KF27 G634 1981α pt.2 COMMITTEE ON GOVERNMENT OPERATIONS JACK BROOKS, Texas, Chairman L. H. FOUNTAIN, North Carolina EUGENE V. ATKINSON, Pennsylvania FRANK HORTON, New York 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 COMMERCE, Consumer, and Monetary Affairs SubcommitTEE BENJAMIN S. ROSENTHAL, New York, Chairman 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 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- O'Brien, Thomas J., Director, Defense Investigative Service, Department 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 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, 261, 289 124 .167-170 Betts, Richard, senior fellow, Brookings Institution: Prepared statement.203-209 Cochran, Thomas, senior staff scientist, Natural Resources Defense Coun- Gallagher, James, president, Pacific Stock Exchange: Prepared statement. 45-63 ...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 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 Rowberg, Richard E., Energy Program Manager, Office of Technology 150 ..175-180 Van Doren, Charles N., former Assistant Director for Nonproliferation, 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 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 604 Appendix 9.-CFIUS summary of minutes on Santa Fe International takeover 616 632 Appendix 11.-Miscellaneous materials. 658 FEDERAL RESPONSE TO OPEC COUNTRY (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, 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. |