Saturday, February 2, 2008

A bipartisan group of lawmakers announced yesterday that Congress is investigating the proposed merger of 3Com Corp. and a Chinese company over concerns about China’s computer-hacking activities.

“As you are well aware, there is growing apprehension in the Congress about the proposed acquisition by Huawei Technologies and its U.S. partner, Bain Capital, of 3Com Corp.,” Rep. John D. Dingell and three other lawmakers stated in a letter sent Thursday to Treasury Secretary Henry M. Paulson Jr. Mr. Dingell, Michigan Democrat, is chairman of the House Energy and Commerce Committee.

Computer network-security equipment made by 3Com is used by the Pentagon, raising “significant concerns” about the possible effects the merger could have “on the national security of the United States,” the letter stated.

“We believe these concerns are more than justifiable, especially in light of recent increases in attacks on government and private networks” by Chinese military hackers, the four congressmen stated.

Reps. Bobby L. Rush, Illinois Democrat; Joe L. Barton, Texas Republican; and Edward Whitfield, Kentucky Republican, who are all members of the committee, also signed the letter.

The bipartisan probe follows passage of a resolution sponsored last year by Rep. Ileana Ros-Lehtinen, Florida Republican, which called for the Bush administration to block the deal because of concerns it will boost China’s military.

Mr. Dingell’s investigation, however, is the first time Democrats have expressed concerns about the 3Com-Huawei merger.

The committee has started a formal investigation of the cybersecurity problems related to the proposed merger, which is currently under review by the Treasury-led Committee on Foreign Investment in the United States (CFIUS). Mr. Paulson has recused himself from reviewing the deal because his former company, Goldman Sachs, is advising 3Com.

As part of the inquiry, the committee wants to know what CFIUS has learned about the percentage of interest Huawei will have in 3Com and whether it will have authority to appoint members of 3Com’s board of directors.

The committee also is seeking information about what CFIUS has learned about the internal structure of Huawei, including who controls the company.

U.S. officials told The Washington Times in November that an intelligence assessment by the office of Director of National Intelligence Michael McConnell determined that the 3Com-Huawei merger would undermine U.S. national security. The assessment was presented last year to CFIUS.

Huawei was founded by a senior Chinese military officer, and the company is known to be a major supplier of computer and network equipment to the military.

The company has been linked to violations of U.N. sanctions in Iraq and to industrial espionage against U.S. and Japanese companies.

A Bain spokesman said that the company is engaged in confidential discussions and that “the completed deal will pose no risk to national security.”

The board of directors of 3Com has scheduled a shareholder vote on the $2.2 billion merger plan, according to a Securities and Exchange Commission filing. The vote, set for Feb. 29, is an indication that the company expects CFIUS to approve the merger.

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