U.S.-China company merger deemed 'threat'

U.S.-China company merger deemed 'threat'
U.S.-China company merger deemed 'threat'

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By Bill Gertz
The Washington Times
November 29, 2007

U.S. intelligence agencies informed a Treasury Department-led review 
committee recently that a merger between 3Com and a Chinese company 
would threaten U.S. national security, The Washington Times has learned.

Bush administration intelligence officials said the office of the 
Director of National Intelligence (DNI) recently submitted a required 
threat assessment to the Committee on Foreign Investment in the United 
States, known as CFIUS, which is conducting a 30-day investigation of 
the proposed deal between 3Com and China's Huawei Technologies.

The assessment, which is classified, described the deal as posing a 
"threat" to U.S. national security, according to officials familiar with 
the document.

"The deal is in trouble," said one official who noted that pro-business 
officials who in the past dismissed critics of the deal are now worried 
the merger will be blocked because of the assessment.

The proposed $2.2. billion merger was announced quietly in October, with 
3Com stating that the main purchaser would be the international 
investment firm Bain Capital Partners =E2=80=94 an apparent bid to play down the 
role of Huawei, China's main producer of computer network equipment and 
an international supplier.

Reports in The Washington Times about Huawei's past illicit activities, 
including bribery, economic espionage and violating U.N. sanctions, led 
Bain to voluntarily submit the deal to the Treasury Department for 

3Com manufactures computer network intrusion-prevention equipment used 
by the Pentagon and U.S. government agencies. Intelligence officials are 
concerned the technology China would gain from 3Com will boost the 
Chinese military's computer warfare capabilities.

Asked about the assessment, DNI spokesman Ross Feinstein said: "In 
accordance with the statute, the intelligence community prepares threat 
assessments for the CFIUS process, but we do not comment on these 
assessments." A Treasury spokeswoman also declined to comment.

Under legislation passed in the aftermath of last year's failed Dubai 
Ports World deal, involving a bid by a United Arab Emirates company to 
manage six U.S. ports, Treasury Department rules permit deals to be 
approved with "mitigation agreements" that set conditions for foreign 

CFIUS has 30 days to conduct its first investigation of the deal and a 
second, 45-day inquiry could follow.

The proposed deal already has generated opposition from congressional 

A group of House Republicans introduced a resolution in October calling 
for the Bush administration to block the deal.

The resolution stated that evidence shows =E2=80=9Cthe proposed transaction 
involving Huawei threatens the national security of the United States 
and should not be approved by the Committee on Foreign Investment in the 
United States."

Huawei has been accused of a range of illegal activities, including 
bribes related to cellular telephone contracts in post-Saddam Hussein 
Iraq, and of violating U.N. sanctions against Iraq by building a 
fiber-optic network that was used to link Iraqi air defenses, at a time 
when U.S. warplanes were patrolling over the country.

Huawei also was linked to industrial espionage against Cisco Systems and 
Japan's Fujitsu several years ago, the officials said.

Huawei also constructed a telephone system in Kabul for the extremist 
Taliban government in Afghanistan, prior to the ouster of the regime in 
October 2001.

White House spokesmen have opposed national security critics of the 
3Com-Huawei deal and have said CFIUS should be permitted to conduct its 
review without political interference.

Tony Fratto, one of the spokesmen, said last month that the CFIUS review 
would be "thorough and diligent."

John J. Tkacik Jr., a Heritage Foundation specialist on China, recently 
said that Huawei is closely linked to the Chinese military and that 
China probably already has gained valuable 3Com secrets from a joint 
venture called HC3, which ended last year after 3Com purchased the 
Huawei stake.

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