Government panel may urge Huawei-3Leaf veto: report

NEW YORK Thu Feb 10, 2011 11:13pm EST

NEW YORK (Reuters) - A government panel may urge President Barack Obama to veto Huawei Technologies Co Ltd's HWT.UL acquisition of 3Leaf Systems, according to a report in the Wall Street Journal.

Huawei last May bought server technology firm 3Leaf for $2 million. Huawei did not request a review of the transaction at the time but the Pentagon late last year requested that the Chinese telecom equipment maker retroactively seek clearance from the Committee on Foreign Investment in the United States (CFIUS), the Journal reported.

The Committee is an inter-agency U.S. government panel that reviews deals with national security implications. Its members are drawn from the Defense, State, Homeland Security, Justice, Commerce and other departments.

The U.S. government has been concerned about Huawei for years because of uncertainty over its relationship with the Chinese government. Huawei was founded by a People's Liberation Army soldier, and opponents say it retains links with China's security services. Huawei has denied the links.

CFIUS is due to make its recommendation no later than Monday, according to the Journal report. The transaction may still be approved and President Obama is not required to abide by the Committee's recommendations, the Journal reported.

A Presidential veto would be extremely rare, according to the report. A U.S. president has only vetoed foreign transactions two or three times, the Journal said.

The U.S. Department of Treasury, which typically fields CFIUS-related questions, was not immediately available for comment. A Huawei spokesman in the company's Shenzhen headquarters did not return calls for comment.

Huawei's alleged links to Chinese security services has torpedoed U.S. deals in the past.

The world's No. 3 seller of telecom network equipment gave up a bid for 3Com in 2008 due to security concerns. In 2010, a group of U.S. Republican lawmakers raised national security concerns about Huawei's bid to supply mobile telecommunications equipment to Sprint Nextel Corp (S.N).

(Reporting by Clare Baldwin, additional reporting by Yuntao Huang in Hong Kong; Editing by Vinu Pilakkott)

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