U.S. Investigates Voting Machines Venezuela Ties
https://www.nytimes.com/2006/10/29/washington/29ballot.html
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 firms
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 committees 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 Chávezs administration, which has been
bitterly at odds with Washington, has any role in Smartmatic.
The government of Venezuela doesnt 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 countrys 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 worlds 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 Smartmatics 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 committees 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 committees 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 committees 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 Venezuelas 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 Biztas 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 Smartmatics
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
firms ownership was further shielded in two Curaçao trusts.
Mr. Stoller, the Smartmatic spokesman, said that the reorganization was
done simply to help expand the companys 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, weve 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 Sequoias
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.
Smartmatics 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.
--
The Starmaker -- To question the unquestionable, ask the unaskable,
to think the unthinkable, mention the unmentionable, say the unsayable,
and challenge the unchallengeable.