- The Washington Times - Thursday, 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 stated.

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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