Merger opens U.S. defense to China

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A Chinese company with ties to Beijing's military and past links to Saddam Hussein's army in Iraq and the Taliban will gain access to U.S. defense-network technology under a proposed merger, Pentagon officials say.

Huawei Technologies will merge with the Massachusetts-based 3Com network-equipment manufacturer in a deal announced last week. Huawei has been linked to the U.N. oil-for-food scandal, which involved millions of dollars in payoffs to Saddam's regime during a time of U.N. sanctions.

The announced merger follows a July computer attack on the Pentagon that U.S. intelligence officials say involved Chinese military hackers. The hackers were detected breaking into Pentagon computers, including an e-mail system close to Defense Secretary Robert M. Gates.

"Huawei is up to its eyeballs with the Chinese military," said a defense official concerned about the deal. Huawei was founded in 1988 by a Chinese military officer and got its start building military communications networks.

A second official said the deal comes as the Pentagon has mounted an aggressive effort to thwart large numbers of computer intrusions from Chinese hackers and spies.

"And now we are proposing to sell the PLA a key to our front door. This is a very dangerous trend," the official said, referring to the People's Liberation Army, as the Chinese military is called.

3Com announced Friday the $2.2 billion merger with Bain Capital Partners LLC and noted in a statement that Huawei Technologies will acquire a minority interest and "become a commercial and strategic partner of 3Com."

Rep. Duncan Hunter, California Republican and ranking member of the House Armed Services Committee, said he is worried the deal will lead to the loss of sensitive technology to China.

"Specifically, I have some concerns surrounding the minority position of Huawei Technologies and what control the Chinese company might have over America's sensitive information," Mr. Hunter said. "In addition to encouraging the Pentagon to review how this deal may affect any of its classified contracts, I would encourage the Committee on Foreign Investment in the United States to conduct a thorough review."

A Pentagon spokesman said he is not aware that anyone in the Defense Department has asked Treasury's Committee on Foreign Investment in the United States to investigate the merger. A Treasury spokesman had no comment.

3Com, through a subsidiary, provides the Pentagon and the Army with intrusion-detection equipment, and the merger potentially will provide Huawei access to strategic computer-network vulnerabilities, said defense officials speaking on the condition of anonymity.

Spokesmen for 3Com did not return phone calls or e-mails seeking comment. A spokesman for Bain had no immediate comment. A Huawei spokesman could not be reached for comment.

Defense officials said Huawei's past is the main cause for concern. Huawei technicians were involved in violating U.N. sanctions against Iraq in the early 2000s by illegally providing a fiber-optic network in Iraq that linked the Iraqi military's air-defense network.

The CIA-led Iraq Survey Group stated in its final report that Huawei and two other Chinese firms "illicitly provided transmission switches" for fiber-optic communications in Iraq from 1999 to 2002.

U.S. and British warplanes bombed the Chinese-made fiber-optic network in August 2001 after it was found to be part of Iraqi air-defense missile sites that were firing at U.S. and allied aircraft enforcing a no-fly zone.

Huawei also was involved in building a telephone-switching system in Kabul, Afghanistan, for the ruling Taliban militia prior to its ouster in 2001, according to U.S. intelligence officials.

The defense officials said it is unlikely that the Committee on Foreign Investment in the United States would block the deal because 3Com is being advised on the merger by Goldman Sachs Group Inc., whose former chairman is Treasury Secretary Henry M. Paulson Jr. White House Chief of Staff Joshua B. Bolten also is a former Goldman Sachs executive.

Gary Milhollin, an arms-proliferation specialist with the Wisconsin Project on Nuclear Arms Control, said Huawei was founded by a Chinese military officer and got its start with U.S. technology exports.

"In the past, Huawei has shown it's willing to help America's enemies after importing U.S. technology," he said. "And it has done so in defiance of U.N. regulations. So before we make more U.S. high technology available to Huawei, we should make sure it has changed its ways."