Wall Street Journal, LA Times ignored that CFIUS originally declined to investigate port deal

››› ››› JEREMY SCHULMAN

Articles in The Wall Street Journal and Los Angeles Times both noted that the state-owned Dubai Ports World has agreed to a 45-day investigation of the potential national security implications of its bid to acquire operational control of six U.S. ports. However, both articles omitted the highly relevant fact that the Committee on Foreign Investments in the United Sates opted not to conduct such an investigation when it first reviewed the deal.

In March 3 articles, The Wall Street Journal (subscription required) and Los Angeles Times noted that the state-owned Dubai Ports World (DPW) has agreed to a 45-day investigation of the potential national security implications of its bid to acquire operational control of six U.S. ports. But both articles omitted the highly relevant fact that the Committee on Foreign Investments in the United Sates (CFIUS) -- the Bush administration panel that initially approved the acquisition and will now investigate it -- opted not to conduct such an investigation when it first reviewed the deal. Moreover, both articles quoted members of Congress criticizing the deal in committee hearings but failed to note that during these same hearings, these congressional members asserted that the Bush administration was legally required to conduct a 45-day investigation of the deal.

A federal law known as the Exon-Florio provision requires a 30-day review of direct foreign investment in the United States and provides for an additional 45-day investigation of potential national security implications. CFIUS did not conduct a 45-day investigation of the DPW deal. Instead, it approved the deal after only the initial review.

DPW is owned by the government of Dubai, a member state of the United Arab Emirates -- a country that some major media outlets have said has a "mixed" record on terrorism. A 1993 amendment to Exon-Florio -- known as the Byrd Amendment -- 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."

As a result, Republicans and Democrats have argued that the Bush administration flouted the law by initially approving the deal without the additional investigation. For example, in a February 22 USA Today op-ed, Sen. Charles E. Schumer (D-NY) and Rep. Peter King (R-NY) wrote that "CFIUS only completed a brief 23-day staff review and didn't even begin the 45-day investigation required by law." Neither the Times nor the Journal mentioned this argument.

Following congressional and public criticism of the deal, DPW and the Bush administration agreed to have CFIUS conduct a 45-day investigation.

In the Times article, staff writers Joel Havemann and Richard Simon noted that at a March 2 House Armed Services Committee hearing, "legislators castigated" CFIUS members for their initial approval of the deal "at a relatively low level of the bureaucracy," but the Times did not mention that CFIUS had opted not to conduct the 45-day investigation provided for by federal law.

From the March 3 Los Angeles Time article, "Bill Targets Foreign Role at U.S. Sites":

A British court Thursday denied a legal challenge to the takeover, which, if appeals fail, will become final next week. But the company has separately agreed to postpone taking over management of the U.S. terminals for 45 days to give the Committee on Foreign Investment[s] in the United States time to subject the takeover to greater scrutiny. That committee, made up of 12 government representatives, determines whether national security might be compromised when foreign companies seek to buy American industry or invest in it.

Legislators castigated members of the foreign investment committee for initially approving the purchase at a relatively low level of the bureaucracy, with no involvement of Congress, Bush or his Cabinet.

The Times quoted from Armed Services Committee chairman Duncan Hunter's (R-CA) opening statement at the hearing:

"We seem to be our own worst enemies," Hunter said at Thursday's hearing. "We should require critical U.S. infrastructure to remain in U.S. hands."

But the Times did not report that in that same statement, Hunter criticized CFIUS for originally failing to investigate the deal's national security implications and suggested that such an investigation was "warranted" under the Byrd Amendment.

From Hunter's March 2 written statement:

HUNTER: 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.

It was only the huge public outcry and the pressure from the Congress that ultimately led to increase scrutiny of the DP World deal. Recently the officers of DP World requested that CFIUS conduct the 45-day investigation.

Moreover, in uncritically reporting that CFIUS -- which initially approved the deal -- "determines whether national security might be compromised when foreign companies seek to buy American industry or invest in it," the Times ignored questions about whether the committee actually looked into security concerns during its initial 30-day review. In a March 1 interview with CNN, King reportedly told congressional correspondent Ed Henry that he spoke with officials from the Departments of Treasury and Homeland Security who were involved in CFIUS' approval of the deal. King said:

KING: I started asking questions about, did you check the al Qaeda connections of the companies, of anyone who was there before 9/11 who's still there now who could pose a problem? And I was told, "Well, Congressman, you don't understand, we don't conduct a thorough investigation. We just ask the intelligence director, 'Was there anything on file?' And he said no."

[...]

KING: No, I can't emphasize enough, there has been no investigation into terrorism whatsoever on this contract.

On March 2, the Times reprinted a Baltimore Sun article that reported that "King's account ... seemed to contradict the testimony of administration officials, including Director of National Intelligence John D. Negroponte, who have said repeatedly that the earlier review resolved any national security questions." But the Times omitted this information from its March 3 article.

Similarly, the Journal article (subscription required) -- by reporters Greg Hitt and Jason Singer -- noted that "the Bush administration is preparing to open a new 45-day investigation of the national-security implications of that deal," but did not mention that the administration never conducted a 45-day investigation to begin with. The Journal added that a British judge who reviewed the deal "noted" that CFIUS "gave the proposed acquisition a clean bill of health."

The Journal also noted that at a March 2 Senate Banking Committee hearing, senators criticized the administration's approval of the deal. According to the Journal, "The deal was cleared by a U.S. interagency panel in January after a security-risk investigation that was 'deeply flawed,' charged Maryland Sen. Paul Sarbanes, the panel's top-ranking Democrat." But the Journal made no effort to explain why Sarbanes believed the process was "deeply flawed." In fact, in the same statement, Sarbanes explained his view that the administration violated the law by failing to conduct a 45-day investigation into the deal's national security implications. From Sarbanes's written statement:

SARBANES: Exon-Florio was amended in 1992, most importantly to mandate a 45 day investigation if a foreign government-owned company acquired a company in the U.S. whose operations relate to the national security. The 1992 amendment also required a report to Congress by the President after the conclusion of any Exon-Florio investigation; in that report to the Congress, the President was charged by the statute to provide a "detailed explanation" of why he had either permitted or rejected the acquisition in question.

[...]

Exon-Florio states that:

"The President or the President's designee shall make an investigation, as described in subsection (a), in any instance in which an entity controlled by or acting on behalf of a foreign government seeks to engage in any merger, acquisition, or takeover which could result in control of a person engaged in interstate commerce in the United States that could affect the national security of the United States."

How could one reasonably question the fact that the Government of Dubai's control of the corporation that their operating of major terminals in some of the largest ports in the United States "could affect national security"? Port security is a major component of our defenses against terrorism. Our ports are critical to the national economy and to our conduct of international trade. And our ports employ tens of thousands of our citizens. Still, despite ownership of DPW by the Government of Dubai, no 45-day investigation occurred.

I co-sponsored the 1992 amendment to Exon-Florio that provided for a 45 day investigation. Senator Robert Byrd, the sponsor of the amendment, said on the floor when the amendment was being considered that:

"[I]t requires that any acquisition that involves a company controlled by a foreign government, as was the case with Thomson's attempt to buy LTV Corp.'s missile division, must automatically receive the more detailed 45-day investigation."

Like the Times, the Journal also quoted from Hunter's March 2 statement without noting his concerns about CFIUS' apparent failure to comply with the Byrd Amendment.

From the March 3 Wall Street Journal article, "White House Fails To Calm Port Furor":

The deal was cleared by a U.S. interagency panel in January after a security-risk investigation that was "deeply flawed," charged Maryland Sen. Paul Sarbanes, the panel's top-ranking Democrat.

[...]

"This problem is not going away," said House Armed Services Chairman Duncan Hunter (R., Calif.). Mr. Hunter said he will introduce legislation to force foreign companies to divest holdings of U.S. infrastructure assets deemed important to national security.

Ostensibly at DP World's request, the Bush administration is preparing to open a new 45-day investigation of the national-security implications of that deal. During the investigation, the company has pledged it will "not influence or attempt to influence" any of the U.S. operations.

[...]

The British judge said he reviewed legislation proposed in the U.S. to potentially block the deal and considered DP World's response to the furor. He said Eller is at least partly to blame for fanning the uproar over the deal and noted the U.S. Committee on Foreign Investment, the 12-member interagency panel that reviews foreign transactions, gave the proposed acquisition a clean bill of health.

Posted In
National Security & Foreign Policy
Network/Outlet
Wall Street Journal, Los Angeles Times
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