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KF27 G634

1981α pt.2

COMMITTEE ON GOVERNMENT OPERATIONS

JACK BROOKS, Texas, Chairman

L. H. FOUNTAIN, North Carolina
DANTE B. FASCELL, Florida
BENJAMIN S. ROSENTHAL, New York
DON FUQUA, Florida
JOHN CONYERS, JR., Michigan
CARDISS COLLINS, Illinois
JOHN L. BURTON, California
GLENN ENGLISH, Oklahoma
ELLIOTT H. LEVITAS, Georgia
DAVID W. EVANS, Indiana
TOBY MOFFETT, Connecticut
HENRY A. WAXMAN, California
FLOYD J. FITHIAN, Indiana
TED WEISS, New York
MIKE SYNAR, Oklahoma

EUGENE V. ATKINSON, Pennsylvania
STEPHEN L. NEAL, North Carolina
DOUG BARNARD, JR., Georgia
PETER A. PEYSER, New York
BARNEY FRANK, Massachusetts
HAROLD WASHINGTON, Illinois
TOM LANTOS, California

FRANK HORTON, New York
JOHN N. ERLENBORN, Illinois
CLARENCE J. BROWN, Ohio
PAUL N. MCCLOSKEY, JR., California
THOMAS N. KINDNESS, Ohio
ROBERT S. WALKER, Pennsylvania
M. CALDWELL BUTLER, Virginia
LYLE WILLIAMS, Ohio

JOEL DECKARD, Indiana

WILLIAM F. CLINGER, JR., Pennsylvania RAYMOND J. MCGRATH, New York HAL DAUB, Nebraska

JOHN HILER, Indiana

WENDELL BAILEY, Missouri

LAWRENCE J. DENARDIS, Connecticut JUDD GREGG, New Hampshire MICHAEL G. OXLEY, Ohio

WILLIAM M. JONES, General Counsel
JOHN E. MOORE, Staff Administrator
ELMER W. HENDERSON, Senior Counsel
JOHN M. DUNCAN, Minority Staff Director

COMMERCE, Consumer, and Monetary Affairs SubcommitTEE

BENJAMIN S. ROSENTHAL, New York, Chairman

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Evans, John R., Commissioner, Securities and Exchange Commission,

accompanied by Theodore Levine, Associate Director, Division on En-

forcement, and Edward A. Kwalwasser, Associate Director, Division of

Market Regulations......

Gallagher, James, president, Pacific Stock Exchange...

Hussain, Abdul Razzak Mohammed Mulla, deputy chairman and manag-

ing director, Kuwait Petroleum Corp., accompanied by Michael R.

Woolgar, senior oil investment adviser, KPC, and Manley O. Hudson,

Jr., legal adviser, Cleary, Gottlieb, Steen & Hamilton

Leland, Marc E., Assistant Secretary for International Affairs, Depart-

ment of the Treasury.

O'Brien, Thomas J., Director, Defense Investigative Service, Department

of Defense....

Rosenthal, Hon. Benjamin S., a Representative in Congress from the

State of New York, and chairman, Commerce, Consumer, and Mone-

tary Affairs Subcommittee: Opening statement..

Rowberg, Richard E., Energy Program Manager, Office of Technology

Assessment, accompanied by Alan Crane, Project Director, OTA study,

nuclear proliferation and safeguards........

Ukropina, James R., senior vice president and general counsel, Santa Fe

International Corp.........

Van Doren, Charles N., former Assistant Director for Nonproliferation,

U.S. Arms Control and Disarmament Agency..

Wade, Troy E., Deputy Assistant Secretary for Defense Programs, Depart-

ment of Energy, accompanied by Leon Silverstrom, Assistant General

Counsel for International Development and Defense Programs; Edward

G. Cumesty, Director, Policy and Procedures Division, Office of Policy,

Procurement and Assistance Management; and Mark Galmish, Branch

Chief, Engineering and Construction, DOE Rocky Flats Facility

West, J. Robinson, Assistant Secretary for Policy, Budget, and Adminis-

tration, Department of the Interior, accompanied by Jack Campbell,

Special Assistant, and William Coldiron, Solicitor...

Letters, statements, etc., submitted for the record by-

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261, 289

124

.167-170

Betts, Richard, senior fellow, Brookings Institution: Prepared statement.203-209

Cochran, Thomas, senior staff scientist, Natural Resources Defense Coun-
cil: Attachments to statement...

Gallagher, James, president, Pacific Stock Exchange: Prepared statement. 45-63
Hiler, Hon. John, a Representative in Congress from the State of Indiana:
Article from the Wall Street Journal of October 22, 1981, entitled "Do
Arab Investments Threaten Our Economy?".

...112-113

Letters, statements, etc., submitted for the record-Continued

Leland, Marc E., Assistant Secretary for International Affairs, Depart- Page ment of the Treasury:

Dates and times of CFIUS meetings at which the KPC-Santa Fe
International merger was discussed..

Prepared statements

301

23, 32, 307-311

O'Brien, Thomas J., Director, Defense Investigative Service, Department of Defense:

232-243 250-260

List of cleared corporations with foreign stockholders isolated by
voting trust or proxy agreement and related material.........
Prepared statement..
Rosenthal, Hon. Benjamin S., a Representative in Congress from the
State of New York, and chairman, Commerce, Consumer, and Mone-
tary Affairs Subcommittee: Reciprocal countries (Mineral Leasing Act
of 1920)...

Rowberg, Richard E., Energy Program Manager, Office of Technology
Assessment: Attachment to statement..

150

..175-180

Van Doren, Charles N., former Assistant Director for Nonproliferation,
U.S. Arms Control and Disarmament Agency: Prepared statement........184-198
Wade, Troy E., Deputy Assistant Secretary for Defense Programs, Depart-
ment of Energy:

Prepared statement.......

..281-287 275

Security clearances or access authorization versus the need to know... West, J. Robinson, Assistant Secretary for Policy, Budget, and Administration, Department of the Interior: Prepared statement.....

APPENDIXES

..125-146

Appendix 1.-Office of Technology Assessment materials submitted to subcommittee

Appendix 2.-CFIUS report to Cabinet Council on Economic Affairs regarding
Kuwait purchase of Santa Fe International.

Appendix 3.-U.S. Department of the Interior status report on Mineral Leasing Act reciprocity determination on Kuwait

Appendix 4.-Cables, memorandums, and other documents from State Department regarding Kuwait's attempts to be declared a reciprocal country under the Mineral Leasing Act....

319

334

461

490

Appendix 5.-Department of the Interior materials relating to reciprocity provisions of the Mineral Leasing Act.....

529

Appendix 6.-Miscellaneous Department of Energy, C. F. Braun contracts and materials.

557

Appendix 7.-1976 U.S. Government policy paper on OPEC government investment in U.S. energy sector.

578

Appendix 8.-Subcommittee correspondence with President Reagan on Santa
Fe International takeover

604

Appendix 9.-CFIUS summary of minutes on Santa Fe International takeover
Appendix 10.-Voting trust agreement involving Santa Fe International and
Braun Hanford Co...........

616

632

Appendix 11.-Miscellaneous materials.

658

FEDERAL RESPONSE TO OPEC COUNTRY
INVESTMENTS IN THE UNITED STATES

(Part 2-Investment in Sensitive Sectors of the U.S. Economy: Kuwait Petroleum Corp. Takeover of Santa Fe International Corp.)

TUESDAY, OCTOBER 20, 1981

HOUSE OF REPRESENTATIVES,
COMMERCE, CONSUMER,

AND MONETARY AFFAIRS SUBCOMMITTEE

OF THE COMMITTEE ON GOVERNMENT OPERATIONS,

Washington, D.C.

The subcommittee met, pursuant to notice, at 10:15 a.m., in room 2154, Rayburn House Office Building, Hon. Benjamin S. Rosenthal (chairman of the subcommittee) presiding.

Present: Representatives Benjamin S. Rosenthal, John Conyers, Jr., Stephen L. Neal, Hal Daub, William F. Clinger, Jr., and John Hiler.

Also present: Peter S. Barash, staff director; Theodore J. Jacobs, chief counsel; Stephen R. McSpadden, counsel; Andrew W. Savitz, professional staff member; Faye Ballard, clerk; and Jack Shaw, minority professional staff, Committee on Government Operations.

OPENING STATEMENT OF CHAIRMAN ROSENTHAL

Mr. ROSENTHAL. The subcommittee will be in order.

Today and Thursday, the Commerce, Consumer, and Monetary Affairs Subcommittee continues its oversight review of foreign investment in the United States by examining the proposed $2.5 billion acquisition of Santa Fe International by Kuwait Petroleum Corp. [KPC], a wholly owned subsidiary of the Government of Kuwait. If the merger is approved, it will be Kuwait's fifth direct investment this year in a U.S. oil and gas enterprise.

Last year, Kuwait was unsuccessful in its attempt to purchase a 15-percent interest in Getty Oil Co., the 15th largest American oil firm. Within the last few days, it has been reported that Kuwait is seeking to purchase some of the refining capacity of Ashland Oil Co.

Over the past 2 years, including hearings several weeks ago into OPEC investment in the United States, this subcommittee has been studying the foreign investment issue and assessing the performance of the interagency Committee on Foreign Investment in the United States, chaired by the Treasury Department. Under stat

utes and Presidential orders, CFIUS has primary responsibility in the executive branch for monitoring and analyzing the impact of foreign investment on U.S. national interests. A subcommittee report, approved by the Government Operations Committee in the last Congress, found CFIUS' performance seriously deficient.

It also found strong evidence that the United States lacks a clear, consistent and coherent policy on inward foreign investment. U.S. laws limiting the nature and extent of such investment in very few industry sectors do exist. But these laws and our entire system for monitoring and analyzing inward foreign investment lack effectiveness and credibility because the true identity of foreign investors is frequently unknown, because of significant loopholes in U.S reporting requirements and the inadequate exchange of data among Federal agencies and because of lax enforcement within the executive branch.

While some see all inward foreign investment as necessarily beneficial, I believe the Kuwait purchase of Santa Fe International raises the most fundamental questions about the adequacy of our foreign investment policies in sensitive sectors of the U.S. economy, such as energy. Because a major oil producing member of OPEC is acquiring a sizable U.S. company engaged in a similar business, the Kuwait-Santa Fe merger requires the most careful scrutiny.

We hope that this hearing and responses to the following questions will assist the Congress and the administration in reaching decisions about this most important issue:

What is the administration's policy regarding the ownership of U.S. energy companies by foreign governments, in general, and OPEC governments, in particular? Is this policy consistent with the U.S. goal of energy independence?

Is the Committee on Foreign Investment in the United States seriously reviewing the Santa Fe investment and its national interest implications? In this regard, did Kuwait provide the committee with advance consultation as required, and are Kuwait and Santa Fe International cooperating with the CFIUS review?

Does Santa Fe's ownership of Federal oil and gas leases place it in violation of the Mineral Leasing Act which requires Kuwait to be on the Interior Department's reciprocal ownership list, and has our State or Treasury Department intervened in the process for putting Kuwait on the list?

What is the status of the Securities and Exchange Commission's investigation of charges of insider trading in Santa Fe International stock options immediately prior to the merger announcement? What types of problems is the Commission experiencing in piercing the veil of secrecy that surrounds stock orders emanating from Switzerland and other jurisdictions that provide secrecy to investors?

On Thursday, a representative of Santa Fe will provide details on the merger. The managing director of Kuwait Petroleum Corp. will discuss KPC's plans for Santa Fe and for any future energy investments in the United States, and the Assistant Secretary of Interior will describe the impact of the Mineral Leasing Act on the proposed takeover.

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