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Date Posted: 03:25:08 10/19/07 Fri
Author: Bob-O-Link
In reply to: Bob-O-Link 's message, "TREASURY SECRETARY HENRY PAULSON ADMITS CONFLICT OF INTEREST ON 3COM" on 02:40:38 10/19/07 Fri



PILGRIM: More U.S. defense technology is about to fall into the hands of communist China. A Chinese company with ties to Beijing's military will soon have access to sensitive information that could threaten our national interests. This comes months after computer attacks on the Pentagon allegedly by Chinese hackers.

Lisa Sylvester reports.


LISA SYLVESTER, CNN CORRESPONDENT (voice-over): 3Com announced a deal that places a minority share of the U.S. computer networking company into the hands of a Chinese firm called Huawei.

James Mulvenon advises the U.S. intelligence community and he worries this deal will compromise U.S. national security.

JAMES MULVENON, CENTER FOR INTELLIGENCE RESEARCH: I think that the Huawei merger with 3Com presents a pretty significant threat to U.S. national security because of Huawei's ties with the military and what that might mean for China's ability to conduct computer network attacks against the United States.

SYLVESTER: Huawei's founder is a former Chinese soldier. One U.S. defense official is quoted as saying the company supplies the Chinese military with communications networks. Huawei denies that. 3Com provides U.S. government agencies with network wireless security including the Pentagon. Nuclear arms control expert, Gary Milhollin says the business deal could potentially give Huawei access to the Defense Department's computer network capabilities.

GARY MILHOLLIN, WISCONSIN PROJECT ON NUCLEAR ARMS CONTROL: The issue is access to technology. And the issue is getting U.S. technology on the cheap, taking it home and using it against us, which is what Huawei has done in the past.

SYLVESTER: According to an Iraq Study Group report, Huawei violated U.N. sanctions by providing transmission equipment switches to Iraq. Bain Capital Partners, the deal's primary investor, has agreed to a voluntary review by the Treasury Department's Committee on Foreign Investment in the United States.

In a statement, Bain Capital 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.


SYLVESTER: Treasury Secretary Henry Paulson will recuse himself from the government review because of his ties to Goldman Sachs. Paulson is a former CEO of Goldman Sachs and that investment firm is advising 3Com on the merger -- Kitty.

PILGRIM: Thanks very much, Lisa Sylvester.

Well, I talked with the ranking member on the House Armed Services Committee and Republican presidential candidate Duncan Hunter. I talked to him about the red flags this business deal is raising for our military and national security.


REP. DUNCAN HUNTER (R-CA), PRESIDENTIAL CANDIDATE: Potentially, this goes right to the heart of cyber security for the Department of Defense, because this Chinese company has a -- will have as a strategic partner -- and that's what they say they're going to become with 3Com, which is our company, which does cyber security for DOD under classified contracts. They would presumably have access to techniques and to capabilities that would endanger our particular cyber security.

So this is -- this goes right to the heart of something which is very important to DOD. And while they're only an investor, the press release that was put out said they will be a strategic partner, implying that they are going to have access to technology. They're not just money people pushing money into a deal with a firewall between them and America's security company. They're going to be part of that company. They're going to be a part owner. That could potentially be dangerous. So we asked the Committee on Foreign Investment, headed by Secretary Paulson, to undertake a full review. And the letter requesting this review is signed by myself and Pete Hoekstra, who is ranking member on the Intelligence Committee.

PILGRIM: You know, the equity group, Bain Capital Partners, insists "the deal presents absolutely no risk to national security." That's a quote. You and Congressman Hoekstra sent a letter, which you just referred to, to Treasury Secretary Paulson.

I'm going to read a quick quote for the benefit of our viewers: "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 technology, research and development of the new company?"

And you're also worried that U.S. intelligence and military contracts may come through the same company. Is this a big danger?

HUNTER: I think it's a big danger. And, you know, the Bain Capital spokesman obviously didn't read Huawei's own press release, which didn't say they were simply going to be money people. It said they would be a strategic partner. That means they get involved in the inner workings of the company. And the inner workings of this company have to do with cyber security, partly for the Department of Defense of the United States of America.

So, you know, these investment groups are great at putting out very vague press releases and the U.S. military often has to clean up after them. In this case, we don't want to have to clean up after them. We want to prevent this deal if it looks like it has got any danger to national security whatsoever.

PILGRIM: Is it clear to you that this deal was structured to not raise any red flags?

HUNTER: It looks like it's a subtle investment here. You've got a -- you've got the Bain Capital making the primary buy. They've got this strategic partner, which is Huawei, which is sitting off to the side. But, nonetheless, when you have money, you have access.

And if you've got access to technology and to procedures and to capabilities, that means at some point you can exploit those capabilities. And that means that this area we're already worried about for the Department of Defense -- because China has made cyber attacks on DOD assets already. So we know that they're going after that capability and the U.S. Department of Defense.

So anything that goes after that particular sensitive area, we've got to be very careful about. So I think we need the Committee on Foreign Investment to take a real thorough look at this thing, report back to the president and report back to the armed services committees and the intelligence committees in the both the Senate and the House.

PILGRIM: All right, thank you very much. Representative Duncan Hunter, thank you, sir.

HUNTER: Absolutely.


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