By Jonathan Weisman and Susan Schmidt
Washington Post Staff Writers
Thursday, March 2, 2006
The Bush administration, stung by the public outcry over the Dubai port deal, has launched a national security investigation of another Dubai-owned company set to take over plants in Georgia and Connecticut that make precision components used in engines for military aircraft and tanks.
The administration notified congressional committees this week that its secretive Committee on Foreign Investment in the United States (CFIUS) is investigating the security implications of Dubai International Capital's $1.2 billion acquisition of London-based Doncasters Group Ltd., which has subsidiaries in the United States. It is also investigating an Israeli company's plans to buy the Maryland software security firm Sourcefire, which does business with Defense Department agencies.
Administration officials are privately briefing leaders of half a dozen House and Senate committees this week about the two planned transactions, concerned that both deals could stir controversy in a political climate that remains supercharged over the Dubai port deal.
Republican and Democratic lawmakers angrily protested after learning late last month that the administration had approved a $6.8 billion deal to allow a maritime company based in the United Arab Emirates to take over significant operations at six U.S. ports without a thorough investigation and without consulting members of Congress. Last weekend, the Dubai maritime company agreed to a 45-day investigation to stem the protest and allay concerns of a possible breach of U.S. port security.
In the past, the foreign investment committee rarely told Congress of such inquiries. Wary of another misstep, administration officials decided to inform lawmakers of the two other pending transactions with national security implications for the United States.
There have been suggestions in the trade press that the publicly traded Israeli firm, Check Point Software Technologies, has been subjected to more scrutiny than Dubai Ports World, the state-owned Arab company that was initially cleared to take over operations at the six major U.S. ports with no security investigation. That inquiry was initiated only after an outcry about turning over port security to a country that has been cited for ties to terrorism. Sources familiar with the Israeli investigation said cybersecurity officials at the departments of Defense, Justice and Homeland Security all raised serious concerns about the purchase before the port controversy erupted.
Dubai International Capital's acquisition of Doncasters could present some of the same political problems created by Dubai Ports World's purchase of London-based Peninsular and Oriental Steam Navigation Co. Once again, a state-controlled Dubai company with deep pockets is purchasing a British firm with U.S. holdings. Doncasters has operations in nine U.S. locations and manufactures precision parts for defense contractors such as Boeing, Honeywell, Pratt & Whitney and General Electric.
A spokesman for Doncasters' corporate office in Connecticut said the company had no comment on the security investigation.
Although many foreign companies manufacture parts used in U.S. military equipment, in this instance CFIUS members decided to look more carefully at the Doncasters transaction. The CFIUS met last week and tentatively decided to subject that proposal to a 45-day investigation, and it finalized that decision in a conference call late Monday. The decision came on the final day of the regular 30-day review period. Aides on the Senate banking committee said the panel was notified late Monday that the CFIUS had initiated both national security inquiries.
"The CFIUS process is charged with determining if there are national security concerns in any transaction, and it takes that role very seriously," said Tony Fratto, spokesman for the Treasury Department, which leads the interagency committee. "It looks at each transaction on a case-by-case basis, and if security concerns are raised by any member of the committee at the end of an initial 30-day review, the case goes into investigation."
The 45-day investigation of the Israeli deal began in early February, several weeks before the controversy erupted over the Dubai port deal, administration officials said. The investigation of the Dubai-Doncasters deal began this week, at the height of the political turmoil over the port issue.
Yet Fratto said that neither of the new investigations were started "because of public reaction to some other transaction."
Of the 1,500 acquisitions that have been referred to the CFIUS, one has been rejected. But deals with security implications tend to fall through before the 45-day investigation. In 1989, 204 deals involving the purchase of a company with significant U.S. operations triggered a security investigation. Last year, only 65 went that far.
In the case of Check Point, the security questions were apparently raised early on, according to people familiar with the review. Check Point's proposed $225 million purchase of Laurel-based Sourcefire raised red flags with government cybersecurity officials.
Check Point was built by Gil Shwed, whom Forbes magazine has described as an Israeli billionaire who served in the electronic intelligence arm of the Israeli Defense Forces.
Sourcefire makes network defense and intrusion detection software for an array of customers, including the Defense Department. The company has deep roots in the National Security Agency. Its founder and chief technology officer, Martin Roesch, has served as an NSA contractor. Its vice president of engineering, Tom Ashoff, developed software for the secretive spy agency.
Last August, the Israeli government signed an agreement with the Pentagon to alert the United States before selling other countries technology related to national security. The United States asked for the agreement after learning that Israel had sold unmanned aerial vehicles to China in late 2004.
The CFIUS investigation is to be completed in mid-March.
Check Point officials declined to comment yesterday on the security investigation. In announcing that its deal would be investigated, the company released a statement pledging that "Check Point and Sourcefire are both committed to working cooperatively with the committee during the investigative period."
In the case of Dubai International Capital and Doncasters, an acquisition that ordinarily may have been whisked through the process without objection is now under security investigation, administration sources said. Dubai International Capital is the financial arm of Dubai Holding, an investment conglomerate that is the third-largest shareholder of DaimlerChrysler Corp. and is a major investor in Holiday Inn Express in the Middle East.
Doncasters' expertise is in forging, fabrication, machining and alloy production. The company owns a plant that makes aerospace turbine blades and components in Farmington, Conn.; a turbine and generator plant in Rincon, Ga.; a steel foundry in Springfield, Mass.; and a metal-rolling plant in Groton, Conn. The company's Web site says the Georgia and Connecticut plants manufacture "engine ready airfoils," for aircraft, helicopter and tank engines.