The Bush administration has approved the takeover of British-owned Peninsular & Oriental Steam Navigation Co. to DP World, a deal set to go forward March 2 unless Congress intervenes.
P&O is the parent company of P&O Ports North America, which leases terminals for the import and export and loading and unloading and security of cargo in 21 ports, 11 on the East Coast, ranging from Portland, Maine to Miami, Florida, and 10 on the Gulf Coast, from Gulfport, Miss., to Corpus Christi, Texas, according to the company's Web site.
President George W. Bush on Tuesday threatened to veto any legislation designed to stall the handover.
Sen. Hillary Clinton, D-N.Y. said after the briefing she expects swift, bi-partisan approval for a bill to require a national security review before it is allowed to go forward.
At issue is a 1992 amendment to a law that requires a 45-day review if the foreign takeover of a U.S. company "could affect national security." Many members of Congress see that review as mandatory in this case.
But Bush administration officials said Thursday that review is only triggered if a Cabinet official expresses a national security concern during an interagency review of a proposed takeover.
"We have a difference of opinion on the interpretation of your amendment," said Treasury Department Deputy Secretary Robert Kimmitt.
The Committee on Foreign Investment in the United States, comprised of officials from 12 government departments and agencies, including the National Security Council and the Department of Homeland Security, approved the deal unanimously on January 17.
"The structure of the deal led us to believe there were no national security concerns," said Homeland Security Deputy Secretary Michael P. Jackson.
The same day, the White House appointed a DP World executive, David C. Sanborn, to be the administrator for the Maritime Administration of the Department of Transportation. Sanborn had been serving as director of operations for Europe and Latin America at DP World.
Senate Armed Services Committee Chairman John Warner, R- Va., said he will request from both the U.S. attorney general and the Senate committee's legal counsel a finding on the administration's interpretation of the 1992 amendment.
Adding to the controversy is the fact Congress was not notified of the deal. Kimmitt said Congress is periodically updated on completed CFIUS decisions, but is proscribed from initiating contact with Congress about pending deals. It may respond to congressional inquiries on those cases only.
Iowa Republican Sen. Charles Grassley stated in a letter to Bush on Feb. 21 that he specifically requested to be kept abreast of foreign investments that may have national security implications. He made the request in the wake of a controversial Chinese proposal to purchase an oil company last year.
"Obviously, my request fell on deaf ears. I am disappointed that I was neither briefed nor informed of this sale prior to its approval. Instead, I read about it in the media," he wrote.
According to Kimmitt, the deal was reported on in major newspapers as early as last October. But it did not get critical attention in the press until the Associated Press broke the story Feb. 11 and the Center for Security Policy, a right-leaning organization, wrote about it Feb. 13. CSP posited the sale as the Treasury Department putting commerce interests above national security.
Kimmitt said because the 2005 Chinese proposal had caused such an uproar before it ever got to CFIUS, the lack of reaction to the Dubai deal when it was reported on last fall suggested it would not be controversial enough to require special notification of Congress.
Central to the debate is the fact that the United Arab Emirates, while a key ally of the United States in the Middle East, has had troubling ties to terrorist networks, according to the Sept. 11 Commission report. It was one of the few countries in the world that recognized the al-Qaida-friendly Taliban government in Afghanistan; al-Qaida funneled millions of dollars through the U.A.E. financial sector; and A.Q. Khan, the notorious Pakistani nuclear technology smuggler, used warehouses near the Dubai port as a key transit point for many of his shipments.
Since the terrorist attacks, it has cut ties with the Taliban, frozen just over $1 million in alleged terrorist funding, and given the United States key military basing and over-flight rights. At any given time, there are 77,000 U.S. service members on leave in the United Arab Emirates, according to the Pentagon.
Deputy Defense Secretary Gordon England warned that the uproar about the United Arab Emirates involvement in U.S. ports could risk alienating the very countries in the Middle East the United States is trying to court as allies in the war on terrorism.
"It's very important we strengthen bonds ... especially with friends and allies in the Arab world. It's important that we treat friends and allies equally around the world without discrimination," he said.
The security of port terminal operations is a key concern. More than 7 million cargo containers come through 361 American ports annually, half of the containers through New York-New Jersey, Los Angeles and Long Beach, Calif. Only a small percentage are physically searched and just 37 percent currently screened for radiation, an indication of an attempt to smuggle in nuclear material that could be used for a "dirty bomb."
After the September 11 terrorist attacks, the government began a new program that required documentation on all cargo 24 hours before it was loaded on a ship in a foreign port bound for the United States. A "risk analysis" is conducted on every shipment, including a review of the ship's history, the cargo's history and contents and other factors. Each ship must also provide the U.S. government 96 hours notice of its arrival in an American port, along with a crew manifest.
None of the nine administration officials assembled for the briefing could immediately say how many of the more than 3,000 port terminals are currently under foreign control.
Port facility operators have a major security responsibility, and one that could be exploited by terrorists if they infiltrate the company, said Joe Muldoon III. Muldoon is an attorney representing Eller & Co., a port facility operator in Florida partnered with M&O in Miami. Eller opposes the Dubai takeover for security reasons.
"The Coast Guard oversees security, and they have the authority to inspect containers if they want and they can look at manifests, but they are really dependent on facility operators to carry out security issues," Muldoon said.
The Marine Transportation Security Act of 2002 requires vessels and port facilities to conduct vulnerability assessments and develop security plans including passenger, vehicle and baggage screening procedures; security patrols; establishing restricted areas; personnel identification procedures; access control measures; and/or installation of surveillance equipment.
Under the same law, port facility operators may have access to Coast Guard security incident response plans -- that is, they would know how the Coast Guard plans to counter and respond to terrorist attacks.
"The concern is that the UAE may be our friend now ... but who's to say that couldn't change, or they couldn't be infiltrated. Iran was our big buddy," said Muldoon.
In a January report, the Council on Foreign Relations pointed out the vulnerability of the shipping security system to terrorist exploitation.
Since the Sept. 11 terrorist attacks, the U.S. customs agency requires shippers to follow supply chain security practices. Provided there are no apparent deviations from those practices or intelligence warnings, the shipment is judged low risk and is therefore unlikely to be inspected.
CFR suggests a terrorist event is likely to be a one-time operation on a trusted carrier "precisely because they can count on these shipments entering the U.S. with negligible or no inspection."
"All a terrorist organization needs to do is find a single weak link within a 'trusted' shipper's complex supply chain, such as a poorly paid truck driver taking a container from a remote factory to a port. They can then gain access to the container in one of the half-dozen ways well known to experienced smugglers," CFR wrote.