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U.S. Investigates Voting Machines’ Venezuela Ties
By TIM GOLDEN
Published: October 29, 2006 in the New York Times
The federal government is investigating the takeover last
year of a leading American manufacturer of electronic voting systems by a
small software company that has been linked to the leftist Venezuelan
government of President
Hugo Chávez.
The inquiry is focusing on the Venezuelan owners of the
software company, the Smartmatic Corporation, and is trying to determine
whether the government in Caracas has any control or influence over the
firm’s operations, government officials and others familiar with the
investigation said.
The inquiry on the eve of the midterm elections is being
conducted by the Committee on Foreign Investment in the
United States, or Cfius, the same
panel of 12 government agencies that reviewed the abortive attempt by a
company in Dubai to take over operations at six American ports earlier this
year.
The committee’s formal inquiry into Smartmatic and its
subsidiary, Sequoia Voting Systems of Oakland, Calif., was first reported
Saturday in The Miami Herald.
Officials of both Smartmatic and the Venezuelan government
strongly denied yesterday that President Chávez’s administration, which has
been bitterly at odds with Washington, has any role in Smartmatic.
“The government of
Venezuela doesn’t have anything to do
with the company aside from contracting it for our electoral process,” the
Venezuelan ambassador in Washington, Bernardo Alvarez, said last night.
Smartmatic was a little-known firm with no experience in
voting technology before it was chosen by the Venezuelan authorities to
replace the country’s elections machinery ahead of a contentious referendum
that confirmed Mr. Chávez as president in August 2004.
Seven months before that voting contract was awarded, a
Venezuelan government financing agency invested more than $200,000 into a
smaller technology company, owned by some of the same people as Smartmatic,
that joined with Smartmatic as a minor partner in the bid.
In return, the government agency was given a 28 percent stake
in the smaller company and a seat on its board, which was occupied by a
senior government official who had previously advised Mr. Chávez on
elections technology. But Venezuelan officials later insisted that the money
was merely a small-business loan and that it was repaid before the
referendum.
With a windfall of some $120 million from its first three
contracts with Venezuela, Smartmatic then bought the much larger and more
established Sequoia Voting Systems, which now has voting equipment installed
in 17 states and the District of Columbia.
Since its takeover by Smartmatic in March 2005, Sequoia has
worked aggressively to market its voting machines in Latin America and other
developing countries. “The goal is to create the world’s leader in
electronic voting solutions,” said Mitch Stoller, a company spokesman.
But the role of the young Venezuelan engineers who founded
Smartmatic has become less visible in public documents as the company has
been restructured into an elaborate web of offshore companies and foreign
trusts.
“The government should know who owns our voting machines;
that is a national security concern,” said Representative
Carolyn B. Maloney, Democrat of New
York, who asked the Bush administration in May to review the Sequoia
takeover.
“There seems to have been an obvious effort to obscure the
ownership of the company,” Ms. Maloney said of Smartmatic in a telephone
interview yesterday. “The Cfius process, if it is moving forward, can
determine that.”
The concern over Smartmatic’s purchase of Sequoia comes amid
rising unease about the security of touch-screen voting machines and other
electronic elections systems.
Government officials familiar with the Smartmatic inquiry
said they doubted that even if the Chávez government was some kind of secret
partner in the company, it would try to influence elections in the United
States. But some of them speculated that the purchase of Sequoia could help
Smartmatic sell its products in Latin America and other developing
countries, where safeguards against fraud are weaker.
A spokeswoman for the Treasury Department, which oversees the
foreign investment committee, said she could not comment on whether the
panel was conducting a formal investigation.
“Cfius has been in contact with the company,” said the
spokeswoman, Brookly McLaughlin, citing discussions that were first
disclosed in July. “It is important that the process is conducted in a
professional and nonpolitical manner.”
The committee has wide authority to review foreign
investments in the United States that might have national security
implications. In practice, though, it has focused mainly on foreign
acquisitions of defense companies and other investments in traditional
security realms.
Since the political furor over the Dubai ports deal, members
of Congress from both parties have sought to widen the purview of such
reviews to incorporate other emerging national security concerns.
In late July, the House and the Senate overwhelmingly
approved legislation to expand the committee’s scope, give a greater role to
the office of the director of national intelligence and strengthen
Congressional oversight of the review process.
But the Bush administration opposed major changes, and
Congressional leaders did not act to reconcile the two bills before Congress
adjourned.
Foreigners seeking to buy American companies in areas like
defense manufacturing typically seek the committee’s review themselves
before going ahead with a purchase. Legal experts said it would be highly
unusual for the panel to investigate a transaction like the Sequoia
takeover, and even more unusual for the panel to try to nullify the
transaction so long after it was completed.
It is unclear, moreover, what the government would need to
uncover about the Sequoia sale to take such an action.
The investment committee’s review typically involves an
initial 30-day examination of any transactions that might pose a threat to
national security, including a collective assessment from the intelligence
community. Should concerns remain, one of the agencies involved can request
an additional and more rigorous 45-day investigation.
In the case of the ports deal, the transaction was approved
by the investment committee. But the Dubai company later abandoned the deal,
agreeing to sell out to an American company after a barrage of criticism by
legislators from both parties who said the administration had not adequately
reviewed the deal or informed Congress about its implications.
The concerns about possible ties between the owners of
Smartmatic and the Chávez government have been well known to United States
foreign-policy officials since before the 2004 recall election in which Mr.
Chávez, a strong ally of President
Fidel Castro of Cuba, won by an
official margin of nearly 20 percent.
Opposition leaders asserted that the balloting had been
rigged. But a statistical analysis of the distribution of the vote by
American experts in electronic voting security showed that the result did
not fit the pattern of irregularities that the opposition had claimed.
At the same time, the official audit of the vote by the
Venezuelan election authorities was badly flawed, one of the American
experts said. “They did it all wrong,” one of the authors of the study, Avi
Rubin, a professor of computer science at
Johns Hopkins University, said in an
interview.
Opposition members of Venezuela’s electoral council had also
protested that they were excluded from the bidding process in which
Smartmatic and a smaller company, the Bizta Corporation, were selected to
replace a $120 million system that had been built by Election Systems and
Software of Omaha.
Smartmatic was then a fledgling technology start-up. Its
registered address was the Boca Raton, Fla., home of the father of one of
the two young Venezuelan engineers who were its principal officers, Antonio
Mugica and Alfredo Anzola, and it had a one-room office with a single
secretary.
The company claimed to have only two going ventures, small
contracts for secure communications software that a Smartmatic spokesman
said had a total value of about $2 million.
At that point, Bizta amounted to even less. Company
documents, first reported in 2004 by The Herald, showed the firm to be
virtually dormant until it received the $200,000 investment from a fund
controlled by the Venezuelan Finance Ministry, which took a 28 percent stake
in return.
Weeks before Bizta and Smartmatic won the referendum
contract, the government also placed a senior official of the Science
Ministry, Omar Montilla, on Bizta’s board, alongside Mr. Mugica and Mr.
Anzola. Mr. Montilla, The Herald reported, had acted as an adviser to Mr.
Chávez on elections technology.
More recent corporate documents show that before and after
Smartmatic’s purchase of Sequoia from a British-owned firm, the company was
reorganized in an array of holding companies based in Delaware (Smartmatic
International), the Netherlands (Smartmatic International Holding, B.V.),
and Curaçao (Smartmatic International Group, N.V.). The firm’s ownership was
further shielded in two Curaçao trusts.
Mr. Stoller, the Smartmatic spokesman, said that the
reorganization was done simply to help expand the company’s international
operations, and that it had not tried to hide its ownership, which he said
was more than 75 percent in the hands of Mr. Mugica and his family.
“No foreign government or entity, including Venezuela, has
ever held any stake in Smartmatic,” Mr. Stoller said. “Smartmatic has always
been a privately held company, and despite that, we’ve been fully
transparent about the ownership of the corporation.”
Mr. Stoller emphasized that Bizta was a separate company and
said the shares the Venezuelan government received in it were “the guarantee
for a loan.”
Mr. Stoller also described concerns about the security of
Sequoia’s electronic systems as unfounded, given their certification by
federal and state election agencies.
But after a municipal primary election in Chicago in March,
Sequoia voting machines were blamed for a series of delays and
irregularities. Smartmatic’s new president, Jack A. Blaine, acknowledged in
a public hearing that Smartmatic workers had been flown up from Venezuela to
help with the vote.
Some problems with the election were later blamed on a
software component, which transmits the voting results to a central
computer, that was developed in Venezuela.
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