How did the CFIUS review process work?

We have to find ways to function comfortably in the world, and at reasonable cost, despite the revolution in terror tactics pioneered by al Q'aeda (Kash is right).

Getting the security review of foreign investments right is an important part of this.  The review process has to provide a politically viable vetting of potential security issues, and an opportunity to address potential problems without necessarily stopping a deal.  The review has to be conducted in a timely manner.

So a review of the review process is important.  The Dubai Ports World controversy provides a good opportunity.

The review process was carried out by the Committee on Foreign Investments in the United States (CFIUS) .

In 2005, Ronald Lee, an attorney with Arnold and Porter in D.C., discussed the CFIUS process in an article in The M & A Lawyer: The Dog Doesn’t Bark: CFIUS, the National Security Guard Dog With Teeth .    Lee was deeply involved with security issues in the Clinton administration.
He predicted this much accurately:

Expect the unexpected. CFIUS’s handling of a notified transaction may proceed quietly and routinely and end in 30 days or less. On the other hand, the involvement of Congressional leaders and foreign governments, media attention, or the emergence of additional national security concerns—particularly just as CFIUS’ review appears to be nearing a resolution—may pose a continuing gauntlet of challenges.

Lee is writing for other lawyers who may find themselves involved in the process.  In 2005, he saw the CFIUS review process as a meaningful one, but doesn't provide many details to support the assertion.

The Government Accountability Office (GAO) saw some problems with the process in 2002 (Defense Trade: Mitigating National Security Concerns under Exon-Florio Could Be Improved, GAO-02-736, September 12, 2002 )

The Committee's process for implementing Exon-Florio contains the following weaknesses that may have limited effectiveness: (1) the Committee has not established interim protections before allowing withdrawal when concerns were raised and the acquisition had already been completed (2) agreements between the Committee and companies contained nonspecific language that may make them difficult to implement and (3) agreements did not specify responsibility for overseeing implementation and contained few provisions to assist in monitoring compliance.

Here's a somewhat briefer fact sheet on the CFIUS process from the Organization for International Investment: FACT SHEET.  COMMITTEE ON FOREIGN INVESTMENT IN THE UNITED STATES (CFIUS) .

Jim VandeHei and Paul Blustein describe the review of the Dubai Ports World P&O acquisition in tomorrow's Washington Post: Bush's Response To the Ports Deal Faulted as Tardy (WaPo, Feb 26)

The process began on Oct. 17, when representatives of the Dubai company informally approached the Treasury Department to disclose that they were planning to purchase the British firm, Peninsular and Oriental Steam Navigation Co., according to testimony by administration officials at a Senate hearing last week. Treasury officials directed them to consult with Homeland Security because of the port security question.

The executives of Dubai Ports World -- several of whom are American -- well understood that they might face extensive scrutiny.

"You don't have to do this, but I brought a small team here [from Dubai] to meet with the CFIUS agencies in early December," said Edward H. "Ted" Bilkey, the company's chief operating officer and former U.S. Navy officer. The idea was to give the panel plenty of time even before the company formally filed to start a standard 30-day review.

Homeland Security officials, especially in Customs and Border Protection, had high regard for the company, which is owned by the government of Dubai and operates terminals in 19 ports in Asia, Europe and South America. It was the first in the Middle East to participate in a post-Sept. 11 program in which Customs agents are posted overseas to screen containers before they are loaded onto U.S.-bound ships. U.S. intelligence agencies -- who were asked on Nov. 2 for any information they had on the company -- produced nothing "derogatory" about it, Baker said.

Even so, the department had enough qualms to insist on a number of legally binding conditions for approving the deal -- a frequent CFIUS practice. The company pledged to maintain its participation in the Customs program, "and they agreed to open their books, and give us access to records, without any formal legal process," Baker said.

The department also wanted to ensure that the personnel at the U.S. terminals to be taken over by the company would remain almost entirely American. So it extracted a pledge that the company intended to keep the current management of U.S. operations in place.

At the Pentagon, meanwhile, officials were well aware of the United Arab Emirates' checkered history in combating terrorism; it was the home of two of the Sept. 11 hijackers and home of the banking system through which some of the hijackers' money flowed. But far overshadowing those concerns were the country's current role as a key U.S. ally in the Persian Gulf region, said Deputy Defense Secretary Gordon R. England, who noted at last week's hearing that more U.S. Navy ships dock at UAE ports than any port outside the United States.

Accordingly, once Dubai Ports World had agreed to the conditions required by Homeland Security, none of the agencies on CFIUS objected to the transaction when the 30-day review was completed on Jan. 17. If even one agency had objected, the matter would have gone to a 45-day investigation -- which would have required a presidential decision at the end. Moreover, a single dissent would have meant bringing the matter before higher-ranking officials in each department.

But instead, the matter stayed with assistant secretary-level officials, who told the company the transaction could go forward. Treasury officials planned to inform congressional leaders at a regularly scheduled quarterly meeting on Feb. 17. By then, however, the Associated Press had already reported a statement from the firm trumpeting its approval.

Schumer said he sensed the public would be outraged if they knew about the deal and heard bipartisan objections. His Feb. 13 press event was sparsely attended because New York was consumed by a snowstorm and Washington by the Cheney accident. But two days later, after a flurry of private discussions between Schumer and key Republicans, Foley and Rep. John E. Sweeney (R-N.Y.) were pressing Treasury Secretary John W. Snow and Chertoff in public hearings for details on the deal.

The next morning, White House Chief of Staff Andrew H. Card Jr., alerted to the controversy by a lower-level aide in his office, briefed Bush, but there was a general feeling inside the White House that the political storm would blow over. Now, officials are ruing that judgment, and the failure to consult more broadly.

"We've learned from this that we have to make a more affirmative effort to give Congress the input they need to exercise their oversight function," said Deputy Treasury Secretary Robert M. Kimmitt. "Even in cases where security work is done diligently and professionally, we need to make sure broader considerations are taken into account."

Treasury and Homeland Security CFIUS leadership came from:

...At the Treasury Department, which chairs the panel, the highest-ranking official to know about the deal before the furor began to erupt over the weekend of Feb. 11-12 was Clay Lowery, the recently appointed assistant secretary for international affairs, a former career staffer at the Treasury and at the National Security Council.

At the Department of Homeland Security, it was Stewart A. Baker, the assistant secretary for policy, who acknowledged that he was caught flat-footed by the controversy: "I concluded, once we had the assurances we needed [about the security issues], that this was a relatively noncontroversial decision," he said in an interview. "So I didn't brief" either DHS Secretary Michael Chertoff or Deputy Secretary Michael P. Jackson.

Noel Sheppard of the conservative NewsBusters blog posts on a report of an early AP story on the P&O acqusition: Salon’s Walter Shapiro Attributes Port Media Frenzy to the Associated Press (Feb 26).   

In this instance, CFIUS investigation was assisted by the Intelligence Community Acquisition Risk Center (U.S. intelligence agencies backed Dubai Ports World deal , Walter Pincus, Washingon Post, Feb 25):

Reviews by U.S. intelligence agencies supported Dubai Ports World's purchase of the British company running terminals at six U.S. seaports, and the assessments were made available to the Treasury Department-run interagency committee that approved the deal, according to senior administration officials.          

The intelligence studies were coordinated by the Intelligence Community Acquisition Risk Center, a new group under the office of Director of National Intelligence John Negroponte, said one official. The center normally does broad threat analyses of foreign commercial entities that seek to do business with U.S. intelligence agencies.

David Sanger reports that the review may be reopened: Dubai Expected to Ask for Review of Port Deal (New York Times, Feb 26):

After two days of behind-the-scenes negotiations with the Bush administration and Congress, the Dubai company seeking to manage terminals at six American ports is expected to announce by Monday a deal inviting the government to conduct a broad new review of security concerns, senior administration officials and a company adviser say.

If an agreement is completed, the state-owned company, Dubai Ports World, will "voluntarily" ask the Bush administration to pursue the lengthier, deeper investigation that Democrats and Republicans in Congress have been demanding since controversy over the transaction erupted at the beginning of the week.

The White House plans to portray the action as the company's own decision, giving administration officials a face-saving way of backing away from President Bush's repeated declarations in recent days that there is no security risk in having the port terminals operated by a company controlled by the emir of Dubai, part of the United Arab Emirates...

The goal was to try to delay, if not circumvent, a collision with Republican leaders who have been threatening to support some form of Congressional action next week, possibly including a bill to block the company from taking over.

Dubai Ports' purchase of the British company now running the terminals was approved by the Committee on Investment in the United States in mid-January. As recently as Friday, Mr. Bush's national security adviser, Stephen J. Hadley, emphasized that the process was complete. "There's nothing to reopen," he said.

But according to several people involved in the talks, even as Mr. Hadley was speaking, executives of Dubai Ports became convinced that their offer on Thursday to close the deal but to "segregate" the American operations until further briefings were conducted on Capitol Hill would not quiet the controversy.

A new review would essentially allow the government to do the kind of full 45-day assessment of the security implications that the administration argued all last week was unwarranted. Critics of the White House's handling of the situation said the law required the 45-day investigation because Dubai Ports is owned by a foreign state...

If a new investigation is conducted under the terms of a law passed by Congress 14 years ago, the results would be reported to Mr. Bush, who would make a final decision and report to Congress...

Because Mr. Bush has already declared his position on the issue, it is unclear how the administration could conduct a truly independent review. In statements on Tuesday, the president strongly suggested that anti-Arab bias lay behind the protests. The current operator is the Peninsula & Oriental Steam Navigation Company, which is British.

A Jonathan Weisman story in the Post on Monday, Feb 27, describes this scenario coming to fruition (Port Deal To Have Broader Review):

The Bush administration said yesterday that it has accepted a proposal from a Dubai maritime company to conduct a 45-day review of the national security implications of the company's plans to take control of significant operations at six U.S. ports...

The announcement by Dubai Ports World, brokered by the White House and Senate Majority Leader Bill Frist (R-Tenn.)...

The deal was worked out over a series of meetings Friday among Frist, Bilkey, DP World lawyers, Cabinet secretaries and White House officials. Late Friday, Frist recommended to the government of the United Arab Emirates and to House Speaker J. Dennis Hastert (R-Ill.) that DP World request a security review and more clearly spell out how it intended to separate its U.S. operations from port management around the world.

DP World executives and their lawyers worked through the agreement all day Saturday, while GOP leaders in Congress and White House officials focused on the next political steps. Ueland said Frist is pleased with yesterday's company statement, indicating it comported with his expectations.

Revision - more text from Feb 24 Post story on Feb 26.  Text from Feb 27 Post story on Feb 26.

Comments

[m3 karte]

Hi,
Yes CFIUS was created in 1975 by executive order (in reaction to Middle East investments) and was charged with monitoring the impact of and coordinating U.S. policy on foreign investment in the United States but had no explicit enforcement power....