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Bush, Snow Struggle to Explain Knowledge of Port Deal
Alison Fitzgerald, Jeff Bliss
February 23, 2006

Feb. 23 (Bloomberg) -- President George W. Bush and Treasury Secretary John Snow are struggling to explain why they didn't know until several days ago about a state-owned Dubai company's takeover of seaport facilities in New York and five other U.S. cities.

White House spokesman Scott McClellan acknowledged yesterday that Bush wasn't aware until last weekend that a panel headed by the Treasury had approved the $6.8 billion sale of London-based port operator Peninsular & Oriental Steam Navigation Co. to DP World, based in the United Arab Emirates. Snow said yesterday that he learned of the deal in the past "three or four days."

Members of Congress, including many Republicans, have complained about the sale, citing a lack of disclosure to lawmakers as well as national security concerns. Senate Majority Leader Bill Frist, joined by Democrats, has vowed to push for legislation that would block or delay the transfer.

"We want to have answers. We want to know what's going on," Representative Curt Weldon, a Pennsylvania Republican, said during a news conference in Philadelphia yesterday. "We've been totally shut out of the process."

DP World would gain control of most operations at ports in New York, New Jersey, Philadelphia, Miami, Baltimore and New Orleans through the acquisition of P&O. The company plans to complete the purchase by March 2, which would give lawmakers little time after they come back from a recess next week to block the handover of port lease agreements.

Foreign Investment Committee

Under the foreign investment law, the 12-member Committee for Foreign Investment in the United States has 30 days to review the transaction for security threats. Between 50 and 300 reviews occur each year -- 65 last year -- and few ever command the president's attention, McClellan said.

In this case, the panel, which includes officials from the departments of Defense, State and Homeland Security, had no objections during the 30-day period. If there were security concerns, that would have led to an "extended review" of an additional 45 days, McClellan said, requiring a presidential decision.

The focus on the DP World deal overshadows more urgent vulnerabilities at U.S. ports, according to security specialists such as Veronique de Rugy, a homeland security analyst at the Washington-based American Enterprise Institute and Joseph King, who was chief of the terrorism unit for U.S. Customs.

Inspections and Guards

The U.S. should put more inspectors at overseas ports to examine cargo, de Rugy said. In the U.S., King said, the government for years has relied on private security companies that hire poorly trained, low-wage workers to guard ports.

"The federal government ceded it years ago as a cost savings," he said.

De Rugy also said that terminal operators play a minor role in security. "They are middle managers who tell longshoremen where and when to unload cargo," she said.

Both DP World and the Bush administration said there are no plans to change the deal.

"We have not ever contemplated or considered selling the U.S. ports," Yuvraj Narayan, the company's senior vice president for corporate strategy, said in an interview in Dubai. This is "an approved transaction," he said.

McClellan said he knew of no talks between the U.S. and DP World to extend the deadline on closing the deal. The FCIUS approval could be reopened only if there were "false or misleading information" submitted for the review, he said.


U.S. Attorney General Alberto Gonzales said the agreement includes provisions intended to enhance port security.

"The United States government did request specific assurances from the parties involved in this transaction," Gonzales said on CNBC. "Those assurances have been given."

He didn't give specifics. The Associated Press, citing documents obtained by the wire service, reported that DP World agreed to cooperate with U.S. investigations and reveal records on demand about "foreign operational direction" of its business. The agreement doesn't force the company to keep copies of business records on U.S. soil, where they would be subject to court orders, the AP reported.

The administration didn't anticipate the uproar the sale caused. The transaction was examined for security concerns and not for its political impact, McClellan said.

No Political Review

"I don't think anybody during this process was looking at it in any way other than the national security standpoint," McClellan said yesterday. The administration "should have been briefing members of Congress sooner, given all the attention that has been focused on this."

Treasury's assistant secretary for international affairs, Clay Lowery, said department officials intended to brief members of Congress on the transaction last week, only to have the companies announce the approval first.

To quell the political storm, White House officials started briefing lawmakers yesterday on the sale and the security issues involved in it.

The administration is getting some assistance in defending the deal from three senior Republican senators whose views on security matters carry weight in the chamber: John Warner of Virginia, chairman of the Armed Service Committee; John McCain of Arizona, and Ted Stevens of Alaska, chairman of the Commerce Committee. All three have called for lawmakers to look at the case before throwing up roadblocks.

`The Right Thing'

Warner, a former Navy secretary and a five-term senator, is holding a briefing for his committee today with representatives from the departments and agencies involved in the approval.

"I anticipate that the views of the commander-in-chief will eventually prevail, and that the country will settle back and suddenly realize -- maybe not suddenly, but gradually realize --that the administration did the right thing," Warner said on the Fox News Channel yesterday.

The company also is going on the offensive. CNN reported that DP World hired former Republican Senate Leader Bob Dole to lobby Congress. The company's chief operating officer, Ted Bilkey, also was interviewed on the network.

"There is a complete misconception about security," Bilkey told CNN. "Security comes under the purveyance of the Coast Guard, the Homeland Security, customs, the local police forces, and we implement their instructions."

UAE Record

The UAE has a mixed record in fighting terrorism.

The country handed over a suspect wanted for the bombing of the USS Cole in 2000, said Bader Binsaeed, a spokesman for the UAE embassy in Washington.

Yet two of the men who participated in the Sept. 11 attacks were UAE citizens, and the plotters used the country's banks to funnel money to the operation. The UAE was one of only three governments -- the others were Pakistan and Saudi Arabia -- that recognized the Taliban regime in Afghanistan before Sept. 11. The UAE was the first of the three to sever relations after the terrorist attacks.

"The United Arab Emirates was becoming both a valued counterterrorism ally of the United States and a persistent counterterrorism problem," according to the report of the independent commission that investigated the attacks. It called the UAE "the Taliban's only travel and financial outlets to the outside world" before Sept. 11.

Weldon said the U.S. has put too much faith in the UAE. The country is "not a strategic ally of ours," he said at a news conference in Philadelphia yesterday.

To contact the reporters on this story:
Alison Fitzgerald in Washington at  Afitzgerald2@bloomberg.net;
Jeff Bliss in Washington at  jbliss@bloomberg.net

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