Kimmitt Didn't Make Good on Pledge, Fueling Port Row (Update2)

By Alison Fitzgerald

Feb. 24 (Bloomberg) -- Deputy Treasury Secretary Robert Kimmitt, facing an outcry from Congress about the process for approving foreign investment in the U.S., promised lawmakers yesterday that he'll keep them better informed.

It wasn't the first time. Just four months ago, Kimmitt appeared before a Senate committee and made the same promise to lawmakers who said the process was too secretive.

Congressional anger at the Treasury Department's lack of consultation after promising to keep lawmakers in the loop helps explain the intensity of the debate over the $6.8 billion purchase of Peninsular & Oriental Steam Navigation Co. by DP World, based in the United Arab Emirates. It may also lead to an overhaul of the way the Committee on Foreign Investment in the United States, the Treasury-led panel that approved the deal, operates.

``It's inevitable that there will be changes to create more transparency in the process in the future,'' said David Marchick, an international trade lawyer at Covington & Burling in Washington and a former deputy assistant U.S. secretary of state. In the case of the DP World deal, he predicted that ``the administration and Congress will work out some process by which there is additional scrutiny of this transaction, so that transaction is allowed to go forward.''

Senator Hillary Clinton, a New York Democrat, said legislation will be introduced next week to order a 45-day investigation into whether national security would be compromised by the deal.

`Without Consultation'

``This decision was made without any consultation with Congress,'' said Senator Carl Levin of Michigan, the senior Democrat on the Armed Services Committee. President George W. Bush's administration used a ``casual approach'' to the proposed purchase, he said. Republicans, including Senate Majority Leader Bill Frist and House Speaker Dennis Hastert, also oppose the transaction.

In an effort to quell the intense controversy that has developed over the deal, DP World announced late last night that it would delay its takeover of the six U.S. port facilities ``pending the outcome of'' new talks with the Bush administration, congressional leadership and port authorities about security arrangements.

Kimmitt's boss, Treasury Secretary John Snow, today said he'll make an effort to tell Congress more about investment approvals.

``If there was a failure, we failed to recognize there might be a public reaction,'' Snow told reporters in Richmond, Virginia. ``Over time, we may recommend improvements in the process so Congress is better informed about transactions.''

`Tilting Reviews'

Kimmitt, 58, was one of 10 Bush administration officials summoned before the Senate Armed Services Committee yesterday to explain the decision. He said the deal wouldn't go forward ``if we were not certain'' of the security of the ports.

CFIUS, the Treasury-led panel that reviewed the sale, includes representatives from 12 executive-branch agencies, including the departments of Defense, State and Homeland Security, and six White House offices.

Last October, the Government Accountability Office said in a report that Treasury uses its position at the helm of CFIUS to tilt reviews in favor of investors at the expense of security concerns raised by the departments of Defense and Homeland Security.

At the time, Kimmitt refuted the complaints and promised lawmakers the panel would make sure that national-security concerns were sufficiently addressed. Between 50 and 300 reviews occur each year, White House spokesman Scott McClellan said on Feb. 22.

Free to Brief

Kimmitt, a former Time Warner Inc. executive who joined Treasury in 2005 as Snow's deputy, said in an interview that he's searching for ways to increase communication with Congress. He said he's constrained by laws that prevent the committee from passing on details of transactions given to CFIUS in confidence.

``We want to work with the Congress,'' he said. ``We are free to brief Congress on cases that have cleared, but we have to protect especially carefully information that we get during the course of a pending case.''

CFIUS was created in 1975 to analyze the impact of foreign investment on the U.S. In 1988 Congress passed a law to allow the president to prohibit any foreign acquisition, merger or takeover of a U.S. company if it threatens national security, and CFIUS became the vehicle for reviewing such transactions.

An amendment to the law in 1993 requires additional investigation if the acquiring company is controlled by or acting on behalf of a foreign government and there are national- security concerns. DP World is owned by the government of Dubai.

The committee works on consensus, and if any agency has national-security concerns, it instigates a longer probe.

Request for Review

Kimmitt said DP World notified the Treasury Department of its intent to buy P&O on Oct. 17, and the transaction was referred to the Department of Homeland Security. On Dec. 6, staff from all the agencies met with the company; 10 days later the formal request for a review was filed.

``Each department then circulates the information with their own department,'' Kimmitt told the Senate committee yesterday. Homeland Security negotiated an ``assurance letter'' and the formal review ended on Jan. 17.

``Members of CFIUS spent nearly 90 days reviewing this transaction,'' he said. ``Concerns were raised, they were resolved.''

Still, no one informed Congress, Bush or Snow. McClellan said on Feb. 22 that Bush wasn't aware of the approval until last weekend. Snow told reporters the same day he learned of the deal in the past ``three or four days.''

McClellan said today Bush was actually informed of the approval on Feb. 16, when he was told about it by White House Chief of Staff Andrew Card.

Some analysts said the controversy, and any change in the law, may make companies think twice about investing in the U.S.

``Anything that makes your attempt to buy an asset more risky can have a material effect on the amount of investment we get,'' said Nouriel Roubini, head of Roubini Global Economics in New York and a former Treasury economist. ``These days, we'd be lucky if we get lots of foreign direct investment. We should not restrict it. We should make it easier.''

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

Last Updated: February 24, 2006 14:17 EST

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