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"Attorney-client privilege, you are our customer and we give good service to our customers. And you cannot show any situation in which we have given information to the United States or in any way disserved Iran, even though you and the United States may, at some times, have disparate interests."

Mr. CLANCEY. Yes. But it is also true, Mr. Chairman, that we do not do business with the Iranian government. It is also true that we are looked at as a foreigner in the country of Iran and our presence is very, very small.

As a global company, we are involved in South Africa, West Africa, East Africa and it is a global enterprise.

Mr. HUNTER. I understand.

Mr. CLANCEY. And so we

Mr. HUNTER. And Iraq is also a customer.

Mr. CLANCEY. We do not service Iraq.

Mr. HUNTER. Oh, you don't service Iraq?

Mr. CLANCEY. We do only from the Food For Oil

Mr. HUNTER. Okay.

Mr. CLANCEY [continuing]. Approved by NATO and some of the vessels have carried food out in return for oil.

Mr. HUNTER. Okay. Libya?

Mr. CLANCEY. A feeder that goes into Libya, yes.

Mr. HUNTER. Okay. Sudan?

Mr. CLANCEY. I do not believe so.

Mr. HUNTER. Okay.

Mr. CLANCEY. We may, on a spot basis, serve the Sudan.

Mr. HUNTER. Well, let me ask you this question: The example that Mr. Keegan raised where he said that at one point your feeder service was, in some way, not able to deliver a service to Iran, and the American citizen was asked to handle that particular run. And they refused to do it.

Is that the essence of what you said, Mr. Keegan?

Mr. KEEGAN. That is correct, sir.

Mr. HUNTER. Is that accurate?

Mr. CLANCEY. Well, what happens-you have a network-
Mr. HUNTER. I understand.

Mr. CLANCEY [continuing]. Of 400 ships

Mr. HUNTER. It sounds very, I mean, it sounds very realistic. Mr. CLANCEY. You have a 27 to 28 year old person looking at the network at two o'clock in the morning, and he finds that he does not have an asset that has a mechanical problem or does not have the ability to lift-it does not have empty equipment-and he substituted a vessel in the network that is close by.

But it is also true the minute the issue was raised it did not happen. The vessel was unloaded and it went on its way.

Mr. HUNTER. Okay. Well, now, Mr. Keegan said that the American citizen refused to do it. Is that which came first, the chicken or the egg, here?

Mr. CLANCEY. No, I think what happened is the operator-it might have been the captain-said, "We are not going to do this." And the 27-year-old who, I do not know where he is or what he is, but I know how we run the network, he said, "Well, I am sorry. Unload the vessel and go on your way," not knowing that he was not forcing them to do it.

Mr. HUNTER. I understand. He was not looking at it—at the political aspect or the sensitivity of this. He simply said

Mr. CLANCEY. He probably said

Mr. HUNTER [continuing]. Cab number three is close to Oak Street.

Mr. CLANCEY. Exactly.

Mr. HUNTER. I am going to send cab number three to take cab number two's place.

But Mr. Keegan, is-just on this point, because this is an important point is that your understanding that basically this was a consensual thing by the parent company? Or was there a refusal by the American citizen to do it first and then an acquiescence to that decision by the parent company? How was it?

Mr. KEEGAN. We have a communication log of it, and the captain came to the home office in Charlotte, asked if he could-what was the procedure. We said, "You cannot serve Iran. It is a U.S. flag vessel."

Mr. HUNTER. So he went back to the American citizen, if you will.

Mr. KEEGAN. Correct. Yes.

Mr. HUNTER. Okay. Now, I guess my question is, then, if the American citizen had not been there, would you have then sent the ship to Iran?

Mr. CLANCEY. Since then, we have put in policy and procedures to prevent this. But I will not deny that, with 10,000 or 11,000 employees, someone does not make a mistake once in a while.

Mr. HUNTER. Well, I am not talking about a mistake. I am talking about policy.

Mr. CLANCEY. Policy is we would never do that.

Mr. HUNTER. As a matter of policy you would not use an American ship that is dedicated in the MSP program to this line?

Mr. CLANCEY. Absolutely not. And this is the only incident that I have ever heard of that in my entire career.

Mr. HUNTER. Okay.

Well, you know, I mean, these things happen. I mean, I can remember in Vietnam, what I thought was a tragic situation of the American soldiers dying in Vietnam and our closest ally, Great Britain, was shipping supplies into Haiphong harbor. They did not, as Mohammad Ali say, they did not have any quarrel with those Vietcong.

And so those things happen. And the second similar tragedy, I thought, was when we had the attack at the Gulf of Seedra with Mr. Kadafi and France would not let us over-fly their territory, our great ally, France, with Lafayette's picture adorning our House of Representatives chambers-our closest ally, at one time.

And I remember being on British Broadcasting Corporation (BBC) television and thanking the British people for letting us fly out of Heathrow to make the strike. And the commentator informing me that they had just taken a poll and the majority of the British people were against it and it was Maggie Thatcher, on her own, who let us fly out of Heathrow.

So sometimes well-meaning people, who are strong allies, find themselves placed in positions where they cannot accommodate two friends. And so my point was, simply, that you have-you are a

business with a number of clients, some of whom have divergent interests. That is a difficult position to be in.

You have compartmentalized those interests, I think, fairly effectively. At least that is the essence of your testimony. And I do not think there has been any, except for this one mistake that has been pointed out, I have not seen a lot of evidence that those compartments have been pierced.

On the other hand, there is a pretty strong reason, and philosophical reason and policy reason, for having this American ownership requirement. I think you would agree with that. And if you look at the history of America's conflict and engagements and the interests that serve as a backdrop to those engagements, like the example I gave you with Vietnam with our close allies delivering war supplies to our enemies to kill Americans on the battlefieldthere was a reason for having a loyalty requirement, if you willcitizenship requirement with the ships that attend American interests in these theatres.

So my next question to you would simply be this-and that is this: you are dealing with a lot of money here. You have mentioned that you go before your board with a request to build ships that


Mr. CLANCEY. Oh, I will.

Mr. HUNTER [continuing]. Sixty million dollars, $80 million, $100 million. The amount of money that you are paying, the expense of so-called middlemen-right?-the American company-I am trying to get a fix on that. And I see it at somewhere around $8 million to $10 million a year. Now, is that in the ballpark for America?

Mr. CLANCEY. It is probably a bit higher, but I do not have the exact number. But a couple of points: One, the Department of Defense knows we serve those countries. And if they asked us to stop, we would.

Two, it is the money, one, but also the ability to run an efficient system. And you have just heard USSMI, Mr. Keegan, you know, have some fairly harsh statements about us. We are their customer, their only customer. All of the funds into their company are ours and all the funds out. And it is the ability to build brand new vessels, Mr. Chairman, and be able to operate them themselves. Mr. HUNTER. But that is the point I am getting at. If you are dealing with $60 million, $80 million, to operate the vesselsMr. CLANCEY. To build a vessel.

Mr. HUNTER [continuing]. To build a vessel, you are talking about an annual expenditure, or burden, if you will, on Maersk in terms of maintaining the contractual relationship with an American citizen, so-called "middleman company," of around $10 million a year.

Now, it has been held out that that $10 million makes this a very, very difficult thing to do. And one reflects that that is not a lot of money. If you look at the totality of the MSP program, which is $98 million, and if we increase it, it would be well above $200 million.

And so I would ask myself the question-maybe, I would ask you-would you take yes for an answer? That is, if it could be proven to you that the entire cost of maintaining an American citizen

in direct charge of this program-let's say it was $8 million to $10 million was passed through-would you accept that?

And my intuition is it goes beyond that. The money is not that— because that is not an inordinate amount of money when you are looking at the cost of the ships and the enormity of the operation. Mr. CLANCEY. Well, Mr. Chairman, today—

Mr. HUNTER. It does not look like this is a back-breaker, I guess, is what I am telling you.

Mr. CLANCEY. Today, for an example, in the Atlantic, our American flag fleet loses money for the corporation. It is a sign of the times, but it is also the cost of the operation.

And so $10 million is a lot to us because we do need to pay for the ships. And I need to demonstrate to the people, the shareholders, that their investment, over the course of 15 or 16 years, will return something above the cost of capital or we will simply just go out of existence.

Mr. HUNTER. Well, now, let me ask you this, further, then you have, if you are paying $10 million a year, is it your position that all of that is, basically, monies that you would not have to spend?

You would not agree to the proposition that no matter who did it, whether you, even if you had it back in-house, the American citizens are providing some service, doing some training, doing some administration that you are going to have to pay, whether you pay it or they pay it. So are you maintaining to your shareholders that you could actually retrieve the entire $10 million a year?


Mr. HUNTER. How much of that do you think you could retrieve in terms of dollars, bottom line?

Mr. CLANCEY. Maybe 75 to 80 percent

Mr. HUNTER. Okay. So, maybe

Mr. CLANCEY [continuing]. Or more.

Mr. HUNTER [continuing]. Seven point five million dollars or soif it is $10 million?

Mr. CLANCEY. Ballpark.

Mr. HUNTER. But you do not know how much it is?

Mr. CLANCEY. I think that, you know, that is, as a ballpark, that is pretty close. I do not have the exact number.

Mr. HUNTER. Well, it is kind of unusual that if this burden is such a difficult thing that you are testifying here today and you do not know exactly what it is. I mean, it

Mr. CLANCEY. Well, we know what the information we have been provided. In fact, there is a court case we have won and we are waiting for the documents so we know exactly how much waste is involved. It could be significantly above $10 million.

Mr. HUNTER. Why did you negotiate that?

Mr. CLANCEY. I did not. But I inherited it.

Mr. HUNTER. Well, but I guess my question is if you think 75 percent of it is not justified by the labors involved

Mr. CLANCEY. Because of the synergies we could bring to the table.

Mr. HUNTER. Well, the question is why did you agree to pay somebody-what?-four times as much as you think the service is worth? You could-I was mentioning-I am sure you have a lot of ex-congressmen out there would be, you know, want to

Mr. CLANCEY. They certainly would

Mr. HUNTER [continuing]. And they would take half the profit. [Laughter.]

Mr. CLANCEY. Every day we negotiate contracts with our large customers, Wal-Mart, Toyota and General Electric.

Mr. HUNTER. Yes.

Mr. CLANCEY. When it is not right, we sit down and renegotiate. Mr. HUNTER. Yes.

Mr. CLANCEY. And they are still our customers.

Mr. HUNTER. Well, have you sat down to renegotiate here?

Mr. CLANCEY. We have been totally unsuccessful, Mr. Chairman. Mr. HUNTER. Okay. But at some point, somebody in your shop, without a gun to their head, sat down and negotiated these contracts.

Mr. CLANCEY. The contract was negotiated, correct. I do not deny that.

Mr. HUNTER. Well, you see, that is another problem that I would have, as chairman of the committee, if you think the real cost of this is around $2.5 million, or the real substantiated costs, and that anything above that should be credited as profit, if you will. So you are talking about maybe a $4 million or $4.5 million program, but it is a $10 million program because your negotiators paid too much. The question becomes should we, in this panel, change the U.S. law with respect to the citizenship requirements, which have a philosophical and policy substantive base, because you folks made a terrible deal and we need to unfasten you from it?

Mr. CLANCEY. My response would be put yourself in my position in front of my board. We are the largest operator of U.S. flagships. We have 43 percent of the lift of MSP.

Mr. HUNTER. I hear you.

Mr. CLANCEY. We have a top-secret clearance. The Department of Transportation, the Department of Defense and TRANSCOM have told us they like what we are doing; they support the change. And, by the way, I want to recapitalize that business, but they do not trust us.

Mr. HUNTER. Well, I do not think that is the essence of American requirements, American ownership requirements. I mean, I do not think when we ask for American crews we are saying to all other citizens of the world, "We do not trust you."

I think we are simply saying that we know that we are going to put-that nations are placed, as the examples I gave you with Great Britain supplying our enemies during a conflict because they did not have a quarrel with them-that foreign policy issues sometimes put nations and their policies in conflict with each other. And that is not something people should be blamed for. But it is a fact. of life.

And so, to maintain a consistency with American purpose and American foreign policy, we have requested American ownership. So I do not think we are calling you a name. And you know something else is the fact that you are

Mr. CLANCEY. No, you are not.

Mr. HUNTER [continuing]. And I got my note that Mr. Taylor is next. I bet he even wants to say something.

So, Gene, I apologize for monologuing here.

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