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SEPTEMBER 18, 2002


Mr. GRAHAM. On July 16 in the context of the Maritime Security Program, testimony was presented to this Committee indicating that the DoD has contracts for our national security with companies which are wholly owned and controlled by foreign entities-entities which continue to do substantial business with nations like Iran and Iraq which we have designated as state sponsors of international_terrorism. I don't know the extent of this practice, and I would hope that your Department would conduct a review of its frequency and its potential consequences.

Testimony at the hearing showed that AP Moller/Maersk Sealand, a Danish company, owns and controls Maersk Line, Ltd., its American subsidiary. The CEO of the American company acknowledged that the company does business in Iran, Iraq, Sudan, and Libya. In fact, the business transactions with these countries can be found on the company's website.

Should we award critical defense contracts to companies without them first certifying that they have no potential conflicts with our national security goals—including not being affiliated with, or controlled by a foreign company which has substantial commercial relationships with terrorist sponsoring countries?

Secretary RUMSFELD. As required by section 2327 of title 10, United States Code, DoD does not do business with contractors that are substantially owned or controlled by any country or government that has been determined by the Secretary of State under 50 U.S.C. App. 2405(j)(1)(A) to have repeatedly provided support for acts of international terrorism. Also, the United States does not procure products of countries or governments that support international terrorism. The Foreign Assets Control Regulations (31 CFR Chapter V) of the Department of the Treasury prohibit persons and companies in the United States from conducting most business transactions for supplies or services originating from sources within, or that are located in or transported from or through, countries that support international terrorism. Finally, section 721 of the Defense Production Act of 1950 established the process whereby the inter-agency Committee on Foreign Investment in the United States (CFIUS) reviews national security issues that may be associated with foreign acquisition of U.S. defense contractors. Under this process, we have the opportunity to insist that foreign investments are structured in ways that address national security concerns.

The provisions discussed above provide substantial safeguards against actions by terrorist governments and companies in terrorist countries. In addition, DoD components that propose to depend upon a contractor that is owned or controlled by a foreign entity must assess, on a contract-by-contract basis, the risk to performance of their mission and take appropriate action to mitigate or eliminate such risks. Such actions give us confidence in the dependability of our supplier base and lines of supply.

Mr. GRAHAM. Should we require those who would benefit from US defense contracts to comply with the economic sanctions regulations already applicable to US companies?

Secretary RUMSFELD. Our present safeguards in defense procurement, with regard to those contractors and subcontractors that receive defense contracts and subcontracts, deny financial support to countries that support international terrorism.

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