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U.S. Investigates Voting Machines’ Venezuela Ties

by TIM GOLDEN
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 t
o 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.