Ny Times Article, 10/29/2006

From: Ed Kennedy <ekennedyx_at_yahoo_dot_com>
Date: Sun Oct 29 2006 - 16:23:22 CST

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October 29, 2006

U.S. Investigates Voting Machines’ Venezuela Ties

By TIM GOLDEN

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
<http://topics.nytimes.com/top/reference/timestopics/people/c/hugo_chavez/in
dex.html?inline=nyt-per> .

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
<http://topics.nytimes.com/top/news/international/countriesandterritories/un
itedstates/index.html?inline=nyt-geo> , 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
<http://topics.nytimes.com/top/news/international/countriesandterritories/ve
nezuela/index.html?inline=nyt-geo> 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
<http://topics.nytimes.com/top/reference/timestopics/people/m/carolyn_b_malo
ney/index.html?inline=nyt-per> , 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
<http://topics.nytimes.com/top/reference/timestopics/people/c/fidel_castro/i
ndex.html?inline=nyt-per> 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
<http://topics.nytimes.com/top/reference/timestopics/organizations/j/johns_h
opkins_university/index.html?inline=nyt-org> , 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.

Simon Romero contributed reporting from Caracas, Venezuela.

 

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