The Los Angeles Times, in two articles about the Dubai Ports World deal to acquire operational control of six U.S. ports, omitted reference to a U.S. law calling for further investigation of business deals with possible national security implications and to a government report sharply criticizing what it called an overly narrow application of that law.
In two February 23 articles about the Bush administration's controversial decision to permit Dubai Ports World -- a company owned by the government of the United Arab Emirates -- to acquire operational control of six U.S. ports, the Los Angeles Times reported that the deal had been approved by the Committee on Foreign Investments in the United States (CFIUS) without noting that CFIUS did not initiate a formal 45-day investigation of the deal and that CFIUS has been criticized for its failure to investigate other deals with possible national security implications.
CFIUS is composed of officials from cabinet-level and Executive Office agencies, including the Departments of Treasury, Defense, Justice, and Homeland Security. As The New York Times noted, a September 2005 report by the Government Accountability Office (GAO) -- the nonpartisan investigative arm of Congress -- criticized CFIUS' failure to investigate potential national security concerns arising from foreign direct investment in the United States.
From the February 23 Los Angeles Times article, "Critics Unload on Port Deal," by Evelyn Iritani, Nicole Gaouette, and Ronald D. White:
President Bush has threatened to veto any attempts to block Dubai Ports World's acquisition [of Britain's Peninsular & Oriental Steam Navigation Co., the current operator of the ports], which was approved by a panel of U.S. officials charged with reviewing whether transactions by foreign companies might compromise national security. At a White House briefing Wednesday, administration spokesman Scott McClellan said the transaction wouldn't raise the terrorism threat in any way.
"This transaction, if blocked, would not change security at ports one iota," he said.
Before getting the approval of the Committee on Foreign Investments in the United States, Dubai Ports World agreed to enforce the existing security standards at U.S. ports, maintain personnel and share operational information such as security measures and employee backgrounds with the U.S. government, U.S. Trade Representative Rob Portman said during a news briefing. But the interagency panel didn't impose other routine restrictions, including requiring the company to keep copies of business records on U.S. soil, Associated Press reported Wednesday.
From the February 23 Los Angeles Times article, "GOP Allies Abandon Bush in Fight Over Arab Port Deal," by Peter Wallsten and Richard Simon:
White House spokesman Scott McClellan, in defending the deal Wednesday, disclosed that Bush had learned of it only in the past "several days" from media reports. At that point, representatives of several Cabinet offices already had approved the transaction, as required by U.S. law.
The deal was announced late last year and approved this month by the Committee on Foreign Investment in the United States, whose members include midlevel officials of the Defense and Homeland Security departments.
McClellan said the committee's decision was viewed as a routine matter that did not "rise to the presidential level."
"This transaction was closely scrutinized to make sure that there were no national security threats," McClellan said. "There were no objections raised by any of the departments that are charged with being involved in this process. And that's why it didn't rise up to the presidential level."
Under the Exon-Florio amendment to the 1988 Defense Appropriations Act, after an initial 30-day review, "the president or his designee" may initiate a formal 45-day investigation into whether a contract for foreign direct investment in the U.S. threatens national security. This power has been designated to CFIUS. While CFIUS conducted an initial 30-day review of the Dubai Ports World deal, it opted not to launch an investigation -- a fact not noted by the Los Angeles Times articles.
Unlike the Los Angeles Times, The New York Times did note in a February 23 article that CFIUS did not conduct the 45-day investigation provided for by statute if the acquisition has the potential of affecting national security. The New York Times further noted that a September 2005 GAO report -- issued one month before CFIUS reviewed the port deal -- criticized CFIUS for investigating only eight of the 470 deals it reviewed since 1997 and "said the Treasury Department, as head of the interagency committee that reviews such deals [CFIUS], had used an overly narrow definition of national security threats because it wanted to encourage foreign investment."
The GAO report found that as a result of the Treasury Department's "narrow" definition of national security, concerns raised by the Departments of Defense, Justice, and Homeland Security have gone unaddressed:
The manner in which the Committee implements Exon-Florio may limit its effectiveness because (1) Treasury, in its role as Chair, has narrowly defined what constitutes a threat to national security and (2) the Committee is reluctant to initiate a 45-day investigation because of a perceived negative impact on foreign investment and a conflict with the U.S. open investment policy. As a result of the narrow definition, some issues that Defense, Homeland Security, and Justice officials believe have important national security implications, such as security of supply, may not be addressed. In addition, the reluctance to initiate the 45-day investigation compresses the time available to consider issues. This compressed time frame limits agencies' ability to complete their analysis of some cases.
The GAO specifically noted that in contrast to the Treasury Department's prevailing view, other CFIUS members have argued that national security concerns can arise from "foreign control of critical infrastructure":
Despite the broad coverage of the factors under the statute, Treasury and some other Committee member agencies have continued to view threats to national security in the traditional and more narrowly defined sense. That is, they based their definition on a U.S. company's possession of export-controlled technologies or items, classified contracts, and critical technology; or specific derogatory intelligence on the foreign company. The Departments of Justice and Defense have applied a broader view of what might constitute a threat to national security. And since being added to the Committee, the Department of Homeland Security has begun to analyze acquisitions both in traditional terms and more broadly in terms of the potential vulnerabilities posed by the acquisition. According to Justice, Homeland Security, and Defense officials, vulnerabilities can result from foreign control of critical infrastructure, such as control of or access to information traveling on networks.
In its conclusions, the GAO noted that in the aftermath of the September 11, 2001, terrorist attacks, "vulnerabilities in areas such as the nation's critical infrastructure have emerged as potential threats." The GAO added that "Exon-Florio provides the latitude for the Committee on Foreign Investment in the United States to address these threats," but that "[t]he narrow, more traditional interpretation of what constitutes a threat to national security fails to fully consider the factors currently embodied in the law."
According to the GAO, officials from the Defense Department and other agencies have also objected to the Treasury Department's policy of requiring "credible evidence that the foreign controlling power may take action to threaten national security" before an investigation can even begin.
In addition, a February 23 Washington Post article noted that a 1993 amendment to Exon-Florio mandates a 45-day investigation if "the acquirer is controlled by or acting on behalf of a foreign government" and the acquisition "could result in control of a person engaged in interstate commerce in the U.S. that could affect the national security of the U.S." The Post reported that Patrick Mulloy, a member of the U.S.-China trade commission, "said that Treasury officials throughout the Clinton and Bush administrations have routinely ignored the 1993 language." From the Post article:
Under a 1993 amendment to the law that helped create the review panel, a more rigorous 45-day investigation is automatically required if "the acquirer is controlled by or acting on behalf of a foreign government" and the acquisition "could result in control of a person engaged in interstate commerce in the U.S. that could affect the national security of the U.S."
Patrick Mulloy, a member of the government-appointed U.S.-China trade commission and a critic of the approval process, said that Treasury officials throughout the Clinton and Bush administrations have routinely ignored the 1993 language.
"The culture of the department is to oppose [the longer review] as an impediment to foreign investment," he said.