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Misunderstandings cloud CFIUS process

Misunderstandings cloud CFIUS process

   The mid-level professionals who conduct security clearances for sensitive foreign investments do so in an apolitical manner, but the review process needs the involvement of some senior officials who understand the political climate and can shepherd the decision past a skeptical Congress, according to former FBI and CIA Director William Webster.

   The staff experts and assistant secretaries who approved the sale of port assets to a United Arab Emirates-owned company appear to have exercised sound judgment from a national security perspective, but were tone deaf to how their decision would appear to the general public, he said.

   The Committee for Foreign Investment in the United States (CFIUS) is chaired by the Treasury secretary and comprises representatives from a dozen Cabinet-level agencies and departments. In the case of Dubai Ports World’s acquisition of Peninsular and Oriental Steam Navigation Co., the group conducted a 30-day review of the sale (in addition to several of weeks of review prior to a formal filing) and reached a unanimous decision that the sale did not pose a threat to U.S. national security. President Bush, Defense Secretary Donald Rumsfeld, Department of Homeland Security Secretary Michael Chertoff and his deputy, Michael Jackson, as well as Treasury Secretary John Snow and Deputy Secretary Robert Kimmitt, all have admitted they were not aware of the transaction until well after it was approved or news of it broke in the press.

   Critics have charged that the committee was secretive about its deliberations and didn’t take the time to conduct a lengthier investigation, but successive administrations during the past 15 years have interpreted the Exon-Florio amendment regarding foreign investment to mean that an additional 45-day investigation is only triggered if one of the agencies involved registers a concern. And confidentiality laws designed to protect sensitive proprietary information so that foreign companies are not discouraged from investing in the United States have limited the amount of information officials have felt they can share with Congress prior to granting prior approval.

   The problem in the Dubai port case is that mid-level officials treated their CFIUS review as a routine matter and did not notify department secretaries and Congress about their deliberations along the way, Webster said.

   “A certain amount of transparency is always advisable when dealing with sensitive issues and, if you get out in front of a problem before it occurs then the leadership of the Congress is usually responsive,” Webster said during a panel discussion of the sale at the Center for Strategic and International Studies in Washington. Webster advised the administration to consult with Congress through the House and Senate select committees on intelligence.

   “We need some kind of understanding that these things have political potential” to be misunderstood, he said.

   Webster suggested that the administration find “a way of making sure that those who do this work pass it through to someone with a little more finely tuned ear, who says, ‘We should be talking to the leaders in Congress about this,’ not to get their approval, but to show that we have done our homework.”

   During a House Finance Committee hearing Wednesday, Rep. Barney Frank, D-Mass., said the fact that some administration officials were surprised by the public’s outrage about the sale should require them to attend an “antenna development” program “because I am surprised that some of you were surprised.

   “You people need a political common sense transfusion,” he told Deputy Treasury Secretary Robert Kimmitt and Michael Jackson, deputy secretary for homeland security.

   The Bush administration, stunned by the reaction to the ports deal, has already moved in that direction by notifying leaders of Congress this week that it has opened 45-day investigations into the proposed acquisition of several military component plants by another state-owned company in Dubai and of a security software company by an Israeli firm.

   But the lines of communication are still not good enough for some lawmakers. Rep. Peter King, chairman of the House Homeland Security Committee, complained that he learned about the second Dubai investigation from news reports, according to the New York Times.

   Legislation to reform the CFIUS process is already in the works on Capitol Hill.

   The United States needs to get past the controversy over the DP World sale and focus on fixing deficiencies in the cargo security regime implemented in the past five years, said James Loy, a former deputy secretary of homeland security and commandant of the Coast Guard. There are many good programs focused on cargo and port security, but they are pieces of an puzzle that has yet to be properly integrated, he said.

   When the world has an integrated global supply chain security system “we will be better able to see how a DP World-type transaction affects security” or not, he said.

   The perception that the executive branch rubber-stamped approval of the port deal was fueled by Monday’s revelation that Coast Guard intelligence had raised concerns during the review process about intelligence gaps in DP World’s operations. Administration officials said the reference was one small unclassified section of a larger classified report that ultimately concluded there were no security risks. Coast Guard officials said that the concerns were normal questions raised early in the process and did not mean officers were against the deal.

   The Coast Guard began conducting additional audits of P&O facilities subsequent to the CFIUS approval because it wanted to develop a security baseline from which to evaluate DP World, not to close any gaps in intelligence, Rear Adm. Craig E. Bone, director of inspections and compliance, told a crowd of about 200 people at CSIS.

   The baseline inspections are useful so that DP World “can’t make an assertion that they have any security problems as a result of what they took over and that they have in fact assumed an entity that has security problems to begin with,” he said.

   Jayson Ahern, assistant commissioner in charge of field operations, flatly denied the charge leveled by Sen. Charles Schumer, D-N.Y., that DHS also ignored security concerns raised by Customs and Border Protection.

   Ahern, who noted that Schumer didn’t produce any evidence for his assertion, said he was the individual who cleared the sale at CBP and said he saw “no derogatory material” about DP World.