The Treasury Department-led Committee on Foreign Investment in the United States (CFIUS) is conducting a 30-day investigation into the proposed merger between 3Com and China’s Huawei Technologies to determine if the acquisition poses a threat to U.S. national security.
U.S. officials said the investigation is in the early stages and is being carried out under the rules governing past CFIUS investigations, meaning after the 30-day probe is done, a more in-depth 45-day probe could be carried out if the first inquiry finds problems with the deal.
While CFIUS in the past has been what critics call a “rubber stamp” in approving about 98 percent of all the deals it reviews, the Pentagon, Justice Department and Department of Homeland Security have had wider authority to resolve national-security issues through “mitigation agreements” that require merging companies to take specific actions to prevent the loss of technology or trade secrets.
That could change under a draft executive order circulating that would give Treasury more power and the White House National Security Council staff final say on disputes among agencies.
New rules designed to reflect CFIUS-reform legislation are being debated as part of a pending presidential executive order that critics say will limit national security agencies and give more authority to probusiness and pro-trade agencies.
One U.S. official said the Chinese company’s involvement in the merger is problematic because of its past role in violating U.N. sanctions on Iraq and past illicit activities, including economic espionage.
Additionally, the Pentagon’s International Technology Security section, under Deputy Defense Undersecretary Jack Shaw, launched a preliminary investigation of Huawei in 2003 for engaging in economic espionage against Cisco Systems. Huawei stole Cisco’s proprietary networking-switching technology. The inquiry prompted Huawei to reach an out-of-court settlement with Cisco.
Huawei also was linked to improper contracting activities in northern Iraq involving payoffs to Iraqi officials for telecommunications deals. That deal also faced an FBI preliminary inquiry.
Pro-China and pro-business officials in the Bush administration are arguing that the deal should be allowed to go through because Huawei already had a joint venture with 3Com for several years before the merger bid announced several weeks ago, and that 3Com’s technology transfer to Huawei already is extensive.