U.S. lawmakers probe China telecoms for ties, contracts

WASHINGTON (Reuters) - U.S. lawmakers are pressing two top Chinese technology companies to disclose their inner workings in a probe into security threats to U.S. telecommunications.

Closely held Huawei Technologies Co Ltd and ZTE Corp were asked Tuesday by letter to document, among other things, their interactions with the Chinese Communist Party and advice given to them by five consultancies, including International Business Machines Corp, Accenture and PricewaterhouseCoopers (PwC). ZTE also was asked about its business in Iran.

The investigation by the U.S. House of Representatives' Intelligence Committee reflects fears that booby-trapped technology could be supplied knowingly or unknowingly by the companies, which have been accused of being a stalking horse for the Chinese authorities.

The concern is that their gear or software could include backdoors into U.S. telecommunications or provide a way to sabotage networks, as the United States and Israel are reported to have done in a cyber strike against Iranian centrifuges used to enrich uranium.

In letters to Chinese executives dated Tuesday, Committee Chairman Mike Rogers, a Republican, and ranking member Dutch Ruppersberger, a Democrat, said they were investigating "the threat posed to our critical infrastructure and counter-intelligence posture by companies with potential ties to the Chinese government."

Huawei is the world's second-largest maker of telecommunications equipment after Sweden's Ericsson. ZTE, a Shenzhen, China-based crosstown rival, is the fifth-ranking provider.

The committee requested information about the companies' history and contracts as well as links to the government, military, People's Bank of China and the Communist Party.

It also asked for a list of U.S. telecoms operators that use Huawei products or services and a rundown on its pricing strategies for U.S. customers.

The House panel also is seeking information from ZTE about reports by Reuters in March and April that the company had signed contracts in 2010 and 2011 to ship millions of dollars worth of hardware and software from some of America's best-known tech firms.

The customers were Iran's largest telecom carrier, Telecommunication Co of Iran (TCI), as well as a unit of the consortium that controls it along with the Iranian government.

The committee asked for a list of all U.S. products that ZTE sold to Iran.

It also requested information about a Reuters report that ZTE had sold TCI a surveillance system capable of monitoring landline, mobile and internet communications. The contract was signed in December 2010.

The day after the article was published, a ZTE spokesman said the company would "curtail" its business in Iran. In a statement, the company said: "ZTE no longer seeks new customers in Iran and limits business activities with existing customers."

The committee asked ZTE whether it plans "to honor its current contracts with Iran to the fullest extent" and whether they include maintenance of the surveillance equipment.

The Department of Commerce is also investigating ZTE over the alleged sales for possible sanctions violations, Reuters reported in May.

The push for sweeping new disclosures highlights concerns that have slowed the companies' inroads in the lucrative U.S. telecommunications market. It suggests that the companies will continue to face an uphill battle for acceptance in the United States.

The committee's stepped-up investigation dovetails with legislation passed by the House May 18 that would require the rooting out from the U.S. Energy Department's bomb-building complex of any telecoms technology provided by Huawei and ZTE, also for fear that it could be booby-trapped.

FACE-TO-FACE

Face-to-face meetings took place between House Intelligence Committee members and company executives in Hong Kong last month. The panel began its investigation last November, and committee staff were briefed at Huawei's Shenzhen office in February and by ZTE in April.

Rogers, the panel chairman, said he appreciated cooperation from Huawei and ZTE to date, but wanted more information about their activities "as well as the influence of the Chinese government in their operations."

"We must get to the bottom of these issues before the companies have further access to our market," he said in a statement posted on the committee's website Wednesday.

The panel asked the companies to respond within three weeks. It aims to complete an unclassified report in a matter of months with an eye toward alerting the private sector to residual security concerns about the companies' telecommunications gear.

"We intend to be responsive," said William Plummer, a Huawei spokesman in Washington. Huawei also looked forward to discussing what Plummer described as the overarching issue of global and industry-wide supply-chain vulnerabilities.

ZTE is committed to "remaining transparent, candid, and cooperative" throughout the committee's inquiry, ZTE spokesman David Dai Shu said by email.

IBM, Accenture and PwC did not respond to requests for comment on their purported recommendations to Huawei and ZTE.

Ruppersberger, who took part in the May 23 Hong Kong meetings with the companies, said he was duty-bound to look critically at foreign companies, "especially those whose government continues to conduct cyber espionage against U.S. enterprises."

"Our concern is whether or not these companies are a part of the Chinese government, whether they are being funded by the Chinese government," Ruppersberger told Reuters.

The Office of the National CounterIntelligence Executive, a U.S. intelligence arm, said in a report to Congress in October that China and Russia were in the forefront of keyboard-launched theft of U.S. trade and technology secrets to bolster their fortunes at U.S. expense.

Rear Admiral Samuel Cox, director of intelligence for the U.S. military's Cyber Command, told Reuters in April that the "amount of cyber exploitation by China continues to increase significantly" with the apparent blessings of the Beijing authorities.

Rogers and Ruppersberger wrote in April that American companies are "hemorrhaging," to Chinese computer spies, research and development on products ranging from fighter engines to pesticides to cutting-edge information technology.

"The scope of this effort is massive and the rampant theft is breathtaking. What is now happening to U.S. businesses may be the largest transfer of wealth in world history," they said in a guest column in Politico.

U.S. Commerce Secretary John Bryson dealt Huawei another blow in March 20 testimony to the House Appropriations Commerce-Justice-Science subcommittee.

"It appears that Huawei has capabilities that we may not fully detect to divert information," Bryson said. "It's a challenge to our country."

(Additional reporting by Steve Stecklow in Acton, Massachusetts, and Susan Cornwell in Washington; Editing by Richard Chang and Lisa Shumaker)

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