GOP urges probe in China firm deal

GOP urges probe in China firm deal
GOP urges probe in China firm deal 

By Bill Gertz
The Washington Times
October 4, 2007

Several Republican members of Congress yesterday called for a Treasury 
Department probe into whether Pentagon computer networks will be 
compromised by the merger of a U.S. network-equipment maker and a 
Chinese firm with links to Beijing's military.

Senior Pentagon officials, meanwhile, are investigating the security 
aspects of the announced plan for China's Huawei Technologies and the 
investment firm Bain Capital Partners to buy 3Com, which makes equipment 
used by the Pentagon to block computer hackers, including those from the 
Chinese military.

Bain Capital announced last night that it will submit the $2.2 billion 
deal for review before Treasury's Committee on Foreign Investment in the 
United States (CFIUS).

"The agreement to acquire 3Com Corp. will be submitted voluntarily for 
CFIUS review," the statement said. "We believe the U.S. government 
review in this matter will conclude that the company will be firmly 
controlled by an American firm, have only a small minority foreign 
shareholder, and that the deal presents no risks to national security."

Republican Reps. Peter Hoekstra of Michigan and Duncan Hunter of 
California wrote to Treasury Secretary Henry M. Paulson Jr. formally 
requesting that CFIUS conduct a security review of the deal, which was 
announced by 3Com last week.

Both lawmakers, the ranking members of the intelligence and armed 
services committees, respectively, expressed "alarm" at the proposed 
merger because of Huawei's "close ties to the Chinese government."

"There is little doubt that this proposed arrangement should be reviewed 
by CFIUS, and we formally request that you initiate a review regardless 
of whether or not Bain Capital Partners submits the deal for 
examination," they stated.

"This review should be conducted, and a determination made, as to 
whether this sale will in any way impact the national security of the 
United States or increase the vulnerability of U.S. computer networks 
and telecommunications systems to Chinese intrusion."

Also yesterday, Sen. Christopher S. Bond of Missouri, the ranking 
Republican on the Senate Select Committee on Intelligence, said 
yesterday that Treasury should review the 3Com-Huawei deal.

"It is troubling to me that a foreign military organization with 
interests in communications might obtain access to our security 
systems," Mr. Bond said.

A Treasury secretary spokeswoman declined to comment.

In their letter, the two House members said Huawei's role as a partner 
appears designed to "circumvent legal issues about whether this deal 
should be reviewed by" CFIUS.

"At stake is whether Huawei will control voting seats on the board of 
the new company, and far more importantly, will it have access to the 
technology and research and development of the new company," they said.

Both committees' staff have been ordered to review 3Com's contracts with 
intelligence agencies and the Pentagon, they stated.

"This sale raises the ongoing and thorny issues of illegal technology 
transfers to China, public reports of Chinese cyberattacks on U.S. 
government networks, repeated efforts by the Chinese government to gain 
access to military sensitive and classified technologies of the U.S. 
government, and continuing concerns about infringement of intellectual 
property rights by Chinese companies," Mr. Hoekstra and Mr. Hunter 

Huawei is a state-run telecommunications firm that in the past sold 
equipment, in violation of United Nations sanctions, that was used by 
Saddam Hussein's military. The company also provided equipment to the 
Afghan Taliban when it was harboring al Qaeda terrorists.

Chinese military computer hackers were detected breaking into Pentagon 
computer systems several months ago, and there are concerns the 3Com 
merger would boost Beijing's hacking capabilities.

"There is no doubt as to why the Chinese want a partnership with 3Com," 
Mr. Hoekstra said in an interview. "They look at this as a key 
connection to stealing additional secrets from U.S. corporations and 
from our national security apparatus."

Additionally, Mr. Hoekstra said the merger could help China obtain 
high-technology hardware to assist the Chinese military in its 
aggressive efforts to penetrate U.S. government computers and networks.

If the proposed merger goes through, the Chinese will be able to learn 
details of "things we put in place to block hackers, so they will be in 
a better position to defeat those defenses," Mr. Hoekstra said.

A defense official said senior policy-makers were caught by surprise by 
the Huawei deal, in a manner similar to the Pentagon's failure to 
respond quickly to the proposal last year by United Arab Emirates 
company Dubai Ports World to manage six major U.S. seaports. That deal 
was canceled over national security concerns.

Sen. Jeff Sessions, Alabama Republican, said the 3Com-Huawei deal raises 
more red flags than the Dubai Ports World deal and called on the Bush 
administration to provide information about the 3Com deal to 
congressional leaders and request action from Congress if needed.

"If there is a loophole that is allowing valuable defense technology to 
be obtained by the Chinese military that will enable them to accelerate 
their military expansion, then we ought to close it," said Mr. Sessions, 
a member of the Senate Armed Services Committee.

Other Republican lawmakers calling yesterday for hearings or 
investigations included Reps. Thaddeus McCotter of Michigan, chairman of 
the House Republican Policy Committee, and Dana Rohrabacher of 
California, a Foreign Affairs Committee member.

Government officials concerned about the deal have doubts about a 
Treasury review, because Mr. Paulson is a former executive at Goldman 
Sachs, which is advising 3Com on the deal. White House Chief of Staff 
Joshua B. Bolten also was a Goldman Sachs executive.

S.A. Miller contributed to this report.

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