U.S. voting machines linked to Venezuela?

The federal government is investigating the takeover last year of a leading U.S. manufacturer of electronic voting systems by a small software company that has been linked to the leftist government of Venezuelan President Hugo Chávez.

The federal inquiry is focusing on the Venezuelan owners of the software company, Smartmatic, and is trying to determine whether Chávez's government has 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, United Arab Emirates, to take over operations at six U.S. ports 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. Sequoia has voting equipment installed in 17 states — including Washington — and the District of Columbia.

Officials of both Smartmatic and the Venezuelan government strongly denied Saturday that Chávez's administration, which has been bitterly at odds with the Bush administration, 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 Saturday night.

But Smartmatic was a little-known firm with no experience in voting technology before it was chosen by Venezuelan authorities to replace the country's elections machinery ahead of a contentious referendum that confirmed 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 previously had advised 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.

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 roles 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 Rep. Carolyn Maloney, D-N.Y., 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," Maloney said of Smartmatic on Saturday. "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 the Chávez government would try to influence elections in the United States, even if it was some kind of secret partner in the company. 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 a U.S. company. Legal experts said it would be highly unusual for the panel to investigate a transaction such as 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.

Concerns about possible ties between the owners of Smartmatic and the Chávez government have been known to U.S. officials since before the 2004 referendum in Venezuela.

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 U.S. firm, Election Systems and Software.

At the time, Smartmatic was a technology startup that operated 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.