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Sequoia: A Step in the Right Direction PDF  | Print |  Email
By Richard Brand and Ilya Shapiro, The Weekly Standard   
December 20, 2007

Last Month, Sequoia Voting Systems, the nation's third-largest electronic voting machine maker, announced that the company had been sold to private U.S. investors. This would be an unremarkable transaction except that the seller, Smartmatic Corporation, is a Venezuelan-owned company close to the government of Hugo Chávez. And the sale was forced by a belated investigation by the Committee on Foreign Investment in the United States (CFIUS). But for the unprecedented unwinding of Smartmatic's ownership--which almost did not happen--Chávez would be in a position to influence the outcome of next year's presidential election.

This is not the first time in recent memory that CFIUS, one of the federal government's most secretive entities, has made the news: The Bush administration's decision last year to allow Dubai Ports World (DPW) to operate several U.S. ports also cast a spotlight on it. Though reasonable people can disagree about whether port management would have changed one iota under the ownership of an Arab ally--actually the British affiliate thereof--the decision proved disastrous politically and led to a very rare thing in Washington: real reform.

The Foreign Investment and National Security Act of 2007 (FINSA) went into effect in late October. This new law, which passed with broad bipartisan support, overhauls the previous rules governing CFIUS, a multi-agency committee chaired by the Secretary of the Treasury and tasked with reviewing certain foreign investments for national security concerns.

This august committee, originally created by President Ford's executive order in 1975, receives notices of foreign mergers and acquisitions and decides whether they should further investigate potential security issues. Unless the acquirer acts on behalf of a foreign government, these notifications are voluntary--an acquirer might want an official imprimatur for public relations purposes--though agency members of CFIUS can also call for reviews. CFIUS can block a transaction, however, only if it finds evidence that the controlling foreign entity might use the takeover to threaten national security.

During the past few years, CFIUS has been widely criticized not only for mishandling Smartmatic and DPW, but also for approving the transfer of advanced nuclear technology to China. FINSA fixes several aspects of CFIUS.

For one thing, the legislation makes clear that the committee's mandate to review risks to "national security" encompasses transactions beyond sensitive technologies with potential military application.

Smartmatic had argued that its acquisition of Sequoia was outside the scope of review because voting machines do not directly implicate national security. FINSA leaves no doubt that CFIUS's authority is much broader--and would cover investigations of foreign purchases of such "critical infrastructure" as ports and voting machines. 

 

Read the Entire Article at The Weekly Standard

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