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 Technology News | October 2006 
US Investigates Voting Machines' Venezuela Ties
 US Investigates Voting Machines' Venezuela Ties
Tim Golden - NYTimes
| | Venezuelan President Hugo Chavez addresses the United Nations General Assembly in New York in September 2006. The US government has launched an investigation of a leading American manufacturer of electronic voting machines following allegations of its ties to the government of the leftist Chavez. (AFP/Timothy A. Clary) |
The US 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 government of President Hugo Chávez of Venezuela.
The federal 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.
But 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 also 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 role of the young Venezuelan engineers who founded Smartmatic have 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, but it has focused mainly on investments in defense and other security areas.
Since the political furor over the Dubai ports deal, members of Congress from both parties have sought to widen the purview of Cfius reviews to incorporate other potential national security concerns.
In late July, the House and the Senate overwhelmingly approved legislation to expand the committee's work, include a greater role for the office of the director of national intelligence and strengthen Congressional oversight of the review process.
But the Bush administration opposed major changes in the review process, and Congressional leaders did not move to reconcile the differences in the two bills before Congress adjourned.
Foreign investors in the defense realm typically seek the committee's review themselves before going ahead with the purchase of an American company. 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 purchase so long after it was consummated.
It is unclear, moreover, what the government would need to uncover about the Sequoia sale to take such an action.
In the case of the ports deal, the transaction was approved by the investment committee but later collapsed 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.
Concerns about possible ties between the owners of Smartmatic and the Chavez government have been known to United States officials since before the 2004 referendum.
Opposition members of Venezuela's electoral council said they were excluded from the bidding process, which concluded in February 2004 with the selection of Smartmatic and a partner, Bizta, over companies with ample experience to replace a $120 million system built by another American firm, Election Systems and Software.
At the time, Smartmatic was a technology start-up that operated in the United States from a small house in Boca Raton, Fla., and a one-room office with a single secretary. Its chief officers were two 30-year-old Venezuelan engineers, Antonio Mugica and Alfredo Anzola, who were childhood friends.
The company said at the time that it had only two contracts, one with a group of banks in Mexico for secure communications software. Its revenues were about $2 million, a company spokesman said.
Company documents first reported in 2004 by The Miami Herald show that Bizta, which was then virtually a shell company, had received $200,000 from an investment fund controlled by the Venezuelan Finance Ministry in return for 3 million shares in the firm.
Barely two months before Bizta and Smartmatic won the contract, the government also placed a senior official of the Venezuelan Science Ministry, Omar Montilla, on Bizta's five-member board, which included 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.
After a municipal primary election in Chicago in March, in which Sequoia voting machines were blamed for 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 that was developed in Venezuela to transmit the results of voting to a central computer system.
Simon Romero contributed reporting from Caracas, Venezuela. |
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