CFIUS probe

The Washington Times Weekly - - National -

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.

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