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November 16, 2007
Notes from the Pentagon

CFIUS probe
The Treasury Department-led Committee on Foreign Investment in the United States (CFIUS) is conducting a 30-day investigation into the proposed merger between 3Com and China's Huawei Technologies to determine if the acquisition poses a threat to U.S. national security.

U.S. officials said the investigation is in the early stages and is being carried out under the rules governing past CFIUS investigations, meaning after the 30-day probe is done, a more in-depth 45-day probe could be carried out if the first inquiry finds problems with the deal.

While CFIUS in the past has been what critics call a "rubber stamp" in approving about 98 percent of all the deals it reviews, the Pentagon, Justice Department and Department of Homeland Security have had wider authority to resolve national-security issues through "mitigation agreements" that require merging companies to take specific actions to prevent the loss of technology or trade secrets.

That could change under a draft executive order circulating that would give Treasury more power and the White House National Security Council staff final say on disputes among agencies.

New rules designed to reflect CFIUS-reform legislation are being debated as part of a pending presidential executive order that critics say will limit national security agencies and give more authority to pro-business and pro-trade agencies.

One U.S. official said the Chinese company's involvement in the merger is problematic because of its past role in violating U.N. sanctions on Iraq and past illicit activities, including economic espionage.

Additionally, the Pentagon's International Technology Security section, under Deputy Defense Undersecretary Jack Shaw, launched a preliminary investigation of Huawei in 2003 for engaging in economic espionage against Cisco Systems. Huawei stole Cisco's proprietary networking-switching technology. The inquiry prompted Huawei to reach an out-of-court settlement with Cisco.

Huawei also was linked to improper contracting activities in northern Iraq involving payoffs to Iraqi officials for telecommunications deals. That deal also faced an FBI preliminary inquiry.

Pro-China and pro-business officials in the Bush administration are arguing that the deal should be allowed to go through because Huawei already had a joint venture with 3Com for several years before the merger bid announced several weeks ago, and that 3Com's technology transfer to Huawei already is extensive.

German connection
Iranian exiles have identified three companies in Germany that are linked to Iran's Ministry of Defense and that are working to obtain defense and military goods for the regime in Tehran.

The exile-led National Council of Resistance of Iran, working with sources inside of Iran, identified the companies, all located in Dusseldorf, as the Farzanegan Co., the Ascotech Co., and the Persia System Co., also known as the DDC Co.

According to the group, which in the past provided the U.S. government with accurate information on Iran's covert nuclear program, Farzanegan is part of the Iranian Defense Industries Organization, which is key to supplying goods for Iran's military and missile programs. It has been covertly buying parts and equipment for the Iranian Defense Ministry.

Ascotech is used as a procurement arm of the Iranian Aerospace Industries Organization, which is involved in aircraft and missile programs.

"Ascotech functions under the supervision of Khoozestan steel company mill and has been involved in smuggling of maraging steel and some other parts," said Shahin Gobadi, a National Resistance representative in Europe. Maraging steel is a high-strength alloy used in centrifuges. It is suspected that this company is involved in Iran's nuclear programs.

"More than half of the staff and employees of the company are German. The senior managers all are Iranians," Mr. Gobadi said.

Persia System is a computer- and electronics-hardware manufacturer involved in computer networking and communications in Iran and Germany. According to the National Council sources, several Iranians are working at the company in Germany and are linked to the Aerospace Industries Organization within the Iranian Defense Ministry, the Imam Hossein University of the Iranian Revolutionary Guard Corps, and has installed equipment in the Iranian Defense Ministry.

"Several months ago, this company sent electronics and communications items and goods for the companies of the Ministry of Defense in Iran," Mr. Gobadi said.

Both the IRGC and Iranian Defense Ministry were sanctioned by the Bush administration on Oct. 25 for their roles in proliferating weapons of mass destruction.

Mr. Gobadi said the front companies are involved in some of the $40 billion in business being carried out between Iran and the European Union.

Hezbollah mole
Defense officials say the arrest of a former FBI special agent and CIA officer for supplying secrets to the Iranian-backed terrorist group Hezbollah is another black eye for the bureau, which continues to struggle at developing an effective counterintelligence capability.

"This was a Hezbollah mole, and all you have to do is look at her clearance to see how bad this is," said a U.S. defense official involved in intelligence matters.

Lebanese-born Nada Nadim Prouty, who obtained U.S. citizenship by fraud, pleaded guilty Tuesday to charges she illegally obtained classified information on Hezbollah, which is considered the most deadly Islamist terror group after al Qaeda.

Federal officials seeking to limit the negative publicity on the case say it appears mainly related to Hezbollah fundraising efforts in the U.S. that involved millions of dollars going to the Lebanese-based international terror group.

But the damage could be extensive because of Miss Prouty"s access to classified information contained in both FBI and CIA databases. She held a "top secret-SCI" clearance, for "sensitive compartmented information," among the highest-level clearances in government.

Officials said if it is determined that classified data was passed to Hezbollah, the losses could be extremely damaging and include the compromise of both recruited agents as well as electronic intelligence-gathering.

Court papers in the case did not say Miss Prouty passed information to Hezbollah.

The FBI still is recovering from two very damaging spy cases: The case of FBI agent Robert Hanssen, who was a longtime spy for Moscow, and Katrina Leung, who worked for decades as a supposed FBI asset, but who eventually was found to be a Beijing spy.

Bolton honored
The U.S. Asia Economic Foundation recently honored former U.N. Ambassador John R. Bolton, who was awarded the Valiant Freedom Award two weeks ago near Los Angeles.

The award was meant to single out Mr. Bolton's outspoken support for freedom in Asia, especially for Taiwan, which is facing a challenge from communist China. Mr. Bolton has called for United Nations membership for Taiwan, a democratic U.S. ally that is under fire from China.

"John Bolton is a fighter. As U.S. ambassador to the United Nations, he set a standard of courage, purpose and achievement for all diplomats, now and in the future," said Therese Shaheen, chairman of the foundation and the former senior State Department representative to Taiwan.

The award given to Mr. Bolton recognized his help in fostering Asian democracy and capitalism.

  • Bill Gertz covers the Pentagon. He can be reached at 202/636-3274.

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