies,
among our diverse international clients. And actually
Zimlines is one of our larger clients and a highly
valued one.

Further, let me assure you that as consistent with our
policy of corporate compliance, the U.S. operations of
P&O will fully comply with both the letter and spirit
of the U.S. anti-boycott regulations to which they are
subject. We comply with the laws of all the countries
in which we operate.

Fourth, DP World did not obtain U.S. government
approval of its acquisition of P&O Ports North
America, as some people have stated, secretly in the
dead of night or without adequate review. This is a
total misrepresentation. There's an explicit process
administered by the Committee on Foreign Investments
in the United States, CPS, which we've all been
talking about, mandated by Congress in the Defense
Production Act and by the Department of Treasury

In point of fact, CPS actively reviewed the
transaction for almost three months. DP World first
met with CPS staff on October 17, 2005. Two weeks
later we held a face-to-face meeting with certain key
CPS member agencies, including Department of Homeland
Security, Customs and Border Protection, Coast Guard,
Department of Justice and Department of Commerce.

We provided detailed information on the proposed
transaction to CFIUS, which had already commenced its
review and analysis of the transaction. We
subsequently met on December 6, 2005 with all member
agencies of CFIUS.

This was not required, it was suggested, and we
readily said we would like to do that. And I
personally flew in from Dubai to participate in that
meeting with our senior vice president for operations
for Europe and the Americas and our senior officer
responsible for overseeing security. And further,
during this period the transaction received
considerable coverage in the press in the United
States and Europe.

We finally got CPS notification on December 15, 2005,
and CPS commenced a 30-day review as required by
statute. During the course of that review, CPS asked
us to memorialize certain undertakings we had
voluntarily made in our notification as well as others
at their request. These letters took the form of a
letter of assurance dated January 6th. And among these
undertakings were seven additional express and legally
binding commitments that were absolutely unique to our
transaction. And we did not object. We looked at them.
We thought that, well, this is a little excessive, but
it didn't make any difference to us. If this is what
people wanted, fine, it wasn't going to affect our

Based on this review and the letter of assurances, on
January 17 CPS issued a formal letter of no objection,
completing the CFIUS review and allowing the
transaction to proceed. And I think this is important
to understand, that in reliance on the U.S.
government's clearance, DP World took the next legal
steps required under the U.K. takeover laws to
complete its purchase of P&O on a global basis.

In conclusion, I respectfully submit that DP World is
a company that in good faith sought to comply with all
applicable U.S. legal requirements. And having been
told by the U.S. government that we met those
requirements, now finds itself in the position of
being told that was not good enough. Nonetheless, we
fully recognize that there are now concerns in
Congress and among the public about DP World's
acquisition of P&O's terminal operations.

DP World has therefore voluntarily acted to assure
people that the security of the United States will
remain strong. Specifically, on February 26 we
voluntarily issued a legal binding whole separate
commitment under which the management and control of
P&O's North American operation will be held in
suspension without direction or control in any way
from DP World until May 1, 2006 in order to allow
additional review of DP World's acquisition of P&O
Ports North America.

In addition, at the same time we requested CPS to
conduct a review, including a full 45-day
investigation of the acquisition. We stated that we
will abide by the outcome of that review. The whole
separate commitment contains a number of specific
obligations, including maintaining P&O Ports North
America's current management in having a U.S. citizen
serve as its chief security officer for P&O Ports
North America as is the case today with Mr. Rob
Scavone on my left. We are confident that further
review by CPS will confirm that DP World's acquisition
of P&O's U.S. operation does not pose any threat
whatsoever to America's safety and security.

And I'd like to say, if there's any good to come out
of this experience, perhaps it is that both Congress
and the executive branch will take a closer look to
upgrade port security and increasing funding for these
efforts. DP World strongly encourages such efforts and
looks forward to working with you to achieve them. I
firmly believe that the security of our country, the
United States, is well served and in fact enhanced on
numerous levels by allowing this transaction to go
forward because by working with DP World's global 51
terminal network as a responsible partner in securing
security at home and abroad and especially for us, we
could never afford to have a bad security incident.
Security is everybody's business.

I thank you, Mr. Chairman, and committee members.

REP. HUNTER: Thank you, Mr. Bilkey.

And is it Mr. Scavone? Is that the correct
pronunciation? Okay. Thank you, sir, for being with us
today. And I understand you're the officer in charge
of security for the company which is making the

MR. ROBERT SCAVONE: Yes, sir, the company that's being
acquired, Mr. Chairman.

REP. HUNTER: Excuse me, the company that's being
acquired. And pull that mike a little closer if you

MR. SCAVONE: Mr. Chairman and members of the
committee, my name is Rob Scavone. I am executive vice
president of P&O Ports. I will take just two minutes
to reference the main points in my submitted written

REP. HUNTER: Without objection, all your written
statements will be taken into the record.

MR. SCAVONE: As the person responsible for our
company's security, of course it is my business to
know how it works on the ground inside our terminals.
I also know that the way our security works is not
going to change if control of our parent company
changes hands. I know this, not only because DP World
have made undertakings to that effect, but also
because there is no practical way to change it in a
way that would erode our security.

You may have seen that when security experts are
queried on this question, the overwhelming majority
agree with that assessment. Here are some reasons why.
Even after control of our parent company in London
changes hands and the current 45-day review period has
lapsed, the P&O organization in the U.S. will remain
in place. DP World has committed to retaining the
existing managerial staff and to involve the U.S.
government in the event any replacements are appointed
in the area of security.

Inside a terminal, only longshoremen perform any
physical work on containers. We employ approximately
6,000 every day. Therefore the same people who manage
these responsibilities for us now will be the ones who
do it next month and the month after that. These
functions are not directed from abroad, nor are they
electronically accessible from abroad, and that is not
going to change.

The Coast Guard and Customs continue to be responsible
for all security measures relating to the entrance of
persons or goods into the United States. Those
agencies maintain a presence in the ports and work
with port and local police. Our terminals work in
close cooperation with those authorities every day.

The statement that the security of our ports is being
outsourced is simply not the case. It is not
outsourced now, and nothing will change if our
ultimate ownership changes hands.

In conclusion I would like to add that the continuous
improvement of the security of our supply chain across
the globe is a goal toward which I personally work
with industry colleagues, including such persons as
Mr. Flynn, who spoke earlier, every day. In so doing,
we wrestle with the means to improve areas we feel are
not yet where we need to be. And I can say with
certainty that none of those areas have anything to do
with which port operating company happens to own P&O

Thank you, Mr. Chairman.

REP. HUNTER: Mr. Scavone, thank you, and Mr. Bilkey,
thank you for your opening statements. And we will go
to Mr. Kline, who is next in line for questions.

REP. JOHN KLINE (R-MN): Thank you, Mr. Chairman.

Thank you, gentlemen, for being here today.

We just had another panel for the last two-and-a-half
hours that discussed security issues in general,
maritime security issues, and some concerns were
raised, and clearly you wouldn't be here if concerns
hadn't been raised by American people from coast to

Specifically it was suggested that we might ought to
be concerned with the new ownership about issues
revolving around personnel, security planning and
execution, and cargo. In your statement you have
addressed those to some extent -- both you, Mr.
Bilkey, and you, Mr. Scavone, have talked about those.
Let's play a scenario here. It's been suggested by
some of my colleagues that whoever owns this, the
ultimate owner, would have access to all of the
security plans and would be involved in the security
planning process, and that should cause us some

Can any one of you address that specific issue -- the
ultimate ownership, Dubai, UAE, being involved in or
having access to the security plans at an American

MR. SCAVONE: I'd be glad to, congressman.

First of all, of course, the ports themselves, which
are managed by in -- (inaudible) -- port authorities
have a port security plan to which we do not have

REP. KLINE: Excuse me. You do not now at P&O?

REP. HUNTER: Mr. Scavone, can you pull that microphone
a little closer because we are having trouble hearing


REP. KLINE: I think it's worthwhile to go back over
that because that's -- I'm coming from essentially no
knowledge on how port security works. So, P&O now
operating these American ports, has no access to those
security plans? Explain how that could be.

MR. SCAVONE: I will explain in a little more detail.

REP. KLINE: Thank you.

MR. SCAVONE: The ports themselves, the port property
in the area of the port, is typically owned by a port
authority or some typical government authority, and
the port itself works with the Coast Guard for an area
or port security plan. That would encompass the entire
area of the port. We do not operate the port. Any port
would typically -- we have a facility -- we have by
virtue of a lease or a concession. So, take the port
of New York, New Jersey as an example. There are five
container terminals, any number of break bulk
terminals, barge terminals, terminals of all sorts.
And one of those is leased by us in a joint venture
with another partner, which happens to be Maersk Line,
the Danish shipping company.

The Coast Guard requires that as part of our
contribution to the layered approach to security, that
we develop a plan primarily for access control in and
out of that perimeter of our terminal. That has to do
with access of persons, vehicles or cargo. We develop
the plan, we submit it to the Coast Guard, the Coast
Guard reviews it, either comments on it or approves
it, and then it's settled.

Our terminal in Newark actually happens to be the very
first plan that the Coast Guard ever approved in the
nation. The plan relates exclusively to measures such
as that. They are actually not unlike the security
measures you might expect any common industrial
facility to have, with access controls, the difference
being that the Coast Guard has the right to audit
those plans and to enforce your compliance with those
plans up to and including shutting you down if they
don't believe that you are properly observing those

REP. KLINE: Okay. Thank you. I'm going to have a red
light here shortly. Let's talk about personnel for
just a minute. The assumption of concern is that we're
in a war with radical Islamic fundamentalists, and
there may be some sympathy somewhere in Dubai or in
the UAE, two or three or four or five people, who
could apparently then be transferred to one of these
ports and put into a place where they could be -- a
janitor was suggested, or something else, and there
would be a leak in the personnel sieve. Could you
address that issue for us, please?

MR. SCAVONE: Yes, sir. First, as we mentioned, a
commitment has been made to keep the current
management in place. Longshoremen are not -- we don't
hire longshoremen. The union hires longshoremen and
they are sent to us. So, we order a compliment of
workers, and they get sent to us by the longshoremen.
So, they are not within our influence. And DP World,
as I said, has made a commitment that replacements of
any of the existing management would be vetted in
cooperation with the U.S. government, bearing in mind
that unless you're the facility security officer of
the company, you don't have access to the facility
security plan that the Coast Guard has negotiated or
approved, because that plan is kept under lock and
key, and the person who has the key is the facility
security officer.

Also, you don't have access to the manifest
information or electronic information which would tell
you what are the contents of the container. Why?
Because we don't have it. We don't need it to do our
job. The carrier has it. Customs and Border Protection
has it. And both of those agencies of course are
present on our terminal, but we don't have it because
we don't need it. Customs decides what they want to
inspect, we give the boxes to them and they do what
they want to do with them.

REP. KLINE: Okay. Thank you. Yes.

MR. BILKEY: Mr. Kline, I just wanted to mention, which
my colleague didn't mention, that to be a longshoreman
-- and I started on the docks -- you have to be a U.S.

REP. KLINE: Okay. Thank you.

And, Mr. Chairman, thank you. I yield back.

REP. HUNTER: I thank the gentlemen.

The gentleman from Missouri, the ranking member, Mr.

REP. SKELTON: Mr. Bilkey, you are the chief operating
officer of the corporation?

MR. BILKEY: Yes, sir.

REP. SKELTON: Is there a president of the corporation?

MR. BILKEY: No. I have a chief executive officer.

REP. SKELTON: You're the number one?

MR. BILKEY: No, no. He's the number one. And I'd
better make sure I say this on this panel.

REP. SKELTON: All right. Let's start over again.
You're the chief operating officer?

MR. BILKEY: Yes, sir.

REP. SKELTON: You work for whom?

MR. BILKEY: The chief executive officer.

REP. SKELTON: All right. Who is the chief executive

MR. BILKEY: It's Mohammed Sharaf. He was educated at
the University of Arizona.

REP. SKELTON: I didn't ask you where he was educated.
What's his name, please?

MR. BILKEY: Mohammed Sharaf.

REP. SKELTON: And he lives where?

MR. BILKEY: Excuse me?

REP. SKELTON: Where does he live?

MR. BILKEY: He lives in Dubai.

REP. SKELTON: And what is his citizenship, please?

MR. BILKEY: UAE national, sir.

REP. SKELTON: Is there a board of directors of the DP

MR. BILKEY: Yes, sir.

REP. SKELTON: How many are on the board?

MR. BILKEY: The board is made up of one person --
Sultan Ahmed Bin Sulayem.

REP. SKELTON: And that person lives where?

MR. BILKEY: I couldn't hear you, sir?

REP. SKELTON: That person lives where?

MR. BILKEY: He lives in the United Arab Emirates, sir.

REP. SKELTON: Right. So, you have the number one, and
then you have one person as the board of directors. Is
that it?

MR. BILKEY: Yes, sir, at the present time.

REP. SKELTON: There are no other members of the board
of directors?

MR. BILKEY: No, sir, not at the present time. It's
planned to have it expanded when this acquisition is

REP. SKELTON: How long has the corporation only had
one member of the board of directors?

MR. BILKEY: Since its incorporation, sir.

REP. SKELTON: When was that?

MR. BILKEY: I'm not exactly sure of the date. I could
ask my general counsel, if I might.

REP. SKELTON: Please ask him.

MR. BILKEY: Yes, sir. We will supply that for the
record. I don't have the precise date of the original
incorporation --

REP. SKELTON: Was it 10 years ago? Fifteen years ago?

MR. BILKEY: No. It was probably within the last two

REP. SKELTON: This is a new corporation?

MR. BILKEY: Approximately two years old.

REP. SKELTON: Now, please explain to me how the United
Arab Emirates owns this corporation.

MR. BILKEY: We have a shareholder who created a decree
creating the PCFC Corporation, and the two
shareholders of that are Sultan Ahmed Bin Sulayem and
Sheikh Mohammed of Dubai -- Sheikh Mohammed bin Rashid
Al Maktoum of Dubai.

MR. DALTON (?): Congressman, may I clarify that?

REP. SKELTON: Now, that doesn't help me very much.
Tell me how the UAE owns this corporation, please.

MR. DALTON: May I respond, Congressman?


MR. DALTON: The UAE does not own those companies. It's
owned by the government of Dubai.

REP. SKELTON: Mr. Bilkey, how do we know that the
people working for the DP World, both at the
management level and the operational level, do not
pose a security threat?

MR. BILKEY: Well, sir, we're an international company
with an international management team, and we select
from the best people around the world. And our team at
the present time we have three Americans, two Britains
or Brits -- UK gentlemen -- and people from India.

REP. SKELTON: What do they do?

MR. BILKEY: Well, one of them is the general counsel
here, and one of the Americans is the commercial --
head of the commercial department. And we have a
finance head and an IT head, an HR head, a corporate
strategy head.

REP. SKELTON: To what countries do they belong?

MR. BILKEY: Well, the finance head is from the UK and
the HR manager is from the UK. The corporate strategy
is from India. And we have a UAE gentleman who
actually runs the UAE section of our business. We're
separated into regions, and we have the UAE region,
and that's run by a UAE national called Mohammed

REP. SKELTON: Would you tell us how does the
government of Dubai own the corporation?

MR. BILKEY: I'm not sure I understand the question. In
other words, they are -- the Dubai government is the
shareholder of the company.

REP. SKELTON: Is it the only shareholder?

MR. BILKEY: Yes, sir.

REP. SKELTON: What type of background checks or other
investigations have been conducted regarding potential
security threats for the people who work for the

MR. BILKEY: We follow normal industrial and commercial
checks on all our people, and in some cases we put
them through separate testing requirements for their

REP. SKELTON: The agreement has been signed, sealed
and delivered. Is that not correct?

MR. BILKEY: No, sir.

REP. SKELTON: It is not a binding contract as we

MR. BILKEY: Sir, at the present time we are under the
rules of the takeover regulations of the United
Kingdom and the -- we're advised that tomorrow the
court will approve the acquisition.

REP. SKELTON: So, as of tomorrow you will legally have
the work in the American ports. Is that correct?

MR. BILKEY: I'm going to turn this over, if I may, to
my general counsel, because he's been closest on that,
and --

REP. SKELTON: That's very simple. Will you legally
have the work in the American ports as of tomorrow?

MR. DALTON: Congressman, may I respond, because there
are some technicalities to this?

REP. SKELTON: Well, tell us about the technicalities,

MR. DALTON: Yes, sir. A court decision was rendered
today in the United Kingdom where there was a
challenge made by Ellers, which is a U.S. company.
Ellers is a joint venture partner with us in the Miami
operation. They own 25 percent. There's been a
long-standing dispute in the courts in Miami for
approximately three years. The court in the U.K.
overruled their objections, however Ellers indicated
they were going to appeal. The court gave them leave
to appeal to a higher court until 3 pm tomorrow. We
have all confident that their appeal, if they do
appeal, will be denied, and the deal will go forward.
We expect it to conclude some time probably Monday or
Tuesday of next week.

REP. SKELTON: So, as of Monday or Tuesday next week
you will have the legal obligation under the contract
to operate in the American ports?

MR. DALTON: Yes, sir, but that is also the reason that
we proffered to the U.S. government the whole separate
agreement, which is a binding agreement on our behalf,
where we've agreed to allow the current P&O Ports
North American management to stay in place to report
to their headquarters in London without any influence
being exercised by any senior management in Dubai or
any other management in Dubai.

REP. SKELTON: Well, lay that aside. The contract will
be binding then Tuesday.

Am I correct?

MR. DALTON: That is our best estimate, yes, sir.

REP. SKELTON: So, as I understand it, your corporation
will not take over the duties for 45 days. Is that

MR. BILKEY: Until May 1st, sir, is what we've
committed in our offer.

REP. SKELTON: Yes. But nevertheless, it's a done deal
as of Tuesday. Am I correct? The contract is --

MR. BILKEY: Well, as far as the acquisition. At that
time we have to mail out $6.8 billion to the various
shareholders. That was the commitment that we made
when the offer went unconditional.

REP. SKELTON: What's the purpose then of the 45-day
waiting period?

MR. BILKEY: Well, we've agreed not to take any
management initiatives whatsoever. As a matter of fact
we weren't planning to do them anyway. We're very
satisfied with the managements that's here. But we've
agreed that we will in actual fact have nil
intercourse whatsoever on any management deals with
the present operation in the P&O Ports North America
and the North American assets.

REP. SKELTON: For 45 days?

MR. BILKEY: No. Until May 1st, until this 45-day
process should go forward.

REP. SKELTON: What's the purpose of this May 1st date?
Legally it's a done deal, is it not?

MR. DALTON: Congressman, if I may, what we agreed to
and proffered to the U.S. government, I want to
emphasize that we proffered this offer voluntarily.
There was no request.

REP. SKELTON: I understand that.


REP. SKELTON: But the deal is done. As of Tuesday the
deal is done. Is that correct?

MR. DALTON: We hope so. We believe so, unless the
appeal goes forward --

REP. SKELTON: I understand that. But the deal is done,
then way the May 1 date?

MR. DALTON: Sir, we are trying to respond, as a good
corporate citizen, to the concerns of Congress and the
American public, and we thought that an offer of
reviewing this for an additional 45 days, despite the
fact that we'd already gone through the CFIUS process,
would be a worthwhile exercise to enhance the
attention to be paid on security.

REP. SKELTON: Counsel, I don't understand.

But, Mr. Chairman, thank you.

REP. HUNTER: I thank the gentleman.

The gentleman from New Hampshire, Mr. Bradley, is
recognized for five minutes.

REP. JEB BRADLEY (R-NH): Thank you very much, Mr.

I'd like to follow up on Mr. Skelton's questions. If I
understand this voluntary arrangement until the 1st of
May correctly, there is a second review period by
CFIUS. My first question is, under the second review,
are there the potential of more conditions being
placed on this deal that you might find acceptable or
you might fund unacceptable?

MR. DALTON: Sir, we would have happy to entertain any
other conditions that would be reasonable from -- as
long as it is applied equally to our competitors in a
business environment. I want to emphasize that we also
will abide by the CFIUS decision that comes out of
this 45-day review.

REP. BRADLEY: So, you would accept any and all
conditions, provided they're level playing field with
your competitors?

MR. BILKEY: Absolutely, sir.

REP. BRADLEY: What if the CFIUS rejects on second
review, you know, the operational security
arrangements that are in this deal? What recourse then
does the United States' government have if the second
review doesn't recommend final approval?

MR. BRADLEY: Well, sir, it's our firm belief that we
have complied with all of the United States'
requirements and in fact have gone beyond them. I
really don't want to speculate at this time what the
reaction would be. We would have to see what comes out
of the CFIUS process, and then we would be able to
react in an informed fashion.

REP. BRADLEY: So, you have no answer to that question
if there were unacceptable conditions or a rejection
of what recourse you might take?

MR. BILKEY: We've very optimistic and hopeful that at
this time will allow us to go forward and explain to
everybody that we are not a security risk, especially
as we don't plan to make any changes in what exist
today, and which is now what is in place is fully

Do I think that it is the ultimate way that there
should be on security? As we've heard earlier today, I
think security can be improved tremendously if you
push the borders out in a way that the CSI, the
Container Security Initiative, into the ports. And
that's why we were very serious, and I was when I said
we're going to upgrade 51 terminals around the world.
We'd like to see those types of initiatives in all our
ports. We've actually been trying to push for one in
the Dominican Republic. We have a brand new port down
there about 30 miles east of the Dominican Republic
where there is trans shipment business and import and
export business from the U.S., and we want it to be in
a CSI place. And there's been long, long delays to it.
And this is a perfect place.

And one of the reasons that we are interested in this,
as are all people in the terminals, is today security
actually is a big marketing tool. All the main and
large shipping lines, they want to make sure that
they're going to secure places. And if they don't
think so, they're not going to come to your terminal.

REP. BRADLEY: One last question, Mr. Chairman. What if
there were, in the second review process, disputes
over personnel, security procedures, operational
procedures, that you found unacceptable? And if they
-- you indicated before in my previous question,
anything reasonable that you would accept. And then
you went on to say, as long as they were applied
uniformally to all your competitors. There may not be
the opportunity to go back and apply them to some of
the other competitors without breaking contracts. What
happens in that case?

MR. DALTON: Congressman, I think we need to emphasize
that in a number of our locations, the P&O locations
in the United States, we have joint venture agreements
with a variety of partners, and there are contracts
involved there as well. So, we really would have to
await for the review before we can make a firm
determination about how that would impact on our

REP. BRADLEY: Thank you, Mr. Chairman.

REP. HUNTER: I thank the gentleman.

The gentleman, Mr. Marshall, is recognized.

REP. MARSHALL: Thank you, Mr. Chairman.

It sounds to me like you anticipate that the CFIUS
process will result in approval once again, this
re-review, and that if it doesn't, you will wind up
suing the United States' government for the $6.8
billion that you're -- plus I don't know what else --
that you're about to spend?

MR. BILKEY: Congressman, I don't want to speculate. We
think we're good international citizens throughout the
world. We've been accepted in the U.K., which has
obviously serious security concerns.

We're going to operate the second-largest container
terminal in the United Kingdom in Southampton, and
we've been --

REP. MARSHALL: Mr. Bilkey, I only have five minutes,
if you don't mind.

MR. BILKEY: Yes, sir.

REP. MARSHALL: I'm just observing that it sounds to me
like you are utterly confident of what the results of
this process, so confident that you're willing to
gamble $6.8 billion in the next week.

MR. BILKEY: Well, this is -- the U.S. assets, sir, are
only 10 percent -- about 10 percent of the total, but
it's still a large number, about $700 million.

REP. MARSHALL: But it's a $6.8 billion deal that
you're about to execute.


REP. MARSHALL: So that's -- you're saying that at risk
is only $700 million?

MR. BILKEY: No. Seven hundred billion. I keep
confusing those two numbers. But if --

REP. MARSHALL: Just a small difference between a
million and a billion.

All right. Let me ask you a little bit about your
opening testimony. I sure wish that I could go back in
the transcript or the videotape. You were reading your
prepared remarks, and you got to the point where you
were referencing the additional agreements that you
willingly submitted to, and said there were seven of

MR. BILKEY: Yes, sir.

REP. MARSHALL: And at that point you said, you know,
rather unusual -- I can't remember exactly what you
said, with reference to those seven additional things
that you agreed to. How did you characterize them?

MR. BILKEY: Well, one of them asked to have us open
books on something, which is not normal in a
commercial situation, and --

REP. MARSHALL: What exactly was that? I've got the
seven in front of me. It's page 8. Are these seven
bullet points on page 8 intended to summarize the
seven things you agreed to?

MR. BILKEY: Yes, sir.

REP. MARSHALL: And I really had the sense, as you were
testifying, that you not only described it as unusual,
but almost felt that it was kind of distasteful for us
to even have asked for these things.

MR. BILKEY: Like I said, we were happy to agree to
what they did. And we readily agreed, I think is the
simplest way to put it.

REP. MARSHALL: Well, again, I wish I could go back and
-- and I guess eventually I will go back and read the
testimony itself. And we do have all this on
videotape. I'm just really curious to see it, because
I did have the sense that you found or were expressing
some distaste for those seven, and the seven referred
to security issues.

With regard to the management, the bullet point here
says, "to operate all U.S. facilities to the extent
possible with current U.S. management" -- "to the
extent possible". Do you know the actual terms of the
deal well enough to describe what that means? Does
that mean that if the manager wants to leave,
obviously you can't compel the manager to stay. Are
those the only instances in which you would change

MR. BILKEY: Yes, except for malfeasance or something
like that.

REP. MARSHALL: And how do you -- let's assume a
manager leaves or is guilty of some malfeasance or
something like that. How do you replace management at
that point?

MR. BILKEY: Well, I'm not --

REP. MARSHALL: It's just that I don't --

MR. BILKEY: I'm not familiar. I'd actually turn to the
executive vice president of P&O Ports North America,
because I don't know exactly how they handle it today.

REP. MARSHALL: I understand. But what happens if the
executive vice president is the one that needs to get
fired here?

MR. BILKEY: Well, we'd have to have good cause to fire

REP. MARSHALL: Let's say you do. How do you replace

MR. BILKEY: We would go out and try to secure someone
of equally good qualifications.

REP. MARSHALL: So the we would be your company?

MR. BILKEY: Well, it would be --

REP. MARSHALL: It'd have to be, there's nobody else,
really. You don't have some trustee set up --

MR. BILKEY: No, not at the present time. At the
present time it would be the management of P&O Ports
North America, which we are not going to be involved

REP. MARSHALL: And the management would be? Is it Mr.

MR. BILKEY: No, no. It'd be -- the CEO's a chairman
called Michael Seymour.

REP. MARSHALL: And so you had to fire Michael Seymour,
how do you replace him? Does this only go till May 1?

MR. BILKEY: No, sir.

REP. MARSHALL: It continues indefinitely. You will own
but not have control of management.

MR. BILKEY: Oh, no, I didn't understand the question.
We put this out as a gesture, Congressman. And we saw
the concern, and we wanted to give a grieving period
for people to take other steps if they felt necessary,
to show that we are good international citizens.

REP. MARSHALL: Have you been assured by anybody in the
administration that the 45 day review, the second
CFIUS review, will result in approval without any
additional conditions?

MR. BILKEY: No, sir.

REP. MARSHALL: And you're willing to abide by any
additional conditions that are imposed?

MR. BILKEY: As long as it's a level playing field for
everybody else on a commercial basis, yes.

REP. MARSHALL: So everybody has agreed to the
conditions that you've already agreed to? These seven
that you express some -- your understanding when you
agree to those seven was that everybody doing business
in the United States, all your competitors have to
comply with the exact same thing?

MR. BILKEY: We didn't care. We found them acceptable.

REP. MARSHALL: So what you're saying is that as long
as the conditions imposed by this second CFIUS review
is one that you find to be acceptable or one that's
imposed on everyone else, you'll go along with it.
Anything that's unacceptable, unless it's imposed on
everyone else, you're not going to go along with it?

MR. BILKEY: Congressman, I can't speculate on that.
I'm just saying that whatever is put forward that is
reasonable and commercially acceptable to all people
in our type of business, we'll go along with that.

REP. MARSHALL: Thank you, Mr. Bilkey. I wish I had
more time, but I don't. You probably don't wish I had
more time, I understand that.

REP. HUNTER: The gentleman from Rhode Island is
recognized for five minutes.

REP. BARTLETT: Thank you very much. I would just like
to note that my questions will not reflect -- will not
necessarily reflect the extent of either my knowledge
or my ignorance. Once this deal goes through, you will
own the Port of Baltimore?

MR. BILKEY: No, sir.

REP. BARTLETT: What will you own?

MR. BILKEY: We will have leases on two terminals, in
Seagirt Terminal and Dundalk Terminal. And I'm going
to have to turn to Mr. Scavone on the details of that,
if I may, sir.

REP. BARTLETT: I really wasn't interested so much in
the details, I was only interested in making the point
that you don't -- you wouldn't own the Port of
Baltimore. You're telling us that you wouldn't even
own anything, you'd simply be leasing some things, is
that correct?

MR. BILKEY: Yes, sir. And I believe one is a
management contract -- and that's why I was going to
refer to Mr. Scavone -- and one is a lease.

REP. BARTLETT: Okay. Do you now have leases in any
ports in the United States?

MR. BILKEY: I'm going to have to ask Mr. Scavone to
respond to that if I may, sir.


MR. SCAVONE: (Off mike.) P&O Ports North America, the
U.S. company, does have a few leases in the United
States, sir. Some of which are with or through joint
ventures with other partners.

REP. BARTLETT: How many would a few be?

MR. SCAVONE: We have a lease in Newark, one in Miami,
one in New Orleans -- Miami's through a joint venture
-- and one in Philadelphia, also through a joint
venture with Stevedoring Services of America.
Everywhere else we're either just a pure stevedore or
we do manage terminals with something not quite even
as extensive as a lease.

It would be, for instance, an operating agreement,
which is what we have in Baltimore.

REP. BARTLETT: You stated earlier -- would you repeat
for us how many countries in the world you have
operations somewhat similar to this in?

MR. SCAVONE: Are you referring to P&O Ports or --

MR. BILKEY: Well, at the moment DP World has 14, and
when we've collectively put it together with P&O it
will be 30 countries, sir.

REP. BARTLETT: You will have facilities similar to
this in 30 different countries?

MR. BILKEY: Well, they have -- they run of a wide
variety, from a brand new operation going to be the
biggest container terminal in Busan, Korea, all the
way to operations in Buenos Aires and Vancouver,
throughout China, in Indonesia, in the Philippines.
Extensive operations in Australia and in the Middle
East, Europe.

It's a very, very large portfolio of assets and was a
strategic move by ourselves in a consolidating
shipping business where the shipping lines are
becoming more consolidated to be able to offer a
better package across the board to these type of

REP. BARTLETT: Have you had discussions similar to
this at any time in any other country?

MR. BILKEY: No, sir. Whenever they go into any
country, new country, we normally make our own
independent security assessment on our own, we don't
take for granted what anybody says.

And this is just one of the things that we do, and we
also are ISPS certified in all the terminals that we
operate in.

REP. BARTLETT: Do you know how many ports in our
country have arrangements similar to those you're
making with these ports in effect now? Do you have any
idea what the rough number is?

MR. BILKEY: No, sir, I don't. Not any more. I've been
away for a long time.

REP. BARTLETT: We asked CRS to get this information
for us, and there are more than 90 ports in our
country that are operated by entities from other
countries similar to yours.

So you could turn back the hands of time, you had this
all to do over again, what would you do differently
relative to this contract so we wouldn't be sitting
here today?

MR. BILKEY: Well, sir --

REP. BARTLETT: Would it have been nice to make this
public? That wasn't your responsibility, I know, but
don't you think that if this had been made public and
we'd had these discussions in a calmer environment,
that it might have been more productive?

MR. BILKEY: When we went through and started early on
in October, I can tell you that I personally -- and my
colleagues, I didn't want to start the process that
early because one of the important things in this type
of acquisition is to try to keep it out of the press
and to keep it quiet until you make your official

And I was very nervous about putting information out
in Washington, because I thought it would become
public too quickly and then we knew that we were going
to have other people who were going to compete for
this very, very attractive portfolio. But I was
convinced by others that this was kept confidential
and we started on October 17, I believe, and it was
our belief, because we took so long, and I came
personally here with a team of people to interview the
various agencies.

Frankly, we thought they would take care of any
necessary liaisons that were necessary within the
government. And we were trying to do everything
possible to make this happen, because one of the
reasons we started early -- the two ones that had the
most -- what I would say were the largest
requirements, the specific requirements for Australia
and the United States.

And so we started those very early, because we wanted
very much to be able to go and make our offer
unconditional, as quickly as possible. And when we
finally got our permissions -- and they all came in
about the same time, Europe and Australia and the U.S.
We then made our offer unconditional.

And when you make it unconditional, your money's
sitting in the bank and it's in escrow, it's gone. We
aren't mailing out the money to the shareholders yet,
but we don't have control of it any more, the takeover
procedures do. And that's why we started and we
actually thought that, you know -- in hindsight it
obviously was an incorrect thought, and some might
even say naïve.

But we were dealing with the U.S. government and the
U.S. government said it's okay and to us we've been
doing it for three months, and so we said, wonderful.
And actually when we went, we actually publicized the
fact that we went forward and went unconditional, that
was known worldwide. It went down the wires, it had to
be known throughout the United States also.

REP. BARTLETT: Mr. Chairman, I'd just like to close
with a quote from Ronald Reagan that our panelists
might find instructive. You were talking about working
with our government, he said, "When you get in bed
with a government, expect more than a good night's


REP. WELDON: I thank the gentleman.

The gentleman from -- we've completed the first round
of questioning, we'll move to a second round, but
before then, the gentleman from North Carolina is

REP. WALTER B. JONES (R-NC): Mr. Chairman, thank you.
And I'm going to be brief, I really came here for the
next panel, I want to save most of my questions for
that panel.

But I'd like to say to Mr. Bilkey, I'm sorry I didn't
get here early on, but you said to Mr. Bartlett's
question, you said whomever you talked with at the
U.S. government said, you know, everything's okay. Who
did you speak to that said it's okay? Who were you --
you might have discussed this earlier, I apologize, I
was not here.

MR. BILKEY: That was done through our counsel here.

REP. JONES: Right. Well, I'm not going to hold you
because, again, I came here for the third panel. But I
will tell you that I represent an area where -- this
is not your doing or your fault, in my opinion. This
is the fault of the administration, this is the fault
of the process, it just has not worked the way that I
think the American people feel like it should work.

And in two days I had 127 phone calls. That's not a
lot out of a district of 600 people, but again, it's
127 phone calls that people took the time to call. And
only six were in favor of this arrangement. And, I
mean, I had people that professed to be Republican,
I'm a Republican. And they are just outside of
themselves irate.

And again, I don't fault you, I don't fault your
company or the people that you represent, but I would
tell you that this is an issue that maybe has
galvanized the American people to understand that we
are selling America out and it's time to stop. And
again, I'm not pointing this to you or this panel.

But I will tell you, Mr. Chairman, I thank God that
this happened the way it did, because maybe we can
save America before we become a second rate economic
nation. Thank you.

REP. WELDON: I thank the gentleman.

We'll start our second round, I yield myself five

We thank you for your testimony. You all are aware
that you're considered under oath here when you're
testifying before the Congress, correct? You're all
aware of that? Let the record note that they nodded

And if I read, Mr. Bilkey, your statement and your
comments and the tone here, the reason why you didn't
feel it was necessary to go to the Congress was
because, one, there was no requirement of that and
because you felt you were following the instructions
of our government and that the deal was pretty
straightforward, you make the offer, it goes through
the CFIUS process and it's a done deal. Is that

MR. BILKEY: Yes, sir.

REP. WELDON: Then I have to ask the question, why did
you hire lobbying firms? I'd like for the record to
know who you hired. Would you tell me what firms were
hired and who were the principal players that you were
involved with? I assume you were involved with that

MR. BILKEY: In the effort that we did the CFIUS
process, I'm going to turn this over if I may to Mr.
Dalton, our general counsel. But we only dealt with
the firm of Alston & Bird.

REP. WELDON: Only Alston & Bird, that's the only one?

MR. BILKEY: Well, that's all I was aware of in running
through -- you're talking about the CFIUS process?

REP. WELDON: I'm talking about you obviously employed
counsel in this city and public affairs firms and
lobbyists. And I assume you hired them for a reason.
Now, you've just told us that --

MR. BILKEY: No, excuse me, sir. I didn't understand.
Do you mean now or when we first started the CFIUS

REP. WELDON: The whole process, now and then. I'd like
to know who, for the record, was hired.

MR. BILKEY: Fine, sir.

George, could you help?

MR. DALTON: Yes, Congressman. Through the process of
the acquisition we retained the firm of Linkletters
(ph), which is a UK- based law firm, a very reputable
one. Here in the United States we worked with the firm
of Alston & Bird in their office here in Washington --

REP. WELDON: So they're legal firms, right?

MR. DALTON: Those are all legal firms, yes, sir. From
a -- as you call a lobbying standpoint, the reason
that we found it necessary to turn to certain firms --
and I understand that's been reported fairly widely in
the press -- was because we felt that our company,
which had followed all of the U.S. processes and in
fact relied upon those processes in lifting our
condition as precedent as well as the other regulatory
filings that we had done in a number of locations
throughout the world, we had relied on that process
and we found ourselves at a difficult situation.

REP. WELDON: But wait a minute. You just said
everything was going well up until this process became
public. Why would you have to hire those firms in the

MR. DALTON: No, sir, Mr. Hunter, we hadn't filed -- we
hadn't hired them in the past, is my understanding.

REP. WELDON: So you hadn't hired any firms?

MR. DALTON: Congressman, we did hire firms after our
CFIUS process had been approved and the conditions

REP. WELDON: Who are they?

MR. DALTON: It was a Downey McGrath firm.

REP. WELDON: That's one.

MR. DALTON: Johnathan Winer of the Alston & Bird firm.
Chip -- and I'm not sure of the last name -- Andrae,
I'm not exactly sure what firm he's with, I believe
his last name is spelt A-n-d-r-a-e. I would have to
check if there are others, I believe those --

REP. WELDON: Was the Albright (ph) firm hired?

MR. BILKEY (?): I can answer that, sir. The answer is

REP. WELDON: There was never any employment with the
Albright firm?

MR. BILKEY: No. There's been some talk about that.
They worked on our behalf in China.

We had some China assets that needed some help.

REP. WELDON: Was there any discussion from Former
President Clinton with any of you or with the
leadership back in the Emirates about this potential

MR. BILKEY: Not with myself.

REP. WELDON: No, I said are you aware of any
discussion? Are you aware of any discussion?

MR. BILKEY: Yes, I am aware of a discussion.

REP. WELDON: So there was a discussion by the former

MR. BILKEY: Yes, sir.

REP. WELDON: And who was that with?

MR. BILKEY: It was with our chairman, Sultan Ahmed Bin

REP. WELDON: And it was about this particular deal?


REP. WELDON: Was there a recommendation that you
retain a former spokesman by the name of Joe Lockhart

MR. BILKEY: Yes, sir, that's my understanding.

REP. WELDON: And why did that not take place?

MR. BILKEY: The firm turned it down, sir.

REP. WELDON: Why would you feel it necessary to hire
people of that caliber when you've just testified to
us that this was a normal deal? That, you know, you're
abiding by all the laws, there was no need to tell the
Congress, you didn't certainly need to tell us about
this because it wasn't controversial.

Why would you need to hire people of that caliber to
make this happen? Whether they be Republican or
Democrat. And the people you've cited here are from
both parties.

MR. BILKEY: Sir, none of those activities started
until the last two weeks.

REP. WELDON: What are the last two weeks? You mean the
last two weeks from today?

MR. BILKEY: Yes, sir. When we suddenly saw that there
were concerns being expressed throughout Congress and
in the U.S., we saw that we would need some help. And
we think we're -- we think we're good citizens. We're
very, very proud of our record. And we -- obviously
something had gone wrong. And we didn't understand
what had gone wrong, so we went for help.

And because we are a firm, we think, of high
integrity, we tried to get the very best that we

REP. WELDON: When was the discussion between the
sultan and President Clinton about this deal? In the
last two weeks?

MR. BILKEY: I don't know, sir.

REP. WELDON: Well, you just said you were aware of it.
When do you think it was?

MR. BILKEY: Within the last two weeks, yes, I would

REP. WELDON: That discussion just took place in the
last two weeks?

MR. BILKEY: Yes. To the best of my knowledge, that's
when it was. I mean, all I know, that there was a

REP. WELDON: The gentleman's recognized the ranking
member -- oh, Mr. Spratt. I'm sorry. Mr. Spratt.

REP. SPRATT: Thank you for your appearance here and
for your testimony. Let me just follow it up by saying
if I'm plowing old ground it was because I stepped out
of the room a minute. I just wanted to clarify one
thing for the record.

You heard the testimony of Mr. Flynn, who suggested
that this occasion, this opportunity should be used to
lay the basis for a comprehensive global container
inspection system that scans the contents of every
single container destined for America's waterfront
before it leaves the loading port.

And he said and so did the panel that the technology
was in hand for doing that. And it may include both
scanning, radiation detection and maybe some radio
frequency electronic identification that would go
along with it, and that all of this could be done by
levying a fee, provided it was done everywhere,
levying a fee per container.

You've been in this business for a long time. You know
the ins and outs, what works and what doesn't. In your
opinion, is this feasible? Is this a basis for some
kind of a deal?

MR. BILKEY: Well, the general question -- I'm not sure
specifically how it applies to us. I mean, I would
like to have it apply to us in all our locations,
which is this CSI. Yes, the technology is available,
and we actually make our own initiatives sometimes in
this. I would like to see -- there are now 42 CSI
locations, this Container Security Initiative, where
U.S. Customs are put on the ground, it actually pushes
the borders of the U.S. out into these locations.

And this is one of the best ways, and the technology
is there for these high speed what they call NII,
non-intrusive inspection. And that's the big -- has
been the big bottleneck of present style of inspection
equipment. The present inspection equipment actually
can look into a container, and I have sat in these
booths and watched it go through, and it's completely
reliant on the operator.

And we have them in Dubai. They're very slow, and
that's why you only get 5 percent that are actually
inspected, because it's so slow. This new equipment --
and there's probably going to be better technology
coming, but right now it would be a vast improvement.
This present equipment can handle 400 trucks an hour,
and this pilot program's going on in Hong Kong.

And not only does it scan the box, it inspects it for
radioactivity, but it stores the image. And that image
can be transmitted to the Customs center here.

REP. SPRATT: Does it have to have a portal where it
can be inserted inside the container?

MR. BILKEY: No, no. The container just drives through,
drives through at almost normal truck speed. And it
captures the image, and that image can be transmitted.
Now, if you have the CSI locations set up as we do in
Dubai and we actually are out on a global RFP for NII
equipment to start installing it. Because, you know,
security stuff like this is good business for us. It's
a marketing tool for us.

And besides that, it brings safety. And at the present
time, if I could have a perfect world, I would have
these in every port where U.S. goods pass through,
either directly or indirectly through trans- shipment.
And in Dubai we have a very unique arrangement with
Customs. Customs can actually ask for a trans-shipment
box today.

Let's say something came from Karachi. We supply them
with the whole manifest, the whole manifest of the
ship. And if they don't like a box that says garments
and they think it might be something else, they can
instruct us and we have the legal right to take that
out of the ship, put it on the ground and U.S. Customs
will inspect it.

We won't inspect it for them and say it's okay, they
inspect it. With NII equipment in place in places
around the world, I would also do it a second time. I
would do it here. And there is equipment now in some
U.S. locations, Rob Scavone would be able to address
that better than I.

But there is some of this equipment now coming on
stream in U.S. ports. And this to me is a no-brainer
and should be globally, not just for the U.S., but for
all sorts of places.

And a lot of people are taking the initiatives. One of
our competitors -- and they're a very good competitor
-- Hutchison Whampoa, has a pilot program going in
Hong Kong.

And we're looking at it, we live right next to them.
We have a very large terminal right next to them in
Hong Kong, and we're actually looking at it, and
there's a great discussion of how you're going to
implement it and who's going to pay for it and so on
and so forth.

But if there's enough initiative and push, you know,
most of these international security initiatives have
come from the U.S. Which is great. And I'd like to see
more of it pushed. And we're in the business of
security if there ever was a company that's in it. And
all I think the responsible large, global terminal
operators --

REP. SPRATT: Do you think it is feasible to fund it by
levying some kind of fee on each container, each

MR. BILKEY: Excuse me for smiling, sir. But they're --
this is starting to be tried actually in some places
in China. And there's been some resistance to it from
some of the ship -- because you're going to charge the
ship, and the ship is going to end up charging the
cargo interest.

But I think if it becomes universally -- everybody's
going to be on the same playing field and they're
going to pay it. Yes, I think it could be done. And I
hope I don't get myself in trouble with a lot of our
large customers by suggesting something like this, but
I think what we're really interested in is in security
and safety, and I think this type of initiative should
come and be pushed, and we would not only be a backer,
we'd like to be a participant.

REP. SPRATT: That's my last question. You've got $6.8
billion invested in this deal.

MR. BILKEY: Yes, sir.

REP. SPRATT: A lot of money even to the emir of Dubai.

MR. BILKEY: Sir, we did this on our own balance sheet.
So yes, we have to make this pay.

REP. SPRATT: In any event, it's a lot of money. Do you
worry about port security, about the security of your

MR. BILKEY: All the time, sir.

REP. SPRATT: Under present circumstances?

MR. BILKEY: We continually address security issues. We
operate in some very tough places, and we're also, as
I mentioned earlier, trying to get CSI, which has been
in active discussion with the Dominican Republic. We
hope that would happen tomorrow, we'd get the gear
installed and get it up. But in the best of our
worlds, from the day you say yes it's a six month
deal, probably.

REP. SPRATT: Thank you.

REP. HUNTER: The gentleman's time has expired.

The gentleman from New Jersey is recognized for five

REP. FRANK A. LOBIONDO (R-NJ): Thank you, Mr.

Mr. Scavone, you, when talking about the facility
security officer, said that that is the only person
that has access to the port security plans and not the
operator of the terminal?

MR. SCAVONE: That is correct, sir.

REP. LOBIONDO: At Port Newark, who employs the
facility security officer?

MR. SCAVONE: That would be Port Newark Container
Terminal, also known as PNCT, which is the joint
venture that we participate in.

REP. LOBIONDO: So that facility security officer that
you partially hire has access to those sensitive port
security plans?

MR. SCAVONE: Yes, sir.

REP. LOBIONDO: And if in fact this all were to go
through, then the new owner that's buying the
operation, that would still be hiring or partially
hiring at Port Newark that facility security officer?

MR. SCAVONE: The understanding is that the current
management will remain in place and that any
replacements to those individuals as in the natural
course of things they perhaps leave or get promoted or
otherwise are removed from a position, would be prior
-- would require prior approval from the U.S.
government before a replacement is made.

REP. LOBIONDO: For the facility security officer?

MR. SCAVONE: Yes, sir.

REP. LOBIONDO: Because what I was getting at, I don't
remember the name of the member who initiated the
questions or how you first got into that, but that
basically your corporation or the new owner would not
have access to the port security plans. But that in
case would not be true.

They would actually have access to those plans,
because they're your employee or the employee of Dubai
Port World.

MR. SCAVONE: I do believe that as part of the
commitment that was made during the CFIUS process, it
was agreed that the facility security officer -- the
normal protocols that are in place would remain in
place and that none of that information would leave
the country.

As indeed happens now. For instance, our London office
does not have copies of our facility security plans.
They've never asked for them, they make no attempt to
get involved in the way we manage security on the
ground here.

REP. LOBIONDO: Well, your company does not, but in the
case of New Orleans, would it be 100 percent
ownership, Mr. Bilkey? Would it be 100 percent
ownership if this goes through in New Orleans of the

Or Mr. Scavone?

MR. SCAVONE: Yes. Bearing in mind that what is being
bought is P&O Ports in the UK, which, through several
corporations down, owns P&O Ports North America, which
is a company in itself, a U.S. company with U.S.
employees that pays U.S. taxes that's going to remain
in tact. It's almost similar to buying --

REP. LOBIONDO: I understand.

The point I'm getting to, which we're trying to
ascertain when we're talking about the security end of
this is that in fact those port security plans would
be available to the parent company, in which case they
would be available to the government of Dubai. And if
-- and somebody's shaking their head behind you, I
don't know who that is. But if that's not true, I'd
just --

MR. SCAVONE: It's not true, sir. And the -- I do think
that during the additional 45 day review process those
are exactly the types of details that perhaps can be
examined. And indeed if anybody believes that the
measures that have been agreed have any vulnerability
there, perhaps that's something that perhaps we can
talk about.

But the intention is that that not in fact be the

REP. LOBIONDO: Well, that's part of our problem. We're
trying to sort through what intentions are and what's
been decided and agreed to and what the Congress has
access to, there's a wide variation.

Mr. Bilkey, I'd like to know, I read a report that
Dubai has imposed a boycott on Israel.

Did I in fact understand that accurately, that that is
the case? The government of Dubai is --

MR. BILKEY: The government of Dubai is just for the
Emirates, sir.

REP. LOBIONDO: Okay. Is there a boycott with dealing
with Israel?

MR. BILKEY: Well, sir, I'm not someone who can speak
on state to state matters, and that's a UAE matter.
But what I do know that's going on right at this time
is that there's a -- fair trade negotiations are going
on between the UAE and the United States government.
And I'm sure this is going to be one of the issues
that they will be discussing.

REP. LOBIONDO: I understand. I thought I read from
your Senate testimony, though, that that boycott is in
place or being honored by United Arab Emirates. I read
wrong? You didn't say that?

MR. BILKEY: I didn't quite understand the question,

REP. LOBIONDO: Sorry, Mr. Chairman, a little
frustration here trying to communicate. I believe that
I read in your Senate testimony -- you did indeed
testify before the Senate, correct?


REP. LOBIONDO: That there is a boycott in place with
Israel? The United Arab Emirates?

MR. BILKEY: For cargo from the United States, the
United Arab Emirates puts it in. But it's not
something that we're involved in, sir. I mean, we're
involved in the terminal business and we obey the laws
of any country that we're in.

REP. LOBIONDO: But with government involvement, that's
where our -- we can't separate some of these issues,
because with Israel as our most reliable partner in
that part of the world, some of us view that if there
is in fact a boycott, that something like the deal
we're talking about is in effect ending up subsidizing
a boycott. And that's where -- that's where we've got
a serious problem and where this is coming down.

And you probably can't answer, if it were one of the
conditions after the 45 days that there not be
anything like a boycott how you would react to that
condition, but that will certainly be one of the
questions that we'll be asking.

MR. BILKEY: Yes, sir. I know this is a matter of
concern, and with the chair's permission I'd like to
read some excerpt and I'd like to put this letter in
the record if I may.

REP. WELDON (?): Without objection it'll be entered in
the record.

MR. BILKEY: Thank you, sir.

This is a letter to my CEO, Mohammed Sharaf, and it's
from Idan Ofer, who's the chairman of the board of Zim
Lines, the largest Israeli shipping company. "I wanted
to take a moment to express my complete dismay at the
way your fine organization is being pilloried in the
United States. As you well know, Zim Israel considers
DP World to be one of our closest global allies."

And I'm going to skip the middle of it, it says where
they operate with facilities and we handle -- they're
one of our large customers in many parts of the globe.

"I sincerely hope this unnecessary political storm
will cease so we can all focus on the business of
providing the world safe and efficient shipping
services. We truly look forward to working with you in
the U.S., where I know you will enjoy the same great
relationship we have in the rest of the world. Until
then, I would like to extend an offer to help you and
DP World any way we can. Sincerely, Idan Ofer."

REP. LOBIONDO: I appreciate that letter, and I will
look forward to getting my hands on it and seeing it.
But that still -- that individual still isn't
answering the question about the boycott and if in
fact it is real. And if it is real, because it is
United Arab Emirates and you're a part there, that's
what's causing agitation on our part.

Mr. Chairman, I thank you very much.

REP. WELDON: I thank the gentleman.

The gentleman from Washington, Mr. Larsen.

REP. RICK LARSEN (D-WA): Thank you, Mr. Chairman.

Gentlemen, thank you for being here. Quickly on your
hold separate commitment, last page before the
signatures page it says, "This hold separate
commitment shall take effect from the date on which
POPNA becomes a member of DP World --" and so on "--
remain in effect until earlier of May 1 and the date
on which further CFIUS reviews referred to as below is

In other words, your timeline is May 1 or when the new
review is done. Has the new review started?

MR. BILKEY: May I give this to my general counsel?

REP. LARSEN: Absolutely. I don't care who answers it.

MR. DALTON: Congressman, no. We have been preparing
the CFIUS application that will be going in very
shortly, perhaps as early as tomorrow.

REP. LARSEN: Let me -- does the clock start then?

MR. DALTON: That's my understanding, I -- my
understanding is that the process has to be accepted
by CFIUS first.

REP. LARSEN: Okay. Let me give you the cheapest piece
of advice you're going to get, all right? Last week we
were out of session and the announcement came out that
the CFIUS review was completed and you were approved
to move forward. And we were in our districts for a
full week hearing from our constituents, emails, phone
calls, letters, getting our dander up.

If I count 45 days from tomorrow or even early next
week, I think we're out of session. Again. I would --
the cheapest piece of advice I can give to you is if
there's an announcement one way or the other, don't
have us be out of Washington DC when the announcement
comes out, because it's going to -- we're going to be
through this all over again.

Now, we have to talk to our counterparts in the
administration when they come through as well to get
our point across about this process, about the CFIUS
process. And that's not your problem, that's the
administration's problem. But we could be going
through this all over again in 45 days.

So I would just strongly suggest that it's in
everyone's advantage for Congress to be in DC when any
announcement is made on this new review. Otherwise
we're going to come back to this place if it comes
back on approval and we don't feel like we've been
involved, we're going to come back to this place and
we're going to be through this all over again.

That's free advice, take -- actually, that's why it's
so cheap. I have some questions for you. You mentioned
that you have a U.S. government agency as a point of
contact for any management changes. Which agency is
that and who is that? Who within that agency?

Perhaps it was Mr. Scavone that mentioned that.

MR. SCAVONE: Yes, Congressman, I was the one who said
that. But of course I was reciting what I understand
the agreement to be with DP World under the CFIUS
process. I do think that that is exactly, again, the
type of detail that perhaps should be buttoned down
during the next 45 day review process so that it's to
the satisfaction of everybody and --

REP. LARSEN: And probably a question we should ask the
next panel.

Mr. Bilkey, you talked about you're going out with an
RFP international -- it may have been an RFI, but an
RFP of some sort -- about applying some NII technology
to your terminals.

What's the timeline on that?

MR. BILKEY: Well, I'm looking at it here.

REP. LARSEN: That's fine.

MR. BILKEY: And it actually took place long before any
of this happened. The date on this is September 19,
this is the response. We're now considering three
different offers that we've had, and we would hope to
make our decision, I'm sure. I have a day job, and
it's a fairly big one.

And I haven't been paying a lot of attention to it,
and I hope they keep me employed. But we're hoping to
do this certainly within the next month, that we will
be making decisions, because it's not an immediate
process and it takes -- from the day we say go and
where we're going to start it, we'll start it in a
pilot program.

We'd like to start a pilot program in the Dominican
Republic, because that will actually be frankly a good
marketing tool for us, but it involves U.S. cargo,
U.S. trans-shipment cargo and would be a very strong
point in the security cycle.

REP. LARSEN: Okay, my time's growing short. I was in
Hong Kong in January and took a tour with Hong Kong
International Terminals on their pilot, and they're
putting the dollars in, you know, per container --
there's an equivalent per container, it's coming out
of their pocket to do this.

And my sincere hope is that we can -- perhaps it may
take the U.S. to push this, but to push this as --
this kind of thing as an international system for our
own sake.

Just quickly, Mr. Chairman, if I could. I'm from
Washington state, just up the highway, just up the
Puget Sound is the Port of Vancouver. To what do you
attribute the collective yawn in Vancouver and in
Canada about your takeover of terminal operations at
the Port of Vancouver compared to terminal operations
in the U.S.? If you dare to answer that question.

MR. BILKEY: We have had no adverse reaction.

REP. LARSEN: I know. To what do you attribute the
collective yawn in Canada compared to the response
here in the United States?

MR. BILKEY: I don't know. And I'm going to be frank,
since it hasn't raised its head I haven't paid much
attention to it.

REP. LARSEN: Fair enough.

Thank you.

REP. WELDON (?): I thank the gentleman.

The gentleman from New Jersey, Mr. Saxton.

REP. SAXTON: Thank you, Mr. Chairman.

Mr. Bilkey, I understand that -- my smart staff tells
me that Dubai Port World has two divisions, one known
as the Port Authority, the other known as Ports
International. Is that right?

MR. BILKEY: I think what may be have been referred to
is Dubai Ports Authority actually ran the whole
operation in Dubai, both the port authority side and
also the operational side.


MR. BILKEY: They had an international division which I
also was in charge of as the executive director, Dubai
Ports International. These were merged in September
into DP World, because we actually all had the same
customers. And I think that's where that --

REP. SAXTON: Okay, thank you. So there were two
separate functions, and now Dubai Ports World has
combined both functions together?

MR. BILKEY: Yes, but we separated out the regulatory
functions of Dubai Port Authority. Dubai Port
Authority is now a separate body.

REP. SAXTON: Now, the Port Authority formerly --
apparently the Port Authority formerly took part in
the Container Security Initiative. Is that right?

MR. BILKEY: Yes, sir. I'm not too familiar, because I
wasn't there when it first happened, but --

REP. SAXTON: And so today Dubai Port World takes part
in the Container Security Initiative?

MR. BILKEY: Not directly. It's really Customs. And the
arrangement is with Customs, and it's -- the agreement
I know was signed last January.

REP. SAXTON: Okay, here's my point of interest, thank
you for helping me clarify that. Here's my point of
interest. The U.S. Customs service, under the
Container Security Initiative agreement with Dubai or
the UAE sends U.S. Customs agents to Dubai to inspect
-- to do certain inspections, right?

MR. BILKEY: Yes. Actually to receive the manifest --
there's a 24 hour rule. Any box, any place in the
world being loaded to the U.S. has to put -- the
shipping line has to provide the manifest to the bill
of lading to U.S. Customs before it will be loaded.

REP. SAXTON: And those inspections are done in
cooperation with the Dubai Customs organization?

MR. BILKEY: Yes. Yes, sir. If they want to inspect
something, they will advise us or they will tell us
not to load something, and we don't load it.

REP. SAXTON: And it's a reciprocal agreement which
gives the Dubai Customs authorities the opportunity or
the right to come to this country to come to inspect
containers that are bound for Dubai, is that right?

MR. BILKEY: No, sir, not to my -- no, sir. It's an
initiative really pushing out our borders, so to

REP. SAXTON: And we don't have a reciprocal agreement
with Dubai that gives them the same authority to --

MR. BILKEY: I don't know about it if there is one,

REP. SAXTON: Well, the information that we have is
that there is one, and under that reciprocal
agreement, the Dubai Customs authorities would have
the right to come to this country and take part in
similar inspections. And you have no knowledge of

MR. BILKEY: No, I don't, sir.

REP. SAXTON: We got that from our annual Customs
report from 2005, and so there -- I'm asking you
because we're looking --

MR. BILKEY: No, it sounds like there's just kind of a
normal reciprocal arrangement. If you do it for me,
we'll do it for you.

REP. SAXTON: Yeah. So there would be citizens of Dubai
potentially coming to this country to carry out
inspections under this reciprocal agreement?

MR. BILKEY: If it's there. I'm totally unaware of it,

REP. SAXTON: You couldn't tell us about the people
that would take part in this kind of a program?

MR. BILKEY: No, sir, because I'm not involved in the
Customs procedures.

REP. SAXTON: It would certainly concern us or we would
at least be concerned enough to want to know who would
be hired to come to this country and make those

And so I wonder if it might be advantageous in your
deliberations over the next 45 days or so to look into
this and make sure our decision makers take this
program into consideration so that we can make sure
that that is not a bone of contention 45 days from
now, because obviously we're going to look into it.

MR. BILKEY: I would imagine in the CFIUS review that
U.S. Customs would be bringing something like that
question up.

REP. SAXTON: Thank you, Mr. Chairman.

REP. WELDON (?): I thank the gentleman.

The gentleman from Georgia, Mr. Marshall.

REP. MARSHALL: Thank you, Mr. Chairman.

Mr. Bilkey, I want to kind of continue on the line of
questioning that I had before with regard to the
additional things that you agreed to or the company
agreed to as part of the CFIUS process and clearance.
And one had to do with management, we talked about
that, and various people have asked you questions
about this management understanding.

And the summary in your testimony is that you
undertake to -- this is a quote, "Operate all U.S.
facilities to the extent possible with current U.S.
management." As we talked about that, that undertaking
doesn't end on May 1, it continues thereafter, and
it's your understanding that there would be simply
U.S. management?

MR. BILKEY: No, sir. We put this time period in place
so there could be a review.

REP. MARSHALL: I understand, but the undertaking
doesn't stop at the end of that time period?

MR. BILKEY: And I understand that this is in the
package that we handed out.

REP. MARSHALL: The actual language, I'm going to get
to that next. But I just want to see what your
understanding is. I assumed that it was our Homeland
Security Department that asked for this concession, it
wasn't something you simply proposed?

MR. BILKEY: I frankly don't know.

REP. MARSHALL: You don't know? We'll have subsequent
witnesses who can tell us, but it'd be shocking to me
if --

MR. BILKEY: I think the answer can be made -- MR.
DALTON: Congressman, we did propose it.

REP. MARSHALL: You proposed it in response to concerns
expressed by --

MR. DALTON: Through the normal CFIUS process.

REP. MARSHALL: Through the CFIUS process. It's utterly
incredible that you would say, our management's not
competent or -- so somebody was worried about --

MR. DALTON: We volunteered at the CFIUS.

REP. MARSHALL: Why did you volunteer?

MR. DALTON: I'm sorry, I'm just conferring with our
counsel, who helped assist us with --

REP. MARSHALL: But why did you even volunteer that?

MR. DALTON: Because we wanted to assure the United
States government and the public that the management
chain that was currently in place from P&O would in
fact remain in place.

REP. MARSHALL: And I think that I understand the
spirit behind that and the concerns that you had at
the time that you made that offer, and this was during
that period of time before you hired lobbyists and
before we had this big public dispute, you anticipated
that there could be some problems associated with

And one way to mute those problems, to lessen them,
lessen the public perception that there's a problem
here is to go ahead and agree to this retention of

MR. DALTON: Sir, I think what we were attempting to
accomplish was to demonstrate our cooperation with the
United States government and our concerns about

REP. MARSHALL: You -- well, your concerns. Now, you're
the -- you're Dubai. And what's your concern that
would lead you to say, we won't manage?

MR. DALTON: Sir, we are a company incorporated in
Dubai and we have security concerns in all of our
facilities around the world.

REP. MARSHALL: Why would there be -- why would your
security concern that's worldwide persuade you to make
an offer that you would only have U.S. management for
these facilities in the United States?

Now, what's the relationship between those two? That's

MR. DALTON: Sir, I don't think we've committed to only
having U.S. management, I think we've committed to
keeping the current P&O Ports management in place. My
understanding, my colleague from P&O can address this
more specifically, but there's approximately 400
direct employees by P&O Ports North America, of which
approximately seven or eight are non-U.S. citizens.

There are several other citizens, such as from the UK,
I believe Australia and I'm not sure, a couple of
other places. But clearly the vast majority of the
employees of P&O Ports North America are U.S.
citizens. And we wanted to demonstrate our commitment
to them as well.

This was a company that is approximately four times
larger, depending upon how you calculate it, than DP
World. And as part of that, we needed their management
expertise and that was part of the reason that we
wanted to acquire their firm.

REP. MARSHALL: I understand. Mr. Bilkey, in his
testimony, as I said previously, indicated some
discomfort, said that these were unusual things to
agree to. And you're telling me now that at least with
regard to the management thing it was your idea, it
was your proposal that this be done, because you
wanted to I guess make CFIUS comfortable.

I'm not sure, we'll get more information about that. I
will observe, though, that page 2 of the letter that I
guess memorializes the agreement, this undertaking,
says this. And it's page 2 of the letter that's in the
packet, and I assume that this is the language of the

I'll give you a more precise description. This is a
letter dated January 6, 2006 to Mr. Stewart A. Baker,
and it is from -- I'm sorry, but I can't read --
Robert Scavone. I guess it's from you. And I assume
that this is the undertaking, this is the language of
the undertaking. And here's what it says about
management of U.S. facilities.

"The companies --" companies, plural. I'm a little
confused about that, I guess it's both companies here,
and so the acquiring company, "-- hereby represent --"

MR. DALTON: I was just going to say, it was a joint
filing, sir.

REP. MARSHALL: Good, okay. So the acquiring company,
DP World is representing, "-- hereby represent and
commit that their current intent and plan is to
operate any U.S. facilities they own or control to the
extent possible with the current U.S. management

I'm a lawyer, commercial transactions lawyer, as it
happens. You know, I do these kind of deals. That's
language that doesn't bind anybody to anything. I
mean, it states a current intent and a current plan.
But intent changes, plans change and one of the things
that I thought I clearly heard from Mr. Scavone, I
might have heard from Mr. Bilkey, was that you're
willing to work with us to tighten up language.

You know, the undertakings that have been made here,
if in fact the language isn't ideal, perhaps we can
tighten up that language and perhaps Congress can help
the administration to draft some language that's a
little bit clearer and firmer with regard to that
issue. If in fact it is an issue that has something to
do with security.

That's all I have, sir.

REP. WELDON: I thank the gentleman.

The gentleman from Missouri, Mr. Skelton, had a couple
more questions.

REP. SKELTON: Counsel, what's your name again?

MR. DALTON: George Dalton, sir.

REP. SKELTON: Are you in-house counsel?

MR. DALTON: Yes, sir.

REP. SKELTON: I'm not quite clear. The period of time
that's supposed to elapse before DP World takes over
operation is between now and May 1, is that correct?

MR. DALTON: Sir, it's the earliest, I believe -- I'll
find the exact language in just a second, but I
believe it's the earlier of the conclusion of the
CFIUS process or May 1, but if you give me just a
moment --

REP. SKELTON: And again give us the reason for that?

MR. DALTON: Sir, we were attempting to address or at
least provide an opportunity and an avenue to address
the concerns of Congress and the American people that
have been raised through the course of this
acquisition of the transactions, so --

REP. SKELTON: It had no legal biding effect, did it?

MR. DALTON: No, we believe it will have a binding
effect if the United States government accepts our
offer. I think that we have found --

REP. SKELTON: Accepts your offer to do what?

MR. DALTON: To hold separate, to -- under the
commitments that we've given in this agreement, we
hope that the United States government will accept it.
I think we've found ourselves very much in uncharted
waters here because we had already received the CFIUS
approval and --

REP. SKELTON: That's right. The deal was done.

MR. DALTON: Well, the deal is about to be done. But
the CFIUS approval was granted, which was we followed
the specific legislative intent and letter of the law
set out by the United States government. To be honest,
I don't think that it's our position to comment on
whether or not the CFIUS process is correct or right,
we simply followed what had to be followed.

REP. SKELTON: No, no, no. No, no, no. You told me a
little while ago that Tuesday the deal is in blood. Am
I correct?

MR. DALTON: That is correct, under the UK takeover
code, and we would find ourselves in violation of UK
law, we believe, if we didn't proceed with the deal.

REP. SKELTON: So Tuesday the deal's done?

MR. DALTON: We believe it should take place on or
about Tuesday, yes, sir.

REP. SKELTON: Then I still don't -- if the deal is
done Tuesday, why the May 1 date?

MR. DALTON: To give the Congress an opportunity --

REP. SKELTON: To do what?

MR. DALTON: To take a look at the deal. We've
voluntarily committed back to the CFIUS process and
abided by that process as it relates to the United
States facilities.

REP. SKELTON: That has no legal binding reason, other
than maybe to let the thing blow over, is that

MR. DALTON: No, sir. We were trying to demonstrate our
commitment to security and our cooperation to work
with Congress. We just found ourselves --

REP. SKELTON: To do what? How can you work with the
Congress if the deal's done?

MR. DALTON: Sir, the deal applies not just to the
United States but also to many other countries around
the world.

REP. SKELTON: I understand that, I understand that.
But the deal, it's already in blood as of Tuesday, it
will be.

MR. DALTON: Yes, sir.

REP. SKELTON: So what -- how can you work with the
Congress if the deal's behind you?

MR. DALTON: Sir, we found ourselves at a very
difficult position.

REP. SKELTON: I understand that.

MR. DALTON: Because --

REP. SKELTON: But that's a public relations thing,
isn't it?

MR. DALTON: I don't believe so, no, sir.

REP. SKELTON: Thanks, counsel.

REP. HUNTER: I thank the gentleman.

The gentleman from Pennsylvania, Mr. Weldon.

REP. WELDON: I thank the gentleman for yielding.

And I want to get back to the point that I was
raising, only because when this deal was announced by
the administration, I went on national television and
blasted the White House publicly. And I did so because
they didn't have the courtesy to bring members of
Congress in from both sides, to let us be a help.

And I don't want to cause a problem with the Emirates,
because I think they have in fact been helpful to us.
But I blasted the White House for what I thought was
an inappropriate way of involving Congress in
transparency. And now what I'm finding out is that
there have been discussions from the other side of the
aisle about helping this deal move forward.

Now, I believe that you testified that your lobbying
-- one of your lobbying firms was Alston & Bird, is
that correct?

MR. BILKEY: No, sir, they're our counsel.

REP. WELDON: They're your counsel.

Is it true that at Alston & Bird one of the leading
people working with you is in fact a fellow named
Jonathan Winer?

MR. BILKEY: Yes, sir.

REP. WELDON: And he's here?

MR. BILKEY: Yes, sir.

REP. WELDON: And is it true that Jonathan Winer spent
10 years as Senator John Kerry's aid?

MR. BILKEY: He's told me that, sir.

REP. WELDON: Is one of the other principals in the
firm involved with this Kathryn Marks?

MR. : May I take that, sir?


MR. : Yes, she is working --

REP. WELDON: And it is it true that Kathryn Marks was
policy director for Senator John Edwards?

MR. BILKE: I saw that in a newspaper for the first
time yesterday.

REP. WELDON: And the reason I say this is my
colleagues and I have all been very critical of this
administration and I take the lead on that. And I
don't apologize for it. But what I see here is leaders
of both parties. Instead of coming to the Congress and
letting the Congress come in and understand, which is
what I would have done when I had this deal, knowing
it was going to become controversial, based on
substance or not.

After the fact, all of these players including a
former president are getting involved to push a deal
through that the American people, including my
constituents, are going bonkers over. And that bothers
me. Now, some on the other side are using this as a
cheap shot to trash President Bush and the Republicans
in Congress.

And I've been one of those that's criticized this
president on not having access. But now I find out
that it's not just one party. I want to get back to
when -- and now you have told me on the record that
the Albright firm does not work for your company,
never has, nor any of the principals or others
involved, is that correct?

MR. BILKEY: No, sir. The Albright company helped us in

REP. WELDON: But they've done nothing on this deal?

MR. BILKEY: No, sir.

REP. WELDON: They've not talked to any agency heads?

MR. BILKEY: I understand they gave us some referrals,
but that's all.

REP. WELDON: They've not talked to the State

MR. BILKEY: To the best of my knowledge, no, sir.

REP. WELDON: So you've never had contact with anyone
in Albright's firm about this particular deal and
helping it get through?

MR. BILKEY: To my knowledge, other than what I've been
told, they made some referrals.

REP. WELDON: Mr. Dalton, can you affirm that same
statement, that you're aware of no involvement by
Madeline Albright's firm on this deal?

MR. DALTON: My understanding is that one of the
principals -- I'm not sure of her name -- attended one
meeting, and the rest of what Mr. Bilkey has stated,
yes, I can confirm that the Albright firm has provided
information and help to us in China but not in the
United States.

REP. WELDON: But now you just said one principal of
that firm did attend. Would that person have been
Carol Browner?

MR. DALTON: I believe that is her name.

REP. WELDON: And do you know that she was the former
EPA director in the Clinton administration?

MR. DALTON: I believe I saw something in the press
about that as well, yes, sir.

REP. WELDON: And I don't know why you would say that
the Albright firm of which she's a principal wasn't
involved. I understand they may have helped you with
China, but we're not talking just about China here. I
mean, the problem here -- and believe me, I say this
as somebody who took on the White House and made it
very uncomfortable for my president and Treasury
Secretary Snow and all of the cabinet.

I was willing to do that. But I also think the
American people have a right to know when the other
side of the aisle is pushing the deal for whatever
reason -- maybe because it's legitimate. And the only
reason I raise these questions is your testimony, both
written and what statements you've given, is that
there was no need for concern, no need for security
concerns, you just thought this was a routine
transaction that would on the merits go forward.

And so I have to ask the question then, why would you
hire all these high price firms, both Republicans and
Democrats, to make it happen if there's no security
concerns? If there's no need to grease the skids?
We've got a laundry list of officials here and their
former staffers that are now involved in making this
deal happen.

If this was such an ordinary, routine business deal to
make a sale occur, I don't understand why all of this
would be necessary. Can you help me understand that?

MR. BILKEY: Sir, we started on October 17, and way
ahead of any timeframe that we thought we would be
able to put in an offer. We also started very early in
Australia, because these were two areas that had
processes that have to go through that were going to
be time consuming.

And we abided by everything that we thought was
necessary. This was all there was. This was what we
did throughout the world. And at the end of the time
that this happened -- and we volunteered, because it
was suggested that they might like to talk to you
personally and ask questions, so we came on December
6, I think, to Washington and met with the 12

And from that time on the process continued and
finally we received approval. So we thought we'd done
all the right things, Congressman.

REP. WELDON: I understand that.

MR. BILKEY: And, I mean, within our own situation we
said, this is what's required, we're doing everything
that's required, and any process that needed liaison
between, you know, the administration and Congress, we
thought would be part of the process. We don't know
the process. We just did exactly what we were told to.

REP. WELDON: I understand. And the only reason I'm --

MR. BILKEY: And we really were very surprised with the

REP. HUNTER: I thank the gentleman.

Gentlemen, let me ask you a couple of questions.

First, Mr. Bilkey, you stated that President Clinton
made a call to the emir to talk to him on the

MR. BILKEY: No, sir. To my chairman, Sultan Ahmed Bin

REP. HUNTER: What's his name?

MR. BILKEY: Sultan Ahmed Bin Sulayem.

REP. HUNTER: How'd you find out about that?

MR. BILKEY: He told me.

REP. HUNTER: Was this a supportive call, or was he
eliciting advice or what?

MR. BILKEY: I don't know the details of the call, he
just said he'd called me.

REP. HUNTER: About the deal?

MR. BILKEY: Yes. I mean, I didn't go into it with him
at the time.

REP. WELDON: Will the gentleman yield?

REP. HUNTER: Sure, I'd be happy to.

REP. WELDON: The gentleman wasn't here, but you did
testify that there was a recommendation to hire Mr.

MR. BILKEY: Yes. Well, my chairman told me that he'd
made this recommendation.

REP. WELDON: And I assume -- if the gentleman would
yield further -- that that was for the purpose of
supporting the deal?

MR. BILKEY: Yes, it would be --

REP. WELDON: Not to kill it.

MR. BILKEY: Yes, it would have been.

REP. HUNTER: Okay. So your understanding is that
President Clinton called to help support the deal or
to offer advice on how to get this thing through?

MR. BILKEY: Well, I don't know what the conversation
was about. The only thing I was told was that this had
been a recommendation.

REP. HUNTER: Have you had any conversations with your
-- this is your president or your COO --

MR. BILKEY: My chairman.

REP. HUNTER (?): Your chairman. Did he make any
remarks in the wake of Senator Clinton criticizing
this deal?

MR. BILKEY: I have no knowledge of any of that, sir.

REP. HUNTER: Yeah. Did you have an answer there, Mr.

MR. MOORE: No, I didn't. I'm sorry, I had a different
subject and I leaped again there, I apologize.

REP. HUNTER: Okay. Have any of you folks had a
discussion with President Clinton?

MR. (?): No, sir.

MR. BILKEY: No, sir.

REP. HUNTER: Do you know if -- has there been a
relationship between your COO and the president before

MR. BILKEY: I don't know. If there has been one, I'm
not aware of it, sir.

REP. HUNTER: Were you ever aware of him visiting

MR. BILKEY: I heard he visited Dubai, but I was never
involved if he did.

REP. HUNTER: Did they ever maybe hire him for a
speech, that you know of?

MR. BILKEY: I read in the paper that he had a speech,
I think today or yesterday. But that's the only time I
was aware of it.

REP. HUNTER: That President Clinton had a speech in
Dubai today or yesterday?

MR. BILKEY: No, I read recently --

REP. HUNTER: You read today that he had a speech at
some point?

MR. BILKEY: Yeah, or recently. I can't remember if it
was today, I've been reading a lot of information, or
when it was, but there was a reference that there was
a speech in Dubai, I believe.

REP. HUNTER: Okay. Mr. Bilkey, you heard this litany
of transfers of technology that took place in Dubai,
trans-shipments of components of nuclear systems that
took place -- that I read to you that started out the

MR. BILKEY: Yes, I heard that, sir.

REP. HUNTER: Now, as I understand, the emir, who is
the only director, is for practical purposes the
leader of --

MR. BILKEY: He's a shareholder, sir.

REP. HUNTER: He's a shareholder. What is his position
in the government of Dubai?

MR. BILKEY: He's the ruler, sir.

REP. HUNTER: He's the ruler of Dubai. And isn't he
also -- he has a place in the United Arab Emirates,
does he not?

MR. BILKEY: Yes, sir. He's the prime minister.

REP. HUNTER: Okay. Now, I'm going to go back to this
2003 transfer of these high speed electrical switches
which are utilized for detonating nuclear weapons,
that were allowed to be trans-shipped to a Pakistan
businessman through Dubai, and the information that we
have is that Washington protested those transfers, and
yet the government of Dubai allowed the transfers to
take place over our protests.

Do you know anything about that?

MR. BILKEY: Absolutely not, only what I've read in the
papers. But I would say one thing as far as the
terminal people go and our operations go, we don't
know what is in containers. The people who know what
is in containers is the ship owner, the shipping
company and the Customs.

REP. HUNTER: Well, in this case -- but in this case
your only stockholder, the emir, or his -- he's the
government of Dubai. We protested to the government of
Dubai that these triggers were going to be
trans-shipped and we wanted to stop them so that we
wouldn't have an unfortunate nuclear detonation at
some point.

So he apparently knew, even though he didn't transfer
that information to you. In your opinion, you
understand his -- is that --

MR. BILKEY: I know nothing about this issue and I'm
not even sure I was in Dubai when it took place.

REP. HUNTER: Well, then if he is the ruler of Dubai,
is that a fairly absolute position? Does that mean
that the emir has a -- is the -- has the ability to
stop a shipment, if he wanted to stop it from going
through Dubai? Send the police down, send the Port
Authority down? You understand the nature of his -- of
the government there?

MR. BILKEY: Yes, sir, but I can't comment on his
authority levels and how he would do them.

REP. HUNTER: Is there anybody else in Dubai who
supersedes him?

MR. BILKEY: No, sir, not in Dubai.

REP. HUNTER: If you discovered -- if you were informed
that in fact he, through his subordinates, discussed
this trans-shipment of these high speed switches that
can detonate nuclear devices with the United States
officials and told them he was going to allow the
trans- shipment anyway or allowed his subordinates to
allow the trans- shipment, would that be relevant from
your perspective with respect to this deal? This port
deal? Or would it be irrelevant?

MR. BILKEY: Well, I would imagine, sir, that the -- it
would be a matter between -- not Dubai, but the UAE
and the U.S. government. And it would be the UAE that
would be taking action.

REP. HUNTER: Now, what is this gentleman's name? Say
it one more time. The emir?

MR. BILKEY: The emir? Mohammed bin Rashid al Maktoum.

REP. HUNTER: Isn't he also the vice president of the

MR. BILKEY: Yes, sir, and the prime minister.

REP. HUNTER: Well, then in that case we're talking
about the same guy. I don't care if he moves from one
desk to another and you say you're dealing with the
UAE now and you're not dealing with Dubai, it looks to
me like you've got the same power in government behind
both of those desks.

So my question to you is -- and the same guy who's the
only shareholder in the corporation. Would he not be
in a position to have stopped those high speed
switches that can be used to detonate nuclear devices?
Would he be in a position to stop a shipment? What's
your basic take on the way the government is set up?
Is there somebody who's --

MR. BILKEY: I can't answer that, sir, because I'm not
a specialist on the government of the UAE. They have a
council of ministers and I don't know how they
function exactly.

REP. HUNTER: Okay. Are you aware of any of the -- or
have you heard anything or have you been faintly aware
of any of these trans- shipments that have taken place
with respect to either the precursors to nerve gas, a
trans-shipment to Iran of precursors of nerve gas? The
66 high speed nuclear weapons switches that I talked

The heavy water shipments from China and Russia to
India through Dubai? Have you ever heard of any of
those transfers?

MR. BILKEY: No, sir.

REP. HUNTER: And you're the chief operating officer
for Ports Dubai?

MR. BILKEY: And I don't even know when they took
place. But what I can tell you is that since the CSI
agreement was signed between the UAE and the United
States, that any container that U.S. Customs,
trans-shipment or not, wishes to inspect, they have
the agreement -- they have the right to inspect. And
not only that, in most countries it will be the agency
of the country that will make the inspection. In Dubai

REP. HUNTER: But they didn't stop the shipment of
those --

MR. BILKEY: Well, I have even no idea of the years
that we're talking or when it was -- when we're
talking about. But I do know what the situation is
now, and that's what interests me most, the security
from now going forward. And I do know that it's a very
unique situation that we have, and I know that we have
very strong operations supporting the efforts in
Afghanistan, in Iraq going through Dubai at the
present time.


REP. WELDON: Okay, thank you. And do we have anybody
else with questions?

Yes, the gentleman from --

REP. ROBERT ANDREWS (D-NJ): Thank you, Mr. Chairman.
I'm going to be very brief, because I think we've
exhausted this.

But one thing I want to make very clear on the record
to -- is it Mr. Bilkey -- I'm sorry -- correct? Is the
CEO? Thank you for your patience and for your
diligence. The prime minister of Dubai is the sole
shareholder of corporation, correct?

MR. BILKEY: Yes, sir.

REP. ANDREWS: Am I correct in assuming under Dubai law
that if he chose to dismiss you or any of your
subordinates, he has the power to do so?

MR. BILKEY: That power would be with the board of
directors. The board of directors is made up of Sheikh
Mohammed and Sultan Sulayem.

REP. ANDREWS: Under the law of -- you're a Dubai
corporation, is that correct?

MR. BILKEY: Actually, we're a free -- a Jebel Ali free
zone corporation. But same --

REP. ANDREWS: Under the chartering law of your
corporation, does the sole shareholder have the power
to elect a new board of directors that would follow
his will?

MR. BILKEY: I'm not sure of that, sir.

REP. ANDREWS: Does your counsel know?

MR. DALTON: I am not a Dubai lawyer, but I believe
that the shareholder would have the authority, yes.

REP. ANDREWS: I assume that's the case, that
eventually -- so isn't the practical answer to that
question that should the sole shareholder wish to
change the management, he has the power to do so?

MR. BILKEY: I would think so. It's true in most

REP. ANDREWS: I would think so.

Thank you very much, Mr. Chairman.

REP. WELDON: I thank the gentleman.

With that, we'll move onto the next panel.


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