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March 24, 2016
Notes from the Pentagon

Hotel merger triggers Chinese spying concerns
The federal government plans to investigate the national security aspects of a recent Chinese takeover attempt of U.S.-based Starwood Hotels and Resorts Worldwide Inc., according to a U.S. intelligence official.

The official said the probe is needed because of signs that Chinese cyberspies may have assisted several Chinese companies seeking to buy Starwood, one of the world’s largest hospitality companies. “There needs to be an examination of the deal,” said the official, who has access to intelligence reports but declined to provide details.

The Chinese firm, Beijing-based Anbang Insurance Group Co., on Friday appeared to have wrapped up the winning bid to buy Starwood for $13.2 billion, and Starwood announced it would accept the deal.

On Monday, however, Starwood’s American suitor, Marriott International Inc. announced that its counteroffer of $13.6 billion for the hotel chain had been accepted by Starwood. Marriott said the merger, if approved by stockholders for both companies, will create the world’s largest hotel company.

Anbang could make a counteroffer. But under the agreement announced Monday, Starwood must cease holding “discussions, negotiations with, or provide confidential information” to Anbang and two other companies seeking to buy the chain, a Marriott announcement said.

Starwood owns the Westin, Sheraton and St. Regis hotel chains, including properties near key U.S. military facilities. The locations would be ideal for clandestine Chinese electronic spying, the official said.

The Anbang takeover bid of Starwood has triggered alarm in U.S. national security circles because of the company’s purchase in 2014 of New York’s famed Waldorf Astoria, once the luxury hotel of visiting American presidents.

But in a sign of the growing security concerns, President Obama and his staff broke with decades of tradition in September and skipped staying at the Waldorf over concerns about Chinese electronic spying while attending the annual U.N. General Assembly meeting.

China has been blamed for conducting large-scale economic cyberespionage against U.S. companies in the past. In May 2014, five Chinese military hackers were indicted by a federal grand jury in Pennsylvania for hacking into several American commercial entities, including General Electric and Alcoa, subsequently passing on information to Chinese state-owned enterprises. China also was linked to large-scale data theft from the Office of Personnel Management and the health care provider Anthem.

A Treasury spokeswoman would not say whether the interagency Committee on Foreign Investment in the United States would review the hotel merger if Anbang prevails in the takeover fight, noting that the panel traditionally “does not comment on information relating to specific CFIUS cases, including whether or not certain parties have filed notices for review.”

Hyatt Hotels Corp. and several other Chinese companies also held talks to buy Starwood, which is based in Stamford, Connecticut.

Belgian authorities had indications of a coming Islamic State terrorist attack prior to Tuesday’s deadly bombings, but proved unable to stop the attacks.

According to European press reports, the arrest March 18 of Paris attack suspect Salah Abdeslam provided clues to planning for attacks but no details of the suicide bombings that killed at least 34 people in the airport and subway.

Belgian police found unused bomb detonators in the apartment where Abdeslam was found. An accomplice, identified as Mohamed Belkaid, was killed during the raid.

According to France’s Le Monde newspaper, Belgian Foreign Minister Didier Reynders told reporters that Abdeslam was preparing to “do something else in Brussels.” Also, as a result of the raid Friday, police uncovered a second “network around him in Brussels.”

News reports after the arrest indicated that Abdeslam was providing information to authorities. However, it is now clear that the information he supplied was either disinformation or he was not aware of the coming attacks.

Authorities believe the well-planned attack Tuesday that injured 270 people was accelerated by the terrorists after Abdeslam’s arrest.

With at least one suspect in the attacks still at large, Belgium’s federal prosecutor’s office warned the news media to stop disclosing information about the investigation over concerns that terrorists were learning valuable details of police activities. Investigators have since stopped releasing information about the ongoing probe.

Defense Secretary Ashton Carter revealed the Pentagon’s plan for preserving advanced war-fighting capabilities of U.S. military forces under tightening budget constraints.

Mr. Carter told a House Armed Services Committee hearing Tuesday that the military needs to continue the fight against terrorist insurgents at the same time it prepares for high-end wars against states like Russia, China, North Korea and Iran.

The Pentagon is requesting a total of $582.7 billion for fiscal 2017, and unless Congress steps in to remove spending restrictions under the 2011 Budget Control Act, the Pentagon is facing $100 billion in across-the-board cuts from 2018 to 2021 that would produce “unacceptable risks” to the country, Mr. Carter said.

For battling the Islamic State, $7.5 billion will be spent next year and the troop deployment in Afghanistan will cost more than $41.7 billion. Funding for intelligence drones is being increased by $1.2 billion this year to boost round-the-clock drone patrols from 70 to 90 by the end of next year. Funding is being increased by $900 million to $6.7 billion this year for both defensive and offensive cyberwarfare capabilities.

The defense secretary outlined a strategy designed to use a combination of new weapons technology and war-fighting techniques, on the one hand, and the use of innovative war-fighting concepts and techniques designed to make current weapons more lethal and effective.

For both, the Pentagon will invest $183.9 billion this year for research and development. It will include new technologies for advanced “disruptive” capabilities such as undersea robots, hypersonic missiles, electronic warfare, “big data” analytics, advanced materials, energy and propulsion systems, advanced sensors and computing.

The effort is being led by the Pentagon’s secretive Strategic Capabilities Office, set up in 2012. Mr. Carter disclosed some of its programs, including the placement of microcameras and sensors used in smartphones on GBU-39 small-diameter guided bombs to boost their targeting capabilities.

The office also is developing swarms of microdrones built with 3-D printers that are fast and can be launched in the middle of the Iraqi desert. A third program uses autonomous, self-driving boats with technology similar to that used on NASA’s Mars lander.

“Those are just a few projects that SCO has worked on so far — and they’re working on a lot more, including some surprising ones,” Mr. Carter said.

Instead of adding bigger and better weapons, the new strategy envisions faster innovation and deployment of new weapons.

“It’s no longer just a matter of what we buy; what also matters is how we buy things, how quickly we buy them, whom we buy them from, and how quickly and creatively we’re able to upgrade them and repurpose them to be used in different and innovative ways to stay ahead of future threats,” he said.

One example is the Navy’s ship-based SM-6 anti-aircraft and anti-missile interceptor. The SM-6 is being converted from its defensive role into a dual-capable air defense and offensive high-speed anti-ship missile.

“We’ve been able to modify the SM-6 so that in addition to missile defense, it can also target enemy ships at sea,” Mr. Carter said in his prepared statement.

  • Contact Bill Gertz on Twitter via @BillGertz.

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