CFIUS Provides Huawei Ongoing Oversight

By Ed Silverstein April 11, 2011

When Huawei Technologies dropped its controversial bid to acquire assets from 3Leaf in February, it also came up with a plan whereby the Committee on Foreign Investment in the United States (CFIUS) gives oversight to Huawei's U.S. operations, according to media reports.

PC World said that a Huawei executive explained that the continual oversight scenario demonstrates the company’s “transparency.”

TechZone360 reported that Huawei stopped its bid to take over U.S.-based 3Leaf after many American critics urged the deal be blocked.

CFIUS recommended against the deal, which would have let the Chinese company acquire assets and technology from 3Leaf Systems, according to a report from The Wall Street Journal.

"This was a difficult decision, however, we have decided to accept the recommendation of CFIUS to withdraw our application to acquire specific assets of 3Leaf. The significant impact and attention that this transaction has caused were not what we intended," the company said in a statement.

In May, Huawei paid $2 million for intellectual property, some assets and some employees from 3Leaf.

When it found out about the deal, Pentagon officials asked Huawei to request a retroactive review from CFIUS, according to TechZone360.

CFIUS reviews select deals by foreign businesses which want to purchase U.S. companies. They review whether the deals could have implications for U.S. national security, according to The Journal.

Huawei said it did not ask CFIUS for approval initially because it was not acquiring the company outright, TechZone360 said.

In response to the incident, a spokesman for China's Commerce Ministry said the United States should make national-security reviews more transparent, according to The Journal.

In addition, China's Ministry of Commerce said “relevant parties" in the United States should "abandon prejudice, avoid adopting protectionist measures and treat properly investments from China and other countries," The Journal added.

A letter from U.S. Senators Jim Webb (D-Va.) and Jon Kyl (R, Ariz.) said that the sale of 3Leaf to Huawei posed a “serious risk” for national and economic security, TechZone360 said.

They explain in the letter, which was sent to Obama Administration officials, that the Chinese firm has a “history of illegal behavior and ties with the People's Liberation Army, Taliban and Iranian Revolutionary Guard,” reports TechZone360.

Several lawsuits have been filed in U.S. courts against Huawei that allege it has taken part illegal activities “from patent and trademark infringement to fraudulent inducement,” the letter said.

The Senators further suspect that Huawei’s acquisition of just parts of 3Leaf was designed to avoid increased scrutiny by U.S. regulators, according to the letter.             


Ed Silverstein is a TechZone360 contributor. To read more of his articles, please visit his columnist page.

Edited by Janice McDuffee

TechZone360 Contributor

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