US Congress probes Chinese connection in 3Com acquisition


Sun, Feb 03, 2008 - Page 11

A congressional committee is investigating the purchase of 3Com Corp by a consortium that includes a Chinese company, intensifying scrutiny of the deal.

In a letter sent on Friday, Democratic Representative John Dingell said there is "growing apprehension in the Congress" about the security implications of the transaction.

Dingell chairs the House Energy and Commerce Committee.

Representative Joe Barton, the senior Republican on the panel, and two other members also signed the letter sent to Treasury Secretary Henry Paulson.

Network equipment maker 3Com agreed in late September to be purchased by private equity firm Bain Capital Management and Huawei Technologies (華為科技) for US$2.2 billion. Bain would own 83.5 percent of the firm, while Huawei, a Chinese telecommunications company, would control 16.5 percent.

Huawei's alleged ties with China's military have raised security concerns on Capitol Hill and in some government agencies. Last fall, 14 senators alleged the company is the "preferred provider" of telecom equipment to China's People's Liberation Army, in a letter to a Treasury official.

The transaction is under review by a government panel charged with scrutinizing foreign investment for national security concerns.

The 12-agency panel, called the Committee on Foreign Investment in the US or CFIUS, is chaired by Treasury and includes the Defense, Homeland Security and Justice departments.

Bain Capital, in a statement on Friday, said it is "engaged in a constructive dialogue with CFIUS regarding our proposed acquisition of 3Com Corp," and working with US officials.

"This is a confidential process to which we submitted voluntarily," Bain Capital said. "We continue to believe CFIUS will conclude that the company will remain firmly in the control of an American firm, has only a small minority foreign shareholder and that the completed deal will present no risks to national security."

Dingell's letter cited reports that China's military has attempted to hack into the Pentagon's computer network and said that such actions make security concerns more relevant because 3Com develops network security software.

"Given that 3Com Corporation manufactures communications network components -- some of which it supplies to the Pentagon, including firewall technology -- this transaction raises significant concerns about its potential effect on the national security of the United States," the letter said.

Paulson was asked to provide information about the government's review in a "nonpublic briefing" by Feb. 28.

Dingell and the other members also asked Paulson to describe the "extent and nature" of Huawei Technologies' ties to China's military and whether such ties "constitute a threat to US national security."

Several members of Congress cosponsored a resolution last fall that said the deal "threatens the national security of the United States" and called on the government to block it.